10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 10-Q

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

For the Quarterly Period Ended June 30, 2007

Or

oTransition 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	(I.R.S. Employer
incorporation or organization)	Identification No.)
32 Cherry Hill Drive, Danvers, MA	01923
(Address of principal executive offices)	(Zip Code)

(978) 777-4247

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined by Rule b-2 of the Exchange Act).

Large Accelerated Filer   o Accelerated Filer   o Non-Accelerated Filer   x

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

14,316,629 shares of Common Stock, par value $.008, were outstanding on August 14, 2007.

IBIS TECHNOLOGY CORPORATION

INDEX

	Page Number
PART I—FINANCIAL INFORMATION
Item 1—Financial Statements:
Balance Sheets December 31, 2006 and June 30, 2007 (unaudited)	3
Statements of Operations Three Months Ended June 30, 2006 and 2007 and Six Months Ended June 30, 2006 and 2007 (unaudited)	4
Statements of Cash Flows Six Months Ended June 30, 2006 and 2007 (unaudited)	5
Notes to Unaudited Interim Financial Statements	6
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3—Quantitative and Qualitative Disclosure About Market Risk	25
Item 4—Controls and Procedures	26
PART II—OTHER INFORMATION
Item 1—Legal Proceedings	27
Item 1A—Risk Factors	27
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3—Defaults upon Senior Securities	28
Item 4—Submission of Matters to a Vote of Security Holders	29
Item 5—Other Information	29
Item 6—Exhibits	29
Signatures	30

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PART I - FINANCIAL INFORMATION

IBIS TECHNOLOGY CORPORATION

BALANCE SHEETS

(Unaudited)

	December 31,			June 30,
	2006			2007
Assets
Current assets:
Cash and cash equivalents	$	4,812,477		$	7,228,290
Accounts receivable, trade, net	349,154			395,797
Inventories, net (note 4)	3,575,296			3,564,546
Prepaid expenses and other current assets	290,780			323,569
Total current assets	9,027,707			11,512,202
Property and equipment	24,728,824			24,288,169
Less: Accumulated depreciation and amortization	(20,744,772		)	(20,873,053		)
Net property and equipment	3,984,052			3,415,116
Patents and other assets, net	777,082			603,140
Total assets	$	13,788,841		$	15,530,458
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	409,705		$	357,379
Accrued liabilities (notes 5 and 6)	973,994			675,193
Deferred revenue	150,000			—
Total current liabilities	1,533,699			1,032,572
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 10,915,481 shares and 14,316,629 shares at December 31, 2006 and June 30, 2007, respectively	87,324			114,533
Additional paid-in capital	93,798,393			98,930,426
Accumulated deficit	(81,630,575		)	(84,547,073		)
Total stockholders’ equity	12,255,142			14,497,886
Total liabilities and stockholders’ equity	$	13,788,841		$	15,530,458

See accompanying notes to unaudited interim financial statements.

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IBIS TECHNOLOGY CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2007			2006			2007
Net Sales and revenue:
License and other revenue	$	28,120		$	137,078		$	283,220		$	221,222
Equipment revenue	14,291			128,052			6,020,013			373,971
Total net sales and revenue (notes 2 and 8)	42,411			265,130			6,303,233			595,193
Cost of sales and revenue:
Cost of license and other revenue	—			—			—			—
Cost of equipment revenue (includes share-based compensation expense of $5,661 and $13,105 for the three and six months ended June 30, 2007, respectively, and $1,144 and $6,497 for the three and six months ended June 30, 2006, respectively)	53,484			204,379			2,726,276			320,217
Total cost of sales and revenue	53,484			204,379			2,276,276			320,217
Gross profit (loss)	(11,073		)	60,751			3,576,957			274,976
Operating expenses:
General and administrative (includes share-based compensation expense of $59,333 and $121,627 for the three and six months ended June 30, 2007, respectively, and $68,861 and $122,371 for the three and six months ended June 30, 2006, respectively)	674,869			566,878			1,314,487			1,127,358
Marketing and selling (includes share-based compensation expense of $15,820 and $31,681 for the three and six months ended June 30, 2007, respectively, $10,353 and $28,924 for the three and six months ended June 30, 2006, respectively)	300,055			139,434			616,516			359,921
Research and development (includes share-based compensation expense of $37,103 and $80,758 for the three and six months ended June 30, 2007, respectively, and $16,782 and $64,693 for the three and six months ended June 30, 2006, respectively)	1,356,591			963,518			2,685,893			2,027,880
Total operating expenses	2,331,515			1,669,830			4,616,896			3,515,159
Loss from operations	(2,342,588		)	(1,609,079		)	(1,039,939		)	(3,240,183		)
Other income (expense):
Interest income	89,259			65,947			153,647			122,837
Other	87,267			96,392			86,372			202,104
Total other income	176,526			162,339			240,019			324,941
Loss before income taxes	(2,166,062		)	(1,446,740		)	(799,920		)	(2,915,242		)
Income tax expense	—			—			1,256			1,256
Net loss (notes 2 and 9)	$	(2,166,062	)	$	(1,446,740	)	$	(801,176	)	$	(2,916,498	)
Earnings (loss) per share:
Basic	$	(0.20	)	$	(0.11	)	$	(0.07	)	$	(0.23	)
Diluted	$	(0.20	)	$	(0.11	)	$	(0.07	)	$	(0.23	)
Weighted average common shares outstanding
Basic	10,835,385			13,431,999			10,825,761			12,490,084
Diluted (note 7)	10,835,385			13,431,999			10,825,761			12,490,084

See accompanying notes to unaudited interim financial statements.

4

IBIS TECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended
	June 30,
	2006			2007
Cash flows from operating activities:
Net loss	(801,176		)	$	(2,916,498	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	222,485			247,171
Depreciation and amortization	775,777			773,934
Changes in operating assets and liabilities:
Accounts receivable, trade	26,111			(46,643		)
Inventories	1,508,960			10,750
Prepaid expenses and other current assets	98,895			(32,789		)
Accounts payable	254,143			(52,326		)
Accrued liabilities and deferred revenue	(1,360,478		)	(448,801		)
Net cash provided by (used in) operating activities	724,717			(2,465,202		)
Cash flows from investing activities:
Additions to property and equipment, net	(27,837		)	(6,254		)
Other assets	(69,278		)	(24,802		)
Net cash used in investing activities	(97,115		)	(31,056		)
Cash flows from financing activities:
Exercise of stock options and employee stock purchase plan	73,006			27,690
Proceeds from sales of common stock, net of issuance cost	—			4,884,381
Net cash provided by financing activities	73,006			4,912,071
Net increase in cash and cash equivalents	700,608			2,415,813
Cash and cash equivalents, beginning of period	6,856,874			4,812,477
Cash and cash equivalents, end of period	$	7,557,482		$	7,228,290

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 Ibis Technology Corporation (the “Company” or “Ibis”) in accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles 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, 2006, which are included in the Company’s Annual Report on Form 10-K as filed on March 28, 2007.

(2) Summary of Significant Accounting Policies

(a) Revenue Recognition

The Company recognizes revenue from 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 recognizes revenue from implanter sales upon acceptance at the customer’s site. Revenue derived from contracts and services is recognized upon performance. Provisions for anticipated losses are made in the period in which such losses become determinable.

(b) Share-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, employee stock purchases related to the 2000 Employee Stock Purchase Plan (“the ESPP”), restricted stock and other special equity awards based on grant date estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in 2006. In March 2005, the Securities and Exchange Commission issued SAB 107 relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

The Company’s financial statements as of and for the three and six months ended June 30, 2006 and June 30, 2007 reflect the impact of SFAS 123(R). Share-based compensation expense recognized under SFAS 123(R) for the three and six months ended June 30, 2006 and June 30, 2007 were both $0.1 million and $0.2 million, respectively or $0.01 and $0.02 per share, which consisted of share-based compensation expense related to employee stock options and the employee stock purchase plan. Of this June 30, 2007 year-to-date expense, twenty six percent came from options issued prior to December 31, 2005 and are valued using the accrual method, which is consistent with prior periods, while sixty seven percent came from options issued after January 1, 2006 and are valued using the straight-line prorated method, which was adopted in 2006 under the new guidance, and seven percent came from the valuation of shares issued under the employee stock purchase plan. This compares to the expense for the year-to-date period ended June 30, 2006 where sixty nine percent came from options issued prior to December 31, 2005 and are valued using the accrual method, which is consistent with prior periods, while twelve percent come from options issued in 2006 and are valued using the straight-line prorated method, which was adopted in 2006 under the new guidance and nineteen percent come from the valuation of shares issued under the employee stock purchase plan.

6

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Statements of Operations.

Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s Statements of Operations for the three and six months ended June 30, 2006 and June 30, 2007 included compensation expenses for share-based payment awards granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 123, and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). As stock-based compensation expense recognized in the Statements of Operations for the three and six months ended June 30, 2006 and June 30, 2007 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Upon adoption of SFAS 123(R), the Company elected to retain its method of valuation for share-based awards granted beginning in 2006 using the Black-Scholes option-pricing model (“Black-Scholes model”). The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

(c) Accounting for Uncertainty in Income Taxes

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. This interpretation is effective for fiscal years beginning after December 15, 2006 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. As a result of the implementation of FIN 48, the Company recorded no adjustment for unrecognized income tax benefits. At the adoption date of January 1, 2007 and also at June 30, 2007, the Company had no unrecognized tax benefits. Ibis classifies any interest and penalties related to income taxes as components of income tax expense.

The tax years 2000 to 2006 remain open to examination by the major taxing jurisdictions to which we are subject. Preceding years also remain open to examination by U.S. federal and state revenue authorities to the extent of future utilization of net operating losses (NOLs) and research and development (R&D) tax credits generated in each preceding year.

As of December 31, 2006, we had federal and state NOLs of approximately $87,082,000 and $52,405,000, respectively and federal and state R&D credit carryforwards of approximately $1,000,000 and $905,000, respectively, which can be used to offset future federal and state income tax liabilities prior to expiration on various dates through 2026.

Utilization of NOL and R&D credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future as provided by Section 382 of the Internal Revenue Code of 1986 and similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax. In general, an ownership change, as defined in Section 382, results from transactions which increase the ownership of certain 5% or greater shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on

7

several occasions which, combined with the purchasing shareholders’ subsequent disposition of those shares, may have resulted in a change of control, as defined in Section 382, or could result in a change of control in the future upon subsequent disposition. The Company has not currently completed a study to assess whether a change of control has occurred or whether there have been multiple changes of control since the Company’s formation. If the Company has experienced a change of control at any time since formation, or if Ibis experiences a change of control in the future, utilization of the NOL and R&D credit carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of all or a portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being presented as an uncertain tax position under FIN 48.

(d) New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company has not yet determined the impact this FASB will have on our results from operations or financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value and is effective as of the beginning of the Company’s fiscal year beginning after November 15, 2007. The Company is currently evaluating the potential impact of SFAS No. 159 on its financial position and results of operations.

(3) Liquidity

Historically, the Company has financed its operations and met its capital requirements through funds generated from operations, the issuance of common stock, equipment lines of credit, a working capital line of credit, a term loan, sales-leaseback arrangements and collaborative arrangements. In July 2004, the Company discontinued its wafer manufacturing business to focus exclusively on the equipment manufacturing business. The Company will maintain a

8

research and development effort focused on continuous improvement of the equipment capabilities and for supporting our equipment customers’ needs.

As of June 30, 2007, the Company had cash and cash equivalents of $7.2 million, including the gross proceeds from the financing of $5.3 million, received in the six months ended June 30, 2007 from the sale of 3.4 million shares of common stock and 2.5 million common stock warrants. During the six months ended June 30, 2007, Ibis used $2.5 million of cash for operating activities as compared to cash provided of $0.7 million in the six months ended June 30, 2006. The principal uses of cash during the six months ended June 30, 2007 was to fund operations. At June 30, 2007, Ibis had commitments to purchase approximately $0.1 million in material. Our headcount for the quarter ended June 30, 2007 was 33 employees.

Cash flow projections developed by management indicate the Company believes it will have sufficient cash resources to support current operations until at least November of 2008. This expectation however, is based on the Company’s current operating plan and general sales outlook, each of which may change rapidly. In January 2007 the Company announced that to conserve cash it was reducing its operating expenses by approximately 40% which involved cost cutting measures consisting of headcount reductions, an employee outsourcing agreement at a neighboring business for a minimum of six months under a staffing services agreement, salary reductions and reducing consumable expenses. On February 16, 2007, the Company entered into a purchase agreement pursuant to which it agreed to sell approximately 3.4 million unregistered shares of its common stock and approximately 2.5 million warrants exercisable for common stock to Special Situation Funds for an aggregate purchase price of approximately $5.3 million in a two-tranche financing. The first closing of the February 2007 financing, at which the Company received approximately $2.2 million in proceeds, occurred on February 20, 2007. Pursuant to stockholder approval received at the Ibis Annual Meeting on May 10, 2007, the Company sold the remainder of the securities at a second closing, at which the Company received approximately $3.1 million in proceeds. In connection with the transaction, the Company also entered into a registration rights agreement with the investors. The Company paid a placement fee to a placement agent of approximately $0.3 million, which represents a cash fee equal to 5% of the aggregate gross proceeds received by the company in both closings of the financing. The Company also issued to the placement agent an aggregate of 179,619 warrants exercisable for common stock with a dollar value equal to 5% of the aggregate gross proceeds. Total transaction costs associated with the financing were approximately$0.4 million, providing net cash to the Company of $4.9 million. All of the securities were sold in a private placement pursuant to regulation D of the Securities Act.

The Company intends to continue to invest in research, development and manufacturing capabilities. Changes in technology or sales growth beyond currently established capabilities may require further investment. Further adoption of the technology and the timing of future equipment orders are dependent on the continuing qualification of implanters and improvement programs at the device manufacturers, among other factors. At present time the Company has only one of the four major wafer manufacturers as its current prospective customer. We currently do not have an order backlog for implanters. The timing of future orders is important and difficult to predict because customers can delay orders and/or request early shipment, either of which could cause the need for additional cash requirements. Forecasting future revenue, on a quarter-by-quarter basis, remains exceedingly difficult and significant variations quarter to quarter, are likely. Further, because some of the materials and components the Company uses to build its implanter have long lead times, the Company may purchase some or all of these long lead time items prior to receipt of an order by its customers. When this is the case, those parts and materials bear the risk of being subject to excess and obsolescence. The Company expects to continue to explore equity offerings and other forms of financing in order to finance future growth and our research and development programs. There can be no assurance, however, that our actual needs will not exceed expectations or that we will be able to fund our operations on a long-term basis in the absence of other sources. There also can be no assurance that any additional required longer term financing will be available through additional bank borrowings, debt or equity offerings or otherwise, or that if such financing is available, that it will be available on terms acceptable to us.

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(4) Inventories

Inventories consist of the following:

	December 31,		June 30,
	2006		2007
Raw materials	$	1,445,182	$	1,439,390
Work in process	2,130,114		2,125,156
Finished goods	—		—-
Total equipment inventory	$	3,575,296	$	3,564,546

(5) Accrued Liabilities

Current accrued liabilities were as follows:

	December 31,		June 30,
	2006		2007
Accrued vacation	$	156,213	$	165,549
Accrued warranty	435,979		253,451
Accrued payroll	128,343		49,832
Accrued expenses	253,459		206,361
Total accrued liabilities	$	973,994	$	675,193

(6) Accrued Warranty

At the time that revenue is recognized for the sale of an implanter a liability for warranty is also established. An estimate of the warranty cost is made based on the number of years involved and the Company’s prior experience. As material and labor is used during the warranty period the liability is reduced based on these charges. At the end of the warranty term the balance in the liability is eliminated and adjusted through cost of sales, the account charged at inception. A reconciliation of warranty liability for the period ended December 31, 2006 and June 30, 2007 is as follows:

Warranty balance December 31, 2005	$	653,133
Expense incurred — 2006	(160,939		)
Initiated — 2006	608,220
Expired — 2006	(664,435		)
Warranty balance December 31, 2006	435,979
Expense incurred —2007	(22,881		)
Initiated — 2007	—
Expired — 2007	(159,647		)
Warranty balance June 30, 2007	$	253,451

(7) Net Income (Loss) Per Share

Net loss for the quarter ended June 30, 2007 of $1.4 million or a loss of $0.11 per share, included stock-based compensation expense under Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” (“SFAS 123R”) of $0.1 million or $0.01 per share related to employee stock options, and employee stock purchases. Net loss for the six months ended June 30, 2007 of $2.9 million or $0.23 per share, included stock-based compensation expense under (SFAS 123R) of $0.2 million

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or $0.02 per share, related to employee stock options, and employee stock purchases. Net loss for the quarter ending June 30, 2006 was $2.2 million or a loss of $0.20 per share, including stock-based compensation expense of $0.1 million, or $0.01 per share. Net loss for the six-month period ended June 30, 2006 of $0.8 million, or $0.07 per share included stock-based compensation expense under (SFAS 123R) of $0.2 million, or $0.02 per share related to employee stock options and employee stock purchases.

Net 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 six months ended June 30, 2006 and June 30, 2007, common stock equivalents of 125,526, 135,073, 10,380 and 10,380, 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.

(8) Industry Segments

The Company’s current reportable segments are SIMOX Equipment and Other Products or Services. For purposes of segment reporting, equipment, equipment spares and field service revenue are combined and reported as SIMOX Equipment. Other services and license revenue are combined and reported as Other Products or Services.

The table below provides unaudited information for the three and six months ended June 30, 2006 and 2007 pertaining to the Company’s two industry segments.

	SIMOX Equipment			Other Products Or Services		Total
Net Revenue
Three Months Ended June 30, 2006	$	14,291		$	28,120	$	42,411
Three Months Ended June 30, 2007	$	128,052		$	137,078	$	265,130
Six Months Ended June 30, 2006	$	6,020,013		$	283,220	$	6,603,233
Six Months Ended June 30, 2007	$	373,971		$	221,222	$	595,193
Operating Income (Loss)
Three Months Ended June 30, 2006	(1,695,840		)	28,120		(1,667,720		)
Three Months Ended June 30, 2007	(1,179,279		)	137,078		(1,042,201		)
Six Months Ended June 30, 2006	(8,672		)	283,220		274,548
Six Months Ended June 30, 2007	(2,334,047		)	221,222		(2,112,825		)
Assets
June 30, 2007	7,772,941			174,158		7,947,099
Capital Expenditures
Three Months Ended June 30, 2006	4,156			—		4,156
Three Months Ended June 30, 2007	—			—		—
Six Months Ended June 30, 2006	27,837			—		27,837
Six Months Ended June 30, 2007	—			—		—
Depreciation and Amortization of Property and Equipment
Three Months Ended June 30, 2006	372,531			—		372,531
Three Months Ended June 30, 2007	368,693			—		368,693
Six Months Ended June 30, 2006	744,985			—		744,985
Six Months Ended June 30, 2007	737,448			—		737,448

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

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
Segment Reconciliation	2006			2007			2006			2007
Net Income (Loss):
Total operating income (loss) for reportable segments	$	(1,667,720	)	$	(1,042,201	)	$	274,548		$	(2,112,825	)
Corporate general and administrative expenses	(674,868		)	(566,878		)	(1,314,487		)	(1,127,358		)
Net other income	176,526			162,339			240,019			324,941
Income tax expense	—			—			(1,256		)	(1,256		)
Net loss	$	(2,166,062	)	$	(1,446,740	)	$	(801,176	)	$	(2,916,498	)
Capital Expenditures:
Total capital expenditures for reportable segments	$	4,156		$	—		$	27,837		$	—
Corporate capital expenditures	—			6,254			—			6,254
Total capital expenditures	$	4,156		$	6,254		$	27,837		$	6,254
Depreciation and Amortization:
Total depreciation and amortization for reportable segments	$	372,531		$	368,693		$	744,985		$	737,448
Corporate depreciation and amortization	15,648			16,532			30,792			36,486
Total depreciation and amortization	$	388,179		$	385,225		$	775,777		$	773,934
							Balance as of
							6/30/07
Assets:
Total assets for reportable segments							$	7,947,099
Cash & cash equivalents not allocated to segments							7,228,290
Other unallocated assets							355,069
Total assets							$	15,530,458

(9) Employee Stock Benefit Plans

Net loss for the six months ended June 30, 2007 included stock-based compensation expense under SFAS 123(R) of $0.2 million. Of this expense, twenty-six percent came from options issued prior to December 31, 2005 and are valued using the accrual method, which is consistent with prior periods, while sixty-seven percent came from options issued after January 1, 2006 and are valued using the straight-line prorated method, which was adopted in 2006 under the new guidance, and seven percent came from the employee stock purchase plan valuation. Net loss for the six months ended June 30, 2006 included stock-based compensation expense under SFAS 123(R) of $0.2 million. Of this expense, sixty-nine percent came from options issued prior to December 31, 2005 and are valued using the accrual method, which is consistent with prior periods, while twelve percent came from options issued in 2006 and are valued using the straight-line prorated method which was adopted in 2006 under the new guidance, and nineteen percent came from the employee stock purchase plan valuation.

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Employee Stock Purchase Plans

The Company maintains an employee stock purchase plan where eligible employees may purchase common stock through payroll deduction of up to 15% of compensation with a limit of $21,250. The price per share is the lower of 85% of the market price at the beginning or end of each offering period (generally 6 months). The plan provides for purchases by employees of up to an aggregate of 600,000 shares through May 31, 2010. During the six months ended June 30, 2006 and June 30, 2007, the Company issued 56,085 and 22,771 shares, respectively, under the Purchase Plan. At June 30, 2007, 146,893 shares were available for purchase under the Purchase Plan.

Employee Stock Option Plan

The Company has stock-based compensation plans under which employees and directors may be granted options to purchase common stock. Options are generally granted with exercise prices at not less than the fair market value on the grant date, generally vest over 4 years and expire in 10 years after the grant date. As of June 30, 2007, a total of 4.7 million shares are authorized for grant under the Company’s stock-based compensation plans. The number of common shares reserved for granting of future awards to employees and directors under these plans was 1.5 million at June 30, 2007. The remaining unrecognized compensation expense on stock options at June 30, 2007 was $0.9 million. The weighted average period over which the cost is expected to be recognized is approximately 2 years.

As of June 30, 2007, the Company had four equity compensation plans under which our equity securities have been authorized for issuance to our employees and/or directors: the 2000 Employee Stock Purchase Plan, as amended (described above), the 1993 Employee, Director and Consultant Stock Option Plan, as amended, (the 1993 Plan); the 1997 Employee, Directors and Consultant Stock Option Plan, as amended; and the 2007 Employee, Director and Consultant Equity Plan, (the 2007 Plan). The 1993 Plan has expired and there are no options available for issuance; however, the 1993 Plan continues to govern all options, awards and other grants granted and outstanding under the 1993 Plan.

Distribution and Dilutive Effect of Options

The following table illustrates the grant dilution and exercise dilution:

	Three Months Ended				Six Months Ended
	June 30,				June 30
	2006		2007		2006		2007
Shares of common stock outstanding	10,872,514		14,316,629		10,872,514		14,316,629
Granted	7,500		312,500		140,500		597,500
Canceled/forfeited	(10,984	)	(124,547	)	(151,514	)	(175,067	)
Expired	—		—		—		—
Net options granted	(3,484	)	187,953		(11,014	)	422,433
Grant dilution (1)	(0.0	%)	1.3	%	(0.0	%)	3.0	%
Exercised	400		—		400		—
Exercised dilution (2)	0.0	%	0.0	%	0.0	%	0.0	%

(1)The percentage for grant dilution is computed based on net options granted as a percentage of shares of common stock outstanding.

(2)The percentage for exercise dilution is computed based on options exercised as a percentage of shares of common stock outstanding.

Basic and diluted shares outstanding for the three and six months ended June 30, 2007 were 13,431,999 and 12,490,084 shares respectively. During the three and six months ending June 30, 2007, the dilutive

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effect of in-the-money employee stock options were 10,380 and 10,380 shares or 0.1% and 0.1% of the basic shares outstanding based on the Company’s average share price of $1.43.

A summary of stock option transactions follows:

	Options Outstanding
	Options Available				Weighted average
	for				exercise price of
	Grant		Shares		shares under plan
Balance outstanding at December 31, 2005	185,191		1,321,262		$	11.43
Granted	(201,721	)	201,721		3.17
Exercised	—		(1,025	)	1.36
Cancelled/forfeited	167,573		(167,573	)	16.42
Expired	(10,117	)	—		—
Additional shares reserved	300,000		—		—
Balance outstanding at December 31, 2006	440,926		1,354,385		$	9.59
Granted	(597,500	)	597,500		1.47
Exercised	—		—		—
Cancelled/forfeited	175,067		(175,067	)	12.19
Expired	(3,250	)	—		—
Additional shares reserved	1,500,000		—		—
Balance outstanding at June 30, 2007	1,515,243		1,776,818		$	6.60

The following table summarizes information concerning outstanding and exercisable options as of June 30, 2007:

			Options Outstanding						Options Exercisable
				Weighted	Weighted					Weighted
				Average	Average					average
			Number	remaining contractual	exercise price		Aggregate Intrinsic		Options	exercise price
Range of exercise prices			outstanding	life (years)	per share		Value		Exercisable	per share
	$	.01 - 6.00	1,234,637	8.6	$	2.32	$	12,594	314,250	$	3.68
	$	6.01 - 9.00	129,704	5.2	$	7.91			117,204	$	7.91
	$	9.01 - 13.50	277,502	2.3	$	10.17			272,877	$	10.15
	$	13.51 - 20.26	34,775	3.1	$	18.09			34,775	$	18.09
	$	20.27 - 30.37	8,250	2.3	$	23.35			8,250	$	23.35
	$	30.38 - 45.55	11,250	2.8	$	37.24			11,250	$	37.24
	$	45.56 - 68.32	79,700	2.5	$	46.35			79,700	$	46.35
	$	68.33 - 98.71	1,000	2.7	$	89.94			1,000	$	89.94
			1,776,818	6.9	$	6.60	$	12,594	839,306	$	11.77

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $1.53 as of June 30, 2007, which would have been received by the option holders had all option holders exercised their options as of that date. The fair value of stock options vested at June 30, 2007 and June 30, 2006 was $4.0 million and $4.8 million, respectively. The total number of in-the-money options exercisable as of June 30, 2007 was 69,525. As of December 31, 2006, 859,100 outstanding options were exercisable, and the weighted average exercise price was $13.41.

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Valuation and Expense Information under SFAS 123(R)

The following table summarizes stock-based compensation expense related to employee stock options and employee stock purchases under SFAS123 (R) for the three and six months ended June 30, 2007 and June 30, 2006 which was allocated as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2007		2006		2007
	(in thousands)				(in thousands)
Cost of sales	$	1	$	6	$	6	$	13
General and administration	69		59		122		121
Marketing and selling	10		16		29		32
Research and Development	17		37		65		81
Stock-based compensation expense included in operating expense	$	97	$	118	$	222	$	247

As of June 30, 2007, the Company had capitalized $4 thousand of stock-based compensation in inventory. The Company did not recognize any tax benefits on the stock-based compensation recorded in the periods based on the current tax status of the Company.

The weighted-average estimated fair value of employee stock options granted during the three and six months ended June 30, 2007, and the three and six months ended June 30, 2006, were $1.52, $1.37, $2.15 and $2.39 per share, respectively, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Three and Six Months Ended June 30, 2006			Three and Six Months Ended June 30, 2007
Expected Volatility		103.71	%		97.96	%
Risk free Interest rate		4.76	%		4.87	%
Dividend yield		0.00			0.00
Expected option life (10 year contractual life option)		6.25			6.25

The expected life of employee stock options is the anticipated average time that an option will be outstanding. The Company chose to use the simplified method provided under SAB107 to estimate the expected term for “plain vanilla” stock options. The expected term as calculated under the simplified method is 6.25 years.

The Company determined the expected volatility of the stock price by using a period equal to the expected life of the stock options, 6.25 years. Volatility was measured as the standard deviation of the difference in the natural logarithms of the stock over the expected life of the options using the daily closing stock price. This resulted in the volatility of 97.96% and 103.71%.

The risk-free interest rate assumption is based upon observed treasury bill interest rates (risk free) appropriate for the expected term of the Company’s employee stock options.

As share-based compensation expense recognized in the Statement of Operations for the three and six months ended June 30, 2007 and June 30, 2006 is actually based on awards ultimately expected to vest, it has been reduced for annualized estimated forfeitures of 14.18% and 16.36%, respectively. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

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(10) Legal Proceedings

On April 26, 2007, the Court approved a settlement agreement in the consolidated securities class action captioned In re Ibis Technology Securities Litigation, Civil Action No. 04-10446 RCL (D. Mass.). The Company and its Chairman of the Board, Martin J. Reid, and the plaintiffs reached an agreement in principle to settle the securities class action, which the Company announced on October 2, 2006. Thereafter, the parties executed a formal settlement agreement and submitted it for Court approval. The settlement provides for a payment to the plaintiffs of $1.9 million. The Court’s April 26, 2007 Order certified the proposed class for settlement purposes only, approved the parties’ settlement agreement, and dismissed the securities class action with prejudice and in its entirety. The settlement was funded entirely by the Company’s insurance carrier and did not have a material adverse affect on our business, results of operations and financial condition.

On April 10, 2007 the Company announced that the shareholder derivative action filed in February 2004 against certain of the Company’s directors and officers: Louis F. Matheson, Jr. v. Martin J. Reid et al., Civ. Act. No. 04-10341 (RCL) (D. Mass) has been voluntarily dismissed by the plaintiff. The notice of dismissal filed by the plaintiff dismissed the action with prejudice. As set forth in the notice, the plaintiff will receive a $55,000 payment following the dismissal, in consideration of plaintiff’s analysis of information provided by the Company regarding, among other things, the Company’s contention that the litigation should be dismissed for failure to make a demand on the Board of Directors before filing suit as required by Massachusetts law. The payment will be funded entirely by the Company’s insurance carrier.

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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 i2000ä, 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 exited the wafer manufacturing business. The Company believes that its decision to discontinue the wafer business permits broader strategic collaboration efforts between Ibis and the wafer manufacturers. We have maintained a research and development effort relating to wafers for our equipment improvement programs.

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 future price expectations 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 in large volume production, 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, sale and marketing of 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, re-clean, re-inspect and re-ship 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 resources on the sale of implanters to the leading silicon wafer manufacturers and our 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.

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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 (i2000ä), 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 using a range of manufacturing processes, including Advantox® MLD and Advantox MLD-UT wafers. We also believe the ability of the i2000 implanter to produce twelve-inch (or 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 more than one SIMOX wafer manufacturing processes on the implanter including the IBM MLD process, when licensed, as well as other SIMOX-SOI wafer manufacturing processes that do not require the IBM license.

Because we have sold only a small 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 during that quarter. We recognize implanter revenue in accordance with SAB 104, which includes, among other criteria, the shipment and final customer acceptance of the implanter at the customer’s location. As a result, deferral of implanter revenue will be recorded on our balance sheet until the Company is able to meet these criteria.

In January 2005, we announced the booking (i.e. receipt) of an order for one Ibis i2000 SIMOX implanter from SUMCO, a leading international silicon wafer manufacturer. This system was factory accepted and shipped in the second quarter of 2005 and we received final customer acceptance of the tool at the customer’s site in March 2006. In October of 2005, we received a second order for an i2000 SIMOX implanter from SUMCO and negotiated a master purchase agreement that will govern the general commercial terms of future orders from SUMCO. This implanter was factory accepted by SUMCO at Ibis’ facility in the first quarter of 2006. The implanter was shipped in April 2006 and final customer acceptance at the customer’s facility occurred in August, 2006, with the revenue recognized in the quarter ended September 30, 2006. At the date of this report, we do not have an order for an implanter from our customers. The Company believes, given our policies regarding revenue recognition, it is likely that the Company will not record implanter revenue during 2007.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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, 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.

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Revenue Recognition.  We recognize revenue from 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. We recognize revenue from implanter sales upon final customer acceptance at the customer’s site. 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 judgment 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 forecast the future demand for our products within specific time horizons, generally twelve months or less. If our forecasted 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.

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 or asset groups 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:

·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 or asset group. 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.

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Results of Operations

Second Quarter Ended June 30, 2007 Compared to Second Quarter Ended June 30, 2006

License and Other Revenue.  License and other revenue includes revenue derived from license agreements, characterization and other services. License and other revenue increased for the second quarter ended June 30, 2007 to $137 thousand from $28 thousand for the second quarter ended June 30, 2006, an increase of $109 thousand or 388%. This increase is attributable to increased license revenue from royalty fees related to equipment technology along with a non-refundable supplemental license option fee from a new sub-license agreement, entered into during the first quarter ended March 31, 2006 which related to equipment technology.

Equipment Revenue.  Equipment revenue represents revenue recognized from sales of implanters, spare parts and field service revenue. Equipment revenue increased to $128 thousand for the second quarter ended June 30, 2007 from $14 thousand for the second quarter ended June 30, 2006, representing an increase of $114 thousand. Sales of spare parts accounted for all of equipment revenue for the second quarter ended June 30, 2007. Sales of spare parts fluctuate depending on customer demand and when warranties expire on individual pieces of equipment. Warranty expense is calculated on our anticipated replacement costs for equipment accepted by our customers over a one or two year contract period.

Total Cost of Sales and Revenue.  Cost of equipment revenue represents the cost of equipment, the cost for spare parts, and the costs of labor incurred for field service. Cost of equipment revenue for the second quarter ended June 30, 2007 was $204 thousand, as compared to $53 thousand for the second quarter ended June 30, 2006. This increase of $151 thousand was primarily due to the increased volume of sales of spare parts in the second quarter ended June 30, 2007 along with the decrease in manufacturing overhead being absorbed from less production in the second quarter ended June 30, 2007.

              The gross margin for all sales was a positive 23% for the second quarter ended June 30, 2007 as compared to a negative gross margin of 26% for the second quarter ended June 30, 2006. The increase in the gross margin for all sales is attributable to the increased license revenue along with increased spare parts sold in the second quarter ended June 30, 2007.

General and Administrative Expenses.  General and administrative expenses for the second quarter ended June 30, 2007 were $0.6 million as compared to $0.7 million for the second quarter ended June 30, 2006. This was due to decreased payroll and payroll related expenses of $0.1 million from reduced salaries and headcount. Expenses include $0.1 million of stock-based compensation expense, which impacted the financial statements in compliance with the new accounting rule, in the quarter ended June 30, 2007 and the quarter ended June 30, 2006.

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Marketing and Selling Expenses.  Marketing and selling expenses for the second quarter ended June 30, 2007 were $0.1 million as compared to $0.3 million for the second quarter ended June 30, 2006. This was due to decreased payroll and payroll related expenses of $0.2 million due to headcount reductions and labor costs transferred for consulting at a neighboring business in the quarter ended June 30, 2007.

 Research and Development Expenses.  Internally funded research and development expenses decreased by $0.4 million or 29% to $1.0 million for the second quarter ended June 30, 2007, as compared to $1.4 million for the second quarter ended June 30, 2006. This was due to a reduction in payroll and payroll related expenses of $0.2 million from headcount reductions and labor costs transferred for consulting at a neighboring business in the quarter ended June 30, 2007, along with reduced R&D material of $0.1 million and reduced consumable expenses and utilities of $0.1 million.

Other Income (Expense).  Total other income for the second quarter ended June 30, 2007 was $0.2 million as compared to $0.2 million for the second quarter ended June 30, 2006. Other income was flat in the quarter ended June 30, 2007 as a result of outside consulting done at a neighboring business under a staffing services agreement but was offset by reduced miscellaneous income from the sale of assets previously written off and reduced interest income.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

License and Other Revenue.  License and other revenue includes revenue derived from license agreements, characterization and other services.  License and other revenue was $0.2 million for the six months ended June 30, 2007 as compared to $0.3 million for the six months ended June 30, 2006. The decrease is attributable to a new sublicense agreement related to equipment technology valued at $0.2 million for the six months ended June 30, 2006 and was offset by increased license revenue from royalty fees related to equipment technology for the six months ended June 30, 2007.

Equipment Revenue.  Equipment revenue represents revenue recognized from the sale of implanters, spare parts and field service revenue. Equipment revenue was $0.4 million for the six months ended June 30, 2007 as compared to $6.0 million for the six months ended June 30, 2006, a decrease of $5.6 million. During the six months ended June 30, 2007, there was no implanter revenue recognized for an i2000 implanter as compared to $6.0 million recognized for an i2000 implanter in the first six months of 2006. Field service revenue accounted for $0.2 million of equipment revenue for the six months ended June 30, 2007 as compared to $0 dollars of equipment revenue for the same period last year. Sales of spare parts accounted for $0.2 million of equipment revenue for the six months ended June 30, 2007 as compared to $0 dollars of equipment revenue for the six months ended June 30, 2006. Sales of spare parts fluctuate depending on customer demand and when warranties expire on individual pieces of equipment. Warranty expense is calculated on our anticipated replacement costs for equipment accepted by our customers over a one of two year contract period.

Total Cost of Sales and Revenue.  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 six months ended June 30, 2007 was $0.3 million, compared to $2.7 million for the six months ended June 30, 2006. The decrease of $2.4 million was primarily due to the costs associated with the recognition of revenue for the i2000 implanter in the six months ended June 30, 2006.

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 The gross margin for all sales was a positive 46% for the six months ended June 30, 2007 as compared to a positive gross margin of 57% for the six months ended June 30, 2006. This decrease in the gross margin for all sales is attributable to the approximate gross margin of 54% for the i2000 implanter sale recognized in the six months ended June 30, 2006.

General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 2007 were $1.1 million compared to $1.3 million for the six months ended June 30, 2006. This was due to decreased payroll and payroll related expenses of $0.2 million from reduced salaries and headcount.

Marketing and Selling Expenses.  Marketing and selling expenses were $0.4 million for the six months ended June 30, 2007 as compared to $0.6 million for the six months ended June 30, 2006. This decrease was due to decreased payroll and payroll related expenses of $0.2 million from headcount reductions and labor costs transferred for consulting at a neighboring business in the six months ended June 30, 2007.

Research and Development Expenses.  Internally funded research and development expenses decreased by $0.7 million or 24%, to $2.0 million for the six months ended June 30, 2007, as compared to $2.7 million for the six months ended June 30, 2006. This was due to a reduction in payroll and payroll related expenses of $0.4 million from headcount reductions and labor costs transferred for consulting at a neighboring business in the six months ended June 30, 2007. In addition, reduced R&D material of $0.1 million, consumable expenses of $0.1 million and occupancy expenses of $0.1 million contributed to these results.

Other Income (Expense).  Total other income for the six months ended June 30, 2007 was $0.3 million as compared to $0.2 million for the six months ended June 30, 2006, an increase of $0.1 million. Other income increased in the six months ended June 30, 2007 as a result of outside consulting done at a neighboring business under a staffing services agreement.

Liquidity and Capital Resources

As of June 30, 2007, the Company had cash and cash equivalents of $7.2 million, including the gross proceeds from the financing of $5.3 million, received in the six months ended June 30, 2007 from the sale of 3.4 million shares of common stock and 2.5 million common stock warrants. During the six months ended June 30, 2007, Ibis used $2.5 million of cash from operating activities as compared to cash provided of $0.7 million in the six months ended June 30, 2006. The principal uses of cash during the six months ended June 30, 2007 was to fund operations. At June 30, 2007, Ibis had commitments to purchase approximately $0.1 million in material. Our headcount for the quarter ended June 30, 2007 was 33 employees.

Cash flow projections developed by management indicate the Company believes it will have sufficient cash resources to support current operations until at least November of 2008. This expectation however, is based on the Company’s current operating plan and general sales outlook, each of which may change rapidly. In January 2007, the Company announced that to conserve cash it was reducing its operating expenses by approximately 40% which involved cost cutting measures consisting of headcount reductions, an employee outsourcing agreement at a neighboring business for a minimum of six months under a staffing services agreement, salary reductions and reducing consumable expenses. On February 16, 2007, the Company entered into a purchase agreement pursuant to which it agreed to sell approximately 3.4 million unregistered shares of its common stock and approximately 2.5 million warrants exercisable for common stock to Special Situation Funds for an aggregate purchase price of approximately $5.3 million in a two-tranche financing. The first closing of the February 2007 financing, at which the Company received approximately $2.2 million in proceeds, occurred on February 20, 2007. Pursuant to stockholder approval received at the Ibis Annual Meeting on May 10, 2007, the Company sold the remainder of the securities at a second closing, at which the Company received approximately $3.1 million in proceeds. In connection with the transaction, the

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Company also entered into a registration rights agreement with the investors. The Company paid a placement fee to a placement agent of approximately $0.3 million, which represents a cash fee equal to 5% of the aggregate gross proceeds received by the company in both closings of the financing. The Company also issued to the placement agent an aggregate of 179,619 warrants exercisable for common stock with a dollar value equal to 5% of the aggregate gross proceeds. Total transaction costs associated with the financing were approximately $0.4 million, providing net cash to the Company of $4.9 million. All of the securities were sold in a private placement pursuant to Regulation D of the Securities Act.

The Company intends to continue to invest in research, development and manufacturing capabilities. Changes in technology or sales growth beyond currently established capabilities may require further investment. Further adoption of the technology and the timing of future equipment orders are dependent on the continuing qualification of implanters and improvement programs at the device manufacturers, among other factors.

At present time the Company has only one of the four major wafer manufacturers as its current prospective customer. We currently do not have an order backlog for implanters. The timing of future orders is important and difficult to predict because customers can delay orders and/or request early shipment, either of which could cause the need for additional cash requirements. Forecasting future revenue, on a quarter-by-quarter basis remains exceedingly difficult and significant variations quarter to quarter, are likely. Further, because some of the materials and components the Company uses to build its implanter have long lead times, the Company may purchase some or all of these long lead time items prior to receipt of an order by its customers. When this is the case, those parts and materials bear the risk of being subject to excess and obsolescence. The Company expects to continue to explore equity offerings and other forms of financing in order to finance future growth and our research and development programs. There can be no assurance however that our actual needs will not exceed expectations or that we will be able to fund our operations on a long-term basis in the absence of other sources. There also can be no assurance that any additional required longer term financing will be available through additional bank borrowings, debt or equity offerings or otherwise, or that if such financing is available, that it will be available on terms acceptable to us.

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) the Company’s expectations regarding future orders for i2000 implanters, (ii) the Company’s ability to conduct its operations in a manner consistent with its current plan and existing capital resources or otherwise to obtain additional implanter orders or to secure financing to continue as a going concern, (iii) the continued employment of key management and technical personnel, and attaining implanter improvements to the degree and in the timeframe necessary to meet our customer’s expectations, (iv) the timing of our major customer’s ramping to production quantities on the i2000 implanter and the sustained production worthiness of the i2000 implanter, (v) the reliance on a single or small number of large customers, interest in and demand for, and market acceptance of, the Company’s SIMOX-SOI technology including the Company’s implanters, (vi) the involvement generally of the silicon wafer manufacturing industry in the SOI wafer market and the ability of the wafer manufacturer’s to produce sufficiently low cost SIMOX-SOI wafers utilizing both our SIMOX equipment and technology, as well as other equipment manufacturer’s tools, (vii) the timing and likelihood of revenue recognition on orders for the Company’s implanters, (viii) the Company’s belief that wafer manufacturers will become the primary suppliers of SIMOX-SOI wafers to the chipmaking industry, (ix) the throughput and production capacity of the i2000

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 implanter for manufacturing 300-mm SIMOX-SOI wafers, attaining implanter improvements to the degree and in the timeframe necessary to meet customer expectations, and the ability of the i2000 implanter to achieve acceptable production yields, (x) the Company’s plan to focus on supplying implanters to wafer manufacturers, and (xi) 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 without substantial delay, modification, or cancellation, in whole or in part; 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 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, 2006. 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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Regulation S-K Section 303(a)(4)(ii).

Contractual Obligations

We have no significant contractual obligations not fully recorded on our Balance Sheets or fully disclosed in the Notes to our Financial Statements.  Information about future payments under certain of our contractual obligations is contained in Note 8 to the Consolidated Financial Statements in our 2006 Annual Report on Form 10-K.

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 currently not material to the Company. The Company will begin to transact its service sales with Japanese customers in Yen, which will introduce the potential for a currency exchange gain or loss on those transactions. The Company plans to continue to transact its sales for implanter equipment and all other transactions denominated in United States dollars. The Company 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. As of June 30, 2007, the Company’s management, with the participation of its principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2007, the Company’s disclosure controls and procedures were effective in ensuring that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(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

On April 26, 2007, the Court approved a settlement agreement in the consolidated securities class action captioned In re Ibis Technology Securities Litigation, Civil Action No. 04-10446 RCL (D. Mass.).  The Company and its Chairman of the Board, Martin J. Reid, and the plaintiffs reached an agreement in principle to settle the securities class action, which the Company announced on October 2, 2006.  Thereafter, the parties executed a formal settlement agreement and submitted it for Court approval.  The settlement provides for a payment to the plaintiffs of $1.9 million.  The Court’s April 26, 2007 Order certified the proposed class for settlement purposes only, approved the parties’ settlement agreement, and dismissed the securities class action with prejudice and in its entirety.  The settlement was funded entirely by the Company’s insurance carrier and did not have a material adverse affect on our business, results of operations and financial condition.

On April 10, 2007 the Company announced that the shareholder derivative action filed in February 2004 against certain of the Company’s directors and officers: Louis F. Matheson, Jr. v. Martin J. Reid et al., Civ. Act. No. 04-10341 (RCL) (D. Mass.)has been voluntarily dismissed by the plaintiff. The notice of dismissal filed by the plaintiff dismissed the action with prejudice. As set forth in the notice, the plaintiff will receive a $55,000 payment following the dismissal, in consideration of plaintiff’s analysis of information provided by the Company regarding, among other things, the Company’s contention that the litigation should be dismissed for failure to make a demand on the Board of Directors before filing suit as required by Massachusetts law. The payment will be funded entirely by the Company’s insurance carrier.

Item 1A.   Risk Factors

Except as described in this Item 1A, there are no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as updated by the risk factors described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

Given the settlement described in Item No. 1 above, the “Risk Factor” in the Company’s  Annual Report on Form 10-K for the year ended December 31, 2006, under the heading “Securities Litigation Could Result in Substantial Cost and Divert the Attention of Key Personnel, Which Could Seriously Harm Our Business”, these matters have been resolved in their entirety.

The issuance of shares in connection with the February 2007 financing and the exercise of the related warrants will dilute the value of our shares of common stock and could cause the price of our shares of common stock to decline.

Prior to the February 2007 financing, there were 10,915,481 shares outstanding and there were 370,786 shares of common stock reserved for issuance under our equity incentive and stock purchase plans.  In connection with the first closing of the two tranche financing, we issued 1,400,000 shares of common stock and warrants to purchase 1,124,434 shares of common stock, including warrants to purchase 74,434 shares of common stock issued to TN Capital Equities, Ltd., which served as placement agent, and its designees.  At the second closing, we sold an additional 1,978,377 shares of common stock and warrants to purchase 1,588,966 shares of common stock, including 105,185 to the placement agent and its designees.  As of August 14, 2007, Special Situation Funds and its affiliates beneficially own approximately 37% of our capital stock, all of which was purchased in the February 2007 financing.

The exercise of the warrants issued in the February 2007 financing will result in dilution in the value of the shares of our outstanding common stock and the voting power represented thereby. In addition, the exercise price of the warrants may be lowered under the price adjustment provisions in the event of a “dilutive issuance,” that is, if we issue common stock at any time prior to their maturity at a per share price below such conversion or exercise price, either directly or in connection with the issuance of securities that are convertible into, or exercisable for, shares of our

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common stock. A reduction in the exercise price may result in the issuance of a significant number of additional shares upon the exercise of the warrants.

The warrants do not establish a “floor” that would limit reductions in such conversion price or exercise price. The downward adjustment of the exercise price of these warrants could result in further dilution in the value of the shares of our outstanding common stock and the voting power represented thereby.

No prediction can be made as to the effect, if any, that future sales of shares of our common stock, or the availability of shares for future sale, will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, may adversely affect the market price of our common stock and may make it more difficult for us to sell our equity securities in the future at a time and price which we deem appropriate.

To the extent the security holders who have purchased our common shares and the holders of our warrants exercise such securities and then sell the shares of our common stock they receive upon exercise, our stock price may decrease due to the additional amount of shares available in the market. The subsequent sales of these shares could encourage short sales by our security holders and others, which could place further downward pressure on our stock price. Moreover, holders of these warrants may hedge their positions in our common stock by shorting our common stock, which could further adversely affect our stock price.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

On May 14, 2007, Ibis sold 1,978,377 million unregistered shares of its common stock and 1,483,781 million warrants exercisable for common stock to Special Situations Funds in the second closing of the Company’s February 2007 financing. Pursuant to the purchase agreement entered into on February 16, 2007, the Company agreed to sell unregistered shares of its common stock and warrants exercisable for common stock to Special Situations Funds for an aggregate purchase price of $5.3 million in a two-tranche financing. The first closing of the February 2007 financing, at which the Company received approximately $2.2 million in proceeds occurred on February 20, 2007. Pursuant to stockholder approval received at the Ibis Annual Meeting on May 10, 2007, the Company sold the remainder of the securities at a second closing, at which the Company received approximately $3.1 million in proceeds.   Proceeds are to be used to fund working capital and for other general corporate purposes.

All of the securities were sold in a private placement pursuant to Regulation D of the Securities Act.

The warrants issued in the February 2007 financing are exercisable at an exercise price of $1.50 per share. The exercise price and number of shares issuable upon exercise of the warrants are subject to adjustment in the event of stock dividends, stock splits, dilutive issuances and other similar events. The warrants have a term of five years, are be fully exercisable from the date of issuance, and may be exercised on a cashless basis under specified conditions.

In connection with the transaction, the Company also entered into a registration rights agreement with the investors.  The Company registered for resale the shares and shares underlying the warrants issued in the first closing on Form S-3 (Reg. No. 333-142115) and registered for resale the shares and shares underlying the warrants issued in the second closing on Form S-3 (Reg. No. 333-143288).

The Company paid an placement fee to a placement agent of approximately $0.3 million, which represents a cash fee equal to 5% of the aggregate gross proceeds received by the Company in both closings of the financing.  The Company also issued to the placement agent an aggregate of 179,619 warrants exercisable for common stock with a dollar value equal to 5% of the aggregate gross proceeds.

Item 3 - Defaults upon Senior Securities

None

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Item 4 - Submission of Matters to a Vote of Security Holders

Information  relating to matters submitted to Stockholders at the annual meeting of stockholders of Ibis Technology held on May 10, 2006 was previously included in the Company’s Quarterly Report on Form 10Q for the quarter ended March 31, 2007.

Item 5 - Other Information

Effective August 13, 2007, the Company entered into a Change of Control Agreement with Charles M. McKenna, the Company’s President and Chief Executive Officer. In the event that Mr. McKenna’s employment is terminated within two years of a Change of Control (as defined in his agreement) of the Company, he will be paid a lump sum equal to twice the highest annual salary for the preceding three year period. Annual salary includes base salary and bonus and excludes reimbursements and amounts attributable to stock options and other non-cash compensation. Under the agreements, Mr. McKenna will also be provided health benefits for two years following termination or until the date he becomes eligible for such coverage offered by a subsequent employer if earlier. These severance compensation and benefits replace, and are provided in lieu of, any severance compensation and benefits that may be provided under any other agreement. A “Change of Control” is deemed to occur upon (i) a sale or transfer of all or substantially all of the Company’s assets; (ii) a merger or consolidation in which the Company is not the continuing or surviving corporation or the Company’s voting stockholders do not continue to hold 50% of the voting stock of the continuing or surviving corporation, or (iii) any person, together with affiliates and associates, acquires, directly or indirectly, securities representing 30% of the then outstanding shares of common stock or the combined voting power of all then outstanding securities having the right to vote in an election of the Board of Directors of the Company.

Item 6 - Exhibits

(a)Exhibits furnished as Exhibits hereto:

Exhibit No.	Description
10.1	Form of Stock Option Agreement under 2007 Employee, Director and Consultant Equity Plan
10.2	Form of Director Stock Option Agreement under 2007 Employee, Director and Consultant Equity Plan
10.3	Change of Control Agreement, dated August 13, 2007, between the Registrant and Charles M. McKenna
31.1	Certification of Charles M. McKenna, Ph.D. 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

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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: August 14, 2007	By:	/s/William J. Schmidt
		William J. Schmidt
		Chief Financial Officer, Treasurer and Clerk
		(principal financial and accounting officer)
Date: August 14, 2007	By:	/s/Charles M. McKenna, Ph.D.
		Charles M. McKenna, Ph.D.
		President and Chief Executive Officer

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EX-10.1

Exhibit 10.1

FORM OF
INCENTIVE STOCK OPTION AGREEMENT

IBIS TECHNOLOGY CORPORATION

AGREEMENT made as of the   th day of            20   , between Ibis Technology Corporation (the “Company”), a Massachusetts corporation having a principal place of business in Danvers, Massachusetts, and                           of                   ,                        , an employee of the Company (the “Employee”).

WHEREAS, the Company desires to grant to the Employee an Option to purchase shares of its common stock, $.008 par value per share (the “Shares”), under and for the purposes set forth in the Company’s 2007 Employee, Director and Consultant Equity Plan (the “Plan”);

WHEREAS, the Company and the Employee understand and agree that any terms used and not defined herein have the same meanings as in the Plan; and

WHEREAS, the Company and the Employee each intend that the Option granted herein qualify as an ISO.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:

1.             GRANT OF OPTION.

The Company hereby grants to the Employee the right and option to purchase all or any part of an aggregate of                  (        ) Shares, on the terms and conditions and subject to all the limitations set forth herein and in the Plan, which is incorporated herein by reference.  The Employee acknowledges receipt of a copy of the Plan.

2.             PURCHASE PRICE.

The purchase price of the Shares covered by the Option shall be                   ($      ) per Share, subject to adjustment, as provided in the Plan, in the event of a stock split, reverse stock split or other events affecting the holders of Shares.  Payment shall be made in accordance with Section 8(b) and Section 9 of the Plan.

3.             EXERCISABILITY OF OPTION.

Subject to the terms and conditions set forth in this Agreement and the Plan, the Option granted hereby shall become exercisable as follows:

On the first anniversary of the date of this Agreement	up to one-fourth Shares
On the second anniversary of the date of this Agreement	an additional one-fourth Shares
On the third anniversary of the date of this Agreement	an additional one-fourth Shares
On the fourth anniversary of the date of this Agreement	an additional one-fourth Shares

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The foregoing rights are cumulative and are subject to the other terms and conditions of this Agreement and the Plan.

4.TERM OF OPTION.

The Option shall terminate ten (10) years from the date of this Agreement or, if the Employee owns as of the date hereof more than 10% of the total combined voting power of all classes of capital stock of the Company or an Affiliate, five (5) years from the date of this Agreement, but shall be subject to earlier termination as provided herein or in the Plan.

If the Employee ceases to be an employee of the Company or of an Affiliate (for any reason other than the death or Disability of the Employee or termination of the Employee’s employment for “Cause” (as defined below)), the Option may be exercised, if it has not previously terminated, within three (3) months after the date the Employee ceases to be an employee of the Company or an Affiliate, or within the originally prescribed term of the Option, whichever is earlier, but may not be exercised thereafter.  In such event, the Option shall be exercisable only to the extent that the Option has become exercisable and is in effect at the date of such cessation of employment.

Notwithstanding the foregoing, in the event of the Employee’s Disability or death within three (3) months after the termination of employment, the Employee or the Employee’s Survivors may exercise the Option within one (1) year after the date of the Employee’s termination of employment, but in no event after the date of expiration of the term of the Option.

In the event the Employee’s employment is terminated by the Employee’s employer for Cause, the Employee’s right to exercise any unexercised portion of this Option shall cease as of such termination, and this Option shall thereupon terminate.  Notwithstanding anything herein to the contrary, if subsequent to the Employee’s termination as an employee, but prior to the exercise of the Option, the Board of Directors of the Company determines that, either prior or subsequent to the Employee’s termination, the Employee engaged in conduct which would constitute Cause, then the Employee shall immediately cease to have any right to exercise the Option and this Option shall thereupon terminate.

In the event of the Disability of the Employee, as determined in accordance with the Plan, the Option shall be exercisable within one (1) year after the Employee’s termination of employment or, if earlier, within the term originally prescribed by the Option.  In such event, the Option shall be exercisable:

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(a)to the extent exercisable but not exercised as of the date of Disability; and

(b)in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion of any additional rights to exercise the Option as would have accrued had the Employee not become Disabled prior to the end of the accrual period which next ends following the date of Disability.  The proration shall be based upon the number of days during the accrual period prior to the date of Disability.

In the event of the death of the Employee while an employee of the Company or of an Affiliate, the Option shall be exercisable by the Employee’s Survivors within one (1) year after the date of death of the Employee or, if earlier, within the originally prescribed term of the Option.  In such event, the Option shall be exercisable:

(x)to the extent exercisable but not exercised as of the date of death; and

(y)in the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion of any additional rights to exercise the Option as would have accrued had the Employee not died prior to the end of the accrual period which next ends following the date of death.  The proration shall be based upon the number of days during the accrual period prior to the Employee’s death.

For purposes of this Agreement, “Cause” shall include (and is not limited to) dishonesty with respect to the Company or any Affiliate, insubordination, substantial malfeasance or non-feasance of duty, unauthorized disclosure of confidential information, and conduct      substantially prejudicial to the business of the Company or any Affiliate.  Any definition in an agreement between the Employee and the Company or an Affiliate, which contains a conflicting definition of “Cause” for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to such Employee.

5.METHOD OF EXERCISING OPTION.

Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company at its principal executive office, in substantially the form of Exhibit A attached hereto.  Such notice shall state the number of Shares with respect to which the Option is being exercised and shall be signed by the person exercising the Option.  Payment of the purchase price for such Shares shall be made in accordance with Section 8(b) and Section 9 of the Plan.  The Company shall deliver a certificate or certificates representing such Shares as soon as practicable after the notice shall be received, provided, however, that the Company may delay issuance of such Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including, without limitation, state securities or “blue sky” laws).  The certificate or certificates for the Shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option (or, if the Option shall be exercised by the Employee and if the Employee shall so request in the notice exercising the Option, shall be registered in the name of the Employee and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option.  In the event the Option shall be exercised, pursuant to Section 4 hereof, by any person or persons

3

other than the Employee, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option.  All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable.

6.PARTIAL EXERCISE.

Exercise of this Option to the extent above stated may be made in part at any time and from time to time within the above limits, except that no fractional share shall be issued pursuant to this Option.

7.NON-ASSIGNABILITY.

The Option shall not be transferable by the Employee otherwise than by will or by the laws of descent and distribution.  The Option shall be exercisable, during the Employee’s lifetime, only by the Employee (or, in the event of legal incapacity or incompetency, by the Employee’s guardian or representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.  Any attempted transfer, assignment, pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 7, or the levy of any attachment or similar process upon the Option shall be null and void.

8.NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

The Employee shall have no rights as a stockholder with respect to Shares subject to this Agreement until registration of the Shares in the Company’s share register in the name of the Employee.  Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date of such registration.

9.CAPITAL CHANGES AND BUSINESS SUCCESSIONS.

The Plan contains provisions covering the treatment of Options in a number of contingencies such as stock splits and mergers.  Provisions in the Plan for adjustment with respect to stock subject to Options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

10.TAXES.

The Employee acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares issuable pursuant to this Option shall be the Employee’s responsibility.

In the event of a Disqualifying Disposition (as defined in Section 15 below) or if the Option is converted into a Non-Qualified Option and such Non-Qualified Option is exercised, the Company may withhold from the Employee’s remuneration, if any, the appropriate amount of

4

federal, state and local withholding taxes attributable to such amount that is considered compensation includable in such person’s gross income.  At the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration, or in kind from the Shares otherwise deliverable to the Employee on exercise of the Option.  The Employee further agrees that, if the Company does not withhold an amount from the Employee’s remuneration sufficient to satisfy the Company’s income tax withholding obligation, the Employee will reimburse the Company on demand, in cash, for the amount under-withheld.

11.PURCHASE FOR INVESTMENT.

Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:

(a)The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s) evidencing the Shares issued pursuant to such exercise:

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws;” and

(b)If the Company so requires, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in compliance with the 1933 Act without registration thereunder.  Without limiting the generality of the foregoing, the Company may delay issuance of the Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation state securities or “blue sky” laws).

12.NO OBLIGATION TO EMPLOY.

The Company is not by the Plan or this Option obligated to continue the Employee as an employee of the Company.

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13.OPTION IS INTENDED TO BE AN ISO.

The parties each intend that the Option be an ISO so that the Employee (or the Employee’s Survivors) may qualify for the favorable tax treatment provided to holders of Options that meet the standards of Section 422 of the Code.  Any provision of this Agreement or the Plan which conflicts with the Code so that this Option would not be deemed an ISO is null and void and any ambiguities shall be resolved so that the Option qualifies as an ISO.  Nonetheless, if the Option is determined not to be an ISO, the Employee understands that neither the Company nor any Affiliate is responsible to compensate him or her or otherwise make up for the treatment of the Option as a Non-qualified Option and not as an ISO.  The Employee should consult with the Employee’s own tax advisors regarding the tax effects of the Option and the requirements necessary to obtain favorable tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements.

14.NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.

The Employee agrees to notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any of the Shares acquired pursuant to the exercise of the Option.  A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale) of such Shares before the later of (a) two years after the date the Employee was granted the Option or (b) one year after the date the Employee acquired Shares by exercising the Option, except as otherwise provided in Section 424(c) of the Code.  If the Employee has died before the Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

15.NOTICES.

Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

If to the Company:

Ibis Technology Corporation
32 Cherry Hill Drive
Danvers, MA  01923
Attn:  President

If to the Employee:

or to such other address or addresses of which notice in the same manner has previously been given.  Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail.

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16.GOVERNING LAW.

This Agreement shall be construed and enforced in accordance with the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.

17.BENEFIT OF AGREEMENT.

Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

18.ENTIRE AGREEMENT.

This Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict, the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

19.MODIFICATIONS AND AMENDMENTS.

The terms and provisions of this Agreement may be modified or amended as provided in the Plan.

20.WAIVERS AND CONSENTS.

Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

21.HOLDING PERIOD APPLICABLE TO PERSONS SUBJECT TO SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

If the Employee to whom the Option has been granted pursuant to this Agreement is subject to Section 16 of the 1934 Act, Section 16 requires that, in some circumstances at least six (6) months must elapse from the date of grant of the Option to the date of disposition of the Shares.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Employee has hereunto set his or her hand, all as of the day and year first above written.

	IBIS TECHNOLOGY CORPORATION
By:
	William J. Schmidt
	Chief Financial Officer
	Employee

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EX-10.2

Exhibit 10.2

AGREEMENT

This Agreement is entered into as of the      th day of August, 2007 by and between Ibis Technology Corporation, a Massachusetts corporation (the “Company”) and Charles M. McKenna (the “Executive”).

WHEREAS the Executive desires to enter into this Agreement to provide him with certain financial protection in the event that his employment terminates for certain reasons in connection with or within a period of time after a change of control of the Company; and

WHEREAS the Board of Directors of the Company has determined that it is in the best interests of the Company to enter into this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:

1.             DEFINITIONS.

(a)           Cause.  As used herein, “Cause” shall mean a termination for one or more of the following reasons, as determined by a majority vote of the Board:  (i) Executive’s continuing failure to render services to the Company in accordance with his assigned duties and such failure of performance continues for a period of more than 120 days after notice thereof has been provided to the Executive by the Board; (ii) the Executive’s willful misconduct or gross negligence; (iii) the Executive is convicted of a felony, either in connection with the performance of his obligations to the Company or which conviction materially adversely affects his ability to perform such obligations, or materially adversely affects the business activities, reputation, goodwill or image of the Company; (iv) willful disloyalty, deliberate dishonesty, breach of fiduciary duty; (v) the commission by the Executive of an act of fraud, embezzlement or deliberate disregard of the rules or policies of the Company which results in significant loss, damage or injury to the Company; (vi) the Executive’s willful unauthorized disclosure of any trade secret or confidential information of the Company; or (vii) Executive’s willful commission of an act which constitutes unfair competition with the Company or which induces any employee or customer of the Company to break a contract with the Company.

In making any determination under this Section 1(a), the Board shall act fairly and in utmost good faith and shall give the Executive an opportunity to appear and be heard at a meeting of the Board or any committee thereof and present evidence on his behalf.  For purposes of this Section, no act, or failure to act, by the Executive shall be considered “willful” unless done, or admitted to be done, by the Executive in bad faith and without reasonable belief that such action or omission was in the best interest of the Company.

(b)           Change Of Control.  As used herein, a “Change of Control” shall be deemed to have occurred if (i) there is a sale or transfer of all or substantially all of the assets of the Company in one or a series of transactions; (ii) any “person,” as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (or any successor provision) (the “Exchange Act”), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act or any successor provision) of such person, shall become the

“beneficial owner” or “beneficial owners” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provision), directly or indirectly, of securities of the Company representing in the aggregate thirty percent (30%) or more of either (1) the then outstanding shares of common stock of the Company or (2) the combined voting power of all then outstanding securities of the Company having the right under ordinary circumstances to vote in an election of the Board of Directors of the Company (hereafter referred to as an “Acquisition”); PROVIDED, that, notwithstanding the foregoing, an Acquisition shall not be deemed to have occurred for purposes of this clause (ii) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of common stock or other voting securities outstanding, increases (x) the proportionate number of shares of common stock beneficially owned by any person to thirty percent (30%) or more of the common stock then outstanding or (y) the proportionate voting power represented by the voting securities beneficially owned by any person to thirty percent (30%) or more of the combined voting power of all then outstanding voting securities; or (iii) there is a merger or consolidation between the Company and an entity other than a subsidiary of the Company in which the Company is not the continuing or surviving corporation and pursuant to which the holders of the Company’s voting stock immediately prior to such merger or consolidation would not be the holders immediately after such merger or consolidation of at least 50% of the voting stock of the continuing or surviving corporation.

(c)           Good Reason.  As used herein, a “Good Reason” shall mean a material change in the Executive’s authority, functions, duties or responsibilities as President and Chief Executive Officer of the Company (including, without limitation, material changes in the control or managerial structure of the Company) which would cause his position with the Company to become of less dignity, responsibility, importance or scope than his position on the date hereof or as of any subsequent date prior to the Change of Control, a reduction in the Executive’s salary or a material reduction in benefits from the amount of salary paid or the value of the benefits available on the date hereof or as of any subsequent date prior to the Change of Control, a transfer of the principal location of the place of performance of the Executive’s duties from the Danvers, Massachusetts area without the Executive’s consent, or the failure of the Board of Directors of the Company to elect the Executive as President and Chief Executive Officer of the Company at any time such elections are made, or removal from such office of the Company, PROVIDED that such material change is not in connection with a termination of the Executive’s employment for Cause, and, PROVIDED, FURTHER, that any notice of termination by the Executive for Good Reason shall be given by him within ninety (90) days of when he becomes aware of such change, of such failure or removal.

2.             SEVERANCE COMPENSATION.  In the event that at or near the time of, in connection with, or within a period of two (2) years after, a Change of Control, the Executive’s employment with the Company is terminated either (i) by the Company other than for Cause or (ii) by the Executive for a Good Reason, then the Company, within ten (10) days of the applicable termination date, shall pay to the Executive, in addition to any amounts due to Executive for services rendered prior to the termination date, a lump sum amount equal to two (2) times the Executive’s highest Annual Salary during the preceding three year period, including the year of such termination.  Annual Salary shall mean Executive’s annual base salary and bonus, excluding reimbursements and amounts attributable to stock options and other non-cash compensation.

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3.             CONTINUATION OF BENEFITS.  In the event that at the time of, in connection with, or within a period of (2) two years after a Change in Control, the Executive’s employment with the Company is terminated either (i) by the Company other than for Cause or (ii) by the Executive for a Good Reason, then the Company shall arrange to provide the Executive with life, disability, group dental and health insurance benefits substantially similar to those the Executive was receiving, immediately prior to the termination, until the earlier of (a) two (2) years following his termination date, or (b) the date upon which he becomes eligible for such coverage offered by a subsequent employer.  Executive’s termination date shall be the date of any qualifying event under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the COBRA coverage that may be available to Executive, if any, shall be offset by any period of coverage provided hereunder.

3A.          SPECIFIED EMPLOYEE.  Notwithstanding the provisions of Sections 2 and 3, if the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B) of the Internal Revenue Code of 1986, as amended (the “Code”), then payment of the amount described in Section 2(a) shall be made on the date which is six (6) months after the applicable termination date or, if earlier, the date of death of the Executive, and the benefit described in Section 3 shall commence on the date which is six (6) months after the applicable termination date and, subject to the other provisions of Section 3, continue until thirty (30) months after the applicable termination date.

4.             NO DUPLICATION OF COMPENSATION OR BENEFITS.  The Executive’s severance compensation and benefits set forth in Sections 2 and 3 above shall replace, and be provided in lieu of, any severance compensation and benefits that may be provided to Executive; under any other agreement PROVIDED, that this prohibition against duplication shall not be construed to otherwise limit Executive’s rights as to payments or benefits provided under any pension plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended), deferred compensation, stock, stock option or similar plan sponsored by the Company.

5.             ENFORCEABILITY; REDUCTION.

(a)           If any provision of this Agreement shall be deemed invalid or unenforceable as written, this Agreement shall be construed, to the greatest extent possible, or modified, to the extent allowable by law, in a manner which shall render it valid and enforceable and any limitation on the scope or duration of any provision necessary to make it valid and enforceable shall be deemed to be a part thereof.  No invalidity or unenforceability of any provision contained herein shall affect any other portion of this Agreement.

(b)           Notwithstanding anything provided herein, if the Executive is a “disqualified individual” (as defined in Section 280G of the Code, and the severance compensation and continuation of benefits provided for in Sections 2 and 3 hereof (collectively “Severance Compensation”) together with any other payments which the Executive has the right to receive from the Company (or its affiliates and subsidiaries), would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), the Severance Compensation shall be reduced.  The reduction shall be in an amount so that the present value of the total amount received by the Executive from the Company (or its affiliates and subsidiaries) will be one dollar ($1.00) less than three (3) times the Executive’s Base Amount (as defined in Section 280G of the Code) so

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that no portion of the amounts received by the Executive shall be subject to the excise tax imposed by Section 4999 of the Code (excise tax).

The determination as to whether any reduction in Severance Compensation is necessary and the amount of any such reduction shall be made by the Company’s independent public accountants (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and to the Executive within fifteen (15) business days of the Executive’s termination date.  Any such determination by the Accounting Firm shall be conclusive and binding upon the Executive and the Company.  The Executive shall determine which part of the Severance Compensation shall be eliminated or reduced consistent with the requirements of this Section 5 and shall notify the Company promptly in writing; PROVIDED, that if the Executive does not make such determination within ten (10) business days of the receipt of the calculations made by the Accounting Firm, the Company shall determine which part of the Severance Compensation shall be eliminated or reduced consistent with the requirements of this Section 5 and shall notify the Executive promptly in writing of such election.

If through error or otherwise the Executive should receive payments under this Agreement, together with other payments the Executive has the right to receive from the Company (or its affiliates and subsidiaries), in excess of one dollar ($1.00) less than three times his Base Amount, the Executive shall immediately repay the excess to the Company upon notification that an overpayment has been made.

6.             MITIGATION.  The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for herein be reduced by any compensation earned by the Executive as the result of employment by another employer or by retirement benefits after the termination date or otherwise.

7.             NOTICES.  All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party’s address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by telex, telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid.

If to the Company:

Ibis Technology Corporation
32 Cherry Hill Drive
Danvers, MA 01923
Attn:  Board of Directors

If to the Executive:

Charles M. McKenna, Ph.D.
55 Herrick Road
Boxford, MA  01921

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All notices, requests, consents and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if made by telex, telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iv) if sent by registered or certified mail, on the 5th business day following the day such mailing is made.

8.             ENTIRE AGREEMENT.  The Previous Agreement is hereby restated and amended in its entirety with this Agreement.  This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.

9.             MODIFICATIONS AND AMENDMENTS.  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by all parties hereto.

10.           WAIVERS AND CONSENTS.  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

11.           ASSIGNMENT.  The rights and obligations under this Agreement may not be assigned by either party hereto without the prior written consent of the other party.

12.           BENEFIT.  All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted assigns of each party hereto.  Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement.

13.           GOVERNING LAW.  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.

14.           JURISDICTION AND SERVICE OF PROCESS.  Any legal action or proceeding with respect to this Agreement may be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts.  By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts.  Each of the parties hereto irrevocably consents to the service of process of any of the

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aforementioned courts in any such action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the party at its address set forth in Section 7 hereof.

15.           NO WAIVER OF RIGHTS, POWERS AND REMEDIES.  No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party.  No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder.  The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies.  No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand.

16.           COUNTERPARTS.  This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

COMPANY:
IBIS TECHNOLOGY CORPORATION
By:
	Authorized Officer
EXECUTIVE:
CHARLES M. MCKENNA

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EX-10.3

Exhibit 10.3

FORM OF
DIRECTOR STOCK OPTION AGREEMENT

IBIS TECHNOLOGY CORPORATION

AGREEMENT made as of the     thday of                20  , between Ibis Technology Corporation (the “Company”), a Massachusetts corporation, and                            , a director of the Company (the “Participant”).

WHEREAS, the Company desires to grant to the Participant an Option to purchase shares of its common stock, $.008 par value (the “Shares”), under and for the purposes of the 2007 Employee, Director and Consultant Stock Option Plan of the Company (the “Plan”); and

WHEREAS, the Company and the Participant understand and agree that any terms used and not defined herein have the same meanings as in the Plan;

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties hereto agree as follows:

1.             GRANT OF OPTION.

The Company hereby grants to the Participant the right and option to purchase all or any part of an aggregate of                            (           ) Shares (the “Option”), on the terms and conditions and subject to all the limitations set forth herein and in the Plan, which is incorporated herein by reference.  The Participant acknowledges receipt of a copy of the Plan.  The Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).  The Participant should consult with the Participant’s own tax advisors regarding the tax effects of the exercise of the Option and the purchase and subsequent sale of the Shares purchased upon exercise.

2.             PURCHASE PRICE.

The purchase price of the Shares covered by the Option shall be               ($       ), per Share, subject to adjustment, as provided in the Plan, in the event of a stock split, reverse stock split or other events affecting the holders of Shares.  Payment shall be made in accordance with Section 8(b) and Section 9 of the Plan.

3.             EXERCISE OF OPTION.

If the Participant has continued to serve as a director of the Company and subject to the terms and conditions set forth in this Agreement and the Plan, the Option granted hereby shall become exercisable in full immediately prior to the Company’s annual meeting of its stockholders

in 20   .  The foregoing rights are cumulative and are subject to the other terms and conditions of this Agreement and the Plan.

4.             TERM OF OPTION.

The Option shall terminate ten (10) years from the date of this Agreement, but shall be subject to earlier termination as provided herein or in the Plan.

If the Participant ceases to be a director of the Company (for any reason other than the death or Disability of the Participant or termination by the Company for “Cause” (as defined below)), the Option may be exercised, if it has not previously terminated, within three (3) months after the date the Participant ceases to be a director of the Company or within the originally prescribed term of the Option, whichever is earlier, but may not be exercised thereafter.  In such event, the Option shall be exercisable only to the extent that the Option has become exercisable and is in effect at the date of such cessation of directorship.

Notwithstanding the foregoing, in the event of the Participant’s death within three (3) months after the termination of directorship, the Participant’s legal representatives and/or any person or persons who acquired the Participant’s rights to the Option by will or by the laws of descent and distribution may exercise the Option within one (1) year after the date of the Participant’s death, but in no event after the date of expiration of the term of the Option.

In the event the Participant’s directorship is terminated by the Company for Cause, the Participant’s right to exercise any unexercised portion of this Option shall cease forthwith, and this Option shall thereupon terminate.  Notwithstanding anything herein to the contrary, if subsequent to the Participant’s termination as a director but prior to the exercise of the Option, the Board of Directors of the Company determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then the Participant shall forthwith cease to have any right to exercise the Option and this Option shall thereupon terminate.

In the event of the Disability of the Participant, as determined in accordance with the Plan, the Option shall be exercisable within one (1) year after the date of such Disability or, if earlier, the term originally prescribed by the Option.  In such event, the Option shall be exercisable to the extent exercisable but not exercised as of the date of Disability.

In the event of the death of the Participant while a director of the Company, the Option shall be exercisable by the Participant’s Survivors.  In such event, the Option must be exercised, if at all, within one (1) year after the date of death of the Participant or, if earlier, within the originally prescribed term of the Option.  In such event, the Option shall be exercisable to the extent exercisable but not exercised as of the date of death.

For purposes of this Agreement, “Cause” shall include (and is not limited to) dishonesty with respect to the Company or any Affiliate, insubordination, substantial malfeasance or non-feasance of duty, unauthorized disclosure of confidential information, and conduct

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substantially prejudicial to the business of the Company or any Affiliate.  Any definition in an agreement between the Participant and the Company or an Affiliate, which contains a conflicting definition of “Cause” for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to such Participant.

5.             METHOD OF EXERCISING OPTION.

Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company, at the principal executive office of the Company.  Such notice shall state the election to exercise the Option and the number of Shares in respect of which it is being exercised, shall be signed by the person or persons so exercising the Option, and shall be in substantially the form attached hereto.  Payment of the purchase price for such Shares shall be made in accordance with Section 8(b) and Section 9 of the Plan.  The Company shall deliver a certificate or certificates representing such Shares as soon as practicable after the notice shall be received, provided, however, that the Company may delay issuance of such Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including, without limitation, state securities or “blue sky” laws).  The certificate or certificates for the Shares as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option (or, if the Option shall be exercised by Participant and if Participant shall so request in the notice exercising the Option, shall be registered in the name of the Participant and another person jointly, with right of survivorship) and shall be delivered as provided above to or upon the written order of the person or persons exercising the Option.  In the event the Option shall be exercised, pursuant to Section 4 hereof, by any person or persons other than the Participant, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option.  All Shares that shall be purchased upon the exercise of the Option as provided herein shall be fully paid and nonassessable.

6.             PARTIAL EXERCISE.

Exercise of this Option to the extent above stated may be made in part at any time and from time to time within the above limits, except that no fractional share shall be issued pursuant to this Option.

7.             NON-ASSIGNABILITY.

The Option shall not be transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder.  Except as provided in the previous section, the Option shall be exercisable, during the Participant’s lifetime, only by the Participant and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process.  Any attempted transfer, assignment, pledge, hypothecation or other disposition of the Option or of any rights granted hereunder contrary to the provisions of this Section 7, or the levy of any attachment or similar process upon the Option or such rights, shall be null and void.

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8.             NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

The Participant shall have no rights as a stockholder with respect to Shares subject to this Agreement until a stock certificate therefor has been issued to the Participant and is fully paid for.  Except as is expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date such stock certificate is issued.

9.             CAPITAL CHANGES AND BUSINESS SUCCESSIONS.

The Plan contains provisions covering the treatment of Options in a number of contingencies such as stock splits and mergers.  Provisions in the Plan for adjustment with respect to stock subject to Options and the related provisions with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by reference.

10.           TAXES AND WITHHOLDING.

The Participant acknowledges that upon exercise of the Option the Participant will be deemed to have taxable income measured by the difference between the then fair market value of the Shares received upon exercise and the price paid for such Shares pursuant to this Agreement (the “Taxable Income”).  The Participant acknowledges that any income or other taxes due from him or her with respect to this Option or the Shares issuable pursuant to this Option shall be the Participant’s responsibility.

If the Company in its discretion determines that it is obligated to withhold income or other taxes with respect to the exercise of the Option, the Participant hereby agrees that the Company may withhold from the Participant’s remuneration, if any, the appropriate amount of federal, state and local withholding attributable to such amount that is considered compensation includable in such person’s gross income.  At the Company’s discretion, the amount required to be withheld may be withheld in cash from such remuneration, or in kind from the common stock otherwise deliverable to the Participant on exercise of the Option, provided, however, that with respect to persons subject to Section 16 of the Securities Exchange Act of 1934 (the “1934 Act”), any such withholding arrangement shall be in compliance with any applicable provisions of Rule 16b-3 promulgated under Section 16 of the 1934 Act.  The Participant further agrees that, if the Company does not withhold an amount from the Participant’s remuneration sufficient to satisfy the Company’s income tax withholding obligation, the Participant will reimburse the Company on demand, in cash, for the amount underwithheld.

11.           PURCHASE FOR INVESTMENT.

Unless the offering and sale of the Shares to be issued upon the particular exercise of the Option shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:

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(a) The person(s) who exercise the Option shall warrant to the Company, at the time of such exercise, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s) evidencing their Option Shares issued pursuant to such exercise:

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws”; and

(b)If the Company so requires, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in compliance with the Act without registration thereunder.  Without limiting the generality of the foregoing, the Company may delay issuance of the Shares until completion of any action or obtaining of any consent, which the Company deems necessary under any applicable law (including without limitation state securities or “blue sky” laws).

12.           NO RIGHT OR OBLIGATION TO CONTINUE SERVICE AS A DIRECTOR.

The Company is not by the Plan or this Agreement obligated to continue the Participant as a member of the Board of Directors, nor is the Participant prevented from terminating the Participant’s status as a member of the Board of Directors.

13.           NOTICES.

Any notices required or permitted by the terms of this Agreement or the Plan shall be given by recognized courier service, facsimile, registered or certified mail, return receipt requested, addressed as follows:

To the Company:	Ibis Technology Corporation
	32 Cherry Hill Drive
	Danvers, Massachusetts 01923
To the Participant:

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or to such other address or addresses of which notice in the same manner has previously been given.  Any such notice shall be deemed to have been given upon the earlier of receipt, one business day following delivery to a recognized courier service or three business days following mailing by registered or certified mail.

14.           GOVERNING LAW.

This Agreement shall be construed and enforced in accordance with the law of the Commonwealth of Massachusetts.

15.           BENEFIT OF AGREEMENT.

Subject to the provisions of the Plan and the other provisions hereof, this Agreement shall be for the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.

16.           ENTIRE AGREEMENT.

This Agreement, together with the Plan, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  No statement, representation, warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict, the express terms and provisions of this Agreement, provided, however, in any event, this Agreement shall be subject to and governed by the Plan.

17.           MODIFICATIONS AND AMENDMENTS.

The terms and provisions of this Agreement may be modified or amended as provided in the Plan.

18.           WAIVERS AND CONSENTS.

The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

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19.HOLDING PERIOD APPLICABLE TO PERSONS SUBJECT TO SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934.

If the Participant to whom the Option has been granted pursuant to this Agreement is subject to Section 16 of the 1934 Act, Section 16 requires that, in some circumstances, at least six (6) months must elapse from the date of grant of the Option to the date of disposition of the Shares.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Participant has hereunto set his or her hand, all as of the day and year first above written.

	Ibis Technology Corporation
By:
	Charles M. McKenna, President
	Director

8

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Charles M. McKenna, 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 officer 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)) 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.             The registrant’s other certifying officer 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: August 14, 2007	/s/ CHARLES M. MCKENNA, PH.D.
	Charles M. McKenna, PH.D.
	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 officer 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)) 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.             The registrant’s other certifying officer 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: August 14, 2007	/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 June 30, 2007 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 June 30, 2007 fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CHARLES M. MCKENNA, PH.D.	/s/ WILLIAM J. SCHMIDT
Charles M. McKenna, Ph.D.	William J. Schmidt
President and Chief Executive Officer	Chief Financial Officer
Date: August 14, 2007	Date: August 14, 2007