Attached files
As
filed with the Securities and Exchange Commission on June 21, 2010
Registration
Statement No.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
LIFELOC
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
Colorado
|
3826
|
84-1053680
|
(State
or other jurisdiction of incorporation
or
organization)
|
(Primary
Standard Industrial Classification
Code
Number)
|
(I.R.S.
Employer Identification Number)
|
Vern
D. Kornelsen
|
||
Lifeloc
Technologies, Inc.
|
Lifeloc
Technologies, Inc.
|
|
12441
West 49th Ave., Unit 4
|
12441
West 49th Ave., Unit 4
|
|
Wheat
Ridge, Colorado 80033
|
Wheat
Ridge, Colorado 80033
|
|
(303)
431-9500
|
(303)
431-9500
|
|
(Address,
including zip code, and telephone number,
|
(Name,
address, including zip code, and telephone number,
|
|
including
area code, of registrant’s principal executive
|
including
area code, of agent for service)
|
|
offices)
|
Copies of
communications to:
Les Woodward
Davis
Graham & Stubbs LLP
1550
17th Street, Suite 500
Denver,
Colorado 80202
Telephone:
(303) 892-9400
Approximate
date of distribution to the shareholders: Within 30 days after this registration
statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933
check the following box: x
If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of
Securities to be
Registered
|
Amount to be
Registered (1)
|
Proposed Maximum
Offering Price
Per Unit (2)
|
Amount of
Registration
Fee
|
|||||||||
Warrants
to purchase Common Stock
|
2,422,416 | $ | — (2) | $ | —(2) | |||||||
Common
Stock, no par value, issuable upon exercise of the
Warrants
|
2,422,416 | $ | 1.00 (3) | $ | $172.72 |
(1)
Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the
“Securities Act”), this registration statement shall be deemed to cover
additional securities that may be offered or issued to prevent dilution
resulting from stock splits, stock dividends or similar
transactions.
(2) One
warrant for each share of common stock will be issued to current shareholders.
The warrants will be issued without consideration. Pursuant to Rule 457(g), no
separate registration fee is payable with respect to the warrants being offered
hereby, since the warrants are being offered in the same registration statement
as the securities to be offered pursuant thereto.
(3)
The price of $1.00 per share, which is the price at which the warrants may be
exercised, is set forth solely for purposes of calculating the registration fee
pursuant to Rule 457(g) of the Securities Act.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this prospectus is not complete and may be changed.
We may not distribute these securities until the registration statement filed
with the Securities and Exchange Commission is declared effective. This
prospectus is not an offer to sell these securities, and we are not soliciting
offers to buy these securities, in any state where the offer or sale is not
permitted.
PRELIMINARY
PROSPECTUS
LIFELOC
TECHNOLOGIES, INC.
WARRANTS
TO PURCHASE UP TO 2,422,416 SHARES OF COMMON STOCK
TOGETHER
WITH THE SHARES ISSUABLE UPON EXERCISE THEREOF
This
prospectus relates to the distribution, at no charge, to holders of our common
stock of warrants to purchase up to 2,422,416 shares of our common stock. Each
warrant will be exercisable at an exercise price of $1.00. This prospecuts also
relates to the common stock issuable upon exercise of the warrants. All costs
associated with this registration will be borne by us.
Upon
effectiveness of the registration statement of which this prospectus is a part,
we will attempt to cause our common stock and warrants to be traded on the OTC
Bulletin Board (“OTCBB”). Our securities have not been traded
previously.
This is
not an underwritten offering. The warrants will be distributed for no
consideration to existing shareholders, and must be exercised through a
registered broker-dealer of the warrant holder’s choice. Each such broker-dealer
will be paid a commission of six percent (6%), to be borne by the Company. While
such broker-dealer may be deemed a statutory underwriter pursuant to Section
2(11) of the Securities Act, the broker-dealer is not underwriting the offering
and has no obligation to purchase or procure purchases of the common stock or
warrants offered by this prospectus.
THIS
INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SECURITIES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS.
SEE
“RISK FACTORS” BEGINNING ON PAGE 4
You
should rely only on the information provided in this prospectus or any
supplement to this prospectus. We have not authorized anyone else to provide you
with different information. Neither the delivery of this prospectus nor any
distribution of the shares of common stock pursuant to this prospectus shall,
under any circumstances, create any implication that there has been no change in
our affairs since the date of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus
is ,
2010.
ABOUT THIS PROSPECTUS | 2 | |
SUMMARY | 2 | |
RISK FACTORS
|
4 | |
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS | 8 | |
USE OF PROCEEDS | 8 | |
DETERMINATION OF EXERCISE PRICE | 8 | |
PLAN OF DISTRIBUTION | 8 | |
DESCRIPTION OF WARRANTS | 9 | |
DESCRIPTION OF COMMON STOCK | 10 | |
INFORMATION ABOUT THE COMPANY | 16 | |
DESCRIPTION OF PROPERTY | 19 | |
LEGAL PROCEEDINGS | 19 | |
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS | 19 | |
FINANCIAL STATEMENTS | 21 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 | |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 25 | |
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS | 26 | |
BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS | 26 | |
EXECUTIVE COMPENSATION | 27 | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 31 | |
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS | 32 | |
DIRECTOR INDEPENDENCE | 32 | |
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES | 32 | |
CONSOLIDATED FINANCIAL STATEMENTS OF LIFELOC TECHNOLOGIES, INC. | F-1 | |
PART II — INFORMATION NOT REQUIRED IN PROSPECTUS | II-1 | |
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION | II-1 | |
INDEMNIFICATION OF DIRECTORS AND OFFICERS | II-1 | |
RECENT SALES OF UNREGISTERED SECURITIES | II-2 | |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | II-2 | |
UNDERTAKINGS | II-2 | |
SIGNATURES | II-5 |
1
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this prospectus, including any
information incorporated herein by reference. We have not authorized any other
person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. You should not
assume that the information in this prospectus or any document incorporated by
reference is accurate as of any date other than the date on its front cover. Our
business, financial condition, results of operations and prospects may have
changed since the date indicated on the front cover of such documents. This
prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any securities other than the registered securities to which they relate,
nor does this prospectus constitute an offer to sell or the solicitation of an
offer to buy securities in any jurisdiction to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction.
Except as
otherwise indicated or where the context otherwise requires, the terms
"Lifeloc," "we," "our," "ours," "us," and the “Company” as used in this
prospectus refer to Lifeloc Technologies, Inc.
SUMMARY
The
following information is a summary of the prospectus and it does not contain all
of the information you should consider before making an investment decision. You
should read the entire prospectus carefully, including the financial statements
and the notes relating to the financial statements.
About
Us
Lifeloc
is a Wheat Ridge, Colorado–based developer, manufacturer and marketer
of portable hand-held breathalyzers and related supplies and education. We
design, produce and sell high-quality, fuel-cell based breath alcohol testing
equipment. We compete in all major parts of the portable breath
alcohol testing instrument market, including law enforcement, workplace,
corrections, original equipment manfuacturing (“OEM”) and consumer markets. In
addition, we offer a line of supplies, accessories, services, and
training to support customers' alcohol testing programs. We sell globally
through distributors and sales agents, as well as directly to
users.
Designed
for the law enforcement market, our Phoenix Classic is a microprocessor
controlled portable breath alcohol instrument capable of accurately measuring
the breath alcohol level of a subject and recording the test
data. The Phoenix Classic was completed and released for sale in
1998, superseding the original model PBA3000. The Phoenix Classic is
approved by the U.S. Department of Transportation (“DOT”) as an evidential
roadside breath tester, which means that results of a breath test done with the
Phoenix Classic during a traffic stop can be admitted as evidence in federal
court and in the courts of states where such roadside test results can be
admitted as evidence (as opposed to being admitted only to show probable
cause).
In 2001,
we completed and released for sale the FC Series, designed for the law
enforcement and corrections markets. The FC Series, also DOT
approved, features multi-language capabilities and software that is adaptable to
the specific requirements and regulations of domestic and international markets.
The FC Series is currently sold worldwide.
In 2005
and 2006, we introduced two new models for the workplace market: the EV30 and
Phoenix 6.0. Like their predecessor, the Phoenix Classic, these instruments are
DOT approved.
In 2006,
we also commenced the selective marketing of our proprietary designs and
patented algorithms on an OEM basis.
In late
2009, Lifeloc released the LifeGuard Personal Breathalyzer, a
personal alcohol breath tester that incorporates the same fuel-cell technology
used in our professional devices. LifeGuard is one of the first highly accurate
personal breathalyzers available. Intended for the growing global consumer
breathalyzer market, LifeGuard is FDA cleared and sold direct to consumers in
the U.S. and marketed through distributors worldwide.
2
Lifeloc
incorporated in Colorado in December 1983 and has been privately owned
since that time. Our fiscal year end is December 31. Our principal
executive offices are located at 12441 West 49th Avenue, Unit 4, Wheat Ridge,
Colorado 80033-3338. Our telephone number is (303) 431-9500.
Our websites are www.lifeloc.com and www.lifeguardbreathtester.com. Information
contained on our websites does not constitute part of this
prospectus.
On May 3,
2010, our shareholders voted to approve a 1 for 2 reverse split of our common
stock. At that time, our shareholders also approved the distribution
of one warrant for each share of common stock outstanding after the
split. The warrants will be distributed within 30 days after the
registration statement of which this prospectus is a part has been declared
effective by the Securities and Exchange Commission to all shareholders of
record as of the date of declaration of such distribution.
Securities
Offered:
|
Warrants
to purchase up to 2,422,416 shares of our common stock, to be distributed
solely to existing shareholders as of the date of declaration of such
distribution, together with the shares of common stock issuable upon
exercise of the warrants.
|
Offering
Price:
|
The
warrants will be issued as a non-cash distribution, for no cash
consideration. The exercise price for the warrants will be
$1.00.
|
Plan of Distribution: |
Within
30 days after the effective date of the registration statement of which
this prospectus is a part, we will declare a distribution and issue the
warrants and copies of this prospectus to all holders of our common stock
who were holders as of the date of declaration of such distribution, for
no cash consideration. The warrants may be exercised only through
registered or licensed brokers or dealers. The Company will bear all fees
and expenses relating to the offering, including a six percent (6%)
commission to be paid to broker-dealers in connection with exercise of the
warrants.
|
Description of Warrants: |
The
warrants will be exercisable, subject to certain exceptions as described
in this prospectus, upon the date of distribution until their expiration
on May 3, 2020, at an exercise price of $1.00 per
share.
|
Use
of Proceeds:
|
The
Company will receive no proceeds from the issuance of the warrants. The
proceeds received by the Company upon exercise of the warrants, net of
fees and expenses incurred by us in connection with the offering, will be
used for general corporate purposes.
|
Transferability
of Warrants:
|
The
warrants will be transferable following their issuance and through their
expiration, subject to compliance with applicable law. Upon effectiveness
of the registration statement of which this prospectus is a part, we will
attempt to cause the warrants to be quoted on the
OTCBB.
|
Risk
Factors:
|
Investing
in our common stock involves a high degree of risk. All investors should
carefully read the “Risk Factors” and all other information included in
this prospectus and in the documents incorporated herein by reference in
its entirety.
|
Fees
and Expenses:
|
We
will bear the fees and expenses relating to the offering, including the
six percent (6%) fee associated with exercise of the
warrants.
|
Common
stock outstanding as of June 15, 2010:
|
2,422,416
shares
|
Common
stock outstanding after the offering:
|
4,844,832
shares, assuming the exercise of all warrants registered
herein.
|
Market
for the Securities:
|
Upon
effectiveness of the registration statement of which this prospectus is a
part, we will attempt to cause our common stock and warrants to be traded
on the OTCBB. There is currently no market for our
securities.
|
3
Risks
Related to Our Business
An
investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and other information included in
this prospectus. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected and you may lose some or all of your investment.
The
current worldwide economic downturn could have a negative impact on our
business, operating results and financial condition.
If the
economic downturn continues, our customers may delay, reduce or cancel their
purchases of our products, particularly if they or their customers have reduced
capital budgets or have difficulty obtaining credit, and this would reduce our
revenues. The economic downturn could also increase competition, which
could have the effect of forcing us to reduce our prices. We could
incur losses if a customer’s business fails and is unable to pay us, or pay us
on a timely basis. Likewise, if our suppliers have difficulty in obtaining
credit or in operating their businesses, they may not be able to provide us with
the materials we use to manufacture our products. These actions could
result in reduced revenues and higher operating costs, and have an adverse
effect on our results of operations and financial condition.
We
rely on customers who may not consistently purchase our products in the future
and if we lose any one of these customers, our revenues may
decline.
In the
fiscal year ended December 31, 2009, we generated sales from over 2,500
customers, and while no customer contributed more than 10.4% to our total sales
in either 2009 or 2008, we are dependent on our customer base for repeat
sales. At December 31, 2009, our accounts receivable balance included
approximately 15% from one customer.
In the
future, a small number of customers may continue to represent a significant
portion of our total revenues in any given period. These customers may not
consistently purchase our products at a particular rate over any subsequent
period. A loss of any of these customers could adversely affect our
revenues.
We
rely heavily upon the talents of our Chief Executive Officer, the loss of whom
could severely damage our business.
Our
performance depends to a large extent on a small number of key managerial
personnel. In particular, we believe our success is highly dependent upon the
services and reputation of our Chief Executive Officer, Mr. Barry R.
Knott. Loss of Mr. Knott’s services could severely damage our
business.
We
must continue to be able to attract employees with the scientific and technical
skills that our business requires, and if we are unable to attract and retain
such individuals, our business could be severely damaged.
Our
ability to attract employees with a high degree of scientific and technical
talent is crucial to the success of our business. There is intense competition
for the services of such persons, and we cannot guarantee that we will continue
to be able to attract and retain individuals possessing the necessary
qualifications. If we cannot attract such individuals, we may not be able
to keep our products current, bring new innovation to market or produce our
products. As a result, our business could be damaged.
4
We
are subject to a high degree of regulatory oversight and, if we do not continue
to receive the necessary regulatory approvals, our revenues may
decline.
The FDA
and the Department of Transportation have cleared us to market the alcohol
monitoring products we currently sell in the United States. However,
further FDA or DOT approval will be required before we can domestically market
additional alcohol monitoring products that we may develop in the
future. We may also seek to sell current or future medical or
drug-related products that require us to obtain FDA or DOT clearance to market
such products. We may also be required to obtain regulatory approvals
or licenses from other federal, state or local agencies or comparable agencies
in other countries.
We may
not continue to receive FDA or DOT clearance to market our current products or
we may not obtain the necessary regulatory clearance, approvals or licenses for
the marketing of any of our future products. Also, we cannot predict
the impact on our business of FDA or DOT regulations or determinations arising
from future legislation or administrative action. If we lose FDA or DOT
permission to market our current products or we do not obtain regulatory
permission to market our future products, our revenues may decline and our
business may be harmed.
Our
business in the domestic law enforcement area is susceptible to changes in state
policies and DUI laws.
Portable
breath testers (“PBTs”) are not used to the same degree in each state. Usage is
determined by a complex combination of individual state DUI laws, historical
practice, and individual state directions for alcohol testing. In some states,
like Texas, despite large populations and high drink/drive incidents, there is
low PBT usage. Other states, like New Hampshire, do not accept breath
alcohol testing as evidence. Still other states may prefer different breath
alcohol testing technology, such as infrared. Lifeloc cannot control the
direction or timing of changes to individual state DUI laws, public and
political sentiment toward the use of PBTs, or individual state preferences for
a specific breath alcohol testing technology. These factors may threaten current
state contracts and future state contracts and our revenues may decline, harming
our business.
Our
business relies on state contracts, governed by state contracting polices that
are beyond our control.
Many
state purchases of PBTs are governed by state contracts with competitive price
bids, multiple year terms and without guarantees of purchases. Other states
prefer to share PBT usage across several vendors, also without guarantees of
volume. These state practices limit Lifeloc’s ability to retain current
business, forecast volumes and win new business. Furthermore, a significant
amount of our law enforcement business is concentrated in five states. Loss of
this business, delays or cancellations in purchasing by these states could
seriously impact our law enforcement business.
We
are reliant on our sales representative group for access to the channels of
distribution.
Lifeloc
uses sales representatives to market and sell to the law enforcement markets in
an 11-state region. Our sales representatives also represent other
companies' law enforcement products. The cancellation of the agreement
with our sales representative group, or shift in its focus to products made by
companies other than Lifeloc, could negatively impact our current and future
sales in these states. Currently Lifeloc is not well known or well represented
in other states outside of those in which we currently have state contracts or
are represented by sales representatives. New business development in states
where we have no significant installed base, sales representation or current
business is uncertain.
Third
parties may infringe on our patents, and as a result, we could incur significant
expense in protecting our patents or not have sufficient resources to protect
them.
We hold
several patents that are important to our business. Although we are not
currently aware of any past or present infringements of our patents, we plan to
protect these patents from infringement and obtain additional patents whenever
feasible. To this end, we have obtained confidentiality agreements from our
employees and consultants and others who have access to the design of our
products and other proprietary information. Protecting and obtaining
patents, however, is both time consuming and expensive. We therefore may not
have the resources necessary to assert all potential patent infringement claims
or pursue all patents that might be available to us. If our
competitors or other third parties infringe on our patents, our business may be
harmed.
5
Third
parties may claim that we have infringed on their patents and as a result,
we could be prohibited from using all or part of any technology used in our
products.
Should
third parties claim a proprietary right to all or part of any technology that we
use in our products, such a claim, regardless of its merit, could involve us in
costly litigation. If successful, such a claim could also result in
us being unable to freely use the technology that was the subject of the claim,
or sell products embodying such technology. If we engage in
litigation, our expenses may increase and our business may be harmed. If
we are prohibited from using a particular technology in our products, our
revenues may decline and our business may be harmed.
We
depend on the availability of certain key supplies and services that are
available from only a few sources, and if we experience difficulty with a
supplier, we may have difficulty finding alternative sources of
supply.
We
require certain key supplies for our products, particularly fuel cells, that are
available from only a few sources. Based upon our ordering experience
to date, we believe the materials and services required for the production of
our products are currently available in sufficient quantities. However, this
does not mean that we will continue to have timely access to adequate supplies
of essential materials and services in the future or that supplies of these
materials and services will be available on satisfactory terms when the need
arises. Our business could be severely damaged if we become unable to procure
essential materials and services in adequate quantities and at acceptable
prices.
From time
to time, subcontractors may produce certain of our products for us, and our
business is subject to the risk that these subcontractors fail to make timely
delivery. Our products and services are also from time to time used
as components of the products and services of other manufacturers. We are
therefore subject to the risk that manufacturers that integrate our products or
services into their own products or services are unable to acquire essential
supplies and services from third parties in a timely fashion. If this
occurs, we may not be able to deliver our products on a timely basis and our
revenues may decline.
Our
customers may claim that the products we sold them were defective, and if our
insurance is not sufficient to cover a claim, we would be liable for the
excess.
Like any
manufacturer, we are and always have been exposed to liability claims resulting
from the use of our products. We maintain product liability insurance
to cover us in the event of liability claims, and as of March 31, 2010, no
such claims have been asserted or threatened against us. However, our
insurance may not be sufficient to cover all possible future product
liabilities.
We
could be liable if our business operations harmed the environment, and a failure
to maintain compliance with environmental laws could severely damage our
business.
Our
operations are subject to a variety of federal, state and local laws and
regulations relating to the protection of the environment. From time to
time, we use hazardous materials in our operations. Although we
believe that we are in material compliance with all applicable environmental
laws and regulations, our business could be severely damaged by any failure to
maintain such compliance.
Our
quarterly financial results vary quarter to quarter, which may adversely affect
our stock price. We cannot predict with any certainty our operating results in
any particular fiscal quarter.
Our
quarterly operating results may vary significantly depending upon factors such
as:
·
|
the
timing of completion of significant
orders;
|
·
|
the
timing and amount of our research and development
expenditures;
|
·
|
the
costs of initial production in connection with new
products;
|
·
|
the
availability, quality and cost of key components that go into the assembly
of our products;
|
·
|
the
timing of new product introductions — both by us and by our
competitors;
|
6
·
|
changes
in the regulatory environment and regulations under which we
operate;
|
·
|
the
loss of a major customer;
|
·
|
the
timing and level of market acceptance of new products or enhanced versions
of our existing products;
|
·
|
our
ability to retain existing employees, customers and our customers’
continued demand for our products and
services;
|
·
|
our
customers’ inventory levels, and levels of demand for our customers’
products and services; and
|
·
|
competitive
pricing pressures.
|
We may
not be able to grow or sustain revenues or achieve or maintain profitability on
a quarterly or annual basis, and levels of revenue and/or profitability may vary
from one such period to another.
We
have a number of large, well-financed competitors who have research and
marketing capabilities that are superior to ours.
The
industry in which we compete is highly competitive. Many of our existing and
potential competitors have greater financial resources and manufacturing
capabilities, more established and larger marketing and sales organizations and
larger technical staffs than we have. Other companies, some with
greater experience in the alcohol monitoring industry, produce products and
services that compete with our products and services.
If any of our competitors are successful
in developing products that are superior to our products, or competing products
that sell for lower prices, this may cause a reduction in the demand for our
products and a reduction in our revenue and our profits.
Our
products rely on technology that may become outdated or out of
favor.
All of
Lifeloc’s products use fuel cell technology for the measurement of breath
alcohol results. This technology has been developed and refined over many years
by Lifeloc and our major competitors. While we expect it to remain as the
dominant technology in breath testing devices, other technologies for the
measurement of breath alcohol exist and are employed in other market and
application segments where the technology is more suitable or developed to the
specific requirements. These other technologies include infrared,
semi-conductor, and chemical tests. Nanotechnology is also being investigated
for use in breath alcohol testing. It is possible that future development of
these technologies could pose a risk to Lifeloc’s business.
Risks
Related to Our Stock
Trading
in our common stock and warrants will be limited, and the prices of our common
stock and warrants may be subject to substantial volatility.
After the
effective date of the registration statement of which this prospectus is a part,
we will attempt to cause our warrants and common stock to be traded on the
OTCBB. However, in order to be traded on the OTCBB, at least one broker-dealer
must be willing to act as a “market-maker,” and this may not occur immediately
or at all. In addition, broker-dealers often decline to trade in OTCBB stocks as
the market for such securities is often limited, the stocks are more volatile
and the risk to investors is greater. These factors may reduce the potential
market for our warrants or common stock by reducing the number of potential
investors. This may make it more difficult for investors in our warrants or
common stock to sell warrants or shares to third parties or to otherwise dispose
of their warrants or shares. This could cause the price of our
securities to decline or not trade at all.
Additionally,
the price of our securities may be volatile as a result of a number of factors,
including, but not limited to, the following:
·
|
our
ability to successfully conceive and to develop new products and services
to enhance the performance characteristics and methods of manufacture of
existing products;
|
·
|
our
ability to retain existing customers and customers’ continued demand for
our products and services;
|
·
|
the
timing of our research and development expenditures and of new product
introductions;
|
·
|
the
timing and level of acceptance of new products or enhanced versions of our
existing products; and
|
·
|
price
and volume fluctuations in the stock market at large which do not relate
to our operating
performance.
|
7
“Penny
stock” rules may make buying or selling our securities difficult, which may
make our stock and warrants less liquid and make it harder for investors to buy
and sell our securities.
Trading
in our securities is subject to the SEC’s “penny stock” rules and it is
anticipated that trading in our securities will continue to be subject to the
penny stock rules for the foreseeable future. The SEC has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain
exceptions. These rules require that any broker-dealer who
recommends our securities to persons other than prior customers and accredited
investors must, prior to the sale, make a special written suitability
determination for the purchaser and receive the purchaser’s written agreement to
execute the transaction. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks associated
with trading in the penny stock market. In addition, broker-dealers must
disclose commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities they offer. The
additional burdens imposed upon broker-dealers by these requirements may
discourage broker-dealers from recommending transactions in our securities,
which could severely limit the liquidity of our securities and consequently
adversely affect the market price for our securities.
We
are contractually obligated to issue shares in the future, diluting your
interest in us.
An
additional 44,000 shares of our common stock are reserved for issuance under our
2002 Stock Option Plan as of June 15, 2010. Moreover, we expect to
issue additional shares and options to purchase shares of our common stock to
compensate employees, consultants and directors, and we may issue additional
shares to raise capital. Any such issuances will have the effect of
further diluting the interest of the holders of our securities.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements that involve risks and
uncertainties. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially
from those anticipated in the forward-looking statements for many reasons,
including the reasons described in the “Risk Factors.” Although we believe the
expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made. We do not
intend to update any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results or to changes in our
expectations, except as required by law.
USE
OF PROCEEDS
We cannot
predict when or if the warrants registered by the registration statement of
which this prospectus is a part will be exercised. It is possible
that the warrants may expire and may never be exercised. If we
receive proceeds from the exercise of the warrants, we intend to use the
proceeds for general corporate purposes. Net of the six percent (6%)
broker-dealer fee, proceeds to us will be $0.94 per share. We will not receive
proceeds from the issuance of the warrants.
DETERMINATION
OF EXERCISE PRICE
Since our
common stock is not listed or quoted on any exchange or quotation system,
the exercise price for the warrants was arbitrarily
determined and does not necessarily bear any relationship to our book value,
assets, operating results, financial condition or any other established criteria
of value.
PLAN
OF DISTRIBUTION
Within 30
days after the effective date of the registration statement of which this
prospectus is a part, we will distribute the warrants and copies of this
prospectus to the holders of our common stock. The distribution of warrants was
approved by the shareholders on May 3, 2010, and will be made share for share to
all shareholders of record as of the date of declaration of such distribution,
for no cash consideration.
8
The
warrants will be issued as a non-cash distribution to existing shareholders, and
must be exercised through a registered broker-dealer of the warrant holder’s
choice. Such broker-dealers are not underwriting or placing any of the warrants
or the shares of our common stock issued in this offering and do not make any
recommendation with respect to such warrants (including with respect to the
exercise or expiration of such warrants) or shares, but may be deemed statutory
underwriters for purposes of Section 4(1) of the Securities Act. We will pay
each such broker-dealer a commission of six percent (6%) on each warrant for
which that broker-dealer facilitates the exercise pursuant to a selling agent
agreement attached as an exhibit to the registration statement of which this
prospectus is a part. The broker-dealers’ participation in this offering will be
subject to customary conditions contained in such selling agent agreement.
Pursuant to such agreement, we will indemnify the selling agents and their
respective affiliates against certain liabilities arising under the Securities
Act of 1933. The Company will bear all fees and expenses relating to the
offering, including the six-percent (6%) commission.
Other
than as described in this prospectus, we do not know of any existing agreements
between any shareholder, broker, dealer, underwriter or agent relating to the
sale or distribution of the warrants or underlying common
stock.
Upon
effectiveness of the registration statement of which this prospectus is a part,
we will attempt to cause our common stock and warrants to be traded on the
OTCBB. Our securities have not previously been publicly traded.
DESCRIPTION
OF WARRANTS
Within 30
days after this filing has been declared effective by the Securities and
Exchange Commission, we will distribute, at no charge, to holders of our common
stock, warrants to purchase up to 2,422,416 shares of our common stock on a one
warrant per share basis. There are no warrants presently
outstanding.
The
warrants will be separately transferable following their issuance and through
May 3, 2020, and will expire thereafter. Each warrant will entitle the holder to
purchase one share of Lifeloc common stock at a price of $1.00 per share,
subject to adjustment as discussed below, commencing upon issuance and at any
time through May 3, 2020. Upon effectiveness of the registration statement of
which this prospectus is a part, we will attempt to cause the warrants to be
listed on the OTC Bulletin Board.
Certificates
for all warrants acquired will be mailed as soon as practicable after the
effective date of the registration statement of which this prospectus is a
part.
The
exercise price of the warrants and the number of shares of common stock issuable
upon exercise of the warrants are subject to adjustment in certain
circumstances, including a stock split of, stock dividend on, or a subdivision,
combination or recapitalization of the common stock. However, the exercise price
and number of shares of Company common stock issuable upon exercise of the
warrants will not be adjusted for issuances of Company common stock at a price
below the warrant exercise price. Upon a merger, consolidation, sale of
substantially all of our assets, or other similar transaction, the warrants will
automatically expire unless exercised prior to the closing of the transaction.
Upon such exercise, the holders of the common stock issued upon exercise of the
warrants will participate on the same basis as the other holders of common stock
in connection with the transaction.
The
warrants will be issued in registered form under a warrant agreement between
_____, as warrant agent, and the Company, substantially in the form attached as
an exhibit to the registration statement of which this prospectus is a part. You
should review a copy of the warrant agreement for a complete description of the
terms and conditions applicable to the warrants.
The
warrants may be exercised upon surrender of the warrant certificate on or prior
to the expiration date at the offices of the warrant agent, with the exercise
form on the reverse side of the warrant certificate completed and executed as
indicated, accompanied by full payment of the exercise price, by certified or
official bank check payable to the Company, for the number of warrants being
exercised. The warrantholders do not have any rights or privileges as holders of
Company common stock or any voting rights until they exercise their warrants and
receive shares of Company common stock. After the issuance of shares of Company
common stock upon exercise of the warrants, each holder will be entitled to one
vote for each share held of record on all matters to be voted on by
stockholders.
9
No
warrants will be exercisable unless at the time of exercise a prospectus
relating to the issuance of Company common stock upon exercise of the warrants
is current and the issuance has been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of the
warrants. The terms of the warrant agreement require the Company to use its
commercially reasonable efforts to effectuate and maintain the effectiveness of
a registration statement covering such shares and maintain a current prospectus
relating to common stock issuable upon exercise of the warrants until the
expiration of the warrants. However, no assurances can be provided that the
Company will be able to do so, and if the condition is not met, holders will be
unable to exercise their warrants and the Company will not be required to settle
any such warrant exercise during the period in which there is no registration
statement effective. If the prospectus relating to the Company common stock
issuable upon the exercise of the warrants is not current or if the Company
common stock is not registered, qualified or exempt from registration or
qualification in the jurisdictions in which the holders of the warrants reside,
the Company would not be required to net cash settle or cash settle the warrant
exercise until a current prospectus becomes effective, the warrants may have no
value and the market for the warrants may be limited during the interim period,
and the warrants may expire worthless.
If, upon
exercise of the Warrants, a holder would be entitled to receive a fractional
interest in a share, the Company may, but shall not be required to, issue
fractions of a share. If the Company does not issue fractions of a
share, it shall (1) pay in cash the fair value of fractions of a share as of the
time when those entitled to receive such fractions are determined, or (2) issue
scrip or warrants in registered form (either represented by a certificate or
uncertificated) or bearer form (represented by a certificate) which shall
entitle the holder to receive a full share upon the surrender of such scrip or
warrants aggregating a full share.
The
following description of our capital stock and provisions of our Articles of
Incorporation and By-laws, each as amended, is only a summary. You should also
refer to our Articles of Incorporation and our By-laws, copies of which are
included as exhibits to the registration statement of which this prospectus is a
part and are hereby incorporated by reference. Our authorized capital
stock consists of 50,000,000 shares of common stock, no par value per
share.
Holders
of our common stock are entitled to one vote for each share held on all matters
submitted to a vote of our stockholders. Holders of our common stock
have no rights under our Articles of Incorporation or our By-laws regarding
dividends unless and until dividends are declared by the board of directors, nor
do they have any rights under our Articles of Incorporation or our By-laws
regarding preemptive rights. The outstanding shares of common stock
are fully paid and non-assessable.
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
The
following is a summary of the material U.S. federal income tax consequences of
the issuance and ownership to U.S. holders and non-U.S. holders (each defined
below) of warrants to purchase Company common stock
.
For
purposes of this discussion, a U.S. holder is a beneficial owner of Company
common stock or warrants to purchase Company common stock that
is:
•
|
an
individual who is a citizen or resident of the United
States;
|
•
|
a
Corporation (or other entity taxed as a Corporation for U.S. federal
income tax purposes) created or organized in or under the laws of the
United States, any state thereof or the District of
Columbia;
|
•
|
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
|
10
•
|
a
trust if (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust, or (ii) it has in effect a valid election to be treated as a U.S.
person.
|
For
purposes of this discussion, a non-U.S. holder is a beneficial owner of Company
common stock or warrants to purchase Company common stock that is not a U.S.
holder.
This
section is based on current provisions of the Internal Revenue Code of 1986, as
amended, the Code, current and proposed Treasury regulations promulgated
thereunder, and administrative and judicial decisions as of the date hereof, all
of which are subject to change, possibly on a retroactive
basis.
Changes
in these authorities may cause the tax consequences to vary substantially from
the consequences described below. No ruling has been sought from the U.S.
Internal Revenue Service (the “IRS”) as to the federal income tax consequences
of the transactions described herein. Furthermore, this summary is not binding
on the IRS, and the IRS is not precluded from adopting a contrary
position.
This
section does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to each holder of Company common stock or
warrants to purchase Company common stock. This section does not address all
aspects of U.S. federal income taxation that may be relevant to any particular
investor based on such investor’s individual circumstances. In particular, this
section considers only U.S. holders and non-U.S. holders that hold Company
common stock or warrants to purchase Company common stock as capital assets (and
will hold any Company common stock or warrants to purchase Company common stock
as capital assets) and does not address the potential application of the
alternative minimum tax or the U.S. federal income tax consequences to investors
that are subject to special treatment, including:
•
|
broker-dealers;
|
•
|
insurance
companies;
|
•
|
taxpayers
who have elected mark-to-market
accounting;
|
•
|
tax-exempt
organizations;
|
•
|
regulated
investment companies;
|
•
|
real
estate investment trusts;
|
•
|
financial
institutions or “financial services
entities;”
|
•
|
taxpayers
who hold Company common stock or warrants to acquire Company common stock
as part of a straddle, hedge, conversion transaction or other integrated
transaction;
|
•
|
holders
that acquired their Company common stock or warrants to acquire Company
common stock through the exercise of employee stock options or other
compensation arrangements;
|
•
|
controlled
foreign Corporations;
|
•
|
passive
foreign investment companies;
|
•
|
certain
expatriates or former long-term residents of the United States;
and
|
•
|
U.S.
holders whose functional currency is not the U.S.
dollar.
|
The
following does not address any aspect of U.S. federal gift or estate tax laws,
or state, local or non-U.S. tax laws. In addition, the section does not consider
the tax treatment of entities taxable as partnerships for U.S. federal income
tax purposes or other pass-through entities or persons who hold Company common
stock or warrants to acquire Company common stock (or will hold Company common
stock or warrants exercisable for Company common stock) through such entities.
Prospective investors are urged to consult their tax advisors regarding the
specific tax consequences to them of the transactions and the ownership or
disposition of shares of Company common stock or warrants to acquire Company
common stock in light of their particular circumstances.
11
Tax
Consequences of the Issuance of Warrants Exercisable for Company Common
Stock
U.S.
Holders
The
distribution of the warrants exercisable for Company common stock should be a
non-taxable distribution to U.S. Holders under Section 305(a) of the
Code. This position is not binding on the IRS, or the courts,
however. If this position is finally determined by the IRS or a court
to be incorrect, the fair market value of the subscription rights would be
taxable to holders of our common stock as a dividend to the extent of the
holder’s pro rata share
of our current and accumulated earnings and profits, if any, with any excess
being treated as a return of capital to the extent thereof and then as capital
gain.
The
distribution of the warrants exercisable for Company common stock would be
taxable under Section 305(b) of the Code if it were a distribution or part of a
series of distributions, including deemed distributions, that have the effect of
the receipt of cash or other property by some of our shareholders and an
increase in the proportionate interest of other shareholders in our assets or
earnings and profits, if any. Distributions having this effect are
referred to as “disproportionate distributions.”
The
remaining description assumes that U.S. Holders who receive the warrants
exercisable for Company common stock on account of their common stock will
not be subject to U.S. federal income tax on such receipt.
Tax
Basis and Holding Period of the Warrants Exercisable for Company Common
Stock
A U.S.
Holder's tax basis in the warrants exercisable for Company common stock will
depend on the fair market value of the warrants exercisable for Company common
stock and the fair market value of our common stock at the time of the
distribution.
•
|
If
the total fair market value of the warrants exercisable for Company common
stock being distributed in this offering to holders of our common stock
represents 15 percent or more of the total fair market value of our common
stock at the time of the distribution, a holder must allocate the basis of
the holder's shares of common stock (with respect to which the warrants
exercisable for Company common stock were distributed) between such stock
and the warrants exercisable for Company common stock received by such
holder. This allocation is made in proportion to the fair market value of
the common stock and the fair market value of the warrants exercisable for
Company common stock at the date of
distribution.
|
•
|
If
the total fair market value of the warrants exercisable for Company common
stock being distributed in this offering to holders of our common stock is
less than 15 percent of the total fair market value of our common stock at
the time of the distribution, the basis of such warrants exercisable for
Company common stock will be zero unless the holder elects to allocate
part of the basis of the holder's shares of common stock (with respect to
which the warrants exercisable for Company common stock were distributed)
to the warrants exercisable for Company common stock. A holder makes such
an election by attaching a statement to the holder's tax return for the
year in which the warrants exercisable for Company common stock are
received. This election, once made, will be irrevocable with respect to
those rights. Any holder that makes such election should retain a copy of
the election and of the tax return with which it was filed in order to
substantiate the use of an allocated basis upon a subsequent disposition
of the stock acquired by exercise. If the basis of a holder's warrants
exercisable for Company common stock is deemed to be zero because the fair
market value of the warrants exercisable for Company common stock at the
time of distribution is less than 15 percent of the fair market value of
our common stock and because the holder does not make the election
described above, the holder's basis of the shares of common stock with
respect to which such rights are received will not change. If
an allocation of basis is made between the warrants exercisable for
Company common stock and common stock, and the warrants exercisable for
Company common stock are later exercised, the tax basis in the common
stock originally owned by the holder will be reduced by an amount equal to
the tax basis allocated to the warrants exercisable for Company common
stock. In addition, any tax basis allocated to the warrants
exercisable for Company common stock must be apportioned between the right
to acquire common stock and the right to receive a warrant exercisable for
Company common stock in proportion to their values on the date of
distribution. For these purposes, the value of the right to acquire common
stock will be that amount which bears the same ratio to the value of a
warrant exercisable for Company common stock as the value of one share of
common stock bears to the value of one package, consisting of one share of
common stock and one warrant. The value of the right to receive a warrant
will be the difference between the value of the warrant exercisable for
Company common stock t and the right to acquire common stock as determined
above.
|
12
The
holding period for the warrants exercisable for Company common stock received by
a U.S. Holder on account of common stock in the rights offering will include the
holder's holding period for the common stock with respect to which the warrants
exercisable for Company common stock were received.
Non-U.S.
Holders
Exercise
or Lapse of a Warrant
The U.S.
federal income tax treatment of a non-U.S. holder’s exercise or lapse of a
warrant exercisable for Company common stock generally will correspond to the
U.S. federal income tax treatment of the exercise or lapse of a warrant by a
U.S. holder, as described under “U.S. Holders — Exercise or Lapse of
a Warrant Exercisable for Company Common Stock” above. However, capital
loss recognized by a non-U.S. Holder on lapse of a warrant exercisable for
Company Common Stock will generally be taken into account for U.S. income tax
purposes only in the circumstances described under “— Gain on Disposition of Common
Stock or Warrants Exercisable for Company Common Stock.”
Tax
Basis and Holding Period of the Warrants Exercisable for Company Common
Stock
The U.S.
federal income tax determination of a non-U.S. holder’s tax basis and holding
period of warrants exercisable for Company common stock generally will
correspond to the U.S. federal income tax determination of tax basis and holding
period for a U.S. holder, as described under “U.S. Holders — Tax Basis and Holding
Period of the Warrants Exercisable for Company Common Stock”
above.
Tax
Consequences of Owning Company Common Stock and Warrants Exercisable for Company
Common Stock
U.S.
Holders
Exercise
or Lapse of a Warrant Exercisable for Company Common Stock
A U.S.
holder generally will not recognize gain or loss upon the exercise of a warrant
exercisable for shares of Company common stock. Company common stock acquired
pursuant to the exercise of such a warrant will have a tax basis equal to the
U.S. holder’s tax basis in the warrant increased by the exercise price paid to
exercise the warrant. The holding period of such Company common stock will begin
on the date of exercise of the warrant (or possibly the date following the date
of exercise).
If a
warrant is allowed to lapse unexercised, a U.S. holder may have a capital loss
equal to such holder’s tax basis in the warrant, although authority exists for
the proposition that such tax basis should be transferred back to the Company
common stock with respect to which the warrant was received. Any such loss will
be long term if the warrant has been held for more than one year.
Adjustment
to Exercise Price
Under
Section 305 of the Code, if certain adjustments are made (or not made) a U.S.
holder may be deemed to have received a constructive distribution to the number
of shares to be issued upon the exercise of a warrant or to the warrant’s
exercise price. A U.S. holder may also be deemed to have received a constructive
distribution, which could result in the inclusion of dividend
income.
Dividends
and Other Distributions on the Company Common Stock
Distributions
on the Company common stock will constitute dividends for U.S. federal income
tax purposes to the extent paid from the Company’s current or accumulated
earnings and profits, as determined under U.S. federal income tax principles. If
a distribution exceeds the Company’s current or accumulated earnings and
profits, the excess will be treated first as a tax-free return of capital and
will reduce (but not below zero) the U.S. holder’s adjusted tax basis in the
Company common stock, and any remaining excess will be treated as capital gain
from a sale or exchange of the Company common stock, subject to the tax
treatment described below in “Gain on Disposition of Common
Stock.”
13
Dividends
received by a Corporate U.S. holder generally will qualify for the dividends
received deduction if the requisite holding period is satisfied. With certain
exceptions, and provided certain holding period requirements are met, dividends
received by a non-Corporate U.S. holder generally will constitute “qualified
dividends” that will be subject to tax at the maximum tax rate accorded to
capital gains for tax years beginning on or before December 31, 2010, after
which the rate applicable to dividends is currently scheduled to return to the
tax rate generally applicable to ordinary income.
Gain
on Disposition of Common Stock
Upon the
sale, exchange or other disposition of Company common stock, a U.S. holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale, exchange or other disposition of Company common stock and
the U.S. holder’s adjusted basis in such stock. Generally, such gain or loss
will be capital gain or loss and will be long term capital gain or loss if the
U.S. holder’s holding period for the shares exceeds one year. Long term capital
gains of non-Corporate U.S. holders are currently subject to a reduced maximum
tax rate of 15% for tax years beginning on or before December 31, 2010. After
December 31, 2010, the maximum capital gains rate is scheduled to increase to
20%. The deductibility of capital losses is subject to
limitations.
Surtax
on Unearned Income.
For tax
years beginning after Dec. 31, 2012, a 3.8% surtax called the Unearned Income
Medicare Contribution, would be placed on net investment income of a taxpayer
earning over $200,000 ($250,000 for a joint return). Net investment income would
be interest, dividends, royalties, rents, gross income from a trade or business
involving passive activities, and net gain from disposition of property (other
than property held in a trade or business). Net investment income would be
reduced by properly allocable deductions to such income.
Non-U.S.
Holders
Dividends
and Other Distributions on the Company Common Stock
In
general, any distributions made to a non-U.S. holder of shares of Company common
stock (and any constructive distributions a non-U.S. holder may be deemed to
receive, see “U.S. Holders —
Adjustment to Exercise Price”), to the extent paid out of current or
accumulated earnings and profits of the Company (as determined under U.S.
federal income tax principles), will constitute dividends for U.S. federal
income tax purposes. Provided such dividends are not effectively connected with
the non-U.S. holder’s conduct of a trade or business within the United States,
such dividends generally will be subject to withholding of U.S. federal income
tax at a 30% rate or such lower rate as may be specified by an applicable income
tax treaty.
Any
distribution not constituting a dividend will be treated first as a tax-free
return of capital and will reduce (but not below zero) the non-U.S. holder’s
adjusted tax basis in its shares of Company common stock and any remaining
excess will be treated as gain realized from the sale or other disposition of
the common stock, as described under “— Gain on Disposition of Common
Stock or Warrants” below.
Dividends
paid to a non-U.S. holder that are effectively connected with such non-U.S.
holder’s conduct of a trade or business within the United States generally will
not be subject to U.S. withholding tax, provided such non-U.S. holder complies
with certain certification and disclosure requirements (usually by providing an
IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S.
federal income tax at the same graduated individual or corporate rates
applicable to U.S. holders. If the non-U.S. holder is a Corporation, dividends
that are effectively connected income may also be subject to a “branch profits
tax” at a rate of 30% or such lower rate as may be specified by an applicable
income tax treaty.
14
A
non-U.S. holder who wishes to claim the benefit of an applicable treaty rate for
dividends will be required (a) to complete IRS Form W-8BEN (or other applicable
form) and certify under penalty of perjury that such holder is not a United
States person as defined under the Code and is eligible for treaty benefits or
(b) if the Company Common Stock is held through certain foreign intermediaries,
to satisfy the relevant certification requirements of applicable U.S. Treasury
regulations.
A
non-U.S. holder eligible for a reduced rate of U.S. federal withholding tax
pursuant to an income tax treaty may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the
IRS.
Gain
on Disposition of Common Stock or Warrants Exercisable for Company Common
Stock
A
non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax in respect of gain recognized on a sale, exchange or other
disposition of Company common stock or warrants exercisable for Company common
stock (including redemption of such warrants) unless:
• the
gain is effectively connected with the conduct of a trade or business by the
non-U.S. holder within the United States;
• the
non-U.S. holder is an individual who is present in the United States for 183
days or more in the taxable year of disposition and certain other conditions are
met; or
• the
Company is or has been a “United States real property holding Corporation” for
U.S. federal income tax purposes at any time during the shorter of the five-year
period ending on the date of disposition or the period that the non-U.S. holder
held Company Common Stock or warrants exercisable for shares of Company Common
Stock.
Unless an
applicable treaty provides otherwise, gain described in the first bullet point
above will be subject to tax at generally applicable U.S. federal income tax
rates. Any gain described in the first bullet point above of a non-U.S. holder
that is a foreign corporation may also be subject to an additional “branch
profits tax” at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Gain described in the second bullet point above
(which may be offset by U.S. source capital losses) will be subject to a flat
30% U.S. federal income tax.
With
respect to the third bullet point above, the Company believes that it will not
be a “United States real property holding corporation” for U.S. federal income
tax purposes.
Information
Reporting and Back-up Withholding
A U.S.
holder may be subject to information reporting requirements with respect to
dividends paid on Company common stock, and on the proceeds from the sale,
exchange or disposition of Company common stock or warrants exercisable for
Company common stock. In addition, a U.S. holder may be subject to back-up
withholding (currently at 28%) on dividends paid on Company common stock, and on
the proceeds from the sale, exchange or other disposition of Company common
stock or warrants exercisable for Company common stock, unless the U.S. holder
provides certain identifying information, such as a duly executed IRS Form W-9
or appropriate W-8, or otherwise establishes an exemption. Back-up withholding
is not an additional tax and the amount of any back-up withholding will be
allowable as a credit against a U.S. holder’s U.S. federal income tax liability
and may entitle such holder to a refund, provided that certain required
information is timely furnished to the IRS. In general, a non-U.S. holder will
not be subject to information reporting and backup withholding. However, a
non-U.S. holder may be required to establish an exemption from information
reporting and backup withholding by certifying the non-U.S. holder’s non-U.S.
status on Form W-8BEN. Holders are urged to consult their own tax advisors
regarding the application of the information reporting and back-up withholding
rules to them.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed for such purpose on a contingency
basis, or had, or is to receive, in connection with this offering, a substantial
interest, direct or indirect, in us or any of our subsidiaries, nor was any such
person connected with us as a promoter, managing or principal underwriter,
voting trustee, director, officer, or employee.
15
INFORMATION
ABOUT THE COMPANY
Alcohol
abuse exacts a large human and economic toll on societies around the
world. Our products are utilized where alcohol use or abuse must be
detected, measured and deterred: in law enforcement, the workplace, clinics and
hospitals, schools, and throughout the criminal justice corrections and
rehabilitation infrastructure. We sell our products domestically and
internationally, both directly to consumers and through distributors and sales
agents.
History
We
incorporated in Colorado in December 1983 and have been privately-owned
since that time. Since 1986, we have developed, manufactured and sold
proprietary, fuel-cell based, breath alcohol testing
equipment. Lifeloc competes in the market for alcohol testing
equipment and supplies. We sell professional breath alcohol testing instruments,
supplies and components into the law enforcement, corrections, workplace,
consumer, and OEM markets.
Principal
Products and Services and Methods of Distribution
In the
Fall of 1995, Lifeloc introduced its first model, the PBA3000, developed in
conjunction with a state forensic laboratory, for conducting evidential roadside
testing for DUI enforcement. Our Phoenix Classic was completed and released for
sale in 1998, superseding the PBA3000. It is a
microprocessor-controlled portable breath alcohol instrument which is capable of
accurately detecting the blood alcohol level of a subject and recording the test
data without peripheral equipment. The Phoenix product line is
approved by the DOT as an evidential breath tester for use in regulated
transportation industries. We sell this product through distributors
in the U.S. and worldwide.
In 2001,
the Company completed and released for sale an additional product line, its new
FC Series, designed specifically for the law enforcement and corrections
markets. FC Series of portable breath alcohol testers are currently being sold
worldwide, having contributed to Lifeloc’s growth since their introduction. The
FC Series is designed to meet the needs of domestic and international law
enforcement for roadside drink/drive testing and post-arrest parolee
testing.
In 2005
and 2006, the Company introduced two new models, the EV30 and Phoenix 6.0,
forming a family of state-of-the-art evidential workplace devices. In
addition, we offer a comprehensive line of supplies, accessories, services, and
training to support customers' alcohol testing programs. In 2006,
Lifeloc also commenced the selective marketing of its proprietary designs and
componentry on an OEM basis. In 2009, we released for sale LifeGuard,
a personal breath tester that incorporates the fuel-cell based technology
employed in the FC series. At this time, we sell this product via the
internet (www.lifeloc.com). Lifeloc constantly enhances and upgrades
its products in order to maintain a competitive advantage in its
marketplace.
Competition
and Markets
We sell
our products in a highly competitive market and we compete for business with
both foreign and domestic manufacturers. Most of our current
competitors are larger and have substantially greater resources than we
do. In addition, there is an ongoing risk that other domestic or
foreign companies who do not currently service or manufacture products for our
target markets may seek to produce products or services that compete directly
with ours.
We
believe that competition for sales of our alcohol monitoring products and
services is based on product performance, product delivery, quality, service,
training, price, device reliability, ease of use and speed. We sell
certain of our components to customers for incorporation into their own product
lines and for resale under their own name. We believe that, while our
resources are more limited than those of our competitors, we will continue to
compete successfully on the basis of product innovation, quality, reputation and
continued customer service excellence.
One
leading competitor is Intoximeters, Inc. of St. Louis, Missouri, a
long-established company with strong name recognition in the field of alcohol
monitoring. It has well established sales channels, a large customer
base, and a broad product line. CMI of Owensboro, Kentucky, another
major competitor, also has a well established name, strong position in
stationary units used in police work, and international market
coverage. Draeger Corporation, based in Germany, manufactures safety
and gas testing equipment. Its breathalyzer division produces breath
alcohol testers that are respected for their quality and
performance. Each of the above companies manufactures its own fuel
cells, a key component in the manufacture and success of portable breath-alcohol
testers.
16
Marketing
Marketing
activities associated with our business include the communication of our value
proposition through direct mail, direct and indirect sales channels, trade shows
and an information-rich online presence. We sell our products to the
workplace and law enforcement markets primarily through distributors, while we
sell our corrections, consumer and OEM products directly to the end user. Thus,
leveraging our installed base is important, as is maintaining a well trained
distributor network. In 2009, we revised our workplace distributor
program to place additional emphasis on joint demand generation programs and
additional volume incentives for growth.
International
Business
Alcohol
enforcement has long been a major concern, primarily in North America and
northern Europe. Reflecting a strong recent trend, however, countries
around the world are instituting tougher alcohol abuse prevention laws,
strengthening the enforcement of current laws, or both. These laws
set limits on the amount of alcohol an individual may have in the blood at
specific times (e.g., while driving or during safety-sensitive work activities),
or at any time for parolees and probationers. Lifeloc has sold
instruments via distributors to thousands of customers in 39 countries on six
continents worldwide.
Research
and Development
We
believe that our future success depends to a large degree on our ability to
conceive and develop new alcohol detection and measurement products and related
services that (1) open new markets to Lifeloc, (2) enhance the performance of
our current products and (3) lower our costs or otherwise improve our
methods of manufacture. Accordingly, we expect to continue to invest in research
and development. We spent $256,361 and $398,916 during fiscal years 2009 and
2008, respectively, on research and development. The amount spent in 2009 was
lower than the amount spent in 2008 because more of the cost to develop
LifeGuard was incurred in 2008 than in 2009.
Raw
Materials and Principal Suppliers
The basic
component of our instrument product line is the fuel cell, which we obtain from
a few suppliers. We believe that our demand for this component is
small relative to the total supply, and that the materials and services required
for the production of our products are currently available in sufficient
production quantities and will be available for the foreseeable
future. However, there are relatively few suppliers of the
high-quality fuel cell which our breathalyzers require. Any sudden
disruption to the supply of our fuel cells would pose a significant risk to our
business. New sources of fuel cells are uncertain at this time and changes to
our fuel cells would require approval by the DOT, which could have a material
effect on our revenues in the law enforcement and workplace
areas.
To
address this concern, we are in the process of negotiating a technology transfer
agreement with an unrelated third-party manufacturer with an established
reputation for manufacturing fuel cells. We have tested their fuel
cells in our LifeGuard consumer product, and pursuant to the technology transfer
agreement, we expect to be able to manufacture our own fuel cells commencing
later in 2010.
Patents
and Trademarks
We rely,
in part, upon patents, trade secrets and proprietary knowledge as well as
personnel policies and employee confidentiality agreements concerning inventions
and other creative efforts to develop and to maintain our competitive position.
We do not believe that our business is dependent upon any patent, patent pending
or license, although we believe that trade secrets and confidential know-how may
be important to our commercial success.
17
We plan
to file for patents, copyrights and trademarks in the United States to protect
our intellectual property rights to the extent practicable. We hold
the rights to several United States patents and have one patent application
pending. These patents have expiration dates ranging from
June 2020 to March 2029. We are not aware of any infringements of our
patents. We plan to protect our patents from infringement in each
instance where we determine that doing so would be economical in light of the
expense involved and the level and availability of our financial
resources. We may not be able to successfully defend these patents or
effectively limit the development of competitive products and services. We have
one pending application for a patent. While we believe that the application
relates to a patentable device or concept, the patent may not be
issued.
Employees
As of
June 15, 2010, we had 21 full-time employees and two part-time
employees. There were nine employees in manufacturing, two in
engineering/research and development, eight in sales and marketing and four in
finance and administration. We are not a party to any collective
bargaining agreements. We believe our relations with our employees are
good.
Customers
Revenues
from our largest customers, as a percentage of total revenues, for fiscal years
2009 and 2008 were as follows:
2009
|
2008
|
|||||||||
Customer
A
|
10 | % | 10 | % | ||||||
Customer
B
|
8 | 7 | ||||||||
Customer
C
|
4 | 4 | ||||||||
All
Others
|
78 | 79 | ||||||||
100 | % | 100 | % |
No other
customer accounted for more than 10% of our revenues in fiscal years 2009 and
2008. At December 31, 2009, receivables from our three largest
customers were 27% of the total accounts receivable.
Environmental
Matters
Our
operations are subject to a variety of federal, state and local laws and
regulations relating to the discharge of materials into the environment or
otherwise relative to the protection of the environment. From time to
time, we use a small amount of hazardous materials in our operations. We believe
that we comply with all applicable environmental laws and
regulations.
Government
Regulations on the Business
We are
subject to regulation by the United States Food and Drug Administration (“FDA”)
so far as our LifeGuard is concerned. The FDA provides regulations
governing the manufacture and sale of our LifeGuard product, and we are subject
to inspections by the FDA to determine our compliance with these
regulations. FDA inspections are conducted periodically at the
discretion of the FDA. As of December 31, 2009, we had not been
inspected by the FDA; however, we believe we were in substantial compliance with
all known regulations.
We are
also subject to regulation by the United States Department of
Transportation and by various state departments of transportation so far as
our other products are concerned. We believe that we were in
substantial compliance with all known regulations as of December 31, 2009
for our products sold into these markets and states.
18
Reports
to Security Holders
Upon
effectiveness of the registration statement of which this prospectus is a part,
we will be required to comply with the reporting requirements of the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to Section
15(d) of the Exchange Act. We will be required to file annual,
quarterly and other reports with the SEC and, accordingly, will furnish an
annual report with audited financial statements to our
stockholders. Copies of this registration statement and all
subsequent filings we make with the SEC may be inspected, without charge, at the
SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549, on
official business days during the hours of 10 a.m. and 3 p.m. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. Copies of this material also
should be available through the Internet by using the SEC’s EDGAR Archive, which
is located at http://www.sec.gov. We
will also make such material available on our own website, which is located at
http://www.lifeloc.com.
We
conduct all of our operations at a leased facility at 12441 West 49th
Avenue, Unit 4, Wheat Ridge, Colorado under lease agreements that run through
April 30, 2015.
Rent
expense for our facility for the fiscal years ended December 31, 2009 and 2008
was $92,343 and $96,039, respectively. On May 1, 2010, we amended and
extended our lease, which, when added to our existing space, provides us with
11,655 square feet of office and manufacturing/warehouse space at an average
monthly cost of $8,866 over the life of the lease. We believe this
facility is adequate for our current operations and adequately covered by
insurance. Significant increases in production or the addition of
significant equipment additions or manufacturing capabilities in connection with
the production of our line of breathalyzers and other products may, however,
require the acquisition or lease of additional facilities. We may
establish production facilities domestically or overseas to produce key
assemblies or components for our products. Overseas facilities, if
established, may subject us to the political and economic risks associated with
overseas operations. The loss of or inability to establish or
maintain such additional domestic or overseas facilities, if acquired, could
materially adversely affect our competitive position and
profitability.
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.
Shares
Eligible for Future Sale
Upon
effectiveness of the registration statement of which this prospectus is a part,
we will attempt to cause our common stock and warrants to be traded on the
OTCBB.
Prior to
this offering, there has not been a public market for our securities, and we
cannot predict what effect, if any, market sales of shares of our securities or
the availability of our securities for sale will have on the market price of our
securities prevailing from time to time. Nevertheless, sales of substantial
amounts of our securities, including the warrants and/or shares issued upon the
exercise of the warrants, in the public market, or the perception that such
sales could occur, could materially and adversely affect the market price of our
securities and could impair our future ability to raise capital through the sale
of our equity or equity-related securities at a time and price that we deem
appropriate.
Warrants
to purchase an aggregate of up to 2,422,416 shares of our common stock will be
outstanding as of the closing of this offering. If all the warrants are
exercised, we will have 4,844,832 shares of common stock issued and
outstanding. Of the outstanding shares, the shares issued upon exercise of the
warrants will be freely tradable without restriction or further registration
under the Securities Act, except that any shares held by our affiliates, as that
term is defined under Rule
144 of the
Securities Act, may be sold only in compliance with the limitations described
below. The remaining outstanding shares of common stock will be deemed
restricted securities, as defined under Rule
144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act.
19
The
restricted shares and the shares held by our affiliates will be available for
sale in the public market at various times after the date of this prospectus
pursuant to Rule 144. In general, under Rule
144 as in effect on the date of this
prospectus, a person who is not one of our affiliates at any time during the
three months preceding a sale, and who has beneficially owned shares of our
common stock for at least six months, would be entitled to sell an unlimited
number of shares of our common stock provided current public information about
us is available and, after owning such shares for at least one year, would be
entitled to sell an unlimited number of shares of our common stock without
restriction. Our affiliates who have beneficially owned shares of our
common stock for at least six months are entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
·
|
1%
of the number of shares of our common stock then outstanding;
or
|
·
|
the
average weekly trading volume of our common stock during the four calendar
weeks preceding the filing of a notice on Form 144 with respect to the
sale.
|
Sales
under Rule
144 by our affiliates are also
subject to manner of sale provisions and notice requirements and to the
availability of current public information about us.
Holders
As of
June 15, 2010, we had approximately 85 holders of record of our common stock.
Holders of record include nominees who may hold shares on behalf of multiple
owners.
Dividends
We have
not declared any dividends since our inception in 1983, and at present have no
plans to do so. We intend to retain our earnings, if any, to finance
research and development and working capital for expansion of our
business.
We
adopted our 2002 Stock Option Plan (the “Plan”) to promote our and our
stockholders’ interests by helping us to attract, retain and motivate our key
employees and associates. Under the terms of the Plan, the Board of Directors
may grant either “nonqualified” or “incentive” stock options, as defined by the
Internal Revenue Code and related regulations. The purchase price of the shares
subject to a stock option will be the fair market value of our common stock on
the date the stock option is granted. Generally, vesting of stock
options occurs immediately at the time of the grant of such option and all stock
options must be exercised within five years from the date granted. All
outstanding key employee stock options were exercised or had lapsed as of May 5,
2010, and none are outstanding as of June 15, 2010. The number of
common shares reserved for issuance under the Plan as of June 15, 2010 is
44,000, subject to adjustment for dividends, stock splits or other relevant
changes in our capitalization. Information set forth herein gives effect to a 1
for 2 reverse stock split on May 3, 2010.
Plan Category
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price
of
outstanding
options, warrants
and rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(c)
|
||||
Equity
compensation plans approved by security holders
|
—
|
$
|
—
|
44,000
|
|||
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
||||
Total
|
—
|
$
|
—
|
44,000
|
20
FINANCIAL
STATEMENTS
See our
financial statements beginning on page F-1 of this prospectus.
21
AND
RESULTS OF OPERATIONS
The
following is a discussion of our financial condition and results of operations,
and should be read in conjunction with our financial statements and the related
notes included elsewhere in this prospectus. Certain statements
contained in this section are not historical facts, including statements about
our strategies and expectations about new and existing products, market demand,
acceptance of new and existing products, technologies and opportunities, market
and industry segment growth, and return on investments in products and
markets. These statements are forward looking statements and involve
substantial risks and uncertainties that may cause actual results to differ
materially from those indicated by the forward-looking
statements. All forward-looking statements in this section are based
on information available to us on the date of this document, and we assume no
obligation to update such forward looking statements. Readers of this
prospectus are strongly encouraged to review the section titled “Risk Factors.”
Overview
We have
been a developer and manufacturer of advanced alcohol monitoring instruments
since 1986. We design and produce high-quality, high precision
measurement, fast recovery alcohol monitoring instruments for use in the
workplace, clinics, schools, law enforcement, corrections, and other
applications where the presence of alcohol cannot be tolerated, and we offer
accessories, support, training and supplies. Our internet
website is www.lifeloc.com. Information contained on our website does
not constitute part of this prospectus.
The areas
in which we do business are highly competitive and include both foreign and
domestic competitors. Most of our competitors are larger and have substantially
greater resources than we do. Furthermore, other domestic or foreign companies,
some with greater financial resources than we have, may seek to produce products
or services that compete with ours. We routinely outsource specialized
production efforts as required, both domestic and offshore, to obtain the most
cost effective production.
We
believe that competition for sales of our alcohol monitoring products and
services, which have been principally sold to distributors and direct to users,
is based on performance and other technical features, as well as other factors,
such as service, scheduling and reliability, in addition to competitive
price.
We
believe that our future success depends to a large degree on our ability to
continue to conceive and to develop new alcohol monitoring products and services
to enhance the performance characteristics and methods of manufacture of
existing products. Accordingly, we expect to continue to seek to invest
resources in research and development, to the extent funds are
available.
Outlook
Installed Base of
Breathalyzers. We believe that sales of the installed base of
our breathalyzers will increase as the inherent risks associated with drinking
while driving, and while working in sensitive jobs, become more widely
acknowledged and as our network of direct and independent sales representatives
grows. We expect that the replacement sales of our instruments and
accessories will also increase as additional workplace environments, law
enforcement agencies, schools, clinics, and other venues are converted to fuel
cell technology. We believe that increased marketing efforts, the
introduction of new products and the expansion of our network of sales
representatives, may provide the basis for increased sales and continuing
profitable operations. However, these measures, or any others that we
may adopt, may not result in either increased sales or continuing profitable
operations.
Possibility of Operating
Losses. We achieved profitable operations in 2003, and have
operated profitably each year since then. Previously, we incurred
losses since our inception and at December 31, 2009 have an accumulated deficit
of $2,228,540. There is no assurance that we will not incur operating
losses in any given quarter or year in the future.
22
Sales Growth. We
expect to generate increased sales in the U.S. and worldwide from sales to new
breathalyzer customers as our network of direct and independent sales
representatives becomes more proficient and expands the number of new
accounts. We believe that the visibility and credibility of our
technology will contribute to new accounts and increased sales in fiscal year
2010. We have recently begun using our technology to manufacture
ignition interlock components for sale on an OEM basis, and expect that acting
as a supplier of OEM components will lead to increased participation in our OEM
business. The consumer market for individual use of fuel cell based
breathalyzers is expected to grow, and we believe our Lifeguard unit will enable
us to participate in what we perceive to be a rapidly growing
opportunity.
Sales and Marketing
Expenses. We continue our efforts to expand domestic and
international distribution capability, and we believe that sales and marketing
expenses will need to be maintained at a healthy level in order to expand our
market visibility and optimize the field sales capability of converting new
customers to fuel cell technology. Sales and marketing expenses are
expected to increase as we increase our direct sales representatives and market
penetration. In fiscal year 2010, we expect to have approximately 80
active distributors and two internal business development
managers.
Research and Development
Expenses. Research and development expenses are expected to
increase to support development of refinements to our breathalyzer product line,
as well as to support development of additional products.
Net sales. Our sales for the
year ended December 31, 2009 (“FY 09”) were $4,287,597, a decrease of 4% from
$4,464,742 in the fiscal year ended December 31, 2008 (“FY 08”). This
decrease is due to the economic environment, as most of our customers across all
market areas were faced with constrained budgets. We benefited from a
high customer retention rate and a recurring sales stream from the purchases of
replacement instruments in existing accounts.
Our sales
for the quarter ended March 31, 2010 (“Q1 10”) were $1,315,730, an increase of
21.9% from $1,079,673 in the quarter ended March 31, 2009 (“Q1
09”). This increase was due to a high customer retention rate and a
recurring sales stream from the purchases of replacement instruments in existing
accounts, partially offset by the residual effects of the general economic
environment.
Gross profit. Gross
profit in FY 09 improved from 46.5% in FY 08 to 48.3% in FY 09, and in Q1 10
from 47.3% in Q1 09 to 50.5% in Q1 10. This improvement in both periods was
primarily the result of a sales mix that favored slightly higher margins, as
well as aggressive cost reduction efforts.
Research and development
expenses. Research and development expenses were $256,361 in FY
09, a decrease of $142,555, or 35.7%, from $398,916 in FY 08. In Q1
$59,392, research and development expenses decreased $11,887, or 16.7%, from
$71,279 in Q1 09 to $59,392 in Q1 10. The decrease in both periods was primarily
a result of a decrease in outside services related to new product development,
and greater utilization of internal staff.
Sales and marketing expenses.
Sales and marketing expenses were $785,026 in FY 09, an increase of
$121,675, or 18%, from $663,351 in FY 08. The increase resulted from
additions to our direct sales and marketing staff, and increased spending on
such items as advertising, internet site development, and public
relations.
Sales and
marketing expenses were $194,172 in Q1 10, a decrease of $7,389, or 4%, from
$201,561 in Q1 09. The decrease resulted from a decrease in our
direct sales and marketing staff, and increased spending on such items as
advertising and public relations.
General and administrative
expenses. General and administrative expenses were $700,100 in FY
09, an increase of $44,018, or 6.7%, from $656,082 in FY 08. The
increase was primarily the result of compensation increases and increased
regulatory compliance expense.
General
and administrative expenses were $191,933 in Q1 10, an increase of $10,930, or
6%, from $181,003 in Q1 09. The increase was primarily the result of
compensation increases and increased professional fees as a result of
registering our warrant distribution with the SEC, as well as increased
regulatory compliance fees incurred in connection with registering the LifeGuard
with the FDA, partially offset by lower internet expense.
23
Net income. Net income
in FY 09 of $177,621 represented a net income increase of $9,400 compared to FY
08 net income of $168,221. The increase is a result of a decrease in
sales, offset in part by a decrease in the loss on currency exchange and by a
lower provision for federal and state income taxes.
Net
income in Q1 of $130,245 represented a net income increase of $90,351 compared
to Q1 09 net income of $39,894. The increase is a result of an
increase in sales, offset in part by an increase in the loss on currency
exchange of $14,138 and by a higher provision for federal and state income
taxes. The loss on currency exchange in Q1 10 of $14,138
resulted from the purchase of components from a European vendor, whereas none
were purchased in Q1 09.
Although
revenues in 2009 were down approximately 4% from revenues in 2008, our fiscal
year 2009 revenues were the second highest in seven years. Revenues
in Q1 10 were up approximately 21.9% from revenues in Q1 09. This was
due in large part to shipments of the FC product series targeting the law
enforcement sector, as well as continued steady growth in the workplace and
corrections markets. We expect our quarter-to-quarter revenue
fluctuations to continue, due to the introductory stage of our LifeGuard product
and the unpredictable timing of orders from customers and the size of those
orders in relation to total revenues. Going forward, we intend to
focus our development efforts on products we believe offer the best prospects to
increase our intermediate and near-term revenues.
Our
property and equipment expenditures, and patents, during the years ended
December 31, 2009 were $36,600 compared to $127,473 for 2008, and were
$8,995 in Q1 10 compared to $1,134 in Q1 09. Future capital equipment
expenditures will depend on future sales and success of on-going research and
development efforts.
We
believe that the unique performance of our fuel cell based breathalyzer
technology provides an opportunity for continued market share
growth. We believe that the market awareness of fuel cell technology
is improving and that this will benefit sales efforts in FY 10 and
beyond. We believe that we enter FY 10 having achieved improvements
in the credibility of our technology. Our FY 10 operating plan is
focused on growing sales, increasing gross profits, increasing research and
development costs as appropriate while increasing profits and positive cash
flows. We cannot predict with certainty the expected sales, gross
profit, net income or loss and usage of cash and cash equivalents for FY
10. However, we believe that cash resources and borrowing capacity
will be sufficient to fund our operations for at least the next twelve months
under our current operating plan. If we are unable to manage the
business operations in line with our budget expectations, it could have a
material adverse effect on business viability, financial position, results of
operations and cash flows. Further, if we are not successful in sustaining
profitability and remaining at least cash flow break-even, additional capital
may be required to maintain ongoing operations.
Critical
Accounting Policies and Estimates
Our
financial statements and accompanying notes have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis. The preparation of financial statements in conformity with
United States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare
our financial statements. In general, management’s estimates are based on
historical experience, on information from third party professionals, and on
various other assumptions that are believed to be reasonable under the facts and
circumstances. Actual results could differ from those estimates made by
management.
See Note
2 of our financial statements for our years ended December 31, 2009 and 2008 for
a summary of significant accounting policies.
24
Liquidity
and Capital Resources
We
compete in a highly technical, very competitive and, in most cases, price driven
segment of the alcohol monitoring marketplace, where products can take years to
develop and introduce to distributors and end users. Furthermore,
research and development, manufacturing, marketing and distribution activities
are strictly regulated by the FDA, the DOT, and other regulatory bodies that,
while intended to enhance the ultimate quality and functionality of products
produced, can contribute to the significant cost and time needed to maintain
existing products and develop and introduce product enhancements and new product
innovations.
We have
traditionally funded working capital needs through product sales, management of
working capital components of our business, and by cash received from private
offerings of our common stock, warrants to purchase shares of our common stock
and notes. In our earlier years, we incurred quarter to quarter
operating losses to develop current product applications, utilizing a number of
proprietary and patent-pending technologies. Although we have been
profitable during the last several years, we expect that operating losses could
well occur in the future. Should that situation arise, we may not be
able to obtain working capital funds necessary in the time frame needed and at
satisfactory terms or at all.
On May
11, 2004, we entered into a credit facility agreement with Citywide Bank, which
was renewed for one year on May 11, 2010. The terms of the credit
facility include a line of credit for $150,000 for one year at an interest rate
calculated at prime rate plus 1%. Our borrowing under the credit
facility is limited by our eligible receivables and inventory at the time of
borrowing. At December 31, 2009 and 2008, we had not borrowed any
amounts from the credit facility. The credit facility requires us to
meet certain financial covenants. At December 31, 2009 and at March 31, 2010, we
were in compliance with the financial covenants.
As of
December 31, 2009, cash and cash equivalents were $1,021,135, accounts
receivable were $329,701 and current liabilities were $333,316 resulting in a
net liquid asset amount of $1,017,520. As of March 31, 2010, cash was
$1,145,391, accounts receivable were $517,850 and current liabilities were
$520,948 resulting in a net liquid asset amount of $1,142,293. We believe that
the introduction of several new products during the last several fiscal years,
along with new and on-going customer relationships, will continue to generate
sufficient revenues, which are required in order for us to maintain
profitability. If these revenues are not achieved on a timely basis,
we will be required to implement cost reduction measures, as
necessary.
We
generally provide a standard one-year warranty on materials and workmanship to
our customers. We provide for estimated warranty costs at the time
product revenue is recognized. Warranty costs are included as a
component of cost of goods sold in the accompanying statements of
operations. For the years ended December 31, 2009 and 2008, and
for the quarter ended March 31, 2010, warranty costs were not deemed
significant.
As of
March 31, 2010, we have no material commitments for capital
expenditures.
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.
There
have been no disagreements with our independent public accountant in regards to
accounting and financial disclosure.
25
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
following table sets forth the name, age, positions, and offices as of June 15,
2010, of our directors and executive officers:
NAME
|
AGE
|
POSITION
|
||
Barry
R. Knott
|
55
|
President
and Chief Executive Officer
|
||
Mark
A. Lary
|
50
|
Vice
President, Operations
|
||
Kristie
L. LaRose
|
37
|
Vice
President, Finance
|
||
Vern
D. Kornelsen
|
77
|
Director,
Chairman, Secretary and Chief Financial Officer
|
||
Alan
C. Castrodale
|
66
|
Director*
|
||
Robert
D. Greenlee
|
68
|
Director
|
||
Robert
H. Summers, PhD
|
86
|
Director
|
*
Effective December 31, 2009, Mr. Castrodale resigned as our Chief Executive
Officer, but remains as a director.
BIOGRAPHIES
OF EXECUTIVE OFFICERS AND DIRECTORS
Barry R. Knott joined the
Company on February 1, 2009 as its Marketing Director, was appointed to the
board of directors on June 11, 2009 and became chief operating officer on July
1, 2009. He became our President on October 1, 2009, and assumed the
role of President and Chief Executive Officer on January 1, 2010. He
has extensive experience in general management, and particularly sales and
marketing. Previous experience includes positions as the President
and CEO of Cognitive Solutions, Inc.; Vice President of sales and marketing for
Wide Format Printing (Nashua Corporation); Vice President and General Manager of
Zebra Technologies Corporation; and several other similar
positions. He holds a MBA degree from Queens University, Ontario,
Canada, and a BA degree from the University of New Brunswick, New Brunswick,
Canada.
Mark A. Lary has been
employed by the Company since 1994, was appointed Director of Operations in
early 1997, and became a Vice President on November 13, 2006. Mr.
Lary has been instrumental in implementing Lifeloc’s continuous flow of product
innovation and improvement. From 1994 until 1997 he served as
Products and Services Manager. Prior to 1994 Mr. Lary was employed by
Siemens Medical Systems as a Senior Electronic Technician and by International
Medical Corporation as a Field Technical Representative.
Kristie L. LaRose joined
Lifeloc as its accountant and office manager in August, 2004. Ms.
LaRose has extensive experience in accounting and administrative positions with
other companies, and holds a BS degree in Business Administration from Worcester
State College, and was named as Vice President, Finance on July 1,
2009. Prior to 2004, Ms. LaRose was employed by University of
Advancing Technology as the Senior Accountant and has held various positions in
an accounting and administrative function at B. J.’s Wholesale Club’s corporate
office.
Vern D. Kornelsen joined the
Company as a director in 1991 and served as secretary and treasurer in 1992 and
1993. He is currently Chairman of the Board of Directors, secretary,
Chief Financial Officer, and a director. Mr. Kornelsen continues with
certain of his other business activities to the extent that they do not
interfere with his responsibilities as an officer of the Company. He
formerly practiced as a Certified Public Accountant in Denver, CO and is a
financial consultant to several early stage companies. He was a
director of Valleylab for 10 years, and led an investor group that provided a
portion of its initial funding. Mr. Kornelsen has been a director and
participated in the capitalizing of a number of early stage companies, and is
currently a director of one publicly-held company, Encision, Inc. of Boulder,
CO. He received a BS degree in business from the University of
Kansas. In determining Mr. Kornelsen’s qualifications to serve on our
board of directors, the board considered, among other things, his experience and
expertise in finance, accounting and management.
26
Alan C. Castrodale joined the
Company in October 2000 as its General Manager and served as its President and
Chief Executive Officer from January, 2001 until October 1, 2009 when he
resigned as President. On December 31, 2009 Mr. Castrodale resigned
as an officer, but remains as a director. He has extensive experience
in general management, marketing and particularly product development, start-ups
and turnarounds, and in building sales channels. Previous experience
includes positions as the general manager of the Aftermarket Division of Velvac,
Inc., a $39 million manufacturer of vehicle components and accessories; Vice
President of sales and marketing at Windsor Industries, Inc., a $55 million
manufacturer of high-end commercial floor maintenance machines; and Executive
Vice President of marketing and sales for the Mercury Marine division of
Brunswick Corp. He holds a BA degree in Biology from St. Olaf College
in Minnesota. In determining Mr. Castrodale’s qualifications to serve
on our board of directors, the board considered, among other things, his
extensive management and marketing experience.
Robert D. Greenlee has been a
director of the Company since August 1989. He has more than thirty
years of experience in broadcast management and also has extensive marketing and
advertising expertise. Since 1987, Mr. Greenlee has had controlling
equity positions in, and serves as a board member and consultant to, radio
stations in Omaha, NE and Denver, CO. He is also President of
Centennial Investment & Management Company, a closely held investment
organization and is chairman of Black Hawk Gaming, Inc., a public company
developing limited stakes gaming in Black Hawk and Central City,
CO. From 1975 through 1987, Mr. Greenlee was President of Centennial
Wireless, Inc., licensee of KBCO AM/FM in Boulder, CO. This
successful radio station was sold in January 1988. Mr. Greenlee has
graduate and undergraduate degrees in communications from Iowa State
University. In determining Mr. Greenlee’s qualifications to serve on
our board of directors, the board considered, among other things, his marketing
and communications experience as well as his management skills.
Robert H. Summers, Ph.D., was
elected as a director at the annual meeting of shareholders in August,
2004. Dr. Summers holds a Bachelor of Education degree from Southeast
Missouri State University, a Master in Psychology degree from Vanderbilt
University, and a Doctorate in Education and Psychology from the University of
Northern Colorado. He has a broad background in training and
management, having worked most recently as a Senior Configuration Management
Specialist and Training Specialist at Geodynamics Corporation, Englewood,
CO. He has also published extensively on management and
training. In determining Dr. Summers’s qualifications to serve on our
board of directors, the board considered, among other things, his extensive
management training and experience.
EXECUTIVE
COMPENSATION
Summary
Compensation
The
following table sets forth all compensation for the last two completed fiscal
years ended December 31, 2009 and 2008 awarded to, earned by, or paid to our
Principal Executive Officer(s), Vice Presidents and Chief Financial
Officer. No other executive officer or employee earned over $100,000
in the last completed fiscal year.
27
Summary Compensation Table for the Years Ended December
31, 2009 and 2008
Name
and principal
position
(a)
|
Year
December
31,
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
awards
($)
(e)
|
Option
awards
($)
(f)
|
Non-equity
incentive
plan
compensation
($)
(g)
|
Non-qualified
deferred
compensation
earnings
($)
(h)
|
All
other
compensation
($)
(i)
|
Total
($)
(j)
|
||||||||||||||||||||||||
Alan
C. Castrodale
|
|||||||||||||||||||||||||||||||||
President
(until 10/1/09),
Chief
Executive
|
2009
|
$ | 122,575 | 12,990 | 0 | 0 | 0 | 0 | $ | 4,130 | (1)(2) | $ | 139,695 | ||||||||||||||||||||
Officer
(until 12/31/09)
|
2008
|
$ | 140,062 | 21,756 | 0 | 0 | 0 | 0 | $ | 4,163 | (1)(2) | $ | 165,981 | ||||||||||||||||||||
Barry
R. Knott
|
|||||||||||||||||||||||||||||||||
CEO
1/1/10, President
|
2009
|
$ | 58,212 | 8,079 | 0 | 0 | 0 | 0 | $ | 968 | (1)(2) | $ | 66,291 | ||||||||||||||||||||
10/1/09
|
2008
|
$ | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||
Mark
A. Lary
|
2009
|
$ | 99,000 | 12,865 | 0 | 0 | 0 | 0 | $ | 3,439 | (1)(2) | $ | 115,304 | ||||||||||||||||||||
Vice
President
|
2008
|
$ | 93,154 | 16,314 | 0 | 0 | 0 | 0 | $ | 2,787 | (1)(2) | $ | 112,255 | ||||||||||||||||||||
Kristie
L. LaRose
|
|||||||||||||||||||||||||||||||||
Vice
President
|
2009
|
$ | 42,711 | 7,120 | 0 | 0 | 0 | 0 | $ | 1,498 | (1)(2) | $ | 51,329 | ||||||||||||||||||||
7/1/09
|
2008
|
$ | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | $ | 0 | |||||||||||||||||||||
Vern
D. Kornelsen
|
2009
|
$ | 50,000 | 0 | 0 | 0 | 0 | 0 | $ | 0 | (1)(2) | $ | 50,000 | ||||||||||||||||||||
Chairman,
Secretary,
|
2008
|
$ | 50,000 | 0 | 0 | 0 | 0 | 0 | $ | 0 | (1)(2) | $ | 50,000 | ||||||||||||||||||||
Chief
Financial Officer
|
(1)
We have not paid any automobile allowances, although business mileage,
business travel, and other business expenses supported by appropriate receipts
have been reimbursed. All such amounts are minor, and do not include
any compensation element.
(2)
Represents the Company’s matching contribution to the
401(k) Plan.
28
Narrative
to Summary Compensation Table
Employment
Contracts and Termination of Employment Arrangements
We have
no employment contracts in place with any Named Executive Officer, nor do we
have any equity-incentive plans covering such Named Executive
Officers. We have no compensatory plan or arrangement with respect to
any Named Executive Officer where such plan or arrangement will result in
payments to such Named Executive Officer upon or following his resignation, or
other termination of employment with our Company and its subsidiaries, or as a
result of a change in control of our Company or a change in the Named Executive
Officers’ responsibilities following a change in control.
Our board
of directors has approved the contribution of 15% of pre-bonus, pre-tax profits
to a bonus pool, which has been paid out to our executive officers, excluding
our Chief Financial Officer, Vern D. Kornelsen. The allocation of
such payments is made at the discretion of the President with approval by the
board of directors.
In 2009, we paid a total of $41,054 to our executive officers, including $12,990
to Mr. Castrodale, $8,079 to Mr. Knott, $12,865 to Mr. Lary, and $7,120 to Ms.
LaRose. No bonus was paid to Mr. Kornelsen.
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows grants of options outstanding on December 31, 2009, the
last day of our most recently completed fiscal year, to each of the Named
Executive Officers named in the Summary Compensation
Table. Information set forth herein gives effect to a 1 for 2 reverse
stock split on May 3, 2010.
Outstanding
Equity Awards at Fiscal Year-End Table for the Fiscal Year Ended December 31,
2009
Option
awards(1)
Name
(a)
|
Number of
securities underlying
unexercised options
(#)
exercisable
(b)
|
Number of
securities underlying
unexercised options
(#)
unexercisable
(c)
|
Option
exercise
price
($)
(e)
|
Option
expiration
date
(f)
|
|||||||||
Mark
A. Lary
|
50,000 | 0 | $ | .40 | 5/5/2010 | ||||||||
Kristie
L. LaRose
|
15,000 | 0 | $ | .40 | 5/5/2010 |
(1) All
of the above options were exercised on May 1, 2010.
Option
Grants in Last Fiscal Year
We made
no individual grants of stock options to our Named Executive Officers during the
years ended December 31, 2009 and 2008.
29
Long
Term Incentive Plans; Awards in Last Fiscal Year
We made
no awards under any long-term incentive plan to our Named Executive Officers
during the fiscal year ended December 31, 2009.
Profit
Sharing and 401(k) Plan
We have
adopted a 401(k) Defined Contribution Plan which covers all full-time
employees who have completed three months of full-time continuous service and
are age eighteen or older. Participants may defer up to 100% of their gross pay
up to plan limits. Participants are immediately vested in their
contributions. We may make discretionary contributions based on
corporate financial results for the fiscal year, which were 3% of the total
payroll of the participating employees in 2009 and 2008. In 2009 and
2008 we contributed $19,534 and $27,388 respectively. Vesting in a
contribution account (our contribution) is based on years of service, with a
participant fully vested after six years of credited service.
Director
Compensation
We did
not pay any compensation to our directors during the fiscal years ended December
31, 2009 and 2008.
Compensation
Committee Interlocks and Insider Participation
During
the fiscal year ended December 31, 2009, all members of our board of directors
served as members of our Compensation Committee. No member of our Compensation
Committee at any time during the last fiscal year, or prior to the last fiscal
year, was an officer or employee of our Company except Alan C. Castrodale, Barry
R. Knott, and Vern D. Kornelsen. Additionally, no member of our
Compensation Committee had any relationship with us that would be required to be
disclosed as a related person transaction except as set forth
herein. During the fiscal year ended December 31, 2009, none of our
executive officers or employees except Alan C. Castrodale, Barry R. Knott, and
Vern D. Kornelsen participated in deliberations of our board of directors
concerning executive officer compensation.
During
the fiscal year ended December 31, 2009, none of our executive
officers:
|
·
|
served
as a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee,
the board of directors) of another entity, one of whose executive officers
served as a member of our Compensation
Committee;
|
|
·
|
as
a director of another entity, one of whose executive officers served as a
member of our Compensation Committee;
or
|
|
·
|
as
a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee,
the board of directors) of another entity, one of whose executive officers
served as a member of our board of
directors.
|
30
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth
information regarding our common stock owned as of the close of business on June
15, 2010 by the following persons: (i) each person who is known by us to
own beneficially more than 5% of our common stock; (ii) each of our
directors who beneficially own our common stock; (iii) each of our Named
Executive Officers who beneficially own our common stock; and (iv) all
executive officers and directors, as a group, who beneficially own our common
stock. The information on beneficial ownership in the table and footnotes
thereto is based upon data furnished to us by, or on behalf of, the persons
listed in the table. All shares give effect to the 1:2 reverse stock split
on May 3, 2010.
Name
and Address of Beneficial Owner
|
Amount
and Nature of
Beneficial
Ownership (1)
|
Percent
of Class (2)
|
|
||
Vern
D. Kornelsen
c/o
Lifeloc Technologies, Inc.
12441
West 49th Ave., Unit 4, Wheat Ridge, CO 80033
|
1,889,445(3)
|
78%
|
Directors
and Named Executive Officers
|
|
|
|
|
|
Alan
C. Castrodale
c/o
Lifeloc Technologies, Inc.
12441
West 49th Ave., Unit 4, Wheat Ridge, CO 80033
|
50,000
|
2.1%
|
|
||
Robert
D. Greenlee
c/o
Lifeloc Technologies, Inc.
12441
West 49th Ave., Unit 4, Wheat Ridge, CO 80033
|
184,979
|
7.6%
|
Robert
H. Summers, PhD
c/o
Lifeloc Technologies, Inc.
12441
West 49th Ave., Unit 4, Wheat Ridge, CO 80033
|
11,500
|
.5%
|
|
||
Barry
R. Knott
c/o
Lifeloc Technologies, Inc.
12441
West 49th Ave., Unit 4, Wheat Ridge, CO 80033
|
64,125
|
2.6%
|
Mark
Lary
c/o
Lifeloc Technologies, Inc.
12441
West 49th Ave., Unit 4, Wheat Ridge, CO 80033
|
50,000
|
2.1%
|
Kristie
LaRose
c/o
Lifeloc Technologies, Inc.
12441
West 49th Ave., Unit 4, Wheat Ridge, CO 80033
|
7,500
|
.3%
|
All
executive officers and directors as a group, including those
named
above (7 persons)
|
2,257,549
|
93.2
|
(1)
|
Represents
shares with respect to which each beneficial owner listed has or will
have, upon acquisition of such shares pursuant to the exercise or
conversion of options, warrants, conversion privileges or other rights
exercisable within sixty days, sole voting and investment power. Amounts
listed have been adjusted to reflect a 1 for 2 reverse split, effective
May 3, 2010.
|
31
(2)
|
As
of June 15, 2010, we had 2,422,416 shares of our common stock issued and
outstanding. Percentages are calculated on the basis of the
amount of issued and outstanding common stock. No person or
group has the right to acquire, within 60 days following the filing of the
registration statement of which this prospectus is a part, any shares
pursuant to options, warrants, conversion privileges or other
rights.
|
(3)
|
Holdings
as of June 15, 2010. Includes 1,855,319 shares owned by EDCO
Partners LLLP, of which Mr. Kornelsen is the General
Partner. Excludes 3,000 shares owned by M. Elaine Kornelsen, as
to which Vern D. Kornelsen disclaims any beneficial
ownership.
|
We have
not participated in any transactions since the beginning of our last two fiscal
years in which a person deemed to be a related person pursuant to Item 404 of
SEC Regulation S-K had or will have a direct or indirect material interest.
Lifeloc is not a subsidiary of any parent company.
DIRECTOR
INDEPENDENCE
As of
June 15, 2010, Alan C. Castrodale, Robert D. Greenlee, Barry R. Knott, Vern D.
Kornelsen, and Dr. Robert H. Summers serve as our directors. Currently,
Mr. Castrodale, Mr. Greenlee and Dr. Summers are independent directors, as
defined under the standards of independence set forth in the NASDAQ Marketplace
Rules. Upon effectiveness of the registration statement of which this
prospectus is a part, we will attempt to cause our common stock and warrants to
be traded on the OTCBB. Our securities have not been traded previously. The
OTCBB does not require that a majority of our board of directors be
independent.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our
directors and officers are indemnified as provided by the Colorado General Laws,
our By-laws, and our Articles of Organization, as amended. We have
been advised that, in the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities is asserted by one of our directors, officers or controlling persons
in connection with the securities being registered, we will, unless in the
opinion of our legal counsel the matter has been settled by controlling
precedent, submit the question of whether such indemnification is against public
policy to a court of appropriate jurisdiction. We will then be governed by the
court’s decision.
32
CONSOLIDATED
FINANCIAL STATEMENTS OF
LIFELOC
TECHNOLOGIES, INC.
INDEX
Report of
Independent Registered Public Accounting Firm
Balance
Sheets as of December 31, 2009
Statements
of Income for the years ended December 31, 2009 and 2008
Statement
of Stockholders’ Equity as of December 31, 2009 and 2008
Statements
of Cash Flows for the years ended December 31, 2009
Notes to
Financial Statements as of December 31, 2009 and 2008
Condensed
Balance Sheets as of March 31, 2010 (unaudited) and December 31,
2009
Condensed
Statements of Income (unaudited) three months ended March 31, 2010
and 2009
Condensed
Statements of Cash Flows (unaudited) three months ended March 31, 2010 and
2009
Notes to
Condensed Financial Statements (Unaudited)
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Lifeloc Technologies, Inc.
We have
audited the accompanying balance sheets of Lifeloc Technologies, Inc. as of
December 31, 2009 and 2008, and the related statements of income, stockholders'
equity and cash flows for each of the years in the two- year period ended
December 31, 2009. Lifeloc Technologies, Inc's management is responsible for
these financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Lifeloc Technologies, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 2009 in
conformity with accounting principles generally accepted in the United States of
America.
Greenwood
Village, Colorado
May 27,
2010
F-2
LIFELOC
TECHNOLOGIES, INC.
Balance
Sheets
December
31, 2009 and 2008
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
2009
|
2008
|
||||||
Cash
|
$ | 1,021,135 | $ | 791,047 | ||||
Accounts
receivable, net
|
329,701 | 317,246 | ||||||
Inventories,
net
|
767,048 | 803,989 | ||||||
Deferred
taxes
|
55,069 | 137,856 | ||||||
Prepaid
expenses and other
|
21,253 | 12,619 | ||||||
Total
current assets
|
2,194,206 | 2,062,757 | ||||||
PROPERTY
AND EQUIPMENT, at cost:
|
||||||||
Production
equipment
|
160,318 | 139,639 | ||||||
Office
equipment
|
92,893 | 95,851 | ||||||
Sales
and marketing equipment
|
36,555 | 23,454 | ||||||
Purchased
software
|
29,048 | 31,048 | ||||||
Less
accumulated depreciation
|
(205,359 | ) | (147,315 | ) | ||||
Total
property and equipment, net
|
113,455 | 142,677 | ||||||
OTHER
ASSETS:
|
||||||||
Patents,
net
|
17,415 | 15,891 | ||||||
Deposits
|
4,242 | 4,242 | ||||||
Total
other assets
|
21,657 | 20,133 | ||||||
Total
assets
|
$ | 2,329,318 | $ | 2,225,567 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$ | 57,425 | $ | 225,282 | ||||
Notes
payable
|
8,000 | 8,000 | ||||||
Customer
deposits
|
9,709 | - | ||||||
Accrued
expenses
|
161,216 | 98,414 | ||||||
Deferred
income, current portion
|
84,966 | 58,611 | ||||||
Reserve
for warranty expense
|
12,000 | 12,000 | ||||||
Total
current liabilities
|
333,316 | 402,307 | ||||||
DEFERRED
INCOME, net of current portion
|
8,878 | 13,757 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Common
stock, no par value; 50,000,000 shares
|
||||||||
authorized,
2,318,416 shares outstanding
|
||||||||
in
2009 and 2008
|
4,215,664 | 4,215,664 | ||||||
Accumulated
(deficit)
|
(2,228,540 | ) | (2,406,161 | ) | ||||
Total
stockholders' equity
|
1,987,124 | 1,809,503 | ||||||
Total
liabilities and stockholders' equity
|
$ | 2,329,318 | $ | 2,225,567 |
See
accompanying notes
F-3
LIFELOC
TECHNOLOGIES, INC.
Statements
of Income
Years
Ended December 31, 2009 and 2008
|
||||||||
2009
|
2008
|
|||||||
SALES
|
$ | 4,287,597 | $ | 4,464,742 | ||||
COST
OF SALES
|
2,215,192 | 2,388,326 | ||||||
GROSS
PROFIT
|
2,072,405 | 2,076,416 | ||||||
OPERATING
EXPENSES:
|
||||||||
Research
and development
|
256,361 | 398,916 | ||||||
Sales
and marketing
|
785,026 | 663,351 | ||||||
General
and administrative
|
700,100 | 656,082 | ||||||
Total
|
1,741,487 | 1,718,349 | ||||||
OPERATING
INCOME
|
330,918 | 358,067 | ||||||
OTHER
INCOME (EXPENSE):
|
||||||||
Loss
on currency exchange
|
(75,502 | ) | (99,259 | ) | ||||
Interest
income
|
8,279 | 12,803 | ||||||
Other
|
- | 5,860 | ||||||
Total
|
(67,223 | ) | (80,596 | ) | ||||
NET
INCOME BEFORE PROVISION FOR TAXES
|
263,695 | 277,471 | ||||||
PROVISION
FOR FEDERAL AND STATE INCOME TAXES
|
(86,074 | ) | (109,250 | ) | ||||
NET
INCOME
|
$ | 177,621 | $ | 168,221 | ||||
NET
INCOME PER SHARE, BASIC
|
$ | 0.08 | $ | 0.07 | ||||
NET
INCOME PER SHARE, DILUTED
|
$ | 0.07 | $ | 0.07 | ||||
WEIGHTED
AVERAGE SHARES, BASIC
|
2,318,416 | 2,318,416 | ||||||
WEIGHTED
AVERAGE SHARES, DILUTED
|
2,371,060 | 2,383,731 | ||||||
See
accompanying notes
F-4
LIFELOC
TECHNOLOGIES, INC.
Statement
of Stockholders' Equity
Years
Ended December 31, 2009 and 2008
|
||||||||||||||||
Common Stock | Accumulated | |||||||||||||||
Shares | Amount | (Deficit) | Total | |||||||||||||
BALANCES,
JANUARY 1, 2008
|
2,318,416 | $ | 4,215,664 | $ | (2,574,382 | ) | $ | 1,641,282 | ||||||||
Net
income
|
- | - | 168,221 | 168,221 | ||||||||||||
BALANCES,
DECEMBER 31, 2008
|
2,318,416 | 4,215,664 | (2,406,161 | ) | 1,809,503 | |||||||||||
Net
income
|
- | - | 177,621 | 177,621 | ||||||||||||
BALANCES,
DECEMBER 31, 2009
|
2,318,416 | $ | 4,215,664 | $ | (2,228,540 | ) | $ | 1,987,124 |
See
accompanying notes
F-5
LIFELOC
TECHNOLOGIES, INC.
Statements
of Cash Flows
Years
Ended December 31, 2009 and 2008
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
2009
|
2008
|
||||||
Net
income
|
$ | 177,621 | $ | 168,221 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities-
|
||||||||
Depreciation
and amortization
|
64,298 | 36,779 | ||||||
Changes
in operating assets and liabilities-
|
||||||||
Accounts
receivable
|
(12,455 | ) | (114,525 | ) | ||||
Inventories
|
36,941 | (85,969 | ) | |||||
Deferred
taxes
|
82,787 | 109,250 | ||||||
Prepaid
expenses and other
|
(8,634 | ) | 2,077 | |||||
Accounts
payable
|
(167,857 | ) | 16,019 | |||||
Customer
deposits
|
9,709 | - | ||||||
Accrued
expenses
|
62,802 | (1,500 | ) | |||||
Deferred
income
|
21,476 | 8,442 | ||||||
Net
cash provided from operating activities
|
266,688 | 138,794 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Patent
costs
|
(2,821 | ) | (4,549 | ) | ||||
Purchases
of property and equipment, and patents
|
(33,779 | ) | (122,924 | ) | ||||
Net
cash (used in) investing activities
|
(36,600 | ) | (127,473 | ) | ||||
NET
INCREASE IN CASH
|
230,088 | 11,321 | ||||||
CASH,
BEGINNING OF PERIOD
|
791,047 | 779,726 | ||||||
CASH,
END OF PERIOD
|
$ | 1,021,135 | $ | 791,047 | ||||
SUPPLEMENTAL
INFORMATION:
|
||||||||
Cash
paid for interest
|
$ | - | $ | - | ||||
Cash
paid for income tax
|
$ | 3,287 | $ | - |
See
accompanying notes
LIFELOC
TECHNOLOGIES, INC.
Notes to
Financial Statements
December
31, 2009 and 2008
1. ORGANIZATION AND NATURE OF
BUSINESS
Lifeloc
Technologies, Inc. (the "Company" or “Lifeloc”) was incorporated in Colorado in
December 1983 and has, since 1986, developed, manufactured and sold proprietary,
fuel-cell based, breath alcohol testing equipment. Our Phoenix
Classic was completed and released for sale in 1998, superseding the original
model PBA3000. It is a microprocessor controlled portable breath
alcohol instrument which is capable of accurately detecting the blood alcohol
level of a subject and recording the test data without peripheral
equipment. The Phoenix product line is approved by the U.S.
Department of Transportation as an evidential breath tester for use in regulated
transportation industries. In 2001, we completed and released for
sale an additional product line, the new FC Series, designed specifically for
the law enforcement and corrections markets. FC breath testers have
established a reputation of innovation and highest quality and durability, and
are currently being sold worldwide, having contributed to our steady growth
since the introduction. In 2005 and 2006, we introduced two new
models, the EV30 and Phoenix 6.0. These two new models form a family
of state-of-the-art evidential workplace devices. In addition, we
sell a comprehensive line of supplies, accessories, services, and training to
support customers' alcohol testing programs. In 2006, Lifeloc also
commenced the selective marketing of its proprietary designs and componentry on
an OEM basis. In 2009 we released LifeGuard, a personal breath tester
that incorporates the fuel-cell based technology employed in the FC
series. Lifeloc constantly enhances and upgrades its products in
order to maintain a competitive advantage in its marketplace.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates in the
Preparation of Financial Statements. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions. Such
estimates and assumptions affect the reported amounts of assets and liabilities
as well as disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of sales and expense during the
reporting period. Actual results could differ from those estimates.
Cash and Cash
Equivalents. For purposes of reporting cash flows, we consider all
cash and highly liquid investments with an original maturity of three months or
less to be cash equivalents. There were no cash equivalents as of
December 31, 2009 and 2008.
Fair Value of Financial
Instruments. Our financial instruments consist of cash and cash
equivalents, short-term trade receivables and payables, and notes
payable. The carrying values of cash and cash equivalents, short-term
receivables and payables, and notes payable approximate their fair value due to
their short term maturities.
Concentration of Credit
Risk. Financial instruments with significant credit risk include
cash. The amount of cash on deposit with one financial institution exceeded the
$250,000 federally insured limit at December 31, 2009 by
$224,000. However, we believe that the financial institution is
financially sound and the risk of loss is minimal.
We have
no significant off-balance sheet concentrations of credit risk such as foreign
exchange contracts, options contracts or other foreign hedging arrangements. We
maintain the majority of our cash balances with two financial institutions in
the form of demand deposits.
Accounts
receivable are typically unsecured and are derived from transactions with and
from entities primarily located in the United States, as we ship to
international customers against letters of credit. Accordingly, we
may be exposed to credit risks generally associated with the alcohol monitoring
industry. Our credit policy calls for payment in accordance with
prevailing industry standards, generally 30 days. We maintain
allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. A summary of
the activity in our allowance for doubtful accounts is as
follows:
Years
Ended December 31
|
2009 | 2008 | ||||||
Balance,
beginning of year
|
$ | 3,083 | $ | 2,431 | ||||
Provision
for estimated losses
|
2,808 | 1,593 | ||||||
Write-off
of uncollectible accounts
|
(1,791 | ) | (941 | ) | ||||
Balance,
end of year
|
$ | 4,100 | $ | 3,083 |
The net
accounts receivable balance at December 31, 2009 of $329,701 included no
more than 15% from any one customer. The net accounts receivable balance at
December 31, 2008 of $317,246 included no more than 11% from any one
customer.
F-7
Inventories.
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. We reduce inventory for estimated obsolete or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory write-downs may be required. At
December 31, 2009 and 2008, inventory consisted of the
following:
2009
|
2008
|
|||||||
Raw
materials & deposits
|
$ | 216,380 | $ | 269,036 | ||||
Work-in
process
|
152,823 | 77,048 | ||||||
Finished
goods
|
418,143 | 479,652 | ||||||
Total
gross inventories
|
787,346 | 825,736 | ||||||
Less
reserve for obsolescence
|
(20,298 | ) | (21,747 | ) | ||||
Total
net inventories
|
$ | 767,048 | $ | 803,989 |
A summary
of the activity in our inventory reserve for obsolescence is as
follows:
Years
Ended December 31
|
2009
|
2008
|
||||||
Balance,
beginning of year
|
$ | 21,747 | $ | 19,500 | ||||
Provision
for estimated obsolescence
|
22,532 | 18,000 | ||||||
Write-off
of obsolete inventory
|
(23,981 | ) | (15,753 | ) | ||||
Balance,
end of year
|
$ | 20,298 | $ | 21,747 |
Property and
Equipment. Property and equipment are stated at cost, with depreciation
computed over the estimated useful lives of the assets, generally three to five
years. We utilize the double-declining method of depreciation for property and
equipment due to the expected usage of the property and equipment over time.
This method is expected to continue throughout the life of the
equipment. Maintenance and repairs are expensed as incurred and major
additions, replacements and improvements are capitalized. Depreciation expense
for the years ended December 31, 2009 and 2008 was $63,002 and $35,913
respectively.
Long-Lived Assets.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. A long-lived asset is considered impaired when estimated future
cash flows related to the asset, undiscounted and without interest, are
insufficient to recover the carrying amount of the asset. If deemed impaired,
the long-lived asset is reduced to its estimated fair value. Long-lived assets
to be disposed of are reported at the lower of their carrying amount or
estimated fair value less cost to sell. No impairments were recorded
for the years ended December 31, 2009 and 2008.
Patents. The
costs of applying for patents are capitalized and amortized on a straight-line
basis over the lesser of the patent’s economic or legal life (20 years in the
United States, except design patents which are 14
years). Amortization expense for the years ended December 31, 2009
and 2008 was $1,296 and $866 respectively. Capitalized costs are
expensed if patents are not granted. We review the carrying value of
our patents periodically to determine whether the patents have continuing value
and such reviews could result in the conclusion that the recorded amounts have
been impaired. A summary of our patents at December 31, 2009 and
2008 is as follows:
2009
|
2008
|
|||||||
Patents
issued
|
$ | 22,775 | $ | 15,406 | ||||
Patent
applications
|
- | 4,549 | ||||||
Accumulated
amortization
|
(5,360 | ) | (4,064 | ) | ||||
Total
net patents
|
$ | 17,415 | $ | 15,891 |
Accrued
Expenses. We have accrued $13,526 related to property and
other taxes, $102,281 related to compensation, $19,725 related to rebates,
$13,451 related to our 401(k) plan, and $12,233 related to interest and have
included these amounts in accrued expenses in the accompanying balance sheet at
December 31, 2009. At December 31, 2008, we had accrued $5,988
related to property and other taxes, $80,193 related to compensation, and
$12,233 related to interest and included these amounts in accrued expenses in
the accompanying balance sheet at December 31, 2008.
Product Warranty
Reserve. We provide for the estimated cost of product warranties at
the time sales are recognized. While we engage in extensive product
quality programs and processes, including actively monitoring and evaluating the
quality of our component suppliers, our warranty obligation is based upon
historical experience and will be affected by product failure rates and material
usage incurred in correcting a product failure. Should actual product failure
rates or material usage costs differ from our estimates, revisions to the
estimated warranty liability would be required. A summary of the
activity in our product warranty reserve is as follows:
F-8
Years
Ended December 31
|
2009
|
2008
|
||||||
Balance,
beginning of year
|
$ | 12,000 | $ | 12,000 | ||||
Provision
for estimated warranty claims
|
14,715 | 14,929 | ||||||
Claims
made
|
(14,715 | ) | (14,929 | ) | ||||
Balance,
end of year
|
$ | 12,000 | $ | 12,000 |
Income
Taxes. We account for income taxes under the provisions of
Accounting Standards Codification Topic 740, “Accounting for Income Taxes” (“ASC
740”). ASC 740 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax bases
of assets and liabilities. ASC 740 also requires recognition of deferred tax
assets for the expected future tax effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards. Deferred tax
assets are then reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which, more likely than not based on current
circumstances, are not expected to be realized. During 2009 and 2008,
we used our tax loss carryforwards as well as tax credits to reduce our taxable
income. As a result, the provisions for income taxes reflected in the
accompanying statements of operations for 2009 and 2008 are $92,074 and $109,250
respectively. We do not have any remaining tax loss carryforwards for
use in future years; however, we have $3,501 of tax credit carryovers available
for use in 2010.
We
adopted the provisions of ASC 740-10 (previously Financial Interpretation No.
48, Accounting for Uncertainty in Income Taxes), on January 1,
2008. The implementation of this standard had no impact on our
financial statements. As of both the date of adoption, and as of
December 31, 2009 and 2008, the unrecognized tax benefit accrual was
zero.
We will
recognize future accrued interest and penalties related to unrecognized tax
benefits in income tax expense if incurred. Our income tax returns
are no longer subject to Federal tax examinations by tax authorities for years
before 2006 and state examinations for years before 2005.
Revenue Recognition.
Revenue from product sales is recorded when we ship the product and title
has passed to the customer, provided that we have evidence of a customer
arrangement and can conclude that collection is probable. Our shipping policy is
FOB Shipping Point. We recognize revenue from sales to stocking distributors
when there is no right of return, other than for normal warranty claims. We have
no ongoing obligations related to product sales, except for normal
warranty.
Research and Development
Expenses. We expense research and development costs for products
and processes as incurred.
Stock-Based
Compensation. Stock-based compensation is presented in
accordance with the guidance of ASC Topic 718, Compensation – Stock Compensation
(“ASC 718”). Under the provisions of ASC 718, companies are required
to estimate the fair value of share-based payment awards on the date of grant
using an option-pricing model. The value of the portion of the award
that is ultimately expected to vest is recognized as expense over the requisite
service periods in our statement of operations.
ASC 718
requires companies to estimate the fair value of share-based payment awards on
the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the accompanying statement of
operations.
Stock-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period.
We had no
stock based compensation in 2009 and 2008, and no stock-based compensation
expense is recognized in our statement of operations for 2009 and
2008.
Segment Reporting.
We have concluded that we have one operating segment.
Basic and Diluted Income and
Loss per Common Share. Net income or loss per share is
calculated in accordance with ASC Topic 260, “Earnings Per
Share”. Under the provisions of ASC Topic 260, basic net income or
loss per common share is computed by dividing net income or loss for the period
by the weighted average number of common shares outstanding for the
period. Diluted net income or loss per share is computed by dividing
the net income or loss for the period by the weighted average number of common
and potential common shares outstanding during the period if the effect of the
potential common shares is dilutive.
Recent Accounting
Pronouncements. In June 2009, FASB approved the FASB
Accounting Standards Codification (“the Codification”) as the single source of
authoritative nongovernmental generally accepted accounting principles
(“GAAP”). All existing accounting standard documents, such as FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force
and other related literature, excluding guidance from the Securities and
Exchange Commission (“SEC”), have been superseded by the Codification. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification has become non-authoritative. The Codification did not change GAAP,
but instead introduced a new structure that combines all authoritative standards
into a comprehensive, topically organized online database. The Codification is
effective for interim or annual periods ending after September 15, 2009, and
impacts our financial statements as all future references to authoritative
accounting literature will be referenced in accordance with the Codification.
There have been no changes to the content of the Company’s financial statements
or disclosures as a result of implementing the Codification.
F-9
As a
result of our implementation of the Codification during 2009, previous
references to new accounting standards and literature are no longer
applicable.
In May
2009, the FASB issued ASC 855-10, “Subsequent Events”. ASC 855-10
provides guidance on management’s assessment of subsequent events and
incorporates this guidance into accounting literature. ASC 855-10 is
effective prospectively for interim and annual periods ending after June 15,
2009. The adoption of this Statement did not have an impact on our
financial position or results of operations. Effective February 24,
2010, the FASB modified its guidance related to subsequent events and the
Company has adopted the change. This guidance continues to require
entities that file or furnish financial statements with the SEC to evaluate
subsequent events through the date the financial statements are issued; however,
this guidance removed the requirement for these entities to disclose the date
through which events have been evaluated. The adoption of this
guidance did not have an effect on the results of operations or financial
position of the Company.
We have
reviewed all recently issued, but not yet effective, accounting pronouncements
and do not believe the future adoption of any such pronouncements may be
expected to cause a material impact on our financial condition or the results of
our operations.
3. STOCKHOLDERS’
EQUITY
Stock Option Plan.
We adopted our 2002 Stock Option Plan (the “Plan,” as summarized below)
to promote our and our stockholders’ interests by helping us to attract, retain
and motivate our key employees and associates. Under the terms of the Plan, the
Board of Directors may grant either “nonqualified” or “incentive” stock options,
as defined by the Internal Revenue Code and related regulations. The purchase
price of the shares subject to a stock option will be the fair market value of
our common stock on the date the stock option is granted. Generally,
vesting of stock options occurs immediately at the time of the grant of such
option and all stock options must be exercised within five years from the date
granted. The number of common shares reserved for issuance under the Plan is
375,000 shares of common stock, subject to adjustment for dividend, stock split
or other relevant changes in our capitalization.
A summary
of our stock option activity and related information for each of the fiscal
years ended December 31, 2009 and 2008 is as follows:
STOCK OPTIONS OUTSTANDING | |||||||
Number
Outstanding
|
Weighted-Average
Exercise
Price per Share
|
||||||
BALANCE
AT DECEMBER 31, 2007
|
110,000 | $0.40 | |||||
Granted
|
- | ||||||
Exercised
|
- | ||||||
Forfeited/expired
|
(6,000 | ) | |||||
BALANCE
AT DECEMBER 31, 2008
|
104,000 | $0.40 | |||||
Granted
|
- | ||||||
Exercised
|
- | ||||||
Forfeited/expired
|
- | ||||||
BALANCE
AT DECEMBER 31, 2009
|
104,000 | $0.40 |
The
following table summarizes information about employee stock options outstanding
and exercisable at December 31, 2009:
STOCK
OPTIONS OUTSTANDING
|
STOCK
OPTIONS EXERCISABLE
|
||||||||||||
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted-Average
Remaining
Contractual
Life
(in Years)
|
Weighted-Average
Exercise
Price
per
Share
|
Number
Exercisable
|
Weighted-Average
Exercise
Price
per Share
|
||||||||
$0.40
|
104,000
|
.4
|
$0.40
|
104,000
|
$0.40
|
Of the
104,000 options exercisable as of December 31, 2009, 15,000 are nonqualified
stock options and 89,000 are incentive stock options. The exercise price of all
options granted through December 31, 2009 has been equal to or greater than the
fair market value, using a composite of peer entities since there were no
publicly quoted market values of our common stock on the date of the
grant. As of December 31, 2009, options for 44,000 shares of our
common stock remain available for grant under the Plan.
F-10
In
connection with loans made to the Company prior to 2008, 25,000 warrants were
outstanding at December 31, 2007. All such warrants lapsed in 2009
and none remained outstanding at December 31, 2009.
4. NOTES
PAYABLE
Notes
payable consist of an unsecured demand note payable to a shareholder with a
principal balance of $8,000 at December 31, 2009 and 2008, and interest accrued
thereon at a rate of 10% per annum with a total balance due of $12,233 at
December 31, 2009 and 2008. Based on discussions with legal counsel,
we no longer accrue interest on the outstanding balance.
5. COMMITMENTS AND
CONTINGENCIES
We
currently lease our facilities in Wheat Ridge, Colorado under a lease agreement
containing cancellation terms of 180 days written notice on or after October 31,
2012 and upon remittance of any unamortized tenant improvements made by the
landlord in excess of $16,000. As described in Note 11, our
facilities lease was amended during 2010. The minimum future lease
payments by year, reflecting the terms of our amended lease agreement, are as
follows:
Fiscal
Year
|
Amount
|
|||
2010
|
$ | 99,879 | ||
2011
|
102,204 | |||
2012
|
105,270 | |||
2013
|
108,428 | |||
2014
|
111,681 | |||
2015
|
37,592 | |||
Total | $ | 565,054 |
Rent
expense for our facilities for the years ended December 31, 2009 and 2008 was
$96,039 and $92,343, respectively.
Our
obligation with respect to employee severance benefits is minimized by the “at
will” nature of the employee relationships. As of December 31, 2009
we had no obligation with respect to contingent severance benefit
obligations.
Aside
from the operating lease and credit facility commitments, we do not have any
material contractual commitments requiring settlement in the
future.
We are
subject to regulation by the United States Food and Drug Administration (“FDA”)
so far as our LifeGuard product is concerned. The FDA provides
regulations governing the manufacture and sale of our LifeGuard product, and we
are subject to inspections by the FDA to determine our compliance with these
regulations. FDA inspections are conducted periodically at the
discretion of the FDA. As of December 31, 2009, we had not been
inspected by the FDA; however, we believe we are in substantial compliance with
all known regulations.
We are
also subject to regulation by the United States Department of
Transportation and by various state departments of transportation so far as
our other products are concerned. We believe that we are in
substantial compliance with all known regulations.
6. LINE OF
CREDIT
On May
11, 2004, we entered into a credit facility agreement with Citywide
Bank. The terms of the credit facility, which matured on May 11, 2010
and was subsequently renewed for an additional year, include a line of credit
for $150,000 at an interest rate calculated at the prime rate plus 1%, or 4.25%
at December 31, 2009 and 2008. Our borrowing under the credit
facility is limited to the amount of eligible receivables and inventory at the
time of borrowing. At December 31, 2009 and 2008, we had not borrowed
funds from the credit facility and, under our eligible receivables and inventory
limit, had $150,000 available to borrow. The credit facility requires
us to meet certain financial covenants, which we met as of December 31,
2009. The credit facility is secured by all goods, accounts
receivable, equipment, inventory, contract rights or rights to payment of money,
leases, license agreements, franchise agreements, general intangibles,
commercial tort claims, documents, instruments, chattel paper, cash, deposit
accounts, fixtures, letters of credit rights, securities, and all other
investment property, supporting obligations, and financial assets, whether now
owned or hereafter acquired, wherever located.
F-11
7. INCOME
TAXES
We
account for income taxes under ASC 740, which requires the use of the liability
method. ASC 740 provides that deferred tax assets and liabilities are
recorded based on the differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently enacted
tax rates applied to taxable income in the periods in which the deferred tax
assets and liabilities are expected to be settled or realized.
Our
income tax provision is summarized below:
Years
Ended
|
December 31,
2009
|
December
31, 2008
|
||||||
Current:
|
||||||||
Federal
|
$ | - | $ | - | ||||
State
|
3,287 | - | ||||||
Total current
|
3,287 | - | ||||||
Deferred:
|
||||||||
Federal
|
76,251 | 100,625 | ||||||
State
|
6,536 | 8,625 | ||||||
Total deferred
|
82,787 | 109,250 | ||||||
Total
|
$ | 86,074 | $ | 109,250 |
The items
accounting for the difference between income taxes computed at the federal
statutory rate and the provision for income taxes consists of the
following:
Years
Ended
|
December
31, 2009
|
December 31,
2008
|
||||||
Federal
statutory rate
|
$ | 92,293 | $ | 97,115 | ||||
Effect
of:
|
||||||||
State taxes, net of federal tax
benefit
|
8,093 | 8,324 | ||||||
Other
|
(14,312 | ) | 3,811 | |||||
Total
|
$ | 86,074 | $ | 109,250 |
The
components of the deferred tax asset are as follows:
Years
Ended
|
December 31,
2009
|
December 31,
2008
|
||||||
Credits
and net operating loss carryforwards
|
$ | - | $ | 85,922 | ||||
Other
|
55,069 | 51,934 | ||||||
Total deferred tax
assets
|
$ | 55,069 | $ | 137,856 |
8. LEGAL
PROCEEDINGS
We are
not involved in any legal proceeding as of the date of these financial
statements. We may become involved in litigation in the future in the
normal course of business.
9. MAJOR
CUSTOMERS/SUPPLIERS
We depend
on sales that are generated from our customers’ ongoing usage of alcohol
monitoring instruments. In 2009, we generated sales from over 2,500
customers, but no customer contributed more than 10.4% to our total sales in
either 2009 or 2008. In 2009 and in 2008, we depended upon two
vendors for approximately 21% of our purchases.
F-12
10. DEFINED CONTRIBUTION
EMPLOYEE BENEFIT PLAN
We have
adopted a 401(k) Profit Sharing Plan which covers all full-time employees
who have completed 3 months of full-time continuous service and are age eighteen
or older. Participants may defer up to 100% of their gross pay up to Plan
limits. Participants are immediately vested in their
contributions. We may make discretionary contributions based on
corporate financial results for the year, which was determined to be 3% of the
total payroll of the participating employees in 2009 and 2008. In
2009 and 2008 we contributed $19,534 and $27,388 respectively. The
participants vest in Company contributions based on years of service, with a
participant fully vested after six years of credited service.
11. SUBSEQUENT
EVENTS
On May 1,
2010, we amended and extended our facilities lease, which, when added to our
existing space, provides us with 11,655 square feet of office and
manufacturing/warehouse space. Under the new lease agreement, which
runs through April 30, 2015, we are obligated to pay a total of $531,975, at
monthly rates of $8,350 during the first year, increasing to $9,398 in the fifth
year or an average of $8,866 per month over the life of the
lease. The agreement contains cancellation terms of 180 days written
notice on or after October 31, 2012 and upon remittance of any unamortized
tenant improvements made by landlord in excess of $16,000.
On May 1,
2010, all 104,000 outstanding stock options were exercised at their exercise
price of $0.40 apiece, for a total of $41,600.
In May,
2010, we extended our line of credit for $150,000 with Citywide
Bank. The credit facility will mature on May 11, 2011, and the
interest rate is calculated at the prime rate plus 1%.
At their
annual meeting on May 3, 2010, our stockholders approved a reverse stock split
of our no par value common stock. Every two shares of common stock
were combined into one share. No fractional shares were issued as a result
of the reverse stock split. Instead, each resulting fractional share of
common stock was rounded to the nearest whole share. The reverse stock
split reduced the number of shares of common stock outstanding from 4,636,832 to
2,318,416 (which does not give effect to the options exercised on May 1, 2010 as
described above). The total number of authorized shares of common stock
continues to be 50,000,000, with no change in the par value per share of
$0. All shares and per share data in the accompanying financial
statements reflect the effects of the 1-for-2 reverse stock split that became
effective on May 3, 2010. The stockholders also approved a warrant
distribution consisting of 1 warrant for each then outstanding share of common
stock, or a total of 2,318,416 warrants. Each warrant is exercisable
at $1.00 until May 3, 2020, with a 6% commission to be paid to broker-dealers
participating in the exercise of the warrants. Since the warrants
will not be distributed to the stockholders until a registration statement is
filed with and has been declared effective by the Securities and Exchange
Commission, no effect has been given in these financial statements as a result
of dilution resulting from the exercise of the warrants.
F-13
LIFELOC
TECHNOLOGIES, INC.
Condensed
Balance Sheets
|
||||||||
|
||||||||
ASSETS
|
||||||||
March
31,
|
||||||||
2010
|
December
31,
|
|||||||
CURRENT
ASSETS:
|
(Unaudited)
|
2009
|
||||||
Cash
|
$ | 1,145,391 | $ | 1,021,135 | ||||
Accounts
receivable, net
|
517,850 | 329,701 | ||||||
Inventories,
net
|
758,927 | 767,048 | ||||||
Deferred
taxes
|
56,920 | 55,069 | ||||||
Prepaid
expenses and other
|
56,241 | 21,253 | ||||||
Total
current assets
|
2,535,329 | 2,194,206 | ||||||
PROPERTY
AND EQUIPMENT, at cost:
|
||||||||
Production
equipment
|
169,313 | 160,318 | ||||||
Office
equipment
|
92,893 | 92,893 | ||||||
Sales
and marketing equipment
|
36,555 | 36,555 | ||||||
Purchased
software
|
29,048 | 29,048 | ||||||
Less
accumulated depreciation
|
(218,147 | ) | (205,359 | ) | ||||
Total
property and equipment, net
|
109,662 | 113,455 | ||||||
OTHER
ASSETS:
|
||||||||
Patents,
net
|
17,107 | 17,415 | ||||||
Deposits
|
4,242 | 4,242 | ||||||
Total
other assets
|
21,349 | 21,657 | ||||||
Total
assets
|
$ | 2,666,340 | $ | 2,329,318 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$ | 163,127 | $ | 57,425 | ||||
Notes
payable
|
- | 8,000 | ||||||
Customer
deposits
|
17,059 | 9,709 | ||||||
Accrued
expenses
|
245,323 | 180,549 | ||||||
Deferred
income, current portion
|
83,439 | 84,966 | ||||||
Reserve
for warranty expense
|
12,000 | 12,000 | ||||||
Total
current liabilities
|
520,948 | 352,649 | ||||||
DEFERRED
INCOME, net of current portion
|
7,790 | 8,878 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Common
stock, no par value; 50,000,000 shares
|
||||||||
authorized,
2,318,416 shares outstanding
|
4,235,897 | 4,215,664 | ||||||
Accumulated
(deficit)
|
(2,098,295 | ) | (2,247,873 | ) | ||||
Total
stockholders' equity
|
2,137,602 | 1,967,791 | ||||||
Total
liabilities and stockholders' equity
|
$ | 2,666,340 | $ | 2,329,318 |
See
accompanying notes
F-14
LIFELOC
TECHNOLOGIES, INC.
Condensed
Statements of Income (Unaudited)
Three Months EndedMarch 31, 2010 2009 SALES$ 1,315,730 $ 1,079,673 COST OF SALES650,996 568,773 GROSS PROFIT664,734 510,900 OPERATING EXPENSES: Research and development59,392 71,279 Sales and marketing194,172 201,561 General and administrative191,933 181,003 Total445,497 453,843 OPERATING INCOME219,237 57,057 OTHER INCOME (EXPENSE): Loss on currency exchange(14,138 ) - Interest income1,988 2,170 Total(12,150 ) 2,170 NET INCOME BEFORE PROVISION FOR TAXES207,087 59,227 PROVISION FOR FEDERAL AND STATE INCOME TAXES(76,842 ) (19,333 ) NET INCOME$ 130,245 $ 39,894 NET INCOME PER SHARE, BASIC$ 0.06 $ 0.02 NET INCOME PER SHARE, DILUTED$ 0.06 $ 0.02 WEIGHTED AVERAGE SHARES, BASIC2,318,416 2,318,416 WEIGHTED AVERAGE SHARES, DILUTED2,358,731 2,383,731
See
accompanying notes
F-15
LIFELOC
TECHNOLOGIES, INC.
Condensed
Statements of Cash Flows (Unaudited)
|
||||||||
Three
Months Ended
March
31,
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
2010
|
2009
|
||||||
Net
income
|
$ | 130,245 | $ | 39,894 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities-
|
||||||||
Depreciation
and amortization
|
13,096 | 15,192 | ||||||
Changes
in operating assets and liabilities-
|
||||||||
Accounts
receivable
|
(188,149 | ) | (43,776 | ) | ||||
Inventories
|
8,121 | 2,469 | ||||||
Deferred
taxes
|
(1,851 | ) | - | |||||
Prepaid
expenses and other
|
(34,988 | ) | (1,276 | ) | ||||
Accounts
payable
|
105,702 | (168,345 | ) | |||||
Notes
payable
|
(8,000 | ) | - | |||||
Customer
deposits
|
7,350 | 5,279 | ||||||
Accrued
expenses
|
84,107 | 47,898 | ||||||
Deferred
income
|
(2,615 | ) | 2,173 | |||||
Net
cash provided from (used in)
|
||||||||
operating
activities
|
113,018 | (100,492 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
of property and equipment, and patents
|
(8,995 | ) | (1,134 | ) | ||||
Writeoff
of note payable and accrued interest
|
20,233 | - | ||||||
Net
cash provided from (used in)
|
||||||||
investing
activities
|
11,238 | (1,134 | ) | |||||
NET
INCREASE (DECREASE) IN CASH
|
124,256 | (101,626 | ) | |||||
CASH,
BEGINNING OF PERIOD
|
1,021,135 | 791,047 | ||||||
CASH,
END OF PERIOD
|
$ | 1,145,391 | $ | 689,421 |
See
accompanying notes
F-16
LIFELOC
TECHNOLOGIES, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
These
financial statements have been prepared by us, without audit, and reflect normal
recurring adjustments which, in the opinion of management, are necessary for a
fair statement of the results of the first quarter of our fiscal year
2010. These financial statements do not include all disclosures
associated with annual financial statements and, accordingly, should
be read in conjunction with footnotes contained in our financial statements for
the year ended December 31, 2009 included in this Form S-1. All
shares and per share data reflect the 1-for-2 reverse stock split that became
effective on May 3, 2010.
Use of Estimates in the
Preparation of Financial Statements. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions. Such
estimates and assumptions affect the reported amounts of assets and liabilities
as well as disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of sales and expense during the
reporting period. Actual results could differ from those
estimates.
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 March 31,
2010 and December 31, 2009, inventory consisted of the following:
2010
|
2009
|
|||||||
Raw
materials & deposits
|
$ | 352,324 | $ | 216,380 | ||||
Work-in
process
|
131,398 | 152,823 | ||||||
Finished
goods
|
300,003 | 418,142 | ||||||
Total
gross inventories
|
783,725 | 787,346 | ||||||
Less
reserve for obsolescence
|
(24,798 | ) | (20,298 | ) | ||||
Total
net inventories
|
$ | 758,927 | $ | 767,047 |
Income
Taxes. We account for income taxes under the provisions of
Accounting Standards Codification Topic 740, “Accounting for Income Taxes” (“ASC
740”). We have determined an estimated annual effective tax rate. The
rate will be revised, if necessary, as of the end of each successive interim
period during our fiscal year to our best current estimate.
The
estimated annual effective tax rate is applied to the year-to-date ordinary
income (or loss) at the end of the interim period.
ASC 740
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This pronouncement also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition.
Fair Value of Financial
Instruments. Our financial instruments consist of cash and cash
equivalents, short-term trade receivables and payables, and notes
payable. The carrying values of cash and cash equivalents, short-term
receivables and payables, and notes payable approximate their fair value due to
their short term maturities.
Recent Accounting
Pronouncements. We have reviewed all recently issued, but not
yet effective, accounting pronouncements and do not believe the future adoption
of any such pronouncements may be expected to cause a material impact on our
financial condition or the results of our operations.
2. NOTES
PAYABLE
At
December 31, 2009, notes payable included $8,000 owed to a stockholder, with
interest accrued of $12,233. Based on the expiration of the statute
of limitations and discussions with legal counsel, the note and accrued interest
were written off as of January 1, 2010 which resulted in an increase in common
stock of $20,233.
F-17
3. SUBSEQUENT
EVENTS
On May 1,
2010 we amended and extended our facilities lease, which, when added to our
existing space, provides us with 11,655 square feet of office and
manufacturing/warehouse space. Under the new lease agreement, which
contains cancellation terms of 180 days written notice on or after October 31,
2010 and upon remittance of any unamortized tenant improvements made by the
landlord in excess of $16,000, and which runs through April 30, 2015, we are
obligated to pay a total of $531,975, at monthly rates of $8,350 during the
first year, increasing to $9,398 in the fifth year, or an average of $8,866 per
month over the life of the lease.
On May 1,
2010 all 104,000 outstanding stock options were exercised at their exercise
price of $0.40 apiece, for a total of $41,600.
In May,
2010, we extended our line of credit for $150,000 with Citywide
Bank. The credit facility will mature on May 11, 2011, and the
interest rate is calculated at the prime rate plus 1%.
At their
annual meeting on May 3, 2010, our stockholders approved a reverse stock split
of our no par value common stock. Every two shares of common stock
were combined into one share. No fractional shares were issued as a result
of the reverse stock split. Instead, each resulting fractional share of
common stock was rounded to the nearest whole share. The reverse stock
split reduced the number of shares of common stock outstanding from 4,636,832 to
2,318,416 (which does not give effect to the options exercised on May 1, 2010 as
described above). The total number of authorized shares of common stock
continued to be 50,000,000, with no change in the par value per share of
$0. All shares and per share data in the accompanying financial
statements reflect the effects of the 1-for-2 reverse stock split that became
effective on May 3, 2010. The stockholders also approved a warrant
distribution consisting of 1 warrant for each then outstanding share of common
stock, or a total of 2,318,416 warrants. Each warrant is exercisable
at $1.00 apiece until May 3, 2020, with a 6% commission to be paid to
broker-dealers participating in the exercise of the warrants. Since
the warrants will not be distributed to the stockholders until a registration
statement is filed with and has been declared effective by the Securities and
Exchange Commission, no effect has been given in these financial statements as a
result of dilution resulting from the exercise of the warrants.
F-18
LIFELOC
TECHNOLOGIES, INC.
WARRANTS
TO PURCHASE UP TO 2,422,416 SHARES OF COMMON STOCK
(TOGETHER
WITH THE SHARES ISSUABLE UPON EXERCISE THEREOF)
PROSPECTUS
Dealer
Prospectus Delivery Obligation
Until
_____, all dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART II
— INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
estimated costs of the issuance and distribution of the securities registered
under this prospectus are denoted below. Please note that all amounts are
estimates other than the Commission’s registration fee.
Amount
to be paid
|
||||
Approximate
SEC Registration Fee
|
$ | 165 | ||
Transfer
agent fees
|
$ | 5,000 | ||
Accounting
fees and expenses
|
$ | 32,500 | ||
Legal
fees and expenses
|
$ | 10,000 | ||
Miscellaneous
(including EDGAR filing fees)
|
$ | 2,000 | ||
Total
|
$ | 49,665 |
We will
pay all expenses of the offering listed above from cash on hand.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
We are
organized under the laws of the State of Colorado. Our officers and
directors are indemnified as provided by the General Laws of Colorado, our
Articles of Organization, and our By-laws. The General Laws of Colorado provide
that we must indemnify a director who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
was a director of our Company against reasonable expenses incurred by him in
connection with the proceeding.
In
addition, we may indemnify a director against liability incurred in a proceeding
if:
(1)(i) he
conducted himself in good faith; (ii) he reasonably believed that his
conduct was in the best interests of our Company or that his conduct was at
least not opposed to the best interests of our Company; and (iii) in the
case of any criminal proceeding, he had no reasonable cause to believe his
conduct was unlawful; or
(2) he
engaged in conduct for which he shall not be liable as provided in our Articles
of Organization which may limit personal liability of a director as provided in
the General Laws of Colorado.
Under the
General Laws of Colorado, a director’s conduct with respect to an employee
benefit plan for a purpose he reasonably believed to be in the interests of the
participants in, and the beneficiaries of, the plan is conduct that satisfies
the requirement that his conduct was at least not opposed to the best interests
of the corporation. Unless ordered by a court as provided in the statute, we may
not indemnify a director if his conduct did not satisfy the standards set forth
above.
The
termination of a proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, is not, of itself,
determinative that the director did not meet the relevant standard of conduct
described the General Laws of Colorado.
Our
Articles of Organization, as amended, provide that our directors shall not be
liable to us or our stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that the exculpation from liabilities
is not permitted under the Colorado Business Corporation Act as in effect at the
time such liability is determined. Our By-Laws provide that we shall indemnify
our directors and officers to the full extent permitted by the laws of the State
of Colorado against all liabilities and expenses except with respect to any
matter as to which he or she shall have been adjudicated in any proceeding not
to have acted in good faith in the reasonable belief that his or her action was
in the best interest of our Company or in the best interests of the participants
or beneficiaries of an employee benefit plan. In addition, we hold a Director
and Officer Liability and Corporate Indemnification Policy.
II-1
RECENT
SALES OF UNREGISTERED SECURITIES
We have
had no sales of unregistered securities in the last 5 years, except key employee
stock option exercises. The sales pursuant to employee stock option exercises
are exempt from registration pursuant to Section 4(2) of the Securities
Act.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
Exhibits
The
exhibits listed below are filed with or incorporated by reference in this
report.
Exhibit
No.
|
Description
of Exhibit
|
|
4.3
|
Form
of Selling Agent Agreement.*
|
|
5.1
|
Opinion
of Davis Graham & Stubbs LLP.*
|
|
15.1
|
Letter
re unaudited interim financial information.*
|
|
23.2
|
Consent
of Davis Graham & Stubbs LLP (included in Exhibit
5.1).*
|
* To
be filed by amendment.
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
|
(i) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
|
|
(ii) To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) of this chapter) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement;
and
|
II-2
|
(iii) To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
(2) That,
for the purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purposes of determining liability under the Securities Act of 1933 to
any purchaser
|
(A)
|
Each
prospectus filed by the registrant pursuant to
Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be
deemed to be part of this registration as of the date the filed prospectus
was deemed part of and included in the registration statement;
and
|
|
(B)
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
(b)(7) (§230.424(b)(2), (b)(5), or (b)(7) of this chapter) as
part of a registration statement in reliance on Rule 430B relating to
an offering made pursuant to Rule 415(a)(1)(i), (vii), or
(x) (§230.415(a) (1)(i), (vii), or (x) of this chapter) for
the purpose of providing the information required by section 10(a) of
the Securities Act of 1933 shall be deemed to be a part of and included in
the registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in this
prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall
be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. Provided, however; that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such effective
date.
|
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
|
•
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
|
•
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
II-3
|
•
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
•
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
(6) That,
for purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(7) To
supplement the prospectus, after the expiration of the warrants, to set forth
the results of the warrant offer.
(8) To
make prompt delivery of certificates in such denominations and registered in
such names as required by the terms of exercise of any warrant exercised during
the warrant exercise period.
(9) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Gardner, State of
Colorado, on June 21, 2010.
LIFELOC
TECHNOLOGIES, INC.
|
||
By:
|
/s/
Barry R. Knott
|
|
Barry
R. Knott
|
||
Chief
Executive Officer, President and
Treasurer
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
was signed by the following persons in the capacities and on the dates
stated.
Signature
|
Title
|
Date
|
||
/s/
Barry R. Knott
|
Chief
Executive Officer, President
|
June 21,
2010
|
||
and
Treasurer
|
||||
(Principal
Executive Officer)
|
||||
/s/
Mark A. Lary
|
Vice
President
|
June 21,
2010
|
||
Officer
and Director
|
||||
/s/
Vern D. Kornelsen
|
Director,
Chairman, Secretary and Chief
|
June 21,
2010
|
||
Financial
Officer
|
||||
/s/
Kristie L. LaRose
|
Vice
President, Administration and Finance
|
June 21,
2010
|
||
(Principal
Financial Officer and
|
||||
Principal
Accounting Officer)
|
||||
/s/
Alan C. Castrodale
|
Director
|
June 21,
2010
|
||
/s/
Robert D. Greenlee
|
Director
|
June 21,
2010
|
||
/s/
Robert H. Summers
|
Director
|
June 21,
2010
|
II-5