2008 3rd Quarter Report
To Our Stockholders:
Sales for the third quarter of 2008 were $3,833,000, a 5% decline from the same quarter in 2007. Earnings fell from $354,000, or $0.17 per share, to $238,000, or $0.11 per share, a 33% decline.
Although some unique factors contributed to the sales decline, the primary cause was the effect of the general economic recession on the awards and recognition market. The earnings decline also was affected by some one time expenses; but an unfavorable product mix, expenses related to new technologies and the rising cost of petrochemical based raw materials were the main causes.
The challenge for IKONICS is to bring our new technologies to markets fast enough to offset the recession related pressure on our core business units. We are making progress in this area. We believe our Digital Texturing technology is ready for market and we took delivery of a production Digital Imaging machine during the quarter. However, the primary market for this technology is automotive and subject to the same factors as our core business. These sales will be slower in building than we had initially planned. Our new Photo-Machining business unit is continuing to grow and is less subject to the national economy, since a good part of its customer base is aerospace and defense related.
During the quarter, we made significant progress in developing custom products for third parties based on our technology and manufacturing ability. We are currently manufacturing two such products and have entered into an R&D program with a major international company that could result in very significant sales as well as income from the R&D contract. I anticipate that sales and income from these efforts will contribute to future earnings.
While I’m disappointed with the 3rd quarter, I am optimistic that our new technologies will contribute to future sales and profits. However, the economy remains a major concern for our traditional lines of business and we are cutting costs accordingly.
The company remains financially very strong and we continue to generate cash from operations. Our new 35,000 sq. ft. expansion and our recent 74,466 share repurchase have been totally funded by the company’s cash.
For the Board of Directors,
William C. Ulland Chairman, President & CEO
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
For the Three Months and Nine Months Ended September 30, 2008 and 2007
Three Months Ended Nine Months Ended
9/30/08 9/30/07 9/30/08 9/30/07
Net Sales $3,832,783 $4,016,923 $11,943,690 $11,899,367
Costs and expenses 3,585,580 3,531,922 11,110,481 10,978,072
Income from operations 247,203 485,001 833,209 921,295
Gain on sale of investment 24,550 – 24,550 55,159
Interest income 19,890 40,616 87,262 110,247
Income before income taxes 291,643 525,617 945,021 1,086,701
Income tax expense 53,810 171,692 243,113 262,277
Net income $ 237,833 $ 353,925 $ 701,908 $ 824,424
Earnings per common share-diluted $ 0.11 $ 0.17 $ 0.34 $ 0.40
Average shares outstanding-diluted 2,073,925 2,074,569 2,070,134 2,061,400
Condensed Balance Sheets
As of September 30, 2008 and December 31, 2007
Current assets $ 6,948,179 $ 9,315,737
Property, plant and equipment, net 4,732,767 1,320,591
Investment in non-marketable
equity securities 855,201 855,201
Intangible assets 404,420 479,888
Deferred income taxes 11,000 11,000
Liabilities and Stockholders’ Equity
Current liabilities $ 1,565,798 $ 936,703
Long term debt – –
Stockholders’ equity 11,385,769 11,045,714