Lifeloc Technologies, Inc (Form: 10-Q, Received: 08/14/2017 13:44:17)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

	For the quarterly period ended June 30, 2017

☐	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 ☐ No ☒ *

* The registrant is a voluntary filer of reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, and has filed all such reports during the preceding 12 months.

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 ☒ No ☐

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 ☐	Accelerated filer ☐

Non-accelerated filer ☐	Smaller reporting company ☒
(Do not check if a smaller reporting company)

Emerging growth company ☐

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

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

Common Stock, no par value	2,454,116 Shares
(Class)	(outstanding at August 7, 2017)

LIFELOC TECHNOLOGIES, INC.

FORM 10-Q

For the Three Months and Six Months Ended June 30, 2017

INDEX

	Page
	Number



PART I. FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)

Condensed Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016		3
Condensed Statements of Income (Unaudited) for the three months ended June 30, 2017 and 2016		4
Condensed Statements of Income (Unaudited) for the six months ended June 30, 2017 and 2016		5
Condensed Statements of Cash Flows (Unaudited) for the six months ended June 30, 2017 and 2016		6
Notes to Condensed Financial Statements (Unaudited)		7

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		21

ITEM 4 CONTROLS AND PROCEDURES		21

PART II. OTHER INFORMATION		21

ITEM 1 LEGAL PROCEEDINGS		21

ITEM 1A RISK FACTORS		21

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		21

ITEM 3 DEFAULTS UPON SENIOR SECURITIES		22

ITEM 4 MINE SAFETY DISCLOSURES		22

ITEM 5 OTHER INFORMATION		22

ITEM 6 EXHIBITS		22

SIGNATURES		23

PART I FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

LIFELOC TECHNOLOGIES, INC.
Condensed Balance Sheets

ASSETS

	June 30,
	2017			December 31,
CURRENT ASSETS:	(Unaudited)			2016
Cash	$	2,632,565		$	3,772,064
Accounts receivable, net		635,768			495,397
Inventories, net		1,008,174			835,609
Income taxes receivable		83,966			114,673
Prepaid expenses and other		59,552			52,072
Total current assets		4,420,025			5,269,815

PROPERTY AND EQUIPMENT, at cost:
Land		317,932			317,932
Building		1,928,795			1,928,795
Real-time Alcohol Detection And Recognition equipment and software		595,323			-
Production equipment and software		531,325			456,005
Training courses		432,375			432,375
Office equipment and software		219,235			193,332
Sales and marketing equipment		228,908			228,908
Research and development equipment and software		116,670			78,157
Less accumulated depreciation		(1,250,578	)		(1,112,498	)
Total property and equipment, net		3,119,985			2,523,006

OTHER ASSETS:
Patents, net		184,052			71,909
Deposits and other		156,112			98,991
Real-time Alcohol Detection And Recognition equipment		152,875			0
Deferred taxes		94,830			109,727
Total other assets		587,869			280,627

Total assets	$	8,127,879		$	8,073,448

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	258,765		$	284,590
Term loan payable, current portion		41,214			40,218
Customer deposits		71,111			51,611
Accrued expenses		169,108			239,833
Deferred revenue, current portion		59,203			64,283
Reserve for warranty expense		40,000			40,000
Total current liabilities		639,401			720,535

TERM LOAN PAYABLE,
net of current portion and debt issuance costs		1,431,183			1,455,604

DEFERRED REVENUE, net of current portion		10,461			8,665

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares
authorized, 2,454,116 shares outstanding		4,569,649			4,557,320
Retained earnings		1,477,185			1,331,324
Total stockholders' equity		6,046,834			5,888,644

Total liabilities and stockholders' equity	$	8,127,879		$	8,073,448

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Income (Unaudited)

	Three Months Ended June 30,
REVENUES:	2017			2016
Product sales	$	1,879,405		$	2,025,865
Royalties		144,517			234,368
Rental income		22,458			27,782
Total		2,046,380			2,288,015

COST OF SALES		1,033,654			1,086,716

GROSS PROFIT		1,012,726			1,201,299

OPERATING EXPENSES:
Research and development		251,825			259,854
Sales and marketing		367,474			375,635
General and administrative		286,726			308,600
Total		906,025			944,089

OPERATING INCOME		106,701			257,210

OTHER INCOME (EXPENSE):
Interest income		2,230			5,535
Bad debt recovery		-			1,500
Interest expense		(15,187	)		(17,540	)
Total		(12,957	)		(10,505	)

NET INCOME BEFORE PROVISION FOR TAXES		93,744			246,705

PROVISION FOR FEDERAL AND STATE INCOME TAXES		(25,876	)		(80,718	)

NET INCOME	$	67,868		$	165,987

NET INCOME PER SHARE, BASIC	$	0.03		$	0.07

NET INCOME PER SHARE, DILUTED	$	0.03		$	0.07

WEIGHTED AVERAGE SHARES, BASIC		2,454,116			2,454,116

WEIGHTED AVERAGE SHARES, DILUTED		2,512,183			2,555,030

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Income (Unaudited)

	Six Months Ended June 30,
	2017			2016
REVENUES:
Product sales	$	3,761,594		$	4,125,995
Royalties		224,342			325,888
Rental income		44,915			55,564
Total		4,030,851			4,507,447

COST OF SALES		2,053,246			2,174,461

GROSS PROFIT		1,977,605			2,332,986

OPERATING EXPENSES:
Research and development		448,193			532,401
Sales and marketing		707,118			694,743
General and administrative		590,320			607,746
Total		1,745,631			1,834,890

OPERATING INCOME		231,974			498,096

OTHER INCOME (EXPENSE):
Interest income		3,646			7,893
Bad debt recovery		-			4,500
Interest expense		(30,311	)		(34,966	)
Total		(26,665	)		(22,573	)

NET INCOME BEFORE PROVISION FOR TAXES		205,309			475,523

PROVISION FOR FEDERAL AND STATE INCOME TAXES		(59,448	)		(156,201	)

NET INCOME	$	145,861		$	319,322

NET INCOME PER SHARE, BASIC	$	0.06		$	0.13

NET INCOME PER SHARE, DILUTED	$	0.06		$	0.13

WEIGHTED AVERAGE SHARES, BASIC		2,454,116			2,454,116

WEIGHTED AVERAGE SHARES, DILUTED		2,524,663			2,533,953

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.
Condensed Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES:	2017			2016
Net income	$	145,861		$	319,322
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization		143,426			140,646
Provision for doubtful accounts, net change		-			2,500
Provision for inventory obsolescence, net change		42,500			-
Deferred taxes, net change		14,897			11,087
Reserve for warranty expense, net change		-			4,400
Stock based compensation expense related to stock options		12,329			11,982
Changes in operating assets and liabilities-
Accounts receivable		(140,371	)		(144,514	)
Inventories		(215,065	)		(147,565	)
Income taxes receivable		30,707			81,031
Prepaid expenses and other		(7,480	)		(70,698	)
Deposits and other		(57,121	)		(15,176	)
Accounts payable		(25,825	)		69,401
Customer deposits and deferred grant revenue		19,500			4,224
Accrued expenses		(70,725	)		(35,493	)
Deferred revenue		(3,284	)		(21,280	)
Net cash provided from (used in) operating activities		(110,651	)		209,867

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(139,736	)		(35,379	)
Cash paid for equipment and software acquired in asset acquisition		(748,198	)		-
Cash paid for patents and patent applications acquired in asset acquisition		(100,000	)		-
Patent filing expense		(17,217	)		-
Net cash used in investing activities		(1,005,151	)		(35,379	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments made on term loan		(23,697	)		(18,137	)
Net cash used in financing activities		(23,697	)		(18,137	)

NET INCREASE (DECREASE) IN CASH		(1,139,499	)		156,351

CASH, BEGINNING OF PERIOD		3,772,064			3,227,190

CASH, END OF PERIOD	$	2,632,565		$	3,383,541

SUPPLEMENTAL INFORMATION:
Cash paid for interest	$	30,040		$	34,694

Cash paid for income tax	$	13,844		$	3,217

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND NATURE OF BUSINESS

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

We define our business as providing "near and remote sensing" products and solutions. Today, the majority of our revenues are derived from products and services for alcohol detection and measurement. We remain committed to growing our breath alcohol testing business. In the future, we anticipate the commercialization of new sensing and measurement products that may allow Lifeloc to successfully expand our business into new growth areas where we do not presently compete or where no satisfactory product solutions exist today.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation . These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”) for interim financial information. They do not include all information and notes required by GAAP for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to financial statements included in Lifeloc’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting of normal recurring accruals necessary for a fair presentation of our financial position as of June 30, 2017 and December 31, 2016, and our results of operations and cash flows for the periods ended June 30, 2017 and 2016. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for a full year. The Company’s 2016 Annual Report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q.

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expense during the reporting period. Actual results could differ from those estimates.

Deferred Taxes . In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes ( “ASU 2015-17”). This standard requires that deferred income tax assets and liabilities be presented as noncurrent assets or liabilities in the balance sheet. ASU 2015-17 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and may be applied either prospectively to all deferred tax assets or liabilities or retrospectively to all periods presented. Early adoption is permitted. We have adopted this new standard in 2017. As a result of adopting this standard, current deferred taxes of $109,727 have been reclassified in the accompanying balance sheet for December 31, 2016 as non-current.

Fair Value Measurement . Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equity securities listed on the New York Stock Exchange.

Level 2 - Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.

Level 3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or 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 June 30, 2017 and December 31, 2016, inventory consisted of the following:

	2017			2016
Raw materials & deposits	$	767,371		$	592,771
Work-in-process		16,903			42,366
Finished goods		268,900			287,972
Total gross inventories		1,053,174			923,109
Less reserve for obsolescence		(45,000	)		(87,500	)
Total net inventories	$	1,008,174		$	835,609

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

The estimated annual effective tax rate is applied to the year-to-date ordinary income (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.

Revenue Recognition. Revenue from product sales is generally recorded when we ship the product and title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. The prices at which we sell our products are fixed and determinable at the time we accept a customer's order. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims, and generally have no ongoing obligations related to product sales, except for normal warranty.

Supplies are recognized as sales when they are shipped. Training revenues are recognized at the time the training occurs. We have discontinued arranging for customer financing and leasing through unrelated third parties and instead are providing for customer financing and leasing ourselves, which we recognize as revenue over the applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract. Revenues from these activities are included in product revenue in our statements of income.

Royalty income is recognized in accordance with agreed upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured.

The sales of licenses to our training courses and the sale of training courses are recognized as revenue at the time of sale.

Rental income from space leased to our tenants is recognized in the month in which it is due, which approximates if it were recognized on a straight-line basis over the term of the related lease.

Rental income from our Real-time Alcohol Detection And Recognition (“R.A.D.A.R.”) equipment is recognized in the month in which it is due, which approximates as if it were recognized on a straight-line basis over the term of the related rental agreement.

On occasion, we receive customer deposits for future product orders. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer.

Deferred Revenue. Deferred revenues arise from service contracts and from development contracts. Revenues from service contracts are recognized on a straight-line basis over the life of the contract, generally one year, and are included in product revenue in our statements of income. However, there are occasions when they are written for longer terms up to four years. The revenues from that portion of the contract that extend beyond one year are shown in our balance sheets as long term. Deferred revenues also result from progress payments received on development contracts; those revenues are recognized when the contract is complete, and are included in product revenue in our statements of income. All development contracts are for less than one year and all deferred revenues from this source are shown in our balance sheets as short term.

Recent Accounting Pronouncements . We have reviewed all recently issued, but not yet effective, accounting pronouncements.

The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) in 2014. It outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In August 2016, the FASB issued ASU No. 2016-14, which deferred by one year the mandatory effective date of ASU 2014-09. As a result, public entities are required to adopt the new revenue standard in annual periods beginning after December 15, 2017 and in interim periods within those annual periods. The standard may be applied either retrospectively to prior periods or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted, but not before annual periods beginning after December 15, 2016. We have not determined when we will adopt the new revenue standard or selected the transition method that we will apply upon adoption. We do not expect this new standard to have a material impact on our financial statements or related disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). This update substantially revises standards for the recognition, measurement and presentation of financial instruments. This standard revises an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for certain requirements. We have determined that we will adopt this new standard in 2018. We do not expect this new standard to have a material impact on our financial statements or related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. The amendments in this ASU are effective for us beginning on January 1, 2019 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We have determined that we will adopt this new standard in 2019. We do not expect this new standard to have a material impact on our financial statements or related disclosures.

Stock-Based Compensation . Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, Compensation – Stock Compensation ("ASC 718"). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statement of income.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the accompanying statement of income.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. We used the Black-Scholes option-pricing model to determine fair value. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Although the fair value of employee stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

Stock-based compensation expense recognized under ASC 718 for the three months ended June 30, 2017 and 2016 was $6,165 and $4,938 respectively, which consisted of stock-based compensation expense related to grants of employee stock options, and which is allocated to General and Administrative Expense when incurred. Stock-based compensation expense recognized under ASC 718 for the six months ended June 30, 2017 and 2016 was $12,329 and $11,982 respectively, which consisted of stock-based compensation expense related to grants of employee stock options, and which is allocated to General and Administrative Expense when incurred.

Segment Reporting. We have concluded that we have two operating segments, including our primary business which is as a developer, manufacturer, lessor and marketer of portable hand-held breathalyzers and related accessories, supplies and education. As a result of purchasing our building on October 31, 2014, we have a second segment consisting of renting portions of our building to existing tenants, whose leases expire at various times until June 30, 2020.

3. ASSET ACQUISITION

In March 2017 we acquired all of the assets related to R.A.D.A.R. from Track Group, Inc. (“TRCK”) for $860,000 in cash. Based on Level 3 inputs, which consisted of estimates of future cash flows, return on investment analyses, and replacement costs, the purchase price was allocated as follows:

Asset	Allocation		Depreciable Life and Method	Estimated Future Annual Depreciation
Software	$	396,948	15 years; straight line	$	26,463
Rental equipment		172,500	5 years; double declining balance	Varies
Rental equipment not yet in service		178,052	5 years; double declining balance	Varies
Patents and patent applications		100,000	15 years; straight line	$	6,667
Production equipment		12,500	5 years; double declining balance	Varies
Total	$	860,000

Adjustments were made to these allocations following closing, reducing the original rental equipment not yet in service of $178,052 by $25,177 during the 3 months ended June 30, 2017. A total of $25,875 (including the reclassified amount from rental equipment not yet in service and an additional cost of $698) has been transferred to property and equipment. These revised classifications are reflected on the balance sheet as of June 30, 2017.

The purpose of this acquisition was to expand our offering of substance abuse monitoring services.

4. BASIC AND DILUTED INCOME PER COMMON SHARE

We report both basic and diluted net income or 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.

6. COMMITMENTS AND CONTINGENCIES

Mortgage Expense . We purchased our facilities in Wheat Ridge, Colorado on October 31, 2014 for $1,949,139 and took out a term loan secured by a first mortgage on the property in the amount of $1,581,106 with Bank of America for a portion of the purchase price. Effective June 30, 2016, the note was amended to revise the interest rate from 4.45% to 4.00% per annum. The revised note is payable in 99 equal monthly installments of $8,417, including interest, plus a final payment of $1,142,024 (including interest) on October 31, 2024. Our minimum future principal payments on this term loan, by year, are as follows:

Year	Amount

2017	$	20,382
2018		42,535
2019		44,292
2020		45,964
2021		48,021
2022 - 2024		1,280,604
Total		1,481,798
Less financing cost		(9,401	)
Net term loan payable		1,472,397
Less current portion		(41,214	)
Long term portion	$	1,431,183

Employee Severance Benefits . Our obligation with respect to employee severance benefits is minimized by the "at will" nature of the employee relationships. As of June 30, 2017, we had no obligation with respect to contingent severance benefit obligations other than the Company's obligations under the employment agreement with its chief executive officer, Dr. Wayne Willkomm. In the event that Dr. Willkomm's employment is terminated by the Company without Cause (including through a decision by the Company not to renew the employment agreement) or by Dr. Willkomm with Good Reason (as each are defined in the employment agreement), Dr. Willkomm will be eligible, upon satisfaction of certain conditions, for severance equal to two months of salary continuation plus 12 months of health insurance continuation.

Contractual Commitments and Purchase Orders . Contractual commitments under development agreements and outstanding purchase orders issued to vendors in the ordinary course of business totaled $1,156,960 at June 30, 2017.

Regulatory Commitments . With respect to our LifeGuard® product, we are subject to regulation by the United States Food and Drug Administration ("FDA"). The FDA provides regulations governing the United States domestic sale of our LifeGuard® product, and we are subject to inspections by the FDA to determine our compliance with these regulations. In June 2017 we were inspected by the FDA and found to be in compliance with applicable quality management system regulations. United States domestic sales of the LifeGuard® product ceased as of March 10, 2017 and it is not considered a medical device in the markets to which it is exported. We are also subject to regulation by the U.S. Department of Transportation ("DOT") and by various state departments of transportation so far as our other products are concerned. We believe that we are in substantial compliance with all known applicable regulations.

7. LINE OF CREDIT

As part of the long-term financing of our property purchased on October 31, 2014, we obtained a one-year $250,000 revolving line of credit facility with Bank of America, which matured on October 31, 2015 and was extended to June 30, 2017, and bears interest at a rate equal to the LIBOR daily floating rate, which was 1.17333% and .4116% as of June 30, 2017 and 2016, respectively, plus 2.5%. The agreement was amended May 15, 2017 to increase the amount of the line to $750,000 and extend the maturity date to June 30, 2018. The revolving line of credit facility is secured by all personal property and assets of the Company, whether now owned or hereafter acquired, wherever located. There was no balance due on the line of credit as of June 30, 2017 or December 31, 2016.

8. INCOME TAXES

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:

	Six Months Ended
	June 30, 2017			June 30, 2016
Federal statutory rate	$	71,858		$	166,433
Effect of:
State taxes, net of federal tax benefit		(10,790	)		(19,414	)
Estimated research and development credits		(29,133	)		(9,036	)
Other		27,513			18,218
Total	$	59,448		$	156,201

9. BUSINESS SEGMENTS

We currently have two business segments: (i) the sale and rental of physical products, including portable hand-held breathalyzers and related accessories, supplies, education, training ("Product Sales”), and royalties from development contracts with OEM manufacturers (“Royalties” and, together with Product Sales, the “Products” segment), and (ii) rental of a portion of our building (the "Rentals" segment). The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Operating profits for these segments excludes unallocated corporate items. Administrative and staff costs were commonly used by all business segments and were indistinguishable.

The following sets forth information about the operations of the business segments for the three months ended June 30, 2017 and 2016:

	2017			2016
Revenue:
Product Sales	$	1,879,405		$	2,025,865
Royalties		144,517			234,368
Products Subtotal		2,023,922			2,260,233
Rentals		22,458			27,782
Total	$	2,046,380		$	2,288,015

Gross profit:
Product Sales	$	859,604		$	954,618
Royalties		144,517			234,368
Products Subtotal		1,004,121			1,188,986
Rentals		8,605			12,313
Total	$	1,012,726		$	1,201,299

Interest expense:
Product Sales	$	9,919		$	9,132
Royalties		-			-
Products Subtotal		9,919			9,132
Rentals		5,268			8,408
Total	$	15,187		$	17,540

Net (loss) income before taxes:
Product Sales	$	(54,110	)	$	8,432
Royalties		144,517			234,368
Products Subtotal		90,407			242,800
Rentals		3,337			3,905
Total	$	93,744		$	246,705

The following sets forth information about the operations of the business segments for the six months ended June 30, 2017 and 2016:

	2017			2016
Revenue:
Product Sales	$	3,761,594		$	4,125,995
Royalties		224,342			325,888
Products Subtotal		3,985,936			4,451,883
Rentals		44,915			55,564
Total	$	4,030,851		$	4,507,447

Gross profit:
Product Sales	$	1,735,982		$	1,988,534
Royalties		224,342			325,888
Products Subtotal		1,960,324			2,314,422
Rentals		17,281			18,564
Total	$	1,977,605		$	2,332,986

Interest expense:
Product Sales	$	19,797		$	18,194
Royalties		-			-
Products Subtotal		19,797			18,194
Rentals		10,514			16,772
Total	$	30,311		$	34,966

Net (loss) income before taxes:
Product Sales	$	(25,800	)	$	147,843
Royalties		224,342			325,888
Products Subtotal		198,542			473,731
Rentals		6,767			1,792
Total	$	205,309		$	475,523

There were no intersegment revenues.

As of June 30, 2017, $966,178 of our assets were used in the Rentals segment, with the remainder, $7,161,701, used in the Products and unallocated segments.

10. SUBSEQUENT EVENTS

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

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

The following is a discussion of our financial condition and results of operations, and should be read in conjunction with our financial statements and the related notes included elsewhere in this Form 10-Q. Certain statements contained in this section are not historical facts, including statements about our strategies and expectations about new and existing products, market demand, acceptance of new and existing products, technologies and opportunities, market and industry segment growth, and return on investments in products and markets. These statements are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and we intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in these statutes. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans” or “anticipates” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. Such statements involve substantial risks and uncertainties that may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements in this section are based on information available to us on the date of this document, and we assume no obligation to update such forward-looking statements. Readers of this Form 10-Q are strongly encouraged to review the section titled “Risk Factors” in our December 31, 2016 Form 10-K.

Overview

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

In addition, with the October 2014 purchase of our corporate headquarters and certain adjacent property, we added a new reporting segment focused on the ownership and rental of real property through existing commercial leases.

Principal Products and Services and Methods of Distribution

In 1989, we introduced our first breath alcohol tester, the PBA3000. Our Phoenix® Classic was completed and released for sale in 1998, superseding the PBA3000. In turn, the Phoenix® Classic has been superseded by our FC Series and Workplace Series of portable breath alcohol testers, which are discussed below. Neither the PBA3000 nor the Phoenix® Classic is actively sold today.

In 2001, we completed and released for sale an additional product line, our new FC Series, designed specifically for domestic and international law enforcement and corrections markets. The portable breath alcohol testers comprising our FC Series are currently being sold worldwide, having contributed to our growth since their introduction. The FC Series is designed to meet the needs of domestic and international law enforcement for roadside drink/drive testing and alcohol offender monitoring. The FC Series is approved by the U.S. Department of Transportation ("DOT") as an evidential breath tester, making it suitable for sale to state law enforcement agencies for preliminary roadside breath alcohol testing. The FC Series is routinely updated with firmware, software and component improvements as they become available. It is readily adaptable to the specific requirements and regulations of domestic and international markets.

In 2005 and 2006, we introduced two new models, the EV30 and Phoenix® 6.0 Evidential Breath Tester ("Phoenix® 6.0"), which constitute our Workplace Series of testing devices. Like their predecessor, the Phoenix® Classic, these instruments are also DOT approved. The DOT's specifications support the DOT's workplace alcohol testing programs, including those applicable to workplace alcohol testing for the federally regulated transportation industry. We also sell component parts used in alcohol testing devices, such as mouthpieces used by our breathalyzers, as well as forms and labels used for record keeping, and calibration products for user re-calibration of our devices. We offer optional service agreements on our equipment, re-calibration services, and spare parts, and we sell supporting instrument training and user certification training to our workplace customers.

In 2006, we commenced selling breath alcohol equipment components that we manufacture to other original equipment manufacturers ("OEMs") for inclusion as subassemblies or components in their breath alcohol testing devices.

In late 2009, Lifeloc released the LifeGuard® Personal Breathalyzer ("LifeGuard®"), a personal alcohol breath tester that incorporates the same fuel-cell technology used in our professional devices. Intended for the global consumer breathalyzer market, LifeGuard® is marketed internationally through global distributors and, until March 2017, was sold directly to consumers in the U.S.

In 2011 and 2012 Lifeloc introduced Bluetooth wireless keyboard and printer communication options for our popular Phoenix® 6.0 along with a series of web-based workplace training courses. We believe these two product innovations have been key to our success and leadership in workplace breath testing.

In 2013 Lifeloc expanded our FC Series of professional breath alcohol testers targeted at domestic and international law enforcement and corrections markets with the addition of the FC5 Hornet (the "FC5"). The FC5 is a passive (no mouthpieces required) portable handheld alcohol screening device that competes directly with passive alcohol screeners from our competitors in the education, law enforcement, workplace and corrections markets. In 2013 we also introduced the Sentinel™ zero tolerance alcohol screening station, a fully automated wall mounted screening station for use in safety sensitive industries such as oil and gas and mining. Both devices expand Lifeloc's products for passive alcohol screening.

In the third quarter of 2014 we received approval from DOT for our EASYCAL® automatic calibration station for use with Lifeloc Evidential Breath Testers, and we began shipments of the EASYCAL® to our law enforcement, corrections, workplace and international customers. The EASYCAL® is a first of its kind device that automatically performs breath tester instrument calibration, calibration verification and gas management. As compared to manual instrument calibration, the EASYCAL® reduces the opportunity for human error, saves time and reduces operating costs.

In October 2014 we were awarded a $250,000 grant from the Colorado Office of Economic Development to accelerate development of a breathalyzer that tests for Tetrahydrocannabinol (THC), the principal psychoactive constituent in cannabis. Terms of the grant require us to submit invoices as work is performed, with an anticipated completion date of August 31, 2017. This development effort is ongoing. Reimbursements received under the grant are included in our Statements of Income as reductions in Research and Development cost. No revenue has been recognized from these grant reimbursements. We received $25,000, $42,396, and $44,523 of grant reimbursements in 2014, 2015 and 2016 respectively. None have been received in 2017. There is no assurance that this effort to develop a THC breathalyzer will be successful or that significant sales will result from such development if successful.

On October 31, 2014, we purchased the commercial property the Company uses as its corporate headquarters and certain adjacent property in Wheat Ridge, Colorado. The building consists of 22,325 square feet, of which 11,215 are currently leased to two tenants under leases that expire at various times ranging from December 31, 2017 to June 30, 2020. We intend to continue to lease the space we are not occupying, but in the future may elect to expand our own operations into space currently leased to other tenants. Our purchase of the property was partially financed through a term loan in an original principal amount of $1,581,106, secured by a first-priority mortgage on the property. The loan matures in October 2024.

In December 2014, we acquired substantially all of the assets of Superior Training Solutions, Inc. ("STS"), a company that develops and sells online drug and alcohol training and refresher courses. The assets we acquired from STS complement our existing drug and alcohol training courses.

In October 2016 we introduced our Sentinel™ line with the Sentinel™ VA alcohol screening station, a full automated station to control vehicular access to safety critical facilities, such as mines, refineries, power stations and nuclear facilities.

In March 2017 we acquired all of the assets related to the Real-time Alcohol Detection And Recognition product (“R.A.D.A.R.”) from Track Group, Inc. (“TRCK”) for $860,000 in cash. The purchased assets included handheld hardware device technology (the “Device”) which is designed to measure breath alcohol content of the user and software technology designed to allow the Device to be configured and to capture and manage the data being returned from the Device.

Additional Areas of Interest

Consistent with our business goal of providing "near and remote sensing" products and solutions, our acquisition strategy involves purchasing companies, development resources and assets that are aligned with our areas of interest and that can further aid in our entering additional markets. We expect to actively research and engage in the acquisition of resources that can expedite our entrance into new markets or strengthen our position in existing ones.

Results of Operations

For the three months ended June 30, 2017 compared to the three months ended June 30, 2016 .

Net sales. Our product sales for the quarter ended June 30, 2017 were $1,879,405, a decrease of 7% from $2,025,865 for the quarter ended June 30, 2016. This decrease is primarily attributable to prevailing market conditions, including a decrease in sales in the oil and gas sector. When royalties of $144,517 and rental income of $22,458 are included, total revenues of $2,046,380 decreased by $241,635, or 11%, for the quarter ended June 30, 2017 when compared to the same quarter a year ago.

Gross profit. Total gross profit for the three months ended June 30, 2017 of $1,012,726 represented a decrease of 16% from total gross profit of $1,201,299 for the same period a year earlier primarily as a result of decreased sales volume and lower royalties. Cost of product sales decreased from $1,071,247 in Q2 of 2016 to $1,019,801 in Q2 of 2017, or 5%, primarily as a result of decreased labor and materials required for the decreased sales volume. Gross profit margin on products went from 47% in Q2 of 2016 to 46% in Q2 of 2017, thus remaining fairly constant.

Research and development expenses. Research and development expenses were $251,825 for the quarter ended June 30, 2017, representing a decrease of 3% over the $259,854 in the same quarter a year ago. This decrease resulted mostly from lower payments to outside vendors, which we attribute to a difference in scheduling of work done by outside vendors.

Sales and marketing expenses. Sales and marketing expenses of $367,474 for the quarter ended June 30, 2017 represented a decrease of 2% from sales and marketing expenses of $375,635 for the quarter ended June 30, 2016. This decrease resulted primarily from lower compensation paid to our sales force.

General and administrative expenses. General and administrative expenses were $286,726 for the quarter ended June 30, 2017, which represented a decrease of 7% from the $308,600 spent in the same quarter a year ago. This decrease results mostly from abandoned patents in Q2 of 2016 vs. none in Q2 of 2017.

Other income (expense). Other income consisted of a decrease in interest income of $3,305 in the quarter ended June 30, 2017, mostly as the result of less cash available for investment because of the asset acquisition in Q1 of 2017. A business loan was paid in full in 2016, which resulted in the bad debt recovery of $1,500 in Q2 of 2016 being absent in 2017. Interest expense of $15,187 in the current quarter vs. $17,540 in the same period a year ago is the result of the balance of the term loan on our building declining.

Net income. We realized net income of $67,868 for the quarter ended June 30, 2017 compared to net income of $165,987 for the quarter ended June 30, 2016. This decrease of $98,119 was the result of the decrease in gross profit and of the changes in operating expenses discussed above, offset in part by a decrease in income taxes of $54,842.

For the six months ended June 30, 2017 compared to the six months ended June 30, 2016 .

Net sales. Our product sales for the six months ended June 30, 2017 were $3,761,594, a decrease of 9% from $4,125,995 for the same period a year ago. This decrease is primarily attributable to prevailing market conditions, including a decrease in sales in the oil and gas sector. When royalties of $224,342 and rental income of $44,915 are included, total revenues of $4,030,851 decreased by $476,596, or 11%, for the six months ended June 30, 2017 when compared to the same six months a year ago.

Gross profit. Gross profit for the six months ended June 30, 2017 of $1,977,605 represented a decrease of 15% from total gross profit of $2,332,986 for the six months ended June 30, 2016 primarily as a result of decreased sales volume, decreased rental income in 2017, and lower royalties. Cost of product sales decreased from $2,137,461 in the six months ended June 30, 2016 to $2,025,612 in the same period in 2017, or 5%, primarily as a result of decreased labor and materials required for the decreased sales volume. Gross profit margin on products decreased to 46% in the six months ended June 30, 2017 from 48% in the six months ended June 30, 2016 as a result of a change in product mix.

Research and development expenses. Research and development expenses were $448,193 for the six months ended June 30, 2017, representing a decrease of 16% over the $532,401 in the same period a year ago. This decrease resulted mostly from lower payments to outside vendors, which we attribute to a difference in scheduling of work done by outside vendors.

Sales and marketing expenses. Sales and marketing expenses of $707,118 for the six months ended June 30, 2017 represented an increase of 2% from sales and marketing expenses of $694,743 for the six months ended June 30, 2016. This increase resulted primarily from personnel changes as well as from increased advertising expenses.

General and administrative expenses. General and administrative expenses were $590,320 for the six months ended June 30, 2017, which represented a decrease of 3% over the $607,746 spent in the same six months a year ago. This decrease results mostly from abandoned patents in 2016 vs. none in 2017.

Other income (expense). Other income consisted of a decrease in interest income of $4,247 in the six months ended June 30, 2017, mostly as the result of less cash available for investment because of the asset acquisition in Q1 of 2017. A business loan was paid in full in 2016, which resulted in the bad debt recovery of $4,500 in 2016 being absent in 2017. Interest expense of $30,311 in the six months ended June 30, 2017 vs. $34,966 in the same period a year ago is the result of the balance of the term loan on our building declining.

Net income. We realized net income of $145,861 for the six months ended June 30, 2017 compared to net income of $319,322 for the same six months ended June 30, 2016. This decrease of $173,461 was the result of the decrease in gross profit and of the changes in operating expenses discussed above, offset in part by a decrease in income taxes of $96,753.

Trends and Uncertainties That May Affect Future Results

Revenues in the second quarter of 2017 were lower compared to revenues in 2016. We believe increased sales efforts may result in improved revenues for the remainder of 2017. 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 2017 operating plan is focused on growing sales, increasing gross profits, and increasing research and development efforts on new products for long term growth. We cannot predict with certainty the expected sales, gross profit, net income or loss, or usage of cash and cash equivalents for 2017. 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. 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 October 31, 2014, we purchased the commercial property we use as our corporate headquarters and certain adjacent property in Wheat Ridge, Colorado for a total purchase price of $1,949,139, of which we paid $368,033 in cash and financed the remaining $1,581,106 through a 10-year term loan from Bank of America bearing interest at 4.45% per annum (amended to 4% per annum in 2016), secured by a first-priority security interest in the property we acquired with the loan. In connection with the term loan, we arranged for a one-year $250,000 line of credit (increased to $750,000 in 2017) from Bank of America secured by all assets of the Company. The line of credit currently bears interest at a rate calculated at the LIBOR daily floating rate plus 2.5%. At June 30, 2017 this credit facility had not been used.

Equipment expenditures during the six months ended June 30, 2017 were $139,236, compared to $35,379 in the same period a year ago. We filed patent applications at a cost to us of $17,217 in the first six months of 2017 versus $0 in the same period in 2016.

In March 2017 we acquired the R.A.D.A.R. assets from TRCK for $860,000 cash. The purchased assets included handheld hardware device technology (the “Device”) which is designed to measure breath alcohol content of the user and software technology designed to allow the Device to be configured and to capture and manage the data being returned from the Device. It also included patents and patent applications and production equipment.

As of June 30, 2017, cash was $2,632,565, accounts receivable were $635,768 and current liabilities were $639,401 resulting in a net liquid asset amount of $2,628,932. We believe that the introduction of several new products during the last several years, along with new and on-going customer relationships, will continue to generate sufficient revenues to maintain profitability. If these revenues are not achieved on a timely basis, we may be required to implement cost reduction measures, as necessary.

We generally provide a standard one-year warranty on materials and workmanship to our customers. We provide for estimated warranty costs at the time product revenue is recognized. Warranty costs are included as a component of cost of goods sold in the accompanying statements of income. For the quarter ended June 30, 2017 and for the quarter ended June 30, 2016, warranty costs were not deemed significant.

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

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

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

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

We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Any write-downs of inventory would reduce our reported net income during the period in which such write-downs were applied.

Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five years (three years for software and technology licenses). We use the double declining method of depreciation for property and equipment, and the straight-line method for software and technology licenses. We purchased all of the assets of STS, an online education company, in 2014, which consisted of training courses that are amortized over 15 years using the straight-line method. In October 2014, we purchased our building. A majority of the cost of the building is depreciated over 39 years using the straight-line method. In addition, based on the results of a third-party analysis, a portion of the cost was allocated to components integral to the building. Such components are depreciated over 5 and 15 years, using the double-declining method and the straight-line method respectively. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.

In March 2017 we acquired the R.A.D.A.R. assets from TRCK, which consisted of production equipment and of hardware device technology (the “Devices”) that are depreciated over 5 years using the double declining balance method when placed in service. With the R.A.D.A.R. assets, we also purchased software designed to measure breath alcohol content of the user and software technology designed to allow the Devices to be configured and to capture and manage the data being returned from the Devices, as well as 6 issued U.S. patents and 16 domestic and international patent applications. This software and the patents and patent applications will be amortized over 15 years using the straight-line method.

Revenue from product sales is generally recorded when we ship the product and title has passed to the customer, provided that we have evidence of a customer arrangement and can conclude that collection is probable. The prices at which we sell our products are fixed and determinable at the time we accept a customer's order. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims, and generally have no ongoing obligations related to product sales, except for normal warranty.

Revenues arising from extended warranty contracts are booked as sales over their life on a straight-line basis. Supplies are recognized as sales when they are shipped. The sales of licenses to our training courses are recognized as revenue at the time of sale. We have mostly discontinued arranging for customer financing and leasing through unrelated third parties and instead are providing for customer financing and leasing ourselves in the majority of cases, which we recognize as revenue over the applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract. We also rent the R.A.D.A.R. devices pursuant to short term rental agreements, the revenues from which are recognized as they are earned over the life of the contract.

Royalty income is recognized in accordance with agreed upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured.

Rental income from space leased to our tenants is recognized in the month in which it is due.

On occasion we receive customer deposits for future product orders. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer.

Stock-based compensation is presented in accordance with the guidance of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718, Compensation — Stock Compensation ("ASC 718"). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards made to employees and directors including employee stock options based on estimated fair values on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statement of operations.

Off-Balance Sheet Arrangements

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.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4 – CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2017.

(b)	Changes in Internal Control over Financial Reporting

There were no significant changes in our internal controls over financial reporting during the period ended June 30, 2017 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our management, including our Chief Executive Officer and our Chief Financial Officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

We may be involved from time to time in litigation, negotiation and settlement matters that may have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers or directors in their capacity as such that could have a material impact on our operations or finances.

ITEM 1A – RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in ‘‘Risk Factors’’ in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition and/or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

No options were exercised during the six months ended June 30, 2017 or during the six months ended June 30, 2016. Options entitling their holder to purchase 23,500 shares of stock at $2.32 apiece lapsed during the six months ended June 30, 2017. There were no sales of equity securities during the six months ended June 30, 2017 or during the six months ended June 30, 2016.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

None.

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
10.1		Amendment No. 3 to Loan Agreement dated May 15, 2017.
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.INS		XBRL Instance Document
101.SCH		XBRL Schema Document
101.CAL		XBRL Calculation Linkbase Document
101.LAB		XBRL Label Linkbase Document
101.PRE		XBRL Presentation Linkbase Document
101.DEF		XBRL Definition Linkbase Document

	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
$2.32 - $8.83	60,000	3.19		$7.75	10,000	$2.32

	LIFELOC TECHNOLOGIES, INC.

August 14, 2017	By:	/s/ Wayne R. Willkomm
Date		Wayne R. Willkomm, Ph.D.
		President and Chief Executive Officer (Principal Executive Officer)

August 14, 2017	By:	/s/ Kristie L. LaRose
Date		Kristie L. LaRose
		Vice President of Finance and Administration (Principal Accounting Officer)

●	the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2017 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
●	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

●	the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2017 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
●	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the period covered by the Report.

	Three Months Ended
	June 30, 2017		June 30, 2016
Net income	$	67,868	$	165,987
Weighted average shares-basic		2,454,116		2,454,116
Effect of dilutive potential common shares		58,067		100,914
Weighted average shares-diluted		2,512,183		2,555,030
Net income per share-basic	$	.03	$	.07
Net income per share-diluted	$	.03	$	.07
Antidilutive employee stock options		50,000		50,000

		/s/ Wayne R. Willkomm
		Wayne R. Willkomm, Ph.D.
		Chief Executive Officer (Principal Executive Officer)

		/s/ Vern D. Kornelsen
		Vern D. Kornelsen
		Chief Financial Officer (Principal Financial Officer)