2011 Annual Report
Letter to Shareholders
IKONICS experienced record sales for 2011 of $16,780,000, a 2% increase from 2010. Due to competitive pressures in our screen printing business, we were unable to pass on all of the increasing costs of our petrochemical-based raw materials. Consequently, net income declined by 37%, to $698,000, or $0.35 per share. Developing and launching our new businesses also contributed to increased costs, but I believe these investments were wise, and we are beginning to see a return on them.
In 2006, we embarked on a mission to grow and diversify our business when we recognized that our traditional markets, though quite profitable, were mature. We evaluated our existing technology platforms and considered improvements or additions we could make to allow us to penetrate alternative, attractive markets.
After considerable research, and some trial and error, we moved to servicing industrial markets, including mold texturing, and the machining of silicon wafers and composite materials. We are convinced these markets represent large opportunities for Ikonics and that we have unique expertise and knowledge with which to serve them.
To our existing technology platforms of ultraviolet (UV) chemistry, film coating and construction, and technical sandblasting, we added industrial inkjet printing. To offer customers a compelling value proposition, we needed to elevate all of these technology platforms to produce products and services that exceeded those currently in the market. I believe that, in spite of a deep recession and major technological hurdles in chemistry, film construction and inkjet printer development, we have met those goals. I believe we will begin to see positive progress in 2012.
Micro-Machining Solutions is our business unit that machines electronic wafers and composite materials using precision abrasive etching. This business grew substantially in 2011 and became profitable. One of our market segments is composites where we offer substantially superior performance in important applications. Our process is presently being used on Boeing®, Airbus®, and Gulfstream® aircraft and is being tested by other major aerospace companies for use in their manufacturing processes. The aerospace industry has a very long sales cycle and, in some cases, suppliers are compelled to wait for a new design or process to be specified. Once specified, however, the sales life of a product can also be very long. Our offering is hitting the market as the aerospace industry recovers from the recession and the use of composites in aerospace manufacturing continues to grow.
Digital Texturing (DTX) is our patented technology for placing textures or patterns in the steel molds used by plastic-injection molding companies. DTX offers lower cost and better quality than competing traditional technologies, many of which are decades old. We recently introduced ExactFlat® software to further enhance the advantages of DTX. Although our primary focus for DTX is the automotive industry, there are many other applications of textured surfaces, representing a long-term opportunity for IKONICS. Our chemists and engineers have done a remarkable job of developing consumables (inks and transfer films) that will be used by the DTX inkjet printers sold by our strategic partners. The market had been waiting for our second generation, high resolution printer, which was delivered to a customer in North America in January 2012 and is currently in use. Additional DTX printer sales by our strategic partners are pending.
Our traditional businesses of manufacturing and supplying photochemical films and emulsions to the worldwide screen printing market and sand blast photoresist films to the awards and recognition industry have funded these new initiatives. To return these enterprises to their former level of profitability we are introducing new products, lowering fixed costs, and evaluating new distribution models. I believe an improvement in their profitability will coincide with the continued strong performance of Micro-Machining and the commercial launch of DTX.
WILLIAM C. ULLAND Chairman, President & CEO
March 20, 2012