Document And Entity Information
Document And Entity Information - shares | 6 Months Ended | |
Jun. 30, 2022 | Jul. 28, 2022 | |
Document And Entity Information | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Jun. 30, 2022 | |
Entity File Number | 0-31641 | |
Entity Registrant Name | SCI ENGINEERED MATERIALS, INC. | |
Entity Incorporation, State or Country Code | OH | |
Entity Tax Identification Number | 31-1210318 | |
Entity Address, Address Line One | 2839 Charter Street | |
Entity Address, City or Town | Columbus | |
Entity Address, State or Province | OH | |
Entity Address, Postal Zip Code | 43228 | |
City Area Code | 614 | |
Local Phone Number | 486-0261 | |
Title of 12(b) Security | Common stock, without par value | |
Trading Symbol | SCIA | |
Security Exchange Name | NONE | |
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 | 4,515,379 | |
Entity Central Index Key | 0000830616 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2022 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false |
BALANCE SHEETS
BALANCE SHEETS - USD ($) | Jun. 30, 2022 | Dec. 31, 2021 |
Current Assets | ||
Cash | $ 5,409,210 | $ 4,140,942 |
Accounts receivable Trade, less allowance for doubtful accounts of $15,000 | 714,269 | 425,327 |
Accounts receivable Tax - Employee Retention Credit | 105,000 | 105,000 |
Other | 1,250 | |
Inventories, net | 3,617,648 | 1,073,218 |
Prepaid expenses | 46,052 | 678,357 |
Total current assets | 9,892,179 | 6,424,094 |
Property and Equipment, at cost | ||
Machinery and equipment | 8,066,539 | 7,949,746 |
Furniture and fixtures | 135,665 | 132,365 |
Leasehold improvements | 596,867 | 596,867 |
Construction in progress | 330,972 | 287,510 |
Property, Plant and Equipment, Gross | 9,130,043 | 8,966,488 |
Less accumulated depreciation | (6,994,759) | (6,809,850) |
Property, Plant and Equipment, Net | 2,135,284 | 2,156,638 |
Right of use asset, net | 230,457 | 274,298 |
Deferred tax asset | 531,720 | 663,820 |
Other assets | 87,346 | 89,552 |
Total other assets | 849,523 | 1,027,670 |
TOTAL ASSETS | 12,876,986 | 9,608,402 |
Current Liabilities | ||
Finance lease obligations, current portion | 98,828 | 96,702 |
Operating lease obligations, current portion | 101,525 | 97,292 |
Accounts payable | 430,808 | 250,383 |
Customer deposits | 3,862,439 | 1,724,556 |
Accrued compensation | 198,471 | 225,190 |
Accrued expenses and other | 114,147 | 122,836 |
Total current liabilities | 4,806,218 | 2,516,959 |
Finance lease obligations, net of current portion | 96,564 | 146,516 |
Operating lease obligations, net of current portion | 153,654 | 205,623 |
Total liabilities | 5,056,436 | 2,869,098 |
Shareholders' Equity | ||
Common stock, no par value, authorized 15,000,000 shares; 4,515,379 and 4,506,269 shares issued and outstanding, respectively | 10,603,450 | 10,573,843 |
Additional paid-in capital | 2,229,443 | 2,227,078 |
Accumulated deficit | (5,012,343) | (6,061,617) |
Total shareholders' equity | 7,820,550 | 6,739,304 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 12,876,986 | $ 9,608,402 |
BALANCE SHEETS (Parenthetical)
BALANCE SHEETS (Parenthetical) - USD ($) | Jun. 30, 2022 | Dec. 31, 2021 |
BALANCE SHEETS | ||
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 | 4,515,379 | 4,506,269 |
Common stock, shares outstanding | 4,515,379 | 4,506,269 |
STATEMENTS OF INCOME
STATEMENTS OF INCOME - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
STATEMENTS OF INCOME | ||||
Revenue | $ 6,505,005 | $ 1,972,049 | $ 11,831,437 | $ 4,994,359 |
Cost of revenue | 5,127,337 | 1,409,495 | 9,459,668 | 3,628,769 |
Gross profit | 1,377,668 | 562,554 | 2,371,769 | 1,365,590 |
General and administrative expense | 423,401 | 283,708 | 796,589 | 571,589 |
Research and development expense | 92,085 | 54,377 | 179,116 | 92,596 |
Marketing and sales expense | 108,140 | 46,434 | 190,328 | 97,827 |
Income from operations | 754,042 | 178,035 | 1,205,736 | 603,578 |
Gain on extinguishment of debt | (325,300) | |||
Interest expense | 5,769 | 9,014 | 12,262 | 16,652 |
Income before provision for income taxes | 748,273 | 169,021 | 1,193,474 | 912,226 |
Provision for income taxes | 83,400 | 47,473 | 144,200 | 138,093 |
Net income | 664,873 | 121,548 | 1,049,274 | 774,133 |
Dividends on preferred stock | 6,038 | 12,076 | ||
INCOME APPLICABLE TO COMMON STOCK | $ 664,873 | $ 115,510 | $ 1,049,274 | $ 762,057 |
Income per common share | ||||
Basic (In dollars per share) | $ 0.15 | $ 0.03 | $ 0.23 | $ 0.17 |
Diluted (In dollars per share) | $ 0.15 | $ 0.03 | $ 0.23 | $ 0.17 |
Weighted average shares outstanding | ||||
Basic (In shares) | 4,514,492 | 4,497,903 | 4,512,396 | 4,488,913 |
Diluted (In shares) | 4,541,819 | 4,526,062 | 4,539,988 | 4,516,478 |
STATEMENTS OF SHAREHOLDERS' EQU
STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) | Convertible Preferred Stock, Series B Preferred stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Balance at Dec. 31, 2020 | $ 514,438 | $ 10,530,669 | $ 2,246,501 | $ (7,740,441) | $ 5,551,167 |
Accretion of cumulative dividends | 6,038 | (6,038) | |||
Stock based compensation expense (Note 4) | 1,183 | 1,183 | |||
Common stock issued (Note 4) | 20,705 | 20,705 | |||
Net income | 652,585 | 652,585 | |||
Balance at Mar. 31, 2021 | 520,476 | 10,551,374 | 2,241,646 | (7,087,856) | 6,225,640 |
Balance at Dec. 31, 2020 | 514,438 | 10,530,669 | 2,246,501 | (7,740,441) | 5,551,167 |
Net income | 774,133 | ||||
Balance at Jun. 30, 2021 | 502,362 | 10,558,867 | 2,236,790 | (6,966,308) | 6,331,711 |
Balance at Mar. 31, 2021 | 520,476 | 10,551,374 | 2,241,646 | (7,087,856) | 6,225,640 |
Accretion of cumulative dividends | 6,038 | (6,038) | |||
Stock based compensation expense (Note 4) | 1,182 | 1,182 | |||
Payment of cumulative dividends (Note 7) | (24,152) | (24,152) | |||
Common stock issued (Note 4) | 7,493 | 7,493 | |||
Net income | 121,548 | 121,548 | |||
Balance at Jun. 30, 2021 | $ 502,362 | 10,558,867 | 2,236,790 | (6,966,308) | 6,331,711 |
Balance at Dec. 31, 2021 | 10,573,843 | 2,227,078 | (6,061,617) | 6,739,304 | |
Stock based compensation expense (Note 4) | 1,183 | 1,183 | |||
Common stock issued (Note 4) | 22,116 | 22,116 | |||
Net income | 384,401 | 384,401 | |||
Balance at Mar. 31, 2022 | 10,595,959 | 2,228,261 | (5,677,216) | 7,147,004 | |
Balance at Dec. 31, 2021 | 10,573,843 | 2,227,078 | (6,061,617) | 6,739,304 | |
Net income | 1,049,274 | ||||
Balance at Jun. 30, 2022 | 10,603,450 | 2,229,443 | (5,012,343) | 7,820,550 | |
Balance at Mar. 31, 2022 | 10,595,959 | 2,228,261 | (5,677,216) | 7,147,004 | |
Stock based compensation expense (Note 4) | 1,182 | 1,182 | |||
Common stock issued (Note 4) | 7,491 | 7,491 | |||
Net income | 664,873 | 664,873 | |||
Balance at Jun. 30, 2022 | $ 10,603,450 | $ 2,229,443 | $ (5,012,343) | $ 7,820,550 |
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS - USD ($) | 6 Months Ended | |
Jun. 30, 2022 | Jun. 30, 2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 1,049,274 | $ 774,133 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and accretion | 203,944 | 230,689 |
Amortization of right of use asset | 43,841 | 40,792 |
Amortization of patents | 2,207 | 2,207 |
Stock based compensation | 31,972 | 30,563 |
(Gain) loss on disposal of equipment | (5,166) | 3,224 |
Deferred tax asset | 132,100 | 131,002 |
Gain on extinguishment of debt | (325,300) | |
Inventory reserve | (16,855) | 600 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (287,692) | (144,555) |
Inventories | (2,527,575) | (3,066,009) |
Prepaid expenses | 632,305 | (151,276) |
Other assets | (2) | 2,656 |
Accounts payable | 180,425 | 286,866 |
Operating lease obligations | (47,736) | (43,565) |
Accrued expenses and customer deposits | 2,099,024 | 3,477,435 |
Net cash provided by operating activities | 1,490,066 | 1,249,462 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Proceeds on sale of equipment | 5,166 | 591 |
Purchases of property and equipment | (179,140) | (558,828) |
Net cash used in investing activities | (173,974) | (558,237) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Payment of cumulative dividends on preferred stock | (24,152) | |
Principal payments on finance lease obligations and notes payable | (47,824) | (87,422) |
Net cash used in financing activities | (47,824) | (111,574) |
NET INCREASE IN CASH | 1,268,268 | 579,651 |
CASH - Beginning of period | 4,140,942 | 2,917,551 |
CASH - End of period | 5,409,210 | 3,497,202 |
Cash paid during the period for: | ||
Interest | 4,826 | 5,895 |
Income taxes | 10,863 | 2,778 |
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||
Increase in asset retirement obligation | $ 3,450 | $ 3,450 |
Business Organization and Purpo
Business Organization and Purpose | 6 Months Ended |
Jun. 30, 2022 | |
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 markets within the photonics industry including Aerospace, Automotive, Defense, Glass, Optical Coatings and Solar. 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. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2022 | |
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, 2021. 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 30 day payment terms. 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. All revenue was from the photonics industry during the six months ended June 30, 2022 and 2021. The top two customers represented approximately 87% and 79% of total revenue for the six months ended June 30, 2022 and 2021, respectively. International shipments resulted in 1% and 3% of total revenue for the first six months of 2022 and 2021, respectively. Note 2. Summary of Significant Accounting Policies (continued) Employee Retention Credit (ERC) - The Company qualified for federal government assistance through Employee Retention Credit provisions of the Consolidated Appropriations Act of 2021 during the first six months of 2021 in the amount of $255,507 during the first quarter of 2021 and $151,701 during the second quarter of 2021. 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. The Company also qualified for the ERC in the third quarter of 2021. A balance of $105,000 appears as a tax receivable on the balance sheets at June 30, 2022. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | 6 Months Ended |
Jun. 30, 2022 | |
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 us in the first quarter of 2023. We are evaluating the impact that the adoption of this update will have on our financial statements. |
Common Stock and Stock Options
Common Stock and Stock Options | 6 Months Ended |
Jun. 30, 2022 | |
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. Noncash stock-based compensation expense was $8,673 and $8,675 for the three months ended June 30, 2022, and 2021, respectively. Noncash stock-based compensation expense was $31,972 and $30,563 for the six months ended June 30, 2022, and 2021, respectively. Unrecognized compensation expense was $3,941 as of June 30, 2022 and will be recognized through 2023. There was no tax benefit recorded for this compensation cost as the expense 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 4,610 and 5,265 aggregate shares of common stock of the Company during the six months ended June 30, 2022 and 2021, respectively. The stock had an aggregate value of $14,982 and $14,987 for the six months ended June 30, 2022 and 2021, respectively, and was recorded as non-cash stock compensation expense in the financial statements. Employees received compensation of 4,500 and 4,804 aggregate shares of common stock of the Company during the six months ended June 30, 2022 and 2021, respectfully. These shares had an aggregate value of $14,625 and $13,211 and was recorded as non-cash stock compensation expense in the financial statements for the six months ended June 30, 2022 and 2021, respectively. In addition, during the six months ended June 30, 2021, a total of 30,181 stock options were exercised by management. The cumulative status of options granted and outstanding at June 30, 2022, and December 31, 2021, 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, 2021 76,037 $ 1.03 Exercised (34,733) 1.00 Outstanding at December 31, 2021 41,304 $ 1.05 Outstanding at June 30, 2022 41,304 $ 1.05 Options exercisable at December 31, 2021 27,418 $ 0.95 Options exercisable at June 30, 2022 34,361 $ 1.01 Note 4. Common Stock and Stock Options (continued) Exercise prices for options ranged from $0.84 to $1.25 at June 30, 2022. The weighted average option price for all options outstanding at June 30, 2022, was $1.05 with a weighted average remaining contractual life of 4.1 years. There were no non-employee director stock options outstanding during 2022 and 2021. |
Preferred Stock
Preferred Stock | 6 Months Ended |
Jun. 30, 2022 | |
Preferred Stock | |
Preferred Stock | Note 5. Preferred Stock The Board of Directors voted in November 2021 to authorize full redemption of the 24,152 shares of the Company’s Convertible Preferred Stock, Series B (“Series B”) outstanding effective December 31, 2021. This involved cash payments of $248,766 ($10.30 per Series B share, which includes a 3% premium to the stated value of $10 per share), plus unpaid annual dividends of $265,672 ($11.00 per Series B share). Dividends on the Convertible Preferred Stock, Series B accrued at 10% annually on the outstanding shares prior to the redemption in 2021 and were $6,038 and $12,076 for the three and six months ended June 30, 2021, respectively. During June 2021, a cash dividend payment of $24,152 was made to preferred shareholders. |
Inventories
Inventories | 6 Months Ended |
Jun. 30, 2022 | |
Inventories | |
Inventories | Note 6. Inventories Inventories consisted of the following: June 30, December 31, 2022 2021 (unaudited) Raw materials $ 1,759,561 $ 440,759 Work-in-process 1,700,549 549,369 Finished goods 166,101 108,508 Inventory reserve (8,563) (25,418) $ 3,617,648 $ 1,073,218 |
Earnings Per Share
Earnings Per Share | 6 Months Ended |
Jun. 30, 2022 | |
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 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 June 30, Six months ended June 30, 2022 2021 2022 2021 Income applicable to common shares $ 664,873 $ 115,510 $ 1,049,274 $ 762,057 Weighted average common shares outstanding - basic 4,514,492 4,497,903 4,512,396 4,488,913 Effect of dilution 27,327 28,159 27,592 27,565 Weighted average shares outstanding - diluted 4,541,819 4,526,062 4,539,988 4,516,478 |
Notes Payable
Notes Payable | 6 Months Ended |
Jun. 30, 2022 | |
Notes Payable | |
Notes 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. Under the terms of the CARES Act, PPP loan recipients were eligible to apply for, and be granted, forgiveness for all or a portion of loans granted. Such forgiveness was 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. The Company applied for forgiveness of the entire amount of the loan during the fourth quarter of 2020, and the SBA approved the Forgiveness Application in full during the first quarter of 2021. This amount is included in the Statements of Income as gain on extinguishment of debt for the six months ended June 30, 2021. The Company commenced a line of credit with Fifth Third Bank for $1 million during 2021. The line of credit bears interest equal to the rate of interest per annum established by Fifth Third Bank as its Prime Rate. This line of credit has a maturity date of August 29, 2022. No amounts were drawn on this line of credit as of June 30, 2022. |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 30, 2022 | |
Income Taxes | |
Income Taxes | Note 9. Income Taxes The provision for income taxes for the six months ended June 30, 2022 is based on our projected annual effective tax rate for fiscal year 2022, adjusted for permanent differences and specific items that are required to be recognized in the period in which they are incurred. Following is the income tax expense for the three and six months ended June 30: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Federal - deferred $ 76,100 $ 43,160 $ 132,100 $ 131,002 State and local 7,300 4,313 12,100 7,091 $ 83,400 $ 47,473 $ 144,200 $ 138,093 Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. The Company had net operating loss carryforwards available for federal and state tax purposes of approximately $2,100,000 at December 31, 2021, which expire in varying amounts through 2041. As of December 31, 2021, management determined that there was sufficient positive evidence to conclude that it is more likely than not that deferred taxes of $663,820 were realizable principally because we achieved five consecutive years of pretax income, expect profits to continue for the foreseeable future and implemented new efficiencies in the Company’s manufacturing process. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Accordingly, management determined that no valuation allowance was necessary, and the deferred tax asset was $531,720 at June 30, 2022. |
Operating Lease
Operating Lease | 6 Months Ended |
Jun. 30, 2022 | |
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 payments ranging from $9,200 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 $56,200 and $55,000 during the six months ended June 30, 2022 and 2021, respectively. Note 10. Operating Lease (continued) The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of June 30, 2022: 2022 $ 56,443 2023 114,857 2024 102,550 Total minimum lease payments 273,850 Less debt discount 18,671 Total operating lease obligations $ 255,179 Operating cash outflows from operating leases $ 47,736 Weighted average remaining lease term 2.4 years Weighted average discount rate 5.5 % |
Finance Leases
Finance Leases | 6 Months Ended |
Jun. 30, 2022 | |
Finance Leases | |
Finance Leases | Note 11. Finance Leases The Company leases certain equipment under finance leases. Future minimum lease payments, by year, with the present value of such payments, as of June 30, 2022, are shown in the following table. 2022 $ 52,650 2023 101,675 2024 49,859 Total minimum lease payments 204,184 Less amount representing interest 8,792 Present value of minimum lease payments 195,392 Less current portion 98,828 Finance lease obligations, net of current portion $ 96,564 The equipment under finance lease at June 30, 2022, and December 31, 2021, is included in the accompanying balance sheets as follows: June 30, 2022 Dec. 31, 2021 Machinery and equipment $ 385,923 $ 385,923 Less accumulated depreciation and amortization 85,080 65,783 Net book value $ 300,843 $ 320,140 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. |
Subsequent Event
Subsequent Event | 6 Months Ended |
Jun. 30, 2022 | |
Subsequent Event | |
Subsequent Event | Note 12. Subsequent Event The Company expects to receive shipment of additional manufacturing equipment during the third quarter of 2022. This includes a hot press that will enable production of higher temperature materials with increased capacity. A final cash payment of $220,075 was made for the hot press during late July of this year. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2022 | |
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, 2021. 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 30 day payment terms. 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. All revenue was from the photonics industry during the six months ended June 30, 2022 and 2021. The top two customers represented approximately 87% and 79% of total revenue for the six months ended June 30, 2022 and 2021, respectively. International shipments resulted in 1% and 3% of total revenue for the first six months of 2022 and 2021, respectively. |
Employee Retention Credit (ERC) | Employee Retention Credit (ERC) - The Company qualified for federal government assistance through Employee Retention Credit provisions of the Consolidated Appropriations Act of 2021 during the first six months of 2021 in the amount of $255,507 during the first quarter of 2021 and $151,701 during the second quarter of 2021. 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. The Company also qualified for the ERC in the third quarter of 2021. A balance of $105,000 appears as a tax receivable on the balance sheets at June 30, 2022. |
Common Stock and Stock Options
Common Stock and Stock Options (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
Common Stock and Stock Options | |
Schedule of share-based compensation, employee stock options, activity | The cumulative status of options granted and outstanding at June 30, 2022, and December 31, 2021, 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, 2021 76,037 $ 1.03 Exercised (34,733) 1.00 Outstanding at December 31, 2021 41,304 $ 1.05 Outstanding at June 30, 2022 41,304 $ 1.05 Options exercisable at December 31, 2021 27,418 $ 0.95 Options exercisable at June 30, 2022 34,361 $ 1.01 |
Inventories (Tables)
Inventories (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
Inventories | |
Schedule of Inventories | June 30, December 31, 2022 2021 (unaudited) Raw materials $ 1,759,561 $ 440,759 Work-in-process 1,700,549 549,369 Finished goods 166,101 108,508 Inventory reserve (8,563) (25,418) $ 3,617,648 $ 1,073,218 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
Earnings Per Share | |
Summary of reconciliation of earnings per share calculations | Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Income applicable to common shares $ 664,873 $ 115,510 $ 1,049,274 $ 762,057 Weighted average common shares outstanding - basic 4,514,492 4,497,903 4,512,396 4,488,913 Effect of dilution 27,327 28,159 27,592 27,565 Weighted average shares outstanding - diluted 4,541,819 4,526,062 4,539,988 4,516,478 |
Income Taxes (Tables)
Income Taxes (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
Income Taxes | |
Schedule of components of the income tax expense | Following is the income tax expense for the three and six months ended June 30: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Federal - deferred $ 76,100 $ 43,160 $ 132,100 $ 131,002 State and local 7,300 4,313 12,100 7,091 $ 83,400 $ 47,473 $ 144,200 $ 138,093 |
Operating Lease (Tables)
Operating Lease (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
Operating Lease | |
Schedule of annual undiscounted cash flows of the operating lease liabilities | Note 10. Operating Lease (continued) The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of June 30, 2022: 2022 $ 56,443 2023 114,857 2024 102,550 Total minimum lease payments 273,850 Less debt discount 18,671 Total operating lease obligations $ 255,179 |
Schedule of operating lease other information | Operating cash outflows from operating leases $ 47,736 Weighted average remaining lease term 2.4 years Weighted average discount rate 5.5 % |
Finance Leases (Tables)
Finance Leases (Tables) | 6 Months Ended |
Jun. 30, 2022 | |
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 June 30, 2022, are shown in the following table. 2022 $ 52,650 2023 101,675 2024 49,859 Total minimum lease payments 204,184 Less amount representing interest 8,792 Present value of minimum lease payments 195,392 Less current portion 98,828 Finance lease obligations, net of current portion $ 96,564 |
Schedule of equipment under finance leases | The equipment under finance lease at June 30, 2022, and December 31, 2021, is included in the accompanying balance sheets as follows: June 30, 2022 Dec. 31, 2021 Machinery and equipment $ 385,923 $ 385,923 Less accumulated depreciation and amortization 85,080 65,783 Net book value $ 300,843 $ 320,140 |
Business Organization and Pur_2
Business Organization and Purpose (Details) | 6 Months Ended |
Jun. 30, 2022 segment | |
Business Organization and Purpose | |
Number of operating segments | 1 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2021 | Mar. 31, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2021 | |
Accounting Policies [Line Items] | |||||
Employee retention credit provisions | $ 151,701 | $ 255,507 | |||
Accounts receivable Tax - Employee Retention Credit | $ 105,000 | $ 105,000 | |||
Geographic Concentration Risk | Sales Revenue, Net | International | |||||
Accounting Policies [Line Items] | |||||
Concentration risk, percentage | 1% | 3% | |||
Two Customers | Photonics industry | Sales Revenue, Net | |||||
Accounting Policies [Line Items] | |||||
Concentration risk, percentage | 87% | 79% |
Common Stock and Stock Option_2
Common Stock and Stock Options (Details) - Employee Stock Option - $ / shares | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2021 | |
Common Stock and Stock Options | |||
Stock Options, Outstanding, Beginning Balance | 41,304 | 76,037 | 76,037 |
Stock Options, Exercised | 0 | (30,181) | (34,733) |
Stock Options, Outstanding, Ending Balance | 41,304 | 41,304 | |
Stock Options, Options exercisable | 34,361 | 27,418 | |
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ 1.05 | $ 1.03 | $ 1.03 |
Weighted Average Exercise Price, Exercised | 0 | 1 | |
Weighted Average Exercise Price, Outstanding, Ending Balance | 1.05 | 1.05 | |
Weighted Average Exercise Price, Options exercisable | $ 1.01 | $ 0.95 |
Common Stock and Stock Option_3
Common Stock and Stock Options - Additional Information (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
Jun. 30, 2022 | Mar. 31, 2022 | Jun. 30, 2021 | Mar. 31, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2021 | |
Common Stock and Stock Options | |||||||
Stock based compensation | $ 8,673 | $ 8,675 | $ 31,972 | $ 30,563 | |||
Unrecognized compensation expense | 3,941 | $ 3,941 | |||||
Stock Issued During Period, Value, New Issues | $ 7,491 | $ 22,116 | 7,493 | $ 20,705 | |||
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 | $ 1.05 | $ 1.05 | |||||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term | 4 years 1 month 6 days | ||||||
Common Stock | |||||||
Common Stock and Stock Options | |||||||
Stock Issued During Period, Value, New Issues | $ 7,491 | $ 22,116 | $ 7,493 | $ 20,705 | |||
Employee Stock Option | |||||||
Common Stock and Stock Options | |||||||
Stock options exercised | 0 | 30,181 | 34,733 | ||||
Non-employee director | Common Stock | |||||||
Common Stock and Stock Options | |||||||
Stock Issued During Period, Shares, New Issues | 4,610 | 5,265 | |||||
Stock Issued During Period, Value, New Issues | $ 14,982 | $ 14,987 | |||||
Employee Stock Grants | Common Stock | |||||||
Common Stock and Stock Options | |||||||
Stock Issued During Period, Shares, New Issues | 4,500 | 4,804 | |||||
Stock Issued During Period, Value, New Issues | $ 14,625 | $ 13,211 |
Preferred Stock - Additional In
Preferred Stock - Additional Information (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended |
Jun. 30, 2021 | Jun. 30, 2021 | Jun. 30, 2021 | Dec. 31, 2021 | |
Preferred Stock Dividends, Income Statement Impact | $ 6,038 | $ 12,076 | ||
Convertible Preferred Stock, Series B | ||||
Preferred Stock, Dividend Rate, Percentage | 10% | |||
Preferred Stock Redemption Percentage | 3% | |||
Preferred Stock, Shares Outstanding | 24,152 | |||
Dividend Payment, Preferred Stock | $ 248,766 | |||
Preferred redemption price per share | $ 10.30 | |||
Preferred stock stated value | $ 10 | |||
Unpaid dividends | $ 265,672 | |||
Dividend rate | $ 11 | |||
Preferred Stock Dividends, Income Statement Impact | $ 6,038 | $ 12,076 | ||
Cash dividend payment | $ 24,152 |
Inventories (Details)
Inventories (Details) - USD ($) | Jun. 30, 2022 | Dec. 31, 2021 |
Inventories | ||
Raw materials | $ 1,759,561 | $ 440,759 |
Work-in-process | 1,700,549 | 549,369 |
Finished goods | 166,101 | 108,508 |
Inventory reserve | (8,563) | (25,418) |
Inventory, Net | $ 3,617,648 | $ 1,073,218 |
Earnings Per Share - Reconcilia
Earnings Per Share - Reconciliation of Earnings Per Share Calculations (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
Earnings Per Share | ||||
Income applicable to common stock | $ 664,873 | $ 115,510 | $ 1,049,274 | $ 762,057 |
Weighted average common shares outstanding - basic | 4,514,492 | 4,497,903 | 4,512,396 | 4,488,913 |
Effect of dilution | 27,327 | 28,159 | 27,592 | 27,565 |
Weighted average shares outstanding - diluted | 4,541,819 | 4,526,062 | 4,539,988 | 4,516,478 |
Notes Payable (Details)
Notes Payable (Details) - USD ($) | Jun. 30, 2022 | Jun. 30, 2021 | Apr. 17, 2020 |
SBA PPP Loan | |||
Debt Instrument [Line Items] | |||
Unsecured promissory note | $ 325,300 | ||
Fifth Third Bank | |||
Debt Instrument [Line Items] | |||
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,000,000 | ||
Borrowings on line of credit | $ 0 |
Income Taxes - Income tax expen
Income Taxes - Income tax expense (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | |
Income Taxes | ||||
Federal | $ 76,100 | $ 43,160 | $ 132,100 | $ 131,002 |
State and local | 7,300 | 4,313 | 12,100 | 7,091 |
Total | $ 83,400 | $ 47,473 | $ 144,200 | $ 138,093 |
Income Taxes - Additional infor
Income Taxes - Additional information (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2022 | Jun. 30, 2021 | Jun. 30, 2022 | Jun. 30, 2021 | Dec. 31, 2021 | |
Income Taxes | |||||
Deferred Tax Assets, Operating Loss Carryforwards, State and Local | $ 2,100,000 | ||||
Operating Loss Carry forward Expiration Year | 2041 | ||||
Net deferred tax asset | $ 531,720 | $ 531,720 | $ 663,820 | ||
Deferred Tax Assets, Valuation Allowance | 0 | 0 | |||
Provision for income taxes | $ 83,400 | $ 47,473 | $ 144,200 | $ 138,093 |
Operating Lease - Future Minimu
Operating Lease - Future Minimum Lease Payments (Details) | Jun. 30, 2022 USD ($) |
Operating Lease | |
2022 | $ 56,443 |
2023 | 114,857 |
2024 | 102,550 |
Total minimum lease payments | 273,850 |
Less debt discount | 18,671 |
Total operating lease obligations | $ 255,179 |
Operating Lease - Additional In
Operating Lease - Additional Information (Details) - USD ($) | 6 Months Ended | |
Jun. 30, 2022 | Jun. 30, 2021 | |
Operating cash outflows from operating leases | $ 47,736 | |
Weighted average remaining lease term | 2 years 4 months 24 days | |
Weighted average discount rate | 5.50% | |
Operating lease, renewal term | 5 years | |
Operating Lease, Cost | $ 56,200 | $ 55,000 |
Minimum | ||
Operating Lease Monthly Rent Payable | 9,200 | |
Maximum | ||
Operating Lease Monthly Rent Payable | $ 9,700 |
Finance Leases - Future minimum
Finance Leases - Future minimum lease payments (Details) - USD ($) | Jun. 30, 2022 | Dec. 31, 2021 |
Finance Leases | ||
2022 | $ 52,650 | |
2023 | 101,675 | |
2024 | 49,859 | |
Total minimum lease payments | 204,184 | |
Less amount representing interest | 8,792 | |
Present value of minimum lease payments | 195,392 | |
Less current portion | 98,828 | $ 96,702 |
Finance lease obligations, net of current portion | $ 96,564 | $ 146,516 |
Finance Leases - Equipment unde
Finance Leases - Equipment under finance lease and additional information (Details) - USD ($) | 6 Months Ended | |
Jun. 30, 2022 | Dec. 31, 2021 | |
Finance Leases | ||
Machinery and equipment | $ 385,923 | $ 385,923 |
Less accumulated depreciation and amortization | 85,080 | 65,783 |
Net book value | $ 300,843 | $ 320,140 |
Amortization period, Finance lease (in years) | 10 years |
Subsequent Event (Details)
Subsequent Event (Details) | Jul. 31, 2022 USD ($) |
Subsequent Event [Member] | |
Subsequent Event [Line Items] | |
Cash Payment | $ 220,075 |