TeraWulf (WULF) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed financial statements and related notes for IKONICS Corporation, along with management's discussion and analysis Item 1. Condensed Financial Statements This section presents IKONICS Corporation's unaudited condensed financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with accompanying notes Condensed Balance Sheets Total assets decreased to $15.3 million from $16.9 million, while total liabilities increased to $4.9 million from $4.6 million, leading to a decline in stockholders' equity to $10.4 million from $12.3 million Condensed Balance Sheet Highlights (as of Sept 30, 2020 vs. Dec 31, 2019) | Account | Sep 30, 2020 (unaudited) ($) | Dec 31, 2019 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $3,500,883 | $963,649 | | Trade receivables, net | $1,417,217 | $2,434,718 | | Total current assets | $7,476,064 | $8,692,188 | | Total assets | $15,274,076 | $16,879,541 | | Total current liabilities | $4,431,685 | $1,934,486 | | Total liabilities | $4,909,745 | $4,622,843 | | Total stockholders' equity | $10,364,331 | $12,256,698 | Condensed Statements of Operations The company reported a net loss of $274 thousand for Q3 2020 and a $1.9 million net loss for the nine months ended September 30, primarily due to significant declines in net sales Statement of Operations Summary (Unaudited) | Metric | Three Months Ended Sep 30, 2020 ($) | Three Months Ended Sep 30, 2019 ($) | Nine Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2019 ($) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $3,134,984 | $4,530,361 | $9,204,615 | $12,655,463 | | Gross Profit | $873,779 | $1,412,062 | $2,411,906 | $3,849,610 | | Loss from Operations | ($242,514) | ($153,809) | ($2,072,528) | ($886,394) | | Net Loss | ($273,996) | ($162,744) | ($1,902,505) | ($733,486) | | Loss Per Share (Basic & Diluted) | ($0.14) | ($0.08) | ($0.96) | ($0.37) | Statements of Stockholders' Equity Stockholders' equity decreased from $12.3 million at year-end 2019 to $10.4 million as of September 30, 2020, primarily due to the $1.9 million net loss - For the nine months ended September 30, 2020, the company's retained earnings decreased by $1,902,505 due to the net loss, which was the primary driver for the reduction in total stockholders' equity[17] Condensed Statements of Cash Flows Net cash used in operating activities was $630 thousand, while investing activities provided $2.1 million and financing activities provided $1.1 million, resulting in a $2.5 million increase in cash Cash Flow Summary for the Nine Months Ended September 30 | Cash Flow Activity | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($630,117) | ($619,563) | | Net cash provided by (used in) investing activities | $2,060,405 | ($90,467) | | Net cash provided by (used in) financing activities | $1,106,946 | ($154,368) | | Net increase (decrease) in cash | $2,537,234 | ($864,398) | | Cash at end of period | $3,500,883 | $758,739 | Notes to Condensed Financial Statements Notes detail the impact of COVID-19, showing sales declines across all segments, and disclose long-term debt, including a $1.2 million PPP loan and a reclassified $3.4 million industrial revenue bond loan - The company acknowledges that the COVID-19 pandemic has caused a significant decline in business which is expected to continue, and has implemented cost reduction plans to mitigate the impact[28][30] - The company entered into a $1,214,500 loan under the Paycheck Protection Program (PPP) on April 18, 2020, and subsequently applied for 100% forgiveness of this loan[61][63] - Due to a potential violation of its debt service coverage ratio covenant and the bondholders' ability to redeem, the company reclassified its entire $3.4 million industrial revenue bond loan from long-term to a short-term liability as of September 30, 2020[60] Net Sales by Segment (Nine Months Ended Sep 30) | Segment | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Chromaline | $5,635,373 | $8,006,121 | | IKONICS Imaging | $2,488,963 | $3,164,143 | | DTX | $223,606 | $290,022 | | AMS | $856,673 | $1,195,177 | | Total | $9,204,615 | $12,655,463 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant adverse impact of the COVID-19 pandemic on financial results, leading to sales declines, cost-cutting measures, and a bolstered liquidity position from a $1.2 million PPP loan Impact of the COVID-19 Pandemic The COVID-19 pandemic severely impacted demand, leading to significant cost reduction efforts, including furloughing 40% of the workforce and reducing executive compensation - The company began to experience decreased demand during the first nine months of 2020 and anticipates a significant decrease in global demand for its products and services during Q4 2020 and beyond[70] - To mitigate the negative impact, the company implemented cost reductions including furloughing about 40% of its workforce, reducing board and officer compensation, and suspending its 401(k) contribution[70] Results of Operations Q3 2020 sales fell 30.8% to $3.1 million, and nine-month sales fell 27.3% to $9.2 million, with all segments declining due to the pandemic, partially offset by reduced SG&A expenses Q3 Sales Comparison by Segment (2020 vs. 2019) | Segment | Q3 2020 Sales ($) | Q3 2019 Sales ($) | % Change | | :--- | :--- | :--- | :--- | | Chromaline | $2.1M | $2.9M | -28.5% | | IKONICS Imaging | $893k | $1.1M | -20.1% | | AMS | $129k | $459k | -71.9% | | DTX | $62k | $85k | -27.1% | | Total | $3.1M | $4.5M | -30.8% | - For the first nine months of 2020, SG&A expenses included a one-time cost of $365,000 related to the Chief Executive Officer transition, which partially offset other cost savings[96] Liquidity and Capital Resources Cash increased to $3.5 million from $960 thousand due to a $1.2 million PPP loan and maturing investments, though liquidity risks persist from potential debt covenant violations - Cash and cash equivalents increased to $3.5 million at September 30, 2020, from $960,000 at December 31, 2019[101] - The company received a $1,214,500 PPP loan on April 22, 2020, and subsequently submitted an application for 100% forgiveness[108][110] - The company was not in compliance with its debt service coverage ratio covenant as of December 31, 2019, and although a waiver was obtained, there is no certainty future waivers will be granted for expected future violations[112] Future Outlook The company anticipates reduced order volume for its AMS aerospace business due to the pandemic, while focusing on new product development like IKONART® and production improvements in DTX - The company anticipates reduced order volume for its AMS business for the remainder of 2020 and into 2021 due to the COVID-19 pandemic's impact on the aerospace industry[126] - The company is continuing to pursue DTX-related business initiatives and is working on production improvements through a joint development agreement with German printer manufacturer AKK[125] - The new IKONART® product, which provides a new way to make custom reusable stencils for creative arts markets, was introduced in early 2019 and is generating sales[127] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section is not applicable to the company - Not applicable[131] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective[131] - No changes to the Company's internal control over financial reporting occurred during the first nine months of 2020 that materially affected, or are reasonably likely to materially affect, internal controls[132] PART II. OTHER INFORMATION This section covers legal proceedings, updated risk factors related to COVID-19 and the PPP loan, and other required disclosures Item 1. Legal Proceedings The company reported no legal proceedings during the period - None[135] Item 1A. Risk Factors A new risk factor addresses the negative effects of the COVID-19 pandemic on operations and supply chain, alongside risks related to the PPP loan's forgiveness uncertainty and potential penalties - A new risk factor was added to address the negative effects of the COVID-19 pandemic on the company's operations, supply chain, workforce, and financial condition[135][136] - The company highlights risks associated with its PPP loan, noting there is no guarantee of forgiveness and that it could be subject to significant penalties if found ineligible for the loan[137][139][141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable to the company - Not applicable[142] Item 3. Defaults upon Senior Securities This section is not applicable to the company - Not applicable[142] Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable[142] Item 5. Other Information The company reported no other information - None[142] Item 6. Exhibits This section lists the exhibits filed as part of the quarterly report, including corporate governance documents and required certifications - The report includes exhibits such as the CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350[142]