-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQwr5lw3Xmic8ND/lv8MwUfzSlFYqoHsnrq8eWLObGMJnEndiOABJLjgBZAFJQJV g/345Lj4pfjDiHK7wZAJFg== 0000912057-99-003875.txt : 19991109 0000912057-99-003875.hdr.sgml : 19991109 ACCESSION NUMBER: 0000912057-99-003875 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBIS TECHNOLOGY CORP CENTRAL INDEX KEY: 0000855182 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 042987600 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23150 FILM NUMBER: 99743035 BUSINESS ADDRESS: STREET 1: 32 CHERRY HILL DR CITY: DANVERS STATE: MA ZIP: 01923 BUSINESS PHONE: 9787774247 MAIL ADDRESS: STREET 1: 32 CHERRY HILL DR STREET 2: 32 CHERRY HILL DR CITY: DANVERS STATE: MA ZIP: 01923 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20569 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1999 Commission file number 0-23150 ------------------ -------
IBIS TECHNOLOGY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2987600 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 32 Cherry Hill Drive, Danvers, MA 01923 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (978) 777-4247 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- 8,112,306 shares of Common Stock, par value $.008, were outstanding on November 5, 1999. Total Number of Pages 21 -- Exhibit Index at Page 20 -- IBIS TECHNOLOGY CORPORATION INDEX
PAGE PART 1 - FINANCIAL INFORMATION NUMBER - ------------------------------- ------ Item 1 - Financial Statements: Balance Sheets December 31, 1998 and September 30, 1999 ................................................ 3 Statements of Operations Three Months Ended September 30, 1998 and 1999 and Nine Months Ended September 30, 1998 and 1999 .............................................................. 4 Statements of Cash Flows Nine Months Ended September 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 ............................. 17 PART II - OTHER INFORMATION Item 1 - Legal Proceedings ......................................................................... 18 Item 2 - Changes in Securities ..................................................................... 18 Item 3 - Defaults upon Senior Securities ........................................................... 18 Item 4 - Submission of Matters to a Vote of Security Holders ....................................... 18 Item 5 - Other Information ......................................................................... 18 Item 6 - Exhibits and Reports on Form 8-K .......................................................... 18 Signatures ......................................................................................... 19 Exhibit Index ...................................................................................... 20
2 IBIS TECHNOLOGY CORPORATION BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1998 1999 ------------ ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents.................................. $ 12,819,366 $ 34,550,015 Accounts receivable, trade, net............................ 546,935 6,656,074 Unbilled revenue........................................... 2,448,327 2,358,246 Inventories................................................ 3,121,084 3,360,485 Prepaid expenses and other current assets.................. 151,106 38,999 ------------ ------------ Total current assets................................. 19,086,818 46,963,819 ------------ ------------ Property and equipment........................................ 14,948,862 13,869,590 Less: Accumulated depreciation and amortization........... (9,872,843) (9,100,215) ------------ ------------ Net property and equipment........................... 5,076,019 4,769,375 Patents and other assets, net................................. 144,481 144,291 ------------ ------------ Total assets......................................... $ 24,307,318 $ 51,877,485 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Capital lease obligation, current.......................... $ 507,258 $ 104,890 Accounts payable........................................... 411,065 1,058,301 Accrued liabilities........................................ 1,336,720 1,680,841 ------------ ------------ Total current liabilities............................ 2,255,043 2,844,032 ------------ ------------ Capital lease obligation, noncurrent.......................... 39,630 32,560 Other accrued liabilities..................................... 1,403,702 1,280,652 ------------ ------------ Total liabilities.................................... 3,698,375 4,157,244 ------------ ------------ 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 8,067,134 shares at December 31, 1998 and September 30, 1999, respectively....................... 54,868 64,537 Additional paid-in capital................................ 36,610,064 62,930,715 Accumulated deficit....................................... (16,055,989) (15,275,011) ------------ ------------ Total stockholders' equity........................... 20,608,943 47,720,241 ------------ ------------ Total liabilities and stockholders' equity........... $ 24,307,318 $ 51,877,485 ============ ============
See accompanying notes to financial statements. 3 IBIS TECHNOLOGY CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ------------------------------ 1998 1999 1998 1999 ---------- ----------- ------------ ----------- SALES AND REVENUE: Product sales........................................ $ 445,010 $ 1,321,730 $ 2,462,718 $ 3,970,195 Contract and other revenue........................... 265,750 155,401 934,421 555,487 Equipment revenue.................................... 4,176,841 3,205,071 8,491,225 9,711,809 ---------- ----------- ------------ ----------- Total sales and revenue.......................... 4,887,601 4,682,202 11,888,364 14,237,491 COST OF SALES AND REVENUE: Cost of product sales................................ 1,046,387 1,122,360 3,617,981 3,509,006 Cost of contract and other revenue................... 230,630 138,981 815,432 361,935 Cost of equipment revenue............................ 2,600,484 2,384,458 5,467,661 6,937,189 ---------- ----------- ------------ ----------- Total cost of sales and revenue.................. 3,877,501 3,645,799 9,901,074 10,808,130 ---------- ----------- ------------ ----------- Gross profit..................................... 1,010,100 1,036,403 1,987,290 3,429,361 ---------- ----------- ------------ ----------- OPERATING EXPENSES: General and administrative........................... 427,734 408,941 1,375,374 1,367,481 Marketing and selling................................ 102,534 261,516 319,933 714,298 Research and development............................. 495,263 386,178 1,423,215 1,163,865 ---------- ----------- ------------ ----------- Total operating expenses......................... 1,025,531 1,056,635 3,118,522 3,245,644 ---------- ----------- ------------ ----------- Income (loss) from operations.................... (15,431) (20,232) (1,131,232) 183,717 ---------- ----------- ------------ ----------- OTHER INCOME (EXPENSE): Interest income...................................... 136,729 318,078 495,340 617,118 Interest expense..................................... (26,724) (8,436) (91,492) (39,961) Other................................................ -- (2,760) -- 21,360 ---------- ----------- ------------ ----------- Total other income............................... 110,005 306,882 403,848 598,517 ---------- ----------- ------------ ----------- Income (loss) before income taxes................ 94,574 286,650 (727,384) 782,234 Income tax expense..................................... -- -- 1,256 1,256 ---------- ----------- ------------ ----------- Net income (loss)................................ $ 94,574 $ 286,650 $ (728,640) $ 780,978 ---------- ----------- ------------ ----------- Net income (loss) per common share: Basic................................................. $ 0.01 $ 0.04 $ (0.11) $ 0.11 ========== =========== ============ =========== Diluted............................................... $ 0.01 $ 0.03 $ (0.11) $ 0.10 ========== =========== ============ =========== Weighted average number of common shares outstanding: Basic................................................. 6,786,416 7,643,845 6,732,314 7,162,780 ========== =========== ============ =========== Diluted............................................... 7,061,658 8,224,887 6,732,314 7,624,525 ========== =========== ============ ===========
See accompanying notes to financial statements. 4 IBIS TECHNOLOGY CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1998 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................................ $ (728,640) $ 780,978 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization.......................................... 1,338,684 1,035,398 Loss on disposal of asset.............................................. -- 2,550 Changes in operating assets and liabilities: Accounts receivable, trade......................................... (746,159) (6,109,139) Unbilled revenue................................................... (2,803,193) 90,081 Inventories........................................................ 1,484,848 (239,401) Prepaid expenses and other assets.................................. (9,909) 112,107 Accounts payable................................................... (213,042) 647,236 Accrued liabilities................................................ 242,429 221,071 ----------- ----------- Net cash used in operating activities.............................. (1,434,982) (3,459,119) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment...................................... (1,579,883) (695,459) Decrease (increase) in other assets...................................... 64,738 (35,655) ----------- ----------- Net cash used in investing activities.............................. (1,515,145) (731,114) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of capital lease obligations.................................... (299,277) (409,438) Exercise of stock options ............................................... 978,876 790,696 Proceeds from sale of common stock, net of issuance costs................ -- 25,539,624 ----------- ----------- Net cash provided by financing activities.......................... 679,599 25,920,882 ----------- ----------- Net increase (decrease) in cash and cash equivalents.................................................. (2,270,528) 21,730,649 Cash and cash equivalents, beginning of period.............................. 13,309,823 12,819,366 ----------- ----------- Cash and cash equivalents, end of period.................................... $11,039,295 $34,550,015 ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest................................. $ 91,492 $ 39,961 =========== ===========
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 Revenue from product sales is 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 third quarter ended September 30, 1999 was reduced by approximately $192,000. For the nine months ended September 30, 1999 depreciation was reduced by approximately $580,000. (4) INVENTORIES Inventories consist of the following:
DECEMBER 31, SEPTEMBER 30, 1998 1999 ---------- ---------- Raw materials................................................. $ 197,734 $ 49,017 Work in process............................................... 76,343 26,367 Finished goods................................................ 191,762 71,460 ---------- ---------- Subtotal wafer inventory.................................... 465,839 $ 146,844 Equipment inventory........................................... 2,655,245 3,213,641 ---------- ---------- Total inventories........................................... $3,121,084 $3,360,485 ========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- -------------------------------- 1998 1999 1998 1999 ------------- ----------- ------------ ------------- Basic net income (loss)............................ $ 94,574 $ 286,650 $ (728,640) $ 780,978 ============= =========== ============ ============= Weighted average common shares outstanding-basic........................ 6,786,416 7,643,845 6,732,314 7,162,780 ============= =========== ============ ============= Net additional common shares upon assumed exercise of stock options and warrants.......... 275,242 581,042 -- 461,745 ------------- ----------- ------------ ------------- Weighted average common shares outstanding-diluted...................... 7,061,658 8,224,887 6,732,314 7,624,525 ============= --========= ============ ============= Net income (loss) per common share Basic..................................... $ 0.01 $ 0.04 $ (0.11) $ 0.11 ============= =========== ============ ============= Diluted................................... $ 0.01 $ 0.03 $ (0.11) $ 0.10 ============= =========== ============ =============
(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, equipment, spares and field service revenue are combined and reported as SIMOX Equipment. Government contracts, other services, and license revenue are combined and reported as Other Products or Services. In previous financial statements spares and field service revenue were included in the Other Products or Services segment. This reclassification was made in the third quarter of 1999 and all prior periods presented reflect this reclassification. 7 IBIS TECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) The table below provides information for the nine months ended September 30, 1998 and 1999 pertaining to the Company's three industry segments.
SIMOX WAFER SIMOX OTHER PRODUCTS PRODUCTS EQUIPMENT OR SERVICES TOTAL -------- --------- -------------- ----- NET REVENUES Nine Months Ended September 30, 1998 $ 2,462,718 $ 8,491,225 $ 934,421 $ 11,888,364 Nine Months Ended September 30, 1999 3,970,195 9,711,809 555,487 14,237,491 OPERATING INCOME (LOSS) Nine Months Ended September 30, 1998 (1,586,952) 1,712,103 118,991 244,142 Nine Months Ended September 30, 1999 277,629 1,080,016 193,552 1,551,197 ASSETS December 31, 1998 5,411,282 5,296,619 319,200 11,027,101 September 30, 1999 5,348,066 11,369,941 154,773 16,872,780
The table below provides the reconciliation of reportable segment operating income (loss) and assets to the Company's totals.
NINE MONTHS ENDED ---------------------------------- SEGMENT RECONCILIATION 9/30/98 9/30/99 - ---------------------- ------- ------- Income (Loss) Before Income Taxes: Total operating income for reportable segments $ 244,142 $ 1,551,197 Corporate general & administrative expenses (1,375,374) (1,367,480) Net other income 402,592 597,261 ----------- ----------- Income (loss) before income taxes (728,640) 780,978 =========== =========== 12/31/98 9/30/99 -------- ------- Assets: Total assets for reportable segments 11,027,101 16,872,780 Cash & cash equivalents not allocated to segments 12,819,366 34,550,015 Other unallocated assets 460,851 454,690 ---------- ----------- Total assets 24,307,318 51,877,485 ========== ===========
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 THIRD QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO THIRD QUARTER ENDED SEPTEMBER 30, 1998 PRODUCT SALES. Wafer product sales increased $876,720, or 197%, to $1,321,730 for the third quarter ended September 30, 1999 from $445,010 for the third quarter ended September 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 third quarter ended September 30, 1999 to $155,401 from $265,750 for the third quarter ended September 30, 1998, a decrease of $110,349 or 42%. This decrease is attributable to a decrease in revenues derived from government contracts. EQUIPMENT REVENUE. Equipment revenue represents revenue recognized from the sale of Ibis 1000 implanters, sales of spare parts and field service revenue. Equipment revenue decreased to $3,205,071 for the third quarter ended September 30, 1999 from $4,176,841 for the third quarter ended September 30, 1998. This decrease is attributable to a decrease in revenues recognized on equipment which were partially offset by an increase in revenues generated from the 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 $49,649 or 2% of equipment revenue for the third quarter ended September 30, 1999 as compared to no revenue for the quarter ended September 30, 1998. Sales of spare parts accounted for $622,422 or 19% of equipment revenue for the third quarter ended September 30, 1999 as compared to $24,841 or 1% of equipment revenue for the third quarter ended September 30, 1998. TOTAL SALES AND REVENUE. Total sales and revenue for the third quarter ended September 30, 1999 was $4,682,202 a decrease of $205,399, or 4%, from total revenue of $4,887,601 for the third quarter ended September 30, 1998. This decrease resulted from decreases in equipment revenue and contract and other revenue partially offset by increased product sales. TOTAL COST OF SALES AND REVENUE. Cost of product sales for the third quarter ended September 30, 1999 was $1,122,360, as compared to $1,046,387 for the third quarter ended September 30, 1998, an increase of $75,973 or 7%. Cost of contract and other revenue for the third quarter ended September 30, 1999 was $138,981, as compared to $230,630 for the third quarter ended September 30, 1998, a decrease of $91,649, or 40%. Cost of equipment revenue for the third quarter ended September 30, 1999 was $2,384,458 as compared to $2,600,484 for the third quarter ended September 30, 1998, a decrease of $216,026 or 8%. The gross margin for all sales was 22% for the third quarter ended September 30, 1999 as compared to 21% for the third quarter ended September 30, 1998. The increase in gross margin is primarily attributable to substantially improved wafer product sales for the quarter. The fundamental fixed cost nature of wafer product sales, which was absorbed by a larger number of wafers sold during the third 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 third quarter ended September 30, 1999 were $408,941 (or 9% of total revenue) as compared to $427,734 (or 9% of total revenue) for the third quarter ended September 30, 1998, a decrease of $18,793, or 4%. The decrease is due to decreases in consulting and professional service fees 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 third quarter ended September 30, 1999 were $261,516 (or 6% of total revenue) as compared to $102,534 (or 2% of total revenue) for the third quarter ended September 30, 1998, an increase of $158,982, or 155%. The increase is due to increases in payroll and payroll related expenses incurred in the establishment of a customer support organization. RESEARCH AND DEVELOPMENT EXPENSES. Internally funded research and development expenses decreased by $109,085 or 22%, to $386,178 (or 8% of total revenue) for the third quarter ended September 30, 1999, as compared to $495,263 (or 10% of total revenue) for the third quarter ended September 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(R), which resulted in increased material expenses during the third quarter ended September 30, 1998. LOSS FROM OPERATIONS. The loss from operations for the third quarter ended September 30, 1999 was $20,232 as compared to $15,431 for the third quarter ended September 30, 1998, an increase of $4,801, or 31%. The increase in the loss from operations is the result of decreases in equipment revenue and contract and other revenue and the increase in operating expenses which was partially offset by increased in product sales. OTHER INCOME (EXPENSE). Total other income for the third quarter ended September 30, 1999 was $306,882 as compared to $110,005 for the third quarter ended September 30, 1998, an increase of $196,877, or 179%. The increase in total other income is attributable to increased interest income earned on the increased cash balance due in part to receipt of the proceeds of our sale of 1,000,000 shares of Common Stock in August 1999 and reduced interest expense on capitalized leases. INCOME BEFORE INCOME TAXES. The income before income taxes was $286,650 for the third quarter ended September 30, 1999, as compared to $94,574 for the third quarter ended September 30 , 1998. The improvement of $192,076, or 203%, is due to increased product sales, and increased interest income which was partially offset by decreases in equipment revenue and contract and other revenue and an increase in operating expenses. NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 PRODUCT SALES. Wafer product sales increased $1,507,477, or 61%, to $3,970,195 for the nine months ended September 30, 1999 from $2,462,718 for the nine months ended September 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 nine months ended September 30, 1999 to $555,487 from $934,421 for the nine months ended September 30, 1998, a decrease of $378,934 or 41%. 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 11 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the Orion contract amounted to approximately $161,000 in the first nine months of 1998 and there was no revenue in the first nine months of 1999. These decreases were partially offset by revenue generated by license fee revenue and other service revenue, which accounted for 25% and 13% of contract and other revenue, respectively, for the nine months ended September 30, 1999 as compared to 8% and 15%, respectively in the nine months ended September 30, 1998. EQUIPMENT REVENUE. Equipment revenue represents revenue recognized from the sale of Ibis 1000 implanters, sales of spare parts and field service revenue. Equipment revenue increased to $9,711,809 for the nine months ended September 30, 1999 from $8,491,225 for the nine months ended September 30, 1998. This increase is attributable to an increase in revenues recognized on equipment, due to the timing of milestones completed, revenues generated from the 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 $130,609 or 1% of equipment revenue for the nine months ended September 30, 1999, as compared to no revenue for the nine months ended September 30, 1998. Sales of spare parts accounted for $746,200 or 8% of equipment revenue for the nine months ended September 30, 1999 as compared to $139,224 or 2% of equipment revenue for the nine months ended September 30, 1998. TOTAL SALES AND REVENUE. Total sales and revenue for the nine months ended September 30, 1999 was $14,237,491, an increase of $2,349,127, or 20%, from total revenue of $11,888,364 for the nine months ended September 30, 1998. This increase resulted from increases in equipment revenue and product sales which was partially offset by decreased contract and other revenue. TOTAL COST OF SALES AND REVENUE. Cost of product sales for the nine months ended September 30, 1999 was $3,509,006, as compared to $3,617,981 for the nine months ended September 30, 1998, a decrease of $108,975 or 3%. Cost of contract and other revenue for the nine months ended September 30, 1999 was $361,935, as compared to $815,432 for the nine months ended September 30, 1998, a decrease of $453,497, or 56%. Cost of equipment revenue for the nine months ended September 30, 1999 was $6,937,189 as compared to $5,467,661 for the nine months ended September 30, 1998, an increase of $1,469,528 or 27%. The gross margin for all sales was 24% for the nine months ended September 30, 1999 as compared to 17% for the nine months ended September 30, 1998. The increase in gross margin is primarily attributable to substantially improved wafer product sales for the nine month period. The fundamental fixed cost nature of wafer product sales, which was absorbed by a larger number of wafers sold during the first nine 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. 12 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the nine months ended September 30, 1999 were $1,367,481 (or 10% of total revenue) as compared to $1,375,374 (or 12% of total revenue) for the nine months ended September 30, 1998, a decrease of $7,893, or 1%. MARKETING AND SELLING EXPENSES. Marketing and selling expenses for the nine months ended September 30, 1999 were $714,298 (or 5% of total revenue) as compared to $319,933 (or 3% of total revenue) for the nine months ended September 30, 1998, an increase of $394,365, or 123%. The increase is due to increases in payroll and payroll related expenses incurred in the establishment of the customer support organization. RESEARCH AND DEVELOPMENT EXPENSES. Internally funded research and development expenses decreased by $259,350 or 18%, to $1,163,865 (or 8% of total revenue) for the nine months ended September 30, 1999, as compared to $1,423,215 (or 12% of total revenue) for the nine months ended September 30, 1998. The decrease is primarily due to a decrease in material expenses. Last year the Company introduced a new wafer product line, Advantox(R), which resulted in increased material expenses for the nine months ended September 30, 1998. INCOME FROM OPERATIONS. The income from operations for the nine months ended September 30, 1999 was $183,717 as compared to a loss of $1,131,232 for the nine months ended September 30, 1998, an increase of $1,314,949, or 116%. 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 nine months ended September 30, 1999 was $598,517 as compared to $403,848 for the nine months ended September 30, 1998, an increase of $194,669, or 48%. The increase in total other income is attributable to increased interest income earned on the cash balance and reduced interest income earned on capitalized leases. INCOME (LOSS) BEFORE INCOME TAXES. The income before income taxes was $782,234 for the nine months ended September 30, 1999, as compared to a loss of $727,384 for the nine months ended September 30, 1998. The increase of $1,509,618, or 208%, is due to increased equipment revenue, product sales and increased interest income, 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. 13 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 third 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 completed all required upgrades. 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 had 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. The Company completed the necessary software upgrades during the third quarter of 1999, except for one piece of equipment which the Company elected not to upgrade. This is because the Company's ability to use this equipment will not be impacted, as the systems is 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 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 Contingency plans, such as securing alternate suppliers or accelerating the delivery of materials scheduled for the first half of January 2000, have 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 September 30, 1999, the Company had cash and cash equivalents of $34,550,015, reflecting in large part the Company's receipt of approximately $25 million in net proceeds from the August 1999 sale of 1,000,000 shares of Common Stock. During the nine months ended September 30, 1999, the Company consumed $3,459,119 in cash from operating activities as compared to cash consumed from operations of $1,434,982 for the same period in 1998. Depreciation and amortization expense for the nine months ended September 30, 1999 and 1998 was $1,035,398 and $1,338,684, respectively. This accounted for 7% and 11% 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 nine months ended September 30, 1999 were to fund the Company's operations and additions to property and equipment which totaled approximately $695,000. As of September 30, 1999, the Company had invested $15,644,003 in property and equipment. At September 30, 1999, the Company had commitments to purchase approximately $5,731,000 in material or subassemblies to be used for manufacturing Ibis 1000 implanters currently under construction. 15 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. 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. 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. 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 impact of rapidly changing technology; limitations on the ability to protect the Company's patents and proprietary technology; the Company's limited history with regard to sales of implanters; the Company's lack of experience in producing commercial 16 IBIS TECHNOLOGY CORPORATION PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) quantities of its products at acceptable costs; the Company's ability to successfully complete the manufacture of its implanters and that these implanters will be accepted by its customers; the Company's ability to develop and maintain strategic alliances for the manufacturing, marketing and distribution of its products and sale of equipment; the cyclical nature of the semiconductor industry, which has negatively affected the Company's sales of SIMOX-SOI wafers during industry downturns and which could continue to do so in the future; the limited availability of critical materials and components for wafer products and implanters, as a shortage of such materials and components or a significant increase in the price thereof could have a material adverse effect on the Company's business and results of operations; the availability of additional capital to fund expansion on acceptable terms, if at all; and general economic conditions. 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. 17 IBIS TECHNOLOGY CORPORATION PART II OTHER INFORMATION Item 1 - LEGAL PROCEEDINGS None Item 2 - CHANGES IN SECURITIES None Item 3 - DEFAULTS UPON SENIOR SECURITIES None Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5 - OTHER INFORMATION None. Item 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits furnished as Exhibits hereto: 27 Financial Data Schedule (b) Reports on Form 8-K: The Company filed with the Securities and Exchange Commission on July 23, 1999 a Current Report on Form 8-K for the July 23, 1999 event reporting a profitable 1999 second quarter and 1999 first half, and 1999 first half revenues increase of 37% over revenues in the 1998 first half. The Company filed with the Securities and Exchange Commission on July 27, 1999 a Current Report on Form 8-K for the July 27, 1999 event reporting a proposed public offering of 1,000,000 shares of common stock. The Company filed with the Securities and Exchange Commission on August 4, 1999 a Current Report on Form 8-K for the August 3, 1999 event reporting the pricing of 1,000,000 shares of common stock being offered to the public at $27.00 per share. The Company filed with the Securities and Exchange Commission on August 10, 1999 a Current Report on Form 8-K for the August 9, 1999 event of the closing of its previously announced public offering of 1,000,000 shares of common stock at $27.00 per share. 18 IBIS TECHNOLOGY CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Ibis Technology Corporation Date: November 8, 1999 By: /s/ Debra L. Nelson ----------------------- Debra L. Nelson Chief Financial Officer, Treasurer and Clerk (principal financial and accounting officer) Date: November 8, 1999 By: /s/ Thomas F. Lacey ---------------------- Thomas F. Lacey Controller and Assistant Treasurer 19 IBIS TECHNOLOGY CORPORATION EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 27 Financial Data Schedule 22
20 EX-27 2 EXHIBIT 27
5 1 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 34,550,015 0 6,656,074 65,000 3,360,485 46,963,819 13,869,590 9,100,215 51,877,485 2,844,032 0 64,537 0 0 47,655,704 51,877,485 13,682,004 14,237,491 10,446,195 10,808,130 2,647,127 0 39,961 782,234 1,256 780,978 0 0 0 780,978 .11 .10
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