LABWIRE,
INC.
Condensed
Consolidated Statements of Operations
|
|
For
the Three Months Ended
June
30,
|
|
For
the Six Months
Ended
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
$ 1,019,324
|
|
$
1,009,310
|
|
$
1,876,253
|
|
$
2,177,285
|
|
COST
OF SALES
|
496,804
|
|
563,931
|
|
959,513
|
|
1,358,218
|
|
GROSS
PROFIT
|
522,520
|
|
445,379
|
|
916,740
|
|
819,067
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
198,194
|
|
135,816
|
|
362,021
|
|
305,114
|
|
Bad
debt expense
|
1,481
|
|
490
|
|
2,001
|
|
490
|
|
Advertising
and marketing expense
|
5,131
|
|
280
|
|
9,376
|
|
1,188
|
|
Payroll
expenses
|
225,888
|
|
162,402
|
|
465,281
|
|
289,474
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
430,694
|
|
298,988
|
|
838,679
|
|
596,266
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
91,826
|
|
146,391
|
|
78,061
|
|
222,801
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Interest expense
|
(34,591)
|
|
(6,483)
|
|
(52,976)
|
|
(12,551)
|
|
Interest
income
|
-
|
|
-
|
|
78
|
|
-
|
|
Total
Other Income (Expenses)
|
34,591
|
|
(6,483)
|
|
(52,898)
|
|
(12,551)
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) BEFORE TAXES
|
57,235
|
|
139,908
|
|
25,163
|
|
210,250
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE (BENEFIT)
|
13,890
|
|
32,086
|
|
(2,409)
|
|
32,086
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$ 43,345
|
|
$ 107,822
|
|
$ 27,572
|
|
$ 178,164
|
|
|
|
|
|
|
|
|
|
|
BASIC
EARNINGS (LOSS) PER SHARE
|
$ 0.00
|
|
$
0.00
|
|
$
0.00
|
|
$
0.00
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
140,499,001
|
|
140,399,001
|
|
140,499,001
|
|
138,315,665
|
The
accompanying notes are an integral part of these financial
statements.
LABWIRE,
INC.
Condensed
Consolidated Statement of Stockholders’ Equity (Deficit)
|
DESCRIPTION
|
Common
Shares
|
Stock
Amount
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Total
Stockholders’
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
136,232,330
|
$ 136,232
|
$ 168,346
|
$ (310,401)
|
$ (5,823)
|
|
|
|
|
|
|
|
|
Common
shares issued for cash
|
4,166,671
|
4,167
|
303,038
|
-
|
307,205
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2006
|
-
|
-
|
-
|
(500,981)
|
(500,981)
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
140,399,001
|
140,399
|
471,384
|
(811,382)
|
(199,599)
|
|
|
|
|
|
|
|
|
Net
income for the year ended December 31, 2007
(Restated)
|
-
|
-
|
-
|
103,747
|
103747
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007 (Restated)
|
140,399,001
|
140,399
|
471,384
|
(707,635)
|
(95,852)
|
|
|
|
|
|
|
|
|
Common
shares issued for cash
|
100,000
|
100
|
14,900
|
|
15,000
|
|
|
|
|
|
|
|
|
Common
stock issued to retire notes payable
|
2,200,000
|
2,200
|
178,951
|
|
181,151
|
|
|
|
|
|
|
|
|
Net
income for the six months ended June 30, 2008
|
-
|
-
|
-
|
27,572
|
27,572
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
142,699,001
|
$ 142,699
|
$ 665,235
|
$
(680,063)
|
$127,871
|
The
accompanying notes are an integral part of these financial
statements.
LABWIRE,
INC.
Condensed
Consolidated Statements of Cash Flows
|
|
For
the Six Months
Ended
June 30,
|
|
|
2008
|
|
2007
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
Net
income (loss)
|
$ 27,572
|
|
$ 178,164
|
|
|
|
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided (used) by operating
activities:
|
|
|
|
|
Depreciation
|
25,034
|
|
9,316
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
142,525
|
|
(81,471)
|
|
(Increase)
decrease in prepaid expenses
|
(46,206)
|
|
1,382
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
(543,375)
|
|
(284,112)
|
|
Increase
(decrease) in unearned income
|
61,147
|
|
-
|
|
Increase
(decrease) in accrued interest payable
|
(2,397)
|
|
-
|
|
Income
taxes payable
|
(10,413)
|
|
18,294
|
|
Net
Cash Provided by (Used) in Operating Activities
|
(346,113)
|
|
(158,427)
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
Purchase
of property and equipment
|
(15,864)
|
|
-
|
|
Development
of Software
|
(66,475)
|
|
-
|
|
Net
Cash Used in Investing Activities
|
(82,339)
|
|
-
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Repayment
of notes payable
|
(85,789)
|
|
(80,965)
|
|
Increase
in bank line of credit
|
250,000
|
|
121,000
|
|
Increase
in notes payable
|
300,000
|
|
-
|
|
Sale
of common stock for cash
|
15,000
|
|
-
|
|
Net
Cash Provided by Financing Activities
|
479,211
|
|
40,035
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
50,759
|
|
(118,392)
|
|
|
|
|
|
|
CASH
AT BEGINNING OF YEAR
|
206,520
|
|
108,346
|
|
|
|
|
|
|
CASH
AT END OF PERIOD
|
$ 257,279
|
|
$
(10,046)
|
|
|
|
|
|
|
CASH
PAID FOR:
|
|
|
|
|
Interest
|
$ 48,328
|
|
$ 12,551
|
|
Income
Taxes
|
$ -
|
|
$ -
|
The
accompanying notes are an integral part of these financial
statements.
Labwire,
Inc.
Notes to
Consolidated Financial Statements
References
to June 30, 2008 are Unaudited
1.
Summary of Significant Accounting Policies
Nature of
Operations
- Labwire, Inc. (referred to herein as “the Company”) was
incorporated in Nevada on October 8, 2004. The Company was established as an
employee screening company specializing in drug testing, background
investigations, employee training, on-line certification and security with a
client base of large US and European corporations. It provides compliance
services for Department of Transportation (49CFR Part 40) and Federal Trade
Commission (Fair Credit Reporting Act) governed
programs.
Basis of
Consolidation
– The consolidated financial statements include the
accounts of the Company and its two wholly-owned subsidiaries. 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 of America (“U.S. GAAP”). 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.
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 GAAP. Preparing financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses. Actual
results and outcomes may differ from management’s estimates and
assumptions.
Interim
results are not necessarily indicative of results for a full
year. The information included in this quarterly report should be
read in conjunction with information included in the annual financial
statements.
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 Uncollectible Receivables
- The allowance for all probable
uncollectible receivables 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 uncollectible
receivables was $5,600 at June 30, 2008 and December 31, 2007,
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.
Impairment
of 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.
At
December 31, 2007, the Company determined that the fair value of the reporting
entity unit exceeds its carrying amount and hence the goodwill is not
impaired.
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.
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. 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 GAAP 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
– We have three main sources of revenue: drug testing and
related services, training and online certification, and security services
provided by an allied company. Drug testing: we fulfill orders for
drug testing services, wherein we are responsible for the performance and data
maintenance related to employee drug testing for its clients. We do
not perform the drug tests, but we fulfill the order through our network of
third party labs and other drug testing facilities. Revenue is
recognized when the drug testing has been completed by the lab and the customer
has been invoiced for the services. We have low bad debt levels
because our policy is to deal with large well-positioned firms that pay monthly.
Because we track these company’s activities daily, we are constantly aware of
our position and therefore can demand and receive timely payments as we provide
on-going compliance services. Pursuant to EITF 99-19, we are responsible for
fulfilling a customer’s order, including whether the service is acceptable and
therefore bears the risks and rewards of principal. As such, we have
elected to record the gross amounts of the contracts. Our service
agreements rarely include multiple parts that would have a material impact on
the recognition of revenue. As such, we have created our revenue
recognition policies pursuant to EITF 00-21.
Online
training and certification: the Company has designed online testing for various
certifications which client employees must attain for their
employment. The employee takes the certification examinations online
and the client is automatically tagged for billing, which coincides with
performance of services.
Security
services provided by the Company through its allied company: the process is
handled in similar fashion to that described above for drug
testing.
Software
Development Costs
- The Company has begun developing a software platform
for certain exclusively internal purposes. 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.
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 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 of the software.
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 December 31, 2007 and 2006, all of these costs were charged to
expenses in the period or year in which incurred. Advertising costs for the six
months ended June 30, 2008 and the year ended December 31, 2007 were $9,376 and
$10,240, 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), Share-Based Payments, and Staff Accounting Bulletin No. 107. The
company accounts for the stock options issued to non-employees in accordance
with the provisions of Statement of Financial Accounting Standards 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. The Company has
adopted SFAS 123(R) and applied it in the period presented. The
Company had not issued any options to employees in the prior periods; thus there
was no impact of adopting the new standard.
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 six months ended June 30, 2008 and 2007 there were no dilutive
securities. The computation of earnings (loss) per share is as
follows:
|
|
Six
Months Ended June 30,
|
|
|
2008
|
2007
|
|
Net
Income
|
$ 27,572
|
$ 178,164
|
|
Weighted
average shares outstanding
|
140,499,001
|
138,315,665
|
|
|
|
|
|
Basic
Earnings per share
|
$ 0.00
|
$ 0.00
|
Recent Accounting
Pronouncements
In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial Guarantee Insurance Contracts-and 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 consolidated 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 consolidated financial position, results of
operations or cash flows.
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 consolidated 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 consolidated 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 will
adopt SFAS No. 159 beginning March 1, 2008 and is currently evaluating the
potential impact the adoption of this pronouncement will have on its
consolidated financial statements.
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 accordance with 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, and it is not believed that this will have an impact on the Company’s
consolidated financial position, results of operations or cash
flows.
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157, “Fair Value Measurements” which defines
fair value, establishes a framework for measuring fair value in accordance with
GAAP, and expands disclosures about fair value measurements. Where applicable,
SFAS No. 157 simplifies and codifies related guidance within GAAP and does
not require any new fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. Earlier adoption is
encouraged. The Company does not expect the adoption of SFAS No. 157
to have a significant effect on its financial position or results of
operation.
2. Restatement
In
preparing the financial statements for the quarter ended March 31, 2008, the
Company determined that it had recorded excess revenue during the year ended
December 31, 2007. As the result of this error, we are
restating our financial statements (“The Restatement”) and associated
disclosures to reduce revenues. The error resulted in the over
statement of and a corresponding understatement of net loss by $241,932, for the
year ending December 31, 2007. The restatement impacted certain line items
within cash flows from operations, but had no effect on total cash flows from
operations and did not impact cash flows from financing or investing
activities.
The
restatement also affected Note 7.
The
effect of the restatement on specific items in the balance sheet is as
follows:
|
|
December
31, 2007
|
|
|
As
Previously
Reported
|
|
Adjustments
|
|
As
Restated
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
Retained
earnings (deficit)
|
$
(465,703)
|
|
$
(241,932)
|
|
$
(707,635)
|
|
Total
Stockholders’ Equity
|
$
146,080
|
|
$
(241,932)
|
|
$
(95,852)
|
The
effect of the restatement on specific items in the statements of operations is
as follows:
|
|
Year
ended December 31, 2007
|
|
|
As
Previously
Reported
|
|
Adjustments
|
|
As
Restated
|
|
REVENUES:
|
$ 4,799,631
|
|
$
(241,932)
|
|
$ 4,557,699
|
|
GROSS
PROFIT
|
1,705,101
|
|
(241,932)
|
|
1,463,169
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
420,190
|
|
(241,932)
|
|
178,258
|
|
NET
INCOME
|
345,679
|
|
(241,932)
|
|
103,747
|
The
effect of the restatement on specific items in the statements of cash flows is
as follows:
|
|
Year
ended December 31, 2007
|
|
|
As
Previously
Reported
|
|
Adjustments
|
|
As
Restated
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
Income
|
$ 345,679
|
|
$
(241,932)
|
|
$ 103,747
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
Increase
in accounts receivable
|
(369,486)
|
|
241,932
|
|
(127,554)
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
62,054
|
|
-
|
|
62,054
|
3. Goodwill
The
Company acquired 100% of Occupational Testing, Inc. (OTI) on October 31, 2007
for $120,000 cash and a $480,000 note payable 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.
4. Notes
payable
As of
June 30, 2008 and December 31, 2007, the Company had outstanding notes payable
as follows:
|
|
June
30, 2008
|
December
31, 2007
|
|
A
. Murphy, due in quarterly installments of $40,000 beginning
January 31, 2008 and bears interest at 1% over New York floating
prime
|
$ 388,711
|
$ 480,000
|
|
Bank
installment loan, payable in monthly installments of $6,296 plus accrued
at rate of 7% interest
|
223,266
|
241,932
|
|
Note
payable August 29, 2008 at 4% interest per annum
|
300,000
|
-
|
|
Bank
line of credit due March 10, 2010 and bears interest at 7%
|
250,000
|
-
|
|
|
1,161,977
|
721,932
|
|
Less: current
portion
|
493,989
|
401,932
|
|
Long
term portion
|
$
667,988
|
$ 320,000
|
|
|
|
|
|
Related
Party Notes Payable:
|
|
|
|
Shareholders,
due on demand, bearing interest at1.71% per annum
|
$
-
|
$ 100,985
|
|
Workplace
Health, due on demand, bearing interest at 4.5% per annum
|
-
|
56,000
|
|
Total
Related Party Notes Payable
|
-
|
156,985
|
|
Less: current
portion
|
-
|
156,985
|
|
Long
term portion
|
$
-
|
$
-
|
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.
The bank
loans are secured by the Company’s receivables and by the personal guarantee of
the Company’s Chief Executive Officer.
Maturities
of notes payable and long-term debt for each of the years succeeding December
31, 2007 are as follows:
|
Year
ending December 31,
|
|
2008
|
$
493,989
|
|
2009
|
257,988
|
|
2010
|
410,000
|
|
|
$ 1,161,977
|
5.
Stockholders’ Equity
The
Company is authorized to issue 150,000,000 shares of common stock with a par
value of $.001 per share. The Company had 142,699,001 shares issued
and outstanding at June 30, 2008 and December 31, 2007,
respectively.
During
the second quarter of 2008, we issued an aggregate of 2,200,000 shares of our
common stock to our two directors and other shareholders in exchange for the
cancellation of promissory notes that we executed in favor of them in the
aggregate principal and accrued interest amount of approximately
$181,151. Because the recipients’ status as directors of ours, the
issuance of these shares is claimed to be exempt pursuant to Section 4(2) of the
Securities Act of 1933 (the “Act”).
During
the first quarter of 2008, we sold 100,000 shares of our common stock to a
single accredited investor at a per share price of $0.15. This sale
of common stock is claimed to be exempt pursuant to Rule 506 of Regulation D
under the Act. No advertising or general solicitation was employed in
offering these securities. The offering and sale were made only to an
accredited investor, and subsequent transfers were restricted in accordance with
the requirements of the Act.
In the
year ended December 31, 2006, the Company sold 4,177,670 shares in private
placements to accredited investors for $307,205 in cash.
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.
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:
|
|
Six
Months Ended
June
30, 2008
|
|
Year
Ended
December
31, 2007
|
|
Income
tax expense at statutory rate
|
$
(19,750)
|
|
$ (134,806)
|
|
Valuation
allowance
|
19,750
|
|
134,806
|
|
Income
tax expense per books
|
$
-
|
|
$
-
|
Net
deferred tax assets consist of the following components as of:
|
|
Six
Months Ended
June
30, 2008
|
|
Year
Ended
December
31, 2007
|
|
NOL
carryover
|
$ 19,750
|
|
$ 181,740
|
|
Valuation
allowance
|
(19,750)
|
|
(181,740)
|
|
Net
deferred tax asset
|
$
-
|
|
$
-
|
At
December 31, 2007, the Company had total net operating losses carried forward of
approximately $466,000 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 December 31, 2007 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
At
December 31, 2007, loans and advances from the
Company’s two directors bore interest at 1.71% and were
unsecured, aggregated $156,985, plus accrued and unpaid
interest of $21,690, respectively and are reflected in
“Loans and advances from related party” and
“Accrued interest, related party” on the accompanying balance
sheet. These loans and accrued interest were retired during the
quarter ended June 30, 2008.
Labwire
(dba Labwire Security, Inc.) contracts with American K-9 Bomb Search, Inc.,
which is one-half owned by Labwire’s Chairman and Chief Executive Officer, to
perform security services. Labwire Security, Inc. is fully licensed
with the State of Texas. Labwire is paid a 5% commission for the K-9
security services that it refers to Labwire Security, Inc. The
commissions received by the Company have been less than 1% of the Company’s
gross revenues.
8. Subsequent
Events
On May
27, 2008, the Board of Directors and shareholders owning approximately 85% of
the Company’s issued and outstanding common shares voted to increase its
authorized shares of common stock from 150,000,000 to 200,000,000 at par value
of $0.001 per share. The Company has filed the amended articles
of incorporation with the Nevada Secretary of State in September,
2008.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Company
Overview
Labwire,
Inc. was incorporated in 2004 as a Nevada corporation and is headquartered in
Brookshire, Texas, close to metropolitan Houston. We are a leading
provider of certain third party administrator (“TPA”) services. As a
provider of TPA services, we administer certain programs for our clients,
allowing them to outsource matters that they would prefer not to undertake
in-house on their own. We act as a TPA with respect to the following
three types of services:
|
1.
|
Drug
testing and other employee screening – In connection with the provision of
these services, we supervise specimen collection and test processing by
federally certified labs. We also provide a medical review
officer, who interprets the results of the testing. Moreover,
unrelated to drug testing, we supervise background screening and on-site
testing, which includes audio and vision testing, general employee
physicals, and metal testing of employees engaged in operations such as
mining.
|
|
2.
|
Employee
training and online certification – In connection with the provision of
these services, we have developed training and education programs to
enable clients to comply with certain government
regulations. Currently, some of these programs deal with
Department of Transportation regulations, while others deal with Federal
Trade Commission regulations. We plan to broaden our offering
of these programs in the future, as we are
able.
|
|
3.
|
Security –
In connection with the provision of these services, we provide K-9 dog
teams that search for bombs or drugs, supervise on-site physical security
teams, and undertake some surveillance
work.
|
We
operate through two wholly-owned subsidiaries, Workplace Screening Services,
Inc. and Occupational Testing, Inc. We have developed the Labwire™
Platform, an innovative, proprietary Web-based application that (a) streamlines
the complex regulatory and record management activities associated with our drug
testing, and (b) offers our employee training and online certification
programs. This application figures prominently into our business
strategy. Moreover, our management team has extensive experience in
our business and industry.
There can
be no assurance that we will be successful in our business. Our
business involves numerous risks, the principal ones of which are described in
the section captioned “Risk Factors” in
our General Form for
Registration of Securities on Form 10
.
Listed
below are key company events that occurred in the second quarter of
2008:
|
|
*
|
We
signed an alliance agreement with USIS to provide compliance management to
their selected clients.
|
|
|
*
|
We
successfully completed the conversion of initial USIS clients onto the
Labwire™ Platform.
|
|
|
*
|
We
were re-certified as ISO 9001:2000, for “The administration of employee
screening services” by Det Norske
Veritas
|
|
|
*
|
We
became a reporting company with the U.S. Securities and Exchange
Commission (the “Commission”) when our General Form for Registration of
Securities on Form 10 became effective on or about April 14,
2008.
|
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this Report. In addition to
historical information, the discussion in this Report contains forward-looking
statements that involve risks and uncertainties. Actual results could differ
materially from those anticipated by these forward-looking statements due to
factors including, but not limited to, those factors set forth elsewhere in this
Report and in the section captioned “RISK FACTORS” in our General Form for
Registration of Securities on Form 10.
Results
of Operations
Quarter Ended June 30, 2008
Compared to the Quarter Ended June 30, 2007
The
following table sets forth certain operating information (unaudited) regarding
the Company for the three-month periods ended June 30, 2008 and
2007:
|
|
Three
Months Ended
June
30,
|
|
|
2008
|
2007
|
|
|
(unaudited)
|
(unaudited)
|
|
Revenues
|
$ 1,019,324
|
$ 1,009,310
|
|
Cost
of operations
|
$ 496,804
|
$ 563,931
|
|
Gross
Profit
|
$ 522,520
|
$ 445,379
|
|
Operating
expenses
|
$ 430,694
|
$ 298,988
|
|
Net
income
|
$ 43,345
|
$ 107,822
|
|
|
|
|
|
Net
income per share
|
$ 0.00
|
$ 0.00
|
Revenues
Revenues
for the three-month periods ended June 30, 2008 and 2007 were $1,019,324 and
$1,009,310, respectively. Our revenues remained basically the same
between the two periods despite the expiration of a particular client’s account
agreement amounting to approximately $400,000 per quarter. This loss
in revenues was more than offset by an increase in revenues from our Wyoming
operations acquired during the fourth quarter of 2007. We are
currently in negotiations to resume services to the client whose account
agreement expired, and we anticipate that revenues from this client may resume
in some amount in the first quarter of 2009.
General
and Administrative Expenses
General
and administrative expenses for the three-month periods ended June 30, 2008 and
2007 were $407,984 and $297,278, respectively. The $110,706 increase
was primarily due to a $112,000 increase in the Company’s payroll expense
resulting from the addition of our Wyoming operations in the fourth quarter of
2007and the continued development of our infrastructure to prepare for increased
business.
Operating
Income
Our
operating income for the three-month period ended June 30, 2008 was $100,296
compared to an operating income of $146,391 for the three-month period ended
June 30, 2007. The $46,095 decrease in operating income is attributed
to the decrease in training and education revenues (not offset by the increase
in revenues from our Wyoming operations acquired during the fourth quarter of
2007) and the increase in general and administrative expenses. The
decrease in operating income was partially offset by a decline in costs of
sales.
Six-Month Period Ended June
30, 2008 Compared to the Six-Month Period Ended June 30,
2007
The
following table sets forth certain operating information (unaudited) regarding
the Company for the six-month periods ended June 30, 2008 and 2007:
|
|
Six
Months Ended
June
30,
|
|
|
2008
|
2007
|
|
|
(unaudited)
|
(unaudited)
|
|
Revenues
|
$ 1,876,253
|
$ 2,177,285
|
|
Cost
of operations
|
$ 959,513
|
$ 1,358,218
|
|
Gross
Profit
|
$ 916,740
|
$ 819,067
|
|
Operating
expenses
|
$ 838,679
|
$ 596,266
|
|
Net
income
|
$
27,572
|
$ 178,164
|
|
|
|
|
|
Net
income per share
|
$ 0.00
|
$ 0.00
|
Revenues
Revenues
for the six-month periods ended June 30, 2008 and 2007 were $1,876,253 and
$2,177,285, respectively. Our revenues decreased principally because
of the expiration of a particular client’s account agreement amounting to
approximately $400,000 per quarter. The magnitude of the loss in
revenues from this account was partially offset in the second quarter 2008 by an
increase in revenues from our Wyoming operations acquired during the fourth
quarter of 2007. We are currently in negotiations to resume services
to the client whose account agreement expired, and we anticipate that revenues
from this client may resume in some amount in the first quarter of
2009.
General and Administrative
Expenses
General
and administrative expenses for the six-month periods ended June 30, 2008 and
2007 were $362,021 and $305,114, respectively. The $56,907 increase
was primarily due an increase in the Company’s payroll expense resulting from
the addition of our Wyoming operations in the fourth quarter of 2007and the
continued development of our infrastructure to prepare for increased
business.
Operating
Income
Our
operating income for the six-month period ended June 30, 2008 was $78,061
compared to an operating income of $222,801for the six-month period ended June
30, 2007. The $144,740 decrease in operating income is attributed to
the decrease in training and education revenues (not offset by the increase in
revenues from our Wyoming operations acquired during the fourth quarter of 2007)
and the increase in general and administrative expenses.
The decrease in
operating income was partially offset by a decline in costs of
sales.
Liquidity
and Capital Resources
From
inception until the third quarter of 2007, our primary sources of capital were
proceeds from private placements of our common stock, loans from shareholders
and bank lines of credit. We began to experience positive cash flow
in the third quarter of 2007, which has allowed us to provide our own operating
capital for our operations and reduced the need to access outside capital
sources to support current operations. We currently require
approximately $130,000 per month to fund our recurring operations. This amount
would likely increase if we expand our sales and marketing efforts and continue
to develop new products and services as are our plans. Our cash needs
are primarily attributable to funding sales and marketing efforts, strengthening
technical and helpdesk support, expanding our development capabilities, and
building administrative infrastructure, including costs and professional fees
associated with being a public company. We intend to meet our
immediate capital needs from cash flow provided from operations. We
believe that we have sufficient funding to cover our cash needs for the next 12
months, although there can be no assurance in this regard.
As of
June 30, 2008, we had cash and cash equivalents of $257,279. The largest uses of
our funds are funding general and administrative expenses and salaries and
related expenses. As of June 30, 2008, we had total current
liabilities of $918,784 and total current assets of $1,041,754, with our current
assets exceeding our current liabilities by $122,970.
Net cash
used by operating activities was $346,113 for the six months ended June 30,
2008, compared to net cash used by operating activities of $158,427 for the six
months ended June 30, 2007. The increase in net cash used by
operating activities in comparing the six months ended June 30, 2008 to the six
months ended June 30, 2007 was due primarily to having a decrease of $150,592 in
net income for the six months ended June 30, 2008 compared to the six months
ended June 30, 2007.
We have
two outstanding loans with Frost National Bank (“Frost”). On February
13, 2007, we established a $300,000 revolving line of credit with Frost that was
originally scheduled to mature on February 13, 2008. However, on or
about March 4, 2008, we converted this revolving line of credit into a term note
with an original principal amount of approximately $241,932. This
term note is due and payable in 36 level monthly payments. The
interest rate on the outstanding balance of this term note is a floating rate of
prime plus 1%. This term note is secured by out accounts
receivable. The outstanding principal balance on this term note as of
June 30, 2008 was $223,266.
On or
about March 4, 2008, we established a new $300,000 revolving line of credit with
Frost that is scheduled to mature on February 13, 2010, at which time a balloon
payment comprised of all outstanding principal and accrued interest must be
paid. The interest rate on the outstanding balance of the revolving
line of credit is a floating rate of prime plus 1%, and a payment of all accrued
interest is due monthly throughout the term of the line of
credit. This revolving line of credit is secured by out accounts
receivable. The outstanding principal balance on this line of credit
as of June 30, 2008 was $250,000.
As of
June 30, 2008, we also had a $434,355 promissory note outstanding and payable at
a floating rate of interest of prime plus 1%. The note is related to
the purchase of Occupational Testing, Inc.
The
long-term success of our operations depends on our ability to (1) increase the
deployment of our Labwire™ Platform, (2) significantly increase our services
revenue through the deployment of the Labwire™ Platform, both through increases
in drug and alcohol testing, and usage of employee training and online
certification programs, and (3) increase our revenues from K-9 security
services. We intend to raise additional capital through an offering
of our Common Stock or other securities to provide additional working capital to
fund the expansion of operations through acquisitions and the addition of new
clients through marketing efforts and joint ventures with other service
organizations. We intend to seek up to approximately $2.0 million in
capital in the near future in this connection. The exact amount of
funds raised, if any, will determine how aggressively we can grow and what
additional projects we will be able to undertake. Assuming that we
are able to raise the $2.0 million in new capital, we currently anticipate
spending approximately $250,000 in marketing and sales in its efforts to sign
new clients and seek additional alliances. No assurance can be given
that we will be able to raise additional capital, when needed or at all, or that
such capital, if available, will be on terms acceptable to us. If
adequate funds are not available on acceptable terms, our business, results of
operations and financial condition could be materially adversely
affected. In a worst-case scenario, we would have to scale back or
cease operations, and we might not be able to remain a viable
entity.
In
addition common stock may also be issued for conversion or settlement of debt
and/or payables for equity, future obligations which may be satisfied by the
issuance of common shares, and other transactions and agreements which may in
the future result in the issuance of additional common shares. The common shares
that we may issue in the future could significantly increase the number of
shares outstanding and could be extremely dilutive.
Contractual
Obligations
Future
payments due on our contractual obligations as of June 30, 2008 are as
follows:
|
|
Total
|
2008
|
2009-2010
|
2010-2012
|
Thereafter
|
|
Operating
lease
|
$
64,800
|
$ 64,800
|
$ -
|
$ -
|
$ -
|
|
Notes
payable
|
911,977
|
406,487
|
235,552
|
235,552
|
34,386
|
|
Line
of credit
|
250,000
|
-
|
250,000
|
-
|
-
|
|
Total
|
|
|
$ 485,552
|
$ 235,552
|
|
Critical
Accounting Policies and Estimates
Our
discussion of our financial condition and results of operations is based on the
information reported in our financial statements. The preparation of our
financial statements requires us to make assumptions and estimates that affect
the reported amounts of assets, liabilities, revenues and expenses as well as
the disclosure of contingent assets and liabilities as of the date of our
financial statements. We base our assumptions and estimates on historical
experience and other sources that we believe to be reasonable at the time.
Actual results may vary from our estimates due to changes in circumstances,
weather, politics, global economics, mechanical problems, general business
conditions and other factors. Our significant accounting policies are detailed
in Note 1 to our financial statements included in this Quarterly
Report. We have outlined below certain of these policies that have
particular importance to the reporting of our financial condition and results of
operations and that require the application of significant judgment by our
management.
Impairment
of Long-Lived Assets
We review
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, impairment charge is recognized by the
amount of the asset exceeds the fair value of the asset.
Fair
Value of Financial Instruments
Management
believes that the carrying amounts of our financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximate fair value due to the short-term nature of these
instruments. The carrying amount of our long-term debt also approximates fair
value, based on market quote values (where applicable) or discounted cash flow
analyses.
Income
Taxes
We
account for income taxes under SFAS No. 109, which requires the asset and
liability approach to accounting for income taxes. Under this method, deferred
tax assets and liabilities are measured based on differences between financial
reporting and tax bases of assets and liabilities measured using enacted tax
rates and laws that are expected to be in effect when differences are expected
to reverse. Valuation allowances are established when it is necessary to reduce
deferred income tax assets to the amount, if any, expected to be realized in
future years.
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. All potentially dilutive securities have
been excluded from the computation, as their effect is
anti-dilutive.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
Revenue
Recognition
We have
three main sources of revenue: drug testing and related services, training and
online certification, and security services provided by an allied
company. Drug testing: we fulfill orders for drug testing services,
wherein we are responsible for the performance and data maintenance related to
employee drug testing for its clients. We do not perform the drug
tests, but we fulfill the order through our network of third party labs and
other drug testing facilities. Revenue is recognized when the drug
testing has been completed by the lab and the customer has been invoiced for the
services. We have low bad debt levels because our policy is to deal
with large well-positioned firms that pay monthly. Because we track these
company’s activities daily, we are constantly aware of our position and
therefore can demand and receive timely payments as we provide on-going
compliance services. Pursuant to EITF 99-19, we are responsible for fulfilling a
customer’s order, including whether the service is acceptable and therefore
bears the risks and rewards of principal. As such, we have elected to
record the gross amounts of the contracts. Our service agreements
rarely include multiple parts that would have a material impact on the
recognition of revenue. As such, we have created our revenue
recognition policies pursuant to EITF 00-21.
Online
training and certification: the Company has designed online testing for various
certifications which client employees must attain for their
employment. The employee takes the certification examinations online
and the client is automatically tagged for billing, which coincides with
performance of services.
Security
services provided by the Company through its allied company: the process is
handled in similar fashion to that described above for drug
testing.
Allowance
for Uncollectible Receivables
The
allowance for all probable uncollectible receivables 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 we are aware of a specific customer’s inability to meet its financial
obligations, we record 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.
Software
Development Costs
The
Company has begun developing a software platform for certain exclusively
internal purposes. We follow 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.
We
capitalize 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. We cease 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. We believe no events or circumstances warrant revised estimates of
useful lives of the software.
Purchase
Accounting
We
completed acquisitions in 2004 and 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. We generally use 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.
Intangible
Assets
Intangible
assets with estimable useful lives are amortized over respective estimated
useful lives, and reviewed for impairment in accordance with FASB Statement No.
142,
Goodwill and Other
Intangible Assets
.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued FASB Statement 157 “Fair Value Measurements”
(“SFAS No. 157”) that defines and measures fair value and expands
disclosures about fair value measurements. The statement emphasizes that fair
value is a market-based measurement and not an entity-specific measurement. The
provisions of SFAS No. 157 are effective for fiscal years beginning after
November 15, 2007.
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
, which permits entities to choose to
measure many financial instruments and certain other items at fair value.
The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. SFAS No. 159 applies to all entities and is
effective for fiscal years beginning after November 15, 2007.
We do not
expect the adoption of any other recently issued accounting pronouncements to
have a significant impact on their consolidated financial position, results of
operations or cash flow.
Off
Balance Sheet Arrangements
We have
no off balance sheet arrangements.
ITEM 4T. CON
TROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
Principal Executive Officer and Principal Financial Officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report, have concluded that, based on the evaluation of these
controls and procedures, that our disclosure controls and procedures were not
effective due to the lack of segregation of duties in financial reporting, as
our accounting functions are performed by one person with no internal review, as
our company does not have an audit committee. This is due to our lack of working
capital to hire additional staff. To remedy this, we intend to engage another
accountant to assist with financial reporting as soon as our finances will
allow.
Change
in Internal Controls Over Financial Reporting
There
have not been any changes in our predecessors’ internal controls over financial
reporting that occurred during the quarterly period ended June 30, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
We are
not now a party to any legal proceeding requiring disclosure in accordance with
the rules of the U.S. Securities and Exchange Commission. In the
future, we may become involved in various legal proceedings from time to time,
either as a plaintiff or as a defendant, and either in or outside the normal
course of business. We are not now in a position to determine when
(if ever) such a legal proceeding may arise. If we ever become involved in such
a legal proceeding, our financial condition, operations, or cash flows could be
materially and adversely affected, depending on the facts and circumstances
relating to such proceeding.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During
the second quarter of 2008, we issued an aggregate of 1,000,000 shares of our
common stock to our two directors in exchange for the cancellation of promissory
notes that we executed in favor of them in the aggregate principal amount of
approximately $156,985. Because the recipients’ status as directors
of ours, the issuance of these shares is claimed to be exempt pursuant to
Section 4(2) of the Securities Act of 1933 (the “Act”).
During
the first quarter of 2008, we sold 100,000 shares of our common stock to a
single accredited investor at a per share price of $.15. This sale of
common stock is claimed to be exempt pursuant to Rule 506 of Regulation D under
the Act. No advertising or general solicitation was employed in
offering these securities. The offering and sale were made only to an
accredited investor, and subsequent transfers were restricted in accordance with
the requirements of the Act.
ITEM
6. E
XHIBITS
(a) The
following exhibits are filed with this Quarterly Report or are incorporated
herein by reference:
|
Exhibit
Number
|
Description
|
|
31.1
|
Certification
pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934.
|
|
31.2
|
Certification
pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934.
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350, as pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIG
NATURES
In
accordance with the requirements of the Exchange Act, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
LABWIRE,
INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
Date:
December 23, 2008
|
By:
|
/s/ G. Dexter
Morris
|
|
|
|
G.
Dexter Morris,
|
|
|
|
Chief
Executive Officer
|
|
|
|
(Principal
Executive Officer, Principal Financial
Officer)
|
