SCCI Sci Engineered Materials Inc

Management Discussion

• For the three months ended June 30, 2019, we had total revenue of $2,741,948. This was an increase of $198,197, or 7.8%, compared to the three months ended June 30, 2018. For the six months ended June 30, 2019, we had total revenue of $6,756,986, compared to $4,390,609 for the same period in 2018. This was an increase of $2,366,377 or 53.9%, compared to the six months ended June 30, 2018. Volume and pricing was higher in our photonics market and volume was lower in our thin film solar market for the six months ended June 30, 2019.Tariffs are currently impacting thin film solar order rates and shipments.
• Gross profit was $694,669 for the three months ended June 30, 2019 compared to $789,529 for the same three months in 2018. This was a decrease of $94,860, or 12.0%. Gross margin was 25.3% for the second quarter of 2019 compared to 31.0% for the same period in 2018. Gross profit was $1,390,971 for the six months ended June 30, 2019 compared to $1,251,541 for the first six months of 2018. This was an increase of $139,430 or 11.1%. Gross margin was 20.6% for the first six months of 2019 compared to 28.5% for the same period in 2018. The increase in gross profit was primarily due to increased volume and pricing in our photonics market. A certain raw material related to the increased volume had an increase in pricing which contributed to a lower gross margin which impacted overall gross margin.
• General and administrative expense for the three months ended June 30, 2019 and 2018, was $349,636 and $282,539, respectively, an increase of 23.7%. This increase was primarily related to higher director compensation of approximately $18,000, wages and compensation of approximately $12,000, start-up training costs at KFMI in China of approximately $10,000 and higher professional fees of approximately $9,000.