Filed Pursuant to Rule 424(b)(3)
Registration No. 333-131605

PROSPECTUS SUPPLEMENT

Number 8

to

Prospectus dated April 4, 2006, Prospectus Supplement dated May 15, 2006, Prospectus Supplement dated August 3, 2006, Prospectus Supplement dated November 3, 2006, Prospectus Supplement dated March 15, 2007, Post-effective Amendment dated May 1, 2007, Prospectus Supplement dated May 9, 2007, Post-effective Amendment dated July 18, 2007, Post-effective Amendment dated July 20, 2007, Post-effective Amendment dated August 3, 2007, Post-effective Amendment dated August 29, 2007, Prospectus Supplement dated November 13, 2007, Post effective Amendment dated April 24, 2008, and Prospectus Supplement dated May 8. 2008

of

SCI ENGINEERED MATERIALS, INC.

2,281,253 Shares of Common Stock

This Prospectus Supplement relates to the sale of up to 2,281,253 shares of SCI Engineered Materials, Inc. common stock (the “Shares”). The Shares are being registered to permit public secondary trading of the shares that are being offered by the selling shareholders named in the prospectus. We are not selling any of the Shares in this offering and therefore will not receive any proceeds from this offering.

This Prospectus Supplement No. 8 includes the attached Quarterly Report on Form 10-Q (the “Form 10-Q”) of SCI Engineered Materials, Inc. (the “Company”), for the three months ended June 30, 2008, filed by the Company with the Securities and Exchange Commission on August 5, 2008. The exhibits to the Form 10-Q are not included with this Prospectus Supplement No. 8 and are not incorporated by reference herein. This Prospectus Supplement No. 8 should be read in conjunction with the prospectus supplement No. 1 dated May 15, 2006, the prospectus supplement No. 2 dated August 3, 2006, the prospectus supplement No. 3 dated November 3, 2006, the prospectus supplement No. 4 dated March 15, 2007, the post-effective amendment dated May 1, 2007, the prospectus supplement No. 5 dated May 9, 2007, the post-effective amendment No. 2 dated July 18, 2007, the post-effective amendment No. 3 dated July 20, 2007, the post-effective amendment No. 4 dated August 3, 2007, the post-effective amendment No. 5 dated August 29, 2007, the prospectus supplement No. 6 dated November 13, 2007, the post-effective amendment No. 6 dated April 24, 2008, and the prospectus supplement No. 7 dated May 8, 2008..

Our common stock is traded on the Over-the-Counter Bulletin Board under the symbol “SCCI.”

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.


The date of this Prospectus Supplement No. 8 is August 7, 2008.
 
 
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
 
Commission file number: 0-31641

SCI ENGINEERED MATERIALS, INC.
(Exact name of small business issuer as specified in its charter)

Ohio
31-1210318
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

2839 Charter Street, Columbus, Ohio 43228
(Address of principal executive offices) (Zip Code)

(614) 486-0261
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o  Accelerated filer o Non-accelerated filer o Smaller reporting company x  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

3,560,071 shares of Common Stock, without par value, were outstanding at July 30, 2008.



FORM 10-Q

SCI ENGINEERED MATERIALS, INC.
 
Table of Contents

     
Page No.
       
PART I. FINANCIAL INFORMATION
 
       
 
Item 1.
Financial Statements.
 
       
   
Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007
3
       
   
Statements of Operations for the Three Months and Six Months Ended June 30, 2008 and 2007 (unaudited)
5
       
   
Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (unaudited)
6
       
   
Notes to Financial Statements (unaudited)
8
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
14
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
N/A
       
 
Item 4.
Controls and Procedures.
19
       
PART II. OTHER INFORMATION
 
       
 
Item 1.
Legal Proceedings.
N/A
       
 
Item 1A.
Risk Factors
N/A
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
N/A
       
 
Item 3.
Defaults Upon Senior Securities.
N/A
       
 
Item 4.
Submission of Matters to a Vote of Security Holders.
21
       
 
Item 5.
Other Information.
N/A
       
 
Item 6.
Exhibits.
21
       
  Signatures.
22

2


PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
SCI ENGINEERED MATERIALS, INC.
 
BALANCE SHEETS
 
ASSETS
   
June 30, 
 
  December 31,
 
   
2008
 
  2007
 
   
(UNAUDITED)
      
CURRENT ASSETS
          
Cash
 
$
846,333
 
$
1,182,086
 
Accounts receivable
             
Trade, less allowance for doubtful accounts of $24,700
   
423,481
   
219,222
 
Contract
   
52,760
   
65,954
 
Other
   
3,004
   
550
 
Inventories
   
2,060,653
   
756,999
 
Prepaid expenses
   
81,837
   
21,148
 
Total current assets
   
3,468,068
   
2,245,959
 
               
PROPERTY AND EQUIPMENT,    AT COST  
             
Machinery and equipment
   
4,150,383
   
3,386,778
 
Furniture and fixtures
   
81,155
   
74,222
 
Leasehold improvements
   
313,951
   
301,551
 
Construction in progress
   
12,582
   
599,753
 
     
4,558,071
   
4,362,304
 
Less accumulated depreciation
   
(2,329,917
)
 
(2,185,277
)
     
2,228,154
   
2,177,027
 
 
             
OTHER ASSETS
             
Deposits
   
27,174
   
18,639
 
Intangibles
   
35,210
   
29,202
 
Total other assets
   
62,384
   
47,841
 
               
TOTAL ASSETS
 
$
5,758,606
 
$
4,470,827
 

The accompanying notes are an integral part of these financial statements.
 
3


SCI ENGINEERED MATERIALS, INC.
 
BALANCE SHEETS
 
LIABILITIES AND SHAREHOLDERS' EQUITY

 
 
June 30, 
 
  December 31, 
 
 
 
2008
 
  2007
 
   
(UNAUDITED)
      
CURRENT LIABILITIES
             
Capital lease obligation, current portion
 
$
307,611
 
$
259,714
 
Accounts payable
   
359,832
   
160,468
 
Accrued contract expenses
   
27,258
   
47,702
 
Customer deposits
   
1,244,505
   
19,483
 
Accrued compensation
   
68,652
   
138,190
 
Accrued expenses and other
   
112,419
   
100,184
 
Total current liabilities
   
2,120,277
   
725,741
 
             
CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION
   
815,948
   
846,433
 
               
COMMITMENTS AND CONTINGENCIES
   
-
   
-
 
               
SHAREHOLDERS' EQUITY
             
 
             
Convertible preferred stock, Series B, 10% cumulative,  nonvoting, no par value, $10 stated value, optional  redemption at 103%; 24,524 and 24,566 issued and outstanding respectively
   
362,955
   
375,861
 
 
             
Common stock, no par value, authorized 15,000,000 shares;  3,560,071 and 3,474,338 shares issued and outstanding respectively
   
9,175,629
   
9,061,378
 
Additional paid-in capital
   
985,185
   
987,840
 
Accumulated deficit
   
(7,701,388
)
 
(7,526,426
)
     
2,822,381
   
2,898,653
 
               
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
5,758,606
 
$
4,470,827
 

The accompanying notes are an integral part of these financial statements.
 
4

 
SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2008 AND 2007
AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)

   
THREE MONTHS ENDED JUNE 30,
 
SIX MONTHS ENDED JUNE 30,
 
   
2008
 
2007
 
2008
 
2007
 
                           
SALES REVENUE
 
$
1,517,513
 
$
3,403,742
 
$
3,231,453
 
$
5,857,751
 
                           
COST OF SALES REVENUE
   
1,079,666
   
2,890,574
   
2,364,581
   
4,886,003
 
                           
GROSS PROFIT
   
437,847
   
513,168
   
866,872
   
971,748
 
                           
GENERAL AND ADMINISTRATIVE EXPENSE
   
250,408
   
219,716
   
510,461
   
456,312
 
                           
RESEARCH AND DEVELOPMENT EXPENSE
   
125,563
   
81,873
   
222,719
   
145,037
 
                           
MARKETING AND SALES EXPENSE
   
145,762
   
110,449
   
272,032
   
207,851
 
                           
(LOSS) INCOME FROM OPERATIONS
   
(83,886
)
 
101,130
   
(138,340
)
 
162,548
 
                           
OTHER INCOME (EXPENSE)
                         
Interest income
   
5,345
   
14,432
   
14,175
   
26,988
 
Interest expense
   
(25,395
)
 
(18,212
)
 
(51,997
)
 
(24,116
)
Gain on disposal of equipment
   
1,200
   
4,782
   
1,200
   
4,782
 
Miscellaneous, net
   
-
   
(457
)
 
-
   
(915
)
     
(18,850
)
 
545
   
(36,622
)
 
6,739
 
                           
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAX
   
(102,736
)
 
101,675
   
(174,962
)
 
169,287
 
                           
INCOME TAX EXPENSE
   
-
   
-
   
-
   
-
 
                           
NET (LOSS) INCOME
   
(102,736
)
 
101,675
   
(174,962
)
 
169,287
 
                           
DIVIDENDS ON PREFERRED STOCK
   
(6,142
)
 
(6,296
)
 
(12,283
)
 
(12,592
)
                           
(LOSS) INCOME APPLICABLE TO COMMON SHARES
 
$
(108,878
)
$
95,379
 
$
(187,245
)
$
156,695
 
                           
EARNINGS PER SHARE - BASIC AND DILUTED
(Note 6)
                         
                           
NET (LOSS) INCOME PER COMMON SHARE BEFORE DIVIDENDS ON PREFERRED STOCK
                         
Basic
 
$
(0.03
)
$
0.03
 
$
(0.05
)
$
0.05
 
Diluted
 
$
(0.03
)
$
0.02
 
$
(0.05
)
$
0.04
 
                           
NET (LOSS) INCOME PER COMMON SHARE AFTER DIVIDENDS ON PREFERRED STOCK
                         
Basic
 
$
(0.03
)
$
0.03
 
$
(0.05
)
$
0.05
 
Diluted
 
$
(0.03
)
$
0.02
 
$
(0.05
)
$
0.04
 
                           
WEIGHTED AVERAGE SHARES OUTSTANDING
                         
Basic
   
3,510,964
   
3,462,073
   
3,500,419
   
3,451,032
 
Diluted
   
3,510,964
   
4,287,082
   
3,500,419
   
4,240,350
 

The accompanying notes are an integral part of these financial statements.

5



STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(UNAUDITED)

   
2008
 
2007
 
CASH FLOWS FROM OPERATING ACTIVITIES
             
Net (loss) income
 
$
(174,962
)
$
169,287
 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
             
Depreciation and accretion
   
185,355
   
137,683
 
Amortization
   
1,544
   
1,544
 
Stock based compensation
   
29,637
   
28,626
 
Gain on sale of equipment
   
(1,200
)
 
(4,782
)
Inventory reserve
   
4,334
   
5,765
 
Provision for doubtful accounts
   
-
   
(300
)
Changes in operating assets and liabilities:
             
(Increase) decrease in assets:
             
Accounts receivable
   
(193,519
)
 
61,941
 
Inventories
   
(1,307,988
)
 
(65,355
)
Prepaid expenses
   
(40,680
)
 
(15,944
)
Other assets
   
(16,087
)
 
262,110
 
Increase in liabilities:
             
Accounts payable
   
199,364
   
77,714
 
Accrued expenses and customer deposits
   
1,161,020
   
93,261
 
Total adjustments
   
21,780
   
582,263
 
Net cash (used in) provided by operating activities
   
(153,182
)
 
751,550
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
             
Proceeds on sale of equipment
   
1,200
   
15,100
 
Purchases of property and equipment
   
(75,723
)
 
(78,146
)
Net cash used in investing activities
   
(74,523
)
 
(63,046
)
               
CASH FLOWS FROM FINANCING ACTIVITIES
             
Proceeds from exercise of common stock options
   
10,250
   
-
 
Proceeds from exercise of common stock warrants
   
68,021
   
26,909
 
Payments related to registration of common stock
   
(20,061
)
 
(8,435
)
Payments related to Preferred Series B dividend
   
(24,566
)
 
-
 
Principal payments on capital lease obligations
   
(141,692
)
 
(52,468
)
Net cash used in financing activities
   
(108,048
)
 
(33,994
)

The accompanying notes are an integral part of these financial statements.
 
6

 
SCI ENGINEERED MATERIALS, INC.

STATEMENTS OF CASH FLOWS (CONTINUED)

SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(UNAUDITED)

   
2008
 
  2007
 
NET (DECREASE) INCREASE IN CASH
 
$
(335,753
)
$
654,510
 
               
CASH - Beginning of period
   
1,182,086
   
648,494
 
               
CASH - End of period
 
$
846,333
 
$
1,303,004
 
               
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
             
Cash paid during the years for:
             
Interest, net
 
$
51,997
 
$
24,116
 
Income taxes
 
$
-
 
$
-
 
               
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES
             
               
Property and equipment purchased by capital lease
 
$
159,103
 
$
888,879
 
               
Machinery & equipment accrued asset retirement obligation increase
 
$
1,656
 
$
1,656
 
               
SUPPLEMENTAL DISCLOSURES OF NONCASH OPERATING ACTIVITIES
             
               
Stock based compensation expense
 
$
29,637
 
$
28,626
 

The accompanying notes are an integral part of these financial statements.

7

 
SCI ENGINEERED MATERIALS, INC.
NOTES TO FINANCIAL STATEMENTS

Note 1.       Business Organization and Purpose

SCI Engineered Materials, Inc. (“SCI” or the “Company”), formerly Superconductive Components, Inc., an Ohio corporation, was incorporated in 1987. The Company manufactures ceramic and metal sputtering targets for a variety of industrial applications including: Photonics, Semiconductor, Thin Film Battery, and, to a lesser extent High Temperature Superconductive (HTS) materials. Photonics (which includes solar) currently represents the Company’s largest market for its targets. Thin Film Battery is a developing market where manufacturers of batteries use the Company’s targets to produce very small power supplies with small quantities of stored energy. Semiconductor is a developing market.

Note 2.       Summary of Significant Accounting Policies

   
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations for the periods presented have been included. The financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2007. Interim results are not necessarily indicative of results for the full year.

   
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Equipment purchased with grant funding

   
In 2004, the Company received funds of $517,935 from the Ohio Department of Development’s Third Frontier Action Fund (TFAF) for the purchase of equipment related to the grant’s purpose. The Company has elected to record the funds disbursed as a contra asset; therefore, the assets are not reflected in the Company’s financial statements. As assets were purchased, the liability initially created when the cash was received was reduced with no revenue recognized or fixed asset recorded on the balance sheet. As of June 30, 2008, the Company had disbursed the entire amount received. The grant and contract both provide that as long as the Company performs in compliance with the grant, the Company retains the rights to the equipment. Management states that the Company will be in compliance with the requirements and, therefore, will retain the equipment at the end of the grant in 2008.

8

 
SCI ENGINEERED MATERIALS, INC.
NOTES TO FINANCIAL STATEMENTS
 
Note 2.     Summary of Significant Accounting Policies (continued)

Stock Based Compensation
 
In December 2004, the FASB issued SFAS No. 123 (Revised), “Shared Based Payment” (SFAS No. 123R). SFAS No. 123R replaced SFAS No. 123, and superseded APB Opinion No. 25. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R and related interpretations using the modified-prospective transition method. Under this method, compensation cost recognized in 2008 and 2007 includes compensation cost for all stock-based awards granted on or subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Non cash stock based compensation costs were $29,637 and $28,626 for the six months ended June 30, 2008 and 2007, respectively. The four non-employee board members each received compensation of 1,819 shares of the Company’s common stock and $5,000 in cash each year.

Reclassification

Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

9


  SCI ENGINEERED MATERIALS, INC.
  NOTES TO FINANCIAL STATEMENTS

Note 3.
 
Common Stock and Stock Options

The cumulative status of options granted and outstanding at June 30, 2008, and December 31, 2007, as well as options which became exercisable in connection with the Stock Option Plans is summarized as follows:

Employee Stock Options
 
       
Weighted
 
       
Average
 
   
Stock Options
 
Exercise Price
 
           
Outstanding at December 31, 2006
   
343,750
 
$
2.09
 
Granted
   
-
   
-
 
Exercised
   
-
   
-
 
Forfeited
   
(500
)
 
3.25
 
Outstanding at December 31, 2007
   
343,250
 
$
2.08
 
Granted
   
21,000
   
3.10
 
Exercised
   
-
   
-
 
Forfeited
   
-
   
-
 
Outstanding at June 30, 2008
   
364,250
 
$
2.14
 
Shares exercisable at December 31, 2007
   
313,650
 
$
1.97
 
Shares exercisable at June 30, 2008
   
321,050
 
$
2.00
 

Non-Employee Director Stock Options
 
       
Weighted
 
       
Average
 
   
Stock Options
 
Exercise Price
 
           
Outstanding at December 31, 2006
   
247,000
 
$
2.48
 
Granted
   
-
   
-
 
Exercised
   
(6,000
)
 
1.60
 
Expired
   
-
   
-
 
Forfeited
   
-
   
-
 
Outstanding at December 31, 2007
   
241,000
 
$
2.51
 
Granted
   
-
   
-
 
Exercised
   
(7,500
)
 
1.37
 
Expired
   
-
   
-
 
Forfeited
   
-
   
-
 
Outstanding at June 30, 2008
   
233,500
 
$
2.54
 
Shares exercisable at December 31, 2007
   
241,000
 
$
2.51
 
Shares exercisable at June 30, 2008
   
233,500
 
$
2.54
 

10

 
SCI ENGINEERED MATERIALS, INC.
NOTES TO FINANCIAL STATEMENTS
 
Note 3.
 
Common Stock and Stock Options (continued)

Exercise prices for options range from $1.00 to $4.00 at June 30, 2008. The weighted average option price for all options outstanding is $2.30 with a weighted average remaining contractual life of 5.1 years.
 
Note 4.
 
Preferred Stock

On March 5, 2008 the Board of Directors approved the payment of one year of accrued dividends on convertible preferred stock, Series B, to shareholders of record as of December 31, 2007. This payment of $24,566 was disbursed on June 30, 2008.

Note 5.              Inventory

 
Inventory is comprised of the following:
 
 
 
June 30,
 
December 31,
 
 
 
2008
 
2007
 
 
 
(unaudited)
 
 
 
Raw materials
 
$
322,792
 
$
392,937
 
Work-in-progress
   
1,512,521
   
205,528
 
Finished goods
   
311,832
   
240,693
 
Inventory reserve
   
(86,492
)
 
(82,159
)
   
$
2,060,653
 
$
756,999
 

11

     
SCI ENGINEERED MATERIALS, INC.
NOTES TO FINANCIAL STATEMENTS
 
Note 6.     Earnings Per Share        

 
Basic income (loss) per share is calculated as income (loss) available to common stockholders divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as diluted income available to common stockholders divided by the diluted weighted average number of common shares. Diluted weighted average number of common shares has been calculated using the treasury stock method for Common Stock equivalents, which includes Common Stock issuable pursuant to stock options and Common Stock warrants. At June 30, 2008 all common stock options and warrants are anti-dilutive due to the net loss. The following is provided to reconcile the earnings per share calculations:
 
   
Three months
ended June 30,
2008
 
Three months
ended June 30,
2007
 
Six months
ended June 30,
2008
 
Six months
ended June 30,
2007
 
(Loss) income applicable to common shares
 
$
(108,878
)
$
95,379
 
$
(187,245
)
$
156,695
 
Weighted average common shares outstanding – basic
   
3,510,964
   
3,462,073
   
3,500,419
   
3,451,032
 
Effect of dilutions – stock options/warrants
   
0
   
825,009
   
0
   
789,318
 
Weighted average common shares outstanding – basic
   
3,510,964
   
4,287,082
   
3,500,419
   
4,240,350
 
 
Note 7.     Capital Requirements

The Company’s accumulated deficit since inception was $7,701,388 (unaudited) at June 30, 2008. Historically, the losses have been financed primarily from additional investments and loans by major shareholders and private offerings of common stock and warrants to purchase common stock. The Company cannot assure that it will be able to raise additional capital in the future to fund its operations.

As of June 30, 2008, cash on-hand was $846,333. Management believes, based on forecasted sales and expenses, that funding will be adequate to sustain operations at least through June 30, 2009.

Numerous factors may make it necessary for the Company to seek additional capital. In order to support the initiatives included in its business plan, the Company may need to raise additional funds through public or private financing, collaborative relationships or other arrangements. Its ability to raise additional financing depends on many factors beyond its control, including the state of capital markets, the market price of its common stock and the development or prospects for development of competitive products by others. Because the common stock is not listed on a major stock exchange, many investors may not be willing or allowed to purchase it or may demand steep discounts. The additional financing may not be available or may be available only on terms that would result in further dilution to the current owners of the common stock.

12


SCI ENGINEERED MATERIALS, INC.
NOTES TO FINANCIAL STATEMENTS

Note 8.     Subsequent Event

During the third quarter of 2006, the Company met with the Development Financing Advisory Council (DFAC) of the Ohio Department of Development (ODOD) and applied for a loan from the Innovation Ohio Loan Fund. The Company was subsequently approved for a 166 Direct Loan from the ODOD in the amount of $400,000. These funds were received in July of 2008. The funds will be used to reduce the balance on current outstanding capital lease obligations. The term of the loan is 84 months at an interest rate of 3%. There is also a one-quarter percent annual servicing fee to be charged monthly on the outstanding principal balance. During each of the first 12 months the Company will make only monthly servicing fee and interest payments. During months 13 through 84, the Company will make monthly servicing fee, interest and principal payments. The loan principal balance will be fully amortized over the last 72 months.

13


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Financial Statements and Notes contained herein and with those in our Form 10-KSB for the year ended December 31, 2007.
 
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q include 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 may not be limited to, all statements regarding our intent, belief, and expectations, such as statements concerning our future profitability and operating and growth strategy. Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “likely” and similar expressions are intended to identify forward-looking statements. Investors are cautioned that all forward-looking statements contained in this Quarterly Report on Form 10-Q and in other statements we make involve risks and uncertainties including, without limitation, the factors set forth under the caption “Risk Factors” included in our Annual Report on Form 10-KSB for the year ended December 31, 2007, and other factors detailed from time to time in our other filings with the Securities and Exchange Commission. One or more of these factors have affected, and in the future could affect our business and financial condition and could cause actual results to differ materially from plans and projections. Although we believe the assumptions underlying the forward-looking statements contained herein are reasonable, there can be no assurance that any of the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.
 
Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statements are made or reflect the occurrence of unanticipated events, unless necessary to prevent such statements from becoming misleading. New factors emerge from time to time and it is not possible for us to predict all factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
 
Overview
 
SCI Engineered Materials, Inc. (“SCI” or the “Company”), formerly Superconductive Components, Inc., an Ohio corporation, was incorporated in 1987. We manufacture ceramic and metal sputtering targets for a variety of industrial applications including: Photonics, Semiconductor, Thin Film Battery and, to a lesser extent HTS materials. Photonics (which includes solar) currently represents the largest market for our targets. Thin Film Battery is a developing market where manufacturers of batteries use our targets to produce very small power supplies with small quantities of stored energy. Semiconductor is a developing market. We hired additional marketing staff during late 2006 to develop opportunities in this market, and we added to our sales staff in late 2007 for the purpose of focusing on opportunities for our products in the Solar industry. We also added staff to our Technology group during the second half of 2007 for the development of innovative products.

14


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Executive Summary

For the six months ended June 30, 2008, we had revenues of $3,231,453. This was a decrease of $2,626,298, or 44.8%, compared to the six months ended June 30, 2007. The decrease in revenues can be attributed to a reduction in the cost of a high value raw material. We anticipate that the cost of this high value raw material will continue to be lower for 2008 compared to 2007. Also, as disclosed on Form 8-K dated February 21, 2008, one of our largest customers notified us that its orders for 2008 will be significantly less than 2007. This is due to the customer’s improved utilization of targets in their manufacturing process coupled with lower planned inventory levels. Late in the second quarter of 2008 this customer began to increase its orders on certain targets. We anticipate an increase in revenues during the last half of 2008 compared to the first half of 2008.

Reflecting positive benefits from product mix, gross profit declined only 10.8% to $866,872 for the first half of 2008 from $971,748 for the first half of 2007. The decrease was attributable to higher depreciation expense related to investments made to develop new markets and the decrease in revenue mentioned above. Gross margin increased to 26.8% of total revenues for the first six months of 2008 from 16.6% for the same period in 2007.

For the second quarter of 2008 gross profit was $437,847 compared to $429,025 for the first quarter of 2008. This is an increase of 2.1% even though revenues decreased 11.4% during the same period. Gross margin increased to 28.9% for the second quarter of 2008 from 25.0% for the first quarter of 2008. The increase in gross profit and gross margin can be attributed to the product mix.

For the six months ended June 30, 2008, we had net loss applicable to common shares of $187,245 compared to net income of $156,695 for the same period in 2007. This decrease can be largely attributed to additional operating expenses of approximately $196,000 and the decrease in revenue along with the depreciation expense increase mentioned above. We continued to invest in R&D, marketing, and sales to take advantage of current and future market opportunities. During the past 21 months we have been actively marketing to additional customers in select markets. This has resulted in trial and qualification orders that were shipped to customers in the semiconductor and solar industries during the first half of 2008 which totaled approximately 13% of our revenues. We have received additional trial orders that should ship during the second half of 2008.

We received notification during the second quarter of 2007 from the Department of Energy of a Notice of Financial Assistance Award in the amount of $97,900. This award provides support for Phase I of a Small Business Innovative Research (SBIR) award entitled “Flux Pinning Additions to Increase Jc Performance in BSCCO-2212 Round Wire for Very High Field Magnets.” The work on the contract was completed during the first quarter of 2008.

We received notification during the second quarter of 2008 from the Department of Energy of a Notice of Financial Assistance Award in the amount of $99,961. This award provides support for Phase I of a Small Business Innovative Research (SBIR) award entitled “Homogenous BSCCO-2212 Round Wires for Very High Field Magnet Applications.” The work on the contract will begin during the third quarter of 2008.

15


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
 
RESULTS OF OPERATIONS

Six months ended June 30, 2008 (unaudited) compared to six months ended June 30, 2007 (unaudited):

Revenues    

Revenues for the six months ended June 30, 2008 were $3,231,453 compared to $5,857,751, for the same period last year, a decrease of $2,626,298 or 44.8%. The revenue decline can be attributed to the ongoing purchase of raw materials whose prices have historically experienced periods of significant fluctuation. Cost changes for this high value raw material are fully reflected in the final selling price which insulates us from market risk associated with the raw material. We anticipate the cost of this high value raw material will continue to be lower in 2008 compared to 2007. This will result in lower revenues. As disclosed on Form 8-K dated February 21, 2008, one of our largest customers notified us that its orders for 2008 will be significantly less than 2007. This is due to the customer’s improved utilization of targets in their manufacturing process coupled with lower planned inventory levels. This customer has placed orders for the third quarter of 2008 and we anticipate an increase in revenues during the last half of 2008 compared to the first half of 2008.

Gross Profit

Gross profit for the six months ended June 30, 2008 was $866,872 compared to $971,748 for the six months ended June 30, 2007. The decrease in gross profit was attributable to the decrease in revenue and higher depreciation expense related to investments made to develop new markets. Gross margin as a percentage of revenue was 26.8% for the six months ended June 30, 2008 versus 16.6% for the six months ended June 30, 2007. The increase in gross margin was primarily due to less cost related to the high value raw material which has low margins and product mix.

Marketing and Sales Expense

Marketing and Sales expense for the six months ended June 30, 2008 increased 30.9% to $272,032 from $207,851 for the same period in 2007. The increase was due to the addition of staff and increased travel. We added a sales engineer late in 2007 to focus marketing efforts on applications in Thin Film Solar which is a rapidly expanding industry.    

General and Administrative Expense

General and administrative expense for the six months ended June 30, 2008 increased to $510,461 from $456,312 for the six months ended June 30, 2007, or 11.9%. The increase was due to an increase in staff and professional fees.

Research and Development Expense

Research and development expense for the first six months of 2008 was $222,719 compared to $145,037 for the same period in 2007, an increase of 53.6%. The increase was due to increased staff and continued development efforts associated with applications in Photonic, Solar, Thin Film Battery and Semiconductor markets.

16


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Interest Income and Expense

Interest income was $14,175 and $26,988 for the six months ended June 30, 2008 and 2007, respectively.

Interest expense was $51,997 and $24,116 for the six months ended June 30, 2008 and 2007, respectively. The increase was due to additional capital lease obligations incurred for the purchase of production equipment for increased production capacity.
 
(LOSS) INCOME APPLICABLE TO COMMON SHARES

(Loss) income applicable to common shares was $(187,245), or $(0.05) per basic common share compared to $156,695, or $0.05 per basic common share for the six months ended June 30, 2008 and 2007, respectively. Basic net (loss) income per common share before dividends on preferred stock was $(0.05) and $0.05 for the six months ended June 30, 2008 and 2007, respectively. The income applicable to common shares includes net (loss) income from operations and the accretion of Series B preferred stock dividends. Dividends on the Series B preferred stock accrue at 10% annually on the outstanding shares. Dividends accrued during the six months ended June 30, 2008 and 2007, was $12,283 and $12,592, respectively.
 
Basic net loss for the six months ended June 30, 2008 was $0.05 per common share based on 3,500,419 weighted average shares outstanding compared to income of $0.05 per common share based on 3,451,032 weighted average shares outstanding for the six months ended June 30, 2007.
 
Diluted net loss per common share for the six months ended June 30, 2008 was $0.05 based on 3,500,419 weighted average shares outstanding compared to income of $0.04 per share based on 4,240,350 weighted average shares outstanding for the six months ended June 30, 2007. All outstanding common stock equivalents were anti-dilutive for the three months and six months ended June 30, 2008 due to the net loss.

The following schedule represents our outstanding common shares during the period of 2008 through 2018 assuming all outstanding stock options and stock warrants are exercised during the year of expiration. If each shareholder exercises his or her options or warrants, it could increase our common shares by 1,154,807 to 4,714,878 by December 31, 2018. Exercise prices for options and warrants range from $1.00 to $4.00 at June 30, 2008. Assuming all such options and warrants are exercised in the year of expiration, the effect on shares outstanding is illustrated as follows:
 
 
 
Options and Warrants due to expire
 
Potential Shares Outstanding
 
           
2008
   
0
   
3,560,071
 
2009
   
160,418
   
3,720,489
 
2010
   
443,389
   
4,163,878
 
2011
   
62,500
   
4,226,378
 
2012
   
170,000
   
4,396,378
 
2013
   
30,500
   
4,426,878
 
2014
   
90,000
   
4,516,878
 
2015
   
140,000
   
4,656,878
 
2016
   
37,000
   
4,693,878
 
2017
   
0
   
4,693,878
 
2018
   
21,000
   
4,714,878
 

17


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

LIQUIDITY AND WORKING CAPITAL

At June 30, 2008, working capital was $1,347,791 compared to $1,590,286 at June 30, 2007. We used cash from operations of approximately $153,000 for the six months ended June 30, 2008. We provided cash from operations of approximately $752,000 for the six months ended June 30, 2007. Significant non-cash items including depreciation, accretion and amortization, stock based compensation expense, inventory reserve on excess and obsolete inventory, and provision for doubtful accounts were approximately $221,000 and $173,000, respectively, for the six months ended June 30, 2008 and 2007. Accounts receivable, inventory, prepaid expenses and other assets increased approximately $1,558,000 for the six months ended June 30, 2008. Accounts receivable, inventory, prepaid expenses and other assets decreased approximately $243,000 for the six months ended June 30, 2007. Accounts payable, accrued expenses and customer deposits increased approximately $1,360,000 for the six months ended June 30, 2008 and approximately $171,000 for the same period in 2007. Cash of approximately $75,000 and $63,000 was used for investing activities for the six months ended June 30, 2008 and 2007, respectively. The amounts invested were used to purchase machinery and equipment for increased production capacity and new product lines.

Cash of approximately $108,000 was used for financing activities during the six months ended June 30, 2008. Cash payments to third parties for capital lease obligations approximated $142,000. Proceeds received from the exercise of common stock warrants were approximately $68,000. Proceeds received from the exercise of common stock options were $10,250. Cash payments for services provided for the registration of common stock were approximately $20,000. A cash payment related to Series B preferred stock dividend was approximately $25,000. We incurred new capital lease obligations of approximately $159,000 for new production equipment during the first six months of 2008.
 
Cash of approximately $34,000 was used for financing activities during the six months ended June 30, 2007. Cash payments to third parties for capital lease obligations approximated $52,000. Proceeds received from the exercise of common stock warrants were approximately $27,000. Cash payments for services provided for the registration of common stock were approximately $8,000. We incurred new capital lease obligations of approximately $889,000 for new production equipment during the first six months ended June 30, 2007.
 
RISK FACTORS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The following factors, as well as the factors listed under the caption “Risk Factors” in our Form 10-KSB filed with the Securities and Exchange Commission on March 9, 2008, have affected or could affect our actual results and could cause such results to differ materially from those expressed in any forward-looking statements made by us. Investors should consider carefully these risks and speculative factors inherent in and affecting our business and an investment in our common stock.

Historically we have experienced significant operating losses and may continue to do so in the future.  

While we have had profitable operations in 2007 and 2006, profits have not been consistent and we have financed the losses primarily from additional investments and loans by our major shareholders and private offerings of common stock and warrants to purchase common stock.

18


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

We cannot assure you, however, that we will be able to raise additional capital in the future to fund our operations. While certain of our major shareholders have advanced funds in the form of secured debt, subordinated debt, accounts payable and guaranteeing bank debt in the past, there is no commitment by these individuals to continue funding us or guaranteeing bank debt in the future. We will continue to seek new financing or equity financing arrangements. However, we cannot be certain that it will be successful in efforts to raise additional funds.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements including special purpose entities.

  Critical Accounting Policies
 
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in the Financial Statements and accompanying notes . Note 2 to the Financial Statements in our Annual Report on Form 10-KSB for the year ended December 31, 2007 describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, accounting for the allowance for doubtful accounts, inventory allowances, property and equipment depreciable lives, patents and licenses useful lives, and assessing changes in which impairment of certain long-lived assets may occur. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Financial Statements. The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected. Inventory purchases and commitments are based upon future demand forecasts. If there is a sudden and significant decrease in demand for our products or   there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected. Depreciable and useful lives estimated for property and equipment, licenses and patents are based on initial expectations of the period of time these assets and intangibles will benefit us. Changes in circumstances related to a change in our business, change in technology or other factors could result in these assets becoming impaired, which could adversely affect the value of these assets.

Item 4.     Controls and Procedures

  Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that the disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") were effective as of June 30, 2008 to ensure that information required to be disclosed in reports that are filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

19


Item 4.     Controls and Procedures (continued)

Inherent Limitations Over Internal Controls

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.

Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions or that the degree of compliance with the policies or procedures may deteriorate.

Additionally, there were no changes in our internal controls that could materially affect our disclosure controls and procedures subsequent to the date of their evaluation, nor were there any material deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required .

20

Part II. Other Information

Item 4.     Submission of Matters to a Vote of Security Holders

 
(a)
The Company held its Annual Meeting of Shareholders on June 2, 2008, for the following purposes:
 
(i)
To elect five directors, each to serve for terms expiring at the next Annual meeting of Shareholders; and

(ii)
To ratify the selection of the independent registered public accounting firm for the year ending December 31, 2008.

 
(c)
The following tables show the voting tabulations for the matters voted upon at the Annual Meeting of Shareholders.
 
(i)
Elect directors
 
 
 
FOR
 
WITHHELD
 
Robert J. Baker, Jr.
   
2,545,724
   
4,383
 
Walter J. Doyle
   
2,545,724
   
4,383
 
Robert H. Peitz
   
2,545,724
   
4,383
 
Daniel Rooney
   
2,542,499
   
7,608
 
Edward W. Ungar
   
2,545,164
   
4,943
 

       
FOR
 
AGAINST
 
ABSTAIN
 
(ii)
     Ratify Accounting firm    
2,549,394
   
533
   
180
 

Item 6.        Exhibits.
 
31.1
Rule 13a-14(a) Certification of Principal Executive Officer.*
   
31.2
Rule 13a-14(a) Certification of Principal Financial Officer.*
   
32.1
Section 1350 Certification of Principal Executive Officer.*
        
32.2
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.*
   
99.1
Press Release dated August 5, 2008, entitled “SCI Engineered Materials, Inc. Reports Second Quarter 2008 Results.”
   
  * Filed with this report 

21


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
SCI ENGINEERED MATERIALS, INC.
   
Date: August 5, 2008
/s/ Daniel Rooney
 
Daniel Rooney, Chairman of the Board of Directors, President and Chief Executive Officer
 
(Principal Executive Officer)
   
 
/s/ Gerald S. Blaskie
 
Gerald S. Blaskie, Vice President and Chief Financial Officer
 
(Principal Financial Officer and Principal Accounting Officer)

22

Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Rooney, certify that:

 
1.
I have reviewed this Quarterly Report on Form 10-Q of SCI Engineered Materials, Inc.;

 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2008
/s/ Daniel Rooney
 
Daniel Rooney
 
Chairman of the Board of Directors,
 
President and Chief Executive Officer
 
(Principal Executive Officer)

 
 

 
Exhibit 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gerald S. Blaskie certify that:

 
1.
I have reviewed this Quarterly Report on Form 10-Q of SCI Engineered Materials, Inc.;

 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2008
/s/ Gerald S. Blaskie
 
Gerald S. Blaskie
 
Vice President and Chief Financial Officer
 
(Principal Financial Officer and Principal Accounting Officer)

 
 

 
Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  
 
In connection with the Quarterly Report of SCI Engineered Materials, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Rooney, Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Daniel Rooney
Daniel Rooney
Chairman of the Board of Directors,
President and Chief Executive Officer of
SCI Engineered Materials, Inc.
(Principal Executive Officer)
August 5, 2008
 
 

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  
 
In connection with the Quarterly Report of SCI Engineered Materials, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gerald S. Blaskie, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
( 2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Gerald S. Blaskie
Vice President and Chief Financial Officer of
August 5, 2008