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SCI Engineered Materials, Inc. Reports First Quarter 2012 Results

COLUMBUS, Ohio, May 7, 2012 /PRNewswire/ -- SCI Engineered Materials, Inc. ("SCI") (OTC Bulletin Board: 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 months ended March 31, 2012.

Dan Rooney, Chairman, President and Chief Executive Officer, commented, "The solid increase in bookings during the first quarter of 2012, led by photonics and international solar orders, reflect a positive sign that our customers are beginning to recover from the global recession. During the past several quarters we have been adapting to changes in our solar customers' growth plans as they respond to negative disruption in market conditions and also scaling the company's production capabilities. As a result of our investments in production equipment we are positioned to be more efficient and profitable as market conditions improve. While the near-term issues have been challenging, the outlook for the solar industry remains attractive long term. We are encouraged by the sequential quarter and year-over-year improvement in backlog. The recent introduction of new product based on our prior research and development activities are anticipated to benefit our performance and penetration of niche markets."

Backlog at March 31, 2012 increased to $2.9 million from $1.7 million at December 31, 2011 and was higher than the $2.6 million on the same date a year ago.

First Quarter 2012 Results

Total revenue

Total revenue was $1,883,032 for the first three months of 2012 compared with $2,517,634 for the same period last year. Product revenue was $1,814,542 for the first quarter 2012 versus $2,312,298 a year ago. This decline was attributable to a major customer who ceased manufacturing in the first quarter 2011 and to lower cost for a high value raw material used to manufacture product. Contract research revenue declined to $68,490 for the first quarter 2012 from $205,336 for the first quarter 2011 due to planned completion of grants and awards related to government programs.

Gross profit

Gross profit was $315,145 for the first quarter 2012 compared with $547,538 for the same period a year ago. As previously noted, this decline was principally due to a major customer who ceased manufacturing in the first quarter 2011, change in product mix and additional depreciation due to equipment acquired during the past twelve months to scale the company's manufacturing operations.

Operating expenses

Operating expenses, which include marketing and sales, general and administrative, and R&D, declined 18% to $490,403 for the three months ended March 31, 2012, from $596,590 for the same period last year. First quarter 2011 operating expenses included higher costs related to development of innovative transparent conductive oxide systems.

Loss Applicable to Common Shares

The first quarter 2012 loss applicable to common shares was $195,801, or $(0.05) per share, versus a loss of $76,744, or $(0.02) per share, last year.

EBITDA

Earnings before interest, income taxes, depreciation and amortization (EBITDA) were negative $37,000 for the first quarter 2012 versus EBITDA of $71,409 for the same period last year. Adjusted EBITDA, which excludes non-cash stock based compensation, was negative $1,904 compared with $102,774 a year ago.

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 adapting to changes in solar customers' growth plans, scaling the company's production capabilities, positioned to be more efficient and profitable as market conditions improve, outlook for the solar industry remains attractive long term, encouraged by sequential quarter and year-over-year improvement in backlog, and the recent introduction of new product based on prior research and development activities are anticipated to benefit future performance. 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.

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

                                                                     SCI ENGINEERED MATERIALS, INC.

                                                                             BALANCE SHEETS

                                                                                 ASSETS
                                                                                 ------
                                                                                                                 March 31,             December 31,
                                                                                                                                 2012                     2011
                                                                                                                                 ----                     ----
                                                                                                     (UNAUDITED)
    Current Assets
      Cash                                                                                                                   $688,788                 $798,069
      Accounts receivable, less allowance for doubtful accounts                                                               539,658                  517,603
      Inventories                                                                                                           1,516,107                1,045,503
      Prepaid expenses                                                                                                        119,855                   65,292
                                                                                                                              -------                   ------
           Total current assets                                                                                             2,864,408                2,426,467
                                                                                                                            ---------                ---------

    Property and Equipment, at cost                                                                                         6,948,694                6,911,526
      Less accumulated depreciation                                                                                        (3,833,765)              (3,692,401)
                                                                                                                           ----------               ----------
                                                                                                                            3,114,929                3,219,125
                                                                                                                            ---------                ---------

    Other Assets                                                                                                               78,025                   85,657
                                                                                                                               ------                   ------

    TOTAL ASSETS                                                                                                           $6,057,362               $5,731,249
                                                                                                                           ==========               ==========



                                                                LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                ------------------------------------
                                                                                                                 March 31,             December 31,
                                                                                                                                 2012                     2011
                                                                                                                                 ----                     ----
                                                                                                     (UNAUDITED)
    Current Liabilities
      Short term debt                                                                                                        $679,562                 $724,552
      Accounts payable                                                                                                        569,105                  363,790
      Customer deposits                                                                                                       707,231                  255,122
      Accrued expenses                                                                                                        221,214                  270,605
                                                                                                                              -------                  -------
            Total current liabilities                                                                                       2,177,112                1,614,069

      Long term debt                                                                                                          968,140                1,050,403
                                                                                                                              -------                ---------
            Total liabilities                                                                                               3,145,252                2,664,472

    Commitments and contingencies

    Total Shareholders' Equity                                                                                              2,912,110                3,066,777
                                                                                                                            ---------                ---------

    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                             $6,057,362               $5,731,249
                                                                                                                           ==========               ==========

                                                     SCI ENGINEERED MATERIALS, INC.

                                                        STATEMENTS OF OPERATIONS
                                           FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

                                                                                           (UNAUDITED)
                                                                                                          2012        2011
                                                                                                          ----        ----
    Product revenue                                                                                 $1,814,542  $2,312,298
    Contract research revenue                                                                           68,490     205,336
                                                                                                     1,883,032   2,517,634
                                                                                                     ---------   ---------
    Cost of product revenue                                                                          1,513,890   1,844,999
    Cost of contract research revenue                                                                   53,997     125,097
                                                                                                     1,567,887   1,970,096
                                                                                                     ---------   ---------

    Gross profit                                                                                       315,145     547,538

    General and administrative expense                                                                 280,913     275,894

    Research and development expense                                                                    96,822     164,639

    Marketing and sales expense                                                                        112,668     156,057
                                                                                                       -------     -------

    Loss from operations                                                                              (175,258)    (49,052)
                                                                                                      --------     -------

    Other income (expense)
      Interest - net                                                                                   (19,690)    (17,841)
      Gain on disposal of equipment                                                                          -         425
                                                                                                       (19,690)    (17,416)
                                                                                                       -------     -------
    Loss before provision for income tax                                                              (194,948)    (66,468)
    Income tax benefit (expense)                                                                         5,185      (4,238)
                                                                                                         -----      ------
    Net loss                                                                                          (189,763)    (70,706)
    Dividends on preferred stock                                                                        (6,038)     (6,038)
                                                                                                        ------      ------

    LOSS APPLICABLE TO COMMON SHARES                                                                 $(195,801)   $(76,744)
                                                                                                     =========    ========
    Earnings per share - basic and diluted
    Loss per common share
      Basic                                                                                             $(0.05)     $(0.02)
                                                                                                        ======      ======
      Diluted                                                                                           $(0.05)     $(0.02)
                                                                                                        ======      ======
    Weighted average shares outstanding
      Basic                                                                                          3,805,931   3,777,165
                                                                                                     =========   =========
      Diluted                                                                                        3,805,931   3,777,165
                                                                                                     =========   =========

                                                                                 SCI ENGINEERED MATERIALS, INC.

                                                                                    STATEMENTS OF CASH FLOWS

                                                                       FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
                                                                                           (UNAUDITED)
                                                                                                                                   2012                2011
                                                                                                                                   ----                ----
    CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                                                                              $(189,763)           $(70,706)
      Adjustments to reconcile net loss to net cash
       from operating activities:
        Depreciation and accretion                                                                                            143,524             125,302
        Amortization                                                                                                              772                 772
        Stock based compensation                                                                                               35,096              31,365
        Gain on sale of equipment                                                                                         -              (425)
        Inventory reserve                                                                                                          95              12,884
        Changes in operating assets and liabilities:
            Accounts receivable                                                                                               (22,055)            (64,057)
            Inventories                                                                                                      (470,699)           (142,063)
            Prepaid expenses                                                                                                  (54,563)           (381,193)
            Other assets                                                                                                        6,859             (30,913)
            Accounts payable                                                                                                  205,315            (143,519)
            Accrued expenses and customer deposits                                                                            400,557             512,392
                  Net cash provided by (used in) operating activities                                                          55,138            (150,161)
                                                                                                                               ------            --------

    CASH FLOWS FROM INVESTING ACTIVITIES
      Proceeds on sale of equipment                                                                                       -               425
      Purchases of property and equipment                                                                                     (37,167)            (56,953)
                                                                                                                              -------             -------
                  Net cash used in investing activities                                                                       (37,167)            (56,528)
                                                                                                                              -------             -------

    CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from exercise of common stock options                                                                      -             4,650
      Principal payments on capital lease obligations and note payable                                                       (127,252)           (113,184)
                  Net cash used in financing activities                                                                      (127,252)           (108,534)
                                                                                                                             --------            --------

    NET DECREASE IN CASH                                                                                                     (109,281)           (315,223)

    CASH - Beginning of period                                                                                                798,069           1,511,752
                                                                                                                              -------           ---------

    CASH - End of period                                                                                                     $688,788          $1,196,529

    SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION
      Cash paid during the year for:
        Interest                                                                                                              $17,751             $18,566
        Income taxes                                                                                                      -                 -

    SUPPLEMENTAL DISCLOSURES OF NONCASH
     INVESTING AND FINANCING ACTIVITIES
      Increase in asset retirement obligation                                                                                   2,160               1,656

    SCI ENGINEERED MATERIALS, INC.
    RECONCILIATION OF GAAP TO NON-GAAP MEASURES
    THREE MONTHS ENDED MARCH 31                      2012      2011
                                                     ----      ----

    Net loss                                    $(189,763) $(70,706)
    Dividends on preferred stock                   (6,038)   (6,038)
    Interest, net                                  19,690    17,841
    Income taxes                                   (5,185)    4,238
    Depreciation and amortization                 144,296   126,074
                                                  -------   -------
    EBITDA                                        (37,000)   71,409
    Stock based compensation                       35,096    31,365
                                                   ------    ------
    Adjusted EBITDA                               $(1,904) $102,774
                                                  =======  ========

SOURCE SCI Engineered Materials, Inc.

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