SCI Engineered Materials, Inc 10-Q for FY2021 Q3

SCI Engineered Materials, Inc. (SCIA)

10-Q 2021-10-27 For: 2021-09-30

Added on April 11, 2026

About this 10-Q

SCI Engineered Materials, Inc filed this 10-Q on October 27, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).

Headline figures

Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $5.21M; up 248.8% from $1.49M a year earlier
Net income: $668.68K; up 1043.1% from net income of $58.5K a year earlier
Diluted EPS: $0.15; up 1400.0% from $0.01 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, 2021 (unaudited) and December 31, 2020	3

	Statements of Operations for the Three and Nine Months Ended September 30, 2021, and 2020 (unaudited)	5

	Statements of Shareholder’s Equity for the Three and Nine Months Ended September 30, 2021, and 2020 (unaudited)	6

	Statements of Cash Flows for the Nine Months Ended September 30, 2021, and 2020 (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	19

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	21

Signatures		22


	September 30,		December 31,
	2021		2020
	(UNAUDITED)
Current Assets
Cash	$	3,953,385	$	2,917,551
Accounts receivable
Trade, less allowance for doubtful accounts of $15,000		573,316		459,471
Tax - Employee Retention Credit		184,861		—
Inventories		1,982,028		1,180,359
Prepaid expenses		99,523		131,333
Total current assets		6,793,113		4,688,714

Property and Equipment, at cost
Machinery and equipment		7,926,829		8,280,611
Furniture and fixtures		132,364		132,365
Leasehold improvements		596,867		592,899
Construction in progress		229,845		3,904
		8,885,905		9,009,779
Less accumulated depreciation		(6,716,883)		(7,121,647)
		2,169,022		1,888,132

Right of use asset, net		295,640		357,396
Deferred tax asset		703,132		1,019,317
Other assets		90,656		96,623
Total other assets		1,089,428		1,473,336

TOTAL ASSETS	$	10,051,563	$	8,050,182


	THREE MONTHS ENDED SEPT. 30,				NINE MONTHS ENDED SEPT. 30,
	2021		2020		2021		2020
Revenue	$	5,211,169	$	1,494,078	$	10,205,528	$	7,539,460

Cost of revenue		3,908,801		1,034,939		7,537,570		6,133,199

Gross profit		1,302,368		459,139		2,667,958		1,406,261

General and administrative expense		306,997		263,444		878,586		818,825

Research and development expense		56,612		83,276		149,208		260,601

Marketing and sales expense		61,732		44,862		159,559		144,033

Income from operations		877,027		67,557		1,480,605		182,802

Gain on extinguishment of debt		—		—		(325,300)		—

Interest expense		8,156		9,058		24,808		20,427

Income before provision for income taxes		868,871		58,499		1,781,097		162,375

Income tax expense		200,189		—		338,282		1,900

Net income		668,682		58,499		1,442,815		160,475

Dividends on preferred stock		6,038		6,038		18,114		18,114

INCOME APPLICABLE TO COMMON SHARES	$	662,644	$	52,461	$	1,424,701	$	142,361

Earnings per share - basic and diluted (Note 7)

Income per common share
Basic	$	0.15	$	0.01	$	0.32	$	0.03
Diluted	$	0.15	$	0.01	$	0.32	$	0.03

Weighted average shares outstanding
Basic		4,500,256		4,436,185		4,492,736		4,411,390
Diluted		4,531,523		4,447,059		4,521,746		4,420,272


	Convertible				Additional
	Preferred Stock,		Common		Paid-In		Accumulated
	Series B		Stock		Capital		Deficit		Total
Balance 12/31/2020	$	514,438	$	10,530,669	$	2,246,501	$	(7,740,441)	$	5,551,167

Accretion of cumulative dividends		18,114		—		(18,114)		—		—

Payment of cumulative dividends (Note 5)		(24,152)		—		—		—		(24,152)

Stock based compensation expense (Note 4)		—		—		3,547		—		3,547

Common stock issued (Note 4)		—		35,686		—		—		35,686

Net income		—		—		—		1,442,815		1,442,815

Balance 9/30/2021	$	508,400	$	10,566,355	$	2,231,934	$	(6,297,626)	$	7,009,063

Balance 6/30/2021	$	502,362	$	10,558,867	$	2,236,790	$	(6,966,308)	$	6,331,711

Accretion of cumulative dividends		6,038		—		(6,038)		—		—

Stock based compensation expense (Note 4)		—		—		1,182		—		1,182

Common stock issued (Note 4)		—		7,488		—		—		7,488

Net income		—		—		—		668,682		668,682

Balance 9/30/2021	$	508,400	$	10,566,355	$	2,231,934	$	(6,297,626)	$	7,009,063

Balance 12/31/2019	$	514,438	$	10,410,677	$	2,265,925	$	(9,242,204)	$	3,948,836

Accretion of cumulative dividends		18,114		—		(18,114)		—		—

Payment of cumulative dividends (Note 5)		(24,152)		—		—		—		(24,152)

Stock based compensation expense (Note 4)		—		—		3,546		—		3,546

Common stock issued (Note 4)		—		89,998		—		—		89,998

Net income		—		—		—		160,475		160,475

Balance 9/30/2020	$	508,400	$	10,500,675	$	2,251,357	$	(9,081,729)	$	4,178,703

Balance 6/30/20	$	502,362	$	10,470,675	$	2,256,213	$	(9,140,228)	$	4,089,022

Accretion of cumulative dividends		6,038		—		(6,038)		—		—

Stock based compensation expense (Note 4)		—		—		1,182		—		1,182

Common stock issued (Note 4)		—		30,000		—		—		30,000

Net income		—		—		—		58,499		58,499

Balance 9/30/2020	$	508,400	$	10,500,675	$	2,251,357	$	(9,081,729)	$	4,178,703


	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,442,815	$	160,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and accretion		325,793		335,789
Amortization of right of use asset		61,756		57,265
Amortization of patents		3,311		2,827
Stock based compensation		39,233		93,544
Gain on disposal of equipment		(4,511)		(1,322)
Deferred tax asset		316,185		—
Gain on extinguishment of debt		(325,300)		—
Inventory reserve		900		1,921
Changes in operating assets and liabilities:
Accounts receivable		(298,706)		(14,411)
Inventories		(802,569)		1,518,506
Prepaid expenses		31,810		11,825
Other assets		2,656		(13,594)
Accounts payable		165,371		(88,211)
Operating lease obligations		(65,915)		(59,739)
Accrued expenses and customer deposits		887,869		(1,500,314)
Net cash provided by operating activities		1,780,698		504,561

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment		18,091		3,063
Purchases of property and equipment		(615,088)		(49,023)
Net cash used in investing activities		(596,997)		(45,960)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of cumulative dividends on preferred stock		(24,152)		(24,152)
Proceeds from SBA Paycheck Protection Program note payable		—		325,300
Principal payments on finance lease obligations and notes payable		(123,715)		(84,238)
Net cash (used in) provided by financing activities		(147,867)		216,910

NET INCREASE IN CASH		1,035,834		675,511

CASH - Beginning of period		2,917,551		1,828,397

CASH - End of period	$	3,953,385	$	2,503,908

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	9,256	$	10,736
Income taxes		338,282		1,900
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased by finance lease		—		306,973
Increase in asset retirement obligation		5,175		2,700


		Weighted
		Average
	Stock Options	Exercise Price
Outstanding at January 1, 2020	76,037	$	1.03
Outstanding at December 31, 2020	76,037	$	1.03
Exercised	(30,181)		0.96
Outstanding at September 30, 2021	45,856	$	1.07
Options exercisable at December 31, 2020	55,208	$	0.94
Options exercisable at September 30, 2021	31,970	$	0.99


	September 30,		December 31,
	2021		2020
	(unaudited)
Raw materials	$	522,058	$	206,668
Work-in-process		1,201,672		877,812
Finished goods		283,416		120,097
Inventory reserve		(25,118)		(24,218)
	$	1,982,028	$	1,180,359


	Three months ended Sept. 30,				Nine months ended Sept. 30,
	2021		2020		2021		2020
Income applicable to common shares	$	662,644	$	52,461	$	1,424,701	$	142,361

Weighted average common shares outstanding - basic		4,500,256		4,436,185		4,492,736		4,411,390

Effect of dilution		31,267		10,874		29,010		8,882
Weighted average shares outstanding - diluted		4,531,523		4,447,059		4,521,746		4,420,272


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Federal - deferred	$	185,183	$	—	$	316,185	$	—
State and local		15,006		—		22,097		1,900
	$	200,189	$	—	$	338,282	$	1,900


2021	$	27,797
2022		112,611
2023		114,857
2024		102,550
Total minimum lease payments		357,815
Less debt discount		31,897
Total operating lease obligations	$	325,918


Operating cash outflows from operating leases	$	219,400
Weighted average remaining lease term – operating leases		3.2	years
Weighted average discount rate – operating leases		5.5	%


2021	$	39,624
2022		105,154
2023		101,675
2024		49,859
Total minimum lease payments		296,312
Less amount representing interest		16,393
Present value of minimum lease payments		279,919
Less current portion		108,832
Finance lease obligations, net of current portion	$	171,087


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).

10(c)		Description of Unsecured Promissory Note administered by the U.S. Small Business Administration for funds received April 24, 2020 (Incorporated by reference to the Company’s Current Report on Form 8-K, dated April 29, 2020).

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, 2021, entitled “SCI Engineered Materials, Inc., Reports 2021 Third Quarter and Year-to-Date Results.”

101		The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020, (iii) Consolidated Statement of Changes in Equity for the three and nine months ended September 30, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, 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, 2021		/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, 2021	/s/ Jeremiah R. Young
	Jeremiah R. Young
	President and Chief Executive Officer
	(Principal Executive Officer)


	Sept. 30, 2021		Dec. 31, 2020
Machinery and equipment	$	745,289	$	745,289
Less accumulated depreciation and amortization		213,383		157,486
Net book value	$	531,906	$	587,803

Date: October 27, 2021	/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, 2021