<PAGE>

================================================================================

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 For the Quarterly Period Ended March 31, 2007

                                       or

[ ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 For the Transition Period From _______________ to
      _______________.

                        Commission file number 000-25727

                               IKONICS CORPORATION
-------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


                  Minnesota                                    41-0730027
   ----------------------------------------                ---------------
      (State or other jurisdiction of                      (I.R.S. employer
       incorporation or organization)                     identification no.)

             4832 Grand Avenue
             Duluth, Minnesota                                 55807
   ---------------------------------------                    --------
   (Address of principal executive offices)                  (Zip code)

                                 (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 is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

      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 --
2,022,262 shares outstanding as of April 27, 2007.

      Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

================================================================================

<PAGE>

                               IKONICS CORPORATION

                         QUARTERLY REPORT ON FORM 10-QSB

<TABLE>
<CAPTION>
                                                                                                                        PAGE NO.
                                                                                                                        --------
<S>                    <C>                                                                                              <C>
PART I.                FINANCIAL INFORMATION

Item 1.                    Financial Statements:

                           Balance Sheets as of March 31, 2007 (unaudited) and December 31, 2006                             3

                           Statements of Operations for the Three Months Ended March 31, 2007 and 2006 (unaudited)           4

                           Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 (unaudited)           5

                           Condensed Notes to Financial Statements (unaudited)                                               6

Item 2.                    Management's Discussion and Analysis of Financial Condition and Results of Operations            11

Item 3A(T).                Controls and Procedures                                                                          16

PART II.               OTHER INFORMATION                                                                                    17

                       SIGNATURES                                                                                           18
</TABLE>

                                       2

<PAGE>

                         PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

IKONICS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                     MARCH 31        DECEMBER 31
                                                                       2007              2006
                                                                   -------------     -------------
<S>                                                                <C>               <C>
ASSETS                                                              (UNAUDITED)

CURRENT ASSETS:
   Cash and cash equivalents                                       $    3,803,062    $   3,428,186
   Trade receivables, less allowances of $70,000                        1,785,213        1,976,893
   Inventories                                                          2,320,907        2,494,876
   Deposits, prepaid expenses and other assets                            323,830          232,255
   Income tax refund receivable                                             6,860               --
   Deferred income taxes                                                   88,000           97,000
                                                                   --------------    -------------
             Total current assets                                       8,327,872        8,229,210
                                                                   --------------    -------------

PROPERTY, PLANT, AND EQUIPMENT, at cost:
   Land and building                                                    1,500,271        1,500,271
   Machinery and equipment                                              2,411,488        2,396,867
   Office equipment                                                       840,390          817,406
   Vehicles                                                               223,091          203,816
                                                                   --------------    -------------
                                                                        4,975,240        4,918,360
   Less accumulated depreciation                                        3,966,822        3,926,440
                                                                   --------------    -------------
                                                                        1,008,418          991,920
                                                                   --------------    -------------

INTANGIBLE ASSETS, less accumulated amortization of $172,779 in
   2007 and $159,351 in 2006                                              496,155          485,421

DEFERRED INCOME TAXES                                                      48,000           48,000

INVESTMENTS IN NON-MARKETABLE EQUITY SECURITIES                           791,451          988,910
                                                                   --------------    -------------

                                                                   $   10,671,896    $  10,743,461
                                                                   ==============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                $      330,933    $     288,449
   Accrued compensation                                                   149,895          324,082
   Other accrued expenses                                                 280,967          172,381
   Income taxes payable                                                        --           94,450
                                                                   --------------    -------------
           Total current liabilities                                      761,795          879,362
                                                                   --------------    -------------

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 2,022,262
    in 2007 and 2,010,861 in 2006                                         202,226          201,086
   Additional paid-in capital                                           2,021,777        1,979,012
   Retained earnings                                                    7,686,098        7,684,001
                                                                    -------------    -------------
             Total stockholders' equity                                 9,910,101        9,864,099
                                                                    -------------    -------------
                                                                   $   10,671,896    $  10,743,461
                                                                   ==============    =============
</TABLE>

See condensed notes to financial statements.

                                       3
<PAGE>

IKONICS CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                           THREE MONTHS
                                                                           ENDED MARCH 31
                                                                   -------------------------------
                                                                       2007             2006
                                                                   --------------    -------------

<S>                                                                <C>               <C>
NET SALES                                                          $    3,507,767    $   3,371,800

COSTS AND EXPENSES:
   Cost of goods sold                                                   2,074,070        1,917,343
   Selling, general and administrative                                  1,231,092        1,151,986
   Research and development                                               206,272          180,469
                                                                   --------------    -------------
                                                                        3,511,434        3,249,798
                                                                   --------------    -------------

INCOME (LOSS) FROM OPERATIONS                                              (3,667)         122,002

GAIN ON SALE OF NON-MARKETABLE EQUITY SECURITIES                           55,159                -

INTEREST INCOME                                                            32,907           23,788
                                                                   --------------    -------------

INCOME BEFORE INCOME TAXES                                                 84,399          145,790

INCOME TAX EXPENSE (BENEFIT)                                              (54,698)          47,488
                                                                   --------------    -------------

NET INCOME                                                         $      139,097    $      98,302
                                                                   ==============    =============

EARNINGS PER COMMON SHARE:
   Basic                                                           $         0.07    $        0.05
                                                                   ==============    =============

   Diluted                                                         $         0.07    $        0.05
                                                                   ==============    =============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
   Basic                                                                2,015,570        1,971,417
                                                                   ==============    =============

   Diluted                                                              2,064,511        2,019,238
                                                                   ==============    =============
</TABLE>

See condensed notes to financial statements.

                                       4
<PAGE>

IKONICS CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                            THREE MONTHS
                                                                            ENDED MARCH 31
                                                                   -------------------------------
                                                                        2007             2006
                                                                   --------------    -------------
<S>                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                      $      139,097    $      98,302
   Adjustments to reconcile net income to net
        cash provided by operating activities:
      Depreciation                                                         61,178           61,468
      Amortization                                                         13,428            6,177
      Excess tax benefits from share-based payment
        arrangement                                                        (2,785)         (12,771)
      Tax benefit from stock option exercise                               10,793               --
      Stock based compensation                                              4,728            5,817
      Gain on sales of vehicles                                            (2,340)              --
      Gain on sale of non-marketable equity securities                    (55,159)              --
      Deferred income taxes                                                 9,000               --
      Changes in working capital components:
        Trade receivables                                                 191,680           (3,267)
        Inventories                                                       173,969          208,688
        Deposits, prepaid expenses and other assets                       (91,575)         (80,356)
        Income tax refund receivable                                       (6,860)              --
        Accounts payable                                                   42,484          (76,081)
        Accrued liabilities                                              (202,601)        (157,436)
        Income taxes payable                                              (91,665)         (32,178)
                                                                   --------------    -------------
           Net cash provided by operating
             activities                                                   193,372           18,363
                                                                   --------------    -------------

CASH FLOWS FROM INVESTING  ACTIVITIES:
   Purchase of property and equipment                                     (81,836)         (40,675)
   Proceeds on sale of vehicles                                             6,500             --
   Purchase of intangibles                                                (24,162)         (10,484)
   Purchase of non-marketable equity securities                                --         (249,998)
   Proceeds on sale of non-marketable equity
        securities                                                        252,618               --
   Proceeds on sale of marketable securities                                   --           83,979
                                                                   -------------     -------------
        Net cash provided by (used in)
              investing activities                                        153,120         (217,178)
                                                                   --------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Excess tax benefits from share-based payment
        arrangement                                                         2,785           12,771
   Proceeds from exercise of stock options                                 25,599          108,450
                                                                   --------------    -------------
        Net cash provided by financing
                activities                                                 28,384          121,221
                                                                   --------------    -------------

NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                                   374,876          (77,594)

CASH AND CASH EQUIVALENTS AT
   BEGINNING OF PERIOD                                                  3,428,186        3,412,072
                                                                   --------------    -------------

CASH AND CASH EQUIVALENTS AT
   END OF PERIOD                                                   $    3,803,062    $   3,334,478
                                                                   ==============    =============

SUPPLEMENTAL DISCLOSURES OF
      CASH FLOW INFORMATION:
      Income taxes paid                                            $       68,528    $      79,666
                                                                   ==============    =============
See condensed notes to financial statements.

</TABLE>

                                       5
<PAGE>

                               IKONICS CORPORATION

                     CONDENSED NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)

1.    Notes to Financial Statements

      The balance sheet of IKONICS Corporation (the "Company") as of March 31,
      2007, and the related statements of operations and cash flows for the
      three months ended March 31, 2007 and 2006, 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 March 31, 2007,
      and the results of its 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-KSB for the year ended December 31, 2006.

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

2.    Inventory

      The major components of inventory at March 31, 2007 and December 31, 2006
      are as follows:

<TABLE>
<CAPTION>
                                                                    Mar 31, 2007     Dec 31, 2006
                                                                   --------------    -------------
<S>                                                                <C>               <C>
Raw materials                                                      $    1,285,986    $   1,577,165
Work-in-progress                                                          305,703          225,033
Finished goods                                                          1,274,682        1,227,806
Reduction to LIFO cost                                                   (545,464)        (535,128)
                                                                   --------------    -------------

Total Inventory                                                    $    2,320,907    $   2,494,876
                                                                   ==============    =============
</TABLE>

3.    Earnings Per Common Share (EPS)

      Basic EPS is calculated using net income divided by the weighted average
      of common shares outstanding during the quarter. Diluted EPS is similar to
      Basic except that the weighted average of common shares outstanding is
      increased to include the number of additional common shares that would
      have been outstanding if the dilutive potential common shares, such as
      those shares subject to stock options, had been issued.

      Shares used in the calculation of diluted EPS are summarized below:

<TABLE>
<CAPTION>
                                                                                            Three Months Ended
                                                                                     Mar 31, 2007       Mar 31, 2006
                                                                                     -------------     --------------
<S>                                                                                  <C>               <C>
Weighted average common shares outstanding                                               2,015,570          1,971,417
Dilutive effect of stock options                                                            48,941             47,821
                                                                                     -------------     --------------
Weighted average common and common equivalent shares outstanding                         2,064,511          2,019,238
                                                                                     =============     ==============
</TABLE>

                                       6
<PAGE>

      Options to purchase 76,321 and 107,567 shares of common stock were
      outstanding at March 31, 2007 and 2006, respectively.

4.    Stock-based Compensation

      The Company has a stock incentive plan for the issuance of up to 342,750
      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 one to three year
      period. A total of 56,423 shares of common stock are reserved for
      additional grants of options under the plan at March 31, 2007.

      The Company accounts for this plan under FAS 123(R), "Share-Based Payment"
      using the modified-prospective-transition method. Under the
      modified-prospective-transition method, FAS 123(R) applies to new awards
      and to awards that were outstanding on January 1, 2006 that are
      subsequently modified, repurchased, or cancelled. Under this method
      compensation cost in 2007 and 2006 includes cost for options granted prior
      to but not vested as of December 31, 2005, and options granted in 2007 and
      2006.

      The Company charged compensation cost of $4,700 against income for the
      three months ended March 31, 2007 and $3,700 for the three months ended
      March 31, 2006. As of March 31, 2007 there was approximately $30,000 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, increased by the APIC pool, which
      is the amount that represents the pool of excess tax benefits available to
      absorb tax shortages. For the three months ended March 31, 2007, $2,785 of
      excess tax benefits was reported as operating and financing cash flows
      compared to $12,771 for the three months ended March 31, 2006. The
      Company's APIC pool totaled $42,497 and $39,712 at March 31, 2007 and
      December 31, 2006, respectively.

      Proceeds from the exercise of stock options were $25,599 and $108,450 for
      the three months ended March 31, 2007 and 2006, respectively. There were
      no options granted during the three months ending March 31, 2007.

      Stock option activity during the first three months ending March 31, 2007
      was as follows:
<TABLE>
<CAPTION>
                                                                                          Weighted
                                                                                           Average
                                                                                          Exercise
                                                                           Shares            Price

<S>                                                                   <C>            <C>
Outstanding at beginning of period                                         88,222    $        3.33
Granted                                                                        --               --
Exercised                                                                 (11,401)            2.25
Expired and forfeited                                                        (500)            4.32
                                                                      -----------
Outstanding at 3/31/07                                                     76,321             3.49
                                                                      ===========
</TABLE>

      The aggregate intrinsic value of all options outstanding and for those
      exercisable at March 31, 2007 was $389,485 and $360,639, respectively.

                                       7
<PAGE>

5.    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
      terms of their agreements. Estimated amortization expense for each of the
      next five years is $54,000 annually. In connection with license
      agreements, the Company has agreed to pay royalties ranging from 3% to 5%
      on the future sales of products subject to the agreements.

6.    Comprehensive income

      Comprehensive income includes unrealized gains and losses on the Company's
      available for sale marketable securities. There were no marketable
      securities available for sale at December 31, 2006 or March 31, 2007.
      Total comprehensive income was $139,097 and $99,198 for the three months
      ended March 31, 2007 and 2006, respectively.

7.    Purchase of Assets

      On December 29, 2006, the Company acquired certain assets of Franklin
      International Inc. related to the image mate(TM) product line. If the
      acquisition had occurred on January 1, 2006, the unaudited pro forma
      impact on revenues would have been to increase revenues by approximately
      $150,000. The unaudited pro forma net income and earnings per common share
      would not have been significant to the amounts reported in the Company's
      income statement for the three months ended March 31, 2006.

8.    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 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. It is also entering the market for etched ceramics,
      glass and silicon wafers; 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 included in the Company's
      Annual Report on Form 10-KSB for the year ended December 31, 2006.

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

                                       8
<PAGE>

For the three months ended March 31, 2007:
<TABLE>
<CAPTION>

                                                                         IKONICS
                                        DOMESTIC         EXPORT          IMAGING          OTHER            TOTAL
                                      -------------   -------------   -------------   -------------    -------------
<S>                                   <C>             <C>             <C>             <C>              <C>
Net Sales                             $   1,379,347   $     986,950   $   1,141,470   $        --      $   3,507,767

Cost of good sold                           800,604         723,083         550,383            --          2,074,070
Selling, general and
     administrative*                        285,567         123,414         394,204         427,907        1,231,092
Research and
     Development*                              --              --              --           206,272          206,272
                                      -------------   -------------   -------------   -------------    -------------
                                          1,086,171         846,497         944,587         634,179        3,511,434
                                      -------------   -------------   -------------   -------------    -------------
Income (loss) from
     operations                       $     293,176   $     140,453   $     196,883   $    (634,179)   $      (3,667)
                                      =============   =============   =============   =============    =============
</TABLE>

For the three months ended March 31, 2006:

<TABLE>
<CAPTION>
                                                                         IKONICS
                                        DOMESTIC         EXPORT          IMAGING          OTHER            TOTAL
                                      -------------   -------------   -------------   -------------    -------------
<S>                                   <C>             <C>             <C>             <C>              <C>
Net Sales                             $   1,257,884   $     962,143   $   1,151,773   $        --      $   3,371,800

Cost of good sold                           719,810         649,822         547,711            --          1,917,343
Selling, general and
     administrative*                        260,429         120,543         425,345         345,669        1,151,986
Research and
     Development*                              --              --              --           180,469          180,469
                                      -------------   -------------   -------------   -------------    -------------
                                            980,239         770,365         973,056         526,138        3,249,798
                                      -------------   -------------   -------------   -------------    -------------
Income (loss) from
     Operations                       $     277,645   $     191,778   $     178,717   $    (526,138)   $     122,002
                                      =============   =============   =============   =============    =============
</TABLE>

Accounts receivable as of March 31, 2007 and December 31, 2006:
<TABLE>
<CAPTION>
                                       Mar 31, 2007   Dec 31, 2006
                                      -------------   -------------
<S>                                   <C>             <C>
Domestic                              $     898,519   $     842,144
Export                                      497,056         780,599
IKONICS Imaging                             383,730         384,748
Other                                         5,908         (30,598)
                                      -------------   -------------
Total                                 $   1,785,213   $   1,976,893
                                      =============   =============
</TABLE>

-------------
*     The Company does not allocate all general and administrative expenses or
      any research and development expenses to its operating segments for
      internal reporting.

9.    Income Taxes

      On January 1, 2007, the Company adopted the provisions of Financial
      Standards Accounting Board Interpretation No. 48, Accounting for
      Uncertainty in Income Taxes ("FIN 48"). As a result of the implementation
      of FIN 48, the Company recorded a liability for unrecognized tax benefits
      of $137,000, which was accounted for as a reduction to retained earnings.
      The balance of the unrecognized tax benefits at adoption, exclusive or
      interest, is $122,000, all of which would decrease the provision for
      income taxes

                                       9
<PAGE>

      and increase net income by the same amount. During the first quarter of
      2007, the statue of limitations for the relevant taxing authority to
      examine and challenge the tax position for an open year expired, resulting
      in an increase in the income tax benefit of $45,000 for the quarter. As of
      March 31, 2007, the liability for unrecognized tax benefits totaled
      $92,000 and is included in other accrued expenses.

      The Company is subject to taxation in the U.S. and various states. The
      material jurisdictions that are subject to examination by tax authorities
      primarily include Minnesota and the United States, for tax years after
      2002 and 2003 respectively.

      It is the Company's policy to recognize interest and penalties related to
      uncertain tax positions in income tax expense. The Company had accrued
      approximately $15,000 of interest related to uncertain tax positions at
      the date of adoption. The accrued interest was reduced to $7,500 during
      the first quarter as a result of the statue of limitations expiration on
      an earlier year.

                                       10
<PAGE>

                               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.

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 first quarter of 2007 and for the same period of 2006. It
should be read in connection with the Company's unaudited financial statements
and notes thereto included in this Form 10-QSB.

FACTORS THAT MAY AFFECT FUTURE RESULTS

      Certain statements made in this Quarterly Report on Form 10-QSB, including
those summarized below, are forward-looking statements within the meaning of the
safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as
amended, that involve risks and uncertainties, and actual results may differ.
Factors that could cause actual results to differ include those identified
below.


      o     The Company's belief that additional proceeds will be received from
            the sale of Apprise common and preferred stock--Actual proceeds
            received may be impacted by unanticipated expenses related to
            indemnification clauses as part of the agreement between Apprise and
            its purchaser.

      o     The Company's belief that the quality of its receivables is high and
            that strong internal controls are in place to maintain proper
            collections--This belief may be impacted by domestic economic
            conditions, by economic, political, regulatory or social conditions
            in foreign markets, or by the failure of the Company to properly
            implement or maintain strong internal controls.

      o     The belief that the Company's 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 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,
            acceptance of new products, 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.

      o     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.

      o     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

                                       11
<PAGE>

            the amount or geographic focus of the Company's international sales,
            or changes in purchase or sales terms.

      o     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.

      o     The Company's efforts to grow its international business--These
            efforts may be impacted by economic, political and social conditions
            in current and anticipated foreign markets, regulatory conditions in
            such markets, unanticipated changes in expenses or sales, changes in
            competitive conditions or other barriers to entry or expansion.

      o     The Company's belief as to future activities that may be undertaken
            to expand the Company's business--Actual activities undertaken may
            be impacted by general market conditions, competitive conditions in
            the Company's industry, unanticipated changes in the Company's
            financial position or the inability to identify attractive
            acquisition targets, new products or other business opportunities.

CRITICAL ACCOUNTING POLICIES

      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 policies,
which IKONICS believes are the most critical to aid in fully understanding and
evaluating its reported financial results, include the following:

      Accounts Receivable. 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 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 Company's general payment terms are net 30-45 days for domestic
customers and net 60-90 days for foreign customers.

      Inventory. 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.

      Deferred Tax Assets. At March 31, 2007, the Company had approximately
$136,000 of net deferred tax assets. The net deferred tax assets result
primarily due to timing differences in intangible assets and property and
equipment. The Company has determined that it is more likely than not that the
net deferred tax assets reflected on the balance sheet will be realized and that
a valuation allowance for such assets is not currently required.

      Investments in Non-Marketable Equity Securities. Investments in
non-marketable equity securities consist of a $791,450 investment in imaging
Technology international ("iTi"). The Company accounts for this investment by
the cost method because the common stock of the corporation is unlisted and the
criteria for using the equity method of accounting is not satisfied. Under the
lower of cost or market method, the investment is assessed for
other-than-temporary impairment and recorded at the lower of cost or market
value which requires significant judgment since there are no readily available
market values. In assessing the fair value of such investments we consider
recent equity transactions that iTi has entered into, the status of iTi's
technology and strategies in place to

                                       12
<PAGE>

achieve its objectives, as well as iTi's financial condition and results of
operations. To the extent there are changes in the assessment, an adjustment may
need to be recorded.

      Revenue Recognition. The Company recognizes revenue on products when title
passes, which is usually upon shipment. Freight billed to customers is included
in sales. Shipping costs are included in cost of goods sold.

RESULTS OF OPERATIONS

QUARTER ENDED MARCH 31, 2007 COMPARED TO QUARTER ENDED MARCH 31, 2006

      Sales. Compared to the same period in 2006, the Company's sales increased
4.0% during the first quarter of 2007. Sales during the first quarter of 2007
were $3,508,000 versus sales of $3,372,000 during the first quarter of 2006. The
$136,000 sales increase was mainly due to both domestic and international
shipments from the image mate(TM) line of screen printing products, acquired in
December 2006.

      Cost of Goods Sold. Cost of goods sold during the first quarter of 2007
was $2,074,000, or 59.1% of sales, compared to $1,917,000, or 56.9% of sales,
during the same period in 2006. The increase in the cost of sales of 2.2% in the
first quarter of 2007 reflects a less favorable product mix and additional
manufacturing overhead expenses related to the image mate transition.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,231,000, or 35.1% of sales, in the first
quarter of 2007, from $1,152,000, or 34.2% of sales, for the same period in
2006. The first three months of 2007 reflect an additional $45,000 for increased
sales personnel, and $24,000 for expenses related to Sarbanes-Oxley compliance
efforts.

      Research and Development Expenses. Research and development expenses
during the first quarter of 2007 were $206,000, or 5.9% of sales, versus
$180,000, or 5.4% of sales, for the same period in 2006. The increase was due to
equipment rental, depreciation, and production trial expenses related to the
Company's efforts in the industrial digital inkjet market.

      Gain on Sale of Non-Marketable Equity Securities. The Company realized a
gain of $55,000 on the sale of its investment in the common and preferred stock
of Apprise Technologies, Inc. ("Apprise") during the first quarter of 2007. In
addition to the initial proceeds, the Company anticipates receiving additional
proceeds in 2008 from the portion of the total sale price that was placed in
escrow at the time of the sale related to indemnification clauses as part of the
agreement between Apprise and its purchaser. The additional proceeds and gain
recognition is expected to be approximately $40,000.

      Interest Income. Interest income for the first quarter of 2007 was
$33,000, compared to $24,000 for the same period in 2006. The interest income
increase is due to an increase in interest rates and a larger average invested
balance of interest earning assets.

      Income Taxes. For the first quarter of 2007, the Company realized an
income tax benefit of $55,000 compared to income tax expense of $47,000, or an
effective rate of 32.6%, for the same period in 2006. The benefit primarily
relates to derecognizing a liability of $45,000 for unrecognized tax benefits
relating to a tax year where the statute of limitations expired during the first
quarter. During the first quarter of 2007, the Company also recorded a tax
benefit adjustment of $9,000 relating to the December 31, 2006 tax accrual
estimate. A net benefit of $7,000 was also realized from the reversal of the
valuation allowance offsetting the capital loss carryforward and utilization of
a portion of the carryforward when the initial proceeds were received from the
sale of the Apprise investment. The remaining carryforward is expected to be
fully utilized when the additional anticipated proceeds are received in 2008.
The remaining income tax provision differs from the expected tax expense
primarily due to the benefits of the domestic manufacturing deduction, tax
exempt interest, state income taxes and federal credits for research and
development. For the remainder of 2007, the Company does not expect to realize
additional income tax benefits related to the December 31, 2006 tax accrual
estimate or the valuation allowance reversal.

                                       13
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      The Company has financed its operations principally with funds generated
from operations and employee stock option exercises. 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 $3,803,062 and $3,334,478 at March 31, 2007
and March 31, 2006, respectively. The Company generated $193,000 in cash from
operating activities during the three months ended March 31, 2007, compared to
generating $18,000 of cash from operating activities during the same period in
2006. Cash provided by operating activities is primarily the result of net
income adjusted for non-cash depreciation, amortization, and certain changes in
working capital components.

      During the first three months of 2007, trade receivables decreased by
$192,000. The decrease in receivables was driven by the timing of collections.
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 $174,000 due to the timing of raw material shipments. Prepaid expenses
increased $92,000, reflecting annual insurance premiums prepaid in the first
quarter of 2007. Accounts payable increased $42,000, primarily as a result of
the timing of payments to and purchases of material from suppliers for
inventory. Accrued expenses decreased $203,000, primarily reflecting the timing
of compensation payments. Income taxes payable decreased $92,000 and the
Company's income tax receivable increased $7,000 due to payment of 2006 taxes
during the first quarter of 2007.

      For the first three months of 2007, investing activities provided $153,000
to the Company. The Company received $253,000 from the sale of its Apprise
investment and $6,500 from the sale of a vehicle. The cash received was
partially offset by $82,000 used for the purchase of Company vehicles and
equipment to improve efficiency and reduce operating costs. The Company also
incurred $24,000 in patent application costs that the Company records as an
asset and amortizes upon successful completion of the application process. For
the first three months of 2006, the Company used $217,000 in investing
activities. During the first quarter of 2006, the Company elected to make an
early exercise of its warrants to buy an additional 33,333 shares of stock in
iTi. The price per share was $7.50 per share and as consideration for the early
exercise, the Company was granted warrants to buy an additional 8,333 shares at
$8.50 per share. The Company owns approximately 7% of the outstanding shares of
iTi. Also during the first quarter of 2006, the Company received $84,000 from
the sale of marketable securities and purchased $41,000 of plant equipment to
improve efficiency and reduce operating costs. The Company also incurred $10,000
in patent application costs that the Company records as an asset and amortizes
upon successful completion of the application process.

      The Company realized $28,000 from financing activities during the first
three months of 2007 compared to $121,000 received in the same period of 2006.
During the first three months of 2007, the Company received $26,000 for the
issuance of 11,401 shares of common stock upon the exercise of stock options
compared to $108,000 received during the first three months of 2006 for 26,968
shares of common stock issued upon the exercise of stock options. The Company
also realized a $3,000 benefit during the first quarter of 2007 related to the
excess tax benefit from the exercise of stock options compared to $13,000 for
the same period in 2006.

      A bank line of credit exists providing for borrowings of up to $1,250,000.
Outstanding debt under this line of credit is collateralized by accounts
receivable and inventory and bears interest at 2.00 percentage points over the
30-day LIBOR rate. The Company did not utilize this line of credit during the
quarter ended March 31, 2007 or during the fiscal year 2006. There was no debt
outstanding under this line as of March 31, 2007 or March 31, 2006.

      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.

                                       14
<PAGE>

CAPITAL EXPENDITURES

      Through March 31, 2007, the Company has spent $82,000 on capital
expenditures during 2007. This spending primarily consists of vehicles and plant
equipment upgrades.

      The Company plans for additional capital expenditures during 2007 to
support the Company's efforts in the development of digital inkjettable fluids
and substrates. Capital expenditures in 2007 will also include ongoing
manufacturing equipment upgrades and development equipment to modernize the
capabilities and processes of the Company's research and development laboratory
to improve measurement and quality control processes. Capital expenditures are
expected to be approximately $500,000 for the remaining nine months of the year
and funded with cash generated from operating activities.

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 28.1% of total sales during the first quarter 2007 and 28.5% of
total sales for the same period in 2006. 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. 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 are transacted in Euros. IKONICS has not
implemented a hedging strategy to reduce the risk of foreign currency
translation exposure, which management does not believe to be significant based
on the scope and geographic diversity of the Company's foreign operations as of
March 31, 2007.

FUTURE OUTLOOK

      IKONICS has invested on average over 4% of its sales dollars for the past
several years in research and development. The Company plans to maintain its
efforts in this area and expedite internal product development as well as form
technological alliances with outside sources to ensure commercialization of new
product opportunities.

      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 expansion and additions, equipment additions, new
product development and marketing opportunities.

RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 was effective
for the Company as of January 1, 2007. The impact of the adoption on the
Financial Statements as of January 1, 2007, was an increase in total liabilities
of $137,000 and a decrease in stockholders' equity of $137,000.

      In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting

                                       15
<PAGE>

pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS 157 does not require any new fair value measurements. SFAS 157
is effective for the Company beginning in fiscal year 2008. Management is
evaluating the statement to determine the effect, if any, on the financial
statements and related disclosures.

      In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 allows
entities to measure at fair value many financial instruments and certain other
assets and liabilities that are not otherwise required to be measured at fair
value. SFAS 159 is effective for fiscal years beginning after November 15, 2007.
We have not determined what impact, if any, that adoption will have on our
results of operations, cash flows or financial position.

OFF BALANCE SHEET ARRANGEMENTS

      The Company has no off-balance sheet arrangements.


ITEM 3A(T).  CONTROLS AND PROCEDURES

      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 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.

                                       16
<PAGE>

                           PART II. OTHER INFORMATION
                                    -----------------

ITEM  1.        LEGAL PROCEEDINGS

                None

ITEM  2.        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

                None

ITEM  3.        DEFAULTS UPON SENIOR SECURITIES

                Not   applicable

ITEM  4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                None

ITEM  5.        OTHER INFORMATION

                None

ITEM  6.        EXHIBITS

      The following exhibits are filed as part of this Quarterly Report on Form
10-QSB for the quarterly period ended March 31, 2007:

<TABLE>
<CAPTION>
  Exhibit                               Description
----------      ----------------------------------------------------------------
<S>             <C>
    3.1         Restated Articles of Incorporation of Company, as amended. (1)
    3.2         By-Laws of the Company, as amended. (1)
   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
</TABLE>

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

----------
(1) Incorporated by reference to the like numbered Exhibit to the Company's
Registration Statement on Form 10-SB (File No. 000-25727).

                                       17
<PAGE>

                              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.

                                   IKONICS CORPORATION


DATE: May 14, 2007                By: /s/ Jon Gerlach
                                      ---------------------------------------
                                      Jon Gerlach,
                                      Chief Financial Officer, and
                                      Vice President of Finance

                                       18
<PAGE>

                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit                        Description                                             Page
-------    -----------------------------------------------------------------    -----------------
<S>        <C>                                                                  <C>
  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
 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
</TABLE>