Document And Entity Information
Document And Entity Information - shares | 9 Months Ended | |
Sep. 30, 2023 | Oct. 26, 2023 | |
Document And Entity Information | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Sep. 30, 2023 | |
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 | 4,530,207 | |
Entity Central Index Key | 0000830616 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2023 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false |
BALANCE SHEETS
BALANCE SHEETS - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Current Assets | ||
Cash and cash equivalents | $ 5,798,613 | $ 3,947,966 |
Investments - marketable securities, short term | 1,000,000 | 989,265 |
Accounts receivable Trade, less allowance for doubtful accounts of $15,000 | 1,218,826 | 842,647 |
Tax receivable - Employee Retention Credit | 40,539 | 40,539 |
Other | 31,785 | 12,653 |
Inventories, net | 3,187,221 | 2,177,917 |
Prepaid purchase orders | 1,171,740 | |
Prepaid expenses | 91,327 | 136,134 |
Total current assets | 12,540,051 | 8,147,121 |
Property and Equipment, at cost | ||
Machinery and equipment | 8,683,695 | 8,584,871 |
Furniture and fixtures | 129,476 | 142,471 |
Leasehold improvements | 740,331 | 607,156 |
Construction in progress | 30,371 | 28,708 |
Property and equipment, gross | 9,583,873 | 9,363,206 |
Less accumulated depreciation and amortization | (7,269,854) | (7,101,573) |
Property and equipment, net | 2,314,019 | 2,261,633 |
Investments, net - marketable securities, long term | 997,478 | 1,000,000 |
Right of use asset, net | 117,487 | 185,072 |
Deferred tax asset | 151,164 | |
Other assets | 81,248 | 85,138 |
Total other assets | 1,196,213 | 1,421,374 |
TOTAL ASSETS | 16,050,283 | 11,830,128 |
Current Liabilities | ||
Finance lease obligations, current portion | 71,178 | 97,367 |
Operating lease obligations, current portion | 111,993 | 105,789 |
Accounts payable | 477,644 | 514,512 |
Customer deposits | 4,236,427 | 1,825,595 |
Accrued compensation | 383,554 | 270,168 |
Accrued expenses and other | 119,885 | 122,065 |
Total current liabilities | 5,400,681 | 2,935,496 |
Finance lease obligations, net of current portion | 49,149 | |
Deferred tax liability | 215,967 | |
Operating lease obligations, net of current portion | 19,338 | 99,834 |
Total liabilities | 5,635,986 | 3,084,479 |
Shareholders' Equity | ||
Common stock, no par value, authorized 15,000,000 shares; 4,530,207 and 4,519,524 shares issued and outstanding, respectively | 10,662,343 | 10,618,435 |
Additional paid-in capital | 2,233,384 | 2,231,807 |
Accumulated deficit | (2,481,430) | (4,104,593) |
Total shareholders' equity | 10,414,297 | 8,745,649 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 16,050,283 | $ 11,830,128 |
BALANCE SHEETS (Parenthetical)
BALANCE SHEETS (Parenthetical) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
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 | 4,530,207 | 4,519,524 |
Common stock, shares outstanding | 4,530,207 | 4,519,524 |
STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
STATEMENTS OF OPERATIONS | ||||
Revenue | $ 7,700,123 | $ 5,816,838 | $ 20,954,960 | $ 17,648,275 |
Revenue, Product and Service [Extensible Enumeration] | us-gaap:ProductMember | us-gaap:ProductMember | us-gaap:ProductMember | us-gaap:ProductMember |
Cost of revenue | $ 6,313,460 | $ 4,645,255 | $ 16,990,090 | $ 14,104,923 |
Cost, Product and Service [Extensible Enumeration] | us-gaap:ProductMember | us-gaap:ProductMember | us-gaap:ProductMember | us-gaap:ProductMember |
Gross profit | $ 1,386,663 | $ 1,171,583 | $ 3,964,870 | $ 3,543,352 |
General and administrative expense | 433,656 | 374,193 | 1,285,152 | 1,170,782 |
Research and development expense | 121,554 | 93,081 | 372,407 | 272,197 |
Marketing and sales expense | 121,244 | 94,594 | 358,058 | 284,922 |
Income from operations | 710,209 | 609,715 | 1,949,253 | 1,815,451 |
Interest (income) expense | (81,252) | (363) | (194,143) | 11,899 |
Income before provision for income taxes | 791,461 | 610,078 | 2,143,396 | 1,803,552 |
Income tax expense | 212,677 | 167,375 | 515,233 | 311,575 |
Net income | 578,784 | 442,703 | 1,628,163 | 1,491,977 |
NET INCOME | $ 578,784 | $ 442,703 | $ 1,628,163 | $ 1,491,977 |
Income per common share | ||||
Basic (In dollars per share) | $ 0.13 | $ 0.10 | $ 0.36 | $ 0.33 |
Diluted (In dollars per share) | $ 0.13 | $ 0.10 | $ 0.36 | $ 0.33 |
Weighted average shares outstanding | ||||
Basic (In shares) | 4,530,207 | 4,516,518 | 4,528,524 | 4,513,785 |
Diluted (In shares) | 4,561,708 | 4,544,651 | 4,559,208 | 4,541,590 |
STATEMENTS OF SHAREHOLDERS' EQU
STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit Period of Adoption, Adjustment | Accumulated Deficit | Period of Adoption, Adjustment | Total |
Balance at Dec. 31, 2021 | $ 10,573,843 | $ 2,227,078 | $ (6,061,617) | $ 6,739,304 | ||
Stock based compensation expense (Note 5) | 3,547 | 3,547 | ||||
Common stock issued (Note 5) | 37,095 | 37,095 | ||||
Net income | 1,491,977 | 1,491,977 | ||||
Balance at Sep. 30, 2022 | 10,610,938 | 2,230,625 | (4,569,640) | 8,271,923 | ||
Balance at Jun. 30, 2022 | 10,603,450 | 2,229,443 | (5,012,343) | 7,820,550 | ||
Stock based compensation expense (Note 5) | 1,182 | 1,182 | ||||
Common stock issued (Note 5) | 7,488 | 7,488 | ||||
Net income | 442,703 | 442,703 | ||||
Balance at Sep. 30, 2022 | 10,610,938 | 2,230,625 | (4,569,640) | 8,271,923 | ||
Balance at Dec. 31, 2022 | 10,618,435 | 2,231,807 | $ (5,000) | (4,104,593) | $ (5,000) | 8,745,649 |
Stock based compensation expense (Note 5) | 1,577 | 1,577 | ||||
Common stock issued (Note 5) | 43,908 | 43,908 | ||||
Net income | 1,628,163 | 1,628,163 | ||||
Balance at Sep. 30, 2023 | 10,662,343 | 2,233,384 | (2,481,430) | 10,414,297 | ||
Balance at Jun. 30, 2023 | 10,662,343 | 2,233,384 | (3,060,214) | 9,835,513 | ||
Net income | 578,784 | 578,784 | ||||
Balance at Sep. 30, 2023 | $ 10,662,343 | $ 2,233,384 | $ (2,481,430) | $ 10,414,297 |
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS - USD ($) | 9 Months Ended | |
Sep. 30, 2023 | Sep. 30, 2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 1,628,163 | $ 1,491,977 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and accretion | 344,291 | 305,480 |
Amortization of patents | 3,311 | 3,311 |
Stock based compensation | 45,485 | 40,642 |
(Gain) loss on disposal of equipment | 9,142 | (5,959) |
Deferred taxes | 367,131 | 288,000 |
Inventory reserve | 3,990 | (15,925) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (395,311) | (156,805) |
Inventories | (1,013,294) | (363,445) |
Prepaid purchase orders and expenses | (1,126,933) | 586,565 |
Other assets | 7,579 | |
Accounts payable | (36,868) | 256,365 |
Operating lease assets and liabilities, net | (6,707) | (5,844) |
Accrued expenses and customer deposits | 2,516,863 | (384,601) |
Net cash provided by operating activities | 2,328,558 | 2,051,679 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Proceeds on sale of equipment | 16,000 | 5,166 |
Purchases of marketable securities | (509,478) | |
Proceeds from maturities of marketable securities | 489,265 | |
Purchases of property and equipment | (398,360) | (511,399) |
Net cash used in investing activities | (402,573) | (506,233) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Principal payments on finance lease obligations | (75,338) | (72,131) |
Net cash used in financing activities | (75,338) | (72,131) |
NET INCREASE IN CASH | 1,850,647 | 1,473,315 |
CASH - Beginning of year | 3,947,966 | 4,140,942 |
CASH - End of period | 5,798,613 | 5,614,257 |
Cash paid during the period for: | ||
Interest | 3,639 | 6,846 |
Income taxes | 124,424 | 17,986 |
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||
Increase in asset retirement obligation | $ 5,175 | $ 5,175 |
Business Organization and Purpo
Business Organization and Purpose | 9 Months Ended |
Sep. 30, 2023 | |
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 | 9 Months Ended |
Sep. 30, 2023 | |
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, 2022. 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 creditworthiness of each customer. The Company sells its products typically under agreements with payment terms of 30-60 days. The Company does not normally include extended payment terms or significant financing components in contracts with customers. The majority of the Company’s contracts have an obligation to transfer products within one year. Thus, the Company elects to use the practical expedient where incremental cost of obtaining a contract, such as commissions, is expensed when incurred because the amortization period for those costs is one year or less. The Company treats shipping and handling activities that occur after control of the product transfers as fulfillment activities, and therefore, does not account for shipping and handling costs as a separate performance obligation. Customer deposits are funds received in advance from customers and are recognized as revenue when the Company has transferred control of product to the customer. Product revenues are recognized upon shipment of goods as the customer has assumed the significant risks and rewards of ownership and the Company is entitled to payment at this point. Service revenues are recognized upon completion as the customer cannot realize the benefit of the service until fully completed. All revenue was from the photonics industry during the nine months ended September 30, 2023 and 2022. The top two customers represented 89% of total revenue for the nine months ended September 30, 2023 and 2022. International shipments were 1% of total revenue for the nine months ended September 30, 2023 and 2022. 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 2021 and 2020. The purpose of the Employee Retention Credit was to encourage employers to keep employees on the payroll, even if they were not working during the covered period because of the coronavirus outbreak. These funds were recorded in the Statements of Income as an offset to payroll costs in their respective expense lines and as a tax receivable on the balance sheets. A balance of $40,539 appears as a tax receivable on the balance sheets at September 30, 2023 and December 31, 2022. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | 9 Months Ended |
Sep. 30, 2023 | |
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 measure credit losses for most financial assets, including accounts receivable and held-to-maturity marketable securities, 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 became effective for us in the first quarter of 2023. The adoption of ASU No. 2016-13 resulted in a cumulative effect of $5,000 and is reflected in the accompanying Statement of Shareholders’ Equity. |
Investments
Investments | 9 Months Ended |
Sep. 30, 2023 | |
Investments | |
Investments | Note 4. Investments Money market funds – where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. The Company invested in a money market fund during August 2023 which had a fair value of $1,006,347 at September 30, 2023. This is valued at original cost plus interest and is included in Cash and cash equivalents on the balance sheet. As of September 30, 2023 and December 31, 2022, the Company held investments in corporate bonds and U.S. government securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The bonds and government securities are considered held-to-maturity and are recorded at amortized cost on the balance sheet. These investments are considered level 2 as detailed in the table below. The Company considers investments which will mature in the next twelve months and interest receivable on the long-term bonds as current assets. The remaining investments are considered non-current assets including the investment in marketable securities which the Company intends to hold longer than twelve months. The fair value of these investments was estimated using recently executed transactions and market price quotations. At September 30, 2023, the length of time until maturity of the bonds currently owned ranged from 2 months to 20 months. The amortized cost, allowance for credit losses, fair value, and the related unrecognized gains and losses of these investments, were as follows: Gross Gross Amortized Unrealized Unrealized Cost Losses Gains Fair Value September 30, 2023 Corporate bonds $ 1,500,000 $ (8,560) $ — $ 1,491,440 U.S. government treasuries 509,478 (9,243) — 500,235 Total investments $ 2,009,478 $ (17,803) $ — $ 1,991,675 Allowance for credit losses (12,000) Total investments, net $ 1,997,478 December 31, 2022 Corporate bonds $ 1,500,000 $ (1,924) $ — $ 1,498,076 U.S. government treasuries 489,265 — 2,665 491,930 Total investments $ 1,989,265 $ (1,924) $ 2,665 $ 1,990,006 The Company uses an “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period as necessary for changes in expected lifetime credit losses. The credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as the current portfolio. An adjustment factor is Note 4. Investments (continued) applied to these credit loss calculations based upon management’s assessment of the expected impact from current economic conditions on our investments. The Company monitors the credit quality of debt securities classified as held-to-maturity through the use of their respective credit ratings and updates them on a quarterly basis with the latest assessment completed on September 30, 2023. Our allowance for credit losses was $12,000 at September 30, 2023. |
Common Stock and Stock Options
Common Stock and Stock Options | 9 Months Ended |
Sep. 30, 2023 | |
Common Stock and Stock Options | |
Common Stock and Stock Options | Note 5. Common Stock and Stock Options Stock based compensation cost for all stock awards is based on the grant date fair value and recognized over the required service (vesting) period. Noncash stock-based compensation expense was $0 and $8,670 for the three months ended September 30, 2023, and 2022, respectively, and $45,485 and $40,642 for the nine months ended September 30, 2023, and 2022, respectively. Unrecognized compensation expense was $0 as of September 30, 2023. Employees received compensation of 10,683 and 4,500 aggregate shares of common stock of the Company during the nine months ended September 30, 2023 and 2022, respectively. These shares had an aggregate value of $43,908 and $14,625 at September 30, 2023 and 2022, respectively, and were recorded as non-cash stock compensation expense in the financial statements. The non-employee Board members received compensation of 6,550 aggregate shares of common stock of the Company with an aggregate value of $22,471 during the nine months ended September 30, 2022 that was recorded as non-cash stock compensation expense in the financial statements. The cumulative status of options granted and outstanding at September 30, 2023, and December 31, 2022, as well as any options which became exercisable in connection with the Company’s stock option plans is summarized as follows: Employee Stock Options Weighted Average Stock Exercise Options Price Outstanding at January 1, 2022 41,304 $ 1.05 Outstanding at December 31, 2022 41,304 $ 1.05 Outstanding at September 30, 2023 41,304 $ 1.05 Options exercisable at December 31, 2022 34,361 $ 1.01 Options exercisable at September 30, 2023 41,304 $ 1.05 Exercise prices for options ranged from $0.84 to $1.25 at September 30, 2023. The weighted average option price for all options outstanding at September 30, 2023, was $1.05 with a weighted average remaining contractual life of 2.9 years. |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2023 | |
Inventories | |
Inventories | Note 6. Inventories Inventories consisted of the following: September 30, December 31, 2023 2022 Raw materials $ 1,913,985 $ 1,375,669 Work-in-process 1,160,111 528,631 Finished goods 127,546 284,048 3,201,642 2,188,348 Inventory reserve (14,421) (10,431) $ 3,187,221 $ 2,177,917 |
Earnings Per Share
Earnings Per Share | 9 Months Ended |
Sep. 30, 2023 | |
Earnings Per Share | |
Earnings Per Share | Note 7. Earnings Per Share Basic income per share is calculated as net income divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as diluted net income divided by the diluted weighted average number of common shares. Diluted weighted average number of common shares gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted earnings per share exclude all diluted potential shares if their effect is anti-dilutive. All common stock options listed in Note 5 that were out-of-the-money or anti-dilutive were excluded from diluted earnings per share. The following is provided to reconcile the earnings per share calculations: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net income $ 578,784 $ 442,703 $ 1,628,163 $ 1,491,977 Weighted average common shares outstanding - basic 4,530,207 4,516,518 4,528,524 4,513,785 Effect of dilution - stock options 31,501 28,133 30,684 27,805 Weighted average shares outstanding - diluted 4,561,708 4,544,651 4,559,208 4,541,590 |
Note Payable
Note Payable | 9 Months Ended |
Sep. 30, 2023 | |
Note Payable | |
Note Payable | Note 8. Note Payable The Company renewed its line of credit with Fifth Third Bank for $1 million during August 2023. 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, 2024. No amounts were drawn on this line of credit as of September 30, 2023. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2023 | |
Income Taxes | |
Income Taxes | Note 9. Income Taxes The provision for income taxes for the three and nine months ended September 30, 2023 and 2022 is based on our projected annual effective tax rate, adjusted for permanent differences and specific items that are required to be recognized in the period in which they are incurred. The effective tax rate for the first nine months of 2023 was 24.0% compared to the tax rate for calendar year 2022 of 21.7%. The difference between the effective tax rate and the marginal rate is primarily due to the effect of state and local 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, 2023 2022 2023 2022 Federal $ 192,394 $ 155,900 $ 476,128 $ 288,000 State and local 20,283 11,475 39,105 23,575 $ 212,677 $ 167,375 $ 515,233 $ 311,575 Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. As of December 31, 2022, management determined that there was sufficient positive evidence to conclude that it is more likely than not that deferred taxes of $151,164 were realizable principally because we achieved six 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 taxes. Accordingly, management determined that no valuation allowance was necessary at December 31, 2022. The deferred tax asset was $0, and the deferred tax liability was $215,967 at September 30, 2023. |
Operating Lease
Operating Lease | 9 Months Ended |
Sep. 30, 2023 | |
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 $45,000 and $24,500 during the three months ended September 30, 2023 and 2022, respectively, and approximately $85,900 and $84,300 during the nine months ended September 30, 2023 and 2022, respectively. Additionally, the variable lease costs were approximately $11,500 and ($3,000) during the three months ended September 30, 2023 and 2022, respectively, and approximately $45,000 and $24,500 during the nine months ended September 30, 2023 and 2022, respectively. A credit related to common area maintenance and real estate tax reconciliation was received during the third quarter of 2022. The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of September 30, 2023: 2023 $ 28,920 2024 107,094 Total minimum lease payments 136,014 Less debt discount 4,683 Total operating lease obligations $ 131,331 2023 2022 Operating cash outflows from operating lease - year-to-date $ 78,357 $ 72,183 Weighted average remaining lease term – operating lease 1.2 years 2.2 years Weighted average discount rate – operating lease 5.5 % 5.5 % |
Finance Leases
Finance Leases | 9 Months Ended |
Sep. 30, 2023 | |
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 September 30, 2023, are shown in the following table. 2023 $ 22,698 2024 49,859 Total minimum lease payments 72,557 Less amount representing interest 1,379 Present value of minimum lease payments 71,178 Less current portion 71,178 Finance lease obligations, net of current portion $ — Weighted average remaining lease term – finance leases 0.9 years Weighted average discount rate – finance leases 4.25 % The equipment under finance lease at September 30, 2023, and December 31, 2022, is included in the accompanying balance sheets as follows: September 30, 2023 December 31, 2022 Machinery and equipment $ 385,923 $ 385,923 Less accumulated depreciation and amortization 133,320 104,376 Net book value $ 252,603 $ 281,547 Note 11. Finance Leases (continued) These assets are amortized over a period of ten years using the straight-line method and amortization is included in depreciation expense. Finance lease costs totaled $25,386 and $24,305 for the three months ended September 30, 2023 and 2022, respectively, and $75,338 and $72,131 for the nine months ended September 30, 2023 and 2022, respectively. 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 was transferred to the Company in accordance with the terms of the leases and these assets have been excluded from the leased asset disclosure above. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2023 | |
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, 2022. 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 creditworthiness of each customer. The Company sells its products typically under agreements with payment terms of 30-60 days. The Company does not normally include extended payment terms or significant financing components in contracts with customers. The majority of the Company’s contracts have an obligation to transfer products within one year. Thus, the Company elects to use the practical expedient where incremental cost of obtaining a contract, such as commissions, is expensed when incurred because the amortization period for those costs is one year or less. The Company treats shipping and handling activities that occur after control of the product transfers as fulfillment activities, and therefore, does not account for shipping and handling costs as a separate performance obligation. Customer deposits are funds received in advance from customers and are recognized as revenue when the Company has transferred control of product to the customer. Product revenues are recognized upon shipment of goods as the customer has assumed the significant risks and rewards of ownership and the Company is entitled to payment at this point. Service revenues are recognized upon completion as the customer cannot realize the benefit of the service until fully completed. All revenue was from the photonics industry during the nine months ended September 30, 2023 and 2022. The top two customers represented 89% of total revenue for the nine months ended September 30, 2023 and 2022. International shipments were 1% of total revenue for the nine months ended September 30, 2023 and 2022. |
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 2021 and 2020. The purpose of the Employee Retention Credit was to encourage employers to keep employees on the payroll, even if they were not working during the covered period because of the coronavirus outbreak. These funds were recorded in the Statements of Income as an offset to payroll costs in their respective expense lines and as a tax receivable on the balance sheets. A balance of $40,539 appears as a tax receivable on the balance sheets at September 30, 2023 and December 31, 2022. |
Investments (Tables)
Investments (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Investments | |
Schedule of amortized cost, fair value of investments, and related gross unrealized gains/(losses) | Gross Gross Amortized Unrealized Unrealized Cost Losses Gains Fair Value September 30, 2023 Corporate bonds $ 1,500,000 $ (8,560) $ — $ 1,491,440 U.S. government treasuries 509,478 (9,243) — 500,235 Total investments $ 2,009,478 $ (17,803) $ — $ 1,991,675 Allowance for credit losses (12,000) Total investments, net $ 1,997,478 December 31, 2022 Corporate bonds $ 1,500,000 $ (1,924) $ — $ 1,498,076 U.S. government treasuries 489,265 — 2,665 491,930 Total investments $ 1,989,265 $ (1,924) $ 2,665 $ 1,990,006 |
Common Stock and Stock Options
Common Stock and Stock Options (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Common Stock and Stock Options | |
Schedule of share-based compensation, employee stock options, activity | Weighted Average Stock Exercise Options Price Outstanding at January 1, 2022 41,304 $ 1.05 Outstanding at December 31, 2022 41,304 $ 1.05 Outstanding at September 30, 2023 41,304 $ 1.05 Options exercisable at December 31, 2022 34,361 $ 1.01 Options exercisable at September 30, 2023 41,304 $ 1.05 |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Inventories | |
Schedule of inventories | September 30, December 31, 2023 2022 Raw materials $ 1,913,985 $ 1,375,669 Work-in-process 1,160,111 528,631 Finished goods 127,546 284,048 3,201,642 2,188,348 Inventory reserve (14,421) (10,431) $ 3,187,221 $ 2,177,917 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Earnings Per Share | |
Summary of reconciliation of earnings per share calculations | Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net income $ 578,784 $ 442,703 $ 1,628,163 $ 1,491,977 Weighted average common shares outstanding - basic 4,530,207 4,516,518 4,528,524 4,513,785 Effect of dilution - stock options 31,501 28,133 30,684 27,805 Weighted average shares outstanding - diluted 4,561,708 4,544,651 4,559,208 4,541,590 |
Income Taxes (Tables)
Income Taxes (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Income Taxes | |
Schedule of components of the income tax expense | Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Federal $ 192,394 $ 155,900 $ 476,128 $ 288,000 State and local 20,283 11,475 39,105 23,575 $ 212,677 $ 167,375 $ 515,233 $ 311,575 |
Operating Lease (Tables)
Operating Lease (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Operating Lease | |
Schedule of annual undiscounted cash flows of the operating lease liabilities | 2023 $ 28,920 2024 107,094 Total minimum lease payments 136,014 Less debt discount 4,683 Total operating lease obligations $ 131,331 |
Schedule of operating lease other information | 2023 2022 Operating cash outflows from operating lease - year-to-date $ 78,357 $ 72,183 Weighted average remaining lease term – operating lease 1.2 years 2.2 years Weighted average discount rate – operating lease 5.5 % 5.5 % |
Finance Leases (Tables)
Finance Leases (Tables) | 9 Months Ended |
Sep. 30, 2023 | |
Finance Leases | |
Schedule of future minimum lease payments | 2023 $ 22,698 2024 49,859 Total minimum lease payments 72,557 Less amount representing interest 1,379 Present value of minimum lease payments 71,178 Less current portion 71,178 Finance lease obligations, net of current portion $ — Weighted average remaining lease term – finance leases 0.9 years Weighted average discount rate – finance leases 4.25 % |
Schedule of equipment under finance leases | September 30, 2023 December 31, 2022 Machinery and equipment $ 385,923 $ 385,923 Less accumulated depreciation and amortization 133,320 104,376 Net book value $ 252,603 $ 281,547 |
Business Organization and Pur_2
Business Organization and Purpose (Details) | 9 Months Ended |
Sep. 30, 2023 segment | |
Business Organization and Purpose | |
Number of operating segments | 1 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Details) - USD ($) | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Disaggregation of Revenue | |||
Tax receivable - Employee Retention Credit | $ 40,539 | $ 40,539 | |
Geographic Concentration Risk | Sales Revenue, Net | International | |||
Disaggregation of Revenue | |||
Concentration risk (as a percent) | 1% | 1% | |
Photonics industry | Sales Revenue, Net | Top two customers | |||
Disaggregation of Revenue | |||
Concentration risk (as a percent) | 89% | 89% |
Recent Accounting Pronounceme_2
Recent Accounting Pronouncements (Details) - USD ($) | Sep. 30, 2023 | Jun. 30, 2023 | Dec. 31, 2022 | Sep. 30, 2022 | Jun. 30, 2022 | Dec. 31, 2021 |
New Accounting Pronouncements or Change in Accounting Principle | ||||||
Stockholders' Equity Attributable to Parent | $ 10,414,297 | $ 9,835,513 | $ 8,745,649 | $ 8,271,923 | $ 7,820,550 | $ 6,739,304 |
Period of Adoption, Adjustment | ||||||
New Accounting Pronouncements or Change in Accounting Principle | ||||||
Stockholders' Equity Attributable to Parent | $ (5,000) |
Investments - Bond Maturity (De
Investments - Bond Maturity (Details) - Recurring - Fair Value, Inputs, Level 2 [Member] | 9 Months Ended |
Sep. 30, 2023 | |
Minimum | |
Investments | |
Maturity of bonds (in months) | 2 months |
Maximum | |
Investments | |
Maturity of bonds (in months) | 20 months |
Investments (Details)
Investments (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Recurring | ||
Investments | ||
Allowance for credit losses | $ (12,000) | |
Total investments, net | 1,997,478 | |
Recurring | Level 2 | ||
Investments | ||
Amortized Cost, before credit allowance | 2,009,478 | $ 1,989,265 |
Gross Unrealized Losses | (17,803) | (1,924) |
Gross Unrealized Gains | 2,665 | |
Fair value | 1,991,675 | 1,990,006 |
Money market funds | Cash and cash equivalents | Level 1 | ||
Investments | ||
Fair value | 1,006,347 | |
Corporate bonds | Recurring | Level 2 | ||
Investments | ||
Amortized Cost, before credit allowance | 1,500,000 | 1,500,000 |
Gross Unrealized Losses | (8,560) | (1,924) |
Fair value | 1,491,440 | 1,498,076 |
U.S. government treasuries | Recurring | Level 2 | ||
Investments | ||
Amortized Cost, before credit allowance | 509,478 | 489,265 |
Gross Unrealized Losses | (9,243) | |
Gross Unrealized Gains | 2,665 | |
Fair value | $ 500,235 | $ 491,930 |
Common Stock and Stock Option_2
Common Stock and Stock Options (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Common Stock and Stock Options | ||||
Stock based compensation | $ 0 | $ 8,670 | $ 45,485 | $ 40,642 |
Unrecognized compensation expense | $ 0 | 0 | ||
Common stock issued | 7,488 | 43,908 | 37,095 | |
Common Stock | ||||
Common Stock and Stock Options | ||||
Common stock issued | $ 7,488 | $ 43,908 | 37,095 | |
Non-employee director | Common Stock | ||||
Common Stock and Stock Options | ||||
Number of shares issued | 6,550 | |||
Common stock issued | $ 22,471 | |||
Employee Stock Grants | Common Stock | ||||
Common Stock and Stock Options | ||||
Number of shares issued | 10,683 | 4,500 | ||
Common stock issued | $ 43,908 | $ 14,625 |
Common Stock and Stock Option_3
Common Stock and Stock Options - Employee Stock Options (Details) - $ / shares | Sep. 30, 2023 | Dec. 31, 2022 | Dec. 31, 2021 |
Common Stock and Stock Options | |||
Options | 41,304 | 41,304 | 41,304 |
Stock Options, Options exercisable | 41,304 | 34,361 | |
Weighted average option price | $ 1.05 | $ 1.05 | $ 1.05 |
Weighted Average Exercise Price, Options exercisable | $ 1.05 | $ 1.01 |
Common Stock and Stock Option_4
Common Stock and Stock Options - Exercise Prices and Weighted Averages (Details) | 9 Months Ended |
Sep. 30, 2023 $ / shares | |
Common Stock and Stock Options | |
Exercise Price Range, Lower Range Limit | $ 0.84 |
Exercise Price Range, Upper Range Limit | 1.25 |
Weighted average option price | $ 1.05 |
Weighted average remaining contractual life | 2 years 10 months 24 days |
Inventories (Details)
Inventories (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Inventories | ||
Raw materials | $ 1,913,985 | $ 1,375,669 |
Work-in-process | 1,160,111 | 528,631 |
Finished goods | 127,546 | 284,048 |
Inventory, gross | 3,201,642 | 2,188,348 |
Inventory reserve | (14,421) | (10,431) |
Inventory, net | $ 3,187,221 | $ 2,177,917 |
Earnings Per Share - Reconcilia
Earnings Per Share - Reconciliation (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Earnings Per Share | ||||
Income (loss) applicable to common stock | $ 578,784 | $ 442,703 | $ 1,628,163 | $ 1,491,977 |
Weighted average common shares outstanding - basic | 4,530,207 | 4,516,518 | 4,528,524 | 4,513,785 |
Effect of dilution | 31,501 | 28,133 | 30,684 | 27,805 |
Weighted average shares outstanding - diluted | 4,561,708 | 4,544,651 | 4,559,208 | 4,541,590 |
Note Payable (Details)
Note Payable (Details) - Fifth Third Bank - USD ($) | Sep. 30, 2023 | Aug. 31, 2023 |
Debt Instrument | ||
Line of credit borrowing capacity | $ 1,000,000 | |
Line of credit outstanding | $ 0 |
Income Taxes - Income tax expen
Income Taxes - Income tax expense (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Income Taxes | ||||
Federal | $ 192,394 | $ 155,900 | $ 476,128 | $ 288,000 |
State and local | 20,283 | 11,475 | 39,105 | 23,575 |
Total | $ 212,677 | $ 167,375 | $ 515,233 | $ 311,575 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2023 | Dec. 31, 2022 | |
Income Taxes | ||
Effective rate | 24% | 21.70% |
Net deferred tax asset | $ 0 | $ 151,164 |
Deferred tax liability | $ 215,967 | |
Valuation allowance | $ 0 |
Operating Lease (Details)
Operating Lease (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | |
Operating Leases | ||||
Operating lease, renewal term | 5 years | 5 years | ||
Operating lease costs | $ 45,000 | $ 24,500 | $ 85,900 | $ 84,300 |
Variable lease costs | 11,500 | 45,000 | $ 24,500 | |
Variable lease costs, including adjustment | $ (3,000) | |||
Minimum | ||||
Operating Leases | ||||
Monthly lease payments | 9,200 | 9,200 | ||
Maximum | ||||
Operating Leases | ||||
Monthly lease payments | $ 9,700 | $ 9,700 |
Operating Lease - Future Minimu
Operating Lease - Future Minimum Lease Payments (Details) | Sep. 30, 2023 USD ($) |
Operating Lease | |
2023 | $ 28,920 |
2024 | 107,094 |
Total minimum lease payments | 136,014 |
Less debt discount | 4,683 |
Total operating lease obligations | $ 131,331 |
Operating Lease - Undiscounted
Operating Lease - Undiscounted Cash Outflows (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2023 | Sep. 30, 2022 | |
Operating Lease | ||
Operating cash outflows from operating lease - year-to-date | $ 78,357 | $ 72,183 |
Weighted average remaining lease term - operating lease | 1 year 2 months 12 days | 2 years 2 months 12 days |
Weighted average discount rate - operating lease | 5.50% | 5.50% |
Finance Leases - Future minimum
Finance Leases - Future minimum lease payments (Details) - USD ($) | Sep. 30, 2023 | Dec. 31, 2022 |
Finance Leases | ||
2023 | $ 22,698 | |
2024 | 49,859 | |
Total minimum lease payments | 72,557 | |
Less amount representing interest | 1,379 | |
Present value of minimum lease payments | 71,178 | |
Less current portion | $ 71,178 | $ 97,367 |
Finance lease obligations, net of current portion | $ 49,149 |
Finance Leases - Weighted Avera
Finance Leases - Weighted Averages (Details) | Sep. 30, 2023 |
Finance Leases | |
Weighted average remaining lease term - finance leases | 10 months 24 days |
Weighted average discount rate - finance leases | 4.25% |
Finance Leases - Equipment unde
Finance Leases - Equipment under finance lease and additional information (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2023 | Sep. 30, 2022 | Sep. 30, 2023 | Sep. 30, 2022 | Dec. 31, 2022 | |
Finance Leases | |||||
Machinery and equipment | $ 385,923 | $ 385,923 | $ 385,923 | ||
Less accumulated depreciation and amortization | 133,320 | 133,320 | 104,376 | ||
Net book value | 252,603 | $ 252,603 | $ 281,547 | ||
Finance lease amortization period (in years) | 10 years | ||||
Finance lease costs | $ 25,386 | $ 24,305 | $ 75,338 | $ 72,131 |