Lifeloc Technologies Inc

PART I FINANCIAL INFORMATION

**LIFELOC TECHNOLOGIES, INC.

Condensed Balance Sheets (Unaudited)

Condensed Statements of Income (Loss) (Unaudited)

Condensed Statements of Income (Loss) (Unaudited)

Lifeloc Technologies, Inc.

Statements of Stockholders' Equity (Unaudited)

Condensed Statements of Cash Flows (Unaudited)

** 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 $1,076 and $1,076 respectively, and for the nine months ended September 30, 2024 and September 30, 2023 $3,178 and $3,228 respectively, and is included within interest expense on the statements of income.

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:

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 21%. The rate will be revised, if necessary, as of the end of each successive interim period during our fiscal year to our best current estimate. The Company’s income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated future taxes to be paid or refunded. Significant judgments and estimates are required in determining the income tax expense. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and the assumptions are consistent with the plans and estimates that the Company is using to manage its underlying businesses. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company evaluates its tax positions taken or expected to be taken in the course of preparing its tax returns to determine whether the tax positions will more likely than not be sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are not recorded as a tax benefit or expense in the current year. No reserve for uncertain tax positions has been recorded.

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.

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 (12% of our total space) to one tenant pursuant to a lease that expires June 30, 2025, with the rate determined by referring to prevailing market rates. The lease does not have an option to renew or extend.

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.

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.

3. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE

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:

4. STOCKHOLDERS' EQUITY

In July, 2024 we issued 210,000 shares of common stock to EDCO Partners LLLP at $3.80 per share, or $798,000 in cash which results in 2,664,116 shares now outstanding. No shares were issued during the nine months ended September 30, 2023.

The following table summarizes information about employee stock options outstanding and exercisable at September 30, 2024:

As of September 30, 2024, no 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 $50,020.

No 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 50,000,000, with no change in the par value per share.

5. COMMITMENTS AND CONTINGENCIES

Mortgage Expense. We purchased our facilities in Wheat Ridge, Colorado on October 31, 2014 for $1,949,139 and took out a term loan secured by a first mortgage on the property in the amount of $1,581,106 with Bank of America for a portion of the purchase price. This loan was paid on September 30, 2021 with proceeds from a new term loan with Citywide Banks, also secured by a first priority mortgage on the property, in the principal amount of $1,350,000 which matures in September, 2031. The new note is payable in 119 equal monthly installments of $7,453, including interest, plus a final payment of $773,727 (excluding interest) on September 30, 2031. Our minimum future principal payments on this term loan, by year, are as follows:

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 $2,843,637 at September 30, 2024.

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.

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.

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.

There were no intersegment revenues.

At September 30, 2024, $185,549 of our assets were used in the Rentals segment, with the remainder, $8,157,575 used in the Products and unallocated segments.