SCI Engineered Materials, Inc. Files 10-Q for Period Ending March 31, 2024

TL;DR

<b>SCI Engineered Materials, Inc. filed its quarterly report (10-Q) for the period ending March 31, 2024.</b>

AI Summary

SCI Engineered Materials, Inc. (SCIA) filed a Quarterly Report (10-Q) with the SEC on May 3, 2024. SCI Engineered Materials, Inc. reported financial results for the quarter ended March 31, 2024. The filing is a 10-Q, indicating a quarterly report. The company's fiscal year ends on December 31st. The filing was submitted on May 3, 2024. SCI Engineered Materials, Inc. is in the Electrical Industrial Apparatus sector.

Why It Matters

For investors and stakeholders tracking SCI Engineered Materials, Inc., this filing contains several important signals. This 10-Q filing provides investors with an update on the company's financial performance and position during the first quarter of 2024. Understanding the details within this report is crucial for assessing the company's operational health, profitability, and any potential risks or opportunities.

Risk Assessment

Risk Level: medium — SCI Engineered Materials, Inc. shows moderate risk based on this filing. The company's financial performance and operational status are detailed in this 10-Q, which requires careful review to assess its current health and future prospects.

Analyst Insight

Review the detailed financial statements and management's discussion and analysis in this 10-Q to understand SCI Engineered Materials, Inc.'s performance and outlook.

Financial Highlights

revenue

4530207

revenue Growth

-0.17%

Key Numbers

• 4530207 — Total Revenue (Q1 2024) (Implied from filing values)
• 4538916 — Total Revenue (Q1 2023) (Implied from filing values)

Key Players & Entities

• SCI Engineered Materials, Inc. (company) — Filer name
• 2024-03-31 (date) — Conformed period of report
• 2024-05-03 (date) — Filed as of date
• 0000830616 (company) — Central Index Key
• 3620 (industry) — Standard Industrial Classification
• 2839 CHARTER STREET (address) — Business address street 1
• COLUMBUS (location) — Business address city
• OH (location) — Business address state

FAQ

Industry Context

SCI Engineered Materials, Inc. operates in the Electrical Industrial Apparatus sector, manufacturing advanced materials.

Regulatory Implications

This filing is made under the Securities Exchange Act of 1934, requiring public companies to submit regular financial reports.

What Investors Should Do

1. Analyze the revenue figures for Q1 2024 compared to Q1 2023.
2. Examine any disclosed net income, EPS, or margin data if available in the full filing.
3. Review the company's balance sheet and cash flow statement for the period.

Key Dates

• 2024-03-31: Quarter End — End of the reporting period for the 10-Q
• 2024-05-03: Filing Date — Date the 10-Q was officially submitted to the SEC

Year-Over-Year Comparison

Revenue for Q1 2024 was $4,530,207, a slight decrease from $4,538,916 in Q1 2023.

Filing Documents

• scia-20240331x10q.htm (10-Q) — 790KB
• scia-20240331xex31d1.htm (EX-31.1) — 13KB
• scia-20240331xex31d2.htm (EX-31.2) — 13KB
• scia-20240331xex32d1.htm (EX-32.1) — 7KB
• scia-20240331xex32d2.htm (EX-32.2) — 7KB
• scia-20240331xex99d1.htm (EX-99.1) — 165KB
• scia-20240331xex99d1001.jpg (GRAPHIC) — 5KB
• 0001558370-24-006595.txt (&nbsp;) — 4166KB
• scia-20240331.xsd (EX-101.SCH) — 29KB
• scia-20240331_cal.xml (EX-101.CAL) — 55KB
• scia-20240331_def.xml (EX-101.DEF) — 88KB
• scia-20240331_lab.xml (EX-101.LAB) — 282KB
• scia-20240331_pre.xml (EX-101.PRE) — 201KB
• scia-20240331x10q_htm.xml (XML) — 550KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 3 5 6 7

Notes to Financial Statements (unaudited)

Notes to Financial Statements (unaudited) 8 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk N/A Item 4.

Controls and Procedures

Controls and Procedures 19

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings N/A Item 1A.

Risk Factors

Risk Factors N/A Item 2. Unregistered Sales of Equity Securities and Use of Proceeds N/A Item 3. Defaults Upon Senior Securities N/A Item 4. Mine Safety Disclosures N/A Item 5. Other Information N/A Item 6. Exhibits 20

Signatures

Signatures 21 2 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS SCI ENGINEERED MATERIALS, INC. BALANCE SHEETS ASSETS March 31, December 31, 2024 2023 (UNAUDITED) Current Assets Cash and cash equivalents $ 5,465,327 $ 5,673,994 Investments - marketable securities, short term 500,000 1,000,000 Accounts receivable Trade, less allowance for doubtful accounts of $ 15,000 1,067,636 854,501 Tax - Employee Retention Credit 40,539 40,539 Other 27,372 15,607 Inventories, net 3,685,041 4,654,398 Prepaid purchase orders 17,834 1,123,980 Prepaid expenses 151,455 214,458 Total current assets 10,955,204 13,577,477 Property and Equipment, at cost Machinery and equipment 8,756,930 8,677,446 Furniture and fixtures 140,576 129,476 Leasehold improvements 744,297 744,297 Construction in progress 101,039 52,097 9,742,842 9,603,316 Less accumulated depreciation and amortization ( 7,446,121 ) ( 7,359,310 ) Property and equipment, net 2,296,721 2,244,006 Other Assets Investments, net - marketable securities, long term 1,508,478 994,478 Right of use asset, net 567,329 592,170 Other assets 77,056 78,289 Total other assets 2,152,863 1,664,937 TOTAL ASSETS $ 15,404,788 $ 17,486,420 The accompanying notes are an integral part of these financial statements. 3 Table of Contents SCI ENGINEERED MATERIALS, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31, 2024 2023 (UNAUDITED) Current Liabilities Finance lease obligations, current portion $ 28,710 $ 49,149 Operating lease obligations, current portion 104,690 111,193 Accounts payable 351,945 385,489 Customer deposits 2,428,497 4,871,035 Accrued compensation 168,181 406,971 Accrued expenses and other 136,323 120,624 Total current liabilities 3,218,346 5,944,461 Deferred tax liability 146,391 69,846 Operating lease obligations, net of current portion 470,714 492,080

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 1. Business Organization and Purpose SCI Engineered Materials, Inc. ("SCI," "we" or the "Company"), an Ohio corporation, was incorporated in 1987. The Company operates in one segment as a global supplier and manufacturer of advanced materials for Physical Vapor Deposition ("PVD") thin film applications. The Company is focused on markets within the photonics industry including Aerospace, Automotive, Defense, Glass, Optical Coatings and Solar, and substantially all revenues are generated from customers with multi-national operations. The Company develops innovative customized solutions enabling commercial success through collaboration with end users and Original Equipment Manufacturers. Note 2. Summary of Significant Accounting Policies Basis of Presentation - The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations for the periods presented have been included. The financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2023. Interim results are not necessarily indicative of results for the full year. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ f

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 2. Summary of Significant Accounting Policies (continued) Employee Retention Credit (ERC) - The Company qualified for federal government assistance through Employee Retention Credit provisions of the Consolidated Appropriations Act of 2021 during 2021 and 2020. The purpose of the Employee Retention Credit was to encourage employers to keep employees on the payroll, even if they were not working during the covered period because of the coronavirus outbreak. These funds were recorded in the Statements of Income as an offset to payroll costs in their respective expense lines and as a tax receivable on the balance sheets. A balance of $ 40,539 appears as a tax receivable on the balance sheets at March 31, 2024 and December 31, 2023. The Company expects to receive the full ERC balance. Note 3. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13 "Credit Losses – Measurement of Credit Losses on Financial Instruments." ASU No. 2016-13 significantly changes how entities measure credit losses for most financial assets, including accounts receivable and held-to-maturity marketable securities, by replacing today's "incurred loss" approach with an "expected loss" model under which allowances will be recognized based on expected rather than incurred losses. ASU No. 2016-13 became effective for us in the first quarter of 2023. The adoption of ASU No. 2016-13 resulted in a cumulative effect of $ 5,000 and was reflected in the accompanying Statement of Shareholders' Equity in the first quarter of 2023. 9 Table of Contents SCI ENGINEERED MATERIALS, INC

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 4. Investments Money market funds – where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. The Company invested in a money market fund which had a fair value of $ 3,075,132 and $ 3,035,547 at March 31, 2024 and December 31, 2023, respectively. This is valued at original cost plus interest and is included in Cash and cash equivalents on the balance sheet. As of March 31, 2024 and December 31, 2023, the Company held investments in corporate bonds rated A- or higher, and U.S. government securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The bonds and government securities are considered held-to-maturity and are recorded at amortized cost on the balance sheet. These investments are considered level 2 as detailed in the table below. The Company considers investments which will mature in the next twelve months and interest receivable on the long-term bonds as current assets. The remaining investments are considered non-current assets including the investment in marketable securities which the Company intends to hold longer than twelve months. The fair value of these investments was estimated using recently executed transactions and market price quotations. At March 31, 2024, the length of time until maturity of the bonds currently owned ranged from 2 to 32 months . The amortized cost, allowance for credit losses, fair value, and the related unrecognized gains and losses of these investments, were as follows: Gross Gross Amortized Unrealized Unrealized Cost Losses Gains Fair Value March 31, 2024 Corporate bonds $ 1,500,000 $ ( 1,751 ) $ — $ 1,498,249 U.S. government treasuries 509,478 ( 2,052 ) — 507,426 Total investments $ 2,009,478 $ ( 3,803 ) $ — $ 2,005,675 Allowance for credit losses ( 1,000 ) Total investments, net $ 2,008,478 December 31,

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 5. Common Stock and Stock Options (continued) The cumulative status of options granted and outstanding at March 31, 2024, and December 31, 2023, as well as any options which became exercisable in connection with the Company's stock option plans is summarized as follows: Employee Stock Options Weighted Average Stock Exercise Options Price Outstanding at January 1, 2023 41,304 $ 1.05 Outstanding at December 31, 2023 41,304 $ 1.05 Outstanding at March 31, 2024 41,304 $ 1.05 Options exercisable at December 31, 2023 41,304 $ 1.05 Options exercisable at March 31, 2024 41,304 $ 1.05 Exercise prices for options ranged from $ 0.84 to $ 1.25 at March 31, 2024. The weighted average option price for all options outstanding at March 31, 2024, was $ 1.05 with a weighted average remaining contractual life of 2.4 years. Note 6. Inventories Inventories consisted of the following: March 31, December 31, 2024 2023 Raw materials $ 2,618,331 $ 3,222,642 Work-in-process 828,402 1,240,067 Finished goods 246,330 199,201 3,693,063 4,661,910 Inventory reserve ( 8,022 ) ( 7,512 ) $ 3,685,041 $ 4,654,398 Note 7. Earnings Per Share Basic income per share is calculated as net income divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as diluted net income divided by the diluted weighted average number of common shares. Diluted weighted average number of common shares gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted earnings per share exclude all diluted potential shares if their effect is anti-dilutive. All common stock options listed in Note 5 that were out-of-the-money or anti-dilutive were excluded from diluted earnings per share. The following is provided to reconcile th

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 8. Line of Credit The Company renewed its line of credit with Fifth Third Bank for $ 1 million during 2023 that has a maturity date of August 29, 2024. The line of credit bears interest equal to the rate of interest per annum established by Fifth Third Bank as its Prime Rate. No amounts were drawn on this line of credit as of March 31, 2024. Note 9. Income Taxes The provision for income taxes for the three months ended March 31, 2024 and 2023 is based on our projected annual effective tax rate, adjusted for permanent differences and specific items that are required to be recognized in the period in which they are incurred. The effective tax rate for the first three months of 2024 and 2023 was 22.7 %. The difference between the effective tax rate and the marginal rate is primarily due to the effect of state and local taxes. Following is the income tax expense for the three months ended March 31: Three months ended March 31, 2024 2023 Federal $ 148,000 $ 146,374 12,000 11,836 $ 160,000 $ 158,210 Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred taxes. Accordingly, management determined that no valuation allowance was necessary at March 31, 2024. The deferred tax liability was $ 146,391 at March 31, 2024 and $ 69,846 at December 31, 2023. 12 Table of Contents SCI ENGINEERED MATERIALS, INC

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 10. Operating Lease The Company entered into an operating lease with a third party on March 18, 2014 for its headquarters in Columbus, Ohio. The terms of the lease include monthly payments ranging from $ 9,200 to $ 9,700 with a maturity date of November 30, 2024. The Company has the option to extend the lease period for an additional five years beyond the expiration date and renewal negotiations are expected to commence in the second quarter of 2024. The Company determined that it was reasonably certain to renew its operating lease. There are no restrictions or covenants associated with the lease. The lease costs were approximately $ 29,200 and $ 28,600 during the three months ended March 31, 2024 and 2023, respectively. Additionally, the variable lease costs were approximately $ 15,600 and $ 23,200 during the three months ended March 31, 2024 and 2023, respectively. The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of March 31, 2024: 2024 $ 87,623 2025 116,829 2026 116,829 2027 116,829 2028 and beyond 223,923 Total minimum lease payments 662,033 Less debt discount 86,629 Total operating lease obligations $ 575,404 2024 2023 Operating cash outflows from operating leases - year-to-date $ 27,869 $ 25,788 Weighted average remaining lease term – operating leases 5.7 years 1.7 years Weighted average discount rate – operating leases 5.5 % 5.5 % Note 11. Finance Lease The Company leases certain equipment under a finance lease. Future minimum lease payments, by year, with the present value of such payments, as of March 31, 2024, are shown in the following table. Total minimum lease payments - 2024 $ 28,973 Less amount representing interest 263 Present value of minimum lease payments 28,710 Less current portion 28,710 Finance lease obligations, net of current portion $ — Remainin

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 11. Finance Lease (continued) These assets are amortized over a period of ten years using the straight-line method and amortization is included in depreciation expense. Finance lease costs totaled $ 20,439 and $ 24,840 for the three months ended March 31, 2024 and 2023, respectively. The finance leases are structured such that ownership of the leased asset reverts to the Company at the end of the lease term. Accordingly, leased assets are depreciated using the Company's normal depreciation methods and lives. Ownership of certain assets was transferred to the Company in accordance with the terms of the leases and these assets have been excluded from the leased asset disclosure above. 14 Table of Contents

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Financial Statements and Notes contained herein and with those in our Form 10-K for the year ended December 31, 2023. Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q include certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our intent, belief, and expectations, such as statements concerning our future profitability and operating and growth strategy. Words such as "believe," "anticipate," "expect," "will," "may," "should," "intend," "plan," "estimate," "predict," "potential," "continue," "likely" and similar expressions are intended to identify forward-looking statements. Investors are cautioned that all forward-looking statements contained in this Quarterly Report on Form 10-Q and in other statements we make involve risks and uncertainties including, without limitation, the factors set forth under the caption "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2023, and other factors detailed from time to time in our other filings with the Securities and Exchange Commission. One or more of these factors have affected, and in the future could affect our business and financial condition and could cause actual results to differ materially from plans

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