** **

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20569**

 

**Form 10-Q**

 

 

ýQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

 

**For theQuarterly Period Ended September 30, 2002**

 

Or

 

oTransition Report Pursuant to Section 13 or 15(d) of the Securities ExchangeAct of 1934

 

**For thetransition period from __________ to __________**

** **

**Commission file 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) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes  ý No o

 

9,436,170 sharesof Common Stock, par value $.008, were outstanding on October 31, 2002.

 

 

**IBIS TECHNOLOGY CORPORATION**

 

**INDEX**

 

PART 1 - FINANCIAL INFORMATION

 
| Item 1 — Financial Statements:                                                                                                     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                    |   |
| Balance Sheets  December 31, 2001 and September 30, 2002 (unaudited)                                                                    |   |
|                                                                                                                                    |   |
| Statements  of Operations Three Months Ended September 30, 2001 and 2002 and Nine Months  Ended September 30, 2001 and 2002 (unaudited) |   |
|                                                                                                                                    |   |
| Statements  of Cash Flows Nine Months Ended September 30, 2001 and 2002 (unaudited)                                                     |   |
|                                                                                                                                    |   |
| Notes  to Unaudited Interim Financial Statements                                                                                        |   |
|                                                                                                                                    |   |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                              |   |
|                                                                                                                                    |   |
| Item 3 —  Quantitative and Qualitative Disclosure About Market Risk                                                                |   |
|                                                                                                                                    |   |
| PART II — OTHER  INFORMATION                                                                                                       |   |
|                                                                                                                                    |   |
| Item 1 — Legal Proceedings                                                                                                         |   |
|                                                                                                                                    |   |
| Item 2 — Changes in  Securities                                                                                                    |   |
|                                                                                                                                    |   |
| Item 3 —  Defaults upon Senior Securities                                                                                          |   |
|                                                                                                                                    |   |
| Item  4 — Submission of Matters to a Vote of Security Holders                                                                      |   |
|                                                                                                                                    |   |
| Item 5 — Other Information                                                                                                         |   |
|                                                                                                                                    |   |
| Item 6 —  Exhibits and Reports on Form 8-K                                                                                         |   |
|                                                                                                                                    |   |
| Signatures                                                                                                                              |   |
|                                                                                                                                    |   |

 

2

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**IBIS TECHNOLOGY CORPORATION**

 

**BALANCESHEETS**

 
|                                                                                                        |   |              |       |               |       |
|-------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|--------------------|------------|
|                                                                                                        |   | **December  31,** |       | **September  30,** |       |
|                                                                                                        |   | **2001**          |       | **2002**           |       |
|                                                                                                        |   |              |       | **(Unaudited)**    |       |
| **Assets**                                                                                                  |   |              |       |               |       |
| **Current assets:**                                                                                         |   |              |       |               |       |
| Cash and cash  equivalents                                                                                  |   | $                 | 13,087,799 |               | $          | 12,900,716 |   |
| Accounts  receivable, trade, net                                                                            |   | 5,765,614         |       | 1,552,426          |       |
| Inventories  (note 3)                                                                                       |   | 1,535,512         |       | 2,192,985          |       |
| Deferred costs                                                                                              |   | 2,474,264         |       | 1,952,775          |       |
| Prepaid expenses  and other current assets                                                                  |   | 210,530           |       | 381,068            |       |
| Total current  assets                                                                                       |   | 23,073,719        |       | 18,979,970         |       |
| Property and  equipment                                                                                     |   | 43,039,864        |       | 49,361,685         |       |
| Less:  Accumulated depreciation and amortization                                                       |   | (13,297,308       | )          | (17,710,467        | )          |
| Net property and  equipment                                                                                 |   | 29,742,556        |       | 31,651,218         |       |
| Patents and  other assets, net                                                                              |   | 2,104,029         |       | 1,940,663          |       |
| Total assets                                                                                                |   | $                 | 54,920,304 |               | $          | 52,571,851 |   |
|                                                                                                        |   |              | ** ** |               | ** ** |
| **Liabilities  and Stockholders’ Equity**                                                              |   |              | ** ** |               | ** ** |
| **Current liabilities:**                                                                                    |   |              |       |               |       |
| Capital lease  obligation, current                                                                          |   | $                 | 1,502,524  |               | $          | 1,503,437 |   |
| Accounts payable                                                                                            |   | 1,124,180         |       | 3,703,140          |       |
| Accrued  liabilities                                                                                        |   | 2,429,956         |       | 2,048,745          |       |
| Deferred revenue                                                                                            |   | 6,785,299         |       | 1,164,332          |       |
| Total current  liabilities                                                                                  |   | 11,841,959        |       | 8,419,654          |       |
| Capital lease  obligation, noncurrent                                                                       |   | 2,684,766         |       | 1,558,267          |       |
| Deferred gain on  capital lease                                                                             |   | 33,705            |       | 24,499             |       |
| Total  liabilities                                                                                          |   | 14,560,430        |       | 10,002,420         |       |
|                                                                                                        |   |              |       |               |       |
| **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 8,412,138 shares and 9,436,170 shares in 2001 and  2002, respectively |   | 67,297            |       | 75,489             |       |
| Additional  paid-in capital                                                                                 |   | 66,618,223        |       | 78,906,581         |       |
| Accumulated  deficit                                                                                        |   | (26,325,646       | )          | (36,412,639        | )          |
| Total  stockholders’ equity                                                                            |   | 40,359,874        |       | 42,569,431         |       |
| Total  liabilities and stockholders’ equity                                                            |   | $                 | 54,920,304 |               | $          | 52,571,851 |   |

 

See accompanyingnotes to unaudited interim financial statements.

 

3

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**IBIS TECHNOLOGY CORPORATION**

 

**STATEMENTSOF OPERATIONS**

**(Unaudited)**

 
|                                  |   | **Three  months ended** |       | **Nine  months ended** |       |
|---------------------------------------|--------|-------------------------|------------|------------------------|------------|
|                                  |   | **September  30,**      |       | **September  30,**     |       |
|                                  |   | **2001**                |       | **2002**               |       | **2001** |   | **2002** |   |
|                                  |   |                    |       |                   |       |   |   |   |   |
| **Net Sales and revenue:**            |   |                    |       |                   |       |   |   |   |   |
| Product sales                         |   | $                       | 925,550    |                   | $          | 2,011,670 |   | $ | 4,160,495 |   | $ | 4,992,987 |   |
| Contract and  other revenue           |   | 131,874                 |       | 60,701                 |       | 477,767 |   | 232,761 |   |
| Equipment  revenue                    |   | 386,403                 |       | 5,657,605              |       | 1,262,488 |   | 5,987,565 |   |
| Total net sales  and revenue (note 2) |   | 1,443,827               |       | 7,729,976              |       | 5,900,750 |   | 11,213,313 |   |
|                                  |   |                    |       |                   |       |   |   |   |   |
| **Cost of sales and revenue:**        |   |                    |       |                   |       |   |   |   |   |
| Cost of product  sales                |   | 2,224,616               |       | 3,995,509              |       | 5,874,923 |   | 10,278,147 |   |
| Cost of contract  and other revenue   |   | 90,269                  |       | 9,819                  |       | 351,642 |   | 97,076 |   |
| Cost of  equipment revenue            |   | 892,372                 |       | 3,573,559              |       | 1,305,807 |   | 3,732,403 |   |
| Total cost of  sales and revenue      |   | 3,207,257               |       | 7,578,887              |       | 7,532,372 |   | 14,107,626 |   |
| Gross profit  (loss)                  |   | (1,763,430              | )          | 151,089                |       | (1,631,622 | ) | (2,894,313 | ) |
|                                  |   |                    |       |                   |       |   |   |   |   |
| **Operating expenses:**               |   |                    |       |                   |       |   |   |   |   |
| General and  administrative           |   | 518,414                 |       | 502,183                |       | 1,650,970 |   | 1,643,802 |   |
| Marketing and  selling                |   | 379,842                 |       | 382,303                |       | 1,400,752 |   | 1,155,703 |   |
| Research and  development             |   | 1,311,172               |       | 1,604,539              |       | 3,716,428 |   | 4,614,678 |   |
| Total operating  expenses             |   | 2,209,428               |       | 2,489,025              |       | 6,768,150 |   | 7,414,183 |   |
| Loss from  operations                 |   | (3,972,858              | )          | (2,337,936             | )          | (8,399,772 | ) | (10,308,496 | ) |
|                                  |   |                    |       |                   |       |   |   |   |   |
| **Other income (expense):**           |   |                    | ** ** |                   | ** ** |   | ** ** |   | ** ** |
| Interest income                       |   | 150,550                 |       | 68,017                 |       | 738,900 |   | 231,816 |   |
| Interest expense                      |   | (624                    | )          | (2,672                 | )          | (2,087 | ) | (9,057 | ) |
| Other                                 |   | 1,417,452               |       | —                 |       | 1,425,023 |   | — |   |
| Total other  income                   |   | 1,567,378               |       | 65,345                 |       | 2,161,836 |   | 222,759 |   |
| Loss before  income taxes             |   | (2,405,480              | )          | (2,272,591             | )          | (6,237,936 | ) | (10,085,737 | ) |
|                                  |   |                    |       |                   |       |   |   |   |   |
| Income tax  expense                   |   | —                  |       | —                 |       | 1,256 |   | 1,256 |   |
|                                  |   |                    |       |                   |       |   |   |   |   |
| Net loss                              |   | $                       | (2,405,480 | )                      | $          | (2,272,591 | ) | $ | (6,239,192 | ) | $ | (10,086,993 | ) |
|                                  |   |                    |       |                   |       |   |   |   |   |
| Net loss per  common share:           |   |                    |       |                   |       |   |   |   |   |
| Basic                                 |   | $                       | (0.29      | )                      | $          | (0.24 | ) | $ | (0.75 | ) | $ | (1.11 | ) |
| Diluted                               |   | $                       | (0.29      | )                      | $          | (0.24 | ) | $ | (0.75 | ) | $ | (1.11 | ) |
|                                  |   |                    |       |                   |       |   |   |   |   |
| Weighted average  number of common    |   |                    |       |                   |       |   |   |   |   |
| shares  outstanding:                  |   |                    |       |                   |       |   |   |   |   |
| Basic                                 |   | 8,387,386               |       | 9,436,170              |       | 8,371,452 |   | 9,126,317 |   |
| Diluted                               |   | 8,387,386               |       | 9,436,170              |       | 8,371,452 |   | 9,126,317 |   |

 

See accompanyingnotes to unaudited interim financial statements.

 

4

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**IBIS TECHNOLOGY CORPORATION**

 

**STATEMENTSOF CASH FLOWS**

**(Unaudited)**

 
|                                                                                             |   | **Nine  months ended** |       |
|--------------------------------------------------------------------------------------------------|--------|------------------------|------------|
|                                                                                             |   | **September  30,**     |       |
|                                                                                             |   | **2001**               |       | **2002** |   |
|                                                                                             |   |                   |       |   |   |
| **Cash  flows from operating activities:**                                                       |   |                   |       |   |   |
| Net loss                                                                                         |   | $                      | (6,239,192 | ) | $ | (10,086,993 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities:                 |   |                   |       |   |   |
| Depreciation and  amortization                                                                   |   | 2,359,106              |       | 4,657,960 |   |
| Gain on sale of  equipment                                                                       |   | 7,571                  |       | — |   |
| Changes in  operating assets and liabilities:                                                    |   |                   |       |   |   |
| Accounts  receivable, trade                                                                      |   | 405,231                |       | 4,213,188 |   |
| Unbilled revenue                                                                                 |   | 382,152                |       | — |   |
| Inventories                                                                                      |   | (2,797,585             | )          | (657,473 | ) |
| Prepaid expenses  and other current assets                                                       |   | 104,839                |       | 350,951 |   |
| Accounts payable                                                                                 |   | 1,667,629              |       | 2,578,960 |   |
| Accrued  liabilities and deferred revenue                                                        |   | (2,638,074             | )          | (6,002,178 | ) |
|                                                                                             |   |                   |       |   |   |
| Net cash used in  operating activities                                                           |   | (6,748,323             | )          | (4,945,585 | ) |
|                                                                                             |   |                   |       |   |   |
| **Cash  flows from investing activities:**                                                       |   |                   |       |   |   |
| Additions to  property and equipment, net                                                        |   | (6,398,061             | )          | (6,321,822 | ) |
| Other assets                                                                                     |   | (44,020                | )          | (81,434 | ) |
|                                                                                             |   |                   |       |   |   |
| Net cash used in  investing activities                                                           |   | (6,442,081             | )          | (6,403,256 | ) |
|                                                                                             |   |                   |       |   |   |
| **Cash  flows from financing activities:**                                                       |   |                   |       |   |   |
| Payments of  capital lease obligations                                                           |   | (7,880                 | )          | (1,134,792 | ) |
| Proceeds from  sale-leaseback of equipment                                                       |   | 2,469,122              |       | — |   |
| Exercise of  stock options and warrants                                                          |   | 258,177                |       | 183,081 |   |
| Proceeds from  sale of common stock net of issuance costs                                        |   | —                 |       | 12,113,469 |   |
|                                                                                             |   |                   |       |   |   |
| Net cash provided  by financing activities                                                       |   | 2,719,419              |       | 11,161,758 |   |
|                                                                                             |   |                   |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                            |   | (10,470,985            | )          | (187,083 | ) |
|                                                                                             |   |                   |       |   |   |
| Cash and cash  equivalents, beginning of period                                                  |   | 26,366,299             |       | 13,087,799 |   |
|                                                                                             |   |                   |       |   |   |
| Cash and cash  equivalents, end of period                                                        |   | $                      | 15,895,314 |   | $ | 12,900,716 |   |
|                                                                                             |   |                   |       |   |   |
| **Supplemental  disclosure of cash flow information:**  Cash paid during the period for interest |   | $                      | 2,087      |   | $ | 9,057 |   |

 

See accompanyingnotes to unaudited interim financial statements.

 

5

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**IBIS TECHNOLOGY CORPORATION**

 

**NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS**

 

 

**(1) InterimFinancial Statements**

 

The accompanying financial statements are unaudited,except for the Balance Sheet as of December 31, 2001, and have been prepared bythe Company in accordance with accounting principles generally accepted in theUnited States of America.

 

In the opinion of management, the interim financialstatements include all adjustments which consist only of normal and recurringadjustments necessary for a fair presentation of the Company’s financialposition and results of operations. Results of operations for the interim periods are not necessarilyindicative of the results to be expected for the full year.  These financial statements should be read inconjunction with the financial statements of the Company as of and for the yearended December 31, 2001 which are included in the Company’s Annual Report onForm 10-K.

 

**(2) RevenueRecognition**

 

The Company recognizesrevenue from product sales, equipment sales and the sales of spare parts whenall of 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; (3) the sales price to thecustomer has been fixed or is determinable; and (4) collectibility of the salesprice is reasonably assured.  Provisionsfor estimated sales returns and allowances are made at the time the productsare sold.  Revenue derived from services is recognized upon performance.  Contract revenue is recognized on thepercentage-of-completion method. Provisions for anticipated losses are made in the period in which suchlosses become determinable.  Unbilledrevenue under customer contracts represents revenue earned under thepercentage-of-completion method but not yet billable under the terms of thecontract.  These amounts are billablebased on the terms of the contract, which can include shipment of the product,achievement of milestones or completion of the contract.

 

**(3) Inventories**

 

Inventories consist ofthe following:

**                                                                                               **
|            |   | **December  31,** |      | **September  30,** |   |
|-----------------|--------|-------------------|-----------|--------------------|--------|
|            |   | **2001**          |      | **2002**           |   |
| Raw materials   |   | $                 | 390,345   |               | $      | 991,593 |   |
| Work in process |   | 262,449           |      | 697,150            |   |
| Finished goods  |   | 882,718           |      | 504,242            |   |
| Total inventory |   | $                 | 1,535,512 |               | $      | 2,192,985 |   |

 

**(4) Capitalization**

 

In March 2002, Ibiscompleted a public offering of 900,000 shares of common stock at $13 per share,and on April 1, 2002, 100,000 shares were exercised as an over allotment optionby the underwriter. Net proceeds to the Company were approximately $12,100,000.

 

6

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**IBIS TECHNOLOGY CORPORATION**

 

**NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS**

 

**(5) NetLoss Per Share**

 

**               **Net loss per share of common stock is computed basedupon the weighted average number of shares outstanding during each period andincluding the dilutive effect, if any, of stock options and warrants.  SFAS 128 requires the presentation of basicand diluted earnings (loss) per share for all periods presented.  As the Company was in a net loss positionfor the three and nine months ended September 30, 2001 and September 30, 2002,common stock equivalents of 2,444, 270,577, 0 and 70,611, respectively, wereexcluded from the diluted loss per share calculation, as they would beantidilutive.  As a result, diluted lossper share is the same as basic loss per share for all periods presented.

 

**(6) IndustrySegments**

 

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

 

The table below providesunaudited information for the three and nine months ended September 30, 2001and 2002 pertaining to the Company’s three industry segments.

** **
|                                                        |   | **SIMOX  Wafer Products** |      | **SIMOX  Equipment** |   | **Other Products****or Services** |   | **Total**  |    |
|-------------------------------------------------------------|--------|---------------------------|-----------|----------------------|--------|-----------------------------------|--------|------------|---------|
| **Net Sales  and Revenue**                                  |   |                      |      |                 |   |                              |   |       |    |
| Three  Months Ended September 30, 2001                      |   | $                         | 925,550   |                 | $      | 386,403                           |   | $          | 131,874 |   | $ | 1,443,827 |   |
| Three Months Ended September 30, 2002                       |   | 2,011,670                 |      | 5,657,605            |   | 60,701                            |   | 7,729,976  |    |
| Nine Months Ended September 30, 2001                        |   | 4,160,495                 |      | 1,262,488            |   | 477,767                           |   | 5,900,750  |    |
| Nine Months Ended September 30, 2002                        |   | 4,992,987                 |      | 5,987,565            |   | 232,761                           |   | 11,213,313 |    |
|                                                        |   |                      |      |                 |   |                              |   |       |    |
| **Operating Income (Loss)**                                 |   |                      |      |                 |   |                              |   |       |    |
| Three Months Ended September 30, 2001                       |   | (2,007,784                | )         | (1,488,265           | )      | 41,605                            |   | (3,454,444 | )       |
| Three Months Ended September 30, 2002                       |   | (2,051,941                | )         | 165,306              |   | 50,882                            |   | (1,835,753 | )       |
| Nine Months Ended September 30, 2001                        |   | (3,797,057                | )         | (3,077,870           | )      | 126,125                           |   | (6,748,802 | )       |
| Nine Months Ended September 30, 2002                        |   | (6,692,245                | )         | (2,108,133           | )      | 135,685                           |   | (8,664,693 | )       |
|                                                        |   |                      |      |                 |   |                              |   |       |    |
| **Assets**                                                  |   |                      |      |                 |   |                              |   |       |    |
| September 30, 2002                                          |   | 33,179,741                |      | 5,404,418            |   | 204,267                           |   | 38,788,426 |    |
|                                                        |   |                      |      |                 |   |                              |   |       |    |
| **Capital  Expenditures**                                   |   |                      |      |                 |   |                              |   |       |    |
| Three Months Ended September 30, 2001                       |   | 1,528,781                 |      | 240,052              |   | —                            |   | 1,768,833  |    |
| Three Months Ended September 30, 2002                       |   | 2,976,958                 |      | 20,561               |   | —                            |   | 2,997,519  |    |
| Nine Months Ended September 30, 2001                        |   | 5,873,630                 |      | 287,860              |   | —                            |   | 6,161,490  |    |
| Nine Months Ended September 30, 2002                        |   | 6,052,233                 |      | 124,339              |   | —                            |   | 6,176,572  |    |
|                                                        |   |                      |      |                 |   |                              |   |       |    |
| **Depreciation  and Amortization ofProperty and Equipment** |   |                      |      |                 |   |                              |   |       |    |
| Three Months Ended September 30, 2001                       |   | 699,756                   |      | 144,185              |   | —                            |   | 843,941    |    |
| Three Months Ended September 30, 2002                       |   | 1,168,493                 |      | 359,575              |   | —                            |   | 1,528,068  |    |
| Nine Months Ended September 30, 2001                        |   | 1,908,765                 |      | 356,497              |   | —                            |   | 2,265,262  |    |
| Nine Months Ended September 30, 2002                        |   | $                         | 3,472,047 |                 | $      | 1,117,652                         |   | $          | —  |   | $ | 4,589,699 |   |
|                                                             |        |                           |           |                      |        |                                   |        |            |         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

7

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**IBIS TECHNOLOGY CORPORATION**

 

**NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS**

 

The table below providesthe reconciliation of reportable segment operating loss and assets to Ibis’totals.

 
|                                                        |   | **Three  Months Ended** |       | **Nine  Months Ended** |   |
|-------------------------------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                                        |   | **September  30,**      |       | **September****30,**   |   |
|                                                        |   | **2001**                |       | **2002**               |   | **2001** |   | **2002** |   |
| **Segment Reconciliation**                                  |   |                    |       |                   |   |   |   |   |   |
|                                                        |   |                    |       |                   |   |   |   |   |   |
| Loss Before Income Taxes:                                   |   |                    |       |                   |   |   |   |   |   |
| Total operating loss for reportable segments                |   | $                       | (3,454,444 | )                      | $      | (1,835,753 | ) | $ | (6,748,802 | ) | $ | (8,664,693 | ) |
| Corporate general & administrative expenses             |   | (518,414                | )          | (502,183               | )      | (1,650,970 | ) | (1,643,803 | ) |
| Net other income                                            |   | 1,567,378               |       | 65,345                 |   | 2,161,836 |   | 222,759 |   |
| Loss before income taxes                                    |   | (2,405,480              | )          | (2,272,591             | )      | (6,237,936 | ) | (10,085,737 | ) |
| Capital Expenditures:                                       |   |                    |       |                   |   |   |   |   |   |
| Total capital expenditures for reportable segments          |   | 1,768,833               |       | 2,997,519              |   | 6,161,490 |   | 6,176,572 |   |
| Corporate capital expenditures                              |   | 105,285                 |       | 88,621                 |   | 236,571 |   | 145,250 |   |
| Total capital expenditures                                  |   | 1,874,118               |       | 3,086,140              |   | 6,398,061 |   | 6,321,822 |   |
|                                                        |   |                    |       |                   |   |   |   |   |   |
| Depreciation and Amortization:                              |   |                    |       |                   |   |   |   |   |   |
| Total depreciation and amortization for reportable segments |   | 843,941                 |       | 1,528,068              |   | 2,265,262 |   | 4,589,699 |   |
| Corporate depreciation and amortization                     |   | 33,783                  |       | 22,837                 |   | 93,844 |   | 68,261 |   |
| Total depreciation and amortization                         |   | $                       | 877,724    |                   | $      | 1,550,905 |   | $ | 2,359,106 |   | $ | 4,657,960 |   |

 
|                                                   |   | **Balance as  of** |       |
|--------------------------------------------------------|--------|--------------------|------------|
|                                                   |   | **9/30/02**        |       |
| Assets:                                                |   |               |       |
| Total assets for  reportable segments                  |   | $                  | 38,788,426 |   |
| Cash & cash  equivalents not allocated to segments |   | 12,900,716         |       |
| Other  unallocated assets                              |   | 882,709            |       |
| Total assets                                           |   | $                  | 52,571,851 |   |

 

8

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**IBIS TECHNOLOGY CORPORATION**

 

**NOTES TO UNAUDITED INTERIM FINANCIALSTATEMENTS**

 

**(7) NewAccounting Pronouncements**

 

Statement of Financial Accounting Standards No. 141, “BusinessCombinations”, (“SFAS 141”), issued in June 2001, addresses financialaccounting and reporting for business combinations which were initiated afterJune 30, 2001. This Statement also applies to all business combinationsaccounted for using the purchase method for which the date of acquisition isJuly 1, 2001, or later.  Theimplementation of SFAS 141 did not have any impact on the Company’s financialcondition or results of operations.

 

                Statement of Financial Accounting Standards No. 142,“Goodwill and Other Intangible Assets”, (“SFAS 142”), issued in June 2001,addresses financial accounting and reporting for acquired goodwill andintangible assets.  The provisions ofSFAS 142 are required to be applied starting with fiscal years beginning afterDecember 15, 2001. Early application is permitted for entities with fiscalyears beginning after March 15, 2001, provided that the first interim financialstatements have not previously been issued. Impairment losses for goodwill andindefinite-lived intangible assets that arise due to the initial application ofthis Statement (resulting from a transitional impairment test) are to bereported as resulting from a change in accounting principle. The implementationof SFAS 142 did not have any impact on the Company’s financial condition orresults of operations.

 

                Statement of Financial Accounting Standards No. 143,“Accounting For Asset Retirement Obligations”, (“SFAS 143”), issued in August2001, addresses financial accounting and reporting for obligations associatedwith the retirement of tangible long-lived assets and for the associatedretirement costs.  SFAS 143 applies toall entities that have a legal obligation associated with the retirement of atangible long-lived asset and is effective for fiscal years beginning afterJune 15, 2001.  The Company does notexpect the implementation of SFAS 143 to have a material impact on theCompany’s financial condition or results of operations.

 

                Statement of Financial Accounting Standards No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”, (“SFAS 144”),issued in October 2001, addresses financial accounting and reporting for theimpairment or disposal of long-lived assets. SFAS 144, which applies to all entities, is effective for fiscal yearsbeginning after December 15, 2001.  Theimplementation of SFAS 144 did not have any impact on the Company’s financialcondition or results of operations.

 

Statement ofFinancial Accounting Standards No. 145, “Rescission of FASB Statements No. 4,44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,”effective for fiscal years beginning May 15, 2002 or later that rescinds FASBStatement No. 4, Reporting Gains and Losses from Extinguishment of Debt, FASBStatement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,and FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers.This Statement Amends FASB Statement No. 4 and FASB Statement No. 13,Accounting for Leases, to eliminate an inconsistency between the requiredaccounting for sale-leaseback transactions. This Statement also amends otherexisting authoritative pronouncements to make various technical corrections,clarify meanings, or describe their applicability under changed conditions. TheCompany does not expect the implementation of SFAS No. 145 to have a materialimpact on the Company’s financial condition or results of operations.

 

9

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**IBISTECHNOLOGY CORPORATION**

 

**PART I -ITEM 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

 

**OVERVIEW**

 

Ibis TechnologyCorporation (“Ibis”) was formed in October 1987 and when we began operations in1988, most of our revenue was derived from research and development contractsand sales of SIMOX-SOI wafers for military applications. During 1995 to 2001,sources from sales of SIMOX-SOI wafers for commercial applications surpassedthose from military applications and in 1996 we began selling our proprietaryoxygen ion implanter, the Ibis 1000. Our revenues have been primarily derivedfrom commercial sales of wafers for evaluation purposes and from commercialequipment sales. In 1999, we commenced a program to design and develop thei2000 and in January 2002, we successfully performed the first implants usingthe i2000. We began shipping limited quantities of 300 mm Advantox MLD wafersusing this implanter, but continue to share the i2000 implanter between wafermanufacturing and engineering for factory automation software development. Ibisexpects to expand its commercial applications over the next several years with ourSIMOX-SOI products, which include both the licensed modified low dose (“MLD”)wafer process and the i2000, an oxygen ion implanter that is capable ofproducing eight and twelve inch (or 200 and 300 mm) SIMOX-SOI wafers. Wecontinue to anticipate 2002 to be a year focused on wafer sales as opposed toimplanter system sales and that in future years our business is more likely toinclude a growing component of equipment sales.

 

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

 

•                                            Sampling, where preliminary performancecharacteristics are explored and verified;

•                                            R&D, where specific customerspecifications are tested and developed; and

•                                            Production, where yield and cost benefitsare optimized.

 

Each of these stages hasmany steps, and customers must evaluate each new wafer technology thatessentially lays a new foundation for substantially all other processes theyhave spent billions of dollars and decades of time developing.  Accordingly, it takes anywhere from 12 to 36months for a customer to proceed from initial sampling through R&D toinitial production, which is not unlike the standard process for qualifying anynew wafer material.  These steps applyeach time there is a change in the customer’s fabrication process, such as afeature-size change or new material.

 

To date, most of ourcustomers have purchased wafers for the purpose of characterizing andevaluating the wafers, developing prototype products or for pilot production,consequently historical sales are not necessarily an indication of futureoperations. As a result, inventory valuation is a critical accounting policyfor Ibis. Our policy is to value our wafers at market when costs exceed marketand to reserve for a possible over supply of wafers utilizing inventory agingrecords and for obsolescence when engineering changes or other technologicaladvances indicate that obsolescence has occurred.

 

10

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

 

During the first ninemonths of 2002, we accomplished the following:

 

•                                          Started shipping initial production volumes of 200 mmand 300 mm Advantox® MLD wafers. Demand for our 300 mm SIMOX-SOIwafers, for R&D applications and initial production, continues to exceedour capacity;

•                                          Introduced our new oxygen ion implanter, the i2000,specifically designed for volume manufacturing of high quality, low-cost, 200and 300 mm SIMOX-SOI wafers for advanced semiconductor devices;

•                                          Announced the receipt of our first order from a majorsemiconductor manufacturer for an i2000 implanter. The order is valued atapproximately $8 million; and

•                                          Recognized revenue in excess of $5 million from thesale of an Ibis 1000 oxygen implanter and parts to our first customer in China.

 

Ibis has experiencedquarterly and annual fluctuations in revenue and results of operations due tothe timing of implanter equipment sales and dependence on a limited number ofcustomers.  We expect these fluctuationsto continue in the foreseeable future. We recognize implanter revenue in accordance with SAB 101, whichincludes among other criteria, the shipment and factory installation of theimplanter at the customer’s location. As a result, deferral of revenue may extend longer due to meeting thesecriteria.

 

At December 31, 2001, wehad Ibis 1000 implanter capacity available to produce up to approximately150,000 200 mm SIMOX wafers; this varies depending on product mix.  Ibis has no plans to build additional Ibis1000 implanters. Based upon existing orders and anticipated demand for 300 mmSIMOX-SOI wafers and i2000 implanters, we are building three additionali2000’s, one of which we have received an order for, and purchasing additional300 mm wafer processing tools (annealing, cleaning and metrology).  It should be noted that a majority of the300 mm equipment could also accommodate 200 mm wafers.

 

Management of Ibisbelieves that our financial results will continue to reflect losses in the nearterm, until such time as demand for our products approaches our capacity.  Although our implanters are currentlyunderutilized, Management does not believe that these assets are impaired. Wewill continue to review our assumptions about our long-lived assets on aperiodic basis for potential impairment in future quarters, as both thebusiness environment for wafer sales and other possible opportunities for theuse of this equipment develop.

 

11

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)**

 

**Resultsof Operations**

 

***Third Quarter Ended September 30, 2002Compared to Third Quarter Ended September 30, 2001***

 

***                ProductSales***.  Wafer product sales increased $1,086,120 or117%, to $2,011,670 for the third quarter ended September 30, 2002 from$925,550 for the third quarter ended September 30, 2001.  This is due mainly to increases inproduction orders from two customers, a major US chipmaker and an opticalcomponents manufacturer.  Alsocontributing to this increase is the shipment of 300 mm wafers which have ahigher average selling price than the smaller wafer sizes.  These were offset by decreased wafer salesin the Pacific Rim due to reduced wafer requirements from one of our customersthat began producing SIMOX wafers on the Ibis 1000 implanter which wepreviously sold and installed for them in the first half of last year.

 

***Contract and Other Revenue***. Contract and other revenue includes revenue derived from governmentcontracts, license agreements, characterization and other services.  Contract and other revenue decreased for thethird quarter ended September 30, 2002 to $60,701 from $131,874 for the third quarterended September 30, 2001, a decrease of $71,173 or 54%.  This is attributable to a decrease ingovernment contract work, which was offset by increased license revenue.

 

                ***Equipment Revenue. ***Equipment revenue representsrevenue recognized from sales of implanters, spare parts and field servicerevenue.  Equipment revenue increased to$5,657,605 for the third quarter ended September 30, 2002 from $386,403 for thethird quarter ended September 30, 2001, an increase of $5,271,202 or1,364%.  Equipment revenue this quarterprimarily consisted of revenue recognized from the sale of an Ibis 1000implanter and parts to a customer in China, while last year consisted solely ofparts and service revenue.  Fieldservice revenue accounted for $78,520 of equipment revenue for the thirdquarter ended September 30, 2002 as compared to $309,650 of equipment revenuefor the same period last year.  Sales ofspare parts accounted for $579,085 of equipment revenue for the third quarterended September 30, 2002 as compared to $76,753 of equipment revenue for thethird quarter ended September 30, 2001.  Due to the small number of implanters sold to date, we continue toexperience quarterly fluctuations in equipment revenue.

 

***                TotalNet Sales and Revenue***.  Total net revenue for thethird quarter ended September 30, 2002 was $7,729,976, an increase of$6,286,149, or 435%, from total revenue of $1,443,827 for the third quarterended September 30, 2001.

 

***Total Cost of Sales and Revenue***. Cost of wafer product sales for the third quarter ended September 30,2002 was $3,995,509, compared to $2,224,616 for the third quarter endedSeptember 30, 2001, an increase of $1,770,893, or 80%.  This increase is attributable to increasedfixed costs associated with production, mainly depreciation and amortization on300 mm equipment. Royalty expenses and outside testing services incurred on theMLD process and repair and maintenance also increased.  In addition, the optimum production yield onour 300 mm wafer products has not yet been realized which resulted in highercosts this quarter.  Cost of contractand other revenue consists of labor and materials expended during thequarter.  Cost of contract and otherrevenue for the third quarter ended September 30, 2002 was $9,819, as comparedto $90,269 for the third quarter ended September 30, 2001, a decrease of$80,450, or 89%.  This decrease isattributable to a decrease of work performed on contracts.  Cost of equipment revenue represents thecost of equipment and spare parts, along with labor incurred for fieldservice.  Cost of equipment revenue forthe third quarter ended September 30, 2002 was $3,573,559 which includes costsrecognized in connection with the implanter and parts sold to our customer in China.This is compared to $892,372 for the third quarter ended September 30, 2001.Total cost of sales and revenue for the third quarter ended September 30, 2002was $7,578,887 as compared to $3,207,257 for the third quarter ended September30, 2001, an increase of $4,371,630 or 136%. The gross margin

 

12

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)**

 

 

for all sales was 2% forthe third quarter ended September 30, 2002 as compared to a negative grossmargin of 122% for the third quarter ended September 30, 2001.  The improvement in the gross margin for allsales is attributable to the gross margin achieved on the sale of the Ibis 1000implanter and parts to our customer in China, which was offset by negativegross margins on our wafer product sales. Our wafer production line for smallerwafer sizes is currently underutilized and the optimum production yield on 300mm wafer products has not yet been realized. We believe that as theseconditions improve the wafer product gross margins will increase.

 

***General and Administrative Expenses***. General and administrative expenses for the third quarter endedSeptember 30, 2002 were $502,183 (or 6% of total revenue) as compared to$518,414 (or 36% of total revenue) for the third quarter ended September 30,2001, a decrease of $16,231, or 3%.

 

***Marketing and Selling Expenses***. Marketing and selling expenses for the third quarter ended September 30,2002 were $382,303 (or 5% of total revenue) as compared to $379,842 (or 26% oftotal revenue) for the third quarter ended September 30, 2001, an increase of$2,461, or 1%.

 

***Research and Development Expenses.*** Internally funded research and development expenses increased by$293,367 or 22%, to $1,604,539 (or 21% of total revenue) for the third quarterended September 30, 2002, as compared to $1,311,172 (or 91% of total revenue)for the third quarter ended September 30, 2001.  This increase is mainly due to increased depreciation on fixedassets, specifically the Ibis 1000 R&D tool and i2000 test stands andincreased in consulting services.

 

***Other Income (Expense)*****.**  Total other income for the third quarterended September 30, 2002 was $65,345 as compared to $1,567,378 for the thirdquarter ended September 30, 2001, a decrease of $1,502,033, or 96%.  The decrease in total other income isattributable to non-recurring income recognized in the quarter ended September30, 2001 amounting to approximately $1.4 million which was the result of anexpired wafer production capacity option.

 

***Nine Months Ended September 30, 2002Compared to Nine Months Ended September 30, 2001***

 

***                ProductSales***.  Wafer product sales increased $832,492 or20%, to $4,992,987 for the nine months ended September 30, 2002 from $4,160,495for the nine months ended September 30, 2001. This increase in product sales is attributable to a 115% increase inwafer sales by Ibis in the United States primarily from Advantox MLD wafers and300 mm wafers which have a higher average selling price than the smaller wafersizes.  This was offset by a 40%decrease in wafer sales in Europe where one of our largest wafer productioncustomers in the optical components arena substantially reduced theirrequirements beginning in the second quarter of 2001.  Wafer sales in the Pacific Rim also decreased by 64% due toreduced wafer requirements from one of our customers that began producing SIMOXwafers on the Ibis 1000 implanter which we previously sold and installed forthem in the first half of last year.

 

***Contract and Other Revenue***.  Contract and other revenue includes revenue derived fromgovernment contracts, license agreements, characterization and otherservices.  Contract and other revenuedecreased for the nine months ended September 30, 2002 to $232,761 from$477,767 for the nine months ended September 30, 2001, a decrease of $245,006or 51%.  This decrease is attributableto a decrease in royalties earned and government contract work.

 

13

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)**

 

 

                ***Equipment Revenue. ***Equipment revenue increasedto $5,987,565 for the nine months ended September 30, 2002 from $1,262,488 forthe nine months ended September 30, 2001, an increase of $4,725,077 or374%.  Equipment revenue in 2002primarily consisted of revenue recognized from the sale of an Ibis 1000implanter and parts to a customer in China, while last year consisted solely ofparts and service revenue.  Fieldservice revenue accounted for $219,370 of equipment revenue for the nine monthsended September 30, 2002 as compared to $727,035 of equipment revenue for thesame period last year.  Last yearincluded revenue from installing an Ibis 1000 implanter for a customer inJapan. Sales of spare parts accounted for $768,195 of equipment revenue for thenine months ended September 30, 2002 as compared to $535,453 of equipmentrevenue for the nine months ended September 30, 2001.

 

***                TotalNet Sales and Revenue***.  Total net revenue for thenine months ended September 30, 2002 was $11,213,313, an increase of$5,312,563, or 90%, from total revenue of $5,900,750 for the nine months endedSeptember 30, 2001.

 

***Total Cost of Sales and Revenue***. Cost of wafer product sales for the nine months ended September 30, 2002was $10,278,147, compared to $5,874,923 for the nine months ended September 30,2001, an increase of $4,403,224 or 75%. This increase is primarily attributable to an increase in fixed costsassociated with production, mainly depreciation and amortization on 300 mmequipment. Royalty expenses incurred on the MLD process, outside testing andrepair and maintenance also increased. In addition, the optimum production yield on our 300 mm wafer productshas not yet been realized which resulted in higher costs this quarter.  We also increased our reserve for waferinventory obsolescence by approximately $300,000 due to the aging of certainproducts.  Cost of contract and other revenuefor the nine months ended September 30, 2002 was $97,076, as compared to $351,642for the nine months ended September 30, 2001, a decrease of $254,566, or72%.  This decrease is primarilyattributable to a decrease in work performed on contracts.  Cost of equipment revenue for the ninemonths ended September 30, 2002 was $3,732,403 which includes costs recognizedin connection with the implanter and parts sold to our customer in China. Thisis compared to $1,305,807 for the nine months ended September 30, 2001, anincrease of $2,426,596 or 186%.  Totalcost of sales and revenue for the nine months ended September 30, 2002 was$14,107,626 as compared to $7,532,372 for the nine months ended September 30,2001, an increase of $6,575,254 or 87%. The gross margin for all sales was a negative 26% for the nine monthsended September 30, 2002 as compared to a negative gross margin of 28% for thenine months ended September 30, 2001. This slight improvement in gross margin for all sales is attributable tothe gross margin achieved on the sale of the Ibis 1000 implanter and parts toour customer in China, which was offset by negative gross margins on our waferproduct sales.

 

***General and Administrative Expenses***. General and administrative expenses for the nine months ended September30, 2002 were $1,643,802 (or 15% of total revenue) as compared to $1,650,970(or 28% of total revenue) for the nine months ended September 30, 2001, adecrease of $7,168, or 1%.

 

***Marketing and Selling Expenses***. Marketing and selling expenses for the nine months ended September 30,2002 were $1,155,703 (or 10% of total revenue) as compared to $1,400,752 (or24% of total revenue) for the nine months ended September 30, 2001, a decreaseof $245,049, or 18%.  The decrease inmarketing and selling expenses is primarily a result of decreases in payrolland payroll related expenses, advertising, public relations and professionalservices.

 

14

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)**

 

 

***Research and Development Expenses.*** Internally funded research and development expenses increased by$898,250 or 24%, to $4,614,678 (or 41% of total revenue) for the nine monthsended September 30, 2002, as compared to $3,716,428 (or 63% of total revenue)for the nine months ended September 30, 2001. This increase is mainly due to depreciation on fixed assets,specifically the Ibis 1000 R&D tool and i2000 test stands which Ibis begandepreciating in the second half of 2001, increased consulting services andincreases in payroll and payroll related expenses.

 

***Other Income (Expense)*****.**  Total other income for the nine months endedSeptember 30, 2002 was $222,759 as compared to $2,161,836 for the nine monthsended September 30, 2001, a decrease of $1,939,077, or 90%.  The decrease in total other income isattributable to non-recurring income recognized in 2001 amounting toapproximately $1.4 million which is the result of an expired wafer productioncapacity option. Also contributing to the decrease in other income was thedecreased interest income earned as a result of lower average cash balances anda reduction in interest rates.

 

**Liquidityand Capital Resources**

 

As of September30, 2002, Ibis had cash and cash equivalents of $12,900,716, reflecting inlarge part our receipt of approximately $12.1 million in net proceeds from theMarch and April 2002 public sale of 900,000 and 100,000, respectively, sharesof Common Stock. During the nine months ended September 30, 2002, Ibis used$4,945,585 in cash for operating activities compared to $6,748,323 for the sameperiod in 2001. Depreciation and amortization expense for the nine months endedSeptember 30, 2002 and 2001 was $4,657,960 and $2,359,106, respectively.  This accounted for 42% and 40% of total revenue,respectively. Due to the capital intensive nature of Ibis’ business and theupgrade of our facilities and expansion of 300mm SIMOX-SOI wafer productioncapacity, management expects that depreciation and amortization will continueto be a significant portion of its expenses. To date, Ibis’ working capital requirements have been funded primarilythrough debt and equity financings.  Theprincipal use of cash during the nine months ended September 30, 2002 was tofund additions to property and equipment which totaled $6,321,822.  At September 30, 2002, Ibis had commitmentsto purchase approximately $5,145,796 in material to be used for manufacturingadditional i2000 implanters and wafer manufacturing and $1,271,279 in capitalequipment purchases.

 

In September 2001,Ibis entered into a $4.5 million equipment lease line with Heller Financial’sCommercial Equipment Finance Group. The lease line was used to finance thepurchase of process equipment for wafer production, primarily for 300mmwafers.  During the second half of 2001,Ibis drew down this line in sale-leaseback transactions bearing interest atapproximately 8% with a term of three years, and total monthly rent payments of$131,212. Ibis has a fair market value purchase option at the end of the leaseterm.  The lease line is secured by theunderlying assets and all other property and equipment of Ibis.

 

Our existing cashresources are believed to be sufficient to support Ibis’ operations on ouranticipated scale for at least the next 12 months.  Our anticipated scale of operations assumes modest increases inwafer sales and equipment revenue.  Ourplans also include the purchase of 300 mm wafer processing equipment, facilityimprovements and the build of three i2000 oxygen implanters, most of which shouldbe complete by the end of 2002.  We maybe required to raise additional capital in the future in order to financefurther expansion of our equipment manufacturing capacity and our research anddevelopment programs.

 

15

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I - ITEM 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)**

 

 

This Form 10-Qcontains forward-looking statements within the meaning of the “safe harbor”provisions of the Private Securities Litigation Reform Act of 1995 includingstatements regarding the impact that the MLD process and i2000 oxygen implanteris expected to have on future financial results, belief that in future yearsour business is more likely to include a growing component of equipment sales,our plan to build at least three additional i2000’s in 2002, the adoption byour customers of SIMOX-SOI technology in their mainstream manufacturingprocesses, the expectation that gross margins on wafer product sales willincrease as volumes and production yields improve, the continuation offluctuations in revenue and results of operations, the expectation thatdepreciation and amortization will continue to be a significant portion ofexpenses, the need for future additional capital, the sufficiency of ourcapital resources, and the anticipated scale of Ibis’ operations.  Such statements are based on our currentexpectations and are subject to a number of factors and uncertainties whichcould cause actual results to differ materially from those described in theforward-looking statements.  Suchfactors and uncertainties are referenced in the Company’s SEC filings from timeto time, including, but not limited to those described above and in our Form10-K for the year ended December 31, 2001. All information set forth in thisForm 10-Q is as of the date of this Form 10-Q, and Ibis undertakes no duty toupdate this information, unless required by law.

 

**EffectsOf Inflation**

 

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

 

16

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**IBIS TECHNOLOGY CORPORATION**

 

**PART I —ITEM 3**

 

** QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

                The exposure of market riskassociated with risk-sensitive instruments is not material to the Company, asthe Company does not transact its sales denominated in other than United Statesdollars, invests primarily in money market funds and short-term commercialpaper, holds its investments until maturity and has not entered into hedgingtransactions.

 

**PART II**

 

**OTHER INFORMATION**

 

 

Item 1 - LegalProceedings

                None

Item 2 - Changes in Securities

                None

Item 3 - Defaults upon Senior Securities

                None

Item 4 - Submission of Matters to a Vote ofSecurity Holders

                                                None

Item 5 - OtherInformation

                None

Item 6 - Exhibits and Reports on Form 8-K

 

(a)                                  Exhibits furnished as Exhibits hereto:

                                None

 

(b)           Reportson Form 8-K:

                                None

 

17

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**IBIS TECHNOLOGY CORPORATION**

 

**SIGNATURES**

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                   |   | Ibis Technology Corporation |
|------------------------|--------|-----------------------------|
|                   |   |                        |   |
| Date: November 1, 2002 |   | By:                         | /s/ Debra L. Nelson |
|                   |   |                        | Debra L. Nelson |
|                   |   |                        | Chief Financial Officer, Treasurer and Clerk |
|                   |   |                        | (principal financial and accounting officer) |
|                   |   |                        |   |
| Date: November 1, 2002 |   | By:                         | /s/ Martin J. Reid |
|                   |   |                        | Martin J. Reid |
|                   |   |                        | President and Chief Executive Officer |

 

18

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**CERTIFICATIONS**

I, Martin J. Reid, President and Chief ExecutiveOfficer, certify that:

1. I have reviewed this quarterly report on Form10-Q of Ibis Technology Corporation;

2. Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

3. Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

4. The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

a) designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

6. The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.
| Date:  | November  1, 2002 |                                   |   | /s/  Martin J. Reid |
|--------|-------------------|----------------------------------------|--------|---------------------|
|   |              | Martin  J. Reid                        |
|   |              | President  and Chief Executive Officer |

 

 

19

----

 

**CERTIFICATIONS**

I, Debra L. Nelson, Chief Financial Officer, certifythat:

1. I have reviewed this quarterly report on Form10-Q of Ibis Technology Corporation;

2. Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

3. Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

4. The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

a) designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

b) evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

a) all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

6. The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.
| Date:  | November  1, 2002        |   | /s/  Debra L. Nelson |
|--------|--------------------------|--------|----------------------|
|   | Debra  L. Nelson         |
|   | Chief  Financial Officer |

 

 

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**CERTIFICATION PURSUANT TO**

**SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,**

**AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

 

Pursuantto Section 1350, Chapter 63 of Title 18, United States Code, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of theundersigned President & Chief Executive Officer and Chief Financial Officerof the Company, certifies, that to their knowledge:

 

1)  the Company’s Form 10-Q for the quarterlyperiod ended September 30, 2002 fully complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78*o*(d));and

 

2)   the information contained in the Company’sForm 10-Q for the quarterly period ended September 30, 2002 fairly presents, inall material respects, the financial condition and results of operations of theCompany.

 

 
| /s/ Martin J. Reid                      |   | /s/ Debra L. Nelson          |
|-----------------------------------------|--------|------------------------------|
| Martin J. Reid                          |   | Debra L. Nelson              |
| President & Chief Executive Officer |   | Chief Financial Officer      |
|                                    |   |                         |
| Date:  November 1, 2002            |   | Date:  November 1, 2002 |

 

 

 

 

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