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 June 30, 1998 Commission file number 0-23150
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Ibis Technology Corporation
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2987600
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
32 Cherry Hill Drive, Danvers, MA 01923
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(Address of principal executive offices) (Zip Code)
(978) 777-4247
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(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 ___
6,764,760 shares of Common Stock, par value $.008, were outstanding on August 7,
1998.
Total Number of Pages 65
Exhibit Index at Page 19
IBIS TECHNOLOGY CORPORATION
INDEX
Page
PART 1 - FINANCIAL INFORMATION Number
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Item 1 - Financial Statements:
Balance Sheets
December 31, 1997 and June 30, 1998 (unaudited)............... 3
Statements of Operations
Three Months Ended June 30, 1997 and 1998 (unaudited)
and Six Months Ended June 30, 1997 and 1998 (unaudited)....... 4
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1998 (unaudited)........... 5
Notes to Financial Statements (unaudited) ...................... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 8
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings ....................................... 16
Item 2 - Changes in Securities ................................... 16
Item 3 - Defaults upon Senior Securities ......................... 16
Item 4 - Submission of Matters to a Vote of Security Holders ..... 16
Item 5 - Other Information ....................................... 17
Item 6 - Exhibits and Reports on Form 8-K ........................ 17
Signatures ....................................................... 18
Exhibit Index .................................................... 19
2
IBIS TECHNOLOGY CORPORATION
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1997 1998
------------ --------
Assets
Current assets:
Cash and cash equivalents ............................................. $ 13,309,823 $ 13,763,817
Accounts receivable, trade, net ....................................... 1,064,607 2,034,689
Unbilled revenue ...................................................... 230,490 1,948,564
Inventories (note 3) .................................................. 487,031 4,965,604
Prepaid expenses and other current assets ............................. 124,711 153,873
------------ -----------
Total current assets ............................................ 15,216,662 22,866,547
------------ -----------
Property and equipment ................................................... 17,695,312 14,647,326
Less: Accumulated depreciation and amortization ...................... (8,250,372) (9,180,907)
------------ -----------
Net property and equipment ...................................... 9,444,940 5,466,419
Patents and other assets, net ............................................ 256,638 168,217
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Total assets .................................................... $ 24,918,240 $ 28,501,183
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Capital lease obligation, current..................................... $ 474,539 $ 509,641
Accounts payable ...................................................... 691,325 2,811,053
Accrued liabilities ................................................... 1,193,504 2,961,244
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Total current liabilities ....................................... 2,359,368 6,281,938
------------ -----------
------------ -----------
Capital lease obligation, noncurrent ..................................... 498,685 234,776
Other accrued liabilities ................................................ 1,303,187 1,275,231
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Total liabilities ............................................... 4,161,240 7,791,945
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Stockholders' equity:
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 and
6,759,769 shares in 1997 and 1998, respectively ................... 53,030 54,051
Additional paid-in capital ........................................... 35,593,999 36,368,429
Accumulated deficit .................................................. (14,890,029) (15,713,242)
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Total stockholders' equity ...................................... 20,757,000 20,709,238
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Total liabilities and stockholders' equity ...................... $ 24,918,240 $ 28,501,183
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See accompanying notes to financial statements.
3
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------------- --------------------------
1997 1998 1997 1998
------------- --------------- ------------ ------------
Sales and revenue:
Product sales ................................. $ 512,580 $ 1,011,010 $ 1,626,528 $ 2,017,708
Contract and other revenue .................... 899,153 292,852 1,423,906 783,055
Equipment revenue ............................. -- 4,000,000 -- 4,200,000
----------- ----------- ----------- -----------
Total sales and revenue (note 2) .......... 1,411,733 5,303,862 3,050,434 7,000,763
Cost of sales and revenue:
Cost of product sales ......................... 997,511 1,259,056 1,977,965 2,571,594
Cost of contract and other revenue ............ 507,238 272,057 850,867 637,970
Cost of equipment revenue ..................... -- 2,688,811 -- 2,814,009
----------- ----------- ----------- -----------
Total cost of sales and revenue ........... 1,504,749 4,219,924 2,828,832 6,023,573
----------- ----------- ----------- -----------
Gross profit (loss) ....................... (93,016) 1,083,938 221,602 977,190
----------- ----------- ----------- -----------
Operating expenses:
General and administrative .................... 388,078 503,140 725,661 947,640
Marketing and selling ......................... 135,208 102,814 245,257 217,399
Research and development ...................... 316,432 545,997 664,126 927,952
----------- ----------- ----------- -----------
Total operating expenses .................. 839,718 1,151,951 1,635,044 2,092,991
----------- ----------- ----------- -----------
Loss from operations ...................... (932,734) (68,013) (1,413,442) (1,115,801)
----------- ----------- ----------- -----------
Other income (expense):
Interest income ............................... 74,875 183,921 178,163 358,611
Interest expense .............................. (49,012) (30,048) (107,715) (64,768)
Other ......................................... 240 -- 256 --
----------- ----------- ----------- -----------
Total other income ........................ 26,103 153,873 70,704 293,843
----------- ----------- ----------- -----------
Profit (loss) before income taxes ......... (906,631) 85,860 (1,342,738) (821,958)
Income tax expense .............................. -- -- 1,256 1,256
----------- ----------- ----------- -----------
Net profit (loss) ......................... $ (906,631) $ 85,860 $(1,343,994) $ (823,214)
=========== =========== =========== ===========
Net profit (loss) per common share:
Basic.......................................... $ (0.17) $ 0.01 $ (0.26) $ (0.12)
=========== =========== =========== ===========
Diluted ....................................... $ (0.17) $ 0.01 $ (0.26) $ (0.12)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding:
Basic .......................................... 5,221,257 6,738,536 5,207,301 6,704,814
=========== =========== =========== ===========
Diluted ........................................ 5,221,257 7,071,017 5,207,301 6,704,814
=========== =========== =========== ===========
See accompanying notes to financial statements.
4
IBIS TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
-----------------------------
1997 1998
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Cash flows from operating activities:
Net loss .................................................................... $ (1,343,994) $ (823,214)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................................. 1,044,525 955,203
Changes in operating assets and liabilities ............................... (1,144,025) 1,133,353
-------------- ------------
Net cash provided by (used in)
operating activities .............................................. (1,443,494) 1,265,342
-------------- ------------
Cash flows from investing activities:
Additions to property and equipment ......................................... (2,907,287) (1,421,748)
Increase in other assets .................................................... 49,920 63,756
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Net cash used in investing activities ................................. (2,857,367) (1,357,992)
-------------- ------------
Cash flows from financing activities:
Payments of capital lease obligations ....................................... (391,717) (228,807)
Exercise of stock options ................................................... 50,230 775,451
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Net cash provided by (used in) financing activities ................... (341,487) 546,644
------------ ------------
Net increase (decrease) in cash and cash equivalents .................. (4,642,348) 453,994
Cash and cash equivalents, beginning of period ................................. 9,201,016 13,309,823
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Cash and cash equivalents, end of period ....................................... $ 4,558,668 $ 13,763,817
-------------- ------------
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest .................................... $ 103,484 $ 64,768
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See accompanying notes to financial statements.
5
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, 1997, and have been prepared by the Company in
accordance with generally accepted accounting principles.
In the opinion of management, the interim financial statements include
all adjustments which consist only of normal and recurring adjustments,
necessary for a fair presentation of the Company's 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, 1997 which are included
in the Annual Report on Form 10-K.
(2) 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 represents equipment and contract revenue earned
but not yet billable based on the terms of the contract which include shipment
of the product, achievement of milestones or completion of the contract.
(3) Inventories
Inventories consist of the following:
December 31, June 30,
1997 1998
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Raw materials .................. $ 221,378 $ 256,271
Work in process .......... 105,607 61,036
Finished goods ........... 160,046 177,774
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Subtotal wafer inventory $ 487,031 $ 495,081
Equipment inventory -- $4,470,523
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Total inventories $ 487,031 $4,965,604
========== ==========
Equipment inventory at June 30, 1998 was classified as property and
equipment in prior financial statements.
6
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(4) Earnings Per Share Reconciliation
The reconciliation of the numerators and denominators of the basic and
diluted net income (loss) per common share computations for the Company's
reported net income (loss) is as follows:
Three months ended Six months ended
June 30, June 30,
------------------------------------ ---------------------------
1997 1998 1997 1998
--------------- -------------- ---------------------------
Basic net income (loss) ................. $ (906,631) $ 85,860 $ (1,343,994) $ (823,214)
=================== ================= ==================== ===========
Weighted average common
shares outstanding-basic ............. 5,221,257 6,738,536 5,207,301 6,704,814
=================== ================= ==================== ===========
Net additional common shares upon assumed
exercise of stock options and warrants -- 332,481 -- --
------------------- ----------------- -------------------- -----------
Weighted average common
shares outstanding-diluted ........... 5,221,257 7,071,017 5,207,301 6,704,814
=================== ================= ==================== ===========
Net income (loss) per common share
Basic .......................... $ (0.17) $ 0.01 $ (0.26) $ (0.12)
=================== ================= ==================== ===========
Diluted ........................ $ (0.17) $ 0.01 $ (0.26) $ (0.12)
=================== ================= ==================== ===========
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-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, 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-SOI wafers for military
applications. Since 1993, there has been a shift in revenue to sales of
SIMOX-SOI wafers for commercial applications. For the six months ended June
30, 1998 and for the fiscal year ended December 31, 1997, commercial product
sales (measured in dollar volume) represented 78% and 83%, respectively, of
total product sales compared with 48% of total product sales for the fiscal
year ended December 31, 1993. 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. In the second quarter of 1997, however, the Company
announced that two of its customers had indicated their intentions to adopt
SIMOX-SOI technology in commercial products.
During the second quarter of 1998, the Company recognized revenue
from the sale of two Ibis 1000 implanters to a major semiconductor
manufacturer. The Company also received a confirming purchase order and a
deposit for one Ibis 1000 implanter from another customer during this
quarter. There were no equipment sales in 1997. During 1997, the Company
experienced quarterly fluctuations in wafer sales due to reduced wafer
requirements from one of the Company's customers. In addition, repair and
maintenance on the first Ibis 1000, use of the second Ibis 1000 for SIMOX-SOI
development, a mismatch of capacity and wafer size requirements of customer
orders and dependence on a limited number of customers all contributed to the
quarterly fluctuation in wafer sales. The Company may continue to see
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, one of
which was funded by Motorola Corporation and must first be used to serve
Motorola's production requirements. One Ibis 1000 implanter is currently
undergoing customer acceptance and three implanters are under construction
and are at various stages of completion. During the second quarter ended June
30, 1998, the Company recognized revenue on two of these implanters using the
percentage-of-completion method. The Company anticipates that the remaining
revenue on these two implanters and one additional implanter will be
recognized during the next three quarters as construction and/or milestones
are completed. The remaining implanter is anticipated to be completed in the
first half of 1999 and will be used for research and development and to
increase the Company's internal production capacity. During the year ended
December 31, 1997, the Company
8
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
phased the two NV-200 implanters out of production. Consequently, all
SIMOX-SOI wafers are being produced on the Ibis 1000's. As the Company
operates below capacity or expands its production capacity in anticipation of
expected increases in demand, its gross margins on product sales will
initially be adversely affected until the implanters operate at or near full
capacity. There can be no assurance, however, that the Company will succeed
in attracting a sufficient number of customers and/or orders for SIMOX-SOI
wafers to offset such production costs or that the Company will prevail over
its competition.
Results of Operations
Second Quarter Ended June 30, 1998 Compared to Second Quarter Ended June 30,
1997
Product Sales. Product sales increased $498,430, or 97%, to
$1,011,010 for the second quarter ended June 30, 1998 from $512,580 for the
second quarter ended June 30, 1997. The increase in product sales is
attributable to increased wafer sales to Japan and a new government program
that was entered into in the first quarter of 1998. In addition, wafer
production related issues contributed to the decreased level of product sales
during the second quarter of 1997. The first event was a component failure
and subsequent upgrade on the first Ibis 1000 implanter which resulted in a
ten-week production loss. The other matter was the dedication of the second
Ibis 1000 to process development for a specific customer. This decision
resulted in a six-week loss of production.
Contract and Other Revenue. Contract and other revenue decreased for
the second quarter ended June 30, 1998 to $292,852 from $899,153 for the
second quarter ended June 30, 1997, a decrease of $606,301 or 67%. The
decrease in contract and other revenue is attributable to decreased revenues
derived from a contract for consulting services for Orion Equipment, Inc.
("Orion"). Revenue from the Orion contract amounted to approximately $305,000
and $21,000 in the second quarter 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
spare parts to the purchaser of the Ibis 1000 implanter sold in 1996. For the
second quarter ended June 30, 1998 the sale of spare parts decreased to
$36,245 from $314,190, a decrease of $277,945 or 88%. These sales accounted
for 12% of contract and other revenue for the second quarter ended June 30,
1998 as compared to 35% for the second quarter ended June 30, 1997.
Equipment Revenue. Equipment revenue of $4,000,000 for the second
quarter ended June 30, 1998 represents revenue recognized using the
percentage-of-completion method in connection with the sale of two Ibis 1000
implanters. The Company anticipates that the remaining revenue on these two
implanters and one additional implanter will be recognized during the next
three quarters as construction and/or milestones are completed. There were no
equipment sales in 1997.
Total Sales and Revenue. Total sales and revenue for the second
quarter ended June 30, 1998 was $5,303,862, an increase of $3,892,129, or
276%, from total revenue of $1,411,733 for the second quarter ended June 30,
1997. This increase resulted from the equipment revenue and an increase in
product sales which was partially offset by decreased contract and other
revenue.
9
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Total Cost of Revenue. Cost of product sales for the second quarter
ended June 30, 1998 was $1,259,056, as compared to $997,511 for the second
quarter ended June 30, 1997, an increase of $261,545 or 26%. Cost of contract
revenue for the second quarter ended June 30, 1998 was $272,057, as compared
to $507,238 for the second quarter ended June 30, 1997, a decrease of
$235,181, or 46%. Cost of equipment revenue for the second quarter ended June
30, 1998 was $2,688,811. The gross margin for all sales was 20% for the
second quarter ended June 30, 1998 as compared to negative 7% for the second
quarter ended June 30, 1997. The increase in gross margin is primarily
attributable to the profit recognized from equipment revenue in the quarter.
The improvement in gross margin is also the result of the fundamental fixed
cost nature of product sales which were absorbed by more wafers during the
second quarter of 1998 compared to the same quarter in the previous year. The
product mix during this year's second quarter consisted of a greater
concentration of larger wafer sizes which resulted in a higher average sales
price per wafer. Cost of sales for contract and other revenue consists of
labor and materials expended during the quarter. Contract margins can vary
from year to year based on the mix of cost-type, firm fixed price and cost
share arrangements. Additionally, different fee arrangements and indirect
cost absorption can contribute to margin variability.
General and Administrative Expenses. General and administrative
expenses for the second quarter ended June 30, 1998 were $503,140 (or 9% of
total revenue) as compared to $388,078 (or 27% of total revenue) for the
second quarter ended June 30, 1997, an increase of $115,062, or 30%. The
increase is due to increases in payroll and payroll related expenses. Also
contributing to the increase were higher professional service fees incurred
in the quarter.
Marketing and Selling Expenses. Marketing and selling expenses for
the second quarter ended June 30, 1998 were $102,814 (or 2% of total revenue)
as compared to $135,208 (or 10% of total revenue) for the second quarter
ended June 30, 1997, a decrease of $32,394, or 24%.
Research and Development Expenses. Internally funded research and
development expenses increased by $229,565, or 73%, to $545,997 (or 10% of
total revenue) for the second quarter ended June 30, 1998, as compared to
$316,432 (or 22% of total revenue) for the second quarter ended June 30,
1997. The increase is primarily due to an increase in materials along with
increases in payroll expenses. In the prior year quarter a greater percentage
of personnel was devoted to funded projects, including the Orion contract,
and thus payroll and payroll related expenses for these personnel were
included in cost of contract and other revenue.
Loss from Operations. The loss from operations for the second
quarter ended June 30, 1998 was $68,013 as compared to a loss of $932,734 for
the second quarter ended June 30, 1997, a decrease of $864,721, or 93%. The
decrease in the loss from operations is the result of equipment revenue and
increase in product sales revenue which were partially offset by the increase
in operating expenses.
Other Income (Expense). Total other income for the second quarter
ended June 30, 1998 was $153,873 as compared to $26,103 for the second
quarter ended June 30, 1997, an increase of $127,770, or 489%. The increase
in total other income is attributable to interest income earned on the
proceeds from the August, 1997 exercise of its Public Warrants as well as
reduced interest expense on capitalized leases.
10
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Profit Before Income Taxes. The profit before income taxes was $85,860
for the second quarter ended June 30, 1998, as compared to a loss of $906,631
for the second quarter ended June 30, 1997. The improvement of $992,491, or
110%, is due to equipment revenue recognized in the quarter ended June 30, 1998
and the increased product sales and was partially offset by decreased contract
and other revenue.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Product Sales. Product sales increased $391,180, or 24%, to $2,017,708
for the six months ended June 30, 1998 from $1,626,528 for six months ended
June 30, 1997. The increase in product sales is attributable to increased
wafer sales to Europe, Japan and government programs. Sales in the United
States remained constant. Also contributing to the increase in product sales
compared to the prior year period were wafer production related issues
arising during the second quarter of 1997 which had a negative impact on
wafer sales during that period.
Contract and Other Revenue. Contract and other revenue decreased for
the six months ended June 30, 1998 to $783,055 from $1,423,906 for the six
months ended June 30, 1997, a decrease of $640,851, or 45%. This decrease is
attributable to decreased revenues derived from a contract for consulting
services related to implementation of the magnetic scanning technology
previously licensed to this customer, Orion. Revenue from the Orion contract
amounted to approximately $627,000 and $157,000 in the first half 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 spare parts to the purchaser of the Ibis
1000 implanter, a major semiconductor manufacturer. These sales accounted for
28% of contract and other revenue for the six months ended June 30, 1997 but
were only 15% of the contract and other revenue for the six months ended
June 30, 1998.
Equipment Revenue. Equipment revenue of $4,200,000 was recognized using
the percentage of completion method for the six months ended June 30, 1998 for
the sale of two Ibis 1000 implanters to a major semiconductor manufacturer.
There was no equipment revenue recognized in 1997. There was also a commitment
and deposit received from another customer for the purchase of one Ibis 1000
implanter. The Company anticipates that the remaining revenue on the two
implanters and the additional implanter will be recognized during the next three
quarters as construction and/or milestones are completed.
Total Sales and Revenue. Total sales and revenue for the six months
ended June 30, 1998 was $7,000,763, an increase of $3,950,329, or 130%, from
total revenue of $3,050,434 for the six months ended June 30, 1997. This
increase resulted from the recognition of equipment revenue and the increase in
product sales and was partially offset by decreased contract and other revenue.
Total Cost of Revenue. Cost of product sales for the six months ended
June 30, 1998 was $2,571,594, as compared to $1,977,965 for the six months ended
June 30, 1997, an increase of $593,629 or 30%. Cost of contract revenue for the
six months ended June 30, 1998 was $637,970, as compared to $850,867 for the six
months ended
11
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
June 30, 1997, a decrease of $212,897, or 25%. Cost of equipment revenue for
the six months ended June 30, 1998 was $2,814,009. The gross margin for all
sales was 14% for the six months June 30, 1998 as compared to 7% for the six
months ended June 30, 1997. The increase in gross margin is attributable to
the profit recognized from equipment revenue in the first six months ended
June 30, 1998. Cost of sales for contract and other revenue consists of labor
and materials expended during the period. Contract margins can vary from year
to year based on the mix of cost type, firm fixed price and cost share
arrangements. Additionally, different fee arrangements and indirect cost
absorption can contribute to margin variability.
General and Administrative Expenses. General and administrative
expenses for the six months ended June 30, 1998 were $947,640 (or 14% of
total revenue) as compared to $725,661 (or 24% of total revenue) for the six
months ended June 30, 1997, an increase of $221,979, or 31%. The increase is
due to increases in payroll, payroll related expenses and professional
service fees.
Marketing and Selling Expenses. Marketing and selling expenses for
the six months ended June 30, 1998 were $217,399 (or 3% of total revenue) as
compared to $245,257 (or 8% of total revenue) for the six months ended June
30, 1997, a decrease of $27,858 or 11%.
Research and Development Expenses. Internally funded research and
development expenses increased by $263,826, or 40%, to $927,952 (or 13% of
total revenue) for the six months ended June 30, 1998, as compared to
$664,126 (or 22% of total revenue) for the six months ended June 30, 1997.
The increase is primarily due to increases in payroll along with materials.
In the prior year six-month period, a greater percentage of personnel was
devoted to funded projects, including the Orion contract, and thus payroll
and payroll related expenses for these personnel were included in the cost of
contact and other revenue.
Loss from Operations. The loss from operations for the six months
ended June 30, 1998 was $1,115,801 as compared to a loss of $1,413,442 for
the six months ended June 30, 1997, a decrease of $297,641 or 21%. The
decrease in loss from operations is the result of recognition of equipment
revenue and increased product sales which were partially offset by the
increase in operating expenses.
Other Income (Expense). Total other income for the six months ended
June 30, 1998 was $293,843 as compared to $70,704 for the six months ended
June 30, 1997. The increase in total other income is attributable to interest
income earned on the proceeds from the August 1997 exercise of its Public
Warrants as well as reduced interest expense on capital leases.
Loss Before Income Taxes. The loss before income taxes was $821,958
for the six months ended June 30, 1998, as compared to $1,342,738 for the six
months ended June 30, 1997, a decrease of $520,780 or 39%. The decrease in
loss before income taxes is the result of equipment revenue recognized under
the percentage-of-completion method in the first six months of 1998 and the
increased product sales offset by the increase in operating expenses.
12
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Impact of 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 is in the process of conducting a review of its internal
information systems to determine the extent of any Year 2000 problem. The
Company is still gathering information, but based on such review to date, the
Company does not believe that the impact of any Year 2000 problem will be
material, because its principal information systems appear to correctly define
the year 2000. Although there exists the possibility that Year 2000 issues will
be identified, based on such review to date, the Company does not currently
expect that any such problems will have a material adverse effect on the
Company's future operating results or financial condition.
The Company is in the process of contacting its major suppliers and
customers in an effort to determine the extent to which the Company may be
vulnerable to those parties' failure to timely correct their own Year 2000
problems. To date, the Company is unaware of any situations of noncompliance
that would materially adversely affect its operations or financial condition.
There can be no assurance, however, that instances of noncompliance which could
have a material adverse effect on the Company's operations or financial
condition will be identified; that the systems of other companies with which the
Company transacts business will be corrected on a timely basis; or that a
failure by such entities to correct a year 2000 problem or a correction which is
incompatible with the Company's information systems would not have a material
adverse effect on the Company's operations or financial condition.
Liquidity and Capital Resources
As of June 30, 1998, the Company had cash and cash equivalents of
$13,763,817. During the six months ended June 30, 1998, the Company generated
$1,265,342 in cash from operating activities as compared to cash consumed by
operating activities in the amount of $1,443,494 for the same period in 1997.
Depreciation and amortization expense for the six months ended June 30, 1998 and
1997 was $955,203 and $1,044,525, representing 14% and 34% 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,
equipment lines of credit, a working capital line of credit, a term loan, sale
leaseback arrangements, collaborative relationships and government contracts. At
June 30, 1998, the Company had commitments to purchase approximately $749,000 in
material or subassemblies to be used to manufacture the additional Ibis 1000
implanters and approximately $142,000 in capital equipment. During the six month
period ending June 30, 1998, the Company received deposits on the sale of two
implanters in the amount of $3 million.
13
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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.
The Company anticipates that it may be required to raise substantial
additional capital in the future in order to finance further 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
additional Ibis 1000 oxygen implanters (in addition to its two oxygen implanters
currently on-line), the purchase of support equipment and expansion of the
Company's facilities.
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. Effective January 1, 1998 the Company adopted SFAS 130, which had no
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 becomes effective for the Company in its
year ending December 31, 1998, is currently not expected to have a material
impact on the Company's financial statements and footnote disclosures.
14
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Effective January 1, 1998, the Company adopted American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1)
which establishes guidelines for the accounting for the costs of all computer
software developed or obtained for internal use. SOP 98-1 must be applied on a
prospective basis as of the adoption date. Under SOP 98-1, certain consulting,
payroll and related costs for company consultants or employees working on the
application of development stage projects as defined in the SOP for internal use
computer software must be capitalized and amortized over the expected useful
life of the software. Previously, the Company had expensed these costs as
incurred. The adoption of SOP 98-1 did not have a material impact on the
Company's results of operations in the first six months of 1998 or financial
position at June 30, 1998.
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-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
1995, 1996 and 1997, revenues from four customers averaged in the aggregate
between 25% and 68% 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 dependence
by the Company on revenues from its consulting arrangement with Orion (during
1995, 1996, and 1997, consulting revenues were approximately 0%, 2%, and 26%,
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 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 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-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.
15
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
The Annual Meeting of Stockholders of the Company was held on May 14,
1998. The following matters were voted on at the meeting:
(1) Three persons were elected to the Board of Directors of the
Company to serve for a term ending in the Year 2001 and until
their successors are duly elected and qualified. The following is
a table setting forth the number of votes cast for and withheld
for each nominee for Director:
Name Vote For Vote Withheld
---- --------- -------------
Dimitri Antoniadis 5,689,175 163,566
Robert L. Gable 5,689,175 163,566
Martin J. Reid 5,690,175 162,566
Donald F. McGuinness and Peter H. Rose continue to serve as Directors
for terms which expire in 1999 and Richard Hodgson and Geoffrey Ryding
continue to serve as Directors for terms which expire in 2000.
(2) The Stockholders of the Company approved the adoption of the
Company's 1997 Employee, Director and Consultant Stock Option Plan
and the reservation of 750,000 shares of Common Stock for stock
options which may be granted under the 1997 Plan. This proposal
was approved with 2,255,632 votes for, 402,938 votes against,
42,992 abstentions and 3,151,179 broker non-votes.
(3) The Stockholders of the Company ratified the appointment of KPMG
Peat Marwick LLP as the Company's independent public accountants
for the fiscal year ending December 31, 1998. This proposal was
approved with 5,767,490 votes for, 63,471votes against and 21,780
abstentions.
(4) The Stockholders of the Company 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. This proposal was approved with 5,700,999 votes
for, 118,594 against and 33,148 abstentions.
16
IBIS TECHNOLOGY CORPORATION
PART II
OTHER INFORMATION
Item 5 - Other Information
To be considered for inclusion in the proxy statement relating to the
Annual Meeting of stockholders to be held in 1999, stockholder
proposals must be received no later than December 1, 1998. To be
considered for presentation at the Annual Meeting, although not
included in the proxy statement, proposals must be received no later
than March 15, 1999 and no earlier than February 13, 1999. All
stockholder proposals should be marked for the attention of Clerk, Ibis
Technology Corporation, 32 Cherry Hill Drive, Danvers, MA 01923.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits furnished as Exhibits hereto:
+10.39 Purchase Order, dated April 14, 1998, from Mitsubishi
Materials Silicon Corporation.
+10.40 Task Order, dated April 10, 1998, between the
Registrant and International Business Machines
Corporation ("IBM").
+10.41 Licensing and Development Agreement, dated June 9,
1998, between the Registrant and IBM.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission
(the "Commission") on April 3, 1998 a Current Report on Form
8-K for the April 2, 1998 event reporting that Dr. Julian
Blake had joined the Company as its Director of Technology.
The Company filed with the Commission on May 13, 1998 a
Current Report on Form 8-K for the May 11, 1998 event
reporting the financial results for the first quarter ended
March 31, 1998. The company also announced that it has
received a confirming purchase order for an Ibis 1000
implanter from Mitsubishi Materials Corporation through its
Mitsubishi Materials Silicon Corporation Subsidiary. A letter
of intent for this purchase was previously disclosed in the
Company's March 5, 1998 press release.
The Company filed with the Commission on June 10, 1998 a
Current Report on Form 8-K for the June 9, 1998 event
reporting that it had completed the sale of two Ibis 1000
implanters to IBM Corporation in a transaction valued at
approximately $8 million. The sale to IBM includes an
equipment licensing and development agreement which gives IBM
the right to a royalty-bearing, non-exclusive license to
supplement Ibis equipment manufacturing capacity. The purchase
orders for the two implanters were previously disclosed in
Ibis press released dated March 5, 1998.
---------------
+ Confidential treatment requested as to certain portions,
which portions are omitted and filed separately with the
Commission.
17
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: August 13, 1998 By: /s/Debra L. Nelson
-----------------------
Debra L. Nelson
Chief Financial Officer, Treasurer and Clerk
(principal financial and accounting officer)
Date: August 13, 1998 By: /s/Thomas F. Lacey
----------------------
Thomas F. Lacey
Controller and Assistant Treasurer
18
IBIS TECHNOLOGY CORPORATION
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
+10.39 Purchase Order, dated April 14, 1998, from Mitsubishi Materials Silicon Corporation. 20
+10.40 Task Order, dated April 10, 1998, between the Registrant and International Business 23
Machines Corporation ("IBM").
+10.41 Licensing and Development Agreement, dated June 9, 1998, between the Registrant
and IBM. 41
27 Financial Data Schedule 65
---------------
+ Confidential treatment requested as to certain portions,
which portions are omitted and filed separately with the
Commission.
19