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corresp

December 2, 2009

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Washington, D.C. 20549-4631

Attention: Jeff Jaramillo, Accounting Branch Chief

BY EDGAR

    Re:

    IKONICS Corporation

Form 10-K for the year ended December 31, 2008

Filed March 2, 2009

File No. 000-25727

     Dear Mr. Jaramillo:

     IKONICS Corporation, a Minnesota corporation (the “Company” or “IKONICS”), hereby responds to
the Staff’s comment letter dated November 13, 2009. The comments in the comment letter have been
reproduced here in italics and the Company’s responses are detailed under those comments.

Form 10-K for the Fiscal Year Ended December 31, 2008

Fair Value of Financial Instruments, page 19

    1.

    We note that “The carrying value of the non-marketable equity securities
approximated their estimated fair value based on management’s knowledge of recent sales
prices of the non-marketable equity securities”. In order to help your investors
understand how you estimate the fair value of your non- marketable equity securities,
please explain to us in greater detail and disclose in your future filings the
methodologies and major assumptions used to estimate the fair value of your
non-marketable equity securities.

    Response: To estimate the fair value of its investment in imaging Technology
international (iTi), the Company currently follows the guidance within FASB ASC 820, Fair
Value Measurements and Disclosures, which was formerly entitled SFAS No. 157, Fair Value
Measurements, among other standards, as described below. iTi is a privately held company
and there is no active market for iTi’s securities. iTi was the Company’s only
non-marketable investment at December 31, 2008 and for each of the quarters ended in 2009.
The Company did include a statement discussing the risks in assessing impairment for iTi in
its Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 and also considered
this evaluation a critical accounting estimate in all past filings. Accordingly, the data
utilized by the Company in assessing the value of its cost method

    investment in iTi is considered “unobservable” inputs and thus is considered to be “level
3” inputs, principally using a market approach based on transactions in iTi’s stock, as
well as review of financial statements, forecasted sales and cash flows, backlog and other
relevant information regarding iTi’s operations. This information was available to the
Company because it had observer rights to the iTi board of directors (although the observer
had no voting rights and was not an actual member of the board) which were exercised by
IKONICS’s CEO. Furthermore, one of IKONICS’s independent directors was an iTi director by
virtue of his own, unrelated investment in iTi.** The foregoing factors gave the Company a
firm basis for assessing the value of this investment. A description of certain
transactions in iTi stock and a more detailed discussion of the Company’s considerations in
assessing fair value are included in the response to comment number 4 below. To the extent
that it is applicable, IKONICS will disclose in future filings the methodologies and major
assumptions used to estimate the fair value of the Company’s non-marketable equity
securities; however, as iTi was IKONICS’s only such investment and has been fully written
down, the Company does not currently expect significant future disclosure in this area.

    **Please be advised that the Company is mindful of the rules and SEC guidance around indices
of control as they affect accounting for investments. The non-voting observer rights of the
Company exercised by IKONICS’s CEO did not come with any active or convertible right to vote
or otherwise influence the operations of iTi. The seat on iTi’s board held by one of the
Company’s independent directors was the result of his own, direct and unrelated investment
in iTi. At no time was that common board member under the Company’s control in any respect
with regard to his position on iTi’s board. Consequently, IKONICS did not exercise
significant influence over iTi in any way which would have required or suggested equity
method accounting for that investment at any time.

Revenue Recognition, page 19

    2.

    We note that “[You] recognize revenue on sales of products when title passes
which can occur at the time of shipment or when the goods arrive at the customer
location.” We also note on page three that “[You] currently have approximately 200
domestic and international distributors.” In this regard, to the extent that the
policy differs depending on the passage of title, make your disclosure more specific to
address such different revenue recognition policies. Further provide details to the
extent that policies differ among the various marketing venues used by the company,
i.e. distributors and resellers. Also, if the policies vary in different parts of the
world those differences should be discussed. Please provide details as it relates to
discounts, return policies, post shipment obligations, customer acceptance, warranties,
credits, rebates, price protection, and rotation rights or similar privileges and how
it impacts revenue recognition. Also provide an analysis that explains your revenue
recognition practices and demonstrates that your policies are SAB 104 and FASB ASC 605
(SFAS 48) compliant.

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    Response: As described in the Company’s filing, revenue from the sale of goods
to all parties, whether direct to end users or to distributors, is recognized upon the
transfer of ownership, including passage of title to the customer and transfer of the
risk of loss related to those goods. Transfer of title and risk of loss occurs at the
time the product is shipped or when the product arrives at the customer, depending on
the contractual agreement with a customer. In addition to transfer of title / risk of
loss, all revenue is recorded in accordance with the criteria outlined within SAB 104
which includes, for both sales to end users and distributors (as terms for these two
groups of customers are generally identical):

(a) persuasive evidence of an arrangement (principally in the form of
customer sales orders and the Company’s sales invoices, as generally there
is no other formal agreement underlying the sale transactions)

(b) delivery and performance (evidenced by proof of delivery, e.g. the
shipment of film and substrates with bill of lading used for proof of
delivery for FOB shipping point terms, and the carrier booking confirmation
report used for FOB destination terms). Once the finished product is
shipped and physically delivered under the terms of the invoice and sales
order, the Company has no additional performance or service obligations to
complete

(c) a fixed and determinable sales price (the Company’s pricing is
established and is not based on variable terms, as evidenced in either the
Company’s invoices or the limited number of distribution agreements; the
Company rarely grants extended payment terms and have no history of
concessions)

(d) a reasonable likelihood of payment (the Company’s terms are standard,
and the Company does not have a substantial history of customer defaults or
non-payment)

    Sales are reported on a basis which is computed by deducting from gross sales the amount
of credits, which are usually for returned products, discounts and any estimated normal
returns, all of which are and can be reasonably estimated based on data available to the
Company. As a percentage of gross sales, credits recorded were 0.9%, 1.0% and 0.6% in
fiscal years 2008, 2007, and 2006, respectively.

    The Company’s return policy does not vary by customer type or geography. Once the
product has been shipped, the Company has no post-shipment obligations nor is more than
perfunctory acceptance required by the customer. The Company is not under a warranty
obligation and the customer has no rotation or price protection rights.

    Sales to distributors account for approximately 76% and 73% of sales for 2009 to date
and the full year 2008, respectively. IKONICS has a limited number of formal
distribution agreements (less than 10) and does not have terms with distributors which
are different than those which the Company has with end users. Given the absence of
formal distribution agreements for most of the Company’s distributors, the revenue
recognition criteria are established and governed by the sales, delivery and payment

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    terms stated on the invoices from the Company to those distributors. Any distribution
agreements that the Company may have with a customer pertain to exclusive product or
territorial rights with that customer; distribution arrangements do not include any
sell-through requirements nor any payment terms based thereon. On a going-forward basis,
the Company will update its revenue recognition disclosures to include certain of the
additional information outlined above. In particular, the Company will describe the
Company’s compliance with the four criteria of SAB 104.

Foreign Currency Translation, page 20

    3.

    We note that your foreign currency transactions and translation adjustments did
not have significant effects for 2008 and 2007. Yet we note on page 18 that
approximately 31.4% and 29.6% of net sales were foreign export sales in 2008 and 2007,
respectively. Please explain to us your accounting policy for foreign currency
transactions and translation adjustments, citing applicable U.S. GAAP. Also in your
explanation include how you account for foreign export sales based on your foreign
currency translation/transaction policy. Revise your future filings to discuss this
accounting policy.

Response: As you noted, the Company has stated that foreign currency
transactions and any related translation adjustments did not have a significant effect
for 2008 and 2007, as only a small portion of the Company’s sales are conducted in a
foreign currency.

The principal reason for the minimal and immaterial effect of foreign exchange is that,
while the Company invoices a limited number of European customers in foreign currencies
(mainly Euros or British Pounds), all other customers are invoiced and pay in U.S.
dollars. Invoices for customers who are invoiced and pay in a foreign currency are
converted to U.S. Dollars as of the invoice date and initially recorded at that amount.

At the end of each reporting period, the Company analyzes the receivable balance for
customers invoiced and paying in a foreign currency. These balances are adjusted to the
quarter or year end spot rate. The change in the period ending rate is compared to
prior period and the variance is then recorded as a foreign currency gain or loss in
accordance with FASB ASC 830-20-30 (Foreign Currency Matters — Foreign Currency
Translation — General).

At December 31, 2008 and December 31, 2007, the receivable balance for customers
invoiced and paying in foreign currency was 12.3% and 9.5% of the total receivable
balance, respectively, with no concentration in any given country. In 2009, the
receivable balance for customers paying in a foreign currency was 6.1% at March 31,
2009, 7.5% at June 30, 2009, and 6.9% at September 30, 2009, respectively, of the total
receivable balance. Applying the exchange rate variance to the outstanding

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receivable balance resulted in the following recorded foreign currency adjustments for
the periods ending (amounts are in dollars, not in 000s):

    Year Ending 12/31/07

    $3,003 gain

    Year Ending 12/31/08

    $7,334 gain

    Quarter Ending 03/31/09

    $92 loss

    Quarter Ending 06/30/09

    $4,286 gain

    Quarter Ending 09/30/09

    $3,348 gain

Note that translation and transaction amounts are essentially the same due to the
short-term duration of the outstanding balances.

While each of the above foreign currency adjustments were recorded, the Company was
confident in its assertion that such amounts were neither significant nor material and
consequently neither the amount of the adjustment nor the directional impact were
disclosed. These immaterial amounts, which were, allowably, recorded as a selling
general and administrative expense in the export segment, are not material to that line
item nor are the amounts material to any related analysis or trend. In future filings,
should such amounts grow in either absolute value or relative magnitude such that they
are material, the Company will revise its disclosure accordingly.

     Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,
page 12

    4.

    We note from your disclosure on page 12 that your investment in iTi is
periodically assessed for other-than-temporary impairment. Also, your disclosure on
page 18 appears to imply that your investments in non-marketable equity securities were
not considered to be impaired as of June 30, 2009. Additionally, we note from your
Form 8-K/A filed on October 19, 2009 that you determined as of September 30, 2009 that
your investment in iTi of $919,000 has been fully impaired and accordingly the Company
has recognized an impairment charge of $919,000 during the interim period ended
September 30, 2009. In this regard, please explain in further detail the nature and
specific timing of the events or circumstances that occurred during the third quarter
ended September 30, 2009, which caused your investment in iTi to be fully impaired.
Please explain why these events and circumstance that caused you to determine that your
investment in iTi was fully impaired were not in existence during your prior two
quarters in fiscal year 2009. Furthermore, if as of June 30,2009 your investment in
iTi was in an unrealized loss position and you concluded that your impairment in iTi
was not other than temporary, please provide us with both the positive and negative
information considered by you in concluding that your impairment in iTi was not other
than temporary as of June 30, 2009 and fully explain how that information differed from
the information used in your other-than-temporary impairment analysis for iTi at
September 30, 2009.

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Response: IKONICS owns 120,662 shares of common stock of iTi. The 120,662
shares of iTi account for approximately 8% of the total outstanding shares of iTi. The
price paid by the Company for the shares purchased has ranged from $6.85 per share to
the most recent purchase at $8.50 per share, which was made on December 23, 2008, for a
total investment of $918,951, until an impairment charge was recognized as of September
30, 2009. The Company’s use of the market approach, and the data points provided
thereby (as described in the Company’s response to the first comment above) which did
not previously indicate any diminution of value, whether temporary or other than
temporary impairment, did not previously result in the recognition of any unrealized
losses on this investment.

iTi, based in Boulder, CO since 1992, designs, develops and manufactures digital systems
that incorporate inkjet technology for industrial applications. It also supplies
development tools for the inkjet industry. In addition to manufacturing standard
products, iTi designs specialized industrial equipment to meet unique customer
requirements.

During
November of 2006, iTi sold approximately 160,000 or 12 % of its total outstanding shares of common stock to raise additional funding. The shares were sold at $8.25 per
share resulting in an entity valuation of approximately $11.0 million, with additional
warrants having an exercise price of $8.50 per share (both the price per share and the
valuation implied thereby were in excess of the relative carrying value of IKONICS’
investment). This latest round of financing was oversubscribed with a new investor
participating by purchasing 15,000 shares. The largest outside investor was also a
leading manufacturer of inkjet print heads who was also a prior investor.

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