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

PROSPECTUS SUPPLEMENT

Number 6

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, and Post-effective Amendment dated August 29, 2007

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. 6 includes the attached Quarterly Report on Form 10-QSB (the “Form 10-QSB”) of SCI Engineered Materials, Inc. (the “Company”), for the three months ended September 30, 2007, filed by the Company with the Securities and Exchange Commission on August 7, 2007. The exhibits to the Form 10-QSB are not included with this Prospectus Supplement No. 6 and are not incorporated by reference herein. This Prospectus Supplement No. 6 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 and the post-effective amendment dated August 29, 2007.


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. 6 is November 13, 2007.

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

FORM 10-QSB

(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007

o
TRANSITION REPORT UNDER 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)

(614) 486-0261
(Issuer's telephone number)

Superconductive Components, Inc.
(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES x    NO o

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

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 3,474,338 shares of Common Stock, without par value, were outstanding at October 31, 2007.

Transitional Small Business Disclosure Format (Check one): YES  o     NO x


FORM 10-QSB

SCI ENGINEERED MATERIALS, INC.
 
Table of Contents

   
Page No.
PART I.
FINANCIAL INFORMATION
  
     
Item 1.
Financial Statements.
  
     
  
Balance Sheets as of September 30, 2007 (unaudited)
  
  
and December 31, 2006
3
     
  
Statements of Operations for the Three Months and Nine Months
  
  
Ended September 30, 2007 and 2006 (unaudited)
5
     
  
Statements of Cash Flows for the Nine Months
  
  
Ended September 30, 2007 and 2006 (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.
Controls and Procedures.
19
     
PART II.
OTHER INFORMATION
 
     
Item 1.
Legal Proceedings.
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.
20
     
Item 5.
Other Information.
N/A
     
Item 6.
Exhibits.
20
     
Signatures.
21

2
 
PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
 
SCI ENGINEERED MATERIALS, INC.
 
BALANCE SHEETS

ASSETS    
   
September 30,
 
  December 31,
 
   
2007
 
  2006
 
   
(UNAUDITED)
      
CURRENT ASSETS
             
Cash
 
$
1,517,031
 
$
648,494
 
Accounts receivable
             
Trade, less allowance for doubtful accounts of $24,700 and $25,000
   
289,548
   
439,946
 
Contract
   
67,598
   
52,760
 
Other
   
5,000
   
-
 
Inventories
   
1,496,006
   
1,189,732
 
Prepaid expenses
   
30,395
   
47,466
 
Total current assets
   
3,405,578
   
2,378,398
 
             
PROPERTY AND EQUIPMENT,
             
AT COST  
             
Machinery and equipment
   
3,354,043
   
2,697,368
 
Furniture and fixtures
   
72,464
   
23,643
 
Leasehold improvements
   
301,551
   
299,551
 
Construction in progress
   
574,904
   
95,590
 
     
4,302,962
   
3,116,152
 
Less accumulated depreciation
   
(2,144,242
)
 
(2,012,312
)
     
2,158,720
   
1,103,840
 
 
             
OTHER ASSETS
             
Deposits
   
24,728
   
289,816
 
Intangibles
   
28,578
   
30,894
 
Total other assets
   
53,306
   
320,710
 
               
TOTAL ASSETS
 
$
5,617,604
 
$
3,802,948
 
 
The accompanying notes are an integral part of these financial statements.
 
3
 
SCI ENGINEERED MATERIALS, INC.

BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY   
            
 
 
September 30,
 
  December 31,
 
 
 
2007
 
  2006
 
   
(UNAUDITED)
      
CURRENT LIABILITIES
             
Capital lease obligation, current portion
 
$
256,896
 
$
70,799
 
Accounts payable
   
611,577
   
297,161
 
Accrued contract expenses
   
30,494
   
27,258
 
Accrued personal property taxes
   
13,226
   
22,500
 
Customer deposits
   
875,541
   
526,581
 
Accrued expenses and other
   
142,708
   
208,494
 
Total current liabilities
   
1,930,442
   
1,152,793
 
               
CAPITAL LEASE OBLIGATION, NET OF
             
CURRENT PORTION
   
919,935
   
145,693
 
               
COMMITMENTS AND CONTINGENCIES
   
-
   
-
 
               
SHAREHOLDERS' EQUITY
             
Convertible preferred stock, Series B, 10% cumulative, nonvoting
             
no par value, $10 stated value, optional redemption at 103%;
             
24,566 and 25,185 issued and outstanding respectively
   
369,719
   
360,146
 
Common stock, no par value, authorized 15,000,000 shares;
             
3,474,338 and 3,432,915 shares issued and outstanding respectively
   
9,061,378
   
9,007,817
 
Additional paid-in capital
   
989,674
   
995,586
 
Accumulated deficit
   
(7,653,544
)
 
(7,859,087
)
     
2,767,227
   
2,504,462
 
               
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
5,617,604
 
$
3,802,948
 
 
The accompanying notes are an integral part of these financial statements.
 
4
 
SCI ENGINEERED MATERIALS, INC.
 
STATEMENTS OF OPERATIONS
 
THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)

   
THREE MONTHS ENDED SEPT. 30,
 
NINE MONTHS ENDED SEPT. 30,
 
   
2007
 
  2006
 
2007
 
  2006
 
                     
TOTAL REVENUE
   
2,589,938
   
2,064,497
   
8,447,689
   
4,423,554
 
                           
TOTAL COST OF REVENUE
   
2,100,305
   
1,595,490
   
6,986,308
   
3,401,034
 
                           
GROSS PROFIT
   
489,633
   
469,007
   
1,461,381
   
1,022,520
 
                           
GENERAL AND ADMINISTRATIVE EXPENSE
   
213,111
   
221,759
   
669,423
   
667,013
 
                           
RESEARCH AND DEVELOPMENT EXPENSE
   
108,943
   
58,582
   
253,980
   
144,974
 
                           
SELLING EXPENSE
   
123,852
   
76,066
   
331,703
   
210,162
 
                           
INCOME FROM OPERATIONS
   
43,727
   
112,600
   
206,275
   
371
 
                           
OTHER INCOME (EXPENSE)
                         
Interest income
   
21,733
   
11,448
   
48,721
   
32,501
 
Interest expense
   
(32,317
)
 
(4,861
)
 
(56,433
)
 
(10,367
)
Gain on disposal of equipment
   
3,570
   
-
   
8,352
   
-
 
Miscellaneous, net
   
(457
)
 
(2,655
)
 
(1,372
)
 
4,846
 
     
(7,471
)
 
3,932
   
(732
)
 
26,980
 
                       
INCOME BEFORE PROVISION FOR INCOME TAX
   
36,256
   
116,532
   
205,543
   
27,351
 
                         
INCOME TAX EXPENSE
   
-
   
-
   
-
   
-
 
                           
NET INCOME
   
36,256
   
116,532
   
205,543
   
27,351
 
                           
DIVIDENDS ON PREFERRED STOCK
   
(6,245
)
 
(6,296
)
 
(18,837
)
 
(18,888
)
                           
INCOME APPLICABLE TO COMMON SHARES
 
$
30,011
 
$
110,236
 
$
186,706
 
$
8,463
 
                           
EARNINGS PER SHARE - BASIC AND DILUTED
                         
(Note 5)
                         
                           
NET INCOME PER COMMON SHARE BEFORE
                         
DIVIDENDS ON PREFERRED STOCK
                         
Basic
 
$
0.01
 
$
0.03
 
$
0.06
 
$
0.01
 
Diluted
 
$
0.01
 
$
0.03
 
$
0.05
 
$
0.01
 
                           
NET INCOME PER COMMON SHARE AFTER
                         
DIVIDENDS ON PREFERRED STOCK
                         
Basic
 
$
0.01
 
$
0.03
 
$
0.05
 
$
0.00
 
Diluted
 
$
0.01
 
$
0.03
 
$
0.04
 
$
0.00
 
                           
WEIGHTED AVERAGE SHARES OUTSTANDING
                         
Basic
   
3,468,756
   
3,425,980
   
3,457,005
   
3,425,937
 
Diluted
   
4,216,320
   
3,907,837
   
4,224,899
   
3,946,035
 
 
The accompanying notes are an integral part of these financial statements.
 
5
 
SCI ENGINEERED MATERIALS, INC.
 
STATEMENTS OF CASH FLOWS
 
NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 
(UNAUDITED)

   
2007
 
  2006
 
CASH FLOWS FROM OPERATING ACTIVITIES
             
Net income
 
$
205,543
 
$
27,351
 
Adjustments to reconcile net income to net cash
             
provided by operating activities:
             
Depreciation and accretion
   
216,618
   
158,009
 
Amortization
   
2,316
   
2,316
 
Stock based compensation
   
42,938
   
5,744
 
Gain on sale of equipment
   
(8,352
)
 
-
 
Inventory reserve
   
8,765
   
(410
)
Provision for doubtful accounts
   
(300
)
 
-
 
Changes in operating assets and liabilities:
             
(Increase) decrease in assets:
             
Accounts receivable
   
130,860
   
(136,027
)
Inventories
   
(315,039
)
 
(91,163
)
Prepaid expenses
   
27,076
   
(22,124
)
Other assets
   
265,088
   
(4,266
)
Increase in liabilities:
             
Accounts payable
   
314,416
   
24,957
 
Accrued expenses and customer deposits
   
274,652
   
501,907
 
Total adjustments
   
959,038
   
438,943
 
Net cash provided by operating activities
   
1,164,581
   
466,294
 
               
CASH FLOWS FROM INVESTING ACTIVITIES
             
Proceeds on sale of equipment
   
18,670
   
-
 
Purchases of property and equipment
   
(212,016
)
 
(164,155
)
Net cash used in investing activities
   
(193,346
)
 
(164,155
)
               
CASH FLOWS FROM FINANCING ACTIVITIES
             
Proceeds from exercise of common stock options
   
9,625
   
1,200
 
Proceeds from exercise of common stock warrants
   
26,909
   
-
 
Payments related to registration of common stock
   
(32,255
)
 
(50,131
)
Principal payments on capital lease obligations
   
(106,977
)
 
(45,834
)
Net cash used in financing activities
   
(102,698
)
 
(94,765
)
 
The accompanying notes are an integral part of these financial statements.
 
6
 
SCI ENGINEERED MATERIALS, INC.
 
STATEMENTS OF CASH FLOWS (CONTINUED)
 
NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

   
2007
 
  2006
 
NET INCREASE IN CASH
 
$
868,537
 
$
207,374
 
               
CASH - Beginning of period
   
648,494
   
1,161,369
 
               
CASH - End of period
 
$
1,517,031
 
$
1,368,743
 
             
SUPPLEMENTAL DISCLOSURES OF CASH
           
FLOW INFORMATION
             
Cash paid during the years for:
             
Interest, net
 
$
56,433
 
$
10,367
 
Income taxes
 
$
-
 
$
-
 
               
SUPPLEMENTAL DISCLOSURES OF NONCASH
             
FINANCING ACTIVITIES
             
               
Property and equipment purchased by capital lease
 
$
1,067,315
 
$
134,268
 
               
Property and equipment accrued asset retirement obligation increase
 
$
2,484
 
$
2,484
 
               
SUPPLEMENTAL DISCLOSURES OF NONCASH
             
OPERATING ACTIVITIES
             
               
Stock based compensation expense
 
$
42,938
 
$
5,744
 
 
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, to develop, manufacture and market products based on or incorporating high temperature superconductive (“HTS”) materials. The Company manufactures ceramic and metal targets for a variety of industrial applications including: Photonics/Optical, Thin Film Battery, Semiconductor, and, to a lesser extent HTS. Photonics/Optical 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 also 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-QSB 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, 2006. 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 September 30, 2007, 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/contract, 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

Prior to 2006 the Company accounted for stock based compensation using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, “Accounting for Stock Based Compensation” (SFAS No. 123), which established accounting and disclosure requirements using a fair value based methodology. SFAS No. 123 allowed the intrinsic value method to be used, and required disclosure of the impact to the financial statements of utilizing the intrinsic value versus the fair value based method on a pro forma basis. The Company utilized the fair value method as provided for in SFAS No. 123 for stock based compensation to non-employees.

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 2007 and 2006 includes (a) compensation cost for all stock-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) 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 expense was $42,938 and $5,744 for the nine months ended September 30, 2007, and 2006, respectively.

On January 5, 2007, the four non-employee board members each received compensation of 1,819 shares of the Company’s common stock and $5,000 in cash.

Reclassification

Certain amounts in the prior year financial statements pertaining to contract research revenue, cost of contract research, inventory and customer deposits 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 September 30, 2007 and December 31, 2006, 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, 2005
   
328,250
 
$
1.95
 
Granted
   
42,500
   
3.25
 
Exercised
   
(7,000
)
 
1.71
 
Forfeited
   
(20,000
)
 
2.13
 
Outstanding at December 31, 2006
   
343,750
 
$
2.09
 
Granted
   
-
   
-
 
Exercised
   
-
   
-
 
Forfeited
   
(500
)
 
3.25
 
Outstanding at September 30, 2007
   
343,250
 
$
2.08
 
Shares exercisable at December 31, 2006
   
306,250
 
$
1.95
 
Shares exercisable at September 30, 2007
   
313,650
 
$
1.97
 
 
Non-Employee Director Stock Options
 
       
Weighted
 
       
Average
 
   
Stock Options
 
Exercise Price
 
           
Outstanding at December 31, 2005
   
247,000
 
$
2.48
 
Granted
   
-
   
-
 
Exercised
   
-
   
-
 
Expired
   
-
   
-
 
Forfeited
   
-
   
-
 
Outstanding at December 31, 2006
   
247,000
 
$
2.48
 
Granted
   
-
   
-
 
Exercised
   
(6,000
)
 
1.60
 
Expired
   
-
   
-
 
Forfeited
   
-
   
-
 
Outstanding at September 30, 2007
   
241,000
 
$
2.51
 
Shares exercisable at December 31, 2006
   
247,000
 
$
2.48
 
Shares exercisable at September 30, 2007
   
241,000
 
$
2.51
 
 
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 September 30, 2007. The weighted average option price for all options outstanding is $2.26 with a weighted average remaining contractual life of 5.7 years.
 
The weighted average fair values at date of grant for options granted during 2006 were $3.03 and were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
 
   
2006
Expected life in years
 
7.0
Interest rate
 
5%
Volatility
 
107.55%
Dividend yield
 
0%

Note 4.
 
Inventory

 
Inventory is comprised of the following:
 
   
September 30,
 
  December 31,
 
   
2007
 
  2006
 
   
(unaudited)
      
Raw materials
 
$
871,006
 
$
695,819
 
Work-in-progress
   
530,062
   
335,325
 
Finished goods
   
179,565
   
234,450
 
Inventory reserve
   
(84,627
)
 
(75,862
)
   
$
1,496,006
 
$
1,189,732
 

11

SCI ENGINEERED MATERIALS, INC.
NOTES TO FINANCIAL STATEMENTS
 
Note 5.
Earnings Per Share

 
Basic income per share is calculated as income 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. The following is provided to reconcile the earnings per share calculations:
 
   
Three months ended Sept. 30, 2007
 
Three months ended Sept. 30, 2006
 
Nine months
ended Sept. 30, 2007
 
Nine months
ended Sept. 30, 2006
 
Income applicable to common shares
 
$
30,011
 
$
110,236
 
$
186,706
 
$
8,463
 
Weighted average common shares outstanding - basic
   
3,468,756
   
3,425,980
   
3,457,005
   
3,425,937
 
Effect of dilution - stock options/warrants
   
747,564
   
481,857
   
767,894
   
520,098
 
Weighted average common shares outstanding - diluted
   
4,216,320
   
3,907,837
   
4,224,899
   
3,946,035
 
 
Note 6.
Capital Requirements

The Company’s accumulated deficit since inception was $7,653,544 (unaudited) at September 30, 2007. 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 September 30, 2007, cash on-hand was $1,517,031. Management believes, based on forecasted sales and expenses, that funding will be adequate to sustain operations at least through September 30, 2008.

The Company reported net income applicable to common shares of $186,706 for the nine months ended September 30, 2007. 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 7.
Production Equipment

The Company received new production equipment during the first nine months of 2007 through capital lease obligations. This equipment was financed at a cost of approximately $1,067,000.

Note 8.
Stock Purchase Warrants/Options

During the second quarter of 2007 a shareholder exercised 26,909 stock purchase warrants which resulted in proceeds of $26,909. The exercise price for these warrants was $1.00.

During the third quarter of 2007 a former director exercised 6,000 stock purchase options which resulted in proceeds of $9,625. The exercise price for these options ranged from $1.50 to $2.125.

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, 2006.
 
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-QSB 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-QSB 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, 2006, 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-QSB 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, to develop, manufacture and market products based on or incorporating high temperature superconductive (“HTS”) materials. Currently, we manufacture ceramic and metal targets for a variety of industrial applications including: Photonics/Optical, Thin Film Battery, Semiconductor and, to a lesser extent HTS. Photonics/Optical 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 also a developing market. We hired additional marketing staff during the fourth quarter of 2006 to develop opportunities in these markets. During the second and the third quarter of 2007, we added additional staff to our Technology group 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 three months ended September 30, 2007, we had revenues of $2,589,938. This was an increase of $525,441, or 25.5%, over the three months ended September 30, 2006. For the nine months ended September 30, 2007, we had revenues of $8,447,689. This was an increase of $4,024,135, or 91.0%, over the nine months ended September 30, 2006. The revenues for the first nine months of 2007 exceeded the total revenues of $8,045,792 for calendar year 2006.

For the three months ended September 30, 2007, we had net income applicable to common shares of $30,011 compared to $110,236 for the same period in 2006. For the nine months ended September 30, 2007, we had net income applicable to common shares of $186,706 compared to $8,463 for the same period in 2006.

Near the end of the first quarter 2007, the price of a high value raw material used by us to produce certain products reached a cyclical peak and then declined to approximately one-half of that amount by the end of the second quarter 2007. The price of the raw material had recovered to approximately 65% of the cyclical peak. Cost changes for this high value raw material are fully reflected in the final selling price which insulates us from market price fluctuations associated with the raw material. We anticipate that the cost of this high value raw material will continue to be lower for the second half of 2007 compared to the first half of this year. This will continue to have an adverse effect on our total revenues, and, to a lesser extent, gross profit during the second half of 2007 because this high value raw material has a substantially lower gross profit margin compared to our other products.

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 began during the third quarter of 2007.

RESULTS OF OPERATIONS

Nine months ended September 30, 2007 (unaudited) compared to nine months ended September 30, 2006 (unaudited):

Revenues    

Revenues for the nine months ended September 30, 2007 were $8,447,689 compared to $4,423,554, for the same period last year, an increase of $4,024,135 or 91.0%. The revenue growth can be attributed primarily to the growth in Photonics/Optical products combined with the ongoing purchase of raw materials whose prices have historically experienced periods of significant fluctuation, as well as Thin Film Battery products. We anticipate the cost of a high value raw material will be lower in the second half of 2007 compared to the first half of 2007 which will result in a reduction in revenues compared to the first half of 2007.

Gross Profit

Gross profit for the nine months ended September 30, 2007 was $1,461,381, which represents a gross margin of 17.3% of total revenue compared to $1,022,520 and 23.1% of total revenue for the nine months ended September 30, 2006. The increase in the gross profit dollars is due primarily to the growth in Photonics/Optical products. Thin Film Battery products have also contributed to this increase.
 
15
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued).

The decrease in the gross margin as a percentage of total revenue is due to product mix of higher value product with lower gross margins.

As mentioned earlier, we anticipate the cost of a raw material in the second half of 2007 will continue to be less than during the first half of 2007. We expect this to result in a reduction in revenues, and, to a lesser extent, gross profit during the second half of 2007 as compared to the first half of 2007 because this high value raw material has a substantially lower gross profit margin compared to our other products.   

Selling Expense

Selling expense for the nine months ended September 30, 2007 increased 57.8% to $331,703 from $210,162 for the same period in 2006. The increase was due to the addition of marketing staff and increased travel. The increased travel was partly due to our attendance at two conferences in September 2007 supporting solar and semiconductor marketing activities.

General and Administrative Expense

General and administrative expense for the nine months ended September 30, 2007 increased to $669,423 from $667,013 for the nine months ended September 30, 2006, or 0.4%. The slight increase was due to non-cash stock based compensation expense of $36,089. During the first nine months of 2006 non-cash stock based compensation expense was $2,700. This increase was offset by a reduction in professional fees.

Research and Development Expense

Research and development expense for the first nine months of 2007 was $253,980 compared to $144,974 for the same period in 2006, an increase of 75.2%. The increase was due to increased staff and continued development efforts associated with applications in Photonic, Solar, Thin Film Battery and Semiconductor markets.

Interest Income and Expense

Interest income was $48,721 and $32,501 for the nine months ended September 30, 2007 and 2006, respectively. The additional interest income was due to increased cash from operations.

Interest expense was $56,433 and $10,367 for the nine months ended September 30, 2007 and 2006, respectively. The increase was due to additional capital lease obligations incurred for the purchase of production equipment for increased production capacity.
 
INCOME APPLICABLE TO COMMON SHARES

In come applicable to common shares was $ 186 , 706   compared to $8,463 for the nine months ended September 30, 200 7 and 200 6 , respectively. Basic net income per common share before dividends on preferred stock was $ 0 .0 6 and $0. 01 for the nine months ended September 30, 200 7 and 200 6 , respectively. Basic n et income per common share based on income applicable to common shares for 200 7   and 2006 was $0.0 5 and $0. 00 , respectively. The income applicable to common shares includes net income from operations and the accretion of Series B preferred stock dividends.
 
16
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued).

Dividends on the Series B preferred stock accrue at 10% annually on the outstanding shares. Accrued dividends   on the Series B preferred stock was $ 18,837 and $18,888 for the nine months ended September 30, 2007 and 2006, respectively.
 
Basic earn ings for the nine months ended September 30, 200 7 were $0.0 5 per common share based on 3,4 57 , 005 average shares outstanding compared to $0. 00 per common share based on 3 , 425,937 weighted average shares outstanding for the nine months ended September 30, 2006.
 
Diluted earnings per common share for the nine months ended September 30, 200 7 were $0.0 4   based on   4 , 224 , 899 average shares outstanding compared to $0. 00 per share based on 3 , 946,035 weighted average shares outstanding for the nine months ended September 30, 200 6 .

The following schedule represents our outstanding common shares during the period of 200 7 through 2016 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 1,2 09,328 to 4, 683 , 666 by December 31, 2016. Exercise prices for options and warrants range from $1.00 to $4.00 at September 30, 2007. 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
2007
-
3,474,338
2008
68,021
3,542,359
2009
160,418
3,702,777
2010
443,389
4,146,166
2011
70,000
4,216,166
2012
170,000
4,386,166
2013
30,500
4,416,666
2014
90,000
4,506,666
2015
140,000
4,646,666
2016
37,000
4,683,666
     
LIQUIDITY AND WORKING CAPITAL

At September 30, 2007, working capital was $1,475,136 compared to $1,347,462 at September 30, 2006. The increase is due to an increase in cash and inventory. This increase has been offset by increases in capital lease obligations and accounts payable. We provided cash from operations of approximately $1,165,000 and $466,000 for the nine months ended September 30, 2007 and 2006, respectively. 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 $270,000 and $166,000, respectively, for the nine months ended September 30, 2007 and 2006. Accounts receivable, inventory, prepaid expenses and other assets increased approximately $108,000 for the nine months ended September 30, 2007. This increase was due to an increase in inventory which was partially offset by the return of a large deposit for equipment that was subsequently leased. Accounts receivable, inventory, prepaid expenses and other assets increased approximately $254,000 for the nine months ended September 30, 2006. Accounts payable, accrued expenses and customer deposits increased approximately $589,000 for the nine months ended September 30, 2007 and approximately $527,000 for the same period in 2006.
 
17
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued).


Cash of approximately $193,000 and $164,000 was used for investing activities for the nine months ended September 30, 2007, and 2006, respectively. The amounts invested were used to purchase machinery and equipment for increased production capacity and new product lines. Proceeds on sale of equipment were approximately $19,000 during the first nine months of 2007.
 
Cash of approximately $103,000 was used for financing activities during the nine months ended September 30, 2007. Cash payments to third parties for capital lease obligations approximated $107,000. Cash payments for services provided for the registration of common stock were approximately $32,000. Proceeds received from the exercise of common stock warrants were approximately $27,000. Proceeds received from the exercise of common stock options were $9,625. We incurred new capital lease obligations of approximately $1,067,000 for new production equipment during the first nine months of 2007.

Cash of approximately $95,000 was used for financing activities during the nine months ended September 30, 2006. Cash payments to third parties for capital lease obligations approximated $46,000. Cash payments for services provided for the registration of common stock were approximately $50,000. Proceeds received from the exercise of common stock options were $1,200. The Company incurred new leases of approximately $134,000 for new production equipment and a forklift during the first nine months of 2006.
 
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.
 

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 7, 2007, 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.  

We reported net income applicable to common shares of $186,706 for the nine months ended September 30, 2007. Our accumulated deficit since inception in 1987 was $7,653,544 (unaudited) at September 30, 2007.

Historically, we have financed the losses primarily from additional investments and loans by our major shareholders and two private offerings of common stock and warrants to purchase common stock. We cannot assure you, however, that we will be able to raise additional capital in the future to fund our operations.
 
18
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (continued).

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, 2006 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 3.
Controls and Procedures

As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the period covered by this report in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time period specified by the Securities and Exchange Commission’s rules and forms. Our officers concluded that our disclosure controls and procedures are also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

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 .
 
19
 
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 August 22, 2007, for the following purposes:
 
 
(i)
To elect five directors, each to serve for terms expiring at the next Annual Meeting of Shareholders;
 
(ii)
To approve the change of the corporate name to SCI Engineered Materials, Inc. and to amend the Company’s Articles of Incorporation; and
 
(iii)
To ratify the selection of the independent registered public accounting firm for the year ending December 31, 2007.

 
(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.
2,802,864
3,900
 
Walter J. Doyle
2,801,764
5,000
 
Robert H. Peitz
2,802,914
3,850
 
Daniel Rooney
2,801,789
4,975
 
Edward W. Ungar
2,802,964
3,800
 
   
FOR
AGAINST
ABSTAIN
(ii)
Approve Company Name Change
2,780,801
1,220
24,743
         
(iii)
Ratify Accounting firm
2,806,074
100
590

Item 6.
Exhibits.

3.1
Amendment to Articles of Incorporation recording the change of the corporate name to SCI Engineered Materials, Inc.*

 
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 Financial Officer.*

 
99.1
Press Release dated November 7, 2007, entitled “SCI Engineered Materials, Inc. Reports Third Quarter 2007 Results.”*
 
* Filed with this report

20

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: November 5, 2007
  /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)
 
21

22

23

24
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-QSB 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 small business issuer as of, and for, the periods presented in this report;

 
4.
The small business issuer’s other certifying officers 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)) for the small business issuer 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 small business issuer, 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)
[reserved];

 
c)
evaluated the effectiveness of the small business issuer’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 small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 
5.
The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’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 small business issuer’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 small business issuer’s internal control over financial reporting.
 
     
 
 
 
 
 
 
Date: November 5, 2007   /s/ Daniel Rooney
 
Daniel Rooney
 
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
 
25
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-QSB 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 small business issuer as of, and for, the periods presented in this report;

 
4.
The small business issuer’s other certifying officers 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)) for the small business issuer and we 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 small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 
b)
[reserved];

 
c)
evaluated the effectiveness of the small business issuer’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 small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

 
5.
The small business issuer’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent function):

 
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 small business issuer’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 small business issuer’s internal control over financial reporting.
 
     
 
 
 
 
 
 
Date: November 5, 2007   /s/ Gerald S. Blaskie
 
Gerald S. Blaskie
 
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
 
26
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-QSB for the period ending September 30, 2007 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)
November 5, 2007
 
27
Exhibit 32.2

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-QSB for the period ending September 30, 2007 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.
     
 
 
 
 
 
 
    /s/ Gerald S. Blaskie
 
Gerald S. Blaskie
 
Vice President and Chief Financial Officer of
SCI Engineered Materials, Inc.   (Principal Financial Officer and Principal Accounting Officer)
November 5, 2007
 
28
Exhibit 99.1

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

SCI Engineered Materials, Inc. Reports Third Quarter 2007 Results

COLUMBUS, Ohio (November 7, 2007) SCI Engineered Materials, Inc. (OTC Bulletin Board: SCCI), a manufacturer of high quality sputtering targets for select markets in the physical vapor deposition industry, today announced results for the three months and nine months ended September 30, 2007.

Dan Rooney, Chairman, President and Chief Executive Officer, commented, “We are pleased with our performance for the three months ended September 30, 2007, the fifth consecutive quarter of profitability. The results included higher revenues and also reflected upfront investment in marketing, research, and manufacturing capabilities to enable expansion into new markets. SCI was an exhibitor at two tradeshows for the solar and semiconductor industries during the third quarter of 2007, which increased our visibility in both domestic and international markets. During the past year we achieved significant revenue growth and added approximately $1 million of production equipment, a portion of which was for new product development. We also increased staffing in key areas. The initiatives are focused on leveraging SCI’s core competencies and are anticipated to lead to increased diversification of our customer base and markets served. These investments complement our strategy of reinvesting in the business and are expected to benefit SCI’s performance in future quarters.”

Third Quarter 2007 Results

Total revenues increased 25% to $2,589,938 for the third quarter 2007 from $2,064,497 for the same period a year ago. This was principally due to higher sales of Photonics products, and Thin Film Battery products versus the third quarter 2006. Third quarter 2007 revenues were also influenced by increased prices for a high value raw material used in certain Photonics products versus the same period a year ago. The Company’s backlog was $2.3 million at September 30, 2007.

Gross profit rose to $489,633 for the third quarter 2007 from $469,007 for the prior year. The Company’s gross profit margin declined to 18.9% of total revenues for the third quarter 2007 from 22.7% for the same period in 2006. This was due to product mix of certain higher value products that have lower gross margins compared to SCI’s other products.

General and administrative expense declined to $213,111 for the third quarter 2007 from $221,759 a year ago, primarily due to lower professional expenses compared to last year. Selling expense was $123,852 for the third quarter 2007 versus $76,066 a year ago. This 63% increase reflects SCI’s increased commitment to marketing, which includes additional staff to support expanded activities. Additionally, SCI was an exhibitor at the 22 nd European Photovoltaic Solar Energy Conference and Exhibition in Milan, Italy in September 2007 and later that month also was an exhibitor at Diskcon USA 2007 in Santa Clara, California, which is focused on the Hard Disk Drive Industry.

Research and development (“R&D”) expense nearly doubled to $108,943 for the third quarter 2007 compared to $58,582 the prior year. This increase is attributable to increased staff and activities associated with Photonic, Solar, Thin Film Battery and Semiconductor applications to accelerate product development, commercialization activities, and time to market.

Net income after dividends on preferred stock was $30,011, or $0.01 per diluted share, for the three months ended September 30, 2007, versus net income of $110,236, or $0.03 per diluted share, for the same period in 2006. The weighted average number of diluted shares outstanding increased 8% to 4,216,320 for the third quarter 2007 from 3,907,837 for the same period last year.

Nine-Month 2007 Results

Total revenue increased 91% to $8,447,689 for the nine months ended September 30, 2007 from $4,423,554 for the same period in 2006. This was primarily due to higher sales of Photonics products, which included purchases of a high value raw material, plus increased sales to Thin Film Battery customers.

Gross profit rose 43% to $1,461,381 for the 2007 year-to-date period from $1,022,520 for the comparable period in 2006. Gross profit margin declined to 17.3% for the first nine months of 2007 from 23.1% last year, reflecting the substantial increase in the price of a high value raw material, whose products have lower margins than SCI’s other products.

 
General and administrative expenses were essentially flat for the first nine months of 2007 compared to 2006 at $669,423 and $667,013, respectively. Non-cash stock based compensation expense was $36,089 for the nine months ended September 30, 2007 versus $2,700 for the 2006 year-to-date period. This increase was partially offset by lower professional fees for the first nine months of 2007 compared to the prior year. Selling expense rose to $331,703 for the first nine months of 2007 from $210,162 a year ago, due to additional marketing staff, higher travel expense and SCI’s participation in three industry tradeshows in 2007.

Research and development expense rose 75% to $253,980 for the first nine months of 2007 from $144,974 a year ago.

Net income after dividends on preferred stock was $186,706, or $0.04 per diluted share, for the first nine months of 2007 compared to net income of $8,463, or $0.00 per diluted share, for the same period last year. The weighted average number of diluted shares outstanding increased 7% to 4,224,899 for the first nine months of 2007 compared to 3,946,035 the prior year.

2007 Annual Meeting

On August 22, 2007, shareholders approved a change in the corporate name to SCI Engineered Materials, Inc., which is consistent with the Company’s trade name and also better reflects its business focus and long-term growth strategy.
 
Additionally, all five Directors of the Company were re-elected to serve for terms expiring at the next Annual Meeting of Shareholders.
 
About SCI Engineered Materials, Inc.

SCI Engineered Materials, Inc. manufactures ceramics and metals for advanced applications such as optical, photonics including solar, thin film batteries, and superconductors. SCI Engineered Materials is a global materials supplier with clients in more than 40 countries. Additional information is available at http://www.sciengineeredmaterials.com .

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but are not limited to, all statements regarding intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management, and specifically include statements regarding further progress in 2007 and plans to increase SCI’s marketing and sales efforts throughout 2007. These forward-looking statements involve numerous risks and uncertainties, including, without limitation, growth initiatives expected to result in increased diversification of customers and markets served, belief that investments will benefit the Company’s performance in future quarters (paragraph 3), development of the thin film battery market, the impact of competitive products and services, the ability to adapt to technological changes, the availability of capital, and 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-KSB for the year ended December 31, 2006. 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.
 

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