** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20569**

 

**Form 10-Q**

 

**ý****Quarterly Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934**

 

**For the Quarterly Period Ended March 31,2004**

 

**Or**

 

**o****Transition Report Pursuant to Section 13 or15(d) of the Securities Exchange Act of 1934**

 

**For the transition period from                        to                           **

 

**Commissionfile number          0-23150**

 

**Ibis Technology Corporation**

(Exact name of registrant as specified in itscharter)

 
| **Massachusetts**                                               |   | **04-2987600**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  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 reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes ý         Noo

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

Yes ý         Noo

 

10,651,670 shares of Common Stock, par value$.008, were outstanding on May 3, 2004.

 

 

----

 

**IBISTECHNOLOGY CORPORATION**

 

**INDEX**

 
| PART 1 - FINANCIAL INFORMATION                                                                             |   |
|------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |   |
| Item 1 – Financial Statements:                                                                        |   |
|                                                                                                       |   |
| Balance Sheets  December 31, 2003 and March 31, 2004 (unaudited)                                 |   |
|                                                                                                       |   |
| Statements of Operations  Three Months Ended March 31, 2003 and 2004 (unaudited)                      |   |
|                                                                                                       |   |
| Statements of Cash Flows    Three Months Ended March 31, 2003 and 2004 (unaudited)               |   |
|                                                                                                       |   |
| Notes to Unaudited Interim Financial  Statements                                                           |   |
|                                                                                                       |   |
| Item 2 – Management’s Discussion and  Analysis of Financial  Condition and Results of Operations |   |
|                                                                                                       |   |
| Item 3 – Quantitative and Qualitative  Disclosure About Market Risk                                   |   |
|                                                                                                       |   |
| PART II – OTHER INFORMATION                                                                           |   |
|                                                                                                       |   |
| Item 1 - Legal Proceedings                                                                                 |   |
|                                                                                                       |   |
| Item 2 – Changes in Securities                                                                        |   |
|                                                                                                       |   |
| Item 3 - Defaults upon Senior Securities                                                                   |   |
|                                                                                                       |   |
| Item 4 – Submission of Matters to a Vote of  Security Holders                                         |   |
|                                                                                                       |   |
| Item 5 - Other Information                                                                                 |   |
|                                                                                                       |   |
| Item 6 - Exhibits and Reports on Form 8-K                                                                  |   |
|                                                                                                       |   |
| Signatures                                                                                                 |   |

 

2

----

 

**IBISTECHNOLOGY CORPORATION**

 

**BALANCE SHEETS**

**(Unaudited)**

 
|                                                                                                                |   | **December 31,  2003** |       | **March 31,  2004** |       |
|---------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|--------------------------|------------|
|                                                                                                                |   |                        |       |                     |       |
| **Assets**                                                                                                          |   |                        |       |                     |       |
| **Current assets:**                                                                                                 |   |                        |       |                     |       |
| Cash and cash equivalents                                                                                           |   | $                           | 14,174,716 |                     | $          | 14,651,034 |   |
| Accounts receivable, trade, net (note 5)                                                                            |   | 123,548                     |       | 641,406                  |       |
| Unbilled revenue (note 5)                                                                                           |   | 528,581                     |       | —                   |       |
| Inventories (note 3)                                                                                                |   | 1,758,449                   |       | 5,060,741                |       |
| Prepaid expenses and other current assets                                                                           |   | 247,602                     |       | 403,708                  |       |
| Total current assets                                                                                                |   | 16,832,896                  |       | 20,756,889               |       |
| Property and equipment                                                                                              |   | 40,584,764                  |       | 36,927,339               |       |
| Less:   Accumulated depreciation and amortization                                                              |   | (23,743,179                 | )          | (24,675,063              | )          |
| Net property and equipment                                                                                          |   | 16,841,585                  |       | 12,252,276               |       |
| Patents and other assets, net                                                                                       |   | 1,668,558                   |       | 1,599,600                |       |
| Total assets                                                                                                        |   | $                           | 35,343,039 |                     | $          | 34,608,765 |   |
|                                                                                                                |   |                        | ** ** |                     | ** ** |
| **Liabilities and  Stockholders’ Equity**                                                                      |   |                        |       |                     |       |
| **Current liabilities:**                                                                                            |   |                        |       |                     |       |
| Capital lease obligation, current                                                                                   |   | $                           | 1,184,399  |                     | $          | 810,262 |   |
| Accounts payable                                                                                                    |   | 404,512                     |       | 1,192,784                |       |
| Accrued liabilities                                                                                                 |   | 2,384,915                   |       | 2,334,838                |       |
| Deferred revenue                                                                                                    |   | 252,000                     |       | 2,632,000                |       |
| Total current liabilities                                                                                           |   | 4,225,826                   |       | 6,969,884                |       |
| Total liabilities                                                                                                   |   | 4,225,826                   |       | 6,969,884                |       |
|                                                                                                                |   |                        |       |                     |       |
| **Stockholders’ equity:**                                                                                      |   |                        |       |                     |       |
| Undesignated preferred stock, $.01 par  value.                                                                      |   |                        |       |                     |       |
| Authorized  2,000,000 shares; none issued                                                                           |   | —                      |       | —                   |       |
| Common stock, $.008 par value.                                                                                      |   |                        |       |                     |       |
| Authorized 50,000,000 shares; issued  10,651,170  shares and 10,651,670  shares in 2003 and 2004, respectively |   | 85,209                      |       | 85,213                   |       |
| Additional paid-in capital                                                                                          |   | 92,903,618                  |       | 92,906,437               |       |
| Accumulated deficit                                                                                                 |   | (61,871,614                 | )          | (65,352,769              | )          |
| Total stockholders’ equity                                                                                     |   | 31,117,213                  |       | 27,638,881               |       |
| Total liabilities and stockholders’ equity                                                                     |   | $                           | 35,343,039 |                     | $          | 34,608,765 |   |

 

See accompanying notes to unaudited interimfinancial statements.

 

3

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**IBISTECHNOLOGY CORPORATION**

 

**STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
|                                                   |   | **Three  months endedMarch 31,** |       |
|--------------------------------------------------------|--------|---------------------------------------|------------|
|                                                   |   | **2003**                              |       | **2004** |   |
|                                                   |   |                                  |       |   |   |
| **Net Sales and  revenue:**                            |   |                                  |       |   |   |
| Wafer product sales                                    |   | $                                     | 675,700    |   | $ | 1,849,240 |   |
| Contract and other revenue                             |   | 498,464                               |       | 90,251 |   |
| Equipment revenue                                      |   | 233,987                               |       | 117,657 |   |
| Total net sales and revenue (notes 2 and 5)            |   | 1,408,151                             |       | 2,057,148 |   |
|                                                   |   |                                  |       |   |   |
| **Cost of sales and  revenue:**                        |   |                                  |       |   |   |
| Cost of wafer product sales                            |   | 2,873,915                             |       | 3,256,623 |   |
| Cost of contract and other revenue                     |   | 18,157                                |       | 6,942 |   |
| Cost of equipment revenue                              |   | 119,853                               |       | 326,655 |   |
| Total cost of sales and revenue                        |   | 3,011,925                             |       | 3,590,220 |   |
| Gross profit (loss)                                    |   | (1,603,774                            | )          | (1,533,072 | ) |
|                                                   |   |                                  |       |   |   |
| **Operating expenses:**                                |   |                                  |       |   |   |
| General and administrative                             |   | 618,753                               |       | 631,491 |   |
| Marketing and selling                                  |   | 354,533                               |       | 340,655 |   |
| Research and development                               |   | 1,735,636                             |       | 985,268 |   |
| Total operating expenses                               |   | 2,708,922                             |       | 1,957,414 |   |
| Loss from operations                                   |   | (4,312,696                            | )          | (3,490,486 | ) |
|                                                   |   |                                  |       |   |   |
| **Other income  (expense):**                           |   |                                  |       |   |   |
| Interest income                                        |   | 25,845                                |       | 23,444 |   |
| Interest expense                                       |   | (1,972                                | )          | (12,857 | ) |
| Other                                                  |   | 3,726                                 |       | — |   |
| Total other income                                     |   | 27,599                                |       | 10,587 |   |
|                                                   |   |                                  |       |   |   |
| Loss before income taxes                               |   | (4,285,097                            | )          | (3,479,899 | ) |
|                                                   |   |                                  |       |   |   |
| Income tax expense                                     |   | 1,256                                 |       | 1,256 |   |
|                                                   |   |                                  |       |   |   |
| Net loss                                               |   | $                                     | (4,286,353 | ) | $ | (3,481,155 | ) |
|                                                   |   |                                  |       |   |   |
| Net loss per common share:                             |   |                                  |       |   |   |
| Basic                                                  |   | $                                     | (0.45      | ) | $ | (0.33 | ) |
| Diluted                                                |   | $                                     | (0.45      | ) | $ | (0.33 | ) |
|                                                   |   |                                  |       |   |   |
| Weighted average number of common shares  outstanding: |   |                                  |       |   |   |
| Basic                                                  |   | 9,474,940                             |       | 10,651,316 |   |
| Diluted (note 4)                                       |   | 9,474,940                             |       | 10,651,316 |   |

 

See accompanying notes to unaudited interimfinancial statements.

 

4

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**IBISTECHNOLOGY CORPORATION**

 

**STATEMENTS OF CASHFLOWS**

**(Unaudited)**

 
|                                                                                       |   | **Three  months ended  March 31,** |       |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                                                       |   | **2003**                                |       | **2004** |   |
|                                                                                       |   |                                    |       |   |   |
| **Cash flows from  operating activities:**                                                 |   |                                    |       |   |   |
| Net loss                                                                                   |   | $                                       | (4,286,353 | ) | $ | (3,481,155 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                                    |       |   |   |
| Depreciation and amortization                                                              |   | 1,653,779                               |       | 1,017,220 |   |
| Changes in operating assets and  liabilities:                                              |   |                                    |       |   |   |
| Accounts receivable, trade                                                                 |   | 1,008,308                               |       | (517,858 | ) |
| Unbilled revenue                                                                           |   | —                                  |       | 528,581 |   |
| Inventories                                                                                |   | (402,082                                | )          | 372,611 |   |
| Prepaid expenses and other current assets                                                  |   | (189,991                                | )          | (156,106 | ) |
| Accounts payable                                                                           |   | 744,423                                 |       | 788,272 |   |
| Accrued liabilities and deferred revenue                                                   |   | (714,952                                | )          | 2,329,923 |   |
|                                                                                       |   |                                    |       |   |   |
| Net cash provided by (used in) operating  activities                                       |   | (2,186,868                              | )          | 881,488 |   |
|                                                                                       |   |                                    |       |   |   |
| **Cash flows from  investing activities:**                                                 |   |                                    |       |   |   |
| Additions to property and equipment, net                                                   |   | (804,127                                | )          | (17,477 | ) |
| Other assets                                                                               |   | (14,970                                 | )          | (16,379 | ) |
|                                                                                       |   |                                    |       |   |   |
| Net cash used in investing activities                                                      |   | (819,097                                | )          | (33,856 | ) |
|                                                                                       |   |                                    |       |   |   |
| **Cash flows from  financing activities:**                                                 |   |                                    |       |   |   |
| Payments of capital lease obligations                                                      |   | (376,242                                | )          | (374,137 | ) |
| Exercise of stock options and warrants                                                     |   | —                                  |       | 2,823 |   |
|                                                                                       |   |                                    |       |   |   |
| Net cash used by financing activities                                                      |   | (376,242                                | )          | (371,314 | ) |
|                                                                                       |   |                                    |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                      |   | (3,382,207                              | )          | 476,318 |   |
|                                                                                       |   |                                    |       |   |   |
| Cash and cash equivalents, beginning of  period                                            |   | 11,745,918                              |       | 14,174,716 |   |
|                                                                                       |   |                                    |       |   |   |
| Cash and cash equivalents, end of period                                                   |   | $                                       | 8,363,711  |   | $ | 14,651,034 |   |
|                                                                                       |   |                                    |       |   |   |
| **Supplemental  disclosure of cash flow information:**                                     |   |                                    |       |   |   |
| Cash paid during the period for interest                                                   |   | $                                       | 1,972      |   | $ | 12,857 |   |
|                                                                                       |   |                                    |       |   |   |
| **Supplemental  disclosure of non-cash investing activities:**                             |   |                                    |       |   |   |
| Transfer of internally constructed  equipment from property and equipment to inventory     |   | $                                       | —     |   | $ | 3,931,390 |   |

 

See accompanying notes to unaudited interimfinancial statements.

 

5

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**IBISTECHNOLOGY CORPORATION**

 

**NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS**

** **

**(1) Interim FinancialStatements**

 

Theaccompanying financial statements are unaudited and have been prepared by theCompany in accordance with accounting principles generally accepted in theUnited States of America.

 

In the opinion of management, the interim financial statements includeall adjustments, which consist only of normal and recurring adjustments,necessary for a fair presentation of the Company’s financial position andresults of operations. Results of operations for the interim periods are notnecessarily indicative of the results to be expected for the full year. Thesefinancial statements should be read in conjunction with the financialstatements of the Company as of and for the year ended December 31, 2003,which are included in the Company’s Annual Report on Form 10-K.

 

**(2) Summary ofSignificant Accounting Policies**

 

***(a) Revenue Recognition***

 

TheCompany recognizes revenue from wafer product sales, equipment sales and thesales of spare parts when all of the following criteria have been met:  (1) evidence exists that the customer isbound to the transaction; (2) the product has been delivered to the customerand, when applicable, the product has been installed and accepted by thecustomer; (3) the sales price to the customer has been fixed or isdeterminable; and (4) collectibility of the sales price is reasonably assured.The Company typically recognizes revenue from wafer sales upon shipment andrecognizes revenue from implanter sales upon acceptance at the customer’s site.Provisions for estimated sales returns and allowances are made at the time theproducts are sold. Revenue derived fromcontracts and services is recognized upon performance. Significant managementjudgments and estimates must be made and used in connection with revenuerecognized in any period. Management analyzes various factors including areview of specific transactions, historical experience, credit worthiness ofcustomers and current market and economic conditions. Changes in judgmentsbased upon these factors could impact the timing and amount of revenue and costrecognized.

 

***(b)*** Stock***-Based Compensation***

 

The Company accounts for its stock option plansunder the recognition and measurement principles of APB Opinion No. 25,“Accounting for Stock Issued to Employees, and Related Interpretations.” Nostock-based compensation cost is reflected in net income (loss) for theseplans, as all options granted under these plans had an exercise price equal tothe market value of the underlying common stock on the date of grant. Thefollowing table illustrates the effect on net income (loss) and income (loss)per share if we had applied the fair value recognition provisions of FASBStatement No. 123, “Accounting for Stock Based Compensation”, to stock basedcompensation:

 
|                                                                                                                                 |   | **For the  Three Months EndedMarch 31,** |       |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|
|                                                                                                                                 |   | **2003**                                      |       | **2004** |   |
|                                                                                                                                 |   |                                          |       |   |   |
| **Net loss, as reported**                                                                                                            |   | $                                             | (4,286,353 | ) | $ | (3,481,155 | ) |
| Add: Stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |   | (372,348                                      | )          | (263,336 | ) |
| Pro-forma net loss                                                                                                                   |   | $                                             | (4,658,701 | ) | $ | (3,744,491 | ) |
| Net loss per share:                                                                                                                  |   |                                          |       |   |   |
| Basic and diluted – as reported                                                                                                 |   | $                                             | (0.45      | ) | $ | (0.33 | ) |
| Basic and diluted – pro-forma                                                                                                   |   | $                                             | (0.49      | ) | $ | (0.35 | ) |

 

6

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The fair value of each stock option is estimated onthe date of grant using Black-Scholes option pricing model with the followingweighted-average assumptions:

 
|                                                               |   | **Three  Months Ended  March 31** |   |
|--------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                               |   | **2003**                               |   | **2004** |   |
|                                                               |   |                                   |   |   |   |
| Risk-free interest rate                                            |   | 1.98                                   | %      | 2.96 | % |
| Expected dividend yield                                            |   | 0.0                                    | %      | 0.0 | % |
| Expected volatility                                                |   | 101.3                                  | %      | 94.6 | % |
| Expected life (years)                                              |   | 3.0                                    |   | 3.0 |   |
| Weighted average fair value of options  granted during the quarter |   | $                                      | 7.62   |   | $ | 5.69 |   |
|                                                                    |        |                                        |        |  |  |  |  |

 

Pro-forma net loss reflects only options granted in1995 through March 31, 2004. Therefore, the full impact of calculatingcompensation costs for stock options under SFAS No. 123 is not reflectedbecause compensation costs for options granted prior to January 1, 1995,are not considered.

 

**(3) Inventories**

 

Inventories consist of the following:

 
|                     |   | **December 31,  2003** |      | **March 31,  2004** |   |
|--------------------------|--------|-----------------------------|-----------|--------------------------|--------|
| Raw materials            |   | $                           | 1,464,434 |                     | $      | 486,880 |   |
| Work in process          |   | 177,715                     |      | 585,078                  |   |
| Finished goods           |   | 116,300                     |      | 57,393                   |   |
| Subtotal wafer inventory |   | 1,758,449                   |      | 1,129,351                |   |
| Equipment inventory      |   | —                      |      | 3,931,390                |   |
| Total Inventories        |   | $                           | 1,758,449 |                     | $      | 5,060,741 |   |

 

Equipmentinventory at March 31, 2004 consists of i2000 parts and/or implantersunder construction for resale. At December 31, 2003 these costs wereincluded in construction in progress under property and equipment and were$3,931,390.

 

**(4) Net Income (Loss)Per Share**

 

Netincome (loss) per share of common stock is computed based upon the weightedaverage number of shares outstanding during each period and including thedilutive effect, if any, of stock options and warrants. SFAS 128 requires thepresentation of basic and diluted earnings (loss) per share for all periodspresented. As the Company was in a net loss position for the three months endedMarch 31, 2003 and March 31, 2004, common stock equivalents of 1,449and 290,823, respectively, were excluded from the diluted loss per sharecalculation, as they would be antidilutive. As a result, diluted loss per shareis the same as basic loss per share for all periods presented.

 

7

----

 

**(5) SignificantCustomers and Concentration of Business Risk**

 

The Company sells its products to a limitednumber of semiconductor and silicon wafer manufacturers primarily in the UnitedStates and the Pacific Rim.

 

Sales for significant customers are shown indollar amounts and as a percentage of total revenue as follows:

 
|                                   |   | **Significant  Customers** |   | **Amount** |      | **%**  |   |
|----------------------------------------|--------|----------------------------|--------|------------|-----------|--------|--------|
|                                   |   |                       |   |       |      |   |   |
| Three Months Ended March 31, 2003 |   | 2                          |   | $          | 1,028,146 |   | 73     | % |
| Three Months Ended March 31, 2004 |   | 1                          |   | $          | 1,701,162 |   | 83     | % |

 

Accounts receivable and unbilled revenue fromsignificant customers at March 31, 2004 and December 31, 2003amounted to $520,000 and $631,000, respectively.

 

**(6) Industry Segments**

 

The Company’s reportable segments are SIMOX Wafer Products, SIMOXEquipment and Other Products or Services. For purposes of segment reporting,equipment, equipment spares and field service revenue are combined and reportedas SIMOX Equipment. Government contracts, other services and license revenueare combined and reported as Other Products or Services.

 

The table below provides unaudited information for the three monthsended March 31, 2003 and 2004 pertaining to the Company’s three industrysegments.

 
|                                                         |   | **SIMOX  Wafer  Products** |    | **SIMOX  Equipment** |   | **Other Products****or  Services** |   | **Total**  |    |
|--------------------------------------------------------------|--------|----------------------------|---------|----------------------|--------|------------------------------------|--------|------------|---------|
| **Net Sales and  Revenue**                                   |   |                       |    |                 |   |                               |   |       |    |
| Three Months Ended March 31, 2003                       |   | $                          | 675,700 |                 | $      | 233,987                            |   | $          | 498,464 |   | $ | 1,408,151 |   |
| Three Months Ended March 31, 2004                       |   | 1,849,240                  |    | 117,657              |   | 90,251                             |   | 2,057,148  |    |
|                                                         |   |                       |    |                 |   |                               |   |       |    |
| **Operating Income  (Loss)**                                 |   |                       |    |                 |   |                               |   |       |    |
| Three Months Ended March 31, 2003                       |   | (2,903,153                 | )       | (1,271,096           | )      | 480,307                            |   | (3,693,942 | )       |
| Three Months Ended March 31, 2004                       |   | (1,904,733                 | )       | (1,037,571           | )      | 83,309                             |   | (2,858,995 | )       |
|                                                         |   |                       |    |                 |   |                               |   |       |    |
| **Assets**                                                   |   |                       |    |                 |   |                               |   |       |    |
| March 31, 2004                                          |   | 14,244,894                 |    | 4,817,429            |   | 169,575                            |   | 19,231,898 |    |
|                                                         |   |                       |    |                 |   |                               |   |       |    |
| **Capital  Expenditures**                                    |   |                       |    |                 |   |                               |   |       |    |
| Three Months Ended March 31, 2003                       |   | 804,127                    |    | —               |   | —                             |   | 804,127    |    |
| Three Months Ended March 31, 2004                       |   | 11,282                     |    | 3,745                |   | —                             |   | 15,027     |    |
|                                                         |   |                       |    |                 |   |                               |   |       |    |
| **Depreciation and  Amortization of Property and Equipment** |   |                       |    |                 |   |                               |   |       |    |
| Three Months Ended March 31, 2003                       |   | 1,261,523                  |    | 359,529              |   | —                             |   | 1,621,052  |    |
| Three Months Ended March 31, 2004                       |   | 749,218                    |    | 246,678              |   | —                             |   | 995,896    |    |
|                                                              |        |                            |         |                      |        |                                    |        |            |         |  |  |  |  |

 

8

----

 

The table below provides the reconciliationof reportable segment operating loss and assets to Ibis’ totals.

 
|                                                         |   | **Three  Months Ended  March 31,** |       |
|--------------------------------------------------------------|--------|-----------------------------------------|------------|
| **Segment Reconciliation**                                   |   | **2003**                                |       | **2004** |   |
|                                                         |   |                                    |       |   |   |
| Loss  Before Income Taxes:                                   |   |                                    |       |   |   |
| Total  operating loss for reportable segments                |   | $                                       | (3,693,943 | ) | $ | (2,858,995 | ) |
| Corporate  general & administrative expenses             |   | (618,753                                | )          | (631,491 | ) |
| Net other  income (expense)                                  |   | 27,599                                  |       | 10,587 |   |
| Loss  before income taxes                                    |   | $                                       | (4,285,097 | ) | $ | (3,479,899 | ) |
|                                                         |   |                                    |       |   |   |
| Capital Expenditures:                                        |   |                                    |       |   |   |
| Total capital expenditures for reportable  segments          |   | $                                       | 804,127    |   | $ | 15,027 |   |
| Corporate capital expenditures                               |   | —                                  |       | 2,450 |   |
| Total capital expenditures                                   |   | $                                       | 804,127    |   | $ | 17,477 |   |
|                                                         |   |                                    |       |   |   |
| Depreciation and Amortization:                               |   |                                    |       |   |   |
| Total depreciation and amortization for  reportable segments |   | $                                       | 1,621,052  |   | $ | 995,896 |   |
| Corporate depreciation and amortization                      |   | 32,727                                  |       | 21,324 |   |
| Total depreciation and amortization                          |   | $                                       | 1,653,779  |   | $ | 1,017,220 |   |

 
|                                                   |   | **Balance as of  3/31/04** |       |
|--------------------------------------------------------|--------|----------------------------|------------|
| Assets:                                                |   |                       |       |
| Total assets for reportable segments                   |   | $                          | 19,231,898 |   |
| Cash & cash equivalents not allocated  to segments |   | 14,651,034                 |       |
| Other unallocated assets                               |   | 725,833                    |       |
| Total assets                                           |   | $                          | 34,608,765 |   |

 

9

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**(7) New AccountingPronouncements**

 

In April 2003, FASB issued Statement No. 149, Amendment ofStatement 133 on Derivative Instruments and Hedging Activities (SFAS 149),which amends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts (collectively referred to as derivatives) and for hedging activitiesunder FASB Statement No. 133, Accounting for Derivative Instruments and HedgingActivities. SFAS 149 is effective prospectively for contracts entered into ormodified after June 30, 2003, except as stated below and for hedgingrelationships designated after June 30, 2003. The provisions of thisStatement that relate to Statement 133 Implementation Issues that have beeneffective for fiscal quarters that began prior to June 15, 2003, shouldcontinue to be applied in accordance with their respective effective dates. Inaddition, paragraphs 7 (a) and 23 (a), which relate to forward purchases orsales of when-issued securities or other securities that do not yet exist, shouldbe applied to both existing contracts and new contracts entered into afterJune 30, 2003. The adoption of this Statement did not have a materialimpact on the Company’s financial condition or results of operations.

 

In May 2003, FASBissued Statement No. 150, Accounting for Certain Financial Instruments withCharacteristics of Both Liabilities and Equity (SFAS 150), which establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity.  SFAS 150 is effective for financialinstruments entered into or modified after May 31, 2003, and otherwise iseffective at the beginning of the first interim period beginning afterJune 15, 2003, except for mandatory redeemable preferred financialinstruments of nonpublic companies. It is to be implemented by reporting thecumulative effect of a change in accounting principle for financial instrumentscreated before the issuance date of the Statement and still existing at thebeginning of the interim period of adoption. Restatement is not permitted. Theadoption of this Statement did not have a material impact on the Company’sfinancial condition or results of operations.

 

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM 2**

 

**MANAGEMENT’SDISCUSSION AND ANALYSIS OF**

**FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**OVERVIEW**

 

IbisTechnology Corporation (“Ibis”) was formed in October 1987 and commencedoperations in January 1988. Ibis’ initial activities consisted ofproducing and selling SIMOX-SOI wafers and conducting research and developmentactivities. This effort led to the development of proprietary next generationoxygen implanters, the Ibis 1000, which we began selling in 1996, the i2000ä,which we began selling in 2002, and also to other proprietary processtechnology.

 

Initially,much of our revenue was derived from research and development contracts andsales of wafers for military applications. Over the years, there was a shift inrevenue to sales of SIMOX-SOI wafers for commercial applications and the natureof our business has evolved through stages where sometimes our revenue wasprimarily derived from selling wafers for evaluation purposes, and at othertimes it was primarily derived from equipment sales. This is a normal path tofollow while developing and promoting a fundamental new technology, especiallywhen it relates to the semiconductor industry embracing any change that affectsfabrication operations. This trend is expected to continue in the near-term asour customers continue to sample SOI and the early adopters work to achievestable production processes and enter pilot production. We believe that we arein the technology rollout stage of our corporate life cycle with respect to ouri2000 SIMOX-SOI implanters.

 

Webelieve that there will be a migration of SOI wafer manufacturing into themajor silicon wafer suppliers. We reach this conclusion for a number ofreasons. First, we believe that tremendous price pressure exists on commoditytype products, such as silicon wafers, and this pressure is already eroding theprice of SOI wafers. Because the starting wafer represents a significantcomponent of the SOI wafer cost, silicon wafer manufacturers should have anatural cost structure advantage leading to a higher gross margin, andtherefore should be able to manage such price pressure better than stand-aloneSOI producers that do not also produce the silicon wafer itself. Second, weexpect that the price pressure will encourage silicon wafer manufacturers toseek out higher margin products, like SOI wafers, to increase their margins.Third, we believe that silicon wafer manufacturers have traditionally developedproprietary intellectual property in silicon materials science, which can beapplied to designing optimal starting wafers for SOI production. This shouldgive them an advantage in both minimizing wafer cost and maximizing SOI waferquality and yield. Fourth, our experience suggests that silicon wafermanufacturers already have a well-developed infrastructure for manufacturing,sales and marketing large volumes of substrates. Lastly, we believe that thereis greater efficiency in producing the SOI wafer as part of the wafermanufacturers existing product flow, specifically avoiding the need torepackage, reclean, reinspect and reship substrates twice, once as startingsilicon wafers, and a second time as SOI wafers. Therefore, as a result ofthese trends, we expect our ultimate customers will be drawn from these siliconwafer manufacturers and we plan to focus a majority of our technical andmarketing resources on the leading silicon wafer manufacturers and our majorkey customers in the semiconductor industry who are the leaders in the adoptionof SOI technology. We expect that implanter sales to chipmakers should beminimal, but focused on SOI processes, that the chipmaker wishes to keepproprietary, such as selective (or patterned) SIMOX, or other specialtysubstrates.

 

Our fundamental SIMOX-SOI technology has been developed, refined, and testedover the last dozen years. In 2002, we introduced the current generation ofSIMOX-SOI technology, that included our second-generation oxygen implanter(i2000ä), and the MLD wafer process which waslicensed to us by IBM. We believe that the i2000’s flexibility, automation andoperator-friendly controls allow this tool to produce a wide range of SIMOX-SOIwafer products, including Advantox® MLD and Advantox MLD-UT wafers.We also believe the ability of the i2000 implanter to produce eight andtwelve-inch (or 200 and 300 mm) SIMOX-SOI wafers coupled with the MLD processpositions us to capitalize on the growing SOI market. In 1999, we commenced aprogram to design and develop the i2000, introduced it in March 2002 andbegan shipping 300 mm wafers implanted from this machine shortly thereafter. Amajority of the wafers shipped during the quarter ended March 31, 2004were 300 mm.

 

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DuringFebruary 2004, we announced the receipt of an order for one Ibis i2000SIMOX implanter, with an option to purchase a second i2000, from a leadinginternational silicon wafer manufacturer. We have achieved customer acceptanceof this implanter at our facility and although no assurances can be given, weexpect to ship this system in the second quarter of 2004. Revenue recognitionfor this implanter order will be based on final customer acceptance at theirfacility, the timing of which may vary depending on a number of factors, whichinclude the customer’s site being properly facilitized ( e.g. power, water,air) and performance of the implanter. As a result, we cannot guarantee whetheror when we will recognize revenue on this transaction.

 

Commercialshipments of our wafers have been used principally for evaluation purposes orpilot production in products, including microprocessors, gate arrays, ASICs(application specific integrated circuits), memories (DRAMs, SRAMs, etc.), andcellular and mobile radio components. From our customers’ perspective, thepathway to SOI adoption is complex and time consuming.  Typically, a wafer customer will go throughthree major stages:

 

•      Sampling, where preliminaryperformance characteristics are explored and verified;

•      R&D, where specificcustomer specifications are tested and developed; and

•      Production, where yield andcost benefits are optimized.

 

Eachof these stages has many steps, and customers must evaluate each new wafertechnology that essentially lays a new foundation for substantially all otherprocesses they have spent billions of dollars and decades of time developing.Accordingly, we believe it takes anywhere from 12 to 36 months for a customerto proceed from initial sampling through R&D to pre-production, which isnot unlike the standard process for qualifying any new wafer material. Thesesteps apply each time there is a change in the customer’s fabrication process,such as a feature-size change or new material. To date, most of our customershave purchased wafers for the purpose of characterizing and evaluating thewafers, developing prototype products or for pilot production, and consequentlyhistorical sales are not necessarily an indication of future operations.

 

Duringthe fourth quarter ended December 31, 2003, a number of unexpected eventsoccurred that impacted our 200 mm and smaller wafer size production lineincluding the line’s projected cash flow generation and our projectedutilization of the assets within our revised plans. Based on these events andtheir impact on current and future projected cash flows, and our subsequentimpairment analysis under the provisions of SFAS No. 144, Accounting forImpairment or Disposal of Long-Lived Assets resulted in an impairment charge of$11,051,324 for our 200 mm and smaller SIMOX wafer production line, which isprincipally comprised of Ibis 1000 implanters and associated machinery andequipment not expected to be utilized or sold. The remaining carrying amount ofassets for this line at March 31, 2004 is approximately $865,000.

 

Wewill continue to review our assumptions about our long-lived assets on aperiodic basis for potential impairment in future quarters. We cannot be surethat our implanters or other long-lived assets will not become impaired in thefuture. In addition, the impairment factors evaluated by Management may changein subsequent periods.

 

Ibishas experienced quarterly and annual fluctuations in revenue and results ofoperations due to various factors, including the timing of receipt of equipmentorders and dependence on a limited number of customers. Our current major wafercustomer tends to order fluctuating quantities of wafers on an irregular basis.This customer also may revise or cancel orders at any time prior to delivery.This means that this customer, who may account for a significant portion of ournet revenue in any given quarter, may reduce or decide not to place any ordersin the succeeding quarter or quarters. Most of our other wafer customers aresampling SIMOX wafers or are developing prototype products and tend to ordersmall quantities of wafers on an irregular basis. These customers also mayrevise or cancel orders at any time prior to delivery. These ordering patternsresulted in a significant decrease in 300 mm

 

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SIMOX wafer sales during the fourth quarter ended December 31,2003 and we expect to continue to experience fluctuations in revenue andoperating results due to shifts in customer demands during various stages ofthe SIMOX-SOI sales cycle. In addition, because we have sold only a limitednumber of implanters to date on an irregular basis, the recognition of revenuefrom the sale of even one implanter is likely to result in a significantincrease in the revenue for that quarter. We recognize implanter revenue inaccordance with SAB 101, which includes, among other criteria, the shipment andfactory acceptance of the implanter at the customer’s location. As a result,deferral of revenue will extend longer due to meeting these criteria.

 

**Critical AccountingPolicies**

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that have a significant impact onthe results we report in our financial statements. Some of our accountingpolicies require us to make difficult and subjective judgments, often as aresult of the need to make estimates of matters that are inherently uncertain.Our most critical accounting policies include: revenue recognition, inventoryvaluation and reserves, accounts receivable reserves and the assessment oflong-lived asset impairment. Actual results may differ from these estimatesunder different assumptions or conditions. Below, we discuss these policiesfurther, as well as the estimates and judgments involved.

 

***RevenueRecognition. ***We recognize revenue from wafer productsales, equipment sales and the sales of spare parts when all of the followingcriteria have been met: (1) evidence exists that the customer is bound to thetransaction; (2) the product has been delivered to the customer and, whenapplicable, the product has been installed and accepted by the customer; (3)the sales price to the customer has been fixed or is determinable; and (4)collectibility of the sale price is reasonably assured. We typically recognizerevenue from wafer sales upon shipment and recognize revenue from implantersales upon acceptance at the customer’s site. Provisions for estimated salesreturns and allowances are made at the time the products are sold. Revenuederived from contracts and services is recognized upon performance. Significantmanagement judgments and estimates must be made and used in connection withrevenue recognized in any period. Management analyzes various factors,including a review of specific transactions, historical experience, creditworthiness of customers and current market and economic conditions. Changes injudgments based upon these factors could impact the timing and amount ofrevenue and cost recognized.

 

***Inventory Valuationand Reserves. ***Our policy for the valuation ofinventory, including the determination of obsolete or excess inventory,requires us to estimate the future demand for our products within specific timehorizons, generally twelve months or less. If our estimated demand for specificproducts is greater than actual demand and we fail to reduce manufacturingoutput accordingly, we could be required to record additional inventoryreserves, which would have a negative impact on our gross margin. We reservefor a possible over-supply of wafers utilizing inventory aging records and forobsolescence when engineering changes or other technological advances indicatethat obsolescence has occurred. We also adjust the valuation of inventory whenestimated actual cost is significantly different than standard cost and valueinventory at the lower of cost or market. Once established, any write-downs ofinventory are considered permanent adjustments to the cost basis of theinventory.

 

***Accounts ReceivableReserves. ***Accounts receivable are reduced by anallowance for amounts that may become uncollectible in the future. Theestimated allowance for uncollectible amounts is based primarily on a specificanalysis of accounts in the receivable portfolio and a general reserve based onthe aging of receivables and historical write-off experience. While managementbelieves the allowance to be adequate, if the financial condition of ourcustomers were to deteriorate, resulting in impairment of their ability to makepayments, additional allowances may be required and could materially impact ourfinancial position and results of operations.

 

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***Valuation ofLong-Lived Assets. ***Ibis reviews the valuation of long-livedassets, including property and equipment and licenses, under the provisions ofSFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.  Management is required to assess therecoverability of its long-lived assets whenever events and circumstancesindicate that the carrying value may not be recoverable. Based on currentconditions, factors we consider important and that could trigger an impairmentreview include the following:

 

•      Significantunderperformance relative to expected historical or projected future operating results;

•      Significantchanges in the manner of our use of the acquired assets or the strategy of ouroverall business;

•      Significantnegative industry or economic trends;

•      Significantdecline in our stock price for a sustained period; and

•      Ourmarket capitalization relative to book value.

 

Inaccordance with SFAS No. 144, when we determine that the carrying value ofapplicable long-lived assets may not be recoverable based upon the existence ofone or more of the above indicators of impairment, we evaluate whether thecarrying amount of the asset exceeds the sum of the undiscounted cash flowsexpected to result from the use and eventual disposition of that asset. If sucha circumstance exists, we would measure an impairment loss to the extent thecarrying amount of the particular long-lived asset or group exceeds its fairvalue. We would determine the fair value based on a projected discounted cashflow method using a discount rate determined by our management to becommensurate with the risk inherent in our current business model. We adoptedSFAS No. 144 during the first quarter of 2002 and during the fourth quarter of2003 we recognized an impairment charge of $11,051,324 for our 200 mm andsmaller SIMOX wafer production line.

 

**Results of Operations**

 

***First Quarter EndedMarch 31, 2004 Compared to First Quarter Ended March 31, 2003***

 

***Wafer Product Sales***.Wafer product sales increased $1,173,540 or 174%, to $1,849,240 for the firstquarter ended March 31, 2004 from $675,700 for the first quarter endedMarch 31, 2003. Wafer product sales this quarter were higher due toincreased 300 mm SIMOX wafer demand from one customer.

 

***Contract and Other Revenue***. Contract and other revenue includesrevenue derived from government contracts, license agreements, characterizationand other services.  Contract and otherrevenue decreased for the first quarter ended March 31, 2004 to $90,251from $498,464 for the first quarter ended March 31, 2003, a decrease of$408,213 or 82%. This is attributable to license revenue recognized from thetransfer of wafer technology to Shanghai Simgui pursuant to a license agreementin the quarter ended March 31, 2003. This was partially offset by anincrease in royalty fees related to equipment technology that were recognizedin the quarter ended March 31, 2004.

 

***EquipmentRevenue. ***Equipmentrevenue represents revenue recognized from sales of implanters, spare parts andfield service. Equipment revenue decreased to $117,657 for the first quarterended March 31, 2004 from $233,987 for the first quarter endedMarch 31, 2003, a decrease of $116,330 or 50%. Equipment revenue in bothquarters consisted solely of parts and service revenue. Field service revenueaccounted for $76,498 for the first quarter ended March 31, 2004 ascompared to $70,550 for the same period last year.  Sales of spare parts accounted for $41,159 of equipment revenuefor the first quarter ended March 31, 2004 as compared to $163,437 ofequipment revenue for the first quarter ended March 31, 2003. Sales ofspare parts fluctuate depending on customer demand and when warranties expire.

 

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***Total Net Sales andRevenue***. Total net sales and revenue for the first quarter ended March 31,2004 was $2,057,148, an increase of $648,997, or 46 %, from total net revenueof $1,408,151 for the first quarter ended March 31, 2003. This increase isa result of an increase in 300mm SIMOX wafer sales which was partially offsetby a decrease in license revenue.

 

***Total Cost of Sales and Revenue***. Cost of wafer product sales for the first quarter ended March 31,2004 was $3,256,623, compared to $2,873,915 for the first quarter endedMarch 31, 2003, an increase of $382,708, or 13 %. This is attributable tothe increased volume of 300 mm wafers, which historically have been moreexpensive to manufacture. This was partially offset by a decrease in fixedcosts, mainly depreciation which is lower due to the write down of our 200 mmand smaller wafer size production equipment in the fourth quarter of 2003, as aresult of our impairment analysis. Cost of contract and other revenue consistsof labor and materials expended during the quarter. Cost of contract and otherrevenue for the first quarter ended March 31, 2004 was $6,942, as comparedto $18,157 for the first quarter ended March 31, 2003, a decrease of$11,215, or 62%. This is attributable to a decrease in labor costs associatedwith license revenue. Cost of equipment revenue represents the cost ofequipment and spare parts, along with labor incurred for field service. Cost ofequipment revenue for the first quarter ended March 31, 2004 was $326,655,as compared to $119,853 for the first quarter ended March 31, 2003. Thisincrease was due primarily to an under-absorption of overhead in equipment manufacturingas the one tool under construction was completed.

 

Total cost of sales and revenue for the first quarter endedMarch 31, 2004 was $3,590,220 as compared to $3,011,925 for the firstquarter ended March 31, 2003, an increase of $578,295 or 19%. The grossmargin for all sales was a negative 75% for the first quarter endedMarch 31, 2004 as compared to a negative gross margin of 114% for thefirst quarter ended March 31, 2003. This improvement in the gross marginfor all sales is attributable to the improved margins on wafer sales due toincreased volumes and lower depreciation in this quarter. This was offset bythe decrease in license revenue, which typically has high margins.

 

***General andAdministrative Expenses***.  General and administrative expenses for the first quarter endedMarch 31, 2004 were $631,491 (or 31% of total revenue) as compared to$618,753 (or 44% of total revenue) for the first quarter ended March 31,2003, an increase of $12,738, or 2%. This is due to increased professionalservices which were offset by decreased payroll and payroll related expenses asa result of cost savings initiated by Ibis.

 

***Marketing andSelling Expenses***. Marketing and selling expenses for the first quarter endedMarch 31, 2004 were $340,655 (or 17% of total revenue) as compared to$354,533 (or 25% of total revenue) for the first quarter ended March 31,2003, a decrease of $13,878, or 4%. This is a result of a decrease inpromotional expenses and payroll and payroll related expenses resulting fromcost savings initiatives. These were partially offset by increasedsubcontractor costs.

 

***Research andDevelopment Expenses.***  Internally funded research and development expenses decreased by$750,368 or 43%, to $985,268 (or 48% of total revenue) for the first quarterended March 31, 2004, as compared to $1,735,636 (or 123% of total revenue)for the first quarter ended March 31, 2003. This is due to reducedpayroll, payroll related expenses, wafer development spending and consultingservices relating to the i2000 implanters.

 

***Other Income(Expense)*.** Total other income for the first quarter ended March 31, 2004 was$10,587 as compared to $27,599 for the first quarter ended March 31, 2003,a decrease of $17,012, or 62%. The decrease in total other income isattributable to increased interest expense due to a financing arrangemententered into during the second quarter of 2003.

 

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**Liquidity and CapitalResources**

 

As of March 31, 2004, Ibis had cash and cash equivalents of$14,651,034, including the receipt of net proceeds of the $12.6 millionreceived from a public offering of 1,000,000 shares of common stock at $13.25per share in October 2003 and the downpayment of $2.4 million for thei2000 SIMOX implanter order received in February, 2004. The shares wereincluded in a shelf registration statement filed with the Securities andExchange Commission on September 2, 2003 and declared effective onOctober 3, 2003. Net proceeds from the offering will be used primarily tofund research and development, capital expenditures and working capital.

 

Duringthe three months ended March 31, 2004, Ibis generated $881,488 in cash foroperating activities compared to cash used of $2,186,868 for the same period in2003. Depreciation and amortization expense for the three months endedMarch 31, 2004 and 2003 was $1,017,220 and $1,653,779, respectively. Thisaccounted for 49% and 117% of total revenue, respectively. Due to the capitalintensive nature of Ibis’ wafer business, Management expects that depreciationand amortization will continue to be a significant portion of its expenses inthe near term. To date, Ibis’ working capital requirements have been fundedprimarily through debt and equity financings. Ibis also used $17,477 during thethree months ended March 31, 2004 to fund additions to property andequipment as compared to $804,127 during the three months ended March 31,2003. At March 31, 2004, Ibis had commitments to purchase approximately$2,673,010 of material to be used for manufacturing wafers, and i2000 implanterparts and $14,936 in capital equipment purchases.

 

As part of our cash management plan, we initiated additional costsaving measures during 2003. This included the lay-off of twenty-nineemployees. Our headcount is now approximately 78 employees and three additionaltemporary employees.

 

In June 2003, Ibis entered into an agreement with a financingagent to obtain payment for products from its largest customer on an expeditedbasis. The discount rate associated with this agreement is based on the primerate and may fluctuate.

 

In September 2001, Ibis entered into a $4.5 million equipmentlease line with Heller Financial’s Commercial Equipment Finance Group. Thelease line was used to finance the purchase of process equipment for wafer production,primarily for 300 mm wafers. This line was fully drawn down in twosale-leaseback transactions, bearing interest at approximately 8% with a termof three years, and a monthly net payment of $131,212. Ibis has a fair marketvalue purchase option at the end of the lease term. The lease line is securedby the underlying assets and all other property and equipment of Ibis.

 

In October 2003, Ibis completed a public offering of 1,000,000shares of common stock at $13.25 per share, which included an over allotmentoption exercised by the underwriter. Net proceeds from the offering wereapproximately $12.6 million and will be used primarily to fund research anddevelopment, capital expenditures, working capital and general corporatepurposes.

 

Our existing cash resources are believed to be sufficient to supportour current operating plan for the next twelve months. Forecasting futurerevenue, on a quarter-by-quarter basis, remains exceedingly difficult andsignificant variations quarter to quarter, are likely. We expect to continue toexplore equity offerings and other forms of financing and anticipate that wemay be required to raise additional capital in the future in order to financefuture growth and our research and development programs.

 

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**Business Outlook**

 

This Form 10-Q contains forward-looking statements within the meaningof the “safe harbor” provisions of the Private Securities Litigation Reform Actof 1995 that relate to future events or our future financial performance. Insome cases, you can identify forward-looking statements by terminology, such as“may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,”“estimate,” “project,” “predict,” “intend,” “potential” or “continue” or thenegative of such terms or other comparable terminology, although not allforward-looking statements contain such terms. In addition, theseforward-looking statements include, but are not limited to, statementsregarding, among other things: our future financial and operating performance;Ibis’ belief in the potential acceptance of and demand for Ibis-producedSIMOX-SOI wafers for mainstream commercial applications; the potentialacceptance of and demand for Ibis’ implanters; the evolution of Ibis’ businessmodel from supplying mainly SIMOX-SOI wafers to semiconductor fabs to supplyingmainly implanters to wafer manufacturers; the potential migration of SOI wafermanufacturing into major silicon wafer suppliers; the potential cost benefitsof SOI and SIMOX-SOI technology; our intent to pursue, and our ability tomaintain, further strategic relationships, partnerships and alliances withthird parties; our ability to obtain intellectual property rights necessary toproduce certain kinds of wafers; our intention to add products and advance ourprocess technology; our ability to protect our proprietary technology; thepotential trends in wafer sales and the semiconductor industry generally; thecapabilities of and anticipated benefits of the i2000, including the ability ofthe i2000 to support volume production of high quality SIMOX-SOI wafers, theability of the i2000 to reduce costs, and the ease with which the i2000 can beinstalled and qualified in fabrication facilities; the likelihood thatimplanters, if ordered, will be qualified and accepted by customers; thelikelihood and timing of revenue recognition on such transactions; our abilityto obtain the components and materials necessary to manufacture wafers and/orimplanters, and the sufficiency of our capital resources. Such statements areneither promises nor guarantees but rather are subject to a number of risks anduncertainties which could cause actual results to differ materially from thosedescribed in the forward-looking statements. Such risks and uncertaintiesinclude, but are not limited to those set forth throughout this Form 10-Q. Allinformation set forth in this Form 10-Q is as of the date of this Form 10-Q,and Ibis undertakes no duty to update this information, unless required by law.

 

**Effects Of Inflation**

 

Ibis believes that over the past three years inflation has not had asignificant impact on Ibis’ sales or operating results.

 

**PART I – ITEM 3**

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Theexposure of market risk associated with risk-sensitive instruments is notmaterial to the Company, as the Company does not transact its sales denominatedin other than United States dollars, invests primarily in money market fundsand short-term commercial paper, holds its investments until maturity and hasnot entered into hedging transactions.

 

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**IBIS TECHNOLOGY CORPORATION**

 

**PART II**

 

**OTHERINFORMATION**

 

Item 1 - Legal Proceedings

 

Five class action securities lawsuits have been filed in the UnitedStates District Court in the District of Massachusetts against Ibis and itsPresident and CEO: Martin Smolowitz v. Ibis Technology Corporation., et al.,Civ. No. 03-12613 (RCL) (D. Mass.); Fred Den v. Ibis TechnologyCorporation., et al., Civ. No. 04-10060 (RCL) (D. Mass.); Weinstein v. IbisTechnology Corporation., et al., Civ. No. 04-10088 (RCL) (D. Mass.); GeorgeHarrison v. Ibis Technology Corporation., et al., Civ. No. 04-10286 (RCL) (D.Mass.); and Eleanor Pitzer v. Ibis Technology Corporation., et al, Civ. No.04-10446 (RCL) (D. Mass.). The actions allege, among other things, that theCompany violated federal securities laws by allegedly making misstatements tothe investing public relating to demand for certain Ibis products and intellectualproperty issues relating to the sale of the i2000 oxygen implanter. Theplaintiffs are seeking unspecified damages. While we believe that theallegations are without merit, and intend to vigorously defend against thesuits, there can be no guarantee as to how they ultimately will be resolved.

 

In addition, Ibis has been named as a nominal defendant in ashareholder derivative action filed in February 2004 against certain ofits directors and officers: Louis F. Matheson, Jr. v. Martin J. Reid et al., Civ.Act. No. 04-10341 (RCL).The complaint alleges, among other things, that thealleged conduct challenged in the securities cases pending against Ibis inMassachusetts (described above) constitutes a breach of the defendants’fiduciary duties to Ibis. The complaint seeks unspecified money damages andother relief ostensibly on behalf of Ibis.

 

Litigation may be time-consuming, expensive and disruptive to normalbusiness operations, and the outcome of litigation is difficult to predict. Anunfavorable resolution of these litigation matters could have a materialadverse effect on our business, results of operations and financial condition.

 

Item 2 - Changes in Securities

 

None

 

Item 3 - Defaults upon SeniorSecurities

 

None

 

Item 4 - Submission ofMatters to a Vote of Security Holders

 

None

 

Item 5 - Other Information

 

None

 

Item 6 - Exhibits and Reports onForm 8-K

 

(a)           Exhibits furnished as Exhibits hereto:

 
| **Exhibit No.** |   | **Description**                                                                                   |
|-----------------|--------|---------------------------------------------------------------------------------------------------|
|            |   |                                                                                              |
| 31.1            |   | Certification of  Martin J. Reid pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   |
|            |   |                                                                                              |
| 31.2            |   | Certification of  Thomas F. Lacey pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|            |   |                                                                                              |
| 32.1            |   | Certification  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                     |

 

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**PARTII**

 

**OTHERINFORMATION**

 

(b)           Reportson Form 8-K:

 

On January 7, 2004, we furnished to the SEC a report on Form 8-Kcontaining the January 7, 2004 press release announcing that Ibis haslearned that a purported class action lawsuit was filed on December 29,2003 in the United States District court in Massachusetts against Ibis andMartin J. Reid, it’s President and CEO, relating to certain disclosures by theCompany.

 

On February 5, 2004 we furnished to the SEC a report on Form 8-Kcontaining the February 5, 2004 press release announcing the receipt of anorder for one Ibis i2000 SIMOX implanter, with an option to purchase a secondimplanter from a leading silicon wafer manufacturer.

 

On February 25, 2004 we furnished to the SEC a report on Form 8-Kcontaining the February 25, 2004 press release reporting Ibis’ fourthquarter and fiscal year ended December 31, 2003 financial results.

 

On March 12, 2004 we furnished to the SEC a report on Form 8-Kcontaining the March 12, 2004 press release announcing that Debra Nelson,Ibis’ Chief Financial Officer, has informed the Company that she intends toresign as CFO, effective April 16, 2004.

 

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**IBISTECHNOLOGY 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 theundersigned, thereunto duly authorized.

 
|              | Ibis Technology Corporation |
|-------------------|-----------------------------|
|              |                        |
|              |                        |
| Date: May 4, 2004 | By:                         | /s/ Thomas F. Lacey |   |
|              |                        | Thomas F. Lacey |
|              |                        | Controller and Principal Financial Officer |
|              |                        |
|              |                        |
| Date: May 4, 2004 | By:                         | /s/ Martin J. Reid |   |
|              |                        | Martin J. Reid |
|              |                        | President and Chief Executive Officer |
|                   |                             |  |  |  |

 

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