10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20569

Form 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2004

Or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                                    to                                   

Commission file number     0-23150

Ibis Technology Corporation
(Exact name of registrant as specified in its charter)
Massachusetts	04-2987600
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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  ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  o No ý*

* The Company previously reported on its Form 10-K for the fiscal year ended December 31, 2003 and the Form 10-Q for the fiscal quarter ended March 31, 2004 that it was an accelerated filer, however, please note that the Company is not and was not an accelerated filer prior to the date of this filing.

10,668,073 shares of Common Stock, par value $.008, were outstanding on November 11, 2004.

IBIS TECHNOLOGY CORPORATION

INDEX

	Page Number
PART 1 - FINANCIAL INFORMATION
Item 1 – Financial Statements:
Balance Sheets December 31, 2003 and September 30, 2004 (unaudited)	3
Statements of Operations Three Months Ended September 30, 2003 and 2004 and Nine Months Ended September 30, 2003 and 2004 (unaudited))	4
Statements of Cash Flows Nine Months Ended September 30, 2003 and 2004 (unaudited)	5
Notes to Unaudited Interim Financial Statements	6
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3 – Quantitative and Qualitative Disclosure About Market Risk	20
Item 4 – Controls and Procedures	21
PART II – OTHER INFORMATION
Item 1 - Legal Proceedings	22
Item 2 – Changes in Securities	22
Item 3 - Defaults upon Senior Securities	22
Item 4 - Submission of Matters to a Vote of Security Holders	22
Item 5 - Other Information	22
Item 6 - Exhibits and Reports on Form 8-K	22
Signatures	24

2

IBIS TECHNOLOGY CORPORATION

BALANCE SHEETS
(Unaudited)

	December 31, 2003			September 30, 2004
Assets
Current assets:
Cash and cash equivalents	$	14,174,716		$	8,333,158
Accounts receivable, trade, net (note 5)	123,548			2,392,757
Unbilled revenue (note 5)	528,581			75,000
Inventories (note 3)	1,758,449			4,680,123
Prepaid expenses and other current assets	247,602			1,094,682
Total current assets	16,832,896			16,575,720
Property and equipment	40,584,764			33,669,008
Less: Accumulated depreciation and amortization	(23,743,179		)	(26,848,897		)
Net property and equipment	16,841,585			6,820,111
Assets held for sale (note 7)	—			277,265
Patents and other assets, net	1,668,558			1,480,116
Total assets	$	35,343,039		$	25,153,212
Liabilities and Stockholders’ Equity
Current liabilities:
Capital lease obligation, current	$	1,184,399		$	—
Accounts payable	404,512			989,165
Accrued liabilities	2,384,915			1,402,519
Deferred revenue	252,000			52,000
Total current liabilities	4,225,826			2,443,684
Total liabilities	4,225,826			2,443,684
Stockholders’ equity:
Undesignated preferred stock, $.01 par value.
Authorized 2,000,000 shares; none issued	—			—
Common stock, $.008 par value.
Authorized 50,000,000 shares; issued and outstanding 10,651,170 shares and 10,668,023 shares in 2003 and 2004, respectively	85,209			85,344
Additional paid-in capital	92,903,618			93,013,198
Accumulated deficit	(61,871,614		)	(70,389,014		)
Total stockholders’ equity	31,117,213			22,709,528
Total liabilities and stockholders’ equity	$	35,343,039		$	25,153,212

See accompanying notes to unaudited interim financial statements.

3

IBIS TECHNOLOGY CORPORATION

STATEMENTS OF OPERATIONS
(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2003			2004			2003			2004
Net Sales and revenue:
Contract and other revenue	$	66,834		$	124,566		$	592,899		$	297,481
Equipment revenue	226,114			7,116,204			8,622,289			7,354,450
Total net sales and revenue (notes 2 and 6)	292,948			7,240,770			9,215,188			7,651,931
Cost of sales and revenue:
Cost of contract and other revenue	6,330			3,219			34,332			15,370
Cost of equipment revenue	208,888			3,663,606			4,014,590			4,362,687
Total cost of sales and revenue	215,218			3,666,825			4,048,922			4,378,057
Gross profit	77,730			3,573,945			5,166,266			3,273,874
Operating expenses:
General and administrative	477,253			549,975			1,663,800			1,753,500
Marketing and selling	297,519			375,846			957,988			1,141,813
Research and development	1,175,064			1,726,926			4,208,360			3,599,099
Total operating expenses	1,949,836			2,652,747			6,830,148			6,494,412
Profit (loss) from operations	(1,872,106		)	921,198			(1,663,882		)	(3,220,538		)
Other income (expense):
Interest income	9,564			12,533			49,462			50,319
Interest expense	(33,753		)	(2,116		)	(46,728		)	(33,568		)
Other	—			165,169			3,725			166,418
Total other income	(24,189		)	175,586			6,459			183,169
Profit (loss) before income taxes	(1,896,295		)	1,096,784			(1,657,423		)	(3,037,369		)
Income tax expense	—			—			1,256			1,256
Income (loss) from continuing operations	(1,896,295		)	1,096,784			(1,658,679		)	(3,038,625		)
Loss from discontinued operations (note 7)	(1,266,542		)	(2,774,745		)	(4,564,485		)	(5,478,775		)
Net (loss) (note 2)	$	(3,162,837	)	$	(1,677,961	)	$	(6,223,164	)	$	(8,517,400	)
Income (loss) from continuing operations per common share:
Basic	$	(0.20	)	$	0.10		$	(0.17	)	$	(0.28	)
Diluted	$	(0.20	)	$	0.10		$	(0.17	)	$	(0.28	)
Weighted average number of common shares outstanding for income (loss)from continuing operations:
Basic	9,504,210			10,668,023			9,486,532			10,659,072
Diluted (note 4)	9,504,210			10,708,513			9,486,532			10,659,072
Net (loss) per common share:
Basic	$	(0.33	)	$	(0.16	)	$	(0.66	)	$	(0.80	)
Diluted	$	(0.33	)	$	(0.16	)	$	(0.66	)	$	(0.80	)
Weighted average number of common shares outstanding for net income:
Basic	9,504,210			10,668,023			9,486,532			10,659,072
Diluted (note 4)	9,504,210			10,668,023			9,486,532			10,659,072

See accompanying notes to unaudited interim financial statements.

4

STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine months ended September 30,
	2003			2004
Cash flows from operating activities:
Net loss	$	(6,223,164	)	$	(8,517,400	)
Loss from discontinued operations	(4,564,485		)	(5,478,775		)
Loss from continuing operations	(1,658,679		)	(3,038,625		)
Adjustments to reconcile net loss to net cash provided by (used in) continuing operations:
Depreciation and amortization	5,014,576			2,905,246
Changes in operating assets and liabilities:
Accounts receivable, trade	2,791,087			(2,536,333		)
Unbilled revenue	(528,581		)	453,581
Deferred Costs	2,621,580			—
Prepaid expenses and other current assets	(181,803		)	(98,328		)
Accounts payable	135,933			584,653
Accrued liabilities and deferred revenue	(6,536,157		)	(461,097		)
Net cash provided by (used in) operating activities of continuing operations	1,657,956			(2,190,903		)
Cash flows from investing activities of continuing operations:
Additions to property and equipment, net	(335,481		)	(891,244		)
Other assets	(94,416		)	(66,036		)
Net cash used in investing activities of continuing operations	(429,897		)	(957,280		)
Cash flows from financing activities of continuing operations:
Exercise of stock options and warrants	585,365			109,715
Net cash used by financing activities of continuing operations	585,365			109,715
Net cash used for discontinued operations	(8,691,438		)	(2,803,090		)
Net decrease in cash and cash equivalents	(6,878,014		)	(5,841,558		)
Cash and cash equivalents, beginning of period	11,745,918			14,174,716
Cash and cash equivalents, end of period	$	4,867,904		$	8,333,158
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	46,728		$	33,568
Supplemental disclosure of non-cash investing activities:
Transfer of internally constructed equipment from property and equipment to inventory	$	—		$	5,620,239

See accompanying notes to unaudited interim financial statements.

5

IBIS TECHNOLOGY CORPORATION

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

(1) Interim Financial Statements

The accompanying financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting Principles Generally Accepted in the United States of America for complete financial statements.

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, 2003, which are included in the Company’s Annual Report on Form 10-K as filed on March 2, 2004.

(2) Summary of Significant Accounting Policies

(a) Revenue Recognition

The Company recognizes revenue from wafer product sales, equipment sales and the sales of spare parts when all of the following criteria have been met:  (1) evidence exists that the customer is bound to the transaction; (2) the product has been delivered to the customer and, when applicable, the product has been installed and accepted by the customer; (3) the sales price to the customer has been fixed or is determinable; and (4) collectibility of the sales price is reasonably assured. The Company has typically recognized revenue from wafer sales upon shipment (and will continue to do so until it has completely discontinued its wafer manufacturing business as previously announced) and recognizes revenue from implanter sales upon acceptance at the customer’s site. Provisions for estimated sales returns and allowances for wafers and parts are made at the time the products are sold. Revenue derived from contracts and services is recognized upon performance. Significant management judgments and estimates must be made and used in connection with revenue recognized in any period. Management analyzes various factors including a review of specific transactions, historical experience, credit worthiness of customers and current market and economic conditions. Changes in judgments based upon these factors could impact the timing and amount of revenue and cost recognized.

(b) Stock-Based Compensation

The Company accounts for its stock option plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees, and Related Interpretations” and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and SFAS 148, “Accounting for Stock-Based Compensation Transition and Disclosure”. No stock-based compensation cost is reflected in net income (loss) for these plans, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and income (loss) per share if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation:

	For the Three Months Ended September 30,									For the Nine Months Ended September 30,
	2003						2004			2003			2004
Net income (loss), as reported	$				(3,162,837	)	$	(1,677,961	)	$	(6,223,164	)	$	(8,517,400	)
Add: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(549,341					)	(327,603		)	(1,343,320		)	(930,343		)
Pro-forma net income (loss)	$			(3,712,178		)	$	(2,005,564	)	$	(7,566,484	)	$	(9,447,743	)
Net income (loss) per share:
Basic and diluted – as reported	$		(0.33			)	$	(0.16	)	$	(0.66	)	$	(0.80	)
Basic and diluted – pro-forma	$	(0.39				)	$	(0.19	)	$	(0.80	)	$	(0.89	)

6

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option valuation model.

Pro-forma net loss reflects only options granted in 1995 through September 30, 2004. Therefore, the full impact of calculating compensation costs for stock options under SFAS No. 123 is not reflected because compensation costs for options granted prior to January 1, 1995, are not considered.

(3) Inventories

Inventories consist of the following:

	December 31, 2003		September 30, 2004
Raw materials	$	1,464,434	$	—
Work in process	177,715		—
Finished goods	116,300		—
Subtotal wafer inventory	1,758,449		—
Equipment inventory	—		4,680,123
Total Inventories	$	1,758,449	$	4,680,123

Equipment inventory at September 30, 2004 consists of i2000 parts and/or implanters under construction or otherwise available for resale. At December 31, 2003 these costs were included in construction in progress under property and equipment and amounted to $3,674,903. With the discontinuance of the wafer operation in the third quarter of 2004, (see note 7), all wafer inventory was written off to the loss from discontinued operations with the exception of the 300 mm raw wafers, valued at $750,000, that were reclassified as prepaid expenses to be used for future R&D and implanter qualifications.

(4) Net Income (Loss) Per Share

Net income (loss) per share of common stock is computed based upon the weighted average number of shares outstanding during each period and including the dilutive effect, if any, of stock options and warrants. SFAS 128 requires the presentation of basic and diluted earnings (loss) per share for all periods presented. As the Company was in a net loss position for the three and nine months ended September 30, 2003 and September 30, 2004, common stock equivalents of 167,530, 47,509, 40,490 and 188,575, respectively, were excluded from the diluted loss per share calculation, as they would be antidilutive. As a result, diluted loss per share is the same as basic loss per share for all periods presented.

(5) Significant Customers and Concentration of Business Risk

The Company sells its products and services to a limited number of semiconductor and silicon wafer manufacturers primarily in the United States and the Pacific Rim.

Sales of products and services for significant customers are shown in dollar amounts and as a percentage of total revenue as follows:

	Significant Customers	Amount		%
Three Months Ended September 30, 2003	—	$	—	—
Three Months Ended September 30, 2004	1	$	7,000,000	97	%
Nine Months Ended September 30, 2003	1	$	7,992,906	87	%
Nine Months Ended September 30, 2004	1	$	7,000,000	91	%

Accounts receivable and unbilled revenue from significant customers at September 30, 2004 and December 31, 2003 amounted to $2,310,000 and $631,000, respectively.

7

(6) Industry Segments

The Company’s current reportable segments are SIMOX Equipment and Other Products or Services, with the discontinuance of the wafer operation. For purposes of segment reporting, equipment, 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.

The table below provides unaudited information for the three and nine months ended September 30, 2003 and 2004 pertaining to the Company’s two industry segments.

	SIMOX Equipment			Other Products Or Services		Total
Net Sales and Revenue
Three Months Ended September 30, 2003	$	226,114		$	66,834	$	292,948
Three Months Ended September 30, 2004	$	7,116,204		$	124,566	$	7,240,770
Nine Months Ended September, 2003	$	8,622,289		$	592,899	$	9,215,188
Nine Months Ended September 30, 2004	$	7,354,450		$	297,481	$	7,651,931
Operating Income (Loss)
Three Months Ended September 30, 2003	(1,455,357		)	60,504		(1,394,853		)
Three Months Ended September 30, 2004	1,349,826			121,347		1,471,173
Nine Months Ended September 30, 2003	(558,649		)	558,567		(82		)
Nine Months Ended September 30, 2004	(1,749,149		)	282,111		(1,467,038		)
Assets
September 30, 2004	15,986,317			120,993		16,107,310
Capital Expenditures
Three Months Ended September 30, 2003	8,891			—		8,891
Three Months Ended September 30, 2004	868,564			—		868,564
Nine Months Ended September30, 2003	314,238			—		314,238
Nine Months Ended September 30, 2004	883,591			—		883,591
Depreciation and Amortization of Property and Equipment
Three Months Ended September 30, 2003	1,665,834			—		1,665,834
Three Months Ended September 30, 2004	870,408			—		870,408
Nine Months Ended September30, 2003	4,924,910			—		4,924,910
Nine Months Ended September 30, 2004	2,843,070			—		2,843,070

8

The table below provides the reconciliation of reportable segment operating loss and assets to Ibis’ totals.

	Three Months Ended September 30,						Nine Months Ended September 30,
Segment Reconciliation	2003			2004			2003			2004
Income (Loss) Before Income Taxes:
Total operating income (loss)for reportable Segments	$	(1,394,853	)	$	1,471,173		$	(82	)	$	(1,467,038	)
Corporate general & administrative expenses	(477,253		)	(549,975		)	(1,663,800		)	(1,753,500		)
Net other income	(24,189		)	175,586			6,459			183,169
Income (loss) before income taxes	$	(1,896,295	)	$	1,096,784		$	(1,657,423	)	$	(3,037,369	)
Capital Expenditures:
Total capital expenditures for reportable segments	$	8,891		$	868,564		$	314,238		$	883,591
Corporate capital expenditures	—			—			21,243			7,653
Total capital expenditures	$	8,891		$	868,564		$	335,481		$	891,244
Depreciation and Amortization:
Total depreciation and amortization for reportable segments	$	1,665,834		$	870,408		$	4,924,910		$	2,843,070
Corporate depreciation and amortization	22,790			15,076			89,666			62,176
Total depreciation and amortization	$	1,688,624		$	885,484		$	5,014,576		$	2,905,246

	Balance as of 9/30/04
Assets:
Total assets for reportable segments	$	16,107,310
Cash & cash equivalents not allocated to Segments	8,333,158
Other unallocated assets	742,744
Total assets	$	25,183,212

(7) Loss From Discontinued Operations

On July 21, 2004 the Company announced its intention to discontinue its wafer manufacturing business. This wafer business has been highly concentrated on providing wafers for the Company’s largest customer, and was characterized by very volatile production volumes and costs associated with periodic changes and continuing improvements to the process. The wafer demand from our largest customer had been, and continues to be, subject to repeated starts and stops. The result is a wafer business that is not predictable or profitable. Principally for these reasons, and because it also is likely that additional capital investment would have to be made to keep our wafer manufacturing process up to date, the Company decided to exit the wafer manufacturing business and focus exclusively on the equipment business. The Company will maintain a research and development effort relating to wafers for our equipment improvement programs. In the third quarter of 2004, the Company recognized a loss from discontinued operations for approximately $2.8 million. The balance sheet at the end of the third quarter of 2004 includes $277,265 as assets held for sale as a result of this loss from discontinued operations.

9

(8) Legal Proceedings

Five class action securities lawsuits have been filed in the United States District Court in the District of Massachusetts against Ibis and its President and CEO: Martin Smolowitz v. Ibis Technology Corporation., et al., Civ. No. 03-12613 (RCL) (D. Mass.); Fred Den v. Ibis Technology Corporation., et al., Civ. No. 04-10060 (RCL) (D. Mass.); Weinstein v. Ibis Technology Corporation., et al., Civ. No. 04-10088 (RCL) (D. Mass.); George Harrison v. Ibis Technology Corporation., et al., Civ. No. 04-10286 (RCL) (D. Mass.); and Eleanor Pitzer v. Ibis Technology Corporation., et al, Civ. No. 04-10446 (RCL) (D. Mass.). On June 4, 2004, the Court entered an order consolidating these actions under the caption In re Ibis Technology Securities Litigation, C.A. 04-10446 RCL. On July, 2004, a consolidated amended class action complaint was filed which alleges, among other things, that the Company violated federal securities laws by allegedly making misstatements to the investing public relating to demand for certain Ibis products and intellectual property issues relating to the sale of the i2000 oxygen implanter. The plaintiffs are seeking unspecified damages. On August 5, 2004, we filed a motion to dismiss the consolidated amended complaint on the grounds, among others, that it failed to state a claim on which the relief could be granted. That motion now has been fully briefed. While we believe that the allegations are without merit, and we intend to vigorously defend against the suits, there can be no guarantee as to how they ultimately will be resolved.

In addition, Ibis has been named as a nominal defendant in a shareholder derivative action filed in February 2004 against certain of its directors and officers: Louis F. Matheson, Jr. v. Martin J. Reid et al., Civ. Act. No. 04-10341 (RCL). The complaint alleges, among other things, that the alleged conduct challenged in the securities cases pending against Ibis in Massachusetts (described above) constitutes a breach of the defendants’ fiduciary duties to Ibis. The complaint seeks unspecified money damages and other relief ostensibly on behalf of Ibis. On June 4, 2004, the Court entered an order staying this matter pending the entry of a final order on any motion filed by the Company to dismiss the consolidated class action complaint referenced above.

Litigation may be time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation is difficult to predict. An unfavorable resolution of these litigation matters could have a material adverse effect on our business, results of operations and financial condition.

10

IBIS TECHNOLOGY CORPORATION

PART I - ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Ibis Technology Corporation (“Ibis”) was formed in October 1987 and commenced operations in January 1988. Ibis’ initial activities consisted of producing and selling SIMOX-SOI wafers and conducting research and development activities. This effort led to the development of proprietary oxygen implanters, the Ibis 1000, which we began selling in 1996, the next generation implanter, the i2000™, which we began selling in 2002, and also to other proprietary process technology.

Initially, much of our revenue was derived from research and development contracts and sales of wafers for military applications. Over the years, the Company decided to focus its business operations and sales strategy on the manufacture and sale of our implanter equipment products and de-emphasized the sale of wafers given that, among other things, we believed that the wafer manufacturing companies were in the best position to manufacture SIMOX-SOI wafers using our implanter equipment in light of their expertise and operating efficiencies. As we announced on July 21, 2004, we have exited the wafer manufacturing business. Our wafer business had been highly concentrated on providing wafers for the Company’s largest customer, and was characterized by very volatile production volumes and costs associated with periodic changes and continuing improvements to the process. Our major wafer customer had tended to order fluctuating quantities of wafers on an irregular basis. This customer also could revise or cancel orders at any time prior to delivery. This meant that this customer, who had accounted for a significant portion of our net revenue in the past, could have reduced or decided not to place any orders in the succeeding quarter or quarters. Furthermore, most of our other wafer customers were sampling SIMOX wafers or are in the process of developing prototype products and have also tended to order small quantities of wafers on an irregular basis.  These customers could also revise or cancel orders at any time prior to delivery. As previously announced, because of this unpredictability, and because it was also likely that additional capital investments would have to be made to keep our wafer manufacturing process up to date (among other factors), we decided to discontinue the wafer manufacturing portion of the business in 2004 and to focus exclusively on our equipment business. We will maintain a research and development effort relating to wafers for our equipment improvement programs.  Ibis has experienced quarterly and annual fluctuations in revenue and results of operations due to various factors, including (i) the fluctuating quantities of wafer orders that we have experienced in the past as described above, (ii) the timing of receipt of equipment orders, and (iii) dependence on a limited number of customers.

We believe that a migration of SOI wafer manufacturing into the major silicon wafer suppliers is taking place. We reach this conclusion for a number of reasons. First, we believe that tremendous price pressure exists on commodity type products, such as silicon wafers, and this pressure is already eroding the price of SOI wafers. Because the starting wafer represents a significant component of the SOI wafer cost, we believe that silicon wafer manufacturers should have a natural cost structure advantage leading to a higher gross margin, and therefore should be able to manage such price pressure better than stand-alone SOI producers that do not also produce the silicon wafer itself. Second, we expect that the price pressure will encourage silicon wafer manufacturers to seek out higher margin products, like SOI wafers, to increase their margins. Third, we believe that silicon wafer manufacturers have traditionally developed proprietary intellectual property in silicon materials science, which can be applied to designing optimal starting wafers for SOI production. We believe that this should give them an advantage in both minimizing wafer cost and maximizing SOI wafer quality and yield. Fourth, our experience suggests that silicon wafer manufacturers already have a well-developed infrastructure for manufacturing, sales and marketing large volumes of substrates. Lastly, we believe that there is greater efficiency in producing the SOI wafer as part of the wafer manufacturers existing product flow, specifically avoiding the need to repackage, reclean, reinspect and reship substrates twice, once as starting silicon wafers, and a second time as SOI wafers. Therefore, as a result of these trends, we expect our ultimate customers will be drawn from these silicon wafer manufacturers and we plan to focus a majority of our technical and marketing

11

resources on the sale of implanters to the leading silicon wafer manufacturers and our major key customers in the semiconductor industry who we believe are the leaders in the adoption of SOI technology. We expect that implanter sales to chipmakers should be minimal, and that these sales will be focused on SOI processes that the chipmaker wishes to keep proprietary, such as selective (or patterned) SIMOX, or other specialty substrates.

Our fundamental SIMOX-SOI technology has been developed, refined, and tested over the last dozen years. In 2002, we introduced the current generation of SIMOX-SOI technology, that included our second-generation oxygen implanter (i2000™), and the MLD wafer process which was licensed to us by IBM. We believe that the i2000’s flexibility, automation and operator-friendly controls allow this tool to produce a wide range of SIMOX-SOI wafer products, including Advantox^® MLD and Advantox MLD-UT wafers. We also believe the ability of the i2000 implanter to produce eight and twelve-inch (or 200 and 300 mm) SIMOX-SOI wafers coupled with the MLD process positions us to capitalize on the growing SOI market. In 1999, we commenced a program to design and develop the i2000, introduced it in March 2002 and began shipping 300 mm wafers implanted from this machine shortly thereafter. Customers who purchase the i2000 can utilize SIMOX wafer manufacturing processes on the implanter other than the IBM MLD process.

Because we have sold only a limited number of implanters to date on an irregular basis, the recognition of revenue from the sale of even one implanter is likely to result in a significant increase in the revenue for that quarter. We recognize implanter revenue in accordance with SAB 104, which includes, among other criteria, the shipment and factory acceptance of the implanter at the customer’s location. As a result, deferral of revenue will be recorded on our balance sheet until the Company is able to meet these criteria.

During February 2004, we announced the booking of an order for one Ibis i2000 SIMOX implanter, with an option to purchase a second i2000, from a leading international silicon wafer manufacturer. We subsequently achieved customer acceptance of this implanter at our facility and this system was later shipped to the customer’s facility in the second quarter of 2004. Revenue for this implanter order was recognized in the third quarter of 2004, based on the final acceptance by the customer.

 During the fourth quarter ended December 31, 2003, a number of unexpected events occurred that impacted our 200 mm and smaller wafer size production line including the line’s projected cash flow generation and our projected utilization of the assets within our revised plans. Based on these events and their impact on current and future projected cash flows, and our subsequent impairment analysis under the provisions of SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets resulted in an impairment charge of $11,051,324 for our 200 mm and smaller SIMOX wafer production line, which is principally comprised of Ibis 1000 implanters and associated machinery and equipment not expected to be utilized or sold. The remaining carrying amount of assets for this line was charged to the loss from discontinued operations in the third quarter of 2004.

The Company’s final disposal plans relative to the closure of the wafer operation resulted in cash related charges of approximately $0.1 million and non-cash charges for inventory and certain production assets associated with the wafer manufacturing business of approximately of $2.7 million, for a total of $2.8 million in the loss from discontinued operations in the quarter.

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Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. Our most critical accounting policies include: revenue recognition, inventory valuation and reserves, accounts receivable reserves and the assessment of long-lived asset impairment. Actual results may differ from these estimates under different assumptions or conditions. Below, we discuss these policies further, as well as the estimates and judgments involved.

Revenue Recognition.  We recognize revenue from wafer product sales, equipment sales and the sales of spare parts when all of the following criteria have been met: (1) evidence exists that the customer is bound to the transaction; (2) the product has been delivered to the customer and, when applicable, the product has been installed and accepted by the customer; (3) the sales price to the customer has been fixed or is determinable; and (4) collectibility of the sale price is reasonably assured. We recognize revenue from implanter sales upon acceptance at the customer’s site. Provisions for estimated sales returns and allowances are made at the time the products are sold. Revenue derived from contracts and services is recognized upon performance. Significant management judgments and estimates must be made and used in connection with revenue recognized in any period. Management analyzes various factors, including a review of specific transactions, historical experience, credit worthiness of customers and current market and economic conditions. Changes in judgments based upon these factors could impact the timing and amount of revenue and cost recognized.

Inventory Valuation and Reserves.  Our policy for the valuation of inventory, including the determination of obsolete or excess inventory, requires us to estimate the future demand for our products within specific time horizons, generally twelve months or less. If our estimated demand for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory reserves, which would have a negative impact on our gross margin. We have reserved for obsolescence when engineering changes or other technological advances indicate that obsolescence has occurred.  With the discontinuance of the wafer manufacturing business and the write-off of all inventory, the focus is now on the reserves required for equipment part inventory.

Accounts Receivable Reserves.  Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible amounts is based primarily on a specific analysis of accounts in the receivable portfolio and a general reserve based on the aging of receivables and historical write-off experience. While management believes the allowance to be adequate, if the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required and could materially impact our financial position and results of operations.

Valuation of Long-Lived Assets.  Ibis reviews the valuation of long-lived assets, including property and equipment and licenses, under the provisions of SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.  Management is required to assess the recoverability of its long-lived assets whenever events and circumstances indicate that the carrying value may not be recoverable. Based on current conditions, factors we consider important and that could trigger an impairment review include the following:

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•Significant underperformance relative to expected historical or projected future operating results;

•Significant changes in the manner of our use of the acquired assets or the strategy of our overall business;

•Significant negative industry or economic trends;

•Significant decline in our stock price for a sustained period; and

•Our market capitalization relative to book value.

In accordance with SFAS No. 144, when we determine that the carrying value of applicable long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we evaluate whether the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of that asset. If such a circumstance exists, we would measure an impairment loss to the extent the carrying amount of the particular long-lived asset or group exceeds its fair value. We would determine the fair value based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. We adopted SFAS No. 144 during the first quarter of 2002 and during the fourth quarter of 2003 we recognized an impairment charge of $11,051,324 for our 200 mm and smaller SIMOX wafer production line. The remaining value of this line along with other assets of wafer manufacturing were charged to the loss from discontinued operations in the third quarter of 2004 that resulted in a charge of $2,774,775.

Results of Operations

Third Quarter Ended September 30, 2004 Compared to Third Quarter Ended September 30, 2003

Contract and Other Revenue. Contract and other revenue includes revenue derived from license agreements, characterization and other services. Contract and other revenue increased for the third quarter ended September 30, 2004 to $124,566 from $66,834 for the third quarter ended September 30, 2003, an increase of $57,732 or 86%. This is attributable to license revenue recognized from royalty fees related to equipment technology.

Equipment Revenue.  Equipment revenue represents revenue recognized from sales of implanters, spare parts and field service. Equipment revenue increased to $7,116,204 for the third quarter ended September 30, 2004 from $226,114 for the third quarter ended September 30, 2003, an increase of $6,890,090 or 3047%. During the third quarter of 2004, we recognized the revenue of an i2000 implanter of $7,000,000.  Field service revenue accounted for $75,747 for the third quarter ended September 30, 2004 as compared to $69,300 for the same period last year. Sales of spare parts accounted for $40,457 of equipment revenue for the quarter ended September 30, 2004 as compared to $156,814 of equipment revenue for the third quarter ended September 30, 2003. Sales of spare parts fluctuate depending on customer demand and customer warranty expiration dates.

Total Net Sales and Revenue.  Total net sales and revenue for the third quarter ended September 30, 2004 was $7,240,770, an increase of $6,947,822, or 2372%, from total net revenue of $292,948 for the third quarter ended September 30, 2003. This increase is due to the recognition of an i2000 implanter in the third quarter of 2004.

Total Cost of Sales and Revenue.  Cost of contract and other revenue consists of labor and materials expended during the quarter. Cost of contract and other revenue for the third quarter ended September 30, 2004 was $3,219, as compared to $6,330 for the third quarter ended September 30, 2003, a decrease of $3,111, or 49%. This is attributable to a decrease in miscellaneous sales.

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Cost of equipment revenue represents the cost of equipment and spare parts, along with labor incurred for field service. Cost of equipment revenue for the third quarter ended September 30, 2004 was $3,663,606, as compared to $208,888 for the third quarter ended September 30, 2003. This increase of $3,454,718 or 1654% was primarily due to the costs associated with the recognition of revenue for the i2000 implanter in the third quarter of 2004.

Total cost of sales and revenue for the third quarter ended September 30, 2004 was $3,666,825 as compared to $215,218 for the third quarter ended September 30, 2003, an increase of $3,451,607 or 1604%. The gross margin for all sales was a positive 49% for the third quarter ended September 30, 2004 as compared to a positive gross margin of 27% for the third quarter ended September 30, 2003. This increase in the gross margin for all sales is attributable to the approximate gross margin of 50% achieved on the i2000 implanter sale in the quarter ended September 30, 2004.

General and Administrative Expenses.  General and administrative expenses for the third quarter ended September 30, 2004 were $549,975 (or 8% of total revenue) as compared to $477,253 (or 163% of total revenue) for the third quarter ended September 30, 2003, an increase of $72,722, or 15%. This is due to increased legal fees of $39,066, accounting fees of $30,021 and security compliance fees of $25,620, which were partially offset by a reduction in other various expenses.

Marketing and Selling Expenses.  Marketing and selling expenses for the third quarter ended September 30, 2004 were $375,846 (or 5% of total revenue) as compared to $297,519 (or 102% of total revenue) for the third quarter ended September 30, 2003, an increase of $78,327, or 26%. This is a result of increased subcontractor costs, which increased by $72,504, associated with our service group based in Japan and payroll and payroll related expenses, which increased by $33,803. This was partially offset by a reduction in promotional expenses of $19,890 and other miscellaneous expenses.

Research and Development Expenses.  Internally funded research and development expenses increased by $551,862 or 47%, to $1,726,926 (or 24% of total revenue) for the third quarter ended September 30, 2004, as compared to $1,175,064 (or 401% of total revenue) for the third quarter ended September 30, 2003. This is due to wafer research and development costs of $896,968 that were previously a part of wafer cost of sales but are now supporting equipment development. This was partially offset by reduced depreciation of $132,388, reduced wafer material of $70,532, reduced payroll and payroll related expenses of $66,254, reduced joint development project spending of $31,924 and other miscellaneous research and development spending.

Other Income (Expense).  Total other income for the third quarter ended September 30, 2004 was $175,586 as compared to an expense of $24,189 for the third quarter ended September 30, 2003, an increase of $199,775, or 925%. The increase in total other income is attributable to the expiration of a wafer volume option of $200,000 that was associated with an asset obtained by the wafer manufacturing group from a wafer customer. This volume option was to be used on orders received over a one-year period. Since the time expired and no orders were received, the Company reduced its liability and recognized the amount in income, as no further obligation exists. The increase in other income was offset by an increase in miscellaneous expenses. Interest income increased by $2,969 due to increased interest rates on investments and increased cash balances. Interest expense decreased by $31,637 due to the decrease in wafer sales that involved a financing arrangement entered into with the customer during the second quarter of 2002.

Loss From Discontinued Operations. Discontinued operations incurred a loss of $2,774,745 in the third quarter ended September 30, 2004. The Company announced in the beginning of the quarter that it was discontinuing the wafer manufacturing portion of its business in order to focus on the equipment business. Fixed asset write-offs related to the discontinued operation were $1,565,167. Inventory costs from the discontinued operation were $1,545,548 and severance costs of $77,981. This was offset by the sale of some of the assets and scrap recovery of $413,951.

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Nine Months Ended September 30, 2004 Compared to Nine Months Ended September30, 2003

Contract and Other Revenue.  Contract and other revenue includes revenue derived from license agreements, characterization and other services.  Contract and other revenue decreased for the nine months ended September 30, 2004 to $297,481 from $592,899 for the nine months ended September 30, 2003, a decrease of $295,418 or 50%. This decrease is attributable to revenue recognized from the transfer of wafer technology to a customer, pursuant to a license transfer agreement in the nine months ended September 30, 2003. This was offset by an increase in royalty fees related to equipment technology in the nine months ended September 30, 2004.

Equipment Revenue.  Equipment revenue represents revenue recognized from sales of implanters, spare parts and field service revenue. Equipment revenue decreased to $7,354,450 for the nine months ended September 30, 2004 from $8,622,289 for the nine months ended September 30, 2003, a decrease of $1,267,839 or 15%.  During the nine months ended September 30, 2003, the i2000 implanter we shipped to our largest customer late in 2002 was accepted. As a result, we recognized revenue of approximately $8 million in the nine months ended September 30, 2003. The implanter revenue recognized in the nine months ended September 30, 2004 was for $7 million. Field service revenue accounted for $231,532 of equipment revenue for the nine months ended September 30, 2004 as compared to $209,150 of equipment revenue for the same period last year.  Sales of spare parts accounted for $122,918 of equipment revenue for the nine months ended September 30, 2004 as compared to $420,233 of equipment revenue for the nine months ended September 30, 2003. Sales of spare parts fluctuate depending on customer demand and when warranties expire.

Total Net Sales and Revenue.  Total net revenue for the nine months ended September 30, 2004 was $7,651,931, a decrease of $1,563,257, or 17%, from total net revenue of $9,215,188 for the nine months ended September 30, 2003.

Total Cost of Sales and Revenue.  Contract and other revenue costs consist of labor and materials expended during the nine month period. Cost of contract and other revenue for the nine months ended September 30, 2004 was $15,370, as compared to $34,332 for the nine months ended September 30, 2003, a decrease of $18,962, or 55%. This decrease is attributable to a reduction in labor costs associated with license revenue compared to the prior year period.

Cost of equipment revenue represents the cost of equipment, the cost for spare parts, along with labor incurred for field service. Cost of equipment revenue for the nine months ended September 30, 2004 was $4,362,687, as compared to $4,014,590 for the nine months ended September 30, 2003, an increase of $348,097 or 9%. This increase is due to an under absorption of manufacturing cost of $465,181 and the increase in inventory reserves for equipment parts of $160,000. This was offset by decreased costs due to the reduction in sales volume of equipment parts.

The total cost of sales and revenue for the nine months ended September 30, 2004 was $4,378,057 as compared to $4,048,922 for the nine months ended September 30, 2003, a decrease of $329,135 or 8%. The gross margin for all sales was a positive 43% for the nine months ended September 30, 2004 as compared to a positive gross margin of 56% for the nine months ended September 30, 2003. This decrease in the gross margin for all sales is attributable to an approximate gross margin of 55% achieved on the i2000 implanter sale, recognized in the nine months ended September 30, 2003 as compared to the approximate gross margin of 50% for the i2000 implanter recognized in the nine months ended September 30, 2004 as well as the unabsorbed manufacturing costs and the increase in inventory reserves.

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General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2004 were $1,753,500 (or 23% of total revenue) as compared to $1,663,800 (or 18% of total revenue) for the nine months ended September 30, 2003, an increase of $89,700, or 5%. This is due to increased security compliance costs of $77,040, increased professional services of $60,021, increased service charges for the letter of credit related to the sale of the i2000 implanter in September 2004 of $32,633 and computer expenses of $30,374 along with other miscellaneous expenses that increased. These costs were partially offset by decreased payroll and payroll related expenses which totaled $133,299 as a result of cost savings initiated by Ibis.

Marketing and Selling Expenses. Marketing and selling expenses for the nine months ended September 30, 2004 were $1,141,813 (or 15% of total revenue) as compared to $957,988 (or 10% of total revenue) for the nine months ended September 30, 2003, an increase of $183,825, or 19%. The increase in marketing and selling expenses is a result of increased subcontractor costs associated with our service group in Japan of $161,809 and salaries of $48,067, which were partially offset by a reduction in promotion expenses.

Research and Development Expenses. Internally funded research and development expenses decreased by $609,261 or 15%, to $3,599,099 (or 47% of total revenue) for the nine months ended September 30, 2004, as compared to $4,208,360 (or 46% of total revenue) for the nine months ended September 30, 2003. This decrease is due to reduced payroll and payroll related expenses of $457,403, reduced joint development project costs of $382,600, reduced depreciation expense of $363,755, reduced consulting and subcontractor costs of $124,055, reduced project material of $114,829 and reductions in other miscellaneous expenses. This was more than offset by the wafer research and development costs of $896,968 that were previously part of the cost of sales but are now supporting equipment development.

Other Income (Expense). Total other income for the nine months ended September 30, 2004 was $183,169 as compared to $6,459 for the nine months ended September 30, 2003, an increase of $176,710, or 2736%. The increase in total other income is attributable to the expiration of a wafer volume option of $200,000 that was associated with an asset obtained by the wafer production group from a wafer customer. This volume option was to be used on orders received over a one-year period. Since the time expired and no orders were received, the Company reduced its liability and recognized the amount in income, as no further obligation exists. The increase in other income was reduced by an increase in miscellaneous expenses. Interest income also increased by $857 for this period due to increased interest rates and increased cash balances. Interest expense decreased by $13,160 for this period due to the decrease in wafer sales that involved a financing arrangement entered into with the customer during the second quarter of 2002.

Loss From Discontinued Operations. Discontinued operations incurred a loss of $5,478,775 for the nine months ended September 30, 2004 due to the discontinuance of the wafer manufacturing operation. For comparative purposes, wafer sales and associated costs from the previous quarters are shown as discontinued operations loss, as are the prior year periods. The negative margin of $2,704,030 incurred by the wafer manufacturing operation in the previous quarters in addition to the loss this quarter of $2,774,745, equals the amount shown of $5,478,775. Fixed asset dispositions and provisions related to the discontinued operation were $1,565,167. Costs associated with inventory provision from the discontinued operation were $1,545,548 and employee severance pay of $77,981. This was offset by the sales of a portion of the excess equipment previously used in the wafer business of $413,951.

Liquidity and Capital Resources.

As of September 30, 2004, Ibis had cash and cash equivalents of $8,333,158, including a portion of the receipt of net proceeds of the $12.6 million received from a public offering of 1,000,000 shares of common stock at $13.25 per share in October 2003 and the down payment of $4.7 million for the i2000 SIMOX implanter which was recognized as revenue in the third quarter of 2004 based on the final acceptance by the customer. The shares were included in a shelf registration statement filed with the Securities and Exchange

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Commission on September 2, 2003 and declared effective on October 3, 2003. Net proceeds from the offering have been used primarily to fund research and development, capital expenditures and working capital.

Based on the Company’s final disposal plans relative to the closure of the wafer operation, the Company was required to take cash related charges of approximately $0.1 million. The Company will maintain a wafer research and development effort focused on continuous improvement of the equipment capabilities and for supporting the Company’s equipment customers’ needs at what is expected to be at a significantly reduced cost to the business going forward. As a result, the Company expects to reduce its monthly cash burn rate and anticipates it will have sufficient cash for operations through the foreseeable future or about the next nine to twelve months.

During the nine months ended September 30, 2004, Ibis used $2,190,903 in cash for operating activities of continuing operations compared to cash used of $1,657,956 for the same period in 2003. Depreciation and amortization expense for the nine months ended September 30, 2004 and 2003 was $2,905,246 and $5,014,576, respectively. This accounted for 38% and 54% of total revenue, respectively. Management expects that depreciation and amortization will continue to be a significant portion of its expenses in the near term and for 2004 will approximate $3.5 million. To date, Ibis’ working capital requirements have been funded primarily through debt, (capital leases), and equity financings. Ibis also used $891,244 during the nine months ended September 30, 2004 to fund additions to property and equipment as compared to $429,897 during the nine months ended September, 2003. At September 30, 2004, Ibis had commitments to purchase approximately $1,326,708 for i2000 implanter parts and $437,655 for operating expenses.

As part of our cash management plan, we initiated additional cost saving measures during 2003 and 2004. This included the lay-off of twenty-nine employees. In the third quarter of 2004 the Company announced that it was discontinuing the wafer manufacturing portion of the business. This resulted in the layoff of an additional seventeen employees. Our headcount at the end of the third quarter 2004 is now 61 employees.

In June 2003, Ibis entered into an agreement with a financing agent to obtain payment for products from its largest customer on an expedited basis. The discount rate associated with this agreement is based on the prime rate and may fluctuate.

In September 2001, Ibis entered into a $4.5 million equipment lease line of credit with Heller Financial’s Commercial Equipment Finance Group. The lease line was used to finance the purchase of process equipment for wafer production, primarily for 300 mm wafers. This line was fully drawn down in two sale-leaseback transactions, bearing interest at approximately 8% with a term of three years, and a monthly net payment of $131,212. Ibis has a fair market value purchase option at the end of the lease term. The lease line ended in the third quarter of 2004 and the Company exercised the fair market value purchase option at the negotiated buyout price of $900,000.

Our existing cash resources are believed to be sufficient to support our current operating plan for the next nine to twelve months. Forecasting future revenue, on a quarter-by-quarter basis, remains exceedingly difficult and significant variations quarter to quarter, are likely. We expect to continue to explore equity offerings and other forms of financing and anticipate that we may be required to raise additional capital in the future in order to finance future growth and our research and development programs.

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Business Risk Factors

This Form 10-Q contains express or implied forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology, such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential” or “continue” or the negative of such terms or other comparable terminology, although not all forward-looking statements contain such terms. In addition, these forward-looking statements include, but are not limited to, statements regarding, among other things: (i) customer interest in and demand for, and market acceptance of, the Company’s SIMOX-SOI technology including the Company’s implanters, and the involvement generally of the silicon wafer manufacturing industry in the SOI wafer market, (ii) the Company’s belief that wafer manufacturers will become the primary suppliers of SIMOX-SOI wafers to the chipmaking industry, (iii) the throughput and production capacity of the i2000 implanter for manufacturing 200-mm and 300-mm SIMOX-SOI wafers, and the ability of the i2000 implanter to achieve acceptable production yields, (iv) the Company’s plan to focus on supplying implanters to wafer manufacturers, (v) the Company’s expectations regarding future orders for i2000 implanters, and the likelihood and timing of revenue recognition on such sales, (vi) the Company’s expectation regarding future willingness of wafer manufacturers to purchase equipment from the Company, (vii) the technological advancements and the adoption rate of SOI technology, and (viii) the Company’s expectation of having sufficient cash for operations. Such statements are neither promises nor guarantees but rather are subject to risks and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Such risks and uncertainties include, but are not limited to: future continued migration to SOI technology and market acceptance of SIMOX; the level of demand for the Company’s products; the Company’s ability to pursue and maintain further strategic relationships, partnerships and alliances with third parties; the Company’s ability to protect its proprietary technology; the potential trends in the semiconductor industry generally; the ease with which the i2000 can be installed and qualified in fabrication facilities; the likelihood that implanters, if ordered, will be qualified and accepted by customers; the likelihood and timing of revenue recognition on such transactions; the impact of competitive products, technologies and pricing; the impact of rapidly changing technology; the possibility of further asset impairment and resulting charges; equipment capacity and supply constraints or difficulties; the Company’s limited history in selling implanters; general economic conditions; and other risks and uncertainties described elsewhere in this Form 10-Q and in the Company’s Securities and Exchange Commission filings from time to time, including but not limited to those set forth in the Company’s annual report on Form 10-K for the year ended December 31, 2003. All information set forth in this Form 10-Q is as of the date of this Form 10-Q, and Ibis undertakes no duty to update this information, unless required by law.

Effects of Inflation

Ibis believes that over the past three years inflation has not had a significant impact on Ibis’ sales or operating results.

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IBIS TECHNOLOGY CORPORATION

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 money market funds and short-term commercial paper, holds its investments until maturity and has not entered into hedging transactions.

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IBIS TECHNOLOGY CORPORATION

PART I – ITEM 4

CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company was made known to them by others within the Company, particularly during the period in which this Quarterly Report on Form 10-Q was prepared.

(b)Changes in Internal Controls. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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IBIS TECHNOLOGY CORPORATION

PART II

OTHER INFORMATION

Item 1 - Legal Proceedings

Five class action securities lawsuits have been filed in the United States District Court in the District of Massachusetts against Ibis and its President and CEO: Martin Smolowitz v. Ibis Technology Corporation., et al., Civ. No. 03-12613 (RCL) (D. Mass.); Fred Den v. Ibis Technology Corporation., et al., Civ. No. 04-10060 (RCL) (D. Mass.); Weinstein v. Ibis Technology Corporation., et al., Civ. No. 04-10088 (RCL) (D. Mass.); George Harrison v. Ibis Technology Corporation., et al., Civ. No. 04-10286 (RCL) (D. Mass.); and Eleanor Pitzer v. Ibis Technology Corporation., et al, Civ. No. 04-10446 (RCL) (D. Mass.). On June 4, 2004, the Court entered an order consolidating these actions under the caption In re Ibis Technology Securities Litigation, C.A. 04-10446 RCL. On July, 2004, a consolidated amended class action complaint was filed which alleges, among other things, that the Company violated federal securities laws by allegedly making misstatements to the investing public relating to demand for certain Ibis products and intellectual property issues relating to the sale of the i2000 oxygen implanter. The plaintiffs are seeking unspecified damages. On August 5, 2004, we filed a motion to dismiss the consolidated amended complaint on the grounds, among others, that it failed to state a claim on which the relief could be granted. That motion now has been fully briefed. While we believe that the allegations are without merit, and we intend to vigorously defend against the suits, there can be no guarantee as to how they ultimately will be resolved.

In addition, Ibis has been named as a nominal defendant in a shareholder derivative action filed in February 2004 against certain of its directors and officers: Louis F. Matheson, Jr. v. Martin J. Reid et al., Civ. Act. No. 04-10341 (RCL). The complaint alleges, among other things, that the alleged conduct challenged in the securities cases pending against Ibis in Massachusetts (described above) constitutes a breach of the defendants’ fiduciary duties to Ibis. The complaint seeks unspecified money damages and other relief ostensibly on behalf of Ibis. On June 4, 2004, the Court entered an order staying this matter pending the entry of a final order on any motion filed by the Company to dismiss the consolidated class action complaint referenced above.

Litigation may be time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation is difficult to predict. An unfavorable resolution of these litigation matters could have a material adverse effect on our business, results of operations and financial condition.

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:

Exhibit No.	Description
3.1	Amended and Restated By-Laws of Ibis Technology Corporation

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Exhibit No.	Description
31.1	Certification of Martin J. Reid pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of William J. Schmidt pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)Reports on Form 8-K:

On July 22, 2004 we furnished to the SEC a report on Form 8-K containing the July 21, 2004 press release announcing the discontinuance of the wafer manufacturing portion of our business along with the financial results for the Second Quarter ended June 30, 2004.

On September 14, 2004 we furnished to the SEC a report on Form 8-K containing the September 14, 2004 press release announcing the final acceptance of the Ibis i2000 oxygen implanter by a major customer.

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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 11, 2004	By:	/s/ William J. Schmidt
		William J. Schmidt
		Chief Financial Officer, Treasurer and Clerk
		(principal financial and accounting officer)
Date: November 11, 2004	By:	/s/ Martin J. Reid
		Martin J. Reid
		President and Chief Executive Officer

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EX-3.1

Exhibit 3.1

IBIS TECHNOLOGY CORPORATION

RESTATED BY-LAWS

SHAREHOLDERS

1.Place of Meetings.  All meetings of the shareholders shall be held either at the principal office of the Corporation or at such other place within the United States as is determined by the Board of Directors or the Chairman of the Board of Directors, or if there shall be no Chairman of the Board of Directors, the President, and stated in the notice of the meeting.

2.Annual Meetings.  The annual meeting of the shareholders entitled to vote shall be held at ten o’clock in the forenoon (or at such other time as is determined by the Board of Directors or the Chairman of the Board of Directors, or if there shall be no Chairman of the Board of Directors, the President, and stated in the notice) on a date to be determined by the Board of Directors within six months after the end of each fiscal year, on any day that is not a Saturday, Sunday or legal holiday, at such location as is determined by the Board of Directors or the Chairman of the Board, or if there shall be no Chairman of the Board of Directors, the President, and stated in the notice. The purposes for which an annual meeting is to be held, in addition to those prescribed by law, by the Restated Articles of Organization and by these By-Laws, may be specified by the Board of Directors or the Chairman of the Board, or if there shall be no Chairman of the Board of Directors, the President. In the event that no date for the annual meeting is established or no annual meeting is held on the date so fixed, or by adjournment therefrom, a special meeting of the shareholders may be held in lieu thereof, and any action taken at such special meeting shall have the same force and effect as if taken at the annual meeting. In the event an annual meeting is not held at the time fixed in accordance with these By-laws or the time for an annual meeting is not fixed in accordance with these By-laws to be held within 13 months after the last annual meeting was held, the Corporation may designate a special meeting held thereafter as a special meeting in lieu of the annual meeting, and the meeting shall have all of the effect of an annual meeting.

Notwithstanding any other provision in these By-Laws, the Board of Directors may change the date, time and location of any annual or special meeting of the shareholders (other than a special meeting called upon the written application of shareholders (a “Meeting Requested by Shareholders”)) prior to the time for such meeting, including, without limitation, by postponing or deferring the date of any such annual or special meeting (other than a Meeting Requested by Shareholders) previously called or by canceling any special meeting previously called (other than a Meeting Requested by Shareholders.)

3.Notice of Shareholder Business at a Meeting of the Shareholders.  The following provisions of this Section 3 of this Article I shall apply to the conduct of business at any meeting of the shareholders. (As used in this Section 3, the term annual meeting shall include a special meeting in lieu of an annual meeting.)

(a)At any meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any shareholder of the Corporation who is a shareholder of record at the time of giving of the notice provided for in paragraph (b) of this Section 3, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in paragraph (b) of this Section 3.

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(b)For business to be properly brought before a meeting of the shareholders by a shareholder pursuant to clause (iii) of paragraph (a) Section 3 of this By-law, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation (i) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than seventy (70) days’ notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the shareholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the date of the scheduled meeting was mailed or the day on which public disclosure was made of the date of the scheduled meeting; and (ii) in the case of a special meeting (other than a special meeting in lieu of an annual meeting), not later than the tenth (10th) day following the earlier of the day on which notice of the date of the scheduled meeting was mailed or the day on which public disclosure was made of the date of the scheduled meeting. A shareholder’s notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business, the name and address of the beneficial owner, if any, on whose behalf the proposal is made, and the name and address of any other shareholders or beneficial owners known by such shareholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder of record, by the beneficial owner, if any, on whose behalf the proposal is made and by any other shareholders or beneficial owners known by such shareholder to be supporting such proposal, and (iv) any material interest of such shareholder of record and/or of the beneficial owner, if any, on whose behalf the proposal is made, in such proposed business and any material interest of any other shareholders or beneficial owners known by such shareholder to be supporting such proposal in such proposed business, to the extent known by such shareholder.

(c)Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this By-law. The person presiding at the meeting shall, if the facts warrant, determine that business was not properly brought before the meeting and in accordance with the procedures prescribed by these By-laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this By-law, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (or any successor provision), and the rules and regulations thereunder with respect to the matters set forth in this By-law.

(d)This provision shall not prevent the consideration and approval or disapproval at the meeting of reports of officers, directors and committees of the Board of Directors, but, in connection with such reports, no new business shall be acted upon at such meeting unless properly brought before the meeting as herein provided.

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4.Special Meetings.  Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of the shareholders entitled to vote may be called by the Board of Directors, the Chairman of the Board of Directors, the President, or (i) if the Corporation shall not have a class of voting stock registered under the Securities Exchange Act of 1934, as amended (the “1934 Act”), by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of one or more shareholders who are entitled to vote and who hold at least ten percent (10%) in interest of the capital stock entitled to vote at the meeting or (ii) if the Corporation shall have a class of voting stock registered under the 1934 Act by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other Officer, upon written application of one or more shareholders who are entitled to vote and who hold at least forty percent (40%) in interest of the capital stock entitled to vote at the meeting.

5.Notice of Meetings.  A written notice of the date, time, and place of each annual and special shareholders’ meeting describing the purposes of the meeting shall be given to shareholders entitled to vote at the meeting and, to the extent required by law or the Articles of Organization, to shareholders not entitled to vote at the meeting, no fewer than seven nor more than sixty days before the meeting date. All notices to shareholders shall conform to the requirements of Section 18 of Article V. A shareholder may waive any notice required by law, the Articles of Organization or these By-laws before or after the date and time stated in the notice. The waiver shall be in writing, be signed by the shareholder entitled to the notice, and be delivered to the Corporation for inclusion with the records of the meeting. A shareholder’s attendance at a meeting (a) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

6.Quorum.  Unless otherwise provided by law, or in the Articles of Organization, these By-laws or a resolution of the Directors requiring satisfaction of a greater quorum requirement for any voting group, a majority of the votes entitled to be cast on the matter by a voting group constitutes a quorum of that voting group for action on that matter. As used in these By-laws, a voting group includes all shares of one or more classes or series that, under the Articles of Organization or the Massachusetts Business Corporation Act, as in effect from time to time, are entitled to vote and to be counted together collectively on a matter at a meeting of shareholders. A share once represented for any purpose at a meeting is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless (i) the shareholder attends solely to object to lack of notice, defective notice or the conduct of the meeting on other grounds and does not vote the shares or otherwise consent that they are to be deemed present, or (ii) in the case of an adjournment, a new record date is or shall be set for that adjourned meeting.

ADJOURNMENTS.  ANY MEETING OF THE SHAREHOLDERS MAY BE ADJOURNED TO ANY OTHER TIME AND TO ANY OTHER PLACE BY THE SHAREHOLDERS PRESENT OR REPRESENTED AT THE MEETING, ALTHOUGH LESS THAN A QUORUM, OR BY ANY OFFICER ENTITLED TO PRESIDE OR TO ACT AS SECRETARY OF SUCH MEETING IF NO SHAREHOLDER IS PRESENT IN PERSON OR BY PROXY.  IF AN

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ANNUAL OR SPECIAL MEETING OF SHAREHOLDERS IS ADJOURNED TO A DIFFERENT DATE, TIME OR PLACE, NOTICE NEED NOT BE GIVEN OF THE NEW DATE, TIME OR PLACE IF THE NEW DATE, TIME OR PLACE IF ANY, IS ANNOUNCED AT THE MEETING BEFORE ADJOURNMENT. IF A NEW RECORD DATE FOR THE ADJOURNED MEETING IS FIXED, HOWEVER, NOTICE OF THE ADJOURNED MEETING SHALL BE GIVEN UNDER ARTICLE I, SECTION 5 OF THESE BY-LAWS TO PERSONS WHO ARE SHAREHOLDERS AS OF THE NEW RECORD DATE. ANY BUSINESS WHICH COULD HAVE BEEN TRANSACTED AT ANY MEETING OF THE SHAREHOLDERS AS ORIGINALLY CALLED MAY BE TRANSACTED AT ANY ADJOURNMENT THEREOF.

7.Votes and Proxies.  Each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a shareholders’ meeting. Scrip shall not carry any right to vote unless otherwise provided therein, but if scrip provides for the right to vote, such voting shall be on the same basis as fractional shares. Shareholders may vote either in person or by written proxy. A shareholder may vote his or her shares in person or may appoint a proxy to vote or otherwise act for him or her by signing an appointment form, either personally or by his or her attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes. Unless otherwise provided in the appointment form, an appointment is valid for a period of 6 months from the date the shareholder signed the form or, if it is undated, from the date of its receipt by the officer or agent. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest, as defined in the Massachusetts Business Corporation Act. An appointment made irrevocable is revoked when the interest with which it is coupled is extinguished. The death or incapacity of the shareholder appointing a proxy shall not affect the right of the Corporation to accept the proxy’s authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his or her authority under the appointment. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he or she did not know of its existence when he or she acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates. Subject to the provisions of Section 7.24 of the Massachusetts Business Corporation Act and to any express limitation on the proxy’s authority appearing on the face of the appointment form, the Corporation is entitled to accept the proxy’s vote or other action as that of the shareholder making the appointment. Proxies need not be sealed or attested.

8.Conduct of Business.  The Chairman of the Board of Directors or his designee, or, if there is no Chairman of the Board or such designee, then the President or his designee, or, if the office of President shall be vacant, then a person appointed by a majority of the Board of Directors, shall preside at any meeting of shareholders as the chairman of the meeting. In addition to his powers pursuant to Section 3(c) of this Article I, the person presiding at any meeting of shareholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order.

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9.Action at a Meeting.  If a quorum of a voting group exists, favorable action on a matter, other than the election of Directors, is taken by a voting group (a) if it is approved by the affirmative vote of a majority of the shares outstanding and entitled to vote on the matter or (b) in the case of any matter that has been approved by vote of the Board of Directors taken at a meeting held prior to such meeting of shareholders, if the votes cast within the group favoring the action exceed the votes cast opposing the action, unless, in the case of either (a) or (b), a greater number of affirmative votes is required by law, or the Articles of Organization, these By-laws or a resolution of the Board of Directors requiring receipt of a greater affirmative vote of the shareholders, including more separate voting groups. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. No ballot shall be required for such election unless requested by a shareholder present or represented at the meeting and entitled to vote in the election. The Corporation shall not directly or indirectly vote any share of its stock. Nothing in this section shall be construed to limit the right of the Corporation to vote any shares of stock held directly or indirectly by it in a fiduciary capacity.

10.Record Date.  The Directors may fix the record date in order to determine the shareholders entitled to notice of a shareholders’ meeting, to demand a special meeting, to vote, or to take any other action or the date for the making of any dividend or distribution to shareholders. If a record date for a specific action is not fixed by the Board of Directors, and is not supplied by law, the record date shall be the close of business either on the day before the first notice is sent to shareholders, or, if no notice is sent, on the day before the meeting or, in the case of action without a meeting by written consent, the date the first shareholder signs the consent. A record date fixed under this Section may not be more than 70 days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders’ meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.

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BOARD OF DIRECTORS

11.Powers.  The Board of Directors may exercise all the powers of the Corporation except such as are required by law or by the Restated Articles of Organization or these By-Laws to be otherwise exercised, and the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. Without limiting the generality of the foregoing, the Board of Directors shall have the power, unless otherwise provided by law, to purchase and to lease, pledge, mortgage and sell all property of the Corporation (including to issue or sell the stock of the Corporation) and to make such contracts and agreements as they deem advantageous, to fix the price to be paid for or in connection with any property or rights purchased, sold, or otherwise dealt with by the Corporation, to borrow money, issue bonds, notes and other obligations of the Corporation, and to secure payment thereof by the mortgage or pledge of all or any part of the property of the Corporation. The Board of Directors may determine the compensation of directors. The Board of Directors or such officer or committee as the Board of Directors shall designate, may determine the compensation and duties, in addition to those prescribed by these By-Laws, of all officers, agents and employees of the Corporation.

12.Number.  The Corporation shall have a Board of Directors, which shall consist of not less than three (3) directors, which number, subject to the rights of the holders of any Preferred Stock of the Corporation to elect directors, shall be determined from time to time by the Board of Directors. Such number may be enlarged or reduced at any time by a vote of a majority of all of the directors then in office. Subject to the rights of the holders of any series of Preferred Stock then outstanding, if the Board of Directors is divided into one or more classes, at each annual meeting of shareholders or special meeting in lieu thereof following the initial classification of the Board of Directors, directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders or special meeting in lieu thereof after their election and until their successors are duly elected and qualified. No director need be a shareholder. If the Board of Directors is divided into more than one class, such classes to be as nearly equal in number as possible.

13.Nominations of Directors.  The following provisions of this Section 3 of this Article II shall apply to the nomination of persons for election to the Board of Directors.

(a)Nominations of persons for election to the Board of Directors of the Corporation may be made (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in paragraph (b) of this Section 3, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in paragraph (b) of this Section 3.

NOMINATIONS BY SHAREHOLDERS SHALL BE MADE PURSUANT TO TIMELY NOTICE
IN WRITING TO THE SECRETARY OF THE CORPORATION. TO BE TIMELY, A SHAREHOLDER’S NOTICE SHALL BE DELIVERED TO OR MAILED AND RECEIVED AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION, NOT LESS THAN

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SIXTY (60) DAYS NOR MORE THAN NINETY (90) DAYS PRIOR TO THE SCHEDULED MEETING DATE, REGARDLESS OF ANY IBIS TECHNOLOGY CORPORATION

(b)postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than seventy (70) days’ notice or prior public disclosure of the date of the scheduled meeting is given or made, notice by the shareholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the date of the scheduled meeting was mailed or the day on which public disclosure was made of the date of the scheduled meeting. Such shareholder’s notice shall set forth (x) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the 1934 Act or pursuant to any other then existing statute, rule or regulation applicable thereto (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (y) as to the shareholder giving the notice (1) the name and address, as they appear on the Corporation’s books, of such shareholder and (2) the class and number of shares of the Corporation which are beneficially owned by such shareholder and also which are owned of record by such shareholder; and (z) as to the beneficial owner, if any, on whose behalf the nomination is made, (l) the name and address of such person and (2) the class and number of shares of the Corporation which are beneficially owned by such person. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee as a director. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee.

(c)No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this By-law. The person presiding at the meeting shall, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed by these By-laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this By-law, a shareholder shall also comply with all applicable requirements of the 1934 Act (or any successor provision), and the rules and regulations thereunder with respect to the matters set forth in this By-law.

14.Tenure; Resignation.  The term of each Director shall expire at the annual shareholders’ meeting held in the third year following the year of his or her election. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent director. Any Director elected to fill a vacancy shall hold office for the remainder of the full term of the class of Directors in which the vacancy occurred or the new Directorship was created. Despite the expiration of a Director’s term, he or she shall continue to serve until his or her successor is elected and qualified or until there is a decrease in the number of directors. A Director may resign at any time by delivering

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15.written notice of resignation to the Board of Directors, its chairman, or to the Corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date.

16.Removal.  The removal of any Director or Directors or the entire Board of Directors may be effected only for cause by the affirmative vote of (a) at least two-thirds (2/3) of the directors then serving in office or (b) at least seventy-five percent (75%) of the shares outstanding and entitled to vote in the election of Directors; provided, however, that if a director is elected by a voting group of shareholders, only the directors elected by that voting group may participate in the vote to remove him. As used in this Section 5, “cause” shall mean only (i) conviction of a felony, (ii) declaration of unsound mind by order of a court, (iii) gross dereliction of duty, (iv) commission of an action involving moral turpitude, or (v) commission of an action which constitutes intentional misconduct or a knowing violation of law if such action in either event results both in an improper substantial personal benefit and a material injury to the Corporation. A Director may be removed by the shareholders or the Directors only at a meeting called for the purpose of removing him or her, and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the Director.

17.Vacancies.  Vacancies and newly created directorships, whether resulting from an increase in the size of the board of directors, from the death, resignation, disqualification or removal of a director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any director elected in accordance with this Section shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or the new directorship was created and until the director’s successor shall have been elected and qualified.

18.Meetings.  Meetings of the directors need not be held in the state of incorporation.

(a)Regular Meetings.  Regular meetings of the Board of Directors may be held without call or notice at such places and at such times as may be fixed by the Board of Directors from time to time, provided that any director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without call or notice at the same place as the annual meeting of shareholders, or the special meeting held in lieu thereof, immediately following such meeting of shareholders.

(b)Special Meetings.  Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Treasurer, the Secretary, or one or more directors. Notice of the time and place of all special meetings of the Board of Directors shall be given by the Secretary or the Secretary or the officer or directors calling the meeting. Notice must be given orally, by telephone, or, in writing, by mail, postage prepaid, courier, telegraph, telex, telecopy or cable, and such notice shall be sufficient if given in time to enable the director to attend, or, in any case, if sent by mail, if dispatched at least seven (7) days before the meeting, or if sent by telegraph, telex, telecopy or cable, if sent at least forty-eight (48) hours before the meeting, or if sent by courier, if delivered to such courier for next day delivery at least forty-eight

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(48) hours before the meeting, addressed in any case to a director’s usual or last known place of business or residence. Special meetings of the Board of Directors must be preceded by a least two days’ notice of the date, time and place of the meeting. The notice need not describe the purpose of the special meeting. All notices to directors shall conform to the requirements of Section 18, of Article V.

19.Quorum of Directors.  At any meeting of the Board of Directors, a majority of the number of directors then constituting the full Board of Directors then serving shall constitute a quorum, but a lesser number may adjourn any meeting from time to time without further notice. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board of Directors until the vacancy is filled.

20.Action at a Meeting.  Action on any matter brought before any meeting of the Board of Directors at which there is a quorum may be taken by vote of a majority of the directors then present at the meeting, unless a different vote is required by law, the Restated Articles of Organization or these By-Laws. A Director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is considered to have assented to the action taken unless: (a) he or she objects at the beginning of the meeting, or promptly upon his or her arrival, to holding it or transacting business at the meeting; (b) his or her dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) he or she delivers written notice of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a Director who votes in favor of the action taken.

21.Action Without a Meeting.  Unless otherwise provided by law, the Restated Articles of Organization or these By-laws, any action required or permitted to be taken by the Directors may be taken without a meeting if the action is taken by the unanimous consent of the members of the Board of Directors. The action must be evidenced by one or more consents describing the action taken, in writing, signed by each Director, or delivered to the Corporation by electronic transmission, to the address specified by the Corporation for the purpose or, if no address has been specified, to the principal office of the Corporation, addressed to the Secretary or other officer or agent having custody of the records of proceedings of Directors, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this Section is effective when the last Director signs or delivers the consent, unless the consent specifies a different effective date. A consent signed or delivered under this Section has the effect of a meeting vote and may be described as such in any document.

22.Committees of Directors.  The Board of Directors may, by vote of a majority of the number of directors then constituting the full Board, elect from its membership an Executive Committee (to be chaired by the Chairman of the Board, if any) and such other committees as it may determine, comprised of such number of its members as it may from time to time determine (but in any event not less than two), and delegate to any such committee or committees some or all of its powers, except those which by law, the Restated Articles of Organization or these By-Laws it is prohibited from delegating. Except as the directors may otherwise determine, any such committee may make rules for the conduct of

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its business, but, unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as may be in the manner as is provided by these By-Laws for the directors.

23.Telephone Conference Meetings.  The Board of Directors of any committee thereof may participate in a meeting of such Board of Directors or committee thereof by means of a conference telephone (or similar communications equipment) call, by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting.

ARTICLE II

OFFICERS

1.Enumeration.  The officers of the Corporation shall be the President, the Treasurer, the Secretary and such other officers as the Board of Directors may determine, including, but not limited to, a Chairman of the Board of Directors, a Chief Executive Officer, one or more Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretarys, and a Secretary.

2.Election.  The officers shall be appointed by the Board of Directors in accordance with the provisions of these By-laws. A duly appointed officer may appoint one or more officers or assistant officers if authorized by the Board of Directors. Each officer has the authority and shall perform the duties set forth in these By-laws or, to the extent consistent with these By-laws, the duties prescribed by the Board of Directors or by direction of an officer authorized by the Board of Directors to prescribe the duties of other officers.

3.Qualification. No officer need be a shareholder. The Chairman of the Board, if any, and any Vice Chairman appointed to act in the absence of the Chairman, shall be elected by and from the Board of Directors, but no other officer need be a director. Two or more offices may be held by any one person. If required by vote of the Board of Directors, an officer shall give bond to the Corporation for the faithful performance of his duties, in such form and amount and with such sureties as the Board of Directors may determine. The premiums for such bonds shall be paid by the Corporation.

4.Tenure.  Each officer elected or appointed by the Board of Directors shall hold office until the first meeting of the Board of Directors following the next annual meeting of the shareholders or special meeting in lieu thereof and until his successor is elected or appointed and qualified, or until he dies, resigns, is removed or becomes disqualified, unless a shorter term is specified in the vote electing or appointing said officer. Each officer appointed by the Chairman of the Board shall hold office until his successor is elected or appointed and qualified, whether by the Board of Directors or the Chairman of the Board, or until he dies, resigns, is removed or becomes disqualified, unless a shorter term is specified by any agreement or other instrument appointing said Officer. An officer may resign at any time by delivering notice of the resignation to the Corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later

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5.date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor shall not take office until the effective date.

6.Removal.  Any officer elected or appointed by the Board of Directors or by the Chairman of the Board may be removed from office with or without cause by vote of a majority of the directors then in office. An officer may be removed for cause only after a reasonable notice and opportunity to be heard before the body or person proposing to remove him.

7.Chairman of the Board.  The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and shareholders at which he is present and shall have such authority and perform such duties as may be prescribed by these By-Laws or from time to time determined by the Board of Directors.

8.President.  Except for meetings at which the Chairman of the Board, if any, presides in accordance with Section 6 of this Article III, the President shall, if present, preside at all meetings of shareholders, and if a director, at all meetings of the Board of Directors. The President shall, subject to the control and direction of the Board of Directors, have and perform such powers and duties as may be prescribed by these By-Laws or from time to time be determined by the Board of Directors or the Chairman of the Board.

9.Vice Presidents.  The Vice Presidents, if any, in the order of their election, or in such other order as the Board of Directors or the Chairman of the Board may determine, shall have and perform the powers and duties of the President (or such of the power and duties as the Board of Directors or the Chairman of the Board may determine) whenever the President is absent or unable to act. The Vice Presidents, if any, shall also have such other powers and duties as may from time to time be determined by the Board of Directors or the Chairman of the Board.

10.Treasurer and Assistant Treasurers.  The Treasurer shall, subject to the control and direction of the Board of Directors, have and perform such powers and duties as may be prescribed in these By-Laws or be determined from time to time by the Board of Directors or the Chairman of the Board. All property of the Corporation in the custody of the Treasurer shall be subject at all times to the inspection and control of the Board of Directors. Unless otherwise voted by the Board of Directors, each Assistant Treasurer, if any, shall have and perform the powers and duties of the Treasurer whenever the Treasurer is absent or unable to act, and may at any time exercise such of the powers of the Treasurer, and such other powers and duties, as may from time to time be determined by the Board of Directors or the Chairman of the Board.

11.Secretary and Assistant Secretaries.  The Secretary shall be a resident of Massachusetts unless the Corporation has a resident appointed for the purpose of service of process. He shall have and perform the powers and duties prescribed in these By-Laws and such other powers and duties as may from time to time be determined by the Board of Directors. He shall attend all meetings of the directors and of the shareholders and shall record upon the record book of the Corporation all votes of the

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shareholders and minutes of the proceedings at such meetings. He shall have custody of the record books of the Corporation. Unless otherwise voted by the Board of Directors, each Assistant Secretary, if any, shall have and perform the powers and duties of the Secretary whenever the Secretary is absent or unable to act, and may at any time exercise such of the powers of the Secretary, and such other powers and duties, as may from time to time be determined by the Board of Directors or the Chairman of the Board. In the absence of the Secretary from any meeting of shareholders, an Assistant Secretary, if one be elected, otherwise a Temporary Secretary designated by the person presiding at the meeting, shall perform the duties of the Secretary.

12.Clerk and Assistant Clerks.  The Board of Directors or the Chairman of the Board may appoint a Clerk and, in his absence, an Assistant Clerk, but if no Clerk or Assistant Clerk is elected, the Clerk (or in the absence of the Clerk, any Assistant Clerk) shall act as the Clerk. The Secretary or, in his absence, any Assistant Clerk, shall attend all meetings of the directors and shall record all votes of the Board of Directors and minutes of the proceedings at such meetings. The Clerk or, in his absence, any Assistant Clerk (or the Clerk), shall notify the directors of their meetings, and shall have and perform such other powers and duties as may from time to time be determined by the Board of Directors or the Chairman of the Board. If a Clerk or an Assistant Clerk is elected but is absent from any such meeting, the Clerk (or any Assistant Clerk) may perform the duties of the Clerk; otherwise, a Temporary Clerk may be appointed by the meeting.

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Martin J. Reid, President and Chief Executive Officer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Ibis Technology Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 11, 2004	/s/ Martin J. Reid
	Martin J. Reid President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, William J. Schmidt, Chief Financial Officer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Ibis Technology Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 11, 2004	/s/ William J. Schmidt
	William J. Schmidt
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned President & Chief Executive Officer and Chief Financial Officer of the Company, certifies, that to their knowledge:

1)the Company’s Form 10-Q for the quarter ended September 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2)the information contained in the Company’s Form 10-Q for the quarter ended September 30, 2004 fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Martin J. Reid	/s/ William J. Schmidt
Martin J. Reid	William J. Schmidt
President & Chief Executive Officer	Chief Financial Officer
Date: November 11, 2004	Date: November 11, 2004