ITEM 1 – FINANCIAL STATEMENTS
LIFELOC
TECHNOLOGIES, INC.
Condensed
Balance Sheets
|
|
|
|
|
|
ASSETS
|
|
|
June 30,
|
|
|
|
|
|
2021
|
|
|
December 31,
|
CURRENT ASSETS:
|
|
(Unaudited)
|
|
|
2020
|
Cash
|
$
|
2,390,591
|
|
$
|
2,195,070
|
Accounts receivable, net
|
|
499,050
|
|
|
523,603
|
Inventories, net
|
|
2,495,960
|
|
|
2,498,126
|
Income taxes receivable
|
|
275,163
|
|
|
220,657
|
Prepaid expenses and other
|
|
90,766
|
|
|
77,962
|
Total current assets
|
|
5,751,530
|
|
|
5,515,418
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, at cost:
|
|
|
|
|
|
Land
|
|
317,932
|
|
|
317,932
|
Building
|
|
1,928,795
|
|
|
1,928,795
|
Real-time Alcohol Detection And Recognition equipment and software
|
|
569,448
|
|
|
569,448
|
Production equipment, software and space modifications
|
|
958,785
|
|
|
958,785
|
Training courses
|
|
432,375
|
|
|
432,375
|
Office equipment, software and space modifications
|
|
216,618
|
|
|
216,618
|
Sales and marketing equipment and space modifications
|
|
226,356
|
|
|
226,356
|
Research and development equipment, software and space modifications
|
|
249,279
|
|
|
190,818
|
Less accumulated depreciation
|
|
(2,405,026)
|
|
|
(2,277,839)
|
Total property and equipment, net
|
|
2,494,562
|
|
|
2,563,288
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
Patents, net
|
|
138,774
|
|
|
144,702
|
Deposits and other
|
|
163,832
|
|
|
164,798
|
Deferred taxes
|
|
137,494
|
|
|
148,142
|
Total other assets
|
|
440,100
|
|
|
457,642
|
|
|
|
|
|
|
Total assets
|
$
|
8,686,192
|
|
$
|
8,536,348
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
Accounts payable
|
$
|
232,015
|
|
$
|
333,851
|
Term loan payable, current portion
|
|
47,910
|
|
|
46,936
|
Paycheck Protection loan payable
|
|
471,347
|
|
|
465,097
|
Customer deposits
|
|
163,425
|
|
|
155,295
|
Accrued expenses
|
|
212,164
|
|
|
266,266
|
Deferred revenue, current portion
|
|
41,998
|
|
|
41,053
|
Reserve for warranty expense
|
|
46,500
|
|
|
46,500
|
Total current liabilities
|
|
1,215,359
|
|
|
1,354,998
|
|
|
|
|
|
|
TERM LOAN PAYABLE, net of current portion and debt issuance costs
|
|
1,253,113
|
|
|
1,277,531
|
|
|
|
|
|
|
DEFERRED REVENUE, net of current portion
|
|
6,162
|
|
|
3,177
|
Total liabilities
|
|
2,474,634
|
|
|
2,635,706
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
Common stock, no par value; 50,000,000 shares authorized, 2,454,116 shares
outstanding
|
|
4,650,812
|
|
|
4,633,655
|
Retained earnings
|
|
1,560,746
|
|
|
1,266,987
|
Total stockholders' equity
|
|
6,211,558
|
|
|
5,900,642
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
8,686,192
|
|
$
|
8,536,348
|
See
accompanying notes
LIFELOC
TECHNOLOGIES, INC.
Condensed
Statements of Income (Unaudited)
|
|
|
|
|
|
|
Three Months Ended June
30,
|
|
|
2021
|
|
2020
|
REVENUES:
|
|
|
|
|
Product sales
|
|
$
|
1,674,045
|
|
|
$
|
1,265,698
|
|
Royalties
|
|
|
33,652
|
|
|
|
32,851
|
|
Rental income
|
|
|
21,939
|
|
|
|
21,489
|
|
Total
|
|
|
1,729,636
|
|
|
|
1,320,038
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
1,124,218
|
|
|
|
991,969
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
605,418
|
|
|
|
328,069
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
266,633
|
|
|
|
182,485
|
|
Sales and marketing
|
|
|
214,124
|
|
|
|
274,780
|
|
General and administrative
|
|
|
256,908
|
|
|
|
324,041
|
|
Total
|
|
|
737,665
|
|
|
|
781,306
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(132,247
|
)
|
|
|
(453,237
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
813
|
|
|
|
3,242
|
|
Interest expense
|
|
|
(13,544
|
)
|
|
|
(14,016
|
)
|
Total
|
|
|
(12,731
|
)
|
|
|
(10,774
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) BEFORE PROVISION FOR TAXES
|
|
|
(144,978
|
)
|
|
|
(464,011
|
)
|
|
|
|
|
|
|
|
|
|
BENEFIT FROM (PROVISION FOR) FEDERAL AND STATE
INCOME TAXES
|
|
|
35,266
|
|
|
|
114,419
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(109,712
|
)
|
|
$
|
(349,592
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE, BASIC
|
|
$
|
(0.04
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE, DILUTED
|
|
$
|
(0.04
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES, BASIC
|
|
|
2,454,116
|
|
|
|
2,454,116
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES, DILUTED
|
|
|
2,454,116
|
|
|
|
2,476,222
|
|
See
accompanying notes
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
REVENUES:
|
|
2021
|
|
2020
|
Product sales
|
|
$
|
3,449,492
|
|
|
$
|
3,203,564
|
|
Royalties
|
|
|
46,216
|
|
|
|
92,132
|
|
Rental income
|
|
|
43,471
|
|
|
|
42,678
|
|
Total
|
|
|
3,539,179
|
|
|
|
3,338,374
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
2,109,884
|
|
|
|
2,232,229
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
1,429,295
|
|
|
|
1,106,145
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
573,845
|
|
|
|
479,382
|
|
Sales and marketing
|
|
|
444,602
|
|
|
|
601,344
|
|
General and administrative
|
|
|
607,028
|
|
|
|
680,928
|
|
Total
|
|
|
1,625,475
|
|
|
|
1,761,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
(196,180
|
)
|
|
|
(655,509
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
Forgiveness of Paycheck Protection loan
|
|
|
465,097
|
|
|
|
—
|
|
Interest income
|
|
|
1,312
|
|
|
|
10,418
|
|
Interest expense
|
|
|
(27,061
|
)
|
|
|
(28,147
|
)
|
Total
|
|
|
439,348
|
|
|
|
(17,729
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) BEFORE PROVISION FOR TAXES
|
|
|
243,168
|
|
|
|
(673,238
|
)
|
|
|
|
|
|
|
|
|
|
BENEFIT FROM (PROVISION FOR) FEDERAL AND STATE INCOME
TAXES
|
|
|
50,591
|
|
|
|
158,340
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
293,759
|
|
|
$
|
(514,898
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE, BASIC
|
|
$
|
0.12
|
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE, DILUTED
|
|
$
|
0.12
|
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES, BASIC
|
|
|
2,454,116
|
|
|
|
2,454,116
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES, DILUTED
|
|
|
2,454,116
|
|
|
|
2,454,116
|
|
See accompanying notes
Lifeloc
Technologies, Inc.
Statements
of Stockholders' Equity (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Total stockholders' equity, beginning
balances
|
|
$
|
6,321,270
|
|
|
$
|
6,659,026
|
|
|
$
|
5,900,642
|
|
|
$
|
6,792,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock (no shares issued during periods):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balances
|
|
|
4,650,812
|
|
|
|
4,635,415
|
|
|
|
4,633,655
|
|
|
|
4,603,304
|
|
Stock based compensation expense related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to stock options
|
|
|
—
|
|
|
|
312
|
|
|
|
17,157
|
|
|
|
32,423
|
|
Ending balances
|
|
|
4,650,812
|
|
|
|
4,635,727
|
|
|
|
4,650,812
|
|
|
|
4,635,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balances
|
|
|
1,670,458
|
|
|
|
2,023,611
|
|
|
|
1,266,987
|
|
|
|
2,188,917
|
|
Net income (loss)
|
|
|
(109,712
|
)
|
|
|
(349,592
|
)
|
|
|
293,759
|
|
|
|
(514,898
|
)
|
Ending balances
|
|
|
1,560,746
|
|
|
|
1,674,019
|
|
|
|
1,560,746
|
|
|
|
1,674,019
|
|
Net income (loss)
|
|
|
(109,712
|
)
|
|
|
(349,592
|
)
|
|
|
293,759
|
|
|
|
(514,898
|
)
|
Stock based compensation
expense related to stock options
|
|
|
—
|
|
|
|
312
|
|
|
|
17,157
|
|
|
|
32,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity, ending balances
|
|
$
|
6,211,558
|
|
|
$
|
6,309,746
|
|
|
$
|
6,211,558
|
|
|
$
|
6,309,746
|
|
See
accompanying notes
LIFELOC
TECHNOLOGIES, INC.
Condensed
Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net income (loss)
|
|
$
|
293,759
|
|
|
$
|
(514,898
|
)
|
Adjustments to reconcile net income (loss) to net cash provided from (used in) operating activities-
|
|
|
|
|
|
|
|
|
Forgiveness of Paycheck Protection loan
(round 1)
|
|
|
(465,097
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
133,657
|
|
|
|
191,493
|
|
Provision for doubtful accounts,
net change
|
|
|
(49,000
|
)
|
|
|
5,000
|
|
Provision for inventory obsolescence,
net change
|
|
|
(5,000
|
)
|
|
|
42,265
|
|
Deferred taxes, net change
|
|
|
10,648
|
|
|
|
(11,516
|
)
|
Stock based compensation expense
related to stock options
|
|
|
17,157
|
|
|
|
32,423
|
|
Changes in operating assets and liabilities-
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
73,553
|
|
|
|
96,567
|
|
Inventories
|
|
|
7,166
|
|
|
|
(486,414
|
)
|
Income taxes receivable
|
|
|
(54,506
|
)
|
|
|
(146,807
|
)
|
Prepaid expenses and other
|
|
|
(12,804
|
)
|
|
|
(88,920
|
)
|
Deposits and other
|
|
|
966
|
|
|
|
(58,823
|
)
|
Accounts payable
|
|
|
(101,836
|
)
|
|
|
96,684
|
|
Customer deposits
|
|
|
8,130
|
|
|
|
(47,951
|
)
|
Accrued expenses
|
|
|
(54,102
|
)
|
|
|
(79,974
|
)
|
Deferred revenue
|
|
|
3,930
|
|
|
|
(4,365
|
)
|
Net
cash provided from (used in) operating
activities
|
|
|
(193,379
|
)
|
|
|
(975,236
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(58,461
|
)
|
|
|
(9,088
|
)
|
Patent filing expense
|
|
|
—
|
|
|
|
(18,772
|
)
|
Net
cash provided from (used in) investing activities
|
|
|
(58,461
|
)
|
|
|
(27,860
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Principal payments made on term loan
|
|
|
(23,986
|
)
|
|
|
(22,899
|
)
|
Proceeds from Paycheck Protection
loan (round 2)
|
|
|
471,347
|
|
|
|
465,097
|
|
Net
cash (used in) financing activities
|
|
|
447,361
|
|
|
|
442,198
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
195,521
|
|
|
|
(560,898
|
)
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
|
2,195,070
|
|
|
|
3,185,996
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
|
$
|
2,390,591
|
|
|
$
|
2,625,098
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
27,605
|
|
|
|
|
|
|
|
|
|
|
Cash paid for (received from) income
tax
|
|
$
|
—
|
|
|
$
|
20,063
|
|
See
accompanying notes
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" 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, www.lifeguardbreathtester.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, 2020 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 June 30, 2021 and December 31, 2020, and the results of operations and cash flows for the quarters ended June 30, 2021
and June 30, 2020. 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 2020 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.
Fair Value Measurement.
Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("ASC 820"),
provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements.
Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques,
giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable
value inputs. ASC 820 defines the hierarchy as follows:
Level 1 - Quoted
prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities
included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equity securities listed on the New
York Stock Exchange.
Level 2 - Pricing
inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The
types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with
models using highly observable inputs.
Level 3 - Significant
inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with
inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine
the fair value of financial transmission rights.
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 June 30, 2021 and December 31, 2020, inventory consisted of the following:
Schedule of Inventories
|
|
|
|
|
|
|
2021
|
|
2020
|
Raw materials & deposits
|
|
$
|
2,061,696
|
|
|
$
|
2,116,389
|
|
Work-in-process
|
|
|
27,840
|
|
|
|
16,862
|
|
Finished goods
|
|
|
561,424
|
|
|
|
524,875
|
|
Total gross inventories
|
|
|
2,650,960
|
|
|
|
2,658,126
|
|
Less reserve for obsolescence
|
|
|
(155,000
|
)
|
|
|
(160,000
|
)
|
Total net inventories
|
|
$
|
2,495,960
|
|
|
$
|
2,498,126
|
|
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. 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 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.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company
to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects
to receive in exchange for those goods or services. We adopted this ASU on January 1, 2018 retrospectively, with the cumulative
effect of initial application (which was zero) recognized in retained earnings on that date.
Revenue from product
sales and supplies is generally recorded when we ship the product and title has passed to the customer, 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 through unrelated third parties and instead are providing for 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, which approximates if it were recognized on a straight-line
basis over the term of the related lease.
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.
Topic 606 requires the disaggregation
of revenue into broad categories, which we have defined as shown below for the three and six months ended June 30, 2021 and June 30,
2020.
Schedule of Disaggregation of revenue
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
|
|
Product sales:
|
|
2021
|
|
2020
|
Product sales and supplies
|
|
$
|
1,490,978
|
|
|
$
|
1,131,928
|
|
Training, certification and data recording
|
|
|
166,138
|
|
|
|
116,709
|
|
Service plans
and equipment rental
|
|
|
16,929
|
|
|
|
17,061
|
|
Products subtotal
|
|
|
1,674,045
|
|
|
|
1,265,698
|
|
Royalties
|
|
|
33,652
|
|
|
|
32,851
|
|
Building rentals
|
|
|
21,939
|
|
|
|
21,489
|
|
Total revenues
|
|
$
|
1,729,636
|
|
|
$
|
1,320,038
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30,
|
|
Product sales:
|
|
|
2021
|
|
|
|
2020
|
|
Product sales and supplies
|
|
$
|
3,117,138
|
|
|
$
|
2,899,068
|
|
Training, certification and data recording
|
|
|
302,060
|
|
|
|
264,891
|
|
Service plans
and equipment rental
|
|
|
30,294
|
|
|
|
39,605
|
|
Products subtotal
|
|
|
3,449,492
|
|
|
|
3,203,564
|
|
Royalties
|
|
|
46,216
|
|
|
|
92,132
|
|
Building rentals
|
|
|
43,471
|
|
|
|
42,678
|
|
Total revenues
|
|
$
|
3,539,179
|
|
|
$
|
3,338,374
|
|
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.
Recent Accounting
Pronouncements. We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not expect
them to have a material effect on our financial statements.
Stock-Based Compensation. Stock-based
compensation is presented in accordance with the guidance of 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
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 income.
ASC 718 requires companies
to estimate the fair value of share-based payment awards 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 the accompanying statement
of income.
Stock-based compensation
expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to
vest during the period. We used the Black-Scholes option-pricing model to determine fair value. Our determination of fair
value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions
regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price
volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Although the fair value of
employee stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the
fair value observed in a willing buyer/willing seller market transaction.
Stock-based compensation
expense recognized under ASC 718 for the three months ended June 30, 2021 and 2020 was $0 and $312 respectively, and for the six months
ended June 30, 2021 and 2020 it was $17,157 and $32,423 respectively. These amounts consist of stock-based compensation expenses from
grants of employee stock options which are allocated to General and Administrative Expense when incurred.
Segment Reporting.
We have concluded that we have two operating segments, including our primary business which is as a developer, manufacturer,
lessor and marketer of portable hand-held breathalyzers and related accessories, supplies, education, training and royalties from development
contracts. 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 existing tenants, whose leases expire at various times until June 30, 2023.
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 three and six months ended June 30, 2021 and June
30, 2020:
Schedule of Calculation of basic and diluted net income per common share
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
2021
|
|
2020
|
Net income (loss)
|
|
$
|
(109,712
|
)
|
|
$
|
(349,592
|
)
|
Weighted average shares-basic
|
|
|
2,454,116
|
|
|
|
2,454,116
|
|
Effect of dilutive potential
common shares
|
|
|
—
|
|
|
|
—
|
|
Weighted average shares-diluted
|
|
|
2,454,116
|
|
|
|
2,454,116
|
|
Net income (loss) per share-basic
|
|
$
|
0.04
|
|
|
$
|
(0.14
|
)
|
Net income (loss) per share-diluted
|
|
$
|
0.04
|
|
|
$
|
(0.14
|
)
|
Antidilutive employee stock
options
|
|
|
—
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
|
|
2021
|
|
2020
|
Net income (loss)
|
|
$
|
293,759
|
|
|
$
|
(514,898
|
)
|
Weighted average shares-basic
|
|
|
2,454,116
|
|
|
|
2,454,116
|
|
Effect of dilutive potential
common shares
|
|
|
—
|
|
|
|
—
|
|
Weighted average shares-diluted
|
|
|
2,454,116
|
|
|
|
2,454,116
|
|
Net income (loss) per share-basic
|
|
$
|
0.12
|
|
|
$
|
(0.20
|
)
|
Net income (loss) per share-diluted
|
|
$
|
0.12
|
|
|
$
|
(0.20
|
)
|
Antidilutive employee stock
options
|
|
|
—
|
|
|
|
12,500
|
|
4. STOCKHOLDERS' EQUITY
The following table
summarizes information about employee stock options outstanding and exercisable at June 30, 2021:
|
Schedule
of Stock options outstanding and exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$5.51
|
|
|
|
3,000
|
|
|
|
3.08
|
|
|
|
$5.51
|
|
|
|
3,000
|
|
|
|
$5.51
|
|
|
$3.80
|
|
|
|
95,750
|
|
|
|
3.67
|
|
|
|
$3.80
|
|
|
|
95,750
|
|
|
|
$3.80
|
|
|
$43.80
|
|
|
|
20,500
|
|
|
|
4.67
|
|
|
|
$3.80
|
|
|
|
20,500
|
|
|
|
$3.80
|
|
The exercise price
of all options granted through June 30, 2021 has been equal to or greater than the fair market value of the Company's common stock at
the time the options were issued. As of June 30, 2021, 24,050 options for our common stock remain available for grant under the 2013
Plan.
We granted 50,000 options
to an officer in January of 2016, which were to vest based on the achievement of certain performance conditions. In accordance with
the terms of the grant, the number of options was reduced to 25,000 on December 31, 2019, and further reduced to 0 on December 31, 2020
as vesting of these options was subject to performance milestones that were not achieved.
A total of 20,500 options
were granted during the six months ended June 30, 2021, 16,000 of which were granted to two officers and 4,500 of
which were granted to two employees. A total of 110,500 options
were granted during the three months ended June 30, 2020, 48,000 of
which were granted to two officers and three directors. Out of that 48,000, the officers were granted 37,500 and 7,500 and
the directors were granted 1,000 each.
These options vested immediately upon granting.
No options were exercised
during the six months ended June 30, 2021 or during the six months ended June 30, 2020.
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. Effective June 30, 2016 the
note was amended to revise the interest rate from 4.45% to 4.00% per annum. The revised note is payable in 99 equal monthly installments
of $8,417, including interest, plus a final payment of $1,138,104 (excluding interest) on October 31, 2024. Our minimum future
principal payments on this term loan, by year, are as follows:
Schedule of Minimum future lease payments
|
|
|
|
|
|
2021
|
|
|
$
|
24,035
|
|
2022
|
|
|
|
50,005
|
|
2023
|
|
|
|
52,072
|
|
2024
|
|
|
|
1,178,527
|
|
Total
|
|
|
|
1,304,639
|
|
Less
financing cost
|
|
|
|
(3,616
|
)
|
Net term
loan payable
|
|
|
|
1,301,023
|
|
Less
current portion
|
|
|
|
(47,910
|
)
|
Long
term portion
|
|
|
$
|
1,253,113
|
|
|
|
|
|
|
|
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, 2021, 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 $515,279 at June 30, 2021.
Regulatory Commitments.
With respect to our LifeGuard® product, we are subject to regulation by the United States Food and Drug Administration ("FDA"). The
FDA provides regulations governing the manufacture and sale of our LifeGuard® product, and we are subject to inspections by the FDA
to determine our compliance with these regulations. FDA inspections are conducted periodically at the discretion of the FDA. On
June 26, 2017, we were inspected by the FDA and no violations were issued. We are also subject to regulation by the DOT and by various
state departments of transportation so far as our other products are concerned. We believe that we are in substantial compliance
with all known applicable regulations.
6. LINE
OF CREDIT AND PAYCHECK PROTECTION LOANS
As part of the
long-term financing of our property purchased on October 31, 2014, we obtained a one-year $250,000 revolving line of credit facility
with Bank of America, which matured on October 31, 2015 and was extended to June 30, 2018, and bears interest at a rate equal to the
LIBOR daily floating rate of .0865%
and .0776%
on June 30, 2021 and December 31, 2020, respectively, plus 2.5%. The agreement was amended to increase the amount of the line
to $750,000 and extend the maturity date to September 28, 2021. The revolving line of credit facility is secured by all
personal property and assets, whether now owned or hereafter acquired, wherever located. The revolving line of credit facility
requires that certain financial ratios be maintained. As of June 30, 2021, these ratios remain unmet as a result of the losses in
2020 and the line of credit remains unavailable until such time as these ratio requirements are met. There was no
balance due on the line of credit as of June 30, 2021 and December 31, 2020.
The Coronavirus
Aid, Relief, and Economic Security (“CARES”) Act allocated $350 billion to help small businesses keep workers employed amid
the pandemic and economic downturn. Known as the Paycheck Protection Program (“PPP”), the initiative provides federally guaranteed
loans to small businesses. A portion or all of these loans may be forgiven if borrowers comply with certain PPP guidelines including
spending the funds on authorized expenses and maintaining their payrolls during the crisis or restore their payrolls afterward. On May
4, 2020, the Company received proceeds of $465,097 from Bank of America under the PPP (the “PPP Loan”) with loan term customary
for a loan of the type. The funds were used for certain qualifying expenses as described in the CARES Act, and the loan was forgiven
in its entirety in February, 2021. Proceeds of $471,347 were received from a second loan with similar terms in February, 2021 and the
funds have been used for qualifying expenses as described in the CARES Act. The Company plans to timely apply for forgiveness of the
full balance of the second loan. No interest on either loan has been recognized in our financial statements.
7. 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 consists
of the following.
Schedule of income tax reconciliation
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
2021
|
|
2020
|
Federal statutory rate
|
|
$
|
(30,445
|
)
|
|
$
|
(97,442
|
)
|
Effect of:
|
|
|
|
|
|
|
|
|
State taxes, net of federal tax benefit
|
|
|
6,708
|
|
|
|
21,469
|
|
Other
|
|
|
(11,529
|
)
|
|
|
(38,446
|
)
|
Total
|
|
$
|
(35,266
|
)
|
|
$
|
(114,419
|
)
|
|
|
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
2021
|
|
2020
|
Federal statutory rate
|
|
$
|
51,066
|
|
|
$
|
(141,380
|
)
|
Effect of:
|
|
|
|
|
|
|
|
|
State taxes, net of federal tax benefit
|
|
|
9,477
|
|
|
|
29,650
|
|
Paycheck Protection
loan forgiveness and other
|
|
|
(111,134
|
)
|
|
|
(46,610
|
)
|
Total
|
|
$
|
(50,591
|
)
|
|
$
|
(158,340
|
)
|
8. BUSINESS
SEGMENTS
We currently have two
business segments: (i) the sale of physical products, including 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), and (ii) rental of a portion of our building (the "Rentals"
segment). 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 are commonly used by all business segments and
are indistinguishable.
The following sets
forth information about the operations of the business segments for the three months ended June 30, 2021 and 2020.
Schedule of Operations of business segments
|
|
|
|
|
|
|
2021
|
|
2020
|
Product sales
|
|
$
|
1,674,045
|
|
|
$
|
1,265,698
|
|
Royalties
|
|
|
33,652
|
|
|
|
32,851
|
|
Products subtotal
|
|
|
1,707,697
|
|
|
|
1,298,549
|
|
Rentals
|
|
|
21,939
|
|
|
|
21,489
|
|
Total
|
|
$
|
1,729,636
|
|
|
$
|
1,320,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
565,167
|
|
|
$
|
285,890
|
|
Royalties
|
|
|
33,652
|
|
|
|
32,851
|
|
Products subtotal
|
|
|
598,819
|
|
|
|
318,741
|
|
Rentals
|
|
|
6,599
|
|
|
|
9,328
|
|
Total
|
|
$
|
605,418
|
|
|
$
|
328,069
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
8,899
|
|
|
$
|
9,205
|
|
Royalties
|
|
|
—
|
|
|
|
—
|
|
Products subtotal
|
|
|
8,899
|
|
|
|
9,205
|
|
Rentals
|
|
|
4,645
|
|
|
|
4,811
|
|
Total
|
|
$
|
13,544
|
|
|
$
|
14,016
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before taxes:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
(180,584
|
)
|
|
$
|
(501,379
|
)
|
Royalties
|
|
|
33,652
|
|
|
|
32,851
|
|
Products subtotal
|
|
|
(146,932
|
)
|
|
|
(468,528
|
)
|
Rentals
|
|
|
1,954
|
|
|
|
4,517
|
|
Total
|
|
$
|
(144,978
|
)
|
|
$
|
(464,011
|
)
|
The following sets
forth information about the operations of the business segments for the six months ended June 30, 2021 and 2020.
|
|
2021
|
|
2020
|
Product sales
|
|
$
|
3,449,492
|
|
|
$
|
3,203,564
|
|
Royalties
|
|
|
46,216
|
|
|
|
92,132
|
|
Products subtotal
|
|
|
3,495,708
|
|
|
|
3,295,696
|
|
Rentals
|
|
|
43,471
|
|
|
|
42,678
|
|
Total
|
|
$
|
3,539,179
|
|
|
$
|
3,338,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
1,361,591
|
|
|
$
|
1,000,184
|
|
Royalties
|
|
|
46,216
|
|
|
|
92,132
|
|
Products subtotal
|
|
|
1,407,807
|
|
|
|
1,092,316
|
|
Rentals
|
|
|
21,488
|
|
|
|
13,829
|
|
Total
|
|
$
|
1,429,295
|
|
|
$
|
1,106,145
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
17,780
|
|
|
$
|
18,485
|
|
Royalties
|
|
|
—
|
|
|
|
—
|
|
Products subtotal
|
|
|
17,780
|
|
|
|
18,485
|
|
Rentals
|
|
|
9,281
|
|
|
|
9,662
|
|
Total
|
|
$
|
27,061
|
|
|
$
|
28,147
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before taxes:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
184,745
|
|
|
$
|
(769,537
|
)
|
Royalties
|
|
|
46,216
|
|
|
|
92,132
|
|
Products subtotal
|
|
|
230,961
|
|
|
|
(677,405
|
)
|
Rentals
|
|
|
12,207
|
|
|
|
4,167
|
|
Total
|
|
$
|
243,168
|
|
|
$
|
(673,238
|
)
|
There were no intersegment
revenues.
At June 30, 2021, $584,287
of our assets were used in the Rentals segment, with the remainder, $8,101,905, used in the Products and unallocated segments.
9. SUBSEQUENT
EVENTS
We evaluated all of
our activity and concluded that no subsequent events have occurred that would require recognition in our financial statements or disclosure
in the notes to our financial statements.
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, 2020 Form
10-K.
Overview
Lifeloc Technologies,
Inc., a Colorado corporation ("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 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" 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, www.stsfirst.com and lifeguardbreathtester.com. Information contained on our websites does not constitute
part of this Form 10-K.
Principal Products
and Services and Methods of Distribution
Alcohol Breath Testers
In 1989, we introduced
our first breath alcohol tester, the PBA3000. Our Phoenix® Classic was completed and released for sale in 1998, superseding the PBA3000.
In turn, the Phoenix® Classic has been superseded by our FC Series and Workplace Series of portable breath alcohol testers, which
are discussed below. Neither the PBA3000 nor the Phoenix® Classic is actively sold today.
In 2001, we completed
and released for sale our new FC Series, designed specifically for domestic and international law enforcement and corrections markets.
The portable breath alcohol testers comprising our FC Series are currently being sold worldwide, having contributed to our growth since
their introduction. The FC Series is designed to meet the needs of domestic and international law enforcement for roadside drink/drive
testing and alcohol offender monitoring. The FC Series is approved by the U.S. Department of Transportation ("DOT") as an evidential
breath tester, making it suitable for sale to state law enforcement agencies for preliminary roadside breath alcohol testing. The
FC Series is routinely updated with firmware, software and component improvements as they become available. It is readily
adaptable to the specific requirements and regulations of domestic and international markets.
In 2005 and 2006, we
introduced two new models, the EV30 and Phoenix® 6.0 Evidential Breath Tester ("Phoenix® 6.0"), which constitute our
Workplace Series of testing devices. Like their predecessor, the Phoenix® Classic, and our FC Series, these instruments
are DOT approved. The DOT's specifications support the DOT's workplace alcohol testing programs, including those applicable to workplace
alcohol testing for the federally regulated transportation industry. We also sell component parts used in alcohol testing devices, such
as mouthpieces used by our breathalyzers, as well as forms and labels used for record keeping, and calibration products for user re-calibration
of our devices. We offer optional service agreements on our equipment, re-calibration services, and spare parts, and we sell
supporting instrument training and user certification training to our workplace customers.
In 2006, we commenced
selling breath alcohol equipment components that we manufacture to other OEMs for inclusion as subassemblies or components in their breath
alcohol testing devices.
In late 2009, Lifeloc
released the LifeGuard® Personal Breathalyzer ("LifeGuard®"), a personal alcohol breath tester that incorporates
the same fuel-cell technology used in our professional devices. Intended for the global consumer breathalyzer market, LifeGuard®
is marketed internationally through global distributors.
In 2011 and 2012, Lifeloc
introduced Bluetooth wireless keyboard and printer communication options for our Phoenix® 6.0 along with a series of web based workplace
training courses. We believe these two product innovations have been key to our success and leadership in workplace breath testing.
In 2013, Lifeloc expanded
our FC Series of professional breath alcohol testers targeted at domestic and international law enforcement and corrections markets with
the addition of the FC5 Hornet (the "FC5"). The FC5 is a passive (no mouthpieces required) portable handheld alcohol screening
device that competes directly with passive alcohol screeners from our competitors in the education, law enforcement, workplace and corrections
markets.
In 2013, we also introduced
the Sentinel™ zero tolerance alcohol screening station, a fully automated wall mounted screening station for use in safety sensitive
industries such as oil and gas and mining. Both devices expand Lifeloc's products for passive alcohol screening.
In the third quarter
of 2014, we received approval from DOT for our EASYCAL® automatic calibration station for use with our Phoenix ® 6.0 Evidential
Breath Testers, and we began shipments of the EASYCAL® to our law enforcement, corrections, workplace and international customers.
The EASYCAL® calibration station is a first of its kind device that automatically performs breath tester instrument calibration,
calibration verification and gas management. As compared to manual instrument calibration, the EASYCAL® reduces the opportunity
for human error, saves time and reduces operating costs. In May 2019, we received DOT approval on a second generation EASYCAL®
with broader capabilities called the EASYCAL® G2.
In October 2015, we
expanded our Sentinel™ line with the Sentinel™ VA alcohol screening station, a fully automated station to control vehicular
access to safety critical facilities, such as mines, refineries, power stations and nuclear facilities. The Sentinel™ VA
alcohol screening station is intended to allow all drivers entering a secure area to be tested quickly and efficiently without leaving
their vehicle.
In November 2019, we
received approval from DOT for our LX9 and LT7 base unit alcohol breathalyzers.
Testers for Drugs
of Abuse
In August 2016, we
entered into an exclusive patent license agreement with Sandia Corporation, Albuquerque, NM, 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. SpinDx™
uses a centrifugal disk with micro fluidic flow paths allowing multiple tests to be carried out on a single small sample. Sandia
Corporation developed a prototype using the SpinDx™ technology under our Cooperative Research and Development Agreement. We received
the prototype in 2018 and are now commercializing the device. The SpinDx™ platform has the potential to improve real-time screening
for a panel of high-abuse drugs, with the ability to efficiently and quantitatively measure relatively low concentrations of drugs such
as cocaine, heroin, methamphetamine, fentanyl and other high-abuse drugs. 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, an important step in establishing impairment. We completed the upgrade of our base breathalyzer
platform in 2019 (the LX9), and we remain committed to combining it with the SpinDx™ technology. Our goal is to use this combination
to develop a THC breathalyzer. There is no assurance that our efforts to develop a marijuana breathalyzer will be successful or
that significant sales will result from such development if successful.
In March 2017 we acquired
substantially all of the assets related to the Real-time Alcohol Detection and Reporting product ("R.A.D.A.R.®") from Track
Group, Inc. ("TRCK") for $860,000 in cash. The purchased assets included the R.A.D.A.R.® device with cellular reporting
for real-time alcohol monitoring, database infrastructure to tabulate and manage subscriber behavior, and biometric methodology and intellectual
property to fully automate identity verification. The R.A.D.A.R.® device was designed to be part of an offender supervision
program as an alternative to incarceration, and it is assigned to offenders as a condition of parole or probation with random testing
throughout the day to demonstrate that they are meeting the conditions of their sentence. Manufacture of the second generation R.A.D.A.R.®
began in 2020. This design has been finalized with several devices now in field testing and sales release planned this year.
Training
Drug and alcohol testing
is highly regulated; thus quality training is an important component of our business. Initially, our network of Master Trainers
provided classroom training which generated certification fees. This was expanded to include instructor materials, online training
modules and direct (live) training via webcam. In 2011, we launched Lifeloc University, a Learning Management System (LMS), defined
as "a software application for the administration, documentation, tracking, reporting and delivery of educational courses or training
programs." Lifeloc University is a critical component for online training courses since it provides student accountability.
In 2018, we updated and revised the Lifeloc University LMS utilizing responsive design so it could be viewed on mobile devices.
In December 2014, we
acquired substantially all of the assets of Superior Training Solutions, Inc. ("STS"), a company that develops and sells online
drug and alcohol training and refresher courses. We have augmented and updated the assets we acquired from STS to enable mobile device
usage. These assets complement our existing drug and alcohol training courses.
Real Property
On October 31, 2014,
we purchased the commercial property we use as our corporate headquarters and certain adjacent property in Wheat Ridge, Colorado.
The building consists of 22,325 square feet, of which 14,412 square feet are occupied by us and 7,913 square feet are currently leased
to two tenants whose leases expire at various times until June 30, 2022. We intend to continue to lease the space we are not occupying,
but in the future may elect to expand our own operations into space currently leased to other tenants. Our purchase of the property
was partially financed through a term loan in an original principal amount of $1,581,106, secured by a first-priority mortgage on the
property. The loan matures in October 2024.
Additional Areas
of Interest
Consistent with our
business goal of providing "near and remote sensing and monitoring" products and solutions, our acquisition strategy involves
purchasing companies, development resources and assets that are aligned with our areas of interest and that can further aid in our entering
additional markets. We expect to actively research and engage in the acquisition of resources that can expedite our entrance into
new markets or strengthen our position in existing ones.
Results of Operations
For the three
months ended June 30, 2021 compared to the three months ended June 30, 2020.
Net sales. Our product sales for the quarter ended June 30, 2021 were $1,674,045,
an increase of 32% from $1,265,698 for the quarter ended June 30, 2020. This increase is primarily attributable to the temporary
decrease in demand in the same quarter a year ago resulting from Covid-19. When royalties of $33,652 and rental income of $21,939 are
included, total revenues of $1,729,636 increased by $409,598, or 31%, for the quarter ended June 30, 2021 when compared to the same quarter
a year ago.
Gross profit.
Our total gross profit for the three months ended June 30, 2021 of $605,418 represented an increase of 85% from total gross profit
of $328,069 for the same period a year earlier. This increase is primarily the result of the pandemic impacting the same period a year
earlier. Cost of product sales increased from $979,808 in Q2 of 2020 to $1,108,878 in Q2 of 2021, or 13%, primarily as a result of increased
sales volume. Gross profit margin on products went from 23% in Q2 of 2020 to 34% in Q2 of 2021 as a result of the foregoing factors.
Research and development
expenses. Our research and development expenses were $266,633 for the quarter ended June 30, 2021, representing an increase
of 46% over the $182,485 in the same quarter a year ago. This increase resulted mostly from adding personnel and increased
compensation, along with costs in connection with the work pertaining to the SpinDx development.
Sales and marketing
expenses. Our sales and marketing expenses of $214,124 for the quarter ended June 30, 2021 were lower by $60,656 (22%) from
the $274,780 for the quarter ended June 30, 2020, primarily as a result of lower advertising.
General and administrative
expenses. Our general and administrative expenses of $256,908 for the quarter ended June 30, 2021 were lower by $67,133 (21%)
from the $324,041 in the same period a year ago. This reduction results from an overall expense reduction which was caused by the pandemic.
Other income (expense). Our
other income consisted of $813 of interest vs. $3,242 in the same quarter a year ago, with the decrease resulting mostly from lower yields.
Our interest expense of $13,544 in the current quarter over $14,016 in the same period a year ago is the result of the balance of the
term loan on our building declining.
Net income (loss).
We had a net loss of $(109,712) in the quarter ended June 30, 2021 compared to a net loss of ($349,592) for the quarter ended June
30, 2020. This decrease was the result of increased sales and a general improvement in economic conditions resulting from
a diminution of the effects of the pandemic, offset in part by the lower income tax benefit of $79,153.
For the six months
ended June 30, 2021 compared to the six months ended June 30, 2020.
Net sales. Our product sales for the six months ended June 30, 2021 were $3,449,492,
an increase of $245,928 (8%) from $3,203,564 for the same period a year ago. When royalties of $46,216 and rental income of
$43,471 are included, total revenues of $3,539,179 increased by $200,805, or 6%, for the six months ended June 30, 2021 when compared
to the same six months a year ago, as a result of continuing decreased demand caused by Covid-19.
Gross profit.
Total gross profit for the six months ended June 30, 2021 of $1,429,295 represented an increase of 29% from total gross profit
of $1,106,145 for the six months a year earlier. Cost of product sales was reduced from $2,203,380 in the six months ended June
30, 2020 to $2,087,901 or $115,479 (5%) in the six months ended June 30, 2020 as a result of an overall effort to lower fixed costs necessitated
by the pandemic. Gross profit margin on products went from 31% in 2020 to 39% in 2021.
Research and development
expenses. Research and development expenses were $573,845 for the six months ended June 30, 2021 compared to $479,382 in the
same period a year ago, an increase of 20%. This increase resulted mostly from adding personnel and increased compensation, along with
costs in connection with the work pertaining to the SpinDx development.
Sales and marketing
expenses. Sales and marketing expenses of $444,602 for the six months ended June 30, 2021 decreased $156,742, or 26%, from
the $601,344 in the same six months ended June 30, 2020, mostly as a result of the lower advertising and our overall expense reduction
efforts.
General and administrative
expenses. General and administrative expenses of $607,028 for the six months ended June 30, 2021 were lower by $73,900, or
11%, from the $680,928 spent in the same six months a year ago. This decrease resulted primarily from our overall expense reduction efforts,
as well as a one-time patent fee in 2020.
Other income (expense). Other
income consisted of $465,097 of forgiveness of our Paycheck Protection loan in 2021, along with interest income of $1,312 in the
six months ended June 30, 2021 vs. no loan forgiveness in 2020 and interest income of $10,418. Interest expense in the six months
ended June 30, 2021 was down by $207 over the same period a year ago as the result of the balance of the term loan on our building declining.
The resulting total other income and expense of $439,348 in the six months ending June 30, 2021 was higher by $457,077 than in the same
six months a year ago.
Net income.
We realized net income of $293,759 for the six months ended June 30, 2021 compared to a net loss of $(514,898) for the same six
months ended June 30, 2020. This increase of $808,657 was the result of the changes in gross profit and operating expenses
discussed above, offset in part by a reduction of tax benefit of 107,749.
Trends and Uncertainties
That May Affect Future Results
Revenues in the
second quarter of 2021 were higher compared to revenues in 2020 as a result of the Covid-19 pandemic lowering 2020 revenue. We
believe the effects of the pandemic are beginning to diminish, and we expect the remainder of 2021 to show improvement over
2020. 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.
Our 2021 operating
plan is focused on growing sales, increasing gross profits, and increasing research and development efforts on new products 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 2021. 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 or cost-cutting measures may be implemented.
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 FDA, 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.
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 maintained profitability during the several years prior to 2021 and 2020, we
expect that operating losses could continue in the future. Should that situation arise, we may not be able to obtain working
capital funds necessary in the time frame needed, at satisfactory terms or at all.
On October 31, 2014, we purchased the commercial property we use as our corporate
headquarters and certain adjacent property in Wheat Ridge, Colorado for a total purchase price of $1,949,139, of which we paid $368,033
in cash and financed the remaining $1,581,106 through a 10-year term loan from Bank of America bearing interest at 4.45% per annum (amended
to 4% per annum in 2017), secured by a first-priority security interest in the property we acquired with the loan. In connection with
the term loan, we arranged for a one-year $250,000 line of credit (increased to $500,000 in 2016, and again to $750,000 in 2017) from
Bank of America secured by all assets of the Company. The line of credit bears interest at a rate calculated at the LIBOR daily
floating rate plus 2.5%. The revolving line of credit facility requires that certain financial ratios be maintained. As a result of the
losses in 2020, these ratios were not met and the revolving line of credit remains unavailable until such time as these ratio requirements
are met. As of June 30, 2021, this credit facility has not been used and remains unavailable.
Equipment and space modifications during the six months ended June 30, 2021 were
$58,461, compared to $9,088 in the same period a year ago, attributable to SpinDx research and development, specifically the purchase
of additional equipment and laboratory updates. We filed patent applications at a cost to us of $0 in the first six months of 2021 and
$18,772 in the same period a year ago.
As of June 30, 2021,
cash was $2,390,591, accounts receivable were $499,050 and current liabilities were $1,215,359 resulting in a net liquid asset amount
of $1,674,282. We believe that the introduction of several new products during the last several years, along with new and
on-going customer relationships, will generate sufficient revenues to maintain profitability. If these revenues are not achieved
on a timely basis, we may be required to implement cost reduction measures.
We generally provide
a standard one-year 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 income. For the quarter ended June 30, 2021, and for the quarter ended June 30, 2020, 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, 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, lessor and marketer of portable
hand-held breathalyzers and related accessories, supplies, education, training and royalties from development contracts and a second
segment consisting of renting portions of our building to existing tenants.
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 double declining method of depreciation for property and equipment, 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 double declining method and the straight line method respectively. Maintenance and
repairs are expensed as incurred and major additions, replacements and improvements are capitalized.
In March 2017, we acquired
the R.A.D.A.R.® assets from TRCK, which consisted of production equipment and of hardware device technology (the "Devices")
that are depreciated over 5 years using the double declining balance method when placed in service. With the R.A.D.A.R.® assets,
we also purchased software designed to measure breath alcohol content of the user and software technology designed to allow the Devices
to be configured and to capture and manage the data being returned from the Device, as well as 6 issued U.S. patents and 16 domestic
and international patent applications. This software and the patents and patent applications are amortized over 15 years using
the straight line method.
Revenue from product
sales and supplies is generally recorded when we ship the product and title has passed to the customer, 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 are providing for customer financing
and leasing, 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. Revenues from rental of equipment
and extended service plans are recognized over the life of the contracts.
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. Customer deposits are initially recorded as a liability and recognized as revenue
when the product is shipped and title has passed to the customer.
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.
Off-Balance Sheet
Arrangements
We currently have no
off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.