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EX-10.1 - EXHIBIT 10.1 - Lifeloc Technologies, Incex10x1.htm
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EX-3.10 - EXHIBIT 3.10 - Lifeloc Technologies, Incex3x10.htm


As filed with the Securities and Exchange Commission on June 21, 2010
Registration Statement No.
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM S-1
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
LIFELOC TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Colorado
3826
84-1053680
(State or other jurisdiction of incorporation
or organization)
(Primary Standard Industrial Classification
Code Number)
(I.R.S. Employer Identification Number)
 
   
Vern D. Kornelsen
Lifeloc Technologies, Inc.
 
Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4
 
12441 West 49th Ave., Unit 4
Wheat Ridge, Colorado 80033
 
Wheat Ridge, Colorado 80033
(303) 431-9500
 
(303) 431-9500
(Address, including zip code, and telephone number,
 
(Name, address, including zip code, and telephone number,
including area code, of registrant’s principal executive
 
including area code, of agent for service)
offices)
   
 
Copies of communications to:
 
 Les Woodward
Davis Graham & Stubbs LLP
1550 17th Street, Suite 500
Denver, Colorado 80202
Telephone: (303) 892-9400
 

 
Approximate date of distribution to the shareholders: Within 30 days after this registration statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x
 

 


If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company x
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of
Securities to be
Registered
 
Amount to be
Registered (1)
   
Proposed Maximum
Offering Price
Per Unit (2)
   
Amount of
Registration
Fee
 
Warrants to purchase Common Stock
    2,422,416     $ — (2)     $ —(2)  
Common Stock, no par value, issuable upon exercise of the Warrants
    2,422,416     $ 1.00 (3)     $ $172.72  
 
(1)           Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the “Securities Act”), this registration statement shall be deemed to cover additional securities that may be offered or issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.
 
(2)           One warrant for each share of common stock will be issued to current shareholders. The warrants will be issued without consideration. Pursuant to Rule 457(g), no separate registration fee is payable with respect to the warrants being offered hereby, since the warrants are being offered in the same registration statement as the securities to be offered pursuant thereto.
 
(3)           The price of $1.00 per share, which is the price at which the warrants may be exercised, is set forth solely for purposes of calculating the registration fee pursuant to Rule 457(g) of the Securities Act.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 
 

 

 
Subject to Completion, dated _____, 2010
 
The information in this prospectus is not complete and may be changed. We may not distribute these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS

 
LIFELOC TECHNOLOGIES, INC.
WARRANTS TO PURCHASE UP TO 2,422,416 SHARES OF COMMON STOCK
TOGETHER WITH THE SHARES ISSUABLE UPON EXERCISE THEREOF
 
This prospectus relates to the distribution, at no charge, to holders of our common stock of warrants to purchase up to 2,422,416 shares of our common stock. Each warrant will be exercisable at an exercise price of $1.00. This prospecuts also relates to the common stock issuable upon exercise of the warrants. All costs associated with this registration will be borne by us.
 
Upon effectiveness of the registration statement of which this prospectus is a part, we will attempt to cause our common stock and warrants to be traded on the OTC Bulletin Board (“OTCBB”). Our securities have not been traded previously.
 
This is not an underwritten offering. The warrants will be distributed for no consideration to existing shareholders, and must be exercised through a registered broker-dealer of the warrant holder’s choice. Each such broker-dealer will be paid a commission of six percent (6%), to be borne by the Company. While such broker-dealer may be deemed a statutory underwriter pursuant to Section 2(11) of the Securities Act, the broker-dealer is not underwriting the offering and has no obligation to purchase or procure purchases of the common stock or warrants offered by this prospectus.
 
 

 
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE LOSS.
 
SEE “RISK FACTORS” BEGINNING ON PAGE 4
 
 

 
You should rely only on the information provided in this prospectus or any supplement to this prospectus. We have not authorized anyone else to provide you with different information. Neither the delivery of this prospectus nor any distribution of the shares of common stock pursuant to this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this prospectus is          , 2010.

 

 
TABLE OF CONTENTS
 

 
ABOUT THIS PROSPECTUS   2
SUMMARY   2
RISK FACTORS
   4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS    8
USE OF PROCEEDS    8
DETERMINATION OF EXERCISE PRICE    8
PLAN OF DISTRIBUTION    8
DESCRIPTION OF WARRANTS    9
DESCRIPTION OF COMMON STOCK    10
INFORMATION ABOUT THE COMPANY   16
DESCRIPTION OF PROPERTY   19
LEGAL PROCEEDINGS    19
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS    19
FINANCIAL STATEMENTS    21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    22
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE    25
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS    26
BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS    26
EXECUTIVE COMPENSATION    27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT    31
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS    32
DIRECTOR INDEPENDENCE    32
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES    32
CONSOLIDATED FINANCIAL STATEMENTS OF LIFELOC TECHNOLOGIES, INC.    F-1
PART II — INFORMATION NOT REQUIRED IN PROSPECTUS    II-1
    OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION    II-1
    INDEMNIFICATION OF DIRECTORS AND OFFICERS    II-1
    RECENT SALES OF UNREGISTERED SECURITIES    II-2
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES    II-2
    UNDERTAKINGS    II-2
    SIGNATURES    II-5
 
 
 
 
 
1
 

 
ABOUT THIS PROSPECTUS

You should rely only on the information contained in this prospectus, including any information incorporated herein by reference. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should not assume that the information in this prospectus or any document incorporated by reference is accurate as of any date other than the date on its front cover. Our business, financial condition, results of operations and prospects may have changed since the date indicated on the front cover of such documents. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the registered securities to which they relate, nor does this prospectus constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

Except as otherwise indicated or where the context otherwise requires, the terms "Lifeloc," "we," "our," "ours," "us," and the “Company” as used in this prospectus refer to Lifeloc Technologies, Inc.
 
SUMMARY
 
The following information is a summary of the prospectus and it does not contain all of the information you should consider before making an investment decision. You should read the entire prospectus carefully, including the financial statements and the notes relating to the financial statements.
 
About Us
 
Lifeloc is a Wheat Ridge, Colorado–based  developer, manufacturer and marketer of portable hand-held breathalyzers and related supplies and education.  We design, produce and sell high-quality, fuel-cell based breath alcohol testing equipment.  We compete in all major parts of the portable breath alcohol testing instrument market, including law enforcement, workplace, corrections, original equipment manfuacturing (“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 and sales agents, as well as directly to users.
 
Designed for the law enforcement market, our Phoenix Classic is a microprocessor controlled portable breath alcohol instrument capable of accurately measuring the breath alcohol level of a subject and recording the test data.  The Phoenix Classic was completed and released for sale in 1998, superseding the original model PBA3000.  The Phoenix Classic is approved by the U.S. Department of Transportation (“DOT”) as an evidential roadside breath tester, which means that results of a breath test done with the Phoenix Classic during a traffic stop can be admitted as evidence in federal court and in the courts of states where such roadside test results can be admitted as evidence (as opposed to being admitted only to show probable cause).
 
In 2001, we completed and released for sale the FC Series, designed for the law enforcement and corrections markets.  The FC Series, also DOT approved, features multi-language capabilities and software that is adaptable to the specific requirements and regulations of domestic and international markets. The FC Series is currently sold worldwide.
 
In 2005 and 2006, we introduced two new models for the workplace market: the EV30 and Phoenix 6.0. Like their predecessor, the Phoenix Classic, these instruments are DOT approved.
 
In 2006, we also commenced the selective marketing of our proprietary designs and patented algorithms on an OEM basis.
 
In late 2009, Lifeloc released the LifeGuard Personal Breathalyzer,  a personal alcohol breath tester that incorporates the same fuel-cell technology used in our professional devices. LifeGuard is one of the first highly accurate personal breathalyzers available. Intended for the growing global consumer breathalyzer market, LifeGuard is FDA cleared and sold direct to consumers in the U.S. and marketed through distributors worldwide.
 

2

Lifeloc incorporated in Colorado in December 1983 and has been privately owned since that time.  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.lifeguardbreathtester.com. Information contained on our websites does not constitute part of this prospectus.
 
The Offering
 
On May 3, 2010, our shareholders voted to approve a 1 for 2 reverse split of our common stock.  At that time, our shareholders also approved the distribution of one warrant for each share of common stock outstanding after the split.  The warrants will be distributed within 30 days after the registration statement of which this prospectus is a part has been declared effective by the Securities and Exchange Commission to all shareholders of record as of the date of declaration of such distribution.
 
Securities Offered:
Warrants to purchase up to 2,422,416 shares of our common stock, to be distributed solely to existing shareholders as of the date of declaration of such distribution, together with the shares of common stock issuable upon exercise of the warrants.
   
Offering Price:
The warrants will be issued as a non-cash distribution, for no cash consideration. The exercise price for the warrants will be $1.00.
   
Plan of Distribution:
Within 30 days after the effective date of the registration statement of which this prospectus is a part, we will declare a distribution and issue the warrants and copies of this prospectus to all holders of our common stock who were holders as of the date of declaration of such distribution, for no cash consideration. The warrants may be exercised only through registered or licensed brokers or dealers. The Company will bear all fees and expenses relating to the offering, including a six percent (6%) commission to be paid to broker-dealers in connection with exercise of the warrants.
   
Description of Warrants:
The warrants will be exercisable, subject to certain exceptions as described in this prospectus, upon the date of distribution until their expiration on May 3, 2020, at an exercise price of $1.00 per share.
   
Use of Proceeds:
The Company will receive no proceeds from the issuance of the warrants. The proceeds received by the Company upon exercise of the warrants, net of fees and expenses incurred by us in connection with the offering, will be used for general corporate purposes.
   
Transferability of Warrants:
The warrants will be transferable following their issuance and through their expiration, subject to compliance with applicable law. Upon effectiveness of the registration statement of which this prospectus is a part, we will attempt to cause the warrants to be quoted on the OTCBB.
   
Risk Factors:
Investing in our common stock involves a high degree of risk. All investors should carefully read the “Risk Factors” and all other information included in this prospectus and in the documents incorporated herein by reference in its entirety.
   
Fees and Expenses:
We will bear the fees and expenses relating to the offering, including the six percent (6%) fee associated with exercise of the warrants.
   
Common stock outstanding as of June 15, 2010:
2,422,416 shares
   
Common stock outstanding after the offering:
4,844,832 shares, assuming the exercise of all warrants registered herein.
   
Market for the Securities:
Upon effectiveness of the registration statement of which this prospectus is a part, we will attempt to cause our common stock and warrants to be traded on the OTCBB. There is currently no market for our securities.
 
 
3
 

RISK FACTORS
 
Risks Related to Our Business
 
An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and other information included in this prospectus. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected and you may lose some or all of your investment.
 
The current worldwide economic downturn could have a negative impact on our business, operating results and financial condition.
 
If the economic downturn continues, our customers may delay, reduce or cancel their purchases of our products, particularly if they or their customers have reduced capital budgets or have difficulty obtaining credit, and this would reduce our revenues.  The economic downturn could also increase competition, which could have the effect of forcing us to reduce our prices.  We could incur losses if a customer’s business fails and is unable to pay us, or pay us on a timely basis. Likewise, if our suppliers have difficulty in obtaining credit or in operating their businesses, they may not be able to provide us with the materials we use to manufacture our products.  These actions could result in reduced revenues and higher operating costs, and have an adverse effect on our results of operations and financial condition.
 
We rely on customers who may not consistently purchase our products in the future and if we lose any one of these customers, our revenues may decline.
 
In the fiscal year ended December 31, 2009, we generated sales from over 2,500 customers, and while no customer contributed more than 10.4% to our total sales in either 2009 or 2008, we are dependent on our customer base for repeat sales.  At December 31, 2009, our accounts receivable balance included approximately 15% from one customer.
 
In the future, a small number of customers may continue to represent a significant portion of our total revenues in any given period. These customers may not consistently purchase our products at a particular rate over any subsequent period.  A loss of any of these customers could adversely affect our revenues.
 
We rely heavily upon the talents of our Chief Executive Officer, the loss of whom could severely damage our business.
 
Our performance depends to a large extent on a small number of key managerial personnel. In particular, we believe our success is highly dependent upon the services and reputation of our Chief Executive Officer, Mr. Barry R. Knott.  Loss of Mr. Knott’s services could severely damage our business. 
 
We must continue to be able to attract employees with the scientific and technical skills that our business requires, and if we are unable to attract and retain such individuals, our business could be severely damaged.
 
Our ability to attract employees with a high degree of scientific and technical talent is crucial to the success of our business. There is intense competition for the services of such persons, and we cannot guarantee that we will continue to be able to attract and retain individuals possessing the necessary qualifications.  If we cannot attract such individuals, we may not be able to keep our products current, bring new innovation to market or produce our products. As a result, our business could be damaged.
 

4

We are subject to a high degree of regulatory oversight and, if we do not continue to receive the necessary regulatory approvals, our revenues may decline.
 
The FDA and the Department of Transportation have cleared us to market the alcohol monitoring products we currently sell in the United States.  However, further FDA or DOT approval will be required before we can domestically market additional alcohol monitoring products that we may develop in the future.  We may also seek to sell current or future medical or drug-related products that require us to obtain FDA or DOT clearance to market such products.  We may also be required to obtain regulatory approvals or licenses from other federal, state or local agencies or comparable agencies in other countries.
 
We may not continue to receive FDA or DOT clearance to market our current products or we may not obtain the necessary regulatory clearance, approvals or licenses for the marketing of any of our future products.  Also, we cannot predict the impact on our business of FDA or DOT regulations or determinations arising from future legislation or administrative action.  If we lose FDA or DOT permission to market our current products or we do not obtain regulatory permission to market our future products, our revenues may decline and our business may be harmed.
 
Our business in the domestic law enforcement area is susceptible to changes in state policies and DUI laws.
 
Portable breath testers (“PBTs”) are not used to the same degree in each state. Usage is determined by a complex combination of individual state DUI laws, historical practice, and individual state directions for alcohol testing. In some states, like Texas, despite large populations and high drink/drive incidents, there is low PBT usage.  Other states, like New Hampshire, do not accept breath alcohol testing as evidence. Still other states may prefer different breath alcohol testing technology, such as infrared. Lifeloc cannot control the direction or timing of changes to individual state DUI laws, public and political sentiment toward the use of PBTs, or individual state preferences for a specific breath alcohol testing technology. These factors may threaten current state contracts and future state contracts and our revenues may decline, harming our business.
 
Our business relies on state contracts, governed by state contracting polices that are beyond our control.
 
Many state purchases of PBTs are governed by state contracts with competitive price bids, multiple year terms and without guarantees of purchases. Other states prefer to share PBT usage across several vendors, also without guarantees of volume. These state practices limit Lifeloc’s ability to retain current business, forecast volumes and win new business. Furthermore, a significant amount of our law enforcement business is concentrated in five states. Loss of this business, delays or cancellations in purchasing by these states could seriously impact our law enforcement business.
 
We are reliant on our sales representative group for access to the channels of distribution.
 
Lifeloc uses sales representatives to market and sell to the law enforcement markets in an 11-state region. Our sales representatives also represent other companies'  law enforcement products. The cancellation of the agreement with our sales representative group, or shift in its focus to products made by companies other than Lifeloc, could negatively impact our current and future sales in these states. Currently Lifeloc is not well known or well represented in other states outside of those in which we currently have state contracts or are represented by sales representatives. New business development in states where we have no significant installed base, sales representation or current business is uncertain.
 
Third parties may infringe on our patents, and as a result, we could incur significant expense in protecting our patents or not have sufficient resources to protect them.
 
We hold several patents that are important to our business. Although we are not currently aware of any past or present infringements of our patents, we plan to protect these patents from infringement and obtain additional patents whenever feasible. To this end, we have obtained confidentiality agreements from our employees and consultants and others who have access to the design of our products and other proprietary information.  Protecting and obtaining patents, however, is both time consuming and expensive. We therefore may not have the resources necessary to assert all potential patent infringement claims or pursue all patents that might be available to us.  If our competitors or other third parties infringe on our patents, our business may be harmed.
 
 
5

 
Third parties may claim that we have infringed on their patents and as a result, we could be prohibited from using all or part of any technology used in our products.
 
Should third parties claim a proprietary right to all or part of any technology that we use in our products, such a claim, regardless of its merit, could involve us in costly litigation.  If successful, such a claim could also result in us being unable to freely use the technology that was the subject of the claim, or sell products embodying such technology.  If we engage in litigation, our expenses may increase and our business may be harmed.  If we are prohibited from using a particular technology in our products, our revenues may decline and our business may be harmed.
 
We depend on the availability of certain key supplies and services that are available from only a few sources, and if we experience difficulty with a supplier, we may have difficulty finding alternative sources of supply.
 
We require certain key supplies for our products, particularly fuel cells, that are available from only a few sources.  Based upon our ordering experience to date, we believe the materials and services required for the production of our products are currently available in sufficient quantities. However, this does not mean that we will continue to have timely access to adequate supplies of essential materials and services in the future or that supplies of these materials and services will be available on satisfactory terms when the need arises. Our business could be severely damaged if we become unable to procure essential materials and services in adequate quantities and at acceptable prices.
 
From time to time, subcontractors may produce certain of our products for us, and our business is subject to the risk that these subcontractors fail to make timely delivery.  Our products and services are also from time to time used as components of the products and services of other manufacturers. We are therefore subject to the risk that manufacturers that integrate our products or services into their own products or services are unable to acquire essential supplies and services from third parties in a timely fashion.  If this occurs, we may not be able to deliver our products on a timely basis and our revenues may decline.
 
Our customers may claim that the products we sold them were defective, and if our insurance is not sufficient to cover a claim, we would be liable for the excess.
 
Like any manufacturer, we are and always have been exposed to liability claims resulting from the use of our products.  We maintain product liability insurance to cover us in the event of liability claims, and as of March 31, 2010, no such claims have been asserted or threatened against us.  However, our insurance may not be sufficient to cover all possible future product liabilities.
 
We could be liable if our business operations harmed the environment, and a failure to maintain compliance with environmental laws could severely damage our business.
 
Our operations are subject to a variety of federal, state and local laws and regulations relating to the protection of the environment.  From time to time, we use hazardous materials in our operations.  Although we believe that we are in material compliance with all applicable environmental laws and regulations, our business could be severely damaged by any failure to maintain such compliance.
 
Our quarterly financial results vary quarter to quarter, which may adversely affect our stock price. We cannot predict with any certainty our operating results in any particular fiscal quarter.
 
Our quarterly operating results may vary significantly depending upon factors such as:
 
·
the timing of completion of significant orders;
·
the timing and amount of our research and development expenditures;
·
the costs of initial production in connection with new products;
·
the availability, quality and cost of key components that go into the assembly of our products;
·
the timing of new product introductions — both by us and by our competitors;
 
 
6
 

 
·
changes in the regulatory environment and regulations under which we operate;
·
the loss of a major customer;
·
the timing and level of market acceptance of new products or enhanced versions of our existing products;
·
our ability to retain existing employees, customers and our customers’ continued demand for our products and services;
·
our customers’ inventory levels, and levels of demand for our customers’ products and services; and
·
competitive pricing pressures.
 
We may not be able to grow or sustain revenues or achieve or maintain profitability on a quarterly or annual basis, and levels of revenue and/or profitability may vary from one such period to another.
 
We have a number of large, well-financed competitors who have research and marketing capabilities that are superior to ours.
 
The industry in which we compete is highly competitive. Many of our existing and potential competitors have greater financial resources and manufacturing capabilities, more established and larger marketing and sales organizations and larger technical staffs than we have.  Other companies, some with greater experience in the alcohol monitoring industry, produce products and services that compete with our products and services. If any of our competitors are successful in developing products that are superior to our products, or competing products that sell for lower prices, this may cause a reduction in the demand for our products and a reduction in our revenue and our profits.
 
Our products rely on technology that may become outdated or out of favor.
 
All of Lifeloc’s products use fuel cell technology for the measurement of breath alcohol results. This technology has been developed and refined over many years by Lifeloc and our major competitors. While we expect it to remain as the dominant technology in breath testing devices, other technologies for the measurement of breath alcohol exist and are employed in other market and application segments where the technology is more suitable or developed to the specific requirements. These other technologies include infrared, semi-conductor, and chemical tests. Nanotechnology is also being investigated for use in breath alcohol testing. It is possible that future development of these technologies could pose a risk to Lifeloc’s business.
 
Risks Related to Our Stock
 
Trading in our common stock and warrants will be limited, and the prices of our common stock and warrants may be subject to substantial volatility.
 
After the effective date of the registration statement of which this prospectus is a part, we will attempt to cause our warrants and common stock to be traded on the OTCBB. However, in order to be traded on the OTCBB, at least one broker-dealer must be willing to act as a “market-maker,” and this may not occur immediately or at all. In addition, broker-dealers often decline to trade in OTCBB stocks as the market for such securities is often limited, the stocks are more volatile and the risk to investors is greater. These factors may reduce the potential market for our warrants or common stock by reducing the number of potential investors. This may make it more difficult for investors in our warrants or common stock to sell warrants or shares to third parties or to otherwise dispose of their warrants or shares.  This could cause the price of our securities to decline or not trade at all.
 
Additionally, the price of our securities may be volatile as a result of a number of factors, including, but not limited to, the following:
 
·
our ability to successfully conceive and to develop new products and services to enhance the performance characteristics and methods of manufacture of existing products;
·
our ability to retain existing customers and customers’ continued demand for our products and services;
·
the timing of our research and development expenditures and of new product introductions;
·
the timing and level of acceptance of new products or enhanced versions of our existing products; and
·
price and volume fluctuations in the stock market at large which do not relate to our operating performance.
 
 
7

“Penny stock” rules may make buying or selling our securities difficult, which may make our stock and warrants less liquid and make it harder for investors to buy and sell our securities.
 
Trading in our securities is subject to the SEC’s “penny stock” rules and it is anticipated that trading in our securities will continue to be subject to the penny stock rules for the foreseeable future.  The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions.  These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction.  Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market.  In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer.  The additional burdens imposed upon broker-dealers by these requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.
 
We are contractually obligated to issue shares in the future, diluting your interest in us.
 
An additional 44,000 shares of our common stock are reserved for issuance under our 2002 Stock Option Plan as of June 15, 2010.  Moreover, we expect to issue additional shares and options to purchase shares of our common stock to compensate employees, consultants and directors, and we may issue additional shares to raise capital.  Any such issuances will have the effect of further diluting the interest of the holders of our securities.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements that involve risks and uncertainties.  You should not place undue reliance on these forward-looking statements.  Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in the “Risk Factors.” Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.
 
USE OF PROCEEDS
 
We cannot predict when or if the warrants registered by the registration statement of which this prospectus is a part will be exercised.  It is possible that the warrants may expire and may never be exercised.  If we receive proceeds from the exercise of the warrants, we intend to use the proceeds for general corporate purposes. Net of the six percent (6%) broker-dealer fee, proceeds to us will be $0.94 per share. We will not receive proceeds from the issuance of the warrants.

DETERMINATION OF EXERCISE PRICE
 
Since our common stock is not listed or quoted on any exchange or quotation system, the  exercise price for the  warrants was arbitrarily determined and does not necessarily bear any relationship to our book value, assets, operating results, financial condition or any other established criteria of value.

PLAN OF DISTRIBUTION
 
Within 30 days after the effective date of the registration statement of which this prospectus is a part, we will distribute the warrants and copies of this prospectus to the holders of our common stock. The distribution of warrants was approved by the shareholders on May 3, 2010, and will be made share for share to all shareholders of record as of the date of declaration of such distribution, for no cash consideration.
 
 
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The warrants will be issued as a non-cash distribution to existing shareholders, and must be exercised through a registered broker-dealer of the warrant holder’s choice. Such broker-dealers are not underwriting or placing any of the warrants or the shares of our common stock issued in this offering and do not make any recommendation with respect to such warrants (including with respect to the exercise or expiration of such warrants) or shares, but may be deemed statutory underwriters for purposes of Section 4(1) of the Securities Act. We will pay each such broker-dealer a commission of six percent (6%) on each warrant for which that broker-dealer facilitates the exercise pursuant to a selling agent agreement attached as an exhibit to the registration statement of which this prospectus is a part. The broker-dealers’ participation in this offering will be subject to customary conditions contained in such selling agent agreement. Pursuant to such agreement, we will indemnify the selling agents and their respective affiliates against certain liabilities arising under the Securities Act of 1933. The Company will bear all fees and expenses relating to the offering, including the six-percent (6%) commission.
 
Other than as described in this prospectus, we do not know of any existing agreements between any shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the warrants or underlying common stock.
 
Upon effectiveness of the registration statement of which this prospectus is a part, we will attempt to cause our common stock and warrants to be traded on the OTCBB. Our securities have not previously been publicly traded.
 
DESCRIPTION OF WARRANTS
 
Within 30 days after this filing has been declared effective by the Securities and Exchange Commission, we will distribute, at no charge, to holders of our common stock, warrants to purchase up to 2,422,416 shares of our common stock on a one warrant per share basis. There are no warrants presently outstanding.
 
The warrants will be separately transferable following their issuance and through May 3, 2020, and will expire thereafter. Each warrant will entitle the holder to purchase one share of Lifeloc common stock at a price of $1.00 per share, subject to adjustment as discussed below, commencing upon issuance and at any time through May 3, 2020. Upon effectiveness of the registration statement of which this prospectus is a part, we will attempt to cause the warrants to be listed on the OTC Bulletin Board.
 
Certificates for all warrants acquired will be mailed as soon as practicable after the effective date of the registration statement of which this prospectus is a part.
 
The exercise price of the warrants and the number of shares of common stock issuable upon exercise of the warrants are subject to adjustment in certain circumstances, including a stock split of, stock dividend on, or a subdivision, combination or recapitalization of the common stock. However, the exercise price and number of shares of Company common stock issuable upon exercise of the warrants will not be adjusted for issuances of Company common stock at a price below the warrant exercise price. Upon a merger, consolidation, sale of substantially all of our assets, or other similar transaction, the warrants will automatically expire unless exercised prior to the closing of the transaction. Upon such exercise, the holders of the common stock issued upon exercise of the warrants will participate on the same basis as the other holders of common stock in connection with the transaction.
 
The warrants will be issued in registered form under a warrant agreement between _____, as warrant agent, and the Company, substantially in the form attached as an exhibit to the registration statement of which this prospectus is a part. You should review a copy of the warrant agreement for a complete description of the terms and conditions applicable to the warrants.
 
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to the Company, for the number of warrants being exercised. The warrantholders do not have any rights or privileges as holders of Company common stock or any voting rights until they exercise their warrants and receive shares of Company common stock. After the issuance of shares of Company common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
 

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No warrants will be exercisable unless at the time of exercise a prospectus relating to the issuance of Company common stock upon exercise of the warrants is current and the issuance has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. The terms of the warrant agreement require the Company to use its commercially reasonable efforts to effectuate and maintain the effectiveness of a registration statement covering such shares and maintain a current prospectus relating to common stock issuable upon exercise of the warrants until the expiration of the warrants. However, no assurances can be provided that the Company will be able to do so, and if the condition is not met, holders will be unable to exercise their warrants and the Company will not be required to settle any such warrant exercise during the period in which there is no registration statement effective. If the prospectus relating to the Company common stock issuable upon the exercise of the warrants is not current or if the Company common stock is not registered, qualified or exempt from registration or qualification in the jurisdictions in which the holders of the warrants reside, the Company would not be required to net cash settle or cash settle the warrant exercise until a current prospectus becomes effective, the warrants may have no value and the market for the warrants may be limited during the interim period, and the warrants may expire worthless.
 
If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share, the Company may, but shall not be required to, issue fractions of a share.  If the Company does not issue fractions of a share, it shall (1) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (2) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) or bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share.

DESCRIPTION OF COMMON STOCK
 
The following description of our capital stock and provisions of our Articles of Incorporation and By-laws, each as amended, is only a summary. You should also refer to our Articles of Incorporation and our By-laws, copies of which are included as exhibits to the registration statement of which this prospectus is a part and are hereby incorporated by reference.  Our authorized capital stock consists of 50,000,000 shares of common stock, no par value per share.
 
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of our stockholders.  Holders of our common stock have no rights under our Articles of Incorporation or our By-laws regarding dividends unless and until dividends are declared by the board of directors, nor do they have any rights under our Articles of Incorporation or our By-laws regarding preemptive rights.  The outstanding shares of common stock are fully paid and non-assessable.
 
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
 
The following is a summary of the material U.S. federal income tax consequences of the issuance and ownership to U.S. holders and non-U.S. holders (each defined below) of warrants to purchase Company common stock .
 
For purposes of this discussion, a U.S. holder is a beneficial owner of Company common stock or warrants to purchase Company common stock that is:
 
•  
an individual who is a citizen or resident of the United States;
 
•  
a Corporation (or other entity taxed as a Corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
 
•  
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
 
 
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•  
a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) it has in effect a valid election to be treated as a U.S. person.
 
For purposes of this discussion, a non-U.S. holder is a beneficial owner of Company common stock or warrants to purchase Company common stock that is not a U.S. holder.
 
This section is based on current provisions of the Internal Revenue Code of 1986, as amended, the Code, current and proposed Treasury regulations promulgated thereunder, and administrative and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis.
 
Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. No ruling has been sought from the U.S. Internal Revenue Service (the “IRS”) as to the federal income tax consequences of the transactions described herein. Furthermore, this summary is not binding on the IRS, and the IRS is not precluded from adopting a contrary position.
 
This section does not purport to be a comprehensive description of all of the tax considerations that may be relevant to each holder of Company common stock or warrants to purchase Company common stock. This section does not address all aspects of U.S. federal income taxation that may be relevant to any particular investor based on such investor’s individual circumstances. In particular, this section considers only U.S. holders and non-U.S. holders that hold Company common stock or warrants to purchase Company common stock as capital assets (and will hold any Company common stock or warrants to purchase Company common stock as capital assets) and does not address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to investors that are subject to special treatment, including:
 
•  
broker-dealers;
•  
insurance companies;
•  
taxpayers who have elected mark-to-market accounting;
•  
tax-exempt organizations;
•  
regulated investment companies;
•  
real estate investment trusts;
•  
financial institutions or “financial services entities;”
•  
taxpayers who hold Company common stock or warrants to acquire Company common stock as part of a straddle, hedge, conversion transaction or other integrated transaction;
•  
holders that acquired their Company common stock or warrants to acquire Company common stock through the exercise of employee stock options or other compensation arrangements;
•  
controlled foreign Corporations;
•  
passive foreign investment companies;
•  
certain expatriates or former long-term residents of the United States; and
•  
U.S. holders whose functional currency is not the U.S. dollar.
 
The following does not address any aspect of U.S. federal gift or estate tax laws, or state, local or non-U.S. tax laws. In addition, the section does not consider the tax treatment of entities taxable as partnerships for U.S. federal income tax purposes or other pass-through entities or persons who hold Company common stock or warrants to acquire Company common stock (or will hold Company common stock or warrants exercisable for Company common stock) through such entities. Prospective investors are urged to consult their tax advisors regarding the specific tax consequences to them of the transactions and the ownership or disposition of shares of Company common stock or warrants to acquire Company common stock in light of their particular circumstances.
 
 
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Tax Consequences of the Issuance of Warrants Exercisable for Company Common Stock
 
U.S. Holders
 
The distribution of the warrants exercisable for Company common stock should be a non-taxable distribution to U.S. Holders under Section 305(a) of the Code.  This position is not binding on the IRS, or the courts, however.  If this position is finally determined by the IRS or a court to be incorrect, the fair market value of the subscription rights would be taxable to holders of our common stock as a dividend to the extent of the holder’s pro rata share of our current and accumulated earnings and profits, if any, with any excess being treated as a return of capital to the extent thereof and then as capital gain.
 
The distribution of the warrants exercisable for Company common stock would be taxable under Section 305(b) of the Code if it were a distribution or part of a series of distributions, including deemed distributions, that have the effect of the receipt of cash or other property by some of our shareholders and an increase in the proportionate interest of other shareholders in our assets or earnings and profits, if any.  Distributions having this effect are referred to as “disproportionate distributions.”
 
The remaining description assumes that U.S. Holders who receive the warrants exercisable for Company common stock on account of their common stock will not be subject to U.S. federal income tax on such receipt.
 
Tax Basis and Holding Period of the Warrants Exercisable for Company Common Stock
 
A U.S. Holder's tax basis in the warrants exercisable for Company common stock will depend on the fair market value of the warrants exercisable for Company common stock and the fair market value of our common stock at the time of the distribution.
 
•  
If the total fair market value of the warrants exercisable for Company common stock being distributed in this offering to holders of our common stock represents 15 percent or more of the total fair market value of our common stock at the time of the distribution, a holder must allocate the basis of the holder's shares of common stock (with respect to which the warrants exercisable for Company common stock were distributed) between such stock and the warrants exercisable for Company common stock received by such holder. This allocation is made in proportion to the fair market value of the common stock and the fair market value of the warrants exercisable for Company common stock at the date of distribution.
 
 
•  
If the total fair market value of the warrants exercisable for Company common stock being distributed in this offering to holders of our common stock is less than 15 percent of the total fair market value of our common stock at the time of the distribution, the basis of such warrants exercisable for Company common stock will be zero unless the holder elects to allocate part of the basis of the holder's shares of common stock (with respect to which the warrants exercisable for Company common stock were distributed) to the warrants exercisable for Company common stock. A holder makes such an election by attaching a statement to the holder's tax return for the year in which the warrants exercisable for Company common stock are received. This election, once made, will be irrevocable with respect to those rights. Any holder that makes such election should retain a copy of the election and of the tax return with which it was filed in order to substantiate the use of an allocated basis upon a subsequent disposition of the stock acquired by exercise. If the basis of a holder's warrants exercisable for Company common stock is deemed to be zero because the fair market value of the warrants exercisable for Company common stock at the time of distribution is less than 15 percent of the fair market value of our common stock and because the holder does not make the election described above, the holder's basis of the shares of common stock with respect to which such rights are received will not change.  If an allocation of basis is made between the warrants exercisable for Company common stock and common stock, and the warrants exercisable for Company common stock are later exercised, the tax basis in the common stock originally owned by the holder will be reduced by an amount equal to the tax basis allocated to the warrants exercisable for Company common stock. In addition, any tax basis allocated to the warrants exercisable for Company common stock must be apportioned between the right to acquire common stock and the right to receive a warrant exercisable for Company common stock in proportion to their values on the date of distribution. For these purposes, the value of the right to acquire common stock will be that amount which bears the same ratio to the value of a warrant exercisable for Company common stock as the value of one share of common stock bears to the value of one package, consisting of one share of common stock and one warrant. The value of the right to receive a warrant will be the difference between the value of the warrant exercisable for Company common stock t and the right to acquire common stock as determined above.
 
 
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The holding period for the warrants exercisable for Company common stock received by a U.S. Holder on account of common stock in the rights offering will include the holder's holding period for the common stock with respect to which the warrants exercisable for Company common stock were received.
 
Non-U.S. Holders
 
Exercise or Lapse of a Warrant
 
The U.S. federal income tax treatment of a non-U.S. holder’s exercise or lapse of a warrant exercisable for Company common stock generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant by a U.S. holder, as described under “U.S. Holders — Exercise or Lapse of a Warrant Exercisable for Company Common Stock” above. However, capital loss recognized by a non-U.S. Holder on lapse of a warrant exercisable for Company Common Stock will generally be taken into account for U.S. income tax purposes only in the circumstances described under “— Gain on Disposition of Common Stock or Warrants Exercisable for Company Common Stock.
 
Tax Basis and Holding Period of the Warrants Exercisable for Company Common Stock
 
The U.S. federal income tax determination of a non-U.S. holder’s tax basis and holding period of warrants exercisable for Company common stock generally will correspond to the U.S. federal income tax determination of tax basis and holding period for a U.S. holder, as described under “U.S. Holders — Tax Basis and Holding Period of the Warrants Exercisable for Company Common Stock” above.
 
Tax Consequences of Owning Company Common Stock and Warrants Exercisable for Company Common Stock
 
U.S. Holders
 
Exercise or Lapse of a Warrant Exercisable for Company Common Stock
 
A U.S. holder generally will not recognize gain or loss upon the exercise of a warrant exercisable for shares of Company common stock. Company common stock acquired pursuant to the exercise of such a warrant will have a tax basis equal to the U.S. holder’s tax basis in the warrant increased by the exercise price paid to exercise the warrant. The holding period of such Company common stock will begin on the date of exercise of the warrant (or possibly the date following the date of exercise).
 
If a warrant is allowed to lapse unexercised, a U.S. holder may have a capital loss equal to such holder’s tax basis in the warrant, although authority exists for the proposition that such tax basis should be transferred back to the Company common stock with respect to which the warrant was received. Any such loss will be long term if the warrant has been held for more than one year.
 
Adjustment to Exercise Price
 
Under Section 305 of the Code, if certain adjustments are made (or not made) a U.S. holder may be deemed to have received a constructive distribution to the number of shares to be issued upon the exercise of a warrant or to the warrant’s exercise price. A U.S. holder may also be deemed to have received a constructive distribution, which could result in the inclusion of dividend income.
 
Dividends and Other Distributions on the Company Common Stock
 
Distributions on the Company common stock will constitute dividends for U.S. federal income tax purposes to the extent paid from the Company’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds the Company’s current or accumulated earnings and profits, the excess will be treated first as a tax-free return of capital and will reduce (but not below zero) the U.S. holder’s adjusted tax basis in the Company common stock, and any remaining excess will be treated as capital gain from a sale or exchange of the Company common stock, subject to the tax treatment described below in “Gain on Disposition of Common Stock.”
 

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Dividends received by a Corporate U.S. holder generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions, and provided certain holding period requirements are met, dividends received by a non-Corporate U.S. holder generally will constitute “qualified dividends” that will be subject to tax at the maximum tax rate accorded to capital gains for tax years beginning on or before December 31, 2010, after which the rate applicable to dividends is currently scheduled to return to the tax rate generally applicable to ordinary income.
 
Gain on Disposition of Common Stock
 
Upon the sale, exchange or other disposition of Company common stock, a U.S. holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale, exchange or other disposition of Company common stock and the U.S. holder’s adjusted basis in such stock. Generally, such gain or loss will be capital gain or loss and will be long term capital gain or loss if the U.S. holder’s holding period for the shares exceeds one year. Long term capital gains of non-Corporate U.S. holders are currently subject to a reduced maximum tax rate of 15% for tax years beginning on or before December 31, 2010. After December 31, 2010, the maximum capital gains rate is scheduled to increase to 20%. The deductibility of capital losses is subject to limitations.
 
Surtax on Unearned Income.
 
For tax years beginning after Dec. 31, 2012, a 3.8% surtax called the Unearned Income Medicare Contribution, would be placed on net investment income of a taxpayer earning over $200,000 ($250,000 for a joint return). Net investment income would be interest, dividends, royalties, rents, gross income from a trade or business involving passive activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income would be reduced by properly allocable deductions to such income.
 
Non-U.S. Holders
 
Dividends and Other Distributions on the Company Common Stock
 
In general, any distributions made to a non-U.S. holder of shares of Company common stock (and any constructive distributions a non-U.S. holder may be deemed to receive, see “U.S. Holders — Adjustment to Exercise Price”), to the extent paid out of current or accumulated earnings and profits of the Company (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes. Provided such dividends are not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States, such dividends generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
 
Any distribution not constituting a dividend will be treated first as a tax-free return of capital and will reduce (but not below zero) the non-U.S. holder’s adjusted tax basis in its shares of Company common stock and any remaining excess will be treated as gain realized from the sale or other disposition of the common stock, as described under “— Gain on Disposition of Common Stock or Warrants” below.
 
Dividends paid to a non-U.S. holder that are effectively connected with such non-U.S. holder’s conduct of a trade or business within the United States generally will not be subject to U.S. withholding tax, provided such non-U.S. holder complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S. federal income tax at the same graduated individual or corporate rates applicable to U.S. holders. If the non-U.S. holder is a Corporation, dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.
 

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A non-U.S. holder who wishes to claim the benefit of an applicable treaty rate for dividends will be required (a) to complete IRS Form W-8BEN (or other applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if the Company Common Stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable U.S. Treasury regulations.
 
A non-U.S. holder eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.
 
Gain on Disposition of Common Stock or Warrants Exercisable for Company Common Stock
 
A non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of gain recognized on a sale, exchange or other disposition of Company common stock or warrants exercisable for Company common stock (including redemption of such warrants) unless:
 
• the gain is effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States;
 
• the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or
 
• the Company is or has been a “United States real property holding Corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held Company Common Stock or warrants exercisable for shares of Company Common Stock.
 
Unless an applicable treaty provides otherwise, gain described in the first bullet point above will be subject to tax at generally applicable U.S. federal income tax rates. Any gain described in the first bullet point above of a non-U.S. holder that is a foreign corporation may also be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. Gain described in the second bullet point above (which may be offset by U.S. source capital losses) will be subject to a flat 30% U.S. federal income tax.
 
With respect to the third bullet point above, the Company believes that it will not be a “United States real property holding corporation” for U.S. federal income tax purposes.
 
Information Reporting and Back-up Withholding
 
A U.S. holder may be subject to information reporting requirements with respect to dividends paid on Company common stock, and on the proceeds from the sale, exchange or disposition of Company common stock or warrants exercisable for Company common stock. In addition, a U.S. holder may be subject to back-up withholding (currently at 28%) on dividends paid on Company common stock, and on the proceeds from the sale, exchange or other disposition of Company common stock or warrants exercisable for Company common stock, unless the U.S. holder provides certain identifying information, such as a duly executed IRS Form W-9 or appropriate W-8, or otherwise establishes an exemption. Back-up withholding is not an additional tax and the amount of any back-up withholding will be allowable as a credit against a U.S. holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. In general, a non-U.S. holder will not be subject to information reporting and backup withholding. However, a non-U.S. holder may be required to establish an exemption from information reporting and backup withholding by certifying the non-U.S. holder’s non-U.S. status on Form W-8BEN. Holders are urged to consult their own tax advisors regarding the application of the information reporting and back-up withholding rules to them.
 
INTERESTS OF NAMED EXPERTS AND COUNSEL
 
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed for such purpose on a contingency basis, or had, or is to receive, in connection with this offering, a substantial interest, direct or indirect, in us or any of our subsidiaries, nor was any such person connected with us as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
 
 
 
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INFORMATION ABOUT THE COMPANY
 
Alcohol abuse exacts a large human and economic toll on societies around the world.  Our products are utilized where alcohol use or abuse must be detected, measured and deterred: in law enforcement, the workplace, clinics and hospitals, schools, and throughout the criminal justice corrections and rehabilitation infrastructure.  We sell our products domestically and internationally, both directly to consumers and through distributors and sales agents.
 
History
 
We incorporated in Colorado in December 1983 and have been privately-owned since that time.  Since 1986, we have developed, manufactured and sold proprietary, fuel-cell based, breath alcohol testing equipment.  Lifeloc competes in the market for alcohol testing equipment and supplies. We sell professional breath alcohol testing instruments, supplies and components into the law enforcement, corrections, workplace, consumer, and OEM markets.
 
Principal Products and Services and Methods of Distribution

In the Fall of 1995, Lifeloc introduced its first model, the PBA3000, developed in conjunction with a state forensic laboratory, for conducting evidential roadside testing for DUI enforcement. Our Phoenix Classic was completed and released for sale in 1998, superseding the PBA3000.  It is a microprocessor-controlled portable breath alcohol instrument which is capable of accurately detecting the blood alcohol level of a subject and recording the test data without peripheral equipment.  The Phoenix product line is approved by the DOT as an evidential breath tester for use in regulated transportation industries.  We sell this product through distributors in the U.S. and worldwide.

In 2001, the Company completed and released for sale an additional product line, its new FC Series, designed specifically for the law enforcement and corrections markets. FC Series of portable breath alcohol testers are currently being sold worldwide, having contributed to Lifeloc’s 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 post-arrest parolee testing.

In 2005 and 2006, the Company introduced two new models, the EV30 and Phoenix 6.0, forming a family of state-of-the-art evidential workplace devices.  In addition, we offer a comprehensive line of supplies, accessories, services, and training to support customers' alcohol testing programs.  In 2006, Lifeloc also commenced the selective marketing of its proprietary designs and componentry on an OEM basis.  In 2009, we released for sale LifeGuard, a personal breath tester that incorporates the fuel-cell based technology employed in the FC series.  At this time, we sell this product via the internet (www.lifeloc.com).  Lifeloc constantly enhances and upgrades its products in order to maintain a competitive advantage in its marketplace.
 
Competition and Markets
 
We sell our products in a highly competitive market and we compete for business with both foreign and domestic manufacturers.  Most of our current competitors are larger and have substantially greater resources than we do.  In addition, there is an ongoing risk that other domestic or foreign companies who do not currently service or manufacture products for our target markets may seek to produce products or services that compete directly with ours.
 
We believe that competition for sales of our alcohol monitoring products and services is based on product performance, product delivery, quality, service, training, price, device reliability, ease of use and speed.  We sell certain of our components to customers for incorporation into their own product lines and for resale under their own name.  We believe that, while our resources are more limited than those of our competitors, we will continue to compete successfully on the basis of product innovation, quality, reputation and continued customer service excellence.
 
One leading competitor is Intoximeters, Inc. of St. Louis, Missouri, a long-established company with strong name recognition in the field of alcohol monitoring.  It has well established sales channels, a large customer base, and a broad product line.  CMI of Owensboro, Kentucky, another major competitor, also has a well established name, strong position in stationary units used in police work, and international market coverage.  Draeger Corporation, based in Germany, manufactures safety and gas testing equipment.  Its breathalyzer division produces breath alcohol testers that are respected for their quality and performance.  Each of the above companies manufactures its own fuel cells, a key component in the manufacture and success of portable breath-alcohol testers.

 
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Marketing
 
Marketing activities associated with our business include the communication of our value proposition through direct mail, direct and indirect sales channels, trade shows and an information-rich online presence.  We sell our products to the workplace and law enforcement markets primarily through distributors, while we sell our corrections, consumer and OEM products directly to the end user. Thus, leveraging our installed base is important, as is maintaining a well trained distributor network.  In 2009, we revised our workplace distributor program to place additional emphasis on joint demand generation programs and additional volume incentives for growth.
 
International Business

Alcohol enforcement has long been a major concern, primarily in North America and northern Europe.  Reflecting a strong recent trend, however, countries around the world are instituting tougher alcohol abuse prevention laws, strengthening the enforcement of current laws, or both.  These laws set limits on the amount of alcohol an individual may have in the blood at specific times (e.g., while driving or during safety-sensitive work activities), or at any time for parolees and probationers.  Lifeloc has sold instruments via distributors to thousands of customers in 39 countries on six continents worldwide.
 
Research and Development
 
We believe that our future success depends to a large degree on our ability to conceive and develop new alcohol detection and measurement products and related services that (1) open new markets to Lifeloc, (2) enhance the performance of our current  products and (3) lower our costs or otherwise improve our methods of manufacture. Accordingly, we expect to continue to invest in research and development. We spent $256,361 and $398,916 during fiscal years 2009 and 2008, respectively, on research and development. The amount spent in 2009 was lower than the amount spent in 2008 because more of the cost to develop LifeGuard was incurred in 2008 than in 2009.
 
Raw Materials and Principal Suppliers
 
The basic component of our instrument product line is the fuel cell, which we obtain from a few suppliers.  We believe that our demand for this component is small relative to the total supply, and that the materials and services required for the production of our products are currently available in sufficient production quantities and will be available for the foreseeable future.  However, there are relatively few suppliers of the high-quality fuel cell which our breathalyzers require.  Any sudden disruption to the supply of our fuel cells would pose a significant risk to our business. New sources of fuel cells are uncertain at this time and changes to our fuel cells would require approval by the DOT, which could have a material effect on our revenues in the law enforcement and workplace areas.
 
To address this concern, we are in the process of negotiating a technology transfer agreement with an unrelated third-party manufacturer with an established reputation for manufacturing fuel cells.  We have tested their fuel cells in our LifeGuard consumer product, and pursuant to the technology transfer agreement, we expect to be able to manufacture our own fuel cells commencing later in 2010.
 
Patents and Trademarks
 
We rely, in part, upon patents, trade secrets and proprietary knowledge as well as personnel policies and employee confidentiality agreements concerning inventions and other creative efforts to develop and to maintain our competitive position. We do not believe that our business is dependent upon any patent, patent pending or license, although we believe that trade secrets and confidential know-how may be important to our commercial success.
 

17

We plan to file for patents, copyrights and trademarks in the United States to protect our intellectual property rights to the extent practicable.  We hold the rights to several United States patents and have one patent application pending.  These patents have expiration dates ranging from June 2020 to March 2029.  We are not aware of any infringements of our patents.  We plan to protect our patents from infringement in each instance where we determine that doing so would be economical in light of the expense involved and the level and availability of our financial resources.  We may not be able to successfully defend these patents or effectively limit the development of competitive products and services. We have one pending application for a patent. While we believe that the application relates to a patentable device or concept, the patent may not be issued.
 
Employees
 
As of June 15, 2010, we had 21 full-time employees and two part-time employees.  There were nine employees in manufacturing, two in engineering/research and development, eight in sales and marketing and four in finance and administration.  We are not a party to any collective bargaining agreements.  We believe our relations with our employees are good.
 
Customers
 
Revenues from our largest customers, as a percentage of total revenues, for fiscal years 2009 and 2008 were as follows:

   
2009
 
2008
 
Customer A
    10 %       10 %  
Customer B
    8         7    
Customer C
    4         4    
All Others
    78         79    
      100 %       100  
 
No other customer accounted for more than 10% of our revenues in fiscal years 2009 and 2008.  At December 31, 2009, receivables from our three largest customers were 27% of the total accounts receivable.
 
Environmental Matters
 
Our operations are subject to a variety of federal, state and local laws and regulations relating to the discharge of materials into the environment or otherwise relative to the protection of the environment.  From time to time, we use a small amount of hazardous materials in our operations. We believe that we comply with all applicable environmental laws and regulations.
 
Government Regulations on the Business
 
We are subject to regulation by the United States Food and Drug Administration (“FDA”) so far as our LifeGuard is concerned.  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.  As of December 31, 2009, we had not been inspected by the FDA; however, we believe we were in substantial compliance with all known regulations.
 
We are also subject to regulation by the United States Department of Transportation and by various state departments of transportation so far as our other products are concerned.  We believe that we were in substantial compliance with all known regulations as of December 31, 2009 for our products sold into these markets and states.
 

18

 
Reports to Security Holders
 
Upon effectiveness of the registration statement of which this prospectus is a part, we will be required to comply with the reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to Section 15(d) of the Exchange Act.  We will be required to file annual, quarterly and other reports with the SEC and, accordingly, will furnish an annual report with audited financial statements to our stockholders.  Copies of this registration statement and all subsequent filings we make with the SEC may be inspected, without charge, at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549, on official business days during the hours of 10 a.m. and 3 p.m.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  Copies of this material also should be available through the Internet by using the SEC’s EDGAR Archive, which is located at http://www.sec.gov.  We will also make such material available on our own website, which is located at http://www.lifeloc.com.
 
DESCRIPTION OF PROPERTY
 
We conduct all of our operations at a leased facility at 12441 West 49th Avenue, Unit 4, Wheat Ridge, Colorado under lease agreements that run through April 30, 2015.   Rent expense for our facility for the fiscal years ended December 31, 2009 and 2008 was $92,343 and $96,039, respectively.  On May 1, 2010, we amended and extended our lease, which, when added to our existing space, provides us with 11,655 square feet of office and manufacturing/warehouse space at an average monthly cost of $8,866 over the life of the lease.  We believe this facility is adequate for our current operations and adequately covered by insurance.  Significant increases in production or the addition of significant equipment additions or manufacturing capabilities in connection with the production of our line of breathalyzers and other products may, however, require the acquisition or lease of additional facilities.  We may establish production facilities domestically or overseas to produce key assemblies or components for our products.  Overseas facilities, if established, may subject us to the political and economic risks associated with overseas operations.  The loss of or inability to establish or maintain such additional domestic or overseas facilities, if acquired, could materially adversely affect our competitive position and profitability.
 
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.
 
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Shares Eligible for Future Sale

Upon effectiveness of the registration statement of which this prospectus is a part, we will attempt to cause our common stock and warrants to be traded on the OTCBB.

Prior to this offering, there has not been a public market for our securities, and we cannot predict what effect, if any, market sales of shares of our securities or the availability of our securities for sale will have on the market price of our securities prevailing from time to time. Nevertheless, sales of substantial amounts of our securities, including the warrants and/or shares issued upon the exercise of the warrants, in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our securities and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.

Warrants to purchase an aggregate of up to 2,422,416 shares of our common stock will be outstanding as of the closing of this offering. If all the warrants are exercised, we will have 4,844,832 shares of common stock issued and outstanding. Of the outstanding shares, the shares issued upon exercise of the warrants will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the limitations described below. The remaining outstanding shares of common stock will be deemed restricted securities, as defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under the Securities Act.
 
 
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The restricted shares and the shares held by our affiliates will be available for sale in the public market at various times after the date of this prospectus pursuant to Rule 144. In general, under Rule 144 as in effect on the date of this prospectus, a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock for at least six months, would be entitled to sell an unlimited number of shares of our common stock provided current public information about us is available and, after owning such shares for at least one year, would be entitled to sell an unlimited number of shares of our common stock without restriction. Our affiliates who have beneficially owned shares of our common stock for at least six months are entitled to sell within any three-month period a number of shares that does not exceed the greater of:

·
1% of the number of shares of our common stock then outstanding; or

·
the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
 
Holders
 
As of June 15, 2010, we had approximately 85 holders of record of our common stock. Holders of record include nominees who may hold shares on behalf of multiple owners.
 
Dividends
 
We have not declared any dividends since our inception in 1983, and at present have no plans to do so.  We intend to retain our earnings, if any, to finance research and development and working capital for expansion of our business.
 
Equity Compensation Plan Information
 
We adopted our 2002 Stock Option Plan (the “Plan”) to promote our and our stockholders’ interests by helping us to attract, retain and motivate our key employees and associates. Under the terms of the Plan, the Board of Directors may grant either “nonqualified” or “incentive” stock options, as defined by the Internal Revenue Code and related regulations. The purchase price of the shares subject to a stock option will be the fair market value of our common stock on the date the stock option is granted.  Generally, vesting of stock options occurs immediately at the time of the grant of such option and all stock options must be exercised within five years from the date granted. All outstanding key employee stock options were exercised or had lapsed as of May 5, 2010, and none are outstanding as of June 15, 2010.  The number of common shares reserved for issuance under the Plan as of June 15, 2010 is 44,000, subject to adjustment for dividends, stock splits or other relevant changes in our capitalization. Information set forth herein gives effect to a 1 for 2 reverse stock split on May 3, 2010.
 
Plan Category
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
 
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)
Equity compensation plans approved by security holders
 
 
$
 
44,000
Equity compensation plans not approved by security holders
 
 
 
Total
 
 
$
 
44,000

 
 
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FINANCIAL STATEMENTS
 
See our financial statements beginning on page F-1 of this prospectus.
 
 
 
 
 
 
21

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 prospectus.  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 and 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 prospectus are strongly encouraged to review the section titled “Risk Factors.”
 
Overview
 
We have been a developer and manufacturer of advanced alcohol monitoring instruments since 1986.  We design and produce high-quality, high precision measurement, fast recovery alcohol monitoring instruments for use in the workplace, clinics, schools, law enforcement, corrections, and other applications where the presence of alcohol cannot be tolerated, and we offer accessories, support, training and supplies.   Our internet website is www.lifeloc.com.  Information contained on our website does not constitute part of this prospectus.
 
The areas in which we do business are highly competitive and include both foreign and domestic competitors. Most of our competitors are larger and have substantially greater resources than we do. Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce products or services that compete with ours. We routinely outsource specialized production efforts as required, both domestic and offshore, to obtain the most cost effective production.
 
We believe that competition for sales of our alcohol monitoring products and services, which have been principally sold to distributors and direct to users, is based on performance and other technical features, as well as other factors, such as service, scheduling and reliability, in addition to competitive price.
 
We believe that our future success depends to a large degree on our ability to continue to conceive and to develop new alcohol monitoring products and services to enhance the performance characteristics and methods of manufacture of existing products. Accordingly, we expect to continue to seek to invest resources in research and development, to the extent funds are available.
 
Outlook
 
Installed Base of Breathalyzers.  We believe that sales of the installed base of our breathalyzers will increase as the inherent risks associated with drinking while driving, and while working in sensitive jobs, become more widely acknowledged and as our network of direct and independent sales representatives grows.  We expect that the replacement sales of our instruments and accessories will also increase as additional workplace environments, law enforcement agencies, schools, clinics, and other venues are converted to fuel cell technology.  We believe that increased marketing efforts, the introduction of new products and the expansion of our network of sales representatives, may provide the basis for increased sales and continuing profitable operations.  However, these measures, or any others that we may adopt, may not result in either increased sales or continuing profitable operations.
 
Possibility of Operating Losses.  We achieved profitable operations in 2003, and have operated profitably each year since then.  Previously, we incurred losses since our inception and at December 31, 2009 have an accumulated deficit of $2,228,540.  There is no assurance that we will not incur operating losses in any given quarter or year in the future.
 
 
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Sales Growth.  We expect to generate increased sales in the U.S. and worldwide from sales to new breathalyzer customers as our network of direct and independent sales representatives becomes more proficient and expands the number of new accounts.  We believe that the visibility and credibility of our technology will contribute to new accounts and increased sales in fiscal year 2010.  We have recently begun using our technology to manufacture ignition interlock components for sale on an OEM basis, and expect that acting as a supplier of OEM components will lead to increased participation in our OEM business. The consumer market for individual use of fuel cell based breathalyzers is expected to grow, and we believe our Lifeguard unit will enable us to participate in what we perceive to be a rapidly growing opportunity.
 
Sales and Marketing Expenses.  We continue our efforts to expand 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 expand our market visibility and optimize the field sales capability of converting new customers to fuel cell technology.  Sales and marketing expenses are expected to increase as we increase our direct sales representatives and market penetration.  In fiscal year 2010, we expect to have approximately 80 active distributors and two internal business development managers.
 
Research and Development Expenses.  Research and development expenses are expected to increase to support development of refinements to our breathalyzer product line, as well as to support development of additional products.
 
Results of Operations
 
Net sales. Our sales for the year ended December 31, 2009 (“FY 09”) were $4,287,597, a decrease of 4% from $4,464,742 in the fiscal year ended December 31, 2008 (“FY 08”).  This decrease is due to the economic environment, as most of our customers across all market areas were faced with constrained budgets.  We benefited from a high customer retention rate and a recurring sales stream from the purchases of replacement instruments in existing accounts.
 
Our sales for the quarter ended March 31, 2010 (“Q1 10”) were $1,315,730, an increase of 21.9% from $1,079,673 in the quarter ended March 31, 2009 (“Q1 09”).  This increase was due to a high customer retention rate and a recurring sales stream from the purchases of replacement instruments in existing accounts, partially offset by the residual effects of the general economic environment.
 
Gross profit.   Gross profit in FY 09 improved from 46.5% in FY 08 to 48.3% in FY 09, and in Q1 10 from 47.3% in Q1 09 to 50.5% in Q1 10. This improvement in both periods was primarily the result of a sales mix that favored slightly higher margins, as well as aggressive cost reduction efforts.
 
Research and development expenses.   Research and development expenses were $256,361 in FY 09, a decrease of $142,555, or 35.7%, from $398,916 in FY 08.  In Q1 $59,392, research and development expenses decreased $11,887, or 16.7%, from $71,279 in Q1 09 to $59,392 in Q1 10. The decrease in both periods was primarily a result of a decrease in outside services related to new product development, and greater utilization of internal staff.
 
Sales and marketing expenses.   Sales and marketing expenses were $785,026 in FY 09, an increase of $121,675, or 18%, from $663,351 in FY 08.  The increase resulted from additions to our direct sales and marketing staff, and increased spending on such items as advertising, internet site development, and public relations.
 
Sales and marketing expenses were $194,172 in Q1 10, a decrease of $7,389, or 4%, from $201,561 in Q1 09.  The decrease resulted from a decrease in our direct sales and marketing staff, and increased spending on such items as advertising and public relations.
 
General and administrative expenses.   General and administrative expenses were $700,100 in FY 09, an increase of $44,018, or 6.7%, from $656,082 in FY 08.  The increase was primarily the result of compensation increases and increased regulatory compliance expense.
 
General and administrative expenses were $191,933 in Q1 10, an increase of $10,930, or 6%, from $181,003 in Q1 09.  The increase was primarily the result of compensation increases and increased professional fees as a result of registering our warrant distribution with the SEC, as well as increased regulatory compliance fees incurred in connection with registering the LifeGuard with the FDA, partially offset by lower internet expense.
 

23
 

Net income.   Net income in FY 09 of $177,621 represented a net income increase of $9,400 compared to FY 08 net income of $168,221.  The increase is a result of a decrease in sales, offset in part by a decrease in the loss on currency exchange and by a lower provision for federal and state income taxes.
 
Net income in Q1 of $130,245 represented a net income increase of $90,351 compared to Q1 09 net income of $39,894.  The increase is a result of an increase in sales, offset in part by an increase in the loss on currency exchange of $14,138 and by a higher provision for federal and state income taxes.  The loss on currency exchange in Q1 10  of $14,138 resulted from the purchase of components from a European vendor, whereas none were purchased in Q1 09.
 
Trends and Uncertainties That May Affect Future Results
 
Although revenues in 2009 were down approximately 4% from revenues in 2008, our fiscal year 2009 revenues were the second highest in seven years.  Revenues in Q1 10 were up approximately 21.9% from revenues in Q1 09.  This was due in large part to shipments of the FC product series targeting the law enforcement sector, as well as continued steady growth in the workplace and corrections markets.  We expect our quarter-to-quarter revenue fluctuations to continue, due to the introductory stage of our LifeGuard product and the unpredictable timing of 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 property and equipment expenditures, and patents, during the years ended December 31, 2009 were $36,600 compared to $127,473 for 2008, and were $8,995 in Q1 10 compared to $1,134 in Q1 09.  Future capital equipment expenditures will depend on future sales and success of on-going research and development efforts.
 
We believe that the unique performance of our fuel cell based breathalyzer technology provides an opportunity for continued market share growth.  We believe that the market awareness of fuel cell technology is improving and that this will benefit sales efforts in FY 10 and beyond.  We believe that we enter FY 10 having achieved improvements in the credibility of our technology.  Our FY 10 operating plan is focused on growing sales, increasing gross profits, increasing research and development costs as appropriate while increasing profits and positive cash flows.  We cannot predict with certainty the expected sales, gross profit, net income or loss and usage of cash and cash equivalents for FY 10.  However, we believe that cash resources and borrowing capacity will be sufficient to fund our operations for at least 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.
 
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.
 
See Note 2 of our financial statements for our years ended December 31, 2009 and 2008 for a summary of significant accounting policies.
 

24

 
Liquidity and Capital Resources
 
We compete in a highly technical, very competitive and, in most cases, price driven segment of the alcohol monitoring marketplace, where products can take years to develop and introduce to distributors and end users.  Furthermore, research and development, manufacturing, marketing and distribution activities are strictly 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 significant cost and time needed to maintain existing products and develop and introduce product enhancements and new product innovations.
 
We have traditionally funded working capital needs through product sales, management of working capital components of our business, and by cash received 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 have been profitable during the last several years, we expect that operating losses could well occur in the future.  Should that situation arise, we may not be able to obtain working capital funds necessary in the time frame needed and at satisfactory terms or at all.
 
On May 11, 2004, we entered into a credit facility agreement with Citywide Bank, which was renewed for one year on May 11, 2010.  The terms of the credit facility include a line of credit for $150,000 for one year at an interest rate calculated at prime rate plus 1%.  Our borrowing under the credit facility is limited by our eligible receivables and inventory at the time of borrowing.  At December 31, 2009 and 2008, we had not borrowed any amounts from the credit facility.  The credit facility requires us to meet certain financial covenants. At December 31, 2009 and at March 31, 2010, we were in compliance with the financial covenants.
 
As of December 31, 2009, cash and cash equivalents were $1,021,135, accounts receivable were $329,701 and current liabilities were $333,316 resulting in a net liquid asset amount of $1,017,520.  As of March 31, 2010, cash was $1,145,391, accounts receivable were $517,850 and current liabilities were $520,948 resulting in a net liquid asset amount of $1,142,293. We believe that the introduction of several new products during the last several fiscal years, along with new and on-going customer relationships, will continue to generate sufficient revenues, which are required in order for us to maintain profitability.  If these revenues are not achieved on a timely basis, we will 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 operations.  For the years ended December 31, 2009 and 2008, and for the quarter ended March 31, 2010, warranty costs were not deemed significant.
 
As of March 31, 2010, we have no material commitments for capital expenditures.
 
Off-Balance Sheet Transactions
 
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
There have been no disagreements with our independent public accountant in regards to accounting and financial disclosure.
 
 
25

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
 
The following table sets forth the name, age, positions, and offices as of June 15, 2010, of our directors and executive officers:

NAME
 
AGE
 
POSITION
Barry R. Knott
 
55
 
President and Chief Executive Officer
Mark A. Lary
 
50
 
Vice President, Operations
Kristie L. LaRose
 
37
 
Vice President, Finance
Vern D. Kornelsen
 
77
 
Director, Chairman, Secretary and Chief Financial Officer
Alan C. Castrodale
 
66
 
Director*
Robert D. Greenlee
 
68
 
Director
Robert H. Summers, PhD
 
86
 
Director
 
* Effective December 31, 2009, Mr. Castrodale resigned as our Chief Executive Officer, but remains as a director.

BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS

Barry R. Knott joined the Company on February 1, 2009 as its Marketing Director, was appointed to the board of directors on June 11, 2009 and became chief operating officer on July 1, 2009.  He became our President on October 1, 2009, and assumed the role of President and Chief Executive Officer on January 1, 2010.  He has extensive experience in general management, and particularly sales and marketing.  Previous experience includes positions as the President and CEO of Cognitive Solutions, Inc.; Vice President of sales and marketing for Wide Format Printing (Nashua Corporation); Vice President and General Manager of Zebra Technologies Corporation; and several other similar positions.  He holds a MBA degree from Queens University, Ontario, Canada, and a BA degree from the University of New Brunswick, New Brunswick, Canada.

Mark A. Lary has been employed by the Company since 1994, was appointed Director of Operations in early 1997, and became a Vice President on November 13, 2006.  Mr. Lary has been instrumental in implementing Lifeloc’s continuous flow of product innovation and improvement.  From 1994 until 1997 he served as Products and Services Manager.  Prior to 1994 Mr. Lary was employed by Siemens Medical Systems as a Senior Electronic Technician and by International Medical Corporation as a Field Technical Representative.

Kristie L. LaRose joined Lifeloc as its accountant and office manager in August, 2004.  Ms. LaRose has extensive experience in accounting and administrative positions with other companies, and holds a BS degree in Business Administration from Worcester State College, and was named as Vice President, Finance on July 1, 2009.  Prior to 2004, Ms. LaRose was employed by University of Advancing Technology as the Senior Accountant and has held various positions in an accounting and administrative function at B. J.’s Wholesale Club’s corporate office.

Vern D. Kornelsen joined the Company as a director in 1991 and served as secretary and treasurer in 1992 and 1993.  He is currently Chairman of the Board of Directors, secretary, Chief Financial Officer, and a director.  Mr. Kornelsen continues with certain of his other business activities to the extent that they do not interfere with his responsibilities as an officer of the Company.  He formerly practiced as a Certified Public Accountant in Denver, CO and is a financial consultant to several early stage companies.  He was a director of Valleylab for 10 years, and led an investor group that provided a portion of its initial funding.  Mr. Kornelsen has been a director and participated in the capitalizing of a number of early stage companies, and is currently a director of one publicly-held company, Encision, Inc. of Boulder, CO.  He received a BS degree in business from the University of Kansas.  In determining Mr. Kornelsen’s qualifications to serve on our board of directors, the board considered, among other things, his experience and expertise in finance, accounting and management.
 
 
26

Alan C. Castrodale joined the Company in October 2000 as its General Manager and served as its President and Chief Executive Officer from January, 2001 until October 1, 2009 when he resigned as President.  On December 31, 2009 Mr. Castrodale resigned as an officer, but remains as a director.  He has extensive experience in general management, marketing and particularly product development, start-ups and turnarounds, and in building sales channels.  Previous experience includes positions as the general manager of the Aftermarket Division of Velvac, Inc., a $39 million manufacturer of vehicle components and accessories; Vice President of sales and marketing at Windsor Industries, Inc., a $55 million manufacturer of high-end commercial floor maintenance machines; and Executive Vice President of marketing and sales for the Mercury Marine division of Brunswick Corp.  He holds a BA degree in Biology from St. Olaf College in Minnesota.  In determining Mr. Castrodale’s qualifications to serve on our board of directors, the board considered, among other things, his extensive management and marketing experience.

Robert D. Greenlee has been a director of the Company since August 1989.  He has more than thirty years of experience in broadcast management and also has extensive marketing and advertising expertise.  Since 1987, Mr. Greenlee has had controlling equity positions in, and serves as a board member and consultant to, radio stations in Omaha, NE and Denver, CO.  He is also President of Centennial Investment & Management Company, a closely held investment organization and is chairman of Black Hawk Gaming, Inc., a public company developing limited stakes gaming in Black Hawk and Central City, CO.  From 1975 through 1987, Mr. Greenlee was President of Centennial Wireless, Inc., licensee of KBCO AM/FM in Boulder, CO.  This successful radio station was sold in January 1988.  Mr. Greenlee has graduate and undergraduate degrees in communications from Iowa State University.  In determining Mr. Greenlee’s qualifications to serve on our board of directors, the board considered, among other things, his marketing and communications experience as well as his management skills.

Robert H. Summers, Ph.D., was elected as a director at the annual meeting of shareholders in August, 2004.  Dr. Summers holds a Bachelor of Education degree from Southeast Missouri State University, a Master in Psychology degree from Vanderbilt University, and a Doctorate in Education and Psychology from the University of Northern Colorado.  He has a broad background in training and management, having worked most recently as a Senior Configuration Management Specialist and Training Specialist at Geodynamics Corporation, Englewood, CO.  He has also published extensively on management and training.  In determining Dr. Summers’s qualifications to serve on our board of directors, the board considered, among other things, his extensive management training and experience.

EXECUTIVE COMPENSATION
 
Summary Compensation
 
The following table sets forth all compensation for the last two completed fiscal years ended December 31, 2009 and 2008 awarded to, earned by, or paid to our Principal Executive Officer(s), Vice Presidents and Chief Financial Officer.  No other executive officer or employee earned over $100,000 in the last completed fiscal year.
 
 
27
 

Summary Compensation Table for the Years Ended December 31, 2009 and 2008

Name and principal
position
(a)
Year
December
 31,
(b)
 
Salary
($)
(c)
   
Bonus
($)
(d)
   
Stock
awards
($)
(e)
   
Option
awards
($)
(f)
   
Non-equity
incentive
plan
compensation
($)
(g)
   
Non-qualified
deferred
compensation
earnings
($)
(h)
   
All other
compensation
($)
(i)
 
Total
($)
(j)
 
                                                   
Alan C. Castrodale
                                                 
President (until 10/1/09),
Chief Executive
2009
  $ 122,575       12,990       0       0       0       0     $ 4,130 (1)(2)   $ 139,695  
Officer (until 12/31/09)
2008
  $ 140,062       21,756       0       0       0       0     $ 4,163 (1)(2)   $  165,981  
                                                                   
Barry R. Knott
                                                                 
CEO 1/1/10, President
2009
  $ 58,212       8,079       0       0       0       0     $ 968 (1)(2)   $  66,291  
10/1/09
2008
  $ 0       0       0       0       0       0     $ 0     $  0  
                                                                   
Mark A. Lary
2009
  $ 99,000       12,865       0       0       0       0     $ 3,439 (1)(2)   $  115,304  
Vice President
2008
  $ 93,154       16,314       0       0       0       0     $ 2,787 (1)(2)   $  112,255  
                                                                   
Kristie L. LaRose
                                                                 
Vice President
2009
  $ 42,711       7,120       0       0       0       0     $ 1,498 (1)(2)   $  51,329  
7/1/09
2008
  $ 0       0       0       0       0       0     $ 0     $  0  
                                                                   
Vern D. Kornelsen
2009
  $ 50,000       0       0       0       0       0     $ 0 (1)(2)   $  50,000  
Chairman, Secretary,
2008
  $ 50,000       0       0       0       0       0     $ 0 (1)(2)   $  50,000  
Chief Financial Officer
                                                                 
 
(1)  We have not paid any automobile allowances, although business mileage, business travel, and other business expenses supported by appropriate receipts have been reimbursed.  All such amounts are minor, and do not include any compensation element.
 
(2)  Represents the Company’s matching contribution to the 401(k) Plan.
 
 
 
28

Narrative to Summary Compensation Table
 
Employment Contracts and Termination of Employment Arrangements
 
We have no employment contracts in place with any Named Executive Officer, nor do we have any equity-incentive plans covering such Named Executive Officers.  We have no compensatory plan or arrangement with respect to any Named Executive Officer where such plan or arrangement will result in payments to such Named Executive Officer upon or following his resignation, or other termination of employment with our Company and its subsidiaries, or as a result of a change in control of our Company or a change in the Named Executive Officers’ responsibilities following a change in control.

Our board of directors has approved the contribution of 15% of pre-bonus, pre-tax profits to a bonus pool, which has been paid out to our executive officers, excluding our Chief Financial Officer, Vern D. Kornelsen.  The allocation of such payments is made at the discretion of the President with approval by the board of directors.  In 2009, we paid a total of $41,054 to our executive officers, including $12,990 to Mr. Castrodale, $8,079 to Mr. Knott, $12,865 to Mr. Lary, and $7,120 to Ms. LaRose. No bonus was paid to Mr. Kornelsen.
 
Outstanding Equity Awards at Fiscal Year-End
 
The following table shows grants of options outstanding on December 31, 2009, the last day of our most recently completed fiscal year, to each of the Named Executive Officers named in the Summary Compensation Table.  Information set forth herein gives effect to a 1 for 2 reverse stock split on May 3, 2010.
 
Outstanding Equity Awards at Fiscal Year-End Table for the Fiscal Year Ended December 31, 2009
 
Option awards(1)
 
Name
(a)
 
Number of
securities underlying
unexercised options
(#)
exercisable
(b)
   
Number of
securities underlying
unexercised options
(#)
unexercisable
(c)
   
Option
exercise
price
($)
(e)
 
Option
expiration
date
(f)
                     
Mark A. Lary
    50,000       0     $ .40    5/5/2010
Kristie L. LaRose
    15,000       0     $ .40    5/5/2010
 

(1) All of the above options were exercised on May 1, 2010.
 
Option Grants in Last Fiscal Year
 
We made no individual grants of stock options to our Named Executive Officers during the years ended December 31, 2009 and 2008.

 
29

Long Term Incentive Plans; Awards in Last Fiscal Year
 
We made no awards under any long-term incentive plan to our Named Executive Officers during the fiscal year ended December 31, 2009.
 
Profit Sharing and 401(k) Plan

We have adopted a 401(k) Defined Contribution Plan which covers all full-time employees who have completed three months of full-time continuous service and are age eighteen or older. Participants may defer up to 100% of their gross pay up to plan limits.  Participants are immediately vested in their contributions.  We may make discretionary contributions based on corporate financial results for the fiscal year, which were 3% of the total payroll of the participating employees in 2009 and 2008.  In 2009 and 2008 we contributed $19,534 and $27,388 respectively.  Vesting in a contribution account (our contribution) is based on years of service, with a participant fully vested after six years of credited service.
 
Director Compensation
 
We did not pay any compensation to our directors during the fiscal years ended December 31, 2009 and 2008.
 
Compensation Committee Interlocks and Insider Participation
 
During the fiscal year ended December 31, 2009, all members of our board of directors served as members of our Compensation Committee. No member of our Compensation Committee at any time during the last fiscal year, or prior to the last fiscal year, was an officer or employee of our Company except Alan C. Castrodale, Barry R. Knott, and Vern D. Kornelsen.  Additionally, no member of our Compensation Committee had any relationship with us that would be required to be disclosed as a related person transaction except as set forth herein.  During the fiscal year ended December 31, 2009, none of our executive officers or employees except Alan C. Castrodale, Barry R. Knott, and Vern D. Kornelsen participated in deliberations of our board of directors concerning executive officer compensation.
 
During the fiscal year ended December 31, 2009, none of our executive officers:
 
 
·
served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the board of directors) of another entity, one of whose executive officers served as a member of our Compensation Committee;
 
 
·
as a director of another entity, one of whose executive officers served as a member of our Compensation Committee; or
 
 
·
as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the board of directors) of another entity, one of whose executive officers served as a member of our board of directors.
 
 
30

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth information regarding our common stock owned as of the close of business on June 15, 2010 by the following persons: (i) each person who is known by us to own beneficially more than 5% of our common stock; (ii) each of our directors who beneficially own our common stock; (iii) each of our Named Executive Officers who beneficially own our common stock; and (iv) all executive officers and directors, as a group, who beneficially own our common stock. The information on beneficial ownership in the table and footnotes thereto is based upon data furnished to us by, or on behalf of, the persons listed in the table.  All shares give effect to the 1:2 reverse stock split on May 3, 2010.
 
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership (1)
Percent of Class (2)
   
 
Vern D. Kornelsen
c/o Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4, Wheat Ridge, CO 80033
1,889,445(3)
78%
 

Directors and Named Executive Officers
 
 
 
 
 
Alan C. Castrodale
c/o Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4, Wheat Ridge, CO 80033
50,000
2.1%
 
 
 
Robert D. Greenlee
c/o Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4, Wheat Ridge, CO 80033
184,979
7.6%
     
Robert H. Summers, PhD
c/o Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4, Wheat Ridge, CO 80033
11,500
.5%
 
   
Barry R. Knott
c/o Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4, Wheat Ridge, CO 80033
64,125
2.6%
     
Mark Lary
c/o Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4, Wheat Ridge, CO 80033
50,000
2.1%
     
Kristie LaRose
c/o Lifeloc Technologies, Inc.
12441 West 49th Ave., Unit 4, Wheat Ridge, CO 80033
7,500
.3%
     
All executive officers and directors as a group, including those
named above (7 persons)
2,257,549
93.2


 
(1)
Represents shares with respect to which each beneficial owner listed has or will have, upon acquisition of such shares pursuant to the exercise or conversion of options, warrants, conversion privileges or other rights exercisable within sixty days, sole voting and investment power. Amounts listed have been adjusted to reflect a 1 for 2 reverse split, effective May 3, 2010.
 
 
31

 
(2)
As of June 15, 2010, we had 2,422,416 shares of our common stock issued and outstanding.  Percentages are calculated on the basis of the amount of issued and outstanding common stock.  No person or group has the right to acquire, within 60 days following the filing of the registration statement of which this prospectus is a part, any shares pursuant to options, warrants, conversion privileges or other rights.
 
(3)
Holdings as of June 15, 2010.  Includes 1,855,319 shares owned by EDCO Partners LLLP, of which Mr. Kornelsen is the General Partner.  Excludes 3,000 shares owned by M. Elaine Kornelsen, as to which Vern D. Kornelsen disclaims any beneficial ownership.
 

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
 
We have not participated in any transactions since the beginning of our last two fiscal years in which a person deemed to be a related person pursuant to Item 404 of SEC Regulation S-K had or will have a direct or indirect material interest. Lifeloc is not a subsidiary of any parent company.
 
DIRECTOR INDEPENDENCE
 
As of June 15, 2010, Alan C. Castrodale, Robert D. Greenlee, Barry R. Knott, Vern D. Kornelsen, and Dr. Robert H. Summers serve as our directors.  Currently, Mr. Castrodale, Mr. Greenlee and Dr. Summers are independent directors, as defined under the standards of independence set forth in the NASDAQ Marketplace Rules.  Upon effectiveness of the registration statement of which this prospectus is a part, we will attempt to cause our common stock and warrants to be traded on the OTCBB. Our securities have not been traded previously. The OTCBB does not require that a majority of our board of directors be independent.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
 
Our directors and officers are indemnified as provided by the Colorado General Laws, our By-laws, and our Articles of Organization, as amended.  We have been advised that, in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court’s decision.
 

 
 
 
32
 

CONSOLIDATED FINANCIAL STATEMENTS OF
LIFELOC TECHNOLOGIES, INC.
 
INDEX
 
 
Report of Independent Registered Public Accounting Firm
 
Balance Sheets as of December 31, 2009
 
Statements of Income for the years ended  December 31, 2009 and 2008
 
Statement of Stockholders’ Equity as of December 31, 2009 and 2008
 
Statements of Cash Flows for the years ended  December 31, 2009
 
Notes to Financial Statements as of December 31, 2009 and 2008
 
Condensed Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009
 
Condensed Statements of Income (unaudited) three months ended  March 31, 2010 and 2009
 
Condensed Statements of Cash Flows (unaudited) three months ended March 31, 2010 and 2009
 
Notes to Condensed Financial Statements (Unaudited)
 
 
 
F-1
 
 

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 



 
To the Board of Directors and
Stockholders of Lifeloc Technologies, Inc.
We have audited the accompanying balance sheets of Lifeloc Technologies, Inc. as of December 31, 2009 and 2008, and the related statements of income, stockholders' equity and cash flows for each of the years in the two- year period ended December 31, 2009. Lifeloc Technologies, Inc's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lifeloc Technologies, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
 
 
Greenwood Village, Colorado
May 27, 2010
 
 

F-2
 

LIFELOC TECHNOLOGIES, INC.
Balance Sheets
December 31, 2009 and 2008
 
           
             
ASSETS
           
CURRENT ASSETS:
 
2009
   
2008
 
Cash
  $ 1,021,135     $ 791,047  
Accounts receivable, net
    329,701       317,246  
Inventories, net
    767,048       803,989  
Deferred taxes
    55,069       137,856  
Prepaid expenses and other
    21,253       12,619  
      Total current assets
    2,194,206       2,062,757  
                 
PROPERTY AND EQUIPMENT, at cost:
               
Production equipment
    160,318       139,639  
Office equipment
    92,893       95,851  
Sales and marketing equipment
    36,555       23,454  
Purchased software
    29,048       31,048  
Less accumulated depreciation
    (205,359 )     (147,315 )
     Total property and equipment, net
    113,455       142,677  
                 
OTHER ASSETS:
               
Patents, net
    17,415       15,891  
Deposits
    4,242       4,242  
     Total other assets
    21,657       20,133  
                 
     Total assets
  $ 2,329,318     $ 2,225,567  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 57,425     $ 225,282  
Notes payable
    8,000       8,000  
Customer deposits
    9,709       -  
Accrued expenses
    161,216       98,414  
Deferred income, current portion
    84,966       58,611  
Reserve for warranty expense
    12,000       12,000  
      Total current liabilities
    333,316       402,307  
                 
DEFERRED INCOME, net of current portion
    8,878       13,757  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' EQUITY:
               
Common stock, no par value; 50,000,000 shares
               
  authorized, 2,318,416 shares outstanding
               
  in 2009 and 2008
    4,215,664       4,215,664  
Accumulated (deficit)
    (2,228,540 )     (2,406,161 )
      Total stockholders' equity
    1,987,124       1,809,503  
                 
      Total liabilities and stockholders'  equity
  $ 2,329,318     $ 2,225,567  
 
See accompanying notes
 
F-3
 

LIFELOC TECHNOLOGIES, INC.
Statements of Income
Years Ended December 31, 2009 and 2008
 
 
           
   
2009
   
2008
 
SALES
  $ 4,287,597     $ 4,464,742  
                 
COST OF SALES
    2,215,192       2,388,326  
                 
GROSS PROFIT
    2,072,405       2,076,416  
                 
OPERATING EXPENSES:
               
Research and development
    256,361       398,916  
Sales and marketing
    785,026       663,351  
General and administrative
    700,100       656,082  
Total
    1,741,487       1,718,349  
                 
OPERATING INCOME
    330,918       358,067  
                 
OTHER INCOME (EXPENSE):
               
Loss on currency exchange
    (75,502 )     (99,259 )
Interest income
    8,279       12,803  
Other
    -       5,860  
Total
    (67,223 )     (80,596 )
                 
NET INCOME BEFORE PROVISION FOR TAXES
    263,695       277,471  
                 
PROVISION FOR FEDERAL AND STATE INCOME TAXES
    (86,074 )     (109,250 )
                 
NET INCOME
  $ 177,621     $ 168,221  
                 
NET INCOME PER SHARE, BASIC
  $ 0.08     $ 0.07  
                 
NET INCOME PER SHARE, DILUTED
  $ 0.07     $ 0.07  
                 
WEIGHTED AVERAGE SHARES, BASIC
    2,318,416       2,318,416  
                 
WEIGHTED AVERAGE SHARES, DILUTED
    2,371,060       2,383,731  
                 
 
See accompanying notes
 
F-4
 

 
LIFELOC TECHNOLOGIES, INC.
Statement of Stockholders' Equity
Years Ended December 31, 2009 and 2008
 
                       
                         
     Common Stock      Accumulated          
     Shares       Amount     (Deficit)      Total  
BALANCES, JANUARY 1, 2008
    2,318,416     $ 4,215,664     $ (2,574,382 )   $ 1,641,282  
                                 
Net income
    -       -       168,221       168,221  
                                 
BALANCES, DECEMBER 31, 2008
    2,318,416       4,215,664       (2,406,161 )     1,809,503  
                                 
Net income
    -       -       177,621       177,621  
                                 
BALANCES, DECEMBER 31, 2009
    2,318,416     $ 4,215,664     $ (2,228,540 )   $ 1,987,124  
 
 
 
See accompanying notes
 
F-5
 
 

LIFELOC TECHNOLOGIES, INC.
Statements of Cash Flows
Years Ended December 31, 2009 and 2008
 
           
             
CASH FLOWS FROM OPERATING ACTIVITIES:
 
2009
   
2008
 
Net income
  $ 177,621     $ 168,221  
Adjustments to reconcile net income to net cash
               
 provided by operating activities-
               
   Depreciation and amortization
    64,298       36,779  
Changes in operating assets and liabilities-
               
   Accounts receivable
    (12,455 )     (114,525 )
   Inventories
    36,941       (85,969 )
   Deferred taxes
    82,787       109,250  
   Prepaid expenses and other
    (8,634 )     2,077  
   Accounts payable
    (167,857 )     16,019  
   Customer deposits
    9,709       -  
   Accrued expenses
    62,802       (1,500 )
   Deferred income
    21,476       8,442  
           Net cash provided from operating activities
    266,688       138,794  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Patent costs
    (2,821 )     (4,549 )
Purchases of property and equipment, and patents
    (33,779 )     (122,924 )
           Net cash (used in) investing activities
    (36,600 )     (127,473 )
                 
                 
NET INCREASE IN CASH
    230,088       11,321  
                 
CASH, BEGINNING OF PERIOD
    791,047       779,726  
                 
CASH, END OF PERIOD
  $ 1,021,135     $ 791,047  
                 
SUPPLEMENTAL INFORMATION:
               
Cash paid for interest
  $ -     $ -  
                 
Cash paid for income tax
  $ 3,287     $ -  
 
 
See accompanying notes
 
F-6


LIFELOC TECHNOLOGIES, INC.
Notes to Financial Statements
December 31, 2009 and 2008

1.   ORGANIZATION AND NATURE OF BUSINESS

Lifeloc Technologies, Inc. (the "Company" or “Lifeloc”) was incorporated in Colorado in December 1983 and has, since 1986, developed, manufactured and sold proprietary, fuel-cell based, breath alcohol testing equipment.  Our Phoenix Classic was completed and released for sale in 1998, superseding the original model PBA3000.  It is a microprocessor controlled portable breath alcohol instrument which is capable of accurately detecting the blood alcohol level of a subject and recording the test data without peripheral equipment.  The Phoenix product line is approved by the U.S. Department of Transportation as an evidential breath tester for use in regulated transportation industries.  In 2001, we completed and released for sale an additional product line, the new FC Series, designed specifically for the law enforcement and corrections markets.  FC breath testers have established a reputation of innovation and highest quality and durability, and are currently being sold worldwide, having contributed to our steady growth since the introduction.  In 2005 and 2006, we introduced two new models, the EV30 and Phoenix 6.0.  These two new models form a family of state-of-the-art evidential workplace devices.  In addition, we sell a comprehensive line of supplies, accessories, services, and training to support customers' alcohol testing programs.  In 2006, Lifeloc also commenced the selective marketing of its proprietary designs and componentry on an OEM basis.  In 2009 we released LifeGuard, a personal breath tester that incorporates the fuel-cell based technology employed in the FC series.  Lifeloc constantly enhances and upgrades its products in order to maintain a competitive advantage in its marketplace.
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
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.
 
Cash and Cash Equivalents.   For purposes of reporting cash flows, we consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents.  There were no cash equivalents as of December 31, 2009 and 2008.
 
Fair Value of Financial Instruments.   Our financial instruments consist of cash and cash equivalents, short-term trade receivables and payables, and notes payable.  The carrying values of cash and cash equivalents, short-term receivables and payables, and notes payable approximate their fair value due to their short term maturities.
 
Concentration of Credit Risk.   Financial instruments with significant credit risk include cash. The amount of cash on deposit with one financial institution exceeded the $250,000 federally insured limit at December 31, 2009 by $224,000.  However, we believe that the financial institution is financially sound and the risk of loss is minimal.
 
We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with two financial institutions in the form of demand deposits.
 
Accounts receivable are typically unsecured and are derived from transactions with and from entities primarily located in the United States, as we ship to international customers against letters of credit.  Accordingly, we may be exposed to credit risks generally associated with the alcohol monitoring industry.  Our credit policy calls for payment in accordance with prevailing industry standards, generally 30 days.  We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.  A summary of the activity in our allowance for doubtful accounts is as follows:
 
Years Ended December 31
  2009     2008  
Balance, beginning of year
  $ 3,083     $ 2,431  
Provision for estimated losses
    2,808       1,593  
Write-off of uncollectible accounts
    (1,791 )     (941 )
Balance, end of year
  $ 4,100     $ 3,083  
 
The net accounts receivable balance at December 31, 2009 of $329,701 included no more than 15% from any one customer. The net accounts receivable balance at December 31, 2008 of $317,246 included no more than 11% from any one customer.
 
 
F-7

 
Inventories.   Inventories are stated at the lower of cost (first-in, first-out basis) or market. 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 December 31, 2009 and 2008, inventory consisted of the following:
 
   
2009
   
2008
 
Raw materials & deposits
  216,380     269,036  
Work-in process
    152,823       77,048  
Finished goods
    418,143       479,652  
Total gross inventories
    787,346       825,736  
Less reserve for obsolescence
    (20,298 )     (21,747 )
Total net inventories
  $ 767,048     $ 803,989  
 
 
A summary of the activity in our inventory reserve for obsolescence is as follows:

Years Ended December 31
 
2009
   
2008
 
Balance, beginning of year
  21,747     $ 19,500  
Provision for estimated obsolescence
    22,532       18,000  
Write-off of obsolete inventory
    (23,981 )     (15,753 )
Balance, end of year
  $ 20,298     21,747  
 
Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally three to five years. We utilize the double-declining method of depreciation for property and equipment due to the expected usage of the property and equipment over time. This method is expected to continue throughout the life of the equipment.  Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized. Depreciation expense for the years ended December 31, 2009 and 2008 was $63,002 and $35,913 respectively.
 
Long-Lived Assets.   Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A long-lived asset is considered impaired when estimated future cash flows related to the asset, undiscounted and without interest, are insufficient to recover the carrying amount of the asset. If deemed impaired, the long-lived asset is reduced to its estimated fair value. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell.  No impairments were recorded for the years ended December 31, 2009 and 2008.
 
Patents.   The costs of applying for patents are capitalized and amortized on a straight-line basis over the lesser of the patent’s economic or legal life (20 years in the United States, except design patents which are 14 years).  Amortization expense for the years ended December 31, 2009 and 2008 was $1,296 and $866 respectively.  Capitalized costs are expensed if patents are not granted.  We review the carrying value of our patents periodically to determine whether the patents have continuing value and such reviews could result in the conclusion that the recorded amounts have been impaired.  A summary of our patents at December 31, 2009 and 2008 is as follows:
 
   
2009
   
2008
 
Patents issued
  22,775     15,406  
Patent applications
    -       4,549  
Accumulated amortization
    (5,360 )     (4,064 )
Total net patents
  $ 17,415     $ 15,891  
 
Accrued Expenses.  We have accrued $13,526 related to property and other taxes, $102,281 related to compensation, $19,725 related to rebates, $13,451 related to our 401(k) plan, and $12,233 related to interest and have included these amounts in accrued expenses in the accompanying balance sheet at December 31, 2009.  At December 31, 2008, we had accrued $5,988 related to property and other taxes, $80,193 related to compensation, and $12,233 related to interest and included these amounts in accrued expenses in the accompanying balance sheet at December 31, 2008.
 
Product Warranty Reserve.  We provide for the estimated cost of product warranties at the time sales are recognized.  While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is based upon historical experience and will be affected by product failure rates and material usage incurred in correcting a product failure. Should actual product failure rates or material usage costs differ from our estimates, revisions to the estimated warranty liability would be required.  A summary of the activity in our product warranty reserve is as follows:
 
 
 
F-8

 
Years Ended December 31
 
2009
   
2008
 
Balance, beginning of year
  $ 12,000     $ 12,000  
Provision for estimated warranty claims
    14,715       14,929  
Claims made
    (14,715 )     (14,929 )
Balance, end of year
  $ 12,000     $ 12,000  
 
Income Taxes.  We account for income taxes under the provisions of Accounting Standards Codification 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.  During 2009 and 2008, we used our tax loss carryforwards as well as tax credits to reduce our taxable income.  As a result, the provisions for income taxes reflected in the accompanying statements of operations for 2009 and 2008 are $92,074 and $109,250 respectively.  We do not have any remaining tax loss carryforwards for use in future years; however, we have $3,501 of tax credit carryovers available for use in 2010.

We adopted the provisions of ASC 740-10 (previously Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes), on January 1, 2008.  The implementation of this standard had no impact on our financial statements.  As of both the date of adoption, and as of December 31, 2009 and 2008, the unrecognized tax benefit accrual was zero.

We will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred.  Our income tax returns are no longer subject to Federal tax examinations by tax authorities for years before 2006 and state examinations for years before 2005.
 
Revenue Recognition.   Revenue from product sales is 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. Our shipping policy is FOB Shipping Point. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims. We have no ongoing obligations related to product sales, except for normal warranty.
 
Research and Development Expenses.  We expense research and development costs for products and processes as incurred.
 
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 operations.

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 operations.

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 had no stock based compensation in 2009 and 2008, and no stock-based compensation expense is recognized in our statement of operations for 2009 and 2008.
 
Segment Reporting.   We have concluded that we have one operating segment.
 
Basic and Diluted Income and Loss per Common Share.  Net income or loss per share is calculated in accordance with ASC Topic 260, “Earnings Per Share”.  Under the provisions of ASC Topic 260, 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 or loss per share is computed by dividing the net income or 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.
 
Recent Accounting Pronouncements.  In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental generally accepted accounting principles (“GAAP”).  All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification.
 
 
F-9


As a result of our implementation of the Codification during 2009, previous references to new accounting standards and literature are no longer applicable.

In May 2009, the FASB issued ASC 855-10, “Subsequent Events”.  ASC 855-10 provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature.  ASC 855-10 is effective prospectively for interim and annual periods ending after June 15, 2009.  The adoption of this Statement did not have an impact on our financial position or results of operations.  Effective February 24, 2010, the FASB modified its guidance related to subsequent events and the Company has adopted the change.  This guidance continues to require entities that file or furnish financial statements with the SEC to evaluate subsequent events through the date the financial statements are issued; however, this guidance removed the requirement for these entities to disclose the date through which events have been evaluated.  The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

We have reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.
 
3.  STOCKHOLDERS’ EQUITY
 
Stock Option Plan.   We adopted our 2002 Stock Option Plan (the “Plan,” as summarized below) to promote our and our stockholders’ interests by helping us to attract, retain and motivate our key employees and associates. Under the terms of the Plan, the Board of Directors may grant either “nonqualified” or “incentive” stock options, as defined by the Internal Revenue Code and related regulations. The purchase price of the shares subject to a stock option will be the fair market value of our common stock on the date the stock option is granted.  Generally, vesting of stock options occurs immediately at the time of the grant of such option and all stock options must be exercised within five years from the date granted. The number of common shares reserved for issuance under the Plan is 375,000 shares of common stock, subject to adjustment for dividend, stock split or other relevant changes in our capitalization.
 
A summary of our stock option activity and related information for each of the fiscal years ended December 31, 2009 and 2008 is as follows: 

    STOCK OPTIONS OUTSTANDING  
   
Number
Outstanding
   
Weighted-Average
Exercise Price per Share
 
BALANCE AT DECEMBER 31, 2007
    110,000     $0.40  
Granted
    -        
Exercised
    -        
Forfeited/expired
    (6,000 )      
BALANCE AT DECEMBER 31, 2008
    104,000     $0.40  
Granted
    -        
Exercised
    -        
Forfeited/expired
    -        
BALANCE AT DECEMBER 31, 2009
    104,000     $0.40  
 
 
The following table summarizes information about employee stock options outstanding and exercisable at December 31, 2009: 

   
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
 
$0.40
 
104,000
 
.4
   
 $0.40
 
104,000
   
  $0.40
 
 
Of the 104,000 options exercisable as of December 31, 2009, 15,000 are nonqualified stock options and 89,000 are incentive stock options. The exercise price of all options granted through December 31, 2009 has been equal to or greater than the fair market value, using a composite of peer entities since there were no publicly quoted market values of our common stock on the date of the grant.  As of December 31, 2009, options for 44,000 shares of our common stock remain available for grant under the Plan.
 
 
F-10

In connection with loans made to the Company prior to 2008, 25,000 warrants were outstanding at December 31, 2007.  All such warrants lapsed in 2009 and none remained outstanding at December 31, 2009.
 
4.  NOTES PAYABLE
 
Notes payable consist of an unsecured demand note payable to a shareholder with a principal balance of $8,000 at December 31, 2009 and 2008, and interest accrued thereon at a rate of 10% per annum with a total balance due of $12,233 at December 31, 2009 and 2008.  Based on discussions with legal counsel, we no longer accrue interest on the outstanding balance.
 
5.  COMMITMENTS AND CONTINGENCIES
 
We currently lease our facilities in Wheat Ridge, Colorado under a lease agreement containing cancellation terms of 180 days written notice on or after October 31, 2012 and upon remittance of any unamortized tenant improvements made by the landlord in excess of $16,000.  As described in Note 11, our facilities lease was amended during 2010.  The minimum future lease payments by year, reflecting the terms of our amended lease agreement, are as follows: 

Fiscal Year
 
Amount
 
    2010
  $ 99,879  
    2011
    102,204  
    2012
    105,270  
    2013
    108,428  
    2014
    111,681  
    2015
     37,592  
                   Total   $ 565,054  
 
Rent expense for our facilities for the years ended December 31, 2009 and 2008 was $96,039 and $92,343, respectively.
 
Our obligation with respect to employee severance benefits is minimized by the “at will” nature of the employee relationships.  As of December 31, 2009 we had no obligation with respect to contingent severance benefit obligations.
 
Aside from the operating lease and credit facility commitments, we do not have any material contractual commitments requiring settlement in the future.
 
We are subject to regulation by the United States Food and Drug Administration (“FDA”) so far as our LifeGuard product is concerned.  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.  As of December 31, 2009, we had not been inspected by the FDA; however, we believe we are in substantial compliance with all known regulations.
 
We are also subject to regulation by the United States Department of Transportation 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 regulations.
 
6.  LINE OF CREDIT
 
On May 11, 2004, we entered into a credit facility agreement with Citywide Bank.  The terms of the credit facility, which matured on May 11, 2010 and was subsequently renewed for an additional year, include a line of credit for $150,000 at an interest rate calculated at the prime rate plus 1%, or 4.25% at December 31, 2009 and 2008.  Our borrowing under the credit facility is limited to the amount of eligible receivables and inventory at the time of borrowing.  At December 31, 2009 and 2008, we had not borrowed funds from the credit facility and, under our eligible receivables and inventory limit, had $150,000 available to borrow.  The credit facility requires us to meet certain financial covenants, which we met as of December 31, 2009.  The credit facility is secured by all goods, accounts receivable, equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, general intangibles, commercial tort claims, documents, instruments, chattel paper, cash, deposit accounts, fixtures, letters of credit rights, securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located.
 

F-11

 
7.  INCOME TAXES
 
We account for income taxes under ASC 740, which requires the use of the liability method.  ASC 740 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.  Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

Our income tax provision is summarized below:

Years Ended
 
December 31, 2009
   
December 31, 2008
 
Current:
           
Federal
  $ -     $ -  
State
    3,287       -  
Total current
    3,287       -  
Deferred:
               
Federal
    76,251       100,625  
State
    6,536       8,625  
Total deferred
    82,787       109,250  
Total
  $ 86,074     $ 109,250  

 
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consists of the following:
 
Years Ended
 
December 31, 2009
   
December 31, 2008
 
Federal statutory rate
  $ 92,293     $ 97,115  
Effect of:
               
State taxes, net of federal tax benefit
    8,093       8,324  
Other
    (14,312 )     3,811  
Total
  $ 86,074     $ 109,250  

The components of the deferred tax asset are as follows:

Years Ended
 
December 31, 2009
   
December 31, 2008
 
Credits and net operating loss  carryforwards
  $ -     $ 85,922  
Other
    55,069       51,934  
Total deferred tax assets
  $ 55,069     $ 137,856  

 
8.  LEGAL PROCEEDINGS
 
We are not involved in any legal proceeding as of the date of these financial statements.  We may become involved in litigation in the future in the normal course of business.
 
9.  MAJOR CUSTOMERS/SUPPLIERS
 
We depend on sales that are generated from our customers’ ongoing usage of alcohol monitoring instruments.  In 2009, we generated sales from over 2,500 customers, but no customer contributed more than 10.4% to our total sales in either 2009 or 2008.  In 2009 and in 2008, we depended upon two vendors for approximately 21% of our purchases.
 
 
 
F-12

10.  DEFINED CONTRIBUTION EMPLOYEE BENEFIT PLAN
 
We have adopted a 401(k) Profit Sharing Plan which covers all full-time employees who have completed 3 months of full-time continuous service and are age eighteen or older. Participants may defer up to 100% of their gross pay up to Plan limits.  Participants are immediately vested in their contributions.  We may make discretionary contributions based on corporate financial results for the year, which was determined to be 3% of the total payroll of the participating employees in 2009 and 2008.  In 2009 and 2008 we contributed $19,534 and $27,388 respectively.  The participants vest in Company contributions based on years of service, with a participant fully vested after six years of credited service.
 
11.  SUBSEQUENT EVENTS
 
On May 1, 2010, we amended and extended our facilities lease, which, when added to our existing space, provides us with 11,655 square feet of office and manufacturing/warehouse space.  Under the new lease agreement, which runs through April 30, 2015, we are obligated to pay a total of $531,975, at monthly rates of $8,350 during the first year, increasing to $9,398 in the fifth year or an average of $8,866 per month over the life of the lease.  The agreement contains cancellation terms of 180 days written notice on or after October 31, 2012 and upon remittance of any unamortized tenant improvements made by landlord in excess of $16,000.
 
On May 1, 2010, all 104,000 outstanding stock options were exercised at their exercise price of $0.40 apiece, for a total of $41,600.
 
In May, 2010, we extended our line of credit for $150,000 with Citywide Bank.  The credit facility will mature on May 11, 2011, and the interest rate is calculated at the prime rate plus 1%.
 
At their annual meeting on May 3, 2010, our stockholders approved a reverse stock split of our no par value common stock.  Every two shares of common stock were combined into one share.  No fractional shares were issued as a result of the reverse stock split.  Instead, each resulting fractional share of common stock was rounded to the nearest whole share.  The reverse stock split reduced the number of shares of common stock outstanding from 4,636,832 to 2,318,416 (which does not give effect to the options exercised on May 1, 2010 as described above).  The total number of authorized shares of common stock continues to be 50,000,000, with no change in the par value per share of $0.  All shares and per share data in the accompanying financial statements reflect the effects of the 1-for-2 reverse stock split that became effective on May 3, 2010.  The stockholders also approved a warrant distribution consisting of 1 warrant for each then outstanding share of common stock, or a total of 2,318,416 warrants.  Each warrant is exercisable at $1.00 until May 3, 2020, with a 6% commission to be paid to broker-dealers participating in the exercise of the warrants.  Since the warrants will not be distributed to the stockholders until a registration statement is filed with and has been declared effective by the Securities and Exchange Commission, no effect has been given in these financial statements as a result of dilution resulting from the exercise of the warrants.
 

 
F-13

LIFELOC TECHNOLOGIES, INC.
Condensed Balance Sheets
 
           
 
           
             
             
ASSETS
           
   
March 31,
       
   
2010
   
December 31,
 
CURRENT ASSETS:
 
(Unaudited)
   
2009
 
Cash
  $ 1,145,391     $ 1,021,135  
Accounts receivable, net
    517,850       329,701  
Inventories, net
    758,927       767,048  
Deferred taxes
    56,920       55,069  
Prepaid expenses and other
    56,241       21,253  
      Total current assets
    2,535,329       2,194,206  
                 
PROPERTY AND EQUIPMENT, at cost:
               
Production equipment
    169,313       160,318  
Office equipment
    92,893       92,893  
Sales and marketing equipment
    36,555       36,555  
Purchased software
    29,048       29,048  
Less accumulated depreciation
    (218,147 )     (205,359 )
     Total property and equipment, net
    109,662       113,455  
                 
OTHER ASSETS:
               
Patents, net
    17,107       17,415  
Deposits
    4,242       4,242  
     Total other assets
    21,349       21,657  
                 
     Total assets
  $ 2,666,340     $ 2,329,318  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 163,127     $ 57,425  
Notes payable
    -       8,000  
Customer deposits
    17,059       9,709  
Accrued expenses
    245,323       180,549  
Deferred income, current portion
    83,439       84,966  
Reserve for warranty expense
    12,000       12,000  
      Total current liabilities
    520,948       352,649  
                 
DEFERRED INCOME, net of current portion
    7,790       8,878  
                 
COMMITMENTS AND CONTINGENCIES