AXCELIS TECHNOLOGIES INC — Interim / Quarterly Report 2010

Aug 6, 2010

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*UNITED STATES*

*SECURITIES AND 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*

*AXCELIS TECHNOLOGIES, 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 Cherry Hill Drive Beverly, Massachusetts 01915* (Address of principal executive offices, including zip code)

*(978) 787-4000*

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, of any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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)

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

As of August 4, 2010 there were 104,649,926 shares of the registrant’s common stock 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.*

*Consolidated Statements of Operations*

*(In thousands, except per share amounts)*

*(Unaudited)*

	Three months ended June 30, — 2010		2009		Six months ended June 30, — 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.*

*Consolidated Balance 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.*

*Consolidated Statements 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 To Consolidated Financial Statements (Unaudited)*

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

Axcelis Technologies, Inc. (“Axcelis” or the “Company”), is a worldwide producer of ion implantation, dry strip and other processing equipment used in the fabrication of semiconductor chips in the United States, Europe and Asia. In addition, the Company provides extensive aftermarket service and support, including spare parts, equipment upgrades, and maintenance services to the semiconductor industry.

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

During the six months ended June 30, 2010, the Company experienced positive cash flows from operations of $2.2 million, which reflects improved market conditions 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 plan includes improvement in revenue and operating cash flow and reduction in working capital as compared to 2009. The Company believes that based on its current market, revenue and expense forecasts, its existing cash and cash equivalents will be sufficient to satisfy its anticipated cash requirements. During the six months ended June 30, 2010 the Company continued to benefit from improving market conditions and increased capacity utilization at customers’ manufacturing facilities. Industry forecasts project this positive trend to continue throughout the remainder of 2010 and into 2011.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation of these financial statements have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for other interim periods or for the year as a whole.

The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Axcelis Technologies, Inc.’s Annual Report on Form 10-K for the year ended December 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 Heavy Industries, Ltd. (“SHI”) in Japan. This joint venture, which was known as SEN Corporation, an SHI and Axcelis Company (“SEN”), licensed technology from the Company relating to the manufacture of specified ion implantation products and had exclusive rights to manufacture and sell these products in the territory of Japan. On March 30, 2009, pursuant to a Share Purchase Agreement dated February 26, 2009, the Company sold to SHI all of the Company’s common shares in SEN in exchange for a cash payment of 13 billion Yen, which resulted in proceeds of approximately $132.8 million before advisor fees and other expenses of $10.6 million. The sales price was determined through an arm’s length negotiation. This transaction terminated all prior agreements among the three parties relating to the SEN joint venture. In addition, the arbitration with SEN initiated by Axcelis in Tokyo was dismissed.

In connection with the sale of its investment in SEN, on March 30, 2009, the Company and SEN entered into a License Agreement pursuant to which the parties have cross licensed each other to use certain patents and technical information on a non-exclusive, perpetual, royalty-free, worldwide basis, provided that the Company and SEN received sole exclusive licenses for 4 years in the U.S. and Japan, respectively. The licenses to technical information cover only technical information shared by the parties prior to the date of the license, so the license to SEN does not cover technical information relating to the Optima HD and Optima XE. The license also excludes patents relating to Axcelis’ work in molecular implant and certain patents developed for the Optima HD and Optima XE. The parties provided each other with limited warranties regarding their right to grant these licenses, and indemnity with respect thereto, but disclaim any warranty regarding the validity or freedom from infringement of the licensed intellectual property. Neither party will provide any support for the

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other party’s use of the licensed intellectual property.

The sale of the Company’s investment in SEN on March 30, 2009, resulted in a gain of approximately $1.1 million. This gain includes net proceeds 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 carrying value of the investment on the date of sale of $144.6 million. The gain from the sale of the Company’s investment in SEN is recorded in other income.

On March 30, 2009, a portion of the proceeds of the sale were used to pay off, in full, the amounts due to the holder of the Company’s 4.25% Convertible Senior Subordinated Notes. See Note 8.

*Note 3. Stock-Based Compensation*

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

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

*Note 4. Net Loss Per Share*

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. Because the Company has net losses for the three and six-month periods ended June 30, 2010 and 2009, any potentially dilutive common shares related to outstanding stock options, restricted stock, restricted stock units and convertible debt have been excluded from the calculation of net loss per share because the effect would be anti-dilutive.

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*Note 5. Comprehensive Loss*

The components of comprehensive loss are as follows:

	Three months ended June 30, — 2010		2009		Six months ended June 30, — 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*

The components 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

When recorded, reserves reduce the carrying value of inventory to its net realizable value. The Company establishes inventory reserves when conditions exist that indicate inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products or market conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors including forecasted sales or usage, estimated product end- of- life dates, estimated current and future market value and new product introductions. Purchasing and usage alternatives are also explored to mitigate inventory exposure. As of June 30, 2010 and December 31, 2009, inventory is stated net of inventory reserves of $26.6 million and $37.0 million, respectively.

*Note 7. Product Warranty*

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

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Changes in 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*

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

On May 25, 2010 the Company and its lender agreed to modify a financial covenant in the revolving credit facility regarding maximum allowable quarterly losses. Based on current forecasts, the Company believes it will be in compliance with the financial covenants, as modified, throughout 2010.

*Convertible Subordinated Debt*

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

*Note 9. Income Taxes*

Income tax expense relates principally to operating results of foreign entities in jurisdictions, primarily in Asia, where the Company earns taxable income. The Company has significant net operating losses in the United States and certain foreign tax jurisdictions and, as a result, does not pay significant income taxes in those jurisdictions. Accordingly, the effective income tax rate is not meaningful.

*Note 10. Significant Customers*

For the three months ended June 30, 2010, one customer accounted for approximately 16.8% of revenue. For the six months ended June 30, 2010, two customers each accounted for approximately 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 six months ended June 30, 2009, one customer accounted for approximately 11.4% of revenue.

*Note 11. Contingencies*

*Litigation*

The Company is, from time to time, a party to litigation that arises in the normal course of its business operations.

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

*Indemnifications*

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

*Note 12. Recent Accounting Pronouncements*

In September 2009, the FASB issued a new accounting standard to provide guidance on revenue recognition criteria for multiple-element arrangements. The new accounting standard modifies the criteria used to separate elements in a multiple-element arrangement by introducing the concept of best estimate of selling price, establishing a hierarchy of evidence for determining selling price (fair value), requiring the use of relative selling price method and prohibiting the use of the residual method to allocate arrangement consideration among units of accounting. The new accounting standard also expands the disclosure requirements for all multiple element arrangements and is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (January 1, 2011 for a calendar year-end entity). The Company is currently evaluating the impact of adopting this pronouncement.

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

Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Liquidity and Capital Resources,” and “Risk Factors” and others discussed elsewhere in this Form 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

*Overview*

The semiconductor capital equipment industry is subject to significant cyclical swings in capital spending by semiconductor manufacturers. Capital spending is influenced by demand for semiconductors and the products using them, the utilization rate and capacity of existing semiconductor manufacturing facilities and changes in semiconductor technology, all of which are outside of our control. As a result, our revenue and gross margins fluctuate from year to year and period to period. The industry experienced a downturn beginning in the second half of 2008 which extended through 2009, although signs of improvement began during the fourth quarter of 2009 and have continued through the first six months of 2010. Our gross margins are also affected by the introduction of new products. We typically become more efficient in manufacturing products as they mature. Our expense base is largely fixed and does not vary significantly with changes in volume. Therefore, we experience fluctuations in operating results and cash flows depending on our revenue as driven by the level of capital expenditures by semiconductor manufacturers.

The sizable expense of building, upgrading or expanding a semiconductor fabrication facility is increasingly causing semiconductor companies to contract with foundries to manufacture their semiconductors. In addition, consolidation and partnering within the semiconductor manufacturing industry is increasing. We expect these trends to continue to reduce the number of our potential customers. This growing concentration of Axcelis’ customers may increase pricing pressure as higher percentages of our total revenue are tied to the buying decisions of a particular customer or a small number of customers.

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

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

*Critical Accounting Estimates*

Management’s discussion and analysis of our financial condition and results of operations are based upon Axcelis’ consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, income taxes, accounts receivable, inventory and warranty obligations. Management’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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There has been no material change in the nature of our critical accounting estimates and judgments as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2009.

*Results of Operations*

The following table sets forth our results of operations as a percentage of revenue for the periods indicated:

	Three months ended June 30, — 2010		2009		Six months ended June 30, — 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 comparison to the three and six months ended June 30, 2009*

*Revenue*

Product

Product revenue, which includes systems sales, sales of spare parts and product upgrades, was $50.7 million, or 87.1% of revenue, for the three months ended June 30, 2010, compared with $25.8 million, or 76.8% of revenue for 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 months ended June 30, 2009. System sales were $22.1 million, or 38.0% of revenue, 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 six months ended June 30, 2010, compared with $16.6 million, or 28.0% of revenue, for the six months ended June 30, 2009. The increase in product revenue in the three and six month period ended June 30, 2010 is attributable to the strengthening of the semiconductor market and a related increase in capital spending by semiconductor manufacturers. In addition, we also believe we are gaining market share with our single wafer ion implant systems for high current and high energy applications (the Optima HDx and Optima XEx), as customers are showing a higher acceptance for our technology.

A portion of our revenue from system sales is deferred until installation and other services related to future deliverables are performed. The total amount of deferred revenue at June 30, 2010 and 2009 was $11.0 million and $9.3 million, respectively. The increase was mainly due to the increase in systems sales in 2010.

Service

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

Royalties from SEN

We had 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 months ended June 30, 2009 and $0.4 million, or 0.6%, of revenue for the six months ended June 30, 2009. Royalties were earned under our prior license agreement with SEN. As a result of the sale of our investment in SEN, SEN has had no further royalty obligations since March 30, 2009.

Ion Implant

Included in 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 ended June 30, 2009. Revenue from sales of ion implantation products and service accounted for $89.0 million, or 83.4% of revenue, for the six months ended June 30, 2010, compared to $49.5 million, or 83.5% of revenue, in the six months ended June 30, 2009. The dollar increase was due to the factors discussed above for product revenue.

Aftermarket

The Company’s product revenue includes sales of spare parts and product upgrades as well as complete systems. We refer to the business of selling spare parts and product upgrades, combined with the sale of maintenance labor and service contracts and service hours, as the “aftermarket” business. Included in total revenue 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 revenue from our aftermarket business was $68.5 million for the six months ended June 30, 2010, compared to $42.3 million for the six months ended June 30, 2009. Aftermarket revenue generally increases with expansion of the installed base of systems but can fluctuate period to period based on capacity utilization at customers’ manufacturing facilities which affects the sale of spare parts and

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demand for equipment service. After hitting bottom in the first quarter of 2009, capacity utilization across the industry has increased in every subsequent quarter. This has resulted in successive improvements in aftermarket revenue each quarter, a trend that is expected to continue throughout 2010 based on industry projections.

*Gross Profit*

Product

Gross profit 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 ended June 30, 2009. Approximately 4.3% of the 21.4% increase resulted from a lower provision for excess inventory. The remaining 17.1% increase in gross profit from product revenue is attributable to higher system sales volume and the related favorable absorption of manufacturing overhead costs, which accounted for 16.4%, and the favorable impact of increased parts and upgrade revenue at higher margins, which accounted for 0.7%. Gross profit from product revenue was 29.6% for the six months ended June 30, 2010, compared with 6.0% for the six months ended June 30, 2009. Approximately 6.8% of the 23.6% increase resulted 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 related favorable absorption of manufacturing overhead costs which accounted for 14.7% and the favorable impact of increased parts and upgrade revenue at higher margins which accounted for 2.1%.

Service

Gross profit 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. The increase in gross profit is attributable to the favorable absorption of fixed service 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 six months ended June 30, 2009. The decrease in gross profit is attributable to changes in the mix of service contracts.

*Operating Expenses*

In response to continuing weak market conditions in 2009 the Company took several actions, including reduction in headcount, to reduce operating expenses. The aggregate of research and development, sales and marketing, and general and administrative expense reduction in 2010 compared to 2009 for the three month and six month period ended June 30, 2010 was $3.1 and $7.8 million, respectively.

*Research and Development*

Research and development expense was $9.5 million in the three months ended June 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 increase was due to increased payroll costs ($0.6 million), increased consulting costs ($0.5 million) and increased project material costs ($0.6 million). Research and development expense was $18.6 million for the six months ended June 30, 2010, an increase of $1.3 million or 7.5%, compared with $17.3 million for the six months ended June 30, 2009. The increase relates principally to the acceleration of certain research and development projects to enable us to take advantage of opportunities where we believe we have a technology edge. Many of the projects have been accelerated at the request of our customers. The increase was comprised of increased payroll costs ($0.1 million), increased consulting costs ($0.5 million), increased project material costs ($0.6 million), and increased development asset amortization and depreciation costs ($0.1 million). Research and development expense was attributable to the following activities for the six months ended June 30, 2010: 53% for new product development, 31% for improvement of existing products, and 16% for product testing.

*Sales and Marketing*

Sales and marketing expense was $6.6 million in the three months ended June 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 increase was primarily due to increased travel costs of ($0.3 million) due to the increased sales volume experienced by the Company during the quarter. Sales and marketing 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*

General and administrative expense was $7.5 million for the three months ended June 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 decrease was due to decreased professional fee expenses ($1.6 million), decreased other miscellaneous expenses ($0.1 million) and increased payroll expense ($0.7 million). General and administrative expense was $15.2 million for the six months 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*

The company incurred no restructuring charges for the three and six months ended June 30, 2010. For the three and six months ended June 30, 2009, we implemented a reduction in force to further reduce costs to mitigate deteriorating industry fundamentals. This reduction in force resulted in a total charge to expense of approximately $5.6 million related to separation and outplacement costs for the six months ended June 30, 2009, offset by a reversal of $0.5 million of accrued compensation 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 expense related to terminated employees.

*Other Income (Expense)*

The sale 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 gain includes net proceeds of $122.2 million and cumulative foreign translation gain 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.

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

We had 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 the six months ended June 30, 2009. The decrease is due to the payment in full of the convertible senior subordinated notes at March 30, 2009. At June 30, 2010 the Company had no outstanding obligation incurring interest.

*Income Taxes*

We incur income tax expense relating principally to operating results of foreign entities in jurisdictions, principally in Asia, where we earn taxable income. We have significant net operating loss carryforwards in the United States and certain foreign jurisdictions, principally Europe, and, as a result, we do not currently pay significant income taxes in those jurisdictions and we do not recognize the tax benefit for such losses as discussed in Note 9 to the consolidated financial statements. Accordingly, our effective income tax rate is not meaningful.

*Liquidity and Capital Resources*

Our liquidity is affected by many factors. Some of these relate specifically to the operations of our business, for example, the rate of acceptance of the Optima product line, and others relate to the uncertainties of global economies, including the availability of credit, and the condition of the overall semiconductor equipment industry.

We have net operating loss and tax credit carryforwards which are available to reduce future income tax liabilities in the United States and certain foreign jurisdictions. 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 we off-set with existing net operating loss carry forwards.

During the six months ended June 30, 2010, we experienced positive cash flows from 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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On March 12, 2010, we amended our existing revolving credit facility with a bank. The amended agreement provides for borrowings up to the lesser of $20 million or specified percentages of the amounts of qualifying accounts receivable and inventory. The facility has certain financial covenants requiring 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 the revolving credit facility regarding maximum allowable quarterly losses. Based on current forecasts, the Company believes it will be in compliance with the financial covenants, as modified, throughout 2010.

We believe that based on our current market, revenue and expense forecasts, our existing cash and cash equivalents will be sufficient to satisfy our anticipated cash requirements. Our 2010 forecast reflects revenue and gross margins consistent with our understanding of customer plans, the improving market conditions currently forecasted by the industry (and experienced by the Company to date in 2010), and increasing capacity utilization at customers’ manufacturing facilities, which has had a positive impact on our aftermarket business for the past several quarters. Forecasted operating expense levels are based on 2010 run rates.

*Recent Accounting Pronouncements*

In September 2009, the FASB issued a new accounting standard to provide guidance on revenue recognition criteria for multiple-element arrangements. The new accounting standard modifies the criteria used to separate elements in a multiple-element arrangement by introducing the concept of best estimate of selling price, establishing a hierarchy of evidence for determining selling price (fair value), requiring the use of relative selling price method and prohibiting the use of the residual method to allocate arrangement consideration among units of accounting. The new accounting standard also expands the disclosure requirements for all multiple element arrangements and is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (January 1, 2011 for a calendar year-end entity). The Company is currently evaluating 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 the information about market risk disclosed in Item 7A to our annual report on Form 10-K for the year ended December 31, 2009.

*Item 4. Controls and Procedures.*

*Evaluation of Disclosure Controls and Procedures*

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, these disclosure controls and procedures are effective.

*Changes in Internal Control over Financial Reporting*

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during the second quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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*PART II—OTHER INFORMATION*

*Item 1. Legal Proceedings.*

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

*Item 1A. Risk Factors.*

As of June 30, 2010, there have been no material changes to the risk factors described in Item 1A to our annual report on Form 10-K for the year ended 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.*

The following 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*

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

| /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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