UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended |
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
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| incorporation or organization) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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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 ☐
* The registrant is a voluntary filer of reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, and has filed all such reports during the preceding 12 months.
Indicate by check mark whether the registrant has submitted electronically,
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| Smaller reporting company | |
| Emerging growth company |
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No
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
| Common Stock, no par value | Shares |
| (Class) | (outstanding at September 30, 2024) |
LIFELOC TECHNOLOGIES, INC.
FORM 10-Q
For the Nine months Ended September 30, 2024
INDEX
| Page | ||
| Number | ||
| PART I. | FINANCIAL INFORMATION | 3 |
| ITEM 1 | FINANCIAL STATEMENTS (UNAUDITED) | |
| Condensed Balance Sheets as of September 30, 2024 and December 31, 2023 (Unaudited) | 3 | |
| Condensed Statements of Income (Unaudited) for the three and nine months ended September 30, 2024 and 2023 | 4 | |
| Condensed Statements of Stockholders' Equity (Unaudited) for the nine months ended September 30, 2024 and 2023 | 6 | |
| Condensed Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2024 and 2023 | 7 | |
| Notes to Condensed Financial Statements (Unaudited) | 8 | |
| ITEM 2 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15 |
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 19 |
| ITEM 4 | CONTROLS AND PROCEDURES | 20 |
| PART II. | OTHER INFORMATION | 20 |
| ITEM 1 | LEGAL PROCEEDINGS | 20 |
| ITEM 1A | RISK FACTORS | 20 |
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 20 |
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES | 20 |
| ITEM 4 | MINE SAFETY DISCLOSURES | 20 |
| ITEM 5 | OTHER INFORMATION | 21 |
| ITEM 6 | EXHIBITS | 21 |
| SIGNATURES | 22 | |
| 2 |
PART I FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
LIFELOC TECHNOLOGIES,
INC.
Condensed Balance Sheets (Unaudited)
| ASSETS | ||||||||
| September 30, 2024 | December 31, 2023 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Federal and state income taxes receivable | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| PROPERTY AND EQUIPMENT, at cost: | ||||||||
| Land | ||||||||
| Building | ||||||||
| Real-time Alcohol Detection And Recognition equipment and software | ||||||||
| Production equipment, software and space modifications | ||||||||
| Training courses | ||||||||
| Office equipment, software and space modifications | ||||||||
| Sales and marketing equipment and space modifications | ||||||||
| Research and development equipment, software and space modifications | ||||||||
| Research and development equipment, software and space modifications not in service | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | ||||||||
| OTHER ASSETS: | ||||||||
| Patents, net | ||||||||
| Deposits and other | ||||||||
| Deferred taxes | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Term loan payable, current portion | ||||||||
| Income taxes payable | ||||||||
| Customer deposits | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue, current portion | ||||||||
| Reserve for warranty expense | ||||||||
| Total current liabilities | ||||||||
| TERM LOAN PAYABLE, net of current portion and debt issuance costs | ||||||||
| DEFERRED REVENUE, net of current portion | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 5) | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Common
stock, par value; shares authorized, shares outstanding at September 30, 2024 ( outstanding at December 31, 2023) |
|
|
|
|
|
|
|
|
| Retained earnings | ||||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes to the condensed financial statements are an integral part of these financial statements.
| 3 |
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Income (Loss) (Unaudited)
| Three Months Ended September 30, | ||||||||
| REVENUES: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Rental income | ||||||||
| Total | ||||||||
| COST OF SALES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES: | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total | ||||||||
| OPERATING INCOME (LOSS) | ( | ) | ||||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total | ( | ) | ||||||
| NET INCOME (LOSS) BEFORE BENEFIT FROM (PROVISION FOR) TAXES | ( | ) | ||||||
| BENEFIT FROM FEDERAL AND STATE INCOME TAXES | ||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ||||
| NET INCOME (LOSS) PER SHARE, BASIC | $ | ( | ) | $ | ||||
| NET INCOME (LOSS) PER SHARE, DILUTED | $ | ( | ) | $ | ||||
| WEIGHTED AVERAGE SHARES, BASIC | ||||||||
| WEIGHTED AVERAGE SHARES, DILUTED | ||||||||
The accompanying notes to the condensed financial statements are an integral part of these financial statements.
| 4 |
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Income (Loss) (Unaudited)
| Nine Months Ended September 30, | ||||||||
| REVENUES: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Rental income | ||||||||
| Total | ||||||||
| COST OF SALES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES: | ||||||||
| Research and development | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total | ||||||||
| OPERATING INCOME (LOSS) | ( | ) | ||||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total | ||||||||
| NET INCOME (LOSS) BEFORE BENEFIT FROM (PROVISION FOR) TAXES | ( | ) | ||||||
| BENEFIT FROM FEDERAL AND STATE INCOME TAXES | ||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ||||
| NET INCOME (LOSS) PER SHARE, BASIC | $ | ( | ) | $ | ||||
| NET INCOME (LOSS) PER SHARE, DILUTED | $ | ( | ) | $ | ||||
| WEIGHTED AVERAGE SHARES, BASIC | ||||||||
| WEIGHTED AVERAGE SHARES, DILUTED | ||||||||
The accompanying notes to the condensed financial statements are an integral part of these financial statements.
| 5 |
Lifeloc Technologies, Inc.
Statements of Stockholders' Equity (Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Total stockholders' equity, beginning balances | $ | $ | $ | $ | ||||||||||||
| Common stock: | ||||||||||||||||
| Beginning balances | ||||||||||||||||
| Issuance of shares at $ per share | ||||||||||||||||
| Ending balances | ||||||||||||||||
| Retained earnings: | ||||||||||||||||
| Beginning balances | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Ending balances | ||||||||||||||||
| Total stockholders' equity, ending balances | $ | $ | $ | $ | ||||||||||||
The accompanying notes to the condensed financial statements are an integral part of these financial statements.
| 6 |
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Cash Flows (Unaudited)
| Nine Months Ended September 30, | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | 2024 | 2023 | ||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash (used in) operating activities- | ||||||||
| Depreciation and amortization | ||||||||
| Provision for doubtful accounts, net change | ||||||||
| Provision for inventory obsolescence, net change | ||||||||
| Deferred taxes, net change | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities- | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Federal and state income taxes receivable | ( | ) | ||||||
| Prepaid expenses and other | ( | ) | ||||||
| Deposits and other | ||||||||
| Accounts payable | ( | ) | ||||||
| Income taxes payable | ( | ) | ||||||
| Customer deposits | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchases of research and development equipment, software, and space modifications not in service | ( | ) | ||||||
| Patent filing expense | ( | ) | ( | ) | ||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Principal payments made on term loan | ( | ) | ( | ) | ||||
| Proceeds from issuance of shares of common stock at $ per share | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| NET (DECREASE) IN CASH | ( | ) | ( | ) | ||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
The accompanying notes to the condensed financial statements are an integral part of these financial statements.
| 7 |
LIFEELOC TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Lifeloc Technologies, Inc. ("Lifeloc" or the "Company") is a Colorado-based developer, manufacturer and marketer of portable hand-held and fixed station breathalyzers and related accessories, supplies and education. We design, produce and sell fuel-cell based breath alcohol testing equipment. We compete in all major segments of the breath alcohol testing instrument market, including law enforcement, workplace, corrections, original equipment manufacturing ("OEM") and consumer markets. In addition, we offer a line of supplies, accessories, services, and training to support customers' alcohol testing programs. We sell globally through distributors as well as directly to users.
We define our business as providing "near and remote sensing and monitoring" products and solutions. Today, the majority of our revenues are derived from products and services for alcohol detection and measurement. We remain committed to growing our breath alcohol testing business. In the future, we anticipate the commercialization of new sensing and measurement products that may allow Lifeloc to successfully expand our business into new growth areas where we do not presently compete or where no satisfactory product solutions exist today.
Lifeloc incorporated in Colorado in December 1983. We filed a registration statement on Form 10 with the Securities and Exchange Commission, which became effective on May 31, 2011. Our fiscal year end is December 31. Our principal executive offices are located at 12441 West 49th Avenue, Unit 4, Wheat Ridge, Colorado 80033-3338. Our telephone number is (303) 431-9500. Our websites are www.lifeloc.com and www.stsfirst.com. Information contained on our websites does not constitute part of this Form 10-Q.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") and accounting principles generally accepted in the United States ("GAAP") for interim financial information. They do not include all information and notes required by GAAP for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to financial statements included in Lifeloc's Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting of normal recurring accruals necessary for a fair presentation of the financial position as of September 30, 2024 and December 31, 2023, and the results of operations and cash flows for the three and nine month periods ended September 30, 2024 and September 30, 2023. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for a full year. The Company's 2023 Annual Report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q.
Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expense during the reporting period. Actual results could differ from those estimates.
Debt Issuance Costs. Deferred loan costs
are amortized over the 10 year life of the term loan on a straight line basis, which approximates the effective interest method. Total
debt amortization during the three months ended September 30, 2024 and September 30, 2023 was $
| 8 |
Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value.
We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At September 30, 2024 and December 31, 2023, inventory consisted of the following:
| 2024 | 2023 | |||||||
| Raw materials & deposits | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total gross inventories | ||||||||
| Less reserve for obsolescence | ( | ) | ( | ) | ||||
| Total net inventories | $ | $ | ||||||
Income Taxes. We account
for income taxes under the provisions of ASC Topic 740, Accounting for Income Taxes ("ASC 740"). We have determined an
estimated annual effective tax rate of
The estimated annual effective tax rate is applied to the year-to-date ordinary income (loss) at the end of the interim period.
ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Revenue Recognition.
Revenue from product sales and supplies is generally recorded when we ship the product and title has passed to the customer, or when agreed milestones are met in the case of product developments, provided that we have evidence of a customer arrangement and can conclude that collection is probable. The prices at which we sell our products are fixed and determinable at the time we accept a customer's order. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims, and generally have no ongoing obligations related to product sales, except for normal warranty.
The sales of licenses to our training courses are recognized as revenue at the time of sale. Training and certification revenues are recognized at the time the training and certification occurs. Data recording revenue is recognized based on each day’s usage of enrolled devices.
Revenues arising from extended warranty contracts are booked as sales over their life on a straight-line basis. We have discontinued arranging for customer financing and leasing. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract.
| 9 |
Royalty income is recognized in accordance with agreed upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured.
Rental income from space leased to our tenants
is recognized in the month in which it is due, which approximates if it were recognized on a straight-line basis over the term of the
related lease. We lease 2,774 square feet (
On occasion we receive customer deposits for future product orders and product developments. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer, or when agreed milestones are met in the case of product developments.
The following is the disaggregation of revenue into broad categories, which we have defined as shown below for the three months and for the nine months ended September 30, 2024 and September 30, 2023.
| Three Months Ended September 30, | ||||||||
| Product sales: | 2024 | 2023 | ||||||
| Product sales and supplies | $ | $ | ||||||
| Training, certification and data recording | ||||||||
| Service plans and equipment rental | ||||||||
| Product sales subtotal | ||||||||
| Royalties | ||||||||
| Rental income | ||||||||
| Total revenues | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| Product sales: | 2024 | 2023 | ||||||
| Product sales and supplies | $ | $ | ||||||
| Training, certification and data recording | ||||||||
| Service plans and equipment rental | ||||||||
| Product sales subtotal | ||||||||
| Royalties | ||||||||
| Rental income | ||||||||
| Total revenues | $ | $ | ||||||
Deferred Revenue. Deferred revenues arise from service contracts and from development contracts. Revenues from service contracts are recognized on a straight-line basis over the life of the contract, generally one year, and are included in product revenue in our statements of income. However, there are occasions when they are written for longer terms up to four years. The revenues from that portion of the contract that extend beyond one year are shown in our balance sheets as long term. Deferred revenues also result from progress payments received on development contracts; those revenues are recognized when the contract is complete, and are included in product revenue in our statements of income. All development contracts are for less than one year and all deferred revenues from this source are shown in our balance sheets as short term.
New Accounting Pronouncements. We have reviewed all recently issued accounting pronouncements, including the following.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, amending reportable segment disclosure requirements to include disclosure of incremental segment information on an annual and interim basis. Among the disclosure enhancements are new disclosures regarding significant segment expenses that are regularly provided to the chief operating decision-maker and included within each each reported measure of segment profit or loss, as well as other segment items bridging segment revenue to each reported measure of segment profit or loss. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and are applied retrospectively. Early adoption is permitted. We are currently evaluating the impact of this update on our financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024 and are applied prospectively. Early adoption and retrospective application of the amendments are permitted. We continue to evaluate the impact of this update on our financial statements, but do not expect any changes to our current reportable segments.
| 10 |
We report both basic and diluted net income (loss) per common share. Basic net income (loss) per common share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential common shares outstanding during the period if the effect of the potential common shares is dilutive. The shares used in the calculation of dilutive potential common shares exclude options to purchase shares where the exercise price was greater than the average market price of common shares for the period. The shares used in the calculation of dilutive potential common shares exclude options to purchase shares in loss periods since they are anti-dilutive.
The following table presents the calculation of basic and diluted net income (loss) per common share for the three months ended September 30, 2024 and September 30, 2023, and for the nine months ended September 30, 2024 and September 30, 2023:
| Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Weighted average shares-basic | ||||||||
| Effect of dilutive potential common shares | ||||||||
| Weighted average shares-diluted | ||||||||
| Net income (loss) per share-basic | $ | ( | ) | $ | ||||
| Net income (loss) per share-diluted | $ | ( | ) | $ | ||||
| Antidilutive employee stock options | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Weighted average shares-basic | ||||||||
| Effect of dilutive potential common shares | ||||||||
| Weighted average shares-diluted | ||||||||
| Net (loss) per share-basic | $ | ( | ) | $ | ( | ) | ||
| Net (loss) per share-diluted | $ | ( | ) | $ | ( | ) | ||
| Antidilutive employee stock options | ||||||||
4. STOCKHOLDERS' EQUITY
In July, 2024 we issued shares of common
stock to EDCO Partners LLLP at $ per share, or $
The following table summarizes information about employee stock options outstanding and exercisable at September 30, 2024:
| STOCK OPTIONS OUTSTANDING | STOCK OPTIONS EXERCISABLE | |||||||||||||||||
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (in Years) | Weighted Average Exercise Price per Share | Number Exercisable | Weighted Average Exercise Price per Share | |||||||||||||
| $ | $ | $ | ||||||||||||||||
As of September 30, 2024, options for our common stock remain available for grant under the 2013 Plan as it has expired.
The aggregate intrinsic value of the options outstanding and exercisable at September 30, 2024 was $.
options were exercised during the nine months ended September 30, 2024 or during the nine months ended September 30, 2023.
The total number of authorized shares of common stock continues to be , with no change in the par value per share.
| 11 |
5. COMMITMENTS AND CONTINGENCIES
Mortgage Expense. We purchased our facilities
in Wheat Ridge, Colorado on October 31, 2014 for $
| 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 – 2031 | |||||
| Total | |||||
| Less financing cost | ( |
) | |||
| Net term loan payable | |||||
| Less current portion | ( |
) | |||
| Long term portion | $ |
Employee Severance Benefits. Our obligation with respect to employee severance benefits is minimized by the "at will" nature of the employee relationships. As of September 30, 2024, we had no obligation with respect to contingent severance benefit obligations other than the Company's obligations under the employment agreement with its chief executive officer, Dr. Wayne Willkomm. In the event that Dr. Willkomm's employment is terminated by the Company without cause (including through a decision by the Company not to renew the employment agreement) or by Dr. Willkomm with Good Reason (as each are defined in the employment agreement), Dr. Willkomm will be eligible, upon satisfaction of certain conditions, for severance equal to two months of salary continuation plus 12 months of health insurance continuation.
Contractual Commitments and Purchase Orders.
Contractual commitments under development agreements and outstanding purchase orders issued to vendors in the ordinary course of business
totaled $
Regulatory Commitments. We are subject to certain regulations of the United States Department of Transportation and by various state departments of transportation. We believe that we are in substantial compliance with all known applicable regulations.
6. INCOME TAXES
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for (benefit from) income taxes consist of the following.
| Three months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Federal statutory rate | $ | ( | ) | $ | ||||
| Effect of: | ||||||||
| State taxes, net of federal tax benefit | ( | ) | ||||||
| Other | ( | ) | ||||||
| Total | $ | ( | ) | $ | ( | ) | ||
| Nine months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Federal statutory rate | $ | ( | ) | $ | ||||
| Effect of: | ||||||||
| State taxes, net of federal tax benefit | ( | ) | ||||||
| Other | ( | ) | ||||||
| Total | $ | ( | ) | $ | ( | ) | ||
| 12 |
7. BUSINESS SEGMENTS
We currently have two operating segments, including our primary business which is as a developer, manufacturer and marketer of portable hand-held breathalyzers and related accessories, supplies, education, training ("Product Sales"), and royalties from development contracts with OEM manufacturers ("Royalties" and, together with Product Sales, the "Products" segment). As a result of purchasing our building on October 31, 2014, we have a second business segment consisting of renting portions of our building to one tenant, whose lease expires on June 30, 2025. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2.
Operating profits for these segments exclude unallocated corporate items. Administrative and staff costs were commonly used by all business segments and were indistinguishable.
The following sets forth information about capital expenditures, operations and depreciation and amortization of the business segments for the three months ended September 30, 2024 and 2023.
| Capital expenditures: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Revenues: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Gross profit: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| Depreciation and amortization: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Interest expense: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Net income (loss) before taxes: | 2024 | 2023 | ||||||
| Product sales | $ | ( | ) | $ | ||||
| Royalties | ||||||||
| Products subtotal | ( | ) | ||||||
| Rentals | ( | ) | ( | ) | ||||
| Total | $ | ( | ) | $ | ||||
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The following sets forth information about capital expenditures, operations and depreciation and amortization of the business segments for the nine months ended September 30, 2024 and 2023.
| Capital expenditures: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Revenues: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Gross profit: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Depreciation and amortization: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Interest expense: | 2024 | 2023 | ||||||
| Product sales | $ | $ | ||||||
| Royalties | ||||||||
| Products subtotal | ||||||||
| Rentals | ||||||||
| Total | $ | $ | ||||||
| Net income (loss) before taxes: | 2024 | 2023 | ||||||
| Product sales | $ | ( | ) | $ | ( | ) | ||
| Royalties | ||||||||
| Products subtotal | ( | ) | ||||||
| Rentals | ||||||||
| Total | $ | ( | ) | $ | ||||
There were no intersegment revenues.
At September 30, 2024, $
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our financial condition and results of operations, and should be read in conjunction with our financial statements and the related notes included elsewhere in this Form 10-Q. Certain statements contained in this section are not historical facts, including statements about our strategies and expectations about new and existing products, market demand, acceptance of new and existing products, technologies and opportunities, market and industry segment growth, and return on investments in products and markets. These statements are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and we intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in these statutes. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "intends," "plans" or "anticipates" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. Such statements involve substantial risks and uncertainties that may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements in this section are based on information available to us on the date of this document, and we assume no obligation to update such forward looking statements. Readers of this Form 10-Q are strongly encouraged to review the section titled "Risk Factors" in our December 31, 2023 Form 10-K.
Overview
Lifeloc Technologies, Inc., a Colorado corporation ("Lifeloc", "Company", “We”, “Us”, “Our”, “Them”), is a Colorado-based developer, manufacturer and marketer of portable hand-held and fixed station breathalyzers and related accessories, supplies and education. We design, produce and sell fuel-cell based breath alcohol testing equipment. We compete in all major segments of the portable breath alcohol testing instrument market, including law enforcement, workplace, corrections, original equipment manufacturing ("OEM") and consumer markets. In addition, we offer a line of supplies, accessories, services, and training to support customers' alcohol testing programs. We sell globally through distributors as well as directly to users.
We define our business as providing "near and remote sensing and monitoring" products and solutions. Today, the majority of our revenues are derived from products and services for alcohol detection and measurement. We remain committed to growing our breath alcohol testing business. In the future, we anticipate the commercialization of new sensing and measurement products that may allow Lifeloc to successfully expand our business into new growth areas where we do not presently compete or where no satisfactory product solutions exist today.
In addition, with the October 2014 purchase of our corporate headquarters and certain adjacent property, we added a new reporting segment focused on the ownership and rental of real property through existing commercial leases.
Lifeloc incorporated in Colorado in December 1983. We filed a registration statement on Form 10 with the Securities and Exchange Commission, which became effective on May 31, 2011. Our fiscal year end is December 31. Our principal executive offices are located at 12441 West 49th Avenue, Unit 4, Wheat Ridge, Colorado 80033-3338. Our telephone number is (303) 431-9500. Our websites are www.lifeloc.com and www.stsfirst.com. Information contained on our websites does not constitute part of this Form 10-K.
Outlook
Installed Base of Breathalyzers. We believe the installed base of our breathalyzers will increase as the inherent risks associated with drinking while driving or while working in safety sensitive jobs become more widely acknowledged and as our network of distributors and our direct sales force grows. We believe that increased marketing efforts, the introduction of new products and the expansion of our sales network may provide the basis for increased sales and continuing profitable operations. However, these measures, or any others that we may adopt or determine not to adopt, may not result in either increased sales or continuing profitable operations.
Possibility of Operating Losses. Over many of the past several years we have operated profitably; however, prior to that, and in 2021 through 2023, we incurred losses. Those losses are continuing in 2024 and we expect them to continue in 2025 as we continue to work toward the commercialization of SpinDx. There is no assurance that we will not incur losses in any given quarter or year in the future.
Sales Growth. We expect to increase sales in the U.S. and worldwide as our network of direct customers and distributors grows and becomes more proficient and expands the number of new accounts. Our growth efforts have focused on expanding our global reach and broadening our product offering in alcohol and drug detection. Orders for all of our products, particularly ignition interlock components, are on an intermittent purchase order basis and there is no assurance they will continue at any given rate, or that orders will repeat.
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Sales and Marketing Expenses. We continue our efforts to expand our domestic and international distribution capability, and we believe that sales and marketing expenses will need to be maintained at a healthy level in order to do so. Sales and marketing expenses are expected to increase as we increase our direct sales representatives and marketing efforts.
Research and Development Expenses. We expect to increase our research and development expenses to support refinements to our products, and the development of additional new products.
SpinDx
In August 2016 we entered into an exclusive patent license agreement with Sandia Corporation pursuant to which we acquired the exclusive rights to develop, manufacture and market Sandia's patented SpinDx™ technology for the detection of drugs of abuse. We believe this license agreement represents the beginning of a relationship that will become material to the Company in the near future. A prototype was built by Sandia under our Cooperative Research and Development Agreement and received in 2018, after which we commenced work on commercializing the device. This effort was hampered by the pandemic, but with the recovery, our full attention has been given to SpinDx. Although the patents to the base technology belong to Sandia, any improvements we make that are patentable belong solely to Lifeloc. The first Lifeloc-owned utility patent application was filed in February 2024.
In the first nine months of 2024 we purchased SpinDx related test and other equipment totaling $244,872 and in 2023 $0. In addition, during the first nine months of 2024 we invested $147,615 in space required for SpinDx related work that is not yet in service. We are estimating that completing and equipping this lab space will require an additional $150,000 during Q4 of 2024. Purchasing specialized equipment for the production of certain SpinDx components will require additional significant outlays, the total of which has not been determined. We are optimistic about the results of the work to date and expect market introduction via beta testing later in Q4 of 2024, which will continue in 2025, with a sales-ready device later in 2025. SpinDx™ uses a centrifugal disk with micro fluidic flow paths allowing multiple tests to be carried out on a single small sample. The SpinDx™ platform has the potential to revolutionize real-time screening for a panel of high abuse drugs, with the ability to quickly and quantitatively measure very low concentrations of drugs such as cocaine, heroin, methamphetamine, fentanyl and others. We intend to use this technology, sometimes referred to as "Lab on a Disk", to develop devices and tests that could be used at roadside, emergency rooms and in workplace testing to get a rapid measure for a panel of such drugs of abuse with a quantitative measure for delta-9-THC. In our laboratory, we have detected delta-9-THC (the primary psychoactive component of marijuana) down to concentrations of 5 nanograms per milliliter in spiked saliva samples and down to 10 nanograms per milliliter in samples obtained from human users. This includes resolving the psychoactive delta-9-THC from its inactive metabolites. Resolving the psychoactive levels from metabolites is an important step in establishing impairment which is an important differentiation from competitive devices. We expect the initial release of the new product will consist of the SpinDx base reader unit, an oral fluid collection device and an analysis disk. We expect subsequent product releases will utilize the same SpinDx base reader and collection devices for samples from blood and from breath. We completed the upgrade of our base breathalyzer platform in 2019 (the LX9), and we remain committed to combining it with the SpinDx technology. If successful, this combination will result in a marijuana breathalyzer.
R.A.D.A.R.
On March 8, 2017, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Track Group Inc., a Delaware corporation. Pursuant to the terms and conditions of the Asset Purchase Agreement, we acquired certain assets comprised of: (1) handheld hardware device technology (the "R.A.D.A.R.® Mobile Devices"), designed to measure breath alcohol content of the user; and (2) software technology called R.A.D.A.R.® (Real-time Alcohol Detection and Reporting) Reporting Center designed to allow the Device to be configured and to capture and manage the data being returned from the Device (together with the Device, the "R.A.D.A.R.® Assets"). We purchased the assets of R.A.D.A.R. 100 knowing the product needed significant upgrading, which was essentially completed and released for sale several years later as R.A.D.A.R. 200. This product met with little market acceptance as a result of the underperformance of one feature. We withdrew R.A.D.A.R. 200 from the market and outsourced the development of R.A.D.A.R. 300 to a third party but which is currently on hold as a result of focusing all of our effort on SpinDx.
Results of Operations
For the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Supply chain problems caused by Covid-19, as well as the other market impacts of Covid-19, were mostly resolved by the end of 2023. After meeting pent up demand in 2023 and the first half of 2024, sales in the third quarter of 2024 reverted back to pre-Covid levels. We maintained our reduced costs at their 2023 levels where possible, although inflation took its toll, increasing the cost of raw materials, labor, and freight. We continued and intensified our new product development efforts while maintaining the high level of customer service that has led to an excellent reputation for outstanding customer service. With the introduction of new products and reduction in research and development costs once current R&D efforts are completed, we believe Lifeloc will again be profitable.
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Net sales.
Our product sales for the quarter ended September 30, 2024 were $2,075,994, a decrease of $600,878 (22%) from $2,676,872 for the quarter ended September 30, 2023. When royalties of $3,016 and rental income of $8,316 are included, total revenues of $2,087,326 were down by $608,182 over the same quarter a year ago. Rental income decreased by $5,257 due to our election not to renew or replace a lease for a portion of the space formerly occupied by a tenant, and royalties decreased by $2,047 due to a decrease in sales by royalty-paying customers.
Gross profit.
| Total gross profit for the three months ended September 30, 2024 of $911,952 represented a decrease of 19% from total gross profit of $1,119,391 for the same three months ended September 30, 2023, primarily as a result of decreased sales without a decrease in fixed costs, as well as increased cost of materials and labor resulting from inflation. Cost of product sales decreased from $1,552,930 in the three months ended September 30, 2023 to $1,164,947 in the same period in 2024, a decrease of $387,983 (25%). Gross profit margin on products increased to 44% in the quarter ended September 30, 2024 from 42% in the same period a year ago primarily as a result of an increase in sales resulting from resolution with a customer regarding a deposit which did not involve any cost of goods. |
Research and development expenses.
Research and development expenses were relatively unchanged at $521,107 for the quarter ended September 30, 2024 representing an increase of $4,933 (1%) over the $516,174 in the same period a year ago.
Sales and marketing expenses.
Sales and marketing expenses of $329,716 for the 3 months ended September 30, 2024 were up by $19,818 (or 6%) from the $309,898 spent in the same period a year ago, as a result of expanded marketing efforts, including the addition of personnel.
General and administrative expenses.
General and administrative expenses of $269,450 for the quarter ended September 30, 2024 were relatively unchanged from $269,593 for the quarter ended September 30, 2023.
Other income (expense).
Interest income decreased from $17,678 for the three months ended September 30, 2023 to $9,525 for the three months ended September 30, 2024 as a result of lower funds availability. Interest expense of $10,019 in the 3 months ended September 30, 2024 was down from $10,494 in the previous year as a result of the paydown on our loan on our building.
Net income (loss).
We realized a net loss of $158,327 for the 3 months ended September 30, 2024 compared to net income of $109,603 for the quarter ended September 30, 2023. This decrease of $267,930 was the result of the changes in gross profit, operating expenses and other income discussed above, which resulted in a loss before taxes of $208,815, or a decrease of $239,725 from the profit before taxes of $30,910 in 2023, and after the benefit from taxes of $50,488 versus a benefit from taxes of $78,693 in the same three months a year ago.
For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Net sales.
Our product sales for the first nine months of 2024 were $6,580,861, a decrease of 7%, or $475,777 for the same period in 2023. When royalties of $22,776 and rental income of $24,462 are included, total revenues of $6,628,099 were down by $512,309 over the same nine months a year ago. Rental income decreased by $35,889 due to our election not to renew or replace a lease for a portion of the space formerly occupied by a tenant, and royalties decreased by $643 due to a decrease in sales by royalty-paying customers.
Gross profit.
Total gross profit for the 9 months ended September 30, 2024 of $2,740,855 represented a decrease of 12% from total gross profit of $3,097,262 for the same nine months ended September 30, 2023, primarily as a result of lower sales without a decrease in fixed costs, as well as increased cost of materials and labor resulting from inflation. Cost of product sales decreased from $4,009,495 in the 9 months ended September 30, 2023 to $3,869,977 in the same period in 2024, a decrease of $139,518 (3%). Gross profit margin on products decreased to 41% in the 9 months ended September 30, 2024 from 43% in the same period a year ago.
Research and development expenses were $1,738,982 for the nine months ended September 30, 2024 representing an increase of $430,261 (33%) over the $1,308,721 in the same period a year ago. This increase resulted primarily from additional personnel, materials and outside contractors needed for our dedication of resources to SpinDx.
Sales and marketing expenses.
Sales and marketing expenses of $1,040,099 for the 9 months ended September 30, 2024 were up by $142,243 (or 16%) from the $897,856 spent in the same period a year ago, as a result of expanded marketing efforts, personnel, web site and other similar items.
General and administrative expenses.
General and administrative expenses of $947,384 for the 9 months ended September 30, 2024 versus $872,724 for the same period ended September 30, 2023 were up by $74,660 (9%). This increase was the result of across the board inflationary increases.
Other income (expense).
Interest income decreased from $46,678 a year ago to $35,874 in 2024, as a result of lower funds availability. Interest expense of $30,226 in the 9 months ended September 30, 2024 was down from $31,319 in the previous year as a result of the paydown on our loan on our building.
Net income (loss).
We realized a net loss of $740,121 for the 9 months ended September 30, 2024 compared to net income of $110,960 for the same 9 months ended September 30, 2023. This negative swing of $851,081 was the result of the changes in gross profit, operating expenses and other income discussed above, which resulted in a loss before taxes of $979,962, or an increased loss of $1,013,282 from the profit before taxes of $33,320 in 2023. After the benefit from taxes of $239,841 versus the benefit from taxes of $77,640 in the same period a year ago, we realized a net loss of $740,121 compared to net income of $110,960 in 2023.
Trends and Uncertainties That May Affect Future Results.
Revenues in the year 2024 were down compared to revenues in 2023. We believe that continued increased sales efforts may result in modestly improved revenues in the fourth quarter of 2024 and beyond. Inflationary pressures have affected our business in a number of ways, including increasing the cost of raw materials, labor, and freight. Our actions to mitigate the impact of inflation, including pre-ordering components in higher than usual quantities, sourcing new vendors and increasing prices, have been somewhat successful.
We expect our quarter-to-quarter revenue fluctuations to continue, due to the unpredictable timing of large orders from customers and the size of those orders in relation to total revenues. Going forward, we intend to focus our development efforts on products we believe offer the best prospects to increase our intermediate and near-term revenues, with particular emphasis on completing SpinDx™.
Our operating plan for the remainder of 2024 is focused on growing sales, increasing gross profits, and continuing research and development efforts on new products, including SpinDx™, for long-term growth. We cannot predict with certainty the expected sales, gross profit, net income or loss, or usage of cash and cash equivalents for 2024. However, we believe that cash resources will be sufficient to fund our operations for the next twelve months under our current operating plan. If we are unable to manage the business operations in line with our budget expectations, it could have a material adverse effect on business viability, financial position, results of operations and cash flows. Further, if we are not successful in sustaining profitability and remaining at least cash flow break-even, additional borrowings or capital may be required to maintain ongoing operations.
Interest expense.
In connection with the financing of our building purchase on October 31, 2014 we obtained a 10-year term loan from Bank of America in an initial principal amount of $1,581,106 bearing interest at 4.45% per annum (which was decreased to 4% in 2016) and secured by a first-priority mortgage in the acquired property, as well as a one-year $250,000 line of credit, which was later increased to $750,000 with a maturity date of September 28, 2021. The Bank of America loan was paid on September 30, 2021 with proceeds from a new term loan from Citywide Banks, also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000. The new loan is payable in monthly installments of $7,453, with interest at 2.95% and a maturity date of September 30, 2031. The revolving line of credit facility expired in accordance with its terms. In July 2024, we obtained a new $750,000 line of credit from Citywide Banks with a maturity date of one year and a variable interest rate determined by SOFR (Secured Overnight Rate Financing) plus 2.75% payable monthly. As of September 30, 2024 this line of credit had not been accessed and no balance was due on the loan.
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Liquidity and Capital Resources
We compete in a highly technical, very competitive and, in most cases, price driven alcohol testing marketplace, where products can take years to develop and introduce to distributors and end users. Furthermore, manufacturing, marketing and distribution activities are regulated by the DOT and other regulatory bodies that, while intended to enhance the ultimate quality and functionality of products produced, can contribute to the cost and time needed to maintain existing products and develop and introduce new products.
Except for normal operating contractual commitments and purchase orders, we do not have any material contractual commitments requiring settlement in the future.
We have traditionally funded working capital needs through product sales and close management of working capital components of our business. Historically, we have also received cash from private offerings of our common stock, warrants to purchase shares of our common stock, and notes. In our earlier years, we incurred quarter to quarter operating losses to develop current product applications, utilizing a number of proprietary and patent-pending technologies. Although we have been profitable in recent years except 2020 and 2022, we can provide no assurances that operating losses will not occur in the future. Should that situation arise, we may not be able to obtain working capital funds necessary in the time frame needed and at satisfactory terms, if at all.
As of September 30, 2024, cash and cash equivalents was $841,621, trade accounts receivable were $611,439 and current liabilities were $783,779 resulting in net liquid assets of $669,281. We believe that the resolution of supply chain issues and the Covid-19 pandemic, and the introduction of several new products during the last several years, along with new and on-going customer relationships will allow Lifeloc to operate profitably. If the revenue levels during the last several years do not continue to grow, if inflationary pressures are not contained, or if the development of SpinDx takes longer than expected, we may be required to seek additional sources of borrowings or capital and/or to implement further cost reduction measures, as necessary.
Equipment expenditures, consisting of space modifications, updated office and production equipment, and SpinDx related equipment and lab space during the first nine months of 2024 were $625,238, including $195,036 of equipment not yet in service, compared to $21,611 in the first nine months of 2023, an increase of $603,627. We incurred patent application costs in preparation for filing of $21,708 in 2024 versus $1,404 in 2023. We are estimating that completing and equipping the lab space will require an additional $150,000 during the fourth quarter of 2024. As development of SpinDx progresses, and as normal wear and tear of equipment occurs, we expect to continue to incur outlays for equipment and patent filings in 2024 and beyond.
We generally provide a standard one-year limited warranty on materials and workmanship to our customers. We provide for estimated warranty costs at the time product revenue is recognized. Warranty costs are included as a component of cost of goods sold in the accompanying statements of operations. For the quarter ended September 30, 2024 and for the quarter ended September 30, 2023, warranty costs were not deemed significant.
Critical Accounting Policies and Estimates
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, sales returns, deferred tax assets, warranty, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.
We have concluded that we have two operating segments, including our primary business which is as a developer, manufacturer and marketer of portable hand-held breathalyzers and related accessories, supplies and education, and a second segment consisting of renting portions of our building to existing tenants.
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We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required, which would increase our expenses during the periods in which any such allowances were made. The amount recorded as a provision for bad debts in each period is based upon our assessment of the likelihood that we will be paid on our outstanding receivables, based on customer-specific as well as general considerations. To the extent that our estimates prove to be too high, and we ultimately collect a receivable previously determined to be impaired, we may record a reversal of the provision in the period of such determination.
We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Any write-downs of inventory would reduce our reported net income during the period in which such write-downs were applied.
Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five years (three years for software and technology licenses). We use the declining method of depreciation for property, including space modifications, and the straight line method for software and technology licenses. We purchased all of the assets of STS, an online education company, in 2014, which consisted of training courses that are amortized over 15 years using the straight line method. In October 2014, we purchased our building. A majority of the cost of the building is depreciated over 39 years using the straight line method. In addition, based on the results of a third party analysis, a portion of the cost was allocated to components integral to the building. Such components are depreciated over 5 and 15 years, using the declining method. The R.A.D.A.R.® software and patents that were purchased in March 2017 were originally set to amortize over 15 years using the straight line method, but in 2022 we accelerated the amortization of the remaining cost to fully amortize the assets by December 31, 2022. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.
Revenue from product sales and supplies is generally recorded when we ship the product and title has passed to the customer, or when agreed milestones are met in the case of product developments, provided that we have evidence of a customer arrangement and can conclude that collection is probable. The prices at which we sell our products are fixed and determinable at the time we accept a customer's order. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims, and generally have no ongoing obligations related to product sales, except for normal warranty.
The sales of licenses to our training courses are recognized as revenue at the time of sale. Direct training performed by us is recognized when training is completed by the trainer, with the unearned portion classified as deferred revenue. Training and certification revenues are recognized at the time the training and certification occurs. Data recording revenue is recognized based on each day’s usage of enrolled devices.
Revenues arising from extended warranty contracts are booked as sales over their life on a straight-line basis. We provide customer financing and leasing ourselves, which we recognize as revenue over the applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract.
Royalty income is recognized in accordance with agreed upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured.
Rental income from space leased to our tenants is recognized in the month in which it is due.
On occasion we receive customer deposits for future product orders and for product development. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer, or in the case of product development, when agreed milestones are met.
Stock-based compensation is presented in accordance with the guidance of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718, Compensation — Stock Compensation ("ASC 718"). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards made to employees and directors including employee stock options based on estimated fair values on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statement of operations.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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ITEM 4 – CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
(b) Changes in Internal Control over Financial Reporting
There were no significant changes in our internal controls over financial reporting during the period ended September 30, 2024 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Our management, including our Chief Executive Officer and our Chief Financial Officer, do not expect that the Company's disclosure controls will prevent or detect all errors and all fraud. 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. Because of 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, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
We may be involved from time to time in litigation, negotiation and settlement matters that may have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers or directors in their capacity as such that could have a material impact on our operations or finances.
ITEM 1A – RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in ''Risk Factors'' in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition and/or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 23, 2024, we sold 210,000 shares of common stock to EDCO Partners LLLP, an accredited investor, in a private placement pursuant to Section 4(a)(2) and Regulation D of the Securities Act. The purchase price under the Private Placement was $3.80 per share, for a total of $798,000 in proceeds to Lifeloc. There were no discounts or commissions paid to underwriters or placement agents. There were no sales of equity securities during the nine months ended September 30, 2023.
No options were exercised during the nine months ended September 30, 2024 or during the nine months ended September 30, 2023.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5 – OTHER INFORMATION
During the quarter ended September 30, 2024,
no director or officer of the Company
ITEM 6 – EXHIBITS
The following exhibits are filed with this report on Form 10-Q or are incorporated by reference:
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SIGNATURES
Pursuant to 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.
| LIFELOC TECHNOLOGIES, INC. | |||
| November 12, 2024 | By: | /s/ Wayne R. Willkomm | |
| Date | Wayne R. Willkomm, Ph.D. | ||
|
President and Chief Executive Officer (Principal Executive Officer) |
|||
| November 12, 2024 | By: | /s/ Michelle Heim | |
| Date | Michelle Heim | ||
|
Controller (Principal Accounting Officer) |
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Exhibit Index
| Exhibit No. | Description of Exhibit | ||
| 10.1 | Subscription Agreement by and between Lifeloc Technologies, Inc. and EDCO Partners LLLP | ||
| 31.1 | Certification of Principal Executive Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002 | ||
| 31.2 | Certification of Principal Financial Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002 | ||
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
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