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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
| ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
|
| |
For the quarterly period ended June 30, 2026 |
OR
| ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
|
| |
For the transition period from to |
Commission file number
000-54319
LIFELOC TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Colorado |
84-1053680 |
| (State or other jurisdiction of |
(I.R.S. Employer Identification No.) |
| incorporation or organization) |
|
12441 West 49th Ave., Unit 4
Wheat Ridge, Colorado 80033
(Address of principal executive offices)
(303) 431-9500
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by
check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit). Yes ☒ No
☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ |
Accelerated filer ☐ |
| Non-accelerated filer ☒ |
Smaller reporting company ☒ |
| Emerging growth company ☐ |
|
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
Indicate the number of shares outstanding of each of the issuer’s
classes of common equity, as of the latest practicable date:
| Common Stock, no par value |
2,752,616 Shares |
| (Class) |
(outstanding at August 1, 2026) |
LIFELOC TECHNOLOGIES, INC.
FORM 10-Q
For the Three and Six months Ended June
30, 2026
INDEX
| |
|
Page |
| |
|
Number |
| PART I. |
FINANCIAL INFORMATION |
3 |
| |
|
|
| ITEM 1 |
FINANCIAL STATEMENTS (UNAUDITED) |
|
| |
|
|
| |
Condensed Balance Sheets (Unaudited) as of June 30, 2026 and December 31, 2025 |
3 |
| |
Condensed Statements of Profit (Loss) (Unaudited) for the three and six months ended June 30, 2026 and 2025 |
4 |
| |
Condensed Statements of Changes in Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2026 and 2025 |
6 |
| |
Condensed Statements of Cash Flows (Unaudited) for the six months ended June 30, 2026 and 2025 |
7 |
| |
Notes to Condensed Financial Statements (Unaudited) |
8 |
| |
|
|
| ITEM 2 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
13 |
| |
|
| ITEM 3 |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
18 |
| |
|
|
| ITEM 4 |
CONTROLS AND PROCEDURES |
18 |
| |
|
|
| PART II. |
OTHER INFORMATION |
18 |
| |
|
|
| ITEM 1 |
LEGAL PROCEEDINGS |
18 |
| |
|
| ITEM 1A |
RISK FACTORS |
19 |
| |
|
|
| ITEM 2 |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
19 |
| |
|
|
| ITEM 3 |
DEFAULTS UPON SENIOR SECURITIES |
19 |
| |
|
|
| ITEM 4 |
MINE SAFETY DISCLOSURES |
19 |
| |
|
|
| ITEM 5 |
OTHER INFORMATION |
19 |
| |
|
|
| ITEM 6 |
EXHIBITS |
19 |
| |
|
|
| SIGNATURES |
20 |
PART I FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
LIFELOC TECHNOLOGIES, INC.
Condensed Balance Sheets (Unaudited)
| | |
| | |
| |
| ASSETS | |
| | |
| |
| CURRENT ASSETS: | |
June
30, 2026 | | |
December
31, 2025 | |
| Cash
and cash equivalents | |
$ | 908,208 | | |
$ | 746,001 | |
| Accounts
receivable, net | |
| 826,715 | | |
| 772,380 | |
| Inventories,
net | |
| 2,839,516 | | |
| 2,633,614 | |
| Federal
and state income taxes receivable | |
| 55,981 | | |
| 55,981 | |
| Prepaid
expenses and other | |
| 146,901 | | |
| 60,825 | |
| Total
current assets | |
| 4,777,321 | | |
| 4,268,801 | |
| | |
| | | |
| | |
| PROPERTY,
PLANT AND EQUIPMENT: | |
| | | |
| | |
| 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 | |
| 1,366,539 | | |
| 1,366,539 | |
| Office
equipment, software and space modifications | |
| 197,686 | | |
| 197,686 | |
| Sales
and marketing equipment and space modifications | |
| 230,543 | | |
| 225,173 | |
| Research
and development equipment, software and space modifications | |
| 1,247,201 | | |
| 1,213,195 | |
| Research
and development equipment, software and space modifications not in service | |
| — | | |
| 19,595 | |
| Less
accumulated depreciation | |
| (3,670,607 | ) | |
| (3,538,455 | ) |
| Total
property and equipment, net | |
| 2,187,537 | | |
| 2,299,908 | |
| | |
| | | |
| | |
| OTHER
ASSETS: | |
| | | |
| | |
| Patents,
net | |
| 67,229 | | |
| 71,039 | |
| Deposits
and other | |
| 46,820 | | |
| 46,820 | |
| Total
other assets | |
| 114,049 | | |
| 117,859 | |
| Total
assets | |
$ | 7,078,907 | | |
$ | 6,686,568 | |
| CURRENT
LIABILITIES: | |
| | | |
| | |
| Accounts
payable | |
$ | 501,118 | | |
$ | 301,627 | |
| Term
loans payable, current portion | |
| 94,774 | | |
| 54,850 | |
| Subordinated
debentures payable, current portion | |
| 35,697 | | |
| 33,371 | |
| Customer
deposits | |
| 20,336 | | |
| 25,694 | |
| Accrued
expenses | |
| 350,141 | | |
| 321,112 | |
| Deferred
revenue, current portion | |
| 50,464 | | |
| 53,716 | |
| Product
warranty reserve | |
| 46,500 | | |
| 46,500 | |
| Total
current liabilities | |
| 1,099,030 | | |
| 836,870 | |
| | |
| | | |
| | |
| TERM
LOAN PAYABLE, net of current portion and debt issuance costs | |
| 1,030,364 | | |
| 1,058,426 | |
| | |
| | | |
| | |
| TERM
LOAN PAYABLE (Related Party), net of current portion and debt issuance costs | |
| 460,922 | | |
| — | |
| | |
| | | |
| | |
| SUBORDINATED
DEBENTURES PAYABLE, net of current portion and debt issuance costs | |
| 662,901 | | |
| 681,343 | |
| | |
| | | |
| | |
| DEFERRED
REVENUE, net of current portion | |
| 8,955 | | |
| 6,151 | |
| Total
liabilities | |
| 3,262,172 | | |
| 2,582,790 | |
| | |
| | | |
| | |
| COMMITMENTS
AND CONTINGENCIES (Note 6) | |
| — | | |
| | |
| | |
| | | |
| | |
| STOCKHOLDERS’
EQUITY: | |
| | | |
| | |
| Common
stock, no par value; 50,000,000 shares authorized, 2,752,616 shares outstanding | |
| 5,934,314 | | |
| 5,934,314 | |
| Accumulated
deficit | |
| (2,117,579 | ) | |
| (1,830,536 | ) |
| Total
stockholders’ equity | |
| 3,816,735 | | |
| 4,103,778 | |
| Total
liabilities and stockholders’ equity | |
$ | 7,078,907 | | |
$ | 6,686,568 | |
The
accompanying notes to the condensed financial statements are an integral part of these condensed financial statements.
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Profit (Loss) (Unaudited)
| | |
| | |
| |
| | |
Three
Months Ended June 30, | |
| REVENUES: | |
2026 | | |
2025 | |
| Product
sales | |
$ | 2,434,697 | | |
$ | 2,191,260 | |
| Royalties | |
| 10,260 | | |
| 19,800 | |
| Rental
income | |
| — | | |
| 8,316 | |
| Total | |
| 2,444,957 | | |
| 2,219,376 | |
| | |
| | | |
| | |
| COST
OF SALES | |
| 1,352,431 | | |
| 1,294,777 | |
| | |
| | | |
| | |
| GROSS
PROFIT | |
| 1,092,526 | | |
| 924,599 | |
| | |
| | | |
| | |
| OPERATING
EXPENSES: | |
| | | |
| | |
| Research,
development, and sustaining engineering | |
| 560,281 | | |
| 623,262 | |
| Sales and
marketing | |
| 320,968 | | |
| 339,528 | |
| General
and administrative | |
| 314,853 | | |
| 340,074 | |
| Total | |
| 1,196,102 | | |
| 1,302,864 | |
| | |
| | | |
| | |
| OPERATING
(LOSS) | |
| (103,576 | ) | |
| (378,265 | ) |
| | |
| | | |
| | |
| OTHER
INCOME (EXPENSE): | |
| | | |
| | |
| Interest
income | |
| 8,856 | | |
| 10,931 | |
| Interest
expense | |
| (39,610 | ) | |
| (26,305 | ) |
| Total | |
| (30,754 | ) | |
| (15,374 | ) |
| | |
| | | |
| | |
| NET
(LOSS) BEFORE PROVISION FOR TAXES | |
| (134,330 | ) | |
| (393,639 | ) |
| | |
| | | |
| | |
| BENEFIT
FROM FEDERAL AND STATE INCOME TAXES | |
| — | | |
| — | |
| | |
| | | |
| | |
| NET
(LOSS) | |
$ | (134,330 | ) | |
$ | (393,639 | ) |
| | |
| | | |
| | |
| NET
(LOSS) PER SHARE, BASIC | |
$ | (0.05 | ) | |
$ | (0.14 | ) |
| | |
| | | |
| | |
| NET
(LOSS) PER SHARE, DILUTED | |
$ | (0.05 | ) | |
$ | (0.14 | ) |
| | |
| | | |
| | |
| WEIGHTED
AVERAGE SHARES, BASIC | |
| 2,752,616 | | |
| 2,752,616 | |
| | |
| | | |
| | |
| WEIGHTED
AVERAGE SHARES, DILUTED | |
| 2,752,616 | | |
| 2,752,616 | |
| | |
| | | |
| | |
The accompanying notes to the condensed financial
statements are an integral part of these condensed financial statements.
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Profit (Loss) (Unaudited)
| | |
| | |
| |
| | |
Six
Months Ended June 30, | |
| REVENUES: | |
2026 | | |
2025 | |
| Product
sales | |
$ | 4,724,456 | | |
$ | 4,454,307 | |
| Royalties | |
| 14,313 | | |
| 25,471 | |
| Rental
income | |
| — | | |
| 16,632 | |
| Total | |
| 4,738,769 | | |
| 4,496,410 | |
| | |
| | | |
| | |
| COST
OF SALES | |
| 2,659,169 | | |
| 2,663,245 | |
| | |
| | | |
| | |
| GROSS
PROFIT | |
| 2,079,600 | | |
| 1,833,165 | |
| | |
| | | |
| | |
| OPERATING
EXPENSES: | |
| | | |
| | |
| Research,
development, and sustaining engineering | |
| 974,726 | | |
| 1,092,942 | |
| Sales and
marketing | |
| 634,197 | | |
| 674,084 | |
| General
and administrative | |
| 702,255 | | |
| 724,952 | |
| Total | |
| 2,311,178 | | |
| 2,491,978 | |
| | |
| | | |
| | |
| OPERATING
(LOSS) | |
| (231,578 | ) | |
| (658,813 | ) |
| | |
| | | |
| | |
| OTHER
INCOME (EXPENSE): | |
| | | |
| | |
| Interest
income | |
| 15,387 | | |
| 23,288 | |
| Interest
expense | |
| (70,852 | ) | |
| (50,800 | ) |
| Total | |
| (55,465 | ) | |
| (27,512 | ) |
| | |
| | | |
| | |
| NET
(LOSS) BEFORE PROVISION FOR TAXES | |
| (287,043 | ) | |
| (686,325 | ) |
| | |
| | | |
| | |
| BENEFIT
FROM FEDERAL AND STATE INCOME TAXES | |
| — | | |
| — | |
| | |
| | | |
| | |
| NET
(LOSS) | |
$ | (287,043 | ) | |
$ | (686,325 | ) |
| | |
| | | |
| | |
| NET
(LOSS) PER SHARE, BASIC | |
$ | (0.10 | ) | |
$ | (0.25 | ) |
| | |
| | | |
| | |
| NET
(LOSS) PER SHARE, DILUTED | |
$ | (0.10 | ) | |
$ | (0.25 | ) |
| | |
| | | |
| | |
| WEIGHTED
AVERAGE SHARES, BASIC | |
| 2,752,616 | | |
| 2,723,768 | |
| | |
| | | |
| | |
| WEIGHTED
AVERAGE SHARES, DILUTED | |
| 2,752,616 | | |
| 2,723,768 | |
| | |
| | | |
| | |
The accompanying notes
to the condensed financial statements are an integral part of these condensed financial statements.
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Changes in Stockholders’ Equity (Unaudited)
For the Three and Six Months Ended June 30, 2026 and 2025
| | |
| | |
| | |
| | |
| |
| | |
2026 | |
| | |
Common Stock Shares | | |
Common Stock Amount | | |
Accumulated Deficit | | |
Total | |
| Beginning balance,
December 31, 2025 | |
| 2,752,616 | | |
$ | 5,934,314 | | |
$ | (1,830,536 | ) | |
$ | 4,103,778 | |
| Net (loss) | |
| — | | |
| — | | |
| (152,713 | ) | |
| (152,713 | ) |
| Ending balance, March 31,
2026 | |
| 2,752,616 | | |
| 5,934,314 | | |
| (1,983,249 | ) | |
| 3,951,065 | |
| Net
(loss) | |
| — | | |
| — | | |
| (134,330 | ) | |
| (134,330 | ) |
| Ending
balance, June 30, 2026 | |
| 2,752,616 | | |
$ | 5,934,314 | | |
$ | (2,117,579 | ) | |
$ | 3,816,735 | |
| | |
| | |
| | |
| | |
| |
| | |
2025 | |
| | |
Common
Stock Shares | | |
Common
Stock Amount | | |
Accumulated
Deficit | | |
Total | |
| Beginning balance, December 31, 2024 | |
| 2,664,116 | | |
$ | 5,586,014 | | |
$ | 639,863 | | |
$ | 6,225,877 | |
| Issuance of shares from option exercise | |
| 88,500 | | |
| 336,300 | | |
| — | | |
| 336,300 | |
| Warrants issued with subordinated debenture | |
| — | | |
| 12,000 | | |
| — | | |
| 12,000 | |
| Net (loss) | |
| — | | |
| — | | |
| (292,686 | ) | |
| (292,686 | ) |
| Ending balance, March 31, 2025 | |
| 2,752,616 | | |
| 5,934,314 | | |
| 347,177 | | |
| 6,281,491 | |
| Net (loss) | |
| — | | |
| — | | |
| (393,639 | ) | |
| (393,639 | ) |
| Ending balance, June 30, 2025 | |
| 2,752,616 | | |
$ | 5,934,314 | | |
$ | (46,462 | ) | |
$ | 5,887,852 | |
The accompanying notes
to the condensed financial statements are an integral part of these condensed financial statements.
LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Cash Flows (Unaudited)
| | |
| | |
| |
| | |
Six months Ended
June 30, | |
| CASH FLOWS FROM OPERATING
ACTIVITIES: | |
2026 | | |
2025 | |
| Net
(loss) | |
$ | (287,043 | ) | |
$ | (686,325 | ) |
| Adjustments
to reconcile net (loss) to net cash (used in) operating activities- | |
| | | |
| | |
| Depreciation
and amortization | |
| 135,962 | | |
| 216,419 | |
| Amortization
of debt issuance costs | |
| 12,103 | | |
| 5,886 | |
| Changes in
operating assets and liabilities- | |
| | | |
| | |
| Accounts
receivable | |
| (54,335 | ) | |
| (33,189 | ) |
| Inventories | |
| (205,902 | ) | |
| 7,645 | |
| Federal
and state income taxes receivable | |
| — | | |
| 25,029 | |
| Prepaid
expenses and other | |
| (86,076 | ) | |
| (120,034 | ) |
| Deposits
and other | |
| — | | |
| — | |
| Accounts
payable | |
| 199,491 | | |
| 141,419 | |
| Customer
deposits | |
| (5,358 | ) | |
| (6,186 | ) |
| Accrued
expenses | |
| 29,029 | | |
| 55,416 | |
| Deferred
revenue | |
| (448 | ) | |
| 4,344 | |
| Net cash
(used in) operating activities | |
| (262,577 | ) | |
| (389,576 | ) |
| | |
| | | |
| | |
| CASH
FLOWS (USED IN) INVESTING ACTIVITIES: | |
| | | |
| | |
| Purchases
of sales and marketing equipment | |
| (5,370 | ) | |
| (5,462 | ) |
| Purchases
of research and development equipment, software and space modifications | |
| (14,411 | ) | |
| (17,348 | ) |
| Purchases
of research and development equipment, software and space modifications not in service | |
| — | | |
| (219,441 | ) |
| Net cash
(used in) investing activities | |
| (19,781 | ) | |
| (242,251 | ) |
| | |
| | | |
| | |
| CASH
FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: | |
| | | |
| | |
| Principal
payments made on term loan | |
| (28,290 | ) | |
| (27,469 | ) |
| Proceeds
from issuance of subordinated debenture | |
| — | | |
| 75,000 | |
| Proceeds
(related party) from issuance of term loan | |
| 500,000 | | |
| — | |
| Principal
payments made on subordinated debentures | |
| (27,145 | ) | |
| — | |
| Proceeds
from issuance of shares from option exercise | |
| — | | |
| 336,300 | |
| Net
cash provided from (used in) financing activities | |
| 444,565 | | |
| 383,831 | |
| | |
| | | |
| | |
| NET
INCREASE (DECREASE) IN CASH | |
| 162,207 | | |
| (247,996 | ) |
| | |
| | | |
| | |
| CASH,
BEGINNING OF PERIOD | |
| 746,001 | | |
| 1,243,746 | |
| | |
| | | |
| | |
| CASH,
END OF PERIOD | |
$ | 908,208 | | |
$ | 995,750 | |
| | |
| | | |
| | |
| SUPPLEMENTAL
INFORMATION: | |
| | | |
| | |
| Cash
paid for interest | |
$ | 59,264 | | |
$ | 44,914 | |
| | |
| | | |
| | |
| Cash
paid for income tax | |
$ | — | | |
$ | 150 | |
| | |
| | | |
| | |
| Income
tax refund received | |
$ | — | | |
$ | 25,179 | |
| | |
| | | |
| | |
| Non-cash
financing and investing activities: warrants issued with subordinated debenture | |
$ | — | | |
$ | 12,000 | |
The accompanying notes to the condensed financial
statements are an integral part of these condensed financial statements.
LIFELOC TECHNOLOGIES, INC.
Notes to Condensed Financial Statements (Unaudited)
June 30, 2026 and 2025
1. ORGANIZATION AND NATURE OF BUSINESS
Lifeloc Technologies, Inc. (“Lifeloc”
or the “Company”, “Us”, “Our”, or “We”) is a Colorado-based developer, manufacturer
and marketer of portable hand-held and fixed station breathalyzers and related accessories, supplies and education. We design, produce
and sell fuel-cell based breath alcohol testing equipment. We compete in all major segments of the breath alcohol testing instrument market,
including law enforcement, workplace, corrections, original equipment manufacturing (“OEM”) and consumer markets. In addition,
we offer a line of supplies, accessories, services, and training to support customers’ alcohol testing programs. We sell globally
through distributors as well as directly to users.
We define our business as providing “near
and remote sensing and monitoring” products and solutions. Today, the majority of our revenues are derived from products and services
for alcohol detection and measurement. We remain committed to growing our breath alcohol testing business. In the future, we anticipate
the commercialization of new sensing and measurement products that may allow Lifeloc to successfully expand our business into new growth
areas where we do not presently compete or where no satisfactory product solutions exist today.
Lifeloc incorporated in Colorado in December 1983.
We filed a registration statement on Form 10 with the Securities and Exchange Commission, which became effective on May 31, 2011.
Our fiscal year end is December 31. Our principal executive offices are located at 12441 West 49th Avenue, Unit 4, Wheat Ridge,
Colorado 80033-3338. Our telephone number is (303) 431-9500. Our websites are www.lifeloc.com and www.lifelocuniversity.com.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PROCESSES
Basis of Presentation. These statements
have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting
principles generally accepted in the United States (“GAAP”) for interim financial information. They do not include all
information and notes required by GAAP for complete financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to financial statements included in Lifeloc’s Annual Report on Form 10-K
for the year ended December 31, 2025 as filed with the SEC. In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments, consisting of only normal recurring adjustments necessary for a fair statement of the financial position
as of June 30, 2026 and December 31, 2025, and the results of operations and cash flows for the six months ended June 30, 2026 and June
30, 2025. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected
for a full year. The Company’s 2025 Annual Report on Form 10-K includes certain definitions and a summary of significant accounting
policies and should be read in conjunction with this Form 10-Q.
Inventories. Inventories are stated
at the lower of standard average cost or net realizable value. We reduce inventory for estimated obsolete or unmarketable inventory equal
to the difference between the cost of inventory and the estimated net realizable value after cost to sell, based upon assumptions about
future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory
write-downs may be required. At June 30, 2026 and December 31, 2025, inventory consisted of the following:
| Schedule of inventories | |
| | |
| |
| | |
June 30, 2026 | | |
December 31, 2025 | |
| Raw materials & deposits | |
$ | 2,667,198 | | |
$ | 2,576,194 | |
| Work-in-process | |
| 20,446 | | |
| 19,451 | |
| Finished goods | |
| 591,028 | | |
| 477,125 | |
| Total gross inventories | |
| 3,278,672 | | |
| 3,072,770 | |
| Less reserve for obsolescence | |
| (439,156 | ) | |
| (439,156 | ) |
| Total net inventories | |
$ | 2,839,516 | | |
$ | 2,633,614 | |
Income Taxes. We account for income taxes
under the provisions of Accounting Standards Codification (“ASC”) Topic 740, Accounting for Income Taxes (“ASC
740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences,
based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also
requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards
and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any
tax benefits which, more likely than not based on current circumstances, are not expected to be realized. We estimate that our current
effective tax rate to be 0% for 2026.
ASC 740 prescribes a comprehensive model for how
companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to
be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the
tax authority assuming full knowledge of the position and relevant facts.
Revenue Recognition.
We recognize revenue in accordance with ASC Topic
606 using the five-step model: identifying the contract with a customer, identifying performance obligations, determining and allocating
the transaction price, and recognizing revenue when performance obligations are satisfied.
Our contracts generally contain a single performance
obligation to deliver products or supplies. Transaction prices are fixed and determinable at order acceptance. Revenue is recognized at
a point in time when control transfers to the customer, typically upon shipment when title has passed.
For product development arrangements, revenue
is recognized upon achievement of contractual milestones. Sales to stocking distributors are recognized when control transfers and there
are no rights of return other than standard warranty provisions. We generally have no significant post-delivery obligations other than
standard warranties.
The sales of licenses to our training courses
are recognized as revenue at the time of sale. Training and certification revenues are recognized at the time the training and certification occurs.
Data recording revenue is recognized based on each day’s usage of enrolled devices.
Revenues arising from extended warranty contracts
are booked as sales over their life on a straight-line basis. Occasionally, we rent used equipment to customers, and in those cases, we
recognize the revenues as they are earned over the life of the contract.
Royalty income is recognized in accordance with
agreed upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured.
On occasion we receive customer deposits for future
product orders and product developments. Customer deposits are initially recorded as a liability and recognized as revenue when the product
is shipped and title has passed to the customer, or when agreed milestones are met in the case of product developments.
Deferred Revenue. Deferred revenues arise
from service contracts and from direct training revenue. Revenues from service contracts are recognized on a straight-line basis
over the life of the contract, generally one year, and are included in product revenue in our statements of income (loss). However, there
are occasions when they are written for longer terms up to four years. The revenues from that portion of the contract that extend beyond
one year are shown in our balance sheets as long term. Deferred revenues also result from direct training revenue that needs to be
scheduled based on the customer’s and Lifeloc’s availability. Revenue is recognized when training is complete and is included
in product sales in our statements of income. All direct training is for less than one year and all deferred revenues from this source
are shown in our balance sheets as short term.
Recently Issued Accounting Pronouncements:
In November 2024, the FASB issued Accounting Standards Update (ASU) 2024-03, Income Statement - Reporting Comprehensive Income - Expense
Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosure about the types of
costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective
for the Company’s annual periods for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning
after December 15, 2027, with early adoption permitted, and may be applied either prospectively or retrospectively. We are currently evaluating
the ASU to determine its impact on our consolidated financial statements and disclosures.
The Company does not believe that issued, but
not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
3. BASIC AND DILUTED (LOSS) PER COMMON SHARE
We report both basic and diluted net income or
loss per common share. Basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted
average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing the net income
for the period by the weighted average number of common and potential common shares outstanding during the period if the effect of the
potential common shares is dilutive. The shares used in the calculation of dilutive potential common shares exclude options and warrants
to purchase shares where the exercise price was greater than the average market price of common shares for the period. For the six months
ended June 30, 2026, options to purchase 15,000 shares and warrants to purchase 68,750 shares were excluded from the computation of diluted
net loss per share, and for the six months ended June 30, 2025, options to purchase 33,500 shares and warrants to purchase 68,750 shares
were excluded from the computation of diluted net loss per share, because their effect during those periods would have been antidilutive.
The following table presents the calculation of basic and diluted
net (loss) per common share for the three and six months ended June 30, 2026 and June 30, 2025.
| Schedule of basic and diluted
net income per common share | |
| | |
| |
| | |
Three
Months Ended June 30, | |
| | |
2026 | | |
2025 | |
| Net (loss) | |
$ | (134,330 | ) | |
$ | (393,639 | ) |
| Weighted average shares-basic | |
| 2,752,616 | | |
| 2,752,616 | |
| Effect of dilutive potential common shares | |
| — | | |
| — | |
| Weighted average shares-diluted | |
| 2,752,616 | | |
| 2,752,616 | |
| Net (loss) per share-basic | |
$ | (0.05 | ) | |
$ | (0.14 | ) |
| Net (loss) per share-diluted | |
$ | (0.05 | ) | |
$ | (0.14 | ) |
| | |
| | |
| |
| | |
Six Months
Ended June 30, | |
| | |
2026 | | |
2025 | |
| Net (loss) | |
$ | (287,043 | ) | |
$ | (686,325 | ) |
| Weighted average shares-basic | |
| 2,752,616 | | |
| 2,723,768 | |
| Effect of dilutive potential common shares | |
| — | | |
| — | |
| Weighted average shares-diluted | |
| 2,752,616 | | |
| 2,723,768 | |
| Net (loss) per share-basic | |
$ | (0.10 | ) | |
$ | (0.25 | ) |
| Net (loss) per share-diluted | |
$ | (0.10 | ) | |
$ | (0.25 | ) |
4. STOCKHOLDERS’ EQUITY
In February 2025, options to purchase 88,500 shares
of our common stock, originally granted as incentive stock options pursuant to our 2013 Stock Option Plan, were assigned by the option
holders to EDCO Partners LLLP and a third director. The Board of Directors approved the assignments and waived the non-transferability
provisions of the applicable option agreements and the Plan solely to permit such assignments. Upon assignment, the options ceased to
qualify as incentive stock options and were reclassified as nonqualified stock options for all tax, accounting, and compliance purposes.
EDCO Partners LLLP, of which our CFO and board chairman is the general partner, and a third director then exercised the assigned options
at a price of $3.80 per share for total proceeds of $336,300 to the Company. There was no intrinsic value on the exercised options. At
June 30, 2026, 15,000 options remained outstanding with a weighted average life of 0.58 years. All 15,000 of these options were fully
vested. The options outstanding at June 30, 2026 had an intrinsic value of $0.
At June 30, 2026, there were 68,750 warrants outstanding,
all with an exercise price of $4.50 and all expiring December 31, 2030.
5. DEBT
Subordinated Debentures Payable. On December
31, 2024, we issued a $750,000 unsecured debenture that is subordinated to the Company’s existing secured indebtedness, which is
collateralized by a lien on substantially all of the Company’s assets. The debenture bears interest only at 8.25% payable quarterly
in 2025, with monthly payments of $9,199 including principal and interest at 8.25% commencing on January 31, 2026. A balloon payment of
$451,012 is due in full on December 31, 2030.
In consideration of the lender providing the financing,
the Company issued warrants which entitle the holder to purchase 62,500 shares of our common stock at $4.50 per share.
On March 1, 2025, we issued a $75,000 unsecured
debenture that is subordinated to the Company’s existing secured indebtedness, which is collateralized by a lien on substantially
all of the Company’s assets. The debenture bears interest only at 8.25% payable quarterly in 2025. A balloon payment of $45,707
is due in full on December 31, 2030. In consideration of the lender providing this financing, the Company issued warrants which entitle
the holder to purchase 6,250 shares of our common stock at $4.50 per share. If the debenture is paid in full on or before December 31,
2029, the warrants will have a remaining life of 58 months from March 1, 2025.
The factors used
to calculate the estimated value of these warrants, and the resulting fair value, were as follows.
| Schedule of option grant
and fair market value | |
| |
| Stock price | |
$ | 2.75 | |
| Exercise price per share | |
$ | 4.50 | |
| Original term (months) | |
| 70 | |
| Volatility | |
| 116.58 | % |
| Annual rate of quarterly dividends | |
| None | |
| Risk free interest rate | |
| 4.38 | % |
| | Schedule
of warrants issued | | |
| |
|
| | | | |
Expiration
of Warrants if Debenture is Paid on December 31, 2030 | |
Expiration
of Warrants if Debenture is Paid on December 31, 2029 |
| | Warrants issued December 31, 2024 | | |
December 31, 2030 | |
December 31, 2029 |
| | Warrants issued March 1, 2025 | | |
December 31, 2030 | |
December 31, 2029 |
Our minimum future principal payments on all of
the above subordinated debentures are as follows:
| Schedule
of term loan payable | |
| |
| June 30, 2027 | |
$ | 57,754 | |
| June 30, 2028 | |
| 62,704 | |
| June 30, 2029 | |
| 68,077 | |
| June 30, 2030 | |
| 73,910 | |
| December 31, 2030 | |
| 535,410 | |
| Total | |
| 797,855 | |
| Less debt issuance cost | |
| (99,257 | ) |
| Net subordinated debenture payable | |
| 698,598 | |
| Less current portion | |
| (35,697 | ) |
| Long term portion | |
$ | 662,901 | |
Term Loans Payable. The term loan payable
to UMB (formerly Citywide Banks) is secured by a first mortgage on our building and is payable in 119 equal monthly installments of $7,453
commencing October 30 2021, including principal and interest at 2.95% based on a 360 day year, plus a final payment of $773,727 (excluding
interest) on September 30, 2031. Our minimum future principal payments on this term loan, by year, are as follows:
| Schedule
of term loan payable | |
| |
| June 30, 2027 | |
$ | 57,846 | |
| June 30, 2028 | |
| 59,576 | |
| June 30, 2029 | |
| 61,357 | |
| June 30, 2030 | |
| 63,192 | |
| June 30, 2031 | |
| 65,081 | |
| September 30, 2031 | |
| 790,299 | |
| Total | |
| 1,097,351 | |
| Less debt issuance cost | |
| (11,291 | ) |
| Net term loan payable | |
| 1,086,060 | |
| Less current portion | |
| (55,696 | ) |
| Long term portion | |
$ | 1,030,364 | |
The term loan payable to Vern D. Kornelsen, our
Chairman and CFO, which was entered into on May 1, 2026, is secured by substantially all assets of the Company, including its building,
which is subordinate to the prior perfected security interest held by UMB (formerly Citywide Banks), and is payable in 8 equal
monthly installments of interest only of $4,375 through December 31, 2026, and in 60 monthly installments of $10,747 commencing January
31, 2027, including principal and interest at 10.5% based on a 360 day year, with interest to increase if the prime rate increases. Our
minimum future principal payments on this term loan, by year, are as follows:
| Schedule of term loan payable | |
| |
| June 30, 2027 | |
$ | 39,078 | |
| June 30, 2028 | |
| 84,559 | |
| June 30, 2029 | |
| 93,878 | |
| June 30, 2030 | |
| 104,224 | |
| June 30, 2031 | |
| 115,709 | |
| December 31, 2031 | |
| 62,552 | |
| Total term loan payable | |
| 500,000 | |
| Less current portion | |
| (39,078 | ) |
| Long term portion | |
$ | 460,922 | |
6. COMMITMENTS AND CONTINGENCIES
Employee Severance Benefits. Our obligation
with respect to employee severance benefits is minimized by the “at will” nature of the employee relationships. As of June
30, 2026, we had no obligation with respect to contingent severance benefit obligations other than the Company’s obligations under
the employment agreement with its chief executive officer, Dr. Wayne Willkomm. In the event that Dr. Willkomm’s employment is terminated
by the Company without Cause (including through a decision by the Company not to renew the employment agreement) or by Dr. Willkomm with
Good Reason (as each are defined in the employment agreement), Dr. Willkomm will be eligible, upon satisfaction of certain conditions,
for severance equal to two months of salary continuation plus 12 months of health insurance continuation.
Contractual Commitments and Purchase Orders.
Contractual commitments under development agreements and outstanding purchase orders issued to vendors in the ordinary course of business
totaled $2,642,287 at June 30, 2026.
Regulatory Commitments.
We are subject to certain regulations of the United States Department of Transportation and various state departments of transportation.
We believe that we are in substantial compliance with all known applicable regulations.
7. LEGAL PROCEEDINGS
We were not involved or party to any legal proceedings
at June 30, 2026 or December 31, 2025, and therefore made no accruals for legal proceedings in either 2026 or 2025.
8. BUSINESS SEGMENT
Operating segments are defined under ASU
2023-07, Segment Reporting (Topic 280), as components of an entity where discrete financial information is evaluated regularly by the
chief operating decision maker (“CODM”), in this case, the Company’s Chief Executive Officer. The CODM makes decisions
on resource allocation, assesses performance of the business, and monitors budget versus actual results on a consolidated basis based
on net income (losses). On this basis, the CODM has determined the Company operates in one operating and reportable segment: the development,
manufacture, and sale of portable hand-held breathalyzers and drug screening products, and related accessories, supplies, education, and
training, together with royalties from development contracts with original equipment manufacturers. Until June 30, 2025, we had a second
segment consisting of a rental of a portion of our building. That segment was eliminated following the tenant lease not being renewed
on June 30, 2025.
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, 2025 Form 10-K.
Overview
Lifeloc Technologies, Inc., a Colorado corporation
(“Lifeloc” or the “Company”), is a leading developer, manufacturer and marketer of portable hand-held and
fixed station breathalyzers, now focused on expanding our offerings into technologies for the detection of drugs of abuse.
We began our alcohol breath testing product line
in 1989 with the PBA3000, later replaced by the Phoenix® Classic in 1998, and subsequently by the FC Series and Workplace Series.
Our FC Series, launched in 2001, is designed for domestic and international law enforcement and corrections markets and is approved by
the U.S. Department of Transportation (DOT) for evidential use. Our Workplace Series, including the EV30 and Phoenix® 6.0 released
in 2005 and 2006, also received DOT approval for federally regulated workplace testing. We have since introduced a range of innovations
such as Bluetooth connectivity, passive screening devices like the FC5 and Sentinel™ stations, and the EASYCAL® automatic calibration
systems.
We compete in all major segments of the portable
breath alcohol testing instrument market, including law enforcement, workplace, corrections, and original equipment manufacturing (“OEM”)
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.
In August 2016, we entered into a patent license
agreement with Sandia Corporation pursuant to which we acquired the exclusive rights to develop, manufacture, and market Sandia’s
patented SpinDx™ technology for the detection of drugs of abuse. The SpinDetect™ platform uses a centrifugal disk with microfluidic
flow paths to conduct multiple quantitative drug assays on a single small sample, delivering on-site results in minutes at a fraction
of the cost of conventional laboratory testing. The technology is capable of detecting very low concentrations of high-abuse drugs such
as fentanyl, cocaine, and delta-9-THC. Importantly, SpinDetect™ can isolate psychoactive delta-9-THC from its inactive metabolites
— a capability that existing devices lack, and that we believe will enable more accurate assessments of marijuana impairment. Under
the license agreement, Sandia retains ownership of the foundational patents, while patentable enhancements developed by Lifeloc belong
solely to us. Our first utility patent application covering improvements to the system was filed in February 2024.
We have completed the design of the SpinDetect™
microfluidic disk, with all analytical chemistry now occurring on the disk after sample introduction. We will be initiating beta testing
of the oral-fluid analyzer focused on delta-9-THC detection using a prototype reader, with final component optimization underway under
a signed beta-testing agreement. The initial commercial product is expected to measure delta-9-THC, followed by a multi-drug panel release.
We anticipate a limited commercial launch in Q1 of 2027, with subsequent expansion into additional drug panels and sample types, including
blood and breath — the latter integrated with our LX9 breathalyzer. The SpinDetect™ reader is designed to accept multiple
disk formats, which may also enable future applications beyond drug testing, such as detection of food-safety markers and environmental
contaminants; these applications would require additional research, regulatory clearances, and potential expansion of our existing license
rights. Continued progress toward commercialization is dependent on timely access to capital to support fabrication, validation, regulatory
preparation, and market introduction.
We place strong emphasis on high-quality training
as a key component of our testing business. Initially offering in-person instruction through Master Trainers, we expanded into online
modules, webcam-based training, and in 2011 launched Lifeloc University, a learning management system (LMS) that was later enhanced for
mobile use and regulatory updates. Our 2014 acquisition of Superior Training Solutions (STS) added further online training assets and
customers that were contributed to Lifeloc University, which now serves as our unified, modern training platform.
We own our corporate headquarters in Wheat Ridge,
Colorado, occupying all of the space ourselves after June 30, 2025. Our tenant’s lease expired in June 2025, at which time we expanded
into the full space. Additionally, we continue to pursue acquisitions aligned with our mission to deliver near and remote sensing and
monitoring solutions, aiming to strengthen own position in existing markets and facilitate entry into new ones.
Outlook
Installed
Base of Breathalyzers. We believe the installed base of our breathalyzers will increase as the inherent risks associated
with drinking while driving or while working in safety sensitive jobs become more widely acknowledged and as our network of distributors
and our direct sales force grows. We believe that increased marketing efforts, the introduction of new products and the expansion
of our sales network may provide the basis for increased sales and continuing profitable operations. However, these measures,
or any others that we may adopt or determine not to adopt, may not result in either increased sales or continuing profitable operations.
Possibility
of Operating Losses. Over many of the past several years we have operated profitably; however, prior to that, and in 2021
through 2025, we incurred operating losses. Those operating losses are continuing in 2026 and we expect them to continue as we continue
to work toward the commercialization of SpinDetect™. There is no assurance that we will not incur operating losses in any given
quarter or year in the future.
Sales
Growth. We expect to increase sales in the U.S. and worldwide as our network of direct customers and distributors grows
and becomes more proficient and expands the number of new accounts. Our growth efforts have focused on expanding our global
reach and broadening our product offering in alcohol and drug detection. Orders for all of our products are on an intermittent purchase
order basis and there is no assurance they will continue at any given rate, or that orders will repeat.
Sales
and Marketing Expenses. We continue our efforts to expand our domestic and international distribution capability, and we
believe that sales and marketing expenses will need to be maintained at a healthy level in order to do so. Sales and marketing
expenses are expected to increase as we increase our direct sales representatives and marketing efforts.
Research and Development Expenses.
We expect to begin to reduce our research and development expenses in 2026 as we complete development of our new product line.
Results of Operations
For the three months ended June 30, 2026 compared to the three
months ended June 30, 2025.
We work diligently
to maintain reduced costs where possible, although inflation is taking a toll, increasing the cost of raw materials, labor, and freight.
We continued and intensified our new product development efforts while maintaining the high level of customer service that has led to
an excellent reputation for outstanding customer service. With the introduction of new products, we believe Lifeloc will again be profitable.
Net sales.
Our product sales for the three months ended June
30, 2026 were $2,434,697, an increase of 11% from $2,191,260 for the same period a year ago. This increase results from acceleration of
several larger orders that may reflect customers’ current availability of funds. In addition, the continuing inflationary pressure
outlook on customers’ budgets may also have played a role. When royalties of $10,260 and rental income of $0 are included,
total revenues of $2,444,957 increased by $225,581, or 10%, for the three months ended June 30, 2026 when compared to the same three months
a year ago. Rental income was discontinued after June 30, 2025, and royalties decreased by $9,540 due to a decrease in sales by royalty-paying
customers.
Gross profit.
Gross profit for the three months ended June 30,
2026 of $1,092,526 represented an increase of 18% from total gross profit of $924,599 for the three months ended June 30, 2025, primarily
as a result of higher product sales. Cost of product sales increased from $1,294,777 in the three months ended June 30, 2025 to $1,352,431
in the same period in 2026, an increase of $57,654 (4%). Gross profit margin on products increased to 45% in the three months ended
June 30, 2026 from 42% in the three months ended June 30, 2025 primarily as a result of the higher sales and product mix.
Research, development and sustaining engineering
expenses.
Research, development and sustaining engineering
expenses continued at the high level of $560,281, or 23% of product sales, for the three months ended June 30, 2026, representing a decrease
of $62,981 (10%) over the $623,262 in the same period a year ago. This decrease resulted primarily from a lull in payments to outside
contractors needed for continuing design work related to SpinDetect™.
Sales and marketing expenses.
Sales and marketing expenses of $320,968 for the
three months ended June 30, 2026 were down by $18,560 (or 6%) from the $339,528 spent in the same period a year ago as a result of across
the board efforts to lower expenses.
General and administrative expenses.
General and administrative expenses of $314,853
for the three months ended June 30, 2026 were down by $25,221 (or 7%) from the $340,074 spent in the same period a year ago as a result
of across the board efforts to lower expenses.
Other income (expense).
Interest income decreased from $10,931 a year
ago to $8,856 in 2026 as a result of less funds available at the beginning of the period. Interest expense of $39,610 in the three
months ended June 30, 2026 was up from $26,305 in the previous year as a result of the increase in subordinated debentures outstanding
in the 2026 quarter vs. less in the same quarter a year ago as well as adding a new term loan in May 2026. The total increase of $15,380
from $15,374 of other expense (net) in the period ended June 30, 2025 to total other expense (net) of $30,754 in the current quarter is
expected to continue in future quarters due to the increase in borrowings.
Net income (loss).
We realized a net (loss) of ($134,330) for the
three months ended June 30, 2026 compared to a net (loss) of ($393,639) for the three months ended June 30, 2025. This decrease of
$259,309 (or 66%) was the result of the changes in gross profit, operating expenses and other income discussed above. The benefit from
taxes in the three months ended June 30, 2026 was $0 which was the same amount in the same period a year ago.
For the six months ended June 30, 2026 compared
to the six months ended June 30, 2025.
Net sales.
Our product sales for the six months ended June
30, 2026 were $4,724,456, an increase of 6% from $4,454,307 for the same period a year ago. This increase results from acceleration of
several larger orders that may reflect customers’ current availability of funds. In addition, the continuing inflationary pressure
outlook on customers’ budgets may also have played a role. When royalties of $14,313 and rental income of $0 are included,
total revenues of $4,738,769 increased by $242,359, or 5%, for the six months ended June 30, 2026 when compared to the same six months
a year ago. Rental income was discontinued after June 30, 2025, and royalties decreased by $11,158 due to a decrease in sales by royalty-paying
customers.
Gross profit.
Gross profit for the six months ended June 30,
2026 of $2,079,600 represented an increase of 13% from total gross profit of $1,833,165 for the six months ended June 30, 2025, primarily
as a result of higher product sales. Cost of product sales remained relatively flat from $2,663,245 in the six months ended June 30, 2025
to $2,659,169 in the same period in 2026, a decrease of $4,076 (0%). Gross profit margin on products increased to 44% in the six
months ended June 30, 2026 from 41% in the six months ended June 30, 2025 primarily as a result of the higher sales and product mix.
Research, development and sustaining engineering
expenses.
Research, development and sustaining engineering
expenses continued at the high level of $974,726, or 21% of product sales, for the six months ended June 30, 2026, representing a decrease
of $118,216 (11%) over the $1,092,942 in the same period a year ago. This decrease resulted primarily from a lull in payments to outside
contractors needed for continuing design work related to SpinDetect™.
Sales and marketing expenses.
Sales and marketing expenses of $634,197 for the
six months ended June 30, 2026 were down by $39,887 (or 6%) from the $674,084 spent in the same period a year ago as a result of across
the board efforts to lower expenses.
General and administrative expenses.
General and administrative expenses of $702,255
for the six months ended June 30, 2026 were down by $22,697 (or 3%) from the $724,952 spent in the same period a year ago as a result
of across the board efforts to lower expenses.
Other income (expense).
Interest income decreased from $23,288 a year
ago to $15,387 in 2026 as a result of less funds available at the beginning of the period. Interest expense of $70,852 in the six
months ended June 30, 2026 was up from $50,800 in the previous year as a result of the increase in subordinated debentures outstanding
in the 2026 quarter vs. less in the same quarter a year ago as well as adding a new term loan in May 2026. The total increase of $27,953
from $27,512 of other expense (net) in the period ended June 30, 2025 to total other expense (net) of $55,465 in the current quarter is
expected to continue in future quarters due to the increase in borrowings.
Net income (loss).
We realized a net (loss) of ($287,043) for the
six months ended June 30, 2026 compared to a net (loss) of ($686,325) for the six months ended June 30, 2025. This decrease of $399,282
(or 58%) was the result of the changes in gross profit, operating expenses and other income discussed above. The benefit from taxes in
the six months ended June 30, 2026 was $0 which was the same amount in the same period a year ago.
Trends and Uncertainties That May Affect Future Results
Revenues in the first six months of 2026 were
slightly higher compared to revenues during the same period in 2025. We believe that continued increased sales efforts may result
in modestly improved revenues in 2026 and beyond with the anticipated availability of SpinDetect™. Revenues in 2026 may be similar
to revenues in 2025. Inflationary pressures have affected our business in a number of ways, including increasing the cost of raw
materials, labor, and freight. Our actions to mitigate the impact of inflation, including pre-ordering components in higher than usual
quantities, sourcing new vendors and increasing prices have been somewhat successful.
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, with particular emphasis on completing SpinDetect™.
Our operating plan for the remainder of 2026 is
focused on growing sales, increasing gross profits, and continuing research and development efforts on new products, including SpinDetect™,
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 2026. However, we believe that cash resources will be sufficient to fund our operations for the next twelve months under
our current operating plan. If we are unable to manage the business operations in line with our budget expectations, it could have a material
adverse effect on business viability, financial position, results of operations and cash flows. Further, if we are not successful in sustaining
profitability and remaining at least cash flow break-even, additional borrowings or capital may be required to maintain ongoing operations.
Interest expense.
In connection with the financing of our building
purchase on October 31, 2014 we obtained a 10-year term loan from Bank of America in an initial principal amount of $1,581,106 bearing
interest at 4.45% per annum (which was decreased to 4% in 2016) and secured by a first-priority mortgage in the acquired property. The
Bank of America loan was paid on September 30, 2021 with proceeds from a new term loan from UMB (formerly Citywide Banks), also secured
by a first-priority mortgage on the property, in the principal amount of $1,350,000. The new loan is payable in monthly installments of
$7,453, with interest at 2.95% and a maturity date of September 30, 2031.
On December 31, 2024 we issued an unsecured $750,000
subordinated debenture bearing interest at 8.25%, including 62,500 warrants exercisable on or before December 31, 2030 into 62,500 shares
of our common stock at a price of $4.50 per share. On March 1, 2025 we issued an unsecured $75,000 subordinated debenture bearing interest
at 8.25%, including 6,250 warrants exercisable on or before December 31, 2030 into 6,250 shares of our common stock at a price of $4.50
per share. Using the Black Scholes model, the fair market value of these warrants resulted in deferred financing cost of $132,000, which
is included in our balance sheet at June 30, 2026 at $99,257 after amortization in the six months ending June 30, 2026 of $10,514 ,
and which resulted in an increase to capital of $120,000 on December 31, 2024 and $12,000 on March 1, 2025. The interest of 8.25% was
paid in quarterly increments in 2025, and will be included in monthly payments of $10,119 including principal in 2026.
On May 1, 2026 the Company entered into a loan
agreement for $500,000 with its CFO and Board Chairman. The loan bears interest at 10.5% per annum, with interest only payments of $4,375
due monthly from May 31, 2026 through December 31, 2026. Beginning January 31, 2027, the loan will be paid over five years with equal
monthly payments of principal and interest of $10,747, at which time the note will be paid in full. The interest rate is subject to adjustment
based on changes in the prime rate. If the prime rate, as published in the Eastern edition of The Wall Street Journal on the last
business day of any calendar quarter beginning June 30, 2026 (the “Published Rate”), exceeds 6.75%, the interest rate on the
note will increase for the remaining term by the amount of such excess. Any subsequent increases in the Published Rate will result in
corresponding increases in the interest rate. The loan is secured by substantially all assets of the Company, including its building,
and is subordinate to the prior perfected security interest held by UMB (formerly Citywide Banks).
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 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.
Except for normal operating contractual commitments
and purchase orders, we do not have any material contractual commitments requiring settlement in the future.
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 July, 2024 we completed a private
placement of 210,000 shares of our common stock at $3.80 per share for a total raise of $798,000 with a related party. On December 31,
2024, we completed the issuance of a six year subordinated debenture for $750,000 with a third party. On March 1, 2025, we completed the
issuance of a 70-month subordinated debenture for $75,000 with a third party. 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. Between 2002
and 2020, we were consistently profitable, due to stabilization and then growth in our core breathalyzer products. Our recent net losses
in 2024 and 2025 reflect a deliberate investment in the development of our SpinDetect™ platform rather than a deterioration of our
core breathalyzer business, which has remained stable. We believe our core product and services business, at current revenue levels, is
capable of supporting ongoing operations on a cost-reduced basis. We intend to continue managing costs carefully while advancing SpinDetect™
toward its anticipated commercial launch later in 2026. If the development or market acceptance of SpinDetect™ takes longer than
expected, or if we require additional capital to support commercialization, we may seek additional financing through equity or debt offerings.
During the six months ended June 30, 2026, net
cash used in operating activities was $262,577, reflecting the net loss partially offset by non-cash charges and working capital changes.
Net cash used in investing activities was $19,781, primarily for equipment purchases. Net cash provided from financing activities was
$444,565, consisting primarily of $500,000 in proceeds from a new related-party term loan, partially offset by scheduled principal payments
on our term loan and subordinated debentures.
As of June 30, 2026, cash and cash equivalents
were $908,208, trade accounts receivable were $826,715 and current liabilities were $1,099,030 resulting in net liquid assets of $635,893.
We believe our core breathalyzer business has remained fundamentally sound and, together with the anticipated commercialization of SpinDetect™,
provides a reasonable basis for a return to profitability. However, if revenues from our core business do not grow as expected, if the
commercialization of SpinDetect™ is delayed or requires more capital than anticipated, or if general economic conditions deteriorate,
we may be required to seek additional sources of capital and/or to implement further cost reduction measures, as necessary.
Equipment expenditures during the six months ended
June 30, 2026 consisted of SpinDetect™ related equipment of $14,411 compared to $236,789 in the first six months of 2025, and $5,370
in sales and marketing equipment versus $5,462 in 2025. No patent application costs were incurred during either period. As development
of SpinDetect™ progresses, and as normal wear and tear of equipment occurs, we expect to incur outlays for equipment and patent
filings in 2026 and beyond.
We generally provide a standard one-year limited 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 operations. For the six months ended June 30, 2026
and 2025, warranty costs were not deemed significant.
Critical Accounting Policies and Estimates
There have been no material changes to the Company’s
critical accounting policies and estimates from those disclosed in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” included in the Company’s Annual Report on Form 10-K for the year ended December 31,
2025.
ITEM 3 – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 – CONTROLS AND PROCEDURES
(a) Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly
Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required
to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of June 30, 2026.
(b) Changes
in Internal Control over Financial Reporting
There were no changes in our internal controls
over financial reporting during the period ended June 30, 2026 that have materially affected, or that are reasonably likely to materially
affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our
management, including our Chief Executive Officer and our Chief Financial Officer, do not expect that the Company’s disclosure controls
will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. These inherent limitations include the realities that judgments in decision making can
be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system
of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because
of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
We may be involved from time to time in litigation,
negotiation and settlement matters that may have a material effect on our operations or finances. We are not aware of any pending
or threatened litigation against us or our officers or directors in their capacity as such that could have a material impact on our operations
or finances.
ITEM 1A – RISK FACTORS
In addition to the other information set forth
in this report, you should carefully consider the factors discussed in ‘‘Risk Factors’’ in our Annual Report on
Form 10-K for the year ended December 31, 2025, which could materially affect our business, financial condition and/or future results.
The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition
and/or operating results.
We have increased our reliance on related-party
financing, which may present conflicts of interest and limit our financial flexibility.
On May 1, 2026, we entered into a loan agreement
with our CFO and Board Chairman. The loan is secured by substantially all assets of the Company, including a second mortgage on our building
and is subordinate to the prior perfected security interest held by UMB (formerly Citywide Banks). As a result, substantially all of our
assets are now pledged as collateral to multiple lenders, which may limit our ability to obtain additional financing or to dispose of
assets without lender consent. The interest rate on the loan is subject to upward adjustment based on changes in the prime rate, which
could increase our debt service costs in a rising rate environment. In addition, because the lender is also our CFO and Board Chairman,
the terms of the loan were not negotiated on an arm’s-length basis with an unrelated third party, and the lender’s dual role
could present conflicts of interest in connection with future decisions regarding the loan, including any amendments, extensions, or enforcement
actions.
ITEM 2 – UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2026, we did
not sell any unregistered equity securities, and neither the Company nor any affiliated purchaser purchased any of our equity securities.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 – OTHER INFORMATION
During the quarter ended June 30, 2026, no director
or officer of the Company adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of the Company’s
securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading
arrangement” as defined in Item 408(a) of Regulation S-K.
ITEM 6 – EXHIBITS
The following exhibits are filed with this report
on Form 10-Q or are incorporated by reference:
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Incorporated by Reference |
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| Exhibit No. |
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Description of Exhibit |
Form |
Date Filed |
Number |
Herewith |
| 31.1 |
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Certification of Principal Executive Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002 |
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X |
| 31.2 |
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Certification of Principal Financial Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002 |
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| 32.1 |
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
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|
X |
| 32.2 |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| 101.INS |
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| 101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
|
LIFELOC TECHNOLOGIES, INC. |
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| |
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|
|
| August 13, 2026 |
By: |
/s/ Wayne R. Willkomm |
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| Date |
|
Wayne R. Willkomm, Ph.D. |
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| |
|
President and Chief Executive Officer
(Principal Executive Officer) |
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| |
|
|
|
| August 13, 2026 |
By: |
/s/ Michelle Heim |
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| Date |
|
Michelle Heim
Controller
(Principal Accounting Officer) |
|
Exhibit Index
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|
|
Incorporated by Reference |
|
| Exhibit No. |
|
Description of Exhibit |
Form |
Date Filed |
Number |
Herewith |
| 31.1 |
|
Certification of Principal Executive Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002 |
|
|
|
X |
| 31.2 |
|
Certification of Principal Financial Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002 |
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|
X |
| 32.1 |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
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|
X |
| 32.2 |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| 101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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