SCI Engineered Materials 10K 2024 Annual report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2024

Commission File Number: 0-31641

SCI ENGINEERED MATERIALS, INC.

(Exact name of registrant as specified in its charter)


Ohio		31-1210318
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2839 Charter Street

Columbus, Ohio 43228

(Address of principal executive offices)

Registrant’s telephone number, including area code: (614) 486-0261


Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, without par value (Title of Class)
	OTCQB (Name of each exchange on which registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those errors are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to section 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the Registrant’s common equity held by non-affiliates of the Registrant was approximately $19,674,630 on June 30, 2024. For purposes of this disclosure, shares of common stock held by persons who hold more than 10% of the outstanding shares of common stock and shares held by executive officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes. There were 4,568,127 shares of the Registrant’s Common Stock outstanding on February 13, 2025.

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, without par value	SCIA	OTCQB

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for the 2025 Annual Meeting of Stockholders are incorporated by reference in Part III.


Table of Contents		Page

Part I

Item 1.	Business	3
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	14
Item 1C.	Cybersecurity	14
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	15
Item 6.	Reserved	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 8.	Financial Statements and Supplementary Data	19
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	19
Item 9A.	Controls and Procedures	19
Item 9B.	Other Information	20
Item 9C	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	20

Part III

Item 10.	Directors, Executive Officers, and Corporate Governance	20
Item 11.	Executive Compensation	21
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	21
Item 13.	Certain Relationships and Related Transactions, and Director Independence	21
Item 14.	Principal Accountant Fees and Services	21
Item 15.	Exhibits and Financial Statement Schedules	22
Signatures		23

Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 26A of the Securities Act of 1933, as amended. The words “anticipate,” “believe,” “expect,” “estimate,” and “project” and similar words and expressions identify forward-looking statements, which speak only as of the date hereof. Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially from historical or anticipated results due to many factors, including, but not limited to, the factors discussed in “Risk Factors.” The Company undertakes no obligation to publicly update or revise any forward-looking statements.

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PART I

ITEM 1.BUSINESS

Introduction

SCI Engineered Materials, Inc. (“SCI”, “we” or the “Company”), an Ohio corporation, was incorporated in 1987. We operate in one segment as a global supplier and manufacturer of advanced materials for Physical Vapor Deposition (“PVD”) thin film applications. We are focused on markets within the PVD industry including Aerospace, Automotive, Defense, Glass, Optical Coatings, and Solar. Substantially all revenues are generated from customers with multinational operations. The Company develops innovative customized solutions enabling commercial success through collaboration with end users and Original Equipment Manufacturers.

History of the Company

The late Dr. Edward Funk, Sc.D., and his late wife Ingeborg founded SCI in 1987. Dr. Funk, formerly a Professor of Metallurgy at The Ohio State University and a successful entrepreneur, envisioned significant market potential for the then newly discovered High Temperature Superconductivity (“HTS”) material YBCO (T_c of 90^o K). Our first product was a 99.999% pure, co-precipitated YBCO 1-2-3 powder. Over the years we expanded our product line by adding other High T_c Powders, sintered shapes, single crystal substrates, and non-superconducting sputtering targets. At this time, we are not pursuing this market, but these early years of development are the foundation on which our material science experience was built.

We established a subdivision, Target Materials Inc. (“TMI”), in 1991 to supply the increasing worldwide demand for sputtering and laser ablation targets. We became a full-service manufacturer of high-performance thin film materials, providing a wide selection of metals, ceramics, and alloys for sputtering targets, evaporation sources, and other PVD applications. We served the Research and Development market as well as the Industrial and Decorative Coating markets. During this time, we began to manufacture targets for the photovoltaic, flat panel display, and semiconductor industries.

SCI and TMI were merged in 2002. We continued to manufacture complex ceramic, metal, and alloy products for the photonic, photovoltaic, media storage, flat panel display, and semiconductor industries. The Company’s name was changed to SCI Engineered Materials, Inc. from Superconductive Components, Inc. in 2007 to reflect its expanded market focus.

In January 2017, we received ISO 9001:2015 registration, an internationally recognized quality standard. We received ISO 9001:2008 registration in April 2010 and prior to that time we were ISO 9001:2000 registered.

For more than three decades we have been developing considerable expertise in the development and manufacturing ramp-up of innovative materials, such as Transparent Conductive Oxides (TCO). The Company is implementing a long-term growth strategy which includes pursuing opportunities that can benefit from this expertise. Today, we serve a diverse base of domestic and multi-national corporations, universities, and leading research institutions. We actively collaborate with organizations to provide solutions for difficult material challenges.

Business

We are a supplier of materials to the PVD industry. Customers need our materials to produce nano layers of metals and oxides for advanced material systems. Applications for PVD coatings range from everyday items to complex computer processors. Every day applications include automotive, transparent anti-scratch coatings on eyeglasses, coatings on kitchen faucets, as well as low emissivity glass for household windows and commercial buildings. More technically advanced applications include aerospace, defense, flat panel display, photonics, semiconductors, and thin film solar products.

We are pursuing niche opportunities where our core competencies give us an advantage and complement our manufacturing capabilities allowing us to enter new markets with minimal capital investment. This disciplined approach enables us to focus on those opportunities that are the best fit for our capabilities and offer the greatest long-term return. Considerations include our core strengths, resource requirements, and time-to-market.

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The Photonics industry includes a number of diverse markets which represents the best fit for our applications. We and our customers are continually identifying new materials that improve the utility of optical coatings. This includes improvements in their ability to focus, filter or reflect light, all of which increase the potential demand for the types and volume of products we sell in this market. Photonic applications continue to expand as new methods are found to manipulate light waves to enhance the various applications.

We continue to invest in developing new products for SCI’s chosen markets with emphasis on accelerating time to market.

For the year ended December 31, 2024, we had total revenue of $22,870,192 compared to $27,984,083 for the year ended December 31, 2023. Lower cost of a key raw material, especially during the third quarter of 2024, was the primary factor that contributed to the decrease in total revenue. Product mix along with a slight decrease in volume also impacted revenue.

Our largest customer represented approximately 74% of total revenue in 2024 and 78% in 2023. The Company sells multiple products to this customer.

Marketing and Sales

Europe and Asia, as well as the Americas, have high demand for sputtering targets. We continue to seek ways to expand our global marketing reach. We use various distribution channels for specific end markets through direct sales by our employees. The internet provides tremendous opportunities for us to reach new customers with compatible product needs.

Our corporate website is www.sciengineeredmaterials.com. The website is designed to serve customers, suppliers, and investors with additional information in an easy-to-use format and includes expanded mobile access. There are also social media platforms, including Facebook®, and X® (formally known as Twitter) as well as online marketing campaigns on LinkedIn®, to enhance the Company’s visibility and communication with customers and shareholders. For customers and suppliers, there is expanded information about our product focus as well as a library of detailed product data sheets that is continuously updated. Investors can access current and archived information about the Company utilizing multiple electronic platforms.

Ceramics

We are capable of producing ceramic powders via several different processing techniques including solid state and precipitation. Ceramic targets can also be produced in a variety of ways depending on end user applications. Production techniques include sintering, cold isostatic pressing and hot pressing.

Most of our products are manufactured from component chemicals and metal oxides supplied by various vendors. We have identified several suppliers that are capable of minimizing potential disruption in our business.

Metals

We also produce metal sputtering targets and backing plates. The targets are often bonded to the backing plates for applications in the PVD industry. These targets can be produced by casting, hot pressing and machining of metals and metal alloys depending on the application.

Applications for metal targets are highly varied ranging from applying decorative coatings for end uses such as sink faucets to the production of various electronic, photonic and semiconductor products.

We purchase various metals of high purity (often above 99.9%) for our applications. We are not dependent on a sole source for these metals and do not believe losing a vendor would materially affect our business. The Company has identified alternative sources for its metal requirements.

We have made frequent additions to our manufacturing footprint, enhanced production processes, increased manufacturing efficiencies and testing equipment capabilities to enable us to manufacture and qualify many product compositions that can be used as PVD applications by end users and Original Equipment Manufacturers.

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Competition

We have several domestic and international competitors in the ceramic and metal fields, including Vacuum Engineering & Materials, Process Materials, Inc., and Materion, who also supply targets.

Suppliers

Principal suppliers in 2024 were Johnson Matthey, DX Advanced Materials, and Colonial Metals. In every case, we have established alternative vendors that can be used to ensure availability of required materials. As volume grows, we may enter into alliances or purchasing contracts with these or other vendors.

Research and Development

Our research and development (R&D) activities utilize a disciplined innovation approach, including a Technical Committee comprised of management and a Board member, focused on accelerating time to market for new products. We continue to invest in developing new applications for our markets including electrically conductive Indium Tin Oxide and Zinc Tin Oxide for the architectural glass, automotive, defense, display and solar markets. Specialty powders are also being researched for use in select niche markets. These initiatives involve ongoing R&D investments which enhance the Company’s product portfolio and its collaborative relationship with customers.

We may seek funded research opportunities within our core competencies that maintain and expand technical understanding within our Company.

We have certain proprietary knowledge and trade secrets related to the manufacture of metal and metal oxide PVD materials. This includes specific patents directly related to our products and market focus (see Intellectual Property section).

New Product Initiatives

We are committed to utilizing our core competencies in areas that offer sustainable long-term growth opportunities. This strategy involves the development of innovative products, pursuit of stronger customer relationships and involvement in compatible niche markets.

SCI utilizes its manufacturing footprint and industry expertise for defense applications involving Boron Carbide Armor and Enriched Boron Carbide. Boron Carbide Armor is used in bullet-resistant gear which significantly contributes to increased resiliency concerning high-speed impacts. Enriched Boron Carbide has several attractive properties which involve high-temperature applications in the aerospace and nuclear markets. Both Boron Carbide applications are highly valued when produced by domestic manufacturers.

We provide multiple types of toll manufacturing and related services for customers with specific needs who value SCI’s customized production and quality capabilities. Opportunities include, but are not limited to, diffusion bonding, indium bonding, powder processing and vacuum hot pressing. Additionally, projects involving engineering fees in conjunction with services for customers’ specific needs continue to increase.

The Company has also identified niche markets which can benefit from its expertise in custom powder solutions, such as near infrared doped phosphors and short-wave infrared applications. These applications enable extended life of phosphors for specific nighttime identification needs of defense personnel and first responders.

SCI is also involved in supplying target materials to the roll-to-roll coating industry. Roll-to-roll PVD coating is utilized by intermediate manufacturers who use our advanced materials to coat flexible substrates for a wide range of applications. Multiple layers of material can be deposited over large areas on flexible substrates without costly down time associated with disrupting the vacuum manufacturing process. These coated substrates can be used as standalone products in high volume consumer goods or can be laminated into electronic and optical components such as solar panels, architectural glass and displays. Our rotatable bonding technology and material expertise are key capabilities in manufacturing applications for these markets.

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Intellectual Property

Our patent titled “High Efficiency Rotatable Sputter Target” (US Patent No.11,830,712 B2) was issued on November 28, 2023. This patent protects a bonding process that achieves a superior bond for rotatable targets.

Our patent titled “Process for the Removal of Contaminants from Sputtering Target Substrates” (US Patent No. 10,138,545 B2) was issued on November 27, 2018. This provides a process for the removal of contaminants on a spent sputtering target used in Plasma Vapor Deposition.

We have the rights to multiple patents for technology related to the application of Zinc Oxide based Transparent Conductive Oxide in Displays. Our patent titled “Display Having a Transparent Conductive Oxide Layer Comprising Metal Doped Zinc Oxide Applied by Sputtering” (US patent No. 9,927,667) was issued on March 27, 2018; a related patent having the same title was issued on April 7, 2020 (US Patent No. 10,613,397), and we have a corresponding patent issued in Sweden. The transparent conductive oxides (TCOs) we developed in these patents have excellent electro-optical performance, high transmittance, high conductivity, and good chemical resistance. These patents have various applications that include LCDs, micro-LED, OLED, smart windows and mirrors, AR/VR goggles, e-papers, and wearable electronics. Our clients, in relevant applications, are entitled to use the patent number when referring to the devices covered by the patent and benefit from it. We believe the TCOs claimed and protected in these patents have wide and innovative applications which can put SCI in a unique position in the market as well as bring us additional business opportunities.

During 2016 we were granted a federal trademark registration for “SCI Engineered Materials”. We have additional rights in common law trademarks and services marks, as well as in our branding properties, including our blue logo.

We rely on a combination of patent and trademark law, license agreements, internal procedures, and nondisclosure agreements to protect our intellectual property; however, it should be noted that these measures may be invalidated, circumvented, or challenged. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States.

In the future, we may submit additional patent applications covering various inventions which have been developed by us. However, we cannot guarantee that these submissions will result in the issuance of patent. For example, the publication of U.S. patent applications can be delayed for up to one year, and tend to lag actual discoveries, and so that we may not be the first creator of inventions covered by pending patent applications or the first to file patent applications for such inventions. Additionally, other parties may independently develop similar technologies, duplicate our technologies or, if patents are issued to us or rights licensed by us, they may design around the patented aspects of any technologies we have developed or licensed.

Employees

We had 23 full-time employees as of December 31, 2024, and 2023. One of these employees holds a PhD in Material Science. We have never experienced a work stoppage and consider our relations with employees to be good. Our employees do not have a bargaining unit. We are committed to continuing to provide an open and accountable workplace where employees feel empowered to speak up and raise issues. With this in mind, we provide multiple channels to communicate, ask for guidance, and report concerns. We also provide employees with paid time off to volunteer in local communities. We are committed to creating value for our communities including volunteerism and advocacy, and by operating our business in a socially and environmentally responsible way.

Environmental Matters

We handle all materials according to federal, state, and local environmental regulations and include Safety Data Sheets (SDS) with all shipments to customers. We maintain a collection of SDS sheets for all raw materials used in the manufacture of products and maintenance of equipment and ensure that all personnel follow the handling instructions contained in the SDS for each material. We contract with a reputable, fully permitted hazardous waste disposal company to dispose of the small amount of hazardous waste generated.

Collections and Write-offs

We collected receivables in an average of 43 days in 2024. We have occasionally written off negligible amounts of accounts receivable as uncollectible and there were none in 2024 and 2023. We consider credit management critical to our success.

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Seasonal Trends

We have not experienced and do not expect to experience seasonal trends in future business operations.

ITEM 1A.RISK FACTORS

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, prospects, financial condition, and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Annual Report on Form 10-K and our other public filings with the Securities and Exchange Commission (the “SEC”). Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition, and results of operations.

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The following factors have affected or could affect actual results and could cause such results to differ materially from those expressed in any forward-looking statements made. Investors should consider the following risks and speculative factors inherent in and affecting the business of SCI and an investment in our common stock.

Risks Relating to the Company

We have had operating losses in the past and may incur losses in the future.

Prior to 2017, the Company frequently reported annual net losses. Our results for 2024 reflect the eighth consecutive year of net income; however, while assurances cannot be provided that we will be able to operate profitably in the future, management continuously monitors business conditions and responds through proactive actions. We continue to invest in developing new products for all our markets. These efforts include accelerating time to market for those products and involve ongoing research and development expense.

During 2024 we reduced our accumulated deficit by $1,861,389 to $54,305 at December 31, 2024. Management’s plans include continuing to grow our business in current and additional niche markets, developing new products, and increasing our revenue and presence in those markets. Management believes the actions that began during the last several years and continue today provide the opportunity for maintaining and improving liquidity and profitability. However, no assurances are made that such actions will result in sustained profitability.

A substantial portion of our sales have been dependent upon certain principal customers, the loss of whom could materially negatively affect the Company’s total revenue.

Revenue attributable to these customers includes the sale of multiple applications. Our top two customers accounted for approximately 88.4% of our net sales for the fiscal year ended December 31, 2024. Although they have been major customers of the Company for twenty years, we do not have written agreements with these customers that require any minimum purchase obligations, and the customers could stop buying the Company’s products at any time and for any reason. A reduction, delay, or cancellation of orders from these customers or the loss of these customers could significantly reduce our future revenues and profits. We cannot provide assurance that these customers or any of our other current customers will continue to place orders, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.

We have limited marketing and sales capabilities outside North America.

We continue to develop our marketing and sales capabilities through targeted marketing, sales, technical, customer service and distribution capabilities. This includes increased participation in industry specific trade shows which attract representatives from domestic and international companies. We may enter into agreements with third parties to also provide these services to successfully market our products outside North America.

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Our success depends on our ability to retain key management personnel.

Our success depends in large part on our ability to attract and retain highly qualified management, administrative, manufacturing, sales, and research and development personnel. Due to the specialized nature of our business, it may be difficult to locate and hire qualified personnel. The loss of services of one of our executive officers or other key personnel, or our failure to attract and retain other executive officers or key personnel could have a material adverse effect on our business, operating results, and financial condition. Jeremy Young was named president and chief executive officer in 2019 and has an employment agreement with the Company that contains non-competition provisions as well as severance payments. Mr. Young has been with the Company for more than nineteen years. All other key management personnel have entered into non-competition agreements with the Company. Although we have been successful in planning for and retaining highly capable and qualified successor management in the past, there can be no assurance that we will be able to do so in the future.

Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.

We believe a key portion of future success depends on the efforts and talent of our employees, including technical and skilled mechanical personnel. This will be dependent on continuing to attract, develop, motivate, and retain qualified and skilled employees. Competition for highly skilled technical, risk management and financial personnel is expected to remain intense. We may not be able to hire and retain qualified personnel at compensation levels consistent with our compensation and salary structure. Some of the companies with which we compete for experienced employees may have greater resources than we have and may be able to offer more attractive terms of employment.

We invest considerable time and resources in training our employees and we continue to implement new employee retention strategies. If we fail to retain our employees, we could incur significant expenses in hiring and training new employees, and the quality of our services and our ability to serve our customers could decline, resulting in a materially adverse effect to our business.

Changes in the strategies of key trade customers may adversely affect our business.

Our products are sold in a highly competitive global marketplace which continues to experience increased concentration. We may be negatively affected by changes in the strategies of our trade customers, such as inventory de-stocking, delisting of our products, and other conditions.

Changes in global economic conditions could adversely affect our business.

The Company continues to actively monitor and respond to changes in national and global economic conditions, which include, but are not limited to, inflation, supply chain disruptions, and a continuing global semiconductor chip shortage. Changes in these conditions could impact implementation of our growth plans and access to capital markets. Inflation continues to impact labor, raw material costs and transportation expenses. We seek to pass these increases on to customers but are unable to predict how future or sustained inflationary pressure may impact our results. Customer demand and supply-related issues could result in increased operating, transportation and shipping, material, wages, and labor costs. An economic recession has the potential to change customer purchasing patterns which could negatively impact our revenue and profitability.

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Global conflicts could have an impact on raw materials which could negatively impact our business.

Political uncertainties could affect global markets and thus could have a negative effect on our business. Although we currently have no customers or suppliers in Russia or Ukraine, we continue to monitor the situation as some raw materials come from Russia for the PVD industry. We have a customer in Israel; however, revenue related to these sales is negligible to our total revenue for the years 2024 and 2023, respectively. We continue to actively monitor these developments, including ongoing contact with suppliers and customers, identifying additional suppliers, and adapting to our customers’ specific circumstances and forecasts. In addition, supply chain disruptions are adversely impacting customers’ businesses in certain markets. Thus far, we have not experienced material adverse effects regarding product shipments; however, timely deliveries and sourcing of certain materials is of increased concern.

Our property is subject to risks from natural disasters such as earthquakes and severe weather, and other potential risks associated with the effects of climate change.

Our manufacturing facility may suffer harm as a result of natural or man-made disasters such as storms, earthquakes, tornadoes, floods, fires, and other extreme weather conditions. Such events could disrupt our operations, harm our employees, or severely damage or destroy manufacturing equipment. Any combination of these factors could adversely impact our business, reputation, and financial performance in ways that cannot currently be predicted.

Our competitors may have greater financial and other resources than us.

The market for PVD materials is substantial with significant competition in both ceramic and metal materials. While we believe our products enjoy certain competitive advantages in design, function, quality, and availability, considerable competition exists from well-established firms such as Vacuum Engineering & Materials, Process Materials, Inc., and Materion, and they may have more financial resources than us. We cannot provide assurance that developments by others will not render our products or technologies obsolete or less competitive.

Our competitors may be larger, more diversified, better funded, and have access to more advanced technology, including Artificial Intelligence (AI). These competitive advantages may enable our competition to innovate better and more quickly, to compete more effectively on quality and price, causing us to lose business and profitability. Burgeoning interest in AI may increase our competition and disrupt our business model. AI may lower barriers to entry in our industry and we may be unable to effectively compete with the products or services offered by new competitors.

Additional development of our products may be necessary due to uncertainty regarding the development of markets.

Some of our products are in the early stages of commercialization and we believe it will be several years before these products have significant commercial end-use applications. Significant development work may be necessary to improve the commercial feasibility and acceptance of these products. There can be no assurance that we will be able to commercialize any of the products currently under development.

A lack of credit and/or limited financing availability to the Company, its vendors, or end users could adversely affect our business.

The Company has a line of credit with Fifth Third Bank for $1 million which expires on August 29, 2025. However, our liquidity and financial condition could be materially and adversely affected if our ability to borrow money from new or existing lenders to finance our operations is reduced or eliminated. Similar adverse effects may also result if we realize reduced credit availability from trade creditors. Additionally, many of our customers require the availability of financing to facilitate the purchase of our products. As a result, a continuing period of reduced credit availability in the marketplace could have adverse effects on our business. As of December 31, 2024 the Company had no debt outstanding.

Our business requires us to make capital expenditures to maintain and improve our facilities.

Our facilities sometimes require capital expenditures to address ongoing required maintenance and additional equipment to upgrade our capabilities. In addition, we are often required to make significant capital expenditures to satisfy customer requirements and manufacture newly developed products.

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Our business could be negatively impacted by cyber and other security threats or disruptions.

Although we utilize internal and external independent controls to monitor and mitigate the risk of these threats, including a Security Incident Response Plan and periodic Information Technology training for all employees, there can be no assurance that these procedures and controls will be sufficient. We face various cyber and other security threats, including attempts to gain unauthorized access to sensitive information and networks; employee threats; virtual and cyber threats to the safety of our directors, officers, and employees; threats to the security of our facilities and infrastructure; and threats from terrorist acts or other acts of aggression. Our customers and vendors face similar threats. Our security measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities, or otherwise. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information to gain access to our data or our user’s or customer’s data. These threats could lead to losses of sensitive information or capabilities, harm to personnel, infrastructure, or products, and/or damage to our reputation as well as our vendor’s ability to perform on our contracts.

Cyber threats are evolving and include, but are not limited to, artificial intelligence, ransomware, malicious software, destructive malware, attempts to gain unauthorized access to data, disruption or denial of service attacks, and other electronic security breaches. Any of these could lead to disruptions in critical systems, unauthorized release of confidential, personal, or otherwise protected information (ours or that of our employees, customers, or vendors), and corruption of data, networks, or systems.

The impact of these factors is difficult to predict, but one or more of them could result in the loss of information or capabilities, harm to individuals or property, damage to our reputation, loss of business, regulatory actions, and potential liability, any of which could have a material adverse effect on our financial position, results of operations and/or cash flows.

Risks Related to Our Intellectual Property

Our patents and proprietary rights may not be enforceable.

We rely on a combination of patent and trademark law, license agreements, internal procedures, and nondisclosure agreements to protect our intellectual property. These may be invalidated, circumvented, or challenged. In addition, the laws of some foreign countries in which our products may be produced or sold may not protect our intellectual property rights to the same extent as the laws of the United States. Our failure to protect our patent and proprietary information could adversely affect us.

Rights we have to trademarks, patents and pending patent applications may be challenged.

We have a portfolio of intellectual property that includes common law and state rights, as well of federally and internationally recognized trademark and patent rights. In addition, we take active precautions to protect our trade secret rights through various contractual means. However, we recognize that third parties may challenge these rights, including through unauthorized use or misappropriation or theft, or by legal challenge in administrative proceedings or challenge in state or district court. Such challenges include the risks of long and costly litigation, as well as the potential loss of property rights and the assessment of damages against a losing party.

Risks relating to Intellectual Property.

Because U.S. patent applications are maintained in secret until patents are issued, and publications of discoveries in the scientific or patent literature tend to lag actual discoveries by several months, we may not be the first creator of inventions covered by issued patents or pending patent applications or the first to file patent applications for such inventions. Moreover, other parties may independently develop similar technologies, duplicate our technologies or, if patents are issued to us or rights licensed by us, design around the patented aspects of any technologies we developed or licensed. We may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine the priority of inventions, which could result in substantial costs. Litigation may also be necessary to enforce any patents held by or issued to us or to determine the scope and validity of others’ proprietary rights, which could result in substantial costs.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

To protect our proprietary and licensed technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in

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the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

The rapid technological changes of our industry may adversely affect us if we do not keep pace with advancing technology.

The PVD market is characterized by rapidly advancing technology coupled with long and uncertain paths to large market acceptance. Our success depends on our ability to keep pace with advancing technology and processes and industry standards. We have focused our development efforts on sputtering targets. We intend to continue to develop innovative materials and integrate those advances to the thin film coatings industry and other potential industries. However, our development efforts may be rendered obsolete by research efforts and technological advances made by others or by the failure of anticipated markets to emerge, and materials other than those we currently use may prove more advantageous.

Risks Related to Our Common Stock

Our Articles of Incorporation authorize us to issue additional shares of stock.

The Company is authorized to issue up to 15,000,000 shares of common stock. The Board of Directors may approve the issuance of common stock as they consider sufficient without seeking shareholder approval. As of December 31, 2024, we had 4,568,127 shares outstanding and 5,945 shares underlying options that are currently exercisable resulting in 10,425,928 shares of common stock available for issue. The issuance of additional shares of common stock in the future may reduce the proportionate ownership and voting power of current shareholders.

Our Articles of Incorporation authorize us to issue up to 260,000 shares of Preferred Stock. The issuance of preferred stock in the future could create additional securities which would have dividend and liquidation preferences prior to the outstanding shares of common stock. These provisions could also impede a non-negotiated change in control. As of December 31, 2024, there were no preferred shares outstanding.

We have not paid dividends on our common stock in the past and do not expect to do so in the foreseeable future.

We have never declared or paid cash dividends on our shares of common stock and do not expect to do so in the foreseeable future. We currently intend to use future earnings for the growth of our business. As a result, investors must rely on sales of the common stock based on price appreciation, which may not occur as the best way to realize future gains on their investments.

Provisions in our Articles of Incorporation and Code of Regulations provide for indemnification of officers and directors which could require us to divert funds away from our business and operations.

Our Articles of Incorporation and Code of Regulations provide for the indemnification of our officers and directors. We may be required to advance costs incurred by an officer or director to pay judgments, fines and expenses incurred by an officer or director, including reasonable attorneys’ fees, as a result of actions or proceedings in which our officers and directors are involved by reason being or having been an officer or director of our Company. Funds paid in satisfaction of judgments, fines, and expenses may be funds we need for the operation and growth of our business.

Takeover defense provisions in Ohio law and our corporate governance documents may delay or prevent takeover attempts preventing our shareholders from realizing a premium on their stock.

Various provisions of Ohio corporation laws as well as our corporate governance documents may inhibit changes in control not approved by our Board of Directors and may have the effect of depriving our investors of an opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted hostile takeover. In addition, the existence of these provisions may adversely affect the market price of our common stock. These provisions include:

●

A requirement that a special meeting of the shareholders must be called by our Board of Directors, Chairperson, the President, or the holders of shares with voting powers of at least fifty percent (50%).

●

Advanced notice requirements for shareholder proposals and nominations.

●

The availability of “blank check preferred stock.”

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Our Board of Directors can use these and other provisions to prevent, delay or discourage a change in control of the company or a change in our management. Any such delay or prevention of a change in control of management could deter potential acquirers or prevent the completion of a takeover transaction to which our shareholders could receive a substantial premium over the current market price of our common stock, which may in turn limit the price investors might be willing to pay for our common stock.

The market for our common stock is limited, and as such our shareholders may have difficulty selling their shares when desired or at attractive market prices.

Our stock price, trading volume, and market listing may make it more difficult for our shareholders to sell shares when desired or at attractive prices. In 2001, our stock began trading on The Over-the-Counter Bulletin Board, now known as the OTC Markets. Our common stock trades in low volumes and at low prices. Some investors view low-priced stocks as unduly speculative and therefore not appropriate candidates for investment. Many institutional investors have internal policies prohibiting the purchase or maintenance of positions in low-priced stocks. This has the effect of limiting the pool of potential purchases of our common stock at present price levels. Shareholders may find greater percentage spreads between bid and asked prices, and more difficulty in completing transactions and higher transaction costs when buying or selling our common stock than they would if our stock were listed on a major stock exchange.

Our common stock has been subject to the Securities and Exchange Commission’s “penny stock” regulations, which may limit the liquidity of common stock held by our shareholders.

Our common stock currently trades on the OTC Markets’ OTCQB market under the symbol “SCIA.” Based on a trading price occasionally below $5 per share, our common stock is considered a “penny stock” for purposes of federal securities laws, and therefore has been subject to regulations, which affected the ability of broker-dealers to sell our securities. Broker-dealers who recommend a “penny stock” to persons (other than established customers and accredited investors) must make a special written suitability determination and receive the purchaser’s written agreement to a transaction prior to sale.

If penny stock regulations apply to our common stock, it may be difficult to trade the stock because compliance with the regulations can delay and/or preclude certain trading transactions. Broker-dealers may be discouraged from effecting transactions in common stock because of the sales practice and disclosure requirements for penny stock. This could adversely affect the liquidity and/or price of our common stock and impede the sale of the common stock in the secondary market.

Risks Related to Government Regulation

We are subject to anti-corruption laws in the jurisdictions in which we may operate, including anti-corruption laws of China and the Federal Corrupt Practices Act (FCPA). Our failure to comply with these laws could result in penalties which could harm our reputation and have a material adverse effect on our business, results of operations and financial condition.

We are subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits, along with various other anticorruption laws. Although we continue to monitor policies and procedures designed to ensure that we, our employees, distributors and other intermediaries comply with the FCPA and other anti-corruption laws to which we are subject, there is no assurance that such policies or procedures will work effectively all of the time or protect us against liability under the FCPA or other laws for actions taken by our employees, distributors and other intermediaries with respect to our business or any businesses that we may acquire. If we are not in compliance with the FCPA and other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anticorruption laws by U.S. or foreign authorities could have an adverse impact on our business, financial condition, and results of operations.

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Environmental compliance costs and liabilities associated with our facility may have a material adverse effect on our business, financial condition, results of operations and prospects.

We are subject to various federal, state, and local environmental and health and safety laws and regulations with respect to our operations. These laws and regulations address various matters, including asbestos, fuel oil management, wastewater discharges, air emissions, and hazardous wastes. The costs of complying with these laws and regulations and the penalties for non-compliance can be substantial. For example, with respect to leased property, we may be held liable for costs relating to the investigation and cleanup of our leased property from which there has been a release or threatened release of a regulated material as well as other properties affected by the release. In addition to these costs, which are typically not limited by law or regulation and could exceed the property’s value, we could be liable for certain other costs, including, without limitation, governmental fines, and injuries to persons, property, or natural resources. Further, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination. While we are not aware of any potential environmental problems, no assurances are made that such problems and costs associated with them will not arise in the future. If any of our properties were found to violate environmental laws, we may be required to expend significant amounts of time and money to rehabilitate the property, and we may be subject to significant liability. Any environmental compliance costs and liabilities incurred may have a material adverse effect on our business, financial condition, results of operations and growth prospects.

The increasing costs of being a public company may strain our resources and impact our business, financial condition, and results of operations.

As a public company, we are subject to reporting requirements of the Securities Exchange Act of 1934, as amended or the Exchange Act, the Sarbanes-Oxley Act of 2002, (Sarbanes Oxley Act) and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, (Dodd-Frank Act). The Exchange Act requires that we file annual, quarterly, and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls for financial reporting. We are required to document and test our internal control procedures to satisfy the requirements of Section 404(b) of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. The Dodd-Frank Act requires us to audit our supply chain and report conflict minerals usage.

These requirements may place a strain on our systems and resources in the future and may require us to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. In addition, the failure to maintain such internal controls could result in us being unable to provide timely and reliable financial information which could potentially subject us to sanctions or investigations by the Securities and Exchange Commission or events could have an adverse effect on our business, financial condition, or results of operations. Although we have taken steps to maintain our internal control structure as required by the Exchange Act and the Sarbanes-Oxley Act, we cannot provide any assurances that control deficiencies will not occur in the future.

Regulation from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) could adversely affect our business or financial results.

Changes in regulatory requirements, such as the reporting requirements relating to conflict minerals originating in the Democratic Republic of Congo or adjoining countries included in the Dodd-Frank Act, or evolving interpretations of existing regulatory requirements, may result in increased compliance cost, capital expenditures and other financial obligations that could adversely affect our business or financial results. We conducted an analysis of our products and found that the above SEC defined “conflict minerals,” which are tantalum, tin, tungsten, and gold (3TG), can be found in our products. Therefore, the products that we manufacture are subject to the reporting obligations of Rule 13p-1.

Despite having conducted a good faith reasonable country of origin inquiry, we concluded that our supply chain remains “DRC conflict undeterminable.” We have reached this conclusion because we have been unable to determine the origin of the 3TG used. We will continue to work with our suppliers. Should the regulations or our analysis change, it could impact the sourcing of materials that we use to manufacture our products.

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If significant tariffs or other restrictions are placed on imports or any related countermeasures are taken by other countries, our revenue and results of operations may be materially harmed.

Import tariffs and/or other mandates imposed by sovereign governments could potentially lead to a trade war with other foreign governments and could significantly increase the prices on raw materials that are critical to our business. We could be forced to increase prices to our customers or, if unable to do so, result in lowering our gross margin on products sold.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 1C.CYBERSECURITY.

While we have never had a material cybersecurity incident that impacted our operations, from time to time we face various cyber and other security threats, including attempts to gain unauthorized access to sensitive information and networks; employee threats; virtual and cyber threats to our directors, officers, and employees; threats to the security of our facilities and infrastructure; and threats from artificial intelligence, terrorist acts or other acts of aggression. Our customers and vendors may face similar threats. We utilize internal and external independent controls to monitor and mitigate the risk of these threats, including an outside independent Cybersecurity consultant, a Security Incident Response Plan (SIRP) and periodic Information Technology training for all employees.

Our SIRP is outlined as follows:

Preparation—perform a risk assessment, identify sensitive assets, and build a Computer Security Incident Response Team (CSIRT). Our team includes an outside IT Cybersecurity consultant that provides managed services on a regular basis.

Identification—monitor IT systems and detect deviations from normal operations and see if they represent actual security incidents. When an incident is discovered, collect additional evidence, establish its type and severity, and document everything.

Containment—perform short-term containment, for example by isolating the network segment that is under attack. Then focus on long-term containment, which involves temporary fixes to allow systems to be used in production, while rebuilding clean systems.

Eradication—remove malware from all affected systems, identify the root cause of the attack, and take action to prevent similar attacks in the future.

Recovery—bring affected production systems back online carefully, to prevent additional attacks. Test, verify and monitor affected systems to ensure they are back to normal activity.

Lessons learned—no later than two weeks from the end of the incident, perform a retrospective of the incident. Prepare complete documentation of the incident, investigate the incident further, understand what was done to contain it and whether anything in the incident response process could be improved.

The impact of potential cybersecurity threats is difficult to predict, but one or more of them could result in the loss of information or capabilities, harm to individuals or property, damage to our reputation, loss of business, regulatory actions, and potential liability, any of which could have a material adverse effect on our financial position, results of operations and/or cash flows. These threats could lead to losses of sensitive information or capabilities, harm to personnel, infrastructure, or products, and/or damage to our reputation as well as our vendor’s ability to perform on our contracts.

Effective incident response involves every part of our organization, including IT teams, legal, technical support, human resources, corporate communications, and business operations. Our Board of Directors oversees all business, property, and affairs of the Company, including cybersecurity risks. Our management keep the members of the Board informed of our business through discussions at Board meetings and by providing them with reports and other materials throughout the year.

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Our CSIRT includes our independent outside cybersecurity consultant as our strategic lead and the consultant and Chief Financial Officer (CFO) lead the Incident Response Team. Our consultant is certified in cybersecurity and our CFO has overseen our IT for over twenty years. Our team meets at least annually to review the Plan, discuss simulations and appropriate actions, and update the Plan where necessary.

ITEM 2.PROPERTIES.

Our office and manufacturing facilities are located at 2839 Charter Street, Columbus, Ohio, where we occupy approximately 32,000 square feet. We moved our operations into this facility in 2004. During 2024, the Company modified its operating lease, which included changes to the lease terms and adjustments to the lease payments. The Company extended the lease period for an additional five years with a new maturity date of November 30, 2029.

We are current on all operating lease liabilities.

ITEM 3.LEGAL PROCEEDINGS.

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market for Common Stock

Our common stock currently trades on the OTC Markets’ OTCQB market under the symbol “SCIA.”

Based on its historical trading price, our common stock is considered a “penny stock” for purposes of federal securities laws and therefore has been subject to certain regulations. See “Risk Factors” for specific disclosures concerning the market for the Company’s common stock.

Holders of Record

As of December 31, 2024, there were approximately 190 registered holders of record of our common stock and 4,568,127 shares issued and outstanding.

Dividends

We have never paid cash dividends on our common stock and do not expect to pay any dividends on our common stock in the foreseeable future. We intend to use our future earnings for the growth of the business.

Equity Compensation Plan Information

The following table sets forth additional information as of December 31, 2024, concerning shares of our common stock that may be issued upon the exercise of options and rights under our existing 2011 Stock Option Plan which was approved by our shareholders. The Plan has expired, and no additional stock options may be granted. The options outstanding expire in May 2028. The information includes the number of shares covered by and the weighted average exercise price of outstanding options and other rights, and the number of shares remaining available for future grants (excluding the shares to be issued upon exercise of outstanding options and other rights).

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				Number of securities
				remaining available for
	Number of Securities to			issuance under equity
	be issued upon exercise	Weighted-average exercise		compensation plans
	of outstanding options	price of outstanding options		(excluding securities
	and rights	and rights		reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans	5,945	$	1.25	—

ITEM 6.RESERVED.

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Executive Summary

For the year ended December 31, 2024, we had total revenue of $22,870,192 compared to $27,984,083 for the year ended December 31, 2023. Lower cost of a key raw material, especially during the third quarter of 2024, was the primary factor that contributed to the decrease. Product mix along with a slight decrease in volume also impacted revenue.

Gross profit was $5,068,301 for 2024 compared to $5,251,633 for 2023. The decrease was attributable to lower revenue. Gross margin increased to 22.2% in 2024 versus 18.8% in 2023. While lower raw material costs were the key factor to the decrease in gross profit, gross margin benefited from lower raw material costs and product mix.

Operating expenses were $3,023,535 and $2,757,385 for 2024 and 2023, respectively.

Income from operations was $2,044,766 and $2,494,248 for 2024 and 2023, respectively

Consistent with our growth strategy, we have identified niche markets that can benefit from our expertise in custom powder solutions, such as near-infrared doped phosphors and short-wave infrared applications. These applications enable extended life of phosphors for specific nighttime identification needs of defense personnel and first responders.

New initiatives are also being pursued that utilize our vacuum hot presses, cold isostatic press, and kilns for increased production and development projects, including diffusion bonding. We recently manufactured and sold conductive metal oxides for direct current sputtering of Tungsten Oxide and Molybdenum Oxide materials. We continue to invest in developing new products for all our markets including specialty bonding processes for Aerospace customers. Those products involve research and development expense to accelerate time to market.

Several issues continue to affect national and global market conditions. First, inflation continues to impact labor, raw material costs and transportation expenses. We seek to pass these increases on to customers but are unable to predict how future or sustained inflationary pressure may impact our results. Second, supply chain disruptions are adversely impacting customers’ businesses in certain markets. Thus far, we have not experienced material adverse effects regarding sourcing of raw materials or product shipments; however, timely deliveries and sourcing of certain materials is of increased concern and may be subject to potential tariffs. Third, increased political uncertainties continue to affect global markets. Although we currently have no customers or suppliers in Russia or Ukraine we continue to monitor the situation as some raw materials come from Russia for the PVD industry. We have a customer in Israel; however, revenue related to these sales is negligible to our total revenue for the years of 2024 and 2023, respectively. We are actively maintaining contact with our suppliers and customers, identifying additional suppliers, and adapting to our customers’ specific circumstances and forecasts.

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RESULTS OF OPERATIONS

Year 2024 compared to Year 2023

Revenue

For the year ended December 31, 2024, we had total revenue of $22,870,192, compared to $27,984,083, for the year ended December 31, 2023. This was a decrease of $5,113,891 or 18.3%. Lower cost of a key raw material, especially during the third quarter of 2024, was the was the primary factor that contributed to the decrease. Product mix along with a slight decrease in volume also impacted revenue.

Gross profit

Gross profit was $5,068,301 for 2024 compared to $5,251,633 for 2023. Gross profit as a percentage of revenue (gross margin) was 22.2% and 18.8% for 2024 and 2023, respectively. While lower raw material costs were the key factor to the decrease in gross profit, gross margin benefited from lower material costs and product mix.

General and administrative expense

General and administrative expense for 2024 and 2023, was $1,939,895 and $1,771,263, respectively, an increase of 9.5%. During 2024, compensation increased by $114,868 which included increased staff. In addition, professional fees increased by $76,915 related to auditing, information technology, legal, and stockholder relation services.

Research and development expense

Research and development expense for 2024 was $564,576 compared to $501,937, for 2023, an increase of 12.5%. This increase was attributed to increases in compensation of $19,668 and materials and supplies of $121,979 which were offset by a decrease in outside consulting expenses of $66,216. Specialty materials are being researched for use in niche markets which include custom applications and additive manufacturing. Our development efforts utilize a disciplined innovation approach focused on accelerating time to market for these applications and involve ongoing research and development expense.

Marketing and sales expense

Marketing and sales expense was $519,064 and $484,185 during 2024 and 2023, respectively. This was an increase of $34,879 or 7.2%. An increase in staff during 2023 resulted in higher compensation of $54,260 during 2024, which was partially offset by lower travel expenses of $15,025. We exhibited at additional international photonics trade shows focused on specific niche markets during 2024 and 2023.

Interest

Net interest income was $393,441 and $286,361 for the years ended December 31, 2024 and 2023, respectively. The increase was primarily due to higher cash and $2,758,478 of investments in marketable securities. Interest expense related to finance lease obligations was $706 and $4,309 for 2024 and 2023, respectively.

Income taxes

Income tax expense was $576,818 and $586,710 for the twelve months ended December 31, 2024 and 2023, respectively. The effective tax rate was 23.6% for 2024 compared to 21.1% for 2023. 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 liability was $121,649 and $69,846 at December 31, 2024 and 2023, respectively.

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Net income

Net income for 2024 and 2023 was $1,861,389 and $2,193,899, respectively. Lower gross profit and higher expenses were partially offset by higher interest income.

Liquidity and Capital Resources

Cash

As of December 31, 2024, cash on hand was $6,753,403 compared to $5,673,994 at December 31, 2023. The increase was due to net cash provided by operating activities partially offset by investment in the acquisition of production equipment and additional purchases of marketable securities.

Working capital

At December 31, 2024, working capital was $8,245,712 compared to $7,633,016 at December 31, 2023, an increase of $612,696 or 8.0%. The increase was primarily due to the increase in cash noted above.

Cash from operations

Net cash provided by operating activities during 2024 was $2,369,815 and $2,281,279 during 2023. In addition to the net income generated, this included adjustments for depreciation and amortization of $474,458 and $469,790, and noncash stock-based compensation costs of $43,980 and $45,485 for the twelve months ended December 31, 2024, and 2023, respectively. The decrease in prepaid purchase orders was primarily related to inventory paid for in December 2023 and received in January 2024. Inventories, prepaid purchase orders and customer deposits primarily decreased due to continued efforts by the Company and our customers monitoring inventory very closely with emphasis on intra-quarter shipments.

Cash from investing activities

Cash of $499,805 and $453,671 was used in investing activities during the twelve months ended December 31, 2024 and 2023, respectively, for the acquisition of production equipment and the enclosure of our ceramic machining area in 2023. During 2024 we purchased additional marketable securities in the amount of $750,000 based on available free cash flow and our desire to earn higher returns.

Cash from financing activities

Cash of $49,149 and $97,367 for 2024 and 2023, respectively, was used in financing activities for principal payments to third parties for finance lease obligations.

Debt outstanding

Total debt outstanding was $0 at December 31, 2024 compared to $49,149 at December 31, 2023. The final finance lease payment was made during the third quarter of 2024.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in the Financial Statements and accompanying notes. Note 2 to the Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2024, describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts and current expected credit losses, inventory allowances, property and equipment depreciable lives, patents and license useful lives, revenue recognition, income tax expense, deferred tax assets and liabilities, realization of deferred tax assets, stock-based compensation and assessing changes in which impairment of certain long-lived assets may occur. Actual results could differ from these estimates.

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The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Financial Statements. The allowance for doubtful accounts is based on our assessment of the expected collectability of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than our expected losses, our estimates of the recoverability of amounts due us could be adversely affected. 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. Inventory purchases and commitments are based upon future demand forecasts. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory allowances, and our gross profit could be adversely affected.

Inflation

While there was not a significant impact from inflation on our operations prior to 2023, we experienced increased costs during 2024 and 2023 that are expected to continue into 2025.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our balance sheets as of December 31, 2024, and 2023, and the related statements of operations, shareholders’ equity and cash flows for the years ended December 31, 2024, and 2023, together with the Report of Independent Registered Public Accounting Firm thereon appear beginning on Page F-1.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and implemented, can only provide reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, to allow timely discussions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Inherent Limitations Over Internal Controls

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that

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transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.

Management is responsible for the consistency, integrity, and presentation of information. We fulfill our responsibility by maintaining systems of internal control designed to provide reasonable assurance that assets are safeguarded, and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance.

The Board of Directors exercises its oversight role with respect to our systems of internal control primarily through its Audit Committee, which is comprised of independent directors. The Committee oversees our financial reporting, quarterly reviews, and audits to assess whether their quality, integrity, and objectivity are sufficient to protect shareholders’ investments and meets with the Company’s Independent Registered Public Accounting firm at least quarterly.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in the Internal Control – Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). We performed a review of our related procedures and controls and strengthened cross approval of various functions, including financial reporting and disclosure review controls by the Chief Financial Officer, to include the Chief Executive Officer and Audit Committee Chairperson where appropriate. We report to the Audit Committee and the Board of Directors at least monthly (and more often as necessary). This reporting includes balance sheets, statements of operations, statements of cash flows, and other detail supporting these statements. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2024.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of the year ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.OTHER INFORMATION.

None.

ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The information required by this item is included under the captions, “Election of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement relating to our 2025 Annual Meeting of Shareholders scheduled to be held on June 17, 2025, and is incorporated herein by reference.

We have a Business Conduct Policy applicable to all employees of the Company. Additionally, the Chief Executive Officer ("CEO") and all senior financial officers, including the principal financial officer, the principal accounting officer or controller, or any person performing a similar function (collectively, the "Senior Financial Officers") are bound by the provisions of our Code of Ethics

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relating to ethical conduct, conflicts of interest, and compliance with the law. The Code of Ethics is posted on our website at http://www.sciengineeredmaterials.com/corporate-governance.

We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding any amendment to, waiver of, any provision of this code of ethics by posting such information on our website at the address and location previously specified.

ITEM 11.EXECUTIVE COMPENSATION.

The information required by this item is included under the caption “Executive Compensation” in our Proxy Statement relating to our 2025 Annual Meeting of Shareholders scheduled to be held on June 17, 2025, and is incorporated herein by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this item is included under the captions “Ownership of Common Stock by Directors and Executive Officers” and “Ownership of Common Stock by Principal Shareholders” in our Proxy Statement relating to our 2025 Annual Meeting of Shareholders scheduled to be held on June 17, 2025, and is incorporated herein by reference.

We have a Statement of Company Policy governing the purchase, sale, and/or other dispositions of our common stock. If a director, officer, or any employee has material non-public information relating to our Company, it is our policy that neither that person nor any related person may buy or sell securities of the Company.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this item is included under the caption “Certain Relationships and Related Transactions, and Director Independence” in our Proxy Statement relating to our 2025 Annual Meeting of Shareholders scheduled to be held on June 17, 2025, and is incorporated herein by reference.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item is included under the caption “Fees of the Registered Independent Public Accounting Firm for the years ended December 31, 2024, and 2023” in our Proxy Statement relating to our 2025 Annual Meeting of Shareholders scheduled to be held on June 17, 2025, and is incorporated herein by reference.

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ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.


Exhibit Number		Exhibit Description

3(a)		Certificate of Second Amended and Restated Articles of Incorporation of Superconductive Components, Inc. (Incorporated by reference to Exhibit 3(a) to the Company’s initial Form 10-SB, filed on September 28, 2000).
3(b)		Restated Code of Regulations of Superconductive Components, Inc. (Incorporated by reference to Exhibit 3(b) to the Company’s initial Form 10-SB, filed on September 28, 2000)
3(c)		Amendment to Articles of Incorporation recording the change of the corporate name to SCI Engineered Materials, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB filed November 7, 2007).
4(a)		SCI Engineered Materials, Inc. 2011 Stock Incentive Plan (Incorporated by reference to the Company’s Definitive Proxy Statement for the 2011 Annual Meeting of Shareholders held on June 10, 2011, filed April 28, 2011).
4(d)*		Description of Securities of the Company.
14(a)		SCI Engineered Materials Code of Ethics for the Chief Executive Officer and Chief Financial Officer (Incorporated by reference to the Company’s Current Report via the Company’s website at www.sciengineeredmaterials.com).
23.1*		Consent of Independent Registered Public Accounting Firm.
24*		Power of Attorney.
31.1*		Rule 13a-14(a) Certification of Principal Executive Officer.
31.2*		Rule 13a-14(a) Certification of Principal Financial Officer.
32.1*		Section 1350 Certification of Principal Executive Officer.
32.2*		Section 1350 Certification of Principal Financial Officer.
99.1*		Press Release dated February 14, 2025, entitled “SCI Engineered Materials, Inc., Reports 2024 Fourth Quarter and Full-Year Results”.
101		The Company’s Annual Report on Form 10-K for the year ended December 31, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Balance Sheets at December 31, 2024 and December 31, 2023 (ii) Statements of Operations for the years ended December 31 2024 and 2023, (iii) Statement of Changes in Equity for the years ended December 31, 2024 and December 2023, (iv) Statements of Cash Flows for the years ended December 31, 2024 and 2023, and (v) Notes to Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*	Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SCI ENGINEERED MATERIALS, INC.
Date: February 14, 2025	By:	/s/ Jeremiah R. Young
		Jeremiah R. Young, Director, and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 14^th day of February 2025.


Signature		Title
/s/ Jeremiah R. Young		Director and Chief Executive Officer
Jeremiah R. Young		(principal executive officer)

/s/ Gerald S. Blaskie		Vice President and Chief Financial Officer
Gerald S. Blaskie		(principal financial and accounting officer)

Laura F. Shunk*		Chairperson of the Board of Directors
Laura F. Shunk

Edward W. Ungar*		Director
Edward W. Ungar

John P. Gilliam*		Director
John P. Gilliam

Emily Lu*		Director
Emily Lu

Charles Wickersham*		Director
Charles Wickersham


*By:/s/ Jeremiah R. Young
Jeremiah R. Young, Attorney-in-Fact

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INDEX TO FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 1808)	F-2
Balance Sheets	F-3
Statements of Income	F-5
Statements of Shareholders’ Equity	F-6
Statements of Cash Flows	F-7
Notes to Financial Statements	F-8

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

SCI Engineered Materials, Inc.

Columbus, Ohio

Opinion on the Financial Statements

We have audited the accompanying balance sheets of SCI Engineered Materials, Inc. (the “Company”) as of December 31, 2024 and 2023, the related statements of income, shareholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ GBQ Partners, LLC

We have served as the Company's auditor since 2014.

Columbus, Ohio

February 14, 2025

F-2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SCI ENGINEERED MATERIALS, INC.

BALANCE SHEETS

DECEMBER 31, 2024 AND 2023

ASSETS


	December 31,		December 31,
	2024		2023

Current Assets
Cash and cash equivalents	$	6,753,403	$	5,673,994
Investments - marketable securities, short term		509,478		1,000,000
Accounts receivable
Trade, less allowance for doubtful accounts of $15,000		704,808		854,501
Tax - Employee Retention Credit		40,539		40,539
Other		29,941		15,607
Inventories, net		1,432,914		4,654,398
Prepaid purchase orders		83,932		1,123,980
Prepaid expenses		154,902		214,458
Total current assets		9,709,917		13,577,477

Property and Equipment, at cost
Machinery and equipment		8,755,422		8,677,446
Furniture and fixtures		178,307		129,476
Leasehold improvements		744,297		744,297
Construction in progress		226,002		52,097
		9,904,028		9,603,316
Less accumulated depreciation and amortization		(7,632,946)		(7,359,310)
Property and equipment, net		2,271,082		2,244,006

Other Assets
Investments, net - marketable securities, long term		2,249,000		994,478
Right of use asset, net		1,236,572		592,170
Other assets		66,394		78,289
Total other assets		3,551,966		1,664,937

TOTAL ASSETS	$	15,532,965	$	17,486,420

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

F-3

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SCI ENGINEERED MATERIALS, INC.

BALANCE SHEETS (continued)

DECEMBER 31, 2024 AND 2023

LIABILITIES AND SHAREHOLDERS’ EQUITY


	December 31,		December 31,
	2024		2023

Current Liabilities
Finance lease obligations, current portion	$	—	$	49,149
Operating lease obligations, current portion		174,863		111,193
Accounts payable		419,209		385,489
Customer deposits		337,873		4,871,035
Accrued compensation		401,830		406,971
Accrued expenses and other		130,430		120,624
Total current liabilities		1,464,205		5,944,461

Deferred tax liability		121,649		69,846
Operating lease obligations, net of current portion		1,061,709		492,080
Total liabilities		2,647,563		6,506,387

Shareholders' Equity
Common stock, no par value, authorized 15,000,000 shares; 4,568,127 and 4,530,207 shares issued and outstanding, respectively		10,706,323		10,662,343
Additional paid-in capital		2,233,384		2,233,384
Accumulated deficit		(54,305)		(1,915,694)
Total shareholders' equity		12,885,402		10,980,033

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	15,532,965	$	17,486,420

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

F-4

Table of Contents

SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2024 AND 2023



	2024		2023

Revenue	$	22,870,192	$	27,984,083

Cost of revenue		17,801,891		22,732,450

Gross profit		5,068,301		5,251,633

General and administrative expense		1,939,895		1,771,263

Research and development expense		564,576		501,937

Marketing and sales expense		519,064		484,185

Income from operations		2,044,766		2,494,248

Interest income, net		393,441		286,361

Income before provision for income taxes		2,438,207		2,780,609

Income tax expense		576,818		586,710

NET INCOME	$	1,861,389	$	2,193,899

Earnings per share - basic and diluted (Note 7)

Income per common share
Basic	$	0.41	$	0.48
Diluted	$	0.41	$	0.48

Weighted average shares outstanding
Basic		4,551,763		4,528,948
Diluted		4,556,285		4,559,786

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

F-5

Table of Contents

SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2024 AND 2023


			Additional
	Common		Paid-In		Accumulated
	Stock		Capital		Deficit		Total

Balance 12/31/2022	$	10,618,435	$	2,231,807	$	(4,104,593)	$	8,745,649

Adoption of ASU 2016-13 (Note 2N)		—		—		(5,000)		(5,000)

Stock based compensation expense (Note 2J)		—		1,577		—		1,577

Common stock issued (Note 8)		43,908		—		—		43,908

Net income		—		—		2,193,899		2,193,899

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

Common stock issued (Note 8)		43,980		—		—		43,980

Net income		—		—		1,861,389		1,861,389

Balance 12/31/2024	$	10,706,323	$	2,233,384	$	(54,305)	$	12,885,402

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

F-6

Table of Contents

SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2024 AND 2023


	Year Ended December 31,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,861,389	$	2,193,899
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and accretion		469,525		465,333
Amortization of patents		4,933		4,457
Stock based compensation		43,980		45,485
Loss (gain) on disposal of equipment		1,555		(3,135)
Deferred taxes		51,803		221,010
Inventory reserve		(497)		(2,919)
Changes in operating assets and liabilities:
Accounts receivable		135,359		(14,808)
Inventories		3,221,981		(2,473,562)
Prepaid purchase orders		1,040,048		(1,123,980)
Prepaid expenses		59,556		(78,324)
Other assets		(7,038)		12,392
Accounts payable		33,720		(129,023)
Operating lease assets and liabilities, net		(11,103)		(9,448)
Customer deposits		(4,533,162)		3,045,440
Accrued liabilities		(2,234)		128,462
Net cash provided by operating activities		2,369,815		2,281,279

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		8,548		16,000
Purchases of marketable securities		(2,250,000)		(1,009,478)
Proceeds from maturities of marketable securities		1,500,000		989,265
Purchases of property and equipment		(499,805)		(453,671)
Net cash used in investing activities		(1,241,257)		(457,884)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on finance lease obligations		(49,149)		(97,367)

NET INCREASE IN CASH	$	1,079,409	$	1,726,028

CASH - Beginning of year		5,673,994		3,947,966

CASH - End of period	$	6,753,403	$	5,673,994

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	706	$	4,309
Income taxes		470,733		442,906

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Increase in asset retirement obligation	$	6,900	$	6,900

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

F-7

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1. Business Organization and Purpose

SCI Engineered Materials, Inc. (“SCI”, “we” or the “Company”), an Ohio corporation, was incorporated in 1987. The Company operates in one segment as a global supplier and manufacturer of advanced materials for Physical Vapor Deposition (“PVD”) thin film applications. The Company is focused on markets within the Photonics industry including Aerospace, Automotive, Defense, Glass, Optical Coatings, and Solar. Substantially, all revenues are generated from customers with multinational operations. The Company develops innovative customized solutions enabling commercial success through collaboration with end users and Original Equipment Manufacturers.

Note 2. Summary of Significant Accounting Policies

A.Cash and cash equivalents - The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash.

B.Investments in marketable securities – The Company’s investments in marketable securities consist of corporate and government bonds and have been classified as held-to-maturity. The Company has the intent and ability to hold to maturity and the securities are reported at amortized cost. The Company considers those investments which will mature in the next twelve months, including interest receivable on long-term bonds, as current assets. The remaining investments are considered non-current assets which the Company intends to hold longer than twelve months. The Company periodically evaluates the investments for impairment.

The Company uses an “expected credit loss” measurement objective for held-to-maturity securities at the time the financial asset is originated or acquired. The Company monitors the credit quality of debt securities classified as held-to-maturity using their respective credit ratings and updates them on a quarterly basis with the latest assessment completed during December 2024. Our allowance for credit losses were $1,000 and $15,000 at December 31, 2024 and 2023, respectively. Expected credit losses are adjusted each period as necessary for changes in expected lifetime credit losses. The credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as the current portfolio. An adjustment factor is applied to these credit loss calculations based upon management’s assessment of the expected impact from current economic conditions on our investments.

C.Fair Value of Financial Instruments - The estimated fair value of amounts reported in the financial statements have been determined using available market information and valuation methodologies, as applicable (see Note 11).

D.Concentrations of Credit Risk - The Company’s cash balances, which are at times more than federally insured levels, are maintained at a large regional bank and a multinational investment bank and are continually monitored to minimize the risk of loss. The Company grants credit to most customers, who are varied in terms of size, geographic location, and financial strength. Customer balances are continually monitored to minimize the risk of loss.

The Company’s two largest customers accounted for 74% and 14% of total revenue in 2024. These two customers represented 70% of the accounts receivable trade balance at December 31, 2024, and the Company expects to collect all outstanding accounts receivable as of December 31, 2024, from these customers.

The Company’s two largest customers accounted for 78% and 11% of total revenue in 2023. These two customers represented 72% of the accounts receivable trade balance at December 31, 2023 and the

F-8

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

Company subsequently collected all outstanding accounts receivable as of December 31, 2023 from these customers.

E.Accounts Receivable - The Company extends unsecured credit to customers under normal trade agreements which typically require payment within 30-60 days. The Company does not charge interest on delinquent trade accounts receivable. Unless specified by the customer, payments are applied to the oldest unpaid invoice. Accounts receivable are presented at the amount billed.

Management estimates an allowance for doubtful accounts, which was $15,000 as of December 31, 2024, and 2023. This estimate is based upon management’s assessment of the expected collectability of specific customer accounts, the aging of the accounts receivable and reasonable supportable forecasts. Specific accounts are charged directly to the reserve or bad debt expense when management obtains evidence of a customer’s insolvency or otherwise determines that the account is uncollectible. There was no bad debt expense during 2024 and 2023 related to customers’ accounts receivable.

F.Inventories - Inventories are stated at the lower of cost or net realizable value on an acquired or internally produced lot basis, and consist of raw materials, work-in-process, and finished goods. Cost

includes material, labor, freight and applied overhead. Inventory reserves are established for obsolete inventory, lower of cost or net realizable value, and excess inventory quantities based on management’s estimate of net realizable value. The Company had an inventory reserve of $7,016 and $7,512 at December 31, 2024, and 2023, respectively.

G.Property and Equipment - Property and equipment are carried at cost. Depreciation is provided using the straight-line method based on the estimated useful lives of the assets. Useful lives range from three years on computer equipment to sixteen years on certain equipment. Leasehold improvements are amortized over the shorter of the estimated useful life or the term of the lease. Depreciation expense totaled $469,525 and $465,333 for the years ended December 31, 2024, and 2023, respectively. Expenditures for renewals and betterments are capitalized and expenditures for repairs and maintenance are charged to operations as incurred.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. During 2024, various assets totaling $17,138 with a net book value of $1,555 were considered impaired. During 2023, various assets totaling $22,478 with a net book value of $12,865 were considered impaired. This impairment is offset against gain on disposal of equipment in the Statement of Income.

H.Intangible Assets - The Company reviews intangible assets for impairment and performs detailed testing whenever impairment indicators are present. If necessary, an impairment loss is recorded for the excess of carrying value over fair value. There were no intangible assets considered impaired during 2024 or 2023.

Costs incurred to secure patents have been capitalized and amortized over the life of the patents. Cost and accumulated amortization of the patents at December 31, 2024, was $85,516 and $26,986 respectively, and cost and accumulated amortization of the patents at December 31, 2023, was $85,516 and $22,054, respectively. Amortization expense related to patents was $4,933 and $4,457 for the years ended December 31, 2024, and 2023, respectively. Amortization expense is expected to be at least $4,933 for each of the next five years.

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

I.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 most product sales, transfer of control occurs when the products are shipped from the Company’s manufacturing facility to the customer. The cost of delivering products to the Company’s customers is recorded as a component of cost of products sold. Those costs may include the amounts paid to a third party to deliver the products. Any freight costs billed to and paid by a customer are included in revenue.

The Company considers collectability of amounts due under a contract to be probable upon inception of a sale based on an evaluation of the credit worthiness of each customer. The Company sells its products typically under agreements with payment terms of 30-60 days. The Company does not typically include extended payment terms or significant financing components in contracts with customers. The majority of the Company’s contracts have an obligation to transfer products within one year. Thus, the Company elects to use the practical expedient where incremental cost of obtaining a contract, such as commissions, is expensed when incurred because the amortization period for those costs is one year or less. The Company treats shipping and handling activities that occur after control of the product transfers as fulfillment activities and therefore does not account for shipping and handling costs as a separate performance obligation. Customer deposits are funds received in advance from customers and are recognized as revenue when the Company has transferred control of product to the customer. Product revenues are recognized upon shipment of goods as the customer has assumed the significant risks and rewards of ownership and the Company is entitled to payment at this point. Service revenues are recognized upon completion as the customer cannot realize the benefit of the service until it is fully completed.

During 2024 and 2023, revenue from the PVD industry exceeded 99% of total revenue. The balance of the revenue was from the solar market. The top two customers represented 88% and 89% of total revenue during 2024 and 2023, respectively. International shipments resulted in 1% of total revenue during 2024 and 2023.

J.Stock Based Compensation - Compensation cost for all stock-based awards is based on the grant date fair value and is recognized over the required service (vesting) period. Noncash stock-based compensation expense was $43,980 and $45,485 for the years ended December 31, 2024 and 2023, respectively. Unrecognized compensation expense was $0 as of December 31, 2024.

K.Research and Development - Research and development costs are expensed as incurred. Research and development expense for the years ended December 31, 2024 and 2023, was $564,576 and $501,937, respectively. Consistent with our growth strategy, we have identified niche markets that can benefit from our expertise in custom powder solutions, such as near-infrared doped phosphors and short-wave infrared applications. These applications enable extended life of phosphors for specific nighttime identification needs of defense personnel and first responders.

We are also pursuing opportunities in niche markets of the global photonics industry which can benefit from our expertise in custom powder solutions for advanced materials, innovative products and applications, diffusion and indium bonding, and toll processing services. The Company is developing

an innovative rotatable precious metal target product for the photonics industry. Investments also continue to be made offering customers alternatives to lower their total cost of ownership for reclaim and repress processes. Initiatives are also being pursued to leverage utilization of our vacuum hot

F-10

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

presses, cold isostatic press, and kilns for increased production and development projects. During 2023 we completed the enclosure of our grinding machines which enhances our manufacturing footprint.

L.Income Taxes – Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we will not be able to realize our deferred tax assets in the future, we would make an adjustment to the deferred tax asset valuation allowance, which would increase the provision for income taxes.

M.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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts and current expected credit losses, inventory allowances, property and equipment depreciable lives, patents and licenses useful lives, revenue recognition, tax valuation allowance, stock-based compensation and assessing changes in which impairment of certain long-lived assets may occur. Actual results could differ from those estimates.

N.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.

O.Employee Retention Credit (“ERC”) - The Company qualified for federal government assistance through ERC provisions of the Consolidated Appropriations Act of 2021 during 2021 and 2020. The purpose of the ERC 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. This credit was recorded in the Statement of Income as an offset to payroll costs in their respective expense lines. A balance of $40,539 appears as a tax receivable on the balance sheets at December 31, 2024 and 2023.

Note 3. Investments

Money market funds, where quoted prices are available in an active market, are classified within level 1 of the valuation hierarchy. The Company invested in a money market fund which had a fair value of $3,192,705 and $3,035,547 at December 31, 2024 and 2023, respectively. This is valued at original cost plus interest and is included in Cash and cash equivalents on the balance sheet.

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 3. Investments (continued)

As of December 31, 2024 and December 31, 2023, 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 December 31, 2024, the length of time until maturity of the bonds currently owned ranged from 5 months to 47 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
December 31, 2024
Corporate bonds	$	2,250,000	$	(6,097)	$	—	$	2,243,903
U.S. government treasuries		509,478		—		7,662		517,140
Total investments	$	2,759,478	$	(6,097)	$	7,662	$	2,761,042

Allowance for credit losses		(1,000)
Total investments, net	$	2,758,478

December 31, 2023
Corporate bonds	$	1,500,000	$	(9,078)	$	—	$	1,490,922
U.S. government treasuries		509,478		(1,786)		—		507,692
Total investments	$	2,009,478	$	(10,864)	$	—	$	1,998,614

Allowance for credit losses		(15,000)
Total investments, net	$	1,994,478

The Company uses an “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The Company monitors the credit quality of debt securities classified as held-to-maturity through the use of their respective credit ratings and updates them on a quarterly basis with the latest assessment completed during December 2024. Our allowance for credit losses was $1,000 and $15,000 at December 31, 2024 and 2023, respectively. Expected credit losses are adjusted each period as necessary for changes in expected lifetime credit losses. The credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as the current portfolio. An adjustment factor is applied to these credit loss calculations based upon management’s assessment of the expected impact from current economic conditions on our investments.

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 4. Inventories

Inventories consist of the following at December 31:


	2024		2023
Raw materials	$	291,890	$	3,222,642
Work-in-process		895,373		1,240,067
Finished goods		252,667		199,201
		1,439,930		4,661,910
Inventory reserve		(7,016)		(7,512)
	$	1,432,914	$	4,654,398

Note 5. Line of Credit

The Company renewed its line of credit with Fifth Third Bank for $1 million during 2024. 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, 2025. No amounts were drawn on this line of credit during 2024 or 2023.

Note 6. Operating Lease Obligations

The Company entered into an operating lease with a third party on March 18, 2014, for its headquarters in Columbus, Ohio. The lease had a maturity date of November 30, 2024. During 2024, the Company modified its operating lease, which included changes to the lease terms and adjustments to the lease payments. The Company extended the lease period for an additional five years with a new maturity date of November 30, 2029. The terms of the lease include monthly payments ranging from $24,700 to $28,900. The modifications did not result in a change in the classification of the lease, which continues to be classified as an operating lease. The lease liability was remeasured using the discount rate as of the effective date of the modification. The right of use asset was adjusted by the amount of the remeasurement of the lease liability. Therefore, an increase to the right of use asset and operating lease liabilities totaling $750,799 has been reflected in the accompanying financial statements for the year ended December 31, 2024. There are no restrictions or covenants associated with the lease. The lease costs were approximately $132,000 and $115,000 during the years ended December 31, 2024 and 2023, respectively.

The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of December 31, 2024, assuming the lease renews at the current terms:



2025	$	297,877
2026		309,793
2027		322,184
2028		335,072
2029		318,374
Total minimum lease payments		1,583,300
Less debt discount		346,728
Total operating lease obligations	$	1,236,572

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 6. Operating Lease Obligations (continued)


	2024			2023
Right of use asset obtained in exchange for lease liability	$	1,249,923		$	508,766
Operating cash outflows from operating leases - year-to-date		117,499			105,539
Weighted average remaining lease term – operating leases		4.9	years		5.9	years
Weighted average discount rate – operating leases		8.5	%		5.5	%

Note 7. Finance Leases

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

The equipment under finance lease at December 31 is included in the accompanying balance sheets as follows:


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

These assets were amortized over a period of ten years using the straight-line method and amortization is included in depreciation expense. Finance lease costs totaled $49,149 and $97,367 for the years ended December 31, 2024 and 2023, respectively. The finance leases were structured such that ownership of the leased asset reverted to the Company at the end of the lease term. Accordingly, leased assets 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.

Note 8. Common and Preferred Stock

Common Stock

Employees received compensation of 8,709 and 10,683 aggregate shares of common stock of the Company during 2024 and 2023, respectively. These shares had an aggregate value of $43,980 and $43,908 for 2024 and 2023, respectively, and were recorded as non-cash stock compensation expense in the financial statements.

During 2024, 35,359 stock options were exercised by employees via cashless exercise, which included 15,116 options exercised at $1.25 per share and 20,243 options exercised at $0.84 per share.

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 8. Common and Preferred Stock (continued)

Preferred Stock

Shares of Preferred Stock authorized and outstanding at December 31, 2024 and 2023, were as follows:


	Shares	Shares
	Authorized	Outstanding
Cumulative Preferred Stock	10,000	—

Voting Preferred Stock	125,000	—

Cumulative Non-Voting Preferred Stock (a)	125,000	—

(a)

Includes 700 shares of Series A Preferred Stock and 100,000 shares of Convertible Series B Preferred Stock authorized for issuance.

Earnings Per Share

Basic income per share is calculated as income available to common shareholders divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as diluted income available to common shareholders divided by the diluted weighted average number of common shares outstanding. 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.

Employee stock options outstanding at December 31:


	2024	2023
Options outstanding	5,945	41,304

The following is provided to reconcile the earnings per share calculations:



	2024		2023
Net income	$	1,861,389	$	2,193,899

Weighted average common shares outstanding - basic		4,551,763		4,528,948

Effect of dilution - stock options		4,522		30,838
Weighted average shares outstanding - diluted		4,556,285		4,559,786

Note 9. Stock Option Plans

On June 10, 2011, shareholders approved the SCI Engineered Materials, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). The Company adopted the 2011 Plan as an incentive to key employees, directors, and consultants under which options to purchase up to 250,000 shares of the Company’s common stock may be granted, subject to the execution of stock option agreements. Incentive stock options may be granted to key employees of the Company and non-statutory options may be granted to directors who are not

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 9. Stock Option Plans (continued)

employees, consultants, or advisors rendering services to the Company. Options may be exercised for periods up to 10 years from the date of grant at prices not less than 100% of fair market value on the date of grant. The Plan expired, and no additional stock options may be granted. As of December 31, 2024, there were 5,945 stock options outstanding from the 2011 Plan which expire in May 2028.

On June 9, 2006, shareholders approved the Superconductive Components, Inc. 2006 Stock Incentive Plan (the “2006 Plan”). The Company adopted the 2006 Plan as an incentive to key employees, directors, and consultants under which options to purchase up to 600,000 shares of the Company’s common stock may be granted, subject to the execution of stock option agreements. Incentive stock options may be granted to key employees of the Company and non-statutory options may be granted to directors who are not employees and to consultants and advisors who render services to the Company. Options may be exercised for periods up to 10 years from the date of grant at prices not less than 100% of fair market value on the date of grant. The 2006 Plan expired, and no additional stock options may be granted. As of December 31, 2023, there were 20,243 stock options outstanding from the 2006 Plan and all were exercised during 2024.

The cumulative status of options granted and outstanding at December 31, 2024 and 2023, as well as options which became exercisable in connection with the Stock Option Plans is summarized as follows:

Employee Stock Options


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

The exercise price for options outstanding was $1.25 at December 31, 2024. Exercise prices for options outstanding ranged from $0.84 to $1.25 and the weighted average option price was $1.05 at December 31, 2023. The weighted average remaining contractual life was 3.6 years and 3.4 years at December 31, 2024, and 2023, respectively. There were no nonvested stock options at December 31, 2024 and 2023.

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 10. Income Taxes

Deferred tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31:


	2024		2023
Deferred tax assets (liabilities)
Stock based compensation	$	—	$	164,962
Allowance for doubtful accounts		3,162		3,162
Reserve for obsolete inventories		1,479		1,584
Allowance for credit losses		211		2,108
R&E Section 174 expense capitalization		218,926		148,859
Reserve for asset retirement		21,706		20,251
Property and equipment		(367,133)		(410,772)
Total	$	(121,649)	$	(69,846)

For the years ended December 31, 2024, and 2023, a reconciliation of the statutory rate and effective rate for the provisions for income taxes consists of the following:


	Percentage
	2024		2023
Federal statutory rate	21.0	%	21.0	%
State/city tax	1.7		1.2
Non-deductible expense	0.0		0.2
Other adjustments	0.9		(0.7)
Effective rate	23.6	%	21.7	%

Components of the income tax provision are as follows:


	2024		2023
Current:
Federal	$	483,560	$	306,595
State and local		41,456		59,105
Total current		525,016		365,700
Deferred:
Federal		50,921		212,900
State and local		881		8,110
Total deferred		51,802		221,010
Total	$	576,818	$	586,710

The Company follows guidance issued by the Financial Accounting Standards Board (“FASB ASC 740”) with respect to accounting for uncertainty in income taxes. A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than fifty percent likely of being realized on examination. For tax positions not meeting the “more-likely-than-not” test, no tax benefit is recorded. The Company has no unrecognized tax

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SCI ENGINEERED MATERIALS, INC.

NOTES TO FINANCIAL STATEMENTS

Note 10. Income Taxes (continued)

benefits under guidance related to tax uncertainties. The Company does not anticipate the unrecognized tax benefits will significantly change in the next twelve months. Any tax penalties or interest expense will be recognized in income tax expense. No interest and penalties related to unrecognized tax benefits were accrued at December 31, 2024 and 2023. The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company is open to federal and state tax audits until the applicable statute of limitations expire. There are currently no federal or state income tax examinations underway for the Company. The tax years 2021 through 2024 remain open to examination by the major taxing jurisdictions in which the Company operates.

Note 11. Fair Value of Financial Instruments

The fair value of financial instrument represents the price that would be received to sell an asset or paid to transfer a liability (an exit price), and not the price that would be paid to acquire an asset or received to assume a liability (an entry price). Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

●

The fair values of cash and cash equivalents, trade receivables, accounts payable, short-term notes payable and finance lease obligations and current maturities of long-term notes payable and finance lease obligations: Amounts are reported at cost, approximate fair value based on the short-term nature and high credit quality of these financial instruments.

●

Long-term note payable and finance lease obligations: Amounts reported in the balance sheet at December 31, 2023, approximate fair value as the interest rates on the obligations were 4.2%, which approximates current fair market rates at that time.

Note 12. Asset Retirement Obligation

Included in machinery and equipment is various production equipment, which per the Company’s building lease is required to be removed upon termination of the related lease. Included in accrued expenses in the accompanying balance sheet is the asset retirement obligation that represents the expected present value of the liability to remove this equipment. There are no assets that are legally restricted for purposes of settling this asset retirement obligation.

Following is a reconciliation of the aggregate retirement liability associated with the Company’s obligation to dismantle and remove the machinery and equipment associated with its lease:


Balance at January 1, 2023	$	89,168

Increase in present value of the obligation (accretion expense in the corresponding amount charged against earnings)		6,900
Balance at December 31, 2023	$	96,068

Increase in present value of the obligation (accretion expense in the corresponding amount charged against earnings)		6,900
Balance at December 31, 2024	$	102,968

F-18

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

SCI Engineered Materials (SCIA) 10-K2024 FY Annual report

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