PART I - FINANCIAL INFORMATION

ITEM 1.  Condensed Financial Statements

IKONICS CORPORATION 

CONDENSED BALANCE SHEETS

See notes to condensed financial statements.  

IKONICS CORPORATION

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

See notes to condensed financial statements.

IKONICS CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

See notes to condensed financial statements.

IKONICS CORPORATION

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

See notes to condensed financial statements.

IKONICS CORPORATION

STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2019 and 2018 (unaudited)

IKONICS CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

See notes to condensed financial statements.

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

If the Company was in a net income position for the three and nine months ended September 30, 2018,  5,000 options outstanding with a weighted average exercise price of $8.76 would have been included as part of the weighted average common and common equivalent shares outstanding as the options would have been dilutive while 13,000 options outstanding with a weighted average exercise price of $14.94 would have remained excluded as the options were anti-dilutive.  

If the Company was in a net income position for the first three months ended September 30, 2017, all 18,168of 2019, no options would have been included as part of the common and common equivalent shares outstanding, and 18,000 options with a weighted average exercise price of $13.81$13.22 would have remained excluded from the computation of common share equivalents as the options were anti-dilutive.

If the Company was in a net income position for the first ninethree months of 2017, 2,2502018, no options outstanding with a weighted average exercise price of $8.91 would have been included as part of the weighted average common and common equivalent shares outstanding, as theand 18,168 options would have been dilutive while 15,918 options outstanding with a weighted average exercise price of $14.51$13.81 would have remained excluded as the options were anti-dilutive.

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

The aggregate intrinsic value of all options outstanding and for those exercisable at September 30, 2018March 31, 2019 was approximately $3,800 and $500, respectively.

$0.

IKONICS CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

For the three months ended September 30, 2017:

For the nine months ended September 30,March 31, 2018: 

For the nine months ended September 30, 2017:*The Company does not allocate all selling, general and administrative expenses or any research and development expenses to its operating segments for internal reporting.

Trade receivables by segment as of September 30, 2018 and December 31, 2017 were as follows:

IKONICS CORPORATION 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Trade receivables by segment as of March 31, 2019 and December 31, 2018 were as follows:

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.  Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements include statements relating to our future plans and objectives and results. Such statements are subject to risks and uncertainties, including those discussed elsewhere in this report and under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017,2018, as updated in our subsequent reports filed with the SEC, which 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.

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

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 thirdfirst quarter of 20182019 and first nine months of 2018, as well asfor the same periodsperiod of 2017.2018.  It should be read in connection with the Company’s condensed unaudited financial statements and notes thereto included in this Form 10-Q.

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-end spot rate in accordance with FASB ASC 830, Foreign Currency Matters.  The Company also maintains a provision for any customer related returns based upon historical experience of actual returns and any specifically identified product issues, refunds or credits.

Inventories.  Inventories are valued at the lower of cost or marketnet realizable value using the last in, first out (LIFO) method.  The Company monitors its inventory for obsolescence and records reductions from cost when required.

Income 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.  Deferred tax assets and liabilities are presented as long-term on a net basis.  The Company follows the accounting standard on accounting for uncertainty in income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement.  The guidance on accounting for uncertainty in income taxes also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods.

Revenue.  In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Topic 606. Revenue from Contracts with Customers (Topic 606), and in August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which deferred the effective date of ASU 2014-09 by one year.  Topic 606 supersedes the revenue recognition requirements previously set forth in the Accounting Standards Codification (ASC) Topic 605, Revenue Recognition, and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

On January 1, 2018, the Company adopted Topic 606 for all customer contracts using the modified retrospective method.  The adoption of Topic 606 did not result in a change to revenue previously recognized under prior revenue recognition rules.  The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to its operating results on an ongoing basis.  A majority of the Company’s sales revenue continues to be recognized when products are shipped from its manufacturing facility.  However, depending on the individual terms of the agreement with the customer, some sales revenue may be recognized when the goods arrive at the customer’s location, the point at which control transfers. 

Changes to the Company’s significant accounting policies as a result of adopting Topic 606 are discussed below:

Revenue recognition.  Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to customers and significant financing components.  While most of the Company’s revenue is contracted with customers through one-time purchase orders and short-term contracts, the Company does have long-term arrangements with certain customers.  Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer. 

Individually promised goods and services in a contract are considered a distinct performance obligation and accounted for separately if the customer can benefit from the individual good or service on its own or with other resources that are readily available to the customer and the good or service is separately identifiable from other promises in the arrangement.  When an arrangement includes multiple performance obligations, the consideration is allocated between the performance obligations in proportion to their estimated standalone selling price.  Costs related to products delivered are recognized in the period incurred, unless criteria for capitalization of costs are met. Costs of revenues consist primarily of direct labor, manufacturing overhead, materials and components.  The Company does not incur significant upfront costs to obtain a contract.  If costs to obtain a contract were to become material, the costs would be recorded as an asset and amortized to expense in a manner consistent with the related recognition of revenue.

The Company excludes governmental assessed and imposed taxes on revenue transactions that are invoiced to customers from revenue.  The Company includes freight billed to customers in revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

The timing of revenue recognition, billings and cash collections results in accounts receivable on the balance sheet.

Performance obligations.  A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.  A contract’s transaction price is allocated to each distinct performance obligation in proportion to its standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied.  The Company’s various performance obligations and the timing or method of revenue recognition are discussed below.below: 

The Company sells its products to both distributors and end-users. Each unit of product delivered under a customer order represents a distinct and separate performance obligation as the customer can benefit from each unit on its own or with other resources that are readily available to the customer and each unit of product is separately identifiable from other products in the arrangement.

The transaction price for the Company’s products is the invoiced amount.  The Company does not have variable consideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting transaction price.  The purchase order pricing in arrangements with customers is deemed to approximate standalone selling price; therefore, the Company does not need to allocate proceeds on a relative standalone selling price allocation between performance obligations.  The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. There are no material obligations that extend beyond one year. 

Revenue is recognized when transfer of control occurs as defined by the terms in the customer agreement. The Company immediately recognizes incidental items that are immaterial in the context of the contract.  The Company has also applied the practical expedient in paragraph 606-10-32-18 regarding the adjustment of the promised amount of consideration for the effects of a significant financing component when the customer pays for that good or service within one year or less, as the Company does not have any significant financing components in its customer arrangements as payment is received at or shortly after the point of sale, generally 30thirty to 90ninety days.

The Company estimates returns based on an analysis of historical experience if the right to return products is granted to its customers.  The Company does not record a return asset as non-conforming products are generally not returned.  The Company’s return policy does not vary by geography.  The customer has no rotation or price protection rights.rights, and the Company is not under a warranty obligation.

Trade receivables.  Trade receivables include amounts invoiced and currently due from customers. The amounts due are stated at their net estimated realizable value.  The Company records an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is 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 considers 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.

Sales commissions.  Sales commissions paid to sales representatives are eligible for capitalization as they are incremental costs that would not have been incurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction.  The Company has elected to apply the practical expedient provided by ASC 340-40-25-4 and recognize the incremental costs of obtaining contracts as an expense when incurred, as the amortization period of the assets that would have otherwise been recognized is one year or less.  The Company records these costs in selling, general, and administrative expense.

Product warranties.warranty.   The Company offers warranties on various products and services. These warranties are assurance type warranties that are not sold on a standalone basis; therefore, they are not considered distinct performance obligations.  The Company estimates the costs that may be incurred under its warranties and records a liability in the amount of such costs at the time the revenue is recognized for the product sale. 

International revenue.  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 29%23% of total sales during the first ninethree months of 20182019 compared to 33% of sales29% for the first ninethree months of 2017. 2018.

Results of Operations 

Quarter Ended September 30, 2018March 31, 2019 Compared to Quarter Ended September 30, 2017March 31, 2018

Sales.  Sales increased 16.7% during the third quarter of 2018 to record thirdThe Company’s 2019 first quarter sales of $4.7$3.5 million were 13.3% lower than the 2018 first quarter sales of $4.1 million.  Chromaline 2019 first quarter sales decreased by $311,000, or 13.3%, compared to $4.0 millionthe same period last year.  Chromaline 2019 first quarter sales were adversely affected by cold weather shipping constraints since its emulsion products are not freeze-thaw stable.  AMS sales for the first three months of 2019 decreased from $423,000 during the same period in 2017.  Third quarter2018 to $318,000, a 24.8% decrease resulting from a temporary decrease in sales were favorably impacted byto its two largest customers. The Company expects AMS sales which grew by $211,000, or 81.7% from $258,000 during the third quarter of 2017 to $468,000 in the third quarter of 2018.  Most of this increase is related to increased sales to AMS’s largest customer who is expected to maintain similar sales levels for the remainderremaining nine months of 2019 to improve over the first quarter trend relatively to 2018.  Export2019 first quarter IKONICS Imaging sales also realized a 21.9% sales increase in the third quarter as sales increased fromof $1.1 million in 2017 to $1.3 million inwere $131,000, or 10.7%, lower than the sales for the first three months of 2018 mainly due to higherlower equipment sales.  Equipment sales into Asia which is partiallyin 2018 were positively impacted by the timing related.  IKONICS Imagingof first quarter trade shows while the 2019 sales benefit from these trade shows will not occur until the second quarter.  Partially offsetting these sales decreases, DTX sales increased from $731,000$89,000 in the third quarter of 2017 to $810,000 in the thirdfirst quarter of 2018 a 10.8% increase.  IKONICS Imaging sales forto $93,000 in the thirdfirst quarter of 2018 benefitted from both improved film and equipment sales.  DTX sales were favorably impacted by2019, a $78,000 film shipment which occurs approximately every other year as DTX 2018 third quarter sales of $159,000 were $38,000, or 31.0%, higher than the same period in 2017.  Domestic sales grew from $1.8 million in third quarter of 2017 to $1.9 million in the third quarter of 2018, a 5.8%4.6% increase.

Gross Profit.  Gross profit was $1.5$1.0 million, or 32.8%28.6% of sales, in the thirdfirst quarter of 20182019 compared to $1.3$1.4 million, or 33.2%33.5% of sales, for the same period in 2017.  The 2018 third quarter gross margin was2018.  Lower sales volumes negatively impacted by an increase in lower margin Export sales into Asia along with 2018 thirdthe 2019 first quarter production cost increases.  The 2018 third quarter margin decrease was partially offset  by increased AMS sales volumes as the AMS gross margin improvedwhich decreased from a negative 30.8%6.5% in thirdfirst quarter of 20172018 to a positive 10.2% in the third quarter of 2018.negative 9.0% this quarter.  A large portion of the AMS cost structure is fixed, causing sales volumes to have a significant impact on its gross margin. Lower sales volumes also unfavorably impacted both the Chromaline and IKONICS Imaging 2019 gross margin compared to the same period in 2018.  The 2018 third quarter DTX gross margin also improved overfor the same period last year due an increase in higher margin film shipments.first three months of 2019 was 63.3% compared to 71.4% for the first quarter of 2018.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were $1.4 million, or 29.4%39.2% of sales, in the thirdfirst quarter of 20182019 compared to $1.3$1.4 million, or 32.8%33.1% of sales, for the same period in 2017.  The third quarter 2018 increase in selling, general and administrative expense is primarily related to higher health insurance expenses, partially offset by lower promotional and travel expenses. 

Research and Development Expenses.  Research and development expenses during the third quarter of 2018 were $180,000, or 3.9% of sales, versus $169,000, or 4.2% of sales, for the same period in 2017.  The increase in 2018 third quarter costs is due to higher health insurance expenses.  

Interest Expense.  Interest expense for the third quarter of 2018 was $23,000 compared to interest expense of $21,000 during the third quarter of 2017.  The interest expense is related to a $3.4 million financing agreement the Company entered into during 2016 to finance the construction of a 27,300-square foot building and related equipment for use in the Company’s manufacture of sound deadening technology used in the aerospace industry and products consisting of etched composites, ceramics, glass and silicon wafers.

Income Taxes. For the third quarter of 2018, the Company realized an income tax benefit of $7,000, or an effective rate of 21.4% which reflects the new federal rate of 21% enacted December 22, 2017 through the Tax Cut and Jobs Act, compared to the income tax benefit of $54,000, or an effective rate of 32.6%, for the same period in 2017.  The decrease in the quarterly effective tax rate for 2018 over 2017 is primarily due to the lower federal tax rate.  The income tax provision for the 2018 and 2017 periods differ from expected tax benefit due to unfavorable non-deductible items offset by the generation of research and development tax credits.

Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017

Sales.  Sales increased 8.6% during the first nine months of 2018 to $13.4 million compared to $12.3 million during the same period in 2017.  AMS sales for the first nine months of 2018 increased by $857,000, or 169.8%, compared to the same period last year, as the Company realized increased sales from its largest customer.  The customer maintained expected activity level for the entire 2018 period while AMS sales during the first nine months of 2017 were unfavorably affected by a temporary decrease in orders from its largest customer.  Domestic sales also increased from $4.9 million in the first nine months of 2017 to $5.2 million in the first nine months of 2018, a $319,000, or 6.5%, sales increase due to improved emulsion and film sales, while Export sales for the first nine month of 2018 increased by $176,000, or 5.0%,  due to higher sales to both the Middle East and Latin America.  Equipment sales increases resulted in IKONICS Imaging sales growing $72,000, or 2.7% in the first nine months of 2018 compared to the same period in 2017.  Sales for the first nine months  of 2018 were unfavorably impacted by a $366,000, or 51.7%, DTX sales decrease as 2017 DTX sales benefitted from $320,000 in sales of two DTX printers.  There were no printer sales during the first nine months of 2018, and the Company does not anticipate any new DTX printer sales until 2019.

Gross Profit.  Gross profit was $4.6 million, or 34.1% of sales, in the first nine months of 2018 compared to $3.9 million, or 31.4% of sales, for the same period in 2017. AMS increased sales volumes benefitted the 2018 gross margin, as the AMS gross margin improved from a negative 88.2% in first nine months of 2017 to a positive 11.4% in 2018.  A large portion of the AMS cost structure is fixed, causing sales volumes to have a significant impact on its gross margin.  The 2018 DTX gross margin improved to 73.9% from 35.9% in the first nine months of 2017, as the 2017 gross margin was negatively affected by the sale of two low margin printers.  The IKONICS Imaging,  Domestic, and Export gross margins were negatively affected by higher production costs  for the first nine months of 2018 compared to the same period last year.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses were $4.0 million, or 30.1% of sales, infor the first nine monthsquarter of 2019 were similar to first quarter of 2018, comparedhowever, the percentage of expense as it relates to $4.2 million, or 34.2% of sales for the same periodincreased in 2017.  The 2018 decrease in selling, general and administrative expense is related2019 due to the Company’s cost reduction initiative.  The Company realized lower travel, promotional, consulting and salary expenses which were partially offset by higher health insurance expenses.sales.

Research and Development Expenses.  Research and development expenses during the first nine monthsquarter of 20182019 were $490,000,$179,000, or 3.7%5.1% of sales, versus $519,000,$154,000, or 4.2%3.8%, of sales for the same period in 2017.2018.  The decrease in 2018 costs2019 first quarter increase is duerelated to loweradditional staffing and production trial expenses.  The Company incurred additional production trial expenses in 2017 related to the development of its new SubTHAT! film product.

Interest Expense.  Interest expense for the first ninethree months of 20182019 was $67,000$22,000 compared to interest expense of $62,000$20,000 during the first ninethree months of 2017.2018.  The interest expense is related to a $3.4 million financing agreement the Company entered into during 2016 to finance the construction of a 27,300-square foot building as well as related equipment for use in the Company’s manufacture of sound deadening technology used in the aerospace industry and products consisting of etched composites, ceramics, glass and silicon wafers.

Income Taxes.  For the first ninethree months of 2018,2019, the Company realized an income tax expensebenefit of $12,000,$103,000, or an effective rate of 552.3% which reflects the new federal corporate rate of 21% versus the income tax18.4%,  compared to a benefit of  $322,000$20,000, or an effective ratetax of 35.1%,13.5% for the first ninethree months ended March 31, 2018.  The primary driver of 2017. Thethe change in the Company’s increased effective tax rate for 2018 relatesis attributable to an increase in the tax benefit related to tax credits proportionate to pre-tax book loss as compared to the higher year-to-date pre-tax income generated and the related impact of discrete events and non-deductible permanent items.  The 2017 year-to-date third quarter tax benefit was due to the year-to-date net loss.prior year's reporting period.  The income tax provision for the 20182019 and 20172018 periods differ from the expected tax benefit due to credits forunfavorable non-deductible items and generation of research and development and other non-deductible itemstax credits.

Liquidity and Capital Resources 

Outside of the building expansion, for which $3.4 million in financing was obtained during 2016, 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 and cash equivalents were $617,000 and $1.6 million and $930,000 at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.  Operating activities provided $1.1 millionused $618,000 in cash during the first ninethree months of 20182019 compared to $148,000providing $113,000 of cash provided byused in operating activities during the same period in 2017.2018.  Cash provided by (used in) operating activities is primarily the result of net income or losslosses adjusted for non-cash depreciation, amortization, and certain changes in working capital components discussed in the following paragraph.

During the first ninethree months of 2018, the timing of collections resulted in a $215,000 decrease in2019, trade receivables.receivables decreased $394,000 from lower sales.  The Company believes that the quality of its receivables is high and that strong internal controls are in place to maintain proper collections.  Inventories increased by $185,000$794,000 due to higher finished goods and raw material and finished goods levels as the Company is increasingramping up inventory levels to meet demand for the remainder of 2019 in addition to lower than expected fourthfirst quarter sales demand.sales.  Prepaid expenses and other assets increaseddecreased by $42,000,$116,000, reflecting prepayments on annual software license agreements.a decrease in a receivable related to the reimbursement of  2018 medical insurance costs that the Company received from its stop-loss insurance carrier.   Accounts payable increased by $389,000$213,000 due to the timing of vendor payments for recent large raw materials purchases.payments.  Accrued expenses increaseddecreased by $75,000,$147,000, reflecting an increase in the accrual for health insurance coststiming of compensation payments while income taxes receivable increased by $8,000$110,000 due to the timingrecognition of estimatedthe 2019 first quarter tax payments compared to the calculated 2018 tax liability.benefit.

During the first ninethree months of 2017, the timing of collections resulted in a $692,000 decrease in2018, trade receivables.receivables decreased $158,000 from improved collections.  The Company believes that the quality of its receivables is high and that strong internal controls are in place to maintain proper collections.  Inventories increased by $560,000$283,000 due to higher finished goods and raw material and finished goods levels.  Prepaid expenses and other assets decreased $258,000.  The prepaid expense balance at December 31, 2016 included prepayments related to two DTX printers which were soldincreased by $26,000, reflecting insurance premiums paid in 2017.advance.  Accounts payable increased $70,000by $287,000 due to the timing of vendor payments mainly related to raw material purchases.payments.  Accrued expenses decreased $104,000,by $78,000, reflecting the timing of compensation payments while income taxes receivable increased $262,000by $41,000 due to the timing of estimated tax payments compared to the calculated 20172018 tax liability.

During the first ninethree months of 2018,2019, cash used in investing activities was $338,000.  Eighteen$352,000.  Six certificates of deposits totaling $4.3$1.5 million matured during the first ninethree months of 2018.2019.  The Company purchased seventeenseven certificates of deposits totaling $4.1$1.7 million.  The Company’s purchases of property and equipment of $501,000$117,000 were mainly for building upgrades and improvements to production and process capabilities.capabilities and to replace two vehicles.  The Company received $12,000 in proceeds from the sale of two vehicles.  Also, during the first ninethree months of 2018,2019, the Company incurred $36,000$3,000 in patent application costs that the Company records as an asset and amortizes upon successful completion of the application process.

During the first ninethree months of 2017,2018, cash provided by investing activities was $1.1 million.  The Company obtained proceeds from 14$155,000.  Six certificates of deposits totaling $3.2$1.4 million andmatured during the first three months of 2018.  The Company purchased eightfive certificates of deposits totaling $1.9$1.2 million.  The Company’s purchases of property and equipment of $190,000$49,000 were mainly for improvements to production and process capabilities and two vehicles.capabilities. Also, during the first ninethree months of 2017,2018, the Company incurred $32,000$16,000 in patent application costs that the Company has recordedrecords as an asset and will amortizeamortizes upon successful completion of the application process.  In addition the Company sold three vehicles for $33,000. 

Related to the Company’s loan, the Company made principal payments of $103,000$35,000 and $104,000$36,000 during the first ninethree months of 2019 and 2018, and 2017, respectively.

During the first nine months of 2017, the Company received $2,000 from financing activities from the issuance of 250 shares of common stock due to the exercise of stock options while the Company repurchased 26,950 shares of its own stock during the first nine months of 2017 for $234,000.  

A bank line of credit exists providing for borrowings of up to $2,050,000 and expires on SeptemberJune 30, 2019.2019 if not renewed.  The line of credit is collateralized by the Company’s assets and bears interest at 1.8 percentage points over the 30-day LIBOR rate.  The Company did not utilize this line of credit during the first ninethree months of 20182019 or 2017,2018, and there were no borrowings outstanding as of September 30, 2018March 31, 2019 and December 31, 2017.2018.  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 secured through debt financing, and short-term investments, along with the Company’s capacity for additional debt and/or equity financing will be sufficient to fund current and anticipated business operations.  The Company also believes that it is unlikely that a temporary decrease in demand for the Company’s products would impair the Company’s ability to fund operations given its excess cash and available line of credit.