SCI Engineered Materials, Inc.: Form 10-Q for the period ended Jun 30, 2026

The Company invests in research and development to develop innovative applications focused on a defined path to commercialization. For example, electrically conductive Indium Tin Oxide with a density of 99% and rotatable targets up to three meters in length which offer multiple benefits were introduced during the second quarter of 2025. New initiatives are being pursued that utilize our vacuum hot presses, cold isostatic press, and kilns for increased production and development projects, including specialty diffusion bonding processes.

During the second half of 2025, the Company identified an additional niche market that can benefit from its custom powder solutions, including spherical powders used in additive manufacturing. The Company identified additional opportunities through development of debinding processes for domestic commercial additive manufacturing applications.

Several issues are currently impacting national and global market conditions. First, continued political uncertainties in the Middle East region are particularly affecting multinational customers. Second, 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. Third, 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 influenced by the changes in international tariffs and their availability. We are actively maintaining contact with our suppliers and customers, identifying additional suppliers, and adapting to our customers’ specific circumstances and forecasts.

RESULTS OF OPERATIONS

Three and six months ended June 30, 2026 (unaudited) compared to three and six months ended June 30, 2025 (unaudited):

Revenue

For the three months ended June 30 2026, total revenue was $9,485,119 compared to $3,609,304 for the three months ended June 30, 2025. The increase in revenue for the three months ended June 30, 2026 versus June 30, 2025 was primarily due to higher raw material input costs, product mix, and higher volume. Total revenue was $17,645,481 for the six months ended June 30, 2026, compared to $7,109,536 for the six months ended June 30, 2025. The combination of product mix, higher raw material costs and volume contributed to the increase in total revenue for the six months ended June 30, 2026 versus the same period last year. We constantly monitor the costs of our raw materials as they continue to fluctuate.

Gross profit

Gross profit was $2,276,455 for the three months ended June 30, 2026, compared to $1,158,157 for the same three months in 2025. Higher revenue contributed to the increase in gross profit while higher raw material input costs and product mix were the primary reasons for the lower gross margin for the three months ended June 30, 2026, compared to the same three months in 2025. Gross profit as a percentage of revenue (gross margin) was 24.0% and 32.1% for the three months ended June 30, 2026 and 2025, respectively, due to the factors noted above.

Gross profit was $4,311,575 for the six months ended June 30, 2026 compared to $2,230,971 for the same six months in 2025, and gross margin was 24.4% and 31.4% for the six months ended June 30 2026 and 2025, respectively. Higher revenue contributed to the increase in gross profit, while higher raw material input costs and product mix were the primary reasons for the lower gross profit margin compared to a year ago.

General and administrative expense

General and administrative expense for the three months ended June 30, 2026 and 2025, was $512,090 and $549,540, respectively, a decrease of 6.8%. Lower compensation and benefits, which did not include non-cash stock based compensation for the three months ended June 30, 2026 compared to $47,206 for the same period in 2025, were key factors that contributed to the year-over-year decrease. General and administrative expense for the six months ended June 30, 2026 and 2025 was $1,154,133 and $1,097,361 respectively an increase of 5.2%. The increase is attributed to higher compensation and benefits and non-cash compensation for the first half of 2026 compared to 2025.

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-15(e) 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 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 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 our 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.