SCI ENGINEERED MATERIALS, INC.

SCI ENGINEERED MATERIALS, INC._June 30, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2026

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-31641

SCI ENGINEERED MATERIALS, INC.

(Exact name of registrant as specified in its charter)


Ohio	31-1210318
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2839 Charter Street, Columbus, Ohio 43228

(Address of principal executive offices) (Zip Code)

(614) 486-0261

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, without par value	SCIA	OTCQB

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 every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

4,450,003 shares of Common Stock, without par value, were outstanding at July 30, 2026.

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FORM 10-Q

SCI ENGINEERED MATERIALS, INC.

Table of Contents


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Balance Sheets as of June 30, 2026 (unaudited) and December 31, 2025	3

	Condensed Statements of Income for the Three and Six months ended June 30, 2026 and 2025 (unaudited)	5

	Condensed Statements of Shareholders’ Equity for the Three and Six months ended June 30, 2026 and 2025 (unaudited)	6

	Condensed Statements of Cash Flows for the Six months ended June 30, 2026 and 2025 (unaudited)	7

	Notes to the Condensed Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	N/A

Item 4.	Controls and Procedures	18

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	N/A

Item 1A.	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		21

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SCI ENGINEERED MATERIALS, INC.

CONDENSED BALANCE SHEETS

ASSETS


		June 30,			December 31,
		2026			2025
		(UNAUDITED)
Current Assets
Cash and cash equivalents		$	9,889,753		$	7,939,000
Investments - marketable securities, short term			799,250			298,125
Accounts receivable
Trade, less allowance for doubtful accounts of $15,000			1,006,578			694,864
Other			35,072			25,500
Inventories, net			3,624,420			1,091,471
Prepaid purchase orders			248,493			44,789
Prepaid expenses			131,327			151,702
Total current assets			15,734,893			10,245,451

Property and Equipment, at cost
Machinery and equipment			9,694,462			9,314,408
Furniture and fixtures			180,364			180,364
Leasehold improvements			732,711			732,711
Construction in progress			883,802			627,503
			11,491,339			10,854,986
Less accumulated depreciation and amortization			(8,018,015)			(8,020,249)
Property and equipment, net			3,473,324			2,834,737

Other Assets
Investments, net - marketable securities, long term			2,569,000			3,069,000
Right of use asset, net			959,224			1,061,709
Other assets			58,993			61,461
Total other assets			3,587,217			4,192,170

TOTAL ASSETS		$	22,795,434		$	17,272,358

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SCI ENGINEERED MATERIALS, INC.

CONDENSED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY


		June 30,			December 31,
		2026			2025
		(UNAUDITED)
Current Liabilities
Operating lease obligations, current portion		$	232,011		$	212,561
Accounts payable			477,280			245,523
Customer deposits			4,546,123			829,158
Accrued compensation			343,462			403,281
Accrued expenses and other			75,303			165,222
Total current liabilities			5,674,179			1,855,745

Deferred tax liability			763,983			389,572
Operating lease obligations, net of current portion			727,212			849,148
Total liabilities			7,165,374			3,094,465

Shareholders' Equity
Common stock, no par value, authorized 15,000,000 shares; 4,600,003 and 4,583,407 shares issued, respectively			10,840,658			10,753,529
Additional paid-in capital			2,233,384			2,233,384
Retained earnings			3,323,518			1,690,980
Less: Treasury stock, at cost (150,000 and 100,000 common shares, respectively)			(767,500)			(500,000)
Total shareholders' equity			15,630,060			14,177,893

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	22,795,434		$	17,272,358

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SCI ENGINEERED MATERIALS, INC.

CONDENSED STATEMENTS OF INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2026 AND 2025

(UNAUDITED)


		Three Months Ended June 30,						Six Months Ended June 30,
		2026			2025			2026			2025

Revenue		$	9,485,119		$	3,609,304		$	17,645,481		$	7,109,536

Cost of revenue			7,208,664			2,451,147			13,333,906			4,878,565

Gross profit			2,276,455			1,158,157			4,311,575			2,230,971

General and administrative expense			512,090			549,540			1,154,133			1,097,361

Fraud expense			—			—			562,026			—

Research and development expense			147,433			107,374			290,043			209,641

Marketing and sales expense			217,466			145,436			416,983			265,623

Income from operations			1,399,466			355,807			1,888,390			658,346

Interest income, net			110,359			115,680			219,445			213,810

Income before provision for income taxes			1,509,825			471,487			2,107,835			872,156

Income tax expense			339,549			107,028			475,297			197,980

NET INCOME		$	1,170,276		$	364,459		$	1,632,538		$	674,176

Earnings per share - basic and diluted (Note 7)

Income per common share
Basic		$	0.26		$	0.08		$	0.37		$	0.15
Diluted		$	0.26		$	0.08		$	0.37		$	0.15

Weighted average shares outstanding
Basic			4,450,003			4,574,686			4,460,059			4,571,425
Diluted			4,450,003			4,578,926			4,460,059			4,575,729

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SCI ENGINEERED MATERIALS, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2026 AND 2025

(UNAUDITED)


					Additional
		Common			Paid-In			Retained Earnings
		Stock			Capital			(Accumulated Deficit)			Treasury Stock			Total

Balance 12/31/2025		$	10,753,529		$	2,233,384		$	1,690,980		$	(500,000)		$	14,177,893

Purchase of treasury stock			—			—			—			(267,500)			(267,500)

Common stock issued (Note 5)			87,129			—			—			—			87,129

Net income			—			—			462,262			—			462,262

Balance 03/31/2026		$	10,840,658		$	2,233,384		$	2,153,242		$	(767,500)		$	14,459,784

Net income									1,170,276						1,170,276

Balance 06/30/2026		$	10,840,658		$	2,233,384		$	3,323,518		$	(767,500)		$	15,630,060

Balance 12/31/2024		$	10,706,323		$	2,233,384		$	(54,305)		$	—		$	12,885,402

Net income			—			—			309,717			—			309,717

Balance 03/31/2025		$	10,706,323		$	2,233,384		$	255,412		$	—		$	13,195,119

Common stock issued (Note 5)			47,206			—			—			—			47,206

Net income			—			—			364,459			—			364,459

Balance 06/30/2025		$	10,753,529		$	2,233,384		$	619,871		$	—		$	13,606,784

The accompanying notes are an integral part of these unaudited condensed financial statements.

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SCI ENGINEERED MATERIALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2026 AND 2025

(UNAUDITED)


		Six Months Ended June 30,
		2026			2025
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	1,632,538		$	674,176
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and accretion			251,138			211,740
Amortization of patents			2,467			2,466
Stock based compensation			87,129			47,206
(Gain) on disposal of equipment			(16,667)			497
Deferred taxes			374,411			878
Inventory reserve			4,669			680
Changes in operating assets and liabilities:
Accounts receivable			(321,286)			148,122
Inventories			(2,537,618)			354,512
Prepaid purchase orders			(203,704)			(58,633)
Prepaid expenses			20,375			88,933
Accounts payable			231,757			117,705
Customer deposits			3,716,965			520,251
Accrued liabilities			(153,188)			(185,292)
Net cash provided by operating activities			3,088,986			1,923,241

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment			18,000			—
Purchases of marketable securities			(1,125)			(2,000,000)
Proceeds from maturities of marketable securities			—			1,509,478
Purchases of property and equipment			(887,608)			(215,454)
Net cash used in investing activities			(870,733)			(705,976)

CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock			(267,500)			—
Net cash used in financing activities			(267,500)			—

NET INCREASE IN CASH			1,950,753			1,217,265

CASH - Beginning of year			7,939,000			6,753,403

CASH - End of period		$	9,889,753		$	7,970,668

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest		$	—		$	—
Income taxes			339,549			194,228

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase in asset retirement obligation		$	3,450		$	3,450

The accompanying notes are an integral part of these unaudited condensed financial statements.

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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 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 condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim condensed 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 condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2025. Interim results are not necessarily indicative of results for the full year.

Use of Estimates - The preparation of condensed 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 condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition - The Company enters into contracts with its customers that generally represent purchase orders specifying general terms and conditions, order quantities and per unit product prices. The Company has determined that each unit of product purchased represents a separate performance obligation. The Company satisfies its performance obligations and recognizes revenue at a point in time when control of a unit of product is transferred to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. For the majority of product sales, transfer of control occurs when the products are shipped from the Company’s manufacturing facility to the customer. The cost of delivering products to the Company’s customers is recorded as a component of the cost of products sold. Those costs may include the amounts paid to a third party to deliver the products. Any freight costs billed to and paid by a customer are included in revenue.

The Company considers collectability of amounts due under a contract to be probable upon inception of a sale based on an evaluation of the creditworthiness of each customer. The Company sells its products typically under agreements with payment terms of 30-60 days. The Company does not normally include extended payment terms or significant financing components in contracts with customers. The majority of the Company’s contracts have an obligation to transfer products within one year. Thus, the Company elects to use the practical expedient where incremental cost of obtaining a contract, such as commissions, is expensed when incurred because the amortization period for those costs is one year or less. The Company treats shipping and handling activities that occur after control of the product transfers as fulfillment activities and therefore does not account for shipping and handling costs as a separate performance obligation. Customer deposits are funds received in advance from customers and are recognized as revenue when the Company has transferred control of product to the customer. Product revenues are recognized upon shipment of goods as the customer has assumed the significant risks and rewards of ownership and the Company is entitled to payment at this point. Service revenues are recognized upon completion as the customer cannot realize the benefit of the service until it is fully completed.

Revenue from the photonics industry exceeded 99% of total revenue during the six months ended June 30, 2026 and 2025. The top two customers represented 87% and 83% of total revenue for the six months ended June 30, 2026 and 2025, respectively. The Company sells multiple products to its top two customers. International shipments were 0.4% and 1.0% of total revenue for the six months ended June 30, 2026 and 2025.

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Note 2. Summary of Significant Accounting Policies (continued)

Contract assets – The following table presents changes in the Company’s contract assets during the six months ended June 30, 2026 and 2025:


		Balance at beginning of period	Billings			Payments received		Balance at end of period
Six months ended June 30, 2026
Accounts receivable	$	694,864	$	17,645,481	$	(17,333,767)	$	1,006,578

Six months ended June 30, 2025
Accounts receivable	$	704,808	$	7,109,536	$	(7,211,449)	$	602,895

Customer deposits – Amounts that have been invoiced are recognized in accounts receivable, customer deposits or revenue, depending on whether the revenue recognition criteria have been met. Customer deposits represent amounts billed for which revenue has not yet been recognized. Customer deposits typically relate to uncompleted purchase orders which have been partially paid for by customers prior to performance of those services or transfer of control of the product. The following table presents changes in contract liabilities during the six months ended June 30, 2026 and 2025:


		Balance at beginning of period		Billings		Recognized revenue		Balance at end of period
Six months ended June 30, 2026
Contract Liabilities: Customer deposits	$	829,158	$	17,481,677	$	(13,764,712)	$	4,546,123

Six months ended June 30, 2025
Contract Liabilities: Customer deposits	$	337,873	$	4,757,749	$	(4,237,498)	$	858,124

Note 3. Recent Accounting Pronouncements

The Company has reviewed the accounting pronouncements issued by the Financial Accounting Standards Board during the six months ended June 30, 2026. Applicable pronouncements are adopted by the Company in accordance with the accounting guidance and definition. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s condensed financial statements.

Note 4. Investments

Money market funds, where quoted prices are available in an active market, are classified within level 1 of the valuation hierarchy. The Company invested in a money market fund which had a fair value of $5,598,642 and $5,500,903 at June 30, 2026 and December 31, 2025, respectively. This is valued at original cost plus interest and is included in cash and cash equivalents on the balance sheets.

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Note 4. Investments (continued)

As of June 30, 2026 and December 31, 2025, the Company held investments in corporate bonds rated BBB+ 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 June 30, 2026, the length of time until maturity of the bonds currently owned ranged from 4 to 30 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
June 30, 2026
Corporate bonds		$	3,369,250		$	(15,302)		$	—		$	3,353,948
Total investments		$	3,369,250		$	(15,302)		$	—		$	3,353,948

Allowance for credit losses			(1,000)
Total investments, net		$	3,368,250

December 31, 2025
Corporate bonds		$	3,368,125		$	—		$	7,156		$	3,375,281
Total investments		$	3,368,125		$	—		$	7,156		$	3,375,281

Allowance for credit losses			(1,000)
Total investments, net		$	3,367,125

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 using their respective credit ratings and updates them on a quarterly basis with the latest assessment completed on June 30, 2026. Our allowance for credit losses was $1,000 at June 30, 2026 and December 31, 2025, 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. Employees received compensation of 10,852 aggregate shares of common stock of the Company during the three months ended June 30, 2025. There was no stock-based compensation for the three months ended June 30, 2026. The shares granted for the three months ended June 30, 2025 had an aggregate value of $47,206 and were recorded as non-cash stock compensation expense in the condensed financial statements for the three months ended June 30, 2025.

Employees received compensation of 16,596 and 10,852 aggregate shares of common stock of the Company during the six months ended June 30, 2026 and 2025, respectively. The shares granted in the first six months of 2026 had an aggregate value of $87,129 compared to $47,206 for the same period in 2025. These amounts were recorded as non-cash stock compensation expense in the financial statements for the six months ended June 30, 2026 and 2025, respectively.

Employee Stock Options

There were no stock options remaining as of June 30, 2026 or December 31, 2025.

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Note 6. Inventories

Inventories consisted of the following:


		June 30,			December 31,
		2026			2025
Raw materials		$	629,724		$	165,140
Work-in-process			2,551,558			681,176
Finished goods			454,689			252,036
			3,635,970			1,098,352
Inventory reserve			(11,550)			(6,881)
		$	3,624,420		$	1,091,471

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 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. Diluted earnings per share exclude all diluted potential shares if their effect is anti-dilutive. Any 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,
		2026			2025			2026			2025
Net income		$	1,170,276		$	364,459		$	1,632,538		$	674,176

Weighted average common shares outstanding - basic			4,450,003			4,574,686			4,460,059			4,571,425

Effect of dilution - stock options			—			4,240			—			4,304
Weighted average shares outstanding - diluted			4,450,003			4,578,926			4,460,059			4,575,729

Note 8. Line of Credit

The Company renewed its line of credit with a regional bank for $1 million during the third quarter of 2025. This line of credit has a maturity date of August 29, 2026 and bears interest equal to the rate of interest per annum established by the bank as its Prime Rate. No amounts were drawn on this line of credit as of June 30, 2026.

Note 9. Income Taxes

The provision for income taxes for the three and six months ended June 30, 2026 and 2025 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 22.5% for the three and six months ended June 30, 2026, and 22.7% for the same periods in 2025. The difference between the effective tax rate and the marginal rate is primarily due to the effect of state and local taxes.

The following table presents the income tax expense:


		Three months ended June 30,						Six months ended June 30,
		2026			2025			2026			2025
Federal		$	314,120		$	99,012		$	439,702		$	183,152
State and local			25,429			8,016			35,595			14,828
		$	339,549		$	107,028		$	475,297		$	197,980

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

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Note 9. Income Taxes (continued)

allowance was necessary at June 30, 2026. The deferred tax liability was $763,983 at June 30, 2026 and $389,572 at December 31, 2025.

Note 10. Operating Lease

The Company entered into an operating lease with a third party in November 2024 for its headquarters in Columbus, Ohio. The terms of the lease included monthly payments ranging from $24,700 to $28,900 with a maturity date of November 30, 2029. There are no restrictions or covenants associated with the lease. The lease costs were approximately $77,190 and $74,200 for the three months ended June 30, 2026 and 2025, respectively. Additionally, the variable lease costs were approximately $40,600 and $18,600 for the three months ended June 30, 2026 and 2025, respectively. The lease costs were approximately $154,400 and $148,400 for the six months ended June 30, 2026 and 2025, respectively. Additionally, the variable lease costs were $59,600 and $59,200 for the six months ended June 30, 2026 and 2025, respectively.

The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of June 30, 2026:



2026	$	155,412
2027		322,183
2028		335,072
2029		318,374
Total minimum lease payments		1,131,041
Less debt discount		171,817
Total operating lease obligations	$	959,224

The following summarizes additional information related to leases for the period ended June 30:


	2026			2025
Operating cash outflows from operating leases	$	102,485		$	83,782
Weighted average remaining lease term – operating leases		3.4	years		4.4	years
Weighted average discount rate – operating leases		8.5	%		8.5	%

Note 11. Segment Information

Operating segments are components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer.

We operate as one operating and reportable segment, in one location, as a global supplier and manufacturer of advanced materials for Physical Vapor Deposition thin film applications. We are managed on a consolidated basis and derive substantially all of our revenue from the sale and support of one group of similar products from customers with multinational operations. The accounting policies of the Company's operating segment are the same as those described in Note 2, Summary of Significant Accounting Policies. Our CODM does not receive profitability information at a lower level than consolidated results and evaluates net income on a consolidated basis to set financial performance targets. Our CODM assesses performance, and makes resource allocation decisions, primarily through comparison of actual results to forecasted results, year-over-year analysis, and review of historical performance trends. The measure of segment assets is reported on the Company's consolidated balance sheets as total consolidated assets.

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Note 11. Segment Information (continued)

The Company's significant expenses and other segment items are provided in the table below:


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,

	2026		2025		2026		2025

Revenue	$	9,485,119	$	3,609,304	$	17,645,481	$	7,109,536

Cost of revenue		7,208,664		2,451,147		13,333,906		4,878,565

General and administrative expense		512,090		549,540		1,154,133		1,097,361

Fraud expense		—		—		562,026		—

Research and development expense		147,433		107,374		290,043		209,641

Marketing and sales expense		217,466		145,436		416,983		265,623

Stock Based Compensation		—		—		87,129		—

Other segment items, net ¹		(229,190)		8,652		(168,723)		15,830

Net income	$	1,170,276	$	364,459	$	1,632,538	$	674,176


¹Includes interest income, net less income tax expense.

Note 12. Subsequent Event

On February 10, 2026, the Company reported it was subjected to an imposter scam of $898,325 executed in conjunction with bank fraud. As of June 30, 2026, the Company recovered $336,299 of that amount resulting in fraud expense of $562,026 recorded in the first quarter. On July 12, 2026, the Company was informed that a $250,000 claim related to its Smart Cyber insurance policy was approved. When the insurance proceeds are realized they will reduce the fraud expense to $312,026.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Condensed Financial Statements and Notes contained herein and with those in our Form 10-K for the year ended December 31, 2025.

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, 2025, 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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

and could cause actual results to differ materially from plans and projections. Although we believe the assumptions underlying the forward-looking statements contained herein are reasonable, there can be no assurance that any of the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. Considering the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statements are made or reflect the occurrence of unanticipated events, unless necessary to prevent such statements from becoming misleading. New factors emerge from time to time, and it is not possible for us to predict all factors, nor can we assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Executive Summary

For the three months ended June 30, 2026, total revenue was a record $9,485,119 compared to $3,609,304 for the three months ended June 30, 2025. Total revenue for the six months ended June 30, 2026, was $17,645,481 versus $7,109,536 for the same period last year. The increase in total revenue for the three and six months ended June 30, 2026 versus the same periods last year was primarily due to higher raw material input costs, product mix, and higher volume.

Gross profit was $2,276,455 for the three months ended June 30, 2026, compared to $1,158,157 for the same three months in 2025. Gross profit as a percentage of revenue (gross margin) was 24.0% and 32.1% for the three months ended June 30, 2026 and 2025, respectively. Higher revenue contributed to the increase in gross profit while higher raw material costs and product mix were the primary reasons for the decreased gross margin for the three months ended June 30, 2026, compared to the same three months in 2025. Gross profit was $4,311,575 for the six months ended June 30, 2026 compared to $2,230,971 for the same six months in 2025, and gross margin was 24.4% and 31.4% for the six months ended June 30, 2026 and 2025, respectively. Higher revenue contributed to the increase in gross profit due to higher raw material input costs and product mix, while the same factors were the primary reasons for the lower gross margin for the three and six months ended June 30, 2026 compared to the same periods in 2025.

Operating expenses were $876,989 and $802,350 for the three months ended June 30, 2026 and June 30, 2025 respectively. There were increased compensation and benefits for Marketing and Sales, which included additional staff, and higher materials and supplies for Research and Development in the second quarter of 2026, partially offset by lower General and Administrative expense compared to the second quarter of 2025. Operating expenses were $2,423,185 for the six months ended June 30, 2026 including fraud expense of $562,026, compared to $1,572,625 for the same period last year. Higher Marketing and Sales compensation and benefits expense, increased Research and Development materials and supplies, and slightly higher General and Administrative compensation and benefits were the primary factors in the year-over-year increase.

Income from operations was $1,399,466 and $355,807 for the three months ended June 30, 2026, and 2025, respectively and $1,888,390 and $658,346 for the six months ended June 30, 2026, and 2025, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The Company invests in research and development to develop innovative applications focused on a defined path to commercialization. For example, electrically conductive Indium Tin Oxide with a density of 99% and rotatable targets up to three meters in length which offer multiple benefits were introduced during the second quarter of 2025. New initiatives are being pursued that utilize our vacuum hot presses, cold isostatic press, and kilns for increased production and development projects, including specialty diffusion bonding processes.

During the second half of 2025, the Company identified an additional niche market that can benefit from its custom powder solutions, including spherical powders used in additive manufacturing. The Company identified additional opportunities through development of debinding processes for domestic commercial additive manufacturing applications.

Several issues are currently impacting national and global market conditions. First, continued political uncertainties in the Middle East region are particularly affecting multinational customers. Second, inflation continues to impact labor, raw material costs and transportation expenses. We seek to pass these increases on to customers but are unable to predict how future or sustained inflationary pressure may impact our results. Third, supply chain disruptions are adversely impacting customers’ businesses in certain markets. Thus far, we have not experienced material adverse effects regarding sourcing of raw materials or product shipments; however, timely deliveries and sourcing of certain materials is of increased concern and may be influenced by the changes in international tariffs and their availability. We are actively maintaining contact with our suppliers and customers, identifying additional suppliers, and adapting to our customers’ specific circumstances and forecasts.

RESULTS OF OPERATIONS

Three and six months ended June 30, 2026 (unaudited) compared to three and six months ended June 30, 2025 (unaudited):

Revenue

For the three months ended June 30 2026, total revenue was $9,485,119 compared to $3,609,304 for the three months ended June 30, 2025. The increase in revenue for the three months ended June 30, 2026 versus June 30, 2025 was primarily due to higher raw material input costs, product mix, and higher volume. Total revenue was $17,645,481 for the six months ended June 30, 2026, compared to $7,109,536 for the six months ended June 30, 2025. The combination of product mix, higher raw material costs and volume contributed to the increase in total revenue for the six months ended June 30, 2026 versus the same period last year. We constantly monitor the costs of our raw materials as they continue to fluctuate.

Gross profit

Gross profit was $2,276,455 for the three months ended June 30, 2026, compared to $1,158,157 for the same three months in 2025. Higher revenue contributed to the increase in gross profit while higher raw material input costs and product mix were the primary reasons for the lower gross margin for the three months ended June 30, 2026, compared to the same three months in 2025. Gross profit as a percentage of revenue (gross margin) was 24.0% and 32.1% for the three months ended June 30, 2026 and 2025, respectively, due to the factors noted above.

Gross profit was $4,311,575 for the six months ended June 30, 2026 compared to $2,230,971 for the same six months in 2025, and gross margin was 24.4% and 31.4% for the six months ended June 30 2026 and 2025, respectively. Higher revenue contributed to the increase in gross profit, while higher raw material input costs and product mix were the primary reasons for the lower gross profit margin compared to a year ago.

General and administrative expense

General and administrative expense for the three months ended June 30, 2026 and 2025, was $512,090 and $549,540, respectively, a decrease of 6.8%. Lower compensation and benefits, which did not include non-cash stock based compensation for the three months ended June 30, 2026 compared to $47,206 for the same period in 2025, were key factors that contributed to the year-over-year decrease. General and administrative expense for the six months ended June 30, 2026 and 2025 was $1,154,133 and $1,097,361 respectively an increase of 5.2%. The increase is attributed to higher compensation and benefits and non-cash compensation for the first half of 2026 compared to 2025.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Fraud expense

Research and development expense

Research and development expense for the three months ended June 30, 2026, was $147,433 compared to $107,374 for the same period in 2025, an increase of 37.3%. This increase was primarily due to higher research materials and supplies of $43,094 and increased compensation of $4,353. Research and development expense for the six months ended June 30, 2026 was $290,043 compared to $209,641 for the same period in 2025, an increase of 38.3%. This increase was primarily due to higher research materials and supplies of $49,643 and increased compensation of $14,465. Specialty materials are being researched for use in niche markets which include custom applications and additive manufacturing. Our development efforts utilize a disciplined innovation approach focused on accelerating time to market for these products and involve ongoing research and development expense.

Marketing and sales expense

Marketing and sales expense was $217,466 and $145,436 for the three months ended June 30, 2026, and 2025, respectively, an increase of 49.5%. The increase was due to increased compensation and benefits of $85,345, including additional staff, during the three months ended June 30, 2026, compared to the same period in 2025. Marketing and sales expense was $416,983 and $265,623 for the six months ended June 30, 2026 and 2025, respectively, an increase of 57%. Compensation and benefits expense increased $153,492 during the six months ended June 30, 2026, compared to the same period in 2025. Recent additions to our marketing and sales staff and repositioning of personnel occurred during this period and each contributed to these increases.

Stock compensation expense

Stock based compensation expense was $0 and $47,206 for the three months ended June 30, 2026 and 2025, respectively. Stock-based compensation costs were $87,129 and $47,206 for the six months ended June 30, 2026 and 2025, respectively. Compensation expense for all stock-based awards is based on the grant date fair value and recognized over the required service (vesting) period.

Interest

Net interest income was $110,359, and $115,680 for the three months ended June 30 2026, and 2025, respectively and $219,445 and $213,810 for the six months ended June 30, 2026 and 2025, respectively. The decrease for the three months ended June 30, 2026 was due to lower interest rates. The increase for the six months ended June 30, 2026 versus June 30, 2025 was primarily due to a 25% increase in cash and cash equivalents since December 31, 2025.

Income taxes

Income tax expense was $339,549, and $107,028 for the three months ended June 30, 2026, and 2025, respectively and $475,297 and $197,980 for the six months ended June 30, 2026 and 2025, respectively. The effective tax rate was 22.5% for the three and six months ended June 30, 2026, and 22.7% for the same periods in 2025. The deferred tax liability was $763,983 at June 30, 2026, and $389,572 at December 31, 2025.

Net income

Net income for the three months ended June 30, 2026 and 2025, was $1,170,276 and $364,459, respectively, and $1,632,538 and $674,176 for the six months ended June 30, 2026 and 2025, respectively. Net income for the six months ended June 30,

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

2026 and 2025, was $1,632,538 and $674,176, respectively. Higher gross profit primarily contributed to the increase in net income for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025.

Liquidity and Capital Resources

Cash and cash equivalents

As of June 30, 2026, cash and cash equivalents were $9,889,753 compared to $7,939,000 at December 31, 2025. Additionally, the Company had investments of $3,368,250 and $3,367,125 in marketable securities at June 30, 2026, and December 31, 2025, respectively.

Working capital

At June 30, 2026, working capital was $10,060,714, compared to $8,389,706 at December 31, 2025, an increase of 19.9% or $1,671,008. For the first six months of 2026, cash and cash equivalents increased $1,950,753, inventories increased $2,532,949, customer deposits increased $3,716,965 and accounts receivable increased $321,286. In addition, accounts payable increased $231,757 and accrued liabilities decreased $149,738 compared to 2025 year-end.

Cash from operations

Net cash provided by operating activities was $3,088,986 and $1,923,241 for the six months ended June 30, 2026 and 2025, respectively. In addition to the net income generated in each period, these amounts included depreciation and accretion of $251,138 and $211,740, and noncash stock-based compensation costs of $87,129 and $47,206 for the six months ended June 30, 2026, and 2025, respectively. The increase in customer deposits and inventory compared to December 31, 2025, were primarily related to orders received late in the second quarter of 2026. Customers continue to adapt to external economic and market issues, while monitoring their inventory very closely including intra-quarter shipments while also attempting to minimize their inventory at quarter end.

Cash from investing activities

Cash of $870,733 and $705,976 was used in investing activities during the six months ended June 30, 2026 and 2025, respectively.

Cash from financing activities

During the six months ended June, 2026, the Company purchased $267,500 of Treasury stock pursuant to its share repurchase program.

Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements including special purpose entities.

Critical Accounting Policies

The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in the condensed financial statements and accompanying notes. Note 2 to the condensed financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025, describes the significant accounting policies and methods used in the preparation of the condensed financial statements. Estimates are used for, but not limited to, accounting for the allowance for doubtful accounts and current expected credit losses, inventory allowances, property and equipment depreciable lives, patents and licenses useful lives, revenue recognition, income tax expense, deferred tax assets and liabilities, realization of deferred tax assets, stock-based compensation and assessing changes in which impairment of certain long-lived assets may occur. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Financial Statements. The allowance for doubtful accounts

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

is based on our assessment of the collectability of specific customer accounts and the aging of accounts receivable. If there is a deterioration of a major customer’s creditworthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected. Inventory purchases and commitments are based upon future demand forecasts. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory allowances, and our gross margin could be adversely affected. The tax valuation allowance is based on our consideration of new evidence, both positive and negative, that could affect our view of the future realization of deferred tax assets. If we were to determine not to be able to realize all or part of the deferred tax asset in the future, an adjustment to the deferred tax asset would be necessary which would reduce our net income for that period. Depreciable and useful lives estimated for property and equipment, licenses and patents are based on initial expectations of the period of time these assets and intangibles will benefit us. Changes in circumstances related to a change in our business, changes in technology or other factors could result in these assets becoming impaired, which could adversely affect the value of these assets.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and implemented, can only provide reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely discussions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Inherent Limitations over Internal Controls

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance

with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on our financial statements.

Management is responsible for the consistency, integrity, and presentation of information. We fulfill our responsibility by maintaining systems of internal control designed to provide reasonable assurance that assets are safeguarded, and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance.

The Board of Directors exercises its oversight role with respect to our systems of internal control primarily through its Audit Committee, which is comprised of independent directors. The Committee oversees our financial reporting, quarterly reviews, and audits to assess whether their quality, integrity, and objectivity are sufficient to protect shareholders’ investments.

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Item 4. Controls and Procedures (continued)

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting for the three months ended June 30, 2026, that materially affected or were reasonably likely to materially affect our disclosure controls and procedures. Additionally, there were no

changes in our internal controls that could materially affect our disclosure controls and procedures after the date of their evaluation.

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PART II. OTHER INFORMATION

Item 6. Exhibits


3(a)		Certificate of Second Amended and Restated Articles of Incorporation of Superconductive Components, Inc. (Incorporated by reference to Exhibit 3(a) to the Company’s initial Form 10-SB, filed on September 28, 2000)

3(b)		Restated Code of Regulations of Superconductive Components, Inc. (Incorporated by reference to Exhibit 3(b) to the Company’s initial Form 10-SB, filed on September 28, 2000)

3(c)		Amendment to Articles of Incorporation recording the change of the corporate name to SCI Engineered Materials, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB filed November 7, 2007).

4(a)		SCI Engineered Materials, Inc. 2011 Stock Incentive Plan (Incorporated by reference to the Company’s Definitive Proxy Statement for the 2011 Annual Meeting of Shareholders held on September 10, 2011, filed April 28, 2011).




14(a)		SCI Engineered Materials Code of Ethics for the Chief Executive Officer and Chief Financial Officer (Incorporated by reference to the Company’s Current Report via the Company’s website at www.sciengineeredmaterials.com).

31.1	*	Rule 13a-14(a) Certification of Principal Executive Officer.

31.2	*	Rule 13a-14(a) Certification of Principal Financial Officer.

32.1	*	Section 1350 Certification of Principal Executive Officer.

32.2	*	Section 1350 Certification of Principal Financial Officer.

99.1	*	Press Release dated July 30, 2026 entitled “SCI Engineered Materials, Inc., Reports 2026 Second Quarter and Year-to-Date Results.”

101	*	The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Balance Sheets at June 30, 2026 and December 31, 2025, (ii) Condensed Statements of Income for the three and six months ended June 30, 2026 and 2025, (iii) Condensed Statement of Changes in Equity for the three and six months ended June 30, 2026 and 2025, (iv) Condensed Statements of Cash Flows for the six months ended June 30, 2026 and 2025, and (v) Notes to the Condensed Financial Statements.

104	*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		SCI ENGINEERED MATERIALS, INC.

Date: July 30, 2026		/s/ Jeremiah R. Young
		Jeremiah R. Young, President, and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Shelby S. Yohn
		Shelby S. Yohn, Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)