1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20569 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1996 Commission file number 0-23668 ------------------ ------- Ibis Technology Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2987600 - -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 32 Cherry Hill Drive, Danvers, MA 01923 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (508) 777-4247 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 --- --- 5,181,815 shares of Common Stock, par value $.008, were outstanding on November 4, 1996. Total Number of Pages: 18 ---- Exhibit Index at Page 16 ---- 1 2 IBIS TECHNOLOGY CORPORATION INDEX PART 1 - FINANCIAL INFORMATION - ------------------------------ PAGE NUMBER ------ Item 1 - Financial Statements: Balance Sheets December 31, 1995 and September 30, 1996............................. 3 Statements of Operations Three Months Ended September 30, 1995 and 1996 and Nine Months Ended September 30, 1995 and 1996.................... 4 Statements of Cash Flows Nine Months Ended September 30, 1995 and 1996........................ 5 Notes to Financial Statements.......................................... 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 7 PART II - OTHER INFORMATION - --------------------------- Item 1 - Legal Proceedings............................................... 14 Item 2 - Changes in Securities........................................... 14 Item 3 - Defaults upon Senior Securities................................ 14 Item 4 - Submission of Matters to a Vote of Security Holders............ 14 Item 5 - Other Information.............................................. 14 Item 6 - Exhibits and Reports on Form 8-K............................... 14 Signatures ............................................................. 15 Exhibit Index........................................................... 16 2 3 IBIS TECHNOLOGY CORPORATION BALANCE SHEETS (UNAUDITED) DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------ ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents ............................. $ 2,279,852 $ 9,222,871 Accounts receivable, net .............................. 2,743,090 980,989 Inventories, net (note 3) ............................. 696,965 2,758,283 Prepaid expenses and other assets ..................... 80,786 53,912 ------------ ------------ Total current assets ......................... 5,800,693 13,016,055 ------------ ------------ Property and equipment, net ........................... 4,803,179 6,911,193 Patents and other assets, net ......................... 354,229 477,826 ------------ ------------ Total assets ................................. $ 10,958,101 $ 20,405,074 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Bank notes payable, current ........................... $ 372,507 $ -- Capital lease obligation, current ..................... 817,746 881,320 Accounts payable ...................................... 484,044 754,587 Accrued liabilities ................................... 423,569 786,877 Deferred revenue, current ............................. 239,433 1,457,475 ------------ ------------ Total current liabilities .................... 2,337,299 3,880,259 ------------ ------------ Bank notes payable, long-term ......................... 473,281 -- Capital lease obligation, noncurrent .................. 1,630,421 962,510 Other accrued liabilities ............................. 1,708,007 1,094,962 ------------ ------------ Total liabilities ............................ 6,149,008 5,937,731 ------------ ------------ STOCKHOLDERS' EQUITY: Undesignated preferred stock, $.01 par value Authorized 2,000,000 shares; none issued .......... -- -- Common stock, $.008 par value Authorized 10,000,000 shares; issued 3,511,746 and 5,175,903 shares in 1995 and 1996, respectively 28,094 41,407 Additional paid-in capital ........................ 14,925,304 25,288,794 Accumulated deficit ............................... (10,112,457) (10,845,635) Less: Deferred compensation and notes receivable stockholders .................... (31,848) (17,223) ------------ ------------ Total stockholders' equity ................... 4,809,093 14,467,343 ------------ ------------ Total liabilities and stockholders' equity ... $ 10,958,101 $ 20,405,074 ============ ============ See accompanying notes to financial statements. 3 4 IBIS TECHNOLOGY CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 1995 1996 1995 1996 ----------- ----------- ----------- ----------- NET SALES AND REVENUE: Product sales ............................. $ 1,167,741 $1,209,976 $ 2,346,672 $3,600,363 Contract and other revenue ................ 171,510 43,754 749,820 568,148 Equipment revenue ......................... -- 1,600,000 -- 2,840,000 ----------- ---------- ----------- ---------- Total net sales and revenue (note 2) 1,339,251 2,853,730 3,096,492 7,008,511 COST OF SALES AND REVENUE: Cost of product sales ..................... 1,129,009 984,524 3,025,372 3,016,055 Cost of contract and other revenue ........ 75,760 55,361 305,047 112,622 Cost of equipment revenue ................. -- 1,200,000 -- 2,130,000 ----------- ---------- ----------- ---------- Total cost of sales and revenue ..... 1,204,769 2,239,885 3,330,419 5,258,677 ----------- ---------- ----------- ---------- Gross profit (loss) ................. 134,482 613,845 (233,927) 1,749,834 ----------- ---------- ----------- ---------- OPERATING EXPENSES: General and administrative ................ 289,777 369,855 909,597 1,092,276 Marketing and selling ..................... 83,517 131,339 381,765 389,592 Research and development .................. 292,199 361,097 1,108,591 1,067,538 Write off of prototype Ibis 1000 .......... 723,542 -- 723,542 -- ----------- ---------- ----------- ---------- Total operating expenses ............ 1,389,035 862,291 3,123,495 2,549,406 ----------- ---------- ----------- ---------- Loss from operations ................ (1,254,553) (248,446) (3,357,422) (799,572) ----------- ---------- ----------- ---------- OTHER INCOME (EXPENSE): Interest income ........................... 10,969 147,044 110,703 353,287 Interest expense .......................... (65,755) (75,624) (193,294) (284,825) Other ..................................... -- 260 1,798 (812) ----------- ---------- ----------- ---------- Total other income (expense) .......... (54,786) 71,680 (80,793) 67,650 ----------- ---------- ----------- ---------- Loss before income taxes ............ (1,309,339) (176,766) (3,438,215) (731,922) Income tax expense ........................ -- -- (1,256) (1,256) ----------- ---------- ----------- ---------- Net loss ............................ $(1,309,339) $ (176,766) $(3,439,471) $(733,178) =========== ========== =========== ========== Net loss per common share ................. $ (0.38) $ (0.03) $ (1.01) $ (0.16) =========== ========== =========== ========== Weighted average number of common shares outstanding ............. 3,488,404 5,171,338 3,395,655 4,568,725 =========== ========== =========== ========== See accompanying notes to financial statements. 4 5 IBIS TECHNOLOGY CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1995 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................. $(3,439,471) $ (733,178) Depreciation and amortization ............................ 1,443,356 1,150,472 Amortization of deferred compensation .................... 18,262 14,625 Loss from sale of asset .................................. -- 1,788 Write off of prototype Ibis 1000 implanter ............... 723,542 -- Changes in operating assets and liabilities .............. (1,662,721) 966,505 ----------- ----------- Net cash provided by (used in) operating activities ........................... (2,917,032) 1,400,212 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment, net ................. (1,104,045) (3,220,150) Decrease (increase) in other assets ...................... 353,776 (163,721) ----------- ----------- Net cash used in investing activities .............. (750,269) (3,383,871) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in notes payable ................................ 515,111 -- Payments of bank notes payable ........................... (181,366) (845,788) Payments of capital lease obligations .................... (416,840) (604,337) Exercise of stock options and issuance of warrants ............................. 22,800 55,810 Proceeds from sale of common stock, net of issuance costs ................................ -- 10,320,993 ----------- ----------- Net cash provided by financing activities........... (60,295) 8,926,678 ----------- ----------- Net increase (decrease) in cash and cash equivalents (3,727,596) 6,943,019 Cash and cash equivalents, beginning of period .............. 5,134,494 2,279,852 ----------- ----------- Cash and cash equivalents, end of period .................... $ 1,406,898 $ 9,222,871 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest ................. $ 126,671 $ 248,577 =========== =========== See accompanying notes to financial statements. 5 6 IBIS TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (1) INTERIM FINANCIAL STATEMENTS ---------------------------- The accompanying financial statements are unaudited, except for the Balance Sheet as of December 31, 1995, and have been prepared by the Company in accordance with generally accepted accounting principles. The interim financial statements are unaudited, but in the opinion of management include all adjustments which consist only of normal and recurring adjustments, necessary for a fair presentation of its financial position and results of operations. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company as of and for the year ended December 31, 1995. (2) REVENUE RECOGNITION ------------------- Product sales are recognized upon shipment. Contract and equipment revenue are recognized on the percentage-of-completion method. Other revenue consists primarily of non-refundable net license fees received from the sublicense of the Company's beam scanning system. (3) INVENTORIES ----------- Inventories consist of the following: DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- Raw materials .............. $486,043 $ 412,650 Work in process ............ 15,323 18,753 Finished goods ............. 195,599 338,408 Equipment in process ....... -- 1,988,472 -------- ---------- $696,965 $2,758,283 ======== ========== (4) BANK NOTES PAYABLE ------------------ During May 1996, the Company paid off amounts outstanding under its term loan totalling $721,619. (5) CAPITALIZATION -------------- On April 9, 1996, the Company completed a public offering of 1,600,000 shares of common stock at $7.25 per share. The Company's net proceeds from the offering were approximately $10,320,000. 6 7 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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, and to other proprietary process technology. Until 1993, much of the Company's revenue was derived from research and development contracts and sales of SIMOX wafers for military applications. Over the past few years, there has been a shift in revenue to sales of SIMOX wafers for commercial applications. For the nine months ended September 30, 1996 and for the fiscal year ended December 31, 1995, commercial product sales (measured in dollar volume) represented 92% and 82%, respectively, of total product sales compared with 23% of total product sales for the fiscal year ended December 31, 1991. 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. Although the Company achieved record quarterly revenue and operating results in the third quarter, the Company believes that the impact of the slowdown in the semiconductor industry resulted in the Company's wafer sales for the quarter ended September 30, 1996 remaining relatively constant. This current economic condition could continue to affect the Company's sales of wafers in the near term. In addition, a significant component of the Company's revenue during the six months period ending September 30, 1996, resulted from the recognition of revenue from the sale of an Ibis 1000 implanter to a semiconductor manufacturer. This is the only implanter sold by the Company and it is not clear whether the customer demand for this equipment will continue. The Company currently has four oxygen implanters on-line (two Ibis 1000's and two NV-200's), and is currently constructing three additional Ibis 1000 implanters, one of which will be sold to a semiconductor manufacturer to supplement its internal requirements and is expected to be shipped in the fourth quarter of this year. The other two additional implanters under construction are anticipated to be in operation in the first half of 1997. As the Company expands its production capacity in anticipation of expected increases in demand, it is anticipated that gross margins on product sales will initially be adversely affected until the implanters operate at or near full capacity. There can be no assurance that the Company will succeed in attracting a sufficient number of customers and/or orders for SIMOX wafers to offset such production costs or that the Company will succeed over its competition. RESULTS OF OPERATIONS THIRD QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO THIRD QUARTER ENDED SEPTEMBER 30, 1995 PRODUCT SALES. Product sales increased to $1,209,976 for the third quarter ended September 30, 1996, an increase of $42,235 or 3.6% from $1,167,741 for the third quarter ended September 30, 1995. The slight increase 7 8 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) in product sales is attributable to the second Ibis 1000 implanter being placed into production late in the third quarter of 1996. CONTRACT AND OTHER REVENUE. Contract and other revenue decreased for the third quarter ended September 30, 1996 to $43,754 from $171,510 for the third quarter ended September 30, 1995, a decrease of $127,756 or 74.5%. This decrease resulted from decreased government contract backlog. Government contracts 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. The Company has been audited by the Defense Contract Audit Agency ("DCAA") in connection with the Company's 1990 through 1995 overhead and general and administrative rates. It has been determined that retroactive adjustments of amounts previously paid to the Company are not material. EQUIPMENT REVENUE. Equipment revenue for the third quarter ended September 30, 1996 was $1,600,000. This represents revenue recognized using the percentage-of-completion method in connection with the sale of an Ibis 1000 implanter to a major semiconductor manufacturer to supplement its internal requirements. This implanter is expected to be shipped to this customer during the fourth quarter of 1996. TOTAL REVENUE. Total revenue for the third quarter ended September 30, 1996 was $2,853,730, an increase of $1,514,479 or 113.1% from total revenue of $1,339,251 for the third quarter ended September 30, 1995. This increase resulted from the equipment revenue of $1,600,000, which was partially offset by the decline in contract and other revenue. TOTAL COST OF REVENUE. Cost of product sales for the third quarter ended September 30, 1996 was $984,524, as compared to $1,129,009 for the third quarter ended September 30, 1995, a decrease of $144,485 or 12.8%. Cost of contract and other revenue for the third quarter ended September 30, 1996 was $55,361, as compared to $75,760 for the third quarter ended September 30, 1995, a decrease of $20,399, or 26.9%. Cost of equipment revenue for the third quarter ended September 30, 1996 was $1,200,000. The increase in cost of revenue resulted primarily from increases in cost of equipment revenue, materials, including the cost to add epitaxy to wafers, and wafer processing payroll and fringes as a result of operating implanters extra shifts. These increases were offset by a 33% decrease in depreciation expense from the prior year quarter due to the write off of the prototype implanter in the third quarter of 1995. The gross margin for all sales was 21.5% for the third quarter ended September 30, 1996, as compared to 10% for the third quarter ended September 30, 1995. The gross margin significantly improved for the third quarter ended September 30, 1996 primarily due to more effective utilization of the production capacity, which consists primarily of fixed costs, and profit recognized on equipment sales. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the third quarter ended September 30, 1996 were $369,855 (or 13.0% of total revenue) as compared to $289,777 (or 21.6% of total revenue) for the third quarter ended September 30, 1995. The increase is due to increases in investor relations expenses, and legal, transfer agent and printing fees associated with the additional offering in April 1996 and SEC filings via EDGAR. MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the third quarter ended September 30, 1996 were $131,339 (or 4.6% of total revenue) as compared to $83,517 (or 6.2% of total revenue) for the third quarter ended September 30, 1995, an increase of $47,822 or 57.3%. The increase in marketing and selling 8 9 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) expenses is primarily a result of additional personnel. Other marketing and selling expenses remained relatively stable. RESEARCH AND DEVELOPMENT. Internally funded research and development expenses increased by $68,898, or 23.6%, to $361,097 (or 12.7% of total revenue) for the third quarter ended September 30, 1996, as compared to $292,199 (or 21.8% of total revenue) for the third quarter ended September 30, 1995. The increase is primarily a result of an increase in internal research and development activities during the third quarter of 1996. WRITE-OFF OF PROTOTYPE IBIS 1000. As a result of the customers' favorable response to the quality improvements of the Ibis 1000 production implanter which became operational in May, 1995, during the quarter ended September 30, 1995, the Company wrote off the net book value of the prototype Ibis 1000 implanter in the amount of $723,542. LOSS FROM OPERATIONS. The loss from operations for the third quarter ended September 30, 1996 was $248,446 as compared to a loss of $1,254,553 for the third quarter ended September 30, 1995. The decrease in loss from operations resulted from the 113.1% increase in revenue combined with improved gross margins. In addition, the third quarter of 1995 includes the write off of the prototype Ibis 1000 implanter in the amount of $723,542. OTHER INCOME (EXPENSE). Total other income for the third quarter ended September 30, 1996 was $71,680 as compared to total other expense of $54,786 for the third quarter September 30, 1995. Total other income is a result of interest income earned on the proceeds from the April 1996 public offering, which was partially offset by interest on capitalized leases. LOSS BEFORE INCOME TAXES. The loss before income taxes was $176,766 for the third quarter ended September 30, 1996, as compared to $1,309,339 for the third quarter ended September 30, 1995. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 PRODUCT SALES. Product sales increased to $3,600,363 for the nine months ended September 30, 1996, an increase of $1,253,691 or 53.4% from $2,346,672 for the nine months ended September 30, 1995. The increase in product sales is attributable to the increased commercial demand and a higher average sales price per wafer for the nine months ended September 30, 1996 compared to 1995, due to larger wafer sizes. CONTRACT AND OTHER REVENUE. Contract and other revenue decreased for the nine months ended September 30, 1996 to $568,148 from $749,820 for the nine months ended September 30, 1995, a decrease of $181,672 or 24.2%. This decrease resulted from decreased government contract backlog which was offset by the receipt of non-refundable net license fees for the Company's proprietary beam scanning system for certain applications other than oxygen implantation. Government contracts 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. The Company has been audited by the Defense Contract Audit Agency ("DCAA") in connection with the Company's 1990 through 1995 overhead and general and administrative rates. It has been determined that retroactive adjustments of amounts previously paid to the Company are not material. 9 10 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EQUIPMENT REVENUE. Equipment revenue for the nine months ended September 30, 1996 was $2,840,000. This represents revenue recognized using the percentage-of-completion method in connection with the sale of an Ibis 1000 implanter to a major semiconductor manufacturer to supplement its internal requirements. This implanter is expected to be shipped to this customer during the fourth quarter of 1996. TOTAL REVENUE. Total revenue for the nine months ended September 30, 1996 was $7,008,511, an increase of $3,912,019 or 126.3% from total revenue of $3,096,492 for the nine months ended September 30, 1995. This increase resulted from the equipment revenue $2,840,000, increased product sales which were partially offset by a decrease in contract and other revenue. TOTAL COST OF REVENUE. Cost of product sales for the nine months ended September 30, 1996 was $3,016,055 as compared to $3,025,372 for the nine months ended September 30, 1995, a decrease of $9,317 or .3%. Cost of contract revenue for the nine months ended September 30, 1996 was $112,622, as compared to $305,047 for the nine months ended September 30, 1995, a decrease of $192,425, or 63.1%. Cost of equipment revenue for the nine months ended September 30, 1996 was $2,130,000. The increase in cost of revenue results primarily from increases in cost of equipment revenue, materials, including the cost to add epitaxy to wafers, and wafer processing payroll and fringes as a result of operating implanters extra shifts. These increases were offset by a 26.5% decrease in depreciation expense due to the write off of the prototype implanter in the third quarter of 1995. The gross margin for all sales was 25.0% for the nine months ended September 30, 1996, as compared to a negative gross margin of 7.6% for the nine months ended September 30, 1995. The gross margin significantly improved for the nine months ended September 30, 1996 primarily due to more effective utilization of the production capacity, which consists primarily of fixed costs, caused by a 53.4% increase in product sales, and profit recognized on equipment sales. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the nine months ended September 30, 1996 were $1,092,276 (or 15.6% of total revenue) as compared to $909.597 (or 29.4% of total revenue) for the nine months ended September 30, 1995. The increase is due to increases in investor relations and consulting expenses, transfer agent, legal and printing fees, amortization expense relating to lease warrants and training costs. MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the nine months ended September 30, 1996 were $389,592 (or 5.6% of total revenue) as compared to $381,765 (or 12.3 % of total revenue) for the nine months ended September 30, 1995, an increase of $7,826 or 2.0%. Although marketing personnel has increased over the prior period, payroll and related expenses remained relatively flat due to the accrual of severance costs for a former Vice President of Marketing in the first quarter of 1995. Other marketing and selling expenses remained relatively stable. RESEARCH AND DEVELOPMENT. Internally funded research and development expenses decreased by $41,053, or 3.7%, to $1,067,538 (or 15.2% of total revenue) for the nine months ended September 30, 1996, as compared to $1,108,591 (or 35.8% of total revenue) for the nine months ended September 30, 1995. The decrease is primarily a result of certain personnel's time and effort being deployed and capitalized in connection with the Ibis 1000 implanter machines in process during the nine months ended September 30, 1996. 10 11 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) WRITE-OFF OF PROTOTYPE IBIS 1000. As a result of the customers' favorable response to the quality improvements of the Ibis 1000 production implanter which became operational in May, 1995, during the quarter ended September 30, 1995 the Company wrote off the net book value of the prototype Ibis 1000 implanter in the amount of $723,542. LOSS FROM OPERATIONS. The loss from operations for the nine months ended September 30, 1996 was $799,572 as compared to a loss of $3,357,422 for the nine months ended September 30, 1995. The decrease in loss from operations primarily resulted from the 126.3% increase in revenue combined with improved gross margins. In addition, in 1995 the Company wrote off the prototype Ibis 1000 implanter in the amount of $723,542. OTHER INCOME (EXPENSE). Total other income for the nine months ended September 30, 1996 was $67,650 as compared to total other expense of $80,793 for the nine months ended September 30, 1995. The total other income is due to interest income earned on proceeds from the April 1996 public offering, which was offset by increased interest expense on capitalized leases. LOSS BEFORE INCOME TAXES. The loss before income taxes was $731,922 for the nine months ended September 30, 1996, as compared to $3,438,215 for the nine months ended September 30, 1995. LIQUIDITY AND CAPITAL RESOURCES On April 9, 1996, the Company completed a public offering of 1,600,000 shares of common stock at $7.25 per share. The Company's net proceeds were approximately $10,320,000, after deducting approximately $1,280,000 for Underwriting discounts, commissions and other associated expenses. As of September 30, 1996, the Company had cash and cash equivalents of $9,222,871. During the nine months ended September 30, 1996, the Company generated $1,400,212 in cash from operating activities as compared to cash used by operations in the amount of $2,917,032 for the same period in 1995. Depreciation and amortization expense for the nine months ended September 30, 1996 and 1995 was $1,150,472 and $1,443,356, respectively. This accounted for 16.4% and 46.6% of total revenue, respectively. Due to the capital intensive nature of the Company's business and the anticipated expansion of its 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, equipment lines of credit, a working capital line of credit, a term loan, sale leaseback arrangements, collaborative relationships and government contracts. The principal uses of cash were to fund the Company's operations, construction of Ibis 1000's and other additions to property and equipment. As of September 30, 1996, the Company had invested approximately $15 million in property and equipment. At September 30, 1996, the Company had commitments to purchase approximately $1.1 million in material or subassemblies to be used to manufacture additional Ibis 1000 oxygen implanters. 11 12 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During the third quarter ended September 30, 1996, the Company's line of credit for both working capital and term loan borrowing capability expired. It was not renewed since it was not in current utilization as a result of the completion of a public offering in April, 1996 by the Company. During the first quarter of 1996, a major semiconductor manufacturer issued a purchase order to Ibis for the purchase of one Ibis 1000 implanter and as of September 30, 1996, has made advance payments to the Company equaling approximately 37% of the purchase price. During the second quarter of 1996 the Company finalized a definitive agreement with respect to the purchase of the implanter and possible current purchases of additional implanters. The agreement provides that the use of the implanter by this manufacturer and its ability to sell SIMOX wafers will be subject to certain restrictions. The Company anticipates that it will ship this implanter in the fourth quarter of 1996, at which time it will invoice the customer approximately $2.1 million. 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 (including the proceeds from the April 1996 public offering), together with funds generated from operations, are believed to be sufficient to support the Company's operations on their anticipated scale for eighteen months. Management of the Company currently believes that this anticipated scale of operations will include additional Ibis 1000 oxygen implanters (in addition to its four oxygen implanters currently on-line: two Ibis 1000's and two NV-200's), the purchase of support equipment and expansion of the Company's facilities. The new implanters are expected to be transferred to production at various times, beginning in the first quarter of 1997. 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. BUSINESS OUTLOOK The Form 10-Q 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 uncertainty that the performance advantages of SIMOX wafers will be realized commercially or that a commercial market for SIMOX wafers will continue to develop; the dependence by the Company on key customers (during 1993, 1994 and 1995, revenues from four customers averaged in the aggregate between 39% and 55% 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 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 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 12 13 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) experience in producing commercial quantities of its products at acceptable costs; the Company's ability to develop and maintain strategic alliances for the manufacturing, marketing and distribution of its products; the cyclical nature of the semiconductor industry, which has negatively affected the Company's sales of SIMOX 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. 14 IBIS TECHNOLOGY CORPORATION PART II OTHER INFORMATION Item 1 - Legal Proceedings ----------------- None Item 2 - Changes in Securities --------------------- None Item 3 - Defaults upon Senior Securities ------------------------------- None Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5 - Other Information ----------------- None Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits furnished as Exhibits hereto: 11 Statement regarding computation of per share loss. 27 Financial Data Schedule. (b) On September 12, 1996 the Company filed a Current Report on Form 8-K/A (which amended the current report on Form 8-K filed on June 5, 1996) for the May 22, 1996 event with the Securities and Exchange Commission reporting the Company had entered into an Equipment Purchase Master Agreement (the "Agreement") for the sale, by the Company, of its proprietary Ibis 1000 oxygen implanters to International Business Machines Corporation. 14 15 IBIS TECHNOLOGY CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Ibis Technology Corporation Date: November 4, 1996 By: /s/ TIMOTHY J. BURNS ------------------------------------- Timothy J. Burns Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) 15 16 IBIS TECHNOLOGY CORPORATION EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 11 Statement regarding computation of per share loss. 17 27 Financial Data Schedule. 18 16