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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2010**

 

**or**

 

**o****         TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition periodfrom               to               **

 

**Commission file number****000-30941**

 

**AXCELISTECHNOLOGIES, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **34-1818596**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (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)

 

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 during thepreceding 12 months (or for such shorter period that the registrant wasrequired 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 November 4, 2010 there were 104,766,609 shares of the registrant’scommon stock outstanding.

 

 

 

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| **PART I - FINANCIAL INFORMATION** | ** **                                                                                                  | ** ** |
|-----------------------------------------|-------------------------------------------------------------------------------------------------------------|------------|
| **Item 1.**                             | **Financial  Statements (Unaudited)**                                                                       |       | 3 |
|                                    | Consolidated  Statement of Operations for the three and nine months ended  September 30, 2010 and 2009 |       | 3 |
|                                    | Consolidated  Balance Sheets as of September 30, 2010 and December 31, 2009                       |       | 4 |
|                                    | Consolidated  Statements of Cash Flows for the nine months ended September 30, 2010  and 2009          |       | 5 |
|                                    | Notes to 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                                                                             |       | 16 |
| **Item 3.**                             | **Quantitative  and Qualitative Disclosures About Market Risk**                                             |       | 17 |
| **Item 4.**                             | **Controls and  Procedures**                                                                                |       | 17 |
| **PART II  - OTHER INFORMATION**   | ** **                                                                                                  | ** ** |
| **Item 1.**                             | **Legal  Proceedings**                                                                                      |       | 18 |
| **Item 1A.**                            | **Risk  Factors**                                                                                           |       | 18 |
| **Item 2.**                             | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                            |       | 18 |
| **Item 3.**                             | **Defaults  Upon Senior Securities**                                                                        |       | 18 |
| **Item 4.**                             | **(Removed  and Reserved)**                                                                                 |       | 18 |
| **Item 5.**                             | **Other  Information**                                                                                      |       | 18 |
| **Item 6.**                             | **Exhibits**                                                                                                |       | 18 |

 

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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** | ** ** | **Nine months ended** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                     | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                     | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenue                                                        |       |                             |       |                            |       |   |   |   |   |
| Product                                                        |       | $                                | 66,162     |                            | $          | 25,871 |   | $ | 157,133 |   | $ | 69,369 |   |
| Service                                                        |       | 8,944                            |       | 9,132                           |       | 24,676 |   | 24,527 |   |
| Royalties from SEN                                             |       | —                           |       | 4                               |       | — |   | 389 |   |
|                                                           |       | 75,106                           |       | 35,007                          |       | 181,809 |   | 94,285 |   |
| Cost of revenue                                                |       |                             |       |                            |       |   |   |   |   |
| Product                                                        |       | 47,848                           |       | 21,681                          |       | 111,858 |   | 62,571 |   |
| Service                                                        |       | 5,788                            |       | 5,506                           |       | 15,606 |   | 15,001 |   |
|                                                           |       | 53,636                           |       | 27,187                          |       | 127,464 |   | 77,572 |   |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Gross profit                                                   |       | 21,470                           |       | 7,820                           |       | 54,345 |   | 16,713 |   |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Operating expenses                                             |       |                             |       |                            |       |   |   |   |   |
| Research and development                                       |       | 9,872                            |       | 7,648                           |       | 28,482 |   | 24,935 |   |
| Sales and marketing                                            |       | 7,151                            |       | 5,700                           |       | 20,361 |   | 18,864 |   |
| General and administrative                                     |       | 7,885                            |       | 7,874                           |       | 23,049 |   | 27,075 |   |
| Restructuring charges                                          |       | —                           |       | 430                             |       | — |   | 5,528 |   |
|                                                           |       | 24,908                           |       | 21,652                          |       | 71,892 |   | 76,402 |   |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Loss from operations                                           |       | (3,438                           | )          | (13,832                         | )          | (17,547 | ) | (59,689 | ) |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Other income (expense)                                         |       |                             |       |                            |       |   |   |   |   |
| Gain on sale of SEN                                            |       | —                           |       | —                          |       | — |   | 1,080 |   |
| Equity loss of SEN                                             |       | —                           |       | —                          |       | — |   | (3,238 | ) |
| Interest income                                                |       | 15                               |       | 59                              |       | 69 |   | 152 |   |
| Interest expense                                               |       | —                           |       | —                          |       | — |   | (1,676 | ) |
| Other, net                                                     |       | (1,996                           | )          | (1,681                          | )          | (2,061 | ) | (3,197 | ) |
|                                                           |       | (1,981                           | )          | (1,622                          | )          | (1,992 | ) | (6,879 | ) |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Loss before income taxes                                       |       | (5,419                           | )          | (15,454                         | )          | (19,539 | ) | (66,568 | ) |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Income taxes                                                   |       | 854                              |       | 444                             |       | 2,364 |   | 864 |   |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Net loss                                                       |       | $                                | (6,273     | )                               | $          | (15,898 | ) | $ | (21,903 | ) | $ | (67,432 | ) |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Net loss per share                                             |       |                             |       |                            |       |   |   |   |   |
| Basic and diluted net loss per share                           |       | $                                | (0.06      | )                               | $          | (0.15 | ) | $ | (0.21 | ) | $ | (0.65 | ) |
|                                                           |       |                             |       |                            |       |   |   |   |   |
| Shares used in computing basic and diluted net  loss per share |       |                             |       |                            |       |   |   |   |   |
| Weighted average common shares outstanding                     |       | 104,628                          |       | 103,850                         |       | 104,307 |   | 103,475 |   |

 

See accompanying Notes to these Consolidated Financial Statements

 

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**Axcelis Technologies, Inc.**

**ConsolidatedBalance Sheets**

**(In thousands)**

**(Unaudited)**

 
| ** **                                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2010**               | ** ** | **2009**              | ** ** |
| **ASSETS**                                     | ** ** | ** **             | ** ** | ** **            | ** ** |
| Current assets                                 |       |                   |       |                  |       |
| Cash and cash equivalents                      |       | $                      | 49,116     |                  | $          | 45,020 |   |
| Restricted cash                                |       | 3,742                  |       | 4,918                 |       |
| Accounts receivable, net                       |       | 40,957                 |       | 19,094                |       |
| Inventories, net                               |       | 103,579                |       | 114,558               |       |
| Prepaid expenses and other current assets      |       | 13,046                 |       | 10,016                |       |
| Total current assets                           |       | 210,440                |       | 193,606               |       |
|                                           |       |                   |       |                  |       |
| Property, plant and equipment, net             |       | 38,904                 |       | 40,868                |       |
| Long-term restricted cash                      |       | —                 |       | 2,245                 |       |
| Other assets                                   |       | 9,004                  |       | 13,884                |       |
|                                           |       | $                      | 258,348    |                  | $          | 250,603 |   |
|                                           |       |                   |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY** |       |                   |       |                  |       |
| Current liabilities                            |       |                   |       |                  |       |
| Accounts payable                               |       | $                      | 25,507     |                  | $          | 9,680 |   |
| Accrued compensation                           |       | 10,828                 |       | 9,267                 |       |
| Warranty                                       |       | 1,629                  |       | 638                   |       |
| Income taxes                                   |       | 1,725                  |       | 1,499                 |       |
| Deferred revenue                               |       | 10,170                 |       | 5,127                 |       |
| Other current liabilities                      |       | 4,561                  |       | 3,546                 |       |
| Total current liabilities                      |       | 54,420                 |       | 29,757                |       |
|                                           |       |                   |       |                  |       |
| Long-term deferred revenue                     |       | 1,365                  |       | 563                   |       |
| Other long-term liabilities                    |       | 4,023                  |       | 3,884                 |       |
|                                           |       |                   |       |                  |       |
| Commitments and contingencies (Note 11)        |       |                   |       |                  |       |
| Stockholders’ equity                      |       |                   |       |                  |       |
| Preferred stock                                |       | —                 |       | —                |       |
| Common stock                                   |       | 105                    |       | 104                   |       |
| Additional paid-in capital                     |       | 492,343                |       | 488,321               |       |
| Treasury stock                                 |       | (1,218                 | )          | (1,218                | )          |
| Accumulated deficit                            |       | (297,850               | )          | (275,947              | )          |
| Accumulated other comprehensive income         |       | 5,160                  |       | 5,139                 |       |
|                                           |       | 198,540                |       | 216,399               |       |
|                                           |       | $                      | 258,348    |                  | $          | 250,603 |   |

 

See accompanying Notes to these Consolidated Financial Statements

 

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**Axcelis Technologies, Inc.**

**ConsolidatedStatements of Cash Flow**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Nine months ended** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                   | ** ** | **September 30,**          | ** ** |
| ** **                                                                   | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| **Cash flows from operating  activities**                                    |       |                            |       |   |   |
| Net loss                                                                     |       | $                               | (21,903    | ) | $ | (67,432 | ) |
| Adjustments to reconcile net loss to net cash used  for operating activities |       |                            |       |   |   |
| Undistributed loss of SEN                                                    |       | —                          |       | 3,238 |   |
| Depreciation and amortization                                                |       | 5,367                           |       | 5,593 |   |
| Gain on sale of SEN                                                          |       | —                          |       | (1,080 | ) |
| Accretion of premium on convertible debt                                     |       | —                          |       | 133 |   |
| Stock-based compensation expense                                             |       | 2,953                           |       | 3,594 |   |
| Provision for excess inventory                                               |       | 1,734                           |       | 9,268 |   |
| Changes in operating assets & liabilities                           |       |                            |       |   |   |
| Accounts receivable                                                          |       | (21,890                         | )          | 1,097 |   |
| Inventories                                                                  |       | 9,282                           |       | 18,091 |   |
| Prepaid expenses and other current assets                                    |       | (2,747                          | )          | 6,468 |   |
| Accounts payable & other current  liabilities                       |       | 20,386                          |       | (12,908 | ) |
| Deferred revenue                                                             |       | 5,852                           |       | (3,650 | ) |
| Income taxes                                                                 |       | 201                             |       | 480 |   |
| Other assets and liabilities                                                 |       | 2,357                           |       | (710 | ) |
| Net cash provided by (used for) operating  activities                        |       | 1,592                           |       | (37,818 | ) |
| **Cash flows from investing  activities**                                    |       |                            |       |   |   |
| Expenditures for property, plant, and equipment                              |       | (761                            | )          | (381 | ) |
| Decrease in restricted cash                                                  |       | 3,421                           |       | 1,666 |   |
| Proceeds from sale of SEN                                                    |       | —                          |       | 132,847 |   |
| Payments related to sale of SEN                                              |       | —                          |       | (10,590 | ) |
| Net cash provided by investing activities                                    |       | 2,660                           |       | 123,542 |   |
| **Cash flows from financing  activities**                                    |       |                            |       |   |   |
| Repayment of convertible debt                                                |       | —                          |       | (83,344 | ) |
| Financing fees and other expenses                                            |       | (523                            | )          | — |   |
| Proceeds from exercise of stock options                                      |       | 104                             |       | — |   |
| Proceeds from Employee Stock Purchase Plan                                   |       | 206                             |       | 65 |   |
| Net cash used for financing activities                                       |       | (213                            | )          | (83,279 | ) |
| Effect of exchange rate changes on cash                                      |       | 57                              |       | 1,105 |   |
| Net increase in cash and cash equivalents                                    |       | 4,096                           |       | 3,550 |   |
| Cash and cash equivalents at beginning of period                             |       | 45,020                          |       | 37,694 |   |
| Cash and cash equivalents at end of period                                   |       | $                               | 49,116     |   | $ | 41,244 |   |

 

See accompanying Notes to these Consolidated Financial Statements

 

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**Axcelis Technologies, Inc.**

 

**Notes To Consolidated FinancialStatements (Unaudited)**

 

**Note1.  Nature of Business and Basis ofPresentation**

 

Axcelis Technologies, Inc.(“Axcelis” or the “Company”), is a worldwide producer of ion implantation, drystrip and other processing equipment used in the fabrication of semiconductorchips in the United States, Europe and Asia. In addition, the Company provides extensive aftermarket service andsupport, including spare parts, equipment upgrades, and maintenance services tothe 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.

 

During the nine months endedSeptember 30, 2010, the Company experienced positive cash flows fromoperations of $1.6 million, which reflects improved market conditions andworking capital improvements.   Cash andcash equivalents at September 30, 2010 were $49.1 million, comparedto $47.9 million at June 30, 2010. The Company currently forecasts continuedrevenue growth in the fourth quarter. With inventories and receivables expected to build during revenue rampup, we estimate we will use $5 million to $10 million of cash during the fourthquarter.  The Company projects it willgenerate positive cash flow from operations beginning in the first quarter of 2011.  During the nine months endedSeptember 30, 2010 the Company continued to benefit from improving marketconditions and increased capacity utilization at customers’ manufacturingfacilities. Industry forecasts project this positive trend to continue throughoutthe remainder of 2010 and into 2011.

 

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

 

The balance sheet atDecember 31, 2009 has been derived from the audited financial statementsat that date but does not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.For further information, refer to the consolidated financial statements andfootnotes thereto included in Axcelis Technologies, Inc.’s Annual Reporton Form 10-K for the year ended December 31, 2009.

 

**Note2.  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 SEN received soleexclusive licenses for 4 years in the U.S. and Japan, respectively.  The licenses to technical information coveronly technical information shared by the parties prior to the date of thelicense, so the license to SEN does not cover technical information relating tothe Optima HD and Optima XE. The license also excludes patents relating toAxcelis’ work in molecular implant and certain patents developed for the OptimaHD and Optima XE.  The parties providedeach other with limited warranties regarding their right to grant theselicenses, and indemnity with respect thereto, but disclaim any warrantyregarding the validity or freedom from infringement of the licensed intellectualproperty.

 

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Neither party will provideany support for the other party’s use of the licensed intellectual 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.

 

**Note3.  Stock-Based Compensation**

 

The Company maintains theAxcelis Technologies, Inc. 2000 Stock Plan (the “2000 Plan”), a stockaward and incentive plan which permits the issuance of options, restrictedstock, restricted stock units and performance awards to selected employees,directors and consultants of the Company. The Company also maintains theAxcelis Technologies, Inc. Employee Stock Purchase Plan (the “ESPP”), anInternal 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 $1.4 million and $3.0 million for the three and ninemonths ended September 30, 2010, respectively.  For the three and nine months endedSeptember 30, 2009, the Company recognized stock-based compensationexpense of $2.3 million and $3.6 million respectively.  These amounts include the impact ofrecognizing compensation expense related to restricted stock units, restrictedstock, non-qualified stock options and stock issued under the ESPP.

 

**Note4.  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 havebeen outstanding if the potentially dilutive common shares had beenissued.  Because the Company has netlosses for  the three and nine monthperiods ended September 30, 2010 and 2009, any potentially dilutive commonshares related to outstanding stock options, restricted stock units orconvertible debt have been excluded from the calculation of net loss per sharebecause the effect would be anti-dilutive.

 

**Note5.  Comprehensive Income**

 

Thecomponents of comprehensive income are as follows:

 
| ** **                               | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                               | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                               | ** ** | **(in thousands)**          | ** ** | **(in thousands)**         | ** ** |
|                                     |       |                             |       |                            |       |   |   |   |   |
| Net loss                                 |       | $                                | (6,273     | )                               | $          | (15,898 | ) | $ | (21,903 | ) | $ | (67,432 | ) |
| Other comprehensive income               |       |                             |       |                            |       |   |   |   |   |
| Foreign currency translation adjustments |       | 4,124                            |       | 2,620                           |       | 21 |   | (6,346 | ) |
|                                     |       | $                                | (2,149     | )                               | $          | (13,278 | ) | $ | (21,882 | ) | $ | (73,778 | ) |

 

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**Note6.  Inventories**

 

Thecomponents of inventories are as follows:

 
| ** **                         | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2010**                | ** ** | **2009**              | ** ** |
| ** **                         | ** ** | **(in thousands)** | ** ** |
| Raw materials                      |       | $                       | 69,915     |                  | $          | 69,661 |   |
| Work in process                    |       | 27,265                  |       | 27,654                |       |
| Finished goods (completed systems) |       | 6,399                   |       | 17,243                |       |
|                               |       | $                       | 103,579    |                  | $          | 114,558 |   |

 

When recorded, reserves reduce the carrying value ofinventory to its net realizable value. 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 regularlyevaluates the ability to realize the value of inventory based on a combinationof factors including: forecasted sales or usage, estimated product- end- of-life dates, estimated current and future market value and new productintroductions.  Purchasing and usagealternatives are also explored to mitigate inventory exposure.  As of September 30, 2010 and December 31,2009, inventory is stated net of reserves of $27.4 million and $37.0 million,respectively.

 

**Note7.  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.

 

Changes in the Company’sproduct warranty liability are as follows:

 
| ** **                                                                      | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | **September 30,**          | ** ** |
| ** **                                                                      | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| ** **                                                                      | ** ** | **(in thousands)**         | ** ** |
| Balance at December 31                                                     |       | $                               | 726        |   | $ | 3,530 |   |
| Warranties issued during the period                                             |       | 2,242                           |       | 736 |   |
| Settlements made during the period                                              |       | (1,356                          | )          | (1,945 | ) |
| Changes in estimate of liability for pre-existing  warranties during the period |       | 185                             |       | (1,200 | ) |
| Balance at September 30                                                    |       | $                               | 1,797      |   | $ | 1,121 |   |
| Amount classified as current                                                    |       | $                               | 1,629      |   | $ | 1,029 |   |
| Amount classified as long-term                                                  |       | 168                             |       | 92 |   |
| Total Warranty Liability                                                        |       | $                               | 1,797      |   | $ | 1,121 |   |

 

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**Note 8.  Financial Arrangements**

 

**Bank CreditFacility**

 

On March 12, 2010, theCompany amended its existing revolving credit facility with a bank. The amendedagreement provides for borrowings up to the lesser of $20 million orspecified percentages of the amounts of qualifying accounts receivable andinventory. The facility has certain financial covenants requiring the Companyto maintain minimum levels of operating results and liquidity. Borrowings madeunder the facility will bear interest at the greater of 6.0% or the bank’sprime rate (3.25% at September 30, 2010) plus 2.0%. The agreement willterminate on March 11, 2011.  Bankfees and amortization of deferred financing expenses related to its revolvingcredit facilities were $0.2 million for the three month ended September 30,2010, compared with $0.1 million in the three months ended September 30,2009.  Bank fees were $0.6 million forthe nine months ended September 30, 2010, compared with $0.5 million forthe nine months ended September 30, 2009.

 

On May 25, 2010 the Companyand its lender agreed to modify a financial covenant in the revolving creditfacility regarding maximum allowable quarterly losses. Based on currentforecasts, as modified, the Company believes it will be in compliance with thefinancial covenants during the remaining term of the facility.

 

**ConvertibleSubordinated Debt**

 

On March 30, 2009,Axcelis used a portion of the proceeds of the sale of its interest in SEN (seeNote 2) to pay all amounts due (approximately $85 million) under anIndenture 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**

 

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 September 30, 2010, one customer accounted forapproximately 17.9% of revenue. For the nine months ended September 30,2010, one customer accounted for 14.9% of revenue. For the three months endedSeptember 30, 2009, two customers accounted for approximately 14.8% and10.0% of revenue, respectively.  For thenine months ended September 30, 2009, no single customer accounted formore than 10.0% of revenue.

 

**Note 11.  Contingencies**

 

**Litigation**

 

The Company is, from time totime, a party to litigation that arises in the normal course of its businessoperations.  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 any materialcosts as a result of such indemnifications and has not accrued any liabilitiesrelated to such obligations in the accompanying consolidated financialstatements.

 

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**Note 12.  Recent Accounting Pronouncements**

 

In September 2009, theFASB issued a new accounting standard to provide guidance on revenuerecognition criteria for multiple-element arrangements. The new accountingstandard modifies the criteria used to separate elements in a multiple-elementarrangement by introducing the concept of best estimate of selling price,establishing a hierarchy of evidence for determining selling price (fairvalue), requiring the use of relative selling price method and prohibiting theuse of the residual method to allocate arrangement consideration among units ofaccounting. The new accounting standard also expands the disclosurerequirements for all multiple element arrangements and is effectiveprospectively for revenue arrangements entered into or materially modified infiscal years beginning on or after June 15, 2010 (January 1, 2011 fora calendar year-end entity). The Company is currently evaluating the impact ofadopting this pronouncement.

 

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

 

Certain statements in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andelsewhere in this Form 10-Q are forward-looking statements that involverisks and uncertainties. Words such as may, will, should, would, anticipates,expects, intends, plans, believes, seeks, estimates and similar expressionsidentify such forward-looking statements. The forward-looking statementscontained herein are based on current expectations and entail various risks anduncertainties that could cause actual results to differ materially from thoseexpressed in such forward-looking statements. Factors that might cause such adifference include, among other things, those set forth under “Liquidity andCapital Resources,” and “Risk Factors” and others discussed elsewhere in thisForm 10-Q. Readers are cautioned not to place undue reliance on theseforward-looking statements, which reflect management’s analysis only as of thedate hereof. We assume no obligation to update these forward-looking statementsto reflect actual results or changes in factors or assumptions affectingforward-looking statements, except as may be required by law.

 

**Overview**

 

The semiconductor capitalequipment industry is subject to significant cyclical swings in capitalspending by semiconductor manufacturers. Capital spending is influenced bydemand for semiconductors and the products using them, the utilization rate andcapacity of existing semiconductor manufacturing facilities and changes insemiconductor 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 whichextended through 2009, although signs of improvement began during the fourthquarter of 2009 and have continued through the first nine months of 2010. Ourgross margins are also affected by the introduction of new products. Wetypically become more efficient in manufacturing products as they mature. Ourexpense base is largely fixed and does not vary significantly with changes involume. Therefore, we experience fluctuations in operating results and cashflows depending on our revenue as driven by the level of capital expendituresby semiconductor manufacturers.

 

The sizable expense ofbuilding, upgrading or expanding a semiconductor fabrication facility isincreasingly causing semiconductor companies to contract with foundries tomanufacture their semiconductors. In addition, consolidation and partneringwithin the semiconductor manufacturing industry is increasing. We expect thesetrends to continue to reduce the number of our potential customers. Thisgrowing concentration of Axcelis’ customers may increase pricing pressure ashigher percentages of our total revenue are tied to the buying decisions of aparticular customer or a small number of customers.

 

During the last six monthsof 2008 and through 2009 challenging market conditions severely limited ourability to increase sales and market share. During this period, adverse market conditions such as creditconstriction, higher unemployment, lower corporate earnings, lower businessinvestment and lower consumer spending severely impacted many technologymanufacturers and significantly lowered the demand for our products.  During the three and nine months endedSeptember 30, 2010, the market for our products have steadilyimproved.  We also estimate we are gainingmarket share with our single wafer ion implant systems for high current andhigh energy applications (the Optima HDx and Optima XEx), as customers areshowing a higher acceptance of our technology. Our expense base is reduced fromearlier periods due to cost reduction initiatives implemented in 2009 and 2008.

 

Operating results for theperiods presented are not necessarily indicative of the results that may beexpected 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

 

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valuesof assets and liabilities that are not readily apparent from other sources.Actual results may differ from these estimates under different assumptions orconditions.

 

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:

 

**Axcelis Technologies, Inc.**

**Consolidated Statements of Operations**

**Percentage of Revenue**

**(Unaudited)**

 
| ** **                    | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                    | ** ** | **2010**                                             | ** ** | **2009**                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| Revenue                       |       |                                                 |       |                                                |       |   |   |   |   |
| Product                       |       | 88.1                                                 | %          | 73.9                                                | %          | 86.4 | % | 73.6 | % |
| Service                       |       | 11.9                                                 |       | 26.1                                                |       | 13.6 |   | 26.0 |   |
| Royalties  from SEN           |       | 0.0                                                  |       | 0.0                                                 |       | 0.0 |   | 0.4 |   |
| Total  revenue                |       | 100.0                                                |       | 100.0                                               |       | 100.0 |   | 100.0 |   |
| Cost  of revenue              |       |                                                 |       |                                                |       |   |   |   |   |
| Product                       |       | 63.7                                                 |       | 61.9                                                |       | 61.5 |   | 66.4 |   |
| Service                       |       | 7.7                                                  |       | 15.7                                                |       | 8.6 |   | 15.9 |   |
| Total  cost of revenue        |       | 71.4                                                 |       | 77.6                                                |       | 70.1 |   | 82.3 |   |
|                          |       |                                                 |       |                                                |       |   |   |   |   |
| Gross  profit                 |       | 28.6                                                 |       | 22.4                                                |       | 29.9 |   | 17.7 |   |
|                          |       |                                                 |       |                                                |       |   |   |   |   |
| Operating  expenses           |       |                                                 |       |                                                |       |   |   |   |   |
| Research  and development     |       | 13.2                                                 |       | 21.8                                                |       | 15.6 |   | 26.4 |   |
| Sales  and marketing          |       | 9.5                                                  |       | 16.3                                                |       | 11.2 |   | 20.0 |   |
| General  and administrative   |       | 10.5                                                 |       | 22.5                                                |       | 12.7 |   | 28.7 |   |
| Restructuring  charges        |       | 0.0                                                  |       | 1.2                                                 |       | 0.0 |   | 5.9 |   |
| Total  operating expenses     |       | 33.2                                                 |       | 61.8                                                |       | 39.5 |   | 81.0 |   |
|                          |       |                                                 |       |                                                |       |   |   |   |   |
| Loss  from operations         |       | (4.6                                                 | )          | (39.4                                               | )          | (9.6 | ) | (63.3 | ) |
|                          |       |                                                 |       |                                                |       |   |   |   |   |
| Other  income (expense)       |       |                                                 |       |                                                |       |   |   |   |   |
| Gain  on sale of SEN          |       | 0.0                                                  |       | 0.0                                                 |       | 0.0 |   | 1.1 |   |
| Equity  loss of SEN           |       | 0.0                                                  |       | 0.0                                                 |       | 0.0 |   | (3.4 | ) |
| Interest  income              |       | 0.0                                                  |       | 0.2                                                 |       | 0.0 |   | 0.2 |   |
| Interest  expense             |       | 0.0                                                  |       | 0.0                                                 |       | 0.0 |   | (1.8 | ) |
| Other,  net                   |       | (2.6                                                 | )          | (4.8                                                | )          | (1.1 | ) | (3.4 | ) |
| Total  other income (expense) |       | (2.6                                                 | )          | (4.6                                                | )          | (1.1 | ) | (7.3 | ) |
|                          |       |                                                 |       |                                                |       |   |   |   |   |
| Loss  before income taxes     |       | (7.2                                                 | )          | (44.0                                               | )          | (10.7 | ) | (70.6 | ) |
| Income  taxes                 |       | 1.2                                                  |       | 1.3                                                 |       | 1.3 |   | 0.9 |   |
| Net  loss                     |       | (8.4                                                 | )%         | (45.3                                               | )%         | (12.0 | )% | (71.5 | )% |

 

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**Threeand nine months ended September 30, 2010 in comparison to the three andnine months ended September 30, 2009**

 

**Revenue**

 

*Product*

 

Productrevenue, which includes systems sales, sales of spare parts and productupgrades, was $66.2 million, or 88.1% of revenue, for the three months endedSeptember 30, 2010, compared with $25.9 million, or 73.9% of revenuefor the three months ended September 30, 2009. Product revenue was $157.1million, or 86.4% of revenue for the nine months ended September 30, 2010,compared with $69.4 million, or 73.6% of revenue for the nine months endedSeptember 30, 2009.  System saleswere $39.1 million, or 52.1% of revenue, for the three months endedSeptember 30, 2010, compared with $10.1 million, or 28.8% of revenue, forthe three months ended September 30, 2009. System sales were $77.3 million, or 42.5% of revenue, for the ninemonths ended September 30, 2010, compared with $26.7 million, or 28.3% ofrevenue, for the nine months ended September 30, 2009.  The increase in product revenue in the threeand nine month period ended September 30, 2010 is attributable to thestrengthening of the semiconductor market and a related increase in capitalspending by semiconductor manufacturers. In addition, we also believe we aregaining market share with our single wafer ion implant systems for high currentand high energy applications (the Optima HDx and Optima XEx), as customers areshowing a higher acceptance of our technology.

 

Aportion of our revenue from system sales is deferred until installation and otherservices related to future deliverables are performed. The total amount ofdeferred revenue at September 30, 2010 and 2009 was $11.5 million and$10.8 million, respectively.  Theincrease was mainly due to the increase in systems sales in 2010.

 

*Service*

 

Service revenue, whichincludes the labor component of maintenance and service contracts and fees forservice hours provided by on-site service personnel, was $8.9 million, or11.9% of revenue, for the three months ended September 30, 2010, comparedwith $9.1 million, or 26.1% of revenue, for the three months endedSeptember 30, 2009.  Service revenuewas $24.7 million, or 13.6% of revenue for the nine months endedSeptember 30, 2010, compared with $24.5 million, or 26.0% of revenue forthe nine months ended September 30, 2009. Although service revenue should increase with the expansion of theinstalled base of systems, it can fluctuate from period to period based oncapacity utilization at customers’ manufacturing facilities, which affects theneed for equipment service.  The slightincrease during the nine months ended September 30, 2010 was due to anincrease in fabrication utilization in the semiconductor industry.

 

*Royalties*

 

Royalties were previouslyearned under our prior license agreement with SEN. As a result of the sale ofour investment in SEN, SEN has had no further royalty obligations sinceMarch 30, 2009.

 

*Ion Implant*

 

Includedin total revenue of $75.1 million for the three month period ended September 30,2010, is revenue from sales of ion implantation products and service of$64.2 million, or 85.5% of total revenue, compared with$28.1 million, or 80.2% of total revenue, for the three months endedSeptember 30, 2009.  Revenue fromsales of ion implantation products and service accounted for $153.2 million, or84.3% of revenue, for the nine months ended September 30, 2010, comparedto $77.7 million, or 82.2% of revenue, in the nine months endedSeptember 30, 2009.  The dollarincrease was due to the factors discussed above for product revenue.

 

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*Aftermarket*

 

TheCompany’s product revenues include sales of spare parts and product upgrades aswell as complete systems.  We refer tothe business of selling spare parts and product upgrades, combined with thesale of maintenance labor and service contracts and service hours, as the “aftermarket”business.  Included in total revenue of$75.1 million is revenue from our aftermarket business of $36.0 millionfor the three months ended September 30, 2010, compared to$24.9 million for the three months ended September 30, 2009.  The revenue from our aftermarket business was$104.5 million for the nine months ended September 30, 2010, compared to$67.2 million for the nine months ended September 30, 2009.  Aftermarket revenue generally increases withexpansion of the installed base of systems but can fluctuate period to periodbased on capacity utilization at customers’ manufacturing facilities, whichaffects the sale of spare parts and demand for equipment service.

 

**Gross Profit**

 

*Product*

 

Grossprofit from product revenue was 27.7% for the three months endedSeptember 30, 2010, compared to gross profit of 16.2% for the three monthsended September 30, 2009. Approximately 2.1% of the 11.5% increase resulted from a lower provisionfor excess inventory.  The remaining 9.4%increase in gross profit from product revenues is attributable to highersystems sales volume and the related favorable absorption of fixed overheadcosts, which increased gross margins by 20.1%, offset by a 10.7% decrease ingross margin resulting from an unfavorable mix of parts and upgraderevenue.  Gross profit from productrevenue was 28.8% for the nine months ended September 30, 2010, comparedwith 9.8% for the nine months ended September 30, 2009.  Approximately 4.8% of the 19.0% increaseresulted from a lower provision for excess inventory. The remaining 14.2%increase in gross profit from product revenue is attributable to the highersystems sales volume during the nine months ended September 30, 2010 andthe related favorable absorption of manufacturing overhead which increasedgross margins by 17.4%, offset by a 3.2% decrease in gross margin resultingfrom the unfavorable impact of a decreased mix of parts and upgrade revenue athigher margins.

 

*Service*

 

Grossprofit from service revenue was 35.3% for the three months endedSeptember 30, 2010, compared to 39.7% for the three months ended September 30,2009.  The decrease in gross profit isattributable to lower volumes.  Grossprofit from service revenue was 36.8% for the nine months endedSeptember 30, 2010, compared to 38.8% for the nine months endedSeptember 30, 2009.  The decrease ingross profit is attributable to changes in the mix of service contracts.

 

**Research and Development**

 

Researchand development expense was $9.9 million in the three months endedSeptember 30, 2010, an increase of $2.3 million, or 30.3%, comparedwith $7.6 million in the three months ended September 30, 2009. Theincrease was primarily due to increased payroll costs ($1.1 million),increased consulting costs ($0.9 million) and increased project materialcosts ($0.2 million). Research and development expense was $28.5 millionfor the nine months ended September 30, 2010, an increase of $3.6 millionor 14.5%, compared with $24.9 million for the nine months ended September 30,2009.  The increase was comprised ofincreased payroll 

 

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costs($1.2 million), increased consulting costs ($1.5 million), increasedproject material costs ($0.8 million), and increased development assetamortization and depreciation costs ($0.1 million).  Research and development expense wasattributable to the following activities for the nine months ended September 30,2010: 51% for new product development, 32% for improvement of existingproducts, and 17% for product testing.

 

**Sales and Marketing**

 

Ingeneral the increase in sales and marketing expense is indicative of theimproved market for our products. Sales and marketing expense was$7.2 million in the three months ended September 30, 2010, anincrease of $1.5 million, or 26.3%, compared with $5.7 million forthe three months ended September 30, 2009. The increase was primarily dueto increased supplies and marketing service expenses of ($0.7 million),increased professional fee expenses ($0.3 million), increased travel costs($0.3 million) and increased freight expenses ($0.3 million).  Sales and marketing expense was $20.4 millionfor the nine months ended September 30, 2010, an increase of $1.5 million,or 7.9%, compared with $18.9 million for the nine months endedSeptember 30, 2009.  The increasewas driven primarily by increased supplies and marketing service expenses ($0.8million), increased travel costs ($0.8 million), increased freight expenses($0.4 million), increased professional fees ($0.3 million), offset by decreasedpayroll costs ($0.3 million), decreased other miscellaneous expense ($0.3million) and decreased taxes ($0.2 million).

 

**General and Administrative**

 

Generaland administrative expense was $7.9 million for the three months endedSeptember 30, 2010, equal to the spending in the three months endedSeptember 30, 2009.  General andadministrative expense was $23.0 million for the nine months endedSeptember 30, 2010, a decrease of $4.1 million, or 15.1%, compared with$27.1 million in the nine months ended September 30, 2009.  The decrease was primarily due to decreasedprofessional fee expenses ($5.0 million) and decreased other miscellaneousexpense ($0.3 million), offset by increased payroll expense($1.2 million).

 

**Restructuring**

 

Thecompany incurred no restructuring charges for the three and nine months endedSeptember 30, 2010.  During thethree and nine months ended September 30, 2009, we implemented a reductionin force to further reduce costs to mitigate deteriorating industryfundamentals. This reduction in force resulted in a total charge to expense ofapproximately $6.1 million related to separation and outplacement costs for thenine months ended September 30, 2009, offset by a reversal of $0.6 millionof accrued compensation expense related to terminated employees. A charge toexpense of $0.4 million was recorded in the three months endedSeptember 30, 2009.

 

**Other Income (Expense)**

 

Thesale of the Company’s investment in SEN resulted in a gain of approximately$1.1 million for the nine months ended September 30, 2009.  This gain includes net proceeds of $122.2million and cumulative foreign translation gain of $23.5 million, previouslyrecorded in other comprehensive income, reduced by the carrying value of theinvestment on the date of sale of $144.6 million.

 

Noequity loss or income was attributable to SEN for the three months endedSeptember 30, 2009.  Equity lossattributable to SEN was $3.2 million for the nine months endedSeptember 30, 2009.  As a result ofthe sale of the Company’s investment in SEN, subsequent to March 30, 2009,the Company no longer records equity income or loss from SEN.

 

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Wehad no interest expense for the three and nine months ended September 30,2010.  Interest expense decreased by $1.7million for the nine months ended September 30, 2010 compared to the ninemonths ended September 30, 2009. The decrease is due to the payment in full of the convertible seniorsubordinated notes on March 30, 2009. At September 30, 2010 the Company had no outstanding obligationsincurring interest.

 

Forthe three and nine months ended September 30, 2010  the Company incurred $1.5 million and $0.9million of non-cash foreign exchange losses compared to $1.0 million and $1.9million for the comparable period of the prior year. For all periods presented,the primary reason for the non-cash charge was due to the weakening of the U.Sdollar.  Beginning in the fourth quarterof 2010 the Company instituted a hedging program to reduce the impact ofcurrency fluctuations.

 

**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 weoffset with existing net operating loss carry forwards.

 

Duringthe nine months ended September 30, 2010, we experienced positive cashflows from operations.  Cash and cashequivalents at September 30, 2010 were $49.1 million, compared to $45.0 millionat December 31, 2009.

 

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. 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. We havenot borrowed under this facility during 2010. The facility terminates on March 11, 2011. We do use the facilityto support letters of credit and hedging transactions. We believe that based onour current market, revenue and expense forecasts, our existing cash and cashequivalents will be sufficient to satisfy our anticipated cash requirements forthe foreseeable future. Our 2010 forecast reflects revenue and gross marginsconsistent with our understanding of customer plans, the improving marketconditions currently forecasted by the industry (and experienced by the Companyto date in 2010), and  capacityutilization at customers’ manufacturing facilities. Forecasted operatingexpense levels are based 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 currently evaluating theimpact of adopting this pronouncement.

 

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**Item 3.    Quantitative andQualitative Disclosures about Market Risk.**

 

As of September 30, 2010, there have been no material changes tothe information about market risk disclosed in Item 7A to our annualreport on Form 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 disclosure controlsand procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) as of the end of theperiod 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.

 

**Changesin 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 third quarterof 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 presentlya party to any litigation that it believes might have a material adverse effecton its business operations.  The Companyis, from time to time, a party to litigation that arises in the normal courseof its business operations.

 

**Item 1A.  Risk Factors.**

 

Asof September 30, 2010, there have been no material changes to the riskfactors described in Item 1A to our annual report on Form 10-K for theyear ended December 31, 2009.

 

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

 

None.

 

**Item 3.  Defaults Upon SeniorSecurities.**

 

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. |
|                  |       |                                                                                                                                                                                                                                           |
| 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 November 5, 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 November 5, 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 November 5, 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 November 5, 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.   |
|-------------------------------|------------------------------------|
|                          |                               |
|                          | /S/  STEPHEN  G. BASSETT |
|                          |                               |   |
| DATED:  November 5, 2010 | By:                                | Stephen  G. Bassett |
|                          |                               | Executive  Vice President and Chief Financial Officer |
|                          |                               | Duly  Authorized Officer and Principal Financial Officer |

 

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