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, 1999 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
---
8,035,954 shares of Common Stock, par value $.008, were outstanding on
August 11, 1999.
Total Number of Pages 22
Exhibit Index at Page 21
1
IBIS TECHNOLOGY CORPORATION
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
NUMBER
------
Item 1 - Financial Statements:
Balance Sheets
December 31, 1998 and June 30, 1999 ........................ 3
Statements of Operations
Three Months Ended June 30, 1998 and 1999
And Six Months Ended June 30, 1998 and 1999 ................ 4
Statements of Cash Flows
Six Months Ended June 30, 1998 and 1999 ..................... 5
Notes to Financial Statements .................................. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 9
Item 3 - Quantitative and Qualitative Disclosure About Market Risk 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ......................................... 19
Item 2 - Changes in Securities ..................................... 19
Item 3 - Defaults upon Senior Securities ........................... 19
Item 4 - Submission of Matters to a Vote of Security Holders ....... 19
Item 5 - Other Information ......................................... 19
Item 6 - Exhibits and Reports on Form 8-K .......................... 19
Signatures ......................................................... 20
Exhibit Index ...................................................... 21
2
IBIS TECHNOLOGY CORPORATION
BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 12,819,366 $ 12,840,999
Accounts receivable, trade, net ................... 546,935 2,560,655
Unbilled revenue .................................. 2,448,327 3,467,433
Inventories ....................................... 3,121,084 3,321,798
Prepaid expenses and other current assets ......... 151,106 85,006
------------ ------------
Total current assets ........................ 19,086,818 22,275,891
------------ ------------
Property and equipment ............................... 14,948,862 13,850,889
Less: Accumulated depreciation and amortization .. (9,872,843) (8,789,247)
------------ ------------
Net property and equipment .................. 5,076,019 5,061,642
Patents and other assets, net ........................ 144,481 113,020
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Total assets ................................ $ 24,307,318 $ 27,450,553
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligation, current ................. $ 507,258 $ 243,828
Accounts payable .................................. 411,065 1,778,714
Accrued liabilities ............................... 1,336,720 2,222,770
Total current liabilities ................... 2,255,043 4,245,312
------------ ------------
Capital lease obligation, noncurrent ................. 39,630 34,980
Other accrued liabilities ............................ 1,403,702 1,299,102
Total liabilities ........................... 3,698,375 5,579,394
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 6,858,556 and
7,004,081 shares in 1998 and 1999, respectively 54,868 56,033
Additional paid-in capital ....................... 36,610,064 37,376,787
Accumulated deficit .............................. (16,055,989) (15,561,661)
------------ ------------
Total stockholders' equity .................. 20,608,943 21,871,159
------------ ------------
Total liabilities and stockholders' equity .. $ 24,307,318 $ 27,450,553
------------ ------------
------------ ------------
See accompanying notes to financial statements.
3
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ----------------------------
1998 1999 1998 1999
----------- ----------- ----------- ------------
SALES AND REVENUE:
Product sales .............................................. $ 1,011,010 $ 1,348,980 $ 2,017,708 $ 2,648,465
Contract and other revenue ................................. 292,852 246,446 783,055 604,824
Equipment revenue .......................................... 4,000,000 3,512,000 4,200,000 6,302,000
----------- ----------- ----------- -----------
Total sales and revenue ................................ 5,303,862 5,107,426 7,000,763 9,555,289
COST OF SALES AND REVENUE:
Cost of product sales ...................................... 1,259,056 1,140,562 2,571,594 2,386,646
Cost of contract and other revenue ......................... 272,057 183,987 637,970 305,695
Cost of equipment revenue .................................. 2,688,811 2,516,068 2,814,009 4,469,990
----------- ----------- ----------- -----------
Total cost of sales and revenue ........................ 4,219,924 3,840,617 6,023,573 7,162,331
----------- ----------- ----------- -----------
Gross profit ........................................... 1,083,938 1,266,809 977,190 2,392,958
----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and administrative ................................. 503,140 524,092 947,640 958,540
Marketing and selling ...................................... 102,814 245,612 217,399 452,782
Research and development ................................... 545,997 391,317 927,952 777,687
----------- ----------- ----------- -----------
Total operating expenses ............................... 1,151,951 1,161,021 2,092,991 2,189,009
----------- ----------- ----------- -----------
Income (loss) from operations .......................... (68,013) 105,788 (1,115,801) 203,949
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income ............................................ 183,921 142,545 358,611 299,040
Interest expense ........................................... (30,048) (13,373) (64,768) (31,525)
Other ...................................................... -- 13,287 -- 24,120
----------- ----------- ----------- -----------
Total other income ..................................... 153,873 142,459 293,843 291,635
----------- ----------- ----------- -----------
Income (loss) before income taxes ...................... 85,860 248,247 (821,958) 495,584
Income tax expense ........................................... -- -- 1,256 1,256
----------- ----------- ----------- -----------
Net income (loss) ...................................... $ 85,860 $ 248,247 $ (823,214) $ 494,328
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per common share:
Basic ....................................................... $ 0.01$ 0.04 $ (0.12)$ 0.07
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted ..................................................... $ 0.01 $ 0.03 $(0.12)$ 0.07
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding:
Basic ....................................................... 6,738,536 6,957,567 6,704,814 6,918,261
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted ..................................................... 7,071,017 7,469,603 6,704,814 7,347,431
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes to financial statements.
4
IBIS TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1998 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................................... $ (823,214) $ 494,328
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................ 955,203 685,106
Changes in operating assets and liabilities:
Accounts receivable, trade ........................................... (970,082) (2,013,720)
Unbilled revenue ..................................................... (1,718,074) (1,019,106)
Inventories .......................................................... (8,841) (200,714)
Prepaid expenses and other assets .................................... (29,162) 66,100
Accounts payable ..................................................... 2,119,728 1,367,649
Accrued liabilities .................................................. 1,739,784 781,450
------------ ------------
Net cash provided by operating activities ............................ 1,265,342 161,093
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ........................................ (1,421,748) (645,761)
Decrease in other assets ................................................... 63,756 6,493
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Net cash used in investing activities ................................ (1,357,992) (639,268)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations ...................................... (228,807) (268,080)
Exercise of stock options .................................................. 775,451 767,888
------------ ------------
Net cash provided by financing activities ............................ 546,644 499,808
------------ ------------
Net increase in cash and cash equivalents ............................ 453,994 21,633
Cash and cash equivalents, beginning of period ................................ 13,309,823 12,819,366
------------ ------------
Cash and cash equivalents, end of period ...................................... $ 13,763,817 $ 12,840,999
------------ ------------
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................................... $ 64,768 $ 31,525
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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, 1998, 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, 1998 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) CHANGE IN ESTIMATE
During 1998 the Company changed depreciable lives for some of its
equipment from five years to eight years. As a result, depreciation for the
second quarter ended June 30, 1999 was reduced by approximately $192,000. For
the six months ended June 30, 1999 depreciation was reduced by approximately
$388,000.
(4) INVENTORIES
Inventories consist of the following:
DECEMBER 31, JUNE 30,
1998 1999
---------- ----------
Raw materials ...................... $ 197,734 $ 106,014
Work in process .................... 76,343 24,207
Finished goods ..................... 191,762 41,527
---------- ----------
Subtotal wafer inventory ......... 465,839 171,748
Equipment inventory ................ 2,655,245 3,150,050
Total inventories ............ $3,121,084 $3,321,798
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---------- ----------
6
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(5) 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,
---------------------------------------- -----------------------------------
1998 1999 1998 1999
------------------ ---------------- ------------------ ----------
Basic net income (loss) ................. $ 85,860 $ 248,247 $ (823,214) $ 494,328
------------------ ---------------- ------------------ ----------
------------------ ---------------- ------------------ ----------
Weighted average common
shares outstanding-basic ............. 6,738,536 6,957,567 6,704,814 6,918,261
------------------ ---------------- ------------------ ----------
------------------ ---------------- ------------------ ----------
Net additional common shares upon assumed
exercise of stock options and warrants 332,481 512,036 -- 429,170
------------------ ---------------- ------------------ ----------
Weighted average common
shares outstanding-diluted ........... 7,071,017 7,469,603 6,704,814 7,347,431
------------------ ---------------- ------------------ ----------
------------------ ---------------- ------------------ ----------
Net income (loss) per common share
Basic .......................... $ 0.01 $ 0.04 $ (0.12) $ 0.07
------------------ ---------------- ------------------ ----------
------------------ ---------------- ------------------ ----------
Diluted ........................ $ 0.01 $ 0.03 $ (0.12) $ 0.07
------------------ ---------------- ------------------ ----------
------------------ ---------------- ------------------ ----------
(6) 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.
7
IBIS TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The table below provides information for the six months ended June 30,
1998 and 1999 pertaining to the Company's three industry segments.
SIMOX
WAFER SIMOX OTHER PRODUCTS
PRODUCTS EQUIPMENT OR SERVICES TOTAL
-------- --------- ----------- -----
NET REVENUES
Six Months Ended June 30, 1998 $ 2,017,708 $ 4,200,000 $ 783,055 $ 7,000,763
Six Months Ended June 30, 1999 2,648,465 6,302,000 604,824 9,555,289
OPERATING INCOME (LOSS)
Six Months Ended June 30, 1998 (873,522) 560,276 145,085 (168,161)
Six Months Ended June 30, 1999 125,542 737,818 299,129 1,162,489
ASSETS
December 31, 1998 5,411,282 5,262,751 353,068 11,027,101
June 30, 1999 5,878,494 8,310,747 65,627 14,254,868
The table below provides the reconciliation of reportable segment
operating income (loss) and assets to the Company's totals.
SIX MONTHS ENDED
-----------------------------------
SEGMENT RECONCILIATION 6/30/98 6/30/99
Income (Loss) Before Income Taxes:
Total operating income (loss) for reportable segments $ (168,161) $ 1,162,489
Corporate general & administrative expenses (947,640) (958,540)
Net other income 293,843 291,635
------------ ---------------
Income (loss) before income taxes (821,958) 495,584
------------ ---------------
------------ ---------------
12/31/98 6/30/99
Assets:
Total assets for reportable segments 11,027,101 14,254,868
Cash & cash equivalents not allocated to segments 12,819,366 12,840,999
Other unallocated assets 460,851 354,686
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Total assets 24,307,318 27,450,553
------------ -------------
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8
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
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.
Over the years, there has been a shift in revenue to sales of SIMOX-SOI wafers
for commercial applications and sales of Ibis 1000 implanters. 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 and developing prototypes. In addition,
we believe the sales of Ibis 1000 implanters have been for the evaluation or
pilot production of SIMOX-SOI 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. One of these
customers has indicated that it would be delivering volume quantities of high
performance microprocessors built on SIMOX-SOI to internal customers by the end
of 1999.
The Company has experienced quarterly fluctuations in revenue and
earnings due to the timing of receipt of orders from major customers, product
mix, shifts in customer demand, the cyclical nature of the semiconductor
industry and the amount of research and development expenses associated with new
or enhanced wafer products or implanters. The Company may continue to experience
fluctuations in revenue and earnings due to these factors.
The Company currently utilizes two Ibis 1000 oxygen implanters for the
production of wafers, one of which was funded by Motorola Corporation and must
first be used to serve Motorola's production requirements. The Company
recognized revenue on the sale of Ibis 1000 implanters using the
percentage-of-completion method.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 1999 COMPARED TO SECOND QUARTER ENDED JUNE 30,
1998
PRODUCT SALES. Wafer product sales increased $337,970, or 33%, to
$1,348,980 for the second quarter ended June 30, 1999 from $1,011,010 for the
second quarter ended June 30, 1998. The increase in product sales is
attributable to increased wafer sales to customers in the United States and
Europe partially offset by decreased wafer sales to customers in Japan.
9
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONTRACT AND OTHER REVENUE. Contract and other revenue decreased for
the second quarter ended June 30, 1999 to $246,446 from $292,852 for the second
quarter ended June 30, 1998, a decrease of $46,406 or 16%. This decrease is
attributable to a decrease in revenues derived from government contracts which
were offset by revenues generated from the newly established customer support
organization and the sale of spare parts. At the end of 1998, the customer
support organization was established to support the Ibis 1000 implanters in the
field. This revenue accounted for 17% of contract and other revenue for the
second quarter ended June 30, 1999 as compared to 0% for the quarter ended June
30, 1998. Sales of spare parts accounted for 37% of contract and other revenue
for the second quarter ended June 30, 1999 as compared to 12% for the second
quarter ended June 30, 1998.
EQUIPMENT REVENUE. Equipment revenue represents revenue recognized
using the percentage-of-completion method in connection with the sale of Ibis
1000 implanters. Equipment revenue decreased to $3,512,000 for the second
quarter ended June 30, 1999 from $4,000,000 for the second quarter ended June
30, 1998.
TOTAL SALES AND REVENUE. Total sales and revenue for the second quarter
ended June 30, 1999 was $5,107,426, a decrease of $196,436, or 4%, from total
revenue of $5,303,862 for the second quarter ended June 30, 1998. This decrease
resulted from the decrease in equipment revenue recognized and the decrease in
contract and other revenue partially offset by increased product sales.
TOTAL COST OF SALES AND REVENUE. Cost of product sales for the
second quarter ended June 30, 1999 was $1,140,562, as compared to $1,259,056
for the second quarter ended June 30, 1998, a decrease of $118,494 or 9%.
Cost of contract and other revenue for the second quarter ended June 30, 1999
was $183,987, as compared to $272,057 for the second quarter ended June 30,
1998, a decrease of $88,070, or 32%. Cost of equipment revenue for the second
quarter ended June 30, 1999 was $2,516,068 as compared to $2,688,811 for the
second quarter ended June 30, 1998, a decrease of $172,743 or 6%. The gross
margin for all sales was 25% for the second quarter ended June 30, 1999 as
compared to 20% for the second quarter ended June 30, 1998. The increase in
gross margin is attributable to product sales increasing for the quarter
along with a decrease in the cost. The fundamental fixed cost nature of
product sales, which was absorbed by a larger number of wafers sold during
the second quarter of 1999 as compared to the same quarter in the previous
year, resulted in a positive impact on margins. Cost of contract and other
revenue consists of labor and materials expended during the quarter. Contract
margins can vary from year to year based on the type of contracts that the
Company enters into. 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, 1999 were $524,092 (or 10% of
total revenue) as compared to $503,140 (or 9% of total revenue) for the second
quarter ended June 30, 1998, an increase of $20,952, or 4%. The increase is due
to increases in professional service fees and payroll and payroll related
expenses incurred in the quarter.
10
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the
second quarter ended June 30 1999 were $245,612 (or 5% of total revenue) as
compared to $102,814 (or 2% of total revenue) for the second quarter ended June
30, 1998, an increase of $142,798, or 139%. The increase is due to increases in
payroll and payroll related expenses incurred in the establishment of a new
customer support organization.
RESEARCH AND DEVELOPMENT EXPENSES. Internally funded research and
development expenses decreased by $154,680 or 28%, to $391,317 (or 8% of
total revenue) for the second quarter ended June 30, 1999, as compared to
$545,997 (or 10% of total revenue) for the second quarter ended June 30,
1998. The decrease is primarily due to a decrease in material expenses and
payroll and payroll related expenses. Last year the Company introduced a new
wafer product line, Advantox-Registered Trademark-, which resulted in
increased material expenses during the second quarter ended June 30, 1998.
INCOME FROM OPERATIONS. The income from operations for the second
quarter ended June 30, 1999 was $105,788 as compared to a loss of $68,013 for
the second quarter ended June 30, 1998, an increase of $173,801, or 256%. The
increase in the income from operations is the result of the increase in product
sales, which was partially offset by decreases in equipment revenue and contract
and other revenue.
OTHER INCOME (EXPENSE). Total other income for the second quarter ended
June 30, 1999 was $142,459 as compared to $153,873 for the second quarter ended
June 30, 1998, a decrease of $11,414, or 7%. The decrease in total other income
is attributable to reduced interest income earned on the cash balance, offset by
reduced interest expense on capitalized leases.
INCOME BEFORE INCOME TAXES. The income before income taxes was $248,247
for the second quarter ended June 30, 1999, as compared to $85,860 for the
second quarter ended June 30 , 1998. The improvement of $162,387, or 189%, is
due to increased product sales, which was partially offset by decreases in
equipment revenue and contract and other revenue.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
PRODUCT SALES. Wafer product sales increased $630,757, or 31%, to
$2,648,465 for the six months ended June 30, 1999 from $2,017,708 for the six
months ended June 30, 1998. The increase in product sales is attributable to
increased wafer sales to customers in the United States and Europe partially
offset by decreased wafer sales to customers in Japan.
CONTRACT AND OTHER REVENUE. Contract and other revenue decreased for
the six months ended June 30, 1999 to $604,824 from $783,055 for the six months
ended June 30, 1998, a decrease of $178,231 or 23%. This decrease is
attributable to a decrease in revenues from various government contracts along
with revenue derived from a contract for consulting services for Orion
Equipment, Inc. ("Orion"). Revenue from the Orion contract amounted to
approximately $157,000 in the first half of 1998 and there was no revenue in the
first half of 1999.
11
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
These decreases were partially offset by revenue generated by the newly
established customer support organization, license fee revenue and sales of
spare parts, which accounted for 13%, 24% and 20% of contract and other revenue,
respectively, for the six months ended June 30, 1999 as compared to 0%, 0% and
15%, respectively in the six months ended June 30, 1998.
EQUIPMENT REVENUE. Equipment revenue represents revenue recognized
using the percentage-of-completion method in connection with the sale of Ibis
1000 implanters. Equipment revenue increased to $6,302,000 for the six months
ended June 30, 1999 from $4,200,000 for the six months ended June 30, 1998 due
to the timing of milestones completed.
TOTAL SALES AND REVENUE. Total sales and revenue for the six months
ended June 30, 1999 was $9,555,289, an increase of $2,554,526, or 37%, from
total revenue of $7,000,763 for the six months ended June 30, 1998. This
increase resulted from the increase in equipment revenue recognized and the
increase in product sales which was partially offset by decreased contract and
other revenue.
TOTAL COST OF SALES AND REVENUE. Cost of product sales for the six
months ended June 30, 1999 was $2,386,646, as compared to $2,571,594 for the six
months ended June 30, 1998, a decrease of $184,948 or 7%. Cost of contract and
other revenue for the six months ended June 30, 1999 was $305,695, as compared
to $637,970 for the six months ended June 30, 1998, a decrease of $332,275, or
52%. Cost of equipment revenue for the six months ended June 30, 1999 was
$4,469,990 as compared to $2,814,009 for the six months ended June 30, 1998, an
increase of $1,655,981 or 59%. The gross margin for all sales was 25% for the
six months ended June 30, 1999 as compared to 14% for the six months ended June
30, 1998. The increase in gross margin is attributable to the profit recognized
from equipment revenue and product sales for the six month period and the
decrease in product cost. The fundamental fixed cost nature of product sales,
which was absorbed by a larger number of wafers sold during the first six months
of 1999 as compared to the same period in the previous year, resulted in a
positive impact on margins. Cost of contract and other revenue consists of labor
and materials expended during the period. Contract margins can vary from year to
year based on the type of contracts that the Company enters into. 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, 1999 were $958,540 (or 10% of total
revenue) as compared to $947,640 (or 14% of total revenue) for the six months
ended June 30, 1998, an increase of $10,900, or 1%. The increase is due to
increases in payroll and payroll related expenses which was partially offset by
a decrease in professional service fees .
MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the
six months ended June 30, 1999 were $452,782 (or 5% of total revenue) as
compared to $217,399 (or 3% of total revenue) for the six months ended June 30,
1998, an increase of $235,383, or 108%. The increase is due to increases in
payroll and payroll related expenses incurred in the establishment of a new
customer support organization.
12
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSES. Internally funded research and
development expenses decreased by $150,265 or 16%, to $777,687 (or 8% of
total revenue) for the six months ended June 30, 1999, as compared to
$927,952 (or 13% of total revenue) for the six months ended June 30, 1998.
The decrease is primarily due to a decrease in material expenses. Last year
the Company introduced a new wafer product line, Advantox -Registered
Trademark-, which resulted in increased material expenses for the six months
ended June 30, 1998.
INCOME FROM OPERATIONS. The income from operations for the six months
ended June 30, 1999 was $203,949 as compared to a loss of $1,115,801 for the six
months ended June 30, 1998, an increase of $1,319,750, or 118%. The increase in
the income from operations is the result of increases in equipment revenue and
product sales, which were partially offset by decreases in contract and other
revenue, as well as the increase in operating expenses.
OTHER INCOME (EXPENSE). Total other income for the six months ended
June 30, 1999 was $291,635 as compared to $293,843 for the six months ended June
30, 1998, a decrease of $2,208, or 1%. The decrease in total other income is
attributable to reduced interest income earned on the cash balance, offset by
reduced interest income earned on capitalized leases.
INCOME (LOSS) BEFORE INCOME TAXES. The income before income taxes was
$495,584 for the six months ended June 30, 1999, as compared to a loss of
$821,958 for the six months ended June 30, 1998. The increase of $1,317,542, or
160%, is due to equipment revenue recognized in the six months ended June 30,
1999 and increased product sales, which were partially offset by decreases in
contract and other revenue and increased operating expenses.
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 tested less critical
information systems and expects to complete any required upgrades by the third
quarter of 1999.
13
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 was installed in July 1999.
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 the
computer clocks back. The Company expects to complete these software upgrades by
the third quarter of 1999.
The Company contacted 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 during the
second quarter of 1999, and letters were obtained from these suppliers
documenting their Year 2000 status and proof of compliance. The Company will
continue to obtain updates from critical suppliers. The Company has not
identified any situations of non-compliance that would materially or adversely
affect the Company's operations or financial condition.
The Company has completed its review and believes that its principal
information systems correctly define the year 2000 and thus, the impact of the
Year 2000 Issue will have no material effect on its systems.
COSTS ASSOCIATED WITH THE YEAR 2000 ISSUE
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. 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 the Company identifies any other problems related to the Year 2000
Issue which must be addressed.
14
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE
To the extent that the Company's assessment is completed without
identifying any non-compliant systems operated by the Company or by third
parties, 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 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, such as securing
alternate suppliers or accelerating the delivery of materials scheduled for the
first half of January 2000, have also been identified for certain suppliers who
have not supplied the Company with adequate information on their compliance or
will not be ready in time to meet the Year 2000 deadline.
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 or operations. 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 June 30, 1999, the Company had cash and cash equivalents of
$12,840,999 . During the six months ended June 30, 1999, the Company generated
$161,093 in cash from operating activities as compared to cash generated from
operations of $1,265,342 for the same period in 1998. Depreciation and
amortization expense for the six months ended June 30, 1999 and 1998 was
$685,106 and $955,203, respectively. This accounted for 7% and 14% 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 uses of cash during the six months ended June 30, 1999 were
to fund the Company's operations and additions to
15
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
property and equipment which totaled approximately $646,000. As of June 30,
1999, the Company had invested $15,594,305 in property and equipment. At June
30, 1999, the Company had commitments to purchase approximately $2,630,000 in
material or subassemblies to be used for manufacturing Ibis 1000 implanters
currently under construction.
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 eighteen months (see Subsequent Events).
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.
SUBSEQUENT EVENTS
On August 6, 1999, the Company closed on a public offering of one
million shares of common stock in an offering underwritten by SoundView
Technology Group. The shares were included in a shelf registration statement
filed with the Securities and Exchange Commission on July 8, 1999 and declared
effective on July 26, 1999. Net proceeds from the offering were approximately
$25 million and Ibis intends to use the proceeds to fund research and
development, capital expenditures, working capital and for other general
corporate purposes.
BUSINESS OUTLOOK
This 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
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 upon 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 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
16
IBIS TECHNOLOGY CORPORATION
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
17
PART I - ITEM 3
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.
18
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 13,
1999. 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 2002 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
---- -------- -------------
Peter H. Rose 6,345,742 21,507
Donald F. McGuinness 6,345,742 21,507
Lamberto Raffaelli 6,343,747 23,482
Richard Hodgson, Geoffrey Ryding and Leslie B. Lewis continue to
serve as Directors for terms which expire in 2000 and Dimitri
Antoniadis, Robert L. Gable and Martin J. Reid continue to serve
as Directors for terms which expire in 2001.
(2) The stockholders of the Company ratified the appointment of KPMG
LLP as the Company's independent public accountants for the fiscal
year ending December 31, 1999. This proposal was approved with
6,308,074 votes for, 54,660 votes against and 4,515 abstentions.
Item 5 - OTHER INFORMATION
None.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits furnished as Exhibits hereto:
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed with the Securities and Exchange Commission
on May 6, 1999 a Current Report on Form 8-K for the May 4,
1999 event reporting a profitable 1999 first quarter and 1999
first quarter revenues increased 162%.
19
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 12, 1999 By: /s/ Debra L. Nelson
----------------------------------------------
Debra L. Nelson
Chief Financial Officer, Treasurer and Clerk
(principal financial and accounting officer)
Date: August 12, 1999 By: /s/ Thomas F. Lacey
----------------------------------------------
Thomas F. Lacey
Controller and Assistant Treasurer
20
IBIS TECHNOLOGY CORPORATION
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27 Financial Data Schedule 22
21