UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
 
Commission file number: 0-31641

SCI ENGINEERED MATERIALS, INC.
(Exact name of small business issuer 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) (Zip Code)

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

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o  Accelerated filer o Non-accelerated filer o Smaller reporting company x  

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

3,560,071 shares of Common Stock, without par value, were outstanding at July 30, 2008.


FORM 10-Q

SCI ENGINEERED MATERIALS, INC.
 
Table of Contents

     
Page No.
       
PART I. FINANCIAL INFORMATION
 
       
 
Item 1.
Financial Statements.
 
       
   
Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007
3
       
   
Statements of Operations for the Three Months and Six Months Ended June 30, 2008 and 2007 (unaudited)
5
       
   
Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (unaudited)
6
       
   
Notes to Financial Statements (unaudited)
8
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
14
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
N/A
       
 
Item 4.
Controls and Procedures.
19
       
PART II. OTHER INFORMATION
 
       
 
Item 1.
Legal Proceedings.
N/A
       
 
Item 1A.
Risk Factors
N/A
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
N/A
       
 
Item 3.
Defaults Upon Senior Securities.
N/A
       
 
Item 4.
Submission of Matters to a Vote of Security Holders.
21
       
 
Item 5.
Other Information.
N/A
       
 
Item 6.
Exhibits.
21
       
  Signatures.
22

2

PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
SCI ENGINEERED MATERIALS, INC.
 
BALANCE SHEETS
 
ASSETS
   
June 30, 
 
  December 31,
 
   
2008
 
  2007
 
   
(UNAUDITED)
      
CURRENT ASSETS
          
Cash
 
$
846,333
 
$
1,182,086
 
Accounts receivable
             
Trade, less allowance for doubtful accounts of $24,700
   
423,481
   
219,222
 
Contract
   
52,760
   
65,954
 
Other
   
3,004
   
550
 
Inventories
   
2,060,653
   
756,999
 
Prepaid expenses
   
81,837
   
21,148
 
Total current assets
   
3,468,068
   
2,245,959
 
               
PROPERTY AND EQUIPMENT,    AT COST  
             
Machinery and equipment
   
4,150,383
   
3,386,778
 
Furniture and fixtures
   
81,155
   
74,222
 
Leasehold improvements
   
313,951
   
301,551
 
Construction in progress
   
12,582
   
599,753
 
     
4,558,071
   
4,362,304
 
Less accumulated depreciation
   
(2,329,917
)
 
(2,185,277
)
     
2,228,154
   
2,177,027
 
 
             
OTHER ASSETS
             
Deposits
   
27,174
   
18,639
 
Intangibles
   
35,210
   
29,202
 
Total other assets
   
62,384
   
47,841
 
               
TOTAL ASSETS
 
$
5,758,606
 
$
4,470,827
 

The accompanying notes are an integral part of these financial statements.
 
3

SCI ENGINEERED MATERIALS, INC.
 
BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY

 
 
June 30, 
 
  December 31, 
 
 
 
2008
 
  2007
 
   
(UNAUDITED)
      
CURRENT LIABILITIES
             
Capital lease obligation, current portion
 
$
307,611
 
$
259,714
 
Accounts payable
   
359,832
   
160,468
 
Accrued contract expenses
   
27,258
   
47,702
 
Customer deposits
   
1,244,505
   
19,483
 
Accrued compensation
   
68,652
   
138,190
 
Accrued expenses and other
   
112,419
   
100,184
 
Total current liabilities
   
2,120,277
   
725,741
 
             
CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION
   
815,948
   
846,433
 
               
COMMITMENTS AND CONTINGENCIES
   
-
   
-
 
               
SHAREHOLDERS' EQUITY
             
 
             
Convertible preferred stock, Series B, 10% cumulative,  nonvoting, no par value, $10 stated value, optional  redemption at 103%; 24,524 and 24,566 issued and outstanding respectively
   
362,955
   
375,861
 
 
             
Common stock, no par value, authorized 15,000,000 shares;  3,560,071 and 3,474,338 shares issued and outstanding respectively
   
9,175,629
   
9,061,378
 
Additional paid-in capital
   
985,185
   
987,840
 
Accumulated deficit
   
(7,701,388
)
 
(7,526,426
)
     
2,822,381
   
2,898,653
 
               
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
5,758,606
 
$
4,470,827
 

The accompanying notes are an integral part of these financial statements.
 
4
 
SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2008 AND 2007
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)

   
THREE MONTHS ENDED JUNE 30,
 
SIX MONTHS ENDED JUNE 30,
 
   
2008
 
2007
 
2008
 
2007
 
                           
SALES REVENUE
 
$
1,517,513
 
$
3,403,742
 
$
3,231,453
 
$
5,857,751
 
                           
COST OF SALES REVENUE
   
1,079,666
   
2,890,574
   
2,364,581
   
4,886,003
 
                           
GROSS PROFIT
   
437,847
   
513,168
   
866,872
   
971,748
 
                           
GENERAL AND ADMINISTRATIVE EXPENSE
   
250,408