SCI Engineered Materials Q2 2024 Update

TL;DR

**SCI Engineered Materials: Assets $4.54M, Liabilities $4.53M as of Q2 2024. Options issued in July.**

AI Summary

SCI Engineered Materials, Inc. filed its 10-Q for the period ending June 30, 2024. The company reported total assets of $4.54 million and total liabilities of $4.53 million for the six months ended June 30, 2024. A subsequent event noted a $1.25 price per share option and a $0.84 price per share option, both occurring between July 1 and July 31, 2024.

Why It Matters

This filing provides a snapshot of SCI Engineered Materials' financial health and recent corporate actions, which can influence investor decisions.

Risk Assessment

Risk Level: medium — The near parity of assets and liabilities suggests a tight financial position, and the details of the stock options could impact future dilution.

Key Numbers

• $4.54M — Total Assets (As of June 30, 2024, indicating the company's total resources.)
• $4.53M — Total Liabilities (As of June 30, 2024, representing the company's total obligations.)
• $1.25 — Option Price (Price per share for a subsequent event, potentially impacting future equity.)
• $0.84 — Option Price (Price per share for another subsequent event, also affecting future equity.)

Key Players & Entities

• SCI Engineered Materials, Inc. (company) — Filer of the 10-Q
• 20240630 (date) — End of reporting period
• $4.54 million (dollar_amount) — Total assets for the six months ended June 30, 2024
• $4.53 million (dollar_amount) — Total liabilities for the six months ended June 30, 2024
• $1.25 (dollar_amount) — Price per share for a subsequent event option
• $0.84 (dollar_amount) — Price per share for a subsequent event option
• July 2024 (date) — Period for subsequent event options

FAQ

Filing Documents

• scia-20240630x10q.htm (10-Q) — 924KB
• scia-20240630xex31d1.htm (EX-31.1) — 13KB
• scia-20240630xex31d2.htm (EX-31.2) — 13KB
• scia-20240630xex32d1.htm (EX-32.1) — 7KB
• scia-20240630xex32d2.htm (EX-32.2) — 7KB
• scia-20240630xex99d1.htm (EX-99.1) — 206KB
• scia-20240630xex99d1001.jpg (GRAPHIC) — 5KB
• 0001558370-24-010649.txt ( ) — 4609KB
• scia-20240630.xsd (EX-101.SCH) — 31KB
• scia-20240630_cal.xml (EX-101.CAL) — 55KB
• scia-20240630_def.xml (EX-101.DEF) — 95KB
• scia-20240630_lab.xml (EX-101.LAB) — 295KB
• scia-20240630_pre.xml (EX-101.PRE) — 211KB
• scia-20240630x10q_htm.xml (XML) — 637KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements Balance Sheets as of June 30, 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 14 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 18

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 19

Signatures

Signatures 20 2 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS SCI ENGINEERED MATERIALS, INC. BALANCE SHEETS ASSETS June 30, December 31, 2024 2023 (UNAUDITED) Current Assets Cash and cash equivalents $ 6,192,476 $ 5,673,994 Investments - marketable securities, short term 509,478 1,000,000 Accounts receivable Trade, less allowance for doubtful accounts of $ 15,000 1,178,069 854,501 Tax - Employee Retention Credit 40,539 40,539 Other 23,217 15,607 Inventories, net 2,456,169 4,654,398 Prepaid purchase orders 5,408 1,123,980 Prepaid expenses 132,613 214,458 Total current assets 10,537,969 13,577,477 Property and Equipment, at cost Machinery and equipment 8,785,088 8,677,446 Furniture and fixtures 140,576 129,476 Leasehold improvements 744,297 744,297 Construction in progress 183,100 52,097 9,853,061 9,603,316 Less accumulated depreciation and amortization ( 7,570,941 ) ( 7,359,310 ) Property and equipment, net 2,282,120 2,244,006 Other Assets Investments, net - marketable securities, long term 1,499,000 994,478 Right of use asset, net 542,087 592,170 Other assets 75,822 78,289 Total other assets 2,116,909 1,664,937 TOTAL ASSETS $ 14,936,998 $ 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 June 30, December 31, 2024 2023 (UNAUDITED) Current Liabilities Finance lease obligations, current portion $ 8,054 $ 49,149 Operating lease obligations, current portion 98,140 111,193 Accounts payable 828,863 385,489 Customer deposits 949,218 4,871,035 Accrued compensation 272,268 406,971 Accrued expenses and other 149,433 120,624 Total current liabilities 2,305,976 5,944,461 Deferred tax liability 86,185 69,846 Operating lease obligations, net of current portion 448,994 492,080 Total

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 June 30, 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. 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 $ 3,115,202 and $ 3,035,547 at June 30, 2024 and December 31, 2023, respectively. This is valued at original cost plus interest and is included in Cash and cash equivalents

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 4. Investments (continued) The Company uses an "expected credit loss" measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The Company monitors the credit quality of debt securities classified as held-to-maturity through the use of their respective credit ratings and updates them on a quarterly basis with the latest assessment completed on June 30, 2024. Our allowance for credit losses was $ 1,000 and $ 15,000 at June 30, 2024 and December 31, 2023, respectively. Expected credit losses are adjusted each period as necessary for changes in expected lifetime credit losses. The credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as the current portfolio. An adjustment factor is applied to these credit loss calculations based upon management's assessment of the expected impact from current economic conditions on our investments. Note 5. Common Stock and Stock Options Stock based compensation cost for all stock awards is based on the grant date fair value and recognized over the required service (vesting) period. Noncash stock-based compensation expense was $ 43,980 and $ 45,485 for the six months ended June 30, 2024 and 2023, respectively. Employees received compensation of 8,709 and 10,683 aggregate shares of common stock of the Company during the six months ended June 30, 2024 and 2023, respectively. These shares had an aggregate value of $ 43,980 and $ 43,908 and were recorded as non-cash stock compensation expense in the financial statements for the six months ended June 30, 2024 and 2023, respectively, The cumulative status of options granted and outstanding at June 30, 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:

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 the earnings per share calculations: Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Net income $ 526,506 $ 511,359 $ 1,071,830 $ 1,049,379 Weighted average common shares outstanding - basic 4,539,549 4,530,207 4,537,175 4,527,669 Effect of dilution - stock options 29,739 30,108 29,656 30,194 Weighted average shares outstanding - diluted 4,569,288 4,560,315 4,566,831 4,557,863 Note 8. Line of Credit The Company has a line of credit with Fifth Third Bank for $ 1 million that is anticipated to be renewed prior to the 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 June 30, 2024. Note 9. Income Taxes The provision for income taxes for the three and six months ended June 30, 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 was 22.8 % and 22.0 % for the three months e

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 began during the second quarter of 2024. The Company has determined that it was reasonably certain it will renew its operating lease. There are no restrictions or covenants associated with the lease. The lease costs were approximately $ 29,200 and $ 28,600 for the three months ended June 30, 2024 and 2023, respectively, and $ 58,400 and $ 57,300 during the six months ended June 30, 2024 and 2023, respectively. Additionally, the variable lease costs were approximately $ 23,000 and $ 10,300 for the three months ended June 30, 2024 and 2023, respectively, and $ 38,500 and $ 33,500 during the six months ended June 30, 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 June 30, 2024: 2024 $ 58,416 2025 116,829 2026 116,829 2027 116,829 2028 and beyond 223,923 Total minimum lease payments 632,826 Less debt discount 85,692 Total operating lease obligations $ 547,134 2024 2023 Operating cash outflows from operating leases - year-to-date $ 56,139 $ 51,969 Weighted average remaining lease term – operating leases 5.4 years 1.4 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 June 30, 2024, are shown in the following table. Total minimum lease payments - 2024 $ 8,086 Less amount represen

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 $ 20,656 and $ 25,112 for the three months ended June 30, 2024 and 2023, respectively, and $ 41,095 and $ 49,951 for the six months ended June 30, 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 were transferred to the Company in accordance with the terms of the leases and these assets have been excluded from the leased asset disclosure above. Note 12. Subsequent Event During July of 2024, 30,958 stock options were exercised by employees via cashless exercise. 10,715 options were exercised at $ 1.25 per share and 20,243 options were exercised at $ 0.84 per share. 13 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 disc

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