SCI Engineered Materials, Inc 10-Q for FY2023 Q3

SCI Engineered Materials, Inc. (SCIA)

10-Q 2023-10-27 For: 2023-09-30

Added on April 11, 2026

About this 10-Q

SCI Engineered Materials, Inc filed this 10-Q on October 27, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $7.7M; up 32.4% from $5.82M a year earlier
Net income: $578.78K; up 30.7% from net income of $442.7K a year earlier
Diluted EPS: $0.13; up 30.0% from $0.10 a year earlier

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


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


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


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	3

	Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	5

	Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	6

	Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	7

	Notes to Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

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	19

Signatures		20


	September 30,		December 31,
	2023		2022
	(UNAUDITED)
Current Assets
Cash and cash equivalents	$	5,798,613	$	3,947,966
Investments - marketable securities, short term		1,000,000		989,265
Accounts receivable
Trade, less allowance for doubtful accounts of $15,000		1,218,826		842,647
Tax - Employee Retention Credit		40,539		40,539
Other		31,785		12,653
Inventories, net		3,187,221		2,177,917
Prepaid purchase orders		1,171,740		—
Prepaid expenses		91,327		136,134
Total current assets		12,540,051		8,147,121

Property and Equipment, at cost
Machinery and equipment		8,683,695		8,584,871
Furniture and fixtures		129,476		142,471
Leasehold improvements		740,331		607,156
Construction in progress		30,371		28,708
		9,583,873		9,363,206
Less accumulated depreciation and amortization		(7,269,854)		(7,101,573)
Property and equipment, net		2,314,019		2,261,633

Other Assets
Investments, net - marketable securities, long term		997,478		1,000,000
Right of use asset, net		117,487		185,072
Deferred tax asset		—		151,164
Other assets		81,248		85,138
Total other assets		1,196,213		1,421,374

TOTAL ASSETS	$	16,050,283	$	11,830,128


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
	2023		2022		2023		2022

Revenue	$	7,700,123	$	5,816,838	$	20,954,960	$	17,648,275

Cost of revenue		6,313,460		4,645,255		16,990,090		14,104,923

Gross profit		1,386,663		1,171,583		3,964,870		3,543,352

General and administrative expense		433,656		374,193		1,285,152		1,170,782

Research and development expense		121,554		93,081		372,407		272,197

Marketing and sales expense		121,244		94,594		358,058		284,922

Income from operations		710,209		609,715		1,949,253		1,815,451

Interest (income) expense, net		(81,252)		(363)		(194,143)		11,899

Income before provision for income taxes		791,461		610,078		2,143,396		1,803,552

Income tax expense		212,677		167,375		515,233		311,575

NET INCOME	$	578,784	$	442,703	$	1,628,163	$	1,491,977

Earnings per share - basic and diluted (Note 7)

Income per common share
Basic	$	0.13	$	0.10	$	0.36	$	0.33
Diluted	$	0.13	$	0.10	$	0.36	$	0.33

Weighted average shares outstanding
Basic		4,530,207		4,516,518		4,528,524		4,513,785
Diluted		4,561,708		4,544,651		4,559,208		4,541,590


			Additional
	Common		Paid-In		Accumulated
	Stock		Capital		Deficit		Total

Balance 6/30/2023	$	10,662,343	$	2,233,384	$	(3,060,214)	$	9,835,513

Net income		—		—		578,784		578,784

Balance 9/30/2023	$	10,662,343	$	2,233,384	$	(2,481,430)	$	10,414,297

Balance 6/30/2022	$	10,603,450	$	2,229,443	$	(5,012,343)	$	7,820,550

Stock based compensation expense (Note 5)		—		1,182		—		1,182

Common stock issued (Note 5)		7,488		—		—		7,488

Net income		—		—		442,703		442,703

Balance 9/30/2022	$	10,610,938	$	2,230,625	$	(4,569,640)	$	8,271,923


Balance 12/31/2022	$	10,618,435	$	2,231,807	$	(4,104,593)	$	8,745,649

Adoption of ASU 2016-13 (Note 3)		—		—		(5,000)		(5,000)

Stock based compensation expense (Note 5)		—		1,577		—		1,577

Common stock issued (Note 5)		43,908		—		—		43,908

Net income		—		—		1,628,163		1,628,163

Balance 9/30/2023	$	10,662,343	$	2,233,384	$	(2,481,430)	$	10,414,297

Balance 12/31/2021	$	10,573,843	$	2,227,078	$	(6,061,617)	$	6,739,304

Stock based compensation expense (Note 5)		—		3,547		—		3,547

Common stock issued (Note 5)		37,095		—		—		37,095

Net income		—		—		1,491,977		1,491,977

Balance 9/30/2022	$	10,610,938	$	2,230,625	$	(4,569,640)	$	8,271,923


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Losses		Gains		Fair Value
September 30, 2023
Corporate bonds	$	1,500,000	$	(8,560)	$	—	$	1,491,440
U.S. government treasuries		509,478		(9,243)		—		500,235
Total investments	$	2,009,478	$	(17,803)	$	—	$	1,991,675

Allowance for credit losses		(12,000)
Total investments, net	$	1,997,478

December 31, 2022
Corporate bonds	$	1,500,000	$	(1,924)	$	—	$	1,498,076
U.S. government treasuries		489,265		—		2,665		491,930
Total investments	$	1,989,265	$	(1,924)	$	2,665	$	1,990,006


		Weighted
		Average
	Stock	Exercise
	Options	Price
Outstanding at January 1, 2022	41,304	$	1.05
Outstanding at December 31, 2022	41,304	$	1.05
Outstanding at September 30, 2023	41,304	$	1.05
Options exercisable at December 31, 2022	34,361	$	1.01
Options exercisable at September 30, 2023	41,304	$	1.05



2023	$	28,920
2024		107,094
Total minimum lease payments		136,014
Less debt discount		4,683
Total operating lease obligations	$	131,331


	2023			2022
Operating cash outflows from operating lease - year-to-date	$	78,357		$	72,183
Weighted average remaining lease term – operating lease		1.2	years		2.2	years
Weighted average discount rate – operating lease		5.5	%		5.5	%


2023	$	22,698
2024		49,859
Total minimum lease payments		72,557
Less amount representing interest		1,379
Present value of minimum lease payments		71,178
Less current portion		71,178
Finance lease obligations, net of current portion	$	—

Weighted average remaining lease term – finance leases		0.9	years
Weighted average discount rate – finance leases		4.25	%


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 June 10, 2011, filed April 28, 2011).

4(b)		Superconductive Components, Inc. 2006 Stock Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the 2006 Annual Meeting of Shareholders held on June 9, 2006, filed May 1, 2006).


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 October 27, 2023, entitled “SCI Engineered Materials, Inc., Reports 2023 Third Quarter and Year-to-date Results.”

101		The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Balance Sheets at September 30, 2023 and December 31, 2022, (ii) Statements of Income for the three and nine months ended September 30, 2023 and 2022, (iii) Statement of Changes in Equity for the three and nine months ended September 30, 2023 and 2022, (iv) Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and (v) Notes to Financial Statements.

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


		SCI ENGINEERED MATERIALS, INC.

Date: October 27, 2023		/s/ Jeremiah R. Young
		Jeremiah R. Young, President, and Chief Executive Officer
		(Principal Executive Officer)

		/s/ Gerald S. Blaskie
		Gerald S. Blaskie, Vice President, and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)


Date: October 27, 2023	/s/ Jeremiah R. Young
	Jeremiah R. Young
	President and Chief Executive Officer
	(Principal Executive Officer)


	NINE MONTHS ENDED SEPTEMBER 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,628,163	$	1,491,977
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and accretion		344,291		305,480
Amortization of patents		3,311		3,311
Stock based compensation		45,485		40,642
(Gain) loss on disposal of equipment		(9,142)		5,959
Deferred taxes		367,131		288,000
Inventory reserve		3,990		(15,925)
Changes in operating assets and liabilities:
Accounts receivable		(395,311)		(156,805)
Inventories		(1,013,294)		(363,445)
Prepaid purchase orders and expenses		(1,126,933)		586,565
Other assets		7,579		—
Accounts payable		(36,868)		256,365
Operating lease assets and liabilities, net		(6,707)		(5,844)
Accrued expenses and customer deposits		2,516,863		(384,601)
Net cash provided by operating activities		2,328,558		2,051,679

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		16,000		5,166
Purchases of marketable securities		(509,478)		—
Proceeds from maturities of marketable securities		489,265		—
Purchases of property and equipment		(398,360)		(511,399)
Net cash used in investing activities		(402,573)		(506,233)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance lease obligations		(75,338)		(72,131)
Net cash used in financing activities		(75,338)		(72,131)

NET INCREASE IN CASH	$	1,850,647	$	1,473,315

CASH - Beginning of year		3,947,966		4,140,942

CASH - End of period	$	5,798,613	$	5,614,257


	September 30,		December 31,
	2023		2022
Raw materials	$	1,913,985	$	1,375,669
Work-in-process		1,160,111		528,631
Finished goods		127,546		284,048
		3,201,642		2,188,348
Inventory reserve		(14,421)		(10,431)
	$	3,187,221	$	2,177,917


Date: October 27, 2023	/s/ Gerald S. Blaskie
	Gerald S. Blaskie
	Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting
	Officer)


	/s/ Jeremiah R. Young
	Jeremiah R. Young
	President and Chief Executive Officer of
	SCI Engineered Materials, Inc.
	(Principal Executive Officer)
	October 27, 2023

	THREE MONTHS ENDED SEPT. 30,				NINE MONTHS ENDED SEPT. 30,
	2023		2022		2023		2022
Revenue	$	7,700,123	$	5,816,838	$	20,954,960	$	17,648,275
Cost of revenue		6,313,460		4,645,255		16,990,090		14,104,923
Gross profit		1,386,663		1,171,583		3,964,870		3,543,352
General and administrative expense		433,656		374,193		1,285,152		1,170,782
Research and development expense		121,554		93,081		372,407		272,197
Marketing and sales expense		121,244		94,594		358,058		284,922
Income from operations		710,209		609,715		1,949,253		1,815,451
Interest (income) expense, net		(81,252)		(363)		(194,143)		11,899
Income before provision for income taxes		791,461		610,078		2,143,396		1,803,552
Income tax expense		212,677		167,375		515,233		311,575
NET INCOME	$	578,784	$	442,703	$	1,628,163	$	1,491,977
Earnings per share - basic and diluted
Income per common share
Basic	$	0.13	$	0.10	$	0.36	$	0.33
Diluted	$	0.13	$	0.10	$	0.36	$	0.33
Weighted average shares outstanding
Basic		4,530,207		4,516,518		4,528,524		4,513,785
Diluted		4,561,708		4,544,651		4,559,208		4,541,590

	2023		2022
CASH PROVIDED BY (USED IN):
Operating activities	$	2,328,558	$	2,051,679
Investing activities		(402,573)		(506,233)
Financing activities		(75,338)		(72,131)
NET INCREASE IN CASH		1,850,647		1,473,315

CASH - Beginning of period		3,947,966		4,140,942

CASH - End of period	$	5,798,613	$	5,614,257