** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20569**

 

**Form 10-Q**

 

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

 

**For the Quarterly Period Ended June 30,2005**

 

**Or**

 

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

 

**For the transition period from                               to                                       **

 

**Commission file number   0-23150**

 

**IbisTechnology Corporation**

(Exact name of registrant as specified in its charter)

 
| **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 allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes   ý**                 **No   o

 

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

 

Yes   o**                 **No    ý

 

10,739,291 shares of Common Stock, par value$.008, were outstanding on August 01, 2005.

 

 

----

 

**IBISTECHNOLOGY CORPORATION**

 

**INDEX**

 
| PART 1 - FINANCIAL INFORMATION                                                                                                     | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** |
| Item 1 –  Financial Statements:                                                                                                    |       |
|                                                                                                                                    |       |
| Balance Sheets  December 31, 2004 and June 30, 2005 (unaudited)                                                               |       |
|                                                                                                                                    |       |
| Statements of Operations  Three Months Ended June 30, 2004 and 2005 and  Six Months Ended June 30, 2004 and 2005 (unaudited)) |       |
|                                                                                                                                    |       |
| Statements of Cash Flows  Six Months Ended June 30, 2004 and 2005 (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                                                                 |       |
|                                                                                                                                    |       |
| Item 4 – Controls and Procedures                                                                                                   |       |
|                                                                                                                                    |       |
|                                                                                                                                    |       |
| 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,  2004** | ** ** | **June 30,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
|                                                                                                                                                                                         |       |                        |       |                    |       |
| **Assets**                                                                                                                                                                                   |       |                        |       |                    |       |
| **Current  assets:**                                                                                                                                                                         |       |                        |       |                    |       |
| Cash and cash equivalents                                                                                                                                                                    |       | $                           | 7,726,072  |                    | $          | 8,039,326 |   |
| Accounts receivable, trade, net                                                                                                                                                              |       | 34,458                      |       | 65,970                  |       |
| Inventories (note 4)                                                                                                                                                                         |       | 5,625,167                   |       | 5,791,048               |       |
| Prepaid expenses and other current assets                                                                                                                                                    |       | 760,721                     |       | 781,318                 |       |
| Assets held for sale (note 7)                                                                                                                                                                |       | 131,416                     |       | —                  |       |
| Total current assets                                                                                                                                                                         |       | 14,277,834                  |       | 14,677,662              |       |
| Property and  equipment                                                                                                                                                                      |       | 33,660,086                  |       | 26,481,984              |       |
| Less: Accumulated depreciation and  amortization                                                                                                                                             |       | (27,335,477                 | )          | (20,840,266             | )          |
| Net property and equipment                                                                                                                                                                   |       | 6,324,609                   |       | 5,641,718               |       |
| Patents and  other assets, net                                                                                                                                                               |       | 1,680,197                   |       | 1,461,828               |       |
| Total assets                                                                                                                                                                                 |       | $                           | 22,282,640 |                    | $          | 21,781,208 |   |
|                                                                                                                                                                                         |       |                        |       |                    |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                               | ** ** | ** **                  | ** ** | ** **              | ** ** |
| **Current  liabilities:**                                                                                                                                                                    |       |                        |       |                    |       |
| Accounts payable                                                                                                                                                                             |       | $                           | 392,875    |                    | $          | 369,716 |   |
| Accrued liabilities                                                                                                                                                                          |       | 1,417,904                   |       | 1,489,383               |       |
| Deferred revenue                                                                                                                                                                             |       | 52,000                      |       | 4,813,000               |       |
| Total current liabilities                                                                                                                                                                    |       | 1,862,779                   |       | 6,672,099               |       |
| Total liabilities                                                                                                                                                                            |       | 1,862,779                   |       | 6,672,099               |       |
|                                                                                                                                                                                         |       |                        |       |                    |       |
| **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 and outstanding 10,719,595 shares and 10,739,291  shares at December 31, 2004 and June 30, 2005, respectively |       | 85,757                      |       | 85,914                  |       |
| Additional paid-in capital                                                                                                                                                                   |       | 93,124,259                  |       | 93,145,195              |       |
| Accumulated deficit                                                                                                                                                                          |       | (72,790,155                 | )          | (78,122,000             | )          |
| Total stockholders’ equity                                                                                                                                                              |       | 20,419,861                  |       | 15,109,109              |       |
| Total liabilities and stockholders’ equity                                                                                                                                              |       | $                           | 22,282,640 |                    | $          | 21,781,208 |   |

 

See accompanying notes tounaudited interim financial statements.

 

3

----

 

**IBISTECHNOLOGY CORPORATION**

 

**STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                  | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|---------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                  | ** ** | **2004**                              | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| **Net Sales and revenue:**                  |       |                                  |       |                                |       |   |   |   |   |
| Contract and other revenue                  |       | 82,664                                |       | 95,861                              |       | 172,915 |   | 164,095 |   |
| Equipment revenue                           |       | 120,589                               |       | 103,059                             |       | 238,246 |   | 201,480 |   |
| Total net sales and revenue (notes 2 and 6) |       | 203,253                               |       | 198,920                             |       | 411,161 |   | 365,575 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| **Cost of sales and revenue:**              |       |                                  |       |                                |       |   |   |   |   |
| Cost of contract and other revenue          |       | 5,209                                 |       | —                              |       | 12,151 |   | — |   |
| Cost of equipment revenue                   |       | 372,426                               |       | 222,147                             |       | 699,081 |   | 522,230 |   |
| Total cost of sales and revenue             |       | 377,635                               |       | 222,147                             |       | 711,232 |   | 522,230 |   |
| Gross profit (loss)                         |       | (174,382                              | )          | (23,227                             | )          | (300,071 | ) | (156,655 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| **Operating expenses:**                     |       |                                  |       |                                |       |   |   |   |   |
| General and administrative                  |       | 572,034                               |       | 650,261                             |       | 1,203,525 |   | 1,211,874 |   |
| Marketing and selling                       |       | 425,312                               |       | 401,657                             |       | 765,967 |   | 791,913 |   |
| Research and development                    |       | 886,905                               |       | 1,568,029                           |       | 1,872,173 |   | 3,250,692 |   |
| Total operating expenses                    |       | 1,884,251                             |       | 2,619,947                           |       | 3,841,665 |   | 5,254,479 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Loss from operations                        |       | (2,058,633                            | )          | (2,643,174                          | )          | (4,141,736 | ) | (5,411,134 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| **Other income (expense):**                 | ** ** | ** **                            | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income                             |       | 14,342                                |       | 46,545                              |       | 37,786 |   | 87,069 |   |
| Interest expense                            |       | (18,595                               | )          | —                              |       | (31,452 | ) | (536 | ) |
| Other                                       |       | 1,249                                 |       | 8,726                               |       | 1,249 |   | 8,727 |   |
| Total other income (expense)                |       | (3,004                                | )          | 55,271                              |       | 7,583 |   | 95,260 |   |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Loss before income taxes                    |       | (2,061,637                            | )          | (2,587,903                          | )          | (4,134,153 | ) | (5,315,874 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Income tax expense                          |       | —                                |       | —                              |       | 1,256 |   | 1,256 |   |
| Loss from continuing operations             |       | (2,061,637                            | )          | (2,587,903                          | )          | (4,135,409 | ) | (5,317,130 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Discontinued operations: (note 7)           |       |                                  |       |                                |       |   |   |   |   |
| Loss from discontinued operations           |       | (1,296,647                            | )          | (57,000                             | )          | (2,704,030 | ) | (14,715 | ) |
| Loss from discontinued operations           |       | (1,296,647                            | )          | (57,000                             | )          | (2,704,030 | ) | (14,715 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Net loss (note2)                            |       | $                                     | (3,358,284 | )                                   | $          | (2,644,903 | ) | $ | (6,839,439 | ) | $ | (5,331,845 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Earnings (loss) per share:                  |       |                                  |       |                                |       |   |   |   |   |
| Basic                                       |       |                                  |       |                                |       |   |   |   |   |
| Continuing operations                       |       | $                                     | (0.20      | )                                   | $          | (0.24 | ) | $ | (0.39 | ) | $ | (0.50 | ) |
| Discontinued operations                     |       | $                                     | (0.12      | )                                   | $          | (0.01 | ) | $ | (0.25 | ) | $ | — |   |
| Net loss                                    |       | $                                     | (0.32      | )                                   | $          | (0.25 | ) | $ | (0.64 | ) | $ | (0.50 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Diluted                                     |       |                                  |       |                                |       |   |   |   |   |
| Continuing operations                       |       | $                                     | (0.20      | )                                   | $          | (0.24 | ) | $ | (0.39 | ) | $ | (0.50 | ) |
| Discontinued operations                     |       | $                                     | (0.12      | )                                   | $          | (0.01 | ) | $ | (0.25 | ) | $ | — |   |
| Net loss                                    |       | $                                     | (0.32      | )                                   | $          | (0.25 | ) | $ | (0.64 | ) | $ | (0.50 | ) |
|                                        |       |                                  |       |                                |       |   |   |   |   |
| Weighted average common shares outstanding: |       |                                  |       |                                |       |   |   |   |   |
| Basic                                       |       | 10,657,780                            |       | 10,726,305                          |       | 10,654,548 |   | 10,722,968 |   |
| Diluted (note4)                             |       | 10,657,780                            |       | 10,726,305                          |       | 10,654,548 |   | 10,722,968 |   |

 

See accompanying notes tounaudited interim financial statements.

 

4

----

 

**IBISTECHNOLOGY CORPORATION**

 

**STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                             | ** ** | **Six months ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                             | ** ** | **2004**                            | ** ** | **2005** | ** ** |
| ** **                                                                             | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **Cash flows from operating activities:**                                              | ** ** | ** **                          | ** ** | ** ** | ** ** |
| Net loss                                                                               |       | $                                   | (6,839,439 | ) | $ | (5,331,845 | ) |
| (Loss) from discontinued operations                                                    |       | (2,704,030                          | )          | (14,715 | ) |
| Loss from continuing operations                                                        |       | (4,135,409                          | )          | (5,317,130 | ) |
| Adjustments to reconcile net loss to net  cash provided by continuing operations:      |       |                                |       |   |   |
| Depreciation and amortization                                                          |       | 519,429                             |       | 944,353 |   |
| Changes in operating assets and  liabilities:                                          |       |                                |       |   |   |
| Accounts receivable, trade                                                             |       | 65,028                              |       | (28,641 | ) |
| Unbilled revenue                                                                       |       | 453,581                             |       | — |   |
| Inventories                                                                            |       | (1,114,659                          | )          | (165,881 | ) |
| Prepaid expenses and other current assets                                              |       | (124,435                            | )          | (20,597 | ) |
| Accounts payable                                                                       |       | 353,364                             |       | (23,159 | ) |
| Accrued liabilities and deferred revenue                                               |       | 4,650,635                           |       | 4,960,301 |   |
| Net cash provided by operating activities of  continuing operations                    |       | 667,534                             |       | 349,246 |   |
| ** **                                                                             |       |                                |       |   |   |
| **Cash flows from investing activities of  continuing operations:**                    |       |                                |       |   |   |
| Additions to property and equipment, net                                               |       | (11,398                             | )          | (87,563 | ) |
| Other assets                                                                           |       | (25,864                             | )          | 44,066 |   |
|                                                                                   |       |                                |       |   |   |
| Net cash used in investing activities of continuing  operations                        |       | (37,262                             | )          | (43,497 | ) |
| ** **                                                                             |       |                                |       |   |   |
| **Cash flows from financing activities of  continuing operations:**                    |       |                                |       |   |   |
| Exercise of stock options and warrants                                                 |       | 109,715                             |       | 21,093 |   |
|                                                                                   |       |                                |       |   |   |
| Net cash provided by financing activities  of continuing operations                    |       | 109,715                             |       | 21,093 |   |
|                                                                                   |       |                                |       |   |   |
| Net cash used for discontinued operations                                              |       | (959,567                            | )          | (13,588 | ) |
|                                                                                   |       |                                |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                  |       | (219,580                            | )          | 313,254 |   |
|                                                                                   |       |                                |       |   |   |
| Cash and cash equivalents, beginning of  period                                        |       | 14,174,716                          |       | 7,726,072 |   |
|                                                                                   |       |                                |       |   |   |
| Cash and cash equivalents, end of period                                               |       | $                                   | 13,955,136 |   | $ | 8,039,326 |   |
| ** **                                                                             |       |                                |       |   |   |
| **Supplemental disclosure of cash flow  information:**                                 |       |                                |       |   |   |
| Cash paid during the period for interest                                               |       | $                                   | 31,452     |   | $ | 536 |   |
| ** **                                                                             |       |                                |       |   |   |
| **Supplemental disclosure of non-cash  investing activities:**                         |       |                                |       |   |   |
| Transfer of internally constructed  equipment from property and equipment to inventory |       | $                                   | 3,674,903  |   | $ | — |   |

 

See accompanying notes to unauditedinterim financial statements.

 

5

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**IBISTECHNOLOGY CORPORATION**

 

**NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS**

** **

(1) Interim Financial Statements

 

The accompanying financial statements are unaudited andhave been prepared by Ibis Technology Corporation (the “Company” or “Ibis”) inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information and in accordance with theinstructions to Form 10-Q and Article 10 of Regulation S-X.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements.

 

In the opinion of management, the interim financialstatements include all adjustments, which consist only of normal and recurringadjustments, necessary for a fair presentation of the Company’s financialposition and results of operations. Results of operations for the interim periodsare not necessarily indicative of the results to be expected for the full year.These financial statements should be read in conjunction with the financialstatements of the Company as of and for the year ended December 31, 2004,which are included in the Company’s Annual Report on Form 10-K as filed onMarch 31, 2005.

 

(2) Summary of Significant Accounting Policies

 

*(a) Revenue Recognition*

 

The Company recognizes revenue from equipment salesand the sales of spare parts when all of the following criteria have beenmet:  (1) evidence exists that thecustomer is bound to the transaction; (2) the product (or service) hasbeen delivered to the customer and, when applicable, the product (or service)has been installed (and completed) and accepted by the customer; (3) thesales price to the customer has been fixed or is determinable; and (4) collectibilityof the sales price is reasonably assured. The Company recognizes revenue fromimplanter sales upon acceptance at the customer’s site. Revenue derived from contractsand services is recognized upon performance. Significant management judgmentsand estimates must be made and used in connection with revenue recognized inany period. Management analyzes various factors including a review of specifictransactions, historical experience, credit worthiness of customers and currentmarket and economic conditions. Changes in judgment based upon these factorscould impact the timing and amount of revenue and cost recognized.

 

*(b) Stock-Based Compensation*

 

The Company accounts for its stock option plans underthe recognition and measurement principles of APB Opinion No. 25, “Accountingfor Stock Issued to Employees, and Related Interpretations” and complies withthe disclosure provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”)and SFAS 148, “Accounting for Stock-Based Compensation Transition andDisclosure”. No stock-based compensation cost is reflected in net income (loss)for these plans, as all options granted under these plans had an exercise priceequal to the market value of the underlying common stock on the date of grant.The following table illustrates the effect on net income (loss) and income(loss) per share if we had applied the fair value recognition provisions ofSFAS No. 123  to stock-basedcompensation:

 
| ** **                                                                                                                           | ** ** | **For the Three Months Ended  June 30,** | ** ** | **For the Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | **2004**                                      | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                                                                                                 |       |                                          |       |                                        |       |   |   |   |   |
| Net loss, as reported                                                                                                                |       | $                                             | (3,358,284 | )                                           | $          | (2,644,903 | ) | $ | (6,839,439 | ) | $ | (5,331,845 | ) |
| Add: Stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |       | (339,404                                      | )          | (196,165                                    | )          | (602,740 | ) | (331,496 | ) |
| Pro-forma net loss                                                                                                                   |       | $                                             | (3,697,688 | )                                           | $          | (2,841,068 | ) | $ | (7,442,179 | ) | $ | (5,663,341 | ) |
| Net income (loss) per share:                                                                                                         |       |                                          |       |                                        |       |   |   |   |   |
| Basic and diluted – as reported                                                                                                 |       | $                                             | (0.32      | )                                           | $          | (0.25 | ) | $ | (0.64 | ) | $ | (0.50 | ) |
| Basic and diluted – pro-forma                                                                                                   |       | $                                             | (0.35      | )                                           | $          | (0.26 | ) | $ | (0.70 | ) | $ | (0.53 | ) |

 

The fair value of each stock option is estimated onthe date of grant using the Black-Scholes option valuation model

 

6

----

 

(c)  New Accounting Pronouncements

 

In December 2004, the FASB issued FASB Statement No. 123(revised 2004), “Shared-Based Payment.”Statement 123(R) addresses the accounting for share-based payment transactionsin which an enterprise receives employee services in exchange for (a) equityinstruments of the enterprise or (b) liabilities that are based on thefair value of the enterprise’s equity instruments or that may be settled by theissuance of such equity instruments. Statement 123(R) requires an entity torecognize the grant-date fair-value of stock options and other equity-basedcompensation issued to employees in the income statement. The revised Statementgenerally requires that an entity account for those transactions using thefair-value-based method, and eliminates the intrinsic value method ofaccounting in APB Opinion No. 25, “Accountingfor Stock Issued to Employees”, which was permitted under Statement 123,as originally issued.

 

The revised Statement requires entities to discloseinformation about the nature of the share-based payment transactions and theeffects of those transactions on the financial statements.

 

Statement 123(R) is effective for public companiesthat do not file as small business issuers as of the beginning of the firstinterim or annual reporting period that begins after December 15, 2005(i.e., first quarter 2006 for the Company). All public companies must useeither the modified prospective or the modified retrospective transitionmethod. Early adoption of this Statement for interim or annual periods forwhich financial statements or interim reports have not been issued isencouraged. The Company is currently evaluating the impact of the adoption ofthis Statement.

 

In November 2004, the FASB issued Statement No. 151,“Inventory Costs”, to amend theguidance in Chapter 4, “InventoryPricing”, of FASB Accounting Research Bulletin No. 43, “Restatement and Revision of AccountingResearch Bulletins.” Statement No. 151 clarifies the accounting forabnormal amounts of idle facility expense, freight, handling costs, and wastedmaterial (spoilage). The Statement requires that those items be recognized as current-periodcharges. Additionally, Statement 151 requires that allocation of fixedproduction overheads to the costs of conversion be based on the normal capacityof the production facilities. Statement No. 151 is effective for fiscalyears beginning after June 15, 2005. The Company is currently evaluatingthe impact of the adoption of this Statement.

 

(3) Liquidity

 

Historically, the Companyhas financed its operations and met its capital requirements through fundsgenerated from operations, the issuance of common stock, equipment lines ofcredit, a working capital line of credit, a term loan, sales-leasebackarrangements and collaborative arrangements. In July 2004, the Companydiscontinued its wafer manufacturing business, which was characterized by volatileproduction volumes and costs associated with periodic changes and continuingimprovements in the process. Because of this unpredictability, and because itwas also likely that additional capital investments would have to be made tokeep the wafer manufacturing process up to date, the Company decided todiscontinue the wafer manufacturing portion of the business in 2004 and tofocus exclusively on the equipment manufacturing business.  The Companywill maintain a research and development effort focused on continuousimprovement of the equipment capabilities and for supporting the Company’sequipment customers’ needs at what is expected to be a significantly reducedcost to the business going forward.

 

7

----

 

The Company believes it has reduced its monthly cashburn rate and believes it will generate sufficient cash from operations, basedon current forecasts, through at least the second quarter of 2006. During thesix months ended June 30, 2005, Ibis generated $0.3 million of cash fromcontinuing operations as compared to cash provided of $0.7 million for the sameperiod in 2004. To date, Ibis’ working capital requirements have been fundedprimarily through debt (capital leases) and equity financings. The principaluses of cash for the six months ended June 30, 2005 were to fundoperations and additions to property and equipment which totaled $88 thousand.At June 30, 2005, Ibis had commitments to purchase $0.3 million inmaterial to be used for the i2000 implanter currently planned for construction.

 

As part of our cash management plan the Companyannounced that it was discontinuing the wafer-manufacturing portion of thebusiness in the third quarter of 2004. In addition to eliminating future lossesexpected from this segment of the business the discontinuance of the wafermanufacturing operation resulted in the layoff of seventeen employees withexpected and realized cost savings of $0.3 million per quarter. Our headcountas of June 30, 2005 was 49 employees.

 

In September 2001, Ibis entered into a $4.5million equipment lease line with Heller Financial’s Commercial EquipmentFinance Group. The lease line was used to finance the purchase of processequipment for wafer production, primarily 300 mm wafers. This line was fullydrawn down in two sale-leaseback transactions, bearing interest atapproximately 8% with a term of three years, and a monthly net payment ofapproximately $0.1 million. Ibis had a fair market value purchase option at theend of the lease term. The lease-line ended in the third quarter of 2004 andthe Company exercised the fair market value purchase option at the negotiatedbuyout price of $0.9 million. The Company intends to use the majority of theequipment to support its ongoing process development efforts and anticipatesthat it will be able to sell a portion of the equipment purchased forapproximately $0.5 million.

 

The Company ended the second quarter of 2005 withapproximately $8.0 million in cash and cash equivalents and believes it will havesufficient cash on hand, including the remaining balance of 20% from the SUMCOorder announced in January 2005, to support operations at current levelsthrough the second quarter of 2006. Upon factory acceptance of this order,which was received on April 22, 2005, we invoiced and received from SUMCO80% of the purchase price of the system, or $4.8 million. Shipment of thisorder was made in the second quarter of 2005, with revenue recognition andreceipt of the final 20% of the purchase price based on final customeracceptance at the customer’s facility in Japan expected by year end.  The timing of final acceptance, receipt ofthe final 20% of the purchase price and revenue recognition may vary dependingon a number of factors, which include among other things tool performance atthe customer site.

 

The Company’s expectations regarding liquidity andcapital resources are based on current operating plans and the company’sgeneral sales outlook, each of which may change rapidly. The Company intends tocontinue to invest in research, development and manufacturing capabilities.Changes in technology or sales growth beyond currently established capabilitiesmight require further investment. Moreover, although Ibis is encouraged by thereceipt of the January 2005 order from SUMCO for an i2000 implanter andthe opportunity to work with leading wafer manufacturers like SUMCO to developfurther both the i2000 implanter and to improve the SIMOX process, SOItechnology is still in an early stage. Further adoption of the technology andtiming of future equipment orders are dependent on the continuing qualificationof implanters and improvement programs at the device manufacturers, among otherfactors. The timing of future orders is important and difficult to predict becausecustomers can delay orders and/or request early shipment, either of which couldcause the need for additional cash requirements. Forecasting future revenue, ona quarter-by-quarter basis, remains exceedingly difficult and significantvariations quarter to quarter are likely. We expect to continue to exploreequity offerings and other forms of financing and anticipate that we will berequired to raise additional capital in the future in order to finance futuregrowth and our research and development programs. There can be no assurancehowever, that our actual needs will not exceed expectations or that we will beable to fund our operations on a long-term basis in the absence of othersources. There also can be no assurance that any additional required financingwill be available through bank

 

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borrowings, debt or equity offerings or otherwise, or that if suchfinancing is available, that it will be available on terms acceptable to us.

 

**(4) Inventories**

 

Inventoriesconsist of the following:

 

| ** **                | ** ** | **December 31,  2004** | ** ** | **June 30,  2005** | ** ** |
|---------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Raw materials             |       | $                           | 3,622,501  |                    | $          | 3,517,222 |   |
| Work in process           |       | 57,330                      |       | 78,010                  |       |
| Finished goods            |       | 1,945,336                   |       | 2,195,816               |       |
| Total equipment inventory |       | $                           | 5,625,167  |                    | $          | 5,791,048 |   |

 

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

 

Net income (loss) per share of common stock iscomputed based upon the weighted average number of shares outstanding duringeach period and including the dilutive effect, if any, of stock options andwarrants. SFAS 128 requires the presentation of basic and diluted earnings(loss) per share for all periods presented. As the Company was in a net lossposition for the three and six months ended June 30, 2004 and June 30,2005, common stock equivalents of 71,853, 180,071, 27,631 and 82,914,respectively, were excluded from the diluted loss per share calculation, asthey would be antidilutive. As a result, diluted loss per share is the same asbasic loss per share for all periods presented.

 

**(6) Industry Segments**

 

The Company’s current reportable segments areSIMOX Equipment and Other Products or Services. The Company discontinued itswafer manufacturing operations during 2004. 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.

 

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The table below provides unauditedinformation for the three and six months ended June 30, 2004 and 2005pertaining to the Company’s two industry segments.

 
| ** **                                                   | ** ** | **SIMOX  Equipment** | ** ** | **Other Products  Or Services** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------|------------|----------------------|------------|---------------------------------|------------|------------|------------|
| **Net Revenue**                                              |       |                 |       |                            |       |       |       |
| Three Months Ended June 30, 2004                        |       | $                    | 120,589    |                            | $          | 82,664     |       | $ | 203,253 |   |
| Three Months Ended June 30, 2005                        |       | $                    | 103,059    |                            | $          | 95,861     |       | $ | 198,920 |   |
| Six Months Ended June 30, 2004                          |       | $                    | 238,246    |                            | $          | 172,915    |       | $ | 411,161 |   |
| Six Months Ended June 30, 2005                          |       | $                    | 201,480    |                            | $          | 164,095    |       | $ | 365,575 |   |
|                                                         |       |                 |       |                            |       |       |       |
| **Operating Income (Loss)**                                  |       |                 |       |                            |       |       |       |
| Three Months Ended June 30, 2004                        |       | (1,564,054           | )          | 77,455                          |       | (1,486,599 | )          |
| Three Months Ended June 30, 2005                        |       | (2,088,775           | )          | 95,861                          |       | (1,992,914 | )          |
| Six Months Ended June 30, 2004                          |       | (3,098,975           | )          | 160,764                         |       | (2,938,211 | )          |
| Six Months Ended June 30, 2005                          |       | (4,363,355           | )          | 164,095                         |       | (4,199,260 | )          |
|                                                         |       |                 |       |                            |       |       |       |
| **Assets**                                                   |       |                 |       |                            |       |       |       |
| June 30, 2005                                           |       | 13,481,376           |       | 51,175                          |       | 13,532,551 |       |
|                                                         |       |                 |       |                            |       |       |       |
| **Capital Expenditures**                                     |       |                 |       |                            |       |       |       |
| Three Months Ended June 30, 2004                        |       | —               |       | —                          |       | —     |       |
| Three Months Ended June 30, 2005                        |       | 41,272               |       | —                          |       | 41,272     |       |
| Six Months Ended June 30, 2004                          |       | 3,745                |       | —                          |       | 3,745      |       |
| Six Months Ended June 30, 2005                          |       | 87,563               |       | —                          |       | 87,563     |       |
|                                                         | ** ** | ** **           | ** ** | ** **                      | ** ** | ** ** | ** ** |
| **Depreciation and Amortization of Property  and Equipment** | ** ** | ** **           | ** ** | ** **                      | ** ** | ** ** | ** ** |
| Three Months Ended June 30, 2004                        |       | 225,651              | ** ** | **—**                      |       | 225,651    |       |
| Three Months Ended June 30, 2005                        |       | 444,131              |       | —                          |       | 444,131    |       |
| Six Months Ended June 30, 2004                          |       | 472,329              |       | —                          |       | 472,329    |       |
| Six Months Ended June 30, 2005                          |       | 917,682              |       | —                          |       | 917,682    |       |

 

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The tablebelow provides the reconciliation of reportable segment operating loss andassets to Ibis’ totals.

 
| ** **                                                   | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,     ** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------------------------------|------------|
| **Segment Reconciliation**                                   | ** ** | **2004**                              | ** ** | **2005**                                                     | ** ** | **2004** | ** ** | **2005** | ** ** |
|                                                         |       |                                  |       |                                                         |       |   |   |   |   |
| Loss Before Income Taxes:                                    |       |                                  |       |                                                         |       |   |   |   |   |
| Total operating loss for reportable  Segments                |       | $                                     | (1,486,599 | )                                                            | $          | (1,992,914 | ) | $ | (2,938,211 | ) | $ | (4,199,260 | ) |
| Corporate general & administrative  expenses        |       | (572,034                              | )          | (650,260                                                     | )          | (1,203,525 | ) | (1,211,874 | ) |
| Net other income                                             |       | (3,004                                | )          | 55,271                                                       |       | 7,583 |   | 95,260 |   |
| Income tax expense                                           |       | —                                |       | —                                                       |       | 1,256 |   | 1,256 |   |
| Loss from discontinued operations                            |       | (1,296,647                            | )          | (57,000                                                      | )          | (2,704,030 | ) | (14,715 | ) |
| Net loss                                                     |       | $                                     | (3,358,284 | )                                                            | $          | (2,644,903 | ) | $ | (6,839,439 | ) | $ | (5,331,845 | ) |
| Capital Expenditures:                                        |       |                                  |       |                                                         |       |   |   |   |   |
| Total capital expenditures for reportable  segments          |       | $                                     | —     |                                                         | $          | 41,272 |   | $ | 3,745 |   | $ | 87,563 |   |
| Corporate capital expenditures                               |       | 5,203                                 |       | —                                                       |       | 7,653 |   | — |   |
| Total capital expenditures                                   |       | $                                     | 5,203      |                                                         | $          | 41,272 |   | $ | 11,398 |   | $ | 87,563 |   |
|                                                         |       |                                  |       |                                                         |       |   |   |   |   |
| Depreciation and Amortization:                               |       |                                  |       |                                                         |       |   |   |   |   |
| Total depreciation and amortization for  reportable segments |       | $                                     | 225,651    |                                                         | $          | 444,131 |   | $ | 472,329 |   | $ | 917,682 |   |
| Corporate depreciation and amortization                      |       | 25,776                                |       | 12,384                                                       |       | 47,100 |   | 26,671 |   |
| Total depreciation and amortization                          |       | $                                     | 251,427    |                                                         | $          | 456,515 |   | $ | 519,429 |   | $ | 944,353 |   |

 
| ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | **Balance as of  6/30/05** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|------------|------------|----------------------------|------------|------------|------------|
|                                                        |       |       |       |       |       |                       |       |       |       |
| Assets:                                                     |       |       |       |       |       |                       |       |       |       |
| Total assets for reportable segments                        |       |       |       |       |       | $                          | 13,532,551 |       |       |   |
| Cash & cash equivalents not  allocated to segments |       |       |       |       |       | 8,039,326                  |       |       |       |
| Other unallocated assets                                    |       |       |       |       |       | 209,331                    |       |       |       |
| Total assets                                                |       |       |       |       |       | $                          | 21,781,208 |       |       |   |

 

**(7) Loss From Discontinued Operations**

 

On July 21, 2004 the Company announced itsintention to discontinue its wafer manufacturing business. This wafer businesshad been highly concentrated on providing wafers for the Company’s largestcustomer, and was characterized by very volatile production volumes and costsassociated with periodic changes and continuing improvements to themanufacturing process. The wafer demand from our largest customer had beenhighly volatile. The result was a wafer business that was neither predictablenor profitable. Principally for these reasons, and because it also was likelythat additional capital investment would have had to have been made to keep ourwafer manufacturing process up to date, the Company decided to exit the wafermanufacturing business and focus exclusively on the equipment business. TheCompany will maintain a research and development effort relating to wafers forour equipment improvement programs. In the first six months of 2005, theCompany recognized a net loss on disposal of assets from the discontinuedoperations of approximately $15 thousand.

 

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**(8) Legal Proceedings**

 

Five class action securities lawsuits have been filedin the United States District Court in the District of Massachusetts againstIbis and its President and CEO: Martin Smolowitz v. Ibis TechnologyCorporation., et al., Civ. No. 03-12613 (RCL)(D. Mass.); Fred Den v. Ibis Technology Corporation., et al., Civ. No. 04-10060(RCL) (D. Mass.); Weinstein v. Ibis Technology Corporation., et al., Civ. No. 04-10088(RCL) (D. Mass.); George Harrison v. Ibis Technology Corporation., et al., Civ.No. 04-10286 (RCL) (D. Mass.); and Eleanor Pitzer v. Ibis TechnologyCorporation., et al, Civ. No. 04-10446 (RCL) (D. Mass.). On June 4,2004, the Court entered an order consolidating these actions under the captionIn re Ibis Technology Securities Litigation, C.A. 04-10446 RCL. In July, 2004,a consolidated amended class action complaint was filed which alleges, amongother things, that the Company violated federal securities laws by allegedlymaking misstatements to the investing public relating to demand for certainIbis products and intellectual property issues relating to the sale of thei2000 oxygen implanter. The plaintiffs are seeking unspecified damages. On August 5,2004, we filed a motion to dismiss the consolidated amended complaint on thegrounds, among others, that it failed to state a claim on which the reliefcould be granted. That motion now has been fully briefed. While we believe thatthe allegations are without merit, and we intend to vigorously defend againstthe suits, there can be no guarantee as to how they ultimately will beresolved.

 

In addition, Ibis has been named as a nominaldefendant in a shareholder derivative action filed in February 2004against certain of its directors and officers: Louis F. Matheson, Jr. v.Martin J. Reid et al., Civ. Act. No. 04-10341 (RCL). The complaintalleges, among other things, that the alleged conduct challenged in the securitiescases pending against Ibis in Massachusetts (described above) constitutes abreach of the defendants’ fiduciary duties to Ibis. The complaint seeksunspecified money damages and other relief ostensibly on behalf of Ibis. On June 4,2004, the Court entered an order staying this matter pending the entry of afinal order on any motion filed by the Company to dismiss the consolidatedclass action complaint referenced above.

 

Litigation may be time-consuming, expensive anddisruptive to normal business operations, and the outcome of litigation isdifficult to predict. An unfavorable resolution of these litigation matterscould have a material adverse effect on our business, results of operations andfinancial condition.

 

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**OVERVIEW**

 

Ibis Technology Corporation(“Ibis”) was formed in October 1987 and commenced operations in January 1988.Ibis’ initial activities consisted of producing and selling SIMOX-SOI wafersand conducting research and development activities. This effort led to thedevelopment of proprietary oxygen implanters, the Ibis 1000, which we beganselling in 1996, the next generation implanter, the i2000ä, which webegan selling in 2002, and also to other proprietary process technology.

 

Initially, much of ourrevenue was derived from research and development contracts and sales of wafersfor military applications. Over the years, the Company decided to focus itsbusiness operations and sales strategy on the manufacture and sale of ourimplanter equipment products and de-emphasized the sale of wafers given that,among other things, we believed that the wafer manufacturing companies were inthe best position to manufacture SIMOX-SOI wafers using our implanter equipmentin light of their expertise and operating efficiencies. As we announced on July 21,2004, we exited the wafer manufacturing business. Wafer product sales, as wellas wafer revenue reported in previous quarters, are reported net of associatedcosts, as loss from discontinued operations on our income statement. TheCompany believes that its decision to discontinue the wafer business permitsbroader strategic collaboration efforts between Ibis and the wafermanufacturers. The Company also believes elimination of wafer manufacturing andassociated sales at Ibis potentially allows our primary customers theopportunity to supply additional wafer volume with better quality and at lowercost to their end customers. We believe this has the potential to lead to theplacement of additional SIMOX SOI equipment orders, and to accelerate customeracceptance of our technology.

 

 The Company’s final disposal plans relative tothe closure of the wafer manufacturing operation resulted in a loss fromdisposal of inventory and certain production assets from discontinuedoperations of approximately $2.1 million. This loss combined with the negativemargin incurred by the wafer manufacturing business in 2004 of approximately$3.2 million resulted in the total loss from discontinued operations ofapproximately $5.3 million. Our wafer business had been highly concentrated onproviding wafers for the Company’s largest customer, and was characterized byvolatile production volumes and costs associated with periodic changes andcontinuing improvements to the process. Our major wafer customer had tended toorder fluctuating quantities of wafers on an irregular basis. This customer alsocould revise or cancel orders at any time prior to delivery. This meant thatthis customer, who had accounted for a significant portion of our net revenuein the past, could have reduced or decided not to place any orders in thesucceeding quarter or quarters. Furthermore, most of our other wafer customersat the time were sampling SIMOX wafers or are in the process of developingprototype products and had also tended to order small quantities of wafers onan irregular basis. These customers could also revise or cancel orders at anytime prior to delivery. Because of this unpredictability, and because it wasalso likely that additional capital investments would have to be made to keepour wafer manufacturing process up to date (among other factors), we decided todiscontinue the wafer manufacturing portion of the business in July 2004and to focus exclusively on our equipment business. We will maintain a researchand development effort relating to wafers for our equipment improvementprograms. Ibis has experienced quarterly and annual fluctuations in revenue andresults of operations due to various factors, including (i) the timing ofreceipt of equipment orders, and (ii) dependence on a limited number ofcustomers.

 

We believe that a migrationof SOI wafer manufacturing into the major silicon wafer suppliers is takingplace. We reach this conclusion for a number of reasons. First, we believe thattremendous price pressure exists on commodity type products, such as siliconwafers, and this pressure is already eroding future price expectations of SOIwafers. Because the starting wafer represents a significant component of theSOI wafer cost, we believe that 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. We believethat this should give them an advantage in both minimizing

 

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wafer cost and maximizing SOI wafer quality and yield. Fourth, ourexperience suggests that silicon wafer manufacturers already have awell-developed infrastructure for manufacturing, sale and marketing of largevolumes of substrates. Lastly, we believe that there is greater efficiency inproducing the SOI wafer as part of the wafer manufacturers existing productflow, specifically avoiding the need to repackage, re-clean, re-inspect andre-ship substrates twice, once as starting silicon wafers, and a second time asSOI wafers. Therefore, as a result of these trends, we expect our ultimatecustomers will be drawn from these silicon wafer manufacturers and we plan tofocus a majority of our technical and marketing resources on the sale ofimplanters to the leading silicon wafer manufacturers and our key customers inthe semiconductor industry who we believe are the leaders in the adoption ofSOI technology. We expect that implanter sales to chipmakers should be minimal,and that these sales will be focused on SOI processes that the chipmaker wishesto keep proprietary, such as selective (or patterned) SIMOX, or other specialtysubstrates.

 

Our fundamental SIMOX-SOI technology has beendeveloped, refined, and tested over the last dozen years. In 2002, weintroduced the current generation of SIMOX-SOI technology, that included oursecond-generation oxygen implanter (i2000ä),and the MLD wafer process which was licensed to us by IBM. We believe that thei2000’s flexibility, automation and operator-friendly controls allow this toolto produce a wide range of SIMOX-SOI wafer products using a range ofmanufacturing processes, including Advantox® MLD and Advantox MLD-UTwafers. 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.Customers who purchase the i2000 can utilize more than one SIMOX wafer manufacturingprocesses on the implanter including the IBM MLD process, when licensed, aswell as other SIMOX-SOI wafer manufacturing processes that do not require theIBM license.

 

Because we have sold only a limited number ofimplanters to date on an irregular basis, the recognition of revenue from thesale of even one implanter is likely to result in a significant increase in therevenue during that quarter. We recognize implanter revenue in accordance withSAB 104, which includes, among other criteria, the shipment and final customeracceptance of the implanter at the customer’s location. As a result, deferralof implanter revenue will be recorded on our balance sheet until the Company isable to meet these criteria.

 

In January 2005,we announced the booking (i.e. receipt) of an order for one Ibis i2000 SIMOXimplanter from SUMCO, a leading international silicon wafer manufacturer. Thissystem was shipped in the second quarter of 2005 after factory acceptance ofthe tool in April 2005 at our facility by the customer. Revenuerecognition for this implanter will be based on final customer acceptance attheir facility, the timing of which may vary depending on a number of factors,including performance of the tool.

 

**Critical Accounting Policies**

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that have asignificant impact on the results we report in our financial statements. Someof our accounting policies require us to make difficult and subjectivejudgments, often as a result of the need to make estimates on matters that areinherently uncertain. Our most critical accounting policies include: revenuerecognition, inventory valuation and reserves, accounts receivable reserves andthe assessment of long-lived asset impairment. Actual results may differ fromthese estimates under different assumptions or conditions. Below, we discussthese policies further, as well as the estimates and judgments involved

 

***Revenue Recognition. ***We recognize revenue from equipment sales and thesales of spare parts when all of the following criteria have been met: (1) evidenceexists that the customer is bound to the transaction; (2) the product hasbeen delivered to the customer and, when applicable, the product has beeninstalled and accepted by the customer; (3) the sales price to thecustomer has been fixed or is determinable; and (4) collectibility of thesale price is reasonably assured. We recognize revenue from implanter salesupon final customer acceptance at the customer’s site. Revenue

 

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derived from contracts and services is recognized uponperformance. Significant management judgments and estimates must be made andused in connection with revenue recognized in any period. Management analyzesvarious factors, including a review of specific transactions, historicalexperience, credit worthiness of customers and current market and economic conditions.Changes in judgment based upon these factors could impact the timing and amountof revenue and cost recognized.

 

***Inventory Valuation andReserves. ***Our policy for the valuation ofinventory, including the determination of obsolete or excess inventory,requires us to forecast the future demand for our products within specific timehorizons, generally twelve months or less. If our forecasted demand forspecific products is greater than actual demand and we fail to reducemanufacturing output accordingly, we could be required to record additionalinventory reserves, which would have a negative impact on our gross margin. Wehave reserved for obsolescence when engineering changes or other technologicaladvances indicate that obsolescence has occurred.  With the discontinuance of the wafermanufacturing business and the write-off of all inventory, the focus is now onthe reserves required for equipment part inventory.

 

***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.

 

***Valuation of Long-LivedAssets. ***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-LivedAssets.  Management is required to assessthe recoverability of its long-lived assets whenever events and circumstancesindicate that the carrying value may not be recoverable. Based on current conditions,factors we consider important and that could trigger an impairment reviewinclude the following:

 

•                  Significant underperformance relative to expectedhistorical or projected future operating results;

•                  Significant changes in the manner of our use of theacquired assets or the strategy of our overall business;

•                  Significant negative industry or economic trends;

•                  Significant decline in our stock price for a sustainedperiod; and

•                  Our market capitalization relative to book value.

 

In accordance with SFAS No. 144, when we determine that thecarrying value of applicable long-lived assets may not be recoverable basedupon the existence of one or more of the above indicators of impairment, weevaluate whether the carrying amount of the asset exceeds the sum of theundiscounted cash flows expected to result from the use and eventualdisposition of that asset. If such a circumstance exists, we would measure animpairment loss to the extent the carrying amount of the particular long-livedasset or group exceeds its fair value. We would determine the fair value basedon a projected discounted cash flow method using a discount rate determined byour management to be commensurate with the risk inherent in our currentbusiness model. We adopted SFAS No. 144 during the first quarter of 2002and during the fourth quarter of 2003 we recognized an impairment charge of$11.1 million for our 200 mm and smaller SIMOX wafer production line. Wedetermined the fair market value of the assets as described above. Theremaining value of this line, along with other assets associated with wafermanufacturing were charged to the loss from discontinued operations in 2004that resulted in a charge of $5.3 million. The impairment charge of $11.1million was composed

 

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of $10.9 million for Property and Equipment and $.2 million forInventory related to the Company’s smaller size wafer manufacturing business.The Property and Equipment had an acquired value of $22.2 million, accumulateddepreciation of $10.7 million, and net book value of $11.5 million. Animpairment charge of $10.9 reduced this to a carrying value of $.6million.  We have physically scrapped themajority of the equipment included in the assets upon which the impairmentcharge was based, on discontinuance of the wafer operation where this equipmentwas used. Any such items that were sold prior to, or that we sell after thediscontinued operations period expires were or will be recorded asmiscellaneous income and expense and classified as Other Income on our Statementof Operations in the period that they were/are sold. Such items that were soldor scrapped during the time we recorded discontinued operations on ourStatement of Operations were/will be recorded net of their cost asmiscellaneous income or expense and were classified as discontinued operationson our Statement of Operations in the period the event took place.  We are continuing to attempt to sell atnominal values several remaining pieces of equipment that third parties haveindicated interest in. 

 

**Results ofOperations**

** **

***Second Quarter ended June 30,2005 compared to second quarter ended June 30, 2004***

 

***Contract and Other Revenue***.  Contract and other revenue includes revenuederived from license agreements, characterization and other services.  Contract and other revenue increased for thesecond quarter ended June 30, 2005 to $96 thousand from $83 thousand forthe second quarter ended June 30, 2004, an increase of $13 thousand or16%. This increase is attributable to increased license revenue from royaltyfees related to equipment technology.

 

***Equipment Revenue. ***Equipment revenue represents revenue recognized fromsales of implanters, spare parts and field service revenue. Equipment revenuedecreased to $103 thousand for the second quarter ended June 30, 2005 from$121 thousand for the second quarter ended June 30, 2004, a decrease of$18 thousand or 15%. Field service revenue accounted for $36 thousand ofequipment revenue for the second quarter ended June 30, 2005 as comparedto $79 thousand of equipment revenue for the same period last year. Sales ofspare parts accounted for $67 thousand of equipment revenue for the secondquarter ended June 30, 2005 as compared to $42 thousand of equipmentrevenue for the second quarter ended June 30, 2004. Sales of spare partsfluctuate depending on customer demand and customer warranty expiration dates.

 

***Total Net Sales and Revenue***. Total net revenue for the second quarter ended June 30, 2005 was$199 thousand, a decrease of $4 thousand, or 2%, from total net revenue of $203thousand for the second quarter ended June 30, 2004. This decrease is dueto a reduction in field service revenue in an amount equal to $13 thousand,which was offset by an increase in sales of spare parts and license revenue inan amount equal to $17 thousand.

 

***Total Cost of Sales and Revenue***. Cost of equipment revenue represents the cost of equipment and spareparts, along with labor incurred for field service. Cost of equipment revenuefor the second quarter ended June 30, 2005 was $222 thousand, as comparedto $ 372 thousand for the second quarter ended June 30, 2004. Thisdecrease of $150 thousand or 40% was primarily due to equipment materialscrapped due to obsolescence of approximately $148 thousand in the secondquarter ended June 30, 2004.

 

Total cost of sales and revenue including contract andother revenue as well as equipment revenue mentioned above for the secondquarter ended June 30, 2005 was $222 thousand as compared to $378 thousandfor the second quarter ended June 30, 2004, a decrease of $156 thousand or41%. The gross margin for all sales was a negative 12% for the second quarterended June 30, 2005 as compared to a negative gross margin of 86% for thesecond quarter

 

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ended June 30, 2004. This increase in the gross margin for allsales is attributable to the absence of equipment material scrapped due toobsolescence in the second quarter ended June 30, 2005.

 

***General and AdministrativeExpenses***.  General and administrative expenses for thesecond quarter ended June 30, 2005 were $0.7 million as compared to $0.6million for the second quarter ended June 30, 2005, an increase of $0.1million, or 14%. This is due to increased professional services of $103thousand, comprised of an increase in consulting fees primarily for SarbanesOxley compliance of $33 thousand, an increase in auditing fees of $27 thousandand an increase in legal fees of $37 thousand. Additionally securitiescompliance of $19 thousand and payroll and payroll related expenses of $29thousand were partially offset by an decrease of D&O insurance of $42thousand and travel expenses of $10, thousand, along with the reduction ofother various expenses.

 

***Marketing and Selling Expenses***. Marketing and selling expenses for the second quarter ended June 30,2005 were $0.4 million as compared to $0.4 million for the second quarter endedJune 30, 2004. Decreased promotional expenses of $35 thousand, decreasedoccupancy expense of $15 thousand from consolidation of space, decreaseddepreciation and amortization of $12 thousand along with the reduction of othervarious expenses were partially offset by an increase in payroll and payrollrelated expenses of $36 thousand and severance expense of $15 thousand relatedto the layoff of two employees in the quarter.

 

***Research and DevelopmentExpenses.***  Internally funded research and developmentexpenses increased by $0.6 million or 77% to $1.6 million for the secondquarter ended June 30, 2005, as compared to $0.9million for the secondquarter ended June 30, 2004. This is due to wafer research and developmentcosts of $0.7 million that were previously a part of wafer cost of sales butare now supporting equipment development. This was partially offset by reduceddepreciation of $70 thousand, reduced wafer R&D material of $54 thousandand the reduction of other miscellaneous research and development spending.

 

***Other Income (Expense)*.**  Total other income for the second quarterended June 30, 2005 was $55 thousand as compared to an expense of $3thousand for the second quarter ended June 30, 2004, an increase of $58thousand. The increase in total other income is attributable to the interestincome increase of $32 thousand due to increased interest rates on investmentsand a decrease in interest expense by $19 thousand due to the termination of afinancing arrangement, along with and increase in miscellaneous income of $7thousand.

 

***Gain (loss) From DiscontinuedOperations.***Discontinued operations generated anet loss of $57 thousand in the second quarter ended June 30, 2005 ascompared to a net loss for the second quarter ended June 30, 2004 of $1.3million. The net loss of $57 thousand is the result of the write off of $131thousand for an asset that was previously being held for sale and was partiallyoffset by scrap recovery in the second quarter ended June 30, 2005 ascompared to the operating loss incurred by the discontinued wafer manufacturingportion of the business in the second quarter ended June 30, 2004.

 

***Six Months Ended June 30, 2005 Comparedto Six Months Ended June 30, 2004***

 

***Contract and Other Revenue***. Contract and other revenue includes revenue derived from licenseagreements, characterization and other services.  Contract and other revenue was $0.2 millionfor both the six months ended June 30, 2005 and 2004.

 

***Equipment Revenue. ***Equipment revenue represents revenue recognized fromsales of implanters, spare parts and field service revenue. Equipment revenuewas $0.2 million for both the six months ended June 30, 2005 and 2004.Field service revenue accounted for $94 thousand of equipment revenue for thesix months ended June 30, 2005 as compared to $156 thousand of equipmentrevenue for the same period last year. Sales of spare parts accounted for $107thousand of equipment revenue for the six months ended June 30, 2005 ascompared to $82 thousand of equipment

 

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revenue for the six months ended June 30, 2004.Sales of spare parts fluctuate depending on customer demand and customerwarranty expiration dates.

 

***Total Net Sales and Revenue***.  Total net revenue for the six months ended June 30,2005 was $0.4 million compared to net revenue of $0.4 million for the sixmonths ended June 30, 2004.

 

***Total Cost of Sales and Revenue***.  Costof equipment revenue represents the cost of equipment and spare parts, alongwith labor incurred for field service. Cost of equipment revenue for the sixmonths ended June 30, 2005 was $0.5 million, compared to $0.6 million forthe six months ended June 30, 2004. The decrease of $0.1 million wasprimarily due to equipment material scrapped due to obsolescence in the sixmonths ended June 30, 2004.

 

Total cost of sales and revenue for the six monthsended June 30, 2005 was $0.5 million compared to $0.7 million for the sixmonths ended June 30, 2004, a decrease of $0.2 million or 28%. The grossmargin for all sales was a negative 43% for the six months ended June 30,2005 as compared to a negative gross margin of 73% for the six months ended June 30,2004. The improvement in the gross margin is attributable to equipment materialscrapped due to obsolescence in the six months ended June 30, 2004.

 

***General and AdministrativeExpenses***. General and administrative expenses for the six months ended June 30,2005 were $1.2 million compared to $1.2 million for the six months ended June 30,2004.  Decreased D&O insurance of $83thousand, decreased taxes of $31 thousand, decreased securities compliance of$30 thousand, and other miscellaneous items of approximately $64 thousand werepartially offset by an increase of professional services of $149 thousand andpayroll and payroll related expenses of $67 thousand.

 

***Marketing and Selling Expenses***.  Marketing and selling expenses wereconsistent at $0.8 million for the six months ended June 30, 2005 and2004. Increased payroll and payroll related expenses of $104 thousand, andsubcontractor costs associated with our service group in Japan, which increasedby $42 thousand were partially offset by a reduction in promotional expenses of$45 thousand, occupancy expenses of $25 thousand and travel expense of $14thousand during the six month period ended June 30, 2005.

 

***Research and DevelopmentExpenses.*** Internally funded research and development expenses increased by $1.4million or 74%, to $3.3 million for the six months ended June 30, 2005, ascompared to $1.9 million for the six months ended June 30, 2004. This isdue to wafer research and development costs of $1.5 million that werepreviously a part of wafer cost of sales but are now supporting equipmentdevelopment, and increased repair costs of $0.2 million. This was partiallyoffset by reduced wafer material of $0.2 million, reduced depreciation of $0.1million and other miscellaneous research and development spending.

 

***Other Income (Expense)*.**  Total other income for the six months ended June 30,2005 was $95 thousand as compared $8 thousand for the six months ended June 30,2004, an increase of $87 thousand. The increase in total other income isattributable to the interest income increase of $49 thousand due to increasedinterest rates on investments and a decrease in interest expense by $30thousand due to the termination of a financing arrangement, along with anincrease in miscellaneous income of $8 thousand.

 

***Gain (loss) From DiscontinuedOperations.***Discontinued operations generated anet loss of $15 thousand in the six months ended June 30, 2005 as comparedto a net loss for the six months ended June 30, 2004 of $2.7 million. Thenet loss of $15 thousand is the result of the write off of approximately $0.1million for an asset that was previously being held for sale and was partiallyoffset by scrap recovery in the six months ended June 30, 2005 as comparedto the operating loss incurred by the discontinued wafer manufacturing portionof the business in the six months ended June 30, 2004.

 

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#### **Liquidity andCapital Resources**

 

As of June 30, 2005, Ibis had cash andcash equivalents of approximately $8.0 million The Company believes it hasreduced its monthly cash burn rate and believes it will generate sufficientcash from operations, based on current forecasts, through at least the secondquarter of 2006. During the six months ended June 30, 2005, Ibis provided$0.3 million of cash from operating activities of continuing operations ascompared to cash provided of $0.7 million for the same period in 2004. To date,Ibis’ working capital requirements have been funded primarily through debt(capital leases) and equity financings. The principal uses of cash for the sixmonths ended June 30, 2005 were to fund operations and additions toproperty and equipment which totaled $88 thousand. At June 30, 2005, Ibishad commitments to purchase $0.3 million in material to be used for the i2000implanter currently planned for construction and general operating expenses.

 

As part of our cash management plan the Companyannounced that it was discontinuing the wafer manufacturing portion of thebusiness in the third quarter of 2004. In addition to eliminating future lossesexpected from this segment of the business the discontinuance of the wafermanufacturing operation resulted in the layoff of seventeen employees withexpected and realized cost savings of 0.3 million per quarter. Our headcount asof June 30, 2005 was 49 employees.

 

In September 2001, Ibis entered into a $4.5million equipment lease line with Heller Financial’s Commercial EquipmentFinance Group. The lease line was used to finance the purchase of processequipment for wafer production of primarily 300 mm wafers. This line was fullydrawn down in two sale-leaseback transactions, bearing interest atapproximately 8% with a term of three years, and a monthly net payment ofapproximately $0.1 million. Ibis had a fair market value purchase option at theend of the lease term. The lease-line ended in the third quarter of 2004 andthe Company exercised the fair market value purchase option at the negotiatedbuyout price of $0.9 million. The Company intends to use the majority of the equipmentto support its ongoing process development efforts and anticipates that it willbe able to sell a portion of the equipment purchased for approximately $0.5million.

 

The Company ended the second quarter of 2005 withapproximately $8.0 million in cash and cash equivalents and believes it willhave sufficient cash on hand, including the remaining balance of 20% from theSUMCO order announced in January 2005, to support operations at currentlevels through the second quarter of 2006. Upon factory acceptance of thisorder, which was obtained on April 19, 2005 we invoiced and receivedpayment of 80% of the purchase price of the system, or $4.8 million. Shipmentof this order was made in the second quarter of 2005, with revenue recognitionand receipt of the final 20% of the purchase price based on final customeracceptance at the customer’s facility in Japan expected by year end. The timingof final acceptance, receipt of the final 20% of the purchase price and revenuerecognition may vary depending on a number of factors, which include amongother things tool performance at the customer site.

 

The Company’s expectations regarding liquidity andcapital resources are based on current operating plans and the Company’sgeneral sales outlook, each of which may change rapidly. The Company intends tocontinue to invest in research, development and manufacturing capabilities.Changes in technology or sales growth beyond currently established capabilitiesmay require further investment. Moreover, although Ibis is encouraged by thereceipt of the January 2005 order from SUMCO for an i2000 implanter andthe opportunity to work with leading wafer manufacturers like SUMCO to developfurther both the i2000 implanter and to improve the SIMOX process, SOItechnology is still in an early stage. Further adoption of the technology andtiming of future equipment orders are dependent on the continuing qualificationof implanters and improvement programs at the device manufacturers, among otherfactors. The timing of future orders is important and difficult to predictbecause customers can delay orders and/or request early shipment, either ofwhich could cause the need for additional cash requirements. 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 wewill be required to raise additional capital in the future in order to financefuture growth and our

 

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research and development programs. There can be no assurance, however,that our actual needs will not exceed expectations or that we will be able tofund our operations on a long-term basis in the absence of other sources. Therealso can be no assurance that any additional required longer term financingwill be available through additional bank borrowings, debt or equity offeringsor otherwise, or that if such financing is available, that it will be availableon terms acceptable to us.

 

**Business Risk Factors**

 

This Form 10-Q contains express or impliedforward-looking statements within the meaning of the “safe harbor” provisionsof the Private Securities Litigation Reform Act of 1995 that relate to futureevents or our future financial performance. In some cases, you can identifyforward-looking statements by terminology, such as “may,” “will,” “should,” “could,”“expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,”“potential” or “continue” or the negative of such terms or other comparableterminology, although not all forward-looking statements contain such terms. Inaddition, these forward-looking statements include, but are not limited to,statements regarding, among other things: (i) the **on-site acceptance of the i2000 implanter ordered bySUMCO****,****(ii) attaining implanter improvements to thedegree and in the timeframe necessary to meet SUMCO’s expectations, (iii) the timing and likelihood of revenue recognition on that implanter, (iv) thetiming of SUMCO’s ramping to production quantities on the i2000 implanter, (v) c**ustomer interest in and demand for, andmarket acceptance of, the Company’s SIMOX-SOI technology including the Company’simplanters, and the involvement generally of the silicon wafer manufacturingindustry in the SOI wafer market, (vi) **the Company’s ability to conduct its operations in amanner consistent with its current plan and existing capital resources orotherwise to obtain additional implanter orders or to secure financing tocontinue as a going concern, (vii) the timing and likelihood of revenuerecognition on orders for the Company’s implanters, (viii) the timing andimpact of the Company’s decision to discontinue its wafer manufacturing andsales operation, (ix) **the Company’s belief that wafer manufacturers willbecome the primary suppliers ofSIMOX-SOI wafers to the chipmaking industry, (x) the throughput and productioncapacity of the i2000 implanter for manufacturing 200-mm and 300-mm SIMOX-SOIwafers, attaining implanter improvements to the degree and in the timeframenecessary to meet customer expectations, and the ability of the i2000 implanterto achieve acceptable production yields, (xi) the Company’s plan to focus onsupplying implanters to wafer manufacturers, (xii) the Company’s expectationsregarding future orders for i2000 implanters, and the likelihood and timing ofrevenue recognition on such sales, (xiii) the Company’s expectation regardingfuture willingness of wafer manufacturers to purchase equipment from theCompany, (xiv) the technological advancements and the adoption rate of SOItechnology, and (xv) the Company’s expectation of having sufficient cash foroperations. Such statements are neither promises nor guarantees but rather aresubject to risks and uncertainties, which could cause actual results to differmaterially from those described in the forward-looking statements. Such risksand uncertainties include, but are not limited to: future continued migrationto SOI technology and market acceptance of SIMOX; the level of demand for theCompany’s products; the Company’s ability to pursue and maintain furtherstrategic relationships, partnerships and alliances with third parties; theCompany’s ability to protect its proprietary technology; the potential trendsin the semiconductor industry generally; 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 withoutsubstantial delay, modification, or cancellation, in whole or in part; thelikelihood and timing of revenue recognition on such transactions; the impactof competitive products, technologies and pricing; the impact of rapidlychanging technology; the possibility of further asset impairment and resultingcharges; equipment capacity and supply constraints or difficulties; the Company’slimited history in selling implanters; general economic conditions; and otherrisks and uncertainties described elsewhere in this Form 10-Q and in theCompany’s Securities and Exchange Commission filings from time to time,including but not limited to those set forth in the Company’s annual report on Form 10-Kfor the year ended December 31, 2004. All information set forth in this Form 10-Qis as of the date of this Form 10-Q, and Ibis undertakes no duty to updatethis information, unless required by law.

 

**Effects of Inflation**

 

Ibis believes that over the past three years inflationhas not had a significant impact on Ibis’ sales or operating results.

 

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I – ITEM3**

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

The exposure of market risk associated withrisk-sensitive instruments is not material to the Company, as the Company doesnot transact its sales denominated in other than United States dollars, investsprimarily in money market funds and short-term commercial paper, holds itsinvestments until maturity and has not entered into hedging transactions.

 

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I – ITEM4**

 

**CONTROLS AND PROCEDURES**

 

(a)          Evaluation of DisclosureControls and Procedures.  As of June 30,2005, the Company’s management, with the participation of its principalexecutive officer and principal financial officer, evaluated the effectivenessof the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) promulgatedunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, the Company’sChief Executive Officer and Chief Financial Officer concluded that, as of June 30,2005, the Company’s disclosure controls and procedures were effective inensuring that material information required to be disclosed by the Company inthe reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms, including ensuringthat such material information is accumulated and communicated to the Company’smanagement, including the Company’s Chief Executive Officer and the Company’sChief Financial Officer, as appropriate to allow timely decisions regarding requireddisclosure.

 

(b)         Changes in InternalControls. There were no changes in our internal control over financialreporting, identified in connection with the evaluation of such internalcontrol that occurred during our last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**IBIS TECHNOLOGY CORPORATION**

 

**PART II**

 

**OTHERINFORMATION**

 

Item 1 - Legal Proceedings

 

Five class action securities lawsuits have been filedin the United States District Court in the District of Massachusetts againstIbis and its President and CEO: Martin Smolowitz v. Ibis TechnologyCorporation., et al., Civ. No. 03-12613 (RCL) (D. Mass.); Fred Den v. IbisTechnology Corporation., et al., Civ. No. 04-10060 (RCL) (D. Mass.);Weinstein v. Ibis Technology Corporation., et al., Civ. No. 04-10088 (RCL)(D. Mass.); George Harrison 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.). On June 4, 2004, the Courtentered an order consolidating these actions under the caption In re IbisTechnology Securities Litigation, C.A. 04-10446 RCL. In July 2004, aconsolidated amended class action complaint was filed which alleges, amongother things, that the Company violated federal securities laws by allegedlymaking misstatements to the investing public relating to demand for certainIbis products and intellectual property issues relating to the sale of thei2000 oxygen implanter. The plaintiffs are seeking unspecified damages. On August 5,2004, we filed a motion to dismiss the consolidated amended complaint on thegrounds, among others, that it failed to state a claim on which the reliefcould be granted. That motion now has been fully briefed. While we believe thatthe allegations are without merit, and we intend to vigorously defend againstthe suits, there can be no guarantee as to how they ultimately will beresolved.

 

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 etal., Civ. Act. No. 04-10341 (RCL). The complaint alleges, among otherthings, that the alleged conduct challenged in the securities cases pendingagainst Ibis in Massachusetts (described above) constitutes a breach of thedefendants’ fiduciary duties to Ibis. The complaint seeks unspecified moneydamages and other relief ostensibly on behalf of Ibis. On June 4, 2004,the Court entered an order staying this matter pending the entry of a finalorder on any motion filed by the Company to dismiss the consolidated classaction complaint referenced above.

 

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 Senior Securities

 

None

 

Item 4 - Submission of Matters to a Vote of Security Holders

 

The annual meeting of stockholders of Ibiswas on May 12, 2005. The following matters were voted on at the meeting:

 

(1)   Twopeople were elected to the Board of Directors of the Company to serve for aterm ending in 2008 and until their respective successors are duly elected andqualified. The following is a table setting forth the number of votes cast forand withheld for each nominee for Director.

 
| **Name**             | ** ** | **Vote For** | ** ** | **Vote Withheld** | ** ** |
|----------------------|------------|--------------|------------|-------------------|------------|
|                 |       |         |       |              |       |
| Donald F. McGuinness |       | 10,034,610   |       | 201,340           |       |
|                 |       |         |       |              |       |
| Lamberto Raffaelli   |       | 10,033,820   |       | 202,130           |       |

 

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(2)   Thestockholders of the Company voted to amend the Company’s 2000 Employee StockPurchase Plan to increase by 300,000 shares the aggregate number of shares ofcommon stock reserved for issuance under this plan. Stockholders holding2,419,280 shares voted in favor of the proposal, stockholders holding 457,991shares voted against the proposal, stockholders holding 38,681 shares abstainedfrom voting on this proposal and stockholders holding 7,319,998 shares did notvote on this proposal.

 

(3)   Thestockholders of the Company ratified the appointment of KPMG LLP as the Company’sindependent public accountants for the fiscal year ending December 31,2005. Stockholders holding 10,113,966 shares voted in favor of the proposal, stockholdersholding 103,835 shares voted against the proposal and stockholders holding18,149 shares abstained from voting on this proposal.

 

Item 5 - Other Information

 

None

 

Item 6 - Exhibits and Reports on Form 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     |
|                 |       |                                                                                                |
| **Exhibit No.** | ** ** | **Description**                                                                                     |
|                 |       |                                                                                                |
| 31.2                 |       | Certification of William J. Schmidt 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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**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:  August 01, 2005 | By:                          |     /s/  William J. Schmidt |   |
|                        |                         | William J.  Schmidt |
|                        |                         | Chief  Financial Officer, Treasurer and Clerk |
|                        |                         | (principal  financial and accounting officer) |
|                        |                         |   |
|                        |                         |   |
| Date:  August 01, 2005 | By:                          |     /s/  Martin J. Reid |   |
|                        |                         | Martin J.  Reid |
|                        |                         | President  and Chief Executive Officer |

 

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