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TERAWULF INC. - Quarter Report: 2010 September (Form 10-Q)

e10vq
Table of Contents

 
 
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2010
or
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From                      to                     .
Commission file number 000-25727
IKONICS CORPORATION
 
(Exact name of registrant as specified in its charter)
     
Minnesota   41-0730027
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. employer
identification no.)
     
4832 Grand Avenue    
Duluth, Minnesota   55807
     
(Address of principal executive offices)   (Zip code)
(218) 628-2217
Issuer’s telephone number
Not Applicable
 
(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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
     Yes þ    No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
     Yes o    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 þ
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o
  Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
 
      (Do not check if a smaller reporting company)    
     State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: Common Stock, $.10 par value — 1,973,107 shares outstanding as of November 10, 2010.
 
 


 

IKONICS Corporation
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Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1.   Condensed Financial Statements
IKONICS CORPORATION
CONDENSED BALANCE SHEETS
                 
    September 30     December 31  
    2010     2009  
    (unaudited)          
ASSETS
               
CURRENT ASSETS:
               
Cash
  $ 459,162     $ 1,304,586  
Short-term investments
    2,211,213       802,165  
Trade receivables, less allowance of $66,000 in 2010 and $78,000 in 2009
    2,187,305       2,015,798  
Inventories
    2,336,807       2,070,602  
Deposits, prepaid expenses and other assets
    94,653       61,337  
Deferred income taxes
    163,000       163,000  
 
           
Total current assets
    7,452,140       6,417,488  
 
           
 
               
PROPERTY, PLANT, AND EQUIPMENT, at cost:
               
Land and building
    5,888,445       5,883,794  
Machinery and equipment
    2,527,285       2,456,218  
Office equipment
    748,810       741,895  
Vehicles
    234,650       241,006  
 
           
 
    9,399,190       9,322,913  
Less accumulated depreciation
    4,322,046       4,088,669  
 
           
 
    5,077,144       5,234,244  
 
           
 
               
INTANGIBLE ASSETS, less accumulated amortization of $364,790 in 2010 and $325,576 in 2009
    311,829       345,540  
 
           
 
               
 
  $ 12,841,113     $ 11,997,272  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 389,826     $ 286,610  
Accrued compensation
    307,484       337,365  
Other accrued expenses
    128,085       104,408  
Income taxes payable
    5,988       80,803  
 
           
Total current liabilities
    831,383       809,186  
 
           
 
               
DEFERRED INCOME TAXES
    162,000       162,000  
 
           
 
               
Total liabilities
    993,383       971,186  
 
           
 
               
STOCKHOLDERS’ EQUITY:
               
Preferred stock, par value $.10 per share; authorized 250,000 shares; issued none
               
Common stock, par value $.10 per share; authorized 4,750,000 shares; issued and outstanding 1,972,857 shares in 2010 and 1,967,057 in 2009
    197,286       196,706  
Additional paid-in capital
    2,252,973       2,198,289  
Retained earnings
    9,397,471       8,631,091  
 
           
Total stockholders’ equity
    11,847,730       11,026,086  
 
           
 
  $ 12,841,113     $ 11,997,272  
 
           
See notes to condensed financial statements.

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IKONICS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
                                 
    Three Months     Nine Months  
    Ended September 30     Ended September 30  
    2010     2009     2010     2009  
NET SALES
  $ 4,141,092     $ 3,920,663     $ 12,073,724     $ 11,270,376  
 
                               
COST OF GOODS SOLD
    2,474,188       2,337,757       7,093,266       6,825,654  
 
                       
 
                               
GROSS PROFIT
    1,666,904       1,582,906       4,980,458       4,444,722  
 
                               
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    1,086,577       1,101,610       3,409,441       3,419,030  
 
                               
RESEARCH AND DEVELOPMENT EXPENSES
    163,420       164,666       528,622       487,942  
 
                       
 
                               
INCOME FROM OPERATIONS
    416,907       316,630       1,042,395       537,750  
 
                               
GAIN ON SALE OF NON-MARKETABLE EQUITY SECURITIES
                      29,762  
 
                               
LOSS ON INVESTMENT IN NON- MARKETABLE EQUITY SECURITIES
          (918,951 )           (918,951 )
 
                               
INTEREST INCOME
    6,267       3,070       13,672       5,190  
 
                       
 
                               
INCOME (LOSS) BEFORE INCOME TAXES
    423,174       (599,251 )     1,056,067       (346,249 )
 
                               
INCOME TAX EXPENSE
    135,831       110,134       277,111       163,253  
 
                       
 
                               
NET INCOME (LOSS)
  $ 287,343     $ (709,385 )   $ 778,956     $ (509,502 )
 
                       
 
                               
EARNINGS (LOSS) PER COMMON SHARE:
                               
Basic
  $ 0.15     $ (0.36 )   $ 0.40     $ (0.26 )
 
                       
 
                               
Diluted
  $ 0.15     $ (0.36 )   $ 0.39     $ (0.26 )
 
                       
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :
                               
Basic
    1,974,162       1,967,057       1,971,248       1,975,991  
 
                       
 
                               
Diluted
    1,975,882       1,967,057       1,972,351       1,975,991  
 
                       
See notes to condensed financial statements.

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IKONICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
                 
    Nine Months  
    Ended September 30  
    2010     2009  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income (loss)
  $ 778,956     $ (509,502 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation
    304,347       321,759  
Amortization
    39,214       41,438  
Stock based compensation
    21,952       17,024  
(Gain) loss on sale of equipment and vehicles
    (10,766 )     13,582  
Loss on intangible asset abandonment
    29,918       12,700  
Gain on sale of non-marketable equity securities
          (29,762 )
Loss on investment in non-marketable equity securities
          918,951  
Deferred income taxes
          35,000  
Changes in working capital components:
               
Trade receivables
    (171,507 )     (22,954 )
Inventory
    (266,205 )     84,372  
Deposits, prepaid expenses and other assets
    (33,316 )     98,884  
Income tax refund receivable
          157,873  
Accounts payable
    103,216       (190,090 )
Accrued expenses
    (6,204 )     (92,017 )
Income taxes payable
    (74,189 )      
 
           
Net cash provided by operating activities
    715,416       857,258  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property, plant and equipment
    (155,681 )     (96,579 )
Proceeds from sale of equipment and vehicles
    19,200       18,000  
Purchases of intangibles
    (35,421 )     (8,472 )
Purchases of short-term investments
    (2,216,089 )     (600,000 )
Proceeds on sale of short-term investments
    807,041        
Proceeds from sale of non-marketable equity securities
          29,762  
 
           
Net cash used in investing activities
    (1,580,950 )     (657,289 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repurchase of common stock
    (15,130 )     (123,844 )
Proceeds from exercise of stock options
    35,240        
 
           
Net cash provided by (used in) financing activities
    20,110       (123,844 )
 
           
 
               
NET INCREASE (DECREASE) IN CASH
    (845,424 )     76,125  
 
               
CASH AT BEGINNING OF PERIOD
    1,304,586       901,738  
 
           
 
               
CASH AT END OF PERIOD
  $ 459,162     $ 977,863  
 
           
 
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
               
Cash paid for income taxes, net of refunds received of $81,422 and $119,423, respectively
  $ 386,299     $ (6,620 )
 
           
See notes to condensed financial statements.

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IKONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
(Unaudited)
1.   Basis of Presentation
    The balance sheet of IKONICS Corporation (the “Company”) as of September 30, 2010, and the related statements of operations for the three and nine months ended September 30, 2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009, have been prepared without being audited.
 
    In the opinion of management, these statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of IKONICS Corporation as of September 30, 2010, and the results of operations and cash flows for all periods presented.
 
    Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. Therefore, these statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
    The results of operations for interim periods are not necessarily indicative of results that will be realized for the full fiscal year.
2.   Short Term Investments
    The Company’s $2,211,000 of short-term investment is comprised of fully insured certificates of deposit with maturities ranging from six to twelve months and interest rates ranging from 0.2% to 1.9%.
3.   Investments and Fair Value Measurements
    The carrying value of financial instruments, such as cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of their short term nature. We do not hold or issue financial instruments for trading purposes.
 
    The company’s 2009 investment in non-marketable equity securities was comprised of shares in imaging Technology international (“iTi”) and was carried at cost. Non-marketable equity securities are not adjusted to fair value on a recurring basis; however, they are assessed for an other than temporary decline in fair value. A decline in the fair value of these securities that is determined to be other than temporary will result in a revaluation of its carrying amount to fair value in accordance with FASB ASC 325-20-35 paragraphs 1A and 2. An impairment analysis was conducted in accordance with the provisions within FASB ASC 320-10-35 paragraphs 17 through 35. For the three months ended September 30, 2009, the Company recorded an impairment charge of $918,951 reducing the investment in iTi to $0.
 
    Management’s assessment of fair value was primarily based on iTi’s recent financial results and iTi’s inability to secure adequate financing or to negotiate the sale of the company to a third party. Consequently, iTi has ceased operations and has been liquidated. In order to increase consistency and comparability in fair value measurements, the FASB Codification establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels. These levels, in order of highest priority to lowest priority, are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

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IKONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
(Unaudited)
Level 3: Unobservable inputs are used when little or no market data is available.
    Based on the definition of the levels above and the nature of the inputs as described above, management categorized the methodology used in the valuation of its iTi asset as Level 3.
4.   Inventory
    The major components of inventory are as follows:
                 
    Sep 30, 2010     Dec 31, 2009  
Raw materials
  $ 1,414,762     $ 1,333,549  
Work-in-progress
    317,043       277,876  
Finished goods
    1,557,077       1,351,736  
Reduction to LIFO cost
    (952,075 )     (892,559 )
 
           
 
               
Total Inventory
  $ 2,336,807     $ 2,070,602  
 
           
5.   Earnings Per Common Share (EPS)
    Basic EPS is calculated using net income divided by the weighted average of common shares outstanding. Diluted EPS is similar to Basic EPS except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the potential dilutive common shares, such as those shares subject to options, had been issued.
 
    Shares used in the calculation of diluted EPS are summarized below:
                 
    Three Months Ended  
    Sep 30, 2010     Sep 30, 2009  
Weighted average common shares outstanding
    1,974,162       1,967,057  
Dilutive effect of stock options
    1,720        
 
           
Weighted average common and common equivalent shares outstanding
    1,975,882       1,967,057  
 
           
                 
    Nine Months Ended  
    Sep 30, 2010     Sep 30, 2009  
Weighted average common shares outstanding
    1,971,248       1,975,991  
Dilutive effect of stock options
    1,103        
 
           
Weighted average common and common equivalent shares outstanding
    1,972,351       1,975,991  
 
           

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IKONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
(Unaudited)
6.   Stock-based Compensation
    The Company maintains a stock incentive plan which authorizes the issuance of up to 442,750 shares of common stock. Of those shares, 41,000 were subject to outstanding options and 125,573 were reserved for future grants at September 30, 2010. The plan provides for granting eligible participants stock options or other stock awards, as described by the plan, at option prices ranging from 85% to 110% of fair market value at the date of grant. Options granted expire up to seven years after the date of grant. Such options generally become exercisable over a one to three year period. The plan also includes a clause whereby if any individual shareholder’s ownership percentage increases beyond 20%, all outstanding, unvested awards would become immediately vested.
 
    The Company charged compensation cost of $7,500 against income for the three months ended September 30, 2010 compared to $6,600 for the three months ended September 30, 2009. For the first nine months of 2010, the Company charged compensation cost of approximately $22,000 against income compared to approximately $17,000 for the same period in 2009. As of September 30, 2010 there was approximately $44,000 of unrecognized compensation cost related to unvested share-based compensation awards granted. That cost is expected to be recognized over the next three years.
 
    The Company receives a tax deduction for certain stock option exercises during the period in which the options are exercised, generally for the excess of the market price at the time the stock options are exercised over the exercise price of the options, which increased the APIC pool, which is the amount that represents the pool of excess tax benefits available to absorb tax shortages. There were no excess tax benefits recognized during the three or nine month period ending September 30, 2010 and 2009, respectively. The Company’s APIC pool totaled approximately $111,000 at September 30, 2010 and December 31, 2009, respectively.
 
    Proceeds from the exercise of stock options were $35,000 for the nine months ended September 30, 2010. There were no options exercised during the nine months ended September 30, 2009.
 
    The fair value of options granted during the nine months ended September 30, 2010 and 2009 were estimated using the Black-Scholes option pricing model with the following assumptions:
                 
    2010   2009
Dividend yield
    0 %     0 %
Expected volatility
    45.2 %     47.2 %
Expected life of option
  Five Years   Five Years
Risk-free interest rate
    2.5 %     2.0 %
Fair value of each option on grant date
  $ 3.08     $ 2.10  
    There were 4,000 options and 21,750 options granted during the nine months ended September 30, 2010 and 2009, respectively.
 
    Stock option activity during the nine months ended September 30, 2010 was as follows:

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IKONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
(Unaudited)
                 
            Weighted
            Average
            Exercise
    Shares   Price
Outstanding at beginning of period
    45,500     $ 5.91  
Granted
    4,000       7.39  
Exercised
    (8,000 )     4.41  
Expired and forfeited
    (500 )     5.00  
 
               
Outstanding at September 30, 2010
    41,000       6.36  
 
               
Exercisable at September 30, 2010
    20,083       6.90  
 
               
    The aggregate intrinsic value of all options outstanding and for those exercisable at September 30, 2010 was approximately $35,000 and $11,000, respectively.
7.   Segment Information
    The Company’s reportable segments are strategic business units that offer different products and have varied customer bases. There are three reportable segments: Domestic, Export, and IKONICS Imaging. Domestic sells screen printing film, emulsions, and inkjet receptive film to distributors located in the United States and Canada. IKONICS Imaging sells photo resistant film, art supplies, glass, metal medium and related abrasive etching equipment to end user customers located in the United States and Canada. It is also entering the market for etched ceramics, glass and silicon wafers, and is developing and selling proprietary inkjet technology. Export sells primarily the same products as Domestic and IKONICS Imaging to foreign customers. The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
 
    Management evaluates the performance of each segment based on the components of divisional income, and with the exception of trade receivables, does not allocate assets and liabilities to segments. Financial information with respect to the reportable segments follows:
 
    For the three months ended September 30, 2010:
                                         
                    IKONICS              
    Domestic     Export     Imaging     Other     Total  
Net sales
  $ 1,671,062     $ 1,413,108     $ 1,056,922     $     $ 4,141,092  
Cost of goods sold
    888,023       1,021,437       564,728             2,474,188  
 
                             
Gross profit
    783,039       391,671       492,194             1,666,904  
Selling, general and administrative*
    231,668       119,113       280,277       455,519       1,086,577  
Research and development*
                      163,420       163,420  
 
                             
 
                                       
Income from operations
  $ 551,371     $ 272,558     $ 211,917     $ (618,939 )   $ 416,907  
 
                             

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IKONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
(Unaudited)
     For the three months ended September 30, 2009:
                                         
                    IKONICS              
    Domestic     Export     Imaging     Other     Total  
Net sales
  $ 1,702,631     $ 1,329,464     $ 888,568     $     $ 3,920,663  
Cost of goods sold
    880,967       955,366       501,424             2,337,757  
 
                             
Gross profit
    821,664       374,098       387,144             1,582,906  
Selling, general and administrative*
    211,180       131,183       245,930       513,317       1,101,610  
Research and development*
                      164,666       164,666  
 
                             
 
                                       
Income from operations
  $ 610,484     $ 242,915     $ 141,214     $ (677,983 )   $ 316,630  
 
                             
For the nine months ended September 30, 2010:
                                         
                    IKONICS              
    Domestic     Export     Imaging     Other     Total  
Net sales
  $ 4,962,625     $ 4,042,887     $ 3,068,212     $     $ 12,073,724  
Cost of goods sold
    2,589,379       2,827,152       1,676,735             7,093,266  
 
                             
Gross profit
    2,373,246       1,215,735       1,391,477             4,980,458  
Selling, general and administrative*
    718,275       444,767       848,344       1,398,055       3,409,441  
Research and development*
                      528,622       528,622  
 
                             
 
                                       
Income from operations
  $ 1,654,971     $ 770,968     $ 543,133     $ (1,926,677 )   $ 1,042,395  
 
                             
For the nine months ended September 30, 2009:
                                         
                    IKONICS              
    Domestic     Export     Imaging     Other     Total  
Net sales
  $ 5,055,963     $ 3,452,937     $ 2,761,476     $     $ 11,270,376  
Cost of goods sold
    2,676,991       2,598,502       1,550,161             6,825,654  
 
                             
Gross profit
    2,378,972       854,435       1,211,315             4,444,722  
Selling, general and administrative*
    716,708       386,805       830,457       1,485,060       3,419,030  
Research and development*
                      487,942       487,942  
 
                             
 
                                       
Income from operations
  $ 1,662,264     $ 467,630     $ 380,858     $ (1,973,002 )   $ 537,750  
 
                             
 
*   The Company does not allocate all general and administrative expenses or any research and development expenses to its operating segments for internal reporting.
Trade receivables by segment as of September 30, 2010 and December 31, 2009 were as follows:
                 
    Sep 30, 2010     Dec 31, 2009  
Domestic
  $ 913,311     $ 976,967  
Export
    901,009       740,547  
IKONICS Imaging
    403,016       331,117  
Other, net of allowances
    (30,031 )     (32,833 )
 
           
 
               
Total
  $ 2,187,305     $ 2,015,798  
 
           

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IKONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
(Unaudited)
8.   Sale of Non-Marketable Equity Securities
    The Company received and realized a gain of $29,762 during the first nine months of 2009 related to the 2007 sale of its equity investment in Apprise Technologies, Inc.
9.   Income Taxes
    The Company reports a liability for unrecognized tax benefit taken or expected to be taken when they are uncertain. During the first nine months of 2010 and 2009, the statute of limitations for the relevant taxing authority to examine and challenge the tax position for an open year expired, resulting in decreases in income tax expense of $27,000 for the first nine months of 2010 and $21,000 for the first nine months of 2009. As of September 30, 2010, there was no liability for unrecognized tax benefits compared to a liability of $27,000 as of September 30, 2009. The liability for unrecognized tax benefits was previously included in other accrued expenses.
 
    The Company is subject to taxation in the United States and various states. The material jurisdictions that are subject to examination by tax authorities primarily include Minnesota and the United States, for tax years 2007, 2008, and 2009.
 
    It has been the Company’s policy to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company had accrued approximately $8,000 of interest related to uncertain tax positions at December 31, 2009, all of which was reversed and included in income tax benefit on the Statement of Operations for the first nine months of 2010. The unrecognized tax benefits at September 30, 2009 related to taxation of foreign export sales.

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IKONICS CORPORATION
     The information presented below in Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to risks and uncertainties, including those discussed under “Factors that May Affect Future Results” below, that could cause actual results to differ materially from those projected. Because actual results may differ, readers are cautioned not to place undue reliance on these forward-looking statements. Certain forward-looking statements are indicated by italics.
ITEM 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following management’s discussion and analysis focuses on those factors that had a material effect on the Company’s financial results of operations during the third quarter of 2010, the nine months ended September 30, 2010 and the same periods of 2009. It should be read in connection with the Company’s unaudited financial statements and notes thereto included in this Form 10-Q and the Company’s audited financial statements, including related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s 2009 Annual Report on Form 10-K.
Factors that May Affect Future Results
    The Company’s expectation that its effective tax rate will return to 35% to 36% of pretax income for the remainder of 2010 compared to the tax expense recorded in the first nine months of 2010—The effective tax rate for the final three months of 2010 may be affected by changes in federal and state tax law, unanticipated changes in the Company’s financial position or the Company’s operating activities and/or management decisions could increase or decrease its effective tax rate.
 
    The Company’s belief that the quality of its receivables is high and that strong internal controls are in place to maintain proper collections—This belief may be impacted by domestic economic conditions, by economic, political, regulatory or social conditions in foreign markets, or by the failure of the Company to properly implement or maintain internal controls.
 
    The belief that the Company’s current financial resources, cash generated from operations and the Company’s capacity for debt and/or equity financing will be sufficient to fund current and anticipated business operations and capital expenditures. The belief that the Company’s low debt levels and available line of credit make it unlikely that a decrease in product demand would impair the Company’s ability to fund operations—Changes in anticipated operating results, credit availability, equity market conditions or the Company’s debt levels may further enhance or inhibit the Company’s ability to maintain or raise appropriate levels of cash.
 
    The Company’s expectations as to the level and use of planned capital expenditures and that capital expenditures will be funded with cash on hand and cash generated from operating activities—This expectation may be affected by changes in the Company’s anticipated capital expenditure requirements resulting from unforeseen required maintenance, repairs, or capital asset additions. The funding of planned or unforeseen expenditures may also be affected by changes in anticipated operating results resulting from decreased sales, lack of acceptance of new products or increased operating expenses or by other unexpected events affecting the Company’s financial position.
 
    The Company’s belief that its vulnerability to foreign currency fluctuations and general economic conditions in foreign countries is not significant—This belief may be impacted by economic, political and social conditions in foreign markets, changes in regulatory and competitive conditions, a change in the amount or geographic focus of the Company’s international sales, or changes in purchase or sales terms.

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    The Company’s plans to continue to invest in research and development efforts, expedite internal product development and invest in technological alliances, as well as the expected focus and results of such investments—These plans and expectations may be impacted by general market conditions, unanticipated changes in expenses or sales, delays in the development of new products, technological advances, the ability to find suitable and willing technology partners or other changes in competitive or market conditions.
 
    The Company’s efforts to grow its international business—These efforts may be impacted by economic, political and social conditions in current and anticipated foreign markets, regulatory conditions in such markets, unanticipated changes in expenses or sales, changes in competitive conditions or other barriers to entry or expansion.
 
    The Company’s belief as to future activities that may be undertaken to expand the Company’s business—Actual activities undertaken may be impacted by general market conditions, competitive conditions in the Company’s industry, unanticipated changes in the Company’s financial position, lack of acceptance of new products or the inability to identify attractive acquisition targets or other business opportunities.
Critical Accounting Estimates
     The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Therefore, the Company is required to make certain estimates, judgments and assumptions that the Company believes are reasonable based upon the information available. These estimates and assumptions 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 periods presented. The accounting estimates, which IKONICS believes are the most critical to aid in fully understanding and evaluating its reported financial results, include the following:
     Accounts Receivable. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by review of the current credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same collection history that has occurred in the past. The general payment terms are net 30-45 days for domestic customers and net 30-90 days for foreign customers. A small percentage of the accounts receivable balance is denominated in a foreign currency with no concentration in any given country. At the end of each reporting period, the Company analyzes the receivable balance for customers paying in a foreign currency. These balances are adjusted to each quarter or year spot rate in accordance with guidance related to foreign currency matters.
     Inventories. Inventories are valued at the lower of cost or market value using the last in, first out (LIFO) method. The Company monitors its inventory for obsolescence and records reductions in cost when required.
     Income Taxes. At September 30, 2010, the Company had net current deferred tax assets of $163,000 and net noncurrent deferred tax liabilities of $162,000. The deferred tax assets and liabilities result primarily from temporary differences in property and equipment, accrued expenses, and inventory reserves. In connection with the recording of a $919,000 impairment charge in 2009 related to an investment in a non-marketable equity security, the Company has recorded a deferred tax asset and corresponding full valuation allowance in the amount of $331,000 as of September 30, 2010 and December 31, 2009 as it is more likely that this asset will not be realized. The deferred tax asset related to the capital loss can be carried back three years and carried forward five years and must be offset by a capital gain. The Company has determined that it is more likely than not that the remaining deferred tax assets will be realized and that an additional valuation allowance for such assets is not currently required. The Company reports a liability for unrecognized tax benefits taken or expected to be taken when they are uncertain. At

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December 31, 2009 the Company had recorded a liability of $27,000 related to an uncertain tax position which was eliminated during the nine months ended September 30, 2010.
     Investments and Fair Value Measurements. The carrying value of financial instruments, such as cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair value because of their short term nature. We do not hold or issue financial instruments for trading purposes.
The Company’s 2009 investment in non-marketable securities was comprised of shares in iTi and was previously carried at cost. Non-marketable securities are not adjusted to fair value on a recurring basis; however, they are assessed for an other than temporary decline in fair value. A decline in the fair value for these securities occurred in the third quarter of 2009 and was determined to be other than temporary, resulting in a revaluation of its carrying amount to fair value in accordance with FASB ASC 325-20-35 paragraphs 1A and 2. The impairment analysis was conducted in accordance with the provisions within FASB ASC 320-10-35 paragraphs 17 through 35. For the three months ended September 30, 2009, the Company recorded an impairment charge of $918,951, reducing the investment in iTi to $0. The Company did not incur an impairment charge for the nine months ended September 30, 2010.
Management’s assessment of iTi’s fair value was primarily based on its recent financial results and iTi’s inability to secure adequate financing, or to negotiate the sale of the company to a third party. Consequently, iTi has ceased operations and is currently evaluating its options including liquidation. In order to increase consistency and comparability in fair value measurements, the FASB Codification establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels. These levels, in order of highest priority to lowest priority, are described below:
    Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
 
    Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
 
    Level 3: Unobservable inputs are used when little or no market data is available.
Based on the definition of the levels above and the nature of the inputs as described above, management has categorized the methodology used in the valuation of its iTi asset as Level 3.
     Revenue Recognition. The Company recognizes revenue on sales of products when title passes which can occur at the time of shipment or when the goods arrive at the customer location depending on the agreement with the customer. The Company sells its products to both distributors and end-users. Sales to distributors and end-users are recorded based upon the criteria governed by the sales, delivery, and payment terms stated on the invoices from the Company to the purchaser. In addition to transfer of title / risk of loss, all revenue is recorded in accordance with the criteria outlined within the provisions regarding revenue recognition including:
  (a)   persuasive evidence of an arrangement (principally in the form of customer sales orders and the Company’s sales invoices)
 
  (b)   delivery and performance (evidenced by proof of delivery, e.g. the shipment of film and substrates with bill of lading used for proof of delivery for FOB shipping point terms, and the carrier booking confirmation report used for FOB destination terms). Once the finished product is shipped and physically delivered under the terms of the invoice and sales order, the Company has no additional performance or service obligations to complete
 
  (c)   a fixed and determinable sales price (the Company’s pricing is established and is not based on variable terms, as evidenced in either the Company’s invoices or the limited number of distribution agreements; the Company rarely grants extended payment terms and has no history of concessions)
 
  (d)   a reasonable likelihood of payment (the Company’s terms are standard, and the Company does not have a substantial history of customer defaults or non-payment)

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Sales are reported on a net basis by deducting credits, estimated normal returns and discounts. The Company’s return policy does not vary by geography. The Company is not under a warranty obligation and the customer has no rotation or price protection rights. Freight billed to customers is included in sales. Shipping costs are included in cost of goods sold.
Results of Operations
Quarter Ended September 30, 2010 Compared to Quarter Ended September 30, 2009
     Sales. The Company realized a 5.6% sales increase during the third quarter of 2010 with sales of $4.1 million, compared to $3.9 million in sales during the same period in 2009. IKONICS Imaging sales for the third quarter of 2010 were up 18.9% versus the third quarter of 2009 due to strong film sales including increased shipments related the Company’s Digital Texturing initiative. Export 2010 third quarter sales also increased by 6.3% over the same period in 2009 as the Company realized higher sales to Latin America. Domestic sales dropped by 1.9% in third quarter of 2010 due to lower film and emulsion sales.
     Gross Profit. Gross profit was $1.7 million, or 40.3% of sales, in the third quarter of 2010 compared to $1.6 million, or 40.4% of sales, for the same period in 2009. IKONICS Imaging gross profit percentage increased to 46.6% during the third quarter of 2010 compared to 43.6% in the third quarter of 2009 due to increased volume and an improved sales mix. A less favorable sales mix negatively affected both Export and Domestic’s 2010 third quarter gross profit percentage. Export’s third quarter gross profit percentage decreased from 28.1% in 2009 to 27.7% in 2010 while Domestic’s third quarter gross profit percentage decreased from 48.3% in 2009 to 46.9% in 2010.
     Selling, General and Administrative Expenses. Selling, general and administrative expenses of $1.1 million, or 26.2% of sales, in the third quarter of 2010 were comparable to the 2009 third quarter selling general and administrative expenses of $1.1 million, or 28.1% of sales.
     Research and Development Expenses. Research and development expenses during the third quarter of 2010 were $163,000, or 3.9% of sales, versus $165,000, or 4.2% of sales, for the same period in 2009. The decrease is due to lower costs related to research and development production runs.
     Loss on Investment in Non-marketable Equity Securities. The Company’s 2009 investment in non-marketable securities was comprised of shares in iTi and was previously carried at cost. Non-marketable securities are not adjusted to fair value on a recurring basis; however, they are assessed for an other than temporary decline in fair value. A decline in the market value for these securities that is determined to be other than temporary results in a revaluation of its carrying amount to fair value. An impairment analysis was conducted in accordance with applicable accounting standards during the third quarter of 2009, and the Company recorded an impairment charge of $918,951 for the quarter, which represents a full write-off of the Company’s investment in iTi to $0. The Company did not have any non-marketable equity securities as of September 30, 2010 and did not have any loss on any investment in such securities during the third quarter of 2010.
     Interest Income. The Company earned $6,300 of interest income in the third quarter of 2010 compared to $3,000 of interest income in the third quarter of 2009. The interest earned in third quarter of 2010 and 2009 is related to interest received from the Company’s short-term investments, which consisted of fully insured certificates of deposit with maturities ranging from six to twelve months.
     Income Taxes. For the third quarter of 2010, the Company realized income tax expense of $136,000, or an effective rate of 32.1% versus a $110,000 tax expense for the third quarter of 2009. The 2010 income tax provision differs from the expected tax expense primarily due to the benefits of the domestic manufacturing deduction, and state credits for research and development. In 2009 the Company did not receive a tax benefit from the $919,000 loss on investment in non-marketable equity securities since the Company recorded a full valuation allowance

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against the deferred tax asset resulting from the loss on the capital asset impairment charge, as it is currently more likely that the deferred tax asset will not be realized.
Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009
     Sales. The Company’s sales increased 7.1% during the first nine months of 2010 to $12.1 million versus sales of $11.3 million during the first nine months of 2009. Strong sales in Europe and Latin America drove a 17.1% Export sales increase for the first nine months of 2010 compared to the same period in 2009. IKONICS Imaging also realized an 11.1% sales increase over 2009 from improved film shipments to the digital texturing and photo resistant film markets. Partially offsetting these sales increases, Domestic shipments decreased 1.8% during the first nine months of 2010 over the same period in 2009 due to lower private label film shipments.
     Gross Profit. Gross Profit for the first nine months of 2010 was $5.0 million, or 41.3% of sales compared to $4.4 million, or 39.4% of sales, for the same period in 2009. Export gross profit percentage increased to 30.1% during the first nine months of 2010 compared to 24.7% for the same period in 2009 due to higher volumes and an improved sales mix. Improved volumes and sales mix also accounted for IKONICS Imaging gross profit percentage increase from 43.9% in the first nine months of 2009 to 45.4% in the first nine months of 2010. Domestic gross profit percentage improved slightly from 47.1% in the 2009 period to 47.8% in the 2010 period.
     Selling, General and Administrative Expenses. Selling, general and administrative expenses of $3.4 million, or 28.2% of sales, in the first nine months of 2010 were comparable to selling general and administrative expenses for the same period in 2009 of $3.4 million, or 30.3% of sales.
     Research and Development Expenses. Research and development expenses during the first nine months of 2010 were $529,000, or 4.4% of sales, versus $488,000, or 4.3% of sales, for the same period in 2009. The increase is related to the $30,000 abandonment of patent applications The Company records patent application costs as an asset and amortizes those costs upon successful completion of the application process or expenses those costs when an application is abandoned. Additionally, the Company realized increased costs related to research and development production runs.
     Gain on Sale of Non-Marketable Equity Securities. The Company realized a gain of $29,800 during the first nine months of 2009 on the sale of its investment in the common and preferred stock of Apprise Technologies, Inc. The original sale took place during 2007. The final $29,800 received in the first nine months of 2009 was related to a portion of the original sales price that was placed in escrow at the time of the sale for indemnification obligations as part of the agreement between Apprise and its purchaser. The Company did not have any non-marketable equity securities as of September 30, 2010 and did not have any gain on any such securities during the first nine months of 2010.
     Loss on Investment in Non-Marketable Equity Securities . The company’s 2009 investment in non-marketable securities was comprised of shares in iTi and was previously carried at cost. Non-marketable securities are not adjusted to fair value on a recurring basis; however, they are assessed for an other than temporary decline in fair value. A decline in the market value for these securities that is determined to be other than temporary results in a revaluation of its carrying amount to fair value. An impairment analysis was conducted in accordance with applicable accounting standards during the third quarter of 2009, and the Company recorded an impairment charge of $918,951, which represents a full write-off of the Company’s investment in iTi to $0. The Company did not have any loss on any investment in non-marketable equity securities during the first nine months of 2010.
     Interest Income. The Company earned $13,700 of interest income during the first nine months of 2010 compared to $5,200 of interest income for the same period in 2009. The interest earned in first nine months of 2010 and 2009 is related to interest received from the Company’s short-term investments, which consisted of fully insured certificates of deposit with maturities ranging from six to twelve months.
     Income Taxes. During the first nine months of 2010, the Company realized an income tax expense of $277,000, or an effective rate of 26.2%, compared to income tax expense of $163,000 for the same period in 2009. The effective tax rate for the first nine months of 2010 and 2009 was impacted by derecognizing a liability for unrecognized tax benefits relating to a tax year where the statute of limitations expired during the first nine months. A $27,000 liability was derecognized in

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the first nine months of 2010 while a $21,000 liability was derecognized in the first nine months of 2009. During the first nine months of 2010, the Company also recorded an out-of-period tax benefit adjustment of $15,000 relating to December 31, 2009 estimates for tax credits as well as the receipt of interest of approximately $13,000 related to Minnesota state income tax returns. The Company expects that for the remainder of 2010, the Company will record the provision for income taxes at an effective tax rate of 35% to 36%, as it recognizes benefits from the domestic manufacturing deduction, research and development credits, and state income taxes. In 2009 the Company did not receive a tax benefit from the $919,000 loss on investment in non-marketable equity securities since the Company recorded a full valuation allowance against the deferred tax asset resulting from the loss on the capital asset impairment charge, as it is currently more likely that the deferred tax asset will not be realized.
Liquidity and Capital Resources
     The Company has financed its operations principally with funds generated from operations. These funds have been sufficient to cover the Company’s normal operating expenditures, annual capital requirements, and research and development expenditures.
     Cash on hand was $459,000 and $978,000 at September 30, 2010 and 2009, respectively. The Company generated $715,000 in cash from operating activities during the nine months ended September 30, 2010, compared to generating $857,000 of cash from operating activities during the same period in 2009. Cash provided by operating activities is primarily the result of net income adjusted for non-cash depreciation, amortization, and certain changes in working capital components discussed in the following paragraph.
     During the first nine months of 2010, trade receivables increased by $172,000. The increase in receivables was driven by higher sales volumes specifically to export customers who typically have longer credit terms. The Company believes that the quality of its receivables is high and that strong internal controls are in place to maintain proper collections. Inventory levels increased $266,000 due to inventory purchases to support its Digital Texturing program. Deposits, prepaid expenses and other assets increased $33,000 resulting from the prepayment of insurance premiums. Accounts payable increased $103,000 due to of the timing of payments to and purchases from vendors. Accrued liabilities increased $6,000 and income taxes payable decreased $74,000 reflecting 2010 estimated tax payments.
     During the first nine months of 2010, investing activities used $1,581,000. The Company invested $2,215,000 in fully insured certificates of deposits with four $200,000 certificates of deposit maturing during the first nine months of 2010. Purchases of property and equipment totaled $155,000, mainly for three vehicles and equipment purchases. The Company received $19,000 from vehicle sales during the period. Also during the first nine months of 2010, the Company incurred $35,000 in patent application costs that the Company records as an asset and amortizes upon successful completion of the application process.
     During the first nine months of 2009, investing activities used $657,000. The Company invested $600,000 in fully insured certificates on deposits. Purchases of property and equipment were $97,000, mainly for new equipment to support the Company’s new business initiatives and research activities. Also during the first nine months of 2009, the Company incurred $8,000 in patent application costs that the Company records as an asset and amortizes upon successful completion of the application process. The Company received proceeds of approximately $30,000 in the first nine months of 2009 on the 2007 sale of its investment in the common and preferred stock of Apprise Technologies, Inc. and $18,000 on the sale of equipment.
     During the first nine months of 2010 the Company received $20,000 from financing activities. The Company received $35,000 from the issuance of 8,000 shares of common stock from the exercise of stock options and the Company repurchased 2,200 shares of it own stock for $15,000 The Company used $124,000 in financing activities during the first nine months of 2009 to repurchase 26,926 shares of its own stock.
     A bank line of credit exists providing for borrowings of up to $1,250,000. Outstanding debt under this line of credit is collateralized by trade receivables and inventory and bears interest at 2.5 percentage points over the 30-day LIBOR rate. The Company did not utilize this line of credit during the first nine months of 2010 and there

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were no borrowings outstanding as of September 30, 2010. The line of credit was also not utilized during first nine months of 2009, and there were no borrowings outstanding under this line as of September 30, 2009. The line of credit expired on October 30, 2010, however, a new $1,250,000 line of credit which expires on October 30, 2011 was established. Outstanding debt under this line of credit is collateralized by trade receivables and inventory and bears interest at 2.5 percentage points over the 30-day LIBOR rate.
     The Company believes that current financial resources, its line of credit, cash generated from operations and the Company’s capacity for debt and/or equity financing will be sufficient to fund current and anticipated business operations. The Company also believes that its low debt levels and available line of credit make it unlikely that a decrease in demand for the Company’s products would impair the Company’s ability to fund operations.
Capital Expenditures
     Through the first nine months of 2010, the Company had $156,000 in capital expenditures. These capital expenditures were mainly for three vehicles for sales persons and equipment. The Company plans for other capital expenditures during 2010 to include ongoing manufacturing equipment upgrades. Capital expenditures are expected to be approximately $50,000 for the last three months of 2010 and will be funded with cash generated from operating activities.
International Activity
     The Company markets its products to numerous countries in North America, Europe, Latin America, Asia and other parts of the world. Export sales were approximately 34% of total sales during the first nine months of 2010 compared to 31% of sales during the same period in 2009. Higher volumes in Europe and Latin American positively impacted 2010 sales volumes for the first nine months. Fluctuations of certain foreign currencies have not significantly impacted the Company’s operations because the Company’s foreign sales are not concentrated in any one region of the world. The Company believes its vulnerability to uncertainties due to foreign currency fluctuations and general economic conditions in foreign countries is not significant.
     The Company’s foreign transactions are primarily negotiated, invoiced and paid in U.S. dollars, while a portion is transacted in Euros. IKONICS has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures, which management does not believe to be significant based on the scope and geographic diversity of the Company’s foreign operations as of September 30, 2010. Furthermore, the impact of foreign exchange on the Company’s balance sheet and operating results was not material in either 2010 or 2009.

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Future Outlook
     IKONICS has spent on average over 4% of its sales dollars for the past few years in research and development and has made capital expenditures related to its Digital texturing program. The Company plans to maintain its efforts in this area and expedite internal product development as well as form technological alliances with outside experts to commercialize new product opportunities.
     The Company made substantial progress on its new business initiatives during the first nine months of 2010. Photomachining and sound deadening are in commercial operation and supplying product to major electronics, defense and aerospace customers. Two Digital Texturing printers are placed at a beta site; and they are performing to the Company’s expectations and are generating sales of related consumables. The Digital Texturing program was negatively impacted by the 2009 business failure of the Company’s printer supplier, imaging Technology international. However, the Company has made arrangements with two printer manufacturers that the Company believes are both financially strong and technically adept for sourcing future machines. The Company is producing and selling custom substrates for various inkjet applications and is currently developing, under a research contract, a proprietary film product for a major customer.
     Other future activities undertaken to expand the Company’s business may include acquisitions, building improvements, equipment additions, new product development and marketing opportunities. In addition to its traditional emphasis on domestic markets, the Company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence.
Recent Accounting Pronouncements
     The Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
Off Balance Sheet Arrangements
     The Company has no off-balance sheet arrangements.

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ITEM 3.   Quantitative and Qualitative Disclosures about Market Risk
     Not applicable
ITEM 4.   Controls and Procedures
     As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure control and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
     There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1.   Legal Proceedings
     None
ITEM 1A.   Risk Factors
     Not applicable
ITEM 2.   Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities(1)
                                 
                    (c) Total Number of    
                    Shares Purchased as   (d) Maximum Number of
    (a) Total Number           Part of Publicly   Shares that May
    of   (b) Average Price   Announced Plans   Yet Be Purchased Under
    Shares Purchased   Paid per Share   or Programs   The Plans or Programs
July 1, 2010 through July 31, 2010
          n/a             35,231  
August 1, 2010 through August 31, 2010
    2,200     $ 6.88       2,200       33,031  
September 1, 2010 through September 30, 2010
          n/a             33,031  
 
(1)   In prior years, the Company’s board of directors had authorized the repurchase of 150,000 shares of common stock. In August 2008, the Company’s Board of Directors approved the repurchase of an additional 100,000 shares of common stock bringing the total shares eligible for repurchase to 250,000. A total of 206,370 shares have been repurchased under this program including 2,200 shares repurchased during the third quarter of 2010. The plan allows for an additional 33,031 shares to be repurchased.
ITEM 3.   Defaults upon Senior Securities
     Not applicable
ITEM 4.   [Removed and Reserved]
ITEM 5.   Other Information
     None
ITEM 6.   Exhibits
     The following exhibits are filed as part of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010:
     
Exhibit   Description
3.1
  Restated Articles of Incorporation of Company, as amended.1
 
   
3.2
  By-Laws of the Company, as amended.2
 
   
31.1
  Rule 13a-14(a)/15d-14(a) Certifications of CEO
 
   
31.2
  Rule 13a-14(a)/15d-14(a) Certifications of CFO
 
   
32
  Section 1350 Certifications
 
1   Incorporated by reference to the like numbered Exhibit to the Company’s Registration Statement on Form 10-SB (File No. 000-25727).
 
2   Incorporated by reference to the like numbered Exhibit to the Company’s Current Report on Form 8-K filed with the Commission on February 22, 2007 (File No. 000-25727).

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     Copies of Exhibits will be furnished upon request and payment of the Company’s reasonable expenses in furnishing the Exhibits.

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IKONICS CORPORATION
SIGNATURES
     In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
             
    IKONICS CORPORATION    
 
           
DATE: November 12, 2010
  By:   /s/ Jon Gerlach
 
Jon Gerlach,
   
 
         Chief Financial Officer, and    
 
         Vice President of Finance    

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INDEX TO EXHIBITS
         
Exhibit   Description   Page
3.1
  Restated Articles of Incorporation of Company, as amended   Incorporated by reference
3.2
  By-Laws of the Company, as amended.   Incorporated by reference
31.1
  Rule 13a-14(a)/15d-14(a) Certifications of CEO.   Filed Electronically
31.2
  Rule 13a-14(a)/15d-14(a) Certifications of CFO.   Filed Electronically
32
  Section 1350 Certifications.   Filed Electronically