<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 March 31, 1999 Commission file number 0-23150
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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
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(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
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6,933,409 shares of Common Stock, par value $.008, were
outstanding on April 30, 1999.
Total Number of Pages 19
Exhibit Index at Page 18
1
<PAGE>
IBIS TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION PAGE
- ------------------------------- NUMBER
------
<S> <C>
Item 1 - Financial Statements:
Balance Sheets
December 31, 1998 and March 31, 1999 ............................................ 3
Statements of Operations
Three Months Ended March 31, 1998 and 1999 ...................................... 4
Statements of Cash Flows
Three Months Ended March 31, 1998 and 1999 ....................................... 5
Notes to Financial Statements ....................................................... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................................. 9
Item 3 - Quantitative and Qualitative Disclosure About Market Risk .................... 15
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings .............................................................. 16
Item 2 - Changes in Securities .......................................................... 16
Item 3 - Defaults upon Senior Securities ................................................ 16
Item 4 - Submission of Matters to a Vote of Security Holders ............................ 16
Item 5 - Other Information .............................................................. 16
Item 6 - Exhibits and Reports on Form 8-K ............................................... 16
Signatures .............................................................................. 17
Exhibit Index ........................................................................... 18
</TABLE>
2
<PAGE>
IBIS TECHNOLOGY CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
1998 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,819,366 $ 13,170,774
Accounts receivable, trade, net........................... 546,935 3,632,374
Unbilled revenue.......................................... 2,448,327 2,319,487
Inventories (note 3)...................................... 3,121,084 2,157,150
Prepaid expenses and other current assets................. 151,106 174,821
------------ ------------
Total current assets................................ 19,086,818 21,454,606
------------ ------------
Property and equipment....................................... 14,948,862 13,682,649
Less: Accumulated depreciation and amortization.......... (9,872,843) (8,658,736)
------------ ------------
Net property and equipment......................... 5,076,019 5,023,913
Patents and other assets, net................................ 144,481 139,768
------------ ------------
Total assets $ 24,307,318 $ 26,618,287
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligation, current......................... $ 507,258 $ 377,894
Accounts payable.......................................... 411,065 1,583,177
Accrued liabilities....................................... 1,336,720 2,109,099
------------ ------------
Total current liabilities........................... 2,255,043 4,070,170
------------ ------------
Capital lease obligation, noncurrent......................... 39,630 37,336
Other accrued liabilities.................................... 1,403,702 1,359,862
------------ ------------
Total liabilities................................... 3,698,375 5,467,368
------------ ------------
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 6,858,556 shares
and 6,924,443 in 1998 and 1999, respectively............. 54,868 55,396
Additional paid-in capital................................ 36,610,064 36,905,431
Accumulated deficit....................................... (16,055,989) (15,809,908)
------------ ------------
Total stockholders' equity.......................... 20,608,943 21,150,919
------------ ------------
Total liabilities and stockholders' equity.......... $ 24,307,318 $ 26,618,287
------------ ------------
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</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
------------ -----------
<S> <C> <C>
SALES AND REVENUE:
Product sales ................................................................... $ 1,006,698 $ 1,299,485
Contract and other revenue ...................................................... 490,203 358,378
Equipment revenue ............................................................... 200,000 2,790,000
------------ -----------
Total sales and revenue (notes 2 and 6) ..................................... 1,696,901 4,447,863
COST OF SALES AND REVENUE:
Cost of product sales ........................................................... 1,312,538 1,246,084
Cost of contract and other revenue .............................................. 365,913 121,708
Cost of equipment revenue ....................................................... 125,198 1,953,922
------------ -----------
Total cost of sales and revenue ............................................. 1,803,649 3,321,714
------------ -----------
Gross profit (loss) ......................................................... (106,748) 1,126,149
------------ -----------
OPERATING EXPENSES:
General and administrative ...................................................... 444,500 434,448
Marketing and selling ........................................................... 114,585 207,170
Research and development ........................................................ 381,955 386,370
------------ -----------
Total operating expenses .................................................... 941,040 1,027,988
------------ -----------
Income (loss) from operations ............................................... (1,047,788) 98,161
------------ -----------
OTHER INCOME (EXPENSE):
Interest income ................................................................. 174,690 156,495
Interest expense ................................................................ (34,720) (18,152)
Other ........................................................................... -- 10,833
------------ -----------
Total other income .......................................................... 139,970 149,176
------------ -----------
Income (loss) before income taxes ........................................... (907,818) 247,337
Income tax expense ................................................................ 1,256 1,256
------------ -----------
Net income (loss) ........................................................... $ (909,074) $ 246,081
------------ -----------
------------ -----------
Net income (loss) per common share:
Basic ............................................................................ $ (0.14) $ 0.04
------------ -----------
------------ -----------
Diluted .......................................................................... $ (0.14) $ 0.03
------------ -----------
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Weighted average number of common shares outstanding:
Basic ............................................................................ 6,670,718 6,878,188
------------ -----------
------------ -----------
Diluted .......................................................................... 6,670,718 7,198,864
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
IBIS TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................................. $ (909,074) $ 246,081
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ................................................... 476,811 334,018
Changes in operating assets and liabilities:
Accounts receivable, trade .................................................. (122,434) (3,085,439)
Unbilled revenue ............................................................ 24,675 128,840
Inventories ................................................................. (58,819) 963,934
Prepaid expenses and other assets ........................................... 49,083 (23,715)
Accounts payable ............................................................ 544,402 1,172,112
Accrued liabilities ......................................................... (219,814) 728,539
------------ ------------
Net cash provided by (used in) operating activities ......................... (215,170) 464,370
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............................................... (1,040,184) (269,774)
(Increase) decrease in other assets ............................................... 64,794 (7,425)
------------ ------------
Net cash used in investing activities ....................................... (975,390) (277,199)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations ............................................. (112,363) (131,658)
Exercise of stock options ......................................................... 549,729 295,895
------------ ------------
Net cash provided by financing activities ................................... 437,366 164,237
------------ ------------
Net increase (decrease) in cash and cash equivalents ........................ (753,194) 351,408
Cash and cash equivalents, beginning of period ....................................... 13,309,823 12,819,366
------------ ------------
Cash and cash equivalents, end of period ............................................. $ 12,556,629 $ 13,170,774
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest .......................................... $ 34,720 $ 18,152
------------ ------------
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</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, 1998, 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, 1998 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 1998 the Company changed depreciable lives for some of its
equipment from five years to eight years. As a result, depreciation for the
first quarter ended March 31, 1999 was reduced by approximately $196,000.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---------- ----------
<S> <C> <C>
Raw materials.................... $ 197,734 $ 107,464
Work process in.................. 76,343 60,252
Finished goods................... 191,762 102,236
---------- ----------
Subtotal wafer inventory........ 465,839 269,952
Equipment inventory.............. 2,655,245 1,887,198
---------- ----------
Total inventories............... $3,121,084 $2,157,150
---------- ----------
---------- ----------
</TABLE>
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
MARCH 31,
-----------------------------
1998 1999
------------- ------------
<S> <C> <C>
Basic net income (loss) ...................................................... $ (909,074) $ 246,081
----------- ----------
----------- ----------
Weighted average common
shares outstanding-basic .................................................. 6,670,718 6,878,188
----------- ----------
----------- ----------
Net additional common shares upon assumed
exercise of stock options and warrants .................................... -- 320,676
----------- ----------
Weighted average common
shares outstanding-diluted ................................................ 6,670,718 7,198,864
----------- ----------
----------- ----------
Net income (loss) per common share
Basic ............................................................... $ (0.14) $ 0.04
----------- ----------
----------- ----------
Diluted ............................................................. $ (0.14) $ 0.03
----------- ----------
----------- ----------
</TABLE>
(6) INDUSTRY SEGMENTS
The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information during the fourth quarter of 1998. SFAS No.
131 established the standards for reporting information about operating segments
in annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders.
The Company's reportable segments are SIMOX Wafer Products, SIMOX
Equipment and Other Products or Services. For purposes of segment reporting,
government contracts, service contracts, license revenue and spares are combined
and reported as Other Products or Services.
7
<PAGE>
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The table below provides information for the three months ended March
31, 1998 and 1999 pertaining to the Company's three industry segments.
<TABLE>
<CAPTION>
SIMOX
WAFER SIMOX OTHER PRODUCTS
PRODUCTS EQUIPMENT OR SERVICES TOTAL
-------- --------- ----------- -----
<S> <C> <C> <C> <C>
NET REVENUES
- ------------
Three Months Ended March 31, 1998 $ 1,006,698 $ 200,000 $ 490,203 $ 1,696,901
Three Months Ended March 31, 1999 1,299,485 2,790,000 358,378 4,447,863
OPERATING INCOME (LOSS)
- -----------------------
Three Months Ended March 31, 1998 (516,793) (210,785) 124,290 (603,288)
Three Months Ended March 31, 1999 (14,920) 310,859 236,670 532,609
ASSETS
- ------
December 31, 1998 5,411,282 5,262,751 353,068 11,027,101
March 31, 1999 5,447,797 7,402,986 185,825 13,036,608
</TABLE>
The table below provides the reconciliation of reportable segment
operating income (loss) and assets to the Company's totals.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
SEGMENT RECONCILIATION 3/31/98 3/31/99
- ---------------------- ------- -------
<S> <C> <C>
Income (Loss) Before Income Taxes:
Total operating income (loss) for reportable segments $ (603,288) $ 532,609
Corporate general & administrative expenses (444,500) (434,448)
Net other income 139,970 149,176
------------ ------------
Income (loss) before income taxes (907,818) 247,337
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
12/31/98 3/31/99
-------- -------
<S> <C> <C>
Assets:
Total assets for reportable segments .................................. 11,027,101 13,036,608
Cash & cash equivalents not allocated to segments ..................... 12,819,366 13,170,774
Other unallocated assets .............................................. 460,851 410,905
------------ ------------
Total Assets .......................................................... 24,307,318 26,618,287
------------ ------------
------------ ------------
</TABLE>
8
<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, which it began selling in 1996, and to other proprietary process
technology.
Initially, much of the Company's revenue was derived from research and
development contracts and sales of SIMOX-SOI wafers for military applications.
Over the years, there has been a shift in revenue to sales of SIMOX-SOI wafers
for commercial applications and sales of Ibis 1000 implanters. 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. In addition, we believe the sales of
Ibis 1000 implanters have been for the evaluation or pilot production of
SIMOX-SOI 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. One of these
customers has indicated that it would be delivering volume quantities of high
performance microprocessors built on SIMOX-SOI to internal customers by the end
of 1999.
The Company has experienced quarterly fluctuations in revenue due to
equipment sales, reduced wafer requirements from certain customers, repair and
maintenance on the Ibis 1000 implanters, use of the implanters for SIMOX-SOI
development, a mismatch of capacity and wafer size requirements of customer
orders, and dependence on a limited number of customers. The Company may
continue to experience 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 utilizes two Ibis 1000 oxygen implanters, for the
production of wafers, one of which was funded by Motorola Corporation and must
first be used to serve Motorola's production requirements. The Company
recognized revenue on the sale of Ibis 1000 implanters using the
percentage-of-completion method.
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 1999 COMPARED TO FIRST QUARTER ENDED MARCH 31,
1998
PRODUCT SALES. Wafer product sales increased $292,787, or 29%, to
$1,299,485 for the first quarter ended March 31, 1999 from $1,006,698 for the
first quarter ended March 31, 1998. The increase in product sales is
attributable to increased wafer sales to customers in the United States
partially offset by decreased wafer sales to customers in Europe and Japan.
9
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONTRACT AND OTHER REVENUE. Contract and other revenue decreased for
the first quarter ended March 31, 1999 to $358,378 from $490,203 for the first
quarter ended March 31, 1998, a decrease of $131,825 or 27%. This decrease is
attributable to a decrease in revenues derived from a contract for consulting
services for Orion Equipment, Inc. ("Orion"). Revenue from the Orion contract
amounted to approximately $136,000 in the first quarter of 1998 and zero in
1999. 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 9% of contract and other
revenue for the first quarter ended March 31, 1999 as compared to 16% for the
first quarter ended March 31, 1998. These decreases were partially offset by
revenue generated by the newly established customer support organization and by
license fee revenue.
EQUIPMENT REVENUE. Equipment revenue represents revenue recognized
using the percentage-of-completion method in connection with the sale of Ibis
1000 implanters. Equipment revenue increased to $2,790,000 for the first quarter
ended March 31, 1999 from $200,000 for the first quarter ended March 31, 1998.
TOTAL SALES AND REVENUE. Total sales and revenue for the first quarter
ended March 31, 1999 was $4,447,863, an increase of $2,750,962, or 162%, from
total revenue of $1,696,901 for the first quarter ended March 31, 1998. This
increase resulted from the increase in equipment revenue recognized and the
increase in product sales partially offset by decreased contract and other
revenue.
TOTAL COST OF SALES AND REVENUE. Cost of product sales for the first
quarter ended March 31, 1999 was $1,246,084, as compared to $1,312,538 for the
first quarter ended March 31, 1998, a decrease of $66,454 or 5%. Cost of
contract revenue for the first quarter ended March 31, 1999 was $121,708, as
compared to $365,913 for the first quarter ended March 31, 1998, a decrease of
$244,205, or 67%. Cost of equipment revenue for the first quarter ended March
31, 1999 was $1,953,922 as compared to $125,198 for the first quarter ended
March 31, 1998, an increase of $1,828,724. The gross margin for all sales was
25% for the first quarter ended March 31, 1999 as compared to a negative 6% for
the first quarter ended March 31, 1998. The increase in gross margin is
attributable to the profit recognized from equipment revenue and product sales
for the quarter. The fundamental fixed cost nature of product sales, which was
absorbed by a larger number of wafers sold during the first quarter of 1999 as
compared to the same quarter in the previous year, resulted in a positive 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 first quarter ended March 31, 1999 were $434,448 (or 10% of
total revenue) as compared to $444,500 (or 26% of total revenue) for the first
quarter ended March 31, 1998, a decrease of $10,052, or 2%. The decrease is due
to decreases in professional service fees partially offset by an increase in
payroll and payroll related expenses incurred in the quarter.
10
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the
first quarter ended March 31, 1999 were $207,170 (or 5% of total revenue) as
compared to $114,585 (or 7% of total revenue) for the first quarter ended March
31, 1998, an increase of $92,585, or 81%. The increase is due to increases in
payroll and payroll related expenses incurred in the establishment of a new
customer support organization.
RESEARCH AND DEVELOPMENT EXPENSES. Internally funded research and
development expenses increased by $4,415 or 1%, to $386,370 (or 9% of total
revenue) for the first quarter ended March 31, 1999, as compared to $381,955 (or
23% of total revenue) for the first quarter ended March 31, 1998. The increase
is primarily due to an increase in payroll expenses.
INCOME FROM OPERATIONS. The income from operations for the first
quarter ended March 31, 1999 was $98,161 as compared to a loss of $1,047,788 for
the first quarter ended March 31, 1998, an increase of $1,145,949, or 109%. The
increase in the income from operations is the result of increases in equipment
revenue and product sales, which were partially offset by decreases in contract
and other revenue, as well as the increase in operating expenses.
OTHER INCOME (EXPENSE). Total other income for the first quarter ended
March 31, 1999 was $149,176 as compared to $139,970 for the first quarter ended
March 31, 1998, an increase of $9,206, or 7%. The increase in total other income
is attributable to reduced interest expense on capitalized leases, offset by
reduced interest income earned on cash balance.
INCOME (LOSS) BEFORE INCOME TAXES. The income before income taxes was
$247,337 for the first quarter ended March 31, 1999, as compared to a loss of
$907,818 for the first quarter ended March 31, 1998. The improvement of
$1,155,155, or 127%, is due to equipment revenue recognized in the quarter ended
March 31, 1999 and increased product sales, which were partially offset by
decreases in contract and other revenue and increases in operating expenses.
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.
11
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 has implemented a common software system
in both the operations and financial management areas for the purpose of
integrating the various systems. The Company believes that such common system is
Year 2000 compliant and is fully operational. The Company will continue to test
less critical information systems and expects to complete this review and any
required upgrades by the second quarter of 1999.
During the first quarter of 1998, the Company conducted a test plan on
its Ibis 1000 implanter equipment and determined based on these tests 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; the largest issue being with the file manager displaying
and sorting the date properly after 2000. An updated version of the file manager
which corrects this problem is available. This upgrade will be completed by the
second quarter of 1999. The Company believes that an error in date calculation
will not impact the ability of the system to produce wafers. The Company also
believes that the worst case scenario is that the date will have to be set
manually on the dates found to be suspect and that there are no issues with the
operating system which could cause system failure or interfere with the
operation of the Ibis 1000 implanter.
The Company has reviewed its ancillary production equipment and has
determined the extent of software upgrades necessary in order for the systems to
be Year 2000 compliant. If the software upgrades were deficient or the Company
elected not to do the upgrades, the Company's ability to use this equipment
would not be impacted, as the systems are stand-alone and the functions are not
date sensitive. The worst case scenario is that the Company could turn back the
computer clocks. The Company expects to complete these software upgrades by the
beginning of the third quarter of 1999.
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. A re-evaluation of critical suppliers
was completed, and additional letters were sent to these suppliers requesting
Year 2000 status and proof of compliance. 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. The
Company expects this review to be complete by the end of 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 either currently correctly define the year
2000 or will be upgraded to be Year 2000 compliant and thus, the impact of the
Year 2000 Issue will have no material effect on its systems.
12
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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. The costs to implement the common software system are not considered
Year 2000 costs as they were included in the Company's integration plan and were
not accelerated due to Year 2000 issues. The costs to perform upgrades to
correct the Year 2000 Issues that the Company has identified to date are
estimated at approximately $30,000. 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.
RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE
To the extent that the Company's assessment is completed and
non-compliant systems operated by the Company or by third parties are not
identified, 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 of the problem and how quickly it
could be corrected or an alternate implemented, which is unknown at this time.
CONTINGENCY PLANS
The Company has formal contingency plans in place for the systems it
has identified as being non-compliant. Contingency plans will also be developed
if certain suppliers do not supply the Company with adequate information on
their compliance or if they are not going to be ready in time to meet the Year
2000 deadline. The Company expects to have all of the documentation in place by
the second quarter of 1999 and at that time if suppliers are identified that are
unable to become Year 2000 compliant within an appropriate time frame, the
Company would 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.
13
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash and cash equivalents of
$13,170,774. During the first quarter ended March 31, 1999, the Company
generated $464,370 in cash from operating activities as compared to cash
consumed from operations in the amount of $215,170 for the same period in 1998.
Depreciation and amortization expense for the first quarter ended March 31, 1999
and 1998 was $334,018 and $476,811, respectively. This accounted for 8% and 28%
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, exercise of options and warrants, equipment
lines of credit, a working capital line of credit, a term loan, sale leaseback
arrangements, collaborative relationships, government contracts and product and
equipment sales. The principal use of cash during the first quarter ended March
31, 1999 was to fund additions to property and equipment which totaled
approximately $270,000. As of March 31, 1999, the Company had invested
$15,220,097 in property and equipment. At March 31, 1999, the Company had
commitments to purchase approximately $3,372,000 in material or subassemblies to
be used for manufacturing Ibis 1000 implanters currently under construction and
approximately $334,000 in capital equipment purchases.
The Company anticipates that it may be required to raise substantial
additional capital in the future in order to finance 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 the
addition of Ibis 1000 oxygen implanters (in addition to its two oxygen
implanters currently on-line), the purchase of support equipment and the
expansion of the Company's facilities. Additional implanters are expected to be
transferred to production at various times as additional capacity is needed to
meet demand.
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.
14
<PAGE>
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
BUSINESS OUTLOOK
This 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 upon 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
1996, 1997 and 1998, revenues from four customers averaged in the aggregate
between 56% and 85% 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 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 successfully complete the manufacture
of its implanters and that these implanters will be accepted by its customers;
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.
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The exposure of market risk associated with risk-sensitive instruments
is not material to the Company, as the Company does not transact its sales
denominated in other than United States dollars, invests primarily in short-term
commercial paper, holds its investments until maturity and has not entered into
hedging transactions.
15
<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:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed with the Securities and Exchange Commission
on January 29, 1999 a Current Report on Form 8-K for the
January 27, 1999 event reporting an equipment sale to a
leading semiconductor manufacturer in a transaction valued at
approximately $8 million.
The Company filed with the Securities and Exchange Commission
on February 26, 1999 a Current Report on Form 8-K for the
February 24, 1999 event announcing 1998 fourth quarter and
year end results; and that its 1999 Annual Meeting of
Stockholders had been scheduled for May 13, 1999 at 10:00 a.m.
(Eastern Time) at the Company's offices.
16
<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: May 10, 1999 By: /s/ Debra L. Nelson
------------------------------------------------
Debra L. Nelson
Chief Financial Officer, Treasurer and Clerk
(principal financial and accounting officer)
Date: May 10, 1999 By: /s/ Thomas F. Lacey
------------------------------------------------
Thomas F. Lacey
Controller and Assistant Treasurer
17
<PAGE>
IBIS TECHNOLOGY CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule 20
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 13,170,774
<SECURITIES> 0
<RECEIVABLES> 3,632,374
<ALLOWANCES> 65,000
<INVENTORY> 2,157,150
<CURRENT-ASSETS> 21,454,606
<PP&E> 13,682,649
<DEPRECIATION> 8,658,736
<TOTAL-ASSETS> 26,618,287
<CURRENT-LIABILITIES> 4,070,170
<BONDS> 0
55,396
0
<COMMON> 0
<OTHER-SE> 21,095,523
<TOTAL-LIABILITY-AND-EQUITY> 26,618,287
<SALES> 4,089,485
<TOTAL-REVENUES> 4,447,863
<CGS> 3,200,006
<TOTAL-COSTS> 3,321,714
<OTHER-EXPENSES> 878,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,152
<INCOME-PRETAX> 247,337
<INCOME-TAX> 1,256
<INCOME-CONTINUING> 246,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246,081
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
</TABLE>
