SCI Engineered Materials Inc (SCIA)

[10 bagger]

SCIA.. $2.80

SCI Engineered Materials, Inc. Reports Third Quarter 2010 Results

Nov 1, 2010 16:05:33 (ET)


COLUMBUS, OH, Nov 01, 2010 (MARKETWIRE via COMTEX) -- SCI Engineered Materials, Inc. (SCIA, Trade ) develops and commercializes technologies and manufactures ceramics and metals for advanced applications in the physical vapor deposition industry. The company reported total revenue of $2.4 million and a 2 cent loss applicable to common shares for the three months ended September 30, 2010 compared to total revenue of $2.2 million and zero cents applicable to common shares for the same period last year.

Dan Rooney, Chairman, President and Chief Executive Officer, commented, "We achieved 9% growth in total revenue for the third quarter of 2010, compared to a year ago, and made further investments in our business during this period. Consistent with our growth strategy, we are involved in a number of product trials with customers in the solar industry as well as internal development of innovative transparent conductive oxide (TCO) systems. To further align our activities with customer needs, research and development expense doubled compared to the third quarter of 2009 as our efforts moved beyond the scope of federal and state grants and awards. These TCO development activities and product trials involve long lead times but are expected to result in significant orders from multiple customers. Last month we received an order from one of those customers and product shipments will begin in the fourth quarter of 2010. We anticipate more orders over the next several months from product trials with customers that are currently underway."

Mr. Rooney also stated, "We continue to implement plans to enhance our manufacturing capabilities and position SCI for significant growth. These efforts include equipment purchases and leases totaling approximately $414,000 for the 2010 year-to-date period, and we are in the process of securing funds to finance ongoing strategic initiatives to support further growth. Our loan applications to separate agencies of the State of Ohio can fund about 70% of SCI's current capital requirements of approximately $3 million. Both of these loan applications are being actively considered and we anticipate final decisions in the fourth quarter of 2010."

Third Quarter 2010 Results

Total revenue

Total revenue increased to $2,433,381 for the third quarter 2010 from $2,224,756 for the same period in 2009. Product revenue was $2,191,843 for the third quarter 2010, an 8% increase compared to a year ago. Contract research revenue, which is principally focused on government grants and awards to improve time-to-market for new products, increased 23% to $241,538 for the third quarter 2010 due to two government awards received during the past twelve months.

Total revenue for the fourth quarter 2010 is expected to be substantially below the same quarter in 2009 due to significantly lower prices for a high value raw material used to manufacture targets. As reported on September 17, 2009, a major customer informed the Company of its plans to purchase this high value raw material directly going forward and ship it to SCI for processing. Unit volumes for targets using this material by all customers are expected to be similar to the fourth quarter 2009 and the impact on gross profit is anticipated to be limited.

Changes in the purchasing practices of certain customers to shorter term blanket orders as well as a substantial decline in the price of a high value raw material used to manufacture targets continues to fluctuate and impacted backlog. As a result, backlog was $2.4 million at September 30, 2010 compared to $3.7 million on the same date a year ago.

Gross profit

Gross profit declined 7% to $515,945 for the third quarter 2010 from $552,299 for the same period last year due to product mix. Gross profit margin was 21.2% and 24.8%, respectively, for the third quarter of 2010 and 2009.

Operating expenses

The company's operating expenses: marketing, sales, general and administrative, research and development; increased 12% to $571,589 for the third quarter 2010 from $511,121 the prior year. This increase was almost completely attributable to higher research and development expense, which doubled to $119,979 for the third quarter 2010 from $59,829 a year ago. The major factor was higher internal research and development expense associated with the development of products and TCO systems for the solar market.

Interest expense, net

Interest expense, net, declined 23% to $20,092 for the third quarter 2010 from $25,992 for the same period last year. This year-over-year decline was principally due to the maturity of capital leases plus more principal and less interest being applied to ongoing capital lease payments compared to the same period last year.

Income tax expense

Income tax benefit for the third quarter 2010 was $24,304 compared to income tax expense of $(287) a year ago.

Income (loss) applicable to common shares

The loss applicable to common shares was $(57,504), or $(0.02) per common share, for the third quarter 2010 compared to income applicable to common shares of $8,792, or $0.00 per fully diluted common share, for the third quarter 2009.

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, forecasts, and plans of the Company and its management, and specifically include statements concerning long lead times for product trials and the expectation of significant orders from multiple customers, anticipation of more orders over the next several months following completion of product trials, implementation of plans to enhance manufacturing capabilities and position SCI for significant growth, loans through agencies of the State of Ohio to fund approximately 70% of intermediate financing needs of approximately $3 million, , unit volumes for targets using a high value raw material are expected to be similar to the fourth quarter 2009 and the impact on gross profit is anticipated to be limited. 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, 2009. 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 release 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.
STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
2010 2009 2010 2009
----------- ----------- ----------- -----------
PRODUCT REVENUE $ 2,191,843 $ 2,028,355 $ 6,548,847 $ 4,738,869
CONTRACT RESEARCH
REVENUE 241,538 196,401 686,311 697,475
----------- ----------- ----------- -----------
2,433,381 2,224,756 7,235,158 5,436,344
----------- ----------- ----------- -----------
COST OF PRODUCT REVENUE 1,746,844 1,481,956 4,871,252 3,651,003
COST OF CONTRACT
RESEARCH 170,592 190,501 504,111 556,532
----------- ----------- ----------- -----------
1,917,436 1,672,457 5,375,363 4,207,535
----------- ----------- ----------- -----------
GROSS PROFIT 515,945 552,299 1,859,795 1,228,809
MARKETING AND SALES
EXPENSE 185,767 178,107 495,997 492,557
GENERAL AND
ADMINISTRATIVE EXPENSE 265,843 273,185 862,054 976,568
RESEARCH AND
DEVELOPMENT EXPENSE 119,979 59,829 320,740 264,406
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (55,644) 41,178 181,004 (504,722)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 1,531 842 4,194 5,688
Interest expense (21,623) (26,834) (66,555) (84,057)
Financing expense - - - (76,387)
Gain on disposal of
equipment - - 10,251 -
----------- ----------- ----------- -----------
(20,092) (25,992) (52,110) (154,756)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME
TAX (75,736) 15,186 128,894 (659,478)
INCOME TAX BENEFIT
(EXPENSE) 24,304 (287) (59,064) (862)
----------- ----------- ----------- -----------
NET INCOME (LOSS) (51,432) 14,899 69,830 (660,340)
DIVIDENDS ON PREFERRED
STOCK (6,072) (6,107) (18,222) (18,322)
----------- ----------- ----------- -----------
INCOME (LOSS)
APPLICABLE TO COMMON
SHARES $ (57,504) $ 8,792 $ 51,608 $ (678,662)
=========== =========== =========== ===========
EARNINGS PER SHARE -
BASIC AND DILUTED
INCOME (LOSS) APPLICABLE
TO COMMON SHARES PER
COMMON SHARE
Basic $ (0.02) $ 0.00 $ 0.01 $ (0.19)
=========== =========== =========== ===========
Diluted $ (0.02) $ 0.00 $ 0.01 $ (0.19)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 3,773,017 3,562,259 3,742,553 3,562,186
=========== =========== =========== ===========
Diluted 3,773,017 3,896,530 3,899,852 3,562,186
=========== =========== =========== ===========
SCI ENGINEERED MATERIALS, INC.
BALANCE SHEETS
ASSETS
September 30, December 31,
2010 2009
----------- -----------
(UNAUDITED)
CURRENT ASSETS
Cash $ 1,536,513 $ 1,107,216
Accounts receivable 684,591 570,112
Inventories 965,773 1,031,777
Deferred income taxes 112,000 156,000
Prepaid expenses 45,551 977,536
----------- -----------
Total current assets 3,344,428 3,842,641
----------- -----------
PROPERTY AND EQUIPMENT, AT COST 5,713,513 5,399,326
Less accumulated depreciation (3,127,325) (2,868,198)
----------- -----------
2,586,188 2,531,128
----------- -----------
OTHER ASSETS 54,435 63,267
----------- -----------
TOTAL ASSETS $ 5,985,051 $ 6,437,036
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
2010 2009
----------- -----------
(UNAUDITED)
CURRENT LIABILITIES
Short term debt $ 459,749 $ 425,664
Accounts payable 423,342 263,468
Customer deposits 80,264 1,319,455
Accrued expenses 320,548 278,157
----------- -----------
Total current liabilities 1,283,903 2,286,744
Long term debt 877,561 1,055,969
----------- -----------
Total liabilities 2,161,464 3,342,713
COMMITMENTS AND CONTINGENCIES - -
TOTAL SHAREHOLDERS' EQUITY 3,823,587 3,094,323
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,985,051 $ 6,437,036
=========== ===========
SCI ENGINEERED MATERIALS, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
2010 2009
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 69,830 $ (660,340)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and accretion 363,436 339,401
Amortization 2,316 2,316
Stock based compensation 153,490 331,117
Financing expense related to warrant
expiration date extension - 76,387
Gain on sale of equipment (10,251) -
Deferred income taxes 44,000 -
Inventory reserve 20,591 12,868
Credit for doubtful accounts - (8,947)
Changes in operating assets and liabilities:
Accounts receivable (114,479) (128,395)
Inventories 45,413 322,855
Prepaid expenses 931,985 (385,202)
Other assets 6,516 (3,295)
Accounts payable 159,873 163,358
Accrued expenses and customer deposits (1,201,767) (195,281)
----------- -----------
Net cash provided by (used in)
operating activities 470,953 (133,158)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment 10,500 -
Purchases of property and equipment (221,111) (142,983)
----------- -----------
Net cash used in investing
activities (210,611) (142,983)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options 15,145 1,550
Net proceeds from exercise of common stock
warrants 490,799 -
Payments related to Preferred Series B dividend - (24,430)
Principal payments on capital lease obligations
and note payable (336,989) (272,335)
----------- -----------
Net cash provided by (used in)
financing activities 168,955 (295,215)
----------- -----------
NET INCREASE (DECREASE) IN CASH 429,297 (571,356)
CASH - Beginning of period 1,107,216 1,399,050
----------- -----------
CASH - End of period $ 1,536,513 $ 827,694
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the periods for:
Interest, net $ 66,555 $ 84,057
Income taxes 2,400 2,450
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
Property and equipment purchased by capital
lease 192,665 555,700
Increase in asset retirement obligation 4,968 4,968
Financing expense related to warrant extension - 76,387




For Additional Information
Contact:
Robert Lentz
[phone]