Document And Entity Information
Document And Entity Information - shares | 9 Months Ended | |
Sep. 30, 2020 | Oct. 30, 2020 | |
Document And Entity Information | ||
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2020 | |
Entity Registrant Name | SCI ENGINEERED MATERIALS, INC. | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 4,445,994 | |
Title of 12(b) Security | Common stock | |
Entity Central Index Key | 0000830616 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Trading Symbol | SCIA |
BALANCE SHEETS
BALANCE SHEETS - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Current Assets | ||
Cash | $ 2,503,908 | $ 1,828,397 |
Accounts receivable, less allowance for doubtful accounts of $15,000 | 362,935 | 348,524 |
Inventories, net | 1,228,611 | 2,749,038 |
Prepaid expenses | 93,639 | 105,464 |
Total current assets | 4,189,093 | 5,031,423 |
Property and Equipment, at cost | ||
Machinery and equipment | 8,254,624 | 8,258,578 |
Furniture and fixtures | 135,012 | 137,680 |
Leasehold improvements | 592,899 | 592,899 |
Property, Plant and Equipment, Gross | 8,982,535 | 8,989,157 |
Less accumulated depreciation | (7,009,167) | (7,036,955) |
Property, Plant and Equipment, Net | 1,973,368 | 1,952,202 |
Right of use asset, net | 377,227 | 434,492 |
Other assets | 97,725 | 86,958 |
Total other assets | 474,952 | 521,450 |
TOTAL ASSETS | 6,637,413 | 7,505,075 |
Current Liabilities | ||
Finance lease obligations, current portion | 166,651 | 98,524 |
Notes payable, current portion | 198,215 | 0 |
Operating lease obligations, current portion | 86,844 | 80,669 |
Accounts payable | 165,793 | 254,004 |
Customer deposits | 869,251 | 2,408,837 |
Accrued compensation | 84,844 | 116,686 |
Accrued expenses and other | 154,190 | 80,375 |
Total current liabilities | 1,725,788 | 3,039,095 |
Finance lease obligations, net of current portion | 279,919 | 125,311 |
Notes payable, net of current portion | 127,085 | 0 |
Operating lease obligations, net of current portion | 325,918 | 391,833 |
Total liabilities | 2,458,710 | 3,556,239 |
Shareholders' Equity | ||
Convertible preferred stock, Series B, 10% cumulative, nonvoting, no par value, $10 stated value, optional redemption at 103%; optional shareholder conversion 2 shares for 1; 24,152 shares issued and outstanding | 508,400 | 514,438 |
Common stock, no par value, authorized 15,000,000 shares; 4,445,994 and 4,370,519 shares issued and outstanding, respectively | 10,500,675 | 10,410,677 |
Additional paid-in capital | 2,251,357 | 2,265,925 |
Accumulated deficit | (9,081,729) | (9,242,204) |
Total shareholders' equity | 4,178,703 | 3,948,836 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 6,637,413 | $ 7,505,075 |
BALANCE SHEETS (Parenthetical)
BALANCE SHEETS (Parenthetical) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Allowance for doubtful accounts (in dollars) | $ 15,000 | $ 15,000 |
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized | 15,000,000 | 15,000,000 |
Common stock, shares issued | 4,445,994 | 4,370,519 |
Common stock, shares outstanding | 4,445,994 | 4,370,519 |
Convertible Preferred Stock Series B [Member] | ||
Convertible preferred stock, series B, cumulative percentage of interest | 10.00% | 10.00% |
Convertible preferred stock, par value (in dollars per share) | $ 0 | $ 0 |
Convertible preferred stock, stated value (in dollars per share) | $ 10 | $ 10 |
Convertible preferred stock, optional redemption | 103.00% | 103.00% |
Convertible preferred stock, optional shareholder conversion | 2:1 | 2:1 |
Convertible preferred stock, shares issued | 24,152 | 24,152 |
Convertible preferred stock, shares outstanding | 24,152 | 24,152 |
STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
STATEMENTS OF OPERATIONS | ||||
Revenue | $ 1,494,078 | $ 3,255,201 | $ 7,539,460 | $ 10,012,187 |
Cost of revenue | 1,034,939 | 2,796,681 | 6,133,199 | 8,162,696 |
Gross profit | 459,139 | 458,520 | 1,406,261 | 1,849,491 |
General and administrative expense | 263,444 | 247,984 | 818,825 | 957,420 |
Research and development expense | 83,276 | 80,203 | 260,601 | 283,672 |
Marketing and sales expense | 44,862 | 63,462 | 144,033 | 201,427 |
Income from operations | 67,557 | 66,871 | 182,802 | 406,972 |
Interest expense | 9,058 | 4,539 | 20,427 | 18,020 |
Income before provision for income taxes | 58,499 | 62,332 | 162,375 | 388,952 |
Income tax expense | 0 | 0 | 1,900 | 4,860 |
Net income | 58,499 | 62,332 | 160,475 | 384,092 |
Dividends on preferred stock | 6,038 | 6,038 | 18,114 | 18,114 |
INCOME APPLICABLE TO COMMON SHARES | $ 52,461 | $ 56,294 | $ 142,361 | $ 365,978 |
Income per common share | ||||
Basic | $ 0.01 | $ 0.01 | $ 0.03 | $ 0.08 |
Diluted | $ 0.01 | $ 0.01 | $ 0.03 | $ 0.08 |
Weighted average shares outstanding | ||||
Basic | 4,436,185 | 4,335,839 | 4,411,390 | 4,317,716 |
Diluted | 4,447,059 | 4,356,947 | 4,420,272 | 4,357,273 |
STATEMENTS OF SHAREHOLDERS' EQU
STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) | Convertible Preferred Stock Series B [Member] | Common Stock [Member] | Additional Paid-In Capital [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2018 | $ 514,438 | $ 10,275,733 | $ 2,280,060 | $ (9,547,555) | $ 3,522,676 |
Accretion of cumulative dividends | 18,114 | 0 | (18,114) | 0 | 0 |
Payment of cumulative dividends (Note 5) | (24,152) | 0 | 0 | 0 | (24,152) |
Stock based compensation expense (Note 4) | 0 | 0 | 8,306 | 0 | 8,306 |
Proceeds from exercise of stock options (Note 4) | 0 | 14,952 | 0 | 0 | 14,952 |
Common stock issued (Note 4) | 0 | 89,995 | 0 | 0 | 89,995 |
Net income | 0 | 0 | 0 | 384,092 | 384,092 |
Balance at Sep. 30, 2019 | 508,400 | 10,380,680 | 2,270,252 | (9,163,463) | 3,995,869 |
Balance at Jun. 30, 2019 | 502,362 | 10,350,684 | 2,273,521 | (9,225,795) | 3,900,772 |
Accretion of cumulative dividends | 6,038 | 0 | (6,038) | 0 | 0 |
Stock based compensation expense (Note 4) | 0 | 0 | 2,769 | 0 | 2,769 |
Common stock issued (Note 4) | 0 | 29,996 | 0 | 0 | 29,996 |
Net income | 0 | 0 | 0 | 62,332 | 62,332 |
Balance at Sep. 30, 2019 | 508,400 | 10,380,680 | 2,270,252 | (9,163,463) | 3,995,869 |
Balance at Dec. 31, 2019 | 514,438 | 10,410,677 | 2,265,925 | (9,242,204) | 3,948,836 |
Accretion of cumulative dividends | 18,114 | 0 | (18,114) | 0 | 0 |
Payment of cumulative dividends (Note 5) | (24,152) | 0 | 0 | 0 | (24,152) |
Stock based compensation expense (Note 4) | 0 | 0 | 3,546 | 0 | 3,546 |
Common stock issued (Note 4) | 0 | 89,998 | 0 | 0 | 89,998 |
Net income | 0 | 0 | 0 | 160,475 | 160,475 |
Balance at Sep. 30, 2020 | 508,400 | 10,500,675 | 2,251,357 | (9,081,729) | 4,178,703 |
Balance at Jun. 30, 2020 | 502,362 | 10,470,675 | 2,256,213 | (9,140,228) | 4,089,022 |
Accretion of cumulative dividends | 6,038 | 0 | (6,038) | 0 | 0 |
Stock based compensation expense (Note 4) | 0 | 0 | 1,182 | 0 | 1,182 |
Common stock issued (Note 4) | 0 | 30,000 | 0 | 0 | 30,000 |
Net income | 0 | 0 | 0 | 58,499 | 58,499 |
Balance at Sep. 30, 2020 | $ 508,400 | $ 10,500,675 | $ 2,251,357 | $ (9,081,729) | $ 4,178,703 |
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 160,475 | $ 384,092 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and accretion | 335,789 | 315,161 |
Amortization | 2,827 | 54,945 |
Stock based compensation | 93,544 | 98,301 |
(Gain) loss on disposal of equipment | (1,322) | 4,226 |
Inventory reserve | 1,921 | 900 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (14,411) | 179,624 |
Note receivable | 0 | (7,477) |
Inventories | 1,518,506 | (342,999) |
Prepaid expenses | 11,825 | 521,269 |
Right of use asset | 57,265 | (505,701) |
Other assets | (13,594) | (12,239) |
Accounts payable | (88,211) | (77,510) |
Operating lease obligations | (59,739) | 491,429 |
Accrued expenses and customer deposits | (1,500,314) | (763,827) |
Net cash provided by operating activities | 504,561 | 340,194 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Proceeds on sale of equipment | 3,063 | 0 |
Purchases of property and equipment | (49,023) | (343,448) |
Net cash used in investing activities | (45,960) | (343,448) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Proceeds from exercise of common stock options | 0 | 14,952 |
Payment of cumulative dividends on preferred stock | (24,152) | (24,152) |
Proceeds from SBA Paycheck Protection Program note payable | 325,300 | 0 |
Principal payments on finance lease obligations | (84,238) | (95,495) |
Net cash provided by (used in) financing activities | 216,910 | (104,695) |
NET INCREASE (DECREASE) IN CASH | 675,511 | (107,949) |
CASH - Beginning of period | 1,828,397 | 1,802,839 |
CASH - End of period | 2,503,908 | 1,694,890 |
Cash paid during the periods for: | ||
Interest | 10,736 | 8,318 |
Income taxes | 1,900 | 4,860 |
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES | ||
Property and equipment purchased by finance lease | 306,973 | 78,950 |
Increase in asset retirement obligation | $ 2,700 | $ 1,906 |
Business Organization and Purpo
Business Organization and Purpose | 9 Months Ended |
Sep. 30, 2020 | |
Business Organization and Purpose | |
Business Organization and Purpose | Note 1. Business Organization and Purpose SCI Engineered Materials, Inc. (“SCI”, 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 specific markets (Photonics, Thin Film Solar, Glass and Transparent Electronics) within the PVD industry. Substantially all of the Company’s 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. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2020 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 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, 2019. 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 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 credit worthiness of each customer. The Company sells its products typically under agreements with payment terms less than 45 days. The Company does not typically 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 fully completed. During the three months ended September 30, 2020 and 2019, revenue from the photonics market was approximately 100% of total revenue. During the nine months ended September 30, 2020 and 2019, revenue from the photonics market was approximately 99% and 97%, respectively. The balance of the revenue in these periods was almost entirely from the thin film solar market. The top two customers represented approximately 83% and 79% of total revenue for the nine months ended September 30, 2020 and 2019, respectively. International shipments resulted in 5% and 10% of total revenue for the first nine months of 2020 and 2019, respectively. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | 9 Months Ended |
Sep. 30, 2020 | |
Recent Accounting Pronouncements | |
Recent Accounting Pronouncements | Note 3. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13 “Credit Losses - Measurement of Credit Losses on Financial Instruments.” ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets, including accounts and notes receivables, by replacing today’s “incurred loss” approach with an “expected loss” model under which allowances will be recognized based on expected rather than incurred losses. ASU No. 2016-13 will become effective for the Company in the first quarter of 2023. The Company is evaluating the impact that the adoption of this update will have on its financial statements. |
Common Stock and Stock Options
Common Stock and Stock Options | 9 Months Ended |
Sep. 30, 2020 | |
Common Stock and Stock Options | |
Common Stock and Stock Options | Note 4. 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. Non cash stock-based compensation expense was $31,182 and $32,765 for the three months ended September 30, 2020 and 2019, respectively. Non cash stock-based compensation expense was $93,544 and $98,301 for the nine months ended September 30, 2020 and 2019, respectively. Unrecognized compensation expense was $12,216 as of September 30, 2020 and will be recognized through 2023. There was no tax benefit recorded for this compensation cost as the expense primarily relates to incentive stock options that do not qualify for a tax deduction until, and only if, a qualifying disposition occurs. The non-employee Board members received compensation of 75,475 and 35,725 aggregate shares of common stock of the Company during the nine months ended September 30, 2020 and 2019, respectively. The stock had an aggregate value of $89,998 and $89,995 for the nine months ended September 30, 2020 and 2019, respectively, and was recorded as non-cash stock compensation expense in the financial statements. The cumulative status of options granted and outstanding at September 30, 2020, and December 31, 2019, as well as options which became exercisable in connection with the Company’s stock option plans is summarized as follows: Employee Stock Options Weighted Average Stock Options Exercise Price Outstanding at January 1, 2019 396,941 $ 4.41 Exercised (31,788) 0.84 Expired (271,500) 6.00 Forfeited (17,616) 1.00 Outstanding at December 31, 2019 76,037 $ 1.03 Outstanding at September 30, 2020 76,037 $ 1.03 Options exercisable at December 31, 2019 48,265 $ 0.90 Options exercisable at September 30, 2020 55,208 $ 0.94 Exercise prices for options ranged from $0.84 to $1.25 at September 30, 2020. The weighted average option price for all options outstanding at September 30, 2020, was $1.03 with a weighted average remaining contractual life of 5.7 years. There were no non-employee director stock options outstanding during 2020 and 2019. |
Preferred Stock
Preferred Stock | 9 Months Ended |
Sep. 30, 2020 | |
Preferred Stock | |
Preferred Stock | Note 5. Preferred Stock Dividends on the Series B preferred stock accrue at 10% annually on the outstanding shares. Dividends on the Series B preferred stock were $6,038 for the three months ended September 30, 2020 and 2019, and $18,114 for the nine months ended September 30, 2020 and 2019. The Company had accrued dividends on Series B preferred stock of $259,634 at September 30, 2020, and $265,672 at December 31, 2019. These amounts are included in Convertible preferred stock, Series B, on the balance sheet at September 30, 2020, and December 31, 2019. During June 2020, a dividend payment of $24,152 was made to preferred shareholders of record as of December 31, 2019, and during 2019, a dividend payment of $24,152 was made to preferred shareholders of record as of December 31, 2018. |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2020 | |
Inventories | |
Inventories | Note 6. Inventories Inventories consisted of the following: September 30, December 31, 2020 2019 (unaudited) Raw materials $ 543,061 $ 883,767 Work-in-process 571,004 1,802,092 Finished goods 138,465 85,176 Inventory reserve (23,919) (21,997) $ 1,228,611 $ 2,749,038 |
Earnings Per Share
Earnings Per Share | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share | |
Earnings Per Share | Note 7. Earnings Per Share Basic income per share is calculated as income applicable to common shareholders divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as diluted income applicable to common shareholders 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 convertible preferred stock and common stock options listed in Note 4 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 Sept. 30, Nine months ended Sept. 30, 2020 2019 2020 2019 Income applicable to common shares $ 52,461 $ 56,294 $ 142,361 $ 365,978 Weighted average common shares outstanding - basic 4,436,185 4,335,839 4,411,390 4,317,716 Effect of dilution 10,874 21,108 8,882 39,557 Weighted average shares outstanding - diluted 4,447,059 4,356,947 4,420,272 4,357,273 |
Note Payable
Note Payable | 9 Months Ended |
Sep. 30, 2020 | |
Note Payable | |
Note Payable | Note 8. Notes Payable On April 17, 2020 the Company entered into an unsecured promissory note under the Paycheck Protection Program (the "PPP"), with a principal amount of $325,300. The PPP was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is administered by the U.S. Small Business Administration (the "SBA"). The term of the PPP loan is two years. The interest rate on this loan is 1.0% per annum, which shall be deferred for the first six months of the term of the loan. After the initial six-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the PPP loan which is not forgiven as described below. The Company is permitted to prepay or partially prepay the PPP loan at any time with no prepayment penalties. Under the terms of the CARES Act, PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels. While there is no assurance the Company will obtain forgiveness of the PPP loan in whole or in part, it expects most (if not all) of this loan to be forgiven by the SBA. The application for forgiveness is expected to be submitted during the fourth quarter of 2020. There is no obligation to make payments until the forgiveness process is completed. The Company received approval for renewal of its line of credit with Huntington National Bank for $1 million during October 2020. The line of credit bears interest at 0.5 percentage points over the Prime Commercial Rate. At September 30, 2020, no amounts were drawn on the line of credit. Notes payable at September 30, 2020 is included in the accompanying balance sheets as follows: 2020 U.S. SBA Paycheck Protection Program $ 325,300 Less current portion 198,215 Notes payable, net of current portion $ 127,085 Annual maturities of notes payable: 2020 $ 35,904 2021 216,685 2022 72,711 Total $ 325,300 |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2020 | |
Income Taxes | |
Income Taxes | Note 9. Income Taxes Following is the income tax expense for the three and nine months ended September 30: Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Federal – deferred $ — $ — $ — $ — State and local — — 1,900 4,860 $ — $ — $ 1,900 $ 4,860 Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. A full valuation allowance has been recorded against the realization of the net deferred tax assets at September 30, 2020 and December 31, 2019. The Company has net operating loss carryforwards available for federal and state tax purposes of approximately $4,000,000 which expire in varying amounts through 2039. |
Operating Lease
Operating Lease | 9 Months Ended |
Sep. 30, 2020 | |
Operating Lease | |
Operating Lease | 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 rental payments ranging from $9,000 to $9,700 with a maturity date of November 30, 2024. The Company has the option to extend the lease period for an additional five years beyond the original expiration date. There are no restrictions or covenants associated with the lease. The lease costs were approximately $80,900 and $78,400 during the nine months ended September 30, 2020 and 2019, respectively. The following is a maturity analysis, by year, of the annual undiscounted cash flows of the operating lease liabilities as of September 30, 2020: 2020 $ 27,235 2021 110,364 2022 112,611 2023 114,857 2024 102,550 Total minimum lease payments $ 467,617 Operating cash outflows from operating leases $ 132,556 Weighted average remaining lease term – operating leases 4.2 years Weighted average discount rate – operating leases 5.5 % |
Finance Leases
Finance Leases | 9 Months Ended |
Sep. 30, 2020 | |
Finance Leases | |
Finance Leases | Note 11. Finance Lease The Company leases certain equipment under finance leases. Future minimum lease payments, by year, with the present value of such payments, as of September 30, 2020, are shown in the following table. 2020 $ 47,839 2021 174,943 2022 105,154 2023 101,675 2024 49,859 Total minimum lease payments 479,470 Less amount representing interest 32,900 Present value of minimum lease payments 446,570 Less current portion 166,651 Finance lease obligations, net of current portion $ 279,919 The equipment under finance lease at September 30, 2020, and December 31, 2019, is included in the accompanying balance sheets as follows: Sept. 30, 2020 Dec. 31, 2019 Machinery and equipment $ 745,289 $ 438,316 Less accumulated depreciation and amortization 137,319 98,305 Net book value $ 607,970 $ 340,011 These assets are amortized over a period of ten years using the straight-line method and amortization is included in depreciation expense. The finance leases are structured such that ownership of the leased asset reverts to the Company at the end of the lease term. Accordingly, leased assets are depreciated using the Company’s normal depreciation methods and lives. Ownership of certain assets were transferred to the Company in accordance with the terms of the leases and these assets have been excluded from the leased asset disclosure above. During August 2020, the Company entered into a finance lease agreement in the amount of $306,973 for the rebuild of production equipment. This lease includes a term of 47 months and an interest rate of 4.2%. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Summary of Significant Accounting Policies | |
Basis of Presentation | 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, 2019. Interim results are not necessarily indicative of results for the full year. |
Use of Estimates | 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 | 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 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 credit worthiness of each customer. The Company sells its products typically under agreements with payment terms less than 45 days. The Company does not typically 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 fully completed. During the three months ended September 30, 2020 and 2019, revenue from the photonics market was approximately 100% of total revenue. During the nine months ended September 30, 2020 and 2019, revenue from the photonics market was approximately 99% and 97%, respectively. The balance of the revenue in these periods was almost entirely from the thin film solar market. The top two customers represented approximately 83% and 79% of total revenue for the nine months ended September 30, 2020 and 2019, respectively. International shipments resulted in 5% and 10% of total revenue for the first nine months of 2020 and 2019, respectively. |
Common Stock and Stock Options
Common Stock and Stock Options (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Common Stock and Stock Options | |
Schedule of share-based compensation, employee stock options, activity | The cumulative status of options granted and outstanding at September 30, 2020, and December 31, 2019, as well as options which became exercisable in connection with the Company’s stock option plans is summarized as follows: Employee Stock Options Weighted Average Stock Options Exercise Price Outstanding at January 1, 2019 396,941 $ 4.41 Exercised (31,788) 0.84 Expired (271,500) 6.00 Forfeited (17,616) 1.00 Outstanding at December 31, 2019 76,037 $ 1.03 Outstanding at September 30, 2020 76,037 $ 1.03 Options exercisable at December 31, 2019 48,265 $ 0.90 Options exercisable at September 30, 2020 55,208 $ 0.94 |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Inventories | |
Schedule of Inventories | Inventories consisted of the following: September 30, December 31, 2020 2019 (unaudited) Raw materials $ 543,061 $ 883,767 Work-in-process 571,004 1,802,092 Finished goods 138,465 85,176 Inventory reserve (23,919) (21,997) $ 1,228,611 $ 2,749,038 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Earnings Per Share | |
Summary of reconciliation of earnings per share calculations | The following is provided to reconcile the earnings per share calculations: Three months ended Sept. 30, Nine months ended Sept. 30, 2020 2019 2020 2019 Income applicable to common shares $ 52,461 $ 56,294 $ 142,361 $ 365,978 Weighted average common shares outstanding - basic 4,436,185 4,335,839 4,411,390 4,317,716 Effect of dilution 10,874 21,108 8,882 39,557 Weighted average shares outstanding - diluted 4,447,059 4,356,947 4,420,272 4,357,273 |
Notes Payable (Tables)
Notes Payable (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Note Payable | |
Schedule of notes payable included in the balance sheet | Notes payable at September 30, 2020 is included in the accompanying balance sheets as follows: 2020 U.S. SBA Paycheck Protection Program $ 325,300 Less current portion 198,215 Notes payable, net of current portion $ 127,085 |
Schedule of annual maturities of notes payable | 2020 $ 35,904 2021 216,685 2022 72,711 Total $ 325,300 |
Income Taxes (Tables)
Income Taxes (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Income Taxes | |
Schedule of Components of the income tax provision | Following is the income tax expense for the three and nine months ended September 30: Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Federal – deferred $ — $ — $ — $ — State and local — — 1,900 4,860 $ — $ — $ 1,900 $ 4,860 |
Operating Lease (Tables)
Operating Lease (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Operating Lease | |
Schedule of annual undiscounted cash flows of the operating lease liabilities | The following is a maturity analysis, by year, of the annual undiscounted cash flows of the operating lease liabilities as of September 30, 2020: 2020 $ 27,235 2021 110,364 2022 112,611 2023 114,857 2024 102,550 Total minimum lease payments $ 467,617 |
Schedule of operating lease other information | Operating cash outflows from operating leases $ 132,556 Weighted average remaining lease term – operating leases 4.2 years Weighted average discount rate – operating leases 5.5 % |
Finance Leases (Tables)
Finance Leases (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Finance Leases | |
Schedule of future minimum lease payments | The Company leases certain equipment under finance leases. Future minimum lease payments, by year, with the present value of such payments, as of September 30, 2020, are shown in the following table. 2020 $ 47,839 2021 174,943 2022 105,154 2023 101,675 2024 49,859 Total minimum lease payments 479,470 Less amount representing interest 32,900 Present value of minimum lease payments 446,570 Less current portion 166,651 Finance lease obligations, net of current portion $ 279,919 |
Schedule of equipment under finance leases | The equipment under finance lease at September 30, 2020, and December 31, 2019, is included in the accompanying balance sheets as follows: Sept. 30, 2020 Dec. 31, 2019 Machinery and equipment $ 745,289 $ 438,316 Less accumulated depreciation and amortization 137,319 98,305 Net book value $ 607,970 $ 340,011 |
Business Organization and Pur_2
Business Organization and Purpose (Details) | 9 Months Ended |
Sep. 30, 2020segment | |
Business Organization and Purpose | |
Number of operating segments | 1 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Details) - Sales Revenue, Net [Member] | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Geographic Concentration Risk [Member] | International | ||||
Accounting Policies [Line Items] | ||||
Concentration Risk, Percentage | 5.00% | 10.00% | ||
Product Concentration Risk [Member] | Photonics market [Member] | ||||
Accounting Policies [Line Items] | ||||
Concentration Risk, Percentage | 100.00% | 100.00% | 99.00% | 97.00% |
Two Customers [Member] | ||||
Accounting Policies [Line Items] | ||||
Concentration Risk, Percentage | 83.00% | 79.00% |
Common Stock and Stock Option_2
Common Stock and Stock Options (Details) - $ / shares | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Common Stock and Stock Options | ||
Weighted Average Contractual Term, Outstanding | 5 years 8 months 12 days | |
Employee Stock Option [Member] | ||
Common Stock and Stock Options | ||
Stock Options, Outstanding, Beginning Balance | 76,037 | 396,941 |
Stock Options, Exercised | (31,788) | |
Stock Options, Expired | (271,500) | |
Stock Options, Forfeited | (17,616) | |
Stock Options, Outstanding, Ending Balance | 76,037 | 76,037 |
Stock Options, Options exercisable | 55,208 | 48,265 |
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ 1.03 | $ 4.41 |
Weighted Average Exercise Price, Exercised | 0.84 | |
Weighted Average Exercise Price, Expired | 6 | |
Weighted Average Exercise Price, Forfeited | 1 | |
Weighted Average Exercise Price, Outstanding, Ending Balance | 1.03 | 1.03 |
Weighted Average Exercise Price, Options exercisable | $ 0.94 | $ 0.90 |
Common Stock and Stock Option_3
Common Stock and Stock Options - Additional Information (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Common Stock and Stock Options | ||||||
Stock based compensation | $ 31,182 | $ 32,765 | $ 93,544 | $ 98,301 | ||
Unrecognized compensation expense | 12,216 | 12,216 | ||||
Stock Issued During Period, Value, New Issues | $ 30,000 | 29,996 | $ 89,998 | 89,995 | ||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit | $ 0.84 | |||||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit | 1.25 | |||||
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Outstanding Options, Weighted Average Exercise Price, Ending Balance | $ 1.03 | $ 1.03 | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term | 5 years 8 months 12 days | |||||
Common Stock [Member] | ||||||
Common Stock and Stock Options | ||||||
Stock Issued During Period, Value, New Issues | $ 30,000 | $ 29,996 | $ 89,998 | $ 89,995 | ||
Employee Stock Option [Member] | ||||||
Common Stock and Stock Options | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | 76,037 | 76,037 | 76,037 | 396,941 | ||
Employee Stock Option [Member] | Common Stock [Member] | ||||||
Common Stock and Stock Options | ||||||
Stock Issued During Period, Shares, New Issues | 75,475 | 35,725 | ||||
Stock Issued During Period, Value, New Issues | $ 89,998 | $ 89,995 | ||||
Non-employee director | ||||||
Common Stock and Stock Options | ||||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | 0 | 0 | 0 | 0 |
Preferred Stock (Details)
Preferred Stock (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Preferred Stock Dividends, Income Statement Impact | $ 6,038 | $ 6,038 | $ 18,114 | $ 18,114 | ||
Dividend Payment, Preferred Stock | $ 24,152 | 24,152 | $ 24,152 | $ 24,152 | ||
Series B Preferred Stock [Member] | ||||||
Preferred Stock, Dividend Rate, Percentage | 10.00% | |||||
Preferred Stock Dividends, Income Statement Impact | 6,038 | $ 6,038 | $ 18,114 | $ 18,114 | ||
Accrued Dividend | $ 259,634 | $ 259,634 | $ 265,672 |
Inventories (Details)
Inventories (Details) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Inventories | ||
Raw materials | $ 543,061 | $ 883,767 |
Work-in-process | 571,004 | 1,802,092 |
Finished goods | 138,465 | 85,176 |
Inventory reserve | (23,919) | (21,997) |
Inventory, Net | $ 1,228,611 | $ 2,749,038 |
Earnings Per Share - Reconcilia
Earnings Per Share - Reconciliation of Earnings Per Share Calculations (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Earnings Per Share | ||||
Income applicable to common shares | $ 52,461 | $ 56,294 | $ 142,361 | $ 365,978 |
Weighted average common shares outstanding - basic | 4,436,185 | 4,335,839 | 4,411,390 | 4,317,716 |
Effect of dilution | 10,874 | 21,108 | 8,882 | 39,557 |
Weighted average shares outstanding - diluted | 4,447,059 | 4,356,947 | 4,420,272 | 4,357,273 |
Notes Payable - Notes payable i
Notes Payable - Notes payable included in the balance sheet (Details) - USD ($) | Sep. 30, 2020 | Dec. 31, 2019 |
Debt Instrument [Line Items] | ||
Less current portion | $ 198,215 | $ 0 |
Notes payable, net of current portion | 127,085 | $ 0 |
SBA PPP Loan | ||
Debt Instrument [Line Items] | ||
U.S. SBA Paycheck Protection Program | 325,300 | |
Less current portion | 198,215 | |
Notes payable, net of current portion | $ 127,085 |
Notes Payable - Annual maturiti
Notes Payable - Annual maturities of notes payable (Details) - SBA PPP Loan | Sep. 30, 2020USD ($) |
Annual maturities | |
2020 | $ 35,904 |
2021 | 216,685 |
2022 | 72,711 |
Total | $ 325,300 |
Note Payable - Additional Infor
Note Payable - Additional Information (Details) - USD ($) | Oct. 05, 2021 | Apr. 17, 2020 | Oct. 31, 2020 | Sep. 30, 2020 |
Paycheck Protection Program Loan | ||||
Debt Conversion [Line Items] | ||||
Unsecured promissory note | $ 325,300 | |||
Term of loan | 2 years | |||
Interest rate (in percentage) | 1.00% | |||
Deferral period for monthly payments | 6 months | |||
Prepayment penalties | $ 0 | |||
Huntington Bank [Member] | ||||
Debt Conversion [Line Items] | ||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,000,000 | |||
Borrowings on line of credit | $ 0 | |||
Huntington Bank [Member] | Prime Commercial Rate | ||||
Debt Conversion [Line Items] | ||||
Debt Instrument, Basis Spread on Variable Rate | 0.50% |
Income Taxes - Income tax expen
Income Taxes - Income tax expense (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Income Taxes | ||||
Federal - deferred | $ 0 | $ 0 | $ 0 | $ 0 |
State and local | 0 | 0 | 1,900 | 4,860 |
Total | $ 0 | $ 0 | $ 1,900 | $ 4,860 |
Income Taxes - Additional infor
Income Taxes - Additional information (Details) | 9 Months Ended |
Sep. 30, 2020USD ($) | |
Income Taxes | |
Deferred Tax Assets, Operating Loss Carryforwards, State and Local | $ 4,000,000 |
Operating Loss Carry forward Expiration Year | 2039 |
Operating Lease - Future Minimu
Operating Lease - Future Minimum Lease Payments (Details) | Sep. 30, 2020USD ($) |
Operating Lease | |
2020 | $ 27,235 |
2021 | 110,364 |
2022 | 112,611 |
2023 | 114,857 |
2024 | 102,550 |
Total minimum lease payments | $ 467,617 |
Operating Lease - Additional In
Operating Lease - Additional Information (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Operating cash outflows from operating leases | $ 132,556 | |
Weighted average remaining lease term - operating leases | 4 years 2 months 12 days | |
Weighted average discount rate - operating leases | 5.50% | |
Operating lease, renewal term | 5 years | |
Operating Lease, Cost | $ 80,900 | $ 78,400 |
Minimum [Member] | ||
Operating Lease Monthly Rent Payable | 9,000 | |
Maximum [Member] | ||
Operating Lease Monthly Rent Payable | $ 9,700 |
Finance Leases - Future minimum
Finance Leases - Future minimum lease payments (Details) - USD ($) | Sep. 30, 2020 | Aug. 31, 2020 | Dec. 31, 2019 |
Finance Leases | |||
2020 | $ 47,839 | ||
2021 | 174,943 | ||
2022 | 105,154 | ||
2023 | 101,675 | ||
2024 | 49,859 | ||
Total minimum lease payments | 479,470 | ||
Less amount representing interest | 32,900 | ||
Present value of minimum lease payments | 446,570 | $ 306,973 | |
Less current portion | 166,651 | $ 98,524 | |
Finance lease obligations, net of current portion | $ 279,919 | $ 125,311 |
Finance Leases - Equipment unde
Finance Leases - Equipment under finance lease and additional information (Details) - USD ($) | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Aug. 31, 2020 | Dec. 31, 2019 | |
Finance Leases | ||||
Machinery and equipment | $ 745,289 | $ 438,316 | ||
Less accumulated depreciation and amortization | 137,319 | 98,305 | ||
Net book value | $ 607,970 | $ 340,011 | ||
Amortization period, Finance lease (in years) | 10 years | |||
Property and equipment purchased by finance lease | $ 306,973 | $ 78,950 | ||
Finance Lease, Liability | $ 446,570 | $ 306,973 | ||
Finance lease term | 47 months | |||
Finance lease interest rate | 4.20% |