2003 Annual Report
The year 2003 marked further sales growth and a strong increase in earnings for IKONICS. It also was a year where our base for future growth was strengthened.
Sales for the year grew 3% to a record level of $12,105,000, while earnings increased by 40% to 40 cents per share. Sales grew in spite of the abandonment of an unprofitable line of business, and the earnings increase comes after a writedown of $75,000 on an investment. The company generated $1,401,000 in cash from operations in 2003, as compared to $249,000 in 2002 and ended the year with $1,508,000 in cash and cash equivalents. Although the timing of payments and investments in plant and equipment affects cash flow, these numbers and our balance sheet indicate very strong financial health.
Looking ahead, IKONICS’ primary goal in 2004 is to increase profitable sales and to broaden our customer base. In 2003, many of the initiatives begun in 2002 have become reality, creating the foundation for growth.
In February 2003, we acquired an exclusive license from DuPont for its RapidMask technology. RapidMask is the only photoresist film in the abrasive etching market that is dry-processable, saving time and improving production efficiency. Our chemists have reformulated the product to make it more user-friendly. We have also substantially enhanced the film’s resolution capabilities to the point where detailed, halftone images now can be etched on glass and other substrates. New RapidMask HD and RapidMask II were introduced in the third quarter. Not only has the reception from our traditional customers been very encouraging, but we are finding strong applications in new markets. RapidMask will be the major focus of our PhotoBrasive Systems Division in 2004.
We made significant progress in the Asian market in 2003. This is a rapidly growing market for Chromaline products and is virtually untapped for PhotoBrasive photoresist films. In June we opened a training center in Singapore and have hosted schools for customers throughout the region. We are working closely with our Indian distributor to introduce RapidMask to that market and are increasing our efforts in China, where much of the world’s electronics-related screen printing is now done. We anticipate significant growth from Asia in 2004, although there is a certain amount of unpredictability and risk in this market.
In December 2003, we applied for a patent on IKONMetals Imaging Technology and introduced prototypes to select customers. This technology has potentially broad application, possibly replacing acid etching, machining and casting of metals in many instances. The IKONMetals technology is a unique composite metal that can be imaged by abrasive etching. Initially, we are looking at the plaque and signage industries; but customer feedback indicates other potential industrial applications. Though product optimization is ongoing, I anticipate commercialization of IKONMetals in 2004.
IKONMetals has the potential to be the third leg of our stool, joining Chromaline Screen Products and PhotoBrasive Systems as our engines of growth. Whether or not this particular technology meets our expectations, we will continue to extend our base into new markets.
While we have exciting plans for the future, our core businesses also did well 2003, and we will continue to support and invest in them. Being involved in the global market not only buffers the effect of weakness in one market but helps us develop robust products that meet a broad set of needs.
I am optimistic about 2004; but there are some unknowns. The pending change in the tax treatment of income generated from exports may increase our tax rate. In 2003 we benefited from the weak U. S. dollar-to-Euro exchange rate, and this may change. As a small, international company, we are affected by world economies and relatively small write-downs and financial adjustments can impact our bottom line.
Our efforts in 2000 and 2001 were focused on cleaning up the fallout from the Aicello lawsuit and coping with a soft economy. In 2002 and 2003 we returned to profitability, while laying the foundations for growth. I expect the recent improvements in our traditional markets to continue and our new initiatives to contribute substantially to the growth and profitability of IKONICS in the years ahead.
For the Board of Directors,
William C. Ulland Chairman, President and CEO