SCI Engineered Materials, Inc. Reports First Quarter 2011 Results

COLUMBUS, OH--(Marketwire - May 5, 2011) - 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.

Total revenue increased 12% to $2,517,634 for the first quarter 2011 from $2,241,112 for the same period last year. Significantly higher research and development expenses and lower gross profit contributed to a loss applicable to common shares of $(76,744) for the first quarter 2011 compared to income applicable to common shares of $100,355 last year.

Dan Rooney, Chairman, President and Chief Executive Officer, stated, "During the first quarter of 2011 we increased sales to core customers, continued to develop transparent conductive oxide systems for the solar industry, and added domestic and international customers for solar products. We are encouraged by our progress and believe that SCI is approaching a period of significant growth and profitability. Our R&D investments to develop innovative products for the solar industry plus the long selling cycle for those products are integral steps and they are beginning to provide specific benefits. Following the end of the first quarter we received two production orders related to trials that have been underway for more than a year. One of them began as a trial in our customer's R&D area and the other one was based on work that began in 2009 with an original equipment manufacturer for solar products. The conversion of these trials into production orders represents another important step toward realization of SCI's strategic goals, which include expanding our base of solar customers globally. We are actively seeking to convert additional trials that are underway into production orders during 2011."

First Quarter 2011 Results

Total revenue

Total revenue increased to $2,517,634 for the first quarter 2011 from $2,241,112 for the same period in 2010. The 15% increase in product sales was due to customer demand and more volume of a high value raw material compared to a year ago. Growth in product revenue was partially offset by a decline in contract research revenue related to the scheduled completion of specific government grant awards.

Changes in the purchasing practices of some of SCI's customers to shorter-term blanket orders have a significant impact on backlog. Orders originally scheduled to be shipped after March 31, 2011 for a customer who notified the company that they were closing their manufacturing facility in the first quarter 2011 were removed from backlog. As a result of these factors, backlog was $2.6 million at March 31, 2011 compared to $5.0 million on the same date in 2010.

Gross profit

Gross profit was $547,538 for the first quarter 2011 compared to $677,702 for the first quarter 2010. This decline was principally due to change in product mix and scale-up costs associated with new solar products.

Operating expenses

The company continues to invest in developing new products for the solar industry, including transparent conductive oxide systems. These efforts involve accelerating time to market for those products and R&D expense beyond the scope of specific government grants and awards. R&D expense increased 209% to $164,639 for the first quarter 2011 from $53,256 for the same period last year.

Operating expenses, which include marketing and sales, general and administrative, and R&D, were $596,590 for the three months ended March 31, 2011, compared to $488,808 a year ago. Excluding R&D expense, operating expenses were slightly below the first quarter 2010.

EBITDA

Earnings before interest, income taxes, depreciation and amortization (EBITDA) were $71,409 for the first three months of 2011 compared to $302,602 for the same period last year. Adjusted EBITDA was $102,774 for the first quarter 2011 versus $356,265 last year and includes non-cash stock based compensation expense for both periods.

Income (loss) applicable to common shares

The loss applicable to common shares was $(76,744) or $(0.02) per share for the first quarter 2011 compared to income applicable to common shares of $100,355 or $0.03 per diluted share for the first quarter 2010.

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 SCI approaching a period of significant growth and profitability, and the company's progress regarding its strategic initiative and moving closer to converting product trials into production orders during 2011. 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, 2010. 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.