Ikonics Corp. (IKNX) filed Quarterly Report for the period ended 2009-09-30.
Ikonics Corp develops, manufactures and sells light sensitive liquid coatings and light sensitive films for commercial and industrial applications in the United States and abroad. The Company also markets ancillary chemicals and equipment to provide a full line of products and services to its customers. The Company's products serve the screen printing and decorative sand blasting markets. Ikonics Corp. has a market cap of $12.5 million; its shares were traded at around $6.345 with a P/E ratio of 23.6 and P/S ratio of 0.8. Ikonics Corp. had an annual average earning growth of 18.2% over the past 5 years.
Highlight of Business Operations:
Income Taxes. At September 30, 2009, the Company had net current deferred tax assets of $96,000 and net noncurrent deferred tax liabilities of $178,000. 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 an impairment charge described below, the Company has recorded a deferred tax asset and corresponding full valuation allowance in the amount of $331,000 as it is more likely that this asset will not be realized. The Company has determined that is more likely than not that the remaining deferred tax assets will be realized and that an additional valuation allowance for such assets in not currently required. The Company accounts for its uncertain tax positions under FIN 48 and the related liability of $27,000 as of September 30, 2009 will be adjusted as the statute of limitations expires or these positions are reassessed.
Income Taxes. During the first nine months of 2009, the Company realized an income tax expense of $163,000, compared to income tax expense of $243,000 for the same period in 2008. The Company does not receive a tax benefit from the $919,000 loss on investment in non-marketable equity securities since the Company has 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. The income tax expense for the first nine months of 2009 was significantly impacted by derecognizing a liability of $21,000 for unrecognized tax benefits relating to a tax year where the statute of limitations expired during the first quarter and the benefits of the domestic manufacturing deduction, research and development tax credits, and state income taxes. The 2008 first nine month income tax expense was significantly impacted by derecognizing a liability of $44,000 for unrecognized tax benefits relating to a tax year where the statute of limitations expired during the first quarter, and the benefits of the domestic manufacturing deduction, tax exempt interest from auction rate securities the Company sold in 2008, and state income taxes. The effective tax rate for the first nine months of 2008 was also impacted by a $55,000 state refund related to research and development credits for the tax years of 2005, 2006, and 2007 which was recognized during the third quarter of 2008.
Cash and cash equivalents were $978,000 and $2,481,000 at September 30, 2009 and 2008, respectively. The Company generated $857,000 in cash from operating activities during the nine months ended September 30, 2009, compared to generating $1,009,000 of cash from operating activities during the same period in 2008. Cash provided by operating activities is primarily the result of net income adjusted for loss on investment, non-cash depreciation, amortization, gain on sale of nonmarketable equity securities, deferred taxes, and certain changes in working capital components discussed in the following paragraph.
During the first nine months of 2009, trade receivables increased by $23,000. The increase in receivables was driven by higher Export sales volumes which normally 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 decreased $84,000 due to lower raw material levels. Prepaid expenses and other assets decreased $99,000 as a result of the Company prepaying for equipment at the end of 2008 which was received in 2009. Income tax refund receivable decreased $158,000 due to the Company receiving its 2008 income tax refund. Accounts payable decreased $190,000 due to of the timing of payments to and purchases from vendors and payments made to contractors associated with the new building. Accrued liabilities decreased $92,000, reflecting the timing of compensation payments.
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 for the sale of equipment.
For the first nine months of 2008, investing activities provided $622,000 to the Company. The Company sold $3,550,000 of short-term investments during the first nine months of 2008 at no gain or loss. The $3,550,000 received from the sale of short-term investments during the first nine months of 2008 was partially offset by $2,926,000 of payments related the construction of the Company’s new facility which was completed in 2008. Construction costs of $712,000 were included in construction accounts payable as of September 30, 2008 and had no effect on cash flows. The Company incurred $35,000 in patent application costs during the first nine months of 2008 that the Company records as an asset and amortizes upon successful completion of the application process. The Company realized a $25,000 gain during the first nine months of 2008 on the sale of its investment in the common and preferred stock of Apprise Technologies, Inc., and $8,500 from the sale of a vehicle.
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