<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20569
Form 10-Q
[X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
------------------
Commission file number 0-23150
--------
Ibis Technology Corporation
---------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2987600
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
32 Cherry Hill Drive, Danvers, MA 01923
--------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(978) 777-4247
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
----- ------
6,829,767 shares of Common Stock, par value $.008, were outstanding on November
9, 1998.
Total Number of Pages 25
Exhibit Index at Page 19
1
<PAGE>
IBIS TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
- ------------------------------- Number
------
<S> <C>
Item 1 - Financial Statements:
Balance Sheets
December 31, 1997 and September 30, 1998 (unaudited) ......... 3
Statements of Operations
Three Months Ended September 30, 1997 and 1998 (unaudited)
and Nine Months Ended September 30, 1997 and 1998 (unaudited) 4
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1998 (unaudited) .... 5
Notes to Financial Statements (unaudited) ........................ 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ........................................... 17
Item 2 - Changes in Securities ....................................... 17
Item 3 - Defaults upon Senior Securities ............................. 17
Item 4 - Submission of Matters to a Vote of Security Holders ......... 17
Item 5 - Other Information ........................................... 17
Item 6 - Exhibits and Reports on Form 8-K ............................ 17
Signatures ........................................................... 18
Exhibit Index ........................................................ 19
</TABLE>
2
<PAGE>
IBIS TECHNOLOGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited)
December 31, September 30,
1997 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .......................... $ 13,309,823 $ 11,039,295
Accounts receivable, trade, net .................... 1,064,607 1,810,766
Unbilled revenue ................................... 230,490 3,033,683
Inventories (note 3) ............................... 4,879,087 3,394,239
Prepaid expenses and other current assets .......... 124,711 134,620
------------ ------------
Total current assets ........................... 19,608,718 19,412,603
------------ ------------
Property and equipment ............................... 13,303,256 14,883,053
Less: Accumulated depreciation and amortization ... (8,250,372) (9,552,167)
------------ ------------
Net property and equipment ..................... 5,052,884 5,330,886
Patents and other assets, net ....................... 256,638 155,097
------------ ------------
Total assets .................................. $ 24,918,240 $ 24,898,586
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Capital lease obligation, current .................. $ 474,539 $ 536,498
Accounts payable ................................... 691,325 478,283
Accrued liabilities ................................ 1,193,504 1,342,543
------------ ------------
Total current liabilities ...................... 2,359,368 2,357,324
------------ ------------
Capital lease obligation, noncurrent ................. 498,685 137,449
Other accrued liabilities ............................ 1,303,187 1,396,577
------------ ------------
Total liabilities .............................. 4,161,240 3,891,350
------------ ------------
Stockholders' equity:
Undesignated preferred stock, $.01 par value
Authorized 2,000,000 shares; none issued ......... -- --
Common stock, $.008 par value
Authorized 20,000,000 shares; issued 6,628,728 and
6,825,280 shares in 1997 and 1998, respectively 53,030 54,602
Additional paid-in capital ....................... 35,593,999 36,571,303
Accumulated deficit .............................. (14,890,029) (15,618,669)
------------ ------------
Total stockholders' equity ..................... 20,757,000 21,007,236
------------ ------------
Total liabilities and stockholders' equity ..... $ 24,918,240 $ 24,898,586
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales and revenue:
Product sales ...................................... $ 1,074,295 $ 445,010 $ 2,700,823 $ 2,462,718
Contract and other revenue ......................... 1,089,071 290,591 2,512,977 1,073,646
Equipment revenue .................................. -- 4,152,000 -- 8,352,000
------------ ------------ ------------ ------------
Total sales and revenue (note 2) ................ 2,163,366 4,887,601 5,213,800 11,888,364
------------ ------------ ------------ ------------
Cost of sales and revenue:
Cost of product sales .............................. 1,138,879 1,046,387 3,116,844 3,617,981
Cost of contract and other revenue ................. 741,116 247,965 1,591,983 885,935
Cost of equipment revenue .......................... -- 2,583,149 -- 5,397,158
------------ ------------ ------------ ------------
Total cost of sales and revenue ................. 1,879,995 3,877,501 4,708,827 9,901,074
------------ ------------ ------------ ------------
Gross profit .................................... 283,371 1,010,100 504,973 1,987,290
------------ ------------ ------------ ------------
Operating expenses:
General and administrative ......................... 315,044 427,734 1,040,705 1,375,374
Marketing and selling .............................. 114,173 102,534 359,430 319,933
Research and development ........................... 346,655 495,263 1,010,781 1,423,215
------------ ------------ ------------ ------------
Total operating expenses ........................ 775,872 1,025,531 2,410,916 3,118,522
------------ ------------ ------------ ------------
Loss from operations ............................ (492,501) (15,431) (1,905,943) (1,131,232)
------------ ------------ ------------ ------------
Other income (expense):
Interest income .................................... 102,656 136,729 280,819 495,340
Interest expense ................................... (29,651) (26,724) (137,366) (91,492)
Other .............................................. -- -- 256 --
------------ ------------ ------------ ------------
Total other income .............................. 73,005 110,005 143,709 403,848
------------ ------------ ------------ ------------
Profit (loss) before income taxes .............. (419,496) 94,574 (1,762,234) (727,384)
Income tax expense .................................. -- -- 1,256 1,256
------------ ------------ ------------ ------------
Net profit (loss) ............................... $ (419,496) $ 94,574 $ (1,763,490) $ (728,640)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net profit (loss) per common share:
Basic .............................................. $ (0.07) $ 0.01 $ (0.33) $ (0.11)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted ............................................ $ (0.07) $ 0.01 $ (0.33) $ (0.11)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common shares outstanding:
Basic .............................................. 5,774,010 6,786,416 5,402,808 6,732,314
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted ............................................ 5,774,010 7,061,658 5,402,808 6,732,314
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
IBIS TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $ (1,763,490) $ (728,640)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ........................................... 1,563,099 1,338,684
Changes in operating assets and liabilities .............................. (1,283,986) (2,045,026)
------------ ------------
Net cash used in operating activities ................................. (1,484,377) (1,434,982)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment ....................................... (3,311,329) (1,579,883)
(Increase) decrease in other assets ....................................... (100) 64,738
------------ ------------
Net cash used in investing activities ................................. (3,311,429) (1,515,145)
------------ ------------
Cash flows from financing activities:
Payments of capital lease obligations ..................................... (528,670) (299,277)
Exercise of stock options ................................................. 176,398 978,876
Proceeds from warrant redemption,
net of redemption costs ............................................... 10,102,193 --
------------ ------------
Net cash provided by financing activities ............................. 9,749,921 679,599
------------ ------------
Net increase (decrease) in cash and cash equivalents .................. 4,954,115 (2,270,528)
Cash and cash equivalents, beginning of period .............................. 9,201,016 13,309,823
------------ ------------
Cash and cash equivalents, end of period .................................... $ 14,155,131 $ 11,039,295
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .................................. $ 160,903 $ 91,492
------------ ------------
------------ ------------
Capital lease obligations incurred ........................................ $ -- $ 50,204
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Interim Financial Statements
The accompanying financial statements are unaudited, except for the Balance
Sheet as of December 31, 1997, and have been prepared by the Company in
accordance with generally accepted accounting principles.
In the opinion of management, the interim financial statements include all
adjustments which consist only of normal and recurring adjustments, necessary
for a fair presentation of the Company's financial position and results of
operations. Results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year. These financial
statements should be read in conjunction with the financial statements of the
Company as of and for the year ended December 31, 1997 which are included in the
Annual Report on Form 10-K.
(2) Revenue Recognition
Product sales are recognized upon shipment. Revenue derived from consulting
services is recognized upon performance. Contract and equipment revenue is
recognized on the percentage-of-completion method. Provisions for anticipated
losses are made in the period in which such losses become determinable. Unbilled
revenue represents equipment and contract revenue earned but not yet billable
based on the terms of the contract which include shipment of the product,
achievement of milestones or completion of the contract.
(3) Change In Estimate
During the quarter the Company changed depreciable lives for some of its
equipment from five years to eight years. As a result, depreciation for the
quarter was reduced by approximately $123,000.
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------- ----------
<S> <C> <C>
Raw materials ......................... $ 221,378 $ 203,547
Work in process ....................... 105,607 32,560
Finished goods ........................ 160,046 176,372
---------- ----------
Subtotal wafer inventory ............ $ 487,031 $ 412,479
Equipment inventory ...... 4,392,056 2,981,760
---------- ----------
Total inventories $4,879,087 $3,394,239
---------- ----------
---------- ----------
</TABLE>
A portion of property and equipment was reclassified as equipment inventory
for both periods presented.
6
<PAGE>
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(5) Earnings Per Share Reconciliation
The reconciliation of the numerators and denominators of the basic and
diluted net income (loss) per common share computations for the Company's
reported net income (loss) is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic net income (loss) ................. $ (419,496) $ 94,574 $(1,763,490) $ (728,640)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common
shares outstanding-basic .............. 5,774,010 6,786,416 5,402,808 6,732,314
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net additional common shares upon assumed
exercise of stock options and warrants -- 275,242 -- --
----------- ----------- ----------- -----------
Weighted average common
shares outstanding-diluted ............ 5,774,010 7,061,658 5,402,808 6,732,314
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per common share
Basic ............................. $ (0.07) $ 0.01 $ (0.33) $ (0.11)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted ........................... $ (0.07) $ 0.01 $ (0.33) $ (0.11)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
7
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ibis Technology Corporation ("Ibis" or the "Company") was formed in October
1987 and commenced operations in January 1988. The Company's initial activities
consisted of producing and selling SIMOX-SOI wafers and conducting funded and
unfunded research and development activities. This research led to the Company's
development of a proprietary second generation implanter, the Ibis 1000, and to
other proprietary process technology.
Until 1993, much of the Company's revenue was derived from research and
development contracts and sales of SIMOX-SOI wafers for military applications.
Since 1993, there has been a shift in revenue to sales of SIMOX-SOI wafers for
commercial applications. For the nine months ended September 30, 1998 and for
the fiscal year ended December 31, 1997, commercial product sales (measured in
dollar volume) represented 80% and 83%, respectively, of total product sales
compared with 48% of total product sales for the fiscal year ended December 31,
1993. To date, most customers of the Company that have purchased wafers for what
the Company believes are commercial applications have done so solely for the
purpose of characterizing and evaluating the wafers. Thus, historical sales are
not necessarily indicative of future operations because such sales would not be
considered of a recurring nature. However, three of the Company's customers have
indicated their intentions to adopt SIMOX-SOI technology in commercial products.
During 1997, the Company experienced quarterly fluctuations in wafer sales
due to reduced wafer requirements from one of the Company's customers. In
addition, repair and maintenance on the first Ibis 1000, use of the second Ibis
1000 for SIMOX-SOI development, a mismatch of capacity and wafer size
requirements of customer orders and dependence on a limited number of customers
all contributed to the quarterly fluctuation in wafer sales. The Company may
continue to see fluctuations in revenue due to equipment sales, shifts in
customer demands during various stages of the SIMOX-SOI sales cycle and until
the Company has a sufficient number of Ibis 1000's on-line such that specific
implanters can be dedicated to the various products, sizes and continued
research and development efforts.
The Company currently has two Ibis 1000 oxygen implanters, one of which was
funded by Motorola Corporation and must first be used to serve Motorola's
production requirements. Two Ibis 1000 implanters are currently undergoing
customer acceptance and two implanters are under construction and are at various
stages of completion. During the third quarter ended September 30, 1998, the
Company recognized revenue on two of these implanters using the
percentage-of-completion method. There were no equipment sales in 1997. The
Company anticipates that the remaining revenue on three implanters will be
recognized during the next two quarters as construction and/or milestones are
completed. The remaining implanter is anticipated to be completed in the first
half of 1999.
8
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
During the year ended December 31, 1997, the Company phased the two NV-200
implanters out of production. Consequently, all SIMOX-SOI wafers are being
produced on the Ibis 1000's. As the Company operates below capacity or expands
its production capacity in anticipation of expected increases in demand, its
gross margins on product sales will initially be adversely affected until the
implanters operate at or near full capacity. There can be no assurance, however,
that the Company will succeed in attracting a sufficient number of customers
and/or orders for SIMOX-SOI wafers to offset such production costs or that the
Company will prevail over its competition.
Results of Operations
Third Quarter Ended September 30, 1998 Compared to Third Quarter
Ended September 30, 1997
Product Sales. Product sales decreased $629,285, or 59%, to $445,010 for
the third quarter ended September 30, 1998 from $1,074,295 for the third quarter
ended September 30, 1997. The decrease in product sales is attributable to
decreased wafer sales worldwide. In addition, wafer production related issues
during the second quarter of 1997 contributed to the increased level of product
sales during the third quarter of 1997.
Contract and Other Revenue. Contract and other revenue decreased for the
third quarter ended September 30, 1998 to $290,591 from $1,089,071 for the third
quarter ended September 30, 1997, a decrease of $798,480 or 73%. The decrease in
contract and other revenue is attributable to decreased revenues derived from a
contract for consulting services for Orion Equipment, Inc. ("Orion"). Revenue
from the Orion contract amounted to approximately $688,000 and $4,000 in the
third quarter of 1997 and 1998, respectively. Revenues under the Orion contract
have decreased substantially since the beginning of 1998 and primarily all of
the work under the Orion contract was completed by the end of the second quarter
of 1998. During 1997, the Company began selling spare parts to the purchaser of
the Ibis 1000 implanter sold in 1996. For the third quarter ended September 30,
1998 the sale of spare parts decreased to $24,841 from $61,905 for the third
quarter of 1997, a decrease of $37,064 or 60%. These sales accounted for 9% of
contract and other revenue for the third quarter ended September 30, 1998 as
compared to 6% for the third quarter ended September 30, 1997.
Equipment Revenue. Equipment revenue of $4,152,000 for the third quarter
ended September 30, 1998 represents revenue recognized using the
percentage-of-completion method in connection with the sale of two Ibis 1000
implanters. The Company anticipates that the remaining revenue on these two
implanters and one additional implanter will be recognized during the next two
quarters as construction and/or milestones are completed. There were no
equipment sales in 1997.
Total Sales and Revenue. Total sales and revenue for the third quarter
ended September 30, 1998 was $4,887,601, an increase of $2,724,235, or 126%,
from total revenue of $2,163,366 for the third quarter ended September 30, 1997.
This increase resulted from the equipment revenue which was partially offset by
decreased product sales and decreased contract and other revenue.
9
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Total Cost of Sales and Revenue. Cost of product sales for the third
quarter ended September 30, 1998 was $1,046,387, as compared to $1,138,879 for
the third quarter ended September 30, 1997, a decrease of $92,492 or 8%. Cost of
contract revenue for the third quarter ended September 30, 1998 was $247,965, as
compared to $741,116 for the third quarter ended September 30, 1997, a decrease
of $493,151, or 67%. Cost of equipment revenue for the third quarter ended
September 30, 1998 was $2,583,149 as compared to no cost in the quarter ended
September 30, 1997. The gross margin for all sales was 21% for the third quarter
ended September 30, 1998 as compared to 13% for the third quarter ended
September 30, 1997. The increase in gross margin is attributable to the profit
recognized from equipment revenue in the quarter. The fundamental fixed cost
nature of product sales, which was absorbed by a smaller number of wafers sold
during the third quarter of 1998 as compared to the same quarter in the previous
year, resulted in a negative impact on margins. Cost of contract and other
revenue consists of labor and materials expended during the quarter. Contract
margins can vary from year to year based on the type of contracts that the
Company enters into. Additionally, different fee arrangements and indirect cost
absorption can contribute to margin variability.
General and Administrative Expenses. General and administrative expenses
for the third quarter ended September 30, 1998 were $427,734 (or 9% of total
revenue) as compared to $315,044 (or 15% of total revenue) for the third quarter
ended September 30, 1997, an increase of $112,690, or 36%. The increase is due
to increases in payroll and payroll related expenses. Also contributing to the
increase was higher professional service fees incurred in the quarter.
Marketing and Selling Expenses. Marketing and selling expenses for the
third quarter ended September 30, 1998 were $102,534 (or 2% of total revenue) as
compared to $114,173 (or 5% of total revenue) for the third quarter ended
September 30, 1997, a decrease of $11,639, or 10%.
Research and Development Expenses. Internally funded research and
development expenses increased by $148,608, or 43%, to $495,263 (or 10% of total
revenue) for the third quarter ended September 30, 1998, as compared to $346,655
(or 16% of total revenue) for the third quarter ended September 30, 1997. The
increase is primarily due to an increase in materials along with increases in
payroll expenses. In the prior year quarter a greater percentage of personnel
was devoted to funded projects, including the Orion contract, such that payroll
and payroll related expenses for these personnel were included in cost of
contract and other revenue.
Loss from Operations. The loss from operations for the third quarter ended
September 30, 1998 was $15,431 as compared to a loss of $492,501 for the third
quarter ended September 30, 1997, a decrease of $477,070, or 97%. The decrease
in the loss from operations is the result of equipment revenue, (as compared to
no equipment revenue recognized in the third quarter of 1997), which was offset
by decreases in product sales and contract and other revenue, as well as the
increase in operating expenses.
Other Income (Expense). Total other income for the third quarter ended
September 30, 1998 was $110,005 as compared to $73,005 for the third quarter
ended September 30, 1997, an increase of $37,000, or 51%. The increase in total
other income is attributable to interest income earned on the proceeds from the
August, 1997 exercise of the Company's Public Warrants as well as reduced
interest expense on capitalized leases.
10
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Profit (Loss) Before Income Taxes. The profit before income taxes was
$94,574 for the third quarter ended September 30, 1998, as compared to a loss of
$419,496 for the third quarter ended September 30, 1997. The improvement of
$514,070, or 123%, is due to equipment revenue recognized in the quarter ended
September 30, 1998, which was partially offset by decreases in product sales and
contract and other revenue.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Product Sales. Product sales decreased $238,105, or 9%, to $2,462,718 for
the nine months ended September 30, 1998 from $2,700,823 for nine months ended
September 30, 1997. The decrease in product sales is attributable to decreased
wafer sales in the United States. Sales in Europe and Japan increased overall
during this nine month period.
Contract and Other Revenue. Contract and other revenue decreased for the
nine months ended September 30, 1998 to $1,073,646 from $2,512,977 for the nine
months ended September 30, 1997, a decrease of $1,439,331, or 57%. This decrease
is attributable to decreased revenues derived from a contract for consulting
services for Orion. Revenue from the Orion contract amounted to approximately
$1,315,000 and $161,000 in the nine months ended September 30, 1997 and 1998,
respectively. Revenues under the Orion contract have decreased substantially
since the beginning of 1998 and primarily all of the work under the Orion
contract was completed by the end of the second quarter of 1998. During 1997 the
Company began selling spare parts to the purchaser of the Ibis 1000 implanter, a
major semiconductor manufacturer. These sales accounted for 18% of contract and
other revenue for the nine months ended September 30, 1997 but were only 13% of
the contract and other revenue for the nine months ended September 30, 1998.
Equipment Revenue. Equipment revenue of $8,352,000 was recognized using the
percentage-of-completion method for the nine months ended September 30, 1998 for
the sale of three Ibis 1000 implanters to two major semiconductor manufacturers.
There was no equipment revenue recognized in 1997. The Company anticipates that
the remaining revenue on the three implanters will be recognized during the next
two quarters as construction and/or milestones are completed.
Total Sales and Revenue. Total sales and revenue for the nine months ended
September 30, 1998 was $11,888,364, an increase of $6,674,564, or 128%, from
total revenue of $5,213,800 for the nine months ended September 30, 1997. This
increase resulted from the recognition of equipment revenue, which was partially
offset by decreased product sales and contract and other revenue.
Total Cost of Sales and Revenue. Cost of product sales for the nine months
ended September 30, 1998 was $3,617,981, as compared to $3,116,844 for the nine
months ended September 30, 1997, an increase of $501,137 or 16%. Cost of
contract and other revenue for the nine months ended September 30, 1998 was
$885,935, as compared to $1,591,983 for the nine months ended September 30,
1997, a decrease of $706,048, or 44%. Cost of equipment revenue for the nine
months ended September 30, 1998 was $5,397,158 as compared to no cost for the
nine months ended September 30, 1997. The gross margin for all sales was 17% for
the nine months ended September 30, 1998 as compared to 10% for the nine months
ended September 30, 1997. The increase in gross margin is attributable to the
profit recognized from equipment revenue in the first nine months of
11
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
1998. The fundamental fixed cost nature of product sales, which was absorbed by
a smaller number of wafers sold during this time period, resulted in a negative
impact on margins. Cost of contract and other revenue consists of labor and
materials expended during the period. Contract margins can vary from year to
year based on the type of contracts that the Company enters into. Additionally,
different fee arrangements and indirect cost absorption can contribute to margin
variability.
General and Administrative Expenses. General and administrative expenses
for the nine months ended September 30, 1998 were $1,375,374 (or 12% of total
revenue) as compared to $1,040,705 (or 20% of total revenue) for the nine months
ended September 30, 1997, an increase of $334,669, or 32%. The increase is due
to increases in payroll, payroll related expenses and professional service fees.
Marketing and Selling Expenses. Marketing and selling expenses for the nine
months ended September 30, 1998 were $319,933 (or 3% of total revenue) as
compared to $359,430 (or 7% of total revenue) for the nine months ended
September 30, 1997, a decrease of $39,497 or 12%.
Research and Development Expenses. Internally funded research and
development expenses increased by $412,434, or 41%, to $1,423,215 (or 12% of
total revenue) for the nine months ended September 30, 1998, as compared to
$1,010,781 (or 19% of total revenue) for the nine months ended September 30,
1997. The increase is primarily due to increases in payroll and materials. In
the prior year nine-month period, a greater percentage of personnel was devoted
to funded projects, including the Orion contract, such that payroll and payroll
related expenses for these personnel were included in the cost of contract and
other revenue.
Loss from Operations. The loss from operations for the nine months ended
September 30, 1998 was $1,131,232 as compared to a loss of $1,905,943 for the
nine months ended September 30, 1997, a decrease of $774,711, or 41%. The
decrease in loss from operations is the result of the increase in recognition of
equipment revenue, which was partially offset by decreases in product sales and
contract and other revenue along with the increase in operating expenses.
Other Income (Expense). Total other income for the nine months ended
September 30, 1998 was $403,848 as compared to $143,709 for the nine months
ended September 30, 1997. The increase in total other income is attributable to
interest income earned on the proceeds from the August 1997 exercise of the
Company's Public Warrants as well as reduced interest expense on capital leases.
Loss Before Income Taxes. The loss before income taxes was $727,384 for the
nine months ended September 30, 1998, as compared to $1,762,234 for the nine
months ended September 30, 1997, a decrease of $1,034,850, or 59%. The decrease
in loss before income taxes is the result of equipment revenue recognized under
the percentage-of-completion method in the first nine months of 1998, (as
compared to no equipment revenue recognized in the first nine months of 1997),
which was offset by decreases in product sales and contract and other revenue
and the increase in operating expenses.
12
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Impact of the Year 2000 Issue
The Year 2000 Issue.
The Year 2000 Issue refers to potential problems with computer systems or
any equipment with computer chips or software that use dates where the date has
been stored as just two digits (e.g., 98 for 1998). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities.
The Company's State of Readiness.
To determine the effect, if any, of the Year 2000 Issue on its
operations, the Company began a review of its internal information systems in
the second quarter of 1998. The Company is in process of implementing a
common system in both the operations and financial management areas. Such
common system is Year 2000 compliant and should be fully operational by the
second quarter of 1999. The Company will continue to test less critical
systems and expects to complete this review by the second quarter of 1999.
During the first quarter of 1998, the Company ran a test plan on its Ibis 1000
implanter equipment and determined that the current version is Year 2000
compliant. It was also determined that the operating system of one older
version Ibis 1000 has to be upgraded in order to be Year 2000 compliant. This
upgrade will take place by the third quarter of 1999. The Company is in
process of reviewing its ancillary production equipment and expects this
review to be complete by the second quarter of 1999. Although the Company has
not completed its review and is still gathering information, based on its
review to date, the Company believes that its principal information systems
correctly define the year 2000 and thus, the impact of the Year 2000 Issue
will have no material effect on its systems.
The Company is also in the process of contacting its major suppliers and
customers in an effort to determine the extent to which the failure of these
parties to timely identify and correct their own problems associated with the
Year 2000 Issue may affect the Company. Although this review is ongoing, to
date, the Company has not identified any situations of non-compliance that would
materially adversely affect the Company's operations or financial condition.
Costs Associated with the Year 2000 Issue.
To date the costs incurred by the Company to conduct the review of its
internal information systems and to identify the impact of the Year 2000 issue
on its major suppliers and customers have been immaterial and the Company
expects that the additional costs incurred to complete this review will also be
immaterial. However, the costs incurred by the Company to address the Year 2000
Issue could increase materially if in completing the review of its internal
information systems, the Company identifies non-compliant systems which must be
replaced or modified or if the Company identifies any other problem related to
the Year 2000 Issue which must be addressed.
13
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Risks Associated with the Year 2000 Issue.
To the extent that the Company's assessment is completed without
identifying any non-compliant systems operated by the Company or by third
parties, the Year 2000 issue could have a material adverse effect on the
operations of the Company. The Company could experience delays in the
manufacturing of wafers or the building of equipment. The severity of these
possible problems would depend on the nature or the problem and how quickly
it could be corrected or an alternate implemented, which is unknown at this
time.
Contingency Plans.
The Company has no formal contingency plan in place because it believes
that the risk is insignificant at this point. In the event that there are risks
identified, the Company will develop contingency plans. Similarly, while the
Company has no formal plan or agreements in place to do so, it believes if
suppliers were identified that were unable to become Year 2000 compliant within
an appropriate time frame, it would be able to identify alternative sources of
suppliers.
Based on currently available information, the Company does not believe that
the Year 2000 Issue will have a material effect on the Company's internal
information systems. There can be no assurance, however, that the Company will
not in the future identify non-compliant systems or other problems related to
the Year 2000 issue which may have a material adverse effect on the Company's
future operating results or financial condition. In addition, there can be no
assurance that the failure to ensure Year 2000 capability by a supplier or
another third party would not have a material adverse effect on the Company.
Liquidity and Capital Resources
As of September 30, 1998, the Company had cash and cash equivalents of
$11,039,295. During the nine months ended September 30, 1998, the Company
consumed $1,434,982 in cash from operating activities as compared to $1,484,377
for the same period in 1997. Depreciation and amortization expense for the nine
months ended September 30, 1998 and 1997 was $1,338,684 and $1,563,099,
representing 11% and 30% of total revenue, respectively. Due to the capital
intensive nature of the Company's business and the anticipated expansion of its
facilities and production capacity, management expects that depreciation and
amortization will continue to be a significant portion of its expenses. To date,
the Company's working capital requirements have been funded through debt and
equity financings, warrant conversions, equipment lines of credit, a working
capital line of credit, a term loan, sale leaseback arrangements, collaborative
relationships and government contracts. At September 30, 1998, the Company had
commitments to purchase approximately $324,000 in material or subassemblies to
be used to manufacture the additional Ibis 1000 implanters and approximately
$45,000 in capital equipment.
14
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
On July 24, 1997, the Company notified the holders of its 1,380,000
publicly traded Redeemable Common Stock Purchase Warrants (the "Public
Warrants") and its 120,000 privately held Underwriter Redeemable Common Stock
Purchase Warrants (the "Underwriter Warrants") that it would redeem these
Warrants on August 26, 1997 at the redemption price of $.20 per Warrant. Prior
to August 26, 1997, the holder of a Public Warrant had the right to exercise
such Warrant to acquire 1.044 shares of the Company's Common Stock at a price of
$8.05 per share and the holder of an Underwriter Warrant had the right to
exercise such Warrant to acquire 1.09 shares of Common Stock at a price of $9.26
per share. The Company received net proceeds of approximately $10.1 million
through the exercise of its Public Warrants. The holders of approximately 92% of
these Warrants elected to exercise the Warrants rather than have them redeemed.
Approximately 1,327,000 shares of Common Stock were issued upon exercise of the
Public Warrants. None of the Underwriter Warrants were exercised.
The Company anticipates that it may be required to raise substantial
additional capital in the future in order to finance further expansion of its
manufacturing capacity and its research and development programs. The Company's
existing cash resources together with funds generated from operations are
believed to be sufficient to support the Company's operations on their
anticipated scale for at least the next twelve months. Management of the Company
currently believes that this anticipated scale of operations will include
additional Ibis 1000 oxygen implanters (in addition to its two oxygen implanters
currently on-line), the purchase of support equipment and expansion of the
Company's facilities.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. Effective January 1, 1998 the Company adopted SFAS 130, which had no
impact on the financial statements of the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for the Company in its
year ending December 31, 1998, is currently not expected to have a material
impact on the Company's financial statements and footnote disclosures.
15
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Effective January 1, 1998, the Company adopted American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1)
which establishes guidelines for the accounting for the costs of all computer
software developed or obtained for internal use. SOP 98-1 must be applied on a
prospective basis as of the adoption date. Under SOP 98-1, certain consulting,
payroll and related costs for company consultants or employees working on the
application of development stage projects as defined in the SOP for internal use
computer software must be capitalized and amortized over the expected useful
life of the software. Previously, the Company had expensed these costs as
incurred. The adoption of SOP 98-1 did not have a material impact on the
Company's results of operations in the first nine months of 1998 or financial
position at September 30, 1998.
Effects of Inflation
The Company believes that over the past three years inflation has not had a
significant impact on the Company's sales or operating results.
Business Outlook
The Form 10-Q contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. Such statements are based on management's current expectations and
are subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. Such factors and uncertainties include, but are not limited to,
the timely implementation by the Company of its plan to prepare its computer
systems for the year 2000, the costs to the Company of such implementation
and the timely conversion by other parties and which the Company's business
relies, the uncertainty that the performance advantages of SIMOX-SOI wafers
will continue to be realized commercially or that a commercial market for
SIMOX-SOI wafers will continue to develop; the dependence by the Company on
key customers (during 1995, 1996 and 1997, revenues from four customers
averaged in the aggregate between 25% and 68% of the Company's revenues, so
that the loss of one or more of these major customers and the failure of the
Company to obtain other sources of revenue could have a material adverse
impact on the Company); the dependence by the Company on revenues from its
consulting arrangement with Orion (during 1995, 1996, and 1997, consulting
revenues were approximately 0%, 2%, and 26%, respectively, of the Company's
revenues, so that the loss of Orion as a source of consulting fees by the end
of the second quarter of 1998 and the failure of the Company to obtain other
sources of consulting revenue could have a material impact on the Company);
the loss of the services of one or more of the Company's key individuals,
which could have a material adverse impact on the Company; the dependence by
the Company on key suppliers, so that the loss of services of one or more
suppliers could have a material adverse impact on the Company; the
development of competing or superior technologies and products from
manufacturers, many of which have substantially greater financial, technical
and other resources than the Company; the Company's lack of experience in
producing commercial quantities of its products at acceptable costs; the
Company's ability to develop and maintain strategic alliances for the
manufacturing, marketing and distribution of its products and sale of
equipment; the cyclical nature of the semiconductor industry, which has
negatively affected the Company's sales of SIMOX-SOI wafers during industry
downturns and which could continue to do so in the future; the limited
availability of critical materials and components for wafer products and
implanters, as a shortage of such materials and components or a significant
increase in the price thereof could have a material adverse effect on the
Company's business and results of operations; the availability of additional
capital to fund expansion on acceptable terms, if at all; and general
economic conditions.
16
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits furnished as Exhibits hereto:
10.42 Sixth Amendment to Lease dated July 16, 1998, amending
Lease Agreement dated December 22, 1987 between the Company
and Thomas J. Flatley d/b/a The Flatley Company.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission on
September 21, 1998 a Current Report on Form 8-K for the September
14, 1998 event reporting the development of a new
silicon-on-insulator wafer manufacturing process.
17
<PAGE>
IBIS TECHNOLOGY CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Ibis Technology Corporation
Date: November 13, 1998 By: /s/Debra L. Nelson
------------------
Debra L. Nelson
Chief Financial Officer, Treasurer and Clerk
(principal financial and accounting officer)
Date: November 13, 1998 By: /s/Thomas F. Lacey
------------------
Thomas F. Lacey
Controller and Assistant Treasurer
18
<PAGE>
IBIS TECHNOLOGY CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ---------- ----------- ----
<S> <C> <C>
10.42 Sixth Amendment to Lease dated July 16, 1998, amending 20
Lease Agreement dated December 22, 1987 between
the Company and Thomas J. Flatley d/b/a The Flatley Company
27 Financial Data Schedule 25
</TABLE>
19
<PAGE>
Exhibit 10.42
SIXTH AMENDMENT TO LEASE
This Agreement made this 16th day of July, 1998, by and between Thomas J.
Flatley d/b/a The Flatley Company (hereinafter referred to as LANDLORD), and
Ibis Technology Corporation (hereinafter referred to as TENANT),
WITNESSETH:
WHEREAS, by a certain Lease Agreement dated December 22, 1987, as amended
by a First Amendment to Lease dated July 19, 1990, a Second Amendment to
Lease dated August 2, 1991, a Third Amendment to Lease dated March 17, 1992,
a Fourth Amendment to Lease dated March 7, 1994, and a Fifth Amendment to
Lease dated February 21, 1997 (hereinafter collectively referred to as the
"Lease"), LANDLORD leased to TENANT, a certain premises described as Cherry
Hill Commerce Center, 32A and 32B Cherry Hill Drive, Danvers, MA 01923,
consisting of approximately 27,120 square feet of space, more particularly
described therein as ("Premises", "Expansion Premises 1", "Expansion Premises
2", and "Expansion Premises 4", respectively), and,
TENANT wishes to lease from LANDLORD, and LANDLORD wishes to lease to
TENANT, an additional 9,600 square feet of space, commencing upon the Sixth
Amendment to Lease Commencement Date (hereinafter defined) which includes a
0% common area factor, located at Cherry Hill Commerce Center, 26-42 Cherry
Hill Drive, Danvers, MA 01923, as outlined on Exhibit "A-7", attached hereto
and made part a hereof (hereinafter referred to as "Expansion Premises 6").
LANDLORD and TENANT desire to amend the Lease to reflect this and certain
additional changes which have been agreed to by the parties, and all changes
as set forth below shall become effective on the Sixth Amendment to Lease
Commencement Date (as hereinafter defined).
NOW, THEREFORE, for valuable consideration, the receipt of which is
hereby acknowledged each to the other, the above named parties do hereby
agree to amend said Lease as follows:
1. The description of TENANT'S Premises as set forth in Section 1 of the
Lease, Incorporation of Basic Data, namely Premises, is hereby
amended in part, as follows:
... 36,720 square feet of space, being the approximate size of the
Premises and the basis on which Annual Rent and Additional Rent shall
be paid by TENANT to LANDLORD, in the building located at Cherry Hill
Commerce Center, 32A and 32B Cherry Hill Drive, Danvers, MA 01923...
2. The term of this Sixth Amendment to Lease shall commence on May 1,
1998 (hereinafter referred to as the "Sixth Amendment to Lease
Commencement Date"), and shall be coterminous with the Lease and,
therefore, shall terminate on December 31, 2003.
LANDLORD and TENANT agree to execute a Supplemental Agreement setting
forth the actual Occupancy and Term Dates, once the same have been
established.
20
<PAGE>
3. Effective May 1, 1998, Section 1 of the Lease, Incorporation of Basic
Data, namely Annual Rent, shall be deleted in its entirety and
replaced with the following:
The TENANT agrees to pay to LANDLORD, without deduction or offset,
rent at the rate of TWO HUNDRED FORTY-SEVEN THOUSAND EIGHT HUNDRED
SIXTY AND 00/000 ($247,860.00) Dollars, payable in advance on the first
day of each month, in equal monthly installments of TWENTY THOUSAND
SIX HUNDRED FIFTY-FIVE AND 00/000 ($20,655.00) Dollars, for the
period commencing May 1, 1998 and continuing through and including
December 31, 1999 and at that rate for any fraction of a month; and
The annual rent for the period commencing January 1, 2000 and
continuing through and including December 31, 2001, shall be TWO
HUNDRED FORTY-SEVEN THOUSAND EIGHT HUNDRED SIXTY AND 00/000
($247,860.00) Dollars annually, which shall be adjusted to reflect
the percentage increase, if any, of The Consumer Price Index for
Urban Wage Earners and clerical Workers, all cities average,
(1982-84=100) issued by the U.S. Department of Labor, or such other
costs as may be hereafter substituted by the United States Department
of Labor for The Consumer Price Index. If there is an upward change
thereof from the Commencement Date of this Lease, to December 31,
1999, then the annual rent during this period shall be increased in
accordance with such adjusted value of the dollar, but in no event
shall such rent be less than the last annual rent paid by TENANT to
LANDLORD; and
The annual rent for the period commencing January 1, 2002 and
continuing through and including December 31, 2003, shall be TWO
HUNDRED FORTY-SEVEN THOUSAND EIGHT HUNDRED SIXTY AND 00/000
($247,860.00) Dollars annually, which shall be adjusted to reflect the
percentage increase, if any, of The Consumer Price Index for Urban
Wage Earners and Clerical Workers, all cities average, (1982-84=100)
issued by the U.S. Department of Labor, or such other costs as may be
hereafter substituted by the United States Department of Labor for
The Consumer Price Index. If there is an upward change thereof from
January 1, 2000 to December 31, 2001 of this Lease, then the annual
rent during this period shall be increased in accordance with such
adjusted value of the dollar, but in no event shall such rent be
less than the last annual rent paid by TENANT to LANDLORD.
Pursuant to Paragraph 5 of the Fifth Amendment to Lease, LANDLORD
agrees to apply TENANT'S Option Payments, to TENANT'S account and
therefore the Rent for said Expansion Premises 6 shall commence at
such time as the Option Payments have been fully recaptured.
4. LESSEE acknowledges that it has examined and inspected the Premises
and is familiar with the physical condition thereof. LESSEE further
acknowledges (1) that LESSOR has not made and does not hereby make
any representations regarding the physical condition of the Premises
and (2) that there are no warranties, either expressed or implied,
regarding the condition of the Premises. Any such warranties which
may exist, are hereby expressly released and waived. Accordingly,
LESSEE hereby agrees to accept the Premises in their "as is"
condition.
21
<PAGE>
5. Effective upon a fully-executed Sixth Amendment to Lease, Section 41
of the Lease, namely TENANT'S Option to Expand, shall be deleted in
its entirety and be of no further force or effect.
6. Except where this Sixth Amendment to Lease specifically changes same,
all other terms, conditions and covenants of the original Lease
Agreement shall remain the same, where applicable, and are hereby
reaffirmed.
7. The submission of this document for examination and negotiation does
not constitute an offer, and this document shall become effective and
binding only upon the execution thereof by both LESSOR and LESSEE,
regardless of any written or verbal representation of any agent,
manager or other employee of LESSOR to the contrary. All
negotiations, consideration, representations and understandings
between LESSOR and LESSEE are incorporated herein and the Lease and
this Amendment expressly supersede any proposals or other written
documents relating hereto. The Lease and this Amendment may be
modified or altered only by written agreement between LESSOR and
LESSEE, and no act or omission of any employee or agent of Lessor
shall alter, change or modify any of the provisions thereof.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this
instrument on the day and year first above written.
LANDLORD Thomas J. Flatley d/b/a
The Flatley Company
/s/ Sara Capacciola /s/ Thomas J. Flatley
- --------------------------- ----------------------------
WITNESS By Thomas J. Flatley
Its President
TENANT Ibis Technology Corporation
/s/ Nancy A. Bailey /s/ Debra L. Nelson
- --------------------------- ----------------------------
WITNESS By
Its Chief Financial Officer
22
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) SS.
COUNTY OF NORFOLK )
July 16, 1998
Then personally appeared Thomas J. Flatley to me known to be the
individual who acknowledged himself to be the President of The Flatley
Company, LANDLORD, and that he, as such, being authorized to do so, executed
the foregoing instrument and acknowledged the execution thereof to be his
free act and deed for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal at Norfolk
County, Braintree, Massachusetts, this 16th day of July, 1998.
/s/ Francesca Austin
-----------------------------------------
Notary Public
My commission expires:
My Commission Expires September 4, 2003
STATE OF Massachusetts )
) SS.
COUNTY OF Essex )
June 30, 1998
Then personally appeared Debra L. Nelson to me known to be the individual
who acknowledged herself to be the C.F.O. of Ibis Technology Corporation,
TENANT, and that she, as such, being authorized to do so, executed the
foregoing instrument and acknowledged the execution thereof to be her free
act and deed for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal at Essex
County, Danvers, Massachusetts, this 30th day of June, 1998.
/s/ Nancy A. Bailey
-----------------------------------------
Notary Public
My commission expires:
My Commission Expires
February 19, 2004
23
<PAGE>
EXHIBIT "A-7"
Floor Plan - Expansion Premises 6
24
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 11,039,295
<SECURITIES> 0
<RECEIVABLES> 1,810,766
<ALLOWANCES> 60,974
<INVENTORY> 3,394,239
<CURRENT-ASSETS> 19,412,603
<PP&E> 14,883,053
<DEPRECIATION> 9,552,167
<TOTAL-ASSETS> 24,898,586
<CURRENT-LIABILITIES> 2,357,324
<BONDS> 0
0
0
<COMMON> 54,602
<OTHER-SE> 20,952,634
<TOTAL-LIABILITY-AND-EQUITY> 24,898,586
<SALES> 10,814,718
<TOTAL-REVENUES> 11,888,364
<CGS> 9,015,139
<TOTAL-COSTS> 9,901,074
<OTHER-EXPENSES> 2,714,674
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,492
<INCOME-PRETAX> (727,384)
<INCOME-TAX> 1,256
<INCOME-CONTINUING> (728,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (728,640)
<EPS-PRIMARY> (.11)
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