SCI Engineered Materials (SCIA) 10-Q 2 Aug 17 2017 Q2 Quarterly report Financial data

Document And Entity Information

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 02, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q2
Entity Registrant Name	SCI Engineered Materials, Inc.
Entity Central Index Key	830,616
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	SCIA
Entity Common Stock, Shares Outstanding		4,139,544

BALANCE SHEETS

BALANCE SHEETS - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Current Assets
Cash	$ 983,621	$ 730,352
Accounts receivable, less allowance for doubtful accounts of $15,000	474,447	271,832
Inventories	1,723,056	376,561
Prepaid expenses	77,111	59,203
Total current assets	3,258,235	1,437,948
Property and Equipment, at cost
Machinery and equipment	7,823,766	7,645,043
Furniture and fixtures	131,705	130,027
Leasehold improvements	329,904	329,904
Construction in progress	16,887	51,775
Property, Plant and Equipment, Gross	8,302,262	8,156,749
Less accumulated depreciation	(6,246,881)	(6,019,844)
Property, Plant and Equipment, Net	2,055,381	2,136,905
Other Assets
Other Assets	49,672	50,620
TOTAL ASSETS	5,363,288	3,625,473
Current Liabilities
Capital lease obligations, current portion	135,778	121,383
Notes payable, current portion	195,811	172,408
Accounts payable	352,276	151,757
Customer deposits	1,721,224	249,977
Accrued compensation	77,068	89,826
Accrued expenses and other	124,707	120,943
Total current liabilities	2,606,864	906,294
Capital lease obligations, net of current portion	245,712	225,944
Notes payable, net of current portion	112,179	221,105
Total liabilities	2,964,755	1,353,343
Commitments and contingencies
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	502,362	490,286
Common stock, no par value, authorized 15,000,000 shares; 4,135,427 and 4,090,804 shares issued and outstanding, respectively	10,087,308	10,049,823
Additional paid-in capital	2,241,505	2,193,536
Accumulated deficit	(10,432,642)	(10,461,515)
Total shareholders' equity	2,398,533	2,272,130
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 5,363,288	$ 3,625,473

BALANCE SHEETS _Parenthetical_

BALANCE SHEETS [Parenthetical] - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Allowance for doubtful accounts (in dollars)	$ 15,000	$ 15,000
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	4,135,427	4,090,804
Common stock, shares outstanding	4,135,427	4,090,804
Convertible Preferred Stock Series B [Member]
Convertible preferred stock, series B, cumulative percentage of interest	10.00%	10.00%
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		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenue	$ 1,911,498	$ 1,206,484	$ 3,283,414	$ 2,581,296
Cost of revenue	1,448,651	919,625	2,483,582	2,034,827
Gross profit	462,847	286,859	799,832	546,469
General and administrative expense	256,112	273,712	510,550	563,440
Research and development expense	79,175	74,417	161,787	154,493
Marketing and sales expense	46,581	104,832	75,470	213,842
Income (loss) from operations	80,979	(166,102)	52,025	(385,306)
Interest	(10,710)	(11,156)	(22,204)	(22,841)
Income (loss) before provision for income taxes	70,269	(177,258)	29,821	(408,147)
Income tax expense	(948)	(43)	(948)	(43)
Net income (loss)	69,321	(177,301)	28,873	(408,190)
Dividends on preferred stock	(6,038)	(6,038)	(12,076)	(12,076)
INCOME (LOSS) APPLICABLE TO COMMON SHARES	$ 63,283	$ (183,339)	$ 16,797	$ (420,266)
Income (loss) per common share
Basic (in dollars per share)	$ 0.02	$ (0.05)	$ 0	$ (0.1)
Diluted (in dollars per share)	$ 0.02	$ (0.05)	$ 0	$ (0.1)
Weighted average shares outstanding
Basic (in shares)	4,125,880	4,042,722	4,114,756	4,033,488
Diluted (in shares)	4,125,880	4,042,722	4,114,756	4,033,488

STATEMENTS OF CASH FLOWS

STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ 28,873	$ (408,190)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and accretion	229,552	221,537
Amortization	4,719	4,719
Stock based compensation	97,531	105,103
Gain on disposal of equipment	0	(750)
Inventory reserve	0	10,509
Changes in operating assets and liabilities:
Accounts receivable	(202,615)	15,159
Inventories	(1,346,495)	(438,560)
Prepaid expenses	(17,908)	(725)
Other assets	948	(2,728)
Accounts payable	200,519	(18,477)
Accrued expenses and customer deposits	1,461,646	647,191
Net cash provided by operating activities	456,770	134,788
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment	0	750
Purchases of property and equipment	(43,870)	(59,368)
Net cash used in investing activities	(43,870)	(58,618)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options	0	4,200
Principal payments on capital lease obligations and notes payable	(159,631)	(189,957)
Net cash used in financing activities	(159,631)	(185,757)
NET INCREASE (DECREASE) IN CASH	253,269	(109,587)
CASH - Beginning of period	730,352	997,170
CASH - End of period	983,621	887,583
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest	22,420	23,159
Income taxes	948	43
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased by capital lease	103,550	145,077
Increase in asset retirement obligation	$ 609	$ 0

Business Organization and Purpo

Business Organization and Purpose	6 Months Ended
	Jun. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]	Note 1. Business Organization and Pur pose SCI Engineered Materials, Inc. (“SCI”, or the “Company”), formerly Superconductive Components, Inc., 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 within the PVD industry (Photonics, Thin Film Solar, Glass, Thin Film Battery and Transparent Electronics). Substantially all of the Company’s revenues are generated from customers with multi-national operations. Through collaboration with end users and Original Equipment Manufacturers the Company develops innovative customized solutions enabling commercial success.

Summary of Significant Accounti

Summary of Significant Accounting Policies	6 Months Ended
	Jun. 30, 2017
Accounting Policies [Abstract]
Significant Accounting Policies [Text Block]	Note 2. Summary of Significant Accounting Policies 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, 2016. Interim results are not necessarily indicative of results for the full year. 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.

Common Stock and Stock Options

Common Stock and Stock Options	6 Months Ended
	Jun. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]	Note 3. Common Stock and Stock Options Stock Based Compensation - 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 $ 50,669 51,532 97,531 105,103 80,120 The non-employee Board members received compensation of 44,623 31,682 37,486 24,358 During the second quarter of 2016, proceeds of $ 4,200 5,000 Employee Stock Options Weighted Average Stock Options Exercise Price Outstanding at January 1, 2016 572,857 $ 4.27 Expired (31,000) 3.25 Exercised (5,000) 0.84 Forfeited (139,186) 4.29 Outstanding at December 31, 2016 397,671 $ 4.39 Outstanding at June 30, 2017 397,671 $ 4.39 Options exercisable at December 31, 2016 267,668 $ 5.07 Options exercisable at June 30, 2017 294,818 $ 5.16 There were no non-employee director stock options granted or outstanding during 2016 and 2017. Exercise prices for options ranged from $ 0.84 6.00 4.39 3.3

Preferred Stock

Preferred Stock	6 Months Ended
	Jun. 30, 2017
Equity [Abstract]
Preferred Stock [Text Block]	Preferred Stock Dividends on the Series B preferred stock accrue at 10 6,038 12,076 253,596 241,520

Inventories

Inventories	6 Months Ended
	Jun. 30, 2017
Inventory Disclosure [Abstract]
Inventory Disclosure [Text Block]	Note 5. Inventories Inventories consisted of the following: June 30, December 31, 2017 2016 (unaudited) Raw materials $ 1,260,147 $ 110,752 Work-in-process 448,584 249,057 Finished goods 81,965 84,392 Inventory reserve (67,640) (67,640) $ 1,723,056 $ 376,561 The inventory increase was due to orders received during the first half of 2017 that are expected to ship during the second half of 2017. Much of the increase was at the request of customers and prepayment was received to cover the cost of the inventory. A corresponding increase in customer deposits appears on the balance sheet at June 30, 2017.

Earnings Per Share

Earnings Per Share	6 Months Ended
	Jun. 30, 2017
Earnings Per Share [Abstract]
Earnings Per Share [Text Block]	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. For the three and six months ended June 30, 2017 and 2016, all convertible preferred stock and common stock options listed in Note 3 that were out-of-the-money or anti-dilutive were excluded from diluted earnings per share. Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Income (loss) applicable to common shares $ 63,283 $ (183,339) $ 16,797 $ (420,266) Weighted average common shares outstanding - basic 4,125,880 4,042,722 4,114,756 4,033,488 Effect of dilution - - - - Weighted average shares outstanding - diluted 4,125,880 4,042,722 4,114,756 4,033,488

Notes Payable

Notes Payable	6 Months Ended
	Jun. 30, 2017
Debt Disclosure [Abstract]
Debt Disclosure [Text Block]	Notes Payable During 2010, the Company applied and was approved for a 166 Direct Loan to borrow up to $ 744,250 3 0.25 10,400 71,900 231,093 2,236 During 2010, the Company also applied and was approved for a 166 Direct Loan through the Advanced Energy Program with the Ohio Air Quality Development Authority (OAQDA) to borrow up to approximately $ 1.4 368,906 17,300 3 50,400 agreed to the elimination of a financial covenant. The loan is collateralized by the related project equipment. As of June 30, 2017 there was an outstanding balance of $ 82,404 3,271 An Intercreditor Agreement exists as part of the above mentioned loans with agencies of the State of Ohio. The OAQDA and ODSA agree to shared lien and security interest through mutual covenants. These covenants include, but are not limited to, the creation of an agreed upon number of jobs, filing of quarterly and annual reports and various financial covenants. The Company was in compliance with all covenants of these loans at June 30, 2017. It is possible that the Company may not be in compliance with all covenants in future periods. In the past the lenders have granted the Company a waiver or amendment when relief was sought. If non-compliance is possible the Company will seek a waiver or amendment.

Income Taxes

Income Taxes	6 Months Ended
	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Income Tax Disclosure [Text Block]	Note 8. Income Taxes Following is the income tax expense for the three and six months ended June 30: Three months ended Six months ended June 30, June 30, 2017 2016 2017 2016 Federal - deferred $ - $ - $ - $ - State and local 948 43 948 43 $ 948 $ 43 $ 948 $ 43 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 realizability of the net deferred tax assets at June 30, 2017 and December 31, 2016. The Company has net operating loss carryforwards available for federal and state tax purposes of approximately $ 5,200,000 2036

Liquidity

Liquidity	6 Months Ended
	Jun. 30, 2017
Liquidity Disclosures [Abstract]
Liquidity Disclosures [Text Block]	Note 9. Liquidity Management has forecasted revenues and related costs as well as investing plans and financing needs to determine liquidity to meet cash flow requirements and believes the Company will have sufficient liquidity at least through August 2, 2018. This forecast was based on current cash levels and debt obligations, and the best estimates of revenues primarily from existing customers and gave consideration to the continued and possible increased levels of uncertainty in demand in the markets in which the Company operates. The Company’s ability to maintain current operations is dependent upon its ability to achieve these forecasted results, which the Company believes will occur.

Common Stock and Stock Options

Common Stock and Stock Options (Tables)	6 Months Ended
	Jun. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]	The cumulative status of options granted and outstanding at June 30, 2017, and December 31, 2016, 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, 2016 572,857 $ 4.27 Expired (31,000) 3.25 Exercised (5,000) 0.84 Forfeited (139,186) 4.29 Outstanding at December 31, 2016 397,671 $ 4.39 Outstanding at June 30, 2017 397,671 $ 4.39 Options exercisable at December 31, 2016 267,668 $ 5.07 Options exercisable at June 30, 2017 294,818 $ 5.16

Inventories (Tables)

Inventories (Tables)	6 Months Ended
	Jun. 30, 2017
Inventory Disclosure [Abstract]
Schedule of Inventory, Current [Table Text Block]	Inventories consisted of the following: June 30, December 31, 2017 2016 (unaudited) Raw materials $ 1,260,147 $ 110,752 Work-in-process 448,584 249,057 Finished goods 81,965 84,392 Inventory reserve (67,640) (67,640) $ 1,723,056 $ 376,561

Earnings Per Share (Tables)

Earnings Per Share (Tables)	6 Months Ended
	Jun. 30, 2017
Earnings Per Share [Abstract]
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]	The following is provided to reconcile the earnings per share calculations: Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Income (loss) applicable to common shares $ 63,283 $ (183,339) $ 16,797 $ (420,266) Weighted average common shares outstanding - basic 4,125,880 4,042,722 4,114,756 4,033,488 Effect of dilution - - - - Weighted average shares outstanding - diluted 4,125,880 4,042,722 4,114,756 4,033,488

Income Taxes (Tables)

Income Taxes (Tables)	6 Months Ended
	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]	Following is the income tax expense for the three and six months ended June 30: Three months ended Six months ended June 30, June 30, 2017 2016 2017 2016 Federal - deferred $ - $ - $ - $ - State and local 948 43 948 43 $ 948 $ 43 $ 948 $ 43

Common Stock and Stock Option19

Common Stock and Stock Options (Details) - Employee Stock Options [Member] - $ / shares	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2017	Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Options, Outstanding, Beginning Balance		397,671	572,857
Stock Options, Expired			(31,000)
Stock Options, Exercised	(5,000)		(5,000)
Stock Options, Forfeited			(139,186)
Stock Options, Outstanding, Ending Balance		397,671	397,671
Stock Options, Options exercisable		294,818	267,668
Weighted Average Exercise Price, Outstanding, Beginning Balance		$ 4.39	$ 4.27
Weighted Average Exercise Price, Expired			3.25
Weighted Average Exercise Price, Exercised			0.84
Weighted Average Exercise Price, Forfeited			4.29
Weighted Average Exercise Price, Outstanding, Ending Balance		4.39	4.39
Weighted Average Exercise Price, Options exercisable		$ 5.16	$ 5.07

Common Stock and Stock Option20

Common Stock and Stock Options (Details Textual) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit (in dollars per share)			$ 0.84
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit (in dollars per share)			$ 6
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term			3 years 3 months 18 days
Share-based Compensation, Total	$ 50,669	$ 51,532	$ 97,531	$ 105,103
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 80,120		$ 80,120
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Outstanding Options, Weighted Average Exercise Price	$ 4.39		$ 4.39
Proceeds from Stock Options Exercised			$ 0	$ 4,200
Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock Issued During Period, Shares, New Issues (in shares)			44,623	31,682
Stock Issued During Period, Value, New Issues			$ 37,486	$ 24,358
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	397,671		397,671		397,671	572,857
Proceeds from Stock Options Exercised		$ 4,200
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		5,000			5,000
Non Employee Director Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	0	0	0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0	0

Preferred Stock (Details Textua

Preferred Stock (Details Textual) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Preferred Stock Dividends, Income Statement Impact	$ 6,038	$ 6,038	$ 12,076	$ 12,076
Series B Preferred Stock [Member]
Preferred Stock, Dividend Rate, Percentage			10.00%
Accrued Dividends			$ 253,596		$ 241,520

Inventories (Details)

Inventories (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Inventory [Line Items]
Raw materials	$ 1,260,147	$ 110,752
Work-in-process	448,584	249,057
Finished goods	81,965	84,392
Inventory reserve	(67,640)	(67,640)
Inventory, Net	$ 1,723,056	$ 376,561

Earnings Per Share (Details)

Earnings Per Share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income (loss) applicable to common shares	$ 63,283	$ (183,339)	$ 16,797	$ (420,266)
Weighted average common shares outstanding - basic	4,125,880	4,042,722	4,114,756	4,033,488
Effect of dilution	0	0	0	0
Weighted average shares outstanding - diluted	4,125,880	4,042,722	4,114,756	4,033,488

Notes Payable (Details Textual)

Notes Payable (Details Textual) - USD ($)	6 Months Ended
	Jun. 30, 2017	Mar. 20, 2012	Dec. 31, 2010
Ohio Development Services Agency [Member]
Debt Conversion [Line Items]
Line of Credit Facility, Interest Rate During Period	3.00%
Line of Credit Facility, Amount Outstanding	$ 231,093
Servicing Fee Annual Percent Fee	0.25%
Line of Credit Facility, Periodic Payment	$ 10,400
Line of Credit Facility, Maximum Borrowing Capacity			$ 744,250
Debt Issuances Cost	2,236
Ohio Development Services Agency [Member] | Line of Credit [Member]
Debt Conversion [Line Items]
Line of Credit Facility, Final Periodic Payment	$ 71,900
Ohio Air Quality Development Authority [Member]
Debt Conversion [Line Items]
Line of Credit Facility, Capacity Available for Specific Purpose Other than for Trade Purchases		$ 368,906	$ 1,400,000
Line of Credit Facility, Interest Rate During Period	3.00%
Line of Credit Facility, Amount Outstanding	$ 82,404
Line of Credit Facility, Periodic Payment	17,300
Debt Issuances Cost	3,271
Ohio Air Quality Development Authority [Member] | Line of Credit [Member]
Debt Conversion [Line Items]
Line of Credit Facility, Final Periodic Payment	$ 50,400
Ohio Department Of Development [Member]
Debt Conversion [Line Items]
Line of Credit Facility, Frequency of Payment and Payment Terms	84 months

Income Taxes (Details)

Income Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Tax Contingency [Line Items]
Federal - deferred	$ 0	$ 0	$ 0	$ 0
State and local	948	43	948	43
Income Tax Expense (Benefit)	$ 948	$ 43	$ 948	$ 43

Income Taxes (Details Textual)

Income Taxes (Details Textual)	6 Months Ended
	Jun. 30, 2017USD ($)
Income Tax Contingency [Line Items]
Deferred Tax Assets, Operating Loss Carryforwards, State and Local	$ 5,200,000
Operating Loss Carry forward Expiration Year	2,036