10-K/A 1 advancedid10k08am1.txt AMENDMENT 1 TO FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment 1 to FORM 10-K [X] 15, ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2008 OR [ ] 15, TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-24965 ADVANCED ID CORPORATION (Exact name of small business issuer as specified in its charter) Nevada 46-0439668 (State or other jurisdiction (IRS Employer of incorporation Identification No.) or organization) 4500 - 5th Street NE, #200, Bay 6 Calgary, Alberta, Canada T2E 7C3 (Address of principal executive office) (Postal Code) (403) 264-6300 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [x] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange act Yes [ ] No [x] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the part 90 days. Yes [x] No[ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained hereof, and will not be contained, to will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 2 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated file" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): 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] State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. The market value of the registrant's voting $.01 par value common stock held by non-affiliates of the registrant was approximately $3,160,237. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. The number of shares outstanding of the registrant's only class of common stock, as of April 5, 2009 was 73,710,839 shares of its $.01 par value common stock. No documents are incorporated into the text by reference. 3 Advanced ID Corporation Amendment to Form 10-K For the Fiscal Year Ended December 31, 2008 Table of Contents Part I ITEM 1. BUSINESS 4 ITEM 1A. RISK FACTORS 13 ITEM 1B. UNRESOLVED STAFF COMMENTS 13 ITEM 2. PROPERTIES 13 ITEM 3. LEGAL PROCEEDINGS 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 Part II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 14 ITEM 6. SELECTED FINANCIAL DATA 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 55 ITEM 9A. CONTROLS AND PROCEDURES 55 ITEM 9B. OTHER INFORMATION 57 Part III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERANCE 58 ITEM 11. EXECUTIVE COMPENSATION 60 ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS 61 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 61 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 63 Part IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 65 4 PART I ITEM 1. BUSINESS Overview On October 17, 2002, AVID Canada Corporation combined with USA Sunrise Beverages, Inc., an inactive publicly owned company with no assets or liabilities, in a business combination accounted for as an acquisition of AVID Canada and a recapitalization of USA. USA had then outstanding shares of 10,625,724 and agreed to return 3,624,725 for cancellation, leaving 7,000,999 shares outstanding. USA then issued 28,000,000 shares to Heritage Ventures Ltd., AVID Canada's former parent company, in exchange for the 200 outstanding shares of AVID Canada and $505,724 in debt owed by AVID Canada to Heritage Ventures. Avid Canada was incorporated in Alberta, Canada, on November 26, 1993. USA changed its name to Advanced ID Corporation effective November 15, 2002. As a result of the reverse merger transaction, The registrant's now wholly owned AVID Canada and the original security holders of USA now hold 7,000,999 shares in the registrant. No consulting fees or finder's fees were paid in relation to the reverse merger transaction. In 2008, we had three wholly-owned subsidiaries; Pneu-Logic Corporation Limited located in U.K., AVID Canada Corporation, and Advanced ID Asia Pacific Company Limited. AVID Canada Corporation is a reseller of radio frequency identification microchips and scanners manufactured by American Veterinary Identification Devices of the United States under the brand name AVID. AVID Canada does not own the AVID brand name or trademark. There currently exists no distribution agreement with AVID. The products are marketed to the companion animal and biological sciences sectors in Canada only. PLCL is a reseller of RFID products for the tire industry. Due to limited sales in 2008, the administration and management of PLCL were moved to the registrant's head office. Advanced AP was set up in Hong Kong to allow us to enter the Chinese market. Advanced AP has one wholly-owned subsidiary, Advanced ID (Shenzen) Co, Ltd. Advanced Shenzen was set up to carry out our operations in China. On July 1, 2007, the registrant decided to divest our 60% interest in AFG Asia Engineering Co. Ltd. of Chiang Mai, Thailand. On July 1, 2007, the registrant acquired all operating assets of Pneu- Logic Limited of England in order to align ourselves with addressing the tire maintenance solution for fleet owners across the world. Our product line has been successful in the European market. In July 2008, the registrant partnered with our largest distributor in Brazil to establish Advanced ID, Brazil, Ltd. As part of our expansion into Brazil, we have acquired a 20% interest in AIDO BR. However, the transaction is still awaiting government approvals in Brazil. To date no funds have been advanced for this project. We develop, manufacture and sell, either directly or through distributors, microchip identification technologies referred to as radio frequency identification microchips and readers to the animal industry. 5 In the second quarter of 2004, we began commercializing these products under the brand name, DataTRAC(tm). We own the intellectual property rights to the DataTRAC(tm) products. RFID allows for the positive identification and location tracking of animals or objects that are embedded or tagged with RFID microchips. We currently supply over 3,000 organizations such as animal shelters, veterinarians, breeders, government agencies, universities, zoos, research labs and fisheries with RFID devices for companion animals, exotics, equines, bovines, llamas, alpacas, ostriches, aquatic species, reptiles, migratory and endangered species. We have implanted microchips in over 600,000 companion and other valuable animals, currently track nearly one million animals in our PETtrac database, and reunite numerous lost animals with their families each month. Sales of microchips and readers to the companion animal and biological sciences markets in Canada continue to contribute a majority of our income in 2008. . We sold UHF identification tags to Goodyear Tire and Rubber Company under several purchase orders continuing into 2008. Tire tag and tire patch sales have been made to VAR's in several countries for trial or pilot runs. Readers for the tire tag market have been sold to tire manufacturers and resellers in India, Canada, Mexico, Venezuela, Australia, Japan and the United States. Michelin US has purchased multiple readers. As noted above, we are currently serving the Canadian market as a reseller for AVID and SOKYMAT LF RFID products. We are expanding our sales effort for SOKYMAT chips into several countries, including China, Taiwan, Thailand and Japan Since we own the intellectual property of the DataTRAC(tm) microchips, we are continuing to develop and market our UHF RFID products in both the supply chain and livestock markets throughout the world, either directly or through international distributors. We have made good progress in the supply chain market, especially in Asia. Our marketing efforts in the livestock area have been reduced because no country's government has either mandated or approved for use our UHF RFID technology Products and Services Overview Companion Animal/Biological Sciences, Inanimate Products and Services Our current product offering includes an established line of RFID tags, readers, and software. RFID Tags: Our RFID Tags purchased from American Veterinary Identification Devices and SOKYMAT and consist of an integrated circuit or microchip utilizing a low frequency of 125 KHz or 134 KHz. The microchip is sealed in glass, compatible with the animal's body, containing a programmed identification number which fits inside a hypodermic needle, and can be injected under the skin of an animal. Since these RFID Tags are passive, meaning they do not require a battery, a reader temporarily energizes the microchip allowing it to 6 transmit its data to the reader with error-free reliability. Under normal conditions, the RFID Tags can last in excess of 20 to 25 years and generally well beyond the life of any companion animal. The read range for low frequency tags is approximately three to seven inches. RFID Readers: We offer a variety of hand-held readers that read both our microchips and our competitors' microchips. Our reader formats include International Standards Organization, Federation of European Companion Animal Veterinarian Association and AVID's encrypted standard. Software: We offer a proprietary Microsoft(r).Net based database called PETtrac which is our advanced software program that stores and tracks identification numbers from implanted animals by recording their microchip ID as well as unique information including data such as: - Pet name, breed, and description; - Animal's brand and tattoo numbers; - Present/past owners, and current details; - Medical history of the animal, medication, allergies, etc.; and - Other pertinent information specific to each sector/industry. Services: We provide an electronic and manual data entry service to the PETtrac global tracking system for all animals identified with a microchip, including our competitors' microchips, collar tags, rabies vaccination numbers and tattoo numbers in Canada. Animal recoveries can be performed by accessing our database through a web browser, as well as through a 24/7 operator assisted service by calling a toll free line. Livestock Animal Products and Services Our Livestock products offering which was completed in early 2006 includes three different sized RFID tags, readers, and software specifically tailored to meet the needs of each type of livestock and region. RFID Tags: Our RFID Tags will be comprised of an integrated circuit or microchip utilizing an ultra high frequency of 915 MHz. An antenna is attached to the microchip to provide a longer read range, all of which is encapsulated in plastic. Our RFID Tags are passive thereby not requiring a battery, and can transmit their data to the reader with a read range of up to approximately ten feet. Effective April 2003, we signed a strategic partnership agreement with Guide-Trend Technology Company Ltd. of China for the manufacturing of our RFID tags. Once completed, the final product is shipped directly to our customers. The integrated circuits or microchips are purchased on our behalf by Guide-Trend from EM Microelectronic of Switzerland or Philips Semiconductors of the Netherlands, two of the world's largest RFID integrated circuit manufacturers. There exists no purchase contract with any of our suppliers as each purchase order is negotiated separately at this time. 7 Currently, we are the only company that is offering ultra high frequency tags to the livestock industry. All of our competitors offer low frequency tags which are generally more costly to produce, offer a shorter read range, and have limited reading capability within automated livestock processing plant environments. Adoption of RFID technology by animal owners has been slower than anticipated resulting in lower than anticipated sales, additionally the adoption of Low Frequency ISO 11784 and 11785 compliant technology by a growing number of countries has impacted on the market potential and the company has put further development of the livestock application on hold. However, interest is increasing for a UHF RFID solution and the company is responding to that interest. RFID Readers: We offer stationary and handheld readers that will scan and read our microchips. Effective November 2003, we secured a partnership agreement with Applied Wireless Identifications Group, Inc. of New York to supply us with ultra high frequency readers that we will resell to our customers. We have entered the UHF RFID reader product line with both hand held and stand alone readers that have read ranges from several inches to 20 feet. The readers are intended to capture a large market share through aggressive pricing and full features. Our readers will work in virtually all supply chain applications. We acquired Pneu-Logic, a UK based company focused on the tire maintenance market. The products are well respected in the industry around the world and follow on products, now under development, will capture a significant new market share, especially in the off the road market. Services: Our objective is to become the complete system provider for livestock identification and trace-back. As part of providing a complete system for our customers, we will provide in-depth analysis prior to implementation of a recommended solution. Inanimate Products and Services: In August 2005, we were awarded a Purchase Order from Goodyear Tire and Rubber Company of Akron Ohio for RFID identification tags. Goodyear is undertaking trials to test the durability and practicality of embedding UHF tags specifically designed for their tires. Tags were produced on a prototype basis initially prior to moving into larger scale production. The 2006 and 2007 NASCAR racing tires had this product attached to their racing tires. The Goodyear Tire and Rubber Company of Akron Ohio renewed the Purchase Order for 2008 for its NASCAR tires. Business Model We are planning to enhance our current revenue streams by: - Offering ISO microchips in both the Canadian and Global companion pet recovery markets. Create PETtrac capabilities in various important languages, Chinese a foremost consideration. Develop improved Low Frequency readers that will display in various languages. 8 - Offering higher integrity and more cost effective identification solutions over current practices in the global livestock markets with our DataTRAC(tm) RFID tags and readers, and our web-based tracking and recovery software system. - Expanding our current market presence into other veterinary clinics and animal shelter markets across Canada by lowering prices, improving customer service and establishing more comprehensive sales channels, both direct and third party. - Expanding RFID technology into industrial applications such as the energy and manufacturing industries. The knowledge and profile gained through the relationship with Goodyear Rubber and Tire Company is one example. Expand the tire management market to include: tire manufacturers, resellers, fleet owners, retail, retreaders, system integrators, database managers. - Expand RFID technology into supply chain applications for hostile environments. Avoid the high volume, low cost applications that will satisfy the Wal-Mart requirement. Intellectual Property Our intellectual property is comprised of our radio frequency identification tags utilized for the identification and trace back of livestock. We currently do not own any patents and have not licensed any intellectual property used in our products. Our tire tag technology is based on IP from Goodyear and under license from Michelin. Our new reader line will include intellectual property that the company will exploit through patent protection and other protection of proprietary assets Target Market We are fulfilling the needs of the companion animal and biological sciences markets in the RFID industry as outlined below: - Increasingly, municipal animal control agencies are setting policy and by-laws for permanent tagging of pets. - Pending guidelines will require livestock and meat product operators to use advanced tagging and tracking systems. UHF will compete with LF in the future. - Industries are demanding increased efficiencies in logistics, distribution, asset management, and tracking. - The tire management industry was started in 2005 and growth has been steady through 2008. However, the softening economy has stalled and we expect no growth in 2009. - The global RFID market was several billion dollars, US in 2008. No appreciable growth is expected for 2009. 9 Our PETtrac system has been approved for use across Canada by the National Companion Animal Coalition thereby giving us access to over 3,000 professional veterinarians as well as all SPCAs and humane societies, thus tapping a market of over eight million animals. In the livestock industry, the Bovine Spongiform Encephalopathy, i.e. BSE or Mad Cow, disease that plagued Europe in 1998 was thought to have infected North American herds. This resulted in legislative efforts for animal identification and tracking systems with RFID being the preferred technology. Governments are implementing legislation requiring a quick and secure animal trace back system, aimed at improving food safety for consumers from animal diseases. Our products have been designed to exceed existing regulations. Advances in microchip design, miniaturization, global positioning tracking, read range, read/write capabilities and data storage have greatly expanded the applications for RFID tags. RFID systems are being piloted and used in a wide range of retail, commercial and industrial applications. The registrant will carefully choose those technologies and market sectors where we can successfully compete. Marketing and Sales Strategy Sales and Distribution Channels With a strong channel already established in the Canadian companion animal and biological sciences markets with our direct sales team, comprised of one sales representative and three customer support personnel, we intend to leverage this position by securing additional relationships with other veterinarian professionals in targeted regions across Canada. Currently, we have relationships with the following distribution agencies; Associate Vet Purchasing, Western Drug Distribution Center, Vet Purchasing, Canadian Kennel Club and Centre de Distribution de Medicaments Veterinaires. There is no contractual agreement or volume commitment in place with any of these parties. We will sell our tire management product line both direct and through 3rd party resellers. We will purchase tire tags from the Hana Group from Ohio and Thailand. The market is global. We will sell our UHF RFID reader line both direct and though 3rd party resellers. The market is global. We will sell our Pneu-Logic product line both direct and through 3rd party resellers. The market is global. Pricing Strategy We plan to be a price-performance leader with all of our products and services. This is intended to assist our efforts to gain market acceptance and secure market share in the companion pet recovery industry throughout the world, and further allow us to continue to both increase the market size and our market share in the tire management market. It is our goal to keep our expenditures small to ensure we maintain low product price points to discourage other competitors from 10 entering the market yet allowing us to earn a healthy margin. We anticipate that any cost savings we achieve through process improvements will lead to reductions in our price points to discourage other competitors from entering the market. Recent Developments Companion Animal - We have received approval for our new ISO chip made by SOKYMAT. With the significant cost savings associated with this new ISO standard chip, Advanced ID has reduced our prices in Canada and other countries and sales are increasing. We have developed a new LF reader for companion animals that can be sold in several countries with language specific readout capabilities. Livestock Tagging - We have not further developed its livestock RFID product line but have maintained its ability to provide a complete product solution as the requirement develops. Recent outbreaks of BSE and bird flu could well re-ignite interest in this product. Tire Management - We have continued to develop, with Hana and others, products that will serve the tire management industry from the tire maker in Ohio to the fleet owner in Great Britain. Management is of the belief that, with our RFID tire management product line and the Pneu-Logic tools, the market is blanketed better than with any other company. We plan to be in leadership position in this market and will focus its energies and resources to obtain a leadership role as the market matures and reaches high volume requirements. UHF RFID Reader Development - We have developed a series of high powered, long read range, UHF RFID readers that are being sold in the supply chain industry and the tire tag business. This reader product line is sold to the trade at about half the prevailing price for an equivalent product sold by the competition. We have designed a lower cost, mass market UHF RFID reader that will sell for half the price of our current readers. This is the reader product line that will take the cost of UHF readers out of the value proposition. The UPC Barcode business did not take hold in the 70's/80's until the price of readers went under $100. We intend to be the company that ultimately offers a $100 UHF RFID reader. In 2007, we completed the development of new reader PR 500 low price, low range but practical for inventory management. The new reader was sought and installed at a new book store in Portugal, Spain. In 2009, we will be marketing the new reader into various industries. Competition Our largest competitor in the companion animal and biological sciences market in Canada is Pethealth Inc. who is estimated to have approximately 45% market share compared with our estimated 40% market share. The remaining 15% market share is spread among two companies which includes Microchips 4 Solutions and EIDAP. 10 Pethealth Inc. - Pethealth's vision is to become the leading provider of insurance and integrated health related information services to the North American companion animal market. Currently Pethealth claims it is Canada's largest provider of accident and illness insurance for dogs and cats to pet owners and the second largest in North America. Pethealth entered the companion animal industry in February 2003 where it has grown its market share by offering significantly lower priced products than all other competitors in North America. Pethealth is a reseller of Allflex USA's companion animal products and which is further discussed below. Allflex's technology offers no competitive advantages over our technology except that Pethealth is offering a significantly lower priced product at this time. The current method of livestock identification predominantly utilizes standard bar code visual tags. The barriers for adoption of current RFID technology include its high cost and its limited read range. Currently, we have a very small market share in this segment. Our top three competitors in the livestock market are as follows: Allflex USA Inc. - Allflex claims to be the world's leading supplier of livestock identification and management systems. Its products include visual identification ear tags and applicators, electronic identification systems and a variety of precision instruments. Allflex works closely with official and commercial organizations around the world to develop reliable and efficient systems for collecting and transferring information on animal identification, movement and performance. Allflex has manufacturing and technology subsidiaries in USA, Canada, Europe, Australia, New Zealand, Brazil and China. Allflex products are distributed in 80 countries worldwide. Applied Digital Solutions, Inc. - Applied Digital, through its subsidiary Destron Fearing, has been in the animal identification business since 1945. For over 50 years, Destron Fearing has developed, manufactured and marketed a broad range of individual animal identification products. As the animal identification industry expanded, the Company culminated a merger of Fearing Manufacturing and Destron/IDI in November 1993. Their products range from visual ear tags attached to livestock, to electronic microchips implanted under the skin of pets, fish, laboratory animals and livestock. In the UHF RFID Market, there are several competitors who have readers that compete with the company. Intermec, Psion and Symbol all sell readers but at very high prices. In the tire RFID business, this is, at present, no competition. Other Competition - Other competition will come from the continued use of bar code tags in those countries that have not made it mandatory for users to purchase an RFID tag. The reason that bar code tags are used almost exclusively over an RFID tag is largely a function of price and the fact that previous RFID technology does not offer any significant benefits over bar code tags. 12 Competitive Advantages Based on in-house research, the existing RFID technology available for livestock is centered on low frequency (30 to 300 KHz) tags and high frequency tags (3 to 30 MHz) which offers a read range up to three feet at a retail price point of $2.00 to $10.00 per tag. Low and high frequency livestock identification tags have been available in the market for approximately ten years yet there has been only a limited level of adoption of this technology. This is largely because the read range is nominally greater than bar code tags that are currently priced at $1.00 to $1.50 per tag and because the technology has not fully met the requirements of most users. Our RFID technology utilizes a higher frequency of 915 MHz that provides a read range up to ten feet at a price point of $1.50 to $2.00 per tag. Some of our RFID tags also include a bar code to ensure a seamless transition for current bar code customers to adopt RFID technology. In addition, we will be developing RFID tags to offer read/write functionality allowing users to store additional data on each tag such as the animal's birth date, vaccinations, etc. Our management team and board of directors have extensive experience in the RFID and Livestock industries. Strong relationships have been cultivated over numerous years with key participants in the livestock industry including relationships with key principals of national cattle associations, feedlots, packing plants, distribution groups and co- operatives, and primary producers. These relationships have been attained through personal contact, meetings, conferences and presentations, both within our current business operations and through prior business experience. It is our belief that the adoption of any livestock identification method will require some form of mandatory requirement either through government legislation or import regulations by those countries that import meat and livestock. Currently, Canada has enacted legislation for mandatory identification of cattle and the European Union has enacted legislation for mandatory identification of all livestock. Other countries such as the United States, Australia, New Zealand, Argentina, Brazil, Taiwan and Thailand are considering similar requirements. Our research and development activities over the last two years have included researching, designing and developing RFID tags and readers for general supply chain applications including the tire management industry. Trademarks and Patents We will be filing trademark registrations for certain brand names. In addition, we have secured the following Internet names: avidcanada.com, advancedidcorp.com and advancedid.ca. We have also identified additional trademarks and URLs that we plan to register in the immediate future. We currently do not have any patents registered. 13 Employees At the end of 2008, we had six full-time employees, six contract employees and one part-time employee. On July 1, 2005, we acquired a 60% interest in AFG Asia Engineering Ltd of Chiang Mai, Thailand. The Managing Director, Mr. Gottfried Auer and 40 % owner of AFG Engineering Asia Ltd. has been providing us with all RFID engineering services since 2003. Mr. Auer has a Staff of nine hardware and software engineers and support staff in the Chiang Mai office. Subsequent to the purchase of AFG Asia Engineering Ltd. the corporate name was changed to reflect the new ownership structure and is now known as Advanced ID Asia Engineering Co. Ltd. We divested our interest in Advanced ID Asia Engineering Co. Ltd in 2007 but continue to outsource certain tasks to Advanced ID Asia Engineering Co. Ltd. We purchase RFID readers and pet recovery microchips from Advanced ID Asia Engineering Co. On July 1, 2007, we purchased the assets of UK based Pneu-Logic Limited and added three contract employees. At the end of 2008, two of the employees had left. The managing director remains as a contract employee. ITEM 1A. RISK FACTORS Not required for smaller reporting companies. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. PROPERTIES We currently have an agreement to lease office premises until August 31, 2012. We have committed to leasing approximately 1,920 rentable square feet and are obligated to pay basic rent and all operating costs, including utilities and taxes for a total cost of CDN$2,800 per month. The real property utilized by us is in good condition, adequate for present operations and adequately covered by insurance. We also maintain insurance coverage for commercial general liability including blanket contractual liability, tenant's legal liability, non-owned automobile and cross liability coverage. The property is located at, 4500 5the Street NE, #200 Bay 6, Calgary, Alberta T2E 7C3 Canada. ITEM 3. LEGAL PROCEEDINGS. The registrant is not involved in any legal proceedings at this date. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Item 5(a) a) Market Information. The registrant began trading publicly on the NASD Over the Counter Bulletin Board on October 17, 2002 under the symbol "AIDO". The following table sets forth the range of high and low bid quotations for the registrant's common stock. The quotations represent inter- dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions. Fiscal 2008 Fiscal 2007 High Low High Low ---- --- ---- --- First Quarter $0.24 $0.13 $0.46 $0.22 Second Quarter $0.25 $0.16 $0.49 $0.23 Third Quarter $0.27 $0.11 $0.36 $0.22 Fourth Quarter $0.14 $0.06 $0.28 $0.15 b) Holders. At July 31, 2009, there were approximately 1,900 shareholders of the registrant. c) Dividends. Holders of the registrant's common stock are entitled to receive such dividends as may be declared by its board of directors. No dividends on the registrant's common stock have ever been paid, and the registrant does not anticipate that dividends will be paid on its common stock in the foreseeable future. d) Securities authorized for issuance under equity compensation plans. No securities are authorized for issuance by the registrant under equity compensation plans. Plan Category Number of Securities Weighted Average Exercise Number of Securities Issued upon Exercise of Price of Outstanding Options Remaining Available Outstanding Options, Warrants and Rights Future Issuance Equity Compensation Plans Approved by Security Holders n/a n/a n/a Equity Compensation Plans Not Approved by Security Holders 5,580,000 $0.383 n/a ---------- ------ ------ Total 5,580,000 n/a

e) Performance graph. Not applicable. 15 f) Sale of unregistered securities. During 2008, the registrant issued the following unregistered securities: - 3,857,933 common shares for services rendered valued at $640,150, - 1,340,968 common shares for debt settlement valued at $141,373, - 841,667 common shares for deposits received in 2007 for $190,500 which included 325,000 common shares for $97,500 on the exercise of warrants in 2007; - 12,631,395 common shares for cash proceeds of $1,276,503and for subscriptions receivable of $99,430. We also wrote off a note receivable that we had accepted in 2007 in exchange for the issuance of 10,000 shares of common stock valued at $2,000 to one investor due to an inability to pay. These shares were returned to treasury. The above securities were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933 to sophisticated investors. Item 5(b) Use of Proceeds. Not applicable. Item 5(c) Purchases of Equity Securities by the issuer and affiliated purchasers. None. ITEM 6. SELECTED FINANCIAL DATA Not applicable to smaller reporting companies. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The registrant signed an agreement with Corporate Insights in April 2008 with the purpose of funding the purchase of Shenzhen DDCT Technology, Co. At the end of 2008, it was clear that funding could not be obtained and the merger was not completed. A replacing bilateral sales agreement is being developed in 2009. In June 2008, the registrant restructured its Pneu-Logic subsidiary to save costs. As the economy collapsed in the second half of 2008, sales of Pneu-Logic products, as well as all of the registrant's products, declined and further steps had to be taken to cut costs. The administrative functions of PLCL were moved to Advanced ID's head office in Calgary although sales efforts continued in Europe through a bilateral sales agreement with Pneu- Logic Limited. The bilateral sales and marketing agreement had no impact on revenues but gave Advanced ID exclusive access to the products of Pneu-Logic Limited and gave PLL access to Advanced ID's products and readers and favorable prices. The agreement expired September 1, 2009. 16 Also in late 2008, the registrant contracted with La Jolla Cove, an investment company to secure funding to complete the asset purchase of Shenzhen DDCT. That funding agreement was in place at the end of 2008. However, due to the fact that the registrant will not purchase DDCT, the parties are currently negotiating to alter that agreement. The registrant is moving forward on several fronts. These initiatives were started in 2008 and continue into 2009. Our largest fleet related system integrator has committed to several hundred truck probes in 2009/2010. Our primary software development partner for the truck probe will release in April 2009, tire management software (middleware) that will allow the probe and ultimately our RFID readers to communicate with any embedded fleet management database. Our strategic partner in Brazil is conducting major trials with Bandag and Bridgestone in the tire ID business and just presented a countrywide solution for RFID and gas vessels. The registrant's low cost point of sale RFID reader is going through final trials in Europe with product acceptance expected in the 2nd quarter of 2009. At that point, this product will be presented to retail outlets worldwide. The pet recovery business (microchips) outside of North America is becoming increasingly viable. We have been asked to deliver trial product for China, Taiwan, Japan and the US in late 2008, early 2009. The registrant is exploring ways to add complementary products without extensive engineering and other product development. Preliminary discussions are being held with potential strategic partners to combine products under one company umbrella, especially where our sales and system integrator network provide additional sales professionals on the street. Results of Operations for the Fiscal Years Ended December 31, 2008 versus December 31, 2007. The net loss of $2,516,131 for the year ended December 31, 2008 was lower by $205,852 versus 2007 due to a lower impairment charge on goodwill and lower research and development expenses. Revenues Revenues of $1,159,039 during the year ended December 31, 2008 increased by $149,036 or 14.76% over last year. The increase in revenues for the year ended December 31, 2008 was a result of increased RFID tag sales, stable chip sales to the companion animal sector, increased UHF RFID readers and the addition of Pneu-Logic product sales. On November 1, 2006, National Companion Animal Coalition's approval was received for our ISO companion animal microchips. Although FECAVA microchips are being phased out for companion animals by the NCAC in Canada, we continue to sell them for use in non-companion animals and to veterinarians who continue to prefer FECAVA to ISO microchips. We are also actively promoting the ISO microchip throughout Canada and Asia as well. 17 With the continued acceptance by owners to microchip their pets, increased activity by the biological science community and government agencies for the tracking of non-domestic species and increased frequency by various municipal animal control agencies to set policy and by-laws for the permanent tagging of pets in their respective communities, we believe that the market will incrementally increase for several years. The actions by government and industry officials to implement identification and trace back systems in the livestock industry to minimize or eliminate the spread of diseases and ensure food safety will continue to elevate our market presence and translate into higher revenues for future reporting periods as well. Cost of Revenues Cost of revenues of $603,992 for the year ended December 31, 2008 increased by $78,865 or 15.02% over the previous year. The increase in cost of revenues is attributed to a higher volume of products sold during 2008. Research and Development Research and development expenses of $37,940 for the year ended December 31, 2008 decreased by $227,847 or 85.73% over last year's comparable period. This decrease is due to the fact that the engineering development of the new reader line was completed in 2007. Selling, General and Administrative For the year ended December 31, 2008, selling, general and administrative expenses of $2,411,836 were higher by 4.13% over 2007. This was in large part due to costs related the operations of Pneu Logic Corporation Limited which commenced operation in July 2007. Accretion and Finance Chares In 2008, we recorded non-cash accretion and finance charges of $251,502 compared to $0.00 in 2007 as a result of the La Jolla Cove Investors financing we received. Interest Income and Expense During the year ended December 31, 2008, interest expense was $39,581 while in 2007 we earned interest of $1,734. The interest expense was mostly due to charges related to the La Jolla Cove investment. As at December 31, 2008, we had one loan payable for $60,000 outstanding which accrues interest at 10% per annum, payable monthly. In addition, a convertible debenture that bears interest at 6% per annum is outstanding for $1,000,000. On the other hand, we had a promissory note receivable for $725,000 that bears interest of 6.5% per annum. 18 Impairment of Assets During the year ended December 31, 2008, we recognized impairment of the assets of Pneu-Logic Corporation Limited based on sales results and the necessity to move all the operations to our head office. Property and equipment was impaired for $13,913 and $0 for the year ended December 31, 2008 and 2007, respectively. Customer list was impaired for $44,123 and $0 for the year ended December 31, 2008 and 2007, respectively and took a further goodwill impairment charge of $122,468 compared to $486,888 in fiscal 2007. Liquidity and Capital Resources As at December 31, 2008, we had cash and cash equivalents of $165,072. During the year ended December 31, 2008, net cash used in operating activities of $1,255,489 was higher by $516,806 or 69.96% as compared to the year ended December 31, 2007. During the year ended December 31, 2008, net cash provided by financing activities of $1,723,458 was higher by $985,370 or 128.80% as compared to the previous year ended December 31, 2007. During 2008, cash has been provided through, completed subscription agreements from investors for $1,276,503 and proceeds from the sale of debentures of $275,000. 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. Our current cash balance is estimated to be sufficient to fund our current operations over the next two to three months and will not be sufficient to fund our long term needs. The basis that our cash balance is expected to be sufficient to fund our current operations over the next seven to ten months is based on our current net cash usage rate (cash used offset by cash received) which we estimate to be $30,000 to $40,000 per month. 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 Going Concern The registrant has incurred net losses for the years ended December 31, 2008 and 2007 of $2,516,131 and $2,721,983 respectively. Because of these losses, the registrant will require additional working capital to develop its business operations. The registrant intends to raise additional working capital through private placements, public offerings and/or bank financing. There are no assurances that the registrant will be able to either 19 - achieve a level of revenues adequate to generate sufficient cash flow from operations; or - obtain additional financing through either private placements, public offerings and/or bank financing necessary to support the registrant's working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the registrant 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 the registrant. These conditions raise substantial doubt about our ability to continue as a going concern. Off-Balance Sheet Arrangements The registrant had no material off-balance sheet arrangements as of December 31, 2008. Contractual Obligations Payments due by period Less than 1 1-3 3-5 More than 5 Contractual obligation Total year years years years ---------------------- ----- ----------- ----- ----- ----------- Long-term debt obligation $1,000,000 - $1,000,000 - - Capital Lease Obligations - - - - - Operating Lease Obligations $111,793 $33,668 $59,734 $18,391 - Purchase Obligations - - - - - Other Long-Term Liabilities Reflected on the Balance Sheet $1,219,249 - - - -

Critical Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of the registrant, its wholly-owned subsidiaries Avid Canada Corporation, Advanced ID Asia Pacific Company Limited, Advanced ID (Shenzhen) Co., Ltd., and Pneu-Logic Corporation Limited. Until July 2005, the Company's accounts included the accounts of its wholly owned subsidiary Universal Pet Care, Inc. UPC was a dormant company and was involuntarily dissolved in 2005. All significant inter-company accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from these estimates. Concentration of Risk The registrant places its cash and temporary cash investments with established financial institutions. At various times during the year, the registrant maintained cash balances in excess of insurable limits. 20 Management feels this risk is mitigated due to the longstanding reputation of these banks. No losses have been incurred by the registrant related to this risk. Foreign Currency Translation Since Avid Canada is located in Canada, the Canadian dollar has been designated as the functional currency. For PLCL the currency of trade can be Euros, British sterling pounds and US Dollars, however the British sterling pounds has been designated as the functional currency. The reporting currency is the United States dollar. All balance sheet accounts have been translated at the current exchange rates as of December 31, 2008 and 2007. Statements of operations items have been translated at average currency exchange rates during the respective years. The resulting translation adjustment is recorded as a separate component of comprehensive loss within stockholders' equity (deficit). Accumulated Other Comprehensive Income (Loss) Total accumulated other comprehensive income (loss) consists of net income (loss) and other changes in stockholders' equity (deficit) from transactions and other events from currency translation gains and losses. The components of and changes in accumulated other comprehensive income as it relates to the currency translation losses are $9,591 and $14,853 for the years ending December 31, 2008 and 2007, respectively. Revenue Recognition The registrant recognizes revenue when persuasive evidence of an arrangement exists, shipment has occurred, the sales price is fixed or determinable and collectability is probable. Product sales are recognized by the registrant generally at the time product is shipped. At the time revenue is recognized, registrant provides for the estimated cost of product warranties and reduces revenue for estimated product returns. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled. Research and Development Costs Research and development costs are expensed as incurred. Cash and Cash Equivalents For the purposes of presenting cash flows, the registrant considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Allowance for Doubtful Accounts The registrant provides an allowance against accounts receivables for estimated losses that may result from customers' inability to pay. The allowance is determined by analyzing known uncollectible accounts, aged receivables, economic conditions, historical losses and changes in customer's cycles and customer's credit- worthiness. Amounts later determined and specifically identified to be uncollectible are charged and written off against this allowance. To minimize the likelihood of uncollectibility, the registrant reviews customer's credit worthiness 21 periodically based on independent credit reporting services, the Company's experience with the customer and the economic condition of the customer's industry. Material differences may result in the amount and timing of expense for any period if the registrant were to make different judgments or utilize different estimates. If the financial condition of customers deteriorates resulting in an impairment of their ability to make payments, additional allowances may be required. The Company has not experienced significant variances in the past between estimated and actual doubtful accounts and anticipates that the registrant will be able to continue to make reasonable estimates in the future. The registrant has recorded an allowance of $Nil and $16,852 as of December 31, 2008 and 2007 respectively. Inventory Inventory consists of finished goods held for resale and is recorded at the lower of cost or net realizable value. Cost is determined on a first in-first out basis. Long-lived Assets Fixed assets are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the two to five year estimated useful lives of the assets. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. In 2008, impairment losses have been recorded on the assets of PLCL. Expenditures for repairs and maintenance are expensed as incurred. Expenditures for major renewals or betterments that extend the useful lives of existing property and equipment are capitalized and depreciated. Upon retirement or dispositions of property and equipment, any resulting gain or loss is recognized consolidated statement of operations. Goodwill The registrant accounts for goodwill in accordance with SFAS No. 141, "Business Combinations," and SFAS No, 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill is deemed to have an indefinite life are not amortized but is subject to an annual impairment test. The registrant recognized an impairment loss of $122,469 (2007 - $486,888) based on management's valuation. Intangible Assets Intangible assets consist of a customer list purchased on the acquisition of PL. This list was being amortized straight-line over three years. On December 31, 2008, the carrying value was completely written off as a result of management's assessment of PLCL's business. 22 Fair Value of Financial Instruments The registrant's financial instruments consist of cash and cash equivalents, receivables, payables and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements. Advertising The registrant charges costs of advertising to expense at the time the costs are incurred. Shipping and Handling The registrant includes shipping and handling costs in cost of goods sold. Income Taxes Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. Loss per Common Share The basic net loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For 2008 and 2007, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. Total shares outstanding, assuming the exercise of outstanding options and warrants for the years ended December 31, 2008 and 2007, were 107,304,855 and 69,257,891 respectively. Share-based Compensation The registrant uses the fair value accounting method as provided under SFAS No. 123(R) for stock options and other equity based compensation issued to employees. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used in the calculation of the 2008 and 2007 compensation expense: dividend yield 0% (2007 - 0%) expected volatility of 113.4% (2007 - 97.9%), risk-free interest rate of 3.6% (2007 - 6.3%), and expected lives of 5 years (2007 - 5 years). Segment Reporting The registrant operates in one industry segment - radio frequency identification microchip readers and tags. The registrant operates primarily in one geographic area, being the North America. PLCL sells products in Europe which accounted for approximately 17% of total sales. 23 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 registrant's chief operating decision maker is its Chief Executive Officer. The registrant's Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The registrant 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 registrant reports as a single operating segment. Reclassifications Certain 2007 amounts have been reclassified to conform to 2008 presentation. Recent Pronouncements In February 2007, the FASB issued Statement 159, The Fair Value Option for Financial Assets and Financial Liabilities, which provides an option to report eligible financial assets and liabilities at fair value effective January 1, 2008, with changes in fair value recognized in net income. Upon adoption, the first re-measurement to fair value would be reported as a cumulative-effect adjustment to the opening balance of retained earnings. The registrant has elected not to report eligible assets and liabilities at their fair value. In December 2007, the FASB issued Statement 141R, Business Combinations, which requires recognition of the assets acquired, liabilities assumed and non-controlling interest arising in a business combination at their fair value as of the acquisition date. In addition, the costs of acquisition must be recognized separately from the business combination. This statement will be effective for our 2009 reporting and is not expected to have a material impact on the registrant. During the year, the registrant adopted Statement 157, Fair Value Measurements, which defines fair value and establishes a framework for measuring fair value and increases disclosure concerning fair value measurements. The adoption of Statement 157 did not have a material impact on the registrant's results or financial position. In March 2008, the FASB issued Statement 161, Disclosures about Derivative Instruments and Hedging Activities, which requires enhanced disclosure about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. This statement will be effective for our 2009 reporting and is not expected to have a material impact on the registrant. 24 In May 2008, the FASB issued Statement 162, The Hierarchy of Generally Accepted Accounting Principles, which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of entities that are presented in conformity with US GAAP. This statement will be effective for the registrant following the US Securities and Exchange Commission's approval of the Public Company Accounting Oversight Board's amendments to existing guidance and its adoption is not expected to have a material impact on the registrant. On May 23, 2008, the Financial Accounting Standards Board ("FASB") issued FASB statement No.163 "Accounting for Financial Guarantee Insurance Contracts" ("FAS 163"). FAS 163 clarifies how FASB Statement No.60 "Accounting and reporting by Insurance Enterprises" applies to financial guarantee insurance contracts. FAS 163 is focused on the recognition and measurement of premium revenue and claims liabilities, along with additional disclosure requirements for financial guarantee contracts. The significant elements of the standard are as follows: 1. Premium revenue will be recognized as a function of the amount of insurance protection provided over the contract term. 2. The standard requires that the present value of installment premiums due pursuant to the terms of a financial guarantee insurance contract be recognized at inception of the contract as unearned premiums and premiums receivable, which is inconsistent with current industry accounting practice. 3. A claim liability will be established on a financial guarantee contract when the probability weighted net present value of an expected claim loss is estimated to exceed the related unearned premium revenue. Provision of unallocated reserves are not permitted under the standard. 4. Additional disclosures on financial guarantee contracts, the accounting and risk management activities used to evaluate credit deterioration in the Company's insured obligations and surveillance lists. FAS 163 is effective for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, with the exception of certain risk management disclosures which are effective for the first period beginning after issuance of FAS 163 (i.e. the Company's September 30, 2008 financial statements). Early application is not permitted. The standard does not apply to credit default swaps. Applying FAS 163 will not have any impact on the financial results of the registrant or on the registrant's financial position. In December 2008, the FASB issued Staff Position FSP FAS 132R-1, Employers' Disclosures about Post-Retirement Benefit Plans Assets, which requires additional disclosures explaining how investment allocation decisions are made, the major categories of plan assets, inputs and valuation techniques used to measure fair value of plan assets and significant concentrations of risk within the plan assets. This Staff Position will not have any impact on the registrant's results or financial position. 25 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Advanced ID Corporation Index to the Financial Statements Reports of Independent Registered Public Accounting Firms 26 Financial Statements of Advanced ID Corporation: Consolidated Balance Sheets as of December 31, 2008 and 2007 28 Consolidated Statements of Operations For the Years Ended December 31, 2008 and 2007 30 Consolidated Statements of Stockholders' Equity (Deficit) For the Years Ended December 31, 2008 and 2007 32 Consolidated Statements of Cash Flows For the Years Ended December 31, 2008 and 2007 33 Notes to Consolidated Financial Statements 35 26 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Advanced ID Corporation Calgary, Canada We have audited the accompanying balance sheet of Advanced ID Corporation and subsidiaries as of December 31, 2008 and the related statements of operations, stockholders' equity (deficit), and cash flows for the year then ended. Advanced ID Corporation's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Advanced ID Corporation and subsidiaries for the year ended December 31, 2007 were audited by other auditors whose report dated March 26, 2008 expressed an unqualified opinion on those statements. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced ID Corporation and subsidiaries as of June 30, 2008 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, as discussed in Note 3 to the consolidated financial statements. Management's plans regarding those matters are also described in the said note. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. /s/AGCA, Inc. Arcadia, California March 31, 2009 27 Report of Independent Registered Public Accounting Firm To the Board of Directors of Advanced ID Corporation Calgary, Alberta, Canada We have audited the accompanying consolidated balance sheet of Advanced ID Corporation (the "Company") as of December 31, 2007, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Advanced ID Corporation as of December 31, 2007 and the results of its operations and its cash flows for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 to the consolidated financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2008 raise substantial doubt about its ability to continue as a going concern. The 2007 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/LBB & Associates Ltd., LLP ----------------------------- LBB & Associates Ltd., LLP Houston, Texas March 26, 2008 28 ADVANCED ID CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 and 2007 ASSETS 2008 2007 ---- ---- CURRENT ASSETS: Cash $ 165,072 $ 61,557 Trade accounts receivable, net 135,156 111,073 Accounts receivable - related parties 346,974 2,870 Inventory 45,703 95,914 Prepaid expenses 13,859 2,018 ---------- --------- Total current assets 706,764 273,432 Property and equipment, net 51,334 49,986 Goodwill - 122,468 Promissory notes receivable 725,000 - Customer list, net - 62,500 ---------- ---------- Total other assets 776,334 234,954 ---------- ---------- Total assets $1,483,098 $ 508,386 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable $ 315,666 $ 300,636 Accounts payable - related parties 138,444 66,912 Loan payable - related party 106,761 59,806 Deposit on shares to be issued - 192,500 Redemption put liability 32,253 - Accrued liabilities 13,491 57,343 Contingent consideration on acquisition of Pneu-Logic 70,000 240,000 ---------- ---------- Total current liabilities 676,615 917,197 Debentures payable 1,219,249 - ---------- ---------- Total liabilities 1,895,864 917,197 ---------- ---------- STOCKHOLDERS' DEFICIT: Series A preferred stock, $0.01 par; 500,000 shares authorized; none issued and outstanding - - Common stock, $0.01 par; 100,000,000 shares authorized; 75,990,271 shares and 57,318,308 shares issued and outstanding at December 31, 2008 and 2007, respectively 759,904 573,184 Additional paid-in capital 10,802,481 8,180,170 Subscription receivable (99,430) (2,000) Accumulated deficit (11,867,754) (9,161,789) Accumulated other comprehensive Income (loss) (7,967) 1,624 ---------- ---------- 29 Total stockholders' deficit (412,766) (408,811) ---------- ---------- Total liabilities and stockholders' deficit $1,483,098 $ 508,386 ========== ========== See accompanying summary of accounting policies and notes to consolidated financial statements. 30 ADVANCED ID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 and 2007 2008 2007 ---------- ---------- Revenues $1,159,039 $1,010,003 Cost of revenues 603,992 525,127 ----------- ----------- Gross profit 555,047 484,876 Research and development expense 37,940 265,787 Selling, general and administrative expense 2,411,836 2,316,173 Bad debt provision on advanced to DDCT 149,815 - Impairment of property and equipment 13,913 - Impairment of customer list 44,123 - Impairment of goodwill 122,468 486,888 ----------- ----------- Operating loss (2,225,048) (2,583,972) Accretion and finance charges on debenture (251,502) - Interest income (expense) (39,581) 1,734 ----------- ----------- Loss from continuing operations (2,516,131) (2,582,238) Loss from discontinued operations - (139,745) ----------- ----------- Net Loss before income taxes (2,516,131) (2,721,983) Provision for income taxes - - ----------- ----------- Net Loss $(2,516,131) $(2,721,983) Warrant holder inducement dividend (189,834) (155,647) ----------- ----------- Net loss applicable to common Shareholders $(2,705,965) $(2,877,630) =========== =========== Net loss per share: Basic and diluted loss Continuing operations $(0.04) $(0.05) ====== ====== Discontinued operations $(0.00) $(0.00) ====== ====== Basic and diluted weighted average Shares outstanding 65,680,317 54,951,487 ========== ========== See accompanying summary of accounting policies and notes to consolidated financial statements. 31 ADVANCED ID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2008 and 2007 (CONTINUED ON NEXT PAGE)

32 ADVANCED ID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2008 and 2007 Accumulated Other Total Comprehensive Accumulated Stockholders' Income (Loss) Deficit Equity (Deficit) ------------- ----------- ------------- BALANCE, December 31, 2006 $ 16,477 $(6,284,159) $ 233,322 Comprehensive loss: Net loss - (2,721,983) (2,721,983) Foreign currency translation adjustments (14,853) - (14,853) ---------- Total comprehensive loss (2,736,836) ---------- Stock issued for services - - 283,440 Stock issued for cash - - 274,000 Stock issued on acquisition of Pneu-Logic - - 318,810 Stock issued on settlement of debt - - 361,941 Exercise of options and warrants - - 243,500 Stock options issued for services - - 613,012 Warrant holder inducement dividend - (155,647) - ------- ---------- ---------- BALANCE, December 31, 2007 $ 1,624 $(9,161,789) $ (408,811) ======= =========== ========== Net loss - (2,516,131) (2,516,131) Foreign currency translation adjustments (9,591) - (9,591) --------- Total comprehensive loss (2,525,722) --------- Stock issued for services - - 640,150 Stock issued for cash - - 1,276,503 Stock issued on settlement of debt - - 141,373 Stock issued for deposits received in 2007 - - 190,500 Stock options issued for services - - 273,241 Warrant holder inducement dividend - (189,834) - ------- ----------- --------- BALANCE, December 31, 2008 $(7,967) $(11,867,754) $ (412,766) ======= ============ =========

See accompanying summary of accounting policies and notes to consolidated financial statements. 33 ADVANCED ID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Continued on Next Page) 2008 2007 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(2,516,131) $(2,721,983) Net income (loss) from discontinued operations - (139,745) ---------- ---------- Net loss from continuing operations (2,516,131) (2,582,238) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 59,151 102,960 Stock issued for services 640,150 283,440 Stock options issued for services 273,241 613,012 Stock issued for interest expense 16,373 - Accretion and finance charge on debenture 251,502 - Bad debt provision on investment to DDCT 149,815 - Goodwill impairment 122,468 486,888 Impairment of customer list 44,123 - Impairment of property and equipment 13,913 - Change in assets and liabilities: Accounts receivable (381,456) 73,154 Inventory 48,639 (72,642) Prepaid expenses (11,363) 19,289 Accounts payable 10,001 166,259 Accounts payable - related parties 72,722 175,539 Accrued liabilities (48,637) (6,091) ---------- ---------- Net cash used in continuing operating activities (1,255,489) (740,430) Net cash used in discontinued operating activities - 1,747 ---------- ---------- CASH FLOWS USED IN OPERATING ACTIVITIES (1,255,489) (738,683) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Advance on investment to DDCT (149,815) - Payment on acquisition of assets of Pneu-Logic Ltd. (170,000) (100,000) Purchase of property and equipment (56,035) (16,254) ---------- ---------- Net cash used in investing activities (375,850) (116,254) Net cash used in discontinued investing activities - (16,193) ---------- ---------- CASH FLOWS USED IN INVESTING ACTIVITIES (375,850) (132,447) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of stock 1,276,503 274,000 Proceeds from borrowings 125,000 - Proceeds from the exercise of stock options and warrants - 213,500 34 ADVANCED ID CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Continued) 2008 2007 ------------ ------------ Payment on Pneu-Logic Ltd. debt issued - (60,000) Proceeds from loan payable - related party 46,955 60,000 Proceeds from deposits on shares to be issued - 192,500 Proceeds from the issuance of debenture 275,000 - ---------- ---------- Net cash provided from continuing financing activities 1,723,458 680,000 Net cash provided from discontinued financing activities - (1,912) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES 1,723,458 678,088 ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES 11,396 (12,188) ---------- ---------- NET INCREASE (DECREASE) IN CASH 103,515 (205,230) CASH, beginning of year 61,557 266,787 ---------- ---------- CASH, end of year $ 165,072 $ 61,557 ========== ========== CASH PAID FOR: Interest $ 38,402 $ - Taxes $ - $ - NON CASH INVESTING AND FINANCING TRANSACTIONS: Common stock issued for acquisition of Pneu-Logic Ltd. $ - $318,810 Common stock issued for settlement of debt $141,373 $361,941 Common stock issued for deposits received in 2007 $190,500 $ - Debt Issued for acquisition of Pneu-Logic $ - $300,000 Common stock issued for subscription receivable $ 99,430 $ - Subscription receivable issued for exercise of warrants $ - $ 30,000 Warrant holder inducement dividend $189,834 $155,647 See accompanying summary of accounting policies and notes to consolidated financial statements 35 ADVANCED ID CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 NOTE 1 - NATURE OF OPERATIONS Advanced ID Corporation ("Advanced ID" or the "Company") was originally incorporated in South Dakota on August 13, 1990. Advanced ID is in the business of marketing Radio Frequency Identification ("RFID") products for the purpose of identification and trace back of animals in the companion animal, biological sciences and agricultural sectors. During the past several years Advanced ID has also been involved in research & development of RFID readers and RFID tags for various market segments and will continue to do. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the following significant accounting policies: Basis of Consolidation The consolidated financial statements include the accounts of Advanced ID Corporation, its wholly-owned subsidiaries Avid Canada Corporation ("AVID Canada"), Advanced ID Asia Pacific Company Limited, Advanced ID (Shenzhen) Co., Ltd., and Pneu-Logic Corporation Limited ("PLCL"). Until July 2005, the Company's accounts included the accounts of its wholly owned subsidiary Universal Pet Care, Inc. ("UPC"). UPC was a dormant company and was involuntarily dissolved in 2005. All significant inter-company accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from these estimates. Concentration of Risk The Company places its cash and temporary cash investments with established financial institutions. At various times during the year, the Company maintained cash balances in excess of insurable limits. Management feels this risk is mitigated due to the longstanding reputation of these banks. No losses have been incurred by the Company related to this risk. 36 Foreign Currency Translation Since Avid Canada is located in Canada, the Canadian dollar has been designated as the functional currency. For PLCL the currency of trade can be Euros, British sterling pounds and US Dollars, however the British sterling pounds has been designated as the functional currency. The reporting currency is the United States dollar. All balance sheet accounts have been translated at the current exchange rates as of December 31, 2008 and 2007. Statements of operations items have been translated at average currency exchange rates during the respective years. The resulting translation adjustment is recorded as a separate component of comprehensive loss within stockholders' equity (deficit). Accumulated Other Comprehensive Income (Loss) Total accumulated other comprehensive income (loss) consists of net income (loss) and other changes in stockholders' equity (deficit) from transactions and other events from currency translation gains and losses. The components of and changes in accumulated other comprehensive income as it relates to the currency translation losses are $9,591 and $14,853 for the years ending December 31, 2008 and 2007, respectively. Revenue Recognition Advanced ID recognizes revenue when persuasive evidence of an arrangement exists, shipment has occurred, the sales price is fixed or determinable and collectability is probable. Product sales are recognized by Advanced ID generally at the time product is shipped. At the time revenue is recognized, Advanced ID provides for the estimated cost of product warranties and reduces revenue for estimated product returns. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled. Research and Development Costs Research and development costs are expensed as incurred. Cash and Cash Equivalents For the purposes of presenting cash flows, Advanced ID considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Allowance for Doubtful Accounts The Company provides an allowance against accounts receivables for estimated losses that may result from customers' inability to pay. The allowance is determined by analyzing known uncollectible accounts, aged receivables, economic conditions, historical losses and changes in customer's cycles and customer's credit- worthiness. Amounts later determined and specifically identified to be uncollectible are charged and written off against this allowance. To minimize the likelihood of 37 uncollectibility, the Company reviews customer's credit worthiness periodically based on independent credit reporting services, the Company's experience with the customer and the economic condition of the customer's industry. Material differences may result in the amount and timing of expense for any period if the Company were to make different judgments or utilize different estimates. If the financial condition of customers deteriorates resulting in an impairment of their ability to make payments, additional allowances may be required. The Company has not experienced significant variances in the past between estimated and actual doubtful accounts and anticipates that the Company will be able to continue to make reasonable estimates in the future. The Company has recorded an allowance of $Nil and $16,852 as of December 31, 2008 and 2007 respectively. Inventory Inventory consists of finished goods held for resale and is recorded at the lower of cost or net realizable value. Cost is determined on a first in-first out basis. Long-lived Assets Fixed assets are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the two to five year estimated useful lives of the assets. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. In 2008 impairment losses have been recorded on the assets of PLCL. Expenditures for repairs and maintenance are expensed as incurred. Expenditures for major renewals or betterments that extend the useful lives of existing property and equipment are capitalized and depreciated. Upon retirement or dispositions of property and equipment, any resulting gain or loss is recognized consolidated statement of operations. Goodwill The Company accounts for goodwill in accordance with SFAS No. 141, "Business Combinations," and SFAS No, 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill is deemed to have an indefinite life are not amortized but is subject to an annual impairment test. The Company recognized an impairment loss of $122,469 (2007 - $486,888) based on management's valuation. 38 Intangible Assets Intangible assets consist of a customer list purchased on the acquisition of PL. This list was being amortized straight-line over three years. On December 31, 2008 the carrying value was completely written off as a result of management's assessment of PLCL's business. Fair Value of Financial Instruments The Company's financial instruments consist of cash and cash equivalents, receivables, payables and debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements. Advertising The Company charges costs of advertising to expense at the time the costs are incurred. Shipping and Handling The Company includes shipping and handling costs in cost of goods sold. Income Taxes Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. Loss per Common Share The basic net loss per common share is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stockholders, adjusted on an "as if converted" basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For 2008 and 2007, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share. Total shares outstanding, assuming the exercise of outstanding options and warrants for the years ended December 31, 2008 and 2007, were 107,304,855 and 69,257,891 respectively. Share-based Compensation The Company uses the fair value accounting method as provided under SFAS No. 123(R) for stock options and other equity based compensation issued to employees. The fair value of each option granted is estimated on the 39 date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used in the calculation of the 2008 and 2007 compensation expense: dividend yield 0% (2007 - 0%) expected volatility of 113.4% (2007 - 97.9%), risk-free interest rate of 3.6% (2007 - 6.3%), and expected lives of 5 years (2007 - 5 years). 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. PLCL sells products in Europe which accounted for approximately 17% of total sales. 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. Reclassifications Certain 2007 amounts have been reclassified to conform to 2008 presentation. Recent Accounting Pronouncements In February 2007, the FASB issued Statement 159, The Fair Value Option for Financial Assets and Financial Liabilities, which provides an option to report eligible financial assets and liabilities at fair value effective January 1, 2008, with changes in fair value recognized in net income. Upon adoption, the first re-measurement to fair value would be reported as a cumulative-effect adjustment to the opening balance of retained earnings. The Company has elected not to report eligible assets and liabilities at their fair value. In December 2007, the FASB issued Statement 141R, Business Combinations, which requires recognition of the assets acquired, liabilities assumed and non-controlling interest arising in a business combination at their fair value as of the acquisition date. In addition, the costs of acquisition must be recognized separately from the business combination. This statement will be effective for the Company's 2009 reporting and is not expected to have a material impact on the Company. 40 During the year, the Company adopted Statement 157, Fair Value Measurements, which defines fair value and establishes a framework for measuring fair value and increases disclosure concerning fair value measurements. The adoption of Statement 157 did not have a material impact on the Company's results or financial position. In March 2008, the FASB issued Statement 161, Disclosures about Derivative Instruments and Hedging Activities, which requires enhanced disclosure about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. This statement will be effective for the Company's 2009 reporting and is not expected to have a material impact on the Company In May 2008, the FASB issued Statement 162, The Hierarchy of Generally Accepted Accounting Principles, which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of entities that are presented in conformity with US GAAP. This statement will be effective for the Company following the US Securities and Exchange Commission's approval of the Public Company Accounting Oversight Board's amendments to existing guidance and its adoption is not expected to have a material impact on the Company. On May 23, 2008, the Financial Accounting Standards Board ("FASB") issued FASB statement No.163 "Accounting for Financial Guarantee Insurance Contracts" ("FAS 163"). FAS 163 clarifies how FASB Statement No.60 "Accounting and reporting by Insurance Enterprises" applies to financial guarantee insurance contracts. FAS 163 is focused on the recognition and measurement of premium revenue and claims liabilities, along with additional disclosure requirements for financial guarantee contracts. The significant elements of the standard are as follows: 1. Premium revenue will be recognized as a function of the amount of insurance protection provided over the contract term. 2. The standard requires that the present value of installment premiums due pursuant to the terms of a financial guarantee insurance contract be recognized at inception of the contract as unearned premiums and premiums receivable, which is inconsistent with current industry accounting practice. 3. A claim liability will be established on a financial guarantee contract when the probability weighted net present value of an expected claim loss is estimated to exceed the related unearned premium revenue. Provision of unallocated reserves are not permitted under the standard. 4. Additional disclosures on financial guarantee contracts, the accounting and risk management activities used to evaluate credit deterioration in the Company's insured obligations and surveillance lists. 41 FAS 163 is effective for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, with the exception of certain risk management disclosures which are effective for the first period beginning after issuance of FAS 163 (i.e. the Company's September 30, 2008 financial statements). Early application is not permitted. The standard does not apply to credit default swaps. Applying FAS 163 will not have any impact on the financial results of the Company or on the Company's financial position. In December 2008, the FASB issued Staff Position FSP FAS 132R-1, Employers' Disclosures about Post-Retirement Benefit Plans Assets, which requires additional disclosures explaining how investment allocation decisions are made, the major categories of plan assets, inputs and valuation techniques used to measure fair value of plan assets and significant concentrations of risk within the plan assets. This Staff Position will not have any impact on the Company's results or financial position. NOTE 3 - FINANCIAL CONDITION AND GOING CONCERN Advanced ID has incurred net losses for the years ended December 31, 2008 and 2007 of $2,516,131 and $2,721,983 respectively. Because of these losses, Advanced ID will require additional working capital 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 placements, 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. NOTE 4 - ACQUISITION OF ASSETS OF PNEU-LOGIC LTD. No acquisitions were undertaken during the year ended December 31, 2008. The following table summarizes significant acquisitions completed during the year ended December 31, 2007: 42 Purchase Amortizable Price Goodwill Intangibles -------- -------- ----------- Pneu-Logic Ltd. $ 718,810 $ 608,956 $ 75,400 PURCHASE PRICE On July 1, 2007, Advanced ID Corporation (the "Company") acquired substantially all of the assets of Pneu-Logic Ltd. ("PLL"). PLL was engaged in the business of fleet tire management. At the time of the transaction, there were no material relationships between the seller and the Company or any of its affiliates, or any director or officer of the Company, or any associate of any such officer or director. The aggregate purchase of $718,810 included $400,000 cash and 1,000,000 restricted shares of Advanced ID Corporation valued at $318,810. The cash component consists of $100,000 paid on the date of closing and contingent consideration of ten $30,000 monthly installments commencing October 1, 2007 based on meeting certain revenue targets. For the years ended December 31, 2008 and 2007, $170,000 and $160,000 were paid off. The value of 1,000,000 common shares issued was determined based on the market price for a reasonable period of time before and after the date that the terms of the acquisition were agreed to and announced. . After the acquisition of the assets of PLL, PLL still existed and the new entity with assets was incorporated as Pneu-Logic Corporation Limited ("PLCL") The purchase price allocation is as follows: Current assets, net $ 116,022 Property and equipment 5,654 Goodwill 608,956 Customer list 75,400 Bank overdraft (87,222) --------- Total adjusted purchase price $ 718,810 ========= The amount allocated to identifiable intangible assets was determined by the company's management. Other intangibles assets are being amortized over their useful life in accordance with the guidance contained in the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standard No. 142 ("SFAS 142") "Goodwill and Other Intangible Assets". Goodwill $ 608,956 Customer list 75,400 --------- Total identifiable intangible assets $ 684,356 ========= Amortization expenses for 2008 was $24,835 (2007 - $13,908) The results of operations for PLCL have been included in the Company's consolidated statements of operations since the completion of the acquisitions during the year ended December 31, 2007. The following 43 unaudited pro forma financial information presents the combined results of the Company and the 2007 acquisitions as if the acquisitions had occurred at the beginning of 2007: Unaudited pro forma ------------------- Year Ended December 31, 2007 ------------ Net Revenue $ 1,243,328 Net income (loss) $(2,555,005) Net income (loss) applicable to common shareholder $(2,850,397) Net income (loss) per share-basic $ (0.05) Net income (loss) per share-diluted $ (0.05) The above unaudited pro forma financial information includes adjustments for depreciation and amortization of identifiable intangible assets. During the year ended December 31, 2008 due to economic and other factors, management decided to impair the carrying value of the property and equipment, customer list and goodwill of PLCL. The Company continues to operate however the office functions have been centralized to the Company's head office in order to reduce ongoing administrative and other expenses. At the same time the Company agreed to sell PLCL products to Pneu-Logic Limited ("PLL") which is an entity controlled by George Yeomans, a director of PLCL. The agreement requires the Company to purchase products from RBC Electronics (entity owned by George Yeomans) and then to sell the products to PLL. PLL will in turn sell the products to its own channels in Europe. As a result, Advanced ID concluded that sales to PLL should be recorded on a net revenue basis. Reasons for net revenue recognition are that the Company never handles the goods sold by PLL, has no risk of inventory loss, and never has title to the goods. NOTE 5 - DISCONTINUED OPERATIONS Effective July 1, 2007, the Company disposed of its sixty percent owned subsidiary, Advanced ID Asia Engineering Co. Ltd., to focus its operations and reduce the cash requirements needed to continue this operation. The business identified as a divestiture has been classified as discontinued operations in the accompanying financial statements. The following table summarizes the disposition: Current assets $157,606 Property and equipment 53,191 Goodwill 55,486 Current Liabilities (67,067) Non Controlling Interest (47,022) ------- Net assets acquired $152,194 Less: Consideration received $ - -------- 44 Loss on disposition 152,194 Company's share of 2007 Earnings 12,449 -------- Net loss on disposition $139,745 ======== NOTE 6 - PROPERTY AND EQUIPMENT Property and equipment consists of the following: Estimated Lives 2008 2007 --------- ---- ---- Equipment and furniture 5 yrs $ 38,212 $ 28,856 Leasehold improvements 5 yrs 11,689 - Computer hardware 3 yrs 65,613 43,982 Computer software 2 yrs 194,310 180,951 --------- --------- Total assets 309,824 253,789 Less accumulated depreciation and write downs (258,490) (203,803) --------- --------- Net book value $ 51,334 $ 49,986 ========= ========= Depreciation expense for 2008 was $40,773 (2007 - $90,460). NOTE 7 - INCOME TAXES Advanced ID has had losses since inception and therefore has no income tax liability. The net deferred tax asset generated by the loss carry- forward has been fully reserved. The cumulative Canadian net operating loss carry-forward is approximately CDN$3,952,000 at December 31, 2008, and will expire in various years through 2028. Advanced ID recorded a decrease in the valuation allowance of $885,000 for the year ended December 31, 2008 and an increase in the valuation allowance of $700,000 for the year ended December 31, 2007. The difference between the statutory rate and the effective rate for the years ended December 31, 2008 and 2007 relates to the change in valuation allowance. Deferred income taxes consist of the following at December 31, 2008 and 2007: 2008 2007 ---- ----- Short-term: Deferred tax assets $1,115,000 $2,000,000 Valuation allowance (1,115,000) (2,000,000) ---------- ---------- $ - $ - ========== ========== 45 NOTE 8 - COMMON STOCK During 2008, Advanced ID issued a total of 18,671,963 shares of common stock, 12,631,395 were issued for proceeds of $1,276,503 and subscriptions receivable of $99,430; 841,667 shares were issued for deposits received in 2007 for $190,500; 1,340,968 were issued for the settlement of debt valued at $141,373, and 3,857,933 shares of common stock were issued for services rendered valued at $640,150. During 2008, Advanced ID also wrote off a receivable that the Company had accepted in 2007 in exchange for the issuance of 10,000 shares of common stock valued at $2,000 to one investor due to an inability to pay. These shares were returned and cancelled. During 2007, Advanced ID issued a total of 5,098,394 shares of common stock; 965,000 shares of common stock were issued for cash proceeds of $254,000 and collected $20,000 of a subscription receivable from the prior year, 811,667 shares of common stock were issued on the exercise of warrants for $213,500 of cash and a note receivable of $30,000, 1,170,355 shares of common stock were issued as settlement of debt valued at $361,941, 1,000,000 shares of common stock were issued on the acquisition of PL valued at $318,810, and 1,151,372 shares of common stock were issued for services rendered valued at $283,440. During 2007, Advanced ID also wrote off a note receivable that had been accepted in 2007 in exchange for the exercise of 100,000 common stock warrants valued at $30,000 to one investor due to his inability to pay. With the exception of the shares issued on the exercise of options and warrants and the shares issued in connection with a private placement to arm's-length parties, the shares were valued based on the closing price on the date they were issued. The shares issued in connection with private placements with arm's-length parties were valued based on negotiated prices. NOTE 9 - STOCK OPTIONS AND WARRANTS Options: In May 2007, the Board approved the vesting of the President's remaining 1,000,000 options that were originally granted as part of his initial employment contract. Compensation expense for the fair value of these options of $337,018 has been included as part of the general and administrative expenses recorded during 2007. In May 2007, the Board approved an option plan to issue each board member 200,000 options at $0.40 per common share for a term of five years. Compensation expense for the fair value of these options of $245,328 has been included as part of the general and administrative expenses recorded during 2007. In May 2007, the Board authorized options to purchase 100,000 common shares with a term of 5 years to an employee and a consultant. These common shares were registered under Form S-8 with the Securities and 46 Exchange Commission. Compensation expense for the fair value of these options of $30,666 has been included as part of general and administrative expenses recorded during 2007. On August 3, 2007, the Board of Directors of the Company unanimously voted to increase the stock option exercise price to $0.50 per share on 800,000 options granted to Directors. Previously, these options were exercisable at $0.40 per share. This change was filed with the SEC effective September 30, 2007. In April 2008 the Board approved the issuance of 2,000,000 options to various officers and directors of the Company. The options are exercisable for a period of 5 years at an exercise price of $0.30 per share. Compensation expense for the fair value of these options of $273,241 has been included as part of the general and administrative expenses recorded during 2008. On November 9, 2008 officers and directors who were issued the options agreed to have them canceled. The following table summarizes stock option activity: Outstanding, December 31, 2006 3,680,000 Granted 1,900,000 --------- Outstanding, December 31, 2007 5,580,000 Granted 2,000,000 Cancelled (2,000,000) --------- Outstanding, December 31, 2008 5,580,000 ========= Exercisable at December 31, 2008 5,580,000 ========= Weighted-average grant-date exercise price of options, granted during 2008 - $0.30 (2007 - $0.38). Weighted-average remaining, years of contractual life 2008 - 4.03 (2007 - 5.03). Warrants: During the year ended December 31, 2008, 11,962,500 warrants were issued (2007 - 2,040,000) as part of a private placement of units, of which 1,500,000 were exercisable at $0.20; 4,787,500 were exercisable at $0.22; 3,850,000 were exercisable at $0.25; and 1,825,000 were exercisable at $0.30. These warrants expire on various dates between February 25, 2009 and February 25, 2011. A total of 140,000 warrants expired unexercised during the year As an inducement to all warrant holders with $0.30 and $0.40 exercise prices, the Company extended the expiry date by one year. $189,834 warrant inducement dividend was recorded as a result of the extension of the expiry date of 4,009,585 warrants. 47 As of December 31, 2008, the Company had 18,182,083 warrants outstanding. The following table summarizes warrant activity: Outstanding, December 31, 2006 5,478,750 Granted 2,040,000 Expired (22,500) Exercised (shares issued) (811,667) Exercised (shares to be issued) (325,000) ---------- Outstanding, December 31, 2007 6,359,583 Granted 11,962,500 Expired (140,000) Exercised - ---------- Outstanding, December 31, 2008 18,182,083 ========== Exercisable at December 31, 2008 18,182,083 ========== Weighted-average grant-date exercise price, granted during 2008 - $0.24 (2007 - $0.34). Weighted-average remaining, years of contractual life as of 2008 - 0.92 (2007 - 0.92). NOTE 10 - 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 2007, consulting fees of $126,283 were charged for his services. As a result of the Company's financial position, in December 2008 Mr. Kazimirski reversed all 2008 charges for his services to the Company. On November 14, 2007, Mr. Kazimirski provided a $60,000 loan to the Company. This loan is unsecured, repayable on demand and bears interest at 10% per annum. In addition to being a director of Advanced ID, Mr. Meier provides consulting services to Advanced ID for the purposes of assisting with product and supplier development. Specifically, Mr. Meier has been responsible for development, manufacturing and testing of the Company's DataTRAC(tm) RFID tags, sourcing microchip manufacturers, sourcing reader manufacturers, sourcing antennae design suppliers, and overall 48 product development. Mr. Meier continues to provide services based on his hourly rate of $175 per hour. During 2008 and 2007 consulting fees totaled $49,654 and $20,200 for his services, respectively. 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. His contract began on May 21, 2002 and expired on May 21, 2005. The contract was not renewed however Mr. Fields continues to provide services based on his hourly rate of $175 per hour. During 2007 consulting fees totaled $41,815 for his services. As a result of the Company's financial position, in December 2008 Mr. Fields reversed all 2008 charges for his services to the Company but was granted a bonus of $7,000 for his services. During the period ended December 31, 2008, Mr. Sudeep Bhargava, Vice President Operations and Interim CFO, received $86,736 in salary and bonuses. In the same period in 2007 he received $74,681. Based on the Company's financial position at year end, Mr. Bhargava voluntarily agreed to reverse all share based compensation for the year ended December 31, 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. In addition to the stock options granted to Mr. Finch discussed in Note 3, during the period ending December 31, 2008 and December 31, 2007 a total of $86,560 and $112,803 respectively was paid for salary, bonuses and director fees. Based on the Company's financial position in December 2008, Mr. Finch voluntarily agreed to reverse all director's fees and other share based compensation for the year ended December 31, 2008. On December 31, 2008 accounts receivable from related parties included $283,995 representing the balance of all voluntary reversals of share- based compensation by directors of the Company. The amounts were subsequently settled by having all shares returned and cancelled. Please refer to Note 15. On December 31, 2008 $9,593 was included in accounts receivable from related parties for a purchase of goods by Global Consulting on behalf of a customer of the Company. Global Consulting is a company owned by the Chairman of the Advanced ID. The transaction was done at market rates and on the same terms as any other customer. On December 31, 2008 accounts receivable from related parties also included $47,113 due from Pneu Logic Ltd. Pneu Logic Ltd. is owned by George Yeomans, who is a director of PLCL. In addition, another $6,273 was included in accounts receivable from related party, for an amount due from RBC Electronics which is also owned by George Yeomans. 49 As of December 31, 2008, included in accounts payable to related parties is $986 due to Global Consulting for expenses; $4,738 to Daniel Finch, President and CEO, for fees and expenses; $874 to Hubert Meier, a director for expenses; $7,000 to Terry Fields, a director for a bonus; and $26,443 due to Sudeep Bhargava for bonuses and expenses. Mr. Bhargava is the Company's Interim CFO. Also included in accounts payable to related parties is $26,365 due to Laren Yeomans for expenses and fees, $33,448 to RBC Electronics for products and 25,627 Pounds ($38,590) to PLL. Laren Yeomans, a Director and employee of Pneu-Logic Corporation, Ltd ("PLCL"), earned $133,335 of salary during the year ended December 31, 2008. The amount was partially settled in shares. RBC Electronics Limited ("RBC") is a company controlled by George Yeomans who is a director of PLCL. During the year ending December 31, 2008, $163,618 in inventory was purchased from RBC. $170,000 was paid to George Yeomans, a director of PLCL, during 2008 for the contingent consideration due on the acquisition of Pneu Logic and the Mr. Yeomans loaned 31,053 Pounds ($46,761) back to PLCL for operating capital. NOTE 11 - COMMITMENTS AND CONTINGENCIES On September 15, 2008, Advanced ID entered into an employment agreement with Dan Finch to act as the President and Chief Executive Officer. The agreement expires December 31, 2009. Under the terms of this agreement, Mr. Finch is to receive an annual base salary of $103,620 with a bonus to be determined annually by the Board of Directors. If the Company becomes profitable for at least one month then Mr. Finch will receive 100,000 common shares. The Company has a number of operating lease commitments related to office space and equipment. Estimated future minimum lease payments under these leases are as follows: 2009 $33,668 2010 32,148 2011 27,586 2012 18,391 -------- $111,793 ======== In 2007, each director is compensated $1,500 per month resulting in a total estimated directors' compensation of $90,000 per year ($18,000 per director). In 2008 the directors voluntarily suspended directors' fees due to the financial condition of the Company. 50 NOTE 12 - CONCENTRATIONS OF CREDIT RISK As of December 31, 2008 and 2007, amounts due from customers which exceeded 10% of trade accounts receivables amounted to $74,172 from three customers and $50,853 from three customers, respectively. The Company had no customers that exceeded 10% of revenues of or total revenues in 2008 (2007 - 13% one customer). The Company has three vendors which, combined, accounted for approximately 64% of total purchases in 2008 (2007 - 84% from three vendors). Currently, the Company realizes 50% of sales revenue from the sale of sterilized tags and related items for companion animals, over 90% of which is sold to the purchasing groups representing veterinarians in Canada. The remaining 49% is divided between tire-tag sales and the Pneu-Logic revenues since July 1, 2007. The Company's Pneu-Logic subsidiary, located in the United Kingdom, comprises $192,216 of total revenues, $465,406 of total net loss, $9,766 of total assets $147,036 of total liabilities and $0 of total capital expenditures for 2008. The remainder of each item is comprised of operations in Canada. NOTE 13 - DDCT ACQUISITION On August 29, 2008, the Company signed a term sheet to purchase all of the assets of Shenzhen DDCT Technology Co. Ltd. ("DDCT"), based in the People's Republic of China. Major terms of the agreement were as follows: The Company would set up a wholly owned subsidiary of Advanced ID Asia Pacific Company Limited. The new subsidiary would purchase all of the assets of DDCT including but not limited to inventory, leasehold improvements, intellectual property, patents, products, product designs, contracts past and future, collateral and manufacturing processes. The Company must provide US$5 million in working capital over 2 years with $200,000 paid within 30 days of signing the term sheet. In the event the transaction is not completed, DDCT will refund the advanced funds. The Company must put 16,005,727 shares into escrow for distribution to DDCT shareholders on completion of the transaction In addition, 21,340,969 shares of Advanced ID to be placed into escrow to be distributed to DDCT shareholders upon reaching performance milestones to be agreed upon once the transaction has completed. On December 1, 2008, Advanced ID Asia Pacific Company Limited set up Advanced ID (Schenzen) Co., Ltd. in accordance with the agreement. 51 As at December 31, 2008 no shares had been put into escrow and the Company had advanced approximately $195,000 to DDCT against the working capital requirement. Subsequent to year end, the Company canceled the purchase of DDCT's assets due to economic conditions. The Company is currently negotiating for the refund of the advanced funds less expenses DDCT had made on behalf of Advanced ID (Shenzhen) Co., Ltd. On December 31, 2008 the Company was owed $149,815 from DDCT. A bad debt provision was recorded for the entire amount outstanding at December 31, 2008 due to the low probability of recovery. NOTE 14 - CONVERTIBLE DEBENTURES Pursuant to a Securities Purchase Agreement dated November 10, 2008, the Company issued to a private investor 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 93/4 % 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. 2008 2007 ---- ---- Balance beginning of year $ - $ - Issue of debentures 1,000,000 - Finance charge 250,000 - Debt discount (32,253) - Accretion of debt discount 1,502 - ---------- -------- $1,219,249 $ - 52 If on the conversion date the VWAP of the Company's common stock is below $0.08 ("Floor Price"), the Company shall have two days from the conversion date to exercise an option to pay the principal amount being converted plus accrued interest in cash at 150% of such amount. The option for net cash settlement 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. In the event the Company issues common shares or options/warrants for less than the Floor Price or convertible securities convertible at less than the Floor Price; the new floor price shall be adjusted to 80% of the price at which the issuance took place. Issuances excluded from this clause include (1) stock options to directors, officers and employees of the Company (2) shares issued pursuant to any agreements in effect prior to November 10, 2008 (3) shares issued pursuant to a business acquisition (4)shares issued under this debenture. In the case of a fundamental corporate change whereby 50% of the Company's voting power is disposed of; the holder will have the right to require redemption of the debenture at 150% of the principal amount outstanding plus accrued interest or redeem the debenture for shares of common stock of the successor or acquiring corporation. This early redemption clause 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. The fair value of the embedded derivative is $32,253. Any gains or losses on this embedded derivative will be recorded in the consolidated statement of operations and comprehensive income (loss) as a gain or loss on financial instruments with an offset to other assets or other liabilities on the Company's consolidated balance sheet. For the period from November 10, 2008 to December 31, 2008, there were no changes to the fair value of the derivative. The holder will not be entitled to convert the debenture for a number of shares of common stock in excess of a number of shares that, upon giving effect to such conversion, would cause the aggregate number of common shares beneficially owned by the holder and its affiliates to exceed 4.99% of the outstanding common shares following such conversion. However, this beneficial ownership limitation may be increased at the sole discretion of the holder to 9.99% with 61 days prior written notice to the Company. The promissory note bears interest at 6.25% per annum and matures 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 decreased to 43/4 % per annum. The holder is required to redeem the note at a rate of $200,000 per month beginning 6 months from the date of issuance until all principal and accrued interest has been paid. If the VWAP of the Company's common shares for any 10 day trading period is below $0.038, or if the Company is in default under the debenture, the mandatory redemption requirement of the holder is waived. 53 Failure of the holder to make mandatory redemption payments will result in an increase in the interest rate on the note of 1/4 % per missed payment, to a maximum of 121/2 % interest accruing on the note. The note is secured by all receivables, inventory, equipment & furnishings, books and records and products and proceeds of the holder. 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 notes, including stock options, stock warrants, stock committed for cash, stock committed for services, the convertible debenture with La Jolla Cove Investors, Inc., and the potential acquisition of DDCT. 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 authorization to increase the number of authorized shares it has available at its next Annual General Meeting. NOTE 15 - SUBSEQUENT EVENTS Pursuant to a board resolution, on January 12, 2009, the expiry date of 900,000 warrants exercisable at $0.40 was extended by one year to January 12, 2010. Pursuant to a board resolution, on February 10, 2009, the expiry date of 200,000 warrants exercisable at $0.30 was extended by one year to February 10, 2010. Pursuant to a board resolution, on February 14, 2009, the expiry date of 200,000 warrants exercisable at $0.30 was extended by one year to February 14, 2010. Pursuant to a board resolution, on February 20, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to February 20, 2010. Pursuant to a board resolution, 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. Pursuant to a board resolution, on March 2, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to March 2, 2010. Pursuant to a board resolution, on March 6, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to March 6, 2010. Pursuant to a board resolution, on March 23, 2009, the expiry date of 400,000 warrants exercisable at $0.30 was extended by one year to March 23, 2010. Pursuant to a board resolution, on March 30, 2009, the expiry date of 84,998 warrants exercisable at $0.30 was extended by one year to March 30, 2010. 54 On February 18, 2009 a director voluntarily returned for cancellation 850,973 shares of common stock received as compensation in 2008. On March 12, 2009 a director voluntarily returned for cancellation 328,010 shares of common stock received as compensation in 2008. On March 18, 2009 785,000 shares were returned and canceled in settlement of subscriptions receivable. On March 30, 2009 a director voluntarily returned for cancellation 315,449 shares of common stock received as compensation in 2008. 55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable ITEM 9A. CONTROLS AND PROCEDURES Controls and Procedures. Evaluation of Disclosure Controls and Procedures: In connection with the preparation of this annual report, an evaluation was carried out by our management, with the participation of the chief executive officer and the chief financial officer, of the 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 December 31, 2008. 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, we have identified a significant deficiency in 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 disclosure controls and procedures were not effective as of December 31, 2008. 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. As discussed below, management has implemented additional internal controls to ensure that similar situations do not occur in the future. Management's Annual Report on Internal Control over Financial Reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is the process, under the supervision of our chief executive officer and the chief financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that: - Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of Advanced ID assets; 56 - Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors; and - Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on criteria established in Internal Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, which assessment identified material weaknesses in internal control over financial reporting. A material weakness is a control deficiency, or a combination of deficiencies in internal control over financial reporting that creates a reasonable possibility that a material misstatement in annual or interim financial statements will not be prevented or detected on a timely basis. Since the assessment of the effectiveness of our internal control over financial reporting did identify material weaknesses, management considers its internal control over financial reporting g to be ineffective. The matters involving internal control over financial reporting that our management considered to be material weaknesses were: - Lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls over financial reporting; - Inadequate segregation of duties consistent with control objectives; and - Ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our chief executive officer in connection with the review of our financial statements as of December 31, 2008. Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee, the inadequate segregation of duties and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls over financial reporting, which weaknesses could result in a material misstatement in our financial statements in future periods. 57 This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Commission that permit Advanced ID to provide only the management's report in this annual report. Management's Remediation Initiatives In an effect to remediate the identified material weaknesses and enhance our internal controls over financial reporting, Advanced ID has initiated, or plans to initiate the following measures: - We intend to segregate the duties of chief executive officer and chief financial officer consistent with our control objectives and engage outside accounting resources as funds become available to us. - Further, we intend to appoint outside directors to our board in order to form a functioning audit committee that will undertake oversight in the establishment and monitoring of required internal controls over financial reporting such as reviewing estimates and assumptions made by management. Subsequent to year ended December 31, 2008, we segregated the duties of chief executive officer from those of chief financial officer. We have not yet appointed outside directors. Changes in Internal Control over Financial Reporting: During the year ended December 31, 2008, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None 58 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Our Bylaws provide that the number of directors who shall constitute the whole board shall be such number as the board of directors shall at the time have designated. We confirm that the number of authorized directors has been set at five pursuant to our bylaws. Each director shall be selected for a term of one year and until his successor is elected and qualified. Vacancies are filled by a majority vote of the remaining directors then in office with the successor elected for the unexpired term and until the successor is elected and qualified. The directors, officers and significant employees are as follows: NAME AGE POSITIONS HELD SINCE Dan Finch 65 President & CEO, Director September 2005 Acting CFO Sudeep Bhargava 51 VP of Operations January 2007 Seymour Kazimirski 61 Director/Chairman October 2002 Terry Fields 65 Director July 2005 Business Experience of Officers, Directors and Significant Employees Dan Finch - President, CEO and Acting CFO has 21 years of executive level management experience in wireless HSIA and VoIP phone technology, high-speed internet infrastructure and financial services for small pre IPO high tech companies. Dan Finch led a division of DSC that designed and manufactured all the cell switches for Motorola, under the Motorola brand. While serving at C-COR/COMLUX, he was responsible for the turnaround of this subsidiary, and realized three-fold growth. Dan Finch's educational background includes an MBA, Finance and Economics from University of Chicago, a BS in Physics from the Indiana Institute of Technology and certification in Technical Management from the University of California, Berkeley. Sudeep Bhargava - Vice President, Operations, has over 28 years of management experience in hospitality industry and in non-profit sector, and lately in the pet industry at the Calgary Humane Society as the General Manager of Finance & Operations for over eight years. Sudeep Bhargava has a Bachelor of Commerce degree from Agra University, Agra, India in 1977. Later in 1994, he earned the accounting designation of Certified Management Accountant (CMA) in Regina, Saskatchewan, Canada. Currently, Sudeep Bhargava is a member of CMA Alberta, a professional association for management accountants. He has for many years contributed numerous hours of his time to many volunteer organizations in Regina and Calgary and continues to do so in Calgary. Seymour Kazimirski - Director, In 1995, Mr. Kazimirski established Hawaii Pet Care Alliance which is involved in radio frequency identification for companion animals, and where he continues to serve as President. From 1995 to 1998, Mr. Kazimirski consulted to AVID Inc., a manufacturer of radio frequency identification microchips and readers. In 1993, Mr. Kazimirski established Global Consulting which houses his consulting operations that specializes in finance, administration and 59 marketing. In 1980, Mr. Kazimirski established Florexotica International Inc., an import/export business acquiring products from Asia and Europe, and resold to U.S. military and major retail stores. Terry Fields - Director, Mr. Fields practiced law in California for over thirty-three years, initially in litigation, but ultimately concentrating in corporate and business law. Fields has been a director of twelve public corporations over the last twenty years and President of six of those, equally distributed between the U.S. and Canada. Fields has extensive business experience, especially with public corporations and their securities, as well as mergers and acquisitions. Fields has strong ties with the financial communities, both domestic and international, having lived in Europe for five years. At present, Fields is President and Director of Sunburst Acquisitions IV (SBAQ), Bishop Resources Inc. (BIS) and Visual Statement Inc., a private Canadian corporation. Hubert Meir resigned as a director in February 2009 but still consults to us. The above named directors will serve in their capacity as director until our next annual shareholder meeting to be held within six months of our fiscal year's close. Directors are elected for one-year terms. Section 16(a) Beneficial Ownership Reporting Compliance To our knowledge, no director, officer or beneficial owner of more than ten percent of any class of our equity securities, failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during 2008. Code of Ethics Policy We have not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. Corporate Governance There have been no changes in any state law or other procedures by which security holders may recommend nominees to our board of directors. In addition to having no nominating committee for this purpose, we currently have no specific audit committee and no audit committee financial expert. Based on the fact that our current business affairs are simple, any such committees are excessive and beyond the scope of our business and needs. Indemnification We shall indemnify to the fullest extent permitted by, and in the manner permissible under the laws of the State of Nevada, any person made, or threatened to be made, a party to an action or proceeding, whether 60 criminal, civil, administrative or investigative, by reason of the fact that he is or was one of our directors or officers, or served any other enterprise as director, officer or employee at our request. The board of directors, in its discretion, shall have the power on our behalf to indemnify any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he/she is or was an employee of the Corporation. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of Advanced ID, we has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of the Corporation in the successful defense of any action, suit or proceedings) is asserted by such director, officer, or controlling person in connection with any securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING ADVANCED ID FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS THEREFORE UNENFORCEABLE. ITEM 11. EXECUTIVE COMPENSATION We may elect to award a cash bonus to key employees, directors, officers and consultants based on meeting individual and corporate planned objectives. On September 15, 2008, Advanced ID renewed the employment agreement with Dan Finch for 15 months. The replacing agreement expires on December 31, 2009 and there was no salary increase. In early 2009, Mr. Finch offered to temporarily reduce his compensation by 10% until the health of the company improves. Long Term Compensation Annual Compensation Awards Payouts Other Securities All Name Annual Restricted Underlying LTIP Other and Compen- Stock Options/ Pay- Compen- Principal Salary Bonus sation Awards SARs Outs sation Position Year ($) ($) ($) ($) (#) ($) ($) Dan Finch CEO 2008 $83,560 $3,000 $0 $0 1,400,000 $0 $0 2007 $112,103 $0 $0 $0 1,400,000 $0 $0 Sudeep Bhargava 2007 $79,236 $7,500 $0 $0 50,000 $0 $0 CFO 2007 $85,000 $0 $0 $0 50,000 $0 $0

61 We do not have any standard arrangements by which directors are compensated for any services provided as a director. On April 26, 2006, we issued 1,000,000 options to five directors and 10,000 restricted common shares to each director in lieu of a cash payment. No cash has been paid to the directors in their capacity as such. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS The following table sets forth, as of April 7, 2009, the number and percentage of our outstanding shares of common stock owned by (i) each person known to us to beneficially own more than 5% of its outstanding common stock, (ii) each director, (iii) each named executive officer and significant employee, and (iv) all officers and directors as a group. Common Stock Percentage of Name of Beneficial Owner Beneficially Owned Class Owned ------------------------ ------------------ ------------- Dan Finch 150,180 0.20% Seymour Kazimirski 3,924,484 5.32% Terry Fields 462,904 0.63% Sudeep Bhargava 110,000 0.15% David Goldenberg 5,858,540 7.95% Directors/Officers as a group 4,647,568 6.31% Based upon 73,710,839 issued and outstanding as of April 7, 2009. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Seymour Kazimirski. In addition to being a director of the registrant, Mr. Kazimirski provides consulting services to the registrant 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 registrant in finding and negotiating supplier partnership agreements, and other general business tasks as requested by the registrant. 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 2007, consulting fees of $126,283 were charged for his services. As a result of the registrant's financial position, in December 2008, Mr. Kazimirski reversed all 2008 charges for his services to the registrant. On November 14, 2007, Mr. Kazimirski provided a $60,000 loan to the registrant. This loan is unsecured, repayable on demand and bears interest at 10% per annum. 62 On December 31, 2008, $9,593 was included in accounts receivable from related parties for a purchase of goods by Global Consulting on behalf of a customer of the registrant. Global Consulting is a company owned by the Seymour Kazimirski, Chairman of the registrant. The transaction was done at market rates and on the same terms as any other customer. Hubert Meier. In addition to being a director of the registrant, Mr. Meier provides consulting services to the registrant for the purposes of assisting with product and supplier development. Specifically, Mr. Meier has been responsible for development, manufacturing and testing of our DataTRAC(tm) RFID tags, sourcing microchip manufacturers, sourcing reader manufacturers, sourcing antennae design suppliers, and overall product development. Mr. Meier continues to provide services based on his hourly rate of $175 per hour. During 2008 and 2007, consulting fees totaled $49,654 and $20,200 for his services, respectively. Terry Fields. In addition to being a director of the registrant, Mr. Fields provides consulting services to the registrant 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. His contract began on May 21, 2002 and expired on May 21, 2005. The contract was not renewed however Mr. Fields continues to provide services based on his hourly rate of $175 per hour. During 2007 consulting fees totaled $41,815 for his services. As a result of the registrant's financial position, in December 2008, Mr. Fields reversed all 2008 charges for his services to the registrant but was granted a bonus of $7,000 for his services. Sudeep Bhargava. During the period ended December 31, 2008, Mr. Sudeep Bhargava, Vice President Operations and Interim CFO, received $86,736 in salary and bonuses. In the same period in 2007, he received $74,681. Based on the registrant's financial position at year end, Mr. Bhargava voluntarily agreed to reverse all share based compensation for the year ended December 31, 2008. Dan Finch. In addition to being president and CEO, Mr. Dan Finch also performs a role of director of the registrant. Mr. Finch is compensated for his services as a director. In addition to the stock options granted to Mr. Finch, during the period ending December 31, 2008 and December 31, 2007 a total of $86,560 and $112,803 respectively was paid for salary, bonuses and director fees. Based on the registrant's financial position in December 2008, Mr. Finch voluntarily agreed to reverse all director's fees and other share based compensation for the year ended December 31, 2008. Cancelled common shares. On December 31, 2008, accounts receivable from related parties included $283,995 representing the balance of all voluntary reversals of share-based compensation by directors of the registrant. The amounts were subsequently settled by having all shares returned and cancelled. Other related party transactions. On December 31, 2008 accounts receivable from related parties also included $47,113 due from Pneu Logic Ltd. Pneu Logic Ltd. is owned by George Yeomans, who is a 63 director of PLCL. In addition, another $6,273 was included in accounts receivable from related party, for an amount due from RBC Electronics which is also owned by George Yeomans. As of December 31, 2008, included in accounts payable to related parties is $986 due to Global Consulting for expenses; $4,738 to Daniel Finch, President and CEO, for fees and expenses; $874 to Hubert Meier, a director for expenses; $7,000 to Terry Fields, a director for a bonus; and $26,443 due to Sudeep Bhargava for bonuses and expenses. Also included in accounts payable to related parties is $26,365 due to Laren Yeomans for expenses and fees, $33,448 to RBC Electronics for products and 25,627 Pounds ($38,590) to PLL. Laren Yeomans, a director and employee of Pneu-Logic Corporation, Ltd, earned $133,335 of salary during the year ended December 31, 2008. The amount was partially settled in shares. RBC Electronics Limited is a company controlled by George Yeomans who is a director of PLCL. During the year ending December 31, 2008, $163,618 in inventory was purchased from RBC. $170,000 was paid to George Yeomans, a director of PLCL, during 2008 for the contingent consideration due on the acquisition of Pneu Logic and the Mr. Yeomans loaned 31,053 Pounds ($46,761) back to PLCL for operating capital. Director Independence. Seymour Kazimirski, Hubert Meier, Terry Fields, Dan Finch, George Yeomans and Laren Yeomans are not independent as such term is defined by a national securities exchange or an inter-dealer quotation system. During the fiscal year ended December 31, 2008, there were no transactions with related persons other than as described in the section above entitled "Item 11. Executive Compensation". ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Audit Fees. We incurred aggregate fees and expenses of approximately $111,742, $78,500 and $55,000 from our principal accountant for the 2008, 2007 and 2006 fiscal years respectively. Such fees included work completed for our annual audit in previous years and for the review of our financial statements included in our Forms 10-QSB. In addition we incurred aggregate fees to our new auditors of US$67,500 related to our 2008 audit. Tax Fees. We incurred aggregate tax fees and expenses of $1,000, $Nil and $Nil from our tax accountant for the 2008, 2007 and 2006 fiscal years respectively, for professional services rendered for tax compliance, tax advice, and tax planning. 64 The board of directors, acting as the Audit Committee considered whether, and determined that, the auditor's provision of non-audit services was compatible with maintaining the auditor's independence. All of the services described above for fiscal year 2008 and 2007 were approved by the Board of Directors pursuant to its policies and procedures. In 2008 we changed our auditors to Yu and Associates. We intend to continue using Yu and Associates for audit and audit-related services, tax consultation and tax compliance services, and, as needed, for due diligence in acquisitions. Until November 2008, we were using LBB and Associated Ltd. LLP. 65 Part IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)(1) List of Financial statements included in Part II hereof Balance Sheets, December 31, 2008 and 2007 Statements of Operations for the years ended December 31, 2008 and 2007 Statements of Stockholders' Equity for the years ended December 31, 2008 and 2007 Statements of Cash Flows for the years ended December 31, 2008 and 2007 Notes to the Financial Statements (a)(2) List of Financial Statement schedules included in Part IV hereof: None (a)(3) Exhibits The following of exhibits are filed with this report: (31) 302 certification (32) 906 certification 66 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned duly authorized person. Advanced ID Corporation (Registrant) By: /s/ Dan Finch Dated: September 28, 2009 ---------------------- Dan Finch, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Dan Finch Dated: September 28, 2009 ---------------------- Dan Finch, CEO, Principal Accounting Officer, Director By: /s/Seymour Kazimirski Dated: September 28, 2009 ---------------------- Seymour Kazimirski, CFO, Director By: /s/Terry Field Dated: September 28, 2009 ---------------------- Terry Field, Director

ADVANCED ID CORP 10-K/A