Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended June 30, 2012

or

For the Transition Period From                      to                     .

Commission file number 000-25727

IKONICS CORPORATION

(Exact name of registrant as specified in its charter)

(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  x    No  ¨

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  x    No  ¨

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

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.

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—1,989,537 shares outstanding as of August 8, 2012.

Table of Contents

IKONICS Corporation

QUARTERLY REPORT ON FORM 10-Q

Table of Contents

PART I — FINANCIAL INFORMATION

IKONICS CORPORATION

CONDENSED BALANCE SHEETS

See notes to condensed financial statements

3

Table of Contents

IKONICS CORPORATION

CONDENSED STATEMENTS OF INCOME (Unaudited)

See notes to condensed financial statements.

4

Table of Contents

IKONICS CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

See notes to condensed financial statements.

5

Table of Contents

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

The balance sheet of IKONICS Corporation (the “Company”) as of June 30, 2012, and the related statements of operations for the three and six months ended June 30, 2012 and 2011, and cash flows for the six months ended June 30, 2012 and 2011, 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 June 30, 2012, 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, 2011.

The results of operations for interim periods are not necessarily indicative of results that will be realized for the full fiscal year.

The Company’s short-term investments of approximately $1,647,000 are comprised of fully insured certificates of deposit with maturities ranging from six to twelve months and interest rates ranging from 0.3% to 1.2%.

The major components of inventories are as follows:

6

Table of Contents

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

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:

Options to purchase 5,000 shares of common stock with a weighted average price of $8.08 were outstanding during the six months ended June 30, 2012 and 2011, but were excluded from the computation of common share equivalents because they were anti-dilutive. There were no anti-dilutive options outstanding during the quarters ended June 30, 2012 and 2011.

The Company maintains a stock incentive plan which authorizes the issuance of up to 442,750 shares of common stock. Of those shares, 33,250 were subject to outstanding options and 119,073 were reserved for future grants at June 30, 2012. 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 Company charged compensation cost of approximately $4,500 against income for the three months ended June 30, 2012 compared to approximately $6,500 for the three months ended June 30, 2011. For the first six months of 2012, the Company charged compensation cost of approximately $9,000 against income compared to approximately $12,600 for the same period in 2011. As of June 30, 2012 there was approximately $25,000 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 six month periods ended June 30, 2012 and 2011. The Company’s APIC pool totaled approximately $111,000 at June 30, 2012 and December 31, 2011.

7

Table of Contents

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Proceeds from the exercise of stock options were approximately $11,000 and $68,000 for the six months ended June 30, 2012 and 2011, respectively.

The fair value of options granted during the six months ended June 30, 2012 and 2011 was estimated using the Black-Scholes option pricing model with the following assumptions:

There were 750 and 4,000 options granted during each of the six months ended June 30, 2012 and 2011, respectively.

Stock option activity during the six months ended June 30, 2012 was as follows:

The aggregate intrinsic value of all options outstanding and for those exercisable at June 30, 2012 was approximately $44,000 and $41,000, respectively.

8

Table of Contents

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

The Company’s reportable segments are strategic business units that offer different products and have varied customer bases. There are four reportable segments: Domestic, Export, IKONICS Imaging and Other. 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. The Other segment includes products and customers for etched composites, ceramics, glass and silicon wafers along with sound deadening technology to the aerospace industry, which beginning in 2011 the Company defines as Micromachining. In addition the Other segment includes products and customers related to proprietary inkjet technology used for mold texturing and referred to by the Company as Digital Texturing (DTX). Export sells primarily the same products as Domestic and the IKONICS Imaging products not related to Micromachining or DTX. 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, 2011.

Management evaluates the performance of each segment based on the components of divisional income, and does not allocate assets and liabilities to segments except for accounts receivables. Financial information with respect to the reportable segments follows:

For the three months ended June 30, 2012:

9

Table of Contents

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Accounts receivable by segment as of June 30, 2012 and December 31, 2011 were as follows:

10

Table of Contents

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Beginning in 2012, the Company moved from a fully insured to a self-funded medical insurance plan. The Company contracted with an administrative service company or a “third party administrator” to supervise and administer the program and act as the Company’s fiduciary and representative. The Company has reduced its risk under this self-funded plan by purchasing both specific and aggregate stop-loss insurance coverage for individual claims and total annual claims in excess of prescribed limits. The Company records estimates for claim liabilities based on information provided by the third-party administrators, historical claims experience, the life cycle of claims, expected costs of claims incurred but not paid, and expected costs to settle unpaid claims. The Company regularly monitors its estimated insurance-related liabilities. Actual claims experience may differ from the Company’s estimates. Costs related to the administration of the plan and related claims are expensed as incurred. The total liability for self-funded medical insurance was $56,000 as of June 30, 2012 and is included within other accrued expenses in the consolidated balance sheets.

The Company reports a liability for unrecognized tax benefits taken or expected to be taken when they are uncertain. As of June 30, 2012 and 2011, there was no liability for unrecognized tax benefits.

On December 23, 2011, the IRS published regulations (in proposed and temporary format) under IRC Section 263(a) on the deduction and capitalization of expenditures related to tangible property, i.e., the “repair regulations.” These regulations are generally effective for taxable years beginning on or after January 1, 2012, or where applicable, to amounts paid or incurred to produce or acquire property in a taxable year beginning on or after such date. On March 7, 2012, additional Revenue Procedures were released addressing sections of the regulations published in December 2011. The Company is currently researching its existing policies, along with the IRS Regulations and Revenue Procedures issued, to understand the impact to the Company’s income tax liability. The Company does not expect these regulations and procedures to materially impact its consolidated financial statements.

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 2008, 2009, 2010, and 2011.

11

Table of Contents

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 or by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology.

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 second quarter of 2012, the six months ended June 30, 2012 and the same periods of 2011. 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 2011 Annual Report on Form 10-K.

Factors that May Affect Future Results

12

Table of Contents

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:

Trade Receivables. 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 trade receivables 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.

13

Table of Contents

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 June 30, 2012, the Company had net current deferred tax assets of $144,000 and net noncurrent deferred tax liabilities of $338,000. 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 that occurred prior to 2011 as described below, the Company has recorded a deferred tax asset and corresponding full valuation allowance in the amount of $323,000 as it is more likely that this asset will not be realized. The fully reserved $323,000 deferred tax asset related to the capital loss that can be carried back two years and carried forward four years and must be offset by a capital gain. 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 the provision of FASB ASC 740, Income Taxes. At June 30, 2012 and December 31, 2011 the Company had no reserves for uncertain tax positions.

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:

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 June 30, 2012 Compared to Quarter Ended June 30, 2011

Sales. The Company realized a 0.9% sales decrease during the second quarter of 2012 with sales of $4.5 million, compared to $4.6 million in sales during the same period in 2011. Export sales for the second quarter of 2012 were down 6.8% versus the second quarter of 2011 due to weaker sales in Asia and the Middle East. Second quarter results in 2012 were also unfavorably affected by a $108,000 decrease in Micro-Machining sales as the Company realized sales in the second quarter of 2011 from a customer who did not order in the second quarter of 2012. These sale shortfalls were partially offset by a $180,000 Domestic Chromaline sales increase as both film and emulsion sales grew in the second quarter of 2012. IKONICS Imaging and DTX sales for the quarter were similar to the same period in 2011.

14

Table of Contents

Gross Profit. Gross profit was $1.8 million, or 39.7% of sales, in the second quarter of 2012 compared to $1.9 million, or 40.4% of sales, for the same period in 2011. Gross profit was negatively impacted by the lower Micro-Machining sales volumes as a significant portion of Micro-Machining production costs are fixed. A more favorable sales mix resulted in improved gross margins for both Domestic Chromaline and IKONICS Imaging while Export and DTX gross margins for the quarter where similar to the same period last year.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1.3 million, or 28.3% of sales, in the second quarter of 2012, compared to $1.3 million, or 27.6% of sales, for the same period in 2011. The slight increase in selling, general and administrative expenses in the second quarter of 2012 is due to increased personnel and depreciation expenses related to supporting the Company’s DTX initiatives.

Research and Development Expenses. Research and development expenses during the second quarter of 2012 were $153,000, or 3.4% of sales, versus $137,000, or 3.0% of sales, for the same period in 2011. Additional costs were incurred in the second quarter of 2012 for increased staffing and production trials along with higher lab supply expenses.

Interest Income. The Company earned $3,000 of interest income in the second quarter of 2012 compared to $4,800 of interest income in the second quarter of 2011. The interest earned in the second quarter of 2012 and 2011 is related to interest received from the Company’s short-term investments, which consist of fully insured certificates of deposit with maturities ranging from six to twelve months.

Income Taxes. For the second quarter of 2012, the Company realized income tax expense of $125,000, or an effective rate of 33.9%, versus $144,000, or an effective rate of 31.8% for the second quarter of 2011. The 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.

Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011

Sales. The Company’s sales increased 3.8% during the first six months of 2012 to $8.6 million versus sales of $8.2 million during the first six months of 2011. Domestic Chromaline realized a 10.6% sales increase for the first half of 2012 due to both strong film and emulsion sales. Additionally, improved sales in Asia and Latin America drove a 2.1% Export sales increase for the first six months of 2012. The first half of 2012 also benefitted from the sale of a DTX printer. The Company anticipates that in the future, DTX printer sales will be made directly by its strategic printer manufacturing partners and not the Company. Partially offsetting these increases were sales decreases in Micro-Machining and IKONICS Imaging.

Gross Profit. Gross profit for the first six months of 2012 was $3.3 million, or 38.7% of sales, compared to $3.3 million, or 40.3% of sales, for the same period in 2011. The decrease is partially due to the reduction in pricing on certain Domestic film products resulting from competitive pricing pressure along with an increase in lower margin Export sales while higher margin IKONICS Imaging sales decreased. Gross profit was also negatively impacted by the lower Micro-Machining sales volumes as a significant portion of Micro-Machining production costs are fixed.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $2.7 million, or 31.7% of sales, in the first half of 2012 compared to $2.6 million, or 31.7% of sales, for the same period in 2011. The increase in selling, general and administrative expenses reflects higher direct selling and consulting expenses to support sales initiatives in the Company’s Micromachining and DTX initiatives along with efforts in Domestic and Export.

15

Table of Contents

Research and Development Expenses. Research and development expenses during the first half of 2012 were $329,000, or 3.8% of sales, versus $237,000, or 2.9% of sales, for the same period in 2011. The increase is partially related to a $22,000 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. Additional costs were also incurred in the first quarter of 2012 for increased staffing and production trials along with higher lab supply expenses.

Interest Income. The Company earned $6,800 of interest income during the first half of 2012 compared to $9,300 of interest income for the same period in 2011. The interest earned in first six months of 2012 and 2011 is related to interest received from the Company’s short-term investments, which consist of fully insured certificates of deposit with maturities ranging from six to twelve months.

Income Taxes. During the first six months of 2012, the Company realized an income tax expense of $94,000, or an effective rate of 34.3%, compared to income tax expense of $135,000, or an effective rate of 27.9%, for the same period in 2011. The income tax provision for 2012 and 2011 differs from the expected tax expense due to the benefits of the domestic manufacturing deduction, and state credits for research and development. The 2011 income tax provision also benefitted from federal credits for research and development which has not yet been approved for the 2012 tax year. The Company expects that for the remainder of 2012, the Company will record the provision for income taxes at an effective tax rate similar to the first six months.

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 $1,538,000 and $1,103,000 at June 30, 2012 and 2011, respectively. The Company used $188,000 in cash from operating activities during the six months ended June 30, 2012, compared to using $84,000 of cash from operating activities during the same period in 2011. Cash used in or 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 six months of 2012, inventories increased by $450,000 due to increased raw material purchases. The higher raw material purchases are due to the Company’s efforts to take advantage of volume discounts and to protect itself against future price increases. The trade receivables increase of $236,000 is related to slightly slower collections. The Company believes that the quality of its receivables is high and that strong internal controls are in place to maintain proper collections. Deposits, prepaid expenses and other assets increased $21,000, reflecting insurance premiums paid in advance of the third quarter of 2012. Accounts payable decreased $53,000 due to of the timing of payments. Income taxes receivable decreased $59,000 and income taxes payable increased $48,000 due to the timing of estimated 2012 tax payments compared to the calculated 2012 tax liability. Accrued expenses decreased $8,000, reflecting the timing of compensation payments.

During the first six months of 2011, trade receivables increased by $343,000. The increase in receivables was driven by higher sales volumes especially in Export where customers typically have longer payment terms. Inventories increased by $380,000 due to increased raw material purchases. The higher raw material purchases were due to the timing of a large restocking order, an increase in order quantities to take advantage of volume discounts and new raw materials necessary to support the manufacture and sale of the Company’s new products. Prepaid expenses and other assets increased $38,000 reflecting prepaid insurance premiums. Accounts payable increased $21,000 due to of the timing of payments to and purchases from vendors. Accrued expenses decreased $71,000, reflecting the timing of compensation payments while the impact from income taxes payable increased cash by $4,000.

During the first half of 2012, investing activities used $153,000. Purchases of property and equipment were $321,000, mainly for manufacturing equipment and mandatory elevator upgrades. Also during the first six months of 2012, the Company incurred $19,000 in patent application costs that the Company records as an asset and amortizes upon successful completion of the application process. The Company also invested $1,442,000 in ten fully insured certificates of deposit during the first half of 2012. Eleven certificates of deposit totaling $1,630,000 matured during the first six months of 2012.

16

Table of Contents

During the first half of 2011, investing activities used $170,000. The Company’s purchases of equipment for the quarter were $115,000, mainly for equipment purchases and hardware upgrades to the Company’s computer network. Also during the first half of 2011, the Company incurred $42,000 in patent application costs that the Company records as an asset and amortizes upon successful completion of the application process. The Company invested $1,828,000 in fully insured certificates of deposits with nine certificates of deposit totaling $1,814,000 maturing during the first six months of 2011.

During the first six months of 2012 the Company received $11,000 from financing activities from the issuance of 2,250 shares of common stock from the exercise of stock options compared to the $68,000 the Company received from the issuance of 10,500 shares of common stock from the exercise of stock options in the first half of 2011. The Company used $2,100 in financing activities during the first half of 2011 to repurchase 270 shares of its own stock.

A bank line of credit exists which provides for borrowings of up to $1,250,000, and it expires on October 30, 2012 if not renewed. The Company expects to obtain a similar line of credit when the current line of credit expires. The line of credit is collateralized by trade receivables and inventories 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 six months of 2012 or 2011 and there were no borrowings outstanding as of June 30, 2012 and 2011. There are no financial covenants related to the line of credit.

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 six months of 2012, the Company had $321,000 in capital expenditures. Capital expenditures during the first six months were mainly for manufacturing equipment and mandatory elevator upgrades. The Company expects capital expenditures in 2012 of approximately $650,000. Plans for capital expenditures include additional manufacturing equipment upgrades and vehicles for sales personnel. These commitments are expected to be funded with cash generated from operating activities and cash on hand.

International Activity

The Company markets its products to numerous countries in North America, Europe, Latin America, Asia and other parts of the world. Foreign sales were approximately 34% of total sales during each of the first six months of 2012 and 2011. Higher volumes in Asia and Latin American positively impacted 2012 first half sales volumes as compared to lower volumes in Europe. 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 and the majority of international sales are conducted in U.S. dollars. 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 June 30, 2012. Furthermore, the impact of foreign exchange on the Company’s balance sheet and operating results was not material in either 2012 or 2011.

17

Table of Contents

Future Outlook

IKONICS has spent on average approximately 3%- 4% of its sales dollars for the past few years in research and development and has made capital expenditures related to its DTX and Micro-Machining programs. 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 continues to make progress on its new Micro-Machining business initiative. The Company has entered into agreements with several major aerospace companies to determine the feasibility of using its unique technologies in the production of military and commercial aircraft and currently has a dozen projects in-house. These projects range from initial feasibility to the manufacture of prototypes to being qualified and specified for production. Although the Company has yet to realize major orders from these agreements, the Company anticipates that some of these new projects will lead to long-term contracts, and the Company is taking steps to expand its production capability to accommodate an anticipated increase in its business with the aerospace industry. Although the sales cycle with customers in the aerospace industry is long, once specified as a process or component, the life of the business can be very long term. The recognition by the industry of the Company’s unique ability to machine composite materials is coinciding with increasing demand for composite materials by the aerospace industry.

The Company is also continuing to make progress on its DTX business initiatives. In addition to the DTX printer sold by the Company in January 2012, the Company’s strategic printer manufacturers have also shipped two printers. The Company is currently working with its DTX customers on training, production optimization, and product improvements. In February 2012, the Company announced a partnership and distribution agreement with Tri-D Technology to provide ExacFlat software for placing textures on 3D molds. The Company believes, that coupled with DTX, this technology provides the mold maker with the fastest, most accurate and cost effective way to apply decorative features to 3D molds. The Company was also awarded a European patent on its DTX technology in 2010 and a U. S. patent in 2012. Additional U. S. and European patent applications, as well as a Japanese patent application, are currently being examined by the respective patent offices.

Domestically, both the Chromaline Screen Print Product and its IKONICS Imaging units remain profitable mature markets and require aggressive strategies to grow market share. Although there will be challenges, the Company believes these businesses will continue to grow and prosper. 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.

Other future activities undertaken to expand the Company’s business may include acquisitions, building improvements, equipment additions, new product development and marketing opportunities.

Recent Accounting Pronouncements

The Company does not expect that the adoption of any recent accounting pronouncements will have a material impact on its financial statements.

Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

18

Table of Contents

Not applicable

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.

19

Table of Contents

PART II. OTHER INFORMATION

None

Not applicable

Not applicable

Not applicable

Not applicable

None

The following exhibits are filed as part of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012:

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

20

Table of Contents

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.

21

Table of Contents

INDEX TO EXHIBITS

22