<PAGE>

--------------------------------------------------------------------------------
                                                    Ibis Technology Corporation

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the fiscal year ended December 31, 1998

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period_________ to_________

                         Commission file number: 0-23150

                           IBIS TECHNOLOGY CORPORATION
             (Exact name of registrant as specified in its charter)

              Massachusetts                            04-2987600
      (State or other jurisdiction         (I.R.S. Employer Identification No.)
    of incorporation or organization) 

    32 Cherry Hill Drive, Danvers, MA                    01923
 (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (978) 777-4247

Securities registered pursuant to Section 12(b) of the Exchange Act:

     None.

Securities registered pursuant to Section 12(g) of the Exchange Act:

     Common Stock, $.008 Par Value Per Share
     (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) on March 11, 1999, was
$101,558,880, based on the last sale price as reported by the Nasdaq National
Market System.

      As of March 11, 1999, the registrant had 6,910,428 shares of common stock
outstanding.

      DOCUMENTS INCORPORATED BY REFERENCE

      The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in Part
III of this Annual Report on Form 10-K is incorporated from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 13,
1999.


                                                                               1
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                                     PART I
Item 1. BUSINESS

Introduction

      Ibis Technology Corporation ("Ibis" or the "Company") is the leading 
manufacturer of high current oxygen implanters and leading supplier of SIMOX 
(Separation by IMplantation of OXygen) wafers to semiconductor manufacturers. 
SIMOX wafers are state-of-the-art silicon-on-insulator ("SOI") wafers which 
enable the production of integrated circuits with significant advantages over 
circuits constructed on conventional bulk silicon or epitaxial wafers. These 
advantages include substantially reduced power consumption, more efficient 
low-voltage operation and significantly improved speed. These characteristics 
make SIMOX-SOI wafers well-suited for many commercial applications, including 
wireless communications devices such as cellular phones, portable and desktop 
computers, automotive electronics, telecom access networks and optical 
sensors. SIMOX-SOI wafers are created by implanting oxygen atoms below the 
surface of a silicon wafer in sufficient quantity to transform a layer of the 
silicon to silicon dioxide, while maintaining a thin layer of circuit quality 
single crystal silicon at the surface.

      The Company began its operations in 1988, producing four, five and six 
inch SIMOX-SOI wafers, mainly for military applications, on a NV-200 
implanter manufactured by Eaton Corporation ("Eaton"). Since 1989, the 
Company has spent in excess of $16 million in developing its proprietary 
oxygen implanter (the Ibis 1000) and advanced proprietary processing 
technologies which enable the production of SIMOX-SOI wafers capable of 
meeting the requirements of high volume commercial applications, including 
the production of eight inch wafers. The Ibis 1000 prototype, with 
proprietary beam scanning technology, became operational in 1993, permitting 
the Company to begin producing wafers of this size. The first fully-automated 
production version of the Ibis 1000 implanter was completed in May 1995, 
enabling volume production of high-quality SIMOX-SOI wafers. Since then the 
Company has constructed one additional implanter for internal wafer 
production requirements and four implanters for two customers. Three 
additional implanters are currently under construction. The Company believes 
that its demonstrated ability to supply high quality, competitively priced 
wafers and its increased wafer production capacity, together with substantial 
progress in customers' development programs, are accelerating the acceptance 
of Ibis-produced SIMOX-SOI wafers for mainstream commercial applications. 
During 1997 and 1998, leading manufacturers including two customers, 
Mitsubishi Electric Corporation and Bookham Technology, Ltd., announced the 
commercial adoption of SIMOX-SOI technology utilizing Ibis-produced SIMOX-SOI 
wafers in their products.

      In recent years, the Company has focused on integrating SIMOX-SOI wafers
into commercial applications, which have substantially higher volume potential
than military applications, the Company's initial target market. Unit sales of
SIMOX-SOI wafers for commercial applications have expanded from approximately
68% of the Company's total wafers sold in 1994 to approximately 82% of its
wafers sold in 1998.

      Ibis has sold SIMOX-SOI wafers to most of the world's leading commercial
semiconductor manufacturers, including Advanced Micro Devices, Fujitsu,
Honeywell, IBM, Intel, Mitsubishi Electric, Motorola, National Semiconductor,
NEC, Philips, Samsung, Sharp, Texas Instruments, and Toshiba. These commercial
shipments have been used principally for evaluation purposes in products,
including ASICs (application specific integrated circuits), memories (DRAMs,
SRAMs, etc.), and cellular and mobile radio components. For any potential
customer who is ultimately committed to designing and building integrated
circuits on SIMOX-SOI wafers, the time required for a customer to make a
definitive buying decision and for Ibis to "make the sale" -- from initial
contact to full-scale chip fabrication -- will be lengthy and proceed along
definable, targeted stages. The sales cycle typically goes from intensive
evaluation of Ibis' SIMOX-SOI 


2
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

material in the customer's process laboratory to full circuit evaluations in the
chip-design lab which, the Company hopes, will lead to full scale chip
production in the fab. This is a normal sales cycle in the semiconductor
industry for any technologically advanced material such as Ibis' SIMOX-SOI. In
addition, the Company supplies SIMOX-SOI wafers to military-oriented
semiconductor manufacturers such as Allied-Signal Aerospace and Honeywell for
use in production applications.

      The Company believes that strategic alliances will play an important 
role in developing a worldwide commercial market for its SIMOX-SOI wafers. In 
September 1995, the Company and Motorola entered into an agreement whereby 
Motorola provided funding to the Company to expand the Company's current 
SIMOX-SOI wafer production capacity to meet the requirements of Motorola for 
its commercial programs. The implanter that was constructed with this funding 
became operational in September 1996 and shipments to Motorola under the 
terms of this Agreement commenced shortly thereafter. The two companies 
continue to work closely to advance the processing and testing of SIMOX-SOI 
material in conjunction with Motorola's rigorous quality standards. In 
September 1998, the Company and Motorola jointly announced that the Company's 
Advantox(R)170 product removes a critical barrier in yield enhancement of 
ULSI circuits on SIMOX-SOI wafers. The Company also has a strategic alliance 
agreement with Mitsubishi Materials, under which Mitsubishi markets and sells 
Ibis manufactured SIMOX-SOI wafers in Japan and the Pacific Rim. The Company 
and Mitsubishi are collaborating on joint research and development focused on 
commercial deployment of SIMOX-SOI technology and in April 1998, Mitsubishi 
Materials Silicon Corporation, a subsidiary of Mitsubishi Materials, issued a 
purchase order for an Ibis 1000 oxygen implanter in order to establish a 
Japanese based manufacturing facility of Ibis' SIMOX-SOI wafers. The revenue 
from the sale of this implanter, together with related costs, is recognized 
on a percentage-of-completion basis determined by the achievement of various 
milestones. See "- Strategic Alliances."

      In 1996, the Company began selling its Ibis 1000 implanters to 
semiconductor manufacturers and in 1998 experienced a significant increase in 
this aspect of its business.

      The Company's objective is to make its SIMOX-SOI wafers the preferred
advanced materials substrate for mainstream commercial applications. The
Company's strategy for achieving this objective is to capitalize on the
technology embodied in the Ibis 1000 by building additional high current oxygen
implanters to increase available capacity, further advancing its process
technology, increasing throughput and reducing production costs, and to form
strategic marketing, manufacturing and distribution alliances. The Company
believes that this strategy will enable it to become the world leader in volume
manufacturing of SIMOX-SOI technology and SIMOX-SOI wafers with the quality,
cost, and size required for mainstream commercial applications.

      Ibis was incorporated in Massachusetts on October 7, 1987 and commenced
operations in January 1988. Ibis' executive offices are located at 32 Cherry
Hill Drive, Danvers, Massachusetts 01923. Its telephone number is (978)
777-4247.


                                                                               3
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

Marketing, Sales and Customers

      According to the report, Silicon -- The Strategic Material of the 21st
Century, the SOI market is projected to grow approximately 26% per year from
1998 through 2003. The Company believes that this growth rate is consistent with
its capacity expansion and product development roadmap.

      The Company intends to take advantage of this projected growth by
continuing to focus its direct selling efforts on the top 20 U.S. semiconductor
manufacturers, most of which are customers of the Company. Ibis' sales personnel
together with strategic partners, Ibis' senior management and engineering and
scientific personnel interact with the research and development, manufacturing,
purchasing and marketing departments of customers in assisting in the
evaluation, prototyping and production of circuits fabricated on its SIMOX-SOI
wafers.

      An important element of Ibis' selling strategy is its substantial
commitment to technical support for its customer base. Ibis offers detailed
technical assistance in the areas of device physics, material science and
semiconductor manufacturing, to facilitate customers' integration of SIMOX-SOI
technology into their product lines. Another important element of the Company's
sales and marketing strategy is to develop and maintain a reputation for
technical excellence. To this end, the Company frequently presents papers at
technical conferences and collaborates closely with the research and development
labs of selected customers, industry consortium and government laboratories on
advanced research projects. The Company believes that its ability to make this
technical expertise available to customers will accelerate the incorporation of
SIMOX-SOI technology into mainstream commercial applications.

      Overseas, the Company relies on its direct sales force, together with the
use of strategic partners, to market its products. The Company has a strategic
alliance with Mitsubishi Materials, under which Mitsubishi markets and sells
Ibis manufactured SIMOX-SOI wafers in Japan and the Pacific Rim. The two
companies are also collaborating on joint research and development focused on
optimizing SIMOX-SOI process technology for high-volume commercial applications.
Mitsubishi Materials Silicon Corporation's recent purchase of an Ibis 1000
oxygen implanter will establish SIMOX-SOI manufacturing capability in Japan to
service this marketplace. The Company has also targeted Korea, where it has a
marketing arrangement, and Europe, as areas of focus for its products. In April
1998, the Company entered into a strategic alliance with Okmetic of Finland, a
key European silicon supplier. Under the terms of this agreement, Okmetic will
market the Company's SIMOX-SOI wafers in Europe, excluding the United Kingdom.
See "Business -- Strategic Alliances."

      During the fiscal years ended 1996, 1997, and 1998 revenues from IBM
accounted for approximately $5,768,000, $538,000, and $7,905,000, or
approximately 61%, 8% and 51% of the Company's revenues, respectively. During
the fiscal years ended 1996, 1997, and 1998 revenues from Mitsubishi accounted
for approximately $400,000, $581,000, and $4,419,000, or approximately 4%, 9%
and 29% of the Company's revenues, respectively. During the fiscal years ended
1996, 1997, and 1998 revenues from Motorola accounted for approximately
$534,000, $856,000, and $607,000, or approximately 6%, 13% and 4% of the
Company's revenues, respectively. During the fiscal years ended 1997 and 1998
revenues from Orion accounted for approximately $1,749,000 and $161,000, or
approximately 26% and 1% of the Company's revenues, respectively. See Note 14 of
Notes to Financial Statements for industry segment information.

      Customers of the Company that purchase wafers for military applications
are reliant in part on government funding, primarily from the Department of
Defense. During the fiscal years 1996, 1997 and 1998 approximately 10%, 10%, and
15% respectively, of the Company's product sales were generated by product sales
to such customers.


4
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

      Sales to overseas customers in 1996 were less than 10% of total revenue in
that year. Sales to overseas customers in 1997 and 1998 were 13% and 32% of
total revenue, respectively. In 1998, sales to Japan were 29% of total revenue,
all of which was attributable to Mitsubishi.

Strategic Alliances

      The Company has entered into a number of strategic relationships which the
Company believes enables it to better address its target market, to advance its
technology more effectively, and to match its technical developments and
production expansion to the needs of its key customers.

      In September 1995, the Company and Motorola entered into a strategic
business development agreement whereby Motorola advanced to Ibis the required
funding to build an Ibis 1000 implanter. Under this agreement, the SIMOX-SOI
wafer manufacturing capacity of this implanter is primarily dedicated to serving
Motorola's production requirements until at least December 31, 2000, with cash
price concessions to Motorola reflecting the amortization of the funding. Ibis
has agreed to grant to Motorola a security interest in the implanter to secure
Ibis' obligations to Motorola. This implanter became operational in September
1996, and Ibis is currently shipping wafers to Motorola under the terms of this
agreement. In connection with this agreement, the two companies continue to work
closely to advance Ibis' processing and testing technology in conjunction with
Motorola's rigorous quality standards. In September 1998, the Company and
Motorola jointly announced that the Company's Advantox(R)170 product removes a
critical barrier in yield enhancement of ULSI circuits on SIMOX-SOI wafers.

      In July 1994, the Company entered into a business development agreement
with Mitsubishi Materials under which Mitsubishi markets and sells Ibis
manufactured SIMOX-SOI wafers in Japan and the Pacific Rim. The two companies
are also collaborating on joint research and development focused on optimizing
SIMOX-SOI process technology for high-volume commercial applications. The term
of this agreement expired in July 1998 and was renewed for a one year period. It
can be terminated by either company after the initial term with 120 days written
notice.

      In April 1998, the Company entered into a strategic alliance with Okmetic
of Finland, a key European silicon supplier. Under the terms of this agreement,
Okmetic will market the Company's SIMOX-SOI wafers in Europe, excluding the
United Kingdom.

      From 1994 to 1997, Ibis participated in the Low Power Electronics Program,
sponsored by the Advanced Research Project Agency (ARPA), by performing research
and development and providing SIMOX-SOI wafers for evaluation by other
participants in the program. See "Business -- Research and Development." The
program's mission was to accelerate the development of all aspects of the next
generation of low power electronics. Ibis is also a participant in a program
sponsored by Sematech, a consortium of ten of the largest semiconductor
manufacturers in the United States, to facilitate high-volume production of
SIMOX-SOI wafers. These two complementary programs have provided Ibis with
funding, technology transfer, and visibility and interaction with semiconductor
manufacturers.

Research and Development

      The Company has active research and development programs in both 
equipment and process technology. Ibis' equipment engineers continually seek 
to refine and enhance the capabilities of the Ibis 1000. Current development 
projects are aimed at increasing the level of systems automation and the 
throughput capacity of the machine, thereby lowering the per wafer production 
cost. The Company's process engineers are attempting to enhance the range of 
potential commercial applications for Ibis' SIMOX-SOI wafers by (i) refining 
techniques to produce SIMOX-SOI wafers of higher quality, (ii) developing new 
processes to produce SIMOX-SOI wafers with thinner buried oxide layers at 
lower cost and (iii)

                                                                               5
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

responding to specific customer requirements. As a result of these research and
development efforts, in 1998, the Company introduced two additions to its
Advantox(R) portfolio of thinner buried oxide products. In September 1998, the
Company introduced Advantox(R)170, which doubles the throughput of the Ibis 1000
implanter compared to standard SIMOX-SOI material. In October 1998, the Company
announced that it was shipping the first R & D samples of Advantox(R) 50, an
ultra-thin SIMOX-SOI material that may be used for next-generation devices.
During the fiscal years ended 1996, 1997 and 1998, the Company's internally
funded research and development expenses were approximately $1,477,000,
$1,435,000 and $1,972,000, or 16%, 22% and 13% of the Company's revenues,
respectively.

      Government sponsored research and development activities also comprise a
part of the Company's research and development effort. SIMOX-SOI technology is
important to various government agencies in large part due to its utility in
constructing high performance, radiation-tolerant and high temperature defense
and space-based systems. As a result of this government sponsored research and
development, radiation-tolerant integrated circuits on Ibis-produced SIMOX-SOI
wafers are now in production for commercial, military and space applications at
Honeywell and Allied-Signal Aerospace. During the fiscal years ended 1996, 1997
and 1998 revenues from government sponsored research and development contracts
were approximately $396,000, $1,235,000, and $836,000, or 4%, 19% and 5% of the
Company's revenues, respectively. Research and development expenses attributable
to research contracts are expensed as incurred and included in the cost of
contract revenue.

      Government-sponsored research and development has focused on improving
SIMOX-SOI manufacturing and characterization methods and developing new
processes to ensure the availability of high quality SIMOX-SOI wafers which meet
the requirements for commercial and military applications. The SBIR program,
which is the largest source of direct government support to the Company, has
funded development of advanced methods of SIMOX-SOI processing, resulting in
improved fabrication and characterization of SIMOX-SOI materials, and has been
supportive in developing a fundamental understanding of new processes which has
been useful in new product development. The Company has received SBIR contracts
from ARPA, the Ballistic Missile Defense Organization, the Defense Special
Weapons Agency, U.S. Army, the U.S. Air Force, the Department of Energy,
National Science Foundation, National Aeronautical and Space Administration and
the Strategic Defense Initiative Organization. Similarly, the Company expects
its cooperative research efforts with entities including the Naval Research
Laboratory, the Microelectronics Research Laboratory, the National Institute of
Standards, the Massachusetts Institute of Technology, University of Florida,
University of Arizona and Arizona State University to yield benefits to the
Company's ongoing commercialization activities.

      From 1994 to 1997, Ibis participated in the Low Power Electronics Program,
sponsored by ARPA. The program's mission was to accelerate the development of
all aspects of the next-generation of low power electronics, including
materials, technologies, and applications. The materials effort was largely
focused on development of processes which addressed high volume, low cost
SIMOX-SOI manufacturing requirements of the mainstream commercial integrated
circuits industry. Extensive experimental work focused on the optimization of
thinner buried oxide processes to address these requirements. This development
work was consistent with the Company's internal research and development
efforts. The ARPA program provided a large practical database for the
development of thin buried oxide SIMOX-SOI and established a baseline recipe for
low cost, high integrity thin buried oxide SIMOX-SOI product. In addition, the
ARPA program served to promote the deployment of SIMOX-SOI technology in
commercial low power electronics applications. In July 1995, Ibis agreed to
develop SIMOX-SOI wafers for the ARPA program as a subcontractor to a major
semiconductor manufacturer. In 1996 and 1997, the Company sold approximately
$568,000 and $60,000, respectively, of SIMOX-SOI wafers under this program. The
program was completed in February 1997.

      Contracts with government agencies require compliance with applicable
government regulations and are generally subject to competitive bidding,


6
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

extensive regulation and cancellation at the government's sole discretion.
Pursuant to the terms of such government contracts, the Company will be required
to grant to the U.S. government a royalty-free nonexclusive worldwide license to
any inventions claimed by the Company which were funded by the U.S. government.
Government contracts are subject to termination at the election of the relevant
agency. Additionally, these agreements are subject to negotiated overhead rates
and work performed under government contracts is subject to audit and
retroactive adjustments of amounts paid to the Company.

Competition

      Ibis faces three general sources of competition: direct SIMOX-SOI
competition, competing SOI technologies, and competing non-SOI technologies.

      Among direct SIMOX-SOI competitors, Ibis is presently the only U.S.
manufacturer of SIMOX-SOI wafers. The first generation oxygen implanter, the
NV-200, was produced in limited quantities by Eaton Corporation and just six are
in operation worldwide. The Company believes that Eaton has no plans to
manufacture additional NV-200's. Of these six implanters, Ibis owns two which
were removed from production in 1997. All Ibis SIMOX-SOI wafers are currently
manufactured by Ibis on its proprietary second generation oxygen implanter, the
Ibis 1000. The Company believes that the remaining four Eaton NV-200's are owned
by Nippon Telephone and Telegraph ("NTT"), the Fraunhofer Institute, Nippon
Steel, and SOITEC, and that only Nippon Steel and SOITEC use these machines for
commercial production, as opposed to research. To date, SOITEC, a French-based
company that spun off from LETI, a French government research lab, has been the
primary source of wafer product competition for Ibis. In 1995, Hitachi began
marketing its oxygen implanter and, the Company believes, has sold two to date,
to Komatsu and Nippon Steel. Both Komatsu and Nippon Steel are marketing
SIMOX-SOI material. The Company believes that, at this stage of the market's
development, the availability of alternate sources of SIMOX-SOI wafers will help
address customer concerns about the lack of available alternate sources of
supply.

      The second source of competition for Ibis is the development of
alternative SOI materials. Two distinct approaches for this method of production
are silicon-on-sapphire ("SOS") and thin-film bonded wafers. In SOS technology,
circuitry is constructed in a layer of silicon which has been deposited on a
sapphire substrate. This material has been used in the construction of radiation
resistant circuits. The Company believes that SOS will continue to target a
niche market and mainstream complementary metal oxide semiconductor ("CMOS")
fabs will be reluctant to adopt this technology primarily due to the overall
process and wafer costs.

      Thin-film bonded wafers are constructed by bonding two wafers and then
thinning one of the two layers. In this approach, two bulk silicon wafers, each
with a thermally-grown oxide layer, are first bonded together to form a
silicon/silicon dioxide/silicon wafer. Several alternatives are currently being
explored across the industry to perform the subsequent thinning process --
including mechanical polishing, chemical etching (e.g. the BESOI process),
plasma assisted chemical etching (e.g., the PACE process used by IPEC to create
AcuThin(TM) wafers), bond and selective etching of porous silicon (e.g., Canon
Eltran(R) process), an implant-enhanced slicing of the wafer (e.g., the
(R)Smartcut process of SOITEC, used to produce (R)Unibond wafers) or a layer
technology (e.g. the Genesis Process(TM) of Silicon Genesis). If these
approaches become commercially successful, these processes could reduce the
competitive cost disadvantage of the bonded wafer method. While the bonded wafer
approach has the advantages that the buried oxide can be made very thick and
that the top silicon layer is generally of very high quality, the Company
believes it suffers from two limitations. To date, achieving uniformity in the
top silicon layer comparable to that of SIMOX-SOI has proven difficult. Also,
the requirement of using two silicon wafers and performing complex processing
has, to date, resulted in a relatively high cost structure for bonded wafers. As
wafer diameters increase, the Company believes that dealing with these
limitations may become increasingly difficult.

      The third source of competition is derived from alternative non-SOI
technologies designed to obtain benefits similar to those of SOI, including
improvements to existing technologies. Significant resources are continually
expended to address the shortcomings of epitaxial and bulk silicon wafers. The


                                                                               7
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

semiconductor industry has demonstrated its resourcefulness in overcoming device
physics problems with these materials through creative circuit design and
manufacturing techniques, thereby extending the useful life of conventional
substrates, and there can be no assurance that it will not continue to do so.
The relatively lower cost of these substrates provides an incentive to the
semiconductor industry to solve these problems without moving to new, more
advanced substrates. In addition, complex variations of more conventional
approaches, such as elaborate circuit structures built on bulk silicon
substrates, and compound materials (silicon-germanium, gallium-arsenide, indium
phosphide, etc.), are still in various research and development phases.

Backlog

      The Company's backlog consists of written orders for SIMOX-SOI wafers to
be delivered during 1999, equipment revenue to be recognized during 1999 and
other contracts to be performed during 1999. As of February 28, 1999, the
backlog was $3,191,000 in wafer orders, $9,777,000 in equipment orders and
approximately $1,021,000 in other contracts. This is compared with a backlog of
approximately $1,542,000 in wafer orders, $200,000 in equipment orders and
$1,233,000 in other contracts at February 28, 1998. Approximately 19% of the
backlog is for four-inch wafers, 19% is for six-inch wafers, and 62% is for
eight-inch wafers. As customers of the Company move from development and pilot
production into volume production, the Company expects much of the increased
demand will be for eight-inch wafers. Approximately 91% of the wafer backlog is
comprised of orders from five customers of the Company. All customer orders are
subject to modification or cancellation by the customers.

      Backlog can fluctuate greatly based upon, among other matters, the timing
of receipt of orders. Therefore, variations in backlog may not represent a fair
indication of future business trends.

Patents and Proprietary Rights

      The Company has an exclusive worldwide sublicense to the proprietary beam
scanning system developed and patented by a consultant to the Company during the
development of the Ibis 1000. The sublicense agreement obligates the Company to
pay a royalty of 1% of all revenue derived from the sale and servicing of
products incorporating or produced with the sublicensed technology, including
oxygen implantation machines and oxygen-implanted wafers, up to a maximum
aggregate payment of $160,000. As of February 28, 1999, the Company has paid all
$160,000 of this royalty.

      The Company's beam scanning system sublicense agreement also grants the
Company certain rights to further sublicense the beam scanning system for
certain applications other than oxygen implantation. Pursuant to these rights,
the Company has entered into four non-exclusive sublicense agreements that
permit the respective sublicensees to manufacture, use and sell implantation
machines incorporating the beam scanning system so long as such machines are not
designed for the production of oxygen implanted wafers. Each sublicensee has
paid to the Company a non-refundable option fee upon signing an agreement and an
initial license fee when it exercised its option to use the licensed technology.
In addition, each sublicensee will pay a royalty fee with respect to each
implantation machine manufactured, used or sold after its option fee and initial
license fee has been applied. License fees received by the Company from
sublicenses are to be shared on a substantially equal basis with the Company's
sublicensor of the beam scanning system. As of December 31, 1998, the Company
has received approximately $787,000 in net license fees, after deducting amounts
paid to the sublicensor.

      One of these non-exclusive license agreements (the "License Agreement")
was entered into in June 1996 with Orion Equipment, Inc. ("Orion"). In April
1997, the Company entered into a Consulting Services Agreement (the "Consulting
Agreement") with Orion, under which the Company has provided consulting services
to Orion in order to assist Orion in its product development using the beam
scanning sublicense. The Consulting Agreement provides that while Orion retains
ownership of any information, know-how, inventions and discoveries produced by
or as a result of the consulting services provided by the Company to Orion, the


8
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

Company has a perpetual, non-exclusive, royalty free, worldwide license to
utilize such information and discoveries in connection with the commercial
production of SIMOX-SOI wafers and machines. In 1997, the Company received from
Orion a $62,500 license fee under the License Agreement and approximately
$1,749,000 in revenues under the Consulting Agreement (during 1996, 1997 and
1998 revenues under the Consulting Agreement were approximately 2%, 26% and 1%,
respectively, of the Company's total revenues). Revenues under the Consulting
Agreement decreased substantially during 1998 and all work under the Consulting
Agreement ceased by the end of the second quarter of 1998. During 1998, revenues
from this consulting agreement were approximately $161,000.

      The Company has also obtained an exclusive license to technology that
facilitates presentation of wafers to ion beams developed by Superion Limited, a
United Kingdom corporation. The Company has paid $120,000 for license fees at
the rate of $30,000 per implantation machine that has been manufactured by the
Company. Under the terms of this agreement, Superion Limited has retained the
right to utilize the technology for uses not involving oxygen implantation of
silicon or other semiconductor materials.

      During 1998, the Company entered into an equipment licensing and 
development agreement which gives the customer the right to a 
royalty-bearing, non-exclusive license to supplement the Company's equipment 
manufacturing capacity. The Company has received no royalties under this 
agreement.

      Although the Company owns or has exclusive rights to several patents and
several pending applications, and the Company diligently monitors the research
and development process to identify inventions which warrant pursuing patent
protection, the Company relies largely upon trade secret protection to safeguard
its proprietary technology. All of the Company's employees are currently
required to execute confidentiality agreements pursuant to which they agree to
assign to the Company all patent rights and technical or other information
developed by the employees during their employment with the Company, and agree
not to disclose any trade secret or confidential information without the prior
written consent of the Company. Notwithstanding these confidentiality
agreements, no assurance can be given that other companies will not acquire
information which the Company considers to be proprietary. Moreover, no
assurance can be given that the Company's patent rights will be enforceable or
provide the Company with meaningful protection from competitors or that patent
applications will be allowed. Even if a competitor's products were to infringe
patents owned by the Company, it would be very costly for the Company to enforce
its rights in an enforcement action, which would also divert funds and resources
which otherwise could be used in the Company's operations. No assurance can be
given that the Company would be successful in enforcing such rights, that the
Company's products or processes do not infringe the patent or intellectual
property rights of a third party, or that if the Company is not successful in a
suit involving patents or other intellectual property rights of a third party,
that a license for such technology would be available, if at all, on
commercially reasonable terms.

      Pursuant to the terms of its government contracts, the Company will be
required to grant to the U.S. government a royalty-free non-exclusive worldwide
license to any inventions claimed by the Company which were funded by the U.S.
government.

Government Regulation

      The Company has entered into certain research and development contracts
with agencies of the United States government which require compliance with
applicable government regulations. These contracts are generally subject to
competitive bidding and extensive regulation and are generally subject to
cancellation at the U.S. government's sole discretion. See "Business -- Research
and Development."

      The Company is subject to a variety of federal, state and local
environmental regulations related to the storage, treatment, discharge or
disposal of chemicals used in its operations and exposure of its personnel to
occupational hazards. Although the Company believes that it has all permits
necessary to conduct its business, the failure to comply with present or future
regulations could result in fines being imposed on the Company,


                                                                               9
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

suspension of production or a cessation of operations. The Company's future
activities may result in it being subject to additional regulation. Such
regulations could require the Company to acquire significant equipment or to
incur other substantial expenses to comply with regulations. Any failure by the
Company to control the use or to restrict adequately the discharge of, hazardous
substances or to properly control other occupational hazards could subject it to
substantial financial liabilities.

Manufacturing and Supplies

      The Company manufactures its Ibis 1000 oxygen implanters from standard
components and from components manufactured in-house or by other vendors
according to the Company's design specifications. Most raw materials and
components not produced by the Company are available from more than one
supplier. However, certain raw materials, components and subassemblies are
obtained from a limited group of suppliers. Although the Company seeks to reduce
its dependence on these limited source suppliers and the Company has not
experienced significant production delays due to unavailability or delay in
procurement of component parts or raw materials to date, disruption or
termination of certain of these sources could occur and such disruptions could
have a material adverse effect on the Company's business and results of
operations.

      The Company manufactures its SIMOX-SOI wafers using conventional bulk
silicon wafers and a variety of chemicals and gases, all of which are available
from multiple sources. The Company orders the wafers, chemicals and gases
pursuant to blanket purchase orders which generally may be modified or cancelled
by the Company upon 60 days' prior notice to the vendor. The Company is
currently able to purchase its required supply of bulk silicon wafers from its
normal sources. In the periods of increasing demand in the semiconductor
industry for silicon wafers, there is no assurance that the Company will be able
to purchase an adequate supply of such silicon wafers for manufacture of its
products at or near current prices, if at all. Any shortages in the availability
of silicon wafers or a significant increase in the price of silicon wafers could
have a material adverse effect on the Company's business and results of
operations.

Employees

      As of February 28, 1999, the Company employed 60 persons on a full-time
basis, 3 people on a permanent part-time basis and 9 people on a contract basis.
None of the Company's employees is represented by a labor union and the Company
believes its relations with its employees are good.

Business Outlook

      The Form 10-K contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. Such factors and uncertainties include, but are not limited to, the
timely implementation by the Company of its plan to prepare its computer systems
for the Year 2000, the costs to the Company of such implementation and the
timely conversion by other parties and which the Company's business relies; the
uncertainty that the performance advantages of SIMOX-SOI wafers will continue to
be realized commercially or that a commercial market for SIMOX-SOI wafers will
continue to develop; the dependence by the Company on key customers (during
1996, 1997 and 1998, revenues from four customers averaged in the aggregate
between 56% and 85% of the Company's revenues, so that the loss of one or more
of these major customers and the failure of the Company to obtain other sources
of revenue could have a material adverse impact on the Company); the historical
dependence by the Company on revenues from its consulting arrangement with Orion
(during 1996, 1997, and 1998, consulting revenues were approximately 29%, 26%,


10
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

and 1%, respectively, of the Company's revenues, so that the loss of Orion as a
source of consulting fees by the end of the second quarter of 1998 and the
failure through this date and in the future of the Company to obtain other
sources of consulting revenue could have a material impact on the Company); the
loss of the services of one or more of the Company's key individuals, which
could have a material adverse impact on the Company; the dependence by the
Company on key suppliers, so that the loss of services of one or more suppliers
could have a material adverse impact on the Company; the development of
competing or superior technologies and products from manufacturers, many of
which have substantially greater financial, technical and other resources than
the Company; the Company's lack of experience in producing commercial quantities
of its products at acceptable costs; the Company's ability to successfully
complete the manufacture of its implanters and that these implanters will be
accepted by its customers; the Company's ability to develop and maintain
strategic alliances for the manufacturing, marketing and distribution of its
products and sale of equipment; the cyclical nature of the semiconductor
industry, which has negatively affected the Company's sales of SIMOX-SOI wafers
during industry downturns and which could continue to do so in the future; the
limited availability of critical materials and components for wafer products and
implanters, as a shortage of such materials and components or a significant
increase in the price thereof could have a material adverse effect on the
Company's business and results of operations; the availability of additional
capital to fund expansion on acceptable terms, if at all; and general economic
conditions.

Item 2. DESCRIPTION OF PROPERTY

      Ibis' corporate office and manufacturing facilities are located at a
leased facility in Danvers, Massachusetts. The facility, which has approximately
37,000 square feet of space, includes over 2,500 square feet of cleanroom, which
is designed to accommodate a total of four Ibis 1000 implanters. During 1998,
three additional assembly bays were completed. All activity related to
manufacturing and services for the Company's three industry segments are
performed at this one location. The Company's current lease expires on December
31, 2003 and contains an option to renew for five years. The Company believes
that this space should be sufficient for planned future manufacturing
requirements.

      Ibis' current manufacturing equipment includes two Ibis 1000 implanters
including one that is first dedicated to Motorola's production requirements, as
well as advanced annealing and cleaning equipment. Three additional Ibis 1000
implanters are currently under construction. 

Item 3. LEGAL PROCEEDINGS

      The Company is not a party to any material pending legal proceedings, and
management is not aware of any contemplated proceeding by any governmental
authority against the Company of a material nature.


                                                                              11
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to stockholders during the fourth quarter of the
year ended December 31, 1998.

                                     PART II

Item 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY 
        AND RELATED STOCKHOLDER MATTERS

Market Information

      The Company's Common Stock and Redeemable Common Stock Purchase Warrants
(the "Public Warrants") began trading on May 20, 1994 on the Nasdaq SmallCap
Market and on the Boston Stock Exchange. Prior to May 20, 1994, there was no
public market for the Common Stock, the Public Warrants or any other securities
of the Company. On April 4, 1996, the Company commenced trading on the Nasdaq
National Market System. The Company's Common Stock is traded under the symbol
"IBIS". The Company's Public Warrants were traded under the symbol "IBISW".
These Public Warrants were redeemed on August 26, 1997 and therefore no longer
trade on Nasdaq. Holders of approximately 92.5% of the Public Warrants elected
to exercise the conversion option of the Warrant. As a result, the Company
received approximately $10.1 million of net proceeds and issued approximately
1,327,000 shares of Common Stock. The following tables set forth, for 1997 and
1998, the high and low sales prices for the Common Stock and the Public
Warrants, as reported by the Nasdaq Small Cap Market and the Nasdaq National
Market System.
                                                              Public
                                          Common Stock       Warrants
                                          ------------       --------
                                          High      Low    High    Low
                                          ----      ---    ----    ---

        1997:
             First Quarter............    $ 8.13    $5.13  $3.00  $1.38
             Second Quarter...........    $11.88    $5.13  $4.50  $1.50
             Third Quarter (1)........    $12.88    $8.50  $4.19  $0.31
             Fourth Quarter...........    $14.63    $7.00  $  --  $  --
        1998:
             First Quarter............    $11.88    $7.25  $  --  $  --
             Second Quarter...........    $13.56    $9.38  $  --  $  --
             Third Quarter............    $13.75    $7.69  $  --  $  --
             Fourth Quarter...........    $11.69    $9.13  $  --  $  --

-----------------

(1) For the Public Warrants, through August 25, 1997.

Stockholders

      As of March 11, 1999, there were approximately 131 stockholders of record
of the 6,910,428 outstanding shares of Common Stock and approximately 3,600
beneficial owners of the Common Stock.

Dividends

      The Company has never declared or paid any dividends and does not
anticipate paying such dividends on its Common Stock in the foreseeable future.
The Company currently intends to retain any future earnings for use in its
business. The payment of any future dividends will be determined by the Board of
Directors in light of conditions then existing, including the Company's
financial condition and requirements,


12
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

future prospects, restrictions in financing agreements, business conditions and
other factors deemed relevant by the Board of Directors.

Recent Sales of Unregistered Securities

      During the fiscal year ended December 31, 1998, there were no sales of
securities that were required to be registered under the Securities Act of 1933.

Item 6. SELECTED FINANCIAL DATA

      The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" for, and as of the end of each of
the years in the five-year period ended December 31, 1998, are derived from the
financial statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
audited balance sheets at December 31, 1998 and 1997 and the related statements
of operations and cash flows for each of the years in the three-year period
ended December 31, 1998 and the report thereon, are included elsewhere in this
Annual Report on Form 10-K. The data set forth below should be read in
conjunction with the Company's financial statements, related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                        ----------------------------------------------------

                                          1994       1995       1996       1997       1998
                                          ----       ----       ----       ----       ----
                                            (In thousands, except for per share data)
<S>                                     <C>        <C>        <C>        <C>        <C>     
Statement of Operations Data:
Product sales ........................  $  2,360   $  3,822   $  4,766   $  3,389   $  3,149
Contract and other revenue ...........       890        811        887      3,285      1,284
Equipment revenue ....................        --         --      3,800         --     11,033
                                        --------   --------   --------   --------   --------
  Total revenue ......................     3,250      4,633      9,453      6,674     15,466
                                        --------   --------   --------   --------   --------
Cost of product sales ................     3,255      4,071      4,042      4,827      4,581
Cost of contract and other revenue ...       399        349        320      2,454      1,079
Cost of equipment revenue ............        --         --      2,625         --      7,244
                                        --------   --------   --------   --------   --------
  Total cost of revenue ..............     3,654      4,420      6,987      7,281     12,904
                                        --------   --------   --------   --------   --------
  Gross profit(loss) .................      (404)       213      2,466       (607)     2,562
                                        --------   --------   --------   --------   --------
Operating expenses:
  General and administrative .........     1,397      1,299      1,423      1,724      1,823
  Marketing and selling ..............       362        495        515        466        470
  Research and development ...........     1,237      1,582      1,477      1,435      1,972
  Write off of prototype Ibis 1000 ...        --        724         --         --         --
                                        --------   --------   --------   --------   --------
  Total operating expenses ...........     2,996      4,100      3,415      3,625      4,265
                                        --------   --------   --------   --------   --------
  Loss from operations ...............    (3,400)    (3,887)      (949)    (4,232)    (1,703)
                                        --------   --------   --------   --------   --------
Total other income (expense) .........       (73)      (105)       110        296        538
Proceeds from life insurance policy ..     2,000         --         --         --         --
                                        --------   --------   --------   --------   --------
Loss before income taxes .............    (1,473)    (3,992)      (839)    (3,936)    (1,165)
Income tax expense ...................        (1)        (1)        (1)        (1)        (1)
                                        --------   --------   --------   --------   --------
Net loss .............................  $ (1,474)  $ (3,993)  $   (840)  $ (3,937)  $ (1,166)
                                        ========   ========   ========   ========   ========
Net loss per common share(1) .........  $   (.53)  $  (1.17)  $   (.18)  $   (.69)  $   (.17)
                                        ========   ========   ========   ========   ========
Weighted average common shares
  Outstanding ........................     2,819      3,424      4,722      5,710      6,760
</TABLE>




<TABLE>
<CAPTION>
                                                             At December 31,
                                         ---------------------------------------------
                                            1994     1995      1996     1997      1998
                                            ----     ----      ----     ----      ----
                                                             (In thousands)
<S>                                      <C>       <C>       <C>       <C>       <C>
Balance Sheet Data:                     
Working capital .......................  $ 3,712   $ 3,463   $ 8,068   $17,249   $16,831
Total assets ..........................   12,282    10,958    19,542    24,918    24,307
Long-term debt, less current portion ..    1,022     2,104       973       499        40
Total liabilities .....................    3,635     6,149     5,178     4,161     3,698
Stockholders' equity ..................    8,647     4,809    14,364    20,757    20,609

----------
(1) Computed on the basis described for net earnings (loss) per common share in
Note 2(g) of Notes to Financial Statements.
</TABLE>


                                                                              13
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

Item  7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

      The following discussion should be read in conjunction with the Financial
Statements of the Company (including Notes thereto) and Selected Financial Data
included elsewhere in this Annual Report on Form 10-K.

OVERVIEW

      Ibis Technology Corporation ("Ibis" or the "Company") was formed in
October 1987 and commenced operations in January 1988. The Company's initial
activities consisted of producing and selling SIMOX-SOI wafers and conducting
funded and unfunded research and development activities. This research led to
the Company's development of a proprietary second generation implanter, the Ibis
1000 which it began selling in 1996, and to other proprietary process
technology.

      Initially, much of the Company's revenue was derived from research and
development contracts and sales of SIMOX-SOI wafers for military applications.
In recent years, there has been a shift in revenue to sales of SIMOX-SOI wafers
for commercial applications and sales of Ibis 1000 implanters. For the fiscal
years ended December 31, 1998 and December 31, 1997, commercial wafer product
sales (measured in dollar volume) represented 82% and 83%, respectively, of
total wafer product sales compared with 68% of total wafer product sales for the
fiscal year ended December 31, 1994. To date, most customers of the Company that
have purchased wafers for what the Company believes are commercial applications
have done so solely for the purpose of characterizing and evaluating the wafers.
Thus, historical sales are not necessarily indicative of future operations
because such sales would not be considered of a recurring nature. However, three
of the Company's customers have indicated their intentions to adopt SIMOX-SOI
technology in commercial products.

      During 1997 and 1998, the Company experienced quarterly fluctuations in
revenue due to equipment sales, reduced wafer requirements from certain
customers, repair and maintenance on the Ibis 1000 implanters, use of the
implanters for SIMOX-SOI development, a mismatch of capacity and wafer size
requirements of customer orders, and dependence on a limited number of
customers. The Company may continue to experience fluctuations in revenue due to
equipment sales, shifts in customer demands during various stages of the
SIMOX-SOI sales cycle and until the Company has a sufficient number of Ibis
1000's on-line such that specific implanters can be dedicated to the various
products, sizes and continued research and development efforts.

      The Company currently has two Ibis 1000 oxygen implanters producing 
wafers, one of which was funded by Motorola Corporation and must first be 
used to serve Motorola's production requirements. During the fiscal year 
ended December 31, 1998, the Company recognized revenue on the sale of three 
implanters using the percentage-of-completion method. There were no equipment 
sales in 1997. In the first quarter of 1999, the Company received purchase 
orders for implanters which are anticipated to be delivered during 1999.

Results of Operations

Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997

      Product Sales. Wafer product sales decreased to $3,148,783 for the fiscal
year ended December 31, 1998, a decrease of $240,345 or 7% from $3,389,128 for
the fiscal year ended December 31, 1997.


14
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

The decrease in product sales is attributable to decreased wafer sales by Ibis
in the United States. Sales by Ibis in Europe and Japan increased overall during
this twelve month period.

      Contract and Other Revenue. Contract and other revenue decreased for the
fiscal year ended December 31, 1998 to $1,283,830 from $3,284,695 for the fiscal
year ended December 31, 1997, a decrease of $2,000,865 or 61%. This decrease is
attributable to a decrease in revenues derived from a contract for consulting
services for Orion. Revenue from the Orion contract, amounted to approximately
$1,749,000, and $161,000, for the twelve months of 1997 and 1998, respectively.
Revenues under the Orion contract have decreased substantially since the
beginning of 1998 and primarily all of the work under the Orion contract was
completed by the end of the second quarter of 1998. During 1997, the Company
began selling parts to the purchaser of the Ibis 1000 implanter, a major
semiconductor manufacturer. These sales accounted for 14% and 15% of contract
and other revenue in 1997 and 1998, respectively.

      Equipment Revenue. Equipment revenue of $11,033,456 in 1998 was 
recognized using the percentage-of-completion method for the sale of three 
Ibis 1000 implanters. There was no equipment revenue recognized in 1997.

      Total Revenue. Total revenue for the fiscal year ended December 31, 1998
was $15,466,069, an increase of $8,792,246 or 132% from total revenue of
$6,673,823 for the fiscal year ended December 31, 1997. The increase is due to
the recognition of equipment revenue of $11,033,456 in 1998 which accounted for
71% of total revenue. This increase was partially offset by decreased product
sales and contract and other revenue.

      Cost of Product Sales. Cost of product sales for the fiscal year ended
December 31, 1998 was $4,581,140, as compared to $4,826,794 for the fiscal year
ended December 31, 1997, a decrease of $245,654 or 5%. The decrease in cost of
product sales primarily resulted from a decrease in depreciation expense and
inventory write-offs. During 1998, the Company changed depreciable lives for
some of its equipment from five years to eight years due to new information
becoming available. As a result, depreciation for the year was reduced by
approximately $319,000. During 1997 the Company wrote off approximately $300,000
in obsolete inventory which did not meet the Company's current quality standards
based on the Ibis 1000 implanter capability. The negative gross margin from
product sales for the fiscal year ended December 31, 1998 was 45%, as compared
with a negative gross margin of 42% for the fiscal year ended December 31, 1997.

      Cost of Contract and Other Revenue. The cost of contract and other revenue
for the fiscal year ended December 31, 1998 was $1,079,381, as compared to
$2,454,384 for the fiscal year ended December 31, 1997, a decrease of $1,375,003
or 56%. The decrease is a result of the decrease in contract and other revenue.
Cost of contract and other revenue consists of labor and materials expended in
performing contract services and includes the cost of spare parts.

      Cost of Equipment Revenue. The cost of equipment revenue of $7,243,293
represents all costs related to the equipment revenue that was recognized in
1998 on a percentage-of-completion basis for three Ibis 1000 implanters.
There was no cost of equipment revenue in 1997.

      Total Cost of Revenue. Total cost of revenue for the fiscal year ended
December 31, 1998 was $12,903,814, as compared to $7,281,178 for the fiscal year
ended December 31, 1997, an increase of $5,622,636 or 77%. This increase is due
to the cost of equipment revenue, which was partially offset by decreases in
cost of product sales and contract and other revenue.

      General and Administrative Expenses. General and administrative expenses
for the fiscal year ended December 31, 1998 were $1,823,001 (12% of total
revenue) as compared to $1,723,852 (26% of total revenue)


                                                                              15
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

for the fiscal year ended December 31, 1997, an increase of $99,149 or 6%. This
is a result of increases in professional service fees.

      Marketing and Selling Expenses. Marketing and selling expenses for the
fiscal year ended December 31, 1998 were $470,288 (3% of total revenue) as
compared to $466,269 (7% of total revenue) for the fiscal year ended December
31, 1997, an increase of $4,019 or 1%. The increase in marketing and sales
expenses is primarily a result of an increase in payroll and payroll related
expenses.

      Research and Development Expenses. Internally funded research and
development expenses increased by $537,191 or 37% to $1,971,734 (13% of total
revenue) for the fiscal year ended December 31, 1998 from $1,434,543 (21% of
total revenue) for the fiscal year ended December 31, 1997. This increase is
primarily due to increases in payroll and materials. In the prior twelve month
period, a greater percentage-of-personnel was devoted to funded projects,
including the Orion contract such that payroll related expenses for these
personnel were included in the cost of contract and other revenue.

      Loss from Operations. The loss from operations for the fiscal year ended
December 31, 1998 was $1,702,768, as compared to a loss from operations of
$4,232,019 for the fiscal year ended December 31, 1997. The decrease in the loss
from operations of $2,529,251 is a result of the recognition of equipment
revenue, which was partially offset by decreases in product sales and contract
and other revenue along with the increase in operating expenses.

      Other Income (Expense). Total other income for the fiscal year ended
December 31, 1998 was $538,064 as compared to $295,819 for the fiscal year ended
December 31, 1997. The increase in total other income is attributable to
interest income earned on the proceeds from the August 1997 exercise of the
Company's Public Warrants as well as reduced interest expense on capital leases
in 1998.

      Loss Before Income Taxes. The loss before income taxes was $1,164,704 for
the fiscal year ended December 31, 1998, as compared to $3,936,200 for the
fiscal year ended December 31, 1997. The decrease in the loss before income
taxes of $2,771,496 is a result of the existence of equipment revenue in 1998,
(as compared to no equipment revenue recognized in 1997) which was partially
offset by decreases in product sales and contract and other revenue and the
increase in operating expenses.

      As of December 31, 1998, the Company had net operating loss and general
business credit carryforwards of approximately $17,424,000 and $420,000,
respectively, for tax purposes expiring through 2011. As a result of the public
stock offering that closed in April 1996 of 1,600,000 shares at $7.25 per share,
a change of ownership within the meaning of Sec. 382(g) of the Internal Revenue
Code occurred. As a result of this ownership change, the net operating loss
carryforward utilization is limited to approximately $1,500,000 per year, which
limitation, if not utilized, can be carried forward to future years.

Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996

      Product Sales. Product sales decreased to $3,389,128 for the fiscal 
year ended December 31, 1997, a decrease of $1,376,680 or 29% from $4,765,808 
for the fiscal year ended December 31, 1996. The decrease in product sales is 
primarily attributable to reduced wafer requirements from a customer, which 
supplied its own wafers using the Ibis 1000 it had purchased from the 
Company. Sales to this customer accounted for 41% of total product sales in 
1996 and less than 3% of total product sales in 1997.

      Contract and Other Revenue. Contract and other revenue increased for the
fiscal year ended December 31, 1997 to $3,284,695 from $887,098 for the fiscal
year ended December 31, 1996, an increase of 270%. This increase is attributable
to revenues derived from a contract for consulting services for Orion, as


16
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

well as a nine-fold increase in government contract revenue over the same 
period in 1996. During 1997, the Company also began selling spare parts for 
Ibis 1000 implanters. Revenue from the Orion contract, government contracts 
and spare parts and other services amounted to approximately $1,749,000, 
$952,000 and $584,000, respectively, during 1997.

      Equipment Revenue. There were no equipment sales during 1997. Equipment 
revenue of $3,800,000 in 1996 represents the recognition on a 
percentage-of-completion basis, determined by milestone accomplishments, of 
the sale of an Ibis 1000. The amount of equipment revenue recognized 
represents 95% of the total equipment revenue from this sale. The balance of 
equipment revenue from this sale was recognized upon the delivery of certain 
software upgrades in 1998.

      Total Revenue. Total revenue for the fiscal year ended December 31, 1997
was $6,673,823, a decrease of $2,779,083 or 29% from total revenue of $9,452,906
for the fiscal year ended December 31, 1996. The recognition of equipment
revenue of $3,800,000 accounted for 40% of total revenue in 1996. This decrease
resulted from lack of equipment revenue and the decrease in product sales, which
were partially offset by increases in contract and other revenue.

      Cost of Product Sales. Cost of product sales for the fiscal year ended
December 31, 1997 was $4,826,794, as compared to $4,041,170 for the fiscal year
ended December 31, 1996, an increase of $785,624 or 19%. The increase in cost of
product sales primarily resulted from increases in depreciation expense,
payroll, utilities, repairs and maintenance and epitaxial material expenses. In
addition, during 1997 the Company wrote off approximately $300,000 in obsolete
inventory which did not meet the Company's current quality standards based on
the Ibis 1000 implanter capability. The negative gross margin from product sales
for the fiscal year ended December 31, 1997 was 42%, as compared with a gross
margin of 15% for the fiscal year ended December 31, 1996. The decrease is
primarily attributable to the fundamental fixed cost nature of product costs
which did not have a reduction commensurate with the decrease in product sales.

      Cost of Contract and Other Revenue. The cost of contract and other revenue
for the fiscal year ended December 31, 1997 was $2,454,384, as compared to
$320,522 for the fiscal year ended December 31, 1996, an increase of $2,133,862
or 666%. The increase is a result of changes in the make-up of contract and
other revenue.

      Cost of Equipment Revenue. The cost of equipment revenue represents all
costs related to the equipment revenue that was recognized in 1996 on a
percentage-of-completion basis for the Ibis 1000 implanter. The gross margin in
1996 from the sale of this implanter was 31%.

      Total Cost of Revenue. Total cost of revenue for the fiscal year ended
December 31, 1997 was $7,281,178, as compared to $6,986,692 for the fiscal year
ended December 31, 1996, an increase of $294,486 or 4%. This increase is due to
increases in cost of product sales and contract and other revenue, which were
offset by lack of equipment cost of revenue.

      General and Administrative Expenses. General and administrative expenses
for the fiscal year ended December 31, 1997 were $1,723,852 (26% of total
revenue) as compared to $1,423,476 (15% of total revenue) for the fiscal year
ended December 31, 1996, an increase of $300,376 or 21%. This results from
increases in legal fees, transfer agent fees, liability insurance, and severance
costs associated with a management reorganization.

      Marketing and Selling Expenses. Marketing and selling expenses for the
fiscal year ended December 31, 1997 were $466,269 (7% of total revenue) as
compared to $515,408 (6% of total revenue) for


                                                                              17
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

the fiscal year ended December 31, 1996, a decrease of $49,139 or 10%. The
decrease in marketing and sales expenses is primarily a result of a decrease in
payroll and payroll related expenses.

      Research and Development Expenses. Internally funded research and
development expenses decreased by $42,051 or 3% to $1,434,543 (21% of total
revenue) for the fiscal year ended December 31, 1997 from $1,476,594 (16% of
total revenue) for the fiscal year ended December 31, 1996. This decrease is
primarily due to the Company's increase in billable labor on various contracts
resulting in these charges being classified as cost of revenues. This was offset
by an increase in material expense primarily associated with the write-off of
parts and wafer holders for the Ibis 1000 implanters due to continued
improvements or upgrades.

      Loss from Operations. The loss from operations for the fiscal year ended
December 31, 1997 was $4,232,019, as compared to a loss from operations of
$949,264 for the fiscal year ended December 31, 1996. The increase in the loss
from operations of $3,282,755 is a result of decreased product sales and lack of
equipment revenue.

      Other Income (Expense). Total other income for the fiscal year ended
December 31, 1997 was $295,819 as compared to $110,404 for the fiscal year ended
December 31, 1996. The increase in other income is due to decreased interest
expense on capitalized leases.

      Loss Before Income Taxes. The loss before income taxes was $3,936,200 for
the fiscal year ended December 31, 1997, as compared to $838,860 for the fiscal
year ended December 31, 1996. The increase in the loss before income taxes of
$3,097,340 is a result of decreased product sales and lack of equipment revenue.

Subsequent Events

      During the first quarter of 1999, the Company received purchase orders 
totaling approximately $8,000,000 for Ibis 1000 implanters which are 
anticipated to be delivered in 1999.

Impact of the Year 2000 Issue

      The Year 2000 Issue

      The Year 2000 Issue refers to potential problems with computer systems or
any equipment with computer chips or software that use dates where the date has
been stored as just two digits (e.g., 98 for 1998). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities.

      The Company's State of Readiness

      To determine the effect, if any, of the Year 2000 Issue on its operations,
the Company began a review of its internal information systems in the second
quarter of 1998. The Company has implemented a common software system in both
the operations and financial management areas for the purpose of integrating the
various systems. The Company believes that such common system is Year 2000
compliant and is fully operational. The Company will continue to test less
critical information systems and expects to complete this review and any
required upgrades by the second quarter of 1999.


18
<PAGE>

--------------------------------------------------------------------------------
                                                    Ibis Technology Corporation

      During the first quarter of 1998, the Company conducted a test plan on its
Ibis 1000 implanter equipment and determined based on these tests that the
current version is Year 2000 compliant. It was also determined that the
operating system of one older version Ibis 1000 has to be upgraded in order to
be Year 2000 compliant; the largest issue being with the file manager displaying
and sorting the date properly after 2000. An updated version of the file manager
which corrects this problem is available. This upgrade will be completed by the
second quarter of 1999. The Company believes that an error in date calculation
will not impact the ability of the system to produce wafers. The Company also
believes that the worst case scenario is that the date will have to be set
manually on the dates found to be suspect and that there are no issues with the
operating system which could cause system failure or interfere with the
operation of the Ibis 1000 implanter.

      The Company has reviewed its ancillary production equipment and has
determined the extent of software upgrades necessary in order for the systems to
be Year 2000 compliant. If the software upgrades were deficient or the Company
elected not to do the upgrades, the Company's ability to use this equipment
would not be impacted, as the systems are stand-alone and the functions are not
date sensitive. The worst case scenario is that the Company could turn back the
computer clocks. The Company expects to complete these software upgrades by the
beginning of the third quarter of 1999.

      The Company is also in the process of contacting its major suppliers and
customers in an effort to determine the extent to which the failure of these
parties to timely identify and correct their own problems associated with the
Year 2000 Issue may affect the Company. A re-evaluation of critical suppliers
was completed, additional letters were sent to these suppliers requesting Year
2000 status and proof of compliance. Although this review is ongoing, to date,
the Company has not identified any situations of non-compliance that would
materially adversely affect the Company's operations or financial condition. The
Company expects this review to be complete by the end of the second quarter of
1999.

      Although the Company has not completed its review and is still gathering
information, based on its review to date, the Company believes that its
principal information systems either currently correctly define the year 2000 or
will be upgraded to be Year 2000 compliant and thus, the impact of the Year 2000
Issue will have no material effect on its systems.

      Costs Associated with the Year 2000 Issue

      To date the costs incurred by the Company to conduct the review of its
internal information systems and to identify the impact of the Year 2000 issue
on its major suppliers and customers have been immaterial and the Company
expects that the additional costs incurred to complete this review will also be
immaterial. The costs to implement the common software system are not considered
Year 2000 costs as they were included in the Company's integration plan and were
not accelerated due to Year 2000 issues. The costs to perform upgrades to
correct the Year 2000 Issues that the Company has identified to date are
estimated at approximately $30,000. However, the costs incurred by the Company
to address the Year 2000 Issue could increase materially if in completing the
review of its internal information systems, the Company identifies non-compliant
systems which must be replaced or modified or if the Company identifies any
other problem related to the Year 2000 Issue which must be addressed.

      Risks Associated with the Year 2000 Issue

      To the extent that the Company's assessment is completed and 
non-compliant systems operated by the Company or by third parties are not 
identified, the Year 2000 issue could have a material adverse effect on the 
operations of the Company. The Company could experience delays in the 
manufacturing of wafers or


                                                                              19
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

the building of equipment. The severity of these possible problems would depend
on the nature of the problem and how quickly it could be corrected or an
alternate implemented, which is unknown at this time.

      Contingency Plans

      The Company has formal contingency plans in place for the systems it has
identified as being non-compliant. Contingency plans will also be developed if
certain suppliers do not supply the Company with adequate information on their
compliance or if they are not going to be ready in time to meet the Year 2000
deadline. The Company expects to have all of the documentation in place by the
second quarter of 1999 and at that time if suppliers are identified that are
unable to become Year 2000 compliant within an appropriate time frame, the
Company would identify alternative sources of suppliers.

      Based on currently available information, the Company does not believe
that the Year 2000 Issue will have a material effect on the Company's internal
information systems. There can be no assurance, however, that the Company will
not in the future identify non-compliant systems or other problems related to
the Year 2000 issue which may have a material adverse effect on the Company's
future operating results or financial condition. In addition, there can be no
assurance that the failure to ensure Year 2000 capability by a supplier or
another third party would not have a material adverse effect on the Company.

Liquidity and Capital Resources

      As of December 31, 1998, the Company had cash and cash equivalents of 
$12,819,366. During the fiscal year ended December 31, 1998, the Company 
generated $500,367 in cash from operating activities as compared to cash 
consumed from operations in the amount of $3,896,311 for the same period in 
1997. Depreciation and amortization expense for the fiscal years ended 
December 31, 1998 and 1997 was $1,671,413 and $2,063,018, respectively. This 
accounted for 11% and 31% of total revenue, respectively. Due to the capital 
intensive nature of the Company's business and the anticipated expansion of 
its facilities and production capacity, management expects that depreciation 
and amortization will continue to be a significant portion of its expenses. 
To date, the Company's working capital requirements have been funded through 
debt and equity financings, warrant conversions, exercise of options and 
warrants, equipment lines of credit, a working capital line of credit, a term 
loan, sale leaseback arrangements, collaborative relationships, government 
contracts and product and equipment sales. The principal use of cash during 
the fiscal year ended December 31, 1998 was to fund additions to property and 
equipment which totaled approximately $1.6 million. As of December 31, 1998, 
the Company had invested $14,948,862 in property and equipment. At December 
31, 1998, the Company had commitments to purchase approximately $745,000 in 
material or subassemblies to be used for manufacturing Ibis 1000 implanters 
currently under construction and approximately $465,000 in capital equipment 
purchases.

      On July 24, 1997, the Company notified the holders of its 1,380,000
publicly-traded Redeemable Common Stock Purchase Warrants (the "Public
Warrants") and its 120,000 privately held Underwriter Redeemable Common Stock
Purchase Warrants (the "Underwriter Warrants") that it would redeem these
Warrants on August 26, 1997 at the redemption price of $.20 per Warrant. Prior
to August 26, 1997, the holder of a Public Warrant had the right to exercise
such Warrant to acquire 1.044 shares of the Company's Common Stock at a price of
$8.05 per share and the holder of an Underwriter Warrant had the right to
exercise such Warrant to acquire 1.09 shares of Common Stock at a price of $9.26
per share. The Company received net proceeds of approximately $10.1 million
through the exercise of its Public Warrants. The holders of approximately 92% of
these Warrants elected to exercise the Warrants rather than have them redeemed.
Approximately 1,327,000 shares of Common Stock were issued upon exercise of the
Public Warrants. None of the Underwriter Warrants were exercised.


20
<PAGE>

--------------------------------------------------------------------------------
                                                    Ibis Technology Corporation

      The Company anticipates that it may be required to raise substantial
additional capital in the future in order to finance expansion of its
manufacturing capacity and its research and development programs. The Company's
existing cash resources together with funds generated from operations are
believed to be sufficient to support the Company's operations on their
anticipated scale for at least the next twelve months. Management of the Company
currently believes that this anticipated scale of operations will include the
addition of Ibis 1000 oxygen implanters (in addition to its two oxygen
implanters currently on-line), the purchase of support equipment and the
expansion of the Company's facilities. Additional implanters are expected to be
transferred to production at various times as additional capacity is needed to
meet demand.

Effects Of Inflation

      The Company believes that over the past three years inflation has not had
a significant impact on the Company's sales or operating results.

New Accounting Pronouncements

      In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which became effective for the Company in its year ending
December 31, 1998, did not have a material impact on the financial statements of
the Company.

      In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which became effective for the Company in its
year ending December 31, 1998, did not have a material impact on the Company's
financial statements and footnote disclosures.

     Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The exposure of market risk associated with risk-sensitive instruments is
not material to the Company, as the Company does not transact its sales
denominated in other than United States dollars, invests primarily in short-term
commercial paper, holds its investments until maturity and has not entered into 
hedging transactions.


                                                                              21
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

      Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                           IBIS TECHNOLOGY CORPORATION

         Index to Financial Statements and Financial Statement Schedule

Financial Statements:                                                      Page
                                                                          Number
                                                                          ------

  Independent Auditors' Report ..........................................   23
  Balance Sheets as of December 31, 1997 and 1998 .......................   24
  Statements of Operations for the Years Ended
    December 31, 1996, 1997 and 1998 ....................................   25
  Statements of Stockholders' Equity for the Years Ended
    December 31, 1996, 1997 and  1998 ...................................   26
  Statements of Cash Flows for the Years Ended December 31,
    1996, 1997 and  1998 ................................................   27
  Notes to Financial Statements .........................................   28

Schedule:

  Schedule II - Valuation and Qualifying Accounts .......................  S-I


22
<PAGE>

--------------------------------------------------------------------------------
                                                    Ibis Technology Corporation

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Ibis Technology Corporation:

      We have audited the accompanying balance sheets of Ibis Technology
Corporation as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ibis Technology Corporation
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.


                                                  KPMG Peat Marwick LLP

Boston, Massachusetts
February 12, 1999


                                                                              23
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                                 BALANCE SHEETS

                          December 31, 1997 and 1998

<TABLE>
<CAPTION>

                                                                  1997            1998
                                                                  ----            ----
Assets
------
Current assets:
<S>                                                          <C>             <C> 
 Cash and cash equivalents ...............................   $ 13,309,823    $ 12,819,366
 Accounts receivable, trade, net (notes 4 and 13) ........      1,064,607         546,935
 Unbilled revenue ........................................        230,490       2,448,327
 Inventories (note 5) ....................................      4,879,087       3,121,084
 Prepaid expenses and other current assets ...............        124,711         151,106
                                                             ------------    ------------
      Total current assets ...............................     19,608,718      19,086,818
                                                             ------------    ------------
Property and equipment (notes 3, 6 and 7) ................     13,303,256      14,948,862
  Less: Accumulated depreciation and amortization ........     (8,250,372)     (9,872,843)
                                                             ------------    ------------
      Net property and equipment .........................      5,052,884       5,076,019
Patents and other assets, net (note7) ....................        256,638         144,481
                                                             ------------    ------------
      Total assets .......................................   $ 24,918,240    $ 24,307,318
                                                             ============    ============

Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
 Capital lease obligation, current (note 7) ..............   $    474,539    $    507,258
 Accounts payable ........................................        691,325         411,065
 Accrued liabilities (notes 8 and 9) .....................      1,193,504       1,336,720
                                                             ------------    ------------
      Total current liabilities ..........................      2,359,368       2,255,043
Capital lease obligation, noncurrent (note 7) ............        498,685          39,630
Deferred revenue (notes 8 and 9) .........................      1,303,187       1,403,702
                                                             ------------    ------------
      Total liabilities ..................................      4,161,240       3,698,375
                                                             ------------    ------------

Commitments and contingencies (notes 6, 7 and 13)

Stockholders' equity (notes 11 and 12):
Undesignated preferred stock, $.01 par value.
 Authorized 2,000,000 shares; none issued ................             --              --
Common stock, $.008 par value.
 Authorized 20,000,000 shares; issued 6,628,728 shares and
  6,858,556 shares in 1997 and 1998, respectively ........         53,030          54,868
Additional paid-in capital ...............................     35,593,999      36,610,064
Accumulated deficit ......................................    (14,890,029)    (16,055,989)
                                                             ------------    ------------
      Total stockholders' equity .........................     20,757,000      20,608,943
                                                             ------------    ------------
      Total liabilities and stockholders' equity .........   $ 24,918,240    $ 24,307,318
                                                             ============    ============
</TABLE>

                   See accompanying notes to financial statements.


24
<PAGE>

--------------------------------------------------------------------------------
                                                    Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1996, 1997 and 1998

<TABLE>
<CAPTION>
                                                        1996          1997           1998
                                                        ----          ----           ----

<S>                                                 <C>           <C>           <C> 
Product sales ....................................  $ 4,765,808   $ 3,389,128   $  3,148,783
Contract and other revenue .......................      887,098     3,284,695      1,283,830
Equipment revenue ................................    3,800,000            --     11,033,456
                                                    -----------   -----------   ------------
     Total revenue (note 13) .....................    9,452,906     6,673,823     15,466,069
                                                    -----------   -----------   ------------

Cost of product sales ............................    4,041,170     4,826,794      4,581,140
Cost of contract and other revenue ...............      320,522     2,454,384      1,079,381
Cost of equipment revenue ........................    2,625,000            --      7,243,293
                                                    -----------   -----------   ------------
      Total cost of revenue ......................    6,986,692     7,281,178     12,903,814
                                                    -----------   -----------   ------------
      Gross profit (loss) ........................    2,466,214      (607,355)     2,562,255
                                                    -----------   -----------   ------------

Operating expenses:
 General and administrative ......................    1,423,476     1,723,852      1,823,001
 Marketing and selling ...........................      515,408       466,269        470,288
 Research and development ........................    1,476,594     1,434,543      1,971,734
                                                    -----------   -----------   ------------
     Total operating expenses ....................    3,415,478     3,624,664      4,265,023
                                                    -----------   -----------   ------------
     Loss from operations ........................     (949,264)   (4,232,019)    (1,702,768)
                                                    -----------   -----------   ------------

Other income (expense):
 Interest income .................................      462,481       471,590        652,305
 Interest expense ................................     (351,617)     (176,027)      (114,241)
Other ............................................         (460)          256             --
                                                    -----------   -----------   ------------
    Total other income ...........................      110,404       295,819        538,064
                                                    -----------   -----------   ------------

    Loss before income taxes .....................     (838,860)   (3,936,200)    (1,164,704)

Income tax expense (note 10) .....................        1,256         1,256          1,256
                                                    -----------   -----------   ------------

    Net loss .....................................  $  (840,116)  $(3,937,456)  $ (1,165,960)
                                                    ===========   ===========   ============

Net loss per common share -- basic and  diluted ..  $      (.18)  $      (.69)  $       (.17)
                                                    ===========   ===========   ============

Weighted average number of common shares
 outstanding -- basic and diluted ................    4,722,025     5,709,931      6,759,870
                                                    ===========   ===========   ============
</TABLE>

                    See accompanying notes to financial statements.


                                                                              25
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                         IBIS TECHNOLOGY CORPORATION

                      STATEMENTS OF STOCKHOLDERS' EQUITY

                 Years ended December 31, 1996, 1997 and 1998

<TABLE>
<CAPTION>
                                                Additional                                     Notes              Total
                                      Common     Paid-in       Accumulated    Deferred    Receivable from     Stockholders'
                                       Stock     Capital         Deficit    Compensation   Stockholders           Equity
                                      -------  ------------   ------------  ------------  ---------------     -------------
<S>                                   <C>      <C>            <C>             <C>            <C>              <C> 
Balances at December 31, 1995 ......  $28,094  $ 14,925,304   $(10,112,457)   $(14,698)      $(17,150)        $  4,809,093
 
  Amortization of deferred 
    compensation expense ...........       --            --             --      14,698             --               14,698
  Public offering of 1,600,000 
    shares of common stock, net
    of issuance costs ..............   12,800    10,292,401             --          --             --           10,305,201
  Issuance of 4,177 investor 
    relations shares ...............       33        17,967             --          --             --               18,000
  Exercise of warrants .............       --        29,949             --          --             --               29,949
  Exercise of stock options ........      530        26,596             --          --             --               27,126
  Net loss .........................       --            --       (840,116)         --             --             (840,116)
                                      -------  ------------   ------------    --------       --------         ------------
 
Balances at December 31, 1996 ......   41,457    25,292,217    (10,952,573)         --        (17,150)          14,363,951
 
  Exercise of underwriter
    redeemable warrants ............       --         1,080             --          --             --                1,080
  Exercise of underwriter non- 
    redeemable warrants ............       38        37,781             --          --             --               37,819
  Exercise of redeemable public
    warrants .......................   10,614    10,057,238             --          --             --           10,067,852
  Surrender of warrants ............       --       (48,300)            --          --             --              (48,300)
  Exercise of stock options ........      921       237,600             --          --             --              238,521
  Compensation expense related to
    acceleration of stock option 
    vesting ........................       --        16,383             --          --             --               16,383
  Repayment of stockholder notes 
     receivable ....................       --            --             --          --         17,150               17,150
  Net loss .........................       --            --     (3,937,456)         --             --           (3,937,456)
                                      -------  ------------   ------------    --------       --------         ------------
 
Balances at December 31, 1997 ......   53,030    35,593,999    (14,890,029)         --             --           20,757,000
 
  Exercise of stock options ........    1,334     1,002,691             --          --             --            1,004,025
  Exercise of warrants .............      504        13,374             --          --             --               13,878
  Net loss .........................       --            --     (1,165,960)         --             --           (1,165,960)
                                      -------  ------------   ------------    --------       --------         ------------
 
Balances at December 31, 1998 ......  $54,868  $ 36,610,064   $(16,055,989)   $     --       $     --         $ 20,608,943
                                      =======  ============   ============    ========       ========         ============
</TABLE>

               See accompanying notes to financial statements.


26
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

                         IBIS TECHNOLOGY CORPORATION

                           STATEMENTS OF CASH FLOWS

                 Years ended December 31, 1996, 1997 and 1998

<TABLE>
<CAPTION>
                                                                1996           1997          1998
                                                                ----           ----          ----
<S>                                                       <C>            <C>            <C>
Cash flows from operating activities:
  Net loss .............................................  $   (840,116)  $ (3,937,456)  $ (1,165,960)
  Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
     Depreciation and amortization .....................     1,678,070      2,063,018      1,671,413
     Amortization of deferred compensation .............        14,698             --             --
     Loss on sale of asset .............................         1,788             --             --
     Changes in operating assets and liabilities:
       Accounts receivable, trade ......................     1,727,804       (144,219)       517,672
       Unbilled revenue ................................        17,038       (152,630)    (2,217,837)
       Inventories .....................................       (36,010)    (1,285,779)     1,758,003
       Prepaid expenses and other current assets .......        35,326        (79,251)       (26,395)
       Accounts payable ................................       471,737       (264,456)      (280,260)
       Accrued liabilities and deferred revenue ........       221,220        (95,538)       243,731
                                                          ------------   ------------   ------------
          Net cash provided by (used in) operating
            activities .................................     3,291,555     (3,896,311)       500,367
                                                          ------------   ------------   ------------
Cash flows from investing activities:
  Additions to property and equipment, net .............    (4,981,546)    (1,770,746)    (1,645,607)
  Proceeds from sale of asset ..........................         5,700             --             --
  Other assets .........................................      (111,287)       102,556         63,216
                                                          ------------   ------------   ------------
          Net cash used in investing activities ........    (5,087,133)    (1,668,190)    (1,582,391)
                                                          ------------   ------------   ------------
Cash flows from financing activities:
  Payments of bank notes payable .......................      (845,788)            --             --
  Payments of capital lease obligations ................      (817,746)      (657,197)      (426,336)
  Proceeds from sales of common stock, net of
      issuance costs ...................................    10,323,201             --             --
  Exercise of stock options and exercise of warrants ...        57,075        293,803      1,017,903
  Proceeds from stockholders' notes receivable .........            --         17,150             --
  Proceeds from warrant redemption, net of
     redemption costs ..................................            --     10,019,552             --
                                                          ------------   ------------   ------------
          Net cash provided by financing activities ....     8,716,742      9,673,308        591,567
                                                          ------------   ------------   ------------
          Net increase (decrease) in cash and cash
           equivalents .................................     6,921,164      4,108,807       (490,457)
Cash and cash equivalents, beginning of year ...........     2,279,852      9,201,016     13,309,823
                                                          ------------   ------------   ------------
Cash and cash equivalents, end of year .................  $  9,201,016   $ 13,309,823   $ 12,819,366
                                                          ============   ============   ============

Supplemental disclosures of cash flow information:
  Cash paid during the year for interest ...............  $    308,667   $    199,563   $    364,241
                                                          ============   ============   ============
Supplemental disclosures of noncash investing and
  financing activities:
   Capital lease obligations incurred ..................  $         --   $         --   $     66,447
                                                          ============   ============   ============
   Issuance of shares of common stock ..................  $     18,000   $         --   $         --
                                                          ============   ============   ============
   Acceleration of stock options .......................  $         --   $     16,383   $         --
                                                          ============   ============   ============
</TABLE>

                 See accompanying notes to financial statements.


                                                                              27
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1997 and 1998

(1) Nature of Business and Organization

      Ibis Technology Corporation (the "Company") was incorporated in October
1987 for the purpose of supplying silicon-on-insulator (SOI) wafers formed by
the SIMOX (Separation by Implantation of Oxygen) technology. SIMOX-SOI wafers
are manufactured using a specialized oxygen ion implanter, which was developed
and manufactured by the Company and is integrated with other specialized
processes and characterization equipment. The Company is the leading
manufacturer of high current oxygen implanters and began selling these oxygen
implanters in 1996.

(2) Summary of Significant Accounting Policies

      (a) Cash and Cash Equivalents

      Cash equivalents represent highly liquid investments with original
maturities of three months or less.

      (b) Inventories

      Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) cost method.

      (c) Property and Equipment

      Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, ranging from three to eight years. Amortization is provided using the
straight-line method over the life of the lease, ranging from three and one-half
to five years.

      The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If it is determined that the carrying amount of an asset
cannot be fully recovered, an impairment loss is recognized.

      (d) Patents and Other Assets

      Other assets consist principally of deferred financing costs, deposits and
prepaid royalties. Patents and prepaid royalties are amortized over five years
using the straight-line method; deferred financing costs are being amortized
over the period of loan or lease commitment.

      (e) Revenue Recognition

      Product sales are recognized upon shipment. Revenue derived from
consulting services is recognized upon performance. Contract and equipment
revenue is recognized on the percentage-of-completion method. Provisions for
anticipated losses are made in the period in which such losses become
determinable. Unbilled revenue under customer contracts represents revenue
earned under the percentage-of-completion method but not yet billable under the
terms of the contract. These amounts are billable based on the terms of the
contract, which include shipment of the product, achievement of milestones or
completion of the contract.


28
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

                         IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

      Government contracts are performed under negotiated overhead rates and are
subject to audit and retroactive adjustments of amounts paid to the Company.

      (f) Research and Development

      Research and development costs are charged to expense as incurred.
Research and development costs funded by contracts are included as a component
of contract revenue.

      (g) Net Loss Per Common Share

      Net loss per share of common stock is computed based upon the weighted
average number of shares outstanding during each period and including the
dilutive effect, if any, of stock options and warrants. SFAS 128 requires the
presentation of basic and diluted earnings (loss) per share for all periods
presented. As the Company has been in a net loss position for all years
presented, common stock equivalents of 260,250, 305,605 and 246,537 for the
years ended December 31, 1996, 1997 and 1998, respectively, were excluded from
the diluted loss per share calculation as they would be antidilutive. As a
result, diluted loss per share is the same as basic loss per share, and has not
been presented separately.

      (h) Issuance Costs

      Issuance costs of common stock are netted against additional paid-in
capital.

      (i) Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results may differ from these estimates.

      (j) Fair Value of Financial Instruments

      Financial instruments of the Company consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued liabilities and capital lease
obligations. The carrying amount of these financial instruments approximates
fair value.

(3) Change in Estimate

      During the third quarter of 1998 the Company changed depreciable lives for
some of its equipment from five years to eight years due to new information
becoming available. As a result, depreciation for the year was reduced by
approximately $319,000.


                                                                              29
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                         IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

(4) Accounts Receivable

      Accounts receivable consist of the following at December 31:

                                                        1997            1998
                                                        ----            ----

       Accounts receivable, trade ................  $1,057,658       $ 468,811
       Accounts receivable, other ................      47,499         143,124
       Less: Allowance for doubtful accounts .....     (40,550)        (65,000)
                                                    ----------       ---------
                                                    $1,064,607       $ 546,935
                                                    ==========       =========

(5) Inventories

      Inventories consist of the following at December 31:

                                                         1997            1998
                                                         ----            ----

       Raw materials ............................   $   221,378    $   197,734
       Work in process ..........................       105,607         76,343
       Finished goods ...........................       160,046        191,762
                                                    -----------    -----------
         Subtotal wafer inventory ...............       487,031        465,839
       Equipment inventory ......................     4,392,056      2,655,245
                                                    -----------    -----------
         Total inventories ......................   $ 4,879,087    $ 3,121,084
                                                    ===========    ===========

(6) Property and Equipment

      Property and equipment consists of the following at December 31:

                                                        1997           1998
                                                        ----           ----

       Machinery and equipment ...................  $12,338,486    $13,595,208
       Furniture and fixtures ....................      256,534        316,619
       Leasehold improvements ....................      708,236        768,790
       Construction in progress ..................           --        268,245
                                                    -----------    -----------
                                                    $13,303,256    $14,948,862
                                                    ===========    ===========

      Construction in progress includes the cost to expand into an additional
9,000 square feet of space which the Company began leasing in July 1998.

      At December 31, 1998, the Company had commitments to purchase
approximately $750,000 in material or subassemblies to be used in normal
operations and approximately $475,000 in capital equipment purchase commitments.


30
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation


                           IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

(7) Lease Commitments

      In November 1995, the Company sold an Ibis 1000 production implanter for
$2,040,000 and leased it back under a capital lease. A security reserve paid by
the Company in the amount of $250,000 was applied to the principal portion of
the lease obligation. Warrants to purchase 35,478 shares of common stock at
$5.75 per share were issued in connection with this lease. The warrants, which
were valued at $106,434 at the time of issuance, have been recorded in other
assets as deferred financing costs and are being amortized over 48 months, the
initial term of the lease.

      In January 1997, the Company entered into a noncancelable operating lease
for its office and manufacturing facility expiring in 2003 with a five-year
renewal option.The Company also leases certain equipment under noncancelable
operating leases expiring through 2001, as well as equipment used in operations
under noncancelable capital leases expiring through 2003. Future minimum lease
payments under noncancelable leases at December 31, 1998, are as follows:

                                                       Capital        Operating
                                                        Leases          Leases
                                                        ------          ------
       Year ending:
       1999 ........................................   $ 548,478    $  356,285
       2000 ........................................      13,284       355,610
       2001 ........................................      13,284       334,926
       2002 ........................................      13,284       329,772
       2003 ........................................       7,749       329,772
                                                       ---------    ----------
       Total minimum lease payments ................     596,079    $1,706,365
                                                                    ==========
       Less amount representing interest ...........     (49,191)
       Less current maturities .....................    (507,258)
                                                       --------- 
       Capital lease obligations, less current 
         maturities ................................   $  39,630 
                                                       ========= 
 
      Interest was calculated using an imputed interest rate of 14%.

      Rent expense was approximately $205,000, $255,000 and $314,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.


                                                                              31
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

(8) Accrued Liabilities

      Current accrued liabilities were as follows at December 31:

                                                           1997         1998
                                                           ----         ----

       Deferred revenue, current portion ...........   $  396,475   $  137,500
       Accrued inventory costs .....................           --      321,411
       Accrued vacation ............................      162,111      131,723
       Accrued warranty ............................        7,000      354,546
       Accrued interest ............................      250,000           --
       Accrued payroll .............................      211,104      171,912
       Other .......................................      166,814      219,628
                                                       ----------   ----------
       Total .......................................   $1,193,504   $1,336,720
                                                       ==========   ==========
 
      During September 1995, the Company entered into a strategic business
development agreement with a customer whereby the customer advanced to the
Company the required funding to build an Ibis 1000 implanter, whose SIMOX-SOI
wafer manufacturing capacity would be primarily dedicated to serving this
customer's production requirements over a multi-year period, with wafer prices
being reduced to repay this funding. Revenue is being recognized as wafers are
shipped and discounts are earned by the customer. Amounts billed for which
revenue has not been earned are included in deferred revenue.

(9) License Agreements

      The Company has obtained an exclusive sublicense to the proprietary beam
scanning system developed by a consultant to the Company during the development
of the first Ibis 1000 implanter in the field of oxygen implantation. Pursuant
to the sublicense agreement, the Company is obligated to pay a royalty of 1% of
all sales of wafers from the Ibis 1000 implanter, not to exceed $160,000 in the
aggregate. Royalty expense was approximately $34,600, $69,900 and $24,100 for
the years ended December 31, 1996, 1997 and 1998, respectively.As of December
31, 1998, the Company has paid all $160,000 of this royalty.The sublicense
agreement also grants the Company certain rights to the beam scanning system for
applications other than oxygen implantation. During 1994, the Company entered
into an agreement with a third party to license the above-referenced technology
and received approximately $156,000, net, in nonrefundable prepaid royalties
from such third party. This revenue had been deferred and included in other
accrued liabilities and was recognized as royalties when earned. During both
1996 and 1997, approximately $78,000 was recognized as revenue for this
particular agreement.

      In addition, the Company received $417,000, $75,000 and $72,000 in 1996,
1997 and 1998, respectively, for non-refundable option fees or royalty fees in
accordance with three additional non-exclusive sublicense agreements.


32
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)


(10) Income Taxes

      Income tax expense consists of state income taxes for each year.

      The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below at December
31:

                                                           1997         1998
                                                           ----         ----
       Deferred tax assets:
         Net operating loss carryforwards ...........  $ 6,693,000  $ 7,017,000
         Accruals not currently deductible for tax
           purposes .................................       44,000       71,000
         General business tax credit carryforwards ..      344,000      420,000
         Other ......................................      381,000      404,000
         Less: Valuation allowance ..................   (7,462,000)  (7,781,000)
                                                       -----------  -----------
           Net deferred tax assets ..................           --      131,000
       Deferred tax liabilities:
        Property and equipment, principally due to
         differences in depreciation ................           --     (131,000)
                                                       -----------  -----------
                                                       $        --  $        --
                                                       ===========  ===========

      As a result of the losses incurred to date by the Company, a 100%
valuation allowance has been applied against the Company's deferred tax
assets.The amount recorded as net deferred tax assets as of December 31, 1997
and 1998 represents the tax benefits of existing deductible temporary
differences or carryforwards that are more likely than not to be realized
through the generation of sufficient future taxable income within the
carryforward period.The Company had no deferred tax liabilities at December 31,
1997. The net change in the total valuation allowance was an increase of
$1,661,000 and $319,000 for the years ended December 31, 1997 and 1998,
respectively.

      At December 31, 1998, the Company had net operating loss and general
business credit carryforwards of approximately $17,424,000 and $420,000,
respectively, for tax purposes expiring through 2011.The Company's initial and
secondary public offerings of common stock created an ownership change within
the meaning of Internal Revenue Code Section 382(g) and future annual usage of
net operating loss carryforwards is limited to approximately $1,500,000 per
year.Future equity transactions could cause additional ownership changes which
could result in further limitations of the net operating loss carryforwards.

(11) Capitalization

      In December 1993, the Board of Directors and stockholders approved that
the Restated Articles of Organization of the Company be amended by increasing
the number of authorized shares of common stock from 5,000,000 to 10,000,000,
and authorizing an additional 2,000,000 shares of preferred stock, $.01 par
value ("Undesignated Preferred Stock"), that are subject to issuance by the
Board of Directors and to fix the terms thereof.In January 1998, the Board of
Directors approved an amendment to the Company's Articles of Organization to
increase the number of authorized shares of Common Stock from 10,000,000 shares
to 20,000,000 shares.The stockholders approved the amendment at the May 1998
Annual Stockholders Meeting.At December 31, 1998, 42,680, 477,541, 750,000 and
65,607 common shares were reserved for issuance upon exercise of options
outstanding or available for grant under the Company's 1988 Stock Option Plan,
the 1993 Employee, Director and Consultant Stock Option Plan and 1997 Employee,
Director and


                                                                              33
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

Consultant Stock Option Plan and for exercises of warrants, respectively.

      On May 27, 1994, the Company completed an initial public offering of
1,200,000 shares of common stock at $7.00 per share and 1,380,000 redeemable
warrants at $0.20 per share (see note 12(b)). The Company's net proceeds were
approximately $6,892,000, after deducting approximately $1,784,000 for
underwriting discounts, commissions and other associated expenses.In August
1997, the Company issued approximately 1,327,000 shares of common stock upon
exercise of the warrants (see note 12(b)).

      On April 9, 1996, the Company completed a secondary public offering of
1,600,000 shares of common stock at $7.25 per share. The Company's net proceeds
were approximately $10,305,000, after deducting approximately $1,295,000 for
underwriting discounts, commissions and other associated expenses.

(12) Stock Options and Warrants

      (a) Stock Option Plans

      In March 1988, the Board of Directors and stockholders of the Company
approved the 1988 Stock Option Plan (the "Plan"). The Plan permits the Company
to grant incentive stock options to its key employees and nonqualified options
to any employees, consultants, directors or officers that the Board deems
appropriate. The incentive stock options must be granted at a price not less
than the fair market value of the common stock at the time of grant or, in the
case of certain optionees, 110% of such fair market value in order to qualify
for certain tax advantages under Section 422A of the Internal Revenue Code. The
purchase price of nonqualified options granted is determined at the discretion
of the Board of Directors. The Company has reserved 42,680 shares of common
stock for issuance under this plan, which represents outstanding options.

      In December 1993, the Board of Directors and stockholders approved the
adoption of the Company's 1993 Employee, Director and Consultant Stock Option
Plan which provided for the issuance of options to purchase up to 250,000 shares
of common stock of the Company to employees, consultants and non-employee
directors.In May 1996, the stockholders increased to 750,000 shares the
aggregate number of shares that may be granted under this plan.


34
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

      In October 1997, the Board of Directors approved the adoption of the
Company's 1997 Employee, Director and Consultant Stock Option Plan which
provides for the issuance of options to purchase up to 750,000 shares of common
stock of the Company to employees, consultants and non-employee directors.The
stockholders approved the Plan at the May 1998 Annual
Stockholders Meeting.

      A summary of stock option activity under the plans is as follows:

                                                                  Weighted
                                                                  average
                                                    Number        exercise
                                                      of            price
                                                    shares        of shares
                                                    ------        ---------

       Options outstanding at December 31, 1995     401,884         $3.73
 
       Granted                                      380,500          6.98
       Exercised                                    (70,425)         0.91
       Cancelled                                    (45,917)         5.59
                                                    -------         -----
 
       Options outstanding at December 31, 1996     666,042          5.76
 
       Granted                                      290,750          7.84
       Exercised                                   (133,266)         3.38
       Cancelled                                    (40,997)         5.14
                                                   --------         -----
 
       Options outstanding at December 31, 1997     782,529          6.84
 
       Granted                                      306,950          8.72
       Exercised                                   (190,247)         6.42
       Cancelled                                   (115,109)         6.46
                                                   --------         -----

       Options outstanding at December 31, 1998     784,123         $7.73
                                                   ========         =====

       Options outstanding at December 31, 1998     308,592         $6.73
                                                   ========         =====

      The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1998:

                           Options Outstanding              Options Exercisable 
                 ----------------------------------------  ---------------------
                                Weighted
                                 average      Weighted                  Weighted
                                remaining      average                   average
   Range of         Number      contractual   outstanding     Number    exercise
exercise prices  outstanding   life (years)  option price  exercisable    price
---------------  -----------   ------------  ------------  -----------    -----

$ .08 -  6.00      113,013         6.4           $4.29        69,675      $3.23
$6.01 -  7.50      232,510         6.0           $6.95       152,001      $6.89
$7.51 - 12.31      438,600         9.1           $9.03        86,916      $9.28
                   -------                                   -------
                   784,123                                   308,592
                   =======                                   =======


                                                                              35
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation


                           IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

      The Company intends to continue using APB No. 25 to measure compensation,
and accordingly, this pronouncement will not affect the Company's financial
position or results of operations.Had compensation costs for the stock option
plans been determined based on the fair value at the grant dates for awards in
1996, 1997 and 1998 consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per common share would have been increased to
the following pro forma amounts at December 31:

                                             1996         1997         1998
                                             ----         ----         ----

                           As reported  $  (840,116)  $(3,937,456)  $(1,165,960)
      Net loss             Pro forma    $(1,940,298)  $(5,215,633)  $(2,854,356)

      Net loss per share   As reported  $      (.18)  $      (.69)  $      (.17)
                           Pro forma    $      (.41)  $      (.91)  $      (.42)

      The per share weighted-average fair value of each option granted during
1996, 1997 and 1998 was $3.95, $5.07 and $5.78, respectively, on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: 1996 - expected volatility of 75.58%, risk-free
interest rate of 6.22%, and an expected life of 3 years; 1997 - expected
volatility of 98.55%, risk-free interest rate of 5.50%, and an expected life of
3 years; 1998 -- expected volatility of 98.55%, risk-free interest rate of
5.50%, and an expected life of 3 years.The expected dividend yield rate for
1996, 1997 and 1998 is zero.

      Pro forma net loss reflects only options granted in 1995, 1996, 1997 and
1998.Therefore, the full impact of calculating compensation costs for stock
options under SFAS No. 123 is not reflected because compensation costs for
options granted prior to January 1, 1995 are not considered.

      (b) Warrants

      Upon completion of the initial public offering, the Company had 1,380,000
publicly traded redeemable warrants outstanding. As a result of the issuance of
warrants in November 1995 in connection with a sale-leaseback transaction, the
closing of the secondary offering of 1,600,000 shares of common stock at $7.25
per share in April 1996, and the granting of certain stock options, each
redeemable warrant was adjusted based on anti-dilution provisions to entitle the
holder to purchase 1.04 shares of common stock, 1,434,648 shares in the
aggregate, at a price of $8.08 per share through May 20, 1999, and was
redeemable by the Company at a redemption price of $.20 per share at any time
after May 20, 1996, provided certain conditions were met. In connection with the
initial public offering, the Company sold to the underwriter 120,000
non-redeemable warrants to purchase 120,000 shares of common stock and/or
120,000 redeemable warrants.

      In July 1996, the holders of the 120,000 underwriter non-redeemable
warrants exercised all of these warrants.Upon exercise at $0.24 per warrant, the
holders received 120,000 redeemable warrants and 120,000 revised non-redeemable
warrants.


36
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

                           IBIS TECHNOLOGY CORPORATION

                 NOTES TO FINANCIAL STATEMENTS - (Continued)

      On July 24, 1997, the Company notified the holders of its 1,380,000
publicly traded Redeemable Common Stock Purchase Warrants and its 120,000
privately held Underwriter Redeemable Common Stock Purchase Warrants that it
would redeem these Warrants on August 26, 1997 at the redemption price of $.20
per Warrant.Prior to August 26, 1997, based on additional anti-dilutive
adjustments, the holder of a Public Warrant had the right to exercise such
Warrant to acquire 1.044 shares of the Company's Common Stock at a price of
$8.05 per share and the holder of an Underwriter Redeemable Warrant had the
right to exercise such Warrant to acquire 1.09 shares of Common Stock at a price
of $9.26 per share.The Company received net proceeds of approximately $10.1
million through the exercise of its Public Warrants.The holders of approximately
92% of the Public Warrants elected to exercise the Warrants rather than have
them redeemed. Approximately 1,327,000 shares of Common Stock were issued upon
exercise of the Public Warrants.None of the Underwriter Redeemable Warrants were
exercised and all were redeemed.

      During 1998, Underwriters Non-Redeemable Warrants were exercised for
106,503 shares of Common Stock.Since some of these Warrants were exercised on a
cashless basis, 39,668 shares of Common Stock were issued.At December 31, 1998,
there were 13,484 Underwriter Non-Redeemable Warrants outstanding, exercisable
for an aggregate of 14,077 shares of Common Stock at $8.05 per share.

      During 1998 Warrants to purchase 29,166 shares of Common Stock were
exercised.Since these Warrants were exercised on a cashless basis, 23,391 shares
of Common Stock were issued.At December 31, 1998, there were additional warrants
to purchase 9,375, 2,500, 35,478 and 4,177 shares of common stock at $7.20,
$2.16, $5.75 and $8.40 per share, respectively (see note 7).

(13) Significant Customers and Concentration of Business Risk

      The Company sells its products to a limited number of semiconductor
manufacturers primarily in the United States.

      Government sales and other significant customers are shown in dollar
amounts and as a percentage of total revenue as follows:

<TABLE>
<CAPTION>
                         Government                       Other                       Total
                    --------------------    -------------------------------    -------------------
                                            Significant
    Year Ended        Amount          %      Customers      Amount       %       Amount         % 
    ----------        ------         ---     ---------      ------      ---      ------        ---

<S>                 <C>              <C>         <C>      <C>           <C>     <C>            <C>
December 31, 1996   $   396,000       4%         1        $ 5,768,000   61%     $6,164,000     65%
December 31, 1997   $ 1,235,000      18%         2        $ 2,605,000   39%     $3,840,000     58%
December 31, 1998   $ 1,268,000       8%         2        $12,324,000   80%    $13,592,000     88%
</TABLE>

      Accounts  receivable  from  government  sales amounted to  approximately
$159,000  and $77,000 at December  31, 1997 and 1998,  respectively.  Accounts
receivable from Motorola, Inc. and Orion Equipment,  Inc. amounted to $123,000
and $326,000 at December 31, 1997, respectively.  Accounts receivable from IBM
Corporation  and  Mitsubishi  Materials  Corporation  amounted to $182,000 and
$62,000 at December 31, 1998, respectively.

      Export sales to unaffiliated customers in 1996 were less than 10% of total
revenues.During 1997 and 1998, export sales to unaffiliated customers
represented 13% and 32% of total revenues, respectively.


                                                                              37
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

      During 1996, 1997 and 1998, the Company purchased substantially all of its
conventional bulk silicon wafers from one supplier.An interruption in the
delivery of these wafers could have a material adverse effect on the Company's
results of operations.

(14) Industry Segments

      The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information during the fourth quarter of 1998.SFAS No.
131 established the standards for reporting information about operating segments
in annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders.

      The Company's reportable segments are SIMOX Wafer Products, SIMOX
Equipment and Other Products or Services.For purposes of segment reporting,
government contracts, service contracts, license revenue and spares are combined
and reported as Other Products or Services.

      The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies.The Company
generally evaluates operating performance based on income or loss before
interest and taxes.

      The table below provides information for the years ended December 31,
1996, 1997 and 1998 pertaining to the Company's three industry segments.

<TABLE>
<CAPTION>
                                             SIMOX
                                             Wafer             SIMOX            Other Products
                                           Products          Equipment            or Services               Total
                                           --------          ---------            -----------               -----
<S>                                      <C>                 <C>                   <C>                    <C>
Net Revenues
Year Ended December 31, 1996             $ 4,765,808         $ 3,800,000           $  887,098             $ 9,452,906
Year Ended December 31, 1997               3,389,128                  --            3,284,695               6,673,823
Year Ended December 31, 1998               3,148,783          11,033,456            1,283,830              15,466,069

Operating Income (Loss)
Year Ended December 31, 1996                 (24,944)            (67,420)             566,576                 474,212
Year Ended December 31, 1997              (2,342,543)           (995,935)             830,311              (2,508,167)
Year Ended December 31, 1998              (2,023,241)          1,939,025              204,449                 120,233

Assets
December 31, 1996                          6,538,317           3,248,544              165,539               9,952,400
December 31, 1997                          6,089,714           4,674,592              502,529              11,266,835
December 31, 1998                          5,411,282           5,262,751              353,068              11,027,101

Capital Expenditures
Year Ended December 31, 1996               2,752,751           2,019,862                   --               4,772,613
Year Ended December 31, 1997               1,653,540              76,977                   --               1,730,517
Year Ended December 31, 1998               1,251,522             293,280                   --               1,544,802

Depreciation and Amortization
of Property and Equipment
Year Ended December 31, 1996               1,418,925             122,097               24,928               1,565,950
Year Ended December 31, 1997               1,782,079             115,044               53,583               1,950,706
Year Ended December 31, 1998               1,451,810             106,460               21,036               1,579,306
</TABLE>


38
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

      The table below provides the reconciliation of reportable segment
 operating income (loss), assets, capital expenditures, and depreciation and
 amortization to the Company's totals.

<TABLE>
<CAPTION>
                                                                          Years Ended
                                                              --------------------------------------
Segment Reconciliation                                        12/31/96       12/31/97       12/31/98
----------------------                                        --------       --------       --------

<S>                                                          <C>           <C>           <C>
Loss Before Income Taxes:
  Total operating income (loss) for reportable segments      $   474,212   $(2,508,167)  $   120,233
  Corporate general & administrative expenses                 (1,423,476)   (1,723,852)   (1,823,001)
  Net other income                                               110,404       295,819       538,064
                                                             -----------   -----------   -----------
  Loss before income taxes                                      (838,860)   (3,936,200)   (1,164,704)
                                                             ===========   ===========   ===========

Assets:
  Total assets for reportable segments                         9,952,400    11,266,835    11,027,101
  Cash & cash equivalents not allocated to segments            9,201,016    13,309,823    12,819,366
  Other unallocated assets                                       388,966       341,582       460,851
                                                             -----------   -----------   -----------
  Total assets                                                19,542,382    24,918,240    24,307,318
                                                             ===========   ===========   ===========

Capital Expenditures:
  Total capital expenditures for reportable segments           4,772,613     1,730,517     1,544,802
  Corporate capital expenditures                                 208,933        40,229       100,805
                                                             -----------   -----------   -----------
  Total capital expenditures                                   4,981,546     1,770,746     1,645,607
                                                             ===========   ===========   ===========

Depreciation and Amortization:
  Total depreciation & amortization for reportable segments    1,565,950     1,950,706     1,579,306
  Corporate depreciation & amortization                          112,120       112,312        92,107
                                                             -----------   -----------   -----------
  Total depreciation & amortization                            1,678,070     2,063,018     1,671,413
                                                             ===========   ===========   ===========
</TABLE>


                                                                              39
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

Item 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE

      Not applicable.

                                    PART III

Item 10.       DIRECTORS AND OFFICERS OF THE REGISTRANT

      The Response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Management" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.

Item 11.       EXECUTIVE COMPENSATION

      The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in the Company's
Proxy Statement for the 1999 Annual Meeting of Stockholders.

Item 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Share Ownership" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.

Item 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Certain Transactions" and "Executive
Compensation--Employment Contracts and Change of Control Arrangements" in the
Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders.

                                     PART IV

Item 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

Item 14(a).    The following documents are filed as part of this annual report 
               on Form 10-K.

Item 14(a)(1). See "Index to Financial Statements and Financial Statement
and (2)        Schedule" at Item 8 to this Annual Report on Form 10-K. Other 
               financial statement schedules have not been included because they
               are not applicable or the information is included in the 
               financial statements or notes thereto.


40
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

Item 14(a)(3)  Exhibits

               The following is a list of exhibits filed as part of this Annual
               Report on Form 10-K.

    Exhibit
    Number                        Description
    --------   -----------------------------------------------------------------
       * 3.1 - Restated Articles of Organization of Registrant (Filed as
               Exhibit 3.1)
       * 3.2 - Restated By-Laws of the Registrant, as amended (Filed as
               Exhibit 3.2)
       * 4.1 - Article 4 of Restated Articles of Organization (Filed as
               Exhibit 4.1)
       * 4.2 - Form of Common Stock Certificate (Filed as Exhibit 4.2)
       * 4.3 - Form of Redeemable Warrant Certificate (Filed as Exhibit 4.3)
       * 4.4 - Amended and Restated Shareholders Agreement dated as of
               August 17, 1989, as amended, among the Registrant and certain 
               holders of Common Stock (Filed as Exhibit 4.4)
       *10.1 - Master Agreement, dated as of August 7, 1992, among the
               Registrant, Dr. Hilton Glavish, and Zimec, Inc. (Filed as 
               Exhibit 10.1)
       *10.2 - Sublicense Agreement, dated December 21, 1993, among the
               Registrant, Dr. Hilton Glavish, and Zimec, Inc. (Filed as 
               Exhibit 10.2)
      *+10.3 - Business Development Agreement, dated as of July 15, 1994,
               between the Registrant and Mitsubishi Materials Corporation 
               (Filed as Exhibit 10.3)
       *10.4 - Lease Agreement, dated December 22, 1987, as amended, between
               the Registrant and Thomas J. Flatley d/b/a The Flatley Company 
               ("Flatley") (Filed as Exhibit 10.4)
       10.4A - Fifth Amendment to Lease Agreement, dated February 4, 1997
               between the Registrant and Flatley (Filed as Exhibit 10.4 to
               the Registrant's Quarterly Report on Form 10-Q for the
               Quarter ended March 31, 1997 and Incorporated herein by
               reference).
       *10.5 - Master Lease Agreement, dated September 14, 1993, between the
               Registrant and Comdisco, Inc. ("Comdisco") (Filed as 
               Exhibit 10.5)
       *10.6 - Warrant Agreement, dated as of October 26, 1993, as amended,
               between the Registrant and Comdisco (Filed as Exhibit 10.6)
       *10.7 - Warrant, dated November 15, 1990, as amended, issued by the
               Registrant to Phoenix Venture Incorporated (Filed as 
               Exhibit 10.7)
       *10.8 - Master Equipment Lease Agreement, dated as of September 22,
               1993, as amended, between the Registrant and Financing for 
               Science International, Inc. ("FSI"), as assigned to General 
               Electric Capital Corporation as of April 29, 1994 (Filed as 
               Exhibit 10.8)
       *10.9 - Warrant, dated October 1, 1993, issued by the Registrant to
               FSI (Filed as Exhibit 10.9)
      *10.10 - Warrant, dated January 2, 1991, as amended, issued by the
               Registrant to Venlease Associates (Filed as Exhibit 10.10)
      *10.11 - Form of Noncompetition, Nondisclosure and Assignment of
               Inventions Agreement between the Registrant and each current 
               employee of the Registrant (Filed as Exhibit 10.11)
     #*10.12 - Employment Agreement, dated December 20, 1993, as amended,
               between the Registrant and Geoffrey Ryding (Filed as 
               Exhibit 10.12)
     #*10.13 - Ibis Technology Corporation 1988 Stock Option Plan (Filed as
               Exhibit 10.13)
     #*10.14 - Form of Stock Option Agreement under 1988 Stock Option Plan
               (Filed as Exhibit 10.14)
     #*10.15 - Ibis Technology Corporation 1993 Employee, Director and
               Consultant Stock Option Plan as amended (Filed as Exhibit 10.15 
               to the Company's Quarterly Report on Form 10-Q for the Quarter 
               Ended September 30, 1996 and Incorporated herein by reference)
     #*10.16 - Form of Stock Option Agreement under 1993 Employee, Director
               and Consultant Stock Option Plan (Filed as Exhibit 10.16)
     #*10.17 - 1995/1996 Incentive Compensation Plan of the Registrant
               (Filed as Exhibit 10.17)


                                                                              41
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

    Exhibit
    Number                        Description
    --------   -----------------------------------------------------------------
    *++10.18 - Capacity Option Agreement, dated September 21, 1995, between 
               Registrant and Motorola Corporation (Filed as Exhibit 10.18)
      *10.19 - Letter Agreement, dated March 4, 1994, as amended, between
               the Registrant and Fleet Bank of Massachusetts, N.A.("Fleet") 
               (Filed as Exhibit 10.19)
     *10.19A - Amendment to Letter Agreement, dated February 2, 1996,
               between the Registrant and Fleet (Filed as Exhibit 10.19A)
      *10.20 - Master Equipment Lease Agreement, dated November 1, 1995,
               between Registrant and FSI (Filed as Exhibit 10.20)
      *10.21 - Bill of Sale dated November 22, 1995 between the
               Registrant and FSI (Filed as Exhibit 10.21)
      *10.22 - Sale and Leaseback Agreement dated as of November 1, 1995
               between the Registrant and FSI (Filed as Exhibit 10.22)
      *10.23 - Reserve Pledge and Security Agreement dated as of November 1, 
               1995 between FSI and Registrant (Filed as Exhibit 10.23)
      *10.24 - Warrant issued by Registrant in favor of FSI dated
               November 22, 1995 for the Purchase of shares of Common Stock of 
               the Registrant (Filed as Exhibit 10.24)
      *10.25 - Sales Representative Agreement, dated February 17, 1995,
               between the Registrant and Young Woo High Tech (Filed as 
               Exhibit 10.25)
      *10.26 - Exclusive Patent License Agreement, dated November 1, 1994, 
               between the Registrant and Superion Limited (Filed as 
               Exhibit 10.26)
      *10.27 - License Agreement, dated as of September 1, 1994, between
               the Registrant and Nissin Electric Co., Ltd. (Filed as 
               Exhibit 10.27)
      *10.28 - Underwriter's Warrant Agreement, dated May 27, 1994,
               between the Registrant and Josephthal Lyon & Ross Incorporated 
               ("Josephthal") (Filed as Exhibit 10.28)
      *10.29 - Underwriting Agreement, dated May 20, 1994, between, the
               Registrant and Josephthal (Filed as Exhibit 10.29)
      *10.30 - Warrant Agreement, dated as of May 20, 1994, between the
               Registrant and Continental Stock Transfer & Trust Company 
               (Filed as Exhibit 10.30)
       10.31 - Contract, as amended, dated May 25, 1994, between the
               Registrant and the Defense Nuclear Agency (Filed as Exhibit 10.31
               to the Company's Quarterly Report on Form 10-Q for the Quarter 
               Ended June 30, 1996 and incorporated herein by reference).
       10.32 - Equipment Purchase Master Agreement, dated as of May 22,
               1996, between Registrant, and IBM (Filed as Exhibit 10.1
               to the Company's Current Report on Form 8-K/A (File
               No.0-13078) filed on September 12, 1996 and incorporated
               herein by reference).
       10.33 - Description of Fees Paid to Ted R. Dintersmith, Ph.D.
               (Filed as Exhibit 10.33 to the Company's Annual Report on
               Form 10-K for the year ended December 31, 1996).
      #10.34 - Employment Agreement, dated October 23, 1997 between the
               Registrant and Martin J. Reid.
      #10.35 - Ibis Technology Corporation 1997 Employee, Director and
               Consultant Stock Option Plan (Filed as Exhibit 99.1 to the
               Company's Form S-8 File No. (333-45247) filed on January
               30, 1998 and incorporated herein by reference).
       10.36 - License Agreement, dated June 27, 1996, between the
               Registrant and Orion Equipment, Inc. ("Orion")
       10.37 - Modification to License Agreement, dated August 28, 1997,
               between the Registrant and Orion
       10.38 - Consulting Services Agreement, dated as of April 22, 1997,
               between the Registrant and Orion


42
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

    Exhibit
    Number                        Description
    --------   -----------------------------------------------------------------
    +++10.39 - Purchase Order, dated April 14, 1998, from Mitsubishi
               Silicon Corporation (Filed as Exhibit 10.39 to the
               Company's Quarterly Report on Form 10-Q for the Quarter
               Ended June 30, 1998 and incorporated herein by reference).
    +++10.40 - Task Order dated April 10, 1998, between the Registrant
               and International Business Machines Corporation ("IBM")
               (Filed as Exhibit 10.40 to the Company's Quarterly Report
               on Form 10-Q for the Quarter Ended June 30, 1998 and
               incorporated herein by reference).
    +++10.41 - Licensing and Development Agreement, dated June 9, 1998,
               between the Registrant and IBM (Filed as Exhibit 10.41 to the 
               Company's Quarterly Report on Form 10-Q for the Quarter Ended 
               June 30, 1998 and incorporated herein by  reference).
       10.42 - Sixth Amendment to Lease dated July 16, 1998, amending
               Lease Agreement dated December 22, 1987 between the
               Company and Thomas J. Flatley d/b/a the Flatley Company
               (Filed as Exhibit 10.42 to the Company's Quarterly Report
               on Form 10-Q for the Quarter Ended September 30, 1998).
          23 - Consent and Report on Financial Statement Schedule of KPMG
               Peat Marwick LLP
          27 - Financial Data Schedule

---------
*     Previously filed with the Commission as Exhibits to, and incorporated
      herein by reference from, the Company's Registration Statement filed on
      Form S-1, File No. 333-1174, effective April 2, 1996.

+     Confidential treatment previously obtained from the Securities and
      Exchange Commission; filed as Exhibit No. 10.26 to the Registrant's
      Quarterly Report on Form 10-Q for the quarter ended September 30,
      1994.Request for extension of confidential treatment filed on November 12,
      1997 with the Securities and Exchange Commission.The portions of the
      document for which confidential treatment has been granted are marked
      "Confidential" and such confidential portions have been filed separately
      with the Securities and Exchange Commission.

++    Confidential treatment previously obtained from the Securities and
      Exchange Commission; filed as Exhibit No. 10.32 to the Registrant's
      Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.
      The portions of the document for which confidential treatment has been
      granted are marked "Confidential" and such confidential portions have been
      filed separately with the Securities and Exchange Commission.

+++   Confidential treatment previously obtained from the Securities and
      Exchange Commission; filed as Exhibit Numbers 10.39, 10.40 and 10.41 to
      the Registrant's Quarterly on Form 10-Q for the quarter ended June 30,
      1998.The portions of the document for which confidential treated has been
      granted are marked "Confidential" and such confidential portions have been
      filed separately with the Securities and Exchange Commission.

#     Management contract or compensatory plan, contract or arrangement.

Where a document is incorporated by reference from a previous filing, the
Exhibit number of the document in that previous filing is indicated in
parentheses after the description of such document.

(B) Financial Statement Schedules

Schedule II -- Valuation and Qualifying Accounts


                                                                              43
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

Item 14(b)  Reports on Form 8-K

The Company filed with the Commission on October 9, 1998, a Current Report on
Form 8-K for the October 7, 1998, event reporting the public dissemination of
two press releases announcing (i) the shipment of a new product and (ii) that it
had been awarded two new research and development contracts, totaling
approximately $762,000.

The Company filed with the Commission on November 5, 1998, a Current Report on
Form 8-K for the November 4, 1998, event reporting the public dissemination of a
press release announcing its financial results for the third quarter and nine
months ended September 30, 1998.

The Company filed with the Commission on November 13, 1998, a Current Report on
Form 8-K for the November 12, 1998, event reporting the public dissemination of
a press release announcing the election of Leslie B. Lewis and Lamberto
Raffaelli, Ph.D. to the Board of Directors.


44
<PAGE>

--------------------------------------------------------------------------------
                                                     Ibis Technology Corporation

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Danvers,
Massachusetts on March 29, 1999.

                              IBIS TECHNOLOGY CORPORATION

                              By:  /s/ Martin J. Reid
                                   ------------------------
                                   Martin J. Reid
                                   President

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated and on the dates indicated.

<TABLE>
<CAPTION>
Signatures                                            Title                                 Date
----------                                            -----                                 ----

<S>                                    <C>                                             <C> 
By: /s/ Richard Hodgson                Chairman of the Board of Directors              March 29, 1999
    --------------------------------         and Director
    Richard Hodgson

By: /s/ Martin J. Reid                 President, Chief Executive Officer              March 29, 1999
    --------------------------------   (principal executive officer) and Director
    Martin J. Reid 

By: /s/ Debra L. Nelson                Chief Financial Officer,                        March 29, 1999
    --------------------------------   Treasurer, Clerk, (principal financial
    Debra L. Nelson                    and accounting officer) 

By: /s/ Dimitri A. Antoniadis, Ph.D.   Director                                        March 29, 1999
    --------------------------------
    Dimitri A. Antoniadis, Ph.D.

By: /s/ Robert L. Gable                Director                                        March 29, 1999
    --------------------------------
    Robert L. Gable

By: /s/ Leslie B. Lewis                Director                                        March 29, 1999
    --------------------------------
    Leslie B. Lewis

By: /s/ Donald McGuinness              Director                                        March 29, 1999
    --------------------------------
    Donald McGuinness

By: /s/ Lamberto Raffaelli             Director                                        March 29, 1999
    --------------------------------
    Lamberto Raffaelli

By: /s/ PeterH. Rose, Ph.D.            Director                                        March 29, 1999
    --------------------------------
    Peter H. Rose, Ph.D.

By: /s/ Geoffrey Ryding, Ph.D.         Director                                        March 29, 1999
    --------------------------------
    Geoffrey Ryding, Ph.D.
</TABLE>


                                                                              45
<PAGE>

--------------------------------------------------------------------------------
Ibis Technology Corporation

                                                                     SCHEDULE II

                           IBIS TECHNOLOGY CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS

              For the Years Ended December 31, 1996, 1997 and 1998

<TABLE>
<CAPTION>
                                            Balance at                                     Balance at
                                           Beginning of     Charged        Amounts           end of
    Description                               Period       to Expense     written off        Period
    -----------                               ------       ----------     -----------        ------

<S>                                         <C>             <C>            <C>              <C>
Allowance for Doubtful Accounts
December 31, 1996                           $  7,550             --             --            7,550
December 31, 1997                              7,550         33,000             --           40,550
December 31, 1998                             40,550         24,450             --           65,000

Reserve for Inventory Obsolescence                                      
December 31, 1996                           $ 91,000         87,000         11,000          167,000
December 31, 1997                            167,000        213,000        302,000           78,000
December 31, 1998                             78,000         82,000             --          160,000
</TABLE>


                                       S-I