ITEM 1 – FINANCIAL STATEMENTS
LIFELOC TECHNOLOGIES, INC.
Condensed Balance Sheets
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ASSETS | |
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March 31, 2022 (Unaudited) | | |
December 31, 2021 | |
CURRENT ASSETS: | |
| | | |
| | |
Cash | |
$ | 2,018,828 | | |
$ | 2,571,668 | |
Accounts receivable, net | |
| 798,748 | | |
| 562,092 | |
Inventories, net | |
| 2,514,112 | | |
| 2,668,789 | |
Prepaid expenses and other | |
| 167,006 | | |
| 56,897 | |
Total current assets | |
| 5,498,694 | | |
| 5,859,446 | |
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| | | |
| | |
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 | |
| 467,485 | | |
| 456,685 | |
Less accumulated depreciation | |
| (2,628,470 | ) | |
| (2,518,966 | ) |
Total property and equipment, net | |
| 2,489,324 | | |
| 2,588,028 | |
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| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Patents, net | |
| 115,920 | | |
| 134,428 | |
Deposits and other | |
| 163,480 | | |
| 163,480 | |
Deferred taxes | |
| 248,024 | | |
| 204,449 | |
Total other assets | |
| 527,424 | | |
| 502,357 | |
Total assets | |
$ | 8,515,442 | | |
$ | 8,949,831 | |
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| | | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable | |
$ | 295,523 | | |
$ | 445,985 | |
Term loan payable, current portion | |
| 48,887 | | |
| 48,513 | |
Customer deposits | |
| 166,100 | | |
| 170,952 | |
Accrued expenses | |
| 155,299 | | |
| 298,530 | |
Deferred revenue, current portion | |
| 74,460 | | |
| 71,604 | |
Reserve for warranty expense | |
| 46,500 | | |
| 46,500 | |
Total current liabilities | |
| 786,769 | | |
| 1,082,084 | |
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| | | |
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TERM LOAN PAYABLE, net of current portion and | |
| | | |
| | |
debt issuance costs | |
| 1,255,727 | | |
| 1,267,551 | |
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| | | |
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DEFERRED REVENUE, net of current portion | |
| 6,486 | | |
| 6,430 | |
Total liabilities | |
| 2,048,982 | | |
| 2,356,065 | |
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| | | |
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COMMITMENTS AND CONTINGENCIES | |
| | | |
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STOCKHOLDERS' EQUITY: | |
| | | |
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Common stock, no par value; 50,000,000 shares | |
| | | |
| | |
authorized, 2,454,116 shares outstanding | |
| 4,668,014 | | |
| 4,650,812 | |
Retained earnings | |
| 1,798,446 | | |
| 1,942,954 | |
Total stockholders' equity | |
| 6,466,460 | | |
| 6,593,766 | |
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| | | |
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Total liabilities and stockholders' equity | |
$ | 8,515,442 | | |
$ | 8,949,831 | |
See accompanying notes
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Income (Unaudited)
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Three Months Ended March 31, | |
REVENUES: | |
2022 | | |
2021 | |
Product sales | |
$ | 2,111,757 | | |
$ | 1,775,447 | |
Royalties | |
| 26,640 | | |
| 12,564 | |
Rental income | |
| 22,239 | | |
| 21,532 | |
Total | |
| 2,160,636 | | |
| 1,809,543 | |
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| | | |
| | |
COST OF SALES | |
| 1,318,747 | | |
| 985,666 | |
| |
| | | |
| | |
GROSS PROFIT | |
| 841,889 | | |
| 823,877 | |
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OPERATING EXPENSES: | |
| | | |
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Research and development | |
| 390,024 | | |
| 307,212 | |
Sales and marketing | |
| 276,637 | | |
| 230,478 | |
General and administrative | |
| 352,833 | | |
| 350,120 | |
Total | |
| 1,019,494 | | |
| 887,810 | |
| |
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OPERATING INCOME (LOSS) | |
| (177,605 | ) | |
| (63,933 | ) |
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OTHER INCOME (EXPENSE): | |
| | | |
| | |
Forgiveness of Paycheck Protection loan | |
| — | | |
| 465,097 | |
Interest income | |
| 432 | | |
| 499 | |
Interest expense | |
| (10,910 | ) | |
| (13,517 | ) |
Total | |
| (10,478 | ) | |
| 452,079 | |
| |
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NET INCOME (LOSS) BEFORE PROVISION FOR TAXES | |
| (188,083 | ) | |
| 388,146 | |
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| | | |
| | |
BENEFIT FROM (PROVISION FOR) FEDERAL AND STATE INCOME TAXES | |
| 43,575 | | |
| 15,325 | |
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NET INCOME (LOSS) | |
$ | (144,508 | ) | |
$ | 403,471 | |
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NET INCOME (LOSS) PER SHARE, BASIC | |
$ | (0.06 | ) | |
$ | 0.16 | |
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NET INCOME (LOSS) PER SHARE, DILUTED | |
$ | (0.06 | ) | |
$ | 0.16 | |
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| | | |
| | |
WEIGHTED AVERAGE SHARES, BASIC | |
| 2,454,116 | | |
| 2,454,116 | |
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WEIGHTED AVERAGE SHARES, DILUTED | |
| 2,454,116 | | |
| 2,454,116 | |
See accompanying notes
Lifeloc Technologies, Inc.
Condensed Statements
of Stockholders' Equity (Unaudited)
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Three Months Ended March 31, | |
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2022 | | |
2021 | |
Total stockholders' equity, beginning balances | |
$ | 6,593,766 | | |
$ | 5,900,642 | |
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Common stock (no shares issued during periods): | |
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Beginning balances | |
| 4,650,812 | | |
| 4,633,655 | |
Stock based compensation expense related | |
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| | |
to stock options | |
| 17,202 | | |
| 17,157 | |
Ending balances | |
| 4,668,014 | | |
| 4,650,812 | |
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Retained earnings: | |
| | | |
| | |
Beginning balances | |
| 1,942,954 | | |
| 1,266,987 | |
Net income (loss) | |
| (144,508 | ) | |
| 403,471 | |
Ending balances | |
| 1,798,446 | | |
| 1,670,458 | |
Beginning balances | |
| 6,593,766 | | |
| 5,900,642 | |
Net income (loss) | |
| (144,508 ) | | |
| 403,471 | |
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| | | |
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Total stockholders' equity, ending balances | |
$ | 6,466,460 | | |
$ | 6,321,270 | |
See accompanying notes
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Cash Flows (Unaudited)
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Three Months Ended March 31, | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
2022 | | |
2021 | |
Net income (loss) | |
$ | (144,508 | ) | |
$ | 403,471 | |
Adjustments to reconcile net income to net cash | |
| | | |
| | |
provided from (used in) operating activities- | |
| | | |
| | |
Forgiveness of Paycheck Protection loan (round 1) | |
| — | | |
| (465,097 | ) |
Depreciation and amortization | |
| 129,088 | | |
| 66,828 | |
Provision for inventory obsolescence, net change | |
| 34,789 | | |
| — | |
Deferred taxes, net change | |
| (43,575 | ) | |
| (1,441 | ) |
Stock based compensation expense related to | |
| | | |
| | |
stock options | |
| 17,202 | | |
| 17,157 | |
Changes in operating assets and liabilities- | |
| | | |
| | |
Accounts receivable | |
| (236,656 | ) | |
| (169,622 | ) |
Inventories | |
| 119,888 | | |
| (82,022 | ) |
Income taxes receivable | |
| — | | |
| (13,884 | ) |
Prepaid expenses and other | |
| (110,109 | ) | |
| (20,606 | ) |
Accounts payable | |
| (150,462 | ) | |
| 21,968 | |
Customer deposits | |
| (4,852 | ) | |
| 6,170 | |
Accrued expenses | |
| (143,231 | ) | |
| (102,547 | ) |
Deferred revenue | |
| 2,912 | | |
| 2,249 | |
Net cash provided from (used in) | |
| | | |
| | |
operating activities | |
| (529,514 | ) | |
| (337,376 | ) |
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CASH FLOWS FROM INVESTING ACTIVITIES: | |
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Purchases of property and equipment | |
| (10,800 | ) | |
| — | |
Net cash (used in) investing activities | |
| (10,800 | ) | |
| — | |
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CASH FLOWS FROM FINANCING ACTIVITIES: | |
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Proceeds from Paycheck Protection loan (round 2) | |
| — | | |
| 471,347 | |
Principal payments made on term loan | |
| (12,526 | ) | |
| (12,006 | ) |
Net cash (used in) financing | |
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| | |
activities | |
| (12,526 | ) | |
| 459,341 | |
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NET INCREASE (DECREASE) IN CASH | |
| (552,840 | ) | |
| 121,965 | |
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CASH, BEGINNING OF PERIOD | |
| 2,571,668 | | |
| 2,195,070 | |
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CASH, END OF PERIOD | |
$ | 2,018,828 | | |
$ | 2,317,035 | |
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SUPPLEMENTAL INFORMATION: | |
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Cash paid for interest | |
$ | 9,834 | | |
$ | 13,246 | |
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, 2021 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 March
31, 2022 and December 31, 2021, and the results of operations and cash flows for the quarters ended March 31, 2022 and March 31, 2021. 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 2021 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 March 31, 2022 and December 31, 2021, inventory consisted of the following:
Schedule of Inventories | |
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| | |
| |
2022 | | |
2021 | |
Raw materials & deposits | |
$ | 2,001,374 | | |
$ | 2,179,332 | |
Work-in-process | |
| 61,718 | | |
| 84,963 | |
Finished goods | |
| 640,809 | | |
| 559,494 | |
Total gross inventories | |
| 2,703,901 | | |
| 2,823,789 | |
Less reserve for obsolescence | |
| (189,789 | ) | |
| (155,000 | ) |
Total net inventories | |
$ | 2,514,112 | | |
$ | 2,668,789 | |
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 months ended March 31, 2022 and March 31, 2021.
Schedule of Disaggregation of revenue | |
| | | |
| | |
Product sales: | |
2022 | | |
2021 | |
Product sales and supplies | |
$ | 1,923,948 | | |
$ | 1,626,160 | |
Training, certification and data recording | |
| 167,255 | | |
| 135,922 | |
Service plans and equipment rental | |
| 20,554 | | |
| 13,365 | |
Products subtotal | |
| 2,111,757 | | |
| 1,775,447 | |
Royalties | |
| 26,640 | | |
| 12,564 | |
Building rentals | |
| 22,239 | | |
| 21,532 | |
Total revenues | |
$ | 2,160,636 | | |
$ | 1,809,543 | |
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 March 31, 2022 and 2021 was $17,202 and $17,157 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, 2022.
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 months ended March 31, 2022 and March 31, 2021:
Schedule of Calculation of basic and diluted net income per common share | |
| | | |
| | |
| |
2022 | | |
2021 | |
Net income (loss) | |
$ | (144,508 | ) | |
$ | 403,471 | |
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 | |
$ | (0.06 | ) | |
$ | 0.16 | |
Net income (loss) per share-diluted | |
$ | (0.06 | ) | |
$ | 0.16 | |
Antidilutive employee stock options | |
| — | | |
| — | |
4. STOCKHOLDERS' EQUITY
The following table summarizes information about
employee stock options outstanding and exercisable at March 31, 2022:
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 | |
| $3.80 | | |
113,000 | |
| 3.29 | | |
| $3.80 | | |
113,000 | |
| $3.80 | |
The exercise price of all options granted through
March 31, 2022 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 March 31, 2022, 25,300 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, 2021 as vesting of these options
was subject to performance that was not achieved.
A total of 15,000 options were granted to
two employees during the three months ended March 31, 2022.
A total of 110,500 options were granted during
the three months ended March 31, 2021, 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 respectively, and the directors were granted 1,000 each. These options vested immediately upon granting.
No options were exercised during the three
months ended March 31, 2022 or during the three months ended March 31, 2021.
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 | | |
| | |
| 2022 | | |
$ | 38,137 | |
| 2023 | | |
| 52,178 | |
| 2024 | | |
| 53,738 | |
| 2025 | | |
| 55,345 | |
| 2026 | | |
| 57,000 | |
| 2027 – 2031 | | |
| 1,068,641 | |
| Total | | |
| 1,325,039 | |
| Less financing cost | | |
| (20,425 | ) |
| Net term loan payable | | |
| 1,304,614 | |
| Less current portion | | |
| (48,887 | ) |
| Long term portion | | |
$ | 1,255,727 | |
| | | |
| | |
Employee Severance Benefits. Our obligation
with respect to employee severance benefits is minimized by the "at will" nature of the employee relationships. As
of March 31, 2022, 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 $601,095 at March 31, 2022.
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
LOAN
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. 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 expired in accordance with its terms and has not
been renewed. There was no balance due on the line of credit as of March 31, 2022 and March 31, 2021.
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”). 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 were used for certain qualifying expenses as described in the CARES Act, and the loan was
forgiven in September, 2021. 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 March 31, | |
| |
2022 | | |
2021 | |
Federal statutory rate | |
$ | (39,497 | ) | |
$ | 81,511 | |
Effect of: | |
| | | |
| | |
State taxes, net of federal tax benefit | |
| 7,690 | | |
| 2,769 | |
Other | |
| (11,768 | ) | |
| (99,605 | ) |
Total | |
$ | (43,575 | ) | |
$ | (15,325 | ) |
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 were commonly used by all business segments and were indistinguishable.
The following sets forth information about the
operations of the business segments for the three months ended March 31, 2022 and 2021.
Schedule of Operations of business segments | |
| | | |
| | |
| |
2022 | | |
2021 | |
Product sales | |
$ | 2,111,757 | | |
$ | 1,775,447 | |
Royalties | |
| 26,640 | | |
| 12,564 | |
Products subtotal | |
| 2,138,397 | | |
| 1,788,011 | |
Rentals | |
| 22,239 | | |
| 21,532 | |
Total | |
$ | 2,160,636 | | |
$ | 1,809,543 | |
| |
| | | |
| | |
| |
| | | |
| | |
Gross profit: | |
| | | |
| | |
Product sales | |
$ | 793,010 | | |
$ | 796,424 | |
Royalties | |
| 26,640 | | |
| 12,564 | |
Products subtotal | |
| 819,650 | | |
| 808,988 | |
Rentals | |
| 22,239 | | |
| 14,889 | |
Total | |
$ | 841,889 | | |
$ | 823,877 | |
| |
| | | |
| | |
Interest expense: | |
| | | |
| | |
Product sales | |
$ | 7,468 | | |
$ | 8,881 | |
Royalties | |
| — | | |
| — | |
Products subtotal | |
| 7,468 | | |
| 8,881 | |
Rentals | |
| 3,442 | | |
| 4,636 | |
Total | |
$ | 10,910 | | |
$ | 13,517 | |
| |
| | | |
| | |
Net income (loss) before taxes: | |
| | | |
| | |
Product sales | |
$ | (233,520 | ) | |
$ | 365,329 | |
Royalties | |
| 26,640 | | |
| 12,564 | |
Products subtotal | |
| (206,880 | ) | |
| 377,893 | |
Rentals | |
| 18,797 | | |
| 10,253 | |
Total | |
$ | (188,083 | ) | |
$ | 388,146 | |
There were no intersegment revenues.
At March 31, 2022, $575,671 of our assets were
used in the Rentals segment, with the remainder, $7,939,771, 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, 2021 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 originally for the global consumer breathalyzer market, LifeGuard® has been discontinued.
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. Both have been updated and both updated versions received DOT approval in December
2021.
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. The microfluidics disk with centrifugal concentration achieves a strong signal from trace concentrations in small samples that under best conditions can be quantitative. Sandia Corporation developed a prototype using the SpinDx™ technology under our Cooperative Research and Development Agreement. We received the first prototype in 2018, advanced this device for robustness and manufacturability, and are now commercializing the device. In 2021 we purchased SpinDx related test validation equipment as well as disk development fabrication equipment totaling $265,867. We are optimistic about the results of the work to date and expect market introduction later in 2022 with partners for field demonstration. The SpinDx™ platform has the potential to improve real-time screening for a panel of high-abuse drugs, with the ability to efficiently measure relatively low concentrations of drugs such as cocaine, heroin, methamphetamine, fentanyl and other high-abuse drugs. We intend to use this technology platform, sometimes referred to as "Lab on a Disk", to develop a series of 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. First will be the SpinDx device with disks for delta-9 THC detection from an oral fluid sample collected from a test subject. This will be followed with a device based on our recently updated LX9 breathalyzer to collect a sample for analysis from breath, which coupled with the SpinDx device will be our marijuana breathalyzer system. 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. 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. The R.A.D.A.R.® 200 Mobile Device has been updated and released for sale
in 2022, with continued refinements ongoing based on customer feedback.
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. The Lifeloc University LMS was updated
in 2018 to provide responsive design so it could be viewed on mobile devices and was updated in 2021 to reflect DOT rule and other changes.
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, 2023. 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. This loan was paid on September
30, 2021 with proceeds from a new term loan, also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000
which matures in September, 2031.
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 March 31, 2022 compared to
the three months ended March 31, 2021.
Net sales. Our product sales for the quarter
ended March 31, 2022 were $2,111,757, an increase of 19% from $1,775,447 for the quarter ended March 31, 2021. This increase
is primarily attributable to an increase in demand in the current quarter, which may represent partial recovery from the impact of Covid-19
in the same quarter a year ago. When royalties of $26,640 and rental income of $22,239 are included, total revenues of $2,160,636
increased by $351,093, or 19%, for the quarter ended March 31, 2022 when compared to the same quarter a year ago. With the diminishing
effects of the pandemic, we expect revenues to be somewhat higher in the remainder of 2022 when compared to 2021.
Gross profit. Our total gross profit
for the three months ended March 31, 2022 of $841,889 represented an increase of 2% from total gross profit of $823,877 for the same period
a year earlier. This increase is primarily as a result of increased sales, offset by increased costs across the board, including labor
and components, and offset in part by increased royalties. Cost of product sales increased from $979,023 in Q1 of 2021 to $1,318,747
in Q1 of 2022, or 35%, as a result of increased sales volume and inflation. Gross profit margin on products went from 45% in Q1 of
2021 to 38% in Q1 of 2022 as a result of the foregoing factors.
Research and development expenses. Our research
and development expenses were $390,024 for the quarter ended March 31, 2022, representing an increase of 27% over the $307,212 in the
same quarter a year ago. This increase resulted mostly from adding personnel and increased compensation, along with higher
payments to outside vendors in connection with the work pertaining to the SpinDx development.
Sales and marketing expenses. Our sales and marketing
expenses of $276,637 for the quarter ended March 31, 2022 increased by $46,159 (20%) from the $230,478 for the quarter ended March 31,
2021, mostly as the result of resumption of sales efforts formerly curtailed because of the pandemic.
General and administrative expenses. Our general
and administrative expenses of $352,833 for the quarter ended March 31, 2022 were relatively unchanged from the $350,120 in the same
period a year ago.
Other income (expense). Our
other income decreased in Q1 of 2022 due to forgiveness in Q1 of 2021 of the Paycheck Protection loan obtained in 2021, versus none in
the current period. Interest income of $432 in the quarter ended March 31, 2022 was nominal and relatively unchanged from the $499 in
the same quarter a year ago. Our interest expense of $10,910 in the current quarter over $13,517 in the same period a year ago is
mostly the result of the lower interest rate on our new term loan closed on September 30, 2021, as well as the result of the balance of
the term loan on our building declining.
Net income (loss). We realized a
net loss of $144,508 for the quarter ended March 31, 2022 compared to net income of $403,471 for the quarter ended March 31, 2021. This
decrease of $547,979 was the result of the changes in gross profit and operating expenses discussed above, offset in part by an increased
benefit from income tax of $28,250.
Trends and Uncertainties That May Affect
Future Results
Revenues in the first quarter of 2022 were higher
compared to revenues in 2021 as a result of the diminishing Covid-19 pandemic. We believe the effects of the pandemic are declining,
and we expect the remainder of 2022 to show modest improvement over 2021. 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 2022 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 2022. 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.
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 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 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. 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 expired in accordance with its terms and
has not been renewed. There was no balance due on the line of credit as of March 31, 2021.
Equipment and software purchased during the quarter
ended March 31, 2022 was $10,800, compared to $0 in the same period a year ago. Building improvements during the quarter ended March
31, 2022 were $0, compared to $0 in the quarter ended March 31, 2021. We filed patent applications at a cost to us of $0 in the first
quarter of 2022 and $0 in the first quarter of 2021.
As of March 31, 2022, cash was $2,018,828, accounts
receivable were $798,748 and current liabilities were $786,769 resulting in a net liquid asset amount of $2,030,807. We believe
that the introduction of several new products during the last several years, along with new and on-going customer relationships, will
continue to 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, as necessary.
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 March
31, 2022 and for the quarter ended March 31, 2021, 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.