ikon20190321

10-Q 1 ikon20210331_10q.htm FORM 10-Q ikon20190321_10q.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2021

☐

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

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.10 per share	IKNX	Nasdaq Capital Market LLC

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $.10 par value - 1,977,854 shares outstanding as of May 7, 2021.

			PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.		Condensed Financial Statements	3

		Condensed Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	3

		Condensed Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)	4

		Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (unaudited)	5

		Condensed Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)	6

		Notes to Condensed Financial Statements (unaudited)	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	18

Item 4.		Controls and Procedures	18

PART II.	OTHER INFORMATION		19

Item 1.		Legal Proceedings	19

Item 1A.		Risk Factors	19

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3.		Defaults upon Senior Securities	20

Item 4.		Mine Safety Disclosures	20

Item 5.		Other Information	20

Item 6.		Exhibits	20

	SIGNATURES		21

	March 31,			December 31,
	2021			2020
ASSETS	(unaudited)

CURRENT ASSETS:
Cash	$	4,428,269		$	3,693,845
Trade receivables, less allowance of $54,000 in 2021 and $55,000 in 2020		1,545,527			2,119,213
Inventories		1,961,916			1,644,975
Prepaid expenses and other assets		210,895			125,969
Income taxes receivable		17,749			219,451
Total current assets		8,164,356			7,803,453

PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land and building		9,556,586			9,556,586
Machinery and equipment		5,263,586			5,263,586
Office equipment		1,417,219			1,417,219
Vehicles		245,674			245,674
		16,483,065			16,483,065
Less accumulated depreciation		(9,255,263	)		(9,094,702	)
Total property, plant and equipment at cost, net		7,227,802			7,388,363

INTANGIBLE ASSETS, less accumulated amortization of $198,539 in 2021 and $207,399 in 2020		243,819			243,583
Total assets	$	15,635,977		$	15,435,399

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Current portion of long-term debt	$	2,654,019		$	2,688,396
Accounts payable		872,679			459,836
Accrued compensation		359,596			279,755
Other accrued liabilities		188,098			168,066
Total current liabilities		4,074,392			3,596,053

COMMITMENTS AND CONTINGENCIES

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 1,977,104 shares in 2021 and 1,976,354, in 2020		197,710			197,635
Additional paid-in-capital		2,787,733			2,743,930
Retained earnings		8,576,142			8,897,781
Total stockholders' equity		11,561,585			11,839,346
Total liabilities and stockholders' equity	$	15,635,977		$	15,435,399

	Three Months Ended
	March 31,
	2021			2020

NET SALES	$	3,073,408		$	3,497,192

COST OF GOODS SOLD		2,077,076			2,343,960

GROSS PROFIT		996,332			1,153,232

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		1,183,591			1,781,020

RESEARCH AND DEVELOPMENT EXPENSES		134,922			183,580

LOSS FROM OPERATIONS		(322,181	)		(811,368	)

INTEREST EXPENSE		(19,842	)		(21,484	)

OTHER INCOME		37			6,917

LOSS BEFORE INCOME TAXES		(341,986	)		(825,935	)

INCOME TAX BENEFIT		(20,347	)		(238,929	)

NET LOSS	$	(321,639	)	$	(587,006	)

LOSS PER COMMON SHARE
Basic	$	(0.16	)	$	(0.30	)
Diluted	$	(0.16	)	$	(0.30	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		1,976,771			1,976,354
Diluted		1,976,771			1,976,354

										Total
					Additional					Stock-
	Common Stock				Paid-in		Retained			holders’
	Shares		Amount		Capital		Earnings			Equity

BALANCE AT DECEMBER 31, 2020		1,976,354	$	197,635	$	2,743,930	$	8,897,781		$	11,839,346

Net loss		—		—		—		(321,639	)		(321,639	)
Exercise of stock options and net of related tax benefit		750		75		6,316		—			6,391
Stock based compensation		—		—		37,487		—			37,487

BALANCE AT MARCH 31, 2021		1,977,104	$	197,710	$	2,787,733	$	8,576,142		$	11,561,585

	Mar 31, 2021			Dec 31, 2020

Raw materials	$	1,339,843		$	1,323,655
Work-in-progress		448,424			428,753
Finished goods		1,357,647			1,065,458
Reduction to LIFO cost		(1,183,998	)		(1,172,891	)

Total Inventories	$	1,961,916		$	1,644,975

	Three Months Ended
	Mar 31, 2021		Mar 31, 2020

Weighted average common shares outstanding		1,976,771		1,976,354
Dilutive effect of stock options and restricted stock units		—		—
Weighted average common and common equivalent shares outstanding		1,976,771		1,976,354

	2021			2020
Dividend yield		—			—
Expected volatility		51.6	%		40.3	%
Expected life of option (years)		10			10
Risk-free interest rate		1.4	%		1.4	%
Fair value of each option on grant date	$	7.05		$	2.90

				Weighted
				Average
				Exercise
	Shares			Price
Outstanding at January 1, 2021		17,500		$	6.97
Granted		10,000			11.50
Exercised		(750	)		8.91
Expired and forfeited		—			—
Outstanding at March 31, 2021		26,750		$	8.61
Exercisable at March 31, 2021		7,915		$	7.73

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Unvested shares at January 1, 2021		54,300	$	6.11
Granted		1,500		9.85
Vested		—		—
Forfeited or surrendered		—		—
Unvested shares at March 31, 2021		55,800		6.21

	IKONICS
			IKONICS
	Chromaline		Imaging		DTX		AMS			Unalloc.			Total
Net sales	$	1,698,681	$	1,086,601	$	76,311	$	211,815		$	—		$	3,073,408
Cost of goods sold		1,234,785		549,655		42,792		249,844			—			2,077,076
Gross profit (loss)		463,896		536,946		33,519		(38,029	)		—			996,332
Selling general and administrative*		258,002		216,536		30,039		58,621			620,393			1,183,591
Research and development*		—		—		—		—			134,922			134,922
Income (loss) from operations	$	205,894	$	320,410	$	3,480	$	(96,650	)	$	(755,315	)	$	(322,181	)

	Three Months Ended
	March 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(321,639	)	$	(587,006	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		160,561			167,623
Amortization		9,000			9,454
Stock based compensation		37,487			3,688
Net gain on sale and disposal of equipment		—			(2,324	)
Changes in working capital components:
Trade receivables		573,686			674,552
Inventories		(316,941	)		(408,233	)
Prepaid expenses and other assets		(84,926	)		578,479
Income tax receivable		201,409			(244,254	)
Accounts payable		412,843			1,575
Accrued expenses		99,875			(620,830	)
Net cash provided by (used in) operating activities		771,355			(427,276	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		—			(135,125	)
Proceeds from sales of equipment		—			18,297
Purchases of intangible assets		(6,787	)		(3,423	)
Proceeds on sale of short-term investments		—			1,225,000
Net cash (used in) provided by investing activities		(6,787	)		1,104,749

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on long-term debt		(36,826	)		(35,682	)
Proceeds from exercise of stock options		6,682			—
Net cash used in financing activities		(30,144	)		(35,682	)

NET INCREASE IN CASH		734,424			641,791

CASH AT BEGINNING OF PERIOD		3,693,845			963,649

CASH AT END OF PERIOD	$	4,428,269		$	1,605,440

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	17,960		$	19,105
Cash received (paid for) income taxes, net	$	221,756		$	(5,325	)

	Mar 31, 2021			Dec 31, 2020

Chromaline	$	1,106,648		$	1,676,592
IKONICS Imaging		247,725			396,116
DTX		33,388			35,983
AMS		181,975			57,676
Unallocated		(24,209	)		(47,154	)

Total	$	1,545,527		$	2,119,213

	IKONICS CORPORATION


DATE: May 13, 2021	By:	/s/ Jon Gerlach
		Jon Gerlach,
		Chief Financial Officer, and
		Vice President of Finance

Exhibit		Description
	3.1	Restated Articles of Incorporation, as amended (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 16, 2002).
	3.2	By-Laws of the Company, as amended and restated on March 17, 2020 (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 18, 2020).
	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
	101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T

SEC Form 10-Q filed by Ikonics Corporation