Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company 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
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fourth fiscal quarter (based on the last reported sale price on the Nasdaq National Market of such date) was $6,156,517.
As of May 22, 2008, the registrant had 14,317,482 of common stock outstanding.
PART I
Special Note Regarding Forward-Looking Statements
This Form 10-K 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 ability to conduct its operations in a manner consistent with its current plan and to obtain additional implanter orders to continue as a going concern, (ii) regaining compliance with the minimum bid price requirement and the continued inclusion of the Company’s Common Stock on the Nasdaq Global Market or transfer to the Nasdaq Stock Market; (iii) the Company’s expectations regarding future orders for i2000 implanters, (iv) the Company’s expectations regarding it’s strategic alternatives, including the potential sale of the Company, (v) 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, (vi) the timing of our major customer’s ramping to production quantities on the i2000 implanter and the sustained production worthiness of the i2000 implanter, (vii) 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, (viii) 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, (ix) the timing and likelihood of revenue recognition on orders for the Company’s implanters, (x) the Company’s belief that wafer manufacturers will become the primary suppliers of SIMOX-SOI wafers to the chipmaking industry, (xi) the throughput and production capacity of the i2000 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, (xii) the Company’s plan to focus on supplying implanters to wafer manufacturers, (xiii) the ability to operate with existing capital resources or to secure financing and to continue as a going concern and (xiv) 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; limited customers and products; lack of order backlog and visibility to the timing of new orders; the Company’s ability to pursue and maintain further strategic relationships, partnerships and alliances with third parties; loss of key personnel; 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 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-K and in the Company’s Securities and Exchange Commission filings from time to time. All information set forth in this Form 10-K is as of the date of this Form 10-K, and Ibis undertakes no duty to update this information, unless required by law.
Item 1. BUSINESS
Introduction
Ibis Technology Corporation (“Ibis”) develops, manufactures and markets SIMOX-SOI implantation equipment for the worldwide semiconductor industry. SIMOX, which stands for Separation by IMplantation of OXygen, is a form of silicon-on-insulator, or SOI, technology that creates an insulating oxide barrier below the top surface of a silicon wafer through implantation and annealing. Our proprietary oxygen implanters produce SIMOX-SOI wafers by implanting oxygen atoms just below the surface of a silicon wafer to create a very thin layer of silicon dioxide between the thin operating region of the transistor at the surface and the underlying silicon wafer itself. The buried layer of silicon dioxide acts as an insulator for the devices fabricated on the surface of the silicon wafer and reduces the electrical current leakage which otherwise slows integrated circuit performance, and/or increases the loss of power during circuit operation. The buried layer of
silicon dioxide also helps to reduce the heat generated by the transistors. Through this process our customers can produce integrated circuits, which we believe, offer significant advantages over circuits constructed on conventional silicon wafers. We believe that these advantages include:
· substantially improved speed for microprocessors and other logic integrated circuits,
· reduced power consumption,
· reduced soft error rate,
· Compatibility with a higher temperature operating environment, and
· lower temperature operation
We believe these characteristics make SIMOX-SOI wafers, and the finished integrated circuits, well-suited for many commercial applications, including:
· servers and workstations,
· portable and desktop computers,
· entertainment devices such as TVs and game consoles,
· wireless communications and battery powered feature rich hand held devices including cell phones, and
· harsh-environment electronics.
When Ibis began operations in 1988, much of our revenue was derived from research and development contracts and sales of wafers for military applications. Over the years, there was a shift in revenue to sales of SIMOX-SOI wafers for commercial applications and the nature of our business had evolved through stages where previously our revenue was at times primarily derived from selling wafers for evaluation purposes, and at other times it was primarily derived from equipment sales. This often occurs when developing and promoting a fundamental new technology, especially as it relates to the semiconductor industry embracing any change that affects fabrication operations. In mid-2004 we exited the wafer manufacturing business to concentrate our efforts on supplying equipment and process technology to our equipment customers, the major silicon manufacturers. We did this having advanced our primary goal of establishing SIMOX-SOI as an important SOI technology with the potential to be the low cost, high volume offering. We intend to continue to work with the major wafer manufacturers to support the market acceptance of 300mm SIMOX technology through continuing process research and development in conjunction with our customers. We believe this effort will directly support the wafer manufacturers’ decision to purchase our equipment.
Our fundamental SIMOX-SOI technology has been developed, refined, and tested over the last dozen years. In 2002, Ibis introduced the current-generation of SIMOX-SOI technology, which included our second generation oxygen implanter (i2000ä) and the modified low dose (“MLD”) SIMOX wafer process which was licensed to us by IBM. The i2000’s flexibility, automation and operator-friendly controls allow this tool to produce a wide range of SIMOX-SOI wafer products using different manufacturing processes, including Advantox® MLD and Advantox MLD-UT wafers. We believe the ability of the i2000 implanter to produce twelve-inch (or 300mm) SIMOX-SOI wafers using different processes from standard to the latest MLD process positions us to capitalize on the growing SOI market. In early 2004, we received an order valued at approximately $7.0 million for an i2000 SIMOX oxygen implanter from a major silicon wafer manufacturer. During the third quarter of 2004 this tool was accepted by the customer. In early January 2005, we received a $6.0 million order for an i2000 SIMOX oxygen implanter from SUMCO, another major silicon wafer manufacturer. During the first quarter of 2006, this tool was accepted by the customer. In October of 2005, we received a second order valued at $7.0 million for an i2000 SIMOX implanter from SUMCO and negotiated a master purchase agreement that will govern the general commercial terms of potential future orders from SUMCO. We shipped this implanter in April of 2006, with final customer acceptance and associated revenue recognition taking place in the August of 2006.
We were incorporated in Massachusetts in October 1987 and commenced operations in January 1988. Our executive offices are located at 32 Cherry Hill Drive, Danvers, Massachusetts 01923 and our telephone number is (978) 777-4247. Our web site is located at www.ibis.com. We make our periodic reports on
Form 10-K, Form 10-Q and Form 8-K (and any amendments to those reports) available on the web site, free of charge, as soon as reasonably practicable after these reports are filed with or furnished to the Securities and Exchange Commission. We have not incorporated by reference into this document the information on our web site and you should not consider it to be a part of this document. Our web site address is included in the document as an inactive textual reference only. The public can also obtain access to such reports at the Securities and Exchange Commission’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website, which is www.sec.gov. Unless the context otherwise requires, the terms “Ibis”, “we”, “us”, and “our” refer to Ibis Technology Corporation.
Our Strategies
The Company announced in February 2008 that it hired an investment banker to explore strategic alternatives, including the potential sale of the Company, while it continues to focus on its operational objectives. The Company took this step as a result of our recurring losses from operations and net capital deficiency, and the current lack of visibility for additional orders for implanter equipment. Since we began selling implanters in 1996, we have only sold a total of eight Ibis 1000 oxygen implanters at an average sale price of approximately $4.0 million each and four i2000 oxygen implanters at a selling price between $6.0 and $8.0 million. The most recent order received was in October 2005, for which the Company recognized revenue in the quarter ended September 30, 2006. The Company did not record implanter revenue during 2007 and as of April 10, 2008, does not have an order for an implanter from our customers. At present time, only one of the four major wafer manufacturers are a current prospective customer. The Company currently does not have a backlog for implanters, nor does it have visibility to the timing of the next order from any customer.
As the Company continues to assess its strategic alternatives, subject to the availability of resources, Ibis will continue with its primary objective to be the dominant supplier of oxygen implantation equipment to the world’s silicon wafer manufacturers. Our primary emphasis will continue to be on implanter sales and support. We also plan on continuing process development for SIMOX-SOI wafers in partnership with our equipment customers to hasten the adoption and broaden the market acceptance of SIMOX-SOI. Key elements of our strategies for achieving this objective include:
· Capitalizing on Fundamental Trends in Semiconductor Manufacturing. We believe that semiconductor manufacturers face an increasing demand for faster integrated circuit speed, reduced power consumption, smaller feature size and immunity to soft failure errors, which are changes in logic state due to exposure to radiation. In addition, heat generation caused by current leakage has become a major problem at the 65 nm feature size and will continue to increase in importance at the 45 and 32 nm technology nodes as production comes on stream over the next four years. In our experience, these manufacturers prefer to satisfy the demand with minimal additions or modifications to their existing equipment base. We believe that SIMOX-SOI technology will be a leading alternative in addressing these requirements and that there will be a continuous migration of SOI wafer manufacturing into the major silicon wafer suppliers. 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. Because the starting wafer represents a significant component of the SOI wafer cost, silicon wafer manufacturers should have a natural cost structure advantage leading to a higher gross margin, and therefore can manage such pricing pressures better than stand-alone SOI producers that do not also produce the silicon wafer itself. Second, we expect that the pricing pressures 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. 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 the manufacture, 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 re-package, 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 this thought process, we expect our ultimate customers will be drawn principally from these silicon wafer manufacturers and we plan to focus a majority of our technical and marketing resources on the leading silicon wafer manufacturers and our major key customers in the semiconductor industry who are the leaders in the adoption of SOI technology. We expect that implanter sales to chipmakers should be minimal, and focused on SOI processes, which the chipmaker wishes to keep proprietary, such as selective (or patterned) SIMOX, or other specialty substrates.
· Pursuing Strategic Marketing, Manufacturing and Development Alliances. We intend to continue to pursue relationships through which third parties will provide assistance with joint research and development opportunities on both process and equipment. In January 2003, we entered into an agreement with IBM to develop an enhanced, modified low-dose (“MLD”) process for the manufacture of SIMOX-SOI wafers.
· Enhancing and Extending Current Product Offerings. We intend to continue to use our resources and our strategic partners’ technical expertise to improve our existing equipment products, expand our core product functionality, add products to our existing product line and further advance our process technology. Our implanter research and development programs are aimed at improving quality, and increasing throughput which results in reducing the cost of SIMOX-SOI wafers. We are also exploring several alternative technologies that could utilize our engineering expertise, and represent either product extensions or potentially new applications of our technology.
· Increasing our SIMOX-SOI Equipment Manufacturing Capacity. Going forward, we intend to gauge SIMOX-SOI equipment demand from the silicon wafer manufacturers and adjust our equipment manufacturing capacity accordingly. We currently have capacity to build approximately 10 implanters per year in our existing manufacturing space.
Marketing, Sales and Customers
Over the last several years, Ibis had focused on integrating SIMOX-SOI wafers into commercial applications. We believe that commercial shipments of our wafers had been used principally for evaluation purposes or pilot production in products, including microprocessors, gate arrays, ASICs (application specific integrated circuits), and memories (DRAMs, SRAMs, etc.). We believe that one of our customers is providing SIMOX-SOI wafers for commercial production and that a number of our potential customers are sampling SIMOX wafers or are developing prototype products.
Our primary focus more recently has been on getting the silicon wafer manufacturers to embrace SIMOX-SOI technology. Where we have succeeded, we have accomplished this through joint research and development programs, the use of sales representative agreements, and the provision of SIMOX-SOI wafer foundry services to our customers. We intend to assist the wafer manufacturers in becoming the producers of SIMOX-SOI wafers by selling and servicing oxygen implanters along with continuing to improve SIMOX wafer processing technology via our SIMOX process engineering group.
In August 2004, upon exiting the wafer manufacturing business Ibis cancelled its Sales Representative Agreement with MEMC for SIMOX SOI wafers. We believe that by canceling this agreement we have opened new market opportunities with the other silicon wafer manufacturers for the sale of our i2000 oxygen implanters. We also believe this has allowed Ibis to work closely as an independent, non-competitive resource with several of the leading wafer manufacturers regarding SIMOX-SOI process improvements.
The following table sets forth, in thousands of dollars, the amount of revenue derived from our significant customers during the fiscal years ended December 31, 2005, 2006 and 2007, as well as the percent of our revenue represented by these customers’ purchases (in thousands):
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Customer |
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Dollars |
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Percent |
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Dollars |
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Percent |
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Dollars |
|
Percent |
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|||
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IBM |
|
$ |
|
|
|
% |
$ |
|
|
— |
|
— |
|
— |
|
|
|
Simgui |
|
— |
|
— |
|
$ |
|
|
— |
|
$ |
|
|
|
% |
|
|
SEH |
|
— |
|
— |
|
— |
|
— |
|
$ |
|
|
|
% |
||
|
Nissin Electric |
|
$ |
|
|
|
% |
$ |
|
|
|
% |
$ |
|
|
|
% |
|
Tokyo Iovenus |
|
$ |
|
|
|
% |
$ |
|
|
|
% |
$ |
|
|
|
% |
|
SUMCO |
|
— |
|
— |
|
$ |
13,325 |
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|
% |
$ |
|
|
|
% |
|
|
Axcelis |
|
— |
|
— |
|
$ |
|
|
|
% |
$ |
|
|
|
% |
|
The revenue from SUMCO in 2007 was for the balance of the relocation of an i2000 implanter from their Noda facility to Yonezawa and for services on the two implanters they own. The revenue from Nissin in 2007 was from license royalties, the revenue from Tokyo Iovenus in 2007 was from the sale of parts, and the revenue from Axcelis in 2007 was for the additional payment on the purchase of a license option. The revenue from SUMCO in 2006 was for the purchase of two i2000 implanters for a total of approximately $13 million, and for the relocation of one of these systems from their Noda facility to Yonezawa. The revenue from Nissin in 2006 was from license royalties, the revenue from Tokyo Iovenus in 2006 was from the sale of parts, and the revenue from Axcelis in 2006 was for the purchase of a license option. The revenue from IBM in 2005 was for service and parts, the revenue from Nissin in 2005 was from license royalties, and the revenue from Tokyo Iovenus in 2005 was from the sale of parts.
Sales to overseas customers in 2005, 2006 and 2007 were 81%, 99% and 94% of total revenue, respectively. In 2005, sales to Japan were 81% of total revenue, which was primarily attributable to Nissin Electric Co. Ltd., license royalties. In 2006, sales to Japan were 99% of total revenue, which was primarily attributed to SUMCO Corporation, implanter sales. In 2007, sales to Japan were 88% of total revenue, which was primarily attributed Nissin Electric Co. Ltd. for license royalties and Tokyo Iovenus for service revenue.
Strategic Alliances
Ibis has entered into a number of strategic alliances that we believe enable us to better address our target market, to advance our technology more effectively, and to match our technical developments and expansion to the needs of our key customers. We believe that strategic alliances with existing and potential customers which are essential to developing a worldwide commercial market for our SIMOX-SOI implanters.
We have a long-standing relationship with SUMCO which began as a sales distribution arrangement, progressed to a joint research and development effort, and ultimately evolved into SUMCO’s purchase of an Ibis 1000 oxygen implanter in order to establish a Japanese-based manufacturing facility for SIMOX-SOI wafers. This implanter was installed in SUMCO’s wafer manufacturing facility in Chiba, Japan in July 2001. In 1999, we completed an agreement to license our standard and Advantox SIMOX-SOI wafer fabrication process to SUMCO. Under this agreement we received an initial royalty fee and are entitled to future royalties based on a percentage of SUMCO’s sales of Advantox SIMOX-SOI wafers that are manufactured using the licensed process. In January 2005 and October 2005, SUMCO ordered i2000 SIMOX oxygen implanters which were subsequently shipped, and for which final customer acceptance was received in 2006. Revenue was also recognized for both i2000s upon final acceptance during 2006.
In January 2003, we announced the signing of a Joint Development Agreement with IBM. The objective of the agreement was to develop an enhanced, MLD process for the manufacture of SIMOX-SOI wafers, which are used as the starting material in the manufacture of advanced integrated circuits (“ICs”). Aimed at producing lower-cost, higher quality SIMOX-SOI wafers with thinner top silicon layers, the joint development work was being conducted at both Ibis and IBM. We believe that both companies brought extensive expertise and experience regarding SIMOX-SOI technology to the joint effort. IBM, a pioneer in the development and adoption of SOI technology, developed the original MLD process for high quality, low cost SIMOX-SOI wafers. IBM then licensed Ibis to manufacture SIMOX-SOI wafers using the production-proven
MLD process for sale to IBM and all other Ibis customers. Our implanters can operate using both the MLD process and other processes as well, including non-proprietary processes.
In February 2004, we announced the signing of a service agreement with Tokyo Iovenus based in Tokyo, Japan. This agreement provides for local training of Japanese service engineers for our oxygen implanter customers in Japan.
Research and Development
Ibis continues to have active research and development programs in both equipment and wafer process technology. For the past four years a primary focus has been developing implanter technology and advanced process capability to produce 300 mm SIMOX wafers. This required the development of a new generation oxygen implanter, the i2000, and the procurement and qualification of annealing, cleaning, and metrology tools for completing the full SIMOX process at 300 mm.
The proprietary i2000 was designed to support the volume production of high quality SIMOX-SOI 300 mm wafers for the global semiconductor industry. To minimize process risks, the i2000 duplicates the process environment of the Ibis 1000. However, it incorporates a number of features designed to improve throughput and reduce costs. These include increased beam current, faster wafer handling, off-hub wafer cooling, and modular construction, which we believe will enable improved serviceability and diagnostics, while simplifying the assembly and shipping of the machine. We also believe that the simpler beam line design of the i2000 also offers extensive capabilities, facilitating the manufacture of the Advantox product portfolio. We believe that taken together, these features significantly increase productivity of the i2000 over the Ibis 1000. Finally, the i2000 is designed to be far more fab friendly than the Ibis 1000. It is designed to be bulkhead or ballroom mounted in the clean room, offers front-opening unified pod (FOUP) capability and meets SEMI safety and ergonomic guidelines. We also believe that the i2000’s improved automation and operator-friendly controls will improve product yield and afford ease-of-use. Our plans are to improve the i2000 in terms of both quality (reduced particles) and quantity (increased throughput) of as-implanted SIMOX wafers, in order to provide continuous improvement to the cost of ownership for our customers.
Our wafer technology R&D has concentrated on enhancing the range of potential commercial applications for Ibis’ SIMOX-SOI wafers by:
· Refining techniques to produce SIMOX-SOI wafers of higher quality. In the fall of 2004 we announced a 3x to 4x reduction in the silicon roughness of the SIMOX MLD;
· Jointly developing a technology for manufacturing high resistivity SIMOX-SOI wafers for mixed signal and radio frequency (“RF”) applications with a major silicon wafer manufacturer. With this alliance, we developed advancements in SIMOX wafer manufacturing, including reduced wafer cost, scalability to 300 mm and stability of the material’s high resistivity characteristic through thermal cycling common in integrated circuit manufacturing. We filed a joint patent application with SEH entitled Method of Producing a High Resistivity SIMOX Silicon Substrate in May 2003. As of December 31, 2006 this patent has been granted;
· Processing strained silicon (another emerging wafer-materials technology) for use in SOI (“SSOI” wafers), an innovation enabling a further significant boost of device speed for complementary metal oxide semiconductor (“CMOS”) products. Improved electron mobility in strained silicon leads to an increased drive current in MOS devices and is complemented by benefits provided by SOI, such as reduction of parasitic capacitances in CMOS devices. We assist our customers in their development of SSOI SIMOX wafers; and
· Responding to specific customer requirements and emerging industry trends, such as the development of our Advantox MLD-UT (ultra thin) product line to address requirements for fully depleted devices. The term “fully depleted” describes a MOS transistor structure in which the depletion region under normal operation extends as far as a buried insulator layer. We believe that ultra-thin SOI wafers provide superior results, especially in terms of increased power efficiency
and heat reduction in the operation of fully depleted substrate transistors for next generation semiconductor devices.
During the fiscal years ended December 31, 2005, 2006 and 2007, Ibis’ internally funded research and development expenses were approximately $6.0 million, $5.4 million and $3.8 million or 995%, 39% and 398% of our revenues, respectively.
Competition
We believe we face three general sources of competition: (1) direct SIMOX-SOI competition, (2) competing SOI technologies, and (3) competing non-SOI technologies.
Among direct SIMOX-SOI competitors, we believe we are presently the only manufacturer of SIMOX-SOI implanters. To our knowledge, Hitachi, Ltd. of Japan had been the only other company manufacturing SIMOX implanters and has sold a limited number of tools in prior years. We believe that in early 2004, Hitachi exited this business. We are not aware of plans by any of the major ion implant manufacturers, including Hitachi, to design and develop oxygen ion implanters, but they may already have such plans, or may develop them in the future. We believe that it would take one to three years to develop such an implanter.
We also believe that SUMCO, and Simgui are manufacturing or marketing SIMOX wafers. We expect that the availability of SIMOX-SOI wafers from silicon wafer manufacturers will help address customer concerns about adequate sources of supply and their desire to purchase all of their silicon wafer requirements (e.g., bulk silicon, epitaxial, strained silicon and SOI wafers) from the same company. Our objective is to be the dominant supplier of SIMOX implanters to the world’s silicon wafer manufacturers so they can, in turn, efficiently and cost-effectively supply SOI wafers to the global semiconductor industry. In addition, we believe that these wafer manufacturers would be potential equipment customers for our implanters.
The second source of competition for us is the development of alternative SOI materials. The approach that most directly competes with SIMOX is thin-film bonded SOI wafers. The majority of SOI wafers are produced with this technology. SOITEC, a French-based company that spun off from LETI, a French government research lab, uses a bonded method. The thin-film bonded approach uses two silicon wafers, one or both having a thermally-grown oxide layer, which are first bonded together to form the silicon/silicon dioxide/silicon structure. A majority of one of the wafers is removed or separated from the double-wafer structure, and the remaining portion serves as the device layer of the SOI wafer. The most popular method is to transfer the thin layer using wafer splitting techniques, allowing the rest of the wafer to be reclaimed and reused. Regions of stress are first created using implantation and/or epitaxial growth prior to the bonding step. The wafer is split along the stress interface by the application of heat (SOITEC’s Smartcut® process), a gas jet (Silicon Genesis’ process), or a water jet (Canon’s ELTRAN® process). SEH also offers a thin SOI Unibond® wafer manufactured with the SmartCut® process, which is licensed from SOITEC. Our evidence to date suggests that both SIMOX and bonded wafers perform equally well. We believe, however, that the SIMOX process can result in an inherently lower manufacturing cost in higher volume production. We also believe that, at this stage in the market’s development, multiple SOI suppliers will help accelerate the adoption of SOI technology.
The third source of competition is derived from alternative non-SOI technologies designed to obtain benefits similar to those of SOI, including improvements to existing technologies. Significant resources are continually expended to improve epitaxial and conventional bulk silicon wafers.
The semiconductor industry has demonstrated its resourcefulness in improving materials through creative circuit design and manufacturing techniques, thereby extending the useful life of conventional substrates, and we cannot be sure that it will not continue to do so. The relatively lower cost of these substrates provides an incentive to the semiconductor industry to improve existing material without moving to new, more advanced substrates. In addition, complex variations of more conventional approaches, such as elaborate circuit structures built on conventional silicon substrates, and compound materials (such as silicon-germanium,
gallium-arsenide, indium phosphide, etc.), are other alternative substrate choices. Strained silicon and silicon super lattices are technologies that can be used to increase the operating speed of computer chips, such as microprocessors. Strain can be applied locally (at the fab) or globally (at the wafer manufacturer). These technologies can be applied to bare wafers, SIMOX SOI wafers or Bonded SOI wafers. The spacing between silicon atoms is stretched – or strained - farther apart, allowing holes or electrons to flow with less resistance, leading to chips that are faster, as reported by IBM. Silicon superlattices are thin layers inserted in the channel region of the transistor that provide low impedance for current flow horizontally in the channel region just below the gate, and higher impedance for vertical current flow into the regions further below the surface. The emergence of strained silicon and silicon superlattices in wafer-materials technology will lead to comparisons with SOI, among other emerging wafer-materials technologies. Although strained silicon, superlattices and SOI are wafer-material technologies that increase chip speed; they work in different – and complementary – ways and if combined can provide additional benefits.
Strained silicon and silicon superlattices increase transistor speed by increasing the mobility of holes or electrons traveling through the channel region near the silicon surface. On the other hand, SOI increases transistor speed by reducing parasitic capacitances associated with source and drain junctions. Therefore, we believe strained silicon, silicon superlattices, and SOI (as applied through either SIMOX or Bonded SOI) are complementary and mutually enhancing - not competing – technologies, although one technology may be adopted without the other. Similarly, in the area of reducing wasteful power, high-k dielectrics with metal gates and SOI address different sources of wasteful power consumption. The high-k dielectric/metal gate combinations lower power losses by reducing charge leakage through the gate dielectric. (While the gate dielectric may be similar or even identical for all transistor types, different metals/metal stacks are used for NMOS vs. PMOS gates to ensure they perform similarly as they did with doped polysilicon gates in larger geometry nodes.) SOI lowers power losses by blocking the conduction paths to the bulk silicon and between adjacent devices. We believe the real wave of the future will be combining these complementary technologies – strained silicon/silicon superlattice + high-k gate dielectric/metal gates + SOI – to create the highest speed, lowest-power competitive combinations, much like the way copper interconnects, low k dielectric materials and SOI substrates have been combined.
Backlog
As of April 10, 2008, Ibis did not have any orders for implanters. All customer orders are subject to modification or cancellation by the customers. Backlog can, and often does fluctuate significantly based upon, among other matters, the timing and receipt of orders and subsequent tool shipments. Therefore, variations in backlog may not represent a fair indication of future business trends.
Patents and Proprietary Rights
Ibis’s success is dependent in part upon certain proprietary technologies and core intellectual property. Ibis has been awarded a number of patents and has a number of pending patent applications. For example, we added seven patents to our intellectual property portfolio during 2005, five, including international patents, during 2006 and two patents during 2007. We have several more patents pending relating to our proprietary i2000 oxygen implanter or the SIMOX fabrication process. Additionally, we diligently monitor our research and development process to identify inventions that warrant pursuing patent protection.
Notwithstanding our patent portfolio strategy, we rely largely upon trade secret protection and confidentiality and proprietary information agreements to safeguard our proprietary technology. Towards this end, all of our employees currently are required to execute confidentiality agreements pursuant to which they agree to assign to us all patent rights and technical or other information developed by them during their employment with us and also agree not to disclose any trade secret or confidential information without our prior written consent.
Despite the efforts we take to protect our proprietary technologies and core intellectual property, the use of contractual, statutory and common law protections offer only limited protections. We cannot ensure that patents will issue from our pending applications or from any future applications or that, if issued, any claims
allowed will be sufficiently broad to protect our technology. In addition, we cannot ensure that any patents that have been or may be issued will not be challenged, invalidated or circumvented or that any rights granted by those patents would protect our proprietary rights. Failure of any patents to protect our technology may make it easier for our competitors to offer equivalent or superior technology. In addition, unauthorized parties may attempt to copy or otherwise misappropriate aspects of our products or services, or to obtain or use information that we regard as proprietary. Even if a competitor’s products were to infringe patents owned or licensed by us, it would be very costly for us to enforce our rights in an enforcement action, which would also divert funds and resources which otherwise could be used in our operations. Furthermore, third parties may also independently develop similar technology without breach of our proprietary rights.
In addition to our efforts to develop proprietary technology, historically we have also supplemented and commercialized our intellectual property through the grant and receipt of licenses. For example, Ibis has an exclusive worldwide sublicense to the proprietary beam scanning system developed and patented by a consultant of ours during the development of the Ibis 1000. Our beam scanning system sublicense agreement also grants us certain rights to further sublicense the beam scanning system for certain applications other than oxygen implantation. Pursuant to these rights, we have entered into four non-exclusive sublicense agreements that permit the respective sub-licensees to manufacture, use and sell implantation machines incorporating the beam scanning system so long as such machines are not designed for the production of oxygen implanted wafers. Each sub-licensee has paid us a non-refundable option fee upon signing an agreement and pays an initial license fee when it exercises its option to use the licensed technology. In addition, each sub-licensee will pay a royalty fee with respect to each implantation machine using this beam scanning system manufactured, used or sold after its option fee and initial license fee has been applied. License fees received by us from sub-licenses are to be shared on a substantially equal basis with the licensor of the beam scanning system. As of December 31, 2007, Ibis had received approximately $3.2 million in net license fees, after deducting amounts paid to the licensor.
Ibis also obtained in 1994 an exclusive license to technology that facilitates the presentation of wafers to ion beams developed by Superion Limited, a United Kingdom corporation. Through December 31, 2007, Ibis has paid $0.6 million for license fees for implantation machines that have been manufactured by us. Under the terms of this agreement, Superion Limited has retained the right to utilize the technology for uses not involving oxygen implantation of silicon or other semiconductor materials. During 2001, this agreement was modified to incorporate i2000 implantation machines. Ibis also entered into a sublicense agreement during 2001 which gives our customer a royalty-bearing, non-exclusive license to utilize this technology for ion implantation machines, excluding oxygen implanters.
During 1999, we completed an agreement to license our standard and Advantox SIMOX-SOI wafer fabrication process to SUMCO. The agreement consisted of an initial royalty fee. Future royalties shall be payable based on a percentage of SUMCO’s SIMOX-SOI wafers sold which are manufactured using the licensed process.
Furthermore, in 2000, we licensed from IBM the right to manufacture and sell SIMOX-SOI wafers, using IBM’s proprietary MLD SIMOX process, to IBM and to all our other customers. Under the royalty-bearing license agreement, we were able to use IBM’s process to produce MLD SIMOX-SOI wafers which we marketed as Advantox MLD. Advantox MLD wafers were broadly marketed to integrated circuit manufacturers looking to accelerate their SOI adoption process. Under the agreement we granted IBM rights to our patents utilized in the modified low dose, or MLD process. Although we believe that other SIMOX-SOI wafer processing methods exist and are being used today, our existing or potential equipment customers that intend to use the MLD process to manufacture SIMOX-SOI wafers would be required to license this technology directly from IBM. Two major silicon wafer manufacturers have already licensed this technology from IBM and others have developed their own SIMOX processes. No assurances can be given that the remaining equipment customers that intend to use the MLD process and IBM would come to terms acceptable to both parties in a timely manner, or at all. These MLD process license issues may effect the timing of placement of customer orders in the future if customers plan to license this technology.
Finally, during 2001 we licensed our Advantox 50 and 150 SIMOX wafer fabrication processes to Simgui. Ibis received the initial license fee from Simgui in January 2003, and the technology transfer took place in the first quarter ended March 31, 2003. License revenue of approximately $0.5 million was recognized in that quarter.
Government Regulation
Ibis is subject to a variety of federal, state and local environmental regulations related to the storage, treatment, discharge or disposal of chemicals used in its operations and to the exposure of our personnel to occupational hazards. Although we believe that we have all permits necessary to conduct our business, the failure to comply with present or future regulations could result in fines being imposed on us, suspension of production, or a cessation of operations. Our future activities may result in our being subject to additional regulations. Such regulations could require us to acquire significant equipment or to incur other substantial expenses to comply with regulations. Any failure by us to control the use of, or to restrict adequately the discharge of, hazardous substances or to properly control other occupational hazards could subject us to substantial financial liabilities.
Certain technologies associated with Ibis’ implanters are subject to export regulations administered by the U.S. Department of Commerce. Accordingly, Ibis may be required to secure U.S. export licenses with respect to sales of implanters or transfers of technologies to end users in certain foreign countries. There can be no assurance that if necessary, Ibis will be able to secure such licenses in a timely manner, or at all.
Manufacturing and Supplies
Ibis manufactures its oxygen implanters from standard components and from components manufactured in-house or by other vendors according to our design specifications. Most raw materials and components not produced by us are available from more than one supplier. However, certain raw materials, components and subassemblies are obtained from a limited group of suppliers and at least one major subsystem is a long lead time, sole source component. Semiconductor equipment is a growth industry and is very cyclical in nature, so if our suppliers experience an increase in demand from other semiconductor equipment manufacturers with much higher volumes than us, the lead-time and/or price for some of our components may increase. Although we have sought to reduce our dependence on these limited source suppliers and we have not experienced significant production delays due to unavailability or delay in procurement of component parts or raw materials to date, increased market demand for the materials supplied by, or disruption or termination of, certain of these sources could occur and such increased demand, disruptions, or termination could have a material adverse effect on our business and results of operations.
Employees
As of December 31, 2007, we employed 20 persons on a full-time basis. In January 2007 certain executive and senior level management personnel accepted voluntary salary reductions that ranged from 10% to 50% of their salaries. These reductions are anticipated to remain in place until market conditions warrant further review. None of our employees are represented by a labor union and we believe our relations with our employees are good.
Item 1A. RISK FACTORS
Our Registered Public Acoounting Firm Has Expressed Substantial Doubt About Our Ability to Continue as a Going Concern.
In their report dated May 22, 2008, our registered public accounting firm stated that our financial statements for the fiscal year ended December 31, 2007 were prepared assuming we would continue as a going concern; however our recurring losses and accumulated deficit raise substantial doubts about our ability to continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of our recurring losses from operations and net capital deficiency and is subject to our ability to secure additional
orders of our implanter equipment or, in the alternative, identify and consummate a strategic transaction, including the potential sale of the Company, or other strategic alternative.
Our Efforts to Identify, Evaluate and Consummate a Transaction or Other Initiative to Increase the Value of the Company for our Stockholders May Not Be Successful. Should We Consummate a Strategic Transaction or Other Strategic Alternative, There is No Guarantee that Our Stockholders will Realize Greater Value For, or Preserve Existing Value of, Their Shares of the Company.
In February 2008, we announced the engagement of the investment bank BlueLake Partners, LLC for the purpose of assessing strategic alternatives for Ibis, including a potential sale of the Company and/or its assets. We can give no assurance that we will identify an alternative that allows our stockholders to realize an increase in the value of the Company’s stock. We also can give no assurance that a transaction or other strategic alternative, once identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in the current stock price. In fact, if we are unable to recognize revenue through the sale of our products pursuant to our current operating plan, and if we are unable to identify a viable strategic alternative, we may be unable to continue as a going concern. Further, in pursuit of the highest value for shareholders, our Board also may consider alternatives that include a liquidation of our assets and resulting cash distribution per share after payment of outstanding liabilities. In such case, any per-share cash liquidation distribution could be less than the purchase price per share that stockholders may have paid for their Company securities.
We Have Received Only Limited Orders for Our Oxygen Implanter Equipment. If We Are Unable to Secure Additional Orders Within a Reasonable Timeframe in the Future, or Otherwise Obtain Offsetting Revenue, We may Be Unable to Continue to Conduct Operations in a Manner Consistent with Our Current Plan.
Since the Company began selling implanters in 1996, only sold a total of eight Ibis 1000 oxygen implanters have been sold at an average sale price of approximately $4.0 million each and four i2000 oxygen implanters at a selling price between $6.0 and $8.0 million. The most recent order received was in October 2005, for which the Company recognized revenue in the quarter ended September 30, 2006. The Company did not record implanter revenue during 2007 and as of April 10, 2008, the Company does not have an order for an implanter from its customers. At present time, only one of the four major wafer manufacturers is counted as a current prospective customer. Although the sale of one implanter would generally represent a substantial portion of the Company’s annual revenue, there is no expectation to sell more than a limited number of implanters in the near future. The Company currently does not have a backlog for implanters, nor is there visibility to the timing of the next order from any customer. The Company’s failure to obtain any orders for its implanters in the foreseeable future, notwithstanding the belief that sufficient cash remains to support current operations through 2008, or to obtain other sources of offsetting revenue, would have a material adverse impact on the Company’s business and hinder its ability to continue as a going concern. The Company’s inability to generate revenue likely will result in the inability to continue to invest in research development and manufacturing capabilities, hinder the Company’s ability to pursue and maintain relationships, partnerships and alliances with third parties, result in a loss of key personnel by way of workforce reduction or by voluntary termination of employment, limit the Company’s ability to secure financing on acceptable terms, if at all, and create greater volatility in the trading of its common stock.
The Commercial Market for SIMOX-SOI Technology is Still Developing and May Never Fully Develop.
The sources of our revenue have shifted from primarily research and development contracts and sales of SIMOX-SOI wafers for commercial applications to sales and support of oxygen implantation equipment. We are aware of only a few commercial manufacturers that are using SIMOX-SOI wafers in low volume production for a limited number of products. The performance advantages of SIMOX-SOI wafers may never be realized commercially and a commercial market for SIMOX-SOI wafers may never fully develop which in turn would adversely affect the sales of our oxygen implanters. The failure of major semiconductor manufacturers and /or major silicon wafer manufacturers to adopt SIMOX-SOI technology would adversely affect, and may prevent, the adoption of this technology by others.
We Have Relied Heavily on Sales to One Customer. We Expect to Rely on Sales to a Limited Number of Customers Which May Cause Sales to Vary Significantly from Quarter to Quarter Causing Our Operating Results to Fluctuate.
We have derived all of our sales of wafer manufacturing equipment from one customer over the last two years. The details for the last three years can be seen in section 1 under the title: Marketing, Sales and Customers in this Annual Report on Form 10-K. Ibis expects that we will continue to rely on a relatively small number of customers as sources of revenue in the foreseeable future. The loss of one or more of these major customers and our failure to obtain other sources of offsetting revenue would have a material adverse impact on our business and hinder our ability to continue as a going concern. In addition, any downturn in these customers’ business or the industry in which these customers operate could result in a significant decrease in any sales of our implanters to these customers, which would have an adverse effect on our business.
We May Need Substantial Additional Capital to Continue Operations in the Future.
The Company’s management believes that it will have sufficient cash resources to support current operations until at least June 2009 with the receipt of the proceeds of approximately $5.3 million from the Company’s sale of common stock and warrants pursuant to a financing agreement made in 2007 with Special Situations Funds. This expectation however, is based on the Company’s current operating plan and general sales outlook, each of which may change rapidly.
We intend to continue to invest in our research, development and manufacturing capabilities. Changes in technology or sales growth beyond currently established capabilities may require further investment. As a result, we may need to raise substantial additional capital in the future. We have previously financed our working capital requirements through:
· equity financings, including warrant and option exercises,