Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☒ No ☐

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

As of June 30, ~~2021~~2022 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value, computed by reference to the price at which the registrant's common equity was last sold, of the 379,692 shares of common stock held by non-affiliates of the issuer on such date was $~~1,803,937~~1,385,876.

The number of shares outstanding of each of the issuer's classes of common equity, as of March ~~2, 2022:~~1, 2023:

Documents Incorporated by Reference: Items 10, 11, 13 and 14, and a portion of Item 12 of Part III are incorporated by reference from portions of the registrant's Definitive Proxy Statement for the 2021 Annual Shareholders' Meeting, expected to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year ended December 31, ~~2021.~~2022.

Statements contained in this Annual Report on Form 10-K (this "Annual Report") include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 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 Annual Report on Form 10-K, including statements about our strategies, expectations about new and existing products, market demand, acceptance of new and existing products, technologies and opportunities, market size and growth, and return on investments in products and market, are based on information available to us on the date of this document, and we assume no obligation to update such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "could", "expects", "plans", "intends", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" or the negative of such terms or other comparable terminology. Readers of this Annual Report on Form 10-K are strongly encouraged to review the section entitled "Risk Factors".

Lifeloc®, Easycal®~~, Lifeguard®~~, Phoenix® and R.A.D.A.R.® are registered trademarks of Lifeloc Technologies, Inc. Sentinel™ is a trademark of Lifeloc Technologies; SpinDx™ is a trademark of Sandia Corporation. This report may also contain trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

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

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

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

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

In 1989, we introduced our first breath alcohol tester, the PBA3000. Our Phoenix® Classic was completed and released for sale ~~in 1998,~~in1998, superseding the PBA3000. In turn, the Phoenix® Classic has been superseded by our FC Series and Workplace Series of portable breath alcohol testers, which are discussed below. Neither the PBA3000 nor the Phoenix® Classic is actively sold ~~today.~~today

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

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

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

In late 2009, Lifeloc released the ~~LifeGuard®~~LifeGuard Personal Breathalyzer ~~("LifeGuard®"~~(“LifeGuard”), a personal alcohol breath tester that incorporates the same fuel-cell technology used in our professional devices. Intended originally for the global consumer breathalyzer market, ~~LifeGuard® is marketed internationally through global distributors.~~ LifeGuard was phased out in 2018.

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

In 2013, Lifeloc expanded our FC Series of professional breath alcohol testers targeted at domestic and international law enforcement and corrections markets with the addition of the FC5 Hornet (the ~~"FC5"~~“FC5”). The FC5 is a passive (no mouthpieces required) portable handheld alcohol screening device that competes directly with passive alcohol screeners from our competitors in the education, law enforcement, workplace and corrections markets.

In 2013, we also introduced the Sentinel™ zero tolerance alcohol screening station, a fully automated wall mounted screening station for use in safety sensitive industries such as oil and gas and mining. Both devices expand ~~Lifeloc's~~Lifeloc’s products for passive alcohol screening.

In the third quarter of 2014, we received approval from DOT for our EASYCAL® automatic calibration station for use with our Phoenix ® 6.0 Evidential Breath Testers, and we began shipments of the EASYCAL® to our law enforcement, corrections, workplace and international customers. The EASYCAL® calibration station is a first of its kind device that automatically performs breath tester instrument calibration, calibration verification and gas management. As compared to manual instrument calibration, the EASYCAL® reduces the opportunity for human error, saves time and reduces operating costs. In May 2019, we received DOT approval on a second generation EASYCAL® with broader capabilities called the EASYCAL® G2.

In October 2015, we expanded our Sentinel™ line with the Sentinel™ VA alcohol screening station, a fully automated station to control vehicular access to safety critical facilities, such as mines, refineries, power stations and nuclear facilities. The Sentinel™ VA alcohol screening station is intended to allow all drivers entering a secure area to be tested quickly and efficiently without leaving their vehicle.

In November 2019, we received approval from DOT for our LX9 and LT7 base unit alcohol breathalyzers. Both have been updated and both updated versions received DOT approval in December 2021.

In August 2016, we entered into an exclusive patent license agreement with Sandia Corporation, Albuquerque, NM, pursuant to which we acquired the exclusive rights to develop, manufacture and market ~~Sandia's~~Sandia’s patented SpinDx™ technology for the detection of drugs of abuse. SpinDx™ uses a centrifugal disk with micro fluidic flow paths allowing multiple tests to be carried out on a single small sample. The microfluidics disk with centrifugal concentration achieves a strong signal from trace concentrations in small samples that under best conditions can be quantitative. Sandia Corporation developed a prototype using the SpinDx™ technology under our Cooperative Research and Development Agreement. We received the first prototype in 2018, advanced this device for robustness and manufacturability, and are now commercializing the device. In 2022 and 2021 we purchased SpinDx related test validation equipment as well as disk development fabrication equipment totaling ~~$265,867.~~$23,999 and $265,867 respectively. We are optimistic about the results of the work to date and expect market introduction later in 2022 with partners for field demonstration. The SpinDx™ platform has the potential to improve real-time screening for a panel of high-abuse drugs, with the ability to efficiently measure relatively low concentrations of drugs such as cocaine, heroin, methamphetamine, fentanyl and other high-abuse drugs. We intend to use this technology platform, sometimes referred to as ~~"Lab~~“Lab on a Disk", to develop a series of devices and tests that could be used at roadside, emergency rooms and in workplace testing to get a rapid and quantitative measure for a panel of such drugs of abuse. First will be the SpinDx device with disks for delta-9 THC detection from an oral fluid sample collected from a test subject. This will be followed with a device based on our recently updated LX9 breathalyzer to collect a sample for analysis from breath, which coupled with the SpinDx device will be our marijuana breathalyzer system. We have detected delta-9-THC (the primary psychoactive component of marijuana) down to concentrations of 5 nanograms per milliliter in our laboratory. This includes resolving the psychoactive delta-9-THC from its inactive metabolites, an important step in establishing impairment. Testing has commenced to validate the SpinDx technology against the definitive standard liquid chromatography-mass spectroscopy (LCMS) measurement utilizing human samples. The SpinDx results are showing good correlation to the LCMS data. There is no assurance that our efforts to develop a marijuana breathalyzer will be successful or that significant sales will result from such development if successful.

In March 2017 we acquired substantially all of the assets related to the Real-time Alcohol Detection and Reporting product ("(“R.A.D.A.R.®"”) from Track Group, Inc. ~~("TRCK"~~(“TRCK”) for $860,000 in cash. The purchased assets included the R.A.D.A.R.® device with cellular reporting for real-time alcohol monitoring, database infrastructure to tabulate and manage subscriber behavior, and biometric methodology and intellectual property to fully automate identity verification. The R.A.D.A.R.® device was designed to be part of an offender supervision program as an alternative to incarceration, and it is assigned to offenders as a condition of parole or probation with random testing throughout the day to demonstrate that they are meeting the conditions of their sentence. The R.A.D.A.R.® 200 Mobile Device has been updated and released for sale in ~~2022,~~2022. Continued refinements are needed, which, when completed, we expect to result in R.A.D.A.R. 300 having the ability to confirm that the user blowing the alcohol test is the correct user, along with ~~continued refinements ongoing based on customer feedback.~~

On June 1, 2022, we formed a wholly-owned subsidiary, Probation Tracker, Inc., a Colorado corporation (“PTI”) and capitalized it with $61,353 in exchange for 613,530 shares of PTI common stock. PTI had no activity during the three months ended September 30, 2022. In August 2022, we filed a Form 10 with the Securities and Exchange Commission in anticipation of distributing all of the 613,530 shares of common stock to our shareholders as a stock dividend. In September, 2022, this Form 10 was withdrawn, and the plan to distribute the PTI shares was canceled. The $61,353 of cash was withdrawn and PTI was deactivated. We have entered into a consulting agreement with a third party to work on developing a proof of concept showing that R.A.D.A.R. 300 is feasible.

Drug and alcohol testing is highly regulated; thus quality training is an important component of our business. Initially, our network of Master Trainers provided classroom training which generated certification fees. This was expanded to include instructor materials, online training modules and direct (live) training via webcam. In 2011, we launched Lifeloc University, a Learning Management System (LMS), defined as "a software application for the administration, documentation, tracking, reporting and delivery of educational courses or training programs." Lifeloc University is a critical component for online training courses since it provides student accountability. The Lifeloc University LMS was updated in 2018 to provide responsive design so it could be viewed on mobile devices and was updated in 2021 to reflect DOT rule and other changes.

In December 2014, we acquired substantially all of the assets of Superior Training Solutions, Inc. ~~("STS"~~(“STS”), a company that develops and sells online drug and alcohol training and refresher courses. We have augmented and updated the assets we acquired from STS to enable mobile device usage. These assets complement our existing drug and alcohol training courses.

On October 31, 2014, we purchased the commercial property we use as our corporate headquarters and certain adjacent property in Wheat Ridge, Colorado. The building consists of 22,325 square feet, of which 14,412 square feet are occupied by us and 7,913 square feet are currently leased to two tenants whose leases expire at various times until ~~June~~September 30, 2023. We intend to continue to lease the space we are not occupying, but in the future may elect to expand our own operations into space currently leased to other tenants. Our purchase of the property was partially financed through a term loan in an original principal amount of $1,581,106, secured by a first-priority mortgage on the property. This loan was paid on September 30, 2021 with proceeds from a new term loan, also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000 which matures in September, 2031.

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

We sell our products in a highly competitive market and we compete for business with both foreign and domestic manufacturers. Most of our 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 considerations regarding competition for sales of alcohol monitoring products and services include regulatory approvals, 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 of our leading competitors is Intoximeters, Inc. of St. Louis, Missouri, a long-established company with strong name recognition in the field of alcohol testing. It has well-established sales channels, a large customer base, and a broad product line. CMI, Inc. of Owensboro, Kentucky, another major competitor, also has a well-established name, a strong position in stationary units used in police work, and international market coverage. Drägerwerk AG & Co. KGaA, based in Germany, manufactures safety and gas testing equipment. Its breath alcohol testers are respected for their quality and performance.

In addition, other technologies for the measurement of breath alcohol exist and are employed in other market and application segments where the technology may be more suitable or developed to specific requirements. These include:

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 international markets primarily through distributors. We sell our law enforcement, corrections and consumer products directly to the end user and our OEM products directly to manufacturers. 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 volume incentives for growth in the form of a rebate program. Under the program, qualifying distributors receive a progressively greater percentage rebate based on the dollar sales they generate. We believe this program helps incentivize our distributors to achieve a higher level of sales than would otherwise be the case.

The majority of our sales into the workplace market are made through distributors. Sales are made by these distributors pursuant to agreements that renew automatically each year unless terminated by either party with advance notice, and such agreements typically grant protected lead generation areas.

Over 90% of our international sales for all product lines are made by local distributors, who are given territories generally pursuant to agreements that renew automatically each year unless terminated by either party with advance notice. Based on reports from our international distributors, we believe that many 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 certain parolees and probationers. Lifeloc has sold instruments to customers in over 65 countries on six continents worldwide.

Lifeloc defines its business broadly to include "near and remote sensing and monitoring" applications in markets including those outside of traditional alcohol testing. We believe that our future success depends to a large degree on our ability to conceive and develop improved alcohol detection and measurement products, as well as to identify attractive opportunities for growth outside of breath alcohol testing. Accordingly, we expect to continue to invest in research and development. We spent $1,385,927 and $1,213,482 during 2022 and ~~$1,007,297 during~~ 2021, ~~and 2020,~~ respectively, on research and development, and on sustaining engineering. The amount spent in ~~2021~~2022 was ~~$206,185~~$172,445 higher than the amount spent in ~~2020~~2021 due primarily to ~~upgrading the R.A.D.A.R.® assets in 2020, and~~ dedicating resources to commercializing SpinDx. We expect to continue to increase our emphasis on new product development efforts for existing and new markets with particular emphasis on developing the SpinDx™ technology.

A basic component of our instrument product line is the fuel cell, which we obtain from only 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 quantities and will be available for the foreseeable future. However, there are relatively few suppliers of the high-quality fuel cells 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 require approval by the DOT, which, if not received, could have a material effect on our revenues. While we have traditionally used only one supplier of fuel cells, we completed development of our own fuel cell assembly capability, using purchased sensors, in 2018. These Lifeloc-assembled fuel cells have been incorporated into breathalyzers which have been submitted to and approved by the Department of Transportation. Even with the approval of our own assembled fuel cells, we continue to purchase a portion of our total fuel cell requirements from our current supplier as necessary to meet the needs of the Company.

Supply chain disruptions experienced in ~~2021~~2022 have forced us to maintain larger inventories of certain items in order to accommodate longer lead times, particularly components sourced internationally.

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 (collectively, "Lifeloc IP") 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.

We file for patents, copyrights and trademarks to protect our intellectual property rights to the extent practicable. We hold the rights to ~~five~~six United States patents and have ~~four~~two United States patent applications pending or in preparation for filing, along with international patent applications on our portable breath alcohol testers and on certain R.A.D.A.R.® assets. ~~Two~~One international ~~applications were~~application was granted in ~~2019.~~2022. These patents have expiration dates ranging from May 2024 to July 2035. In 2017, we acquired seven United States patents and several active international patent applications in connection with our purchase of the R.A.D.A.R.® assets. ~~The majority of these international applications have issued.~~ The R.A.D.A.R.® patents and patent applications provide protection around the biometric identification methods used in the R.A.D.A.R.® devices along with a removable sampling chamber for maximum hygienics. We act 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. While we believe that each of our pending applications relate to a patentable device or concept, there is no guarantee that the patents will be issued.

We also enter into royalty and licensing agreements where we license or otherwise confer our intellectual property rights on a licensor in exchange for specified payment terms. In 2012 we entered into a royalty agreement with an OEM customer which provides for the monthly payment of royalties to us on all products containing certain of our software sold by our customer. The agreement is of perpetual duration, but is terminable by the OEM customer upon six months' notice. In 2013 we began receiving royalties from another customer as a result of entering into a second royalty agreement, which provides for the monthly payment of royalties to us on all products containing certain of our software sold by our customer. The agreement is of perpetual duration, but is terminable by the customer upon six months' notice or by us upon 12 months’ notice.

As of December 31, ~~2021,~~2022, we had 3435 full-time employees and 2 part-time employees. We are not a party to any collective bargaining agreements.

Revenues from our largest customers, as a percentage of total revenues, for ~~2021~~2022 and ~~2020~~2021 were as follows:

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 related to the protection of the environment. Lifeloc sells cylinders of ethanol in nitrogen (UN1956, Class 2.2) for use in calibrating breath alcohol testers. The gas mixture is a hazardous material as defined by the DOT (see 49 CFR 172). We believe we are in substantial compliance with the appropriate DOT regulations for the handling and shipment of dry gas containers, as well as all other state or local laws governing the transportation of hazardous materials. The DOT regulations include strict labeling and packaging requirements, as well as requirements pertaining to shipping papers and declaration forms that must be completed by the shipper. In addition, we provide a Safety Data Sheet ("SDS") with every tank, and all employees involved in shipping hazardous materials are required to have appropriate certification. Failure to comply with these regulations could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability, which could have a material impact on our business. The cost of complying with these regulations is considered as an ongoing cost of operations, and is not material.

All breath testers manufactured in the United States explicitly for personal use are regulated as Class I medical devices by the Food and Drug Administration ("FDA"). ~~These regulations apply to the manufacture and sale of our LifeGuard® product, and we~~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. ~~On June 26, 2017, we were inspected by the FDA and no violations were issued.~~

In connection with its distribution of cylinders of ethanol in nitrogen for use in calibrating breath alcohol testers (described above under "—Environmental Matters"), Lifeloc has trained on and is following the requirements of OSHA's Hazardous Communications Standard of 2012 (referred to as "HazCom 2012"). Compliance with HazCom 2012 requires providing employee information and training, labeling of chemicals used by Lifeloc and updating MSDS to the new harmonized Safety Data Sheets ("SDS") as they become available. It also requires us to prepare and implement a hazard communication program to follow for workers potentially exposed to hazardous chemicals.

We are also subject to regulation by the United States Department of Transportation ("DOT") and by various state departments of transportation. The Omnibus Transportation Employee Testing Act of 1991 requires drug and alcohol testing of safety-sensitive transportation employees in aviation, trucking, railroads, mass transit, pipelines, and other transportation industries. The DOT Office of Drug & Alcohol Policy & Compliance ("ODAPC") publishes, implements, and provides authoritative interpretations of these rules. These regulations cover all transportation employers, safety-sensitive transportation employees, and service agents. Manufacturers submit devices to the DOT for testing and approval. Instruments are tested according to their model specifications and, if passed, included on the Conforming Products List of Evidential Breath Alcohol Measurement Devices (the "CPL") published periodically in the Federal Register. Law enforcement applications also require that portable breath testing instruments be included on the CPL. Lifeloc's FC10, FC10Plus, FC20, FC20BT, EV30, and Phoenix® 6.0 are included on the CPL. Lifeloc’s LX9 and LT7 have received conformance letters from the DOT and are expected to appear in the next publication of the CPL.

We believe that we were in substantial compliance with the regulations described above as of December 31, ~~2021~~2022 for our products sold into these markets and states.

See also Item 1A. Risk Factors – "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."

Outside of the United States, Lifeloc is subject to applicable regional and foreign regulations. In order to sell our products in the European Union, a CE mark is required, which declares product conformity to relevant directives. Product directives include electromagnetic compatibility and environmental directives which restrict the use of certain hazardous substances in electronic equipment. Lifeloc has a number of CE marked products and we follow other foreign regulations as they apply.

Many countries into which our products are sold recognize the CPL in their selection criteria or have no regulations applicable to the sale of our products. In the case of sales into countries that do not recognize the CPL in their selection criteria, our products conform to in-country developed specifications or are not subject to significant government regulation.

In certain states, the results of portable fuel-cell breath testers are admissible as evidence of intoxication in DUI prosecution. In other states, infra-red technology is considered the standard for evidence of intoxication, because of its ability to perform real-time analysis of the entire breath exhalation thereby giving it the ability to detect interference from mouth alcohol. In those states, portable fuel-cell based breath testers are not admissible as evidence of intoxication, although they may still be used to establish "probable cause."

We are covered under comprehensive general liability insurance policies, which have per occurrence and aggregate limits of $1 million and $2 million, respectively, and a $5 million umbrella policy. We maintain customary property and casualty, workers' compensation, employer liability and other commercial insurance policies.

As of December 31, ~~2021,~~2022, we had 3435 full-time employees and 2 part-time employees. At Lifeloc Technologies, we promise to expand human possibility within our company and we work to attract and develop highly engaged people who can and want to do their best work. A culture of integrity is fundamental to Lifeloc’s core values, including a code of ethics. That applies to our principal executive officer, principal financial officer, principal accounting officer and all other directors and management personnel. This code of ethics prohibits corrupt acts, bribery and anticompetitive behavior. Employee training is used to reinforce our values companywide, with participation in trainings related to ethics, environment, health and safety responses at or near 100%. We make the safety and health of our employees a top priority. We strive for zero workplace injuries and illnesses and operate in a manner that recognizes safety as fundamental to Lifeloc being a great place to work. We invest in growth and development of our employees. We take pride in our culture and make every effort to promote from within. We offer workplace benefits to all full-time employees. Our comprehensive benefits include healthcare benefits, disability and life insurance benefits, paid time off, and leave programs. Lifeloc offers plans and resources to help employees meet future savings goals through retirement savings plans. We offer flextime, remote work, and part-time arrangements whenever business conditions permit. Productivity and continuous improvement are important components of our workplace culture.

You should carefully consider the risk factors described below. If any of the following risk factors actually occur, our business, prospects, financial condition or results of operations would likely suffer. In such case, the trading price of our common stock could fall, resulting in the loss of all or part of your investment. You should look at all these risk factors in total. Some risk factors may stand on their own. Some risk factors may affect (or be affected by) other risk factors. You should not assume we have identified these connections. You should not assume that we will always update these and future risk factors in a timely manner. Except as required under applicable securities laws, we are not undertaking any obligation to update these risk factors to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Global economic conditions could have a negative impact on our business, operating results and financial condition.

Our business can be positively or negatively affected by fluctuations in exchange rates and country by country economic conditions. Our international customers increase, reduce, delay or cancel their purchases of our products when exchange rates are unfavorable to importation. Unfavorable economic and currency situations at times force us to adjust prices downward to remain competitive. We incur losses if a customer's business fails and the customer 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. Our law enforcement business is dependent on the availability of federal and state grants to fund new equipment purchases. Should this funding be unavailable or delayed, our volume may be negatively affected. Our workplace business may be affected by the health of industries with safety-sensitive jobs such as oil and gas and transportation. Demand for our products may be affected by downturns in these segments. These actions would 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.

~~Ten~~Fifteen percent of our product sales in ~~2021~~2022 were attributable to three customers, with whom we do not have long-term contracts. If orders from those customers are not renewed, our revenues may be adversely affected. Furthermore, at December 31, ~~2021,~~2022, our accounts receivable balance included approximately ~~$71,522~~$103,739 or ~~13%~~17% from one customer, $98,412 or 16% from a second customer, and ~~$57,500,~~$42,954, or ~~10%~~7%, from a ~~second~~third 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 and President, Dr. Wayne R. Willkomm. Loss of Dr. Willkomm's services could severely damage our business.

We must continue to be able to attract employees, including 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. Labor shortages across the country threaten to damage our business.

Our ability to attract employees, including employees with a high degree of scientific and technical talent is crucial to the success of our business. There is intense competition for the services of such persons, and we cannot guarantee that we will continue to be able to attract and retain individuals possessing the necessary qualifications. If we cannot attract such individuals, we may not be able to keep our products current, bring new innovation to market or produce our products. As a result, our business could be damaged. Additionally, labor shortages, which have become more common due to COVID-19 impacts, threaten to damage our business.

Our growth depends in part on the timely development and commercialization, and customer acceptance, of new and enhanced products and services.

If we do not develop innovative new and enhanced products and services on a timely basis, our offerings will become obsolete over time and our business will suffer. Our success depends on several factors, including our ability to:

If we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest heavily in R&D of products and services that do not lead to significant revenue, which would adversely affect our business. Even when we successfully innovate and develop new and enhanced products and services, we often incur substantial costs in doing so, and our profitability may suffer. In addition, promising new offerings may fail to reach the market or realize only limited commercial success because of real or perceived efficacy or safety concerns.

Our ongoing investment in new products, services, and technologies is inherently risky, and could disrupt our ongoing businesses.

We have invested and expect to continue to invest in new products, services, and technologies. Such endeavors involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenues to offset liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, and unidentified issues not discovered in our due diligence of such strategies and offerings. Because these new ventures are inherently risky, sometimes they have been unsuccessful and no assurance can be given that such strategies and offerings will be successful and will not adversely affect our reputation, financial condition, and operating results.

We are subject to a high degree of regulatory oversight, and, if we do not continue to receive the necessary regulatory approvals, our revenues would decline.

We are subject to regulation by the United States Department of Transportation ("DOT") and by various state departments of transportation. The Omnibus Transportation Employee Testing Act of 1991 requires drug and alcohol testing of safety-sensitive transportation employees in aviation, trucking, railroads, mass transit, pipelines, and other transportation industries. The DOT Office of Drug & Alcohol Policy & Compliance ("ODAPC") publishes, implements, and provides authoritative interpretations of these rules. These regulations cover all transportation employers, safety-sensitive transportation employees, and service agents. Manufacturers submit devices to the DOT for testing and approval. Instruments are tested according to their model specifications and, if passed, included on the CPL. Law enforcement applications also require that portable breath testing instruments be included on the CPL. Lifeloc's FC10, FC10Plus, FC20, FC20BT, EV30, and Phoenix® 6.0 are included on the Conforming Products List of Evidential Breath Alcohol Measurement Devices (“CPL”). Lifeloc’s LX9 and LT7 have received conformance letters from the DOT and are expected to appear in the next publication of the CPL. We believe that we were in substantial compliance with the regulations described above as of December 31, ~~2021~~2022 for our products sold into these markets and states. ~~In addition, our LifeGuard® product is regulated as a Class I medical device by the Food and Drug Administration ("FDA").~~

The FDA and the DOT 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 new medical or drug-related products, or market current products for new uses, either of which could 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 would likely decline, harming our ~~business .~~business.

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. Some states do not accept breath alcohol testing as evidence. 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 threaten current state contracts and future state contracts and threaten revenue.

Our business relies on state contracts, governed by state contracting policies 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 eight states (Arizona, Arkansas, California, Colorado, Michigan, Idaho, Texas and Nevada). Loss of this business, or delays or cancellations in purchasing by these states, seriously impacts our law enforcement business.

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. 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.

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.

Third parties to whom we have licensed our patents may choose to enforce them through litigation, over which we would exert little or no control.

Should third parties who have licensed our intellectual property determine it is in their best interest to pursue litigation based on those patents, we would have no control in the direction of that litigation or the resulting publicity. Litigation may result in unfavorable findings by courts regarding the nature or protectability of our intellectual property. Litigation may result in additional expenditures or harm the business. Additionally, we would have no control over the publicity any such litigation may garner, which could negatively affect the company in the marketplace. In any of these situations, 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 may fail to make timely delivery and/or become 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 products and services are also from time to time used as components in the products of other manufacturers. We are therefore subject to the risk that manufacturers that integrate our products or services into their own products may change their source of supply to other vendors, may change their product designs in a way that eliminates our components, and/or may choose to have their components manufactured by other means. If this occurs, our sales may decline and our business may be harmed.

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 December 31, ~~2021,~~2022, 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.

The impact of continuing climate change could result in increased costs or reduced demand for our products, carbon asset risks, risks due to severe weather events and may result in the need for us to devote additional resources to the management of greenhouse gas emissions which will likely harm our profitability.

Our quarterly financial results vary quarter to quarter, which adversely affects our stock price at times. 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:

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.

Identification of material weakness in internal control may adversely affect our financial results.

We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. Those provisions provide for the identification of material weaknesses in internal control. If such a material weakness is identified, it could indicate a lack of adequate controls to generate accurate financial statements. We routinely assess our internal controls, but we cannot assure you that we will be able to timely remediate any material weaknesses that may be identified in future periods, or maintain all of the controls necessary for continued compliance.

We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.

We monitor our capital adequacy on an ongoing basis. To the extent that our funds are insufficient to fund future operating requirements, we may need to raise additional funds through corporate finance transactions or curtail our growth and reduce our liabilities. Any equity, hybrid or debt financing, if available at all, may be on terms that are not favorable to us. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition and operating results would be adversely affected.

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 operate 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. When our competitors are successful in developing products that are superior to our products, or competing products that sell for lower prices, there is a reduction in the demand for our products and a corresponding reduction in our revenue and our profits.

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. Future development of these technologies pose a risk to Lifeloc's business. See "Item 1. Business – Competition and Markets" for more information about these other technologies.

Natural disasters, public health crises, political crises, and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend and could impact customer priorities and consumer spending.

We have global third parties upon whom we rely and who are sometimes impacted by events outside of our control. An earthquake or other natural disaster or power shortages or outages could disrupt operations or impair sales. In addition, if any facilities of our suppliers, third-party service providers, vendors, or customers, is affected by natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict, or other events outside of our control, our business and operating results could suffer. Any of these disruptions or other events outside of our control would affect our business negatively, harming our operating results.

Our business may be adversely affected by the continuing Covid-19 pandemic

Our business is adversely affected by the ongoing outbreak of a strain of coronavirus variants. The Covid-19 outbreaks including the Delta and Omicron variants resulted in continued shutdown of certain businesses globally which led to disruptions to our supply chain and our customers’ business operations. Ongoing disruptions and responses to those disruptions could include the temporary closure of third-party supplier and manufacturer facilities, interruptions in product supply, or restrictions on the export or shipment of our products or components. Global health concerns, such as Covid-19, its variants, and other health concerns, also results in greater continued social, economic, and labor instability in the countries in which we or our customers and suppliers operate. These disruptions or the uncertainties around them have had a material adverse effect on our business and our results of operation and financial condition.

Shares of our common stock are not eligible for trading on any national securities exchange. Our common stock may be quoted in the over-the-counter market on the OTC Bulletin Board or in what are commonly referred to as "pink sheets." However, these markets are highly illiquid. There is no assurance that an active trading market in our common stock will develop, or if such a market develops, that it will be sustained. In addition, there is a greater chance for market volatility for securities quoted on the OTC Bulletin Board and pink sheets as compared with securities traded on a national exchange. This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent administrative supervision of "bid" and "ask" quotations and generally lower trading volume.

Under certain circumstances, shares of our common stock may be sold without registration pursuant to the safe harbor provided in Exchange Act Rule 144 ("Rule 144"). Any sale under Rule 144 or under any other exemption from the Securities Act of 1933, as amended (the "Securities Act"), if available, or pursuant to registration of shares of common stock of present stockholders, may have a depressive effect upon the price of our common stock in any market that may develop.

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 principal stockholder has significant voting power and may take actions that may not be in the best interests of other stockholders.

Vern D. Kornelsen, Chairman of our Board of Directors, Secretary, and Chief Financial Officer, beneficially owned approximately 77% of our outstanding common stock as of December 31, ~~2021.~~2022. Through this ownership, Mr. Kornelsen is able to control the composition of our Board and direct our management and policies. Accordingly, Mr. Kornelsen has the direct or indirect power to:

Mr. Kornelsen's significant ownership interest could adversely affect investors' perceptions of our corporate governance. In addition, Mr. Kornelsen may have an interest in pursuing acquisitions, divestitures and other transactions that involve risks to us and you. For example, Mr. Kornelsen could cause us to make acquisitions that increase our indebtedness or to sell revenue generating assets. Mr. Kornelsen may from time to time acquire and hold interests in businesses that compete directly or indirectly with us.

We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Increasingly common data privacy and cybersecurity regulations impact the use of or market for our products.

Information collected with our products may be governed by certain data privacy and cyber security regulations, breach of which could cause negative publicity or otherwise harm the company. As a Company with information stored online, the company may be vulnerable to cybersecurity attacks which may trigger reporting requirements and legal liability. Responding to a cybersecurity threat or breach would require financial resources, would cause a loss of productivity, and would open the Company to legal liability.

U.S. Trade relations negatively impact the availability of materials or the international market for the Company’s product.

Changes in U.S. trade relations, particularly the impositions of tariffs by the U.S. and China, have had and are expected to continue to have material effects on the performance of many companies. The Company is negatively affected by tariffs on any component materials required for a company product. Trade relations also decrease any potential international market for the Company products, affecting the Company’s potential for growth.

We issue options to purchase shares of our common stock to compensate employees, consultants and directors under our 2013 Stock Option Plan, 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.

The holders of our securities and persons who desire to purchase them in any trading market that might develop in the future should be aware that there may be significant state law restrictions upon the ability of investors to resell our securities. Investors should consider any secondary market for our securities to be a limited one. The "manual exemption" permits a security to be distributed in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer's balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Since June 14, 2011, we have been listed in Standard & Poor's. While many states expressly recognize this manual, a smaller number of states declare that they "recognize securities manuals" but do not specify the recognized manuals, making applicability of the manual exemption uncertain in those states. The following states do not have provisions expressly recognizing the manual exemption: Alabama, Illinois, Kentucky, Louisiana, Montana, New York, Pennsylvania, Tennessee and Virginia. While we may, in our discretion, cause our securities to be registered under the state securities laws of these or other states, there is no guarantee that we will do so.

Compliance with changing regulations of corporate governance and public disclosure result in expense.

We are subject to certain federal, state and other rules and regulations, including those required by the Sarbanes-Oxley Act of 2002, new regulations promulgated by the SEC and the rules of the OTC Market. The expense of compliance with these and other laws relating to corporate governance and public disclosure is included in our general and administrative expenses. These laws, regulations and standards are subject to varying interpretations in many cases, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we invest resources to comply with evolving laws, regulations and standards, and this investment results in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

On October 31, 2014, we purchased the commercial property the Company uses as its corporate headquarters and certain adjacent property in Wheat Ridge, Colorado. The building consists of 22,325 square feet, of which approximately 14,412 square feet are occupied by Lifeloc and approximately 7,913 square feet are currently leased to two tenants under leases that expire at various times ~~to 2022.~~until September 30, 2023. We intend to continue to lease the space we are not occupying, but in the future may elect to expand our own operations into space currently leased to other tenants. Our purchase of the property was partially financed through a term loan in an original principal amount of $1,581,106, secured by a first-priority mortgage on the property. This loan was paid off on September 30, 2021 with proceeds from a new term loan, also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000 which matures in September, 2031.

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 material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is subject.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of December 31, ~~2021,~~2022, we had 65 shareholders of record. Our common stock is not listed on an established public trading market. Since January 17, 2012, our stock has been quoted by the OTC Markets Group, Inc., in the non-NASDAQ over the counter market. The symbol for our shares is LCTC. Trading in our common stock is limited and sporadic. Subject to the foregoing qualification, the following table sets forth the range of bid quotations for the fiscal quarters indicated, as quoted by OTC Markets Group, Inc., and reflects inter-dealer prices, without retail mark up, mark down or commission and may not necessarily represent actual transactions.

We have never declared or paid any cash dividend on shares of our common stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance our operations and expand our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, operating results, capital requirements, and other factors the board of directors deems relevant.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our financial condition and results of operations, and should be read in conjunction with our financial statements and the related notes included elsewhere in this Form 10-K. Certain statements contained in this section are not historical facts, including statements about our strategies and expectations about new and existing products, market demand, acceptance of new and existing products, technologies and opportunities, market and industry segment growth, and return on investments in products and markets. These statements are forward-looking statements and involve substantial risks and uncertainties that may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements in this section are based on information available to us on the date of this document, and we assume no obligation to update such forward-looking statements. Readers of this Form 10-K are strongly encouraged to review the section titled "Risk Factors."

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

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

Installed Base of Breathalyzers. We believe the installed base of our breathalyzers will increase as the inherent risks associated with drinking while driving or while working in safety sensitive jobs become more widely acknowledged and as our network of distributors and our direct sales force grows. We believe that increased marketing efforts, the introduction of new products and the expansion of our sales network may provide the basis for increased sales and continuing profitable operations. However, these measures, or any others that we may adopt or determine not to adopt, may not result in either increased sales or continuing profitable operations.

Possibility of Operating Losses. Over many of the past several years we have operated profitably; however, prior to that, and in ~~2020,~~2022 and 2021, we incurred losses. There is no assurance that we will not incur losses in any given quarter or year in the future.

Sales Growth. We expect to increase sales in the U.S. and worldwide as our network of direct customers and distributors grows and becomes more proficient and expands the number of new accounts. Our growth efforts have focused on expanding our global reach and broadening our product offering in alcohol and drug detection. Orders for all of our products, particularly ignition interlock components, are on an intermittent purchase order basis and there is no assurance they will continue at any given rate, or that orders will repeat.

Sales and Marketing Expenses. We continue our efforts to expand our domestic and international distribution capability, and we believe that sales and marketing expenses will need to be maintained at a healthy level in order to do so. Sales and marketing expenses are expected to increase as we increase our direct sales representatives and marketing efforts.

Research and Development Expenses. We expect to increase our research and development expenses to support refinements to our products, and the development of additional new products.

In August 2016 we entered into an exclusive patent license agreement with Sandia Corporation pursuant to which we acquired the exclusive rights to develop, manufacture and market Sandia's patented SpinDx™ technology for the detection of drugs of abuse. We believe this license agreement represents the beginning of a relationship that will become material to the Company in near the future. A prototype was built by Sandia under our Cooperative Research and Development Agreement and received in 2018, after which we commenced work on commercializing the device.

In ~~2021~~2022 we purchased SpinDx related test and other equipment totaling $23,999 and in 2021 $265,867. We are optimistic about the results of the work to date and expect market introduction later in ~~2022.~~2023 and commercialization in 2024. SpinDx™ uses a centrifugal disk with micro fluidic flow paths allowing multiple tests to be carried out on a single small sample. The SpinDx™ platform has the potential to revolutionize real-time screening for a panel of high abuse drugs, with the ability to quickly and quantitatively measure very low concentrations of drugs such as cocaine, heroin, methamphetamine and others. We intend to use this technology, sometimes referred to as "Lab on a Disk", to develop devices and tests that could be used at roadside, emergency rooms and in workplace testing to get a rapid and quantitative measure for a panel of such drugs of abuse. We have detected delta-9-THC (the primary psychoactive component of marijuana) down to concentrations of 5 nanograms per milliliter in our laboratory. This includes resolving the psychoactive delta-9-THC from its inactive metabolites. Resolving the psychoactive levels from metabolites is an important step in establishing impairment. We completed the upgrade of our base breathalyzer platform in 2019 (the LX9), and we remain committed to combining it with the SpinDx technology. If successful, this combination will result in a THC breathalyzer. There is no assurance that our efforts to develop a marijuana breathalyzer will be successful or that significant sales will result from such development if successful.

On March 8, 2017, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Track Group Inc., a Delaware corporation. Pursuant to the terms and conditions of the Asset Purchase Agreement, we acquired certain assets comprised of: (1) handheld hardware device technology (the "R.A.D.A.R.® Mobile Devices"), designed to measure breath alcohol content of the user; and (2) software technology called R.A.D.A.R.® (Real-time Alcohol Detection and Reporting) Reporting Center designed to allow the Device to be configured and to capture and manage the data being returned from the Device (together with the Device, the "R.A.D.A.R.® Assets"). Although there is no assurance of market acceptance, widespread adoption of the R.A.D.A.R.® Mobile Devices may provide an alternative to, and thus lower, incarceration rates through better offender monitoring. We have updated the R.A.D.A.R.® 200 Mobile Device and it has been released for sale in 2022. On June 1, 2022, we formed a wholly-owned subsidiary, Probation Tracker, Inc., a Colorado corporation (“PTI”) and capitalized it with ~~continued refinements ongoing based~~$61,353 in exchange for 613,530 shares of PTI common stock. PTI had no activity during the six months ended December 31, 2022. In August 2022, we filed a Form 10 with the Securities and Exchange Commission in anticipation of distributing all of the 613,530 shares of common stock to our shareholders as a stock dividend. In September, 2022, this Form 10 was withdrawn, and the plan to distribute the PTI shares was canceled. The $61,353 of cash was withdrawn and PTI was deactivated. We have entered into a consulting agreement with a third party to work on ~~customer feedback.~~developing proof of concept showing that R.A.D.A.R. 300 is feasible.

For the year ended December 31, ~~2021~~2022 compared to the year ended December 31, ~~2020~~2021.

The remnants of Covid-19, ~~adversely impacted~~as well as supply chain problems, continue to impact our business in ~~2021,~~2022, as it ~~did~~has others throughout the world. In addition to straining the budgets of law enforcement agencies and other customers, relocating workers from the workplace to their homes decreased the perceived need to monitor for the presence of alcohol. ~~As an essential supplier, Lifeloc was not subject to shut-down orders in either 2021 or 2020. We adopted the safety recommendations of the CDC and implemented measures to keep our staff safe.~~ We reduced costs where possible, while at the same time continuing our new product development efforts and maintaining the high level of customer service that has led to an excellent reputation for outstanding customer service. As the pandemic subsides, we ~~believe~~are seeing revenues ~~will begin to~~ revert to their former levels. With the introduction of new products, we believe Lifeloc will again be profitable.

Net sales. Our product sales for the year ended December 31, ~~2021~~2022 were ~~$6,898,955,~~$8,350,463, an increase of ~~13%~~21% from ~~$6,122,348~~$6,898,955 for the same period a year ago. This increase is primarily attributable to prevailing market conditions. When royalties of ~~$67,526~~$40,674 and rental income of ~~$87,949~~$90,856 are included, total revenues of ~~$7,054,430~~$8,481,993 increased by ~~$697,728,~~$1,427,563, or ~~11%~~20%, for the year ended December 31, ~~2021~~2022 when compared to the same 12 months a year ago. Rental income increased by ~~$1,993~~$2,907 due to increased rental rates in ~~2021,~~2022, and royalties decreased by ~~$80,872~~$26,852 due to a decrease in sales by royalty-paying customers.

Gross profit. Gross profit for the year ended December 31, ~~2021~~2022 of ~~$3,060,096~~$3,074,951 represented an increase of ~~40%~~1/2% from total gross profit of ~~$2,180,546~~$3,060,096 for the year ended December 31, ~~2020,~~2021, primarily as a result of inflationary component cost increases and from accelerating the amortization of RADAR 200 related assets, in addition to increased sales volume, offset in part by decreased royalties in 2021. Cost of product sales ~~decreased~~increased from ~~$4,120,187 in the year ended December 31, 2020 to~~ $3,946,545 ~~in the same period in 2021, a decrease of $173,642 (4%), primarily as a result of overall cost reduction efforts. Gross profit margin on products increased to 43%~~ in the year ended December 31, 2021 ~~from 33%~~to $5,352,862 in the same period in 2022, an increase of $1,406,317 (36%). Gross profit margin on products decreased to 35.9% in the year ended December 31, ~~2020~~2022 from 42.8% in the year ended December 31, 2021 primarily as a result of ~~higher sales without a proportionate~~the increase in costs.

Research and development expenses. Research and development expenses were ~~$1,213,482~~$1,385,927 for the year ended December 31, ~~2021,~~2022, representing an increase of ~~$206,185 (21%~~$172,445 (14%) over the ~~$1,007,297~~$1,213,482 in the same period a year ago. This increase resulted primarily from ~~greater use of outside contractors as well as~~ the addition of personnel and materials needed for our dedication of resources to SpinDx.

Sales and marketing expenses. Sales and marketing expenses of ~~$1,003,983~~$1,122,526 for the year ended December 31, ~~2021~~2022 were ~~down~~up by ~~$70,266~~$118,543 from the ~~$1,074,249~~$1,003,983 or 7%12%, spent in the same period a year ago as a result of ~~our overall cost reduction~~expanded marketing efforts, including ~~reduction~~attending trade shows, following the decline of ~~resources dedicated to advertising.~~the pandemic.

General and administrative expenses. General and administrative expenses were $1,216,843 for the year ended December 31, 2022 versus $1,111,544 for the year ended December 31, 2021, ~~versus $1,254,503 for the year ended December 31, 2020, a decrease~~an increase of ~~$142,959~~$105,299 or ~~11%~~10%, which was attributable mostly to ~~our overall~~inflationary cost ~~reduction measures.~~increases.

Other income (expense). Other income includes forgiveness of our Paycheck Protection loans totaling $936,444 in 2021 versus none in ~~2020.~~2022. Interest income ~~decreased~~increased from ~~$14,294~~$3,401 a year ago to ~~$3,401~~$13,114 in ~~2021, mostly~~2022, as a result of ~~lower~~higher yield availability. Interest expense of ~~$51,272~~$43,081 in the year ended December 31, ~~2021~~2022 was down from ~~$56,129~~$51,272 in the previous year as a result of the decrease in the interest rate on our new loan on our building.

Net ~~income.~~income (loss). We realized a net ~~income~~loss of ~~$675,967~~$455,757 for the year ended December 31, ~~2021~~2022 compared to a net ~~loss~~income of ~~$921,930~~$675,967 the year ended December 31, ~~2020.~~2021. This ~~increase~~decrease of ~~$1,597,897~~$1,131,724 was the result of the ~~increase~~forgiveness of our Paycheck Protection loans in ~~gross profit,~~2021 vs. no similar event in 2022, as well as the changes in gross profit, operating expenses and other income discussed above, ~~and of the changes in other income,~~ offset in part by ~~a decreased~~an increased income tax benefit of ~~$219,101.~~$60,673.

Revenues in the year ~~2021~~2022 were higher compared to revenues in ~~2020.~~2021. We believe that the anticipated slowdown of the pandemic, along with continued increased sales efforts, ~~and the re-launch of the R.A.D.A.R.® Mobile Devices,~~ may result in improved revenues in ~~2022~~2023 and beyond. We expect our quarter-to-quarter revenue fluctuations to continue, due to the unpredictable timing of large orders from customers and the size of those orders in relation to total revenues. Going forward, we intend to focus our development efforts on products we believe offer the best prospects to increase our intermediate and near-term revenues, with particular emphasis on completing SpinDx™.

Our 2022 operating plan is focused on growing sales, increasing gross profits, and increasing research and development efforts on new products, including SpinDx™, for long-term growth. We cannot predict with certainty the expected sales, gross profit, net income or loss, or usage of cash and cash equivalents for ~~2022.~~2023. However, we believe that cash resources ~~and lower operating expenses~~ will be sufficient to fund our operations for the next twelve months under our current operating plan. If we are unable to manage the business operations in line with our budget expectations, it could have a material adverse effect on business viability, financial position, results of operations and cash flows. Further, if we are not successful in sustaining profitability and remaining at least cash flow break-even, additional capital may be required to maintain ongoing operations.

Interest expense. In connection with the financing of our building purchase on October 31, 2014 we obtained a 10-year term loan from Bank of America in an initial principal amount of $1,581,106 bearing interest at 4.45% per annum (which was decreased to 4% in 2016) and secured by a first-priority mortgage in the acquired property, as well as a one-year $250,000 line of credit, which was later increased to $750,000 with a maturity date of September 28, 2021. The Bank of America loan was paid on September 30, 2021 with proceeds from a new term loan from Citywide Banks, also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000. The new loan is payable in monthly installments of $7,453, with interest at 2.95% and a maturity date of September 30, 2031. The revolving line of credit facility expired in accordance with its terms and has not been renewed.

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

Except for normal operating contractual commitments and purchase orders, and aside from the commitments under our term loan and line of credit with Citywide Banks, we do not have any material contractual commitments requiring settlement in the future. See "Note 5 – Commitments and Contingencies" to our Financial Statements in Part II - Item 8.

We have traditionally funded working capital needs through product sales and close management of working capital components of our business. Historically, we have also received cash from private offerings of our common stock, warrants to purchase shares of our common stock, and notes. In our earlier years, we incurred quarter to quarter operating losses to develop current product applications, utilizing a number of proprietary and patent-pending technologies. Although we have been profitable in recent years except 2020 and 2022, we can provide no assurances that operating losses will not 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, if at all.

As of December 31, ~~2021,~~2022, cash and cash equivalents was ~~$2,571,668,~~$2,352,754, trade accounts receivable were ~~$562,092~~$627,919 and current liabilities were ~~$1,082,084~~$1,136,682 resulting in net liquid assets of ~~$2,051,676.~~$1,843,991. We believe that the diminishing of the Covid-19 pandemic and the introduction of several new products during the last several years, along with new and on-going customer relationships will allow Lifeloc to operate ~~profitability.~~profitably. If the revenue levels during the last several years prior to 2020 are not achieved on a timely basis, we may be required to seek additional sources of capital and/or to implement further cost reduction measures, as necessary.

Equipment expenditures, consisting ~~mostly~~ of ~~test~~updated production equipment and ~~other~~ SpinDx related equipment, during FY 2122 were ~~$265,867~~$213,206 compared to ~~$27,477~~$265,867 for FY ~~20, an increase~~21, a decrease of ~~$238,390.~~$52,661. We ~~filed~~incurred patent ~~applications at a cost~~application costs in preparation for filing of $9,370 in 2022 versus $2,609 in ~~2021 versus $18,796~~2021. Expired and fully amortized patents of $13,758 were removed from our financial statements in ~~2020.~~2022.

We generally provide a standard one-year limited warranty on materials and workmanship to our customers. We provide for estimated warranty costs at the time product revenue is recognized. Warranty costs are included as a component of cost of goods sold in the accompanying statements of operations. For the year ended December 31, ~~2021~~2022 and for the year ended December 31, ~~2020,~~2021, warranty costs were not deemed significant.

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

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

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

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

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

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

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

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

The sales of licenses to our training courses are recognized as revenue at the time of sale. Direct training performed by us is recognized when training is completed by the trainer, with the unearned portion classified as deferred revenue. Training and certification revenues are recognized at the time the training and certification occurs. Data recording revenue is recognized based on each day’s usage of enrolled devices.

Revenues arising from extended warranty contracts are booked as sales over their life on a straight-line basis. We provide customer financing and leasing ourselves, which we recognize as revenue over the applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract.

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

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

On occasion we receive customer deposits for future product orders and for product development. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer, or in the case of product development, when agreed milestones are met.

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

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.

We have audited the accompanying balance sheets of Lifeloc Technologies, Inc. (the Company), which comprise the balance sheet as of December 31, 2022 and 2021, respectively, and the related statements of Operations, Changes in Stockholder’s Equity, and Cash Flows for the years then ended, and the related notes to the financial statements. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the period then ended in conformity with accounting principles generally accepted in the United States of America.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United ~~States)~~Sates) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we were required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. ~~Accordingly~~According we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluation of the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the disclosures to which it relates.

blaze@griesandassociates.com

501 S. Cherry Street Suite 1100, Denver, Colorado 80246

(O)720-464-2875 (M)773-255-5631 (F)720-222-5846

~~Gries & Associates, LLC~~

~~Certified Public Accountants~~

~~501 S. Cherry Street Ste 1100~~

~~Denver, Colorado 80246~~

Inventories

Critical Audit Matter Description

The Company’s inventories consist of finished goods and raw materials, which are manufactured or purchased for use in the Company’s finished goods. The Company offers several different products to its customers. The cost of the inventory is a combination of raw materials, labor to convert those materials to components of the inventory and finished goods, and an allocation of overhead and related costs. The Company also prepares an obsolescence valuation at year end to properly record inventory at lower of cost or net realizable value.

Significant judgment is exercised by the Company in determining the costs of inventory and includes the following:

Determination of which costs to include at each manufacturing phase, including overhead allocation and materials used for production and finished goods.

Identification of Inventory on hand and any obsolescence reserve or write-offs determined based on usability of inventory on hand.

Given the inherent uncertainty in forecasting product demand, including the impact of product releases, auditing the reasonableness of management’s estimated and assumptions related to inventory reserve required a high degree of auditor judgement and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the Company's inventory included the following:

We evaluated management’s significant accounting policies related to inventory for reasonableness.

We selected a sample of finished goods and raw materials and performed detailed testing over the items selected, including but not limited to the following:

Agreed the bill of materials source documents for each selection, including invoice, labor and overhead allocations, and any other items relevant to price verification

Tested ~~management’s~~managements identification and application of inventory costs for components and finished goods

Performed a physical inventory count as of year end and tested the reconciliation of quantities on hand to the inventory listing, performing both existence and completeness testing.

Assessed the reasonableness of costs and the appropriate application of ~~management’s~~managements significant accounting policies related to Inventory, including determination of inventory obsolescence reserve.

Emphasis of Matters-Risks and Uncertainties

The Company is not able to predict the ultimate impact that COVID -19 will have on its business. However, if the current economic conditions continue, the pandemic could have an adverse impact on the economies and
financial markets of many countries, including the geographical area in which the Company plans to operate.

~~Gries & Associates, LLC~~

We have served as the Company’s auditor since 2021.
Gries & Associates, LLC
Denver, Colorado March ~~3, 2022~~10, 2023 PCAOB# 6778

~~Report of Independent Registered Public Accounting Firm~~

~~To the Board of Directors and Stockholders of~~

~~Lifeloc Technologies, Inc.~~

~~Wheat Ridge, Colorado~~

~~OPINION ON THE FINANCIAL STATEMENTS~~

We have audited the accompanying balance sheet of Lifeloc Technologies, Inc. (the “Company”) as of December 31, 2020, and the related statements of income, stockholders’ equity, and cash flows, for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

~~BASIS FOR OPINION~~

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

~~CRITICAL AUDIT MATTER~~

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

~~Inventories – Refer to Note 2 to the financial statements~~

~~Critical Audit Matter Description~~

The Company’s inventories consist of finished goods and raw materials, which are manufactured or purchased for use in the Company’s finished goods. The Company offers several different products to its customers. The cost of the inventory is a combination of raw materials, labor to convert those materials to components of the inventory and finished goods as well as an overhead allocation of other costs. Quantities and allowances for obsolete or otherwise unusable inventories must be determined in order to properly value the inventory at year end.

~~Significant judgment is exercised by the Company in determining the costs of inventory and includes the following:~~

	•	Determination of which costs to include in each phase of the manufacturing process, including the overhead allocation as well as the various materials used for the bill of materials for both component and finished goods.
	•	~~Identification of quantities of inventory and any allowances for obsolete or otherwise unusable inventory materials or components.~~

Given these factors and due to the volume of transactions, the related audit effort in evaluating management's judgments in determining inventory costs and quantities was extensive and required auditor judgment.

~~How the Critical Audit Matter Was Addressed in the Audit~~

~~Our principal audit procedures related to the Company's inventory included the following:~~

	•	~~We evaluated management's significant accounting policies related to inventory for reasonableness.~~
	•	~~We selected a sample of finished goods and raw materials and performed the following procedures:~~
	–	Obtained and agreed to the inventory listing and bills of materials source documents for each selection, including invoices, labor and overhead allocations, and other documents that were relevant to the pricing.

	–	~~Tested management's identification and treatment of inventory costs for components and finished goods.~~
	–	~~Observed the physical inventory count and tested management’s reconciliation of quantities to the inventory listings.~~
	–	Assessed the reasonableness of the costs and evaluated the appropriateness of management's application of their accounting policies, along with their use of estimates, in the determination of inventory valuations.

~~/s/ Causey Demgen & Moore P.C.~~

~~Causey Demgen & Moore P.C.~~

~~We have served as the Company’s auditors since 2016.~~

~~Denver,~~ ~~Colorado~~

~~March 30, 2021~~

LIFELOC TECHNOLOGIES, INC.

Balance Sheets


ASSETS

		December 31, 2022			December 31, 2021
CURRENT ASSETS:
Cash	$	2,352,754		$	2,571,668
Accounts receivable, net		627,919			562,092
Inventories, net		2,732,463			2,668,789
Employee retention credit receivable		107,575			—
Prepaid expenses and other		58,203			56,897
Total current assets		5,878,914			5,859,446

PROPERTY AND EQUIPMENT, at cost:
Land		317,932			317,932
Building		1,928,795			1,928,795
Real-time Alcohol Detection And Recognition equipment and software		569,448			569,448
Production equipment, software and space modifications		1,147,992			958,785
Training courses		432,375			432,375
Office equipment, software and space modifications		216,618			216,618
Sales and marketing equipment and space modifications		226,356			226,356
Research and development equipment, software and space modifications		480,684			456,685
Less accumulated depreciation		(3,072,961	)		(2,518,966	)
Total property and equipment, net		2,247,239			2,588,028

OTHER ASSETS:
Patents, net		69,679			134,428
Deposits and other		500			163,480
Deferred taxes		321,429			204,449
Total other assets		391,608			502,357

Total assets	$	8,517,761		$	8,949,831

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	413,957		$	445,985
Term loan payable, current portion		50,028			48,513
Customer deposits		201,031			170,952
Accrued expenses		344,944			298,530
Deferred revenue, current portion		80,222			71,604
Reserve for warranty expense		46,500			46,500
Total current liabilities		1,136,682			1,082,084

TERM LOAN PAYABLE, net of current portion and debt issuance costs		1,219,677			1,267,551
DEFERRED REVENUE, net of current portion		6,191			6,430
Total liabilities		2,362,550			2,356,065


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares authorized, 2,454,116 shares outstanding		4,668,014			4,650,812
Retained earnings		1,487,197			1,942,954
Total stockholders' equity		6,155,211			6,593,766

Total liabilities and stockholders' equity	$	8,517,761		$	8,949,831

ASSETS
December 31,
CURRENT ASSETS: 2021 2020
Cash $ 2,571,668 $ 2,195,070
Accounts receivable, net 562,092 523,603
Inventories, net 2,668,789 2,498,126
Income taxes receivable 0 220,657
Prepaid expenses and other 56,897 77,962
      Total current assets 5,859,446 5,515,418

PROPERTY AND EQUIPMENT, at cost:
Land 317,932 317,932
Building 1,928,795 1,928,795
Real-time Alcohol Detection And Recognition equipment and software 569,448 569,448
Production equipment, software and space modifications 958,785 958,785
Training courses 432,375 432,375
Office equipment, software and space modifications 216,618 216,618
Sales and marketing equipment and space modifications 226,356 226,356
Research and development equipment, software and space modifications 456,685 190,818
Less accumulated depreciation (2,518,966 ) (2,277,839 )
     Total property and equipment, net 2,588,028 2,563,288

OTHER ASSETS:
Patents, net 134,428 144,702
Deposits and other 163,480 164,798
Deferred taxes 204,449 148,142
     Total other assets 502,357 457,642

     Total assets $ 8,949,831 $ 8,536,348

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 445,985 $ 333,851
Term loan payable, current portion 48,513 46,936
Paycheck Protection Program loan payable 0   465,097
Customer deposits 170,952 155,295
Accrued expenses 298,530 266,266
Deferred revenue, current portion 71,604 41,053
Reserve for warranty expense 46,500 46,500
      Total current liabilities 1,082,084 1,354,998

TERM LOAN PAYABLE, net of current portion and debt issuance costs 1,267,551 1,277,531

DEFERRED REVENUE, net of current portion 6,430 3,177
      Total liabilities 2,356,065 2,635,706

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock, 0 par value; 50,000,000 shares authorized, 2,454,116 shares outstanding 4,650,812 4,633,655
Retained earnings 1,942,954 1,266,987
      Total stockholders' equity 6,593,766 5,900,642

      Total liabilities and stockholders' equity $ 8,949,831 $ 8,536,348

See accompanying notes.

LIFELOC TECHNOLOGIES, ~~INC.~~INC

Statements of Income


	Years Ended December 31,						Years Ended December 31,
REVENUES:	2021			2020			2022			2021
Product sales	$	6,898,955		$	6,122,348		$	8,350,463		$	6,898,955
Royalties		67,526			148,398			40,674			67,526
Rental income		87,949			85,956			90,856			87,949
Total		7,054,430			6,356,702			8,481,993			7,054,430

COST OF SALES		3,994,334			4,176,156			5,407,042			3,994,334

GROSS PROFIT		3,060,096			2,180,546			3,074,951			3,060,096

OPERATING EXPENSES:
Research and development		1,213,482			1,007,297			1,385,927			1,213,482
Sales and marketing		1,003,983			1,074,249			1,122,526			1,003,983
General and administrative		1,111,544			1,254,503			1,216,843			1,111,544
Total		3,329,009			3,336,049			3,725,296			3,329,009

OPERATING INCOME (LOSS)		(268,913	)		(1,155,503	)		(650,345	)		(268,913	)

OTHER INCOME (EXPENSE):
Forgiveness of Paycheck Protection loan		936,444			—			—			936,444
Employee retention credit								107,575			—
Interest income		3,401			14,294			13,114			3,401
Interest expense		(51,272	)		(56,129	)		(43,081	)		(51,272	)
Total		888,573			(41,835	)		77,608			888,573

NET INCOME (LOSS) BEFORE PROVISION FOR TAXES		619,660			(1,197,338	)		(572,737	)		619,660

BENEFIT FROM (PROVISION FOR) FEDERAL AND STATE INCOME TAXES		56,307			275,408
BENEFIT FROM FEDERAL AND STATE INCOME TAXES								116,980			56,307

NET INCOME (LOSS)	$	675,967		$	(921,930	)	$	(455,757	)	$	675,967

NET INCOME (LOSS) PER SHARE, BASIC	$	0.28		$	(0.38	)	$	(0.19	)	$	0.28

NET INCOME (LOSS) PER SHARE, DILUTED	$	0.27		$	(0.38	)	$	(0.19	)	$	0.27

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

WEIGHTED AVERAGE SHARES, DILUTED		2,518,895			2,454,116			2,454,116			2,518,895

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

~~Lifeloc Technologies, Inc.~~

Statements of Stockholders' Equity


	Years Ended December 31
	2022			2021
Total stockholders' equity, beginning balances	$	6,593,766		$	5,900,642

Common stock (no shares issued during periods):
Beginning balances		4,650,812			4,633,655
Stock based compensation expense related
to stock options		17,202			17,157
Ending balances		4,668,014			4,650,812

Retained earnings:
Beginning balances		1,942,954			1,266,987
Net income (loss)		(455,757	)		675,967
Ending balances		1,487,197			1,942,954

Net income (loss)		—			—
Total stockholders' equity, ending balances	$	6,155,211		$	6,593,766

Years Ended December 31,
2021 2020
Total stockholders' equity, beginning balances $ 5,900,642 $ 6,792,221

Common stock (no shares issued during periods):
Beginning balances 4,633,655 4,603,304
Stock based compensation expense related
to stock options 17,157 30,351
Ending balances 4,650,812 4,633,655

Retained earnings:
Beginning balances 1,266,987 2,188,917
Net income (loss) 675,967 (921,930 )
Ending balances 1,942,954 1,266,987
Net income (loss) - -

Total stockholders' equity, ending balances $ 6,593,766 $ 5,900,642

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

Statements of Cash Flows


	Years Ended December 31
CASH FLOWS FROM OPERATING ACTIVITIES:	2022			2021
Net income (loss)	$	(455,757	)	$	675,967
Adjustments to reconcile net income to net cash provided from (used in) operating activities-
Forgiveness of Paycheck Protection loans loans		—			(936,444	)
Depreciation and amortization		632,418			254,823
Provision for doubtful accounts, net change		—			(49,000	)
Provision for inventory obsolescence, net change		214,156			(5,000	)
Deferred taxes, net change		(116,980	)		(56,307	)
Stock based compensation expense related to stock options		17,202			17,157

Changes in operating assets and liabilities-
Accounts receivable		(65,827	)		10,511
Inventories		(277,830	)		(165,663	)
Employee retention credit receivable		(107,575	)		220,657
Prepaid expenses and other		(1,306	)		21,065
Deposits and other		162,980			1,318
Accounts payable		(32,028	)		112,134
Customer deposits		30,079			15,657
Accrued expenses		46,414			32,264
Deferred revenue		8,379			33,804
Net cash provided from (used in) operating activities		54,325			182,943

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment		(213,206	)		(265,867	)
Patent filing expense		(9,370	)		(2,609	)
Net cash (used in) investing activities		(222,576	)		(268,476	)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments made on term loan		(50,663	)		(1,341,059	)
Proceeds from refinancing term loan		—			1,350,000
Cost of refinancing term loan		—			(18,157	)
Proceeds from Paycheck Protection loan (round 2)		—			471,347
Net cash provided from (used in) financing activities		(50,663	)		462,131

NET INCREASE (DECREASE) IN CASH		(218,914	)		376,598

CASH, BEGINNING OF PERIOD		2,571,668			2,195,070

CASH, END OF PERIOD	$	2,352,754		$	2,571,668

SUPPLEMENTAL INFORMATION:
Cash paid for interest	$	38,777		$	50,458

Cash paid for income tax	$	—		$	—

Years  Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES: 2021 2020
Net income (loss) $ 675,967 $ (921,930 )
Adjustments to reconcile net income (loss) to net cash provided from operating activities
   Forgiveness of Paycheck Protection loans (936,444 ) 0
   Depreciation and amortization 254,823 364,336
   Provision for doubtful accounts, net change (49,000 ) 24,000
   Provision for inventory obsolescence, net change (5,000 ) 20,000
   Deferred taxes, net change (56,307 ) (61,484 )
   Reserve for warranty expense, net change 0   1,500
     Stock based compensation expense related to stock options 17,157 30,351
Changes in operating assets and liabilities-
   Accounts receivable 10,511 93,636
   Inventories (165,663 ) (531,827 )
   Income taxes receivable 220,657 (213,907 )
   Prepaid expenses and other 21,065 (59,105 )
   Deposits and other 1,318 (90,771 )
   Accounts payable 112,134 72,053
   Customer deposits 15,657 (58,736 )
   Accrued expenses 32,264 (24,192 )
   Deferred revenue 33,804 (7,710 )
             Net cash provided from (used in) operating activities 182,943 (1,363,786 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and space modifications (265,867 ) (27,477 )
Patent filing expense (2,609 ) (18,796 )
           Net cash (used in) investing activities (268,476 ) (46,273 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments made on term loans (1,341,059 ) (45,964 )
Proceeds from refinancing term loan 1,350,000 0
Cost of refinancing term loan (18,157 ) 0
Proceeds from Paycheck Protection loan 471,347 465,097
           Net cash provided from (used in) financing activities 462,131 419,133

NET INCREASE (DECREASE) IN CASH 376,598 (990,926 )

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,195,070 3,185,996

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,571,668 $ 2,195,070

SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 50,458 $ 55,045

See accompanying notes.

LIFELOC TECHNOLOGIES, INC.

Notes to Financial Statements

December 31, ~~2021~~2022 and ~~2020~~2021

1. ORGANIZATION AND NATURE OF BUSINESS

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

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

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.

Debt Issuance Costs. In 2016, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). This standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. Deferred loan costs are amortized over the 20-year life of the term loan on a straight line basis, which approximates the effective interest method. Total amortization during the years ended December 31, 2022 and 2021 was $4,304 and ~~2020 was~~ $813 ~~and $1,085~~ respectively, and is included within interest expense on the statements of income.

Deferred Taxes. In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). This standard requires that deferred income tax assets and liabilities be presented as noncurrent assets or liabilities in the balance sheet.

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

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

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

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

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.

Fair Value of Financial Instruments. Our financial instruments consist of cash, short-term trade receivables, payables and a term loan secured by a first mortgage. The carrying values of cash, short-term receivables, and payables approximate their fair value due to their short term maturities. The carrying value of the term loan approximates its fair value based on interest rates currently obtainable.

Concentration of Credit Risk. Financial instruments with significant credit risk include cash and accounts receivable. The amount of cash on deposit with one financial institution exceeded the $250,000 federally insured limit at December 31, ~~2021~~2022 by $~~993,331~~832,158, and by $~~214,830~~756,530 at a second ~~financial institution, and by $360,478~~ ~~at a third~~ financial institution. However, we believe that the financial institutions are 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.

Accounts Receivable. Accounts receivable are typically unsecured and are derived from transactions with and from entities primarily located in the United States or from international distributors with a proven payment history. 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 with occasional exceptions of up to 60 days for large established customers. 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:

Schedule of allowance for doubtful accounts

Years Ended December 31	2021			2020			2022			2021
Balance, beginning of year	$	54,000		$	30,000		$	5,000		$	54,000
Provision for estimated losses		(48,712	)		25,042			297			(48,712	)
Recovery (write-off) of uncollectible accounts		(288	)		(1,042	)		(297	)		(288	)
Balance, end of year	$	5,000		$	54,000		$	5,000		$	5,000

The net accounts receivable balance at December 31, 2022 of $627,919 included an account from one customer of $103,739 (17%), $98,412 (16%) from a second customer, $42,954 from a second customer (7%), and no more than 6% from any other single customer. The net accounts receivable balance at December 31, 2021 of $562,092 included an account from one customer of $71,522 (13%), $57,500 from a second customer (10%), and no more than 3% from any other single customer. ~~The net accounts receivable balance at December 31, 2020 of $523,603~~ ~~included an account from one customer of $182,510~~ ~~(35%), $67,183~~ ~~from a second customer (13%), and no more than 10% from any other single customer.~~

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. 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, ~~2021~~2022 and December 31, ~~2020,~~2021, inventory consisted of the following:

Inventories
2021 2020
Raw materials & deposits $ 2,179,332 $ 2,116,389
Work-in-process 84,963 16,862
Finished goods 559,494 524,875
Total gross inventories 2,823,789 2,658,126
Less reserve for obsolescence (155,000 ) (160,000 )
Total net inventories $ 2,668,789 $ 2,498,126

Schedule of Inventories
	2022			2021
Raw materials & deposits	$	2,509,661		$	2,179,332
Work-in-process		52,642			84,963
Finished goods		539,316			559,494
Total gross inventories		3,101,619			2,823,789
Less reserve for obsolescence		(369,156	)		(155,000	)
Total net inventories	$	2,732,463		$	2,668,789

A summary of the activity in our inventory reserve for obsolescence is as follows:

Schedule of inventory reserve
Years Ended December 31	2022			2021
Balance, beginning of year	$	155,000		$	160,000
Provision for estimated obsolescence		269,837			23,585
Write-off of obsolete inventory		(55,681	)		(28,585	)
Balance, end of year	$	369,156		$	155,000

Inventory reserve
Years Ended December 31 2021 2020
Balance, beginning of year $ 160,000 $ 140,000
Provision for estimated obsolescence 23,585 64,753
Write-off of obsolete inventory (28,585 ) (44,753 )
Balance, end of year $ 155,000 $ 160,000

Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five years; three years for software and technology licenses; 15 years for space modifications and for training courses; 39 years for the cost of the building we purchased in October 2014. The R.A.D.A.R.® software and patents that were purchased in March 2017 were originally set to amortize over 15 years using the straight line method, but in 2022 we accelerated the amortization of the remaining cost to fully amortize the assets by December 31, 2022. We utilize the declining method of depreciation for property, equipment and space modifications, and the straight-line method of depreciation for software, training courses, and the building, due to the expected usage of these assets over time. These methods are expected to continue throughout the life of the assets. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized. Depreciation expense for the years ended December 31, ~~2021~~2022 and ~~2020~~2021 was $~~254,010~~553,995 and $~~343,834~~254,010 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. ~~NaN~~No impairments were recorded for the years ended December 31, 2022 and 2021 ~~and 2020~~ respectively.

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 for utility patents in the United States, and 14 years for design patents). Amortization expense, including impairments, for the years ended December 31, ~~2021~~2022 and ~~2020~~2021 was $~~12,883~~74,120 and $~~19,417~~12,883 respectively. Amortization expense for each of the next 5 years is estimated to be $12,932 per year. 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. Impairments of $0 and $~~5,990~~0 were included in amortization expense for the years ended December 31, ~~2021~~2022 and ~~2020~~2021 respectively. A summary of our patents at December 31, ~~2021~~2022 and ~~2020~~2021 is as follows:

Schedule of patents
	2022			2021
Patents issued	$	191,871		$	190,508
Patent applications filed and in process		25,154			30,905
Accumulated amortization		(147,346	)		(86,985	)
Total net patents	$	69,679		$	134,428

Patents
2021 2020
Patents issued $ 190,508 $ 190,508
Patent applications 30,905 28,296
Accumulated amortization (86,985 ) (74,102 )
Total net patents $ 134,428 $ 144,702

Deposits and Other Assets. We include the long-term portion of installment receivables with deposits.

Accrued Expenses. We have accrued various expenses in our December 31 balance sheets, as follows.

Accrued expenses
Schedule of accrued expenses
	2021		2020		2022		2021
Compensation	$	187,729	$	165,686	$	205,422	$	187,729
Property and other taxes		68,514		69,109		73,892		68,514
Rebates		42,287		31,471		65,630		42,287
Total accrued expenses	$	298,530	$	266,266	$	344,944	$	298,530

Product Warranty Reserve. We provide for the estimated cost of product warranties at the time sales are recognized. 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:

Schedule of product warranty reserve
Years Ended December 31	2022			2021
Balance, beginning of year	$	46,500		$	46,500
Provision for estimated warranty claims		37,092			25,818
Claims made		(37,092	)		(25,818	)
Balance, end of year	$	46,500		$	46,500

Product warranty reserve
Years Ended December 31 2021 2020
Balance, beginning of year $ 46,500 $ 45,000
Provision for estimated warranty claims 25,818 27,279
Claims made (25,818 ) (25,779 )
Balance, end of year $ 46,500 $ 46,500

Income Taxes. We account for income taxes under the provisions of ASC 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.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. For the years ended December 31, ~~2021~~2022 and ~~2020,~~2021, we did not have any interest or penalties or any significant uncertain tax positions.

Revenue Recognition. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. We adopted this ASU on January 1, 2018 retrospectively, with the cumulative effect of initial application (which was zero) recognized in retained earnings on that date.

The sales of licenses to our training courses are recognized as revenue at the time of sale. Training and certification revenues are recognized at the time the training and certification occurs. Data recording revenue is recognized based on each day’s usage of enrolled devices.

Revenues arising from extended warranty contracts are booked as sales over their life on a straight-line basis. We have discontinued arranging for customer financing and leasing through unrelated third parties and instead are providing for customer financing and leasing ourselves, which we recognize as revenue over the applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract.

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

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

On occasion we receive customer deposits for future product orders and product developments. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer, or when agreed milestones are met in the case of product developments.

Topic 606 requires the disaggregation of revenue into broad categories, which we have defined as shown below.

Schedule of disaggregation of revenue
	Year Ended December 31,
Product sales:	2022		2021
Product sales and supplies	$	7,632,716	$	6,211,320
Training, certification and data recording		651,128		624,167
Service plans and equipment rental		66,619		63,468
Product sales subtotal		8,350,463		6,898,955
Royalties		40,674		67,526
Rental income		90,856		87,949
Total revenues	$	8,481,993	$	7,054,430

Disaggregation of revenue
Year Ended December 31,
Product sales: 2021 2020
  Product sales and supplies $ 5,992,880 $ 5,509,424
  Training, certification and data recording 624,167 541,580
  Service plans and equipment rental 281,908 71,344
  Product sales subtotal 6,898,955 6,122,348
Royalties 67,526 148,398
Rental income 87,949 85,956
Total revenues $ 7,054,430 $ 6,356,702

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

Paycheck Protection Loans. Loans. In 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (“PPP”), the initiative provided federally guaranteed loans to small businesses. A portion or all of these loans were to be forgiven if borrowers complied with certain PPP guidelines including spending the funds on authorized expenses and maintaining their payrolls during the crisis or restore their payrolls afterward. On May 4, 2020, the Company received proceeds of $465,097 from Bank of America under the PPP (the “PPP Loan”). Proceeds of $471,347 were received from a second loan with similar terms in February, 2021. The PPP provided that the PPP Loan could be partially or wholly forgiven if the funds were used for certain qualifying expenses as described in the CARES Act. The Company used the entire PPP Loan amounts for qualifying expenses, and the loans were forgiven in their entirety in February, 2021 and September, 2021 respectively. No interest on either loan has been recognized in our financial statements.

Rebates. Our rebate program is available to certain of our North American workplace distributors in good standing who are responsible for sales equaling at least $25,000 in one calendar year. Distributors in good standing who meet the required sales threshold earn a rebate equal to between 1 and 10 percent of that distributor's total sales of the Company's products. We accrue for these rebates monthly; they are shown in our balance sheets as accrued expenses.

~~Recent~~Recently Issued Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is based on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, excluding smaller reporting entities, which will be effective for fiscal years beginning after December 15, 2022. We ~~have reviewed all recently issued, but~~will adopt ASU 2016-13 beginning January 1, 2023 and do not ~~yet effective, accounting pronouncements. None are pending that will~~expect the application of the CECL impairment model to have a ~~material~~significant impact on our ~~financial statements or related disclosures.~~allowance for uncollectible amounts for accounts receivable.

Research and Development ~~Expenses.~~ 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 income.

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

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

Stock-based compensation expense recognized under ASC 718 for years ~~2021~~2022 and ~~2020~~2021 was $~~17,157~~17,202 and $~~30,351~~17,157 respectively. Stock-based compensation expense related to employee stock options under ASC 718 is allocated to General and Administrative Expense when incurred.

Segment Reporting. We have concluded that we have two operating segments, including our primary business which is as a developer, manufacturer and marketer of portable hand-held breathalyzers and related accessories, supplies and education. As a result of purchasing our building on October 31, 2014, we have a second segment consisting of renting portions of our building to existing tenants, whose leases expire at various times until ~~June~~September 30, ~~2022.~~ 2023.

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 ("ASC 260"). Under the provisions of ASC 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. Dilution from potential common shares outstanding at December 31, ~~2021~~2022 and ~~2020~~2021 was $~~0.01~~0.00 and $00.01 per share, respectively.

Wholly Owned Subsidiary

On June 1, 2022, we formed a wholly-owned subsidiary, Probation Tracker, Inc., a Colorado corporation (“PTI”) and capitalized it with $61,353 in exchange for 613,530 shares of PTI common stock. PTI had no activity during the three months ended September 30, 2022. In August 2022, we filed a Form 10 with the Securities and Exchange Commission in anticipation of distributing all of the 613,530 shares of common stock to our shareholders as a stock dividend. In September, 2022, this Form 10 was withdrawn, and the plan to distribute the PTI shares was canceled. The $61,353 of cash was withdrawn and PTI was deactivated. We have entered into a consulting agreement with a third party to work on developing proof of concept showing that R.A.D.A.R. 300 is feasible.

3. BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE

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

The following table presents the calculation of basic and diluted net income per common share:

Schedule of Calculation of basic and diluted net income per common share
	Years Ended December 31,
	2022			2021
Net income (loss)	$	(455,757	)	$	675,967
Weighted average shares-basic		2,454,116			2,454,116
Effect of dilutive potential common shares		—			64,779
Weighted average shares-diluted		2,454,116			2,518,595
Net income (loss) per share-basic	$	(0.19	)	$	0.28
Net income (loss) per share-diluted	$	(0.19	)	$	0.27
Antidilutive employee stock options		—			—

basic and diluted net income per common share
Years Ended December 31,
2021 2020
Net income (loss) $ 675,967 $ (921,930 )
Weighted average shares-basic 2,454,116 2,454,116
Effect of dilutive potential common shares 64,779 0
Weighted average shares-diluted 2,518,895 2,454,116
Net income (loss) per share-basic $ 0.28 $ (0.38 )
Net income (loss) per share-diluted $ 0.27 $ (0.38 )
Antidilutive employee stock options 0 0

4. STOCKHOLDERS' EQUITY

Stock Option Plan. In January 2013, we adopted our 2013 Stock Option Plan (the "2013 Plan") to promote the Company's and its stockholders' interests by helping us to attract, retain and motivate our key employees and associates. Under the terms of the 2013 Plan, our Board of Directors (the "Board") can 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 is the fair market value of our common stock on the date the stock option is granted. Generally, all stock options must be exercised within five years from the date granted. The number of common shares reserved for issuance under the 2013 Plan is 150,000 shares of common stock, subject to adjustment for dividend, stock split or other relevant changes in our capitalization. The 2013 Plan was approved by our shareholders at their regular annual meeting on April 1, 2013.

Under ASC 718, the value of each employee stock option was estimated on the date of grant using the Black-Scholes model for the purpose of financial information in accordance with ASC 718. The use of a Black-Scholes model requires the use of actual employee exercise behavior data and the use of a number of assumptions including expected volatility, risk-free interest rate and expected dividends. ~~Options to purchase 50,000 shares of stock at $6.00 apiece were granted in 2017 with vesting conditioned on meeting performance standards. An additional total of~~ ~~110,500~~ ~~options were granted during the year ended December 31, 2020,~~ ~~48,000~~ ~~of which were granted to two officers and three directors. Out of that~~ ~~48,000~~, the officers were granted 37,500 and 7,500 and the directors were granted 1,000 each. These options vested immediately upon granting. Upon separation of employment, the 7,500 granted to the officer expired without being exercised. ~~NaN~~ ~~options were exercised during the year ended December 31, 2021 or during the year ended December 31, 2020.~~

Cumulative compensation cost recognized in net income or loss with respect to options that are forfeited prior to vesting is adjusted as a reduction of compensation expense in the period of forfeiture. The volatility of the stock is based on a comparable public company's historical volatility since our stock is rarely traded. Fair value computations are highly sensitive to the volatility factor; the greater the volatility, the higher the computed fair value of options granted.

The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the use of assumptions, including the expected stock price volatility. Because our employee stock options have characteristics significantly different than those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options. A summary of our stock option activity and related information for equity compensation plans approved by security holders for each of the fiscal years ended December 31, 2021 and 2020 is as follows:

Summary of our stock option activity

STOCK OPTIONS
OUTSTANDING

Number
Outstanding

Weighted Average
Exercise Price Per Share

BALANCE AT DECEMBER 31, 2019 28,000 $ 5.95
Granted 110,500 3.80
Exercised —   —
Forfeited/expired (39,750 ) —
BALANCE AT DECEMBER 31, 2020 98,750 $ 4.09
Granted 20,500 3.80
Exercised —   —
Forfeited/expired (6,250 ) —
BALANCE AT DECEMBER 31, 2021 113,000 $ 3 .80

~~The following table summarizes information about employee stock options outstanding and exercisable at December 31, 2021:~~

Stock options outstanding and exercisable
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

3.80 113,000 3.33 $ 3.80 113,000 $ 3.80

The exercise price of all options granted through December 31, 2021 has been equal to or greater than the fair market value as of the date of grant, as determined by the Board. As of December 31, 2021, ~~30,300~~ ~~options for our common stock remain available for grant under the 2013 Plan.~~

Options to purchase 50,000 shares of stock at $8.83 apiece were granted during the year ended December 31, 2016. These options were forfeited and replaced with options to purchase 50,000 shares of stock at $6.00 apiece in 2018 in conjunction with the amendment of an employment agreement. In accordance with the terms of the grant, the number of options was reduced to 25,000 on December 31, 2019, and further reduced to 0 on December 31, 2020 as vesting of these options is subject to performance that was not achieved. The provisions of ASC 718-10-55 require the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options, based on estimated fair values. Share-based compensation cost for stock options is measured at the grant date, based on the fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM option pricing model requires the use of actual employee exercise behavior data and the application of a number of assumptions, including expected volatility, risk free interest rate and expected dividends. For the options granted in 2020, the pricing model assumptions were: risk-free interest rate .88~~%, expected life~~ 5 ~~years, expected volatility~~ 23~~%, expected dividend rate~~ 0~~%. For the options granted in 2021, the pricing model assumptions were: risk-free interest rate .~~85~~%, expected life~~ 5 ~~years, expected volatility~~ 24~~%, expected dividend rate~~ 0~~%. Applying these assumptions resulted in a fair value of $17,157~~ ~~and $92,698~~ in 2021 and 2020 respectively, all of which was charged against operations with a corresponding credit to capital. Unvested options were credited against operations, which resulted in total share-based compensation cost of $~~17,157~~ ~~and $30,351~~ ~~for the years ended December 31, 2021 and 2020 respectively.~~

~~No options were exercised during the years ended December 31, 2021 and 2020.~~

~~The total number of authorized shares of common stock continues to be~~ ~~50,000,000~~ ~~with no change in the par value per share.~~

5. ~~COMMITMENTS AND CONTINGENCIES~~

~~Mortgage Expense. We purchased our facilities in Wheat Ridge, Colorado on October 31, 2014 for $1,949,139~~ ~~and took out a term loan secured by a first mortgage on the property in the amount of $1,581,106~~ ~~with Bank of America for a portion of the purchase price. Effective June 30, 2016 the note was amended to revise the interest rate from~~ ~~4.45% to~~ ~~4.00% per annum. This loan was paid on September 30, 2021 with proceeds from a new term loan also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000~~ ~~which matures in September, 2031.~~

~~The new note is payable in 119 equal monthly installments of $7,453, including interest, plus a final payment of $786,607~~ ~~(excluding interest) on September 30, 2031. Our minimum future principal payments on this term loan, by year, are as follows:~~

Minimum future lease payments
2022 $ 50,663
2023 52,178
2024 53,738
2025 55,345
2026 57,000
2027 – 2031 1,068,642
Total 1,337,566
Less financing cost (21,501 )
Net term loan payable 1,316,065
Less current portion (48,513 )
Long term portion $ 1,267,552

~~Employee Severance Benefits~~. Our obligation with respect to employee severance benefits is minimized by the "at will" nature of the employee relationships. As of December 31, 2021 we had no obligation with respect to contingent severance benefit obligations other than the Company's obligations under the employment agreement with its chief executive officer, Dr. Wayne Willkomm. In the event that Dr. Willkomm's employment is terminated by the Company without Cause (including through a decision by the Company not to renew the employment agreement) or by Dr. Willkomm with Good Reason (as each are defined in the employment agreement), Dr. Willkomm will be eligible, upon satisfaction of certain conditions, for severance equal to two months of salary continuation plus 12 months of health insurance continuation.

~~Contractual Commitments and Purchase Orders. Contractual commitments under development agreements and outstanding purchase orders issued to vendors in the ordinary course of business totaled $811,534~~ ~~at December 31, 2021.~~

~~Regulatory Commitments~~. With respect to our LifeGuard® product, we are subject to regulation by the United States Food and Drug Administration ("FDA"). The FDA provides regulations governing the 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. On June 26, 2017, we were inspected by the FDA and no violations were issued. We are also subject to regulation by the DOT and by various state departments of transportation so far as our other products are concerned. We believe that we are in substantial compliance with all known applicable regulations.

6. ~~LINE OF CREDIT AND PAYCHECK PROTECTION LOAN~~

As part of the long-term financing of our property purchased on October 31, 2014, we obtained a one-year $250,000 revolving line of credit facility with Bank of America, which matured on October 31, 2015 and was extended to June 30, 2018. The agreement was amended to increase the amount of the line to $~~750,000~~ ~~and extend the maturity date to~~ ~~September 28, 2021. The revolving line of credit facility expired in accordance with its terms and has not been renewed. There was~~ 0 ~~balance due on the line of credit as of December 31, 2021 and December 31, 2020.~~

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (“PPP”), the initiative provides federally guaranteed loans to small businesses. A portion or all of these loans may be forgiven if borrowers comply with certain PPP guidelines including spending the funds on authorized expenses and maintaining their payrolls during the crisis or restore their payrolls afterward. On May 4, 2020, the Company received proceeds of $~~465,097~~ from Bank of America under the PPP (the “PPP Loan”). The funds were used for certain qualifying expenses as described in the CARES Act, and the loan was forgiven in its entirety in February, 2021. Proceeds of $~~471,347~~ were received from a second loan with similar terms in February, 2021 and the funds were used for certain qualifying expenses as described in the CARES Act, and the loan was forgiven in September, 2021. No interest on either loan has been recognized in our financial statements.

7. ~~INCOME TAXES~~

We account for income taxes under ASC 740, which requires the use of the liability method. ASC 740 provides that deferred taxassets 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. The CARES Act provided for carrying back our 2020 net operating loss, which resulted in previous Federal General Business Credits being eliminated, and a carryover available for 2021 of $179.426. After various adjustments, including the exclusion from taxable income of forgiveness of the Paycheck Protection loans, we reported a loss for tax purposes of $259,180 in 2021. Thus the Federal General Business Credit carryover is increased by unused 2021 credits of $71,341, making $250,767 available for 2022. ~~The net operating loss carryback has been eliminated and our 2021 loss may be carried forward indefinitely.~~

~~Our income tax (benefit) provision is summarized below:~~

Schedule of income tax provision
Years Ended
December 31,
2021

December 31,
2020
Current:
  Federal $ —   $ (213,924 )
  State —   —
  Total current —   (213,924 )
Deferred:
  Federal (47,940 ) (9,227 )
  State (8,367 ) (52,257 )
  Total deferred (56,307 ) (61,484 )
Total $ (56,307 ) $ (275,408 )

~~The items accounting for the difference between income taxes computed at the federal statutory rate and the (benefit) provision for income taxes consists of the following:~~

Schedule of income tax reconciliation
Years Ended
December 31,
2021

December 31,
2020
Federal statutory rate $ 130,129 $ (194,152 )
Effect of:
  State taxes, net of federal tax benefit (2,335 ) (52,258 )
  Research & development credit —   —
  Paycheck Protection loan forgiveness and other (184,101 ) (28,998 )
Total $ (56,307 ) $ (275,408 )

~~The components of the deferred tax asset are as follows:~~

Schedule of components of the deferred tax asset
Current Deferred Tax Assets:
December 31,
2021

December 31,
2020
  Bad debt reserve $ 1,275 $ 13,840
  Inventory reserve 39,525 41,008
  Accrued vacation 16,988 19,816
  Deferred income 19,899 11,336
  Warranty reserve 11,858 11,918
  Federal and State net operating loss carry forward 114,904 50,224
  Total $ 204,449 $ 148,142

~~Our income tax returns are no longer subject to Federal or state tax examinations by tax authorities for years before 2016.~~

8. ~~LEGAL PROCEEDINGS~~

~~We were not involved or party to any legal proceedings at December 31, 2021 or December 31, 2020, and therefore made no accruals for legal proceedings in either 2021 or 2020.~~

9. ~~MAJOR CUSTOMERS/SUPPLIERS~~

~~We depend on sales that are generated from our customers' ongoing usage of alcohol testing instruments.~~

~~One customer contributed~~ 4~~% ($300,103) to our product sales in 2021, a second customer contributed~~ 3~~% ($228,162), a third customer contributed~~ 3~~% ($204,512), and no other customer contributed more than 3%. One customer contributed~~ 6~~% ($380,990) to our total sales in 2020, a second customer contributed~~ 4~~% ($236,735), a third customer contributed~~ 4~~% ($222,656~~), and no other customer contributed more than 3%. In making this determination, we considered the federal government, state governments, local governments, and foreign governments each as a single customer.

~~In 2021, we depended upon three vendors for approximately~~ 21~~% of our purchases (three vendors and~~ 21~~% respectively in 2020).~~

~~10.~~ ~~DEFINED CONTRIBUTION EMPLOYEE BENEFIT PLAN~~

We have adopted a 401(k) Profit Sharing Plan ("401(k) 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 401(k) Plan limits. Participants are immediately vested in their contributions. We make monthly discretionary matching contributions of 3~~% of the total payroll of the participating employees. In 2021 and 2020 we contributed $8,731~~ ~~and $31,853~~ ~~respectively. The participants vest in Company contributions based on years of service, with a participant fully vested after six years of credited service.~~

~~11.~~ ~~BUSINESS SEGMENTS~~

We currently have two business segments: (i) the sale of physical products, including portable hand-held breathalyzers and related accessories, supplies, education, training ("Product Sales"), and royalties from development contracts with OEM manufacturers ("Royalties" and, together with Product Sales, the "Products" segment), and (ii) rental of a portion of our building (the "Rentals" segment). The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2.

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

~~The following sets forth information about the operations of the business segments for the years ended December 31, 2021 and 2020.~~

Operations of business segments
2021 2020
Product sales $ 6,898,955 $ 6,122,348
Royalties 67,526 148,398
Products subtotal 6,966,481 6,270,746
Rentals 87,949 85,956
Total $ 7,054,430 $ 6,356,702

Gross profit:
Product sales $ 2,952,410 $ 2,002,161
Royalties 67,526 148,398
Products subtotal 3,019,936 2,150,559
Rentals 40,160 29,987
Total $ 3,060,096 $ 2,180,546

Interest expense:
Product sales $ 33,612 $ 36,863
Royalties — —
Products subtotal 33,612 36,863
Rentals 17,660 19,266
Total $ 51,272 $ 56,129

Net income (loss) before taxes:
Product sales $ 529,634 $ (1,356,457 )
Royalties 67,526 148,398
Products subtotal 597,160 (1,208,059 )
Rentals 22,500 10,721
Total $ 619,660 $ (1,197,338 )

~~There were no intersegment revenues.~~

~~At December 31, 2021, $575,671~~ ~~of our assets were used in the Rentals segment, with the remainder, $,$8,374,160, used in the Products and unallocated segments.~~

Future rental income and related expenses will depend on whether existing leases are renewed. Minimum base rents for leases in place at December 31, 2021 are scheduled to be $54,956 in 2022 and $15,378 in 2023.

~~12.~~ ~~SUBSEQUENT EVENTS~~

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

On February 3, 2022 we granted 15,000 options to key employees, which have a term of 5 years, and which ~~are~~were immediately and fully vested. Under ASC 718, the value of each stock option was estimated on the date of grant using the Black-Scholes model for the purpose of financial information in accordance with ASC 718. The use of a Black-Scholes model requires the use of actual employee exercise behavior data and the use of a number of assumptions including expected volatility, risk-free interest rate and expected dividends. Cumulative compensation cost recognized in net income or loss with respect to options that are forfeited prior to vesting is adjusted as a reduction of compensation expense in the period of forfeiture. The volatility of the stock is based on a comparable public company's historical volatility since our stock is rarely traded. Fair value computations are highly sensitive to the volatility factor; the greater the volatility, the higher the computed fair value of options granted. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the use of assumptions, including the expected stock price volatility.

The factors used to estimate the value of the ~~revised~~ option grant ~~on February 3, 2022~~ and the resulting fair market value, ~~are~~were as follows.

~~Assumptions used for stock~~Schedule of option ~~grants~~grant and fair market value
Stock price	$$3.80
Exercise price per share	$$3.80
Original term (years)	5	5
Volatility	31.00%
Annual rate of quarterly dividends	~~NaN~~None
Risk free interest rate	1.66%
Fair market value of options	$17,202

On March 13, 2021 we granted 16,000 options to two officers and 4,500 options to other key employees, which have a term of 5 years, and which were immediately and fully vested.

The factors used to estimate the value of the option grant and the resulting fair market value, were as follows.

Stock price			$3.75
Exercise price per share			$3.80
Original term (years)			5
Volatility			24.00%
Annual rate of quarterly dividends			None
Risk free interest rate			0.85%
Fair market value of options			$17,157

The above fair market value of ~~these~~the options ~~will be~~was a charge to our statement of income, with an offsetting credit to ~~capital,~~capital.

The Black-Scholes model was developed for use in estimating the ~~quarter ending March~~fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the use of assumptions, including the expected stock price volatility. Because our employee stock options have characteristics significantly different than those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options. A summary of our stock option activity and related information for equity compensation plans approved by security holders for each of the fiscal years ended December 31, ~~2022.~~2022 and 2021 is as follows:

Summary of our stock option activity
	STOCK OPTIONS OUTSTANDING
	Number Outstanding			Weighted Average Exercise Price Per Share
BALANCE AT DECEMBER 31, 2020		98,750		$	5.95
Granted		20,500			3.80
Exercised		—			—
Forfeited/expired		(6,250	)		—
BALANCE AT DECEMBER 31, 2021		113,000		$	4.09
Granted		15,000			3.80
Exercised		—			—
Forfeited/expired		(5,000	)		—
BALANCE AT DECEMBER 31, 2022		123,000		$	3.80

~~13.~~ ~~QUARTERLY RESULTS (UNAUDITED)~~

Schedule of quarterly results
2021 Q1 Q2 Q3 Q4
Revenues $ 1,809,543 $ 1,729,636 $ 1,887,488 $ 1,627,763
Gross profit 823,877 605,418 934,051 696,750
Net income (loss)(1) 403,471 (109,712 ) 522,660 (140,452 )
Basic earnings (loss) per share 0.16 (0.04 ) 0.21 (0.05 )
Diluted earnings (loss) per share $ 0.16 $ (0.04 ) $ 0.21 $ (0.05 )

2020 Q1 Q2 Q3 Q4
Revenues $ 2,018,336 $ 1,320,038 $ 1,555,068 $ 1,463,260
Gross profit 778,076 328,069 597,104 477,297
Net income (loss) (165,306 ) (349,592 ) (212,766 ) (194,266 )
Basic earnings (loss) per share (0.07 ) (0.14 ) (0.09 ) (0.08 )
Diluted earnings (loss) per share $ (0.07 ) $ (0.14 ) $ (0.09 ) $ (0.08 )

~~(1)~~

~~Includes PPP loan forgiveness of $465,097 in Q1. Includes PPP loan forgiveness of $471,347 in Q3.~~

The following table summarizes information about employee stock options outstanding and exercisable at December 31, 2022:

Stock options outstanding and exercisable
	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
3.80	123,000	2.55	$	3.80	123,000	$	3.80

The exercise price of all options granted through December 31, 2022 has been equal to or greater than the fair market value as of the date of grant, as determined by the Board. As of December 31, 2022, 20,300 options for our common stock remain available for grant under the 2013 Plan.

The provisions of ASC 718-10-55 require the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options, based on estimated fair values. Share-based compensation cost for stock options is measured at the grant date, based on the fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM option pricing model requires the use of actual employee exercise behavior data and the application of a number of assumptions, including expected volatility, risk free interest rate and expected dividends. For the options granted in 2022, the pricing model assumptions were: risk-free interest rate 0.88%, expected life 5 years, expected volatility 23%, expected dividend rate 0%. For the options granted in 2021, the pricing model assumptions were: risk-free interest rate 0.85%, expected life 5 years, expected volatility 24%, expected dividend rate 0%. Applying these assumptions resulted in a fair value of $17,157 and $92,698 in 2022 and 2021 respectively, all of which was charged against operations with a corresponding credit to capital. Unvested options were credited against operations, which resulted in total share-based compensation cost of $17,157 and $30,351 for the years ended December 31, 2022 and 2021 respectively.

No options were exercised during the years ended December 31, 2022 and 2021.

The total number of authorized shares of common stock continues to be 50,000,000 with no change in the par value per share.

5. COMMITMENTS AND CONTINGENCIES

Mortgage Expense. We purchased our facilities in Wheat Ridge, Colorado on October 31, 2014 for $1,949,139 and took out a term loan secured by a first mortgage on the property in the amount of $1,581,106 with Bank of America for a portion of the purchase price. Effective June 30, 2016 the note was amended to revise the interest rate from 4.45% to 4.00% per annum. This loan was paid on September 30, 2021 with proceeds from a new term loan also secured by a first-priority mortgage on the property, in the principal amount of $1,350,000 which matures in September, 2031.

The new note is payable in 119 equal monthly installments of $7,453, including interest, plus a final payment of $773,727 (excluding interest) on September 30, 2031. Our minimum future principal payments on this term loan, by year, are as follows:

Schedule of Minimum future lease payments
	2023	$	52,178
	2024		53,738
	2025		55,345
	2026		57,000
	2027		58,704
	2028 – 2031		1,012,091
	Total		1,289,056
	Less financing cost		(19,351	)
	Net term loan payable		1,269,705
	Less current portion		(50,028	)
	Long term portion	$	1,219,677

Employee Severance Benefits. Our obligation with respect to employee severance benefits is minimized by the "at will" nature of the employee relationships. As of December 31, 2022 we had no obligation with respect to contingent severance benefit obligations other than the Company's obligations under the employment agreement with its chief executive officer, Dr. Wayne Willkomm. In the event that Dr. Willkomm's employment is terminated by the Company without Cause (including through a decision by the Company not to renew the employment agreement) or by Dr. Willkomm with Good Reason (as each are defined in the employment agreement), Dr. Willkomm will be eligible, upon satisfaction of certain conditions, for severance equal to two months of salary continuation plus 12 months of health insurance continuation.

Contractual Commitments and Purchase Orders. Contractual commitments under development agreements and outstanding purchase orders issued to vendors in the ordinary course of business totaled $505,514 at December 31, 2022.

Regulatory Commitments. We are subject to certain regulations of the United States Food and Drug Administration ("FDA") and to. to regulation by the United States Department of Transportation and various state departments of transportation. We believe that we are in substantial compliance with all known applicable regulations.

6. LINE OF CREDIT AND PAYCHECK PROTECTION LOAN

As part of the long-term financing of our property purchased on October 31, 2014, we obtained a one-year $250,000 revolving line of credit facility with Bank of America, which matured on October 31, 2015 and was extended to June 30, 2018. The agreement was amended to increase the amount of the line to $750,000 and extend the maturity date to September 28, 2021. The revolving line of credit facility expired in accordance with its terms and has not been renewed. There was no balance due on the line of credit as of December 31, 2022 and December 31, 2021.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (“PPP”), the initiative provides federally guaranteed loans to small businesses. A portion or all of these loans may be forgiven if borrowers comply with certain PPP guidelines including spending the funds on authorized expenses and maintaining their payrolls during the crisis or restore their payrolls afterward. On May 4, 2020, the Company received proceeds of $465,097 from Bank of America under the PPP (the “PPP Loan”). The funds were used for certain qualifying expenses as described in the CARES Act, and the loan was forgiven in its entirety in February, 2021. Proceeds of $471,347 were received from a second loan with similar terms in February, 2021 and the funds were used for certain qualifying expenses as described in the CARES Act, and the loan was forgiven in its entirety in September, 2021. No interest on either loan has been recognized in our financial statements.

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. The CARES Act provided for carrying back our 2020 net operating loss, which resulted in previous Federal General Business Credits being eliminated, and a carryover available for 2021 of $179.426. After various adjustments, including the exclusion from taxable income of forgiveness of the Paycheck Protection loans, we reported a loss for tax purposes of $259,180 in 2021. Thus the Federal General Business Credit carryover is increased by unused 2021 credits of $71,341, making $250,767 available for 2022, which is increased by $88,190, making $338,957 available for 2023. The net operating loss carryback has been eliminated and our 2022 loss may be carried forward indefinitely.

Our income tax (benefit) provision is summarized below:

Schedule of income tax provision
Years Ended		December 31, 2022				December 31, 2021
Current:
Federal	$	—			$	—
State		—				—
Total current			—				—
Deferred:
Federal			(116,994	)			(47,940	)
State			14				(8,367	)
Total deferred			(116,980	)			(56,307	)
Total		$	(116,980	)		$	(56,307	)

The State provision of $14 in 2022 results from providing an estimated reserve for unusable loss carryovers.

The items accounting for the difference between income taxes computed at the federal statutory rate and the (benefit) provision for income taxes consists of the following:

Schedule of income tax reconciliation
Years Ended	December 31, 2022			December 31, 2021
Federal statutory rate	$	(120,274	)	$	130,129
Effect of:
State taxes, net of federal tax benefit		(14	)		(2,335	)
Research & development credit		—			—
Paycheck Protection loan forgiveness and other		3,308			(184,101	)
Total (benefit) provision	$	(116,980	)	$	(56,307	)

The components of the deferred tax asset are as follows:

Schedule of components of the deferred tax asset

Current Deferred Tax Assets:	December 31, 2022		December 31, 2021
Bad debt reserve	$	1,275	$	1,275
Inventory reserve		94,135		39,525
RADAR asset amortization		77,441		—
Accrued vacation		21,028		16,988
Deferred income		22,036		19,899
Warranty reserve		11,858		11,858
Federal and State net operating loss carry forward		90,496		114,904
Total	$	318,269	$	204,449

Our income tax returns are no longer subject to Federal or state tax examinations by tax authorities for years before 2017.

8. LEGAL PROCEEDINGS

We were not involved or party to any legal proceedings at December 31, 2022 or December 31, 2021, and therefore made no accruals for legal proceedings in either 2022 or 2021.

9. MAJOR CUSTOMERS/SUPPLIERS

We depend on sales that are generated from our customers' ongoing usage of alcohol testing instruments.

One customer contributed 6% ($532,048) to our product sales in 2022, a second customer contributed 6% ($486,630), a third customer contributed 3% ($287,098), and no other customer contributed more than 3%. One customer contributed 4% ($300,103) to our total sales in 2021, a second customer contributed 3% ($228,162), a third customer contributed 3% ($204,512), and no other customer contributed more than 3%. In making this determination, we considered the federal government, state governments, local governments, and foreign governments each as a single customer.

In 2022, we depended upon three vendors for approximately 26% of our purchases (three vendors and 21% respectively in 2021).

10. DEFINED CONTRIBUTION EMPLOYEE BENEFIT PLAN

We have adopted a 401(k) Profit Sharing Plan ("401(k) 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 401(k) Plan limits. Participants are immediately vested in their contributions. We make monthly discretionary matching contributions of 3% of the total payroll of the participating employees. In 2022 and 2021 we contributed $58,044 and $8,731 respectively. The participants vest in Company contributions based on years of service, with a participant fully vested after six years of credited service.

11. BUSINESS SEGMENTS

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

The following sets forth information about the operations of the business segments for the years ended December 31, 2022 and 2021.

Schedule of Operations of business segments
	2022			2021
Product sales	$	8,350,463		$	6,898,955
Royalties		40,674			67,526
Products subtotal		8,391,137			6,966,481
Rentals		90,856			87,949
Total	$	8,481,993		$	7,054,430

Gross profit:
Product sales	$	2,997,601		$	2,952,410
Royalties		40,674			67,526
Products subtotal		3,038,275			3,019,936
Rentals		36,676			40,160
Total	$	3,074,951		$	3,060,096

Interest expense:
Product sales	$	29,509		$	33,612
Royalties		—			—
Products subtotal		29,509			33,612
Rentals		13,572			17,660
Total	$	43,081		$	51,272

Net income (loss) before taxes:
Product sales	$	(636,515	)	$	529,634
Royalties		40,674			67,526
Products subtotal		(595,841	)		597,160
Rentals		23,104			22,500
Total	$	(572,737	)	$	619,660

There were no intersegment revenues.

At December 31, 2022, $558,427 of our assets were used in the Rentals segment, with the remainder, $7,959,334, used in the Products and unallocated segments.

Future rental income and related expenses will depend on whether existing leases are renewed. Minimum base rents for leases in place at December 31, 2022 are scheduled to be $40,858 in 2023.

12. SUBSEQUENT EVENTS

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) (the "Exchange Act"). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, ~~2021.~~2022.

Internal Control over Financial Reporting

(a)

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, ~~2021~~2022 based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in 2014. Based on our evaluation under the framework in Internal Control-Integrated Framework issued by the COSO in 2014, our management concluded that our internal control over financial reporting was effective as of December 31, ~~2021.~~2022.

(b)

Attestation report of the registered public accounting firm.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC, which permit us to provide only management's report in this Annual Report.

(c)

Changes in Internal Control over Financial Reporting

As of September 24, 2020, Lifeloc’s Principal Accounting Officer and Controller, Kristie LaRose, was no longer employed with Lifeloc and Lifeloc employee Michelle Heim was promoted to fill these positions. Other than this personnel change, thereThere were no significant changes in our internal controls over financial reporting during the fiscal years ended December 31, ~~2021~~2022 and December 31, ~~2020~~2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

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

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information in response to this item is incorporated by reference from the registrant's definitive proxy statement for its 2022 Annual Meeting of Shareholders to be filed within 120 days after December 31, ~~2021.~~2022.

Item 11. Executive Compensation

Information in response to this item is incorporated by reference from the registrant's definitive proxy statement for its ~~2022~~2023 Annual Meeting of Shareholders to be filed within 120 days after December 31, ~~2021.~~2022.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The following table summarizes certain information regarding our equity compensation plan as of December 31, ~~2021:~~2022:

Plan Category
Number of securities to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders 113,000 $ 3.80 30,300
Equity compensation plans not approved by security holders — — —
Total 113,000 $ 3.80 30,300

Plan Category	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders		123,000	$	3.80		20,300
Equity compensation plans not approved by security holders		—		—		—
Total		123,000	$	3.80		20,300

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this Annual Report or incorporated by reference:

(1)

Our financial statements are provided under Item 8 of this Annual Report.

(b) The following exhibits are filed with this Annual Report or incorporated by reference, as indicated:

Exhibit No.		Description of Exhibit
3.1		Articles of Incorporation, dated as of December 29, 1983 (1)
3.2		Articles of Amendment to the Articles of Incorporation, dated as of July 10, 1986 (1)
3.3		Articles of Amendment to the Articles of Incorporation, dated as of August 18, 1986 (1)
3.4		Articles of Amendment to the Articles of Incorporation, dated as of April 18, 1988 (1)
3.5		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1991 (1)
3.6		Articles of Amendment to the Articles of Incorporation, dated as of May 10, 1993 (1)
3.7		Articles of Amendment to the Articles of Incorporation, dated as of May 11, 1992 (1)
3.8		Articles of Amendment to the Articles of Incorporation, dated as of November 17, 1997 (1)
3.9		Articles of Amendment to the Articles of Incorporation, dated as of July 15, 1998 (1)
3.10		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1994 (1)
3.11		~~Bylaws (1)~~
~~3.12~~		Amended and Restated Bylaws of Lifeloc Technologies, Inc., dated as of March 31, 2017 ~~(4)~~(2)
4.1		Form of Certificate representing Common Stock (1)
10.1		Form of Standard Distribution Agreement (1)
10.2		Loan Agreement with Citywide Banks (Term Loan), dated September 30, 2021 (3)
10.3†		2013 Stock Option Plan ~~(2)~~(4)
10.4†		Amended and Restated Employment Agreement with Dr. Wayne Willkomm, Ph.D., dated October 5, ~~2018 (7)~~2017 (5)
10.5†		First Amendment to the Amended and Restated Employment Agreement with Dr. Wayne Willkomm, Ph.D., dated January 25, 2019 (6)
31.1*		Certification of Principal Executive Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
31.2*		Certification of Principal Financial Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T.

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

(2) Incorporated by reference to our Current Report on Form 8-K filed April 4, 2017.

(3) Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2021.

(4) Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

~~(3)~~(5) Incorporated by reference to our Current Report on Form 8-K filed on ~~April 4,~~October 10, 2017.

~~(4)~~(6) Incorporated by reference to our Current Report on Form 8-K filed ~~October 10, 2017.~~on January 28, 2019.

* Filed herewith.

† Indicates a management contract or compensatory plan or arrangement.

Item 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March ~~3, 2022~~14, 2023

	LIFELOC TECHNOLOGIES, INC.

	By:	/s/ Wayne R. Willkomm
		Wayne R. Willkomm, Ph.D.
		Chief Executive Officer and President

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


/s/ Wayne R. Willkomm			March ~~3, 2022~~14, 2023
Wayne R. Willkomm, Ph.D.
Chief Executive Officer and President (Principal Executive Officer) Director

/s/ Vern D. Kornelsen			March ~~3, 2022~~14, 2023
Vern D. Kornelsen
Chief Financial Officer (Principal Financial Officer) Director

/s/ Michelle Heim			March ~~3, 2022~~14, 2023
Michelle Heim Controller (Principal Accounting Officer)

/s/ Robert Greenlee			March ~~3, 2022~~14, 2023
Robert Greenlee Director

/s/ Michael J. Kornelsen			March ~~3, 2022~~14, 2023
Michael J. Kornelsen, D.M.A. Director

/s/ Donald E. Siecke			March ~~3, 2022~~14, 2023
Donald E. Siecke Director

INDEX TO EXHIBITS

Exhibit No.		Description of Exhibit
3.1		Articles of Incorporation, dated as of December 29, 1983 (1)
3.2		Articles of Amendment to the Articles of Incorporation, dated as of July 10, 1986 (1)
3.3		Articles of Amendment to the Articles of Incorporation, dated as of August 18, 1986 (1)
3.4		Articles of Amendment to the Articles of Incorporation, dated as of April 18, 1988 (1)
3.5		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1991 (1)
3.6		Articles of Amendment to the Articles of Incorporation, dated as of May 10, 1993 (1)
3.7		Articles of Amendment to the Articles of Incorporation, dated as of May 11, 1992 (1)
3.8		Articles of Amendment to the Articles of Incorporation, dated as of November 17, 1997 (1)
3.9		Articles of Amendment to the Articles of Incorporation, dated as of July 15, 1998 (1)
3.10		Articles of Amendment to the Articles of Incorporation, dated as of April 1, 1994 (1)
3.11		~~Bylaws (1)~~
~~3.12~~		Amended and Restated Bylaws of Lifeloc Technologies, Inc., dated as of March 31, 2017 ~~(4)~~(2)
4.1		Form of Certificate representing Common Stock (1)
10.1		Form of Standard Distribution Agreement (1)
10.2		Loan Agreement with Citywide Banks (Term Loan), dated September 30, 2021 (3)
10.3†		2013 Stock Option Plan ~~(2)~~(4)
10.4†		Amended and Restated Employment Agreement with Dr. Wayne Willkomm, Ph.D., dated October 5, ~~2018 (7)~~2017 (5)
10.5†		First Amendment to the Amended and Restated Employment Agreement with Dr. Wayne Willkomm, Ph.D., dated January 25, 2019 (6)
31.1*		Certification of Principal Executive Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
31.2*		Certification of Principal Financial Officer Pursuant To Section 302 Of The Sarbanes—Oxley Act Of 2002
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T.

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

(2) Incorporated by reference to our Current Report on Form 8-K filed April 4, 2017.

(3) Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2021.

(4) Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

~~(3)~~(5) Incorporated by reference to our Current Report on Form 8-K filed on ~~April 4,~~October 10, 2017.

~~(4)~~(6) Incorporated by reference to our Current Report on Form 8-K filed ~~October 10, 2017.~~on January 28, 2019.

* Filed herewith.

† Indicates a management contract or compensatory plan or arrangement.

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

12441 W 49th Ave., Wheat Ridge, Colorado	80033
(Address of principal executive offices)	(Zip Code)

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	LCTC	None

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	1514
Item 2.	Properties	1514
Item 3.	Legal Proceedings	1514
Item 4.	Mine Safety Disclosures	1514

PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1615
Item 6.	[Reserved]	1615
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1615
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	2120
Item 8.	Financial Statements and Supplementary Data	2120
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	4238
Item 9A.	Controls and Procedures	4238
Item 9B.	Other Information	4338
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.		38
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	4339
Item 11.	Executive Compensation	4339
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	4339
Item 13.	Certain Relationships and Related Transactions, and Director Independence	4339
Item 14.	Principal Accounting Fees and Services	4339

PART IV
Item 15.	Exhibits, Financial Statements Schedules	4440
Item 16.	Form 10-K Summary	4440

▪	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;
▪	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.


	Page
Report of Independent Registered Public Accounting Firm for the Year Ended December 31, ~~2021~~2022 (PCAOB ID: ~~6778~~)6778)	2221

~~Report of Independent Registered Public Accounting Firm for the Year Ended December 31, 2020 (PCAOB ID:~~ ~~647~~)	24

Balance Sheets as of December 31, ~~2021~~2022 and ~~2020~~2021	2723

Statements of Income for the Years Ended December 31, ~~2021~~2022 and ~~2020~~2021	2824

Statements of Stockholders' Equity for the Years Ended December 31, ~~2021~~2022 and ~~2020~~2021	2925

Statements of Cash Flows for the Years Ended December 31, ~~2021~~2022 and ~~2020~~2021	3026

Notes to Financial Statements	3127