2011 1st Quarter Report

To our Stockholders:

Our first quarter illustrates the opportunities and challenges we face as a company with multiple technologies in many different markets

Chromaline, our domestic screen print supply business, experienced an 11% decline in sales due primarily to special circumstances with two products. however, our new technologies, Micro Machining and DTX, experienced a 74% growth in sales. overall, we had a slight decline in total sales to $3,653,000.

Costs associated with bringing our new technologies to market had a negative impact on earnings, which fell by $111,000 to $0.02 cents per share compared to $0.08 in the first quarter of last year.

However, I anticipate that the decline in Domestic Chromaline sales will reverse and that the strong growth in our new technologies will continue.

With the addition of karl Shaw to the DTX team, we are seeing accelerated market acceptance of our mold texturing technology. in the past year, DTX has been used successfully to create interior textures for the GM Volt and Camaro, the Chrysler 300, 200, Challenger, Charger, and avenger; and the VW Beetle, passat, and Jetta. the interiors of all these cars received high marks for quality. When the new line of DTX printers is available (scheduled for the third quarter), i anticipate a further acceleration of DTX revenue. our plan is to have printers sold directly by our partners, CST and ITW trans tech; our revenue will be driven by the sales of consumables used by the printers.

Sales of our Micro-Machining technology have surged after the introduction in the fourth quarter of last year of our new i-Xe mask for sound-deadening applications in commercial jet aircraft, and we are experiencing strong interest from several potential new customers for this product. We also are seeing strong interest from the aerospace industry in having Ikonics manufacture composite parts in Duluth using our Micro-Machining technology, and we are in negotiations on a number of projects. to meet this anticipated demand, we are acquiring new equipment, which should be ready in the third quarter.

Our Ikonics imaging business is growing behind a strong sales effort, and export sales remain positive.

Domestic Chromaline sales are our biggest challenge. the market is mature, and petroleum-based raw material costs are rising. however, we have identified new market and product opportunities, and I expect that Domestic Chromaline will return to growth and increased profitability.

I believe our mix of well established, profitable businesses and dynamic new technologies for industrial markets, coupled with a strong financial position, make Ikonics a uniquely robust company with a solid foundation and prospects for very exciting growth.

For the Board of Directors, William C. Ulland Chairman,
President & CEO

IKONICS Corporation

 

CONDENSED STATEMENTS OF INCOME (unaudited)

For the Three Months Ended March 31, 2011 and 2010

                                                           

                                                                                          Three Months Ended                        

                                                                                              3/31/11              3/31/10         

  

Net Sales                                                                       $3,653,099         $3,684,577

 

Cost of Goods Sold                                                          2,186,256          2,200,782

 

Gross Profit                                                                     1,466,843          1,483,795

 

Operating expenses                                                          1,443,552          1,361,093

 

Income from operations                                                          23,291             122,702

 

Interest income                                                                       4,562                3,519

 

Income before income taxes                                                   27,853              126,221

 

Income tax benefit                                                                 9,489               22,120

 

Net income                                                                     $    37,342         $   148,341

 

Earnings per common share-diluted                                    $         0.02       $         0.08

 

Average shares outstanding-diluted                                      1,981,114           1,969,433

 

Condensed Balance Sheets

As of March 31, 2011 and December 31, 2010

 

                                                                                  3/31/11          12/31/10        

                                                                                 (unaudited)

Assets 

Current assets                                                    $   7,984,949      $  7,811,830

Property, plant and equipment, net                             4,981,188         5,012,933

Intangible assets, net                                                  328,093            317,168

$ 13,294,230      $13,141,931

Liabilities and Stockholders’ Equity                                                                                

Current liabilities                                                 $     837,578      $     948,984

Deferred income taxes                                                171,000             171,000

Long term debt                                                                   –                          –

Stockholders’ equity                                             12,285,652         12,192,947

$13,294,230       $13,141,931

 

 

CONDENSED STATEMENTS OF CASH FLOW (unaudited)

For the Three Months Ended March 31, 2011 and 2010

 

                                                                                                              3/31/11              3/31/10                     

Net cash provided by (used in) operating activities               $  (500,000)       $  184,442

 

Net cash used in investing activities                                            (94,830)           (73,256)

 

Net cash provided by financing activities                                   55,709                       –

 

Net increase (decrease) in cash                                             (539,121)           111,186

 

Cash at beginning of period                                                1,291,383         1,304,586

 

Cash at end of period                                                      $    752,262       $1,415,772

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