OTC: SCIA

Current Liabilities

Operating lease obligations, current portion

$

212,561

$

174,863

Accounts payable

245,523

419,209

Customer deposits

829,158

337,873

Accrued compensation

403,281

401,830

Accrued expenses and other

165,222

130,430

Total current liabilities

1,855,745

1,464,205

Deferred tax liability

389,572

121,649

Operating lease obligations, net of current portion

849,148

1,061,709

Total liabilities

3,094,465

2,647,563

Shareholders' Equity

Common stock, no par value, authorized 15,000,000 shares; 4,583,407 and 4,568,127 shares issued, respectively

10,753,529

10,706,323

Additional paid-in capital

2,233,384

2,233,384

Retained earnings (accumulated deficit)

1,690,980

(54,305)

Less; Treasury stock, at cost (100,000 and 0 common shares, respectively)

(500,000)

—

Total shareholders' equity

14,177,893

12,885,402

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

17,272,358

$

15,532,965

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

F-4

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2025 AND 2024

​ ​ ​

Revenue

$

19,606,123

$

22,870,192

Cost of revenue

14,574,728

17,801,891

Gross profit

5,031,395

5,068,301

General and administrative expense

2,166,607

1,939,895

Research and development expense

434,436

564,576

Marketing and sales expense

600,581

519,064

Income from operations

1,829,771

2,044,766

Interest income, net

449,367

393,441

Income before provision for income taxes

2,279,138

2,438,207

Income tax expense

533,853

576,818

NET INCOME

$

1,745,285

$

1,861,389

Earnings per share - basic and diluted (Note 7)

Income per common share

Basic

$

0.38

$

0.41

Diluted

$

0.38

$

0.41

Weighted average shares outstanding

Basic

4,569,514

4,551,763

Diluted

4,569,514

4,556,285

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

F-5

STATEMENTS OF SHAREHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2025 AND 2024

​ ​ ​

​ ​ ​

​ ​ ​

Additional

(Accumulated

​ ​ ​

​ ​ ​

​ ​ ​

Common

Paid-In

Deficit) Retained

​ ​ ​

​ ​ ​

Stock

Capital

Earnings

​ ​ ​

Treasury Stock

​ ​ ​

Total

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

Purchase of treasury stock

—

—

—

(500,000)

(500,000)

Common stock issued (Note 8)

47,206

—

—

—

47,206

Net income

—

—

1,745,285

—

1,745,285

Balance 12/31/2025

$

10,753,529

$

2,233,384

$

1,690,980

(500,000)

$

14,177,893

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

F-6

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2025 AND 2024

​ ​ ​

Year Ended December 31,

​ ​ ​

2025

​ ​ ​

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

1,745,285

$

1,861,389

Adjustments to reconcile net income to net cash

provided by (used in) operating activities:

Depreciation and accretion

448,092

469,525

Amortization of patents

4,933

4,933

Stock based compensation

47,206

43,980

Loss on disposal of equipment

1,555

Deferred taxes

267,923

51,803

Inventory reserve

(135)

(497)

Changes in operating assets and liabilities:

Accounts receivable

54,924

135,359

Inventories

341,578

3,221,981

Prepaid purchase orders

39,143

1,040,048

Prepaid expenses

3,200

59,556

Other assets

—

(7,038)

Accounts payable

(173,686)

33,720

Operating lease assets and liabilities, net

—

(11,103)

Customer deposits

491,285

(4,533,162)

Accrued liabilities

29,344

(2,234)

Net cash provided by operating activities

3,299,815

2,369,815

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of equipment

—

8,548

Purchases of marketable securities

(2,868,125)

(2,250,000)

Proceeds from maturities of marketable securities

2,259,478

1,500,000

Purchases of property and equipment

(1,005,571)

(499,805)

Net cash used in investing activities

(1,614,218)

(1,241,257)

CASH FLOWS FROM FINANCING ACTIVITIES

Purchase of treasury stock

(500,000)

—

Principal payments on finance lease obligations

—

(49,149)

Net cash used in financing activities

(500,000)

(49,149)

NET INCREASE IN CASH

1,185,597

1,079,409

CASH - Beginning of year

6,753,403

5,673,994

CASH - End of period

$

7,939,000

$

6,753,403

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for:

Interest

$

—

$

Income taxes

234,729

470,733

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

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 2025. Our allowance for credit losses was $1,000 at December 31, 2025 and 2024. 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 66% and 18% of total revenue in 2025. These two customers represented 72% of the accounts receivable trade balance at December 31, 2025, and the Company expects to collect all outstanding accounts receivable as of December 31, 2025, from these customers.

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

F-8

NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

Company subsequently collected all outstanding accounts receivable as of December 31, 2024 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 expected credit losses, which was $15,000 as of December 31, 2025, and 2024. This estimation takes into consideration historical experience, current conditions and as applicable, reasonable supportable forecasts. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. There was no bad debt expense during 2025 and 2024 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 $6,881 and $7,016 at December 31, 2025, and 2024, 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 $448,092 and $469,525 for the years ended December 31, 2025, and 2024, 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 2025, various assets totaling $54,613 with a net book value of $723 were considered impaired. During 2024, various assets totaling $17,138 with a net book value of $1,555 were considered impaired.

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 2025 or 2024.

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, 2025 was $85,516 and $31,919 respectively, and cost and accumulated amortization of the patents at December 31, 2024, was $85,516 and $26,986, respectively. Amortization expense related to patents was $4,933 for the years ended December 31, 2025, and 2024, respectively. Amortization expense is expected to be at least $4,933 for each of the next five years.

F-9

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 2025 and 2024, revenue from the PVD industry exceeded 99% of total revenue. The top two customers represented 84% and 88% of total revenue during 2025 and 2024, respectively. International shipments resulted in 2% of total revenue during 2025 and 1% of total revenue during 2024.

Contract assets – The following table presents changes in the Company’s contract assets during the twelve months ended December 31, 2025 and 2024:

Balance at beginning of period

Billings

Payments received

Balance at end of period

Twelve months ended December 31, 2025

Accounts receivable

$

704,808

$

19,606,123

$

(19,616,067)

$

694,864

Twelve months ended December 31, 2024

Accounts receivable

$

854,501

$

22,870,192

$

(23,019,885)

$

704,808

F-10

NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

Customer deposits – Amounts that have been invoiced are recognized in accounts receivable, customer deposits or revenue, depending on whether the revenue recognition criteria have been met. Customer deposits represent amounts billed for which revenue has not yet been recognized. Customer deposits typically relate to uncompleted purchase orders which have been partially paid for by customers prior to performance of those services or transfer of control of the product. The following table presents changes in contract liabilities during the twelve months ended December 31, 2025 and 2024:

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

Balance at beginning of period

Billings

Recognized revenue

Balance at end of period

Twelve months ended December 31, 2025

Contract Liabilities: Customer deposits

$

337,873

$

13,895,721

$

(13,404,436)

$

829,158

Twelve months ended December 31, 2024

Contract Liabilities: Customer deposits

$

4,871,035

$

11,739,865

$

(16,273,027)

$

337,873

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 $47,206 and $43,980 for the years ended December 31, 2025 and 2024, respectively. Unrecognized compensation expense was $0 as of December 31, 2025 and 2024.

K.Research and Development - Research and development costs are expensed as incurred. Research and development expense for the years ended December 31, 2025 and 2024, was $434,436 and $564,576, 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 introduced

an innovative rotatable precious metal target product for the photonics industry and an Indium Tin Oxide product in the second quarter of 2025. 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 presses, cold isostatic press, and kilns for increased production and development projects.

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

F-11

NOTES TO FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies (continued)

realize our deferred tax assets in the future, we will 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 – The Company reviewed the accounting pronouncements issued by the Financial Accounting Standards Board during the three months ended December 31, 2025. In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. ASU 2023-07 did not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. Under ASU 2023-07, public entities with a single reportable segment must apply all of ASU 2023-07's disclosure requirements and the existing segment disclosure and reconciliation requirements in ASC 280 – Segment Reporting on an annual and interim basis. We implemented ASU 2023-07 with retrospective application in the 2025 annual financial statements and have included the additional disclosures in Note 13, Segment Information.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is intended to improve the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. We implemented ASU 2023-09 with retrospective application in the 2025 annual financial statements and have included the additional disclosures in Note 10, Income Taxes.

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. This credit was received in 2025.

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 $5,500,903 and $3,192,705 at December 31, 2025 and 2024, respectively. This is valued at original cost plus interest and is included in Cash and cash equivalents on the balance sheet.

As of December 31, 2025 and December 31, 2024, the Company held investments in corporate bonds rated BBB+ or higher and U.S. government securities that are required to be measured for disclosure

F-12

NOTES TO FINANCIAL STATEMENTS

Note 3. Investments (continued)

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, 2025, the length of time until maturity of the bonds currently owned ranged from 10 months to 36 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, 2025

Corporate bonds

$

3,368,125

$

—

$

7,156

$

3,375,281

Total investments

$

3,368,125

$

—

$

7,156

$

3,375,281

Allowance for credit losses

(1,000)

Total investments, net

$

3,367,125

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

$

2,761,043

Allowance for credit losses

(1,000)

Total investments, net

$

2,758,478

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 2025. Our allowance for credit losses was $1,000 at December 31, 2025 and 2024. 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.

F-13

NOTES TO FINANCIAL STATEMENTS

Note 4. Inventories

Inventories consist of the following as of December 31:

​ ​ ​

2025

​ ​ ​

2024

Raw materials

$

165,140

$

291,890

Work-in-process

681,176

895,373

Finished goods

252,036

252,667

1,098,352

1,439,930

Inventory reserve

(6,881)

(7,016)

$

1,091,471

$

1,432,914

Note 5. Line of Credit

The Company renewed its line of credit with a regional bank for $1 million during 2025. The line of credit bears interest equal to the rate of interest per annum established by the bank as its Prime Rate. This line of credit has a maturity date of August 29, 2026. No amounts were drawn on this line of credit during 2025 or 2024.

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 was 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 $297,900 and $131,800 during the years ended December 31, 2025 and 2024, respectively. Additionally, the variable lease costs were approximately $96,400 and $62,500 for the years ended December 31, 2025 and 2024, respectively.

The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lease liabilities as of December 31, 2025, assuming the lease renews at the current terms:

$

309,793

322,184

335,072

318,374

Total minimum lease payments

1,285,423

Less debt discount

223,714

Total operating lease obligations

$

1,061,709

F-14

NOTES TO FINANCIAL STATEMENTS

Note 6. Operating Lease Obligations (continued)

The following summaries additional information related to leases for the years ended December 31:

Right of use asset obtained in exchange for lease liability

$

—

$

1,249,923

Operating cash outflows from operating leases

$

174,863

$

117,499

Weighted average remaining lease term – operating leases

3.9

years

4.9

years

Weighted average discount rate – operating leases

8.5

%

8.5

%

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.

These assets were amortized over a period of ten years using the straight-line method and amortization is included in depreciation expense. There were no finance lease costs in 2025. Finance lease costs totaled $49,149 for the year ended December 31, 2024. 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 10,852 and 8,709 aggregate shares of common stock of the Company during 2025 and 2024, respectively. These shares had an aggregate value of $47,206 and $43,980 for 2025 and 2024, respectively, and were recorded as non-cash stock compensation expense in the financial statements.

During 2025, 5,945 stock options were exercised by employees via cashless exercise at $1.25 per share. 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.

F-15

NOTES TO FINANCIAL STATEMENTS

Note 8. Common and Preferred Stock (continued)

Preferred Stock

Shares of Preferred Stock authorized and outstanding as of December 31, 2025 and 2024, 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 as of December 31:

​ ​ ​

2025

​ ​ ​

2024

Options outstanding

—

5,945

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

​ ​ ​

2024

Net income

$

1,745,285

$

1,861,389

Weighted average common shares outstanding - basic

4,569,514

4,551,763

Effect of dilution - stock options

—

4,522

Weighted average shares outstanding - diluted

4,569,514

4,556,285

Treasury Stock

On November 17, 2025, the Company announced a stock repurchase program authorizing the repurchase of up to $1,000,000 of the Company’s common stock. The program is set to run December 1, 2025, through November 30, 2026 and may be modified, suspended, or discontinued at any time. In December 2025, the Company repurchased 100,000 shares at $5 per share. This amount is shown on the balance sheet as Treasury stock. The approximate dollar value that may yet be purchased under the plan is $500,000 as of December 31, 2025. All shares were purchased in the open market.

F-16

NOTES TO FINANCIAL STATEMENTS

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 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 options outstanding from the 2011 Plan and all were exercised in 2025.

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 as of December 31, 2025 and 2024, 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, 2024

41,304

$

1.05

Exercised

(35,359)

$

1.02

Outstanding at December 31, 2024

5,945

$

1.25

Exercised

(5,945)

1.25

Outstanding at December 31, 2025

—

$

—

Options exercisable at December 31, 2024

5,945

$

1.25

Options exercisable at December 31, 2025

—

$

—

There were no options outstanding as of December 31, 2025. The exercise price for options outstanding was $1.25 at December 31, 2024. There were no nonvested stock options at December 31, 2025 and 2024.

F-17

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 as of December 31:

​ ​ ​

2025

​ ​ ​

2024

Deferred tax assets (liabilities)

Allowance for doubtful accounts

$

3,162

$

3,162

Reserve for obsolete inventories

1,451

1,479

Allowance for credit losses

R&E Section 174 expense capitalization

—

218,926

Reserve for asset retirement

23,159

21,706

Property and equipment

(417,555)

(367,133)

Total

$

(389,572)

$

(121,649)

For the years ended December 31, 2025, and 2024, a reconciliation of the statutory rate and effective rate for the provisions for income taxes consists of the following:

​ ​ ​

Federal statutory rate

$

478,619

21.0

%

$

512,023

21.0

%

State/city tax

38,746

1.7

42,337

1.7

Non-deductible expense

—

0.0

—

0.0

Other adjustments

16,488

0.7

22,458

0.9

Effective rate

$

533,853

23.4

%

$

576,818

23.6

%

Components of the income tax provision are as follows:

​ ​ ​

2025

​ ​ ​

2024

Current:

Federal

$

227,213

$

483,560

State and local

38,746

41,456

Total current

265,959

525,016

Deferred:

Federal

267,894

50,921

State and local

—

Total deferred

267,894

51,802

Total

$

533,853

$

576,818

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 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, 2025 and 2024. The Company files income tax returns in the U.S. federal

F-18

NOTES TO FINANCIAL STATEMENTS

Note 10. Income Taxes (continued)

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 2022 through 2025 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

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, 2024

​ ​ ​

$

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

Increase in present value of the obligation (accretion expense in the corresponding amount charged against earnings)

6,900

Balance at December 31, 2025

$

109,868

F-19

NOTES TO FINANCIAL STATEMENTS

Note 13. Segment Information

Operating segments are components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer.

We operate as one operating and reportable segment, in one location, as a global supplier and manufacturer of advanced materials for Physical Vapor Deposition thin film applications. We are managed on a consolidated basis and derive substantially all of our revenue from the sale and support of one group of similar products from customers with multinational operations. The accounting policies of the Company's operating segment are the same as those described in Note 2, Summary of Significant Accounting Policies. Our CODM does not receive profitability information at a lower level than consolidated results and evaluates net income on a consolidated basis to set financial performance targets. Our CODM assesses performance, and makes resource allocation decisions, primarily through comparison of actual results to forecasted results, year-over-year analysis, and review of historical performance trends. The measure of segment assets is reported on the Company's consolidated balance sheets as total consolidated assets.

The Company's significant expenses and other segment items are provided in the table below:

YEARS ENDED DECEMBER 31,

Revenue

$

19,606,123

$

22,870,192

Cost of revenue 1

14,568,764

17,796,155

General and administrative expense 1

2,139,798

1,914,362

Research and development expense 1

424,401

555,617

Marketing and sales expense 1

596,183

515,312

Stock Based Compensation

47,206

43,980

Other segment items, net 2

84,486

183,377

Net income

$

1,745,285

$

1,861,389

1 Excludes stock compensation expense

2 Includes net interest income and provision for income taxes

F-20

NOTES TO FINANCIAL STATEMENTS

Note 14.Subsequent Event

On February 10, 2026, the Company reported that it was subjected to an imposter scam of $898,325 executed in conjunction with bank fraud. Immediately upon recognition of this event management contacted the Company’s financial institution, filed an IC3 report with the U.S. Federal Bureau of Investigation, and is working with its Insurance carrier. Comprehensive efforts are being actively pursued to recover the funds involved; as of February 12, 2026, $336,299 has been recovered. To date, the Company has not found any evidence of additional fraudulent activity and currently does not believe the incident resulted in any unauthorized access to data or systems maintained by the Company. However, the Company’s investigation into the incident and its impacts on the Company, including its internal controls, remains ongoing. The business and operations were not affected.

F-21