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** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **(Mark One)**                                                                                                                                          | ** **                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                   | ** **                                                                                                    |
| x                                                                                                                                                            | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|                                                                                                                                                         | ** **                                                                                                    |
| **For the quarterly period ended June 30, 2010**                                                                                                        |
| ** **                                                                                                                                                   |
| **or**                                                                                                                                                       |
| ** **                                                                                                                                                   |
| o                                                                                                                                                            | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|                                                                                                                                                         | ** **                                                                                                    |
| **For the transition period from          to          ** |

 

**Commission file number 000-30941**

 

**AXCELISTECHNOLOGIES, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**  (State or other jurisdiction of  incorporation or organization) | ** ** | **34-1818596**  (IRS Employer  Identification No.) |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------|

 

**108 CherryHill DriveBeverly, Massachusetts 01915**(Address of principal executive offices, including zip code)

 

**(978) 787-4000**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o.

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, of any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T duringthe preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o  No o.

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o       |   | Accelerated filer o              |
|------------------------------------------------|--------|--------------------------------------------|
|                                           |   |                                       |
| Non-accelerated filer o              |   | Smaller reporting company x |
| (Do  not check if a smaller reporting company) |   |                                       |

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act) Yes o No x

 

Asof August 4, 2010 there were 104,649,926 shares of the registrant’s commonstock outstanding.

 

 

 

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**Table of Contents**

 
| **PART I—FINANCIAL INFORMATION** |                                                                                                  |
|--------------------------------------------|-------------------------------------------------------------------------------------------------------|
| **Item 1.**                           | **Financial  Statements (unaudited)**                                                                 | 3 |
|                                       | Consolidated  Statement of Operations for the three and six months ended June 30, 2010  and 2009 | 3 |
|                                       | Consolidated  Balance Sheets as of June 30, 2010 and December 31, 2009                      | 4 |
|                                       | Consolidated  Statements of Cash Flows for the six months ended June 30, 2010 and 2009           | 5 |
|                                       | Notes  to Unaudited Consolidated Financial Statements                                                 | 6 |
| **Item 2.**                           | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**       | 11 |
|                                       | Overview                                                                                              | 11 |
|                                       | Critical Accounting Estimates                                                                         | 11 |
|                                       | Results  of Operations                                                                                | 12 |
|                                       | Liquidity and Capital Resources                                                                       | 15 |
| **Item 3.**                           | **Quantitative  and Qualitative Disclosures About Market Risk**                                       | 16 |
| **Item 4.**                           | **Controls and  Procedures**                                                                          | 16 |
| **PART II—OTHER INFORMATION**    |                                                                                                  |
| **Item 1.**                           | **Legal  Proceedings**                                                                                | 17 |
| **Item 1A.**                          | **Risk  Factors**                                                                                     | 17 |
| **Item 2.**                           | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                      | 17 |
| **Item 3.**                           | **Defaults  Upon Senior Securities**                                                                  | 17 |
| **Item 4.**                           | **(Removed  and Reserved)**                                                                           | 17 |
| **Item 5.**                           | **Other  Information**                                                                                | 17 |
| **Item 6.**                           | **Exhibits**                                                                                          | 17 |

 

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**PART 1—FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

**Axcelis Technologies, Inc.**

 

**ConsolidatedStatements of Operations**

 

**(In thousands, except per share amounts)**

 

**(Unaudited)**

 
| ** **                                                     | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                     | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenue                                                        |       |                                  |       |                                |       |   |   |   |   |
| Product                                                        |       | $                                     | 50,693     |                                | $          | 25,764 |   | $ | 90,971 |   | $ | 43,498 |   |
| Service                                                        |       | 7,510                                 |       | 7,611                               |       | 15,732 |   | 15,395 |   |
| Royalties  from SEN                                            |       | —                                |       | 175                                 |       | — |   | 385 |   |
|                                                           |       | 58,203                                |       | 33,550                              |       | 106,703 |   | 59,278 |   |
| Cost  of revenue                                               |       |                                  |       |                                |       |   |   |   |   |
| Product                                                        |       | 33,690                                |       | 22,658                              |       | 64,010 |   | 40,890 |   |
| Service                                                        |       | 4,645                                 |       | 5,006                               |       | 9,818 |   | 9,495 |   |
|                                                           |       | 38,335                                |       | 27,664                              |       | 73,828 |   | 50,385 |   |
| Gross  profit                                                  |       | 19,868                                |       | 5,886                               |       | 32,875 |   | 8,893 |   |
| Operating  expenses                                            |       |                                  |       |                                |       |   |   |   |   |
| Research  and development                                      |       | 9,477                                 |       | 7,752                               |       | 18,610 |   | 17,287 |   |
| Sales  and marketing                                           |       | 6,606                                 |       | 6,285                               |       | 13,210 |   | 13,164 |   |
| General  and administrative                                    |       | 7,464                                 |       | 8,531                               |       | 15,164 |   | 19,201 |   |
| Restructuring  charges                                         |       | —                                |       | 4,114                               |       | — |   | 5,098 |   |
|                                                           |       | 23,547                                |       | 26,682                              |       | 46,984 |   | 54,750 |   |
| Loss  from operations                                          |       | (3,679                                | )          | (20,796                             | )          | (14,109 | ) | (45,857 | ) |
| Other  income (expense)                                        |       |                                  |       |                                |       |   |   |   |   |
| Gain  on sale of SEN                                           |       | —                                |       | —                              |       | — |   | 1,080 |   |
| Equity  loss of SEN                                            |       | —                                |       | —                              |       | — |   | (3,238 | ) |
| Interest  income                                               |       | 25                                    |       | 30                                  |       | 54 |   | 93 |   |
| Interest  expense                                              |       | —                                |       | —                              |       | — |   | (1,676 | ) |
| Other,  net                                                    |       | 342                                   |       | (1,311                              | )          | (65 | ) | (1,516 | ) |
|                                                           |       | 367                                   |       | (1,281                              | )          | (11 | ) | (5,257 | ) |
| Loss  before income taxes                                      |       | (3,312                                | )          | (22,077                             | )          | (14,120 | ) | (51,114 | ) |
| Income  taxes                                                  |       | 1,217                                 |       | 302                                 |       | 1,510 |   | 420 |   |
| Net  loss                                                      |       | $                                     | (4,529     | )                                   | $          | (22,379 | ) | $ | (15,630 | ) | $ | (51,534 | ) |
| Net  loss per share                                            |       |                                  |       |                                |       |   |   |   |   |
| Basic  and diluted net loss per share                          |       | $                                     | (0.04      | )                                   | $          | (0.22 | ) | $ | (0.15 | ) | $ | (0.50 | ) |
| Shares  used in computing basic and diluted net loss per share |       |                                  |       |                                |       |   |   |   |   |
| Weighted  average common shares                                |       | 104,170                               |       | 103,286                             |       | 104,143 |   | 103,285 |   |

 

See accompanying Notes to these Consolidated Financial Statements

 

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**Axcelis Technologies, Inc.**

 

**ConsolidatedBalance Sheets**

 

**(In thousands)**

 

**(Unaudited)**

 
| ** **                                     | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                                     |       |                    |       |                        |       |
| Current  assets                                |       |                    |       |                        |       |
| Cash  and cash equivalents                     |       | $                       | 47,886     |                        | $          | 45,020 |   |
| Restricted  cash                               |       | 4,047                   |       | 4,918                       |       |
| Accounts  receivable, net                      |       | 34,264                  |       | 19,094                      |       |
| Inventories,  net                              |       | 97,824                  |       | 114,558                     |       |
| Prepaid  expenses and other current assets     |       | 14,877                  |       | 10,016                      |       |
| Total  current assets                          |       | 198,898                 |       | 193,606                     |       |
| Property,  plant and equipment, net            |       | 39,521                  |       | 40,868                      |       |
| Long-term  restricted cash                     |       | —                  |       | 2,245                       |       |
| Other  assets                                  |       | 10,255                  |       | 13,884                      |       |
|                                           |       | $                       | 248,674    |                        | $          | 250,603 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY** |       |                    |       |                        |       |
| Current  liabilities                           |       |                    |       |                        |       |
| Accounts  payable                              |       | $                       | 17,854     |                        | $          | 9,680 |   |
| Accrued  compensation                          |       | 10,402                  |       | 9,267                       |       |
| Warranty                                       |       | 974                     |       | 638                         |       |
| Income  taxes                                  |       | 1,367                   |       | 1,499                       |       |
| Deferred  revenue                              |       | 10,097                  |       | 5,127                       |       |
| Other  current liabilities                     |       | 4,424                   |       | 3,546                       |       |
| Total  current liabilities                     |       | 45,118                  |       | 29,757                      |       |
| Long-term  deferred revenue                    |       | 895                     |       | 563                         |       |
| Other  long-term liabilities                   |       | 3,630                   |       | 3,884                       |       |
| Commitments  and contingencies (Note 11)  |       |                    |       |                        |       |
| Stockholders’  equity                     |       |                    |       |                        |       |
| Preferred  stock                               |       | —                  |       | —                      |       |
| Common  stock                                  |       | 104                     |       | 104                         |       |
| Additional  paid-in capital                    |       | 490,686                 |       | 488,321                     |       |
| Treasury  stock                                |       | (1,218                  | )          | (1,218                      | )          |
| Accumulated  deficit                           |       | (291,577                | )          | (275,947                    | )          |
| Accumulated  other comprehensive income        |       | 1,036                   |       | 5,139                       |       |
|                                           |       | 199,031                 |       | 216,399                     |       |
|                                           |       | $                       | 248,674    |                        | $          | 250,603 |   |

 

See accompanying Notes to these Consolidated Financial Statements

 

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**Axcelis Technologies, Inc.**

 

**ConsolidatedStatements of Cash Flow**

 

**(In thousands)**

 

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                            | ** ** | **2009** | ** ** |
| **Cash flows from operating activities**                                     |       |                                |       |   |   |
| Net  loss                                                                    |       | $                                   | (15,630    | ) | $ | (51,534 | ) |
| Adjustments  to reconcile net loss to net cash used for operating activities |       |                                |       |   |   |
| Undistributed  loss of SEN                                                   |       | —                              |       | 3,238 |   |
| Depreciation  and amortization                                               |       | 3,711                               |       | 3,727 |   |
| Gain  on sale of SEN                                                         |       | —                              |       | (1,080 | ) |
|                                                                         |       |                                |       |   |   |
| Accretion  of premium on convertible debt                                    |       | —                              |       | 133 |   |
| Stock-based  compensation expense                                            |       | 1,568                               |       | 1,316 |   |
| Provision  for excess inventory                                              |       | 1,331                               |       | 7,492 |   |
| Changes  in operating assets & liabilities                          |       |                                |       |   |   |
| Accounts  receivable                                                         |       | (16,011                             | )          | 4,117 |   |
| Inventories                                                                  |       | 13,844                              |       | 9,229 |   |
| Prepaid  expenses and other current assets                                   |       | (5,051                              | )          | 5,956 |   |
| Accounts  payable & other current liabilities                       |       | 11,502                              |       | (5,932 | ) |
| Deferred  revenue                                                            |       | 5,366                               |       | (5,072 | ) |
| Income  taxes                                                                |       | (110                                | )          | 139 |   |
| Other  assets and liabilities                                                |       | 1,673                               |       | (401 | ) |
| Net  cash provided by (used for) operating activities                        |       | 2,193                               |       | (28,672 | ) |
| **Cash flows from investing activities**                                     |       |                                |       |   |   |
| Expenditures  for property, plant, and equipment                             |       | (480                                | )          | (354 | ) |
| Decrease  in restricted cash                                                 |       | 3,116                               |       | 1,741 |   |
| Proceeds  from sale of SEN                                                   |       | —                              |       | 132,847 |   |
| Payments  related to sale of SEN                                             |       | —                              |       | (10,590 | ) |
| Net  cash provided by investing activities                                   |       | 2,636                               |       | 123,644 |   |
| **Cash flows from financing activities**                                     |       |                                |       |   |   |
| Repayment  of convertible debt                                               |       | —                              |       | (83,344 | ) |
| Financing  fees and other expenses                                           |       | (514                                | )          | — |   |
| Proceeds  from exercise of stock options                                     |       | 55                                  |       | — |   |
| Proceeds  from Employee Stock Purchase Plan                                  |       | 206                                 |       | 65 |   |
| Net  cash used for financing activities                                      |       | (253                                | )          | (83,279 | ) |
| Effect  of exchange rate changes on cash                                     |       | (1,710                              | )          | 384 |   |
| Net  increase in cash and cash equivalents                                   |       | 2,866                               |       | 12,077 |   |
| Cash  and cash equivalents at beginning of period                            |       | 45,020                              |       | 37,694 |   |
| Cash  and cash equivalents at end of period                                  |       | $                                   | 47,886     |   | $ | 49,771 |   |

 

See accompanying Notes to these Consolidated Financial Statements

 

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** **

**Axcelis Technologies, Inc.**

 

**Notes ToConsolidated Financial Statements (Unaudited)**

 

**Note 1. Nature of Business and Basis of Presentation**

 

AxcelisTechnologies, Inc. (“Axcelis” or the “Company”), is a worldwide producerof ion implantation, dry strip and other processing equipment used in thefabrication of semiconductor chips in the United States, Europe and Asia.  In addition, the Company provides extensiveaftermarket service and support, including spare parts, equipment upgrades, andmaintenance services to the semiconductor industry.

 

UntilMarch 30, 2009, the Company owned 50% of the equity of a joint venturewith Sumitomo Heavy Industries, Ltd. (“SHI”) in Japan.  Detailed information about the Company’sinvestment in the joint venture is provided in Note 2.

 

Duringthe six months ended June 30, 2010, the Company experienced positive cashflows from operations of $2.2 million, which reflects improved marketconditions and working capital improvements.  Cash and cash equivalents at June 30, 2010 were $47.9 million,compared to $34.8 million at March 31, 2010. The Company’s 2010 planincludes improvement in revenue and operating cash flow and reduction inworking capital as compared to 2009.  TheCompany believes that based on its current market, revenue and expenseforecasts, its existing cash and cash equivalents will be sufficient to satisfyits anticipated cash requirements. During the six months ended June 30, 2010 the Company continued tobenefit from improving market conditions and increased capacity utilization atcustomers’ manufacturing facilities. Industry forecasts project this positivetrend to continue throughout the remainder of 2010 and into 2011.

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with U.S. generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, alladjustments, which are of a normal recurring nature, considered necessary for afair presentation of these financial statements have been included. Operatingresults for the interim periods presented are not necessarily indicative of theresults that may be expected for other interim periods or for the year as awhole.

 

Thebalance sheet at December 31, 2009 has been derived from the auditedfinancial statements at that date but does not include all of the informationand footnotes required by generally accepted accounting principles for completefinancial statements. For further information, refer to the consolidatedfinancial statements and footnotes thereto included in AxcelisTechnologies, Inc.’s Annual Report on Form 10-K for the year endedDecember 31, 2009.

 

**Note 2. Sale of Investment in SEN**

 

Until March 30, 2009,the Company owned 50% of the equity of a joint venture with Sumitomo HeavyIndustries, Ltd. (“SHI”) in Japan. This joint venture, which was known as SEN Corporation, an SHI andAxcelis Company (“SEN”), licensed technology from the Company relating to themanufacture of specified ion implantation products and had exclusive rights tomanufacture and sell these products in the territory of Japan.  On March 30, 2009, pursuant to a SharePurchase Agreement dated February 26, 2009, the Company sold to SHI all ofthe Company’s common shares in SEN in exchange for a cash payment of 13 billionYen, which resulted in proceeds of approximately $132.8 million before advisorfees and other expenses of $10.6 million. The sales price was determined through an arm’s length negotiation.  This transaction terminated all prioragreements among the three parties relating to the SEN joint venture.  In addition, the arbitration with SENinitiated by Axcelis in Tokyo was dismissed.

 

In connection with the saleof its investment in SEN, on March 30, 2009, the Company and SEN enteredinto a License Agreement pursuant to which the parties have cross licensed eachother to use certain patents and technical information on a non-exclusive,perpetual, royalty-free, worldwide basis, provided that the Company and SENreceived sole exclusive licenses for 4 years in the U.S. and Japan,respectively.  The licenses to technicalinformation cover only technical information shared by the parties prior to thedate of the license, so the license to SEN does not cover technical informationrelating to the Optima HD and Optima XE. The license also excludes patentsrelating to Axcelis’ work in molecular implant and certain patents developedfor the Optima HD and Optima XE.  Theparties provided each other with limited warranties regarding their right togrant these licenses, and indemnity with respect thereto, but disclaim anywarranty regarding the validity or freedom from infringement of the licensedintellectual property.  Neither partywill provide any support for the 

 

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other party’s use of the licensedintellectual property.

 

The sale of the Company’sinvestment in SEN on March 30, 2009, resulted in a gain of approximately$1.1 million.  This gain includes netproceeds of $122.2 million (after payment of advisor fees and other costs of$10.6 million) and cumulative foreign translation gain of $23.5 million,previously recorded in other comprehensive income, reduced by the carryingvalue of the investment on the date of sale of $144.6 million.  The gain from the sale of the Company’sinvestment in SEN is recorded in other income.

 

On March 30, 2009, aportion of the proceeds of the sale were used to pay off, in full, the amountsdue to the holder of the Company’s 4.25% Convertible Senior SubordinatedNotes.  See Note 8.

 

**Note 3. Stock-Based Compensation**

 

TheCompany maintains the Axcelis Technologies, Inc. 2000 Stock Plan (the “2000Plan”), a stock award and incentive plan which permits the issuance of options,restricted stock, restricted stock units and performance awards to selectedemployees, directors and consultants of the Company. The Company also maintainsthe Axcelis Technologies, Inc. Employee Stock Purchase Plan (the “ESPP”),an Internal Revenue Code Section 423 plan. The 2000 Plan and the ESPP aremore fully described in Note 14 to the consolidated financial statementsin the Company’s 2009 Annual Report on Form 10-K.

 

UnderAccounting Standards Codification Topic 718, the Company recognized stock-basedcompensation expense of $0.8 million and $1.6 million for the threeand six months ended June 30, 2010, respectively. For the three and sixmonths ended June 30, 2009, the Company recognized stock-basedcompensation expense of $0.5 million and $1.3 million respectively.These amounts include the impact of recognizing compensation expense related torestricted stock units, restricted stock, non-qualified stock options and stockunder the ESPP.

 

**Note 4. Net Loss Per Share**

 

Basicearnings per share is computed by dividing income available to commonstockholders (the numerator) by the weighted-average number of common sharesoutstanding (the denominator) for the period. The computation of dilutedearnings per share is similar to basic earnings per share, except that thedenominator is increased to include additional common shares that would have beenoutstanding if the potentially dilutive common shares had been issued. Becausethe Company has net losses for the three and six-month periods endedJune 30, 2010 and 2009, any potentially dilutive common shares related tooutstanding stock options, restricted stock, restricted stock units andconvertible debt have been excluded from the calculation of net loss per sharebecause the effect would be anti-dilutive.

 

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**Note 5. Comprehensive Loss**

 

Thecomponents of comprehensive loss are as follows:

 
| ** **                                | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                | ** ** | **(in thousands)**                    | ** ** | **(in thousands)**                  | ** ** |
| Net  loss                                 |       | $                                     | (4,529     | )                                   | $          | (22,379 | ) | $ | (15,630 | ) | $ | (51,534 | ) |
| Other  comprehensive income (loss)        |       |                                  |       |                                |       |   |   |   |   |
| Foreign  currency translation adjustments |       | (3,336                                | )          | 2,823                               |       | (4,103 | ) | (8,966 | ) |
|                                      |       | $                                     | (7,865     | )                                   | $          | (19,556 | ) | $ | (19,733 | ) | $ | (60,500 | ) |

 

**Note 6. Inventories**

 

Thecomponents of inventories are as follows:

 
| ** **                          | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|-------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                          | ** ** | **(in thousands)**      | ** ** |
| Raw  materials                      |       | $                       | 66,637     |                        | $          | 69,661 |   |
| Work  in process                    |       | 22,777                  |       | 27,654                      |       |
| Finished  goods (completed systems) |       | 8,410                   |       | 17,243                      |       |
|                                |       | $                       | 97,824     |                        | $          | 114,558 |   |

 

Whenrecorded, reserves reduce the carrying value of inventory to its net realizablevalue. The Company establishes inventory reserves when conditions exist thatindicate inventory may be in excess of anticipated demand or is obsolete basedupon assumptions about future demand for the Company’s products or marketconditions. The Company regularly evaluates the ability to realize the value ofinventory based on a combination of factors including forecasted sales orusage, estimated product end- of- life dates, estimated current and futuremarket value and new product introductions. Purchasing and usage alternativesare also explored to mitigate inventory exposure.  As of June 30, 2010 andDecember 31, 2009, inventory is stated net of inventory reserves of $26.6million and $37.0 million, respectively.

 

**Note 7. Product Warranty**

 

TheCompany offers a one to three year warranty for all of its products, the termsand conditions of which vary depending upon the product sold. For all systemssold, the Company accrues a liability for the estimated cost of standardwarranty at the time of system shipment and defers the portion of systemsrevenue attributable to the fair value of non-standard warranty.  Costs for non-standard warranty are expensedas incurred. Factors that affect the Company’s warranty liability include thenumber of installed units, historical and anticipated product failure rates,material usage and service labor costs. The Company periodically assesses theadequacy of its recorded liability and adjusts the amount as necessary.

 

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Changesin the Company’s product warranty liability are as follows:

 
| ** **                                                                      | ** ** | **Six months ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                      | ** ** | **2010**                            | ** ** | **2009** | ** ** |
| ** **                                                                      | ** ** | **(in thousands)**                  | ** ** |
| Balance  at December 31                                                    |       | $                                   | 726        |   | $ | 3,530 |   |
| Warranties  issued during the period                                            |       | 1,229                               |       | 388 |   |
| Settlements  made during the period                                             |       | (919                                | )          | (1,302 | ) |
| Changes  in estimate of liability for pre-existing warranties during the period |       | 11                                  |       | (1,310 | ) |
| Balance  at June 30                                                        |       | $                                   | 1,047      |   | $ | 1,306 |   |
| Amount  classified as current                                                   |       | $                                   | 974        |   | $ | 1,251 |   |
| Amount  classified as long-term                                                 |       | 73                                  |       | 55 |   |
| Total  Warranty Liability                                                       |       | $                                   | 1,047      |   | $ | 1,306 |   |

 

**Note 8. Financial Arrangements**

 

**Bank Credit Facility**

 

OnMarch 12, 2010, the Company amended its existing revolving credit facilitywith a bank. The amended agreement provides for borrowings up to the lesser of$20 million or specified percentages of the amounts of qualifying accountsreceivable and inventory. The facility has certain financial covenantsrequiring the Company to maintain minimum levels of operating results andliquidity. Borrowings made under the facility will bear interest at the greaterof 6.0% or the bank’s prime rate (3.25% at June 30, 2010) plus 2.0%. Theagreement will terminate on March 12, 2011. For each of the three and sixmonth periods ended June 30, 2010 and 2009 the Company incurred fees and costs of $0.2 million and $0.4million related to its revolving credit facilities.

 

OnMay 25, 2010 the Company and its lender agreed to modify a financialcovenant in the revolving credit facility regarding maximum allowable quarterlylosses. Based on current forecasts, the Company believes it will be incompliance with the financial covenants, as modified, throughout 2010.

 

**Convertible Subordinated Debt**

 

OnMarch 30, 2009, Axcelis used a portion of the proceeds of the sale of itsinterest in SEN (see Note 2) to pay all amounts due (approximately$85 million) under an Indenture between Axcelis and U.S. Bank NationalAssociation, as trustee, relating to the Company’s 4.25% Convertible SeniorSubordinated Notes, resulting in an extinguishment of the debt in full.

 

**Note 9. Income Taxes**

 

Incometax expense relates principally to operating results of foreign entities injurisdictions, primarily in Asia, where the Company earns taxable income. TheCompany has significant net operating losses in the United States and certainforeign tax jurisdictions and, as a result, does not pay significant incometaxes in those jurisdictions. Accordingly, the effective income tax rate is notmeaningful.

 

**Note 10. Significant Customers**

 

Forthe three months ended June 30, 2010, one customer accounted forapproximately 16.8% of revenue.  For thesix months ended June 30, 2010, two customers each accounted forapproximately 12.9% and 11.2% of revenue, respectively.  For the three months ended June 30,2009, three customers each accounted for approximately 12.1%, 10.2%, and 10.0%of revenue, respectively.    For the sixmonths ended June 30, 2009, one customer accounted for approximately 11.4%of revenue.

 

**Note 11. Contingencies**

 

**Litigation**

 

TheCompany is, from time to time, a party to litigation that arises in the normalcourse of its business operations.  

 

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The Company is not presentlya party to any litigation that it believes might have a material adverse effecton its business operations.

 

**Indemnifications**

 

TheCompany’s system sales agreements typically include provisions under which theCompany agrees to take certain actions, provide certain remedies and defend itscustomers against third-party claims of intellectual property infringementunder specified conditions and to indemnify customers against any damage andcosts awarded in connection with such claims. The Company has not incurred anymaterial costs as a result of such indemnifications and has not accrued anyliabilities related to such obligations in the accompanying consolidatedfinancial statements

 

**Note 12. Recent Accounting Pronouncements**

 

InSeptember 2009, the FASB issued a new accounting standard to provideguidance on revenue recognition criteria for multiple-element arrangements. Thenew accounting standard modifies the criteria used to separate elements in amultiple-element arrangement by introducing the concept of best estimate ofselling price, establishing a hierarchy of evidence for determining sellingprice (fair value), requiring the use of relative selling price method andprohibiting the use of the residual method to allocate arrangementconsideration among units of accounting. The new accounting standard alsoexpands the disclosure requirements for all multiple element arrangements andis effective prospectively for revenue arrangements entered into or materiallymodified in fiscal years beginning on or after June 15, 2010(January 1, 2011 for a calendar year-end entity). The Company is currentlyevaluating the impact of adopting this pronouncement.

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.**

 

Certainstatements in “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and elsewhere in this Form 10-Q are forward-lookingstatements that involve risks and uncertainties. Words such as may, will,should, would, anticipates, expects, intends, plans, believes, seeks, estimatesand similar expressions identify such forward-looking statements. Theforward-looking statements contained herein are based on current expectationsand entail various risks and uncertainties that could cause actual results todiffer materially from those expressed in such forward-looking statements.Factors that might cause such a difference include, among other things, thoseset forth under “Liquidity and Capital Resources,” and “Risk Factors” andothers discussed elsewhere in this Form 10-Q. Readers are cautioned not toplace undue reliance on these forward-looking statements, which reflectmanagement’s analysis only as of the date hereof. We assume no obligation toupdate these forward-looking statements to reflect actual results or changes infactors or assumptions affecting forward-looking statements, except as may berequired by law.

 

**Overview**

 

Thesemiconductor capital equipment industry is subject to significant cyclicalswings in capital spending by semiconductor manufacturers. Capital spending isinfluenced by demand for semiconductors and the products using them, theutilization rate and capacity of existing semiconductor manufacturingfacilities and changes in semiconductor technology, all of which are outside ofour control. As a result, our revenue and gross margins fluctuate from year toyear and period to period. The industry experienced a downturn beginning in thesecond half of 2008 which extended through 2009, although signs of improvementbegan during the fourth quarter of 2009 and have continued through the firstsix months of 2010. Our gross margins are also affected by the introduction ofnew products. We typically become more efficient in manufacturing products asthey mature. Our expense base is largely fixed and does not vary significantlywith changes in volume. Therefore, we experience fluctuations in operatingresults and cash flows depending on our revenue as driven by the level ofcapital expenditures by semiconductor manufacturers.

 

Thesizable expense of building, upgrading or expanding a semiconductor fabricationfacility is increasingly causing semiconductor companies to contract withfoundries to manufacture their semiconductors. In addition, consolidation andpartnering within the semiconductor manufacturing industry is increasing. Weexpect these trends to continue to reduce the number of our potentialcustomers. This growing concentration of Axcelis’ customers may increasepricing pressure as higher percentages of our total revenue are tied to thebuying decisions of a particular customer or a small number of customers.

 

Duringthe last six months of 2008 and through 2009 challenging market conditionsseverely limited our ability to increase sales and market share.  During this period, adverse market conditionssuch as credit constriction, higher unemployment, lower corporate earnings,lower business investment and lower consumer spending severely impacted manytechnology manufacturers and significantly lowered the demand for ourproducts.  During the three and sixmonths ended June 30, 2010,  theeconomy and the market for our products have begun to improve.  We also believe we are gaining market sharewith our single wafer ion implant systems for high current and high energyapplications (the Optima HDx and Optima XEx), as customers are showing a higheracceptance for our technology. Our expense base is reduced from earlier periodsdue to cost reduction initiatives implemented in 2009 and 2008.

 

Operatingresults for the periods presented are not necessarily indicative of the resultsthat may be expected for future interim periods or years as a whole.

 

**Critical Accounting Estimates**

 

Management’sdiscussion and analysis of our financial condition and results of operationsare based upon Axcelis’ consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and related disclosure ofcontingent assets and liabilities. On an on-going basis, we evaluate ourestimates, including those related to revenue recognition, income taxes,accounts receivable, inventory and warranty obligations. Management’s estimatesare based on historical experience and on various other assumptions that arebelieved to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions.

 

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Therehas been no material change in the nature of our critical accounting estimatesand judgments as described in Management’s Discussion and Analysis of FinancialCondition and Results of Operations included in our Annual Report onForm 10-K for the year ended December 31, 2009.

 

**Results of Operations**

 

Thefollowing table sets forth our results of operations as a percentage of revenuefor the periods indicated:

 
| ** **                    | ** ** | **Three months  ended  June 30,** | ** ** | **Six months  ended  June 30,** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                    | ** ** | **2010**                               | ** ** | **2009**                             | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenue                       |       |                                   |       |                                 |       |   |   |   |   |
| Product                       |       | 87.1                                   | %          | 76.8                                 | %          | 85.3 | % | 73.4 | % |
| Service                       |       | 12.9                                   |       | 22.7                                 |       | 14.7 |   | 26.0 |   |
| Royalties  from SEN           |       | 0.0                                    |       | 0.5                                  |       | 0.0 |   | 0.6 |   |
| Total  revenue                |       | 100.0                                  |       | 100.0                                |       | 100.0 |   | 100.0 |   |
| Cost  of revenue              |       |                                   |       |                                 |       |   |   |   |   |
| Product                       |       | 57.9                                   |       | 67.5                                 |       | 60.0 |   | 69.0 |   |
| Service                       |       | 8.0                                    |       | 14.9                                 |       | 9.2 |   | 16.0 |   |
| Total  cost of revenue        |       | 65.9                                   |       | 82.4                                 |       | 69.2 |   | 85.0 |   |
| Gross  profit                 |       | 34.1                                   |       | 17.6                                 |       | 30.8 |   | 15.0 |   |
| Operating  expenses           |       |                                   |       |                                 |       |   |   |   |   |
| Research  and development     |       | 16.3                                   |       | 23.1                                 |       | 17.4 |   | 29.2 |   |
| Sales  and marketing          |       | 11.3                                   |       | 18.7                                 |       | 12.4 |   | 22.2 |   |
| General  and administrative   |       | 12.8                                   |       | 25.4                                 |       | 14.2 |   | 32.4 |   |
| Restructuring  charges        |       | 0.0                                    |       | 12.3                                 |       | 0.0 |   | 8.6 |   |
| Total  operating expenses     |       | 40.4                                   |       | 79.5                                 |       | 44.0 |   | 92.4 |   |
| Loss  from operations         |       | (6.3                                   | )          | (61.9                                | )          | (13.2 | ) | (77.4 | ) |
| Other  income (expense)       |       |                                   |       |                                 |       |   |   |   |   |
| Gain  on sale of SEN          |       | 0.0                                    |       | 0.0                                  |       | 0.0 |   | 1.8 |   |
| Equity  loss of SEN           |       | 0.0                                    |       | 0.0                                  |       | 0.0 |   | (5.5 | ) |
| Interest  income              |       | 0.0                                    |       | 0.1                                  |       | 0.1 |   | 0.2 |   |
| Interest  expense             |       | 0.0                                    |       | 0.0                                  |       | 0.0 |   | (2.8 | ) |
| Other,  net                   |       | 0.6                                    |       | (3.9                                 | )          | (0.1 | ) | (2.6 | ) |
| Total  other income (expense) |       | 0.6                                    |       | (3.8                                 | )          | 0.0 |   | (8.9 | ) |
| Loss  before income taxes     |       | (5.7                                   | )          | (65.7                                | )          | (13.2 | ) | (86.3 | ) |
| Income  taxes                 |       | 2.1                                    |       | 0.9                                  |       | 1.4 |   | 0.7 |   |
| Net  loss                     |       | (7.8                                   | )%         | (66.6                                | )%         | (14.6 | )% | (87.0 | )% |

 

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**Three and six months ended June 30, 2010 in comparisonto the three and six months ended June 30, 2009**

** **

**Revenue**

 

*Product*

 

Productrevenue, which includes systems sales, sales of spare parts and productupgrades, was $50.7 million, or 87.1% of revenue, for the three monthsended June 30, 2010, compared with $25.8 million, or 76.8% of revenuefor the three months ended June 30, 2009. Product revenue was$91.0 million, or 85.3% of revenue for the six months ended June 30,2010, compared with $43.5 million, or 73.4% of revenue for the six monthsended June 30, 2009. System sales were $22.1 million, or 38.0% ofrevenue, for the three months ended June 30, 2010, compared with$9.5 million, or 28.3% of revenue for the three months ended June 30,2009. System sales were $38.2 million, or 35.8% of revenue, for the sixmonths ended June 30, 2010, compared with $16.6 million, or 28.0% ofrevenue, for the six months ended June 30, 2009. The increase in productrevenue in the three and six month period ended June 30, 2010 isattributable to the strengthening of the semiconductor market and a relatedincrease in capital spending by semiconductor manufacturers. In addition, wealso believe we are gaining market share with our single wafer ion implantsystems for high current and high energy applications (the Optima HDx andOptima XEx), as customers are showing a higher acceptance for our technology.

 

A  portion of our revenue from system sales isdeferred until installation and other services related to future deliverablesare performed. The total amount of deferred revenue at June 30, 2010 and2009 was $11.0 million and $9.3 million, respectively. The increasewas mainly due to the increase in systems sales in 2010.

 

*Service*

 

Servicerevenue, which includes the labor component of maintenance and servicecontracts and fees for service hours provided by on-site service personnel, was$7.5 million, or 12.9% of revenue, for the three months endedJune 30, 2010, compared with $7.6 million, or 22.7% of revenue, forthe three months ended June 30, 2009. Service revenue was$15.7 million, or 14.7% of revenue for the six months ended June 30,2010, compared with $15.4 million, or 26.0% of revenue for the six monthsended June 30, 2009. Although service revenue should increase with theexpansion of the installed base of systems, it can fluctuate from period toperiod based on capacity utilization at customers’ manufacturing facilities,which affects the need for equipment service. The slight increase during thesix months ended June 30, 2010 was due to an increase in fabricationutilization in the semiconductor industry.

 

*Royalties from SEN*

 

Wehad no royalty revenue for the three and six month periods ended June 30,2010, compared with $0.2 million, or 0.5% of revenue, for the three monthsended June 30, 2009 and $0.4 million, or 0.6%, of revenue for the sixmonths ended June 30, 2009.  Royalties were earned under our prior license agreement with SEN. As aresult of the sale of our investment in SEN, SEN has had no further royalty obligationssince March 30, 2009.

 

*Ion Implant*

 

Includedin total revenue of $58.2 million for the three month period ended June 30,2010 is revenue from sales of ion implantation products and service of$47.7 million, or 82.0% of total revenue, compared with$27.3 million, or 81.4% of total revenue, for the three months endedJune 30, 2009. Revenue from sales of ion implantation products and serviceaccounted for $89.0 million, or 83.4% of revenue, for the six months endedJune 30, 2010, compared to $49.5 million, or 83.5% of revenue, in thesix months ended June 30, 2009. The dollar increase was due to the factorsdiscussed above for product revenue.

 

*Aftermarket*

 

TheCompany’s product revenue includes sales of spare parts and product upgrades aswell as complete systems. We refer to the business of selling spare parts andproduct upgrades, combined with the sale of maintenance labor and servicecontracts and service hours, as the “aftermarket” business. Included in totalrevenue of $58.2 million is revenue from our aftermarket business of$36.1 million for the three months ended June 30, 2010, compared to$23.9 million for the three months ended June 30, 2009. The revenuefrom our aftermarket business was $68.5 million for the six months endedJune 30, 2010, compared to $42.3 million for the six months endedJune 30, 2009. Aftermarket revenue generally increases with expansion ofthe installed base of systems but can fluctuate period to period based oncapacity utilization at customers’ manufacturing facilities which affects thesale of spare parts and

 

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demand for equipmentservice.  After hitting bottom in thefirst quarter of 2009, capacity utilization across the industry has increasedin every subsequent quarter.  This hasresulted in successive improvements in aftermarket revenue each quarter, atrend that is expected to continue throughout 2010 based on industry projections.

 

**Gross Profit**

 

*Product*

 

Grossprofit from product revenue was 33.5% for the three months ended June 30,2010, compared to gross profit of 12.1% for the three months endedJune 30, 2009. Approximately 4.3% of the 21.4% increase resulted from a lowerprovision for excess inventory. The remaining 17.1% increase in gross profitfrom product revenue is attributable to higher system sales volume and therelated favorable absorption of manufacturing overhead costs, which accountedfor 16.4%, and the favorable impact of increased parts and upgrade revenue athigher margins, which accounted for 0.7%. Gross profit from product revenue was29.6% for the six months ended June 30, 2010, compared with 6.0% for thesix months ended June 30, 2009. Approximately 6.8% of the 23.6% increaseresulted from a lower provision for excess inventory. The remaining 16.8%increase in gross profit from product revenue is attributable to  higher systems sales volume and the relatedfavorable absorption of manufacturing overhead costs which accounted for 14.7%and the favorable impact of  increasedparts and upgrade revenue at higher margins which accounted for 2.1%.

 

*Service*

 

Grossprofit from service revenue was 38.1% for the three months ended June 30,2010, compared to 34.2% for the three months ended June 30, 2009. Theincrease in gross profit is attributable to the favorable absorption of fixedservice costs due to an increase in billable service hours.  Gross profit from service revenue was 37.6%for the six months ended June 30, 2010, compared to 38.3% for the sixmonths ended June 30, 2009. The decrease in gross profit is attributableto changes in the mix of service contracts.

 

**Operating Expenses**

 

Inresponse to continuing weak market conditions in 2009 the Company took severalactions, including reduction in headcount, to reduce operating expenses. Theaggregate of research and development, sales and marketing, and general andadministrative expense reduction in 2010 compared to 2009 for the three monthand six month period ended June 30, 2010 was $3.1 and $7.8 million,respectively.

 

**Research and Development**

 

Researchand development expense was $9.5 million in the three months endedJune 30, 2010, an increase of $1.7 million, or 21.8%, compared with$7.8 million in the three months ended June 30, 2009. The increasewas due to increased payroll costs ($0.6 million), increased consultingcosts ($0.5 million) and increased project material costs($0.6 million). Research and development expense was $18.6 millionfor the six months ended June 30, 2010, an increase of $1.3 millionor 7.5%, compared with $17.3 million for the six months endedJune 30, 2009. The increase relates principally to the acceleration ofcertain research and development projects to enable us to take advantage ofopportunities where we believe we have a technology edge. Many of the projectshave been accelerated at the request of our customers. The increase wascomprised of increased payroll costs ($0.1 million), increased consultingcosts ($0.5 million), increased project material costs($0.6 million), and increased development asset amortization anddepreciation costs ($0.1 million). Research and development expense wasattributable to the following activities for the six months ended June 30,2010: 53% for new product development, 31% for improvement of existingproducts, and 16% for product testing.

 

**Sales and Marketing**

 

Salesand marketing expense was $6.6 million in the three months endedJune 30, 2010, an increase of $0.3 million, or 4.8%, compared with$6.3 million for the three months ended June 30, 2009. The increasewas primarily due to increased travel costs of ($0.3 million) due to theincreased sales volume experienced by the Company during the quarter. Sales andmarketing expense was $13.2 million for the six months ended June 30,2010, equal to the spending for the six months ended June 30, 2009.

 

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**General and Administrative**

 

Generaland administrative expense was $7.5 million for the three months endedJune 30, 2010, a decrease of $1.0 million or 11.8%, compared with$8.5 million in the three months ended June 30, 2009. The decreasewas due to decreased professional fee expenses ($1.6 million), decreased othermiscellaneous expenses ($0.1 million) and increased payroll expense ($0.7million). General and administrative expense was $15.2 million for the sixmonths ended June 30, 2010, a decrease of $4.0 million, or 20.8%,compared with $19.2 million in the six months ended June 30, 2009.The decrease was primarily due to decreased professional fee expenses($4.8 million) offset by increased payroll expense ($0.9 million).

 

**Restructuring**

 

Thecompany incurred no restructuring charges for the three and six months ended June 30,2010.  For the three and six months endedJune 30, 2009, we implemented a reduction in force to further reduce coststo mitigate deteriorating industry fundamentals. This reduction in forceresulted in a total charge to expense of approximately $5.6 millionrelated to separation and outplacement costs for the six months endedJune 30, 2009, offset by a reversal of $0.5 million of accruedcompensation expense related to terminated employees. A charge to expense of$4.6 million was recorded in the three months ended June 30, 2009,offset by a reversal of $0.5 million of accrued compensation expenserelated to terminated employees.

 

**Other Income (Expense)**

 

Thesale of the Company’s investment in SEN resulted in a gain of approximately$1.1 million for the six months ended June 30, 2009. This gainincludes net proceeds of $122.2 million and cumulative foreign translationgain of $23.5 million, previously recorded in other comprehensive income,reduced by the carrying value of the investment on the date of sale of$144.6 million.

 

Equityloss attributable to SEN was $3.2 million for the six months endedJune 30, 2009.  As a result of thesale of the Company’s investment in SEN, subsequent to March 30, 2009, theCompany no longer records equity income or loss from SEN.

 

Wehad no interest expense for the three and six month period ended June 30,2010.  Interest expense decreased by$1.7 million for the six months ended June 30, 2010, compared to thesix months ended June 30, 2009. The decrease is due to the payment in fullof the convertible senior subordinated notes at March 30, 2009.  At June 30, 2010 the Company had nooutstanding obligation incurring interest.

 

**Income Taxes**

 

Weincur income tax expense relating principally to operating results of foreignentities in jurisdictions, principally in Asia, where we earn taxable income.We have significant net operating loss carryforwards in the United States andcertain foreign jurisdictions, principally Europe, and, as a result, we do notcurrently pay significant income taxes in those jurisdictions and we do notrecognize the tax benefit for such losses as discussed in Note 9 to theconsolidated financial statements. Accordingly, our effective income tax rateis not meaningful.

 

**Liquidity and Capital Resources**

 

Ourliquidity is affected by many factors. Some of these relate specifically to theoperations of our business, for example, the rate of acceptance of the Optimaproduct line, and others relate to the uncertainties of global economies,including the availability of credit, and the condition of the overallsemiconductor equipment industry.

 

Wehave net operating loss and tax credit carryforwards which are available toreduce future income tax liabilities in the United States and certain foreignjurisdictions.  These carryforwards,which expire principally between 2018 and 2028, had an aggregate tax effect of$90.2 million at December 31, 2009. The sale of our investment in SEN generated taxable income which weoff-set with existing net operating loss carry forwards.

 

Duringthe six months ended June 30, 2010, we experienced positive cash flowsfrom operations. Cash and cash equivalents at June 30, 2010 were$47.9 million, compared to $45.0 million at December 31, 2009.

 

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OnMarch 12, 2010, we amended our existing revolving credit facility with abank. The amended agreement provides for borrowings up to the lesser of$20 million or specified percentages of the amounts of qualifying accountsreceivable and inventory. The facility has certain financial covenantsrequiring us to maintain minimum levels of operating results and liquidity. On May 25,2010 the Company and its lender agreed to modify a financial covenant in therevolving credit facility regarding maximum allowable quarterly losses. Basedon current forecasts, the Company believes it will be in compliance with thefinancial covenants, as modified, throughout 2010.

 

Webelieve that based on our current market, revenue and expense forecasts, ourexisting cash and cash equivalents will be sufficient to satisfy ouranticipated cash requirements. Our 2010 forecast reflects revenue and grossmargins consistent with our understanding of customer plans, the improvingmarket conditions currently forecasted by the industry (and experienced by theCompany to date in 2010), and increasing capacity utilization at customers’manufacturing facilities, which has had a positive impact on our aftermarketbusiness for the past several quarters. Forecasted operating expense levels arebased on 2010 run rates.

 

**Recent Accounting Pronouncements**

 

InSeptember 2009, the FASB issued a new accounting standard to provideguidance on revenue recognition criteria for multiple-element arrangements. Thenew accounting standard modifies the criteria used to separate elements in amultiple-element arrangement by introducing the concept of best estimate ofselling price, establishing a hierarchy of evidence for determining sellingprice (fair value), requiring the use of relative selling price method andprohibiting the use of the residual method to allocate arrangementconsideration among units of accounting. The new accounting standard alsoexpands the disclosure requirements for all multiple element arrangements andis effective prospectively for revenue arrangements entered into or materiallymodified in fiscal years beginning on or after June 15, 2010(January 1, 2011 for a calendar year-end entity). The Company is currentlyevaluating the impact of adopting this pronouncement.

 

**Item 3. Quantitative and Qualitative Disclosures about Market Risk.**

 

As of June 30, 2010, there have been no material changes to theinformation about market risk disclosed in Item 7A to our annual report onForm 10-K for the year ended December 31, 2009.

 

**Item 4. Controls and Procedures.**

 

**Evaluation of Disclosure Controls and Procedures**

 

Ourmanagement, with the participation of our principal executive officer andprincipal financial officer, has evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”) as of the endof the period covered by this report (the “Evaluation Date”). Based on thisevaluation, our principal executive officer and principal financial officerconcluded that, as of the Evaluation Date, these disclosure controls andprocedures are effective.

 

**Changes in Internal Control over Financial Reporting**

 

Therewas no change in our internal control over financial reporting (as defined inRule 13a-15(f) under the Exchange Act) identified in connection withthe evaluation of our internal control that occurred during the second quarterof 2010 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II—OTHERINFORMATION**

 

**Item 1. Legal Proceedings.**

 

TheCompany is not presently a party to any litigation that it believes might havea material adverse effect on its business operations. The Company is, from timeto time, a party to litigation that arises in the normal course of its businessoperations.

 

**Item 1A. Risk Factors.**

 

Asof June 30, 2010, there have been no material changes to the risk factorsdescribed in Item 1A to our annual report on Form 10-K for the yearended December 31, 2009.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

 

None.

 

**Item 3. Defaults Upon Senior Securities.**

 

None.

 

**Item 4. (Removed and Reserved).**

 

**Item 5. Other Information.**

 

None.

 

**Item 6. Exhibits.**

 

Thefollowing exhibits are filed herewith:

 
| **Exhibit  No** | ** ** | **Description**                                                                                                                                                                                                                                                                                                  |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             |       | Amended and Restated  Certificate of Incorporation of the Company. Incorporated by reference to  Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with  the Commission on May 11, 2009.                                                                                         |
| 3.2             |       | Bylaws of the Company, as  amended as of August 8, 2007. Incorporated by reference to  Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended  June 30, 2007, filed with the Commission on August 9, 2007.                                                                   |
| 10.1            |       | First Loan Modification  Agreement entered into as of May 25, 2010 among the Company, Axcelis  Technologies CCS Corporation and Silicon Valley Bank. Incorporated by  reference to Exhibit 10.1 of the Company’s Current Report on  Form 8-K filed with the Commission on May 27, 2010. |
| 31.1            |       | Certification of the  Principal Executive Officer under Exchange Act  Rule 13a-14(a)/15d-14(a) (Section 302 of the Sarbanes-Oxley  Act), dated August 6, 2010. Filed herewith.                                                                                                               |
| 31.2            |       | Certification of the  Principal Financial Officer under Exchange Act  Rule 13a-14(a)/15d-14(a) (Section 302 of the Sarbanes-Oxley  Act), dated August 6, 2010. Filed herewith.                                                                                                               |
| 32.1            |       | Certification of the  Principal Executive Officer pursuant to Section 1350 of Chapter 63  of title 18 of the United States Code (Section 906 of the  Sarbanes-Oxley Act), dated August 6, 2010. Filed herewith.                                                                         |
| 32.2            |       | Certification of the  Principal Financial Officer pursuant to Section 1350 of Chapter 63  of title 18 of the United States Code (Section 906 of the  Sarbanes-Oxley Act), dated August 6, 2010. Filed herewith.                                                                         |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                        | AXCELIS  TECHNOLOGIES, INC. |
|-----------------------------|----------------------------------|
|                        |                             |
| DATED:  August 6, 2010 | By:                              | /s/  STEPHEN G. BASSETT |
|                        |                             |  

Stephen  G. Bassett*Executive Vice President and  Chief Financial Officer  Duly Authorized Officer and  Principal Financial Officer* |

 

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