SOURCE: SCI Engineered Materials, Inc.

SCI Engineered Materials, Inc.

April 13, 2012 17:32 ET

SCI Engineered Materials, Inc. Reports Fourth Quarter and Full-Year 2011 Results

COLUMBUS, OH--(Marketwire - Apr 13, 2012) - SCI Engineered Materials, Inc. ("SCI") (OTCBB: SCIA), which 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 months and full-year ended December 31, 2011.

Dan Rooney, Chairman, President and Chief Executive Officer, stated, "Total revenue increased sequentially and year-over-year for the three months ended December 31, 2011 despite difficult market conditions. Our core business continues to grow in response to customer demand and new products. SCI's sales to the solar industry are benefiting from the conversion of product qualifications into orders, introduction of new products and geographic diversification. During the past year we continued to scale our manufacturing capabilities to meet the expected needs of our solar customers. Synchronizing the benefits of these investments with anticipated product orders is challenging due to issues impacting execution of our customers' growth plans. We are positioned to meet their needs as market conditions improve. Our products are focused on evolving thin film solar technologies that are being gradually adopted to meet long-term global energy demand."

Mr. Rooney added, "Industry forecasts continue to project strong global growth in solar over the next several decades. Preliminary estimates for 2011 indicate that solar installations increased by approximately 35 percent compared with 2010. While the long-term outlook for solar is encouraging, selling price pressure is expected to continue throughout this year. This situation has resulted in customers adjusting their near-term sales outlook. This factor has also negatively impacted the market value of public companies serving the solar industry. However, our competitive advantages, expanding product portfolio and growing customer base are expected to contribute to a much higher long-term valuation for SCI as these issues are resolved. In 2012 we are continuing to strengthen our core business and are encouraged by the addition of new solar customers since year-end 2011."

For the fourth quarter 2011, total revenue increased 9% on a sequential basis to $2,269,084 due to higher product revenue. The company reported a loss applicable to common shares of $242,930, or $(0.06) per share, for the fourth quarter 2011 versus a loss of $58,837, or $(0.02) per share, for the same period in 2010.

Full-Year 2011 Results

For the twelve months ended December 31, 2011, total revenue increased approximately 3% to $9,152,704 from $8,916,122 last year led by a 6% increase in product revenue which was partially offset by a planned decline in contract research revenue. Gross profit declined to $1,533,692 for 2011 from $2,273,984 the prior year primarily due to product mix and further scale-up expenses related to Transparent Conductive Oxide products for the solar market. Operating expenses for 2011 were $2,175,367 which was slightly below a year ago despite higher R&D expense related to development of innovative TCO systems to further align SCI's activities with customer needs. The company had a net loss of $914,758, or $(0.24) per share, compared with a net loss of $7,229, or $0.00 per share, a year ago.

Fourth Quarter 2011 Results

Total revenue

Total revenue increased 35% to $2,269,084 for the fourth quarter 2011 compared with $1,680,965 for the same period in 2010. Product revenue increased 45% to $2,157,238 for the fourth quarter 2011 from $1,489,928 a year ago. Contract research revenue was $111,846 for the fourth quarter 2011 versus $191,037 for the fourth quarter 2010 due to the planned completion of government programs during 2011.

At December 31, 2011, the company's backlog was $1.7 million compared to $3.1 million on the same date in 2010. The decline in the company's backlog was due to approximately $700,000 attributable to a customer who, as previously reported, discontinued production in the first quarter 2011 plus approximately $600,000 due to a planned reduction in grants and awards to be completed in future periods.

Gross profit

Gross profit was $274,419 for the fourth quarter 2011 compared with $414,190 for the fourth quarter 2010. The 34% decline was due to change in product mix and additional scale-up costs particularly related to solar products.

Operating expenses

Operating expenses, which include marketing and sales, general and administrative, and R&D, declined 6% to $484,020 for the fourth quarter 2011 versus $516,671 a year ago due to lower general and administrative and marketing and sales expense.

Loss Applicable to Common Shares

The loss was $242,930, or $(0.06) per share, for the fourth quarter 2011 versus a loss of $58,837, or $(0.02) per share, for the same period last year.

EBITDA

Earnings before interest, income taxes, depreciation and amortization (EBITDA) were negative $72,394 for the fourth quarter 2011 compared with EBITDA of $16,584 the prior year. Adjusted EBITDA, which excludes non-cash stock based compensation, was negative $45,337 versus EBITDA of $66,497 for the fourth 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, customer guidance, forecasts, and plans of the Company and its management, and specifically include statements concerning the core business continuing to grow in response to customer demand and new products, sales to the solar industry benefiting from the conversion of product qualifications into orders, introduction of new products and geographic diversification, scaling manufacturing capabilities to meet expected needs of solar customers, synchronizing the benefits of investments in the business with anticipated product orders, positioned to meet customers' needs as market conditions improve, gradual adoption of evolving thin film solar technologies to meet long-term global energy demand, selling price pressure is expected to continue throughout this year, customers adjusting their near-term sales outlook, factors negatively impacting the market value of public companies serving the solar industry including SCI, the company's competitive advantages, expanding product portfolio and growing customer base are expected to contribute to a much higher long-term valuation as these issues are resolved, and continuing to strengthen the company's core business in 2012, and being encouraged by the addition of new solar customers since year-end 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, 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 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.
BALANCE SHEETS
ASSETS
December 31, December 31,
2011 2010
Cash $ 798,069 $ 1,511,752
Accounts receivable, less allowance for doubtful accounts 517,603 682,017
Inventories 1,045,503 1,344,426
Deferred income taxes - 156,000
Prepaid expenses 65,292 51,369
Total current assets 2,426,467 3,745,564
Property and Equipment, at cost 6,911,526 5,717,611
Less accumulated depreciation (3,692,401 ) (3,250,237 )
3,219,125 2,467,374
Other assets 85,657 78,897
TOTAL ASSETS $ 5,731,249 $ 6,291,835
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, December 31,
2011 2010
Short term debt $ 724,552 $ 464,072
Accounts payable 363,790 573,741
Customer deposits 255,122 366,153
Accrued expenses 270,605 304,405
Total current liabilities 1,614,069 1,708,371
Long term debt 1,050,403 758,685
Total liabilities 2,664,472 2,467,056
Commitments and contingencies
Shareholders' equity 3,066,777 3,824,779
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,731,249 $ 6,291,835
SCI ENGINEERED MATERIALS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2011 AND 2010
THREE MONTHS ENDED DEC. 31, TWELVE MONTHS ENDED DEC. 31,
2011 2010 2011 2010
Product revenue $ 2,157,238 $ 1,489,928 $ 8,547,118 $ 8,038,774
Contract research revenue 111,846 191,037 605,586 877,348
Total revenue 2,269,084 1,680,965 9,152,704 8,916,122
Cost of product revenue 1,894,612 1,131,434 7,187,255 6,002,686
Cost of contract research revenue 100,053 135,341 431,757 639,452
Total cost of revenue 1,994,665 1,266,775 7,619,012 6,642,138
Gross profit 274,419 414,190 1,533,692 2,273,984
General and administrative expense 252,604 266,590 1,042,865 1,128,644
Research and development expense 125,922 122,847 619,940 442,214
Marketing and sales expense 105,494 127,234 512,562 623,231
(Loss) income from operations (209,601 ) (102,481 ) (641,675 ) 79,895
Interest income 607 1,079 2,736 5,273
Interest expense (26,490 ) (19,088 ) (84,198 ) (85,643 )
Gain on disposal of equipment (166 ) - 259 10,251
Miscellaneous, net (455 ) (458 ) (1,829 ) (1,830 )
Other income (expense) (26,504 ) (18,467 ) (83,032 ) (71,949 )
(Loss) income before income taxes (236,105 ) (120,948 ) (724,707 ) 7,946
Income tax expense (benefit) 787 (68,197 ) 165,899 (9,133 )
Net (loss) income (236,892 ) (52,751 ) (890,606 ) 17,079
Dividends on preferred stock (6,038 ) (6,086 ) (24,152 ) (24,308 )
LOSS APPLICABLE TO COMMON SHARES $ (242,930 ) $ (58,837 ) $ (914,758 ) $ (7,229 )
Earnings per share - basic and diluted
Loss per common share
Basic $ (0.06 ) $ (0.02 ) $ (0.24 ) $ (0.00 )
Diluted $ (0.06 ) $ (0.02 ) $ (0.24 ) $ (0.00 )
Weighted average shares outstanding
Basic 3,790,963 3,773,581 3,781,717 3,750,376
Diluted 3,790,963 3,773,581 3,781,717 3,750,376
SCI ENGINEERED MATERIALS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2011 AND 2010
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (890,606 ) $ 17,079
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and accretion 534,996 488,003
Amortization 3,088 3,088
Stock based compensation 115,406 203,403
Patent impairment 38,726 -
Gain on sale of equipment (259 ) (10,251 )
Deferred income taxes 156,000 -
Inventory reserve 7,635 403
Credit for doubtful accounts (530 ) -
Changes in operating assets and liabilities:
Accounts receivable 164,944 (111,905 )
Inventories 291,288 (313,052 )
Prepaid expenses (13,922 ) 926,167
Other assets (48,575 ) (18,718 )
Accounts payable (209,950 ) 310,273
Accrued expenses and customer deposits (151,456 ) (933,678 )
Net cash provided by operating activities (3,215 ) 560,812
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment 425 10,500
Purchases of property and equipment (1,095,289 ) (225,209 )
Net cash used in investing activities (1,094,864 ) (214,709 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock options 41,350 19,175
Proceeds from exercise of common stock warrants - 490,799
Proceeds from notes payable 846,747 -
Payment of accumulated dividends on preferred stock (24,152 ) -
Principal payments on capital lease obligations and notes payable (479,549 ) (451,541 )
Net cash provided by financing activities 384,396 58,433
NET (DECREASE) INCREASE IN CASH (713,683 ) 404,536
CASH - Beginning of period 1,511,752 1,107,216
CASH - End of period $ 798,069 $ 1,511,752
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 84,198 $ 85,643
Income taxes 713 2,400
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased by capital lease 185,000 192,665
Increase in asset retirement obligation 6,624 6,624
SCI ENGINEERED MATERIALS, INC.
THREE MONTHS AND YEARS ENDED DECEMBER 31, 2011
Three months ended
Dec. 31,
Years ended
Dec. 31,
2011 2010 2011 2010
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
Net (loss) income $ (236,892 ) $ (52,751 ) $ (890,606 ) $ 17,079
Dividends on preferred stock (6,038 ) (5,816 ) (24,152 ) (24,038 )
Interest, net 25,882 18,009 81,462 80,370
Income taxes 787 (68,197 ) 165,899 (9,133 )
Patent impairment - - 38,726 -
Depreciation and amortization 143,867 125,339 538,084 491,091
EBITDA (72,394 ) 16,584 (90,587 ) 555,369
Stock based compensation 27,057 49,913 115,406 203,403
Adjusted EBITDA $ (45,337 ) $ 66,497 $ 24,819 $ 758,773

Contact Information

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    Contact:
    Robert Lentz
    (614) 876-2000