SCI Engineered Materials, Inc. Reports Fourth Quarter and Full-Year 2012 Results

Marketwired

COLUMBUS, OH--(Marketwire - Mar 19, 2013) - SCI Engineered Materials, Inc. ("SCI") (OTCQB: SCIA), which develops and commercializes technologies and manufactures ceramics and metals for advanced applications in the physical vapor deposition industry, today reported its financial results for the three months and twelve months ended December 31, 2012.

Dan Rooney, Chairman, President and Chief Executive Officer, said, "Our 2012 financial results improved over the prior year principally due to better product mix and higher gross profit attributable to increased operating efficiencies. Throughout 2012 we continued to pay close attention to our operating expenses which were 12% below the prior year. These factors more than offset the impact of a $379,217 decrease in contract research revenue in 2012 versus 2011. Net cash provided by operating activities increased to $437,271 for the full-year 2012 from $3,215 of net cash used in operating activities in 2011. Our fourth quarter 2012 results were also impacted by lower contract research revenue which was $66,840 below the prior year; however, our performance improved versus the same period in 2011 principally due to lower operating expenses."

For the full-year 2012, total revenue decreased 4% to $8,757,149 from $9,152,704 the prior year, which was attributable to the decline in contract research revenue. The loss applicable to common stock for 2012 and 2011 was $350,124 or $0.09 per share, and $914,758 or $0.24 per share, respectively. For the fourth quarter 2012, total revenue decreased 4% to $2,187,987 from $2,269,084 for the same period last year also due to lower contract research revenue. The loss applicable to common stock of $243,601 for the fourth quarter 2012 was similar to the same period in 2011. The loss applicable to common stock was $0.06 per common share for both periods. 

Mr. Rooney added, "Product revenue for the first quarter 2013 is anticipated to be less than the same period in 2012 due to a periodic inventory adjustment by one of our large customers. We continue to adapt to challenging market conditions while we also remain focused on pursuing attractive long-term growth initiatives. Recently, we received indications from customers that they will be placing new orders later this year."

Total revenue

Total revenue was $8,757,149 for the full-year 2012 or $395,555 below the prior year primarily due to a $379,217 decrease in contract research revenue. Product revenue for the year ended December 31, 2012, was similar to 2011 despite a decline in the average price of a high priced raw material compared with the same period of the prior year and the loss of a large customer who ceased operations in 2011. Total revenue for the fourth quarter 2012 was $2,187,987 compared with $2,269,084 for the same period last year. The $81,097 decrease in total revenue was principally due to lower contract research revenue that was $66,840 below the same period a year ago. Fourth quarter 2012 product revenue was stable compared with the prior year despite a decline in average price of a high priced raw material. 

The Company's backlog was $1.8 million at December 31, 2012, versus $1.7 million on the same date in 2011. There was approximately $0.1 million of backlog related to contract research revenue at December 31, 2012 compared with $0.3 million at the prior year-end.

Gross profit

Gross profit increased 8% to $1,657,162 for the full-year 2012 versus 2011 due to improved product mix and production efficiencies that contributed to lower production costs. As a result, gross profit margin increased to 18.9% for the full-year 2012 from 16.8% the prior year. For the fourth quarter 2012, gross profit was $256,810 compared with $274,419 for the same period in 2011. This decrease was primarily due to a $35,000 non-cash inventory adjustment recorded in the fourth quarter 2012, which was partially offset by the improved performance. Gross profit margin decreased to 11.7% for the fourth quarter 2012 from 12.1% for the same period in 2011 due to the inventory adjustment. 

Operating expenses

Operating expenses, which include marketing and sales, general and administrative, and R&D, for the full-year 2012 decreased 12% to $1,921,641 from $2,175,367 the prior year primarily due to lower planned internal research and development expense and ongoing cost-control measures which were partially offset by higher non-cash stock compensation expense. Fourth quarter 2012 operating expenses decreased 2% to $443,482 for the fourth quarter 2012 from the fourth quarter 2011. This decrease was principally due to lower internally financed research and development expense.

Income Tax Expense/Benefit

There was a $27,348 income tax benefit for the full-year 2012 versus income tax expense of $165,899 in the prior year. The 2011 amount included a non-cash charge of $156,000 related to a deferred tax asset valuation allowance. For the fourth quarter 2012, the income tax benefit was $2,696 compared with income tax expense of $787 for the same period of the prior year.

Loss Applicable to Common Stock

The loss applicable to common stock was $350,124 or $0.09 per share for the twelve months ended December 31, 2012, versus a loss of $914,758 or $0.24 per share for the same period in 2011. This improvement was primarily due to higher gross profit, lower operating expense and an income tax benefit compared with income tax expense for the prior year, partially offset by higher non-cash stock compensation expense compared with the prior year. The loss applicable to common stock of $243,601 for the fourth quarter 2012 was similar to the same period in 2011. The fourth quarter loss applicable to common stock was $0.06 per share for both periods.

EBITDA

Earnings before interest, income taxes, depreciation and amortization (EBITDA) were $319,899 for the full-year 2012 versus negative $66,436 for the prior year. Adjusted EBITDA, which excludes non-cash stock based compensation, were $456,788 compared with $48,970 a year ago. For the fourth quarter 2012, EBITDA were negative $67,392 versus negative $66,356 for the same period a year ago. Adjusted EBITDA were negative $32,797 for the fourth quarter 2012 compared with negative $39,299 for the fourth quarter 2011.

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 product revenue anticipated to be less for the first quarter 2013 than the same period in 2012 due to a periodic inventory adjustment by one the Company's large customers, continuing to adapt to challenging market conditions while we also remain focused on pursuing attractive long-term growth initiatives, and recently receiving indications from customers that they will be placing new orders later this year. 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, 2012. 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,  
    2012     2011  
                 
  Cash   $ 630,819     $ 798,069  
  Accounts receivable, less allowance for doubtful accounts     453,302       517,603  
  Inventories     815,075       1,045,503  
  Prepaid expenses     209,422       65,292  
    Total current assets     2,108,618       2,426,467  
                   
  Property and Equipment, at cost     7,483,480       6,911,526  
  Less accumulated depreciation     (4,254,302 )     (3,692,401 )
      3,229,178       3,219,125  
                 
Other assets     66,764       85,657  
                 
TOTAL ASSETS   $ 5,404,560     $ 5,731,249  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY          
    December 31,     December 31,  
    2012     2011  
                 
                 
  Short term debt   $ 529,481     $ 681,974  
  Accounts payable     260,531       363,790  
  Customer deposits     313,745       255,122  
  Accrued expenses     194,218       270,605  
    Total current liabilities     1,297,975       1,571,491  
                   
  Long term debt     1,228,891       1,092,981  
    Total liabilities     2,526,866       2,664,472  
                   
  Commitments and contingencies                
                   
  Shareholders' equity     2,877,694       3,066,777  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 5,404,560     $ 5,731,249  
                 
   
   
SCI ENGINEERED MATERIALS, INC.  
STATEMENTS OF OPERATIONS  
THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2012 AND 2011  
   
    THREE MONTHS ENDED DEC. 31,     TWELVE MONTHS ENDED DEC. 31,  
    2012     2011     2012     2011  
                                 
Product revenue   $ 2,142,981     $ 2,157,238     $ 8,530,780     $ 8,547,118  
Contract research revenue     45,006       111,846       226,369       605,586  
Total revenue     2,187,987       2,269,084       8,757,149       9,152,704  
                                 
Cost of product revenue     1,892,549       1,894,612       6,913,807       7,187,255  
Cost of contract research revenue     38,628       100,053       186,180       431,757  
Total cost of revenue     1,931,177       1,994,665       7,099,987       7,619,012  
                                 
Gross profit     256,810       274,419       1,657,162       1,533,692  
                                 
General and administrative expense     290,258       252,604       1,109,197       1,042,865  
                                 
Research and development expense     79,781       125,922       309,816       619,940  
                                 
Marketing and sales expense     103,443       105,494       502,628       512,562  
                                 
Loss from operations     (216,672 )     (209,601 )     (264,479 )     (641,675 )
                                 
Other expense     (23,587 )     (26,504 )     (88,841 )     (83,032 )
                                 
Loss before income taxes     (240,259 )     (236,105 )     (353,320 )     (724,707 )
                                 
Income tax benefit (expense)     2,696       (787 )     27,348       (165,899 )
                                 
Net loss     (237,563 )     (236,892 )     (325,972 )     (890,606 )
                                 
Dividends on preferred stock     (6,038 )     (6,038 )     (24,152 )     (24,152 )
                                 
LOSS APPLICABLE TO COMMON STOCK   $ (243,601 )   $ (242,930 )   $ (350,124 )   $ (914,758 )
                                 
Earnings per share - basic and diluted                                
                                 
                                 
Loss per common share                                
  Basic   $ (0.06 )   $ (0.06 )   $ (0.09 )   $ (0.24 )
  Diluted   $ (0.06 )   $ (0.06 )   $ (0.09 )   $ (0.24 )
                                 
Weighted average shares outstanding                                
  Basic     3,823,963       3,790,963       3,814,996       3,781,717  
  Diluted     3,823,963       3,790,963       3,814,996       3,781,717  
                                 
   
   
SCI ENGINEERED MATERIALS, INC.  
             
STATEMENTS OF CASH FLOWS  
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011  
             
    2012     2011  
CASH FLOWS FROM OPERATING ACTIVITIES                
  Net loss   $ (325,972 )   $ (890,606 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
    Depreciation and accretion     585,085       534,996  
    Amortization     2,564       3,088  
    Stock based compensation     136,889       115,406  
    Patent impairment     -       38,726  
    Gain on sale of equipment     1,441       (259 )
    Deferred income taxes     -       156,000  
    Inventory reserve     42,365       7,635  
    Change in allowance for doubtful accounts     30,000       (530 )
    Changes in operating assets and liabilities:                
      Accounts receivable     34,301       164,944  
      Inventories     188,063       291,288  
      Prepaid expenses     (144,130 )     (13,922 )
      Other assets     16,329       (48,575 )
      Accounts payable     (103,260 )     (209,950 )
      Accrued expenses and customer deposits     (26,404 )     (151,456 )
        Net cash provided by (used in) operating activities     437,271       (3,215 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
  Proceeds on sale of equipment     -       425  
  Purchases of property and equipment     (587,939 )     (1,095,289 )
        Net cash used in investing activities     (587,939 )     (1,094,864 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
  Proceeds from exercise of common stock options     -       41,350  
  Proceeds from notes payable     933,729       846,747  
  Principal payments on capital lease obligations and notes payable     (950,311 )     (479,549 )
  Payment of accumulated dividends on preferred stock     -       (24,152 )
        Net cash (used in) provided by financing activities     (16,582 )     384,396  
                 
NET DECREASE IN CASH     (167,250 )     (713,683 )
                 
CASH - Beginning of period     798,069       1,511,752  
                 
CASH - End of period   $ 630,819     $ 798,069  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                
  Cash paid during the year for:                
    Interest   $ 86,693     $ 84,198  
    Income taxes     455       713  
                 
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES                
  Property and equipment purchased by capital lease     -       185,000  
  Increase in asset retirement obligation     8,640       6,624  
                   
                         
                         
SCI ENGINEERED MATERIALS, INC.                        
THREE AND TWELVE MONTHS ENDED DEC. 31, 2012 and 2011   Three months ended Dec. 31,     Twelve months ended Dec. 31,  
    2012     2011     2012     2011  
RECONCILIATION OF GAAP TO NON-GAAP MEASURES                                
Net loss   $ (237,563 )   $ (236,892 )   $ (325,972 )   $ (890,606 )
Interest, net     21,166       25,882       85,570       81,461  
Income taxes     (2,696 )     787       (27,348 )     165,899  
Patent impairment     -       -       -       38,726  
Depreciation and amortization     151,701       143,867       587,649       538,084  
EBITDA     (67,392 )     (66,356 )     319,899       (66,436 )
Stock based compensation     34,595       27,057       136,889       115,406  
Adjusted EBITDA   $ (32,797 )   $ (39,299 )   $ 456,788     $ 48,970  
                                 
Contact:
For Additional Information

Robert Lentz
(614) 876-2000
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