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SCI Engineered Materials, Inc. Reports Third Quarter and Nine


SCI Engineered Materials, Inc. Reports Third Quarter and Nine Month 2012 Results

COLUMBUS, OH -- (Marketwire) -- 11/06/12 -- SCI Engineered Materials, Inc. ("SCI") (OTCBB: SCIA) develops and commercializes technologies and manufactures ceramics and metals for advanced applications in the physical vapor deposition industry, reported its financial results today for the three and nine month periods ended September 30, 2012.

Net income applicable to common shares was $84,711 or $0.02 per diluted share for the third quarter 2012, versus a loss of $390,596, or $(0.10) per share, for the same period last year. For the first nine months of 2012, the loss applicable to common shares was $106,523, or $(0.03) per share, compared with a loss of $671,828, or $(0.18) per share, last year.

Dan Rooney, Chairman, President and Chief Executive Officer, said, "We achieved solid profitability in the third quarter based on sound performance in our core business that contributed to substantial improvement in operating results compared with the same period last year. Our results benefited from both increased gross profit related to improved operating efficiencies and lower operating expenses. We are encouraged by our third quarter results, but have limited visibility into next quarter's performance due to uncertain market conditions."

Mr. Rooney continued, "During a period of business turmoil we have maintained product revenue, developed new products and been profitable for the past two quarters. Ongoing concerns related to macroeconomic and specific industry issues continue to impact our customers' businesses and purchasing decisions. While installations of solar modules continue to increase, SCI's revenue from the sale of solar products was below expectations for the quarter as thin film solar companies continue to deal with intense competitive issues. We are responding to the choppy market conditions with increased marketing and sales initiatives to expand our customer base. During the past three years we have developed transparent conductive oxide systems that will give us a competitive edge and purchased additional manufacturing equipment to scale-up our manufacturing capabilities. These investments position SCI to take advantage of the long-term growth in thin film solar and other markets. We believe this will increase SCI's product sales as thin film solar installations gain traction."

Third Quarter 2012 Results

Revenue

Total revenue was $1,982,403 for the third quarter 2012 versus $2,088,418 a year ago. The slight decline was largely due to lower planned contract research revenue. Third quarter 2012 product revenue of $1,926,040 was similar to the same period a year ago due to higher volume and improved product mix offset by lower material cost.

Total revenue for the nine months ended September 30, 2012, decreased 5% to $6,569,162 from $6,883,620 a year ago due to lower planned contract research revenue. Product revenue of $6,387,799 for the first nine months of 2012 was flat compared with last year.

Backlog was $2.2 million at September 30, 2012, compared with $1.7 million at year-end 2011 and $2.3 million on the same date a year ago.

Gross profit

Gross profit increased to $562,176 for the three months ended September 30, 2012 compared with a year ago. This increase was directly attributable to higher volume, improved product mix and lower production costs. As a result, gross profit margin increased to 28.4% of total revenue for the third quarter 2012 from 14.1% a year ago.

For the nine months ended September 30, 2012, gross profit increased 11% to $1,400,352 due to the same factors that contributed to third quarter 2012 gross profit. Gross profit margin increased to 21.3% for the nine months ended September 30, 2012, from 18.3% last year.

Operating expenses

Operating expenses (general and administrative (G&A) expense, research and development expense (R&D) and marketing and sales expense) declined 11% to $449,497 for the third quarter 2012 compared with a year ago. This was due to a 53% decline in internally financed R&D expense that was partially offset by increases of 4% and 6%, respectively, in G&A expense and marketing and sales expenses for the third quarter 2012 versus last year.

Operating expenses for the first nine months of 2012 were $1,448,159 or 14% below the same period last year. This was due to a 54% decline in research and development expense, a 4% increase in general and administrative expense and a 2% decline in marketing and sales expense.

Income (Loss) Applicable to Common Shares

Income applicable to common shares was $84,711 for the three months ended September 30, 2012, or $0.02 per diluted share, compared with a loss of $390,596, or $(0.10) per share, for the third quarter 2011.

For the first nine months of 2012, the loss applicable to common shares was $106,523, or $(0.03) per share, versus a loss of $671,828, or $(0.18) per share, last year.

EBITDA

EBITDA (earnings before interest, income taxes, depreciation and amortization) was $258,257 for the third quarter 2012 compared with $(73,517) for the same period last year. This increase was due to higher gross profit and lower operating expenses versus the third quarter 2011. Adjusted EBITDA, which excludes non-cash stock based compensation, was $289,673 for the third quarter 2012 compared with $(46,461) a year ago.

EBITDA increased to $387,291 for the nine months ended September 30, 2012 from $(80) for the same period in 2011. Adjusted EBITDA was $489,585 for the 2012 year-to-date period compared with $88,269 last year.

About SCI Engineered Materials, Inc.

SCI Engineered Materials, Inc. manufactures ceramics and metals for advanced applications such as photonics, thin film solar, thin film batteries, and semiconductors. SCI Engineered Materials is a global materials supplier with clients in more than 40 countries. Additional information is available at http://www.sciengineeredmaterials.com.

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, customer guidance, forecasts, and plans of the company and its management, and specifically include statements concerning limited visibility into next quarter's performance due to uncertain market conditions,, ongoing concerns related to macroeconomic and specific industry issues that continue to impact our customers' businesses and purchasing decisions, transparent conductive oxide systems that will give SCI a competitive advantage and SCI being positioned to take advantage of the long-term growth in thin film solar and other markets which we believe will increase product sales as business conditions improve. These forward-looking statements involve numerous risks and uncertainties, including, without limitation, other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings, including the Company's Annual Report on Form 10-K for the year ended December 31, 2011. One or more of these factors have affected, and could in the future affect, the Company's projections. Therefore, there can be no assurances that the forward-looking statements included in this press releas e will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other persons, that the objectives and plans of the company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.


 
                                                                            
                       SCI ENGINEERED MATERIALS, INC.                       
                               BALANCE SHEETS                               
                                                                            
                    ASSETS                                                  
----------------------------------------------                              
                                               September 30,   December 31, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                (UNAUDITED)                 
Current Assets                                                              
  Cash                                         $     591,378  $     798,069 
  Accounts receivable:                                                      
    Trade, less allowance for doubtful                                      
     accounts of $15,000                             638,237        488,031 
    Contract                                          19,475         23,962 
    Other                                              1,873          5,610 
  Inventories                                      1,444,345      1,045,503 
  Prepaid expenses                                    83,261         65,292 
                                               -------------  ------------- 
      Total current assets                         2,778,569      2,426,467 
                                               -------------  ------------- 
Property and Equipment, at cost                                             
  Machinery and equipment                          7,004,741      6,135,664 
  Furniture and fixtures                             137,911        134,666 
  Leasehold improvements                             317,870        317,870 
  Construction in progress                                 -        323,326 
                                               -------------  ------------- 
                                                   7,460,522      6,911,526 
  Less accumulated depreciation                   (4,105,612)    (3,692,401)
                                               -------------  ------------- 
                                                   3,354,910      3,219,125 
                                               -------------  ------------- 
Other Assets                                                                
  Deposits                                            15,333         18,425 
  Deferred financing fees                             40,902         51,779 
  Intangibles                                         13,346         15,453 
                                               -------------  ------------- 
      Total other assets                              69,581         85,657 
                                               -------------  ------------- 
TOTAL ASSETS                                   $   6,203,060  $   5,731,249 
                                               =============  ============= 
The accompanying notes are an integral part of                              
 these financial statements.                                                
                                                                            
     LIABILITIES AND SHAREHOLDERS' EQUITY                                   
----------------------------------------------                              
                                               September 30,   December 31, 
                                                    2012           2011     
                                                (UNAUDITED)                 
Current Liabilities                                                         
  Capital lease obligations, current portion   $     220,645  $     292,488 
  Notes payable, current portion                     314,978        432,064 
  Accounts payable                                   406,767        363,790 
  Customer deposits                                  652,749        255,122 
  Accrued compensation                                94,414         56,610 
  Accrued expenses and other                          96,829        213,995 
                                               -------------  ------------- 
    Total current liabilities                      1,786,382      1,614,069 
Capital lease obligations, net of current                                   
 portion                                             217,851        384,697 
Notes payable, net of current portion              1,118,165        665,706 
                                               -------------  ------------- 
    Total liabilities                              3,122,398      2,664,472 
Commitments and contingencies                                               
Shareholders' Equity                                                        
  Convertible preferred stock, Series B, 10%                                
   cumulative, nonvoting, no par value, $10                                 
   stated value, optional redemption at 103%;                               
   optional shareholder conversion 2 shares                                 
   for 1; 24,152 shares issued and outstanding       411,792        393,678 
  Common stock, no par value, authorized                                    
   15,000,000 shares; 3,820,898 and 3,802,898                               
   shares issued and outstanding, respectively     9,790,800      9,766,740 
Additional paid-in capital                         1,739,101      1,678,981 
Accumulated deficit                               (8,861,031)    (8,772,622)
                                               -------------  ------------- 
                                                   3,080,662      3,066,777 
                                               -------------  ------------- 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $   6,203,060  $   5,731,249 
                                               =============  ============= 
The accompanying notes are an integral part of                              
 these financial statements.                                                
                                                                            
                                                                            
                       SCI ENGINEERED MATERIALS, INC.                       
                          STATEMENTS OF OPERATIONS                          
      FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011       
                                (UNAUDITED)                                 
                                                                            
                               THREE MONTHS ENDED       NINE MONTHS ENDED   
                                    SEPT. 30,               SEPT. 30,       
                                2012        2011        2012        2011    
                             ----------  ----------  ----------  ---------- 
Product revenue              $1,926,040  $1,947,849  $6,387,799  $6,389,880 
Contract research revenue        56,363     140,569     181,363     493,740 
                             ----------  ----------  ----------  ---------- 
                              1,982,403   2,088,418   6,569,162   6,883,620 
                             ----------  ----------  ----------  ---------- 
                                                                            
Cost of product revenue       1,373,258   1,675,287   5,021,258   5,292,643 
Cost of contract research                                                   
 revenue                         46,969     118,225     14
7,552     331,704 
                             ----------  ----------  ----------  ---------- 
                              1,420,227   1,793,512   5,168,810   5,624,347 
                             ----------  ----------  ----------  ---------- 
                                                                            
Gross profit                    562,176     294,906   1,400,352   1,259,273 
                                                                            
General and administrative                                                  
 expense                        247,470     239,027     818,939     790,261 
                                                                            
Research and development                                                    
 expense                         62,646     133,205     230,035     495,392 
                                                                            
Marketing and sales expense     139,381     131,096     399,185     407,068 
                             ----------  ----------  ----------  ---------- 
                                                                            
Income (loss) from                                                          
 operations                     112,679    (208,422)    (47,807)   (433,448)
                                                                            
Other income (expense)          (20,693)    (19,499)    (65,254)    (55,154)
                             ----------  ----------  ----------  ---------- 
                                                                            
Income (loss) before                                                        
 provision for income tax        91,986    (227,921)   (113,061)   (488,602)
                                                                            
Income tax (expense) benefit     (1,237)   (156,637)     24,652    (165,112)
                             ----------  ----------  ----------  ---------- 
                                                                            
Net income (loss)                90,749    (384,558)    (88,409)   (653,714)
                                                                            
Dividends on preferred stock     (6,038)     (6,038)    (18,114)    (18,114)
                             ----------  ----------  ----------  ---------- 
INCOME (LOSS) APPLICABLE TO                                                 
 COMMON SHARES               $   84,711  $ (390,596) $ (106,523) $ (671,828)
                             ==========  ==========  ==========  ========== 
Earnings per share - basic                                                  
 and diluted                                                                
Income (loss) per common                                                    
 share                                                                      
  Basic                      $     0.02  $    (0.10) $    (0.03) $    (0.18)
                             ==========  ==========  ==========  ========== 
  Diluted                    $     0.02  $    (0.10) $    (0.03) $    (0.18)
                             ==========  ==========  ==========  ========== 
Weighted average shares                                                     
 outstanding                                                                
  Basic                       3,817,963   3,779,768   3,812,019   3,778,620 
                             ==========  ==========  ==========  ========== 
  Diluted                     3,827,774   3,779,768   3,812,019   3,778,620 
                             ==========  ==========  ==========  ========== 
                                                                            
                                                                            
                       SCI ENGINEERED MATERIALS, INC.                       
                          STATEMENTS OF CASH FLOWS                          
           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011            
                                (UNAUDITED)                                 
                                                                            
                                                  2012            2011      
                                             --------------  -------------- 
CASH FLOWS FROM OPERATING ACTIVITIES                                        
  Net loss                                   $      (88,409) $     (653,714)
  Adjustments to reconcile net loss to net                                  
   cash provided by operating activities:                                   
    Depreciation and accretion                      433,841         391,901 
    Amortization                                      2,107           2,316 
    Stock based compensation                        102,294          88,349 
    Patent impairment                                     -          38,726 
    Loss (gain) on disposal of equipment                850            (425)
    Deferred income taxes                                 -         156,000 
    Inventory reserve                                23,095          22,369 
    Credit for doubtful accounts                          -            (530)
    Changes in operating assets and                                         
     liabilities:                                                           
      Accounts receivable                          (141,982)        277,419 
      Inventories                                  (421,937)       (215,383)
      Prepaid expenses                              (17,969)        (20,904)
      Other assets                                   13,969         (26,875)
      Accounts payable                               42,977          85,777 
      Accrued expenses and customer deposits        311,786         311,650 
                                             --------------  -------------- 
        Net cash provided by operating                                      
         activities                                 260,622         456,676 
                                             --------------  -------------- 
CASH FLOWS FROM INVESTING ACTIVITIES                                        
  Proceeds on sale of equipment                           -             425 
  Purchases of property and equipment              (563,997)     (1,069,537)
                                             --------------  -------------- 
        Net cash used in investing                                          
         activities                                (563,997)     (1,069,112)
                                             --------------  -------------- 
                                                                            
CASH FLOWS FROM FINANCING ACTIVITIES                                        
  Proceeds from exercise of common stock                                    
   options                                                -          12,150 
  Proceeds from notes payable                       911,546         642,126 
  Principal payments on capital lease                                       
   obligations and notes payable                   (814,862)       (350,588)
  Payment of cumulative dividends on                                        
   preferred stock                                        -         (24,152)
                                             --------------  -------------- 
        Net cash provided by financing                                      
         activities                                  96,684         279,536 
                                             --------------  -------------- 
                                                                            
NET DECREASE IN CASH                               (206,691)       (332,900)
                                                                            
CASH - Beginning of period                          798,069       1,511,752 
                                             --------------  -------------- 
                                                                            
CASH - End of period                         $      591,378  $    1,178,852 
                                             ==============  ============== 
                                                                            
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                       
 INFORMATION                                                                
  Cash paid during the period for:                                          
    Interest                                 $       65,214  $       57,708 
    Income taxes                                        605             713 
SUPPLEMENTAL DISCLOSURES OF NONCASH                                         
 FINANCING ACTIVITIES                                                       
  Property and equipment purchased by                                 
      
   capital lease                                          -         185,000 
  Increase in asset retirement obligation             6,480           4,968 
The accompanying notes are an integral part                                 
 of these financial statements.                                             
                                                                            
                                                                            
                       SCI ENGINEERED MATERIALS, INC.                       
                RECONCILIATION OF GAAP TO NON-GAAP MEASURES                 
   THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND SEPTEMBER 30, 2011    
                                                                            
                                Three months ended      Nine months ended   
                                    Sept. 30,               Sept. 30,       
                                                                            
                                 2012       2011        2012        2011    
                              ---------- ----------  ----------  ---------- 
                                                                            
Net income (loss)             $   90,749 $ (384,558) $  (88,409) $ (653,714)
Interest, net                     19,843     19,499      64,404      55,579 
Income taxes                       1,237    156,637     (24,652)    165,112 
Patent impairment                      -          -           -      38,726 
Depreciation and amortization    146,428    134,905     435,948     394,217 
                              ---------- ----------  ----------  ---------- 
EBITDA                           258,257    (73,517)    387,291         (80)
Stock based compensation          31,416     27,056     102,294      88,349 
                              ---------- ----------  ----------  ---------- 
Adjusted EBITDA               $  289,673 $  (46,461) $  489,585  $   88,269 
                              ========== ==========  ==========  ========== 

For Additional Information Contact: Robert Lentz (614) 876-2000

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