The following is a discussion of our financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-K.

FORWARD-LOOKING INFORMATION

This report contains a number of forward-looking statements, which reflect the Company's current views with respect to future events and financial performance including statements regarding the Company's projections. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates", "believes", "expects", "intends", "future", "plans", "targets" and similar expressions identify forward-looking statements. Readers are cautioned to not place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof. Additionally, these statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including, but not limited to, the Company's dependence on limited cash resources, and its dependence on certain key personnel within the Company. Accordingly, actual results may differ, possibly materially, from the predictions contained herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 audited financial statements. Below are descriptions of certain 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 generally accepted accounting principles 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 screening services, training and online certification, and security services provided by an affiliate.

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 ongoing compliance services. Pursuant to Emerging Issues Task Force ("EITF") 99-19, we are responsible for fulfilling a customer's order, including whether the service is acceptable and therefore we bear 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. Newly developed training products for FACTA required training will be prepaid annually and require no periodic billing.

Security services provided by us through an affiliate: 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
During 2007 and 2008, we began 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 our 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 is 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 our acquisition of Occupational Testing, Inc. 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. 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.

     Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

The following table sets forth certain comparative operating information
regarding Labwire:

                                                    Year Ended December 31,
                                                      2008            2007
        Sales                                     $  4,091,032     $ 4,628,849
        Cost of goods sold, net of depreciation      2,266,474       3,100,842
        Gross profit                                 1,824,557       1,528,007
        Operating Expenses:
        General and administrative                     738,665         607,958
        Total operating expenses                     1,886,889       1,284,911
        Income (Loss) from operations                  (62,331 )       243,096
        Net income (loss)                             (194,606 )       168,585

        Basic earnings (loss) per share           $    (0.0014 )   $    0.0012

Revenues
Revenues for the fiscal years ended December 31, 2008 and December 31, 2007 were $4,091,032 and $4,628,849, respectively. Our revenues decreased principally because of the loss of a substantial client due to its acquisition by a third party. This client represented $1.7 million in annual sales. However, the Company almost offset this loss, earning $1.1 million by adding new clients and expanding Occupational Testing's business.

Operating Expenses
Operating expenses for the fiscal years ended December 31, 2008 and December 31, 2007 were $1,886,889 and $1,284,911, respectively. These expense increases were in line with management plans and were due to operational costs at Occupational Testing.

Operating Income
Our operating income for the fiscal years ended December 31, 2008 was $(62,331) compared to an operating income of $243,096 for the fiscal year ended December 31, 2007. The reduction in operating income was due to the write down of our receivables over 90 days old and the loss of a major client that provided us with $1.7 million in revenue in 2007. Despite the loss of this major client, we were able to almost offset the loss in revenue by continued growth of Occupational Testing and the addition of Boeing as a client. We were also able to increase our margins during fiscal year 2008.

In addition, Labwire's margins on its background check service increased by approximately 20% by bringing this business in-house. Previously, Labwire had outsourced the actual background check services and received a commission from the provider. In 2008, Labwire acquired access to the required national databases and started offering this service.

General and Administrative Expenses
General and administrative ("G&A") expenses increased from $607,958 in fiscal year 2007 to $738,665 in the fiscal year ended December 31, 2008. The increase in G&A was due to the addition of the Occupational Testing operational costs and the addition of one new employee to handle direct service for Boeing.

Marketing and Sales Plans
Labwire intends to continue its strategy of promoting itself to large and mid-sized corporations which conduct their own internal drug screening programs or currently utilize a TPA. To this end, Labwire has developed strategic relationships with a variety of industry organizations, such as the Substance Abuse Program Administrators Association (SAPAA), the premier trade association for both third party administrators (TPAs) and large corporate Drug & Alcohol administrators, and Drug and Alcohol Testing Industry Association (DATIA) primarily focused on TPAs and collection site operations nationally.

Recently, Labwire has begun utilizing alliance agreements with much larger vendors to promote our products and expand our service offerings and our revenue base. Our new alliance with USIS Commercial Services, Inc. ("USIS") allows us the opportunity to grow our drug and alcohol services through their existing client base. The USIS agreement was entered into on April 3, 2008 for an initial term of two (2) years. USIS will perform all of the billings and receive a ten percent (10%) commission on revenue received by Labwire from USIS referral customers. We are currently exploring three other alliance opportunities in the areas of employee training, national and international specimen collection solutions, and additional background and federally required employment solutions.

Also, Labwire will continue to use experienced sales representatives and industry-specific consultants to target key customers. In addition to strategic relationships and direct sales approaches, Labwire will conduct its own advertising, public relations and media campaign that will include print, broadcast, Internet, trade journals, direct mail and all other applicable news media. Further, we intend to accomplish our public relations campaign through a variety of means including, but not limited to, the distribution of press releases and the arranging of press interviews.

In addition, Labwire will attempt to capitalize on its recent success within the aviation industry. With the addition of Boeing and Evergreen Aviation, Labwire has become a major factor in this arena. Discussions with other aviation companies indicate similar internal structures as Boeing and Evergreen. Many utilize laboratory direct services due to their extensive internal medical departments. Also, the inability to receive timely and accurate statistical information makes these companies very high priority. Targets within this industry include Northrop Grumman, Lockheed Martin, and Bell Textron.

Other industries, including oil and gas, and transportation continue to be targeted. All companies mentioned in this competitive analysis have been identified by the Labwire sales effort.

Liquidity and Capital Resources
In 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, and this trend continued throughout 2008. As a result, we have been able 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.

The Company has a $300,000 revolving line of credit with Frost National Bank. 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 our accounts receivable. The outstanding principal balance on this line of credit as of September 30, 2008 was $300,000. This line of credit will mature on February 13, 2010.

At December 31, 2008, we also had a $434,355 promissory note with an outstanding balance of $340,718 and payable at a floating rate of interest of prime plus 1%. The note is related to the purchase of Occupational Testing, Inc.

As of September 30, 2008, we also had a $300,000 promissory note with an outstanding balance of $280,000 and payable at an interest rate of 4% per annum and payable on December 31, 2008.

FUTURE BUSINESS

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.

In November 2007, the Federal Trade Commission (FTC) and five federal regulatory agencies (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, and National Credit Union Administration) jointly issued the final rules and guidelines implementing sections 114 and 315 of the Fair and Accurate Credit Transactions Act (FACTA) of 2007. Known as the "Red Flag Rules", these rules require the development, implementation, and maintenance of identity theft prevention programs by covered companies that hold any customer accounts. These requirements became effective January 1, 2008 with a mandatory compliance date of November 1, 2008.

Labwire, through the Labwire platform, will offer clients all programs necessary to remain in compliance with the Red Flag Rules, including program establishment, staff training, and auditing of contractor compliance.

In addition, to mitigate the damages suffered by individuals caused by fraud and to assist companies in complying with the Red Flag Rules, Labwire has contracted with Kroll Fraud Solutions to offer identity recovery services for the employees of Labwire clients. Labwire intends to offer these services through networking (independent insurance agents, brokers, etc.) and current and future relationships with major national firms.

We intend to raise additional capital in the future, either through private or public offerings of our stock, in order to provide additional working capital, fund acquisitions, and add new clients through marketing efforts and joint ventures. We currently have no specific plans for capital raising or acquisitions, however.

COMPETITION

Following the adoption of federal drug testing requirements twenty years ago, drug testing in the United States has become a standard practice within virtually all industries. Consequently, the competitive environment among drug testing providers has evolved from one of identifying newly initiated programs to targeting established programs and offering more effective solutions.

As with any established industry, drug testing has produced a relatively few number of nationally competitive companies. Several of these companies target the same clientele as Labwire. Some of these competitors are able to compete effectively based on pricing. Many of Labwire's competitors target specific industries.

Labwire does not focus on any one industry or group of industries. Our online Labwire™ platform provides clients with a superior level of service, which is important within the drug testing industry.