Lifeloc Technologies, Inc - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Lifeloc Technologies, Inc	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - Lifeloc Technologies, Inc	ex32x2.htm
EX-31.1 - EXHIBIT 31.1 - Lifeloc Technologies, Inc	ex31x1.htm
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EX-31.2 - EXHIBIT 31.2 - Lifeloc Technologies, Inc	ex31x2.htm

UNITED STATE

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission file number 000-54319

LIFELOC TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Colorado	84-1053680
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

12441 West 49th Ave., Unit 4

Wheat Ridge, Colorado 80033

(Address of principal executive offices)

(303) 431-9500

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Common Stock, no par value	2,422,416 Shares
(Class)	(outstanding at September 30, 2011)

LIFELOC TECHNOLOGIES, INC.

FORM 10-Q

For the Three Months and Nine Months Ended September 30, 2011

INDEX

				Page
				Number

PART I. FINANCIAL INFORMATION				3

	ITEM 1		FINANCIAL STATEMENTS (UNAUDITED)	3

		-	Condensed Balance Sheets as of September 30, 2011 and December 31, 2010	3
		-	Condensed Statements of Income (Unaudited) for the three months ended September 30, 2011 and 2010	4
		-	Condensed Statements of Income (Unaudited) for the nine months ended September 30, 2011 and 2010	5
		-	Condensed Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010	6
		-	Notes to Condensed Financial Statements (Unaudited)	7

	ITEM 2		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9

	ITEM 4		CONTROLS AND PROCEDURES	13

PART II. OTHER INFORMATION				13

	ITEM 6		EXHIBITS	13

SIGNATURE				14

PART I FINANCIAL INFORMATION

ITEM I – FINANCIAL STATEMENTS

LIFELOC TECHNOLOGIES, INC.

Condensed Balance Sheets


ASSETS
	September 30,
	2011			December 31,
CURRENT ASSETS:	(Unaudited)			2010
Cash	$	1,252,199		$	1,461,900
Accounts receivable, net		941,136			393,118
Note receivable, net		2,500			-
Inventories, net		1,034,065			936,463
Deferred taxes		81,050			48,400
Prepaid expenses and other		93,188			74,644
Total current assets		3,404,138			2,914,525

PROPERTY AND EQUIPMENT, at cost:
Production equipment		240,388			212,880
Office equipment		145,225			105,989
Sales and marketing equipment		153,934			118,400
Purchased software		61,170			36,336
Less accumulated depreciation		(340,217	)		(268,933	)
Total property and equipment, net		260,500			204,672

OTHER ASSETS:
Technology licenses, net		112,780			120,000
Patents, net		12,891			14,351
Prepaid insurance, long term		7,331			-
Deferred taxes, long term		3,905			6,130
Deposits		4,742			4,242
Total other assets		141,649			144,723

Total assets	$	3,806,287		$	3,263,920

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	263,407		$	303,528
Customer deposits		-			126,503
Accrued expenses		281,908			263,667
Deferred income, current portion		72,526			83,339
Income taxes payable		31,802			-
Reserve for warranty expense		18,000			15,000
Total current liabilities		667,643			792,037

DEFERRED INCOME, net of current portion		10,276			16,132

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares
authorized, 2,422,416 shares outstanding		4,277,497			4,277,497
Accumulated (deficit)		(1,149,129	)		(1,821,746	)
Total stockholders' equity		3,128,368			2,455,751

Total liabilities and stockholders' equity	$	3,806,287		$	3,263,920

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

Condensed Statements of Income (Unaudited)

	Three Months Ended September 30,
	2011			2010
SALES	$	1,923,668		$	1,834,903

COST OF SALES		966,565			949,019

GROSS PROFIT		957,103			885,884

OPERATING EXPENSES:
Research and development		125,763			120,969
Sales and marketing		263,875			255,169
General and administrative		241,283			238,751
Total		630,921			614,889

OPERATING INCOME		326,182			270,995

OTHER INCOME (EXPENSE):
Loss on currency exchange		(39,072	)		(37,384	)
Interest income		3,959			1,592
Interest expense		-			-
Total		(35,113	)		(35,792	)

NET INCOME BEFORE PROVISION FOR TAXES		291,069			235,203

PROVISION FOR FEDERAL AND STATE INCOME TAXES		(107,688	)		(90,500	)

NET INCOME	$	183,381		$	144,703

NET INCOME PER SHARE, BASIC	$	0.08		$	0.06

NET INCOME PER SHARE, DILUTED	$	0.08		$	0.06

WEIGHTED AVERAGE SHARES, BASIC		2,422,416			2,422,416

WEIGHTED AVERAGE SHARES, DILUTED		2,422,416			2,422,416

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

Condensed Statements of Income (Unaudited)

	Nine Months Ended September 30,
	2011			2010
SALES	$	6,140,338		$	4,716,802

COST OF SALES		3,132,512			2,397,757

GROSS PROFIT		3,007,826			2,319,045

OPERATING EXPENSES:
Research and development		343,515			277,110
Sales and marketing		772,753			689,604
General and administrative		782,645			686,288
Total		1,898,913			1,653,002

OPERATING INCOME		1,108,913			666,043

OTHER INCOME (EXPENSE):
Loss on currency exchange		(108,477	)		(82,354	)
Interest income		9,480			5,734
Interest expense		-			(37	)
Total		(98,997	)		(76,657	)

NET INCOME BEFORE PROVISION FOR TAXES		1,009,916			589,386

PROVISION FOR FEDERAL AND STATE INCOME TAXES		(337,299	)		(221,761	)

NET INCOME	$	672,617		$	367,625

NET INCOME PER SHARE, BASIC	$	0.28		$	0.15

NET INCOME PER SHARE, DILUTED	$	0.28		$	0.15

WEIGHTED AVERAGE SHARES, BASIC		2,422,416			2,376,702

WEIGHTED AVERAGE SHARES, DILUTED		2,422,416			2,394,423

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

Condensed Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES:	2011			2010
Net income	$	672,617		$	367,625
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization		104,964			43,246
Provision for bad debt		50,000			-
Changes in operating assets and liabilities-
Accounts receivable		(548,018	)		(317,097	)
Inventories		(97,602	)		(214,071	)
Deferred taxes		(30,425	)		(2,231	)
Prepaid expenses and other		(25,875	)		(44,362	)
Deposits		(500	)		-
Accounts payable		(40,121	)		212,921
Notes payable		-			(8,000	)
Customer deposits		(126,503	)		4,365
Accrued expenses		18,241			82,289
Deferred income		(16,669	)		12,345
Income taxes payable		31,802			-
Reserve for warranty expense		3,000			3,000
Net cash provided from (used in)
operating activities		(5,089	)		140,030

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(127,112	)		(159,203	)
Purchase of technology license		(25,000	)		-
Note receivable, funds advanced		(52,500	)		-
Net cash (used in) investing activities		(204,612	)		(159,203	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options		-			41,600

NET INCREASE (DECREASE) IN CASH		(209,701	)		22,427

CASH, BEGINNING OF PERIOD		1,461,900			1,021,135

CASH, END OF PERIOD	$	1,252,199		$	1,043,562

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND NATURE OF BUSINESS

Lifeloc Technologies, Inc. is a Colorado based developer, manufacturer and marketer of portable hand-held breathalyzers and related supplies and education. We design, produce and sell fuel-cell based breath alcohol testing equipment. We compete in all major segments of the portable breath alcohol testing instrument market, including law enforcement, workplace, corrections, original equipment manufacturing (“OEM”) and consumer markets. In addition, we offer a line of supplies, accessories, services, and training to support customers’ alcohol testing programs. We sell globally through distributors and sales agents, as well as directly to users.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared by us, without audit, and reflect normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the results of the third quarter of 2011. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with footnotes contained in our financial statements for the year ended December 31, 2010 included in our Form 10 which became effective on May 31, 2011. All shares and per share data reflect the 1-for-2 reverse stock split that became effective on May 3, 2010.

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.

Note Receivable

We made a loan of $62,500 to Tipping Point, Inc. (TPI), an early stage company during the second quarter of 2011. Although the loan was paid down by $10,000 in the third quarter of 2011, we do not expect to realize any significant sales to TPI in the near term. We have provided a reserve against the loan of $50,000, leaving a net amount of $2,500, which is included in our balance sheet at September 30, 2011. This note has a provision entitling us to convert it into stock of Tipping Point, Inc. If converted, we would become a 20% equity holder.

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 September 30, 2011 and December 31, 2010, inventory consisted of the following:

	2011			2010
Raw materials & deposits	$	430,370		$	342,101
Work-in process		164,172			189,235
Finished goods		482,064			425,127
Total gross inventories		1,076,606			956,463
Less reserve for obsolescence		(42,541	)		(20,000	)
Total net inventories	$	1,034,065		$	936,463

Income Taxes. We account for income taxes under the provisions of Accounting Standards Codification Topic 740, “Accounting for Income Taxes” (“ASC 740”). We have determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during our fiscal year to our best current estimate.

The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

Fair Value of Financial Instruments. Our financial instruments consist of cash and cash equivalents, short-term trade receivables, note receivable and payables. The carrying values of cash and cash equivalents, short-term receivables and payables approximate their fair value due to their short term maturities.

Recent Accounting Pronouncements. 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. BASIC AND DILUTED INCOME PER COMMON SHARE

We report both basic and diluted net income (loss) per share. Basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted average number of common shares outstanding for the period. Diluted net income or loss per common 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. The shares used in the calculation of dilutive potential common shares exclude options to purchase shares where the exercise price was greater than the average market price of common shares for the period.

The following table presents the calculation of basic and diluted net income (loss) per share:

	Three Months Ended
	September 30, 2011		September 30, 2010
Net income	$	183,381	$	144,703
Weighted-average shares — basic		2,422,416		2,422,416
Effect of dilutive potential common shares		-		-
Weighted-average shares — diluted		2,422,416		2,422,416
Net income per share — basic	$	0.08	$	0.06
Net income per share — diluted	$	0.08	$	0.06
Antidilutive employee stock options		0		0

	Nine Months Ended
	September 30, 2011		September 30, 2010
Net income	$	672,617	$	367,625
Weighted-average shares — basic		2,422,416		2,376,702
Effect of dilutive potential common shares		-		17,721
Weighted-average shares — diluted		2,422,416		2,394,423
Net income per share — basic	$	0.28	$	0.15
Net income per share — diluted	$	0.28	$	0.15
Antidilutive employee stock options		0		0

4. STOCKHOLDERS’ EQUITY

On May 1, 2010 all 104,000 outstanding stock options were exercised at their exercise price of $0.40 apiece, for total proceeds of $41,600.

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 4,844,832 to 2,422,416 (which gives 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.

5. LINE OF CREDIT

In May, 2011, we extended our line of credit for $150,000 with Citywide Bank. The credit facility will mature on May 11, 2012, and the interest rate is calculated at the prime rate plus 1%. There was no balance due on the line of credit as of December 31, 2010 and September 30, 2011.

6. SUBSEQUENT EVENTS

We evaluated all of our activity and concluded that no subsequent events have occurred that would require recognition in our financial statements or disclosed in the notes to our financial statements.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our financial condition and results of operations, and should be read in conjunction with our financial statements and the related notes included elsewhere in this Form 10-Q. Certain statements contained in this section are not historical facts, including statements about our strategies and expectations about new and existing products, market demand, acceptance of new and existing products, technologies and opportunities, market and industry segment growth, and return on investments in products and markets. These statements are forward looking statements 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 Form 10-Q are strongly encouraged to review the section titled “Risk Factors” in our Form 10 which became effective May 31, 2011.

Overview

We have been a developer and manufacturer of advanced alcohol testing instruments since 1986. We design and produce high-quality, precise and rapid recovery alcohol testing instruments for use in workplace, clinics, schools, law enforcement, corrections, and other applications. We offer our customers accessories, service support, training and supplies. Our internet websites are www.lifeloc.com and www.lifeguardbreathtester.com.

The areas in which we do business are highly competitive and include both foreign and domestic competitors. Our major 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 believe that competition for sales of alcohol testing products is based on product performance, service, delivery and price.

We believe that our future success depends to a large degree on our ability to develop new alcohol testing products and services to enhance the performance characteristics and methods of manufacture of existing products. Accordingly, we expect to continue to invest resources in research and development, to the extent funds are available.

Outlook

Installed Base of Breathalyzers. We believe the installed base of our breathalyzers will increase as the inherent risks associated with drinking while driving, and of working in safety sensitive jobs, become more widely acknowledged and as our network of direct and independent sales representatives grows. 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. Over the past several years we have operated profitably; however, prior to that we incurred losses. As of September 30, 2011, we have an accumulated deficit of $1,149,129. There is no assurance that we will not incur losses in any given quarter or year in the future.

Sales Growth. We expect to increase sales in the U.S. and worldwide as our network of direct and independent sales representatives grows, becomes more proficient and expands the number of new accounts. We have recently begun to sell certain ignition interlock components and breath alcohol testing kiosks. Orders for these products are on an intermittent purchase order basis and there is no assurance that they will continue at any given rate, or that orders will repeat.

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 do so. Sales and marketing expenses are expected to increase as we increase our direct sales representatives and marketing efforts.

Research and Development Expenses. Research and development expenses are expected to increase to support refinements to our products, and the development of additional new products.

Results of Operations

For the three months ended September 30, 2011 compared to the three months ended September 30, 2010.

Net sales. Our sales for the quarter ended September 30, 2011 were $1,923,668, an increase of 5% from $1,834,903 for the quarter ended September 30, 2010. This increase is attributable to the improving economic environment, as many customers were faced with constrained budgets in the same quarter a year ago. We also benefited from a high customer retention rate and a recurring sales stream from the purchases of supplies, training, and replacement instruments to existing accounts.

Gross profit. Gross profit for the quarter ended September 30, 2011 of $957,103 represented an increase of 8% from gross profit of $885,884 for the quarter ended September 30, 2010. Gross profit as a percentage of sales (gross margins) increased from 48% to 50% as a result of a higher sales volume in the current quarter ended September 30, 2011.

Research and development expenses. Research and development expenses were $125,763 for the quarter ended September 30, 2011, representing an increase of 4% over the $120,969 in the same quarter a year ago. This increase resulted from compensation increases.

Sales and marketing expenses. Sales and marketing expenses of $263,875 for the quarter ended September 30, 2011 represented an increase of 3% from sales and marketing expenses of $255,169 for the quarter ended September 30, 2010. This increase resulted from additional compensation as a result of sales volume increases.

General and administrative expenses. General and administrative expenses were $241,283 for the quarter ended September 30, 2011, which represented an increase of 1% over the $238,751 spent in the same quarter a year earlier. This increase results from minor fluctuations in several normal recurring expenses.

Net income. Net income was $183,381 for the quarter ended September 30, 2011 compared to net income of $144,703 for the quarter ended September 30, 2010. This increase of 27% was the result of increased sales, offset in part by an increase in the loss on currency exchange which increased by $1,688 and offset by an increased provision for federal and state income taxes of $17,888.

For the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010.

Net sales. Our sales for the nine months ended September 30, 2011were $6,140,338, an increase of 30% from $4,716,802 for the nine months ended September 30, 2010. This increase is attributable to the improving economic environment, as many customers were faced with constrained budgets in the same period a year ago. In addition, a new order that may not repeat in future periods for $650,000, was shipped to an international customer. We also benefited from a high customer retention rate and a recurring sales stream from the purchase of supplies, training and replacement instruments to existing accounts.

Gross profit. Gross profit for the nine months ended September 30, 2011 of $3,007,826 represented an increase of 30% from gross profit of $2,319,045 for the nine months ended September 30, 2010. Gross profit as a percentage of sales (gross margins) remained at 49%.

Research and development expenses. Research and development expenses were $343,515 for the nine months ended September 30, 2011, representing an increase of 24% over the $277,110 in the same nine month period a year ago. This increase resulted primarily from compensation and headcount increases.

Sales and marketing expenses. Sales and marketing expenses of $772,753 for the nine months ended September 30, 2011 represented an increase of 12% from sales and marketing expenses of $689,604 for the nine months ended September 30, 2010. This increase resulted from additional compensation as a result of additional sales volume increases.

General and administrative expenses. General and administrative expenses were $782,645 for the nine months ended September 30, 2011, which represented an increase of 14% over the $686,288 spent in the same nine month period a year earlier. This increase results from increased compensation resulting from the bonus plan contribution which is a function of increased income, as well as a $50,000 provision for bad debt.

Net income. Net income was $672,617 for the nine months ended September 30, 2011 compared to net income of $367,625 for the nine months ended September 30, 2010. This increase of 83% was the result of increased sales, offset in part by an increase in the loss on currency exchange which increased by $26,123 and offset by an increased provision for federal and state income taxes of $115,538.

Trends and Uncertainties That May Affect Future Results

Although revenues in 2011 are up compared to revenues in 2010, we received several orders from international customers that may not repeat in future periods. We expect our quarter-to-quarter revenue fluctuations to continue, due to the unpredictable timing of large orders from customers and the size of those orders in relation to total revenues. Going forward, we intend to focus our development efforts on products we believe offer the best prospects to increase our intermediate and near-term revenues.

Our 2011 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 2011. However, we believe that cash resources and borrowing capacity will be sufficient to fund our operations for the next twelve months under our current operating plan. If we are unable to manage the business operations in line with our budget expectations, it could have a material adverse effect on business viability, financial position, results of operations and cash flows. Further, if we are not successful in sustaining profitability and remaining at least cash flow break-even, additional capital may be required to maintain ongoing operations.

Liquidity and Capital Resources

We compete in a highly technical, very competitive and, in most cases, price driven alcohol testing marketplace, where products can take years to develop and introduce to distributors and end users. Furthermore, manufacturing, marketing and distribution activities are regulated by the FDA, the DOT, and other regulatory bodies that, while intended to enhance the ultimate quality and functionality of products produced, can contribute to the cost and time needed to maintain existing products and develop and introduce new products.

We have traditionally funded working capital needs through product sales and close management of working capital components of our business. Historically, we have also received cash from private offerings of our common stock, warrants to purchase shares of our common stock, and notes, although we have not engaged in any such capital-raising transactions in the past five years. 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, 2011. 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 September 30, 2011 and 2010, we had not borrowed any amounts from the credit facility. The credit facility requires us to meet certain financial covenants. At September 30, 2011 and at September 30, 2010, we were in compliance with the financial covenants.

As of September 30, 2011, cash and cash equivalents were $1,252,199, trade accounts receivable were $941,136 and current liabilities were $667,643 resulting in a net liquid asset amount of $1,525,692. We believe that the introduction of several new products during the last several years, along with new and on-going customer relationships, will continue to generate sufficient revenues, 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 made a loan of $62,500 to Tipping Point, Inc. (TPI), an early stage company during Q2. Although the loan was paid down by $10,000 in Q3, we do not expect to realize any significant sales to TPI in the near term. We have provided a reserve against the loan of $50,000, leaving a net amount of $2,500, which is included in our balance sheet at September 30, 2011. Two of our directors also serve as directors of TPI. This note has a provision entitling us to convert it into stock of Tipping Point, Inc. If converted, we would become a 20% equity holder.

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 quarter ended September 30, 2011 and for the quarter ended September 30, 2010, warranty costs were not deemed significant.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, sales returns, warranty, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required, which would increase our expenses during the periods in which any such allowances were made. The amount recorded as a provision for bad debts in each period is based upon our assessment of the likelihood that we will be paid on our outstanding receivables, based on customer-specific as well as general considerations. To the extent that our estimates prove to be too high, and we ultimately collect a receivable previously determined to be impaired, we may record a reversal of the provision in the period of such determination.

We 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, we have experienced some costs related to warranties. The warranty accrual is based on historical experience and is adjusted based on current experience. Should actual warranty experience differ from our estimates, revisions to the estimated warranty liability would be required.

We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Any write-downs of inventory would reduce our reported net income during the period in which such write-downs were applied. To the extent that our estimates prove to be too high, and we ultimately utilize or sell inventory previously determined to be impaired, we may record a reversal of the provision in the period of such determination.

We recognize 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. 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. Should we maintain sufficient, sustained income in the future, we may conclude that all or some of the valuation allowance should be reversed.

Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally three to five years. We use the double declining method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.

We amortize our patent costs over their estimated useful lives, which is typically the remaining statutory life. From time to time, we may be required to adjust these useful lives of our patents based on advances in technology, competitor actions, and the like. We review the recorded amounts of patents at each period end to determine if their carrying amount is still recoverable based on our expectations regarding sales of related products. Such an assessment, in the future, may result in a conclusion that the assets are impaired, with a corresponding charge against earnings.

We recognize revenue from product when title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims.

ITEM 4 – CONTROLS AND PROCEDURES

(a) We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting and Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and the Principal Accounting and Financial Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in reports filed or submitted under the Exchange Act (i) is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

(b) During the quarter ended September 30, 2011, there were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

The following exhibits are filed with this report on Form 10-Q or are incorporated by reference:

Exhibit No.		Description of Exhibit
3.1		Articles of Incorporation, dated as of December 29, 1983 (1)
3.2		Articles of Amendment to the Articles of Incorporation, dated as of July 10, 1986 (1)
3.3		Articles of Amendment to the Articles of Incorporation, dated as of August 18, 1986 (1)
3.4		Articles of Amendment to the Articles of Incorporation, dated as of April 18, 1988 (1)
3.5		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1991 (1)
3.6		Articles of Amendment to the Articles of Incorporation, dated as of May 10, 1993 (1)
3.7		Articles of Amendment to the Articles of Incorporation, dated as of May 11, 1992 (1)
3.8		Articles of Amendment to the Articles of Incorporation, dated as of November 17, 1997 (1)
3.9		Articles of Amendment to the Articles of Incorporation, dated as of July 15, 1998 (1)
3.10		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1994 (1)
3.11		Bylaws (1)
4.1		Form of Certificate representing Common Stock (1)
10.1		2002 Stock Option Plan (1)
10.2		Lease by and between Lifeloc Technologies, Inc. and Ward West Properties LLC, dated December 12, 2006 (1)
10.3		First Lease Amendment and Extension, dated May 1, 2010, to the Lease by and between Lifeloc Technologies, Inc. and Ward West Properties LLC, dated December 12, 2006 (1)
10.4		Contract No. 071B0200005 between the State of Michigan and Lifeloc Technologies, Inc., dated October 5, 2009 (1)
10.5		Technology Transfer Agreement between Lifeloc Technologies, Inc. and Fuel Cell Sensors, dated June 1, 2010 (1)
10.6		Form of Standard Distribution Agreement (1)
10.7		Business Loan Agreement between Lifeloc Technologies, Inc. and Citywide Banks, dated May 11, 2010, as amended (1)
10.8		Representation Agreement between Crossco Manufacturers Representatives, Inc. and Lifeloc Technologies, Inc., dated February 2, 2009 (2)
31.1		Certification of Principal Executive Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
31.2		Certification of Principal Financial Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive Date Files Pursuant to Rule 405 of Regulation S-T.

(1)	Incorporated by reference to our Registration Statement on Form 10-12G, filed on March 31, 2011.

(2)	Incorporated by reference to our Registration Statement on Form 10-12G (Amendment 1), filed on May 11, 2011.

SIGNATURE

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Lifeloc Technologies, Inc.

November 3, 2011		/s/ Kristie L. LaRose
Date		Kristie L. LaRose
		Vice President of Finance and Administration (Principal Accounting Officer)

Exhibit Index

Exhibit No.		Description of Exhibit
3.1		Articles of Incorporation, dated as of December 29, 1983 (1)
3.2		Articles of Amendment to the Articles of Incorporation, dated as of July 10, 1986 (1)
3.3		Articles of Amendment to the Articles of Incorporation, dated as of August 18, 1986 (1)
3.4		Articles of Amendment to the Articles of Incorporation, dated as of April 18, 1988 (1)
3.5		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1991 (1)
3.6		Articles of Amendment to the Articles of Incorporation, dated as of May 10, 1993 (1)
3.7		Articles of Amendment to the Articles of Incorporation, dated as of May 11, 1992 (1)
3.8		Articles of Amendment to the Articles of Incorporation, dated as of November 17, 1997 (1)
3.9		Articles of Amendment to the Articles of Incorporation, dated as of July 15, 1998 (1)
3.10		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1994 (1)
3.11		Bylaws (1)
4.1		Form of Certificate representing Common Stock (1)
10.1		2002 Stock Option Plan (1)
10.2		Lease by and between Lifeloc Technologies, Inc. and Ward West Properties LLC, dated December 12, 2006 (1)
10.3		First Lease Amendment and Extension, dated May 1, 2010, to the Lease by and between Lifeloc Technologies, Inc. and Ward West Properties LLC, dated December 12, 2006 (1)
10.4		Contract No. 071B0200005 between the State of Michigan and Lifeloc Technologies, Inc., dated October 5, 2009 (1)
10.5		Technology Transfer Agreement between Lifeloc Technologies, Inc. and Fuel Cell Sensors, dated June 1, 2010 (1)
10.6		Form of Standard Distribution Agreement (1)
10.7		Business Loan Agreement between Lifeloc Technologies, Inc. and Citywide Banks, dated May 11, 2010, as amended (1)
10.8		Representation Agreement between Crossco Manufacturers Representatives, Inc. and Lifeloc Technologies, Inc., dated February 2, 2009 (2)
31.1		Certification of Principal Executive Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
31.2		Certification of Principal Financial Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive Date Files Pursuant to Rule 405 of Regulation S-T.

(1)	Incorporated by reference to our Registration Statement on Form 10-12G, filed on March 31, 2011.

(2)	Incorporated by reference to our Registration Statement on Form 10-12G (Amendment 1), filed on May 11, 2011.

Lifeloc Technologies, Inc - FORM 10-Q - November 3, 2011

Attached files

Lifeloc Technologies, Inc Reports