** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20569**

**Form 10-Q**

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

**Forthe Quarterly Period Ended March 31, 2007**

**Or**

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

**Forthe transition period from                       to                    **

**Commissionfile number 0-23150**

**Ibis Technology Corporation**

(Exact name of registrantas specified in its charter)

| **Massachusetts**                                          | ** ** | **04-2987600**       |
|------------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                           |       | (I.R.S. Employer     |
| incorporation or  organization)                            |       | Identification  No.) |
|                                                       |       |                 |
| **32  Cherry Hill Drive, Danvers, MA**                     | ** ** | **01923**            |
| (Address of  principal executive offices)                  |       | (Zip Code)           |
|                                                       |       |                 |
| (978) 777-4247                                             |
| (Registrant’s  telephone number, including area code) |

 

Indicate by check mark whether the registrant (1) hasfiled all reports 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 x   No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer (asdefined by Rule b-2 of the Exchange Act).

Large AcceleratedFiler o         Accelerated File*r* o         Non-Accelerated Filer x

Indicate by check mark whether the registrant is ashell Company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

12,315,481shares of Common Stock, par value $.008, were outstanding on March 31, 2007.

 

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**IBISTECHNOLOGY CORPORATION**

**INDEX**
|                                                                                                            | ** ** | **Page**   | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                 | ** ** | **Number** | ** ** |
| **PART I  - FINANCIAL INFORMATION**                                                                        | ** ** | ** ** | ** ** |
| Item 1 —  Financial Statements:                                                                       | ** ** | ** ** | ** ** |
| Balance  Sheets  December 31, 2006 (audited) and March 31, 2007 (unaudited)                                |       | 3          |       |
| Statements  of Operations  Three Months Ended March 31 2006 and 2007 (unaudited)                           |       | 4          |       |
| Statements  of Cash Flows  Three Months Ended March 31, 2006 and 2007 (unaudited)                          |       | 5          |       |
| Notes to Unaudited Interim Financial Statements                                                            |       | 6          |       |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |       | 18         |       |
| Item 3 —  Quantitative and Qualitative Disclosure About Market Risk                                   |       | 26         |       |
| Item 4 —  Controls and Procedures                                                                     |       | 27         |       |
| **PART II — OTHER  INFORMATION**                                                                      |       |       |       |
| Item  1 — Legal Proceedings                                                                           |       | 28         |       |
| Item  1A — Risk Factors                                                                               |       | 28         |       |
| Item 2 — Unregistered Sales of Equity Securities and  Use of Proceeds                                 |       | 29         |       |
| Item 3 — Defaults upon Senior Securities                                                              |       | 29         |       |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                         |       | 30         |       |
| Item  5 — Other Information                                                                           |       | 30         |       |
| Item 6 —  Exhibits                                                                                    |       | 30         |       |
| Signatures                                                                                                 |       | 31         |       |

 

2

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**IBISTECHNOLOGY CORPORATION**

**BALANCE SHEETS**
| ** **                                                                                                                                           | ** ** | **(Audited)**         | ** ** | **(Unaudited)**    | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                           | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
| ** **                                                                                                                                           | ** ** | **2006**              | ** ** | **2007**           | ** ** |
| **Assets**                                                                                                                                           |       |                  |       |               |       |
| **Current assets:**                                                                                                                                  |       |                  |       |               |       |
| Cash and cash  equivalents                                                                                                                           |       | $                     | 4,812,477  |               | $          | 5,611,675 |   |
| Accounts  receivable, trade, net                                                                                                                     |       | 349,154               |       | 244,839            |       |
| Inventories, net  (note 4)                                                                                                                           |       | 3,575,296             |       | 3,528,943          |       |
| Prepaid expenses  and other current assets                                                                                                           |       | 290,780               |       | 357,065            |       |
| Total current  assets                                                                                                                                |       | 9,027,707             |       | 9,742,522          |       |
| Property and equipment                                                                                                                               |       | 24,728,824            |       | 24,713,747         |       |
| Less:  Accumulated depreciation and amortization                                                                                                     |       | (20,744,772           | )          | (21,017,328        | )          |
| Net property and  equipment                                                                                                                          |       | 3,984,052             |       | 3,696,419          |       |
| Patents and other  assets, net                                                                                                                       |       | 777,082               |       | 676,006            |       |
| Total assets                                                                                                                                         |       | $                     | 13,788,841 |               | $          | 14,114,947 |   |
| **Liabilities and Stockholders’  Equity**                                                                                                       |       |                  |       |               |       |
| **Current  liabilities:**                                                                                                                            |       |                  |       |               |       |
| Accounts payable                                                                                                                                     |       | $                     | 409,705    |               | $          | 374,981 |   |
| Accrued  liabilities (notes 5 and 6)                                                                                                                 |       | 973,994               |       | 839,026            |       |
| Deferred revenue                                                                                                                                     |       | 150,000               |       | —             |       |
| Total current  liabilities                                                                                                                           |       | 1,533,699             |       | 1,214,007          |       |
| **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 10,915,481 shares and 12,315,481  shares at December 31, 2006 and March 31, 2007, respectively |       | 87,324                |       | 98,524             |       |
| Additional paid-in capital                                                                                                                           |       | 93,798,393            |       | 95,902,749         |       |
| Accumulated  deficit                                                                                                                                 |       | (81,630,575           | )          | (83,100,333        | )          |
| Total stockholders’  equity                                                                                                                     |       | 12,255,142            |       | 12,900,940         |       |
| Total liabilities and  stockholders’ equity                                                                                                     |       | $                     | 13,788,841 |               | $          | 14,114,947 |   |

 

See accompanyingnotes to unaudited interim financial statements.

 

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**IBIS TECHNOLOGY CORPORATION**

**STATEMENTS OF OPERATIONS**

**(Unaudited)**
| ** **                                                                                                                                                      | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                                      | ** ** | **March 31**                | ** ** |
| ** **                                                                                                                                                      | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| **Net  Sales and revenue:**                                                                                                                                     |       |                             |       |   |   |
| License and other revenue                                                                                                                                       |       | $                                | 255,100    |   | $ | 84,144 |   |
| Equipment revenue                                                                                                                                               |       | 6,005,722                        |       | 245,919 |   |
| Total net sales  and revenue (notes 2 and 8)                                                                                                                    |       | 6,260,822                        |       | 330,063 |   |
| **Cost of sales and revenue:**                                                                                                                                  |       |                             |       |   |   |
| Cost of license and other revenue                                                                                                                               |       | —                           |       | — |   |
| Cost of equipment revenue (includes share-based  compensation expense of $5,352 and $7,444 for the three months ended March  31, 2006, and 2007 respectively)   |       | 2,672,792                        |       | 115,838 |   |
| Total cost of  sales and revenue                                                                                                                                |       | 2,672,792                        |       | 115,838 |   |
| Gross profit                                                                                                                                                    |       | 3,588,030                        |       | 214,225 |   |
| **Operating expenses:**                                                                                                                                         |       |                             |       |   |   |
| General and  administrative (includes share-based compensation expense of $53,510 and  $62,294 for the three months ended March 31 2006, and 2007 respectively) |       | 639,618                          |       | 560,480 |   |
| Marketing and selling (includes share-based  compensation expense of $18,571 and $15,861 for the three months ended March  31, 2006 and 2007, respectively)     |       | 316,461                          |       | 220,487 |   |
| Research and development (includes share-based  compensation expense of $47,911 and $43,655 for the three months ended March  31, 2006 and 2007, respectively)  |       | 1,329,302                        |       | 1,064,362 |   |
| Total operating  expenses                                                                                                                                       |       | 2,285,381                        |       | 1,845,329 |   |
| Income (loss) from operations                                                                                                                                   |       | 1,302,649                        |       | (1,631,104 | ) |
| **Other income (expense):**                                                                                                                                     | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Interest income                                                                                                                                                 |       | 64,388                           |       | 56,890 |   |
| Other                                                                                                                                                           |       | (895                             | )          | 105,712 |   |
| Total other income                                                                                                                                              |       | 63,493                           |       | 162,602 |   |
| Income (loss) before income taxes                                                                                                                               |       | 1,366,142                        |       | (1,468,502 | ) |
| Income tax expense.                                                                                                                                             |       | 1,256                            |       | 1256 |   |
| Net income  (loss) (note 2 and 9)                                                                                                                               |       | $                                | 1,364,886  |   | $ | (1,469,758 | ) |
| Earnings (loss) per share:                                                                                                                                      |       |                             |       |   |   |
| Basic                                                                                                                                                           |       |                             |       |   |   |
| Basic                                                                                                                                                           |       | $                                | 0.13       |   | $ | (0.13 | ) |
| Diluted                                                                                                                                                         |       | $                                | 0.12       |   | $ | (0.13 | ) |
| Weighted average common shares outstanding                                                                                                                      |       |                             |       |   |   |
| Basic                                                                                                                                                           |       | 10,816,029                       |       | 11,537,703 |   |
| Diluted (note 7)                                                                                                                                                |       | 10,961,430                       |       | 11,537,703 |   |

 

See accompanyingnotes to unaudited interim financial statements.

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** **

**IBISTECHNOLOGY CORPORATION**

**STATEMENTSOF CASH FLOWS**

**(Unaudited)**
| ** **                                                                            | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                            | ** ** | **March 31,**               | ** ** |
| ** **                                                                            | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| **Cash  flows from operating activities:**                                            | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                    |       | $                                | 1,364,886  |   | $ | (1,469,758 | ) |
| Adjustments to  reconcile net income (loss) to net cash used in operating activities: |       |                             |       |   |   |
| Share-based compensation expense                                                      |       | 125,344                          |       | 129,254 |   |
| Depreciation and amortization                                                         |       | 387,598                          |       | 388,709 |   |
| Changes in operating assets and liabilities:                                          |       |                             |       |   |   |
| Accounts receivable, trade                                                            |       | (4,746,888                       | )          | 104,315 |   |
| Inventories                                                                           |       | 2,080,336                        |       | 46,353 |   |
| Prepaid expenses and other current assets                                             |       | 28,870                           |       | (66,285 | ) |
| Accounts payable                                                                      |       | 294,796                          |       | (34,724 | ) |
| Accrued liabilities and deferred revenue                                              |       | (1,264,163                       | )          | (284,968 | ) |
| Net cash used in operating activities                                                 |       | (1,729,221                       | )          | (1,187,104 | ) |
| **Cash flows from investing activities:**                                             |       |                             |       |   |   |
| Additions to  property and equipment, net                                             |       | (23,681                          | )          | — |   |
| Other assets                                                                          |       | (43,171                          | )          | — |   |
| Net cash used in investing activities                                                 |       | (66,852                          | )          | — |   |
| **Cash flows from financing activities:**                                             |       |                             |       |   |   |
| Proceeds from sales of common stock, net of issuance  cost                            |       | —                           |       | 1,986,302 |   |
| Net Cash provided by financing activities                                             |       | —                           |       | 1,986,302 |   |
| Net increase (decrease) in cash and cash equivalents                                  |       | (1,796,073                       | )          | 799,198 |   |
| Cash and cash equivalents, beginning of period                                        |       | 6,856,874                        |       | 4,812,477 |   |
| Cash and cash  equivalents, end of period                                             |       | $                                | 5,060,801  |   | $ | 5,611,675 |   |

 

See accompanyingnotes to unaudited interim financial statements.

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**IBIS TECHNOLOGY CORPORATION**

**NOTES TOUNAUDITED INTERIM FINANCIAL STATEMENTS**

**(1)****InterimFinancial Statements**

The accompanyingfinancial statements are unaudited and have been prepared by Ibis TechnologyCorporation (the “Company” or “Ibis”) in accordance with U.S. generallyaccepted accounting principles for interim financial information and inaccordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.Accordingly, they do not include all of the information and footnotes requiredby U.S. generally accepted accounting principles for complete financialstatements.

In the opinion ofmanagement, the interim financial statements include all adjustments, whichconsist only of normal and recurring adjustments, necessary for a fairpresentation of the Company’s financial position and results of operations.Results of operations for the interim periods are not necessarily indicative ofthe results to be expected for the full year. These financial statements shouldbe read in conjunction with the financial statements of the Company as of andfor the year ended December 31, 2006, which are included in the Company’sAnnual Report on Form 10-K as filed on March 28, 2007.

**(2)****Summaryof Significant Accounting Policies**

*(a) Revenue Recognition*

The Companyrecognizes revenue from equipment sales and the sales of spare parts when allof the following criteria have been met: (1) evidence exists that the customer is bound to the transaction; (2)the product has been delivered to the customer and, when applicable, theproduct has been installed and accepted by the customer; (3) the sales price tothe customer has been fixed or is determinable; and (4) collectibility of thesales price is reasonably assured. The Company recognizes revenue fromimplanter sales upon acceptance at the customer’s site. Revenue derived fromcontracts and services is recognized upon performance. Provisions foranticipated losses are made in the period in which such losses becomedeterminable.

*(b)**Share-Based Compensation*

On January 1, 2006, the Company adoptedStatement of Financial Accounting Standards No. 123 (revised 2004), “Share-BasedPayment,” (“SFAS 123(R)”) which requires the measurement and recognition ofcompensation expense for all share-based payment awards made to employees anddirectors including employee stock options, employee stock purchases related tothe 2000 Employee Stock Purchase Plan (“the ESPP”), restricted stock and otherspecial equity awards based on grant date estimated fair values. SFAS 123(R)supersedes the Company’s previous accounting under Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) forperiods beginning in 2006. In March 2005, the Securities and ExchangeCommission issued SAB 107 relating to SFAS 123(R). The Company has applied theprovisions of SAB 107 in its adoption of SFAS 123(R).

 The Company’s financialstatements as of and for the three months ended March 31, 2006 and March 31,2007 reflect the impact of SFAS 123(R). Share-based compensation expenserecognized under SFAS 123(R) for the three months ended March 31, 2006 andMarch 31, 2007 were both $0.1 million  or$0.01 per share, which consisted of share-based compensation expense related toemployee stock options and the employee stock purchase plan. Of this quarterended March 31, 2007 expense, twenty seven percent came from options issuedprior to December 31, 2005 and are valued using the accrual method, which isconsistent with prior periods, while fifty eight percent came from options issuedafter January 1, 2006 and are valued using the straight-line prorated method,which was adopted in 2006 under the new guidance, and fifteen percent came fromthe valuation of shares issued under the employee stock purchase plan. Thiscompares to the expense for the quarter ended March 31, 2006 where seventy fivepercent came from options issued prior to December 31, 2005 and are valuedusing the accrual method, which is consistent with prior periods, while fivepercent come from options issued in 2006 and are valued using the straight-lineprorated method, which was adopted in 2006 under the new guidance and twentypercent come from the valuation of shares issued under the employee stockpurchase plan.

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SFAS 123(R) requires companies to estimatethe fair value of share-based payment awards on the date of grant using anoption-pricing model. The value of the portion of the award that is ultimatelyexpected to vest is recognized as expense over the requisite service periods inthe Company’s Statement of Operations.

 Share-based compensation expense recognizedduring the period is based on the value of the portion of share-based paymentawards that is ultimately expected to vest during the period. Stock-basedcompensation expense recognized in the Company’s Statement of Operations forthe three months ended March 31, 2006 and March 31, 2007 included compensationexpenses for share-based payment awards granted prior to, but not yet vested asof December 31, 2005, based on the grant date fair value estimated in accordancewith the pro forma provisions of SFAS 123, and compensation expense for theshare-based payment awards granted subsequent to December 31, 2005 based on thegrant date fair value estimated in accordance with the provisions of SFAS123(R). As stock-based compensation expense recognized in the Statement ofOperations for the three months ended March 31, 2006 and March 31, 2007 isbased on awards ultimately expected to vest, it has been reduced for estimatedforfeitures. SFAS 123(R) requires forfeitures to be estimated at the time ofgrant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates.

Upon adoption of SFAS 123(R), the Companyelected to retain its method of valuation for share-based awards granted beginningin 2006 using the Black-Scholes option—pricing model (“Black—Scholes model”).The Company’s determination of fair value of share-based payment awards on thedate of grant using an option-pricing model is affected by the Company’s stockprice as well as assumptions regarding a number of highly complex andsubjective variables. These variables include, but are not limited to theCompany’s expected stock price volatility over the term of the awards, andactual and projected employee stock option exercise behaviors.

* (c)  NewAccounting Pronouncements*

In July 2006, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”(FIN 48), which clarifies the accounting and disclosure for uncertainty in taxpositions, as defined.  FIN 48 seeks toreduce the diversity in practice associated with certain aspects of therecognition and measurement related to accounting for income taxes.  This interpretation is effective for fiscalyears beginning after December 15, 2006 and prescribes a recognition thresholdand measurement attribute for the financial statement recognition andmeasurement of a tax position taken, or expected to be taken, in a tax return,and provides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosures and transition.  As a result of the implementation of FIN 48,the Company recorded no adjustment for unrecognized income tax benefits.  At the adoption date of January 1, 2007 andalso at March 31, 2007, the Company had no unrecognized tax benefits.  Ibis classifies any interest and penaltiesrelated to income taxes as components of income tax expense.

The tax years 2000to 2006 remain open to examination by the major taxing jurisdictions to whichwe are subject.  Preceding years alsoremain open to examination by U.S. federal and state revenue authorities to theextent of future utilization of net operating losses (NOLs) and research anddevelopment (R&D) tax credits generated in each preceding year.

As of December 31,2006, we had federal and state NOLs of approximately $87,082,000 and$52,405,000, respectively, and federal and state R&D credit carryforwardsof approximately $1,000,000 and $905,000, respectively,which can be used tooffset future federal and state income tax liabilities prior to expiration onvarious dates through 2026.

Utilization of NOL and R&D credit carryforwards may be subject to asubstantial annual limitation due to ownership change limitations that haveoccurred previously or that could occur in the future as provided by Section382 of the Internal Revenue Code of 1986 and similar state provisions.  These ownership changes may limit the amountof NOL and R&D credit carryforwards that can be utilized annually to offsetfuture taxable income and tax.  Ingeneral, an ownership change, as defined in Section 382, results fromtransactions which increase the ownership of certain 5% or greater shareholdersor public groups in the stock of a corporation by more than 50 percentagepoints over a three-year period.  Sincethe Company’s formation, the Company has raised capital through the issuance ofcapital stock on several occasions which, combined with the purchasingshareholders’ subsequent disposition of those shares, may have 

7

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resultedin a change of control, as defined in Section 382, or could result in a changeof control in the future upon subsequent disposition.  The Company has not currently completed astudy to assess whether a change of control has occurred or whether there havebeen multiple changes of control since the Company’s formation.  If the Company has experienced a change ofcontrol at any time since formation, or if Ibis experiences a change of controlin the future, utilization of the NOL and R&D credit carryforwards would besubject to an annual limitation under Section 382.  Any limitation may result in expiration ofall or a portion of the NOL or R&D credit carryforwards beforeutilization.  Until a study is completedand any limitation known, no amounts are being presented as an uncertain taxposition under FIN 48.

In September 2006, the FASBissued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair value measurements.SFAS 157 is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007 and interim periods within those fiscalyears. The Company has not yet determined the impact this FASB will have on ourresults from operations or financial position.

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**(3)****Liquidity**

Historically, theCompany has financed its operations and met its capital requirements throughfunds generated from operations, the issuance of common stock, equipment linesof credit, a working capital line of credit, a term loan,sales-leaseback arrangements andcollaborative arrangements. In July 2004, the Company discontinued its wafermanufacturing business to focus exclusively on the equipment manufacturingbusiness. The Company will maintain a research and development effort focusedon continuous improvement of the equipment capabilities and for supporting ourequipment customers’ needs.

As of March 31,2007, the Company had cash and cash equivalents of $5.6 million, including thefinancing payment of $2.2 million received during the quarter from the sale of1.4 million shares of common stock and 1.05 million warrants. During the threemonths ended March 31, 2007, Ibis used $1.2 million of cash from operatingactivities of continuing operations as compared to $1.7 million in the threemonths ended March 31, 2006. The principal uses of cash during the three monthsended March 31, 2007 were to fund operations. At March 31, 2007, Ibis hadcommitments to purchase approximately $0.2 million in material. Our headcountfor the quarter ended March 31, 2007 was 34 employees.

Cash flow projections developed by management indicate the Companybelieves it will have sufficient cash resources to support current operationsuntil at least November of 2008. This expectation however, is based on theCompany’s current operating plan and general sales outlook, each of which maychange rapidly. In January, 2007 the Company announced that to conserve cash itwas reducing its operating expense by approximately 40% which involved costcutting measures consisting of headcount reductions, consulting at aneighboring business for a minimum of six months under a staffing servicesagreement, salary reductions and reducing consumable expenses. On February 16,2007 the Company entered into a purchase agreement pursuant to which it agreedto sell unregistered shares of its common stock and warrants exercisable forcommon stock to Special Situation Funds for an aggregate purchase price of $5.3million in a two-tranche financing. The first closing of the February 2007financing, at which the Company received approximately $2.2 million in proceedsoccurred on February 20, 2007. Pursuant to stockholder approval received at theIbis Annual Meeting on May 10, 2007, the Company sold the remainder of thesecurities at a second closing, at which the Company received approximately$3.1 million in proceeds. In connection with the transaction, the Company alsoentered into a registration rights agreement with the investors. The Companypaid a placement fee to a placement agent of approximately $0.2 million, whichrepresents a cash fee equal to 5% of the gross proceeds and issued 105,185warrants exercisable for common stock with a dollar value equal to 5% of thegross proceeds received by the company in the second financing. A payment ofapproximately $0.1 million was made and warrants to purchase74,434 shares of common stock were issuedto the placement agent in connection with the first closing. All of thesecurities were sold in a private placement pursuant to regulation D of theSecurities Act. The Company intends to continue to invest in research,development and manufacturing capabilities. Changes in technology or salesgrowth beyond currently established capabilities may require furtherinvestment. Further adoption of the technology and the timing of futureequipment orders are dependent on the continuing qualification of implantersand improvement programs at the device manufacturers, among other factors. At present timethe Company has only one of the four major wafer manufacturers as its currentcustomer. We currently do not have an order backlog for implanters. The timing of future orders is importantand difficult to predict because customers can delay orders and/or requestearly shipment, either of which could cause the need for additional cashrequirements. Forecasting future revenue, on a quarter-by-quarter basis, remainsexceedingly difficult and significant variations quarter to quarter, arelikely. Further, because some of the materials and components the Company usesto build its implanter have long lead times, the Company may purchase some orall of these long lead time items prior to receipt of an order by itscustomers. When this is the case, those parts and materials bear the risk ofbeing subject to excess and obsolescence. The Company expects to continue toexplore equity offerings and other forms of financing in order to financefuture growth and our research and development programs. There can be noassurance, however, that our actual needs will not exceed expectations or thatwe will be able to fund our operations on a long-term basis in the absence of othersources. There also can be no assurance that any additional required longerterm financing will be available through additional bank borrowings, debt orequity offerings or otherwise, or that if such financing is available, that itwill be available on terms acceptable to us.

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**(4)****Inventories**

Inventories consist of the following:

|                            | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                 | ** ** | **2006**              | ** ** | **2007**           | ** ** |
| Raw materials              |       | $                     | 1,445,182  |               | $          | 1,474,448 |   |
| Work in process            |       | 2,130,114             |       | 2,054,495          |       |
| Finished goods             |       | —                |       | —             |       |
| Total equipment  inventory |       | $                     | 3,575,296  |               | $          | 3,528,943 |   |

 

**(5)****AccruedLiabilities**

Current accruedliabilities were as follows at December 31, 2006 and March 31, 2007.

|                            | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                 | ** ** | **2006**              | ** ** | **2007**           | ** ** |
| Accrued vacation           |       | $                     | 156,213    |               | $          | 160,014 |   |
| Accrued warranty           |       | 435,979               |       | 260,617            |       |
| Accrued payroll            |       | 128,343               |       | 107,329            |       |
| Accrued expenses           |       | 253,459               |       | 311,066            |       |
| Total accrued  liabilities |       | $                     | 973,994    |               | $          | 839,026 |   |

 

**(6)****AccruedWarranty**

At the time that revenueis recognized for the sale of an implanter a liability for warranty is alsoestablished. An estimate of the warranty cost is made based on the number ofyears involved and the Company’s prior experience. As material and labor isused during the warranty period the liability is reduced based on thesecharges. At the end of the warranty term the balance in the liability iseliminated and adjusted through cost of sales, the account charged atinception. A reconciliation of warranty liability for the period ended December31, 2006 and March 31, 2007 is as follows:

| Warranty balance December  31, 2005 |   | $        | 653,133 |   |
|-------------------------------------|--------|----------|---------|--------|
| Expense incurred  — 2006       |   | (160,939 | )       |
| Initiated — 2006               |   | 608,220  |    |
| Expired — 2006                 |   | (664,435 | )       |
| Warranty balance  December 31, 2006 |   | 435,979  |    |
| Expense incurred  —2007        |   | (15,715  | )       |
| Initiated — 2007               |   | —   |    |
| Expired — 2007                 |   | (159,647 | )       |
| Warranty balance March  31, 2007    |   | $        | 260,617 |   |

 

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**(7) NetIncome (Loss) Per Share**

Net loss for the quarter ended March 31, 2007 of$1.5 million or a loss of $0.13 per share, included stock-based compensationexpense under Statement of Financial Accounting Standards No. 123R, “Share-BasedPayment,” (SFAS 123R) of $0.1 million related to employee stock options, andemployee stock purchases.  Net income forthe quarter ending March 31, 2006 was $1.4 million or $0.12 income per sharefully diluted, including stock-based compensation expense of $0.1 million, or$0.01 per share.

Net income (loss)per share of common stock is computed based upon the weighted average number ofshares outstanding during each period and including the dilutive effect, ifany, of stock options and warrants. SFAS 128 requires the presentation of basicand diluted earnings (loss) per share for all periods presented. For the threemonths ended March 31, 2006 the company did report both basic and dilutedearnings per share because it reported net income in the quarter. As theCompany was in a net loss position for the three months ended March 31, 2007,common stock equivalents of 8,416 were excluded from the diluted loss per sharecalculation, as they would be antidilutive. As a result, diluted loss per shareis the same as basic loss per share for the period presented.

**(8)Industry Segments**

The Company’scurrent reportable segments are SIMOX Equipment and Other Products or Services.For purposes of segment reporting, equipment, equipment spares and fieldservice revenue are combined and reported as SIMOX Equipment. Other servicesand license revenue are combined and reported as Other Products or Services.

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The table belowprovides unaudited information for the three months ended March 31, 2006 and2007 pertaining to the Company’s two industry segments.
| ** **                                                   | ** ** | **SIMOX  Equipment** | ** ** | **Other Products  Or Services** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------|------------|----------------------|------------|-------------------------------------------|------------|------------|------------|
| **Net Revenue**                                              |       |                 |       |                                      |       |       |       |
| Three Months Ended  March 31, 2006                           |       | $                    | 6,005,722  |                                      | $          | 255,100    |       | $ | 6,260,822 |   |
| Three Months Ended  March 31, 2007                           |       | $                    | 245,919    |                                      | $          | 84,144     |       | $ | 330,063 |   |
|                                                         |       |                 |       |                                      |       |       |       |
| **Operating Income (Loss)**                                  |       |                 |       |                                      |       |       |       |
| Three Months Ended  March 31, 2006                           |       | 1,687,168            |       | 255,100                                   |       | 1,942,268  |       |
| Three Months Ended  March 31, 2007                           |       | (1,154,768           | )          | 84,144                                    |       | (1,070,624 | )          |
| ** **                                                   |       |                 |       |                                      |       |       |       |
| **Assets**                                                   |       |                 |       |                                      |       |       |       |
| March 31, 2007                                               |       | 8,055,723            |       | 147,364                                   |       | 8,203,087  |       |
|                                                         |       |                 |       |                                      |       |       |       |
|                                                         |       |                 |       |                                      |       |       |       |
| **Capital Expenditures**                                     |       |                 |       |                                      |       |       |       |
| Three Months Ended  March 31, 2006                           |       | 23,681               |       | —                                    |       | 23,681     |       |
| Three Months Ended  March 31, 2007                           |       | —               |       | —                                    |       | —     |       |
| ** **                                                   | ** ** | ** **           | ** ** | ** **                                | ** ** | ** ** | ** ** |
| **Depreciation and Amortization  of Property and Equipment** | ** ** | ** **           | ** ** | ** **                                | ** ** | ** ** | ** ** |
| Three Months Ended  March 31, 2006                           |       | 372,454              | ** ** | **—**                                |       | 372,454    |       |
| Three Months Ended March 31, 2007                            |       | 368,755              |       | —                                    |       | 368,755    |       |

 

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The table below providesthe reconciliation of reportable segment operating loss and assets to Ibis’totals.
| ** **                                                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                   | ** ** | **2006**                                         | ** ** | **2007** | ** ** |
| **Segment  Reconciliation**                                  |       |                                             |       |   |   |
|                                                         |       |                                             |       |   |   |
| Net Income  (-Loss):                                         |       |                                             |       |   |   |
| Total operating income (loss) for reportable  Segments       |       | $                                                | 1,942,268  |   | $ | (1,070,624 | ) |
| Corporate general & administrative expenses              |       | (639,619                                         | )          | (560,480 | ) |
| Net other income                                             |       | 63,493                                           |       | 162,602 |   |
| Income tax expense                                           |       | (1,256                                           | )          | (1,256 | ) |
| Net income (loss)                                            |       | $                                                | 1,364,886  |   | $ | (1,469,758 | ) |
|                                                         |       |                                             |       |   |   |
| Capital  Expenditures:                                       |       |                                             |       |   |   |
| Total capital expenditures for reportable segments           |       | $                                                | 23,681     |   | $ | — |   |
| Corporate capital expenditures                               |       | —                                           |       | — |   |
| Total capital expenditures                                   |       | $                                                | 23,681     |   | $ | — |   |
|                                                         |       |                                             |       |   |   |
| Depreciation and  Amortization:                              |       |                                             |       |   |   |
| Total depreciation and amortization for reportable  segments |       | $                                                | 372,454    |   | $ | 368,755 |   |
| Corporate depreciation and amortization                      |       | 15,144                                           |       | 19,954 |   |
| Total depreciation and amortization                          |       | $                                                | 387,598    |   | $ | 388,709 |   |
| ** **                                                   |       |                                             |       |   |   |
| ** **                                                   |       |                                             |       |   |   |
| ** **                                                   | ** ** | ** **                                       | ** ** | **Balance as of** | ** ** |
| ** **                                                   | ** ** | ** **                                       | ** ** | **3/31/07** | ** ** |
| Assets:                                                      |       |                                             | ** ** | ** ** | ** ** |
| Total assets for reportable segments                         |       |                                             |       | $ | 8,203,087 |   |
| Cash & cash equivalents not allocated to  segments       |       |                                             |       | 5,611,675 |   |
| Other unallocated assets                                     |       |                                             |       | 300,185 |   |
| Total assets                                                 |       |                                             |       | $ | 14,114,947 |   |

 

**(9) Employee Stock Benefit Plans**

Net loss for thequarter ended March 31, 2007 included stock-based compensation expense under SFAS123(R) of $ 0.1 million. Of this expense, twenty- seven percent came fromoptions issued prior to December 31, 2005 and are valued using the accrualmethod, which is consistent with prior periods, while fifty eight percent camefrom options issued after January 1, 2006 and are valued using the straight-lineprorated method, which was adopted in 2006 under the new guidance, and fifteenpercent came from the employee stock purchase plan valuation. Net income forthe three months ended March 31, 2006 included stock-based compensation expenseunder SFAS 123(R) of $0.1 million. Of this expense, seventy five percent camefrom options issued prior to December 31, 2005 and are valued using the accrualmethod, which is consistent with prior periods, while five percent came fromoptions issued in 2006 and are valued using the straight-line prorated methodwhich was adopted in 2006 under the new guidance, and twenty percent came fromthe employee stock purchase plan valuation.

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*Employee Stock Purchase Plans*

The Companymaintains an employee stock purchase plan where eligible employees may purchasecommon stock through payroll deduction of up to 15% of compensation with alimit of $21,250. The price per share is the lower of 85% of the market priceat the beginning or end of each offering period (generally 6 months). The planprovides for purchases by employees of up to an aggregate of 600,000 sharesthrough May 31, 2010. During the three months ended March 31, 2006 and March31, 2007 the Company issued no shares under the Purchase Plan. At March 31,2007, 169,664 shares were available for purchase under the Purchase Plan.

*Employee Stock Option Plan*

The Company hasstock-based compensation plans under which employees and directors may begranted options to purchase common stock. Options are generally granted withexercise prices at not less than the fair market value on the grant date,generally vest over 4 years and expire in 10 years after the grant date. As ofMarch 31, 2007, a total of 3.2 million shares are authorized for grant underthe Company’s stock-based compensation plans. The number of common sharesreserved for granting of future awards to employees and directors under theseplans was 0.2 million at March 31, 2007. The remaining unrecognizedcompensation expense on stock options at March 31, 2007 was $0.7 million. Theweighted average period over which the cost is expected to be recognized isapproximately 2 years.

As of March 31,2007 the Company had three equity compensation plans under which our equitysecurities have been authorized for issuance to our employees and/or directors:the 2000 Employee Stock Purchase Plan, as amended (described above), the 1993Employee, Director and Consultant Stock Option Plan, as amended, (the 1993Plan);and the 1997 Employee, Directors and Consultant Stock Option Plan, asamended. The 1993 Plan has expired and there are no options available forissuance; however, the 1993 Plan continues to govern all options, awards andother grants granted and outstanding under the 1993 Plan.

*Distribution and Dilutive Effectof Options*

Thefollowing table illustrates the grant dilution and exercise dilution**:**

|                                     | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **March 31,**               | ** ** |
| ** **                          | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| Shares of common  stock outstanding |       | 10,816,029                       |       | 12,315,481 |   |
| Granted                             |       | 133,000                          |       | 285,000 |   |
| Canceled/forfeited                  |       | (140,530                         | )          | (50,520 | ) |
| Expired                             |       | —                           |       | — |   |
| Net options  granted                |       | (7,530                           | )          | 234,480 |   |
| Grant dilution  (1)                 |       | 0.0                              | %          | 1.9 | % |
|                                |       |                             |       |   |   |
| Exercised                           |       | —                           |       | — |   |
| Exercised dilution (2)              |       | —                           |       | — |   |

----

(1)             Thepercentage for grant dilution is computed based on net options granted as apercentage of shares of common stock outstanding.

(2)             Thepercentage for exercise dilution is computed based on options exercised as apercentage of shares of common stock outstanding.

Basic and diluted sharesoutstanding for the three months ended March 31, 2007 were 11,537,703 and11,546,119 shares respectively. During the three months ending March 31, 2007,the dilutive effect of in-the-money employee stock options was 8,416 shares or0.1% of the basic shares outstanding based on the Company’s average share priceof $1.35.

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A summary of stock optiontransactions follows:
| ** **                                | ** ** | **Options Outstanding** | ** ** |
|-------------------------------------------|------------|------------------------------|------------|
| ** **                                | ** ** | **Options Available**   | ** ** | ** ** | ** ** | **Weighted average** | ** ** |
| ** **                                | ** ** | **for**                      | ** ** | ** ** | ** ** | **exercise price of** | ** ** |
| ** **                                | ** ** | **Grant**                    | ** ** | **Shares** | ** ** | **shares under plan** | ** ** |
| Balance  outstanding at December 31, 2005 |       | 185,191                      |       | 1,321,262 |   | $ | 11.43 |   |
| Granted                                   |       | (201,721                     | )          | 201,721 |   | 3.17 |   |
| Exercised                                 |       | —                       |       | (1,025 | ) | 1.36 |   |
| Cancelled/forfeited                       |       | 167,573                      |       | (167,573 | ) | 16.42 |   |
| Expired                                   |       | (10,117                      | )          | — |   | — |   |
| Additional  shares reserved               |       | 300,000                      |       | — |   | — |   |
| Balance  outstanding at December 31, 2006 |       | 440,926                      |       | 1,354,385 |   | $ | 9.59 |   |
| Granted                                   |       | (285,000                     | )          | 285,000 |   | 1.52 |   |
| Exercised                                 |       | —                       |       | — |   | — |   |
| Cancelled/forfeited                       |       | 50,520                       |       | (50,520 | ) | 2.23 |   |
| Expired                                   |       | —                       |       | — |   | — |   |
| Additional  shares reserved               |       | —                       |       | — |   | — |   |
| Balance outstanding at  March 31, 2007    |       | 206,446                      |       | 1,588,865 |   | $ | 8.38 |   |

 

The followingtable summarizes information concerning outstanding and exercisable options asof March 31, 2007:
| **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|------------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | ** **                   | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                   | ** ** | ** **                   | ** ** | **Average** | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                   | ** ** | ** **                   | ** ** | **remaining** | ** ** | **average** | ** ** | ** ** | ** ** | ** ** | ** ** | **average** | ** ** |
| **Range of**            | ** ** | **Number**                   | ** ** | **contractual** | ** ** | **exercise price** | ** ** | **Aggregate** | ** ** | **Options** | ** ** | **exercise price** | ** ** |
| **exercise prices**     | ** ** | **outstanding**              | ** ** | **life (years)** | ** ** | **per share** | ** ** | **Intrinsic Value** | ** ** | **Exercisable** | ** ** | **per share** | ** ** |
| $.01 - 6.00                  |       | 960,701                      |       | 8.2 |   | $ | 2.66 |   | $ | 175 |   | 303,925 |   | $ | 3.95 |   |
| $6.01 - 9.00                 |       | 150,554                      |       | 4.7 |   | $ | 7.91 | ** ** | ** ** |   | 125,554 |   | $ | 7.91 |   |
| $9.01 - 13.50                |       | 306,035                      |       | 2.4 |   | $ | 10.19 | ** ** | ** ** |   | 301,410 |   | $ | 10.18 |   |
| $13.51 - 20.26               |       | 42,575                       |       | 2.9 |   | $ | 18.29 | ** ** | ** ** |   | 42,575 |   | $ | 18.29 |   |
| $20.27 - 30.37               |       | 10,250                       |       | 2.1 |   | $ | 24.10 | ** ** | ** ** |   | 10,250 |   | $ | 24.10 |   |
| $30.38 - 45.55               |       | 13,250                       |       | 2.6 |   | $ | 37.27 |   |   |   | 13,250 |   | $ | 37.27 |   |
| $45.56 - 68.32               |       | 104,500                      |       | 2.1 |   | $ | 46.33 | ** ** | ** ** |   | 104,500 |   | $ | 46.33 |   |
| $68.33 - 98.71               |       | 1,000                        |       | 3.0 |   | $ | 89.94 | ** ** | ** ** |   | 1,000 |   | $ | 89.94 |   |
| ** **                   |       | 1,588,865                    |       | 6.1 |   | $ | 8.38 |   | $ | 175 |   | 902,464 |   | $ | 12.98 |   |

 

The aggregate intrinsicvalue in the preceding table represents the total pretax intrinsic value, basedon the Company’s closing stock price of $1.30 as of March 31, 2007, which wouldhave been received by the option holders had all option holders exercised theiroptions as of that date. The fair value of stock options vested at March 31,2007 and March 31, 2006 was $5.1 million and $4.7 million, respectively. Thetotal number of in-the-money options exercisable as of March 31, 2007 was47,575. As of December 31, 2006, 859,100 outstanding options were exercisable,and the weighted average exercise price was $13.41.

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*Valuation and Expense Informationunder SFAS 123(R)*

The followingtable summarizes stock-based compensation expense related to employee stockoptions and employee stock purchases under SFAS123 (R) for the three monthsended March 31, 2007 and March 31, 2006 which was allocated as follows:

|                                   | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **March 31, 2007**     | ** ** | **March 31,2006**           | ** ** |
| ** **                        | ** ** | **(in thousands)**          | ** ** | **(in thousands**           | ** ** |
| Cost of sales                     |       | $                                | 7          |                             | $          | 5 |   |
| Research and  development         |       | 44                               |       | 48                               |       |
| Marketing and  selling            |       | 16                               |       | 19                               |       |
| General and  administration       |       | 62                               |       | 53                               |       |
| Stock-based  compensation expense |       |                             |       |                             |       |
| included in operating  expenses   |       | $                                | 129        |                             | $          | 125 |   |

 

As of March 31, 2007 the Company capitalized $4 thousand of stock-basedcompensation in inventory. The company did not recognize any tax benefits onthe stock-based compensation recorded in the periods based on the current taxstatus of the Company.

Theweighted-average estimated fair value of employee stock options granted duringthe three months ended March 31, 2007 and March 31, 2006 was $1.11 and $2.41per share, respectively, using the Black Scholes option-pricing model with thefollowing weighted-average assumptions:

|                                                         | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **March 31 2007**      | ** ** | **March 31, 2006**     | ** ** |
| Expected  volatility                                    |       | 100.12                           | %          | 103.72                           | %          |
| Risk free  interest rate                                |       | 4.78                             | %          | 4.74                             | %          |
| Dividend yield                                          |       | 0.00                             |       | 0.00                             |       |
| Expected option life  (10 year contractual life option) |       | 6.25                             |       | 6.25                             |       |

 

The expected lifeof employee stock options is the anticipated average time that an option willbe outstanding. The Company chose to use the simplified method provided underSAB107 to estimate the expected term for “plain vanilla” stock options. Theexpected term as calculated under the simplified method is 6.25 years.

The Companydetermined the expected volatility of the stock price by using a period equalto the expected life of the stock options, 6.25 years. Volatility was measuredas the standard deviation of the difference in the natural logarithms of thestock over the expected life of the options using the daily closing stockprice. This resulted in the volatility of 100.12% and 103.72%.

The risk-freeinterest rate assumption is based upon observed treasury bill interest rates(risk free) appropriate for the expected term of the Company’s employee stockoptions.

As stock-basedcompensation expense recognized in the Statement of Operations for the threemonths ended March 31, 2007 and March 31, 2006 is actually based on awardsultimately expected to vest, it has been reduced for annualized estimatedforfeitures of 14.18% and 16.2%, respectively. SFAS 123(R) requires forfeituresto be estimated at the time of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates. Forfeitures wereestimated based on historical experience.

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**(10)Legal Proceedings**

On April 26, 2007, the Court approved a settlement agreement in theconsolidated securities class action captioned *In re IbisTechnology Securities Litigation*, Civil Action No., 04-10446 RCL (D.Mass.).  The Company and its Chairman ofthe Board, Martin J. Reid, and the plaintiffs reached an agreement in principleto settle the securities class action, which the Company announced on October2, 2006.  Thereafter, the partiesexecuted a formal settlement agreement and submitted it for Courtapproval.  The settlement provides for apayment to the plaintiffs of $1.9 million. The Court’s April 26, 2007 Order certified the proposed class forsettlement purposes only, approved the parties’ settlement agreement, anddismissed the securities class action with prejudice and in its entirety.  The settlement was funded entirely by theCompany’s insurance carrier and will not have a material adverse affect on ourbusiness, results of operations and financial condition.

On April 10, 2007the Company announced that the shareholder derivative action filed in February2004 against certain of the Company’s directors and officers: Louis F.Matheson, Jr. v. Martin J. Reid et al., Civ. Act. No. 04-10341 (RCL) has beenvoluntarily dismissed by the plaintiff. The notice of dismissal filed by theplaintiff dismissed the action with prejudice. As set forth in the notice, theplaintiff will receive a $55,000 payment following the dismissal, inconsideration of plaintiff’s analysis of information provided by the Companyregarding, among other things, the Company’s contention that the litigationshould be dismissed for failure to make a demand on the Board of Directorsbefore filing suit as required by Massachusetts law. The payment will be fundedentirely by the Company’s insurance carrier.

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**IBISTECHNOLOGY CORPORATION**

**PART I — ITEM 2**

**MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**OVERVIEW**

Ibis TechnologyCorporation (“Ibis”) was formed in October 1987 and commenced operations inJanuary 1988. Ibis’ initial activities consisted of producing and sellingSIMOX-SOI wafers and conducting research and development activities. Thiseffort led to the development of proprietary oxygen implanters, the Ibis 1000,which we began selling in 1996, the next generation implanter, the i2000ä,which we began selling in 2002, and also to other proprietary processtechnology.

Initially, much ofour revenue was derived from research and development contracts and sales ofwafers for military applications. Over the years, the Company decided to focusits business 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 July21, 2004, we exited the wafer manufacturing business. The Company believes thatits decision to discontinue the wafer business permits broader strategiccollaboration efforts between Ibis and the wafer manufacturers. We willmaintain a research and development effort relating to wafers for our equipmentimprovement programs.

We believe that amigration of SOI wafer manufacturing into the major silicon wafer suppliers istaking place. We reach this conclusion for a number of reasons. First, webelieve that tremendous price pressure exists on commodity type products, suchas silicon wafers, and this pressure is already eroding future priceexpectations of SOI wafers. Because the starting wafer represents a significantcomponent of the SOI wafer cost, we believe that silicon wafer manufacturersshould have a natural cost structure advantage leading to a higher gross marginin large volume production, and therefore should be able to manage such pricepressure better than stand-alone SOI producers that do not also produce thesilicon wafer itself. Second, we expect that the price pressure will encourage siliconwafer manufacturers to seek out higher margin products, like SOI wafers, toincrease their margins. Third, we believe that silicon wafer manufacturers havetraditionally developed proprietary intellectual property in silicon materialsscience, which can be applied to designing optimal starting wafers for SOIproduction. We believe that this should give them an advantage in bothminimizing 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 product flow,specifically avoiding the need to repackage, re-clean, re-inspect and re-shipsubstrates twice, once as starting silicon wafers, and a second time as SOIwafers. 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.

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Our fundamentalSIMOX-SOI technology has been developed, refined, and tested over the lastdozen years. In 2002, we introduced the current generation of SIMOX-SOItechnology, that included our second-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-UT wafers. We alsobelieve the ability of the i2000 implanter to produce twelve-inch (or 300 mm)SIMOX-SOI wafers coupled with the MLD process positions us to capitalize on thegrowing SOI market. In 1999, we commenced a program to design and develop thei2000, introduced it in March 2002 and began shipping 300 mm wafers implantedfrom this machine shortly thereafter. Customers who purchase the i2000 canutilize more than one SIMOX wafer manufacturing processes on the implanterincluding the IBM MLD process, when licensed, as well as other SIMOX-SOI wafermanufacturing processes that do not require the IBM license.

Because we havesold only a small number of implanters to date on an irregular basis, therecognition of revenue from the sale of even one implanter is likely to resultin a significant increase in the revenue during that quarter. We recognizeimplanter revenue in accordance with SAB 104, which includes, among othercriteria, the shipment and final customer acceptance of the implanter at thecustomer’s location. As a result, deferral of implanter revenue will berecorded on our balance sheet until the Company is able to meet these criteria.

In January 2005, weannounced the booking (i.e. receipt) of an order for one Ibis i2000 SIMOXimplanter from SUMCO, a leading international silicon wafer manufacturer. Thissystem was factory accepted and shipped in the second quarter of 2005 and wereceived final customer acceptance of the tool at the customer’s site in March2006. In October of 2005, we received a second order for an i2000 SIMOXimplanter from SUMCO and negotiated a master purchase agreement that willgovern the general commercial terms of future orders from SUMCO. This implanterwas factory accepted by SUMCO at Ibis’ facility in the first quarter of 2006.The implanter was shipped in April 2006 and final customer acceptance at thecustomer’s facility occurred in August, 2006, with the revenue recognized inthe quarter ended September 30, 2006.

**CriticalAccounting Policies**

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples 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, and the assessment of long-livedasset impairment. Actual results may differ from these estimates underdifferent assumptions or conditions. Below, we discuss these policies further,as well as the estimates and judgments involved.

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***RevenueRecognition****. *We recognize revenue from equipment salesand the sales of spare parts when all of the following criteria have been met:(1) evidence exists that the customer is bound to the transaction; (2) theproduct has been delivered to the customer and, when applicable, the producthas been installed and accepted by the customer; (3) the sales price to thecustomer has been fixed or is determinable; and (4) collectibility of the salesprice is reasonably assured. We recognize revenue from implanter sales uponfinal customer acceptance at the customer’s site. Revenue derived fromcontracts and services is recognized upon performance. Significant managementjudgments and estimates must be made and used in connection with revenuerecognized in any period. Management analyzes various factors, including areview of specific transactions, historical experience, credit worthiness ofcustomers and current market and economic conditions. Changes in judgment basedupon these factors could impact the timing and amount of revenue and costrecognized.

***InventoryValuation and Reserves****. *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.

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

·                  Significant underperformance relative toexpected historical or projected future operating results,

·                  Significant changes in the manner of ouruse of the acquired assets or the strategy of our overall business,

·                  Significant negative industry or economictrends,

·                  Significant decline in our stock price fora sustained period, and

·                  Our market capitalization relative tobook value.

In accordance with SFASNo. 144, when we determine that the carrying value of applicable long-livedassets may not be recoverable based upon the existence of one or more of theabove indicators of impairment, we evaluate whether the carrying amount of theasset exceeds the sum of the undiscounted cash flows expected to result fromthe use and eventual disposition of that asset or asset group. If such acircumstance exists, we would measure an impairment loss to the extent thecarrying amount of the particular long-lived asset or group exceeds its fairvalue. We would determine the fair value based on a projected discounted cashflow method using a discount rate determined by our management to becommensurate with the risk inherent in our current business model.

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**Results of Operations**

***First Quarter Ended March 31, 2007 Compared to First Quarter EndedMarch 31, 2006***

***License and Other Revenue***.  License and other revenue includes revenuederived from license agreements, characterization and other services. Licenseand other revenue decreased for the first quarter ended March 31, 2007 to $0.1million from $0.3 million for the first quarter ended March 31, 2006, adecrease of $.2 million or 67%. This decrease is attributable to a newsub-license agreement, entered into during the first quarter ended March 31,2006 which related to equipment technology valued at approximately $.2 million.

***EquipmentRevenue. ***Equipment revenue represents revenuerecognized from sales of implanters, spare parts and field service revenue.Equipment revenue decreased to $0.2 million for the first quarter ended March31, 2007 from $6.0 million for the first quarter ended March 31, 2006,representing a decrease of $5.8 million. During the first quarter of 2007,there was no implanter revenue recognition as compared to the first quarter of2006 where revenue was recognized for an i2000 implanter of $6.0 million. Fieldservice revenue accounted for $0.1 million of equipment revenue for the firstquarter ended March 31, 2007 as compared to $0 dollars of equipment revenue forthe same period last year. Sales of spare parts accounted for $0.1 million ofequipment revenue for the first quarter ended March 31, 2007 as compared to $0dollars of equipment revenue for the first quarter ended March 31, 2006. Salesof spare parts fluctuate depending on customer demand and when warrantiesexpire on individual pieces of equipment. Warranty expense is calculated on ouranticipated replacement costs for equipment accepted by our customers over aone or two year contract period.

***TotalNet Sales and Revenue***.  Total sales and revenue forthe first quarter ended March 31, 2007 was $0.3 million, a decrease of $6.0million, from total net revenue of $6.3 million for the first quarter endedMarch 31, 2006. This decrease is due to no revenue recognition of implanters inthe quarter ended March 31, 2007 as compared to the recognition of $6.0 millionof an i2000 implanter in the quarter ended March 31, 2006.

***TotalCost of Sales and Revenue***.  Cost ofequipment revenue represents the cost of equipment, the cost for spare parts,and the costs of labor incurred for field service. Cost of equipment revenuefor the first quarter ended March 31, 2007 was $0.1 million, as compared to$2.7 million for the first quarter ended March 31, 2006. This decrease of $2.6million was primarily due to the costs associated with the recognition ofrevenue for the i2000 implanter in the first quarter ended March 31, 2006.

Total cost ofsales and revenue including contract and other revenue as well as equipmentrevenue mentioned above for the first quarter ended March 31, 2007 was $0.1million as compared to $2.7 million for the first quarter ended March 31, 2006,a decrease of $2.6 million. The gross margin for all sales was a positive 65%for the first quarter ended March 31, 2007 as compared to a positive grossmargin of 57% for the first quarter ended March 31, 2006. The decrease in thegross margin for all sales is attributable to the approximate gross margin of54% for the i2000 implanter sale recognized in the first quarter ended March31, 2006 as compared to no implanter gross margin for the quarter ended March31, 2007.

***Generaland Administrative Expenses***.  General andadministrative expenses remained flat at $0.6 million for the quarters  ended March 31, 2007 and March 31, 2006.Expenses includes $0.1 million of stock-based compensation expense, whichimpacted the financial statements in compliance with the new accounting rule,in the quarter ended March 31 2007 and the quarter ended March 31, 2006.

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***Marketingand Selling Expenses***.  Marketing and selling expensesfor the first quarter ended March 31, 2007 were $0.2 million as compared to$0.3 million for the first quarter ended March 31, 2006. This was due todecreased payroll and payroll related expenses of $0.1 million due to headcountreductions in the quarter ended March 31, 2007.

***Researchand Development Expenses.***  Internallyfunded research and development expenses decreased by $0.2 million or 20% to$1.1 million for the first quarter ended March 31, 2007, as compared to $1.3million for the first quarter ended March 31, 2006. This was due to a reductionin payroll and payroll related expenses of $0.2 million from headcountreductions and labor costs transferred for consulting at a neighboring businessin the quarter ended March 31, 2007.

***Other Income (Expense)*****.**  Totalother income for the first quarter ended March 31, 2007 was $0.2 million ascompared to $0.1 million for the first quarter ended March 31, 2006. Otherincome increased in the quarter ended March 31, 2007 as a result of outsideconsulting done at a neighboring business under a staffing services agreement.

#### **Liquidityand Capital Resources**

As of March 31,2007, the Company had cash and cash equivalents of $5.6 million, including thefinancing of $2.2 million received during the quarter from the sale of 1.4million shares of common stock and 1.05 million warrants as part of our 2007financing. During the three months ended March 31, 2007, Ibis used $1.2 millionof cash from operating activities of continuing operations as compared to $1.7million in the three months ended March 31, 2006. The principal uses of cashduring the three months ended March 31, 2007 were to fund operations. At March31, 2007, Ibis had commitments to purchase approximately $0.2 million inmaterial. Our headcount for the quarter ended March 31, 2007 was 34 employees.

Cash flow projections developed bymanagement indicate the Company believes it will have sufficientcash resources to support operations until at least November 2008. Thisexpectation however, is based on the Company’s current operating plan andgeneral sales outlook, each of which may change rapidly. In January 2007 theCompany announced that to conserve cash it was reducing its operating expensesby approximately 40% which involved cost cutting measures consisting ofheadcount reductions, consulting at a neighboring business for a minimum of sixmonths under a staffing services agreement, salary reductions and reducingconsumable expenses. On February 16, 2007 the Company entered into a purchaseagreement pursuant to which it agreed to sell unregistered shares of its commonstock and warrants exercisable for common stock to Special Situations Funds foran aggregate purchase price of $5.3 million in a two-tranche financing. Thefirst closing of the February 2007 financing, at which the Company receivedapproximately $2.2 million in proceeds occurred on February 20, 2007. Pursuantto stockholder approval received at the Ibis Annual Meeting on May 10, 2007,the Company sold the remainder of the securities at a second closing, at whichthe Company received approximately $3.1 million in proceeds. In connection withthe transaction, the Company also entered into a registration rights agreementwith the investors. The Company paid a placement fee to a placement agent ofapproximately $0.2 million, which represents a cash fee equal to 5% of thegross proceeds and issued 105,185 warrants exercisable for common stock with adollar value equal to 5% of the gross proceeds of the second financing. Apayment of approximately $0.1 million was made and warrants to purchase 74,434shares of common stock were issued to the placement agent in connection withthe first closing. All of the securities were sold in a private placementpursuant to Regulation D of the Securities Act.

The Company intends to continue to invest in research and developmentand its manufacturing capabilities. Changes in technology or sales growthbeyond currently established capabilities may require further investment.Further adoption of the technology and timing of future equipment orders aredependent on the continuing qualification of implanters and improvement programsat the device manufacturers, among other factors.

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At present time the Company has only one of the fourmajor wafer manufacturers as its current customer. We currently do not have anorder backlog for implanters. The timing of future orders is important anddifficult to predict because customers can delay orders and/or request earlyshipment, either of which could cause the need for additional cashrequirements. Forecasting future revenue, on a quarter-by-quarter basis remainsexceedingly difficult and significant variations quarter to quarter, arelikely. Further, because some of the materials and components the Company usesto build its implanter have long lead times, the Company may purchase some orall of these long lead time items prior to receipt of an order by itscustomers. When this is the case, those parts and materials bear the risk ofbeing subject to excess and obsolescence. The Company expects to continue toexplore equity offerings and other forms of financing in order to financefuture growth and our research and development programs. There can be noassurance however that our actual needs will not exceed expectations or that wewill be able to fund our operations on a long-term basis in the absence ofother sources. There also can be no assurance that any additional requiredlonger term financing will be available through additional bank borrowings,debt or equity offerings or otherwise, or that if such financing is available,that it will be available on 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 Company’s expectationsregarding future orders for i2000 implanters, (ii)****attaining implanterimprovements to the degree and in the timeframe necessary to meet SUMCO’sexpectations, (iii) the timing of SUMCO’s ramping to production quantities onthe i2000 implanter and the sustained production worthiness of the i2000implanter, (iv) the reliance on a single or small number of large customers, interestin and demand for, and market acceptance of, the Company’s SIMOX-SOI technologyincluding the Company’s implanters, (v) the involvement generally of thesilicon wafer manufacturing industry in the SOI wafer market and the ability ofthe wafer manufacturer’s to produce sufficiently low cost SIMOX-SOI wafersutilizing both our SIMOX equipment and technology, as well as other equipmentmanufacturer’s tools, (vi) the Company’sability to conduct its operations in a manner consistent with its current planand existing capital resources or otherwise to obtain additional implanterorders or to secure financing to continue as a going concern, (vii) thecontinued employment of key management and technical personnel, (viii) thetiming and likelihood of revenue recognition on orders for the Company’simplanters, (ix) the Company’s belief that wafer manufacturers willbecome the primary suppliers of SIMOX-SOI wafers to the chipmaking industry,(x) the throughput and production capacity of the i2000 implanter formanufacturing 300-mm 

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SIMOX-SOI wafers,attaining implanter improvements to the degree and in the timeframe necessaryto meet customer expectations, and the ability of the i2000 implanter toachieve acceptable production yields, (xi) the Company’s plan to focus onsupplying implanters to wafer manufacturers, and (xii) the Company’sexpectation of having sufficient cash for operations. Such statements areneither promises nor guarantees but rather are subject to risks anduncertainties, which could cause actual results to differ materially from thosedescribed in the forward-looking statements. Such risks and uncertaintiesinclude, but are not limited to: future continued migration to SOI technologyand market acceptance of SIMOX; the level of demand for the Company’s products;the Company’s ability to pursue and maintain further strategic relationships,partnerships and alliances with third parties; the Company’s ability to protectits proprietary technology; the potential trends in the semiconductor industrygenerally; the ease with which the i2000 can be installed and qualified infabrication facilities; the likelihood that implanters, if ordered, will bequalified and accepted by customers without substantial delay, modification, orcancellation, in whole or in part; the likelihood and timing of revenuerecognition on such transactions; the impact of competitive products,technologies and pricing; the impact of rapidly changing technology; thepossibility of the impact of competitive products, technologies and pricing;the impact of rapidly changing technology; the possibility of further assetimpairment and resulting charges; equipment capacity and supply constraints ordifficulties; the Company’s limited history in selling implanters; generaleconomic conditions; and

 

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other risks anduncertainties described elsewhere in this Form 10-Q and in the Company’sSecurities and Exchange Commission filings from time to time, including but notlimited to those set forth in the Company’s annual report on Form 10-K for theyear ended December 31, 2006. All information set forth in this Form 10-Q is asof the date of this Form 10-Q, and Ibis undertakes no duty to update thisinformation, unless required by law.

**Off-Balance Sheet Arrangements**

We do not have anyoff-balance sheet arrangements as defined in Regulation S-K Section303(a)(4)(ii).

**Contractual Obligations**

We have no significantcontractual obligations not fully recorded on our Balance Sheets or fullydisclosed in the Notes to our Financial Statements.  Information about future payments undercertain of our contractual obligations is contained in Note 8 to theConsolidated Financial Statements in our 2006 Annual Report on Form 10-K.

**Effects of Inflation**

Ibis believes that overthe past three years inflation has not had a significant impact on Ibis’ salesor operating results.

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**IBIS TECHNOLOGYCORPORATION**

**PART I — ITEM 3**

**QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

The exposure ofmarket risk associated with risk-sensitive instruments is currently notmaterial to the Company. The Company will begin to transact its service saleswith Japanese customers in Yen, which will introduce the potential for acurrency exchange gain or loss on those transactions. The Company plans tocontinue to transact its sales for implanter equipment and all othertransactions denominated in United States dollars. The Company 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 TECHNOLOGYCORPORATION**

**PART I — ITEM 4**

**CONTROLS AND PROCEDURES**

(a)          Evaluation of DisclosureControls and Procedures. As of March 31, 2007, the Company’s management, withthe participation of its principal executive officer and principal financialofficer, evaluated the effectiveness of the Company’s disclosure controls andprocedures pursuant to Rule 13a-15(b) promulgated under the Securities ExchangeAct of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer andChief Financial Officer concluded that, as of March 31, 2007, the Company’sdisclosure controls and procedures were effective in ensuring that materialinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms, including ensuring that such material informationis accumulated and communicated to the Company’s management, including theCompany’s Chief Executive Officer and the Company’s Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

(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**

**OTHER INFORMATION**

**Item 1 - LegalProceedings**

On April 26, 2007, the Court approved a settlement agreement in theconsolidated securities class action captioned *In re IbisTechnology Securities Litigation*, Civil Action No., 04-10446 RCL (D.Mass.).  The Company and its Chairman ofthe Board, Martin J. Reid, and the plaintiffs reached an agreement in principleto settle the securities class action, which the Company announced on October2, 2006.  Thereafter, the partiesexecuted a formal settlement agreement and submitted it for Courtapproval.  The settlement provides for apayment to the plaintiffs of $1.9 million. The Court’s April 26, 2007 Order certified the proposed class forsettlement purposes only, approved the parties’ settlement agreement, and dismissedthe securities class action with prejudice and in its entirety.  The settlement was funded entirely by theCompany’s insurance carrier and will not have a material adverse affect on ourbusiness, results of operations and financial condition.

On April 10, 2007the Company announced that the shareholder derivative action filed in February2004 against certain of the Company’s directors and officers: Louis F.Matheson, Jr. v. Martin J. Reid et al., Civ. Act. No. 04-10341 (RCL) has been voluntarilydismissed by the plaintiff. The notice of dismissal filed by the plaintiffdismissed the action with prejudice. As set forth in the notice, the plaintiffwill receive a $55,000 payment following the dismissal, in consideration ofplaintiff’s analysis of information provided by the Company regarding, amongother things, the Company’s contention that the litigation should be dismissedfor failure to make a demand on the Board of Directors before filing suit asrequired by Massachusetts law. The payment will be funded entirely by theCompany’s insurance carrier.

**Item 1A.**                 Risk Factors

Giventhe settlement described in Item No. 1 above, the “Risk Factor”****in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, underthe heading “***SecuritiesLitigation Could Result in Substantial Cost and Divert the Attention of KeyPersonnel, Which Could Seriously Harm Our Business.”*** These mattershave been resolved in their entirety.

***The issuance of shares inconnection with the February 2007 financing and the exercise of the relatedwarrants will dilute the value of our shares of common stock and could causethe price of our shares of common stock to decline.***

Prior to the February 2007financing, there were 10,915,481 shares outstanding and there were 370,786shares of common stock reserved for issuance under our equity incentive andstock purchase plans.  In connection withthe first closing of the two tranche financing, we issued 1,400,000 shares ofcommon stock and warrants to purchase 1,124,434****sharesof common stock, including warrants to purchase 74,434****sharesof common stock issued to TN Capital Equities, Ltd., which served as placementagent, and its designees.  At the secondclosing, we sold an additional 1,978,377 shares of common stock and warrants topurchase 1,588,966****shares ofcommon stock, including 105,185****to theplacement agent and its designees.  As aresult of the February 2007 financing, Special Situation Funds and itsaffiliates beneficially own approximately 37% of our capital stock.

The exercise of the warrantsissued in the February 2007 financing will result in dilution in the value ofthe shares of our outstanding common stock and the voting power representedthereby. In addition, the exercise price of the warrants may be lowered underthe price adjustment provisions in the event of a “dilutive issuance,” that is,if we issue common stock at any time prior to their maturity at a per shareprice below such conversion or exercise price, either directly or in connectionwith the issuance of securities that are convertible into, or exercisable for,shares of our common stock. A reduction in the exercise price may result in theissuance of a significant number of additional shares upon the exercise of thewarrants.

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The warrants do notestablish a “floor” that would limit reductions in such conversion price orexercise price. The downward adjustment of the exercise price of these warrantscould result in further dilution in the value of the shares of our outstandingcommon stock and the voting power represented thereby.

No prediction can be made asto the effect, if any, that future sales of shares of our common stock, or theavailability of shares for future sale, will have on the market price of ourcommon stock prevailing from time to time. Sales of substantial amounts ofshares of our common stock in the public market, or the perception that suchsales could occur, may adversely affect the market price of our common stockand may make it more difficult for us to sell our equity securities in thefuture at a time and price which we deem appropriate.

To the extent thesecurityholders who have purchased our common shares and the holders of ourwarrants exercise such securities and then sell the shares of our common stockthey receive upon exercise, our stock price may decrease due to the additionalamount of shares available in the market. The subsequent sales of these sharescould encourage short sales by our securityholders and others, which couldplace further downward pressure on our stock price. Moreover, holders of thesewarrants may hedge their positions in our common stock by shorting our commonstock, which could further adversely affect our stock price.

Except as described in this Item 1A, for informationregarding risk factors, please refer to Item 1A in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2006.

**Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds**

None

**Item 3 - Defaultsupon Senior Securities**

None

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**IBIS TECHNOLOGYCORPORATION**

**PART II**

**OTHER INFORMATION**

**Item 4 —Submission of Matters to a Vote of Security Holders**

The annual meeting of stockholders of Ibis was on May 10, 2006. Thefollowing matters were voted on at the meeting:

(1)          Three people were elected to theBoard of Directors of the Company to serve for a term ending in 2010 and untiltheir respective successors are duly elected and qualified. The following is atable setting forth the number of votes cast for and withheld for each nomineefor Director.

| Name               | ** ** | **Vote For** | ** ** | **Vote Withheld** |
|--------------------|------------|--------------|------------|-------------------|
| Dimitri Antoniadis |       |         | 10,176,905 |              |   | 115,252 |
| Robert L. Gable    |       |         | 10,080,333 |              |   | 211,824 |
| Martin J. Reid     |       |         | 9,854,721  |              |   | 437,436 |

 

(2)          The stockholders of the Company votedto approve the sale and issuance to a group of private investors, 1,978,377shares of Common Stock at a price of $1.57375 and five-year warrants topurchase an aggregate of 1,483,781 shares of Common Stock at an exercise priceof $1.50 per share in the second closing of the February 2007 financing.  Stockholders holding 2,505,455 shares votedin favor of the proposal, stockholders holding 125,137 shares voted against theproposal, stockholders holding 6,675 shares abstained from voting on thisproposal and stockholders holding 7,654,290 shares did not vote on thisproposal.

(3)          The stockholders of the Company votedto approve the Company’s 2007 Employee, Director and Consultant Equity Plan.Stockholders holding 2,014,566 shares voted in favor of the proposal,stockholders holding 547,915 shares voted against the proposal, stockholdersholding 75,386 shares abstained from voting on this proposal and stockholdersholding 7,654,290 shares did not vote on this proposal.

(4)           The stockholders of the Companyratified the appointment of KPMG LLP as the Company’s independent registeredpublic accountants for the fiscal year ending December 31, 2007. Stockholdersholding 10,220,234 shares voted in favor of the proposal, stockholders holding66,128 shares voted against the proposal and stockholders holding 5,795 sharesabstained from voting on this proposal.

**Item 5 — OtherInformation**

   None

**Item 6 — Exhibits**

(a)                                  Exhibits furnished as Exhibits hereto:

| Exhibit No. | ** ** | **Description**                                                                                        |
|-------------|------------|--------------------------------------------------------------------------------------------------------|
| 31.1        |       | Certification of  Charles M. McKenna, Ph.D. pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 |
| 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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**IBIS TECHNOLOGYCORPORATION**

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
|                     |   | Ibis Technology Corporation |
|---------------------|--------|-----------------------------|
|                |   |                        |   |   |
| Date: May 15,  2007 |   | By:                         |   | /s/William J. Schmidt |
|                |   |                        |   | William J. Schmidt |
|                |   |                        |   | Chief Financial Officer, Treasurer and Clerk |
|                |   |                        |   | (principal financial and accounting officer) |
|                |   |                        |   |   |
| Date: May 15,  2007 |   | By:                         |   | /s/Charles M. McKenna, Ph.D. |
|                |   |                        |   | Charles M. McKenna, Ph.D. |
|                |   |                        |   | President and Chief Executive Officer |

 

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