LCTC 10-K & 10-Q changes, risk factors and insider trading

SixteenEighteen percent of our product sales in 2024 2025 and fifteen sixteen percent in 20232024 were attributable to three customers, with whom we do not have long-term contracts. If orders from those customers are not renewed, our revenues may be adversely affected. Furthermore, at December 31, 2024,2025, our accounts receivable balance included approximately $339,925 $344,879 or 46% from one customer, $27,383$56,096 or 4%7% from a second customer, and $19,684,$39,780, or 3%,5%, from a third customer.

Our ability to attract employees, including 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 innovations to market or produce our products. As a result, our business could be damaged. Additionally, labor shortages, which have become more common due to COVID-19 impacts, threaten to damage our business.

We monitor our capital adequacy on an ongoing basis. basis. To the extent that our funds are insufficient to fund future operating requirements, we may need to raise additional funds through corporate corporate finance transactions or curtail our growth and reduce our liabilities. Any equity, hybrid or debt financing, if available at all, may be on terms that are not favorable to us. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition condition and operating results would be adversely affected.affected, and we may be required to reduce, delay, or discontinue our SpinDetect™ development program, which could materially affect our business prospects and the value of our investment in that technology.

Global credit and financial markets have experiencedexperienced, extremeand may continue to experience, significant volatility and disruptions in the past several years,disruption, including periods of increased inflation, severely diminished liquidity and credit availability, declines in consumer confidence,confidence declines inand economic growth, increases in unemployment rates and uncertainty about economic stability. Ongoing and emerging stability,geopolitical conflicts, trade tensions, and other destabilizing events contribute to this uncertainty, and the volatility of such market and economic conditions have increased as a result of the COVID-19 pandemic and the Russian invasion of Ukraine. The scope, durationduration, and long-term impact of theany COVID-19such pandemic and the Russian invasionconditions are unknowndifficult atto this time, so there can be no assurance how significant any deterioration in credit and financial markets and confidence in economic conditions will be and how long it may continue.predict. Our general business strategy may be adversely affected by any such economic downturn, volatile geopolitical and business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon research and development plans. In addition, there is a risk that one or more of our current suppliers or other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

Lifeloc incorporated in Colorado in December 1983. We We filed a registration statement on Form 10 with the Securities and Exchange Commission, which became effective on May 31, 2011. Our Our fiscal year end is December 31. Our principal executive offices are located at 12441 West 49th Avenue, Unit 4, Wheat Ridge, Colorado Colorado 80033-3338. Our telephone number is (303) 431-9500. Our websites are www.lifeloc.com and www.stsfirst.com.www.lifelocuniversity.com. Information contained on our websites does not constitute part of this Form 10-K.

Research and Development Expenses. We We expect to increasecontinue ourto incur research and development expenses toas supportwe refinementsnear completion of the first phase of SpinDetect™ and to update our products,base and the development of additional new products.

On March 8, 2017, we entered into an Asset Purchase Purchase Agreement (the “Asset Purchase Agreement”) with Track Group Inc., a Delaware corporation. Pursuant to the terms and conditions conditions of the Asset Purchase Agreement, we acquired certain assets comprised of: (1) handheld hardware device technology (the “R.A.D.A.R.® Mobile Devices”), designed to measure breath alcohol content of the user; and (2) software technology called R.A.D.A.R.® (Real-time Alcohol Detection and Reporting) Reporting Center designed to allow the Device to be configured and to capture and manage the data being returned from the Device (together with the Device, the “R.A.D.A.R.® Assets”). We purchased the assets of R.A.D.A.R. 100 knowing the product needed significant upgrading, which was essentially completed and released for sale in 2022 as R.A.D.A.R. 200. This product met with little market acceptance as a result of the underperformance of one feature, generating nominal revenue in 2022 and none in subsequent years. In 2023, we outsourced the development of R.A.D.A.R. 300 to a third party, but that effort is currently on hold as a result of focusing all of our effort on SpinDx.hold.

Our product sales for the year ended December 31, 31, 20242025 were $8,470,985,$8,958,672, aan decreaseincrease of 8%6% from $9,228,843$8,470,985 for the same period a year ago. This decreaseincrease is primarily attributable to tonew havingcustomer satisfied pent up demand in later 2023acquisitions and theexpansion firstwithin partexisting ofcustomer 2024.accounts Inincluding addition,fleet inflationaryrefresh pressures on customers’ budgets also played a role.activity. When royalties of $34,382 $51,634 and rental income of $32,778$16,632 are included, total revenues of $8,538,145$9,026,938 decreasedincreased by $791,421, $488,793, or 9%,6%, for the year ended December 31, 2024 2025 when compared to the same 12 months a year ago. Rental income decreased by $35,646 $16,146 due to electing not to renew or replace a lease for a portion of the space formerly occupied by a tenant, and royalties increased by $2,083 $17,252 due to an increase in sales by royalty-paying customers.

GrossTotal gross profit for the year ended December 31, 2025 of $3,642,045 represented an increase of 6% from total gross profit of $3,446,099 for the year ended December 31, 20242024, primarily of $3,446,099 representedas a decrease of 15% from total gross profit of $4,039,670 for the year ended December 31, 2023, primarily as a result of lowerhigher product sales and rental income, and the inflationary effect on costs.sales. Cost of product salessales, decreasedexcluding rental segment costs, increased from $5,260,338$5,066,779 in the year ended December 31, 2024 to $5,375,787 in the same period in 2025, an increase of $309,008 (6%). Gross profit margin on products was 40% in the year ended December 31, 20232025 to $5,066,779 in the same period in 2024, a decrease of $193,559 (4%). Gross profit margin on products decreased toand 40% in the year ended December 31, 2024 from 43% in the year ended December 31, 2023 primarily as a result of the sales mix.2024.

Research, development and sustaining engineering expenses expenses continued at the high level of $2,242,869$2,152,843 for the year ended December 31, 2024,2025, representing ana increasedecrease of $407,705$90,026 (22%4%) over the $1,835,164 $2,242,869 in the same period a year ago. This increasedecrease resulted primarily from thea additionreduction of personnel,payments materials andto outside contractors needed needed for our dedicationdevelopment of resources to SpinDxSpinDetect™. In 20252026 we expect to paycontinue $487,300 to a third party contractor for additional work requiredon to complete a portion of the SpinDx development.SpinDetect™.

Sales and marketing expenses of $1,358,211$1,331,062 for the the year ended December 31, 20242025 were upsimilar by $132,830 (or 11%) fromto the $1,225,381$1,358,211 spent in the same period a year ago as a result of expanded marketing efforts, including attending trade shows and additional personnel following the decline of the pandemic and resolution of supply chain issues.ago.

General and administrative expenses of $1,388,160 for the year ended December 31, 2025, versus $1,253,236 for the year ended December 31, 2024 versus $1,170,260 for the year ended December 31, 2023 were higher by $82,976$134,924 (7%11%) primarily as a result of the effectspublic ofcompany inflation.and legal expense attributable to our S-4 filings.

Interest income decreased from $70,062$42,867 a year ago ago to $42,867$38,010 in 20242025, a decrease of $4,857, as a result of less funds available. Interest expense of $40,145$119,190 in the year ended December 31, 20242025 was down slightlyup $79,045 from $41,566$40,145 in the previous year as a result of the decreaseincrease in the interest rateand amortization of debt issuance costs on our newdebentures. loanCombined, onthese ourchanges building.resulted The total decrease asin a resulttotal expense increase of the$83,902, aboveor items3082%, in the year ended December 31, 2024 was $25,774, or 90%,2025 from the year ended December 31, 2023.2024.

We realized a net loss of $2,470,399 for the year ended December 31, 2025 compared to a net loss of $1,052,948 for the year ended December 31, 20242024. comparedThis toincrease netin incomeloss of $205,614 for the year ended December 31, 2023. This$1,417,451 decrease of $1,258,562 was the result of the changes in gross profit, operating expenses and other income discussed above, which resulted in a loss before taxes of $1,405,495$1,311,200 in 2025, or a decrease of $1,242,856$94,295 from the loss before taxes of $162,639$1,405,495 in 2023.2024. After the benefitprovision for valuation allowance from deferred taxes of $352,547$1,159,199 (in 2025 versus a benefit from taxes of $368,253$352,547 a year ago),ago, we realized a net loss of $(1,052,948)$2,470,399 in 2025 compared to a net income loss of $205,614$1,052,948 in 2023.2024. The benefit from taxes of $352,547 in 2024 resulted in an increase to our deferred tax asset from $806,652 at December 31, 2023 to $1,159,199 at December 31, 2024. The deferred tax asset reserve was increased by $1,159,199 in 2025 which resulted in a net deferred asset of $0 in 2025.

Revenues in the year 20242025 were lowerhigher compared to revenues in 2023.2024. We believe that continued increased sales efforts, together with the expected availability of SpinDxSpinDetect™ for sale in 2026 may result in modest improved revenues in 2026 and beyond. Revenues in 2025 may be similar to revenues in 2024. Inflationary pressures have affected our business in a number of ways, including increasing the cost of raw materials, labor, and freight. Our actions to mitigate the impact of inflation, including pre-ordering components in higher than usual quantities, sourcing new vendors and increasing prices have been somewhat successful.

We expect our quarter-to-quarter revenue fluctuations to continue, due to the unpredictable timing of large orders from customers and the size of those orders in relation to total revenues. Going Going forward, we intend to focus our development efforts on products we believe offer the best prospects to increase our intermediate and near-term revenues, with particular emphasis on completinglaunching SpinDxSpinDetect™. into the market.

Our 20252026 operating plan is focused on growing sales sales, of our base products, and on bringing SpinDetect to market, thereby increasing gross profits,profits. and increasing research and development efforts on new products, including SpinDx™, for long-term growth. We cannot predict with certainty the expected sales, gross profit, net income or loss, or usage of cash and cash equivalents for 2025. 2026. However, we believe that cash resources will be sufficient to fund our operations for the next twelve months under our current operating plan. If we are unable to manage the business operations in line with our budget expectations, it could have a material adverse effect on business viability, financial position, results of operations and cash flows. Further, if we are not successful in sustainingregaining profitability and remainingachieving at least cash flow break-even, additional capital may be required to maintain ongoing operations.

We have traditionally funded working capital needs through product sales and close management of working capital components of our business. Historically, we have also received cash from private offerings of our common stock, warrants to purchase shares of our common stock, and notes. In July, 2024 we completed a private placement of 210,000 shares of our common stock at $3.80 per share for a total raise of $798,000 with a related party. On December 31, 2024 we completed the issuance of a six year unsecured subordinated debenture for $750,000 with a third party. On March 1, 2025 we completed the issuance of a 70 month unsecured subordinated debenture for $75,000 with a third party. In our earlier years, we incurred quarter to quarter operating losses to develop current product applications, utilizing a number of proprietary and patent-pending technologies. AlthoughBetween 2002 and 2020, we havewere beenconsistently profitableprofitable, due to stabilization and then growth in our core breathalyzer products. Our recent yearsnet exceptlosses in 2020, 20222024 and 2024,2025 wereflect cana providedeliberate no assurances that operating losses will not occurinvestment in the future.development Shouldof thatour situationSpinDetect™ arise,platform rather than a deterioration of our core breathalyzer business, which has remained stable. We believe our core product and services business, at current revenue levels, is capable of supporting ongoing operations on a cost-reduced basis. We intend to continue managing costs carefully while advancing SpinDetect™ toward its anticipated commercial launch later in 2026. If the development or market acceptance of SpinDetect™ takes longer than expected, or if we require additional capital to support commercialization, we may notseek beadditional ablefinancing tothrough obtainequity working capitalor fundsdebt necessary in the time frame needed and at satisfactory terms, if at all.offerings.

As of December 31, 2024,2025, cash and cash equivalents were $1,243,746,$746,001, trade accounts receivable were $732,541$772,380 and current liabilities were $743,575$836,870 resulting in net liquid assets of $1,232,712.$681,511. We believe thatour core breathalyzer business has remained fundamentally sound and, together with the diminishinganticipated commercialization of theSpinDetect™, provides Covid-19a pandemic,reasonable thebasis resolutionfor ofa supply chain issues, and the introduction of several new products during the last several years, along with new and on-going customer relationships will allow Lifelocreturn to operateprofitability. profitably.However, Ifif the revenuerevenues levelsfrom priorour tocore 2020business do not continuegrow toas increase in a timely manner,expected, if inflationarythe commercialization pressuresof areSpinDetect™ notis contained,delayed or requires more capital than anticipated, or if thegeneral developmenteconomic conditions deteriorate, and market acceptance of SpinDx™ takes longer than expected, we may be required to seek additional sources of capital and/or to implement further cost reduction measures, as necessary.

Equipment expenditures, consisting of updated production production equipment and SpinDxSpinDetect™ related equipment, during FY 2425 were $667,738$354,381 compared to $6,811$667,738 for FY 23,24, ana increasedecrease of $660,927. $313,357. We incurred patent application costs in preparation for filing of $0 in 2025 versus $21,708 in 20242024. versusFully $1,404depreciated inequipment of 2023.$510,767 Nowas expired or fully amortized patents were removed from our financialbalance statementssheet in 20242025 orvs. 2023.none in 2024. Fully amortized patents of $2,821 were removed from our balance sheet in 2025 vs. none in 2024. As development of SpinDxSpinDetect progresses, and as normal wear and tear of equipment occurs, we expect to incur outlays for equipment and patent filings in 20252026 and beyond.

We generally provide a standard one-year limited warranty warranty on materials and workmanship to our customers. We provide for estimated warranty costs at the time product revenue is recognized. Warranty Warranty costs are included as a component of cost of goods sold in the accompanying statements of operations.loss. For the year ended December 31, 31, 20242025 and for the year ended December 31, 2023,2024, warranty costs were not deemed significant.

We have concluded that we have twoone operating segments,segment includingconsisting of our primary business which is as a developer, manufacturer and marketer of portable hand-held breathalyzers and related accessories, accessories, supplies and education, and a second segment consisting of renting portions of our building to existing tenants.education.

Property and equipment are stated at cost, with depreciation depreciation computed over the estimated useful lives of the assets, generally five years (three years for software and technology licenses). We use the declining method of depreciation for property, including space modifications, and the straight linestraight-line method for software and technology licenses. We purchased all of the assets of STS, an online education company, in 2014, which consisted of training courses that are amortized over 15 years using the straight line method. In 2025, we accelerated the amortization of the remaining cost and fully amortized the asset by December 31, 2025. In October 2014, we purchased our building. A majority of the cost of the building is depreciated over 39 years using the straight line method. In addition, based on the results of a third party analysis, a portion of the cost was allocated to components integral to the building. Such components are depreciated over 5 and 15 years, using the declining method. The R.A.D.A.R.® software and patents that were purchased in March 2017 were originally set to amortize over 15 years using the straight line method, but in 2022 we accelerated the amortization of the remaining cost to fully amortize the assets by December 31, 2024.2025. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.

On May 4,1, 2026, we entered into a loan agreement with our CFO and Board Chairman. The loan is secured by substantially all assets of the Company, including a second mortgage on our assets building and is subordinate to the prior perfected security interest held by ourUMB senior(formerly lender.Citywide Banks). As a result, substantially all of our assets are now pledged as collateral to multiple lenders, which may limit our ability to obtain additional financing or to dispose of assets without lender consent. The interest rate on the loan is subject to upward adjustment based on changes in the prime rate, which could increase our debt service costs in a rising rate environment. In addition, because the lender is also our CFO and Board Chairman, the terms of the loan were not negotiated on an arm’s-length basis with an unrelated third party, and the lender’s dual role could present conflicts of interest in connection with future decisions regarding the loan, including any amendments, extensions, or enforcement actions.

We have completed the design of the SpinDetect™ microfluidic disk, with all analytical chemistry now occurring on the disk after sample introduction. We arewill be initiating beta testing of of the oral-fluid analyzer focused on delta-9-THC detection using a prototype reader, with final component optimization underway under a a signed beta-testing agreement. The initial commercial product is expected to measure delta-9-THC, followed by a multi-drug panel release. We anticipate a limited commercial launch in 2026,Q1 of 2027, with subsequent expansion into additional drug panels and sample types, including blood and breath — the latter integrated with our LX9 breathalyzer. The SpinDetect™ reader is designed to accept multiple disk formats, which may also enable future applications beyond drug testing, such as detection of food-safety markers and environmental contaminants; these applications would require additional research, regulatory clearances, and potential expansion of our existing license rights. Continued progress toward commercialization is dependent on timely access to capital to support fabrication, validation, regulatory preparation, preparation, and market introduction.

For the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.

Our product sales for the three months ended MarchJune 31,30, 2026 were $2,289,759,$2,434,697, an increase of 1%11% from $2,263,047$2,191,260 for the same period a year ago. This increase results from acceleration of several larger orders that may reflect customers’ current availability of funds. In addition, the continuing inflationary pressure outlook on customers’ budgets may also have played a role. When royalties of $4,053$10,260 and rental income of $0 are included, total total revenues of $2,293,812$2,444,957 increased by $16,778,$225,581, or 1%,10%, for the three months ended MarchJune 31,30, 2026 when compared to the same three months a a year ago. Rental income was discontinued after June 30, 2025, and royalties decreased by $1,618$9,540 due to a decrease in sales by royalty-paying customers.

Gross profit for the three months ended MarchJune 30, 31, 2026 of $987,074$1,092,526 represented an increase of 9%18% from total gross profit of $908,566$924,599 for the three months ended MarchJune 31,30, 2025, primarily as a result of higher product sales. Cost of product sales decreasedincreased from $1,363,805$1,294,777 in the three months ended MarchJune 31,30, 2025 to $1,306,738$1,352,431 in the same period in 2026, aan decreaseincrease of $57,067$57,654 (4%). Gross profit margin on products increased to 43%45% in the three months ended MarchJune 31,30, 2026 from 40%42% in the three months ended MarchJune 31,30, 2025 primarily as a result of the higher sales and product mix.

Research, development and sustaining engineering expenses continued at the high level of $414,445,$560,281, or 18%23% of product sales, for the three months ended MarchJune 31,30, 2026, representing a decrease of $55,235$62,981 (12%10%) over the $469,680$623,262 in the same period a year ago. This decrease resulted primarily from a lull in payments to outside contractors needed for continuing design work related to SpinDetect™.

Sales and marketing expenses of $313,229$320,968 for the three months ended MarchJune 31,30, 2026 were down by $21,327$18,560 (or 6%) from the $334,556$339,528 spent in the same period a year ago as a result of across the board efforts to lower expenses.

General and administrative expenses of $387,402$314,853 for the three months ended MarchJune 31,30, 2026 versuswere $384,878down forby $25,221 (or 7%) from the three$340,074 monthsspent endedin Marchthe 31,same 2025period werea relativelyyear unchanged.ago as a result of across the board efforts to lower expenses.

Interest income decreased from $12,357$10,931 a year ago to $6,531$8,856 in 2026 as a result of less funds available at the beginning of the period. Interest expense of $31,242$39,610 in the three months ended MarchJune 31,30, 2026 was up from $24,495$26,305 in the previous year as a result of the increase in subordinated debentures outstanding in the 2026 quarter vs. less in the same quarter a year ago.ago as well as adding a new term loan in May 2026. The total increase of $12,573 $15,380 from $12,138$15,374 of other expense (net) in the period ended MarchJune 31,30, 2025 to total other expense (net) of $24,711$30,754 in the current quarter is expected to continue in future quarters due to the increase in borrowings.

We realized a net (loss) of ($152,713$134,330) for the three months ended MarchJune 31,30, 2026 compared to a net (loss) of ($292,686$393,639) for the three months ended MarchJune 31,30, 2025. This decrease of of $139,973$259,309 (48%or 66%) was the result of the changes in gross profit, operating expenses and other income discussed above. The benefit from taxes in the three months ended MarchJune 31,30, 2026 was $0 which was the same amount in the same period a year ago.

Revenues in the first threesix months of 2026 were slightly higher compared to revenues during the same period in 2025. We believe that continued increased sales efforts may result in modestly improved revenues in 2026 and beyond with the anticipated availability of SpinDetect™. Revenues in 2026 may be similar to revenues in 2025. Inflationary pressures have affected our business in a number of ways, including increasing the cost of raw materials, labor, and freight. Our actions to mitigate the impact of inflation, including pre-ordering components in higher than usual quantities, sourcing new vendors and increasing prices have been somewhat successful.

In connection with the financing of our building purchase on October 31, 2014 we obtained a 10-year term loan from Bank of America in an initial principal amount of $1,581,106 bearing interest at 4.45% per annum (which was decreased to 4% in 2016) and secured by a first-priority mortgage in the acquired property. The Bank of America loan was paid on September 30, 2021 with proceeds from a new term loan from UMB (formerly Citywide Banks,Banks), also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000. The new loan is payable in monthly installments of $7,453, with interest at 2.95% and a maturity date of September 30, 2031.

On December 31, 2024 we issued an unsecured $750,000 subordinated debenture bearing interest at 8.25%, including 62,500 warrants exercisable on or before December 31, 2030 into 62,500 shares of our common stock at a price of $4.50 per share. On March 1, 2025 we issued an unsecured $75,000 subordinated debenture bearing interest at 8.25%, including 6,250 warrants exercisable on or before December 31, 2030 into 6,250 shares of our common stock at a price of $4.50 per share. Using the Black Scholes model, the fair market value of these warrants resulted in deferred financing cost of $132,000, which is included in our balance sheet at MarchJune 31,30, 2026 at $126,829$99,257 after amortization in the threesix months ending MarchJune 31,30, 2026 of $5,171,$10,514 , and which resulted in an increase to capital of $120,000 on December 31, 2024 and $12,000 on March 1, 2025. The interest of 8.25% was paid in quarterly increments in 2025, and will be included in monthly payments of $10,119 including principal in 2026.

During the threesix months ended MarchJune 31,30, 2026, net net cash used in operating activities was $129,365,$262,577, reflecting the net loss partially offset by non-cash charges and working capital changes. Net cash used in investing activities was $19,781, primarily for equipment purchases. Net cash usedprovided infrom financing activities was $444,565, $27,525, consisting primarily of $500,000 in proceeds from a new related-party term loan, partially offset by scheduled principal payments on our term loan.loan Subsequentand tosubordinated March 31, 2026, we obtained additional debt financing from a related party to fund the continued development of SpinDetect™.debentures.

As of MarchJune 31,30, 2026, cash and cash equivalents were $569,330,$908,208, trade accounts receivable were $850,341$826,715 and current liabilities were $1,064,101$1,099,030 resulting in net liquid assets of $355,570.$635,893. We believe our core breathalyzer business has remained fundamentally sound and, together with the anticipated commercialization of SpinDetect™, provides a reasonable basis for a return to profitability. However, if revenues from our core business do not grow as expected, if the commercialization of SpinDetect™ is delayed or requires more capital than anticipated, or if general economic conditions deteriorate, we may be required to seek additional sources of capital and/or to implement further cost reduction measures, as necessary.

Equipment expenditures during the threesix months ended endedJune March 31,30, 2026 consisted of SpinDetect™ related equipment of $14,411 compared to $18,548$236,789 in the first threesix months of 2025, and $5,370 in officesales and marketing equipment versus $0$5,462 in 2025. No patent application costs were incurred during either period. As development of SpinDetect™ progresses, and as normal wear and tear of equipment occurs, we expect to incur outlays for equipment and patent filings in 2026 and beyond.

We generally provide a standard one-year limited warranty on materials and workmanship to our customers. We provide for estimated warranty costs at the time product revenue is recognized. Warranty costs are included as a component of cost of goods sold in the accompanying statements of operations. For the threesix months ended MarchJune 31,30, 2026 and 2025, warranty costs were not deemed significant.