Lifeloc Technologies, Inc

June 30, 2026 and 2025

1. ORGANIZATION AND NATURE OF BUSINESS

Lifeloc Technologies, Inc. (“Lifeloc” or the “Company”, “Us”, “Our”, or “We”) 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.lifelocuniversity.com.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PROCESSES

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, 2025 as filed with the SEC. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, consisting of only normal recurring adjustments necessary for a fair statement of the financial position as of June 30, 2026 and December 31, 2025, and the results of operations and cash flows for the six months ended June 30, 2026 and June 30, 2025. 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 2025 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.

Inventories. Inventories are stated at the lower of standard average cost 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 net realizable value after cost to sell, 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 June 30, 2026 and December 31, 2025, inventory consisted of the following:

Income Taxes. We account for income taxes under the provisions of Accounting Standards Codification (“ASC”) Topic 740,Accounting for Income Taxes (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits which, more likely than not based on current circumstances, are not expected to be realized. We estimate that our current effective tax rate to be 0% for 2026.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

Revenue Recognition.

We recognize revenue in accordance with ASC Topic 606 using the five-step model: identifying the contract with a customer, identifying performance obligations, determining and allocating the transaction price, and recognizing revenue when performance obligations are satisfied.

Our contracts generally contain a single performance obligation to deliver products or supplies. Transaction prices are fixed and determinable at order acceptance. Revenue is recognized at a point in time when control transfers to the customer, typically upon shipment when title has passed.

For product development arrangements, revenue is recognized upon achievement of contractual milestones. Sales to stocking distributors are recognized when control transfers and there are no rights of return other than standard warranty provisions. We generally have no significant post-delivery obligations other than standard warranties.

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. 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.

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.

Deferred Revenue. Deferred revenues arise from service contracts and from direct training revenue. 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 (loss). 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 direct training revenue that needs to be scheduled based on the customer’s and Lifeloc’s availability. Revenue is recognized when training is complete and is included in product sales in our statements of income. All direct training is for less than one year and all deferred revenues from this source are shown in our balance sheets as short term.

Recently Issued Accounting Pronouncements: In November 2024, the FASB issued Accounting Standards Update (ASU) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective for the Company’s annual periods for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. We are currently evaluating the ASU to determine its impact on our consolidated financial statements and disclosures.

The Company does not believe that issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

3. BASIC AND DILUTED (LOSS) PER COMMON SHARE

We report both basic and diluted net income or loss per common share. Basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing the net income 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 and warrants to purchase shares where the exercise price was greater than the average market price of common shares for the period. For the six months ended June 30, 2026, options to purchase 15,000 shares and warrants to purchase 68,750 shares were excluded from the computation of diluted net loss per share, and for the six months ended June 30, 2025, options to purchase 33,500 shares and warrants to purchase 68,750 shares were excluded from the computation of diluted net loss per share, because their effect during those periods would have been antidilutive.

The following table presents the calculation of basic and diluted net (loss) per common share for the three and six months ended June 30, 2026 and June 30, 2025.

4. STOCKHOLDERS’ EQUITY

In February 2025, options to purchase 88,500 shares of our common stock, originally granted as incentive stock options pursuant to our 2013 Stock Option Plan, were assigned by the option holders to EDCO Partners LLLP and a third director. The Board of Directors approved the assignments and waived the non-transferability provisions of the applicable option agreements and the Plan solely to permit such assignments. Upon assignment, the options ceased to qualify as incentive stock options and were reclassified as nonqualified stock options for all tax, accounting, and compliance purposes. EDCO Partners LLLP, of which our CFO and board chairman is the general partner, and a third director then exercised the assigned options at a price of $3.80 per share for total proceeds of $336,300 to the Company. There wasno intrinsic value on the exercised options. At June 30, 2026,15,000 options remained outstanding with a weighted average life of 0.58 years. All 15,000 of these options were fully vested. The options outstanding at June 30, 2026 had an intrinsic value of $0.

At June 30, 2026, there were 68,750 warrants outstanding, all with an exercise price of $4.50 and all expiring December 31, 2030.

5. DEBT

Subordinated Debentures Payable. On December 31, 2024, we issued a $750,000 unsecured debenture that is subordinated to the Company’s existing secured indebtedness, which is collateralized by a lien on substantially all of the Company’s assets. The debenture bears interest only at 8.25% payable quarterly in 2025, with monthly payments of $9,199 including principal and interest at 8.25% commencing on January 31, 2026. A balloon payment of $451,012 is due in full on December 31, 2030.

In consideration of the lender providing the financing, the Company issued warrants which entitle the holder to purchase 62,500 shares of our common stock at $4.50 per share.

On March 1, 2025, we issued a $75,000 unsecured debenture that is subordinated to the Company’s existing secured indebtedness, which is collateralized by a lien on substantially all of the Company’s assets. The debenture bears interest only at 8.25% payable quarterly in 2025. A balloon payment of $45,707 is due in full on December 31, 2030. In consideration of the lender providing this financing, the Company issued warrants which entitle the holder to purchase 6,250 shares of our common stock at $4.50 per share. If the debenture is paid in full on or before December 31, 2029, the warrants will have a remaining life of 58 months from March 1, 2025.

The factors used to calculate the estimated value of these warrants, and the resulting fair value, were as follows.

Our minimum future principal payments on all of the above subordinated debentures are as follows:

Term Loans Payable. The term loan payable to UMB (formerly Citywide Banks) is secured by a first mortgage on our building and is payable in 119 equal monthly installments of $7,453 commencing October 30 2021, including principal and interest at 2.95% based on a 360 day year, 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:

The term loan payable to Vern D. Kornelsen, our Chairman and CFO, which was entered into on May 1, 2026, is secured by substantially all assets of the Company, including its building, which is subordinate to the prior perfected security interest held by UMB (formerly Citywide Banks), and is payable in 8 equal monthly installments of interest only of $4,375 through December 31, 2026, and in 60 monthly installments of $10,747 commencing January 31, 2027, including principal and interest at 10.5% based on a 360 day year, with interest to increase if the prime rate increases. Our minimum future principal payments on this term loan, by year, are as follows:

6. COMMITMENTS AND CONTINGENCIES

Employee Severance Benefits. Our obligation with respect to employee severance benefits is minimized by the “at will” nature of the employee relationships. As of June 30, 2026, 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 $2,642,287 at June 30, 2026.

Regulatory Commitments. We are subject to certain regulations of the United States Department of Transportation and various state departments of transportation. We believe that we are in substantial compliance with all known applicable regulations.

7. LEGAL PROCEEDINGS

We were not involved or party to any legal proceedings at June 30, 2026 or December 31, 2025, and therefore made no accruals for legal proceedings in either 2026 or 2025.

8. BUSINESS SEGMENT

Operating segments are defined under ASU 2023-07, Segment Reporting (Topic 280), as components of an entity where discrete financial information is evaluated regularly by the chief operating decision maker (“CODM”), in this case, the Company’s Chief Executive Officer. The CODM makes decisions on resource allocation, assesses performance of the business, and monitors budget versus actual results on a consolidated basis based on net income (losses). On this basis, the CODM has determined the Company operates inone operating and reportable segment: the development, manufacture, and sale of portable hand-held breathalyzers and drug screening products, and related accessories, supplies, education, and training, together with royalties from development contracts with original equipment manufacturers. Until June 30, 2025, we had a second segment consisting of a rental of a portion of our building. That segment was eliminated following the tenant lease not being renewed on June 30, 2025.