Lifeloc Technologies Inc

Previous wording

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.

Current wording

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.

Previous wording

In the first six months of 2024 we purchased SpinDx related test and other equipment totaling $64,249 and in 2023 $0. In addition, during the first six months of 2024 we invested $227,354 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 $300,000 during the last six months of 2024. We are optimistic about the results of the work to date and expect market introduction via beta testing later in 2024, which will continue in 2025, with a sales-ready device later 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 and quantitative measure for a panel of such drugs of abuse. We have detected delta-9-THC (the primary psychoactive component of marijuana) down to concentrations of 5 nanograms per milliliter in our laboratory. 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. 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.

Current wording

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.

Previous wording

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, and the perceived need to monitor for the presence of alcohol reverted back to the level experienced previously. 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, we believe Lifeloc will again be profitable.

Current wording

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.

Previous wording

Our product sales for the quarter ended June 30, 2024 were $2,370,433, an increase of $124,026 (6%) from $2,246,407 for the quarter ended June 30, 2023. When royalties of $8,824 and rental income of $8,073 are included, total revenues of $2,387,330 were up by $106,984 over the same quarter a year ago. Rental income decreased by $15,716 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 $1,326 due to a decrease in sales by royalty-paying customers.

Current wording

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.

Previous wording

Total gross profit for the three months ended June 30, 2024 of $993,596 represented a decrease of 5% from total gross profit of $1,042,444 for the same six months ended June 30, 2023, primarily as a result of increased cost of materials and labor resulting from inflation, augmented in part by decreased royalties in 2024. Cost of product sales increased from $1,233,070 in the three months ended June 30, 2023 to $1,389,951 in the same period in 2024, an increase of $156,881 (13%). Gross profit margin on products decreased to 41.4% in the quarter ended June 30, 2024 from 45.1% in the same period a year ago primarily as a result of the increase in costs.

Current wording

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.

Previous wording

Research and development expenses were $662,276 for the quarter ended June 30, 2024 representing an increase of $266,495 (67%) over the $395,781 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.

Current wording

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.

Previous wording

Sales and marketing expenses of $365,374 for the 3 months ended June 30, 2024 were up by $65,299 (or 22%) from the $300,075 spent in the same period a year ago, as a result of expanded marketing efforts, including the additional of personnel.

Current wording

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.

Previous wording

Interest income decreased from $19,200 in the three months a year ago to $8,677 in the three months in 2024, as a result of lower funds availability. Interest expense of $10,057 in the 3 months ended June 30, 2024 was down from $10,290 in the previous year as a result of the paydown on our loan on our building.

Current wording

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.

Previous wording

We realized a net loss of $297,988 for the 3 months ended June 30, 2024 compared to net income of $55,145 for the quarter ended June 30, 2023. This decrease of $353,133 was the result of the changes in gross profit, operating expenses and other income discussed above, which resulted in a loss before taxes of $398,442, or a decrease of $469,824 from the profit before taxes of $71,382 in 2023. After the benefit from taxes of $100,454 (versus taxes of $16,237 in the same three months a year ago), we realized a net loss of $297,988 compared to a net profit of $55,145 in 2023.

Current wording

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.

Previous wording

Our product sales for the first half of 2024 were $4,504,867, an increase of 3%, or $125,101 for the same period in 2023. When royalties of $19,760 and rental income of $16,146 are included, total revenues of $4,540,773 were up by $95,873 over the same six months a year ago. Rental income decreased by $30,632 due to our election not to renew or replace a lease for a portion of the space formerly occupied by a tenant, and royalties increased by $1,404 due to an increase in sales by royalty-paying customers earlier in the year.

Current wording

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.

Previous wording

Total gross profit for the 6 months ended June 30, 2024 of $1,828,903 represented a decrease of 8% from total gross profit of $1,977,871 for the same six months ended June 30, 2023, primarily as a result of increased cost of materials and labor resulting from inflation, augmented in small part by increased royalties in 2024. Cost of product sales increased from $2,456,565 in the 6 months ended June 30, 2023 to $2,705,030 in the same period in 2024, an increase of $248,465 (10%). Gross profit margin on products decreased to 40% in the 6 months ended June 30, 2024 from 43.9% in the same period a year ago primarily as a result of the increase in costs.

Current wording

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.

Previous wording

Research and development expenses were $1,217,875 for the six months ended June 30, 2024 representing an increase of $425,328 (54%) over the $792,547 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.

Current wording

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.

Previous wording

Sales and marketing expenses of $710,383 for the 6 months ended June 30, 2024 were up by $122,425 (or 21%) from the $587,958 spent in the same period a year ago, as a result of expanded marketing efforts, including the additional of personnel.

Current wording

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.

Previous wording

General and administrative expenses of $677,934 for the 6 months ended June 30, 2024 versus $603,131 for the same period ended June 30, 2023 were up by $74,803 (12%). This increase was the result of across the board inflationary increases.

Current wording

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.

Previous wording

Interest income decreased from $29,000 a year ago to $26,349 in 2024, as a result of lower funds availability. Interest expense of $20,207 in the 6 months ended June 30, 2024 was down from $20,825 in the previous year as a result of the paydown on our loan on our building.

Current wording

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.

Previous wording

We realized a net loss of $581,794 for the 6 months ended June 30, 2024 compared to net income of $1,357 for the same 6 months ended June 30, 2023. This increased loss of $583,151 was the result of the changes in gross profit, operating expenses and other income discussed above, which resulted in a loss before taxes of $771,147, or an increased loss of $773,557 from the profit before taxes of $2,410 in 2023. After the benefit from taxes of $189,353 (versus taxes of $1,053 a year ago), we realized a net loss of $581,794 compared to a net profit of $1,357 in 2023.

Current wording

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.

Previous wording

Revenues in the year 2024 were nearly unchanged compared to revenues in 2023. We believe that continued increased sales efforts may result in improved revenues in the rest 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.

Current wording

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.

Previous wording

Our operating plan for the second half of 2024 is focused on growing sales, increasing gross profits, and increasing 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 capital may be required to maintain ongoing operations.

Current wording

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.

Previous wording

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 Citiwide 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.

Current wording

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.

Previous wording

As of June 30, 2024, cash and cash equivalents was $504,642, trade accounts receivable were $831,501 and current liabilities were $1,081,693 resulting in net liquid assets of $254,450. 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 capital and/or to implement further cost reduction measures, as necessary.

Current wording

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.

Previous wording

Equipment expenditures, consisting of updated office and production equipment, and SpinDx related equipment, during the first six months of 2024 were $263,937 compared to $14,811 in the first six months of 2023, an increase of $249,126. We incurred patent application costs in preparation for filing of $21,708 in 2024 versus $1,404 in 2023. In addition, during the first six months of 2024 we invested $227,354 in lab 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 $300,000 during the last six months 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.

Current wording

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.

Previous wording

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, 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.

Current wording

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.