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 ~~September~~March 3031, ~~2024~~2025

☐	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 ☒

4,568,127 shares of Common Stock, without par value, were outstanding at ~~November~~May 1, ~~2024~~2025.

Table of Contents

FORM 10-Q

SCI ENGINEERED MATERIALS, INC.

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023	3
	Balance Sheets as of March 31, 2025 (unaudited) and December 31, 2024	3
	Statements of Income for the Three and Nine months ended September 30, 2024 and 2023 (unaudited)	5
	Statements of Income for the Three months ended March 31, 2025 and 2024 (unaudited)	5
	Statements of Shareholders’ Equity for the Three and Nine months ended September 30, 2024 and 2023 (unaudited)	6
	Statements of Shareholders’ Equity for the Three months ended March 31, 2025 and 2024 (unaudited)	6
	Statements of Cash Flows for the Nine months ended September 30, 2024 and 2023 (unaudited)	7
	Statements of Cash Flows for the Three months ended March 31, 2025 and 2024 (unaudited)	7
	Notes to Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1514
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	N/A
Item 4.	Controls and Procedures	1917
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	2119
Signatures		2220

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SCI ENGINEERED MATERIALS, INC.

BALANCE SHEETS

ASSETS


	~~September~~March 3031,		December 31,
	~~2024~~2025		~~2023~~2024
	(UNAUDITED)
Current Assets
Cash and cash equivalents	$	7,~~656~~353,~~046~~420	$	56,~~673~~753,~~994~~403
Investments - marketable securities, short term		509,478		1509,~~000,000~~478
Accounts receivable
Trade, less allowance for doubtful accounts of $15,000		~~946~~618,~~222~~991		~~854~~704,~~501~~808
Tax - Employee Retention Credit		40,539		40,539
Other		2839,~~919~~138		1529,~~607~~941
Inventories, net		1,~~790~~191,~~209~~064		41,~~654~~432,~~398~~914
Prepaid purchase orders		~~490~~27,~~858~~034		183,~~123,980~~932
Prepaid expenses		~~102~~115,~~588~~988		~~214~~154,~~458~~902
Total current assets		119,~~564~~895,~~859~~652		139,~~577~~709,~~477~~917

Property and Equipment, at cost
Machinery and equipment		8,~~758~~744,~~325~~428		8,~~677~~755,~~446~~422
Furniture and fixtures		~~153~~178,~~957~~307		~~129~~178,~~476~~307
Leasehold improvements		744,297		744,297
Construction in progress		~~161~~307,~~809~~790		52226,~~097~~002
		9,~~818~~974,~~388~~822		9,~~603~~904,~~316~~028
Less accumulated depreciation and amortization		(7,~~553~~723,~~523~~048)		(7,~~359~~632,~~310~~946)
Property and equipment, net		2,~~264~~251,~~865~~774		2,~~244~~271,~~006~~082

Other Assets
Investments, net - marketable securities, long term		12,499,000		~~994~~2,~~478~~249,000
Right of use asset, net		1,~~267~~195,~~242~~470		~~592~~1,~~170~~236,572
Other assets		6765,~~627~~160		7866,~~289~~394
Total other assets		23,~~833~~759,~~869~~630		13,~~664~~551,~~937~~966

TOTAL ASSETS	$	1615,~~663~~907,~~593~~056	$	1715,~~486~~532,~~420~~965

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

Table of Contents

SCI ENGINEERED MATERIALS, INC.

BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY


	~~September~~March 3031,		December 31,
	~~2024~~2025		~~2023~~2024
	(UNAUDITED)
Current Liabilities
Finance lease obligations, current portion	$	—	$	49,149
Operating lease obligations, current portion	$	184,183	$	174,863
Operating lease obligations, current portion		160,728		111,193
Accounts payable		458,277		419,209
Accounts payable		540,794		385,489
Customer deposits		538,035		337,873
Customer deposits		1,735,251		4,871,035
Accrued compensation		163,136		401,830
Accrued compensation		420,288		406,971
Accrued expenses and other		151,230		130,430
Accrued expenses and other		156,644		120,624
Total current liabilities		1,494,861		1,464,205
Total current liabilities		3,013,705		5,944,461

Deferred tax liability		84205,~~934~~789		69121,~~846~~649
Operating lease obligations, net of current portion		1,~~108~~011,~~533~~287		~~492~~1,~~080~~061,709
Total liabilities		42,~~207~~711,~~172~~937		62,~~506~~647,~~387~~563

Shareholders' Equity
Common stock, no par value, authorized 15,000,000 shares; 4,568,127 and 4,530,207 shares issued and outstanding, respectively		10,706,323		10,662,343
Common stock, no par value, authorized 15,000,000 shares; 4,568,127 shares issued and outstanding, respectively		10,706,323		10,706,323
Additional paid-in capital		2,233,384		2,233,384
Accumulated deficit		(483,286)		(1,915,694)
Retained earnings (accumulated deficit)		255,412		(54,305)
Total shareholders' equity		1213,~~456~~195,~~421~~119		1012,~~980~~885,~~033~~402

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1615,~~663~~907,~~593~~056	$	1715,~~486~~532,~~420~~965

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

Table of Contents

SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF INCOME

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2024~~2025 AND ~~2023~~2024

(UNAUDITED)

Three Months Ended ~~September~~March 3031,

~~Nine Months Ended September 30,~~

~~2024~~2025

~~2023~~2024

~~2024~~

~~2023~~

Revenue

3,~~883~~500,~~237~~232

78,~~700~~403,~~123~~095

~~17,819,042~~

~~20,954,960~~

Cost of revenue

2,~~793~~427,~~944~~418

6,~~313~~987,~~460~~979

~~13,935,694~~

~~16,990,090~~

Gross profit

1,~~089~~072,~~293~~814

1,~~386~~415,~~663~~116

~~3,883,348~~

~~3,964,870~~

General and administrative expense

~~476~~547,~~572~~821

~~433~~482,~~656~~261

~~1,426,406~~

~~1,285,152~~

Research and development expense

~~130~~102,~~014~~267

~~121~~185,~~554~~235

~~489,879~~

~~372,407~~

Marketing and sales expense

~~123~~120,~~596~~187

~~121~~129,~~244~~352

~~404,486~~

~~358,058~~

Income from operations

~~359~~302,~~111~~539

~~710~~618,~~209~~268

~~1,562,577~~

~~1,949,253~~

Interest income, net

~~107~~98,~~391~~130

8187,~~252~~056

~~290,908~~

~~194,143~~

Income before provision for income taxes

~~466~~400,~~502~~669

~~791~~705,~~461~~324

~~1,853,485~~

~~2,143,396~~

Income tax expense

~~105~~90,~~924~~952

~~212~~160,~~677~~000

~~421,077~~

~~515,233~~

NET INCOME

~~360~~309,~~578~~717

~~578~~545,~~784~~324

~~1,432,408~~

~~1,628,163~~

Earnings per share - basic and diluted (Note 7)

Income per common share

Basic

0.0807

0.1312

~~0.32~~

~~0.36~~

Diluted

0.0807

0.1312

~~0.31~~

~~0.36~~

Weighted average shares outstanding

Basic

4,~~564~~568,~~259~~127

4,~~530~~534,~~207~~801

~~4,546,269~~

~~4,528,524~~

Diluted

4,~~568~~572,~~863~~491

4,~~561~~567,~~708~~707

~~4,550,820~~

~~4,559,208~~

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

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SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2024~~2025 AND ~~2023~~2024

(UNAUDITED)


			Additional
	Common		Paid-In		~~Accumulated~~Retained Earnings
	Stock		Capital		(Accumulated Deficit)		Total
Balance 6/30/2024	$	10,706,323	$	2,233,384	$	(843,864)	$	12,095,843

Net income		—		—		360,578		360,578
Balance 12/31/2024	$	10,706,323	$	2,233,384	$	(54,305)	$	12,885,402

Balance 9/30/2024	$	10,706,323	$	2,233,384	$	(483,286)	$	12,456,421
Net income		—		—		309,717		309,717

Balance 6/30/2023	$	10,662,343	$	2,233,384	$	(3,060,214)	$	9,835,513
Balance 3/31/2025	$	10,706,323	$	2,233,384	$	255,412	$	13,195,119

Net income		—		—		578,784		578,784

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


Balance 12/31/2023	$	10,662,343	$	2,233,384	$	(1,915,694)	$	10,980,033

Common stock issued (Note 5)		43,980		—		—		43,980

Net income		—		—		1545,~~432,408~~324		1545,~~432,408~~324

Balance 9/30/2024	$	10,706,323	$	2,233,384	$	(483,286)	$	12,456,421
Balance 3/31/2024	$	10,706,323	$	2,233,384	$	(1,370,370)	$	11,569,337

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

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

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SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF CASH FLOWS

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2024~~2025 AND ~~2023~~2024

(UNAUDITED)


	~~Nine~~Three Months Ended ~~September~~March 3031,
	~~2024~~2025		~~2023~~2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1309,~~432,408~~717	$	1545,~~628,163~~324
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and accretion		~~363~~104,~~245~~369		~~344~~125,~~291~~544
Amortization of patents		31,~~700~~233		31,~~311~~233
Stock based compensation		~~43,980~~—		4543,~~485~~980
Gain on disposal of equipment		—		(9,142)
Deferred taxes		84,140		76,545
Deferred taxes		15,088		367,131
Inventory reserve		510		510
Inventory reserve		1,530		3,990
Changes in operating assets and liabilities:
Accounts receivable		~~(105~~76,~~033)~~619		(~~395~~224,~~311~~900)
Inventories		2241,~~862,659~~340		(1968,~~013,294)~~847
Prepaid purchase orders		~~633~~56,~~122~~898		(1,~~171~~106,~~740)~~146
Prepaid expenses		~~111~~38,~~870~~914		4463,~~807~~003
Other assets		~~(7,038)~~—		7(14,~~579~~000)
Accounts payable		~~155~~39,~~305~~068		(3633,~~868~~544)
Operating lease assets and liabilities, net		~~(9,084)~~—		(63,~~707~~028)
Customer deposits		(3200,~~135,784)~~162		(2,~~410~~442,~~832~~538)
Accrued liabilities		44(219,~~161~~617)		~~106~~(224,~~031~~816)
Net cash provided by operating activities		2,410,129		2,328,558
Net cash provided by (used in) operating activities		933,353		(11,694)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		—		16,000
Purchases of marketable securities		(750,000)		(500,000)
Purchases of marketable securities		(1,000,000)		(509,478)
Proceeds from maturities of marketable securities		500,000		500,000
Proceeds from maturities of marketable securities		1,000,000		489,265
Purchases of property and equipment		(83,336)		(176,534)
Purchases of property and equipment		(378,928)		(398,360)
Net cash used in investing activities		(333,336)		(176,534)
Net cash used in investing activities		(378,928)		(402,573)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance lease obligations		~~(49,149)~~—		(7520,~~338~~439)

NET INCREASE IN CASH	$	1,982,052	$	1,850,647
NET INCREASE (DECREASE) IN CASH		600,017		(208,667)

CASH - Beginning of year		56,~~673~~753,~~994~~403		35,~~947~~673,~~966~~994

CASH - End of period	$	7,~~656~~353,~~046~~420	$	5,~~798~~465,~~613~~327

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	~~706~~—	$	~~3,639~~447
Income taxes		325,733		124,424

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase in asset retirement obligation	$	51,~~175~~725	$	51,~~175~~725

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

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SCI ENGINEERED MATERIALS, INC

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~~2024. 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 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 ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024. The top two customers represented 8880% and 8992% of total revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024, respectively. The Company issells ~~selling~~ multiple products to its top two customers. International shipments were 1% of total revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024.

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SCI ENGINEERED MATERIALS, INC

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Summary of Significant Accounting Policies (continued)

Contract assets – The following table presents changes in the Company’s contract assets during the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024:

Balance at beginning of period

Billings

Payments received

Balance at end of period

Nine months ended September 30, 2024

Three months ended March 31, 2025

Accounts receivable

~~854~~704,~~501~~808

173,~~819~~500,~~042~~232

(173,~~727~~586,~~321~~049)

~~946~~618,~~222~~991

Nine months ended September 30, 2023

Three months ended March 31, 2024

Accounts receivable

~~842~~854,~~647~~501

208,~~954~~403,~~960~~095

(208,~~578~~189,~~781~~960)

1,~~218~~067,~~826~~636

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 ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024:

Balance at beginning of period

Billings

Recognized revenue

Balance at end of period

Nine months ended September 30, 2024

Three months ended March 31, 2025

Contract Liabilities: Customer deposits

4337,~~871,035~~873

92,~~501~~146,~~877~~158

(121,~~637~~945,~~661~~996)

1538,~~735,251~~035

Nine months ended September 30, 2023

Three months ended March 31, 2024

Contract Liabilities: Customer deposits

14,~~825~~871,~~595~~035

184,~~185~~025,~~500~~029

(156,~~774~~467,~~668~~566)

42,~~236~~428,~~427~~498

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 ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024. The Company ~~expects~~received ~~to receive~~ the full ERC balance, plus interest of $6,650 in April of 2025.

Note 3. Recent Accounting Pronouncements

InThe ~~September~~Company ~~2016,~~has ~~the~~reviewed ~~FASB~~ the accounting pronouncements issued ~~ASU~~by ~~No.~~the ~~2016-13~~Financial ~~“Credit~~Accounting ~~Losses~~Standards –Board ~~Measurement~~during ofthe ~~Credit~~three ~~Losses~~months onended ~~Financial~~March ~~Instruments.”~~31, ~~ASU No~~2025. ~~2016-13~~Applicable pronouncements are ~~significantly~~adopted ~~changes~~by ~~how~~the ~~entities~~Company ~~measure~~in ~~credit~~accordance ~~losses~~with ~~for~~the accounting guidance ~~most financial assets, including accounts receivable~~ and ~~held-to-maturity~~definition. ~~marketable~~Management ~~securities,~~does bynot ~~replacing~~believe ~~today’s~~the ~~“incurred~~adoption ~~loss”~~of ~~approach~~any ~~with~~of anthese ~~“expected~~accounting ~~loss”~~pronouncements ~~model~~has ~~under~~had ~~which~~or ~~allowances~~ will behave ~~recognized~~a ~~based~~material impact on ~~expected~~the ~~rather~~Company’s ~~than~~financial ~~incurred losses~~statements. ~~ASU~~Management ~~No.~~does ~~2016-13~~not ~~became~~believe ~~effective~~there ~~for~~are usother insignificant ~~the~~accounting ~~first~~pronouncements ~~quarter~~which ofhave ~~2023.~~had ~~The~~or ~~adoption~~will ofhave ~~ASU No. 2016-13 resulted in~~ a ~~cumulative~~material ~~effect~~impact ofon ~~$5,000 and was reflected in~~ the ~~accompanying Statement of Shareholders~~Company’s ~~Equity~~financial ~~in the first quarter of 2023~~statements.

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 $34,~~155~~740,~~750~~067 and $3,~~035~~192,~~547~~705 at ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024, respectively. This is valued at original cost plus interest and is included in Cash and cash equivalents on the balance sheet.

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SCI ENGINEERED MATERIALS, INC

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 4. Investments (continued)

As of ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024, the Company held investments in corporate bonds rated A- or higher, and U.S. government securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The bonds and government securities are considered held-to-maturity and are recorded at amortized cost on the balance sheet. These investments are considered level 2 as detailed in the table below. The Company considers investments which will mature in the next twelve months and interest receivable on the long-term bonds as current assets. The remaining investments are considered non-current assets including the investment in marketable securities which the Company intends to hold longer than twelve months. The fair value of these investments was estimated using recently executed transactions and market price quotations. At ~~September~~March 3031, ~~2024~~2025, the length of time until maturity of the bonds currently owned ranged from 81 to 3244 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
September 30, 2024
March 31, 2025
Corporate bonds	$	12,500,000	$	—(4,475)	$	~~913~~—	$	12,~~500~~495,~~913~~525
U.S. government treasuries		509,478		—		59,~~691~~549		~~515~~519,~~169~~027
Total investments	$	23,009,478	$	—(4,475)	$	69,~~604~~549	$	23,~~016~~014,~~081~~552

Allowance for credit losses		(1,000)
Total investments, net	$	23,008,478

December 31, 2023
December 31, 2024
Corporate bonds	$	12,~~500~~250,000	$	(96,~~078~~097)	$	—	$	12,~~490~~243,~~922~~903
U.S. government treasuries		509,478		~~(1,786)~~—		—7,662		~~507~~517,~~692~~140
Total investments	$	2,~~009~~759,478	$	(106,~~864~~097)	$	—7,662	$	12,~~998~~761,~~614~~043

Allowance for credit losses		(151,000)
Total investments, net	$	12,~~994~~758,478

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 ~~September~~March 3031, ~~2024~~2025. Our allowance for credit losses was $1,000 ~~and $15,000~~ at ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024, 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~~Employees ~~stock-based~~received compensation ~~expense~~of ~~was~~8,709 aggregate shares of common stock of the Company during the three months ended March 31, 2024. These shares had an aggregate value of $43,980 and ~~$45,485~~were recorded as non-cash stock compensation expense in the financial statements for the ~~nine~~three months ended ~~September~~March 3031, 2024. ~~and~~There ~~2023,~~was ~~respectively~~$0 stock based compensation expense for the same period in 2025.

Employees received compensation of 8,709 and 10,683 aggregate shares of common stock of the Company during the nine months ended September 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 nine months ended September 30, 2024 and 2023, respectively.

During the three months ended September 30, 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. During the nine months

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SCI ENGINEERED MATERIALS, INC

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 5. Common Stock and Stock Options (continued)

~~ended~~The ~~September~~cumulative ~~30,~~status ~~2024,~~of ~~35,359~~options ~~stock~~granted ~~options~~and ~~were~~outstanding ~~exercised~~at byMarch ~~employees~~31, ~~via~~2025 ~~cashless~~and ~~exercise.~~December 1531,~~116~~ 2024, as well as any options ~~were~~which ~~exercised~~became atexercisable ~~$1.25~~in ~~per~~connection ~~share~~with ~~and~~the ~~20,243~~Company’s ~~options~~stock ~~were~~option ~~exercised~~plans atis ~~$0.84~~summarized ~~per~~as ~~share.~~follows:

The cumulative status of options granted and outstanding at September 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:

Employee Stock Options


		Weighted
		Average
	Stock	Exercise
	Options	Price
Outstanding at January 1, 2023	41,304	$	1.05
Outstanding at January 1, 2024	41,304	$	1.05
Outstanding at December 31, 2023	41,304	$	1.05
Exercised	(35,359)	$	1.02
Exercised	(35,359)		1.02
Outstanding at December 31, 2024	5,945	$	1.25
Outstanding at September 30, 2024	5,945	$	1.25
Outstanding at March 31, 2025	5,945	$	1.25
Options exercisable at December 31, 2023	41,304	$	1.05
Options exercisable at December 31, 2024	5,945	$	1.25
Options exercisable at September 30, 2024	5,945	$	1.25
Options exercisable at March 31, 2025	5,945	$	1.25

Exercise price for options was $1.25 at ~~September~~March 3031, ~~2024~~2025, with a contractual life of 3.61 years.

Note 6. Inventories

Inventories consisted of the following:


	~~September 30,~~2025		~~December 31,~~2024
	2024		2023
Raw materials	$	260,379	$	291,890
Raw materials	$	444,677	$	3,222,642
Work-in-process		648,980		895,373
Work-in-process		1,096,825		1,240,067
Finished goods		289,231		252,667
Finished goods		257,749		199,201
		1,198,590		1,439,930
		1,799,251		4,661,910
Inventory reserve		(7,526)		(7,016)
Inventory reserve		(9,042)		(7,512)
	$	1,191,064	$	1,432,914
	$	1,790,209	$	4,654,398

Note 7. Earnings Per Share

Basic income per share is calculated as net income divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as 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 March 31,
	2025		2024
Net income	$	309,717	$	545,324

Weighted average common shares outstanding - basic		4,568,127		4,534,801

Effect of dilution - stock options		4,364		32,906
Weighted average shares outstanding - diluted		4,572,491		4,567,707

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SCI ENGINEERED MATERIALS, INC

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 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 September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Net income	$	360,578	$	578,784	$	1,432,408	$	1,628,163

Weighted average common shares outstanding - basic		4,564,259		4,530,207		4,546,269		4,528,524

Effect of dilution - stock options		4,604		31,501		4,551		30,684
Weighted average shares outstanding - diluted		4,568,863		4,561,708		4,550,820		4,559,208

Note 8. Line of Credit

The Company renewed its line of credit with Fifth Third Bank for $1 million during ~~August~~ 2024. This line of credit has a maturity date of August 29, 2025 and 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 ~~September~~March 3031, ~~2024~~2025.

Note 9. Income Taxes

The provision for income taxes for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024 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 22.7% ~~and 26.9%~~ for the three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023, respectively, and was 22.7% and 24.0% for the nine months ended September 30,~~ 2024 ~~and 2023, respectively~~. 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 ~~September~~March 3031,

~~Nine months ended September 30,~~

~~2024~~2025

~~2023~~2024

~~2024~~

~~2023~~

Federal

9784,~~963~~140

~~192~~148,~~394~~000

~~389,537~~

~~476,128~~

State and local

76,~~961~~812

2012,~~283~~000

~~31,540~~

~~39,105~~

~~105~~90,~~924~~952

~~212~~160,~~677~~000

~~421,077~~

~~515,233~~

Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred taxes. Accordingly, management determined that no valuation allowance was necessary at ~~September~~March 3031, ~~2024~~2025. The deferred tax liability was $84205,~~934~~789 at ~~September~~March 3031, ~~2024~~2025 and $69121,~~846~~649 at December 31, ~~2023~~2024.

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SCI ENGINEERED MATERIALS, INC

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. During the ~~nine~~third ~~months~~quarter ~~ended~~of ~~September 30,~~ 2024, the Company modified its operating lease, which included changes to the lease terms and adjustments to the lease payments. The Company extended the lease period for an additional five years with a new maturity date of November 30, 2029. The terms of the lease include monthly payments ranging from $24,700 to $28,900. The modifications did not result in a change in the classification of the lease, which continues to be classified as an operating lease. The lease liability was remeasured using the discount rate as of the effective date of the modification. The right of use asset was adjusted by the amount of the remeasurement of the lease liability. There are no restrictions or covenants associated with the lease. The lease costs were approximately $2974,200 and $2829,~~600~~200 for the three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023, respectively, and $87,600 and $85,900 during the nine months ended September 30,~~ 2024 ~~and 2023~~, respectively. Additionally, the variable lease costs were approximately $1118,~~500~~600 ~~for the three months ended September 30, 2024~~ and ~~2023, and~~ $5015,~~000~~600 ~~and~~for ~~$45,000 during~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024, respectively.

The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of ~~September~~March 3031, ~~2024~~2025:



2024	$	44,212
2025	$	223,656
2025		297,878
2026		309,793
2026		309,793
2027		322,184
2028 and beyond		653,446
2028		335,072
Total minimum lease payments		1,627,513
2029		318,374
Less debt discount		358,252
Total minimum lease payments		1,509,079
Total operating lease obligations	$	1,269,261
Less debt discount		313,609
Total operating lease obligations	$	1,195,470


	~~2024~~2025			~~2023~~2024
Right of use asset obtained in exchange for lease liability	$	499,125		$	—
Operating cash outflows from operating leases - year-to-date	$	41,103		$	27,869
Operating cash outflows from operating leases - year-to-date		84,811			78,357
Weighted average remaining lease term – operating leases		4.7	years		5.7	years
Weighted average remaining lease term – operating leases		5.2	years		1.2	years
Weighted average discount rate – operating leases		8.5	%		5.5	%

Note 11. Finance Lease

The Company previously leased certain equipment under finance leases. The final payment for the only existing lease was made during the third quarter of 2024.

The equipment under finance lease at September 30, 2024, and December 31, 2023, is included in the accompanying balance sheets as follows:


	September 30, 2024		December 31, 2023
Machinery and equipment	$	—	$	306,973
Less accumulated depreciation and amortization		—		107,440
Net book value	$	—	$	199,533

These assets were amortized over a period of ten years using the straight-line method and amortization is included in depreciation expense. Finance lease costs totaled $8,054 and $25,386 for the three months ended September 30, 2024 and 2023, respectively, and $41,149 and $75,338 for the nine months ended September 30, 2024 and 2023, respectively.

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SCI ENGINEERED MATERIALS, INC

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

Note 11. Finance Lease (continued)

The finance leases were structured such that ownership of the leased asset reverted to the Company at the end of the lease term. Accordingly, leased assets were 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.

Table of Contents

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

The following discussion should be read in conjunction with the Financial Statements and Notes contained herein and with those in our Form 10-K for the year ended December 31, ~~2023~~2024.

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q include certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our intent, belief, and expectations, such as statements concerning our future profitability and operating and growth strategy. Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “likely” and similar expressions are intended to identify forward-looking statements. Investors are cautioned that all forward-looking statements contained in this Quarterly Report on Form 10-Q and in other statements we make involve risks and uncertainties including, without limitation, the factors set forth under the caption “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, ~~2023~~2024, and other factors detailed from time to time in our other filings with the Securities and Exchange Commission. One or more of these factors have affected, and in the future could affect our business and financial condition and could cause actual results to differ materially from plans 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 ~~September~~March 3031, ~~2024~~2025, we had total revenue of $3,~~883~~500,~~237~~232 compared to $78,~~700~~403,~~123~~095 for the three months ended ~~September~~March 3031, ~~2023~~2024. ~~For~~The ~~the~~combination ~~nine months ended September 30, 2024, we had total revenue~~ of ~~$17,819,042~~product ~~compared to $20~~mix,~~954,960~~ ~~for the nine months ended September 30, 2023. Volume was similar year to year; however,~~ lower raw material costs ~~was~~and ~~the~~less ~~key~~volume ~~factor that~~ contributed to the decrease in total revenue.

Gross profit was $1,~~089~~072,~~293~~814 for the three months ended ~~September~~March 3031, ~~2024~~2025, compared to $1,~~386~~415,~~663~~116 for the same three months in ~~2023~~2024. Gross profit ~~was~~as ~~$3,883,348,~~a ~~for~~percentage ~~the~~of ~~nine~~revenue ~~months~~(gross ~~ended~~margin) ~~September~~was 30,.6% ~~2024,~~and ~~compared~~16.8% ~~to $3,964,870~~ for the ~~same~~three ~~nine~~ months inended ~~2023.~~March ~~Lower~~31, ~~total~~2025 ~~revenue~~and ~~due~~2024, torespectively. While lower raw material costs ~~was~~and ~~the~~lower ~~main~~volume ~~factor~~were ~~which~~key ~~contributed~~factors toin the decrease in gross profit, ~~decrease~~gross margin benefited from lower raw material costs.

Operating expenses were $~~730~~770,~~182,~~275 and $~~676~~796,~~454~~848 for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023, respectively and $2,320,771 and $2,015,617 for the nine months ended September 30,~~ 2024~~, and 2023, respectively~~.

Income from operations was $~~359~~302,~~111,~~539 and $~~710~~618,~~209~~268 for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023~~2024, respectively,. ~~and~~Lower ~~$1,562,577~~operating ~~and~~expenses ~~$1,949,253~~partially ~~for~~offset ~~the~~lower ~~nine months ended September 30, 2024, and 2023, respectively. Lower~~ gross profit ~~and~~compared ~~higher~~to ~~operating~~the ~~expenses~~same ~~contributed~~period tolast ~~the decrease~~year.

~~Consistent~~The ~~with~~Company ~~our~~continues ~~growth~~to ~~strategy,~~invest wein ~~have~~developing ~~identified~~innovative ~~niche~~applications. ~~markets~~For ~~that~~example, ~~can~~electrically ~~benefit~~conductive ~~from~~Indium ~~our~~Tin ~~expertise~~Oxide inwith ~~custom~~a ~~powder~~density ~~solutions,~~of ~~such~~99% asis ~~near-infrared~~being ~~doped~~introduced ~~phosphors~~in ~~and~~several ~~near~~of ~~infrared~~our ~~applications~~markets. ~~These~~Our ~~applications~~Boron ~~enable~~Carbide ~~extended~~Armor ~~life~~and ofEnriched ~~phosphors~~Boron ~~for~~Carbide ~~specific~~products ~~nighttime~~are ~~identification~~particularly ~~needs~~valued ofin the defense ~~personnel~~ and ~~first~~aerospace ~~responders.~~markets Onsince ~~June~~they 4,are ~~2024,~~manufactured wedomestically. ~~announced~~New ainitiatives ~~five-year~~are ~~manufacturing~~also ~~agreement~~being ~~with~~pursued ~~Battle~~that ~~Sight~~utilize ~~Technologies~~our tovacuum ~~produce~~hot ~~ColdFIRE®~~presses, ~~powder~~cold isostatic press, and kilns for ~~defense~~increased ~~applications~~production and development projects, including specialty diffusion bonding processes.

~~New~~ initiatives are also being pursued that utilize our vacuum hot presses, cold isostatic press, and kilns for increased production and development projects, including diffusion bonding. We continue to invest in developing new products for all

1514

Table of Contents

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

~~our~~Several ~~markets~~issues are currently impacting national and global market conditions. First, increased political uncertainties, including ~~specialty~~recently ~~bonding~~announced ~~processes~~international ~~for~~tariffs, ~~Aerospace~~are particularly affecting multinational customers. ~~and~~Second, ~~innovative~~inflation ~~applications~~continues ~~for~~to ~~Architectural~~impact ~~Glass~~labor, raw material costs and ~~Thin~~transportation ~~Film~~expenses. ~~Solar~~We seek to pass these increases on to customers. ~~Those~~but ~~products~~are ~~continue~~unable to ~~involve~~ ~~research~~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 ~~development~~sourcing ~~expense~~of tocertain ~~enable~~materials ~~customer~~is ~~evaluation~~of increased concern and ~~accelerate~~may ~~time~~be influenced by the changes in international tariffs and perceptions regarding such changes. We are actively maintaining contact with our suppliers and customers, identifying additional suppliers, and adapting to ~~market~~our customers’ specific circumstances and forecasts.

Several issues continue to affect national and global market conditions. First, inflation continues to impact labor, certain 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. Second, supply chain disruptions continue to impact customers’ businesses in certain markets. We are monitoring the impact of the three-day International Longshoreman Association’s (ILA) strike on October 1-3, 2024 and further developments to be resolved prior to the ILA extended contract date of January 15, 2025. 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. Third, increased political uncertainties continue to affect global markets. Although we currently have no customers or suppliers in Russia, Ukraine, or the Middle East, we continue to monitor the situations as some raw material comes from Russia for the PVD industry. 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 nine~~ months ended ~~September~~March 3031, ~~2024~~2025 (unaudited) compared to three ~~and nine~~ months ended ~~September~~March 3031, ~~2023~~2024 (unaudited):

Revenue

For the three months ended ~~September~~March 3031, ~~2024~~2025, we had total revenue of $3,~~883,237~~500.232 compared to $78,~~700~~403,~~123~~095 for the three months ended ~~September~~March 3031, ~~2023~~2024. ~~For~~The ~~the~~combination ~~nine months ended September 30, 2024, we had total revenue~~ of ~~$17,819,042~~product ~~compared to $20~~mix,~~954,960~~ ~~for the nine months ended September 30, 2023. Volume was similar year to year; however,~~ lower raw material costs ~~was~~and ~~the~~lower ~~key~~volume ~~factor that~~ contributed to the decrease in total revenue.

Gross profit

Gross profit was $1,~~089~~072,~~293~~814 for the three months ended ~~September~~March 3031, ~~2024~~2025, compared to $1,~~386~~415,~~663~~116 for the same three months in ~~2023~~2024. Gross profit as a percentage of revenue (gross margin) was 2830.16% and 16.8% for the ~~third~~three ~~quarter~~months ofended ~~2024~~March ~~compared~~31, to2025 ~~18.0%~~and ~~for~~2024, ~~the third quarter of 2023~~respectively. While lower raw material costs ~~contributed~~and tolower volume were key factors in the decrease in gross profit, ~~the increase in~~ gross margin benefited from lower raw material costs. Gross profit was $3,883,348 for the nine months ended September 30, 2024, compared to $3,964,870 for the same nine months in 2023 and gross margin was 21.8% and 18.9% for the first nine months of 2024 and 2023, respectively.

General and administrative expense

General and administrative expense for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023~~2024, was $~~476~~547,~~572,~~821 and $~~433~~482,~~656~~261, respectively, an increase of 913.96%. The increase ~~can~~is be attributed to ~~higher compensation and benefits of $21,367, which included~~ increased staff, and compensation, higher professional fees, and Information Technology consulting services ~~of $34~~,~~254.~~ ~~General~~in ~~and administrative expense for~~ the ~~nine~~aggreate ~~months~~of ~~ended September 30, 2024, and 2023, was~~ $144,~~426~~846,~~406~~ ~~and~~plus ~~$1,285,152, respectively, an increase of 11.0%. The increase can be attributed to~~ higher ~~compensation~~rent ~~and~~expense ~~benefits~~ of $~~103~~10,~~226,~~538 ~~which~~versus ~~included~~the ~~increased~~first ~~staff,~~quarter ~~higher professional fees and Information Technology consulting services~~ of ~~$53,184~~2024.

Table of Contents

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

Research and development expense

Research and development expense for the three months ended ~~September~~March 3031, ~~2024~~2025, was $~~130~~102,~~014~~267, compared to $~~121~~185,~~554~~235 for the same period in ~~2023~~2024, ana ~~increase~~decrease of 744.08%. This decrease was due to anfewer ~~increase in ongoing~~ research materials and supplies of $1462,~~694~~447, and ~~higher compensation and benefits of $20,040, partially offset by~~ lower outside consulting expense of $15,489. Research and development expense for the nine months ended September 30, 2024, was $489,879, compared to $372,407 for the same period in 2023, an increase of 31.5%. This was due to an increase in ongoing research materials and supplies of $125,161, and higher compensation and benefits of $5323,~~983 which included increased staff, partially offset by lower outside consulting expense of $49,687~~898. 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 ~~applications~~products ~~and~~which involve ongoing research and development expense.

Marketing and sales expense

Marketing and sales expense was $~~123~~120,~~596,~~187 and $~~121~~129,~~244~~352 for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023~~2024, respectively, ana ~~increase~~decrease of 17.91%. ~~Compensation~~Travel ~~and~~expenses ~~benefits~~were ~~expense increased~~ $68,~~543~~835 ~~during the three months ended September 30~~lower, ~~2024,~~while ~~compared~~compensation ~~to the same period in 2023. Marketing~~ and ~~sales expense was $404,486 and $358,058 for the nine months ended September 30, 2024, and 2023, respectively, an increase of 13.0%. Compensation and~~ benefits expense ~~increased~~decreased $483,~~308,~~334 ~~which included increased staff,~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025, compared to the same period in ~~2023~~2024.

Table of Contents

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

Stock compensation expense

Stock-based compensation costs were $0 ~~for the three months ended September 30, 2024~~ and ~~2023, and~~ $43,980 ~~and $45,485~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024, respectively. Compensation expense for all stock-based awards is based on the grant date fair value and recognized over the required service (vesting) period. ~~There was no unrecognized non-cash stock-based compensation expense at September 30, 2024.~~

Interest

Net interest income was $~~107~~98,~~391~~130, and $8187,~~252~~056 for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023, respectively and $290,908 and $194,143 for the nine months ended September 30,~~ 2024, ~~and 2023,~~ respectively. The increase ~~for both periods in 2024~~ was primarily due to higher cash and cash equivalents plus approximately $23.0 million investment in marketable securities ~~which benefited from an overall increase in interest rates~~. Interest expense related to finance lease obligations was $280 and $~~939~~1,486 for the three months ended ~~September~~March 3031, ~~2024,~~2025 and ~~2023, respectively and $706 and $3,639 for the nine months ended September 30,~~ 2024, ~~and 2023,~~ respectively.

Income taxes

Income tax expense was $~~105~~90,~~924~~952, and $~~212~~160,~~677~~000 for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023, respectively. For the first nine months of~~ 2024 ~~and 2023 income tax expense was $421~~,~~077~~ ~~and $515,233,~~ respectively. The effective tax rate was 22.7% ~~and 26.9%~~ for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023, respectively and 22.7% and 24.0% for the nine months ended September 30,~~ 2024~~, and 2023, respectively~~. The deferred tax liability was $84205,~~934~~789 at ~~September~~March 3031, ~~2024~~2025 and $69121,~~846~~649 at December 31, ~~2023~~2024.

Net income

Net income for the three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023 was $360,578 and $578,784, respectively. For the nine months ended September 30,~~ 2024, ~~net income~~ was $1309,~~432~~717,~~408~~ ~~compared~~and to $1545,~~628~~324,~~163~~ ~~for the nine months ended September 30, 2023~~respectively. Lower gross profit, ~~and higher operating expenses were~~ slightly offset by ~~higher~~lower ~~interest~~operating ~~income~~expenses, ~~and~~contributed ~~lower~~to ~~income~~the ~~taxes~~decrease.

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

Liquidity and Capital Resources

Cash and cash equivalents

As of ~~September~~March 3031, ~~2024~~2025, cash and cash equivalents were $7,~~656~~353,~~046~~420 compared to $56,~~673~~753,~~994~~403 at December 31, ~~2023~~2024. Additionally, we had ~~approximately~~investments of $~~2.0~~3,009,478 ~~million~~and of$2,759,478 ~~investments~~ in marketable securities at ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024.

Working capital

At ~~September~~March 3031, ~~2024~~2025, working capital was $8,~~551~~400,~~154~~791 compared to $78,~~633~~245,~~016~~712 at December 31, ~~2023~~2024, an increase of $~~918~~155,~~138~~079, or 121.09%. Cash increased $1600,~~982~~017,~~052,~~ accounts receivable-trade ~~increased~~decreased $9185,~~721~~817, inventories decreased $2241,~~864~~850,~~189,~~ prepaid purchase orders decreased $~~633~~56,~~122 and customer deposits decreased $3,135,784~~898. In addition, acustomer ~~short-term~~deposits ~~investment~~increased ~~matured~~$200,162 ~~which~~and ~~was~~accrued ~~reinvested~~compensation and ~~appeared~~other asexpenses ~~long~~decreased ~~term on the balance sheet at September 30~~$219, ~~2024~~617.

Cash from operations

Net cash provided by operating activities during the three months ended March 31, 2025, was $2933,~~410~~353,~~129,~~ and net cash used in operating activities was $211,~~328,558~~694 for the ~~nine~~three months ended ~~September~~March 3031, 2024~~, and 2023, respectively~~. In addition to the net income generated in each period, ~~this~~these amounts included depreciation and amortization of $~~366~~105,~~945~~602 and $~~347~~126,~~602~~777, and noncash stock-based compensation costs of $~~43,980~~0 and $4543,~~485~~980 for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025, and ~~2023~~2024, respectively. The changes in inventories, and prepaid purchase orders ~~and customer deposits~~ compared to December 31, ~~2023~~2024, were related to lower raw material costs during the first ~~nine~~three months of ~~2024~~2025. ~~Orders~~Customers ~~remain~~continue ~~solid~~to asadapt ~~customers~~to ~~continue~~external toeconomic ~~monitor~~and market issues, while monitoring their inventory very closely with continued emphasis on intra-quarter shipments while also attempting to minimize their inventory at quarter end.

Cash from investing activities

Cash of $~~378~~83,~~928~~336 and $176,534 was used in investing activities ~~during the nine months ended September 30, 2024,~~ for the acquisition of production equipment. ~~Cash of $402,573 was used in investing activities~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2023.~~2025 ~~Included~~and ~~was $398~~2024,~~360~~ ~~for the acquisition of production equipment as well as the enclosure of our ceramic machining area~~respectively. Continued reinvestments in marketable securities has been based on free cash flow and opportunities to earn higher returns.

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

Cash from financing activities

Cash of $~~49,149~~0 and $7520,~~338~~439 was used in financing activities for principal payments to third parties for finance lease obligations during the ~~nine~~three months ended ~~September~~March 3031, ~~2024,~~2025 and ~~2023~~2024, respectively.

Debt outstanding

Total debt outstanding was $0 at ~~September~~March 3031, ~~2024.~~2025 ~~The~~and ~~final~~December ~~finance~~31, ~~lease payment was made during the third quarter of~~ 2024.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements including special purpose entities.

Critical Accounting Policies

The preparation of 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 Financial Statements and accompanying notes. Note 2 to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2023~~2024, describes the significant accounting policies and methods used in the preparation of the 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 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.

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

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 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, change 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.17

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 the 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

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Item 4. Controls and Procedures (continued)

~~the~~Based ~~cost~~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 ~~should~~and ~~not~~other ~~exceed~~procedures that are designed to ensure that information required to be disclosed by us in reports filed with the ~~benefit~~SEC ~~derived.~~under Wethe ~~believe~~Exchange ~~our~~Act ~~systems~~is ofrecorded, ~~internal~~processed, ~~control~~summarized, ~~provide~~and ~~this~~reported ~~reasonable~~within ~~assurance~~the time periods specified in the SEC’s rules and forms.

Inherent Limitations over Internal Controls

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.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting for the three months ended ~~September~~March 3031, ~~2024~~2025, 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.

2018

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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).
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 September 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 ~~November~~May 12, ~~2024~~2025 entitled “SCI Engineered Materials, Inc., Reports ~~2024~~2025 ~~Third~~First Quarter ~~and Year-to-Date~~ Results.”
101	*	The Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2024~~2025, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Balance Sheets at ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024, (ii) Statements of Income for the three ~~and nine~~ months ended ~~September~~March ~~2024~~31 2025 and ~~2023~~2024, (iii) Statement of Changes in Equity for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024, (iv) Statements of Cash Flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024, and (v) Notes to 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: November 1, 2024		/s/ Jeremiah R. Young
Date: May 2, 2025		/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)

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