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As Of Filer Filing For·On·As Docs:Size Issuer Agent 3/03/11 Ikonics Corp 10-K 12/31/10 7:374K RR Donnelley/FA |
Document/Exhibit Description Pages Size 1: 10-K Annual Report HTML 270K 2: EX-10.1 Material Contract HTML 62K 3: EX-23 Consent of Experts or Counsel HTML 7K 4: EX-24 Power of Attorney HTML 11K 5: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) HTML 13K 6: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) HTML 13K 7: EX-32 Certification per Sarbanes-Oxley Act (Section 906) HTML 8K
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þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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) |
Name of Each Exchange | ||
Title of Each Class | On Which Registered | |
Common Stock, par value $.10 per share | Nasdaq Capital Market | |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(do not check if smaller reporting company) |
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High | Low | |||||||
Fiscal Year Ended December 31, 2010: |
||||||||
First Quarter |
$ | 7.16 | $ | 6.30 | ||||
Second Quarter |
7.50 | 6.52 | ||||||
Third Quarter |
7.32 | 6.40 | ||||||
Fourth Quarter |
8.00 | 6.91 | ||||||
Fiscal Year Ended December 31, 2009: |
||||||||
First Quarter |
$ | 5.80 | $ | 4.00 | ||||
Second Quarter |
6.87 | 4.35 | ||||||
Third Quarter |
7.98 | 5.50 | ||||||
Fourth Quarter |
8.29 | 6.30 |
(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 | |||||||||||||
January 1, 2010 through July 31, 2010 |
— | — | — | 35,231 | ||||||||||||
August 1, 2010 through August 31, 2010 |
2,200 | $ | 6.88 | 2,200 | 33,031 | |||||||||||
— | — | — | 33,031 | |||||||||||||
2,200 | $ | 6.88 | 2,200 | 33,031 | ||||||||||||
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• | 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 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. | ||
• | 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 belief that sales growth will occur in China and India due to increased sales efforts —These efforts may be impacted by economic, political and social conditions in these foreign markets, regulatory conditions in such markets, unanticipated changes in expenses or sales, lack of market acceptance of the Company’s products, changes in competitive conditions or other barriers to entry or expansion. | ||
• | The Company’s belief as to future sources of sales growth and profitability, including from photo resist film, export markets and other products the Company sells—The sources of future increases to the Company’s sales and profitability, and the Company’s ability to increase sales or profitability at all, may be impacted by lack of market acceptance for the Company’s products, adverse changes to the global economy and consumer confidence, the adequacy of the Company’s intellectual property protections, the Company’s ability to customize its products for new markets, the Company’s ability to |
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maintain the quality of its receivables while adding customers in new markets and the Company’s ability to maintain its reputation for quality products. |
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(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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2010 | 2009 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash (Note 7) |
$ | 1,291,383 | $ | 1,304,586 | ||||
Short-term investments |
2,217,990 | 802,165 | ||||||
Trade receivables, less allowance of $60,000 in 2010 and
$78,000 in 2009 (Notes 5, 7, and 8) |
1,883,428 | 2,015,798 | ||||||
Inventories (Notes 1 and 8) |
2,198,064 | 2,070,602 | ||||||
Prepaid expenses and other assets |
63,965 | 61,337 | ||||||
Deferred income taxes (Note 2) |
157,000 | 163,000 | ||||||
Total current assets |
7,811,830 | 6,417,488 | ||||||
PROPERTY, PLANT, AND EQUIPMENT, at cost: |
||||||||
Land and building |
5,888,445 | 5,883,794 | ||||||
Machinery and equipment |
2,455,238 | 2,456,218 | ||||||
Office equipment |
642,100 | 741,895 | ||||||
Vehicles |
234,650 | 241,006 | ||||||
9,220,433 | 9,322,913 | |||||||
Less accumulated depreciation |
4,207,500 | 4,088,669 | ||||||
5,012,933 | 5,234,244 | |||||||
INTANGIBLE ASSETS, less accumulated amortization of $376,983 in
2010 and $325,576 in 2009 (Note 3) |
317,168 | 345,540 | ||||||
$ | 13,141,931 | $ | 11,997,272 | |||||
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2010 | 2009 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts Payable |
$ | 441,830 | $ | 286,610 | ||||
Accrued compensation |
282,196 | 337,365 | ||||||
Other accrued liabilities (Note 2) |
45,868 | 104,408 | ||||||
Income taxes payable |
8,090 | 80,803 | ||||||
Total current liabilities |
777,984 | 809,186 | ||||||
DEFERRED INCOME TAXES (Note 2) |
171,000 | 162,000 | ||||||
Total liabilities |
948,984 | 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 1,973,357 shares in 2010 and 1,967,057 shares in 2009 (Note 6) |
197,336 | 196,706 | ||||||
Additional paid-in capital |
2,263,176 | 2,198,289 | ||||||
Retained earnings |
9,732,435 | 8,631,091 | ||||||
Total stockholders’ equity |
12,192,947 | 11,026,086 | ||||||
$ | 13,141,931 | $ | 11,997,272 | |||||
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2010 | 2009 | |||||||
NET SALES |
$ | 16,517,338 | $ | 15,121,617 | ||||
COST OF GOODS SOLD |
9,713,054 | 9,054,771 | ||||||
GROSS PROFIT |
6,804,284 | 6,066,846 | ||||||
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES |
4,574,452 | 4,543,448 | ||||||
RESEARCH AND DEVELOPMENT EXPENSES |
695,593 | 653,747 | ||||||
5,270,045 | 5,197,195 | |||||||
INCOME FROM OPERATIONS |
1,534,239 | 869,651 | ||||||
GAIN ON SALE OF NON-MARKETABLE EQUITY SECURITIES |
— | 29,762 | ||||||
LOSS ON INVESTMENT IN NON-MARKETABLE EQUITY SECURITIES |
— | (918,951 | ) | |||||
INTEREST INCOME |
19,681 | 8,178 | ||||||
INCOME (LOSS) BEFORE INCOME TAXES |
1,553,920 | (11,360 | ) | |||||
FEDERAL AND STATE INCOME TAXES (Note 2) |
440,000 | 296,000 | ||||||
NET INCOME (LOSS) |
$ | 1,113,920 | $ | (307,360 | ) | |||
EARNINGS (LOSS) PER COMMON SHARE: |
||||||||
Basic |
$ | 0.56 | $ | (0.16 | ) | |||
Diluted |
$ | 0.56 | $ | (0.16 | ) | |||
WEIGHTED AVERAGE COMMON SHARES: |
||||||||
Basic |
1,971,717 | 1,973,739 | ||||||
Diluted |
1,973,447 | 1,973,739 | ||||||
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Total | ||||||||||||||||||||
Additional | Stock- | |||||||||||||||||||
Common Stock | Paid-in | Retained | holders’ | |||||||||||||||||
Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
BALANCE AT DECEMBER 31, 2008 |
1,993,983 | $ | 199,398 | $ | 2,202,888 | $ | 9,031,354 | $ | 11,433,640 | |||||||||||
Net loss |
— | — | — | (307,360 | ) | (307,360 | ) | |||||||||||||
Common Stock Repurchased |
(26,926 | ) | (2,692 | ) | (28,249 | ) | (92,903 | ) | (123,844 | ) | ||||||||||
Stock based compensation and related tax benefit |
— | — | 23,650 | — | 23,650 | |||||||||||||||
BALANCE AT DECEMBER 31, 2009 |
1,967,057 | 196,706 | 2,198,289 | 8,631,091 | 11,026,086 | |||||||||||||||
Net income |
— | — | — | 1,113,920 | 1,113,920 | |||||||||||||||
Exercise of stock options |
8,500 | 850 | 36,890 | — | 37,740 | |||||||||||||||
Common stock repurchased |
(2,200 | ) | (220 | ) | (2,334 | ) | (12,576 | ) | (15,130 | ) | ||||||||||
Tax benefit resulting from stock option exercises |
914 | 914 | ||||||||||||||||||
Stock based compensation and related tax benefit |
— | — | 29,417 | — | 29,417 | |||||||||||||||
BALANCE AT DECEMBER 31, 2010 |
1,973,357 | $ | 197,336 | $ | 2,263,176 | $ | 9,732,435 | $ | 12,192,947 | |||||||||||
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2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 1,113,920 | $ | (307,360 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||
Depreciation |
402,027 | 424,573 | ||||||
Amortization |
51,407 | 55,251 | ||||||
Stock based compensation |
29,417 | 23,650 | ||||||
(Gain) loss on sale of equipment and vehicles |
(13,766 | ) | 8,059 | |||||
Loss on intangible asset abandonment |
31,372 | 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 |
15,000 | (48,000 | ) | |||||
Changes in working capital components: |
||||||||
Trade receivables |
132,370 | 61,360 | ||||||
Inventories |
(127,462 | ) | 38,562 | |||||
Prepaid expenses and other assets |
(2,628 | ) | 130,864 | |||||
Income tax refund receivable |
— | 185,869 | ||||||
Accounts payable |
155,220 | (178,173 | ) | |||||
Accrued liabilities |
(113,709 | ) | (3,233 | ) | ||||
Income taxes payable |
(71,799 | ) | 80,803 | |||||
Net cash provided by operating activities |
1,601,369 | 1,374,114 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchases of property and equipment |
(189,150 | ) | (90,313 | ) | ||||
Proceeds from sale of equipment and vehicles |
22,200 | 25,500 | ||||||
Purchases of intangibles |
(54,407 | ) | (10,206 | ) | ||||
Purchases of short-term investments |
(2,621,393 | ) | (1,002,165 | ) | ||||
Proceeds from sale of short-term investments |
1,205,568 | 200,000 | ||||||
Proceeds from sale of non-marketable equity securities |
— | 29,762 | ||||||
Net cash used in investing activities |
(1,637,182 | ) | (847,422 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Repurchase of common stock |
(15,130 | ) | (123,844 | ) | ||||
Proceeds from exercise of stock options |
37,740 | — | ||||||
Net cash provided by (used in) financing activities |
22,610 | (123,844 | ) | |||||
NET INCREASE (DECREASE) IN CASH |
(13,203 | ) | 402,848 | |||||
CASH AT BEGINNING OF YEAR |
1,304,586 | 901,738 | ||||||
CASH AT END OF YEAR |
$ | 1,291,383 | $ | 1,304,586 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes, net of refunds received of $81,422 and
$119,423, respectively |
$ | 531,799 | $ | 96,380 | ||||
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1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Description of Business and Foreign Export Sales — IKONICS Corporation (the Company) develops and manufactures high-quality photochemical imaging systems for sale primarily to a wide range of printers and decorators of surfaces. Customers’ applications are primarily screen printing and abrasive etching. The Company’s principal markets are throughout the United States. In addition, the Company sells to Europe, Latin America, Asia, and other parts of the world. The Company extends credit to its customers, all on an unsecured basis, on terms that it establishes for individual customers. | ||
Foreign export sales approximated 32.8% of net sales in 2010 and 30.6% of net sales in 2009. The Company’s accounts receivable at December 31, 2010 and 2009 due from foreign customers were 38.5% and 36.7%, respectively. The foreign export receivables are composed primarily of open credit arrangements with terms ranging from 30 to 90 days. No single customer represented greater than 10% of net sales in 2010 or in 2009. | ||
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through March 3, 2011, the date the financial statements were issued. | ||
A summary of the Company’s significant accounting policies follows: | ||
Short-Term Investments — Short-term investments consist of $2,217,990 and $802,165 of fully insured certificates of deposit with maturities ranging from one to twelve months as of December 31, 2010 and 2009, respectively. | ||
Trade Receivables — Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on an on-going basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. Accounts are considered past due if payment is not received according to agreed-upon terms. | ||
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 FASB ASC 830, Foreign Currency Matters. Foreign currency transactions and translation adjustments did not have a significant effect on the Balance Sheet or the Statements of Stockholders’ Equity and Cash Flows for 2010 and 2009. | ||
Inventories — Inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) method. If the first-in, first-out cost method had been used, inventories would have been approximately $993,000 and $893,000 higher than reported at December 31, 2010 and 2009, respectively. During 2009, certain inventory quantities were reduced, which resulted in liquidations of LIFO inventory layers. The liquidations decreased cost of goods sold by approximately $59,000 in 2009. No layers were liquidated in 2010. The major components of inventories, net of the allowance for obsolescence, are as follows: |
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2010 | 2009 | |||||||
Raw materials |
$ | 1,403,875 | $ | 1,333,549 | ||||
Work-in-progress |
294,006 | 277,876 | ||||||
Finished goods |
1,493,226 | 1,351,736 | ||||||
Reduction to LIFO cost |
(993,043 | ) | (892,559 | ) | ||||
Total inventories |
$ | 2,198,064 | $ | 2,070,602 | ||||
Depreciation — Depreciation of property, plant and equipment is computed using the straight-line method over the following estimated useful lives: |
Years | ||||
Buildings |
15-40 | |||
Machinery and equipment |
5-10 | |||
Office equipment |
3-10 | |||
Vehicles |
3 |
Intangible Assets — Intangible assets consist primarily of patents, licenses and covenants not to compete arising from business combinations. Intangible assets are amortized on a straight-line basis over their estimated useful lives or agreement terms. Intangible assets with finite lives are assessed for impairment whenever events or circumstances indicate the carrying value may not be fully recoverable by comparing the carrying value of the intangibles to their future undiscounted cash flows. To the extent the undiscounted cash flows are less than the carrying value, analysis is performed based on several criteria, including, but not limited to, revenue trends, discounted operating cash flows and other operating factors to determine the impairment amount. |
As of December 31, 2010 the remaining estimated weighted average useful lives of intangible assets are as follows: |
Years | ||||
Patents |
16.5 | |||
Licenses |
5.0 | |||
Non-compete agreements |
3.5 |
Fair Value of Financial Instruments — The carrying amounts of financial instruments, including cash, short-term investments, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to the short maturity of these instruments. |
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 SAB 104 and FASB ASC 605 Revenue Recognition: |
(a) persuasive evidence of an arrangement (principally in the form of customer sales orders and the Company’s sales invoices, as generally there is no other formal agreement underlying the sale transactions) | |||
(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 |
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(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) |
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 customer has no rotation or price protection rights and the Company is not under a warranty obligation except for a minimal obligation related to six months of service on the DTX printer sold in 2010. Freight billed to customers is included in sales. Shipping costs are included in cost of goods sold. | ||
Deferred Taxes — Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. | ||
Earnings (loss) 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, when dilutive, that would have been outstanding if the potential dilutive common shares, such as those shares subject to options, had been issued. For the year ended December 31, 2009, the effect of all stock-based awards were anti-dilutive due to the net loss incurred and, therefore, they were not included in the computation of per share amounts. | ||
Shares used in the calculation of diluted EPS are summarized below: |
2010 | 2009 | |||||||
Weighted average common shares outstanding |
1,971,717 | 1,973,739 | ||||||
Dilutive effect of stock options |
1,730 | — | ||||||
Weighted average common and common equivalent shares outstanding |
1,973,447 | 1,973,739 | ||||||
At December 31, 2010, options to purchase 16,250 shares of common stock with a weighted average exercise price of $7.89 were outstanding, but were excluded from the computation of common share equivalents because they were anti-dilutive. If the Company had been in a net income position in 2009, 28,000 options with a weighted average exercise price of $4.83 would have been included as part of the weighted average common as the options would have been dilutive. |
Employee Stock Plan — The Company accounts for employee stock options under the provision of ASC 718 Compensation — Stock Compensation. |
Use of Estimates — The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts receivable, the reserve for inventory obsolescence and the valuation allowance for deferred tax assets. |
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2. | INCOME TAXES | |
Income tax expense (benefit) for the years ended December 31, 2010 and 2009 consists of the following: |
2010 | 2009 | |||||||
Current: |
||||||||
Federal |
$ | 428,000 | $ | 325,000 | ||||
State |
(3,000 | ) | 19,000 | |||||
425,000 | 344,000 | |||||||
Deferred |
15,000 | (48,000 | ) | |||||
$ | 440,000 | $ | 296,000 | |||||
The expected provision (benefit) for income taxes, computed by applying the U.S. federal income tax rate of 35% in 2010 and 2009 to income before taxes, is reconciled to income tax expense as follows: |
2010 | 2009 | |||||||
Expected provision (benefit) for federal income taxes |
$ | 544,000 | $ | (5,000 | ) | |||
State income taxes, net of federal benefit |
(2,100 | ) | 15,300 | |||||
Reversal of uncertain tax positions |
(27,000 | ) | (21,000 | ) | ||||
Domestic manufacturers deduction |
(50,100 | ) | (12,800 | ) | ||||
Non-deductible meals, entertainment, and life insurance |
20,400 | 16,300 | ||||||
Valuation allowance for capital loss on investment in non-marketable equity securities |
— | 331,000 | ||||||
Research and development credit |
(16,600 | ) | (14,800 | ) | ||||
Other |
(28,600 | ) | (13,000 | ) | ||||
$ | 440,000 | $ | 296,000 | |||||
Net deferred tax assets (liabilities) consist of the following as of December 31, 2010 and 2009: |
2010 | 2009 | |||||||
Accrued vacation |
$ | 21,000 | $ | 23,000 | ||||
Inventories |
113,000 | 114,000 | ||||||
Allowance for doubtful accounts |
12,000 | 18,000 | ||||||
Allowance for sales returns |
11,000 | 11,000 | ||||||
Capital loss carryforward |
323,000 | 331,000 | ||||||
Less valuation allowance |
(323,000 | ) | (331,000 | ) | ||||
157,000 | 166,000 | |||||||
Deferred tax liabilities: |
||||||||
Property and equipment and other assets |
(160,000 | ) | (160,000 | ) | ||||
Intangible assets |
(11,000 | ) | (3,000 | ) | ||||
Prepaid expenses |
— | (2,000 | ) | |||||
Net deferred tax assets (liabilities) |
$ | (14,000 | ) | $ | 1,000 | |||
The deferred tax amounts described above have been included in the accompanying balance sheet as of December 31, 2010 and 2009 as follows: |
2010 | 2009 | |||||||
Current assets |
$ | 157,000 | $ | 163,000 | ||||
Noncurrent assets (liabilities) |
(171,000 | ) | (162,000 | ) | ||||
$ | (14,000 | ) | $ | 1,000 | ||||
At December 31, 2010 and 2009, the Company established a valuation allowance against its deferred tax asset related to the Company’s $919,000 loss on its investment in non-marketable equity securities since it is more likely that the deferred tax asset will not be realized. The deferred tax asset and valuation allowance at December 31, 2010 and December 31, 2009 was $323,000 and $331,000, respectively. In 2010 the Company was able to offset $8,000 of the deferred tax asset with the gain realized on its 2007 sale of its investments in Apprise Technologies. As of December 31, 2010 the remaining deferred tax asset related to |
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the capital loss can be carried back two years and carried forward four years and must be offset by a capital gain. |
The Company accounts for its uncertain tax positions under the provisions of FASB ASC 740, Income Taxes. During 2010 and 2009, the statute of limitations for the relevant taxing authority to examine and challenge the tax position for open years expired, resulting in decreases in income tax expense of $27,000 in 2010 and $21,000 in 2009. As of December 31, 2010, there was no liability for unrecognized tax benefits compared to a liability of $27,000 as of December 31, 2009. The liability for unrecognized tax benefits was included in other accrued liabilities. |
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. The unrecognized tax benefits at December 31, 2009 relate to taxation of foreign export sales. At December 31, 2010 there is no accrual for interest related to uncertain tax positions as there is no liability for unrecognized tax benefits at December 31, 2010. |
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, 2009 and 2010. |
A reconciliation of the beginning and ending amounts of unrecognized tax benefit for 2010 and 2009 is as follows: |
Balance at January 1, 2009 |
$ | 48,000 | ||
Expiration of the statute of limitations for the
assessment of taxes |
(21,000 | ) | ||
Balance at December 31, 2009 |
27,000 | |||
Expiration of the statute of limitations for the
assessment of taxes |
(27,000 | ) | ||
Balance at December 31, 2010 |
$ | — | ||
22
3. | INTANGIBLE ASSETS | |
Intangible assets consist of patents, patent applications, licenses and covenants not to compete arising from business combinations. Capitalized patent application costs are included with patents. Intangible assets are amortized on a straight-line basis over their estimated useful lives or terms of their agreement, whichever is shorter. In 2010 the Company wrote off $31,000 of costs related to patent applications compared to $13,000 written off in 2009. No other impairment adjustments to intangible assets were made during the year ended December 31, 2010 or 2009. | ||
Intangible assets at December 31, 2010 and 2009 consist of the following: |
December 31, 2010 | December 31, 2009 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Amortized intangible assets: |
||||||||||||||||
Patents |
$ | 291,151 | $ | (123,489 | ) | $ | 268,116 | $ | (115,872 | ) | ||||||
Licenses |
100,000 | (67,500 | ) | 100,000 | (59,376 | ) | ||||||||||
Non-compete agreements |
303,000 | (185,994 | ) | 303,000 | (150,328 | ) | ||||||||||
$ | 694,151 | $ | (376,983 | ) | $ | 671,116 | $ | (325,576 | ) | |||||||
Aggregate amortization expense: |
2010 | 2009 | ||||||||||||||
For the years ended December 31 |
$ | 51,407 | $ | 55,251 |
Estimated amortization expense for the years ending December 31: |
2011 |
46,000 | |||
2012 |
46,000 | |||
2013 |
41,000 | |||
2014 |
12,000 | |||
2015 |
9,000 |
In connection with the license agreements, the Company has agreed to pay royalties ranging from 3% to 5% on the sales of products subject to the agreements. The Company incurred $87,000 of expense under these agreements during 2010, and $74,000 during 2009 which have been included in selling, general and administrative expenses in the Statements of Operations. |
4. | RETIREMENT PLAN | |
The Company has established a salary deferral plan under Section 401(k) of the Internal Revenue Code. Such deferrals accumulate on a tax-deferred basis until the employee withdraws the funds. The Company contributes up to 5% of each eligible employee’s compensation. Total retirement expense for the years ended December 31, 2010 and 2009 was approximately $188,000 and $175,000, respectively. |
5. | SEGMENT INFORMATION | |
The Company’s reportable segments are strategic business units that offer different products and have a varied customer base. There are three reportable segments: Domestic, Export, and IKONICS Imaging. Domestic sells screen printing film, emulsions, and inkjet receptive film which is sold to distributors located in the United States. 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. It is also in the market for etched industrial ceramics, glass and silicon wafers, sound deadening products for aerospace; 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. |
23
Management evaluates the performance of each segment based on the components of divisional income, and with the exception for accounts receivable, does not allocate assets and liabilities to segments. Financial information with respect to the reportable segments follows: |
For the year ended December 31, 2010: |
IKONICS | ||||||||||||||||||||
Domestic | Export* | Imaging | Other | Total | ||||||||||||||||
Net sales |
$ | 6,653,723 | $ | 5,420,601 | $ | 4,443,014 | $ | — | $ | 16,517,338 | ||||||||||
Cost of goods sold |
3,497,971 | 3,792,335 | 2,422,748 | — | 9,713,054 | |||||||||||||||
Gross profit |
3,155,752 | 1,628,266 | 2,020,266 | — | 6,804,284 | |||||||||||||||
Selling, general and
Administrative |
973,623 | 571,826 | 1,128,508 | 1,900,495 | 4,574,452 | |||||||||||||||
Research and
Development |
— | — | — | 695,593 | 695,593 | |||||||||||||||
Income (loss) from
Operations |
$ | 2,182,129 | $ | 1,056,440 | $ | 891,758 | $ | (2,596,088 | ) | $ | 1,534,239 | |||||||||
For the year ended December 31, 2009: |
IKONICS | ||||||||||||||||||||
Domestic | Export* | Imaging | Other | Total | ||||||||||||||||
Net sales |
$ | 6,788,355 | $ | 4,628,855 | $ | 3,704,407 | $ | — | $ | 15,121,617 | ||||||||||
Cost of goods sold |
3,589,054 | 3,400,896 | 2,064,821 | — | 9,054,771 | |||||||||||||||
Gross profit |
3,199,301 | 1,227,959 | 1,639,586 | — | 6,066,846 | |||||||||||||||
Selling, general and
Administrative |
944,273 | 552,616 | 1,112,485 | 1,934,074 | 4,543,448 | |||||||||||||||
Research and
Development |
— | — | — | 653,747 | 653,747 | |||||||||||||||
Income (loss) from
Operations |
$ | 2,255,028 | $ | 675,343 | $ | 527,101 | $ | (2,587,821 | ) | $ | 869,651 | |||||||||
Trade receivables as of December 31, 2010 and 2009: |
2010 | 2009 | |||||||
Domestic |
$ | 874,535 | $ | 976,967 | ||||
Export |
725,007 | 740,547 | ||||||
IKONICS Imaging |
325,334 | 331,117 | ||||||
Other |
(41,448 | ) | (32,833 | ) | ||||
Total |
$ | 1,883,428 | $ | 2,015,798 | ||||
* | In 2010 and 2009, the Company marketed its products in various countries throughout the world. The Company is exposed to the risk of changes in social, political, and economic conditions inherent in foreign operations, and the Company’s results of operations are affected by fluctuations in foreign currency exchange rates. No single foreign country accounted for more than 10% of the Company’s net sales for 2010 and 2009. |
Sales to foreign customers were 32.8% and 30.6% of the Company’s net sales for 2010 and 2009, respectively. |
24
6. | STOCK OPTIONS | |
The Company has a stock incentive plan for the issuance of up to 442,750 shares of common stock. 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 date of grant. Options granted expire up to seven years after the date of grant. Such options generally become exercisable over a three year period. A total of 125,573 shares of common stock are reserved for additional grants of options under the plan at December 31, 2010. |
Under the plan, the Company charged compensation cost of $29,417 and $23,650 against income in 2010 and 2009, respectively. |
As of December 31, 2010, there was approximately $36,000 of unrecognized compensation cost related to unvested share-based compensation awards granted which is expected to be recognized over the next three years. |
Proceeds from the exercise of stock options were $37,740 for 2010. There were no options exercised in 2009. |
The fair value of options granted during 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 2010 and 2009, respectively. |
FASB ASC 718, Compensation — Stock Compensation specifies that initial accruals be based on the estimated number of instruments for which the requisite service is expected to be rendered. Therefore, the Company is required to incorporate a preexisting forfeiture rate based on the historical forfeiture expense and prospective actuarial analysis, estimated at 2%. |
A summary of the status of the Company’s stock option plan as of December 31, 2010 and changes during the year then ended is presented below: |
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Exercise | Term | Intrinsic | ||||||||||||||
Options | Shares | Price | (years) | Value | ||||||||||||
Outstanding at January 1, 2010 |
45,500 | $ | 5.91 | |||||||||||||
Granted |
4,000 | 7.39 | ||||||||||||||
Exercised |
(8,500 | ) | 4.44 | |||||||||||||
Expired and forfeited |
(500 | ) | 5.00 | |||||||||||||
Outstanding at December 31, 2010 |
40,500 | $ | 6.38 | 2.65 | $ | 38,386 | ||||||||||
Vested or expected to vest at
December 31, 2010 |
40,500 | $ | 6.38 | 2.65 | $ | 38,386 | ||||||||||
Exercisable at December 31, 2010 |
19,583 | $ | 6.95 | 1.88 | $ | 11,593 | ||||||||||
25
The weighted-average grant date fair value of options granted was $3.08 and $2.10 for the years ended December 31, 2010 and 2009, respectively. The total intrinsic value of options exercised was $24,945 for the year ended December 31, 2010. There were no options exercised in 2009. |
The following table summarizes information about stock options outstanding at December 31, 2010: |
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Number | Average | Weighted- | Number | Weighted- | ||||||||||||||||
Outstanding at | Remaining | Average | Exercisable at | Average | ||||||||||||||||
December 31, | Contractual | Exercise | December 31, | Exercise | ||||||||||||||||
Range of Exercise Price | 2010 | Life (years) | Price | 2010 | Price | |||||||||||||||
$5.00 -$5.99 |
19,000 | 3.31 | $ | 5.00 | 5,500 | $ | 5.00 | |||||||||||||
$6.00 -$6.99 |
5,250 | 2.58 | $ | 6.71 | 3,500 | $ | 6.71 | |||||||||||||
$7.00 - $8.99 |
16,250 | 1.90 | $ | 7.89 | 10,583 | $ | 8.05 | |||||||||||||
40,500 | 2.65 | $ | 6.38 | 19,583 | $ | 6.95 | ||||||||||||||
7. | CONCENTRATION OF CREDIT RISK | |
The Company maintains its cash balances primarily at one financial institution in a partially insured checking account that does not provide for interest. Instead, the account earns credits which offset banking fees. | ||
Accounts receivable are financial instruments that also expose the Company to concentration of credit risk. The large number of customers comprising the Company’s customer base and their dispersion across different geographic areas limits such exposure. In addition, the Company routinely assesses the financial strength of its customers and maintains an allowance for doubtful accounts that management believes will adequately provide for credit losses. | ||
8. | LINE OF CREDIT | |
The Company has a $1,250,000 bank line of credit that provides for working capital financing. This line of credit is subject to annual renewal on each October 31, is collateralized by trade receivables and inventories, and bears interest at 2.5 percentage points over 30-day LIBOR. There were no outstanding borrowings under this line of credit at December 31, 2010 and 2009. There are no financial covenants related to the line of credit. |
26
• | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | ||
• | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | ||
• | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
27
28
Exhibit | Description | |
3.1
|
Restated Articles of Incorporation of Company, as amended. (Incorporated by reference to the like numbered Exhibit to the Company’s Registration Statement on Form 10-SB filed with the Commission on April 7, 1999 (Registration No. 000-25727).) | |
3.2
|
By-Laws of the Company, as amended. (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).) | |
4
|
Specimen of Common Stock Certificate. (Incorporated by reference to the like numbered Exhibit to Amendment No. 1 to the Company’s Registration Statement on Form 10-SB filed with the Commission on May 26, 1999 (Registration No. 000-25727).) | |
10.1
|
IKONICS Corporation 1995 Stock Incentive Plan, as amended. | |
14
|
Code of Ethics. (Incorporated by reference to the like numbered Exhibit to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003 (File No. 000-25727).) | |
23
|
Consent of Independent Registered Public Accounting Firm. | |
24
|
Powers of Attorney. | |
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. |
29
IKONICS CORPORATION |
||||
By | /s/ William C. Ulland | |||
William C. Ulland, | ||||
Chairman, Chief Executive Officer and President | ||||
William C. Ulland, Chairman, |
||
Chief Executive Officer and |
||
President (Principal Executive Officer) |
||
/s/ Jon Gerlach |
||
Chief Financial Officer and |
||
Vice President of Finance |
||
(Principal Financial and Accounting Officer) |
Charles H. Andresen*
|
Director | |
Rondi Erickson*
|
Director | |
H. Leigh Severance*
|
Director | |
Gerald W. Simonson*
|
Director | |
Lockwood Carlson*
|
Director | |
David O. Harris*
|
Director |
* | William C. Ulland, by signing his name hereto, does hereby sign this document on behalf of each of the above named Directors of the registrant pursuant to powers of attorney duly executed by such persons. |
/s/ William C. Ulland | ||||
William C. Ulland, Attorney-in-Fact | ||||
30
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 | ||
4
|
Specimen of Common Stock Certificate | Incorporated by Reference | ||
10.1
|
IKONICS Corporation 1995 Stock Incentive Plan, as amended | Filed electronically | ||
14
|
Code of Ethics | Incorporated by Reference | ||
23
|
Consent of Independent Registered Public Accounting Firm | Filed Electronically | ||
24
|
Powers of Attorney | Filed Electronically | ||
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 |
This ‘10-K’ Filing | Date | Other Filings | ||
---|---|---|---|---|
Filed on: | 3/3/11 | |||
2/23/11 | ||||
For Period End: | 12/31/10 | |||
9/1/10 | ||||
8/31/10 | ||||
8/1/10 | ||||
7/31/10 | ||||
6/30/10 | 10-Q | |||
1/1/10 | ||||
12/31/09 | 10-K, 4 | |||
1/1/09 | ||||
12/31/08 | 10-K | |||
2/22/07 | 4, 8-K | |||
12/29/06 | ||||
12/31/03 | 10KSB | |||
5/26/99 | 10SB12G/A | |||
4/7/99 | 10SB12G | |||
List all Filings |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/03/21 Terawulf Inc. 10-K 12/31/20 58:4.1M RDG Filings/FA |