- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

Or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File #333-74638

LABWIRE, INC.

(Exact name of registrant as specified in its charter)

NEVADA		37-1501818
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)

1514 North FM 359 Brookshire, Texas		77423
(Address of principal executive offices)		(Zip Code)

(281) 934 – 3158

(Registrant's telephone no., including area code)

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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨     No x

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).  

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if smaller reporting company

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act: Yes   o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

At May 8, 2009, there were 144,452,334 shares of common stock outstanding.

 

 

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TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION

 

			Page No.
Item 1.		Financial Statements	3
		Consolidated Balance Sheets – March 31, 2009 (Unaudited) and March 31, 2008	3
		Unaudited Consolidated Statements of Operations-Three Months Ended March 31, 2009 and 2008	4
		Unaudited Consolidated Statement of Changes in Stockholders’ Equity (Deficit) – Three Months Ended March 31, 2009	5
		Unaudited Consolidated Statements of Cash Flows-Three Months Ended March 31, 2009 and 2008	6
		Notes to Unaudited Consolidated Financial Statements	7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.		Quantitative and Qualitative Disclosures About Market Risks	16
Item 4T.		Controls and Procedures	17
PART II OTHER INFORMATION
Item 1.		Legal Proceedings	17
Item 2.		U Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.		D Defaults Upon Senior Securities	17
Item 4.		Submission of Matters to a Vote of Security Holders	17
Item 5.		Other Information	17
Item 6.		Exhibits	17
Signatures			18

 

 

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ITEM 1. FINANCIAL STATEMENTS

LABWIRE, INC.

Consolidated Balance Sheets

		3/31/2009				12/31/2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	64,007			$	186,144
Accounts Receivable , net			754,191				480,295
Prepaid Expenses			205,064				-
Employee Advances			30,405				26,405
Total Current Assets			1,053,667				692,844
PROPERTY AND EQUIPMENT:
Laboratory equipment			55,020				53,781
Vehicles			7,000				7,000
Office furniture and equipment			56,116				56,116
Proprietary software			293,294				267,617
Less: Accumulated Depreciation			(133,105	)			(113,609	)
Net Property and Equipment			278,325				270,905
OTHER ASSETS:
Goodwill			455,210				455,210
TOTAL ASSETS		$	1,787,202			$	1,418,959
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses			771,801				316,688
Income taxes payable			34,521				21,140
Line of credit			300,000				300,000
Notes Payable - Bridge Loan			260,000				280,000
Current portion on long-term debt			197,175				198,290
Notes payable to related parties			-				-
Accrued Interest			2,229				43,297
Accrued Interest payable - related parties			-				-
Total Current Liabilities			1,565,726				1,159,415
LONG-TERM LIABILITIES
Long-term debt, less current portion above			266,666				283,574
Total Long-term Liabilities			266,666				283,574
TOTAL LIABILITIES			1,832,392				1,476,776	(1)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; $0.01 par value; 150,000,000 shares authorized, 142,699,001 and 142,699,001  shares outstanding, respectively			142,699				142,499
Additional paid-in capital			670,674				670,674
Accumulated deficit			(858,563	)			(837,403	)
Total Stockholders' Equity (Deficit)			(45,190	)			(24,030	)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)		$	1,787,202			$	1,418,959

 

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LABWIRE, INC.

Consolidated Statements of Operations

		For the Three				For the Three
		Months Ended				Months Ended
		March 31, 2009				March 31, 2008
REVENUES		$	1,233,003			$	864,997
COST OF SALES			708,352				462,708
GROSS PROFIT			524,651				402,289
OPERATING EXPENSES:
General and administrative expenses			239,480				163,827
Bad debt expense			17,514				520
Advertising and marketing expenses			8,047				4,244
Payroll expenses			206,139				239,393
Total Operating Expenses			471,180				407,984
INCOME FROM OPERATIONS			53,471				(5,695	)
OTHER INCOME (EXPENSES)
Interest expense			(27,466	)			(18,385	)
Interest income			4				78
Total Other Income (Expense)			(27,462	)			(18,307	)
NET INCOME (LOSS) BEFORE TAXES			26,009				(24,002	)
PROVISION FOR INCOME TAXES			13,381				(16,299	)
NET INCOME (LOSS)		$	12,628			$	(7,703	)
BASIC EARNINGS (LOSS) PER SHARE		$	0.00			$	(0.00	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING			142,699,001				140,399,001

 

 

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LABWIRE, INC.

Consolidated Statements of Stockholders' Equity (Deficit)

										Additional								Total
		Common				Stock				Paid-In				Accumulated				Stockholders’
		Shares				Amount				Capital				Deficit				Equity (Deficit)
Balance, December 31, 2006			140,399,001			$	140,399			$	471,384			$	(811,382	)		$	(199,599	)
Cash received for prior issued common shares			-				-				5,439				-				5,439
Net Income for year ended
December 31, 2007 (restated)			-				-				-				168,585				168,585
Balance, December 31, 2007 (restated)			140,399,001				140,399				476,823				(642,797	)			(25,575	)
Common shares issued for cash			100,000				100				14,900				-				15,000
Common stock issued for debt			2,200,000				2,200				178,951				-				181,151
Net loss for year ended
December 31, 2008			-				-				-				(194,606	)			(194,606	)
Balance, December 31, 2008			142,699,001			$	142,699			$	670,674			$	(837,403	)		$	(24,030	)
Common shares issued for cash			-				-				-				-				-
Common stock issued for debt			-				-				-				-				-
Top side entry for Cost of Goods Sold accrual															(33,788	)			( 33,788	)
Net income  for the three months  ended
March 31, 2009			-				-				-				12,628				12,628
			142,699,001			$	142,699			$	670,674			$	(858,563	)		$	(45,190	)

 

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LABWIRE, INC.

Consolidated Statements of Cash Flows

		For the Three				For the Three
		Months Ended				Months Ended
		March 31, 2009				March 31, 2008
OPERATING ACTIVITIES
Net Income (Loss)		$	12,628			$	(7,703	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation			19,497				11,640
Changes in operating activities
(Increase) decrease in accounts receivable			(273,896	)			502,390
(Increase) decrease in employee advances			(4,000	)			(12,500	)
(Increase) decrease in prepaid expenses			(199,715	)			(191,741	)
Increase (decrease) in accounts payable and accrued expenses			415,977				(368,964	)
Increase (decrease) in accrued interest payable			7,065				11,275
Increase (decrease) in income taxes payable			13,381				(24,303	)
Net Cash Provided by Operating Activities			(9,063	)			(79,906	)
INVESTING ACTIVITIES
Purchase of property and equipment			(1,240	)			(1,479	)
Capitalized software costs			(25,678	)			(35,500	)
Net Cash Used in Investing Activities			(26,918	)			(36,979	)
FINANCING ACTIVITIES
Repayment of notes payable			(86,156	)			( 45,645	)
Proceeds from line of credit			-				100,000
Sale of common stock for cash			-				15,000
Net Cash Provided by Financing Activities			(86,156	)			69,355
NET INCREASE IN CASH			(122,137	)			(47,530	)
CASH AT BEGINNING OF YEAR			186,144				200,208
CASH AT END OF YEAR		$	64,007			$	152,678
CASH PAID FOR:
Interest		$	27,466			$	31,305
Income Taxes		$	-			$	-
NON CASH FINANCING ACTIVITIES:
Common stock issued for debt		$	-			$	-

The accompanying condensed notes are an integral part of these consolidated financial statements.

 

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1. Summary of Significant Accounting Policies

 

Nature of Operations - The Company was incorporated in Nevada on October 8, 2004 as Labwire, Inc. (referred to herein as "the Company"). The Company was established as a an employee screening company specializing in drug testing and background investigations with a client base of large US and European corporations which provides compliance services for Department Of Transportation (49cfr part 40) and Security and Exchange Commission  (Fair Credit Reporting Act) governed programs.  

Basis of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Occupational Testing, Inc.  All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation – The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. Significant accounting principles followed by the Company and the methods of applying those principles, which materially affect the determination of financial position and cash flows are summarized below.

Cash and Cash Equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid instruments with original maturities of ninety days or less, to be cash equivalents.

 

Allowance for Doubtful Accounts Receivables - The allowance for doubtful accounts is based on a combination of historical data, cash payment trends, specific customer issues, write-off trends, general economic conditions and other factors. These factors are continuously monitored by management to arrive at an estimate for the amount of accounts receivable that may ultimately be uncollectible. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, the Company records a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount it reasonably believes will be collected. This analysis requires making significant estimates, and changes in facts and circumstances could result in material changes in the allowance for uncollectible receivables.  The Company’s allowance for doubtful accounts receivables was $187,070 and $192,111 at March 31, 2009 and December 31, 2008, respectively.

 

Fair Value of Financial Instruments - The Company's financial instruments includes accounts receivable, accounts payable, notes payable and long-term debt. The fair market value of accounts receivable and accounts payable approximate their carrying values because their maturities are generally less than one year. Long-term notes receivable and debt obligations are estimated to approximate their carrying values based upon their stated interest rates.

 

Long-Lived Assets   -   The Company reviews long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with Statement of financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment for Disposal of Long-Lived Assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount of the asset exceeds the fair value of the asset.

Basis of Presentation   -   In the opinion of management, the accompanying balance sheets and related interim statements of income, cash flows, and stockholders' equity include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management's estimates and assumptions.

 

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Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Form 10-K.

Property and equipment - Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided primarily by the straight-line method over the estimated useful lives of the related assets generally of five to seven years.

Computer equipment is being depreciated over three (3) years, equipment and furniture & fixtures over five (5) years using the straight-line method, vehicles over five (5) years using the straight-line method, and software over five (5) years using the straight-line method.

Following is a description of the Company’s depreciated property:

Asset Description		Historical Cost				Accum Depreciation				Net Book Value
Office Furniture & Equipment		$	56,116			$	34,543			$	21,573
Equipment			55,020				37,266				17,754
Vehicles			7,000				5,444				1,556
Software Development			293,294				55,852				237,442

Net Property and Equipment

$

278,325

 

Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce the deferred tax assets to the amount expected to be realized. The Company has established a 100% valuation allowance for any temporary timing issues resulting in a deferred tax asset.  Income tax expense is payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

 

Use of Estimates   - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition - The Company's revenues are derived principally from the sale of medical testing services to companies and individuals. Revenue is recognized after the test as services have been provided and there are no longer any material commitments to the customer.

Software Development Costs - The Company follows the guidance set forth in Statement of Position 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use (SOP 98-1), in accounting for costs incurred in the development of its on-demand application suite. SOP 98-1 requires companies to capitalize qualifying computer software costs that are incurred during the application development stage and amortize them over the software’s estimated useful life.

 

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1. Summary of Significant Accounting Policies - Continued

Software Development Costs - continued

The Company capitalizes costs associated with developing software for internal use, which costs primarily include salaries of developers.  Direct costs incurred in the development of software are capitalized once the preliminary project stage is completed, management has committed to funding the project and completion and use of the software for its intended purpose are probable.  The Company ceases capitalization of development costs once the software has been substantially completed at the date of conversion and is ready for its intended use. The estimation of useful lives requires a significant amount of judgment related to matters, specifically, future changes in technology. The Company believes there have not been any events or circumstances that warrant revised estimates of useful lives.

Purchase Accounting - The Company completed acquisitions in 2004 and in the fourth quarter of 2007. The purchase method of accounting requires companies to assign values to assets and liabilities acquired based upon their fair values. In most instances, there is not a readily defined or listed market price for individual assets and liabilities acquired in connection with a business, including intangible assets. The determination of fair value for assets and liabilities in many instances requires a high degree of estimation. The valuation of intangibles assets, in particular, is very subjective.  The Company generally uses internal cash flow models and, in certain instances, third party valuations in estimating fair values. The use of different valuation techniques and assumptions can change the amounts and useful lives assigned to the assets and liabilities acquired, including goodwill and other intangible assets and related amortization expense.

Advertising Costs - Advertising costs are reported in selling, general and administrative expenses and include advertising, marketing and promotional programs. As of March 31, 2009 and December 31, 2008, all of these costs were charged to expenses in the period or year in which incurred. Advertising costs for the quarters ended March 31, 2009 and December 31, 2008 were $8,047 and $19,648, respectively.

Stock Options - The Company accounts for stock options issued to employees in accordance with APB No.25.

 The Company has elected to adopt the disclosure requirements of SFAS No.123 "Accounting for Stock-based Compensation". This statement requires that the Company provide proforma information regarding net income (loss) and income (loss) per share as if compensation cost for the Company's stock options granted had been determined in accordance with the fair value based method prescribed in SFAS No. 123. Additionally, SFAS No. 123 generally requires that the Company record options issued to non-employees, based on the fair value of the options.

 

Stock Based Compensation – Labwire accounts for stock-based employee compensation arrangements using the fair value method in accordance with the provisions of Statement of Financial Accounting Standards no.123(R) or SFAS No. 123(R), Share-Based Payments, and Staff Accounting Bulletin No. 107, or SAB 107, Share-Based Payments. The company accounts for the stock options issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards No. 123, or SFAS No. 123, Accounting for Stock-Based Compensation, and Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments with Variable Terms That Are Issued for Consideration other Than Employee Services Under FASB Statement No. 123. The fair value of stock options and warrants granted to employees and non-employees is determined using the Black-Scholes option pricing model.

Net Earnings (Loss) per Share - Basic and diluted net loss per share information is presented under the requirements of SFAS No. 128, Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, less shares subject to repurchase. Diluted net loss per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, shares subject to repurchase, warrants and convertible notes in the weighted-average number of common shares outstanding for a period, if dilutive. During the three months ended March 31, 2009 and the year ended December 31, 2008 there were no dilutive securities.  The computation of earnings (loss) per share is as follows:

		Quarter Ended				Quarter Ended
		Mar 31, 2009,				Dec 31, 2008
Net Income (Loss)		$	12,628			$	( 194,606	)
Weighted average shares outstanding			142,699,001				141,586,433
Basic Earnings (Loss) per share		$	( 0.00	)		$	0.00

Recent Accounting Pronouncements

 

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need

 

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1. Summary of Significant Accounting Policies - Continued

to be included in the computation of earnings per share under the two-class method as described in FASB Statement of Financial Accounting Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have material effect on our consolidated financial position   and results of operations if adopted.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “ Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60 ”.   SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of  premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this  time.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, “ The Hierarchy of Generally Accepted Accounting Principles ”.   SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this  time.

In March 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133.   This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its financial position, results of operations or cash flows.

In December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123 (R), Share-Based Payment .  In particular, the staff indicated in SAB 107 that it will accept a company's election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for “plain vanilla” share options and warrants, and will assess the impact of SAB 110 for fiscal year 2009. It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.

 

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1. Summary of Significant Accounting Policies - Continued

Recent Accounting Pronouncements – continued

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements —an amendment of ARB No. 51.  This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This statement improves comparability by eliminating that diversity. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this statement is the same as that of the related Statement 141 (revised 2007). The Company will adopt this Statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations. ’This Statement replaces FASB Statement No. 141, Business Combinations , but retains the fundamental requirements in Statement 141.  This Statement establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this statement is the same as that of the related FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements .  The Company will adopt this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB, issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities —Including an Amendment of FASB Statement No. 115.  This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entities first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value Measurements .  The Company adopted SFAS No. 159 beginning March 1, 2008. The adoption of this pronouncement did not have an impact on the Company’s financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements   This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company adopted this statement March 1, 2008. The adoption of this pronouncement did not have an impact on the Company’s financial position, results of operations or cash flows.

 

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2.  Goodwill

The Company acquired 100% of Occupational Testing, Inc. (OTI) on October 31, 2007 for $120,000 cash and a $480,000 note bearing interest at 1% over New York floating prime.  The note is payable in quarterly installments of $40,000 plus accrued interest beginning January 31, 2008.  The purchase of OTI resulted in $455,210 in goodwill as an asset on the Company’s financial statements.  At March 31, 2009, the Company determined that the fair value of the reporting entity unit exceeds its carrying amount and hence the goodwill is not impaired.  In 2006, the Company wrote off $476,933 in goodwill deemed impaired from the Workplace Screening, Inc. acquisition of Labwire, Inc.

3.  Line of Credit

On March 4, 2008, the Company transferred the $241,933 balance on the revolving Line of Credit to an installment loan at 4.25% with Frost Bank maturing on March 4, 2011.  Monthly installment payments of $6,761.31 plus interest are due on the 4 th of each month.

On March 4, 2008, the Company established another $300,000 revolving line of credit with Frost Bank that matures on March 4, 2009.  The interest rate on the outstanding balance of the revolving line of credit is a floating prime plus 1% and is due on the 13 th of each month.

The principal balance owing by the Company at March 31, 2009 was $300,000 and accrued interest payable was $-0-. The Company had no available funds on the revolving line of credit at March 31, 2009.  This line of credit is secured by a UCC Financing statement signed by the Company in favor of the lender and by the personal guarantee of the Company’s Chief Executive Officer.

4. Long-term notes payable

As of March 31, 2009 and December 31, 2008, the Company had notes payable as follows:

		2009				2008
Note to A. Murphy, due in quarterly installments of $40,000 beginning January 31, 2008 and bears interest at 1% over New York floating prime		$	302,138			$	340,718
Less:  current portion			160,000				160,000
		$	142,138			$	180,718

		2009				2008
Installment Loan to Frost Bank, due in monthly installments of $6,761.31 Beginning April 4, 2008 and bears interest at 4.25%		$	163,933			$	184,444
Less:  current portion			81,136				81,136
		$	82,797			$	103,308
Bridge loan from Northamerican Energy Group, Inc., due on April 1, 2009 and bears interest at 1% per fifteen (15) day period or 24.33% per annum		$	260,000			$	280,000
Less:  current portion			260,000				280,000
		$	-			$	-
Related Party Notes Payable:
Shareholders, due on demand, bearing interest at 1.71% per annum		$	-			$	100,985
Workplace Health, due on demand, bearing interest at 4.5% per annum			-				56,000
			-				156,985
Less:  current portion			-				156,985
		$	-			$	-

The A. Murphy note payable is secured by all of the outstanding stock and all of the assets of Occupational Testing, Inc.  The related party notes payable are unsecured.

 

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4. Long-term notes payable – continued

The bridge loan from Northamerican Energy Group, Inc. is secured by 1,753,333 shares of Labwire, Inc (LBWR) common stock which is held by a mutually agreed upon third party.  Principal payments made on the loan will reduce the required collateralized stock in the amount of $.15 per share.  Seizure of the collateral by Northamerican Energy Group, Inc. will constitute payment in full of the entire principal amount of the note.

Accrued interest on the Northamerican Energy Group, Inc. note has been paid through March 31, 2009.

Maturities of notes payable and long-term debt for each of the years succeeding December 31, 2008 are as follows:

Year ending December 31,
2009		$	501,136
2010			241,136
2011			42,890
		$	785,162

As of April 1, 2009, the Northamerican Energy Group, Inc. note remained outstanding and the lender exercised its right to seize the collateralized stock, thereby satisfying the loan in full.

Maturities of notes payable and long-term debt for each of the years succeeding December 31, 2008 based upon retirement of the Northamerican Energy Group, Inc. loan are as follows:

Year ending December 31,
2009		$	241,136
2010			241,136
2011			42,890
		$	525,162

5.   Stockholders’ Equity

The Company is authorized to issue 200,000,000 shares of common stock with a par value of $.001 per share.  The Company had 142,699,000 and 140,399,000 shares issued and outstanding at December 31, 2008 and December 31, 2007, respectively.

In the year ended December 31, 2008, the Company sold 100,000 shares in private placements to accredited investors for $15,000 in cash.

In June 2008, the Company issued 2,200,000 shares in retirement of the following related party debt:

J Maring Note  (1.71% APR)		$	61,541
D Morris Note   (1.71% APR)			50,889
Workplace Health Note (4.5% APR)			68,721
Total		$	181,151

6. Income Taxes

 

The Company provides for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Company’s predecessor operated as entity exempt from Federal and State income taxes.

SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

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6. Income Taxes – Continued

The Company has a timing difference between book and tax income since the Company has goodwill on the books from the purchase of Occupational Testing Inc. in the amount of $455,210 and goodwill written off the books for financial purposes from the Labwire, Inc. purchase of $476,933 which creates a timing difference for tax purposes.  The temporary and permanent timing differences between tax and financial reporting is as follows:

The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 39% to the net loss before provision for income taxes for the following reasons:

		Three Months Ended				Year Ended
		March 31, 2009				December 31, 2008
Income tax expense at statutory rates		$	13,381			$	(69,288	)
Valuation Allowance			-				69,288
Income tax expense per books		$	13,381			$	-

Net deferred tax assets consist of the following components as of:

		Three Month Ended				Year Ended
		March 31, 2009				December 31, 2008
NOL Carryover		$	43,279			$	69,288
Valuation Allowance			(43,279	)			(69,288	)
Net deferred tax asset		$	-			$	-

At March 31, 2009, the Company had total net operating losses carried forward of approximately $325,891 that may be offset against future taxable income through 2027.  Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards are subject to annual limitations.   Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.  No tax benefit has been reported in the March 31, 2009 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 regarding “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB No. 109 (“FIN 48”), which defines the

threshold for recognizing the benefits of tax-return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authorities. The Company has reviewed its tax positions for open tax years 2005 and later and the adoption of FIN 48 on January 1, 2007 did not result in establishing a contingent tax liability reserve nor a corresponding charge to retained earnings. Also, no such uncertainties were identified during 2007. The Company has substantial tax benefits derived from its operating loss carryforwards but has provided 100% valuation allowances against them due to uncertainties associated with the realization of those tax benefits.

The recognition and measurement of certain tax benefits includes estimates and judgment by management and inherently includes subjectivity. Changes in estimates may create volatility in the Company’s effective tax rate in future periods from obtaining new information about particular tax positions that may cause management to change its estimates. If the Company would establish a contingent tax liability reserve, interest and penalties related to uncertain tax positions would be classified in general and administrative expenses.

7.   Related Party Transactions

As of March 31, 2009, these loans and advances, which bear interest at 1.71% and are unsecured, have been converted to 2,200,000 shares of common stock.

 

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8.  Acquisitions

 

On October 31, 2007, the Company acquired Occupational Testing, Inc.  The acquisition cost, funded from our existing cash balances and by the issuance of a promissory note to the shareholder of Occupational Testing, Inc., are shown by the following table which summarizes the purchase consideration and fair values of the assets acquired at the date of acquisition:

Purchase Price Consideration
Cash paid to the shareholder of Occupational Testing, Inc.		$	120,000
Promissory Note to the shareholder of Occupational Testing, Inc.			480,000
Acquisition costs			10,960
Total consideration paid		$	610,960
Net Assets Acquired
Cash and cash equivalents		$	42,711
Accounts receivable			105,063
Fixed assets			13,410
Other assets			780
Goodwill			455,210
Liabilities assumed			(6,214)
Total net assets		$	610,960

The Company has included the results of operations for Occupational Testing, Inc. in its financial statements since October 31, 2007.

9.  Restatement of Financial Statements

 

The accompanying financial statements for the year ended December 31, 2008 have been restated to reflect the under accrual of collection expenses by $33,787.    

 

Year ended December 31, 2008		Revised				Original
Consolidated Balance Sheet:
Accounts payable and accrued expenses		$	350,475			$	316,688
Total Liabilities		$	1,476,776			$	1,442,989
Accumulated Deficit		$	( 871,190)	)		$	(837,403)	)
Total Shareholders’ Equity		$	(57,817)			$	(24,030)
Consolidated Statement of Operations:
Cost of Sales		$	2,300,261			$	2,266,474
Net Profit		$	(228,393)	)		$	(194,606)	)

10. Subsequent Events

The bridge loan from Northamerican Energy Group, Inc. is secured by 1,753,333 shares of Labwire, Inc. common stock which is held by a mutually agreed upon third party.  Per the promissory note executed on February 4, 2009 and dated January 1, 2009, seizure of the collateral by Northamerican Energy Group, Inc. constitutes payment in full of the entire principle amount of the note.

Accrued interest on the Northamerican Energy Group, Inc. note has been paid through March 31, 2009.

As of April 1, 2009 the Northamerican Energy Group, Inc. note remained outstanding and the lender exercised its right to seize the collateralized stock, thereby satisfying the $263,000 outstanding balance of the loan in full.

 

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10. Subsequent Events - continued

As a result of the retirement of the Northamerican Energy Group, Inc. note on April 1, 2009. Maturities of notes payable and long-term debt for each of the years succeeding December 31, 2008 are as follows:

Year ending December 31,
2009		$	241,136
2010			241,136
2011			42,890
		$	525,162

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our unaudited consolidated interim financial statements and related notes thereto included in this quarterly report and in our audited consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contained in our Form 10-K for the year ended December 31, 2008. Certain statements in the following MD&A are forward looking statements. Words such as "expects", "anticipates", "estimates" and similar expressions are intended to identify forward looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

MATERIAL CHANGES IN FINANCIAL CONDITION

As of March 31, 2009, our cash and cash equivalents were $64,007, compared to $186,144 at December 31, 2008. This decrease was due to the timing of our collections, as revenue from several accounts was collected in the last quarter of 2008 rather than the first quarter of 2009.

At December 31, 2008, our accounts receivable were $480,295. At March 31, 2009, these accounts were $754,191.  Our accounts receivable increased substantially due to additional accounts coming online. This increase was expected as we believed that our new accounts (and one returning customer) would begin to produce revenue for us at the beginning of this year.

Our working capital deficit at March 31, 2009 was $512,059 compared to $202,976 at March 31, 2008. The Company believes that the current cash flow and planned increase in operations are adequate to satisfy the working capital deficit.  

For the three months ended March 31, 2009, cash used in operating activities was $9,063, compared to cash used by operating activities of $79,906 for the three months ended March 31, 2008. This substantial change in cash flow used in operating activities was mainly due to net income increasing $20,331, and an increase of $37,684 in income taxes payable.

RESULTS OF OPERATIONS

Our revenues in the quarter ended March 31, 2009 ($1,223,003) increased over 41% from the quarter ended March 31, 2008 ($864,997). This increase in revenue was due to several new accounts that the Company obtained last year. As expected, the revenues from these accounts began to show up in the first quarter.

Our margins on these revenues declined somewhat year-over-year, however. At March 31, 2008, our operating margin (gross profit divided by revenues) was 46.5%. At March 31, 2009, our margin had decreased to 42.6%. The reason for this decrease was greater volume in our security business (K-9), which only has a 5% margin.

Our operating expenses increased over 15% from March 31, 2008 to March 31, 2009. The main contributor to this increase was general and administrative expenses, which increased from $163,827 at March 31, 2008 to $239,480 at March 31, 2009. Our bad debt expense also increased substantially from $520 at March 31, 2009 to $17,514 at March 31, 2009. This increase in bad debt expense is due to several accounts that pay slow; in accordance with the Company’s accounting policies, accounts receivable more than 90 days old are fully reserved as bad debt expense.

Despite the overall increase in expenses, the Company was still able to post an operating profit of $53,471 this quarter, as opposed to a loss of $5,695 in the quarter ended March 31, 2008.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item.

 

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ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures . We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective ensuring that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in internal controls . There have not been any changes in our internal control over financial reporting that occurred during the last quarter ended March 31, 2009 that has materially affect or is reasonably likely to materially affect internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS  

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 4, 2009, the Company issued 1,753,333 shares of its common stock as collateral for a promissory note in the principal amount of $263,000. This issuance was made in reliance upon the exemption provided by Section 4(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

3.1*	Articles of Incorporation of Labwire, Inc. (as amended September 19, 2008)
3.2*	Nevada Secretary of State Certificate
3.3*	By-Laws of Labwire, Inc.
10.1*	Agreement and Promissory Note for Purchase of Occupational Testing, Inc.
10.2*	Alliance Agreement with USIS Commercial Services, Inc.
10.3*	Master Service Agreement with Laboratory Corporation of America Holdings
10.5*	Agreement with Connex North America, Inc. (now Veolia) for services
10.6*	Agreement with ARAMARK Management Services for services
10.7*	Agreement with Greyhound Lines, Inc. for Services
10.8*	Agreement with Boeing for Services
10.9*	Lease  Agreement with FM358 LTD for office space in Brookshire, Texas
10.10*	Lease Agreement with Michael and Christina Geis for office space in Wyoming
10.13**	Services Agreement with Evergreen International Aviation, Inc.
10.14*	Agreement with American K-9 Bomb Search, Inc.
10.15*	Purchase Order From Lockheed for Services
10.16*	Agreement with Shell Chemical for Services
10.17*	US Patent and Trademark Office Notice on Trademark Registration
10.18*	Loan Agreement with Frost Bank for $300,000 due February 13, 2010

 

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10.19*	Loan Agreement with Frost Bank for $241,932 due March 4, 2011
10.20*	Security Agreement for Frost Bank $300,000 Loan
10.21*	Security Agreement for Frost Bank $241,932 Loan
14.1*	Code of Ethics
21.1*	Subsidiaries of Registrant
31.1	Certification of Chief Executive Officer Pursuant to Rule 15d-14(a) of the Exchange Act
31.2	Certification of Chief Financial Officer Pursuant to Rule 15d-14(a) of the Exchange Act
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.

* Incorporated by reference from our Form 10-12G/A filed on December 23, 2008.

** Incorporated by reference from our Form 8-K filed on February 26, 2009.

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the undersigned has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brookshire, Texas, on August 12, 2009.

LABWIRE, INC.
By:  /s/  G. Dexter Morris
G. Dexter Morris
Chief  Executive  Officer,  Chief Financial Officer, and Director

 

 

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