Lifeloc (LCTC) 10-Q 14 Nov 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 10, 2016
Document And Entity Information
Entity Registrant Name	Lifeloc Technologies, Inc
Entity Central Index Key	1,493,137
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,454,116
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2,016

Condensed Balance Sheets

Condensed Balance Sheets - USD ($)	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Cash	$ 3,449,969	$ 3,227,190
Accounts receivable, net	736,391	603,817
Inventories, net	956,362	801,661
Income taxes receivable	28,615	81,031
Deferred taxes	110,650	114,058
Prepaid expenses and other	82,719	23,279
Total current assets	5,364,706	4,851,036
PROPERTY AND EQUIPMENT, at cost:
Land	317,932	317,932
Building	1,921,367	1,911,695
Training courses	432,375	432,375
Production equipment and software	459,855	434,148
Office equipment and software	193,332	193,332
Sales and marketing equipment	232,468	232,468
Research and development equipment and software	78,157	78,157
Less accumulated depreciation	(1,061,075)	(876,582)
Total property and equipment, net	2,574,411	2,723,525
OTHER ASSETS:
Patents, net	90,315	102,252
Deposits and other	48,400	9,314
Deferred taxes, long term	4,567	7,282
Total other assets	143,282	118,848
Total assets	8,082,399	7,693,409
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	272,699	222,976
Term loan payable, current portion	39,930	36,147
Customer deposits	43,353	92,870
Accrued expenses	274,325	274,996
Deferred revenue, current portion	79,285	89,179
Reserve for warranty expense	39,000	33,100
Total current liabilities	748,592	749,268
TERM LOAN PAYABLE, net of current portion and debt issuance costs	1,462,353	1,493,793
DEFERRED REVENUE, net of current portion	12,017	19,163
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; 50,000,000 shares authorized, 2,454,116 shares outstanding	4,551,157	4,533,012
Retained earnings	1,308,280	898,173
Total stockholders' equity	5,859,437	5,431,185
Total liabilities and stockholders' equity	$ 8,082,399	$ 7,693,409

Condensed Balance Sheets (Paren

Condensed Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
STOCKHOLDERS' EQUITY:
Common stock, par value	$ 0	$ 0
Common stock, authorized shares	50,000,000	50,000,000
Common stock, outstanding shares	2,454,116	2,454,116

Condensed Statements of Income

Condensed Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUES:
Product sales	$ 1,960,610	$ 2,002,094	$ 6,086,605	$ 5,954,289
Royalties	48,070	130,293	373,958	331,498
Rental income	21,725	26,964	77,289	80,004
Total sales	2,030,405	2,159,351	6,537,852	6,365,791
COST OF SALES	1,039,810	1,067,254	3,214,271	3,204,947
GROSS PROFIT	990,595	1,092,097	3,323,581	3,160,844
OPERATING EXPENSES:
Research and development	208,085	236,570	740,486	794,299
Sales and marketing	380,448	291,267	1,075,191	1,119,514
General and administrative	251,234	283,261	858,980	883,427
Total	839,767	811,098	2,674,657	2,797,240
OPERATING INCOME	150,828	280,999	648,924	363,604
OTHER INCOME (EXPENSE):
Interest income	1,896	3,223	9,789	10,568
Bad debt recovery	0	3,000	4,500	9,000
Interest expense	(15,438)	(17,818)	(50,404)	(53,457)
Total	(13,542)	(11,595)	(36,115)	(33,889)
NET INCOME BEFORE PROVISION FOR TAXES	137,286	269,404	612,809	329,715
PROVISION FOR FEDERAL AND STATE INCOME TAXES	(46,501)	(80,252)	(202,702)	(103,073)
NET INCOME	$ 90,785	$ 189,152	$ 410,107	$ 226,642
NET INCOME PER SHARE, BASIC	$ 0.04	$ 0.08	$ 0.17	$ 0.09
NET INCOME PER SHARE, DILUTED	$ 0.04	$ 0.07	$ 0.16	$ 0.09
WEIGHTED AVERAGE SHARES, BASIC	2,454,116	2,454,116	2,454,116	2,453,015
WEIGHTED AVERAGE SHARES, DILUTED	2,527,150	2,523,145	2,532,301	2,524,616

Condensed Statements of Cash Fl

Condensed Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 410,107	$ 226,642
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization	205,789	204,855
Share-based compensation expense	18,145	0
Provision for bad debt	5,500	0
Deferred taxes	0	509
Reserve for warranty expense	5,900	3,000
Changes in operating assets and liabilities-
Accounts receivable	(138,074)	91,123
Inventories	(154,701)	(152,895)
Income taxes receivable	52,416	55,661
Prepaid expenses and other	(59,440)	(1,233)
Deposits and other	(39,086)	(170,585)
Accounts payable	49,723	(177,423)
Customer deposits	(49,517)	99,330
Accrued expenses	(671)	(15,342)
Deferred revenue	(17,040)	2,381
Net cash provided from operating activities	289,051	166,023
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(35,379)	(136,722)
Patent filing expense	(8,954)	(24,504)
Net cash (used in) investing activities	(44,333)	(161,226)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments made on first mortgage	(28,062)	(26,250)
Sale of common stock	0	15,544
Net cash (used in) provided from financing activities	(28,062)	(10,706)
NET INCREASE (DECREASE) IN CASH	216,656	(5,909)
CASH, BEGINNING OF PERIOD	3,227,190	2,749,254
CASH, END OF PERIOD	3,449,969	2,743,345
Supplemental cash flow disclosure:
Cash paid for interest	49,997	52,960
Cash paid for income tax	$ 131,434	$ 46,904

1. ORGANIZATION AND NATURE OF B

1. ORGANIZATION AND NATURE OF BUSINESS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 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. We define our business as providing "near and remote sensing" products and solutions. Today, the majority of our revenues are derived from products and services for alcohol detection and measurement. We remain committed to growing our breath alcohol testing business. In the future, we anticipate the commercialization of new sensing and measurement products that may allow Lifeloc to successfully expand our business into new growth areas where we do not presently compete or where no satisfactory product solutions exist today. Lifeloc incorporated in Colorado in December 1983. We filed a registration statement on Form 10 with the Securities and Exchange Commission, which became effective on May 31, 2011. Our fiscal year end is December 31. Our principal executive offices are located at 12441 West 49th Avenue, Unit 4, Wheat Ridge, Colorado 80033-3338. Our telephone number is (303) 431-9500. Our websites are www.lifeloc.com, www.lifeguardbreathtester.com, and www.stsfirst.com. Information contained on our websites does not constitute part of this Form 10-Q.

2. SUMMARY OF SIGNIFICANT ACCOU

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	Use of Estimates in the Preparation of Financial Statements. Debt Issuance Costs Simplifying the Presentation of Debt Issuance Costs Fair Value Measurement Fair Value Measurements and Disclosures Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equity securities listed on the New York Stock Exchange. Level 2 - Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs. Level 3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights. Inventories. 2016 2015 Raw materials & deposits $ 533,684 $ 404,104 Work-in-process 91,019 76,903 Finished goods 424,159 408,154 Total gross inventories 1,048,862 889,161 Less reserve for obsolescence (92,500 ) (87,500 ) Total net inventories $ 956,362 $ 801,661 Income Taxes. Accounting for Income Taxes The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Revenue Recognition. Supplies are recognized as sales when they are shipped. Training revenues are recognized at the time the training occurs. We have discontinued arranging for customer financing and leasing through unrelated third parties and instead are providing for customer financing and leasing ourselves which we recognize as revenue over the applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract. Revenues from these activities are included in product revenue in our statements of income. Rental equipment is included in Inventories in our balance sheets and total $16,659 and $16,793 at September 30, 2016 and December 31, 2015 respectively. Royalty income is recognized in accordance with agreed upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured. The sales of licenses to our training courses are recognized as revenue at the time of sale. Rental income from space leased to our tenants is recognized in the month in which it is due, which approximates if it were recognized on a straight-line basis over the term of the related lease. On occasion we receive customer deposits for future product orders. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer. Deferred Revenue. Recent Accounting Pronouncements The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) Stock-Based Compensation Compensation – Stock Compensation 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 use 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 the nine months ended September 30, 2016 and 2015 was $18,145 and $0 respectively, which consisted of stock-based compensation expense related to grants of employee stock options. Stock-based compensation expense recognized under ASC 718 for the three months ended September 30, 2016 and 2015 was $6,163 and $0 respectively. Segment Reporting.

3. BASIC AND DILUTED INCOME PER

3. BASIC AND DILUTED INCOME PER COMMON SHARE	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 3 - BASIC AND DILUTED INCOME PER COMMON SHARE	We report both basic and diluted net income per common share. Basic net income per common share is computed by dividing net income for the period by the weighted average number of common shares outstanding for the period. Diluted net income per common share is computed by dividing the net income 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: Three Months Ended September 30, 2016 September 30, 2015 Net income $ 90,785 $ 189,152 Weighted average shares-basic 2,454,116 2,454,116 Effect of dilutive potential common shares 73,034 69,029 Weighted average shares-diluted 2,527,150 2,523,145 Net income per share-basic $ .04 $ .08 Net income per share-diluted $ .04 $ .07 Antidilutive employee stock options - - Nine Months Ended September 30, 2016 September 30, 2015 Net income $ 410,107 $ 226,642 Weighted average shares-basic 2,454,116 2,453,015 Effect of dilutive potential common shares 78,185 71,601 Weighted average shares-diluted 2,532,301 2,524,616 Net income per share-basic $ .17 $ .09 Net income per share-diluted $ .16 $ .09 Antidilutive employee stock options - -

4. STOCKHOLDERS' EQUITY

4. STOCKHOLDERS' EQUITY	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 4 - STOCKHOLDERS' EQUITY	The following table summarizes information about employee stock options outstanding and exercisable at September 30, 2016: STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE Range of Exercise Prices Number Outstanding Weighted-Average Remaining Contractual Life (in Years) Weighted-Average Exercise Price per Share Number Exercisable Weighted-Average Exercise Price per Share $2.32 - $8.83 105,500 2.76 $5.67 55,500 $2.81 Of the 55,500 options exercisable as of September 30, 2016, all are incentive stock options. The exercise price of all options granted through September 30, 2016 has been equal to or greater than the fair market value of the Company's common stock at the time the options were issued. Options to purchase 50,000 shares of stock at $8.83 apiece were granted during the three months ended March 31, 2016. Vesting of these options is subject to performance achieved during the years ending December 31, 2018, 2019 and 2020. No options were granted during the three months ended September 30, 2016. 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. Share-based compensation cost for the three months ended September 30, 2016 was $6,163 and $0 for the same period in 2015. Share-based compensation cost for the nine months ended September 30, 2016 was $18,145 and $0 for the same period in 2015. No options were exercised during the nine months ended September 30, 2016. Holders of 6,700 options entitling them to purchase shares of stock at $2.32 apiece exercised their options during the nine months ended September 30, 2015. 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 CONTINGENCIE

5. COMMITMENTS AND CONTINGENCIES	9 Months Ended
	Sep. 30, 2016
Commitments and Contingencies Disclosure [Abstract]
NOTE 5. COMMITMENTS AND CONTINGENCIES	In July we signed an agreement effective June 30, 2016 to amend the terms of our term loan with Bank of America which changed the interest rate from 4.45% per annum to 4.00% per annum. The resulting monthly installment payments, commencing in July, are lowered from $8,801 to $8,417. No other significant terms of the agreement were amended. Mortgage Expense Year Amount 2016 $ 9,829 2017 40,847 2018 42,534 2019 44,292 2020 45,964 2021 – 2024 1,328,625 Total 1,512,091 Less financing cost (9,808 ) Net term loan payable 1,502,283 Less current portion (39,930 ) Long term portion $ 1,462,353 Employee Severance Benefits Contractual Commitments and Purchase Orders Regulatory Commitments

6. LINE OF CREDIT

6. LINE OF CREDIT	9 Months Ended
	Sep. 30, 2016
Debt Disclosure [Abstract]
NOTE 6 - LINE OF CREDIT	As part of the long-term financing of our property purchased on October 31, 2014, we obtained a one-year $250,000 revolving line of credit facility with Bank of America, which matured on October 31, 2015 and was extended to October 31, 2016, and bears interest at a rate equal to the LIBOR daily floating rate of .41989% and .13350% on September 30, 2016 and 2015, respectively, plus 2.5%. The agreement was amended September 20, 2016 to increase the amount of the line to $500,000 and the maturity date to June 30, 2017. The revolving line of credit facility is secured by all personal property and assets, whether now owned or hereafter acquired, wherever located. There was no balance due on the line of credit as of September 30, 2016 and December 31, 2015.

7. INCOME TAXES

7. INCOME TAXES	9 Months Ended
	Sep. 30, 2016
Income Tax Disclosure [Abstract]
NOTE 7. INCOME TAXES	The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consist of the following: Nine Months Ended September 30, 2016 2015 Federal statutory rate $ 213,110 $ 112,104 Effect of: State taxes, net of federal benefit 14,599 14,564 Research and development credits (13,155 ) (16,486 ) Domestic Production Activities Deduction (61,281 ) (32,972 ) Other 49,429 25,863 Total $ 202,702 $ 103,073

8. BUSINESS SEGMENTS

8. BUSINESS SEGMENTS	9 Months Ended
	Sep. 30, 2016
Segment Reporting [Abstract]
NOTE 8. 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. Operating profits for these segments excludes unallocated corporate items. Administrative and staff costs were commonly used by all business segments and were indistinguishable. The following sets forth information about the operations of the business segments for the three months ended September 30, 2016 and 2015: Revenue: 2016 2015 Product Sales $ 1,960,610 $ 2,002,094 Royalties 48,070 130,293 Products Subtotal 2,008,680 2,132,387 Rentals 21,725 26,964 Total $ 2,030,405 $ 2,159,351 Gross profit: Product Sales $ 935,761 $ 959,070 Royalties 48,070 130,293 Products Subtotal 983,831 1,089,363 Rentals 6,764 2,734 Total $ 990,595 $ 1,092,097 Interest expense: Product Sales $ 10,227 $ 9,330 Royalties - - Products Subtotal 10,227 9,330 Rentals 5,211 8,488 Total $ 15,438 $ 17,818 Net income before provision for taxes: Product Sales $ 87,663 $ 144,865 Royalties 48,070 130,293 Products Subtotal 135,733 275,158 Rentals 1,553 (5,754 ) Total $ 137,286 $ 269,404 The following sets forth information about the operations of the business segments for the nine months ended September 30, 2016 and 2015: Revenue: 2016 2015 Product Sales $ 6,086,605 $ 5,954,289 Royalties 373,958 331,498 Products Subtotal 6,460,563 6,285,787 Rentals 77,289 80,004 Total $ 6,537,852 $ 6,365,791 Gross profit: Product Sales $ 2,924,295 $ 2,823,604 Royalties 373,958 331,498 Products Subtotal 3,298,253 3,155,102 Rentals 25,328 5,742 Total $ 3,323,581 $ 3,160,844 Interest expense: Product Sales $ 28,421 $ 27,798 Royalties - - Products Subtotal 28,421 27,798 Rentals 21,983 25,659 Total $ 50,404 $ 53,457 Net income before taxes: Product Sales $ 235,506 $ 18,134 Royalties 373,958 331,498 Products Subtotal 609,464 349,632 Rentals 3,345 (19,917 ) Total $ 612,809 $ 329,715 There were no intersegment revenues. As of September 30, 2016, $660,172 of our assets were used in the Rentals segment, with the remainder, $7,422,227, used in the Products and unallocated segments.

9. SUBSEQUENT EVENTS

9. SUBSEQUENT EVENTS	9 Months Ended
	Sep. 30, 2016
Notes to Financial Statements
NOTE 9 - 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.

2. SUMMARY OF SIGNIFICANT ACC15

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	9 Months Ended
	Sep. 30, 2016
Summary Of Significant Accounting Policies Policies
Use of Estimates in the Preparation of Financial Statements	Use of Estimates in the Preparation of Financial Statements.
Debt Issuance Costs	Debt Issuance Costs Simplifying the Presentation of Debt Issuance Costs
Fair Value Measurement	Fair Value Measurement Fair Value Measurements and Disclosures Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equity securities listed on the New York Stock Exchange. Level 2 - Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs. Level 3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
Inventories	Inventories. 2016 2015 Raw materials & deposits $ 533,684 $ 404,104 Work-in-process 91,019 76,903 Finished goods 424,159 408,154 Total gross inventories 1,048,862 889,161 Less reserve for obsolescence (92,500 ) (87,500 ) Total net inventories $ 956,362 $ 801,661
Income Taxes	Income Taxes. Accounting for Income Taxes The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Revenue Recognition	Revenue Recognition. Supplies are recognized as sales when they are shipped. Training revenues are recognized at the time the training occurs. We have discontinued arranging for customer financing and leasing through unrelated third parties and instead are providing for customer financing and leasing ourselves which we recognize as revenue over the applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as they are earned over the life of the contract. Revenues from these activities are included in product revenue in our statements of income. Rental equipment is included in Inventories in our balance sheets and total $16,659 and $16,793 at September 30, 2016 and December 31, 2015 respectively. Royalty income is recognized in accordance with agreed upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured. The sales of licenses to our training courses are recognized as revenue at the time of sale. Rental income from space leased to our tenants is recognized in the month in which it is due, which approximates if it were recognized on a straight-line basis over the term of the related lease. On occasion we receive customer deposits for future product orders. Customer deposits are initially recorded as a liability and recognized as revenue when the product is shipped and title has passed to the customer.
Deferred Revenue	Deferred Revenue.
Recent Accounting Pronouncements	Recent Accounting Pronouncements The FASB issued ASU No. 2014-09, Revenue from Contracts with Customers In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)
Stock-Based Compensation	Stock-Based Compensation Compensation – Stock Compensation 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 use 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 the nine months ended September 30, 2016 and 2015 was $18,145 and $0 respectively, which consisted of stock-based compensation expense related to grants of employee stock options. Stock-based compensation expense recognized under ASC 718 for the three months ended September 30, 2016 and 2015 was $6,163 and $0 respectively.
Segment Reporting	Segment Reporting.

2. SUMMARY OF SIGNIFICANT ACC16

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)	9 Months Ended
	Sep. 30, 2016
Summary Of Significant Accounting Policies Tables
Inventories	2016 2015 Raw materials & deposits $ 533,684 $ 404,104 Work-in-process 91,019 76,903 Finished goods 424,159 408,154 Total gross inventories 1,048,862 889,161 Less reserve for obsolescence (92,500 ) (87,500 ) Total net inventories $ 956,362 $ 801,661

3. BASIC AND DILUTED INCOME P17

3. BASIC AND DILUTED INCOME PER COMMON SHARE (Tables)	9 Months Ended
	Sep. 30, 2016
Basic And Diluted Income Per Common Share Tables
Basic and diluted net income per share	Three Months Ended September 30, 2016 September 30, 2015 Net income $ 90,785 $ 189,152 Weighted average shares-basic 2,454,116 2,454,116 Effect of dilutive potential common shares 73,034 69,029 Weighted average shares-diluted 2,527,150 2,523,145 Net income per share-basic $ .04 $ .08 Net income per share-diluted $ .04 $ .07 Antidilutive employee stock options - - Nine Months Ended September 30, 2016 September 30, 2015 Net income $ 410,107 $ 226,642 Weighted average shares-basic 2,454,116 2,453,015 Effect of dilutive potential common shares 78,185 71,601 Weighted average shares-diluted 2,532,301 2,524,616 Net income per share-basic $ .17 $ .09 Net income per share-diluted $ .16 $ .09 Antidilutive employee stock options - -

4. STOCKHOLDERS' EQUITY (Tables

4. STOCKHOLDERS' EQUITY (Tables)	9 Months Ended
	Sep. 30, 2016
Stockholders Equity Tables
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 $2.32 - $8.83 105,500 2.76 $5.67 55,500 $2.81

5. COMMITMENTS AND CONTINGENC19

5. COMMITMENTS AND CONTINGENCIES (Tables)	9 Months Ended
	Sep. 30, 2016
Commitments And Contingencies Tables
Minimum future lease payments	Year Amount 2016 $ 9,829 2017 40,847 2018 42,534 2019 44,292 2020 45,964 2021 – 2024 1,328,625 Total 1,512,091 Less financing cost (9,808 ) Net term loan payable 1,502,283 Less current portion (39,930 ) Long term portion $ 1,462,353

7. INCOME TAXES (Tables)

7. INCOME TAXES (Tables)	9 Months Ended
	Sep. 30, 2016
Income Taxes Tables
Schedule of income tax reconciliation	Nine Months Ended September 30, 2016 2015 Federal statutory rate $ 213,110 $ 112,104 Effect of: State taxes, net of federal benefit 14,599 14,564 Research and development credits (13,155 ) (16,486 ) Domestic Production Activities Deduction (61,281 ) (32,972 ) Other 49,429 25,863 Total $ 202,702 $ 103,073

8. BUSINESS SEGMENTS (Tables)

8. BUSINESS SEGMENTS (Tables)	9 Months Ended
	Sep. 30, 2016
Segment Reporting [Abstract]
Schedule of Segment Reporting	The following sets forth information about the operations of the business segments for the three months ended September 30, 2016 and 2015: Revenue: 2016 2015 Product Sales $ 1,960,610 $ 2,002,094 Royalties 48,070 130,293 Products Subtotal 2,008,680 2,132,387 Rentals 21,725 26,964 Total $ 2,030,405 $ 2,159,351 Gross profit: Product Sales $ 935,761 $ 959,070 Royalties 48,070 130,293 Products Subtotal 983,831 1,089,363 Rentals 6,764 2,734 Total $ 990,595 $ 1,092,097 Interest expense: Product Sales $ 10,227 $ 9,330 Royalties - - Products Subtotal 10,227 9,330 Rentals 5,211 8,488 Total $ 15,438 $ 17,818 Net income before provision for taxes: Product Sales $ 87,663 $ 144,865 Royalties 48,070 130,293 Products Subtotal 135,733 275,158 Rentals 1,553 (5,754 ) Total $ 137,286 $ 269,404 The following sets forth information about the operations of the business segments for the nine months ended September 30, 2016 and 2015: Revenue: 2016 2015 Product Sales $ 6,086,605 $ 5,954,289 Royalties 373,958 331,498 Products Subtotal 6,460,563 6,285,787 Rentals 77,289 80,004 Total $ 6,537,852 $ 6,365,791 Gross profit: Product Sales $ 2,924,295 $ 2,823,604 Royalties 373,958 331,498 Products Subtotal 3,298,253 3,155,102 Rentals 25,328 5,742 Total $ 3,323,581 $ 3,160,844 Interest expense: Product Sales $ 28,421 $ 27,798 Royalties - - Products Subtotal 28,421 27,798 Rentals 21,983 25,659 Total $ 50,404 $ 53,457 Net income before taxes: Product Sales $ 235,506 $ 18,134 Royalties 373,958 331,498 Products Subtotal 609,464 349,632 Rentals 3,345 (19,917 ) Total $ 612,809 $ 329,715

2. SUMMARY OF SIGNIFICANT ACC22

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Inventories
Raw materials & deposits	$ 533,684	$ 404,104
Work-in-process	91,019	76,903
Finished goods	424,159	408,154
Total gross inventories	1,048,862	889,161
Less reserve for obsolescence	(92,500)	(87,500)
Total net inventories	$ 956,362	$ 801,661

3. BASIC AND DILUTED INCOME P23

3. BASIC AND DILUTED INCOME PER COMMON SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
INCOME PER COMMON SHARE
Net income	$ 90,785	$ 189,152	$ 410,107	$ 226,642
Weighted-average shares - basic	2,454,116	2,454,116	2,454,116	2,453,015
Effect of dilutive potential common shares	73,034	69,029	78,185	71,601
Weighted-average shares - diluted	2,527,150	2,523,145	2,532,301	2,524,616
Net income (loss) per share - basic	$ 0.04	$ 0.08	$ 0.17	$ 0.09
Net income (loss) per share - diluted	$ 0.04	$ 0.07	$ 0.16	$ 0.09
Antidilutive employee stock options	0	0	0	0

4. STOCKHOLDERS' EQUITY (Detail

4. STOCKHOLDERS' EQUITY (Details)	9 Months Ended
	Sep. 30, 2016$ / sharesshares
Stockholders Equity Details
Range of Exercise Prices, min	$ 2.32
Range of Exercise Prices, max	$ 8.83
Option Outstanding | shares	105,500
Weighted Average Remaining Contractual Life (in Years)	2 years 9 months 4 days
Weighted Average Exercise Price per Share	$ 5.67
Number Exercisable | shares	55,500
Weighted Average Exercise Price per Share	$ 2.81

4. STOCKHOLDERS' EQUITY (Deta25

4. STOCKHOLDERS' EQUITY (Details Narrative) - shares	Sep. 30, 2016	Dec. 31, 2015
Stockholders Equity Details Narrative
Common Stock Authorized	50,000,000	50,000,000

5. COMMITMENTS AND CONTINGENC26

5. COMMITMENTS AND CONTINGENCIES (Details)	Sep. 30, 2016USD ($)
Commitments And Contingencies Tables
2,016	$ 9,829
2,017	40,847
2,018	42,534
2,019	44,292
2,020	45,964
2021 - 2024	1,328,625
Total	1,512,091
Less financing cost	(9,808)
Net mortgage payable	1,502,283
Less current portion	(39,930)
Long term portion	$ 1,462,353

7. INCOME TAXES (Details)

7. INCOME TAXES (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Federal statutory rate			$ 213,110	$ 112,104
State taxes, net of federal tax benefit			14,599	14,564
Research and development credits			(13,155)	(16,486)
Domestic Production Activities Deduction			(61,281)	(32,972)
Other			49,429	25,863
Total	$ 46,501	$ 80,252	$ 202,702	$ 103,073

8. BUSINESS SEGMENTS (Details)

8. BUSINESS SEGMENTS (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenue	$ 2,030,405	$ 2,159,351	$ 6,537,852	$ 6,365,791
Gross profit	990,595	1,092,097	3,323,581	3,160,844
Interest expense	15,438	17,818	50,404	53,457
Net income	137,286	269,404	612,809	329,715
Products
Revenue	1,960,610	2,002,094	6,086,605	5,954,289
Gross profit	935,761	959,070	2,924,295	2,823,604
Interest expense	10,227	9,330	28,421	27,798
Net income	87,663	144,865	235,506	18,134
Royalties
Revenue	48,070	130,293	373,958	331,498
Gross profit	48,070	130,293	373,958	331,498
Interest expense	0	0	0	0
Net income	48,070	130,293	373,958	331,498
Subtotal
Revenue	2,008,680	2,132,387	6,460,563	6,285,787
Gross profit	983,831	1,089,363	3,298,253	3,155,102
Interest expense	10,227	9,330	28,421	27,798
Net income	135,733	275,158	609,464	349,632
Rentals
Revenue	21,725	26,964	77,289	80,004
Gross profit	6,764	2,734	25,328	5,742
Interest expense	5,211	8,488	21,983	25,659
Net income	$ 1,553	$ (5,754)	$ 3,345	$ (19,917)