UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020March 31, 2021
or
☐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: 001-38273

graphic

ACM Research, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 94-3290283
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
   
42307 Osgood Road, Suite I
Fremont, California
 94539
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (510) 445-3700

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Trading Symbol Name of Each Exchange on which Registered
Class A Common Stock, $0.0001 par value ACMR NasdaqNASDAQ Global Market

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☐☑Accelerated filer☑☐
Non-accelerated filer
☐Smaller reporting company☑☐
  Emerging growth company☑☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a)Section 13(a) of the Exchange Act. ☑☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

ClassNumber of Shares Outstanding
Class A Common Stock, $0.0001 par value16,662,21817,268,562 shares outstanding as of November 3, 2020May 4, 2021
Class B Common Stock, $0.0001 par value1,802,6061,714,272 shares outstanding as of November 3, 2020May 4, 2021





TABLE OF CONTENTS

 
PART I.
FINANCIAL INFORMATION
4
 Item 1.
Financial Statements (unaudited)
4
  
Condensed Consolidated Balance Sheets as of September 30, 2020March 31, 2021 and December 31, 20192020
4
  
Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30,March 31, 2021 and 2020 and 2019
5
  
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30,March 31, 2021 and 2020 and 2019
6
  
Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2021 and 2020 and 2019
87
  
Notes to Condensed Consolidated Financial Statements
98
 Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2627
 Item 3.
Quantitative and Qualitative Disclosures about Market Risks
4143
 Item 4.
Controls and Procedures
4144
PART II.
OTHER INFORMATION
4244
 Item 1.
Legal Proceedings
4244
 Item 1A.
Risk Factors
4245
 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4346
Item 5.
Other Information
46
 Item 6.
Exhibits
4347
SIGNATURESignatures
4448

We conduct our business operations principally through ACM Research (Shanghai), Inc., or ACM Shanghai, a subsidiary of ACM Research, Inc., or ACM Research. Unless the context requires otherwise, references in this report to “our company,” “our,” “us,” “we” and similar terms refer to ACM Research, Inc. and its subsidiaries, including ACM Shanghai, collectively.

For purposes of this report, certain amounts in Renminbi, or RMB, have been translated into U.S. dollars solely for the convenience of the reader. The translations have been made based on the conversion rates published by the State Administration of Foreign Exchange of the People’s Republic of China.

SAPS, TEBO, ULTRA C and ULTRA FURNACE are our trademarks. For convenience, these trademarks appear in this report without ™ symbols, but that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks. This report also contains other companies’ trademarks, registered marks and trade names, which are the property of those companies.

2
Table of Contents
NOTE ABOUT FORWARD-LOOKING STATEMENTS AND STATISTICAL DATA
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors, including those described or incorporated by reference in “Item 1A. Risk Factors” of Part II of this report, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

The information included in this report under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview”Overview,” of Part I of this report contains statistical data and estimates, including forecasts, that are based on information provided by Gartner, Inc., or Gartner, in “Forecast: Semiconductor Wafer Fab Manufacturing Equipment, (Including Wafer-Level Packaging), Worldwide, 4Q194Q20 Update” (December 2019)22, 2020), or the Gartner Report. The Gartner Report represents research opinions or viewpoints that are published, as part of a syndicated subscription service, by Gartner and are not representations of fact. The Gartner Report speaks as of its original publication date (and not as of the date of this report), and the opinions expressed in the Gartner Report are subject to change without notice. While we are not aware of any misstatements regarding any of the data presented from the Gartner Report, estimates, and in particular forecasts, involve numerous assumptions and are subject to risks and uncertainties, as well as change based on various factors, that could cause results to differ materially from those expressed in the data presented below.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Except as required by law, we assume no obligation to update these statements publicly or to update the reasons actual results could differ materially from those anticipated in these statements, even if new information becomes available in the future.

You should read this report, and the documents that we reference in this report and have filed as exhibits to this report, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

3
Table of Contents


PART I.FINANCIAL INFORMATION

Item 1.Financial Statements
Item 1.Financial Statements

ACM RESEARCH, INC.
Condensed Consolidated Balance Sheets
(inIn thousands, except share and per share data)
(unaudited)(Unaudited)
 
 
September 30,
2020
  
December 31,
2019
 
Assets      
Current assets:      
Cash and cash equivalents $92,203  $58,261 
Restricted cash  0   59,598 
Trading securities (note 11)  23,888   0 
Accounts receivable, less allowance for doubtful accounts of $0 as of September 30, 2020 and December 31, 2019 (note 3)  59,796   31,091 
Other receivables  6,177   2,603 
Inventories (note 4)  64,182   44,796 
Prepaid expenses  5,531   2,047 
Total current assets  251,777   198,396 
Property, plant and equipment, net (note 5)  5,974   3,619 
Land use right, net (note 2)  9,284   0 
Operating lease right-of-use assets, net (note 8)  4,568   3,887 
Intangible assets, net  335   344 
Deferred tax assets (note 17)  10,093   5,331 
Long-term investments (note 10)  6,580   5,934 
Other long-term assets  8,008   192 
Total assets  296,619   217,703 
Liabilities, Redeemable Non-controlling Interests and Stockholders’ Equity        
Current liabilities:        
Short-term borrowings (note 6)  28,327   13,753 
Accounts payable  35,639   13,262 
Advances from customers  8,011   9,129 
Income taxes payable  3,589   3,129 
Other payables and accrued expenses (note 7)  18,494   12,874 
Current portion of operating lease liability (note 8)  1,388   1,355 
Deferred revenue  819   0 
Total current liabilities  96,267   53,502 
Long-term operating lease liability (note 8)  3,180   2,532 
Other long-term liabilities (note 9)  6,454   4,186 
Total liabilities  105,901   60,220 
Commitments and contingencies (note 18)      
Redeemable non-controlling interests (note 15)  0   60,162 
Stockholders’ equity:        
Common stock – Class A, par value $0.0001: 50,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 16,657,135 shares issued and outstanding as of September 30, 2020 and 16,182,151 shares issued and outstanding as of December 31, 2019 (note 14)  2   2 
Common stock–Class B, par value $0.0001: 2,409,738 shares authorized as of September 30, 2020 and December 31, 2019; 1,802,606 shares issued and outstanding as of September 30, 2020 and 1,862,608 shares issued and outstanding as of December 31, 2019 (note 14)  0   0 
Additional paid in capital  100,145   83,487 
Accumulated surplus  25,758   15,507 
Accumulated other comprehensive income (loss)  1,037   (1,675)
Total ACM Research, Inc. stockholders’ equity  126,942   97,321 
Non-controlling interests  63,776   0 
Total stockholders’ equity  190,718   97,321 
Total liabilities, redeemable non-controlling interests, and stockholders’ equity $296,619  $217,703 
 
March 31,
2021
  
December 31,
2020
 
Assets      
Current assets:      
Cash and cash equivalents $78,796  $71,766 
Trading securities (note 15)  27,003   28,239 
Accounts receivable, less allowance for doubtful accounts of $0 as of March 31, 2021 and December 31, 2020 (note 4)
  60,394   56,441 
Other receivables  11,216   9,679 
Inventories (note 5)  103,226   88,639 
Prepaid expenses  5,917   5,892 
Total current assets  286,552   260,656 
Property, plant and equipment, net (note 6)  8,772   8,192 
Land use right, net (note 7)  9,529   9,646 
Operating lease right-of-use assets, net (note 11)  5,349   4,297 
Intangible assets, net  602   554 
Deferred tax assets (note 20)  13,908   11,076 
Long-term investments (note 14)  6,632   6,340 
Other long-term assets (note 8)  40,475   40,496 
Total assets  371,819   341,257 
Liabilities and Stockholders’ Equity        
Current liabilities:        
Short-term borrowings (note 9)  23,490   26,147 
Current portion of long-term borrowings (note 12)  1,598   1,591 
Accounts payable  44,721   35,603 
Advances from customers  32,668   17,888 
Deferred revenue  1,315   1,343 
Income taxes payable (note 20)  105   31 
FIN-48 payable (note 20)  82   83 
Other payables and accrued expenses (note 10)  21,885   18,805 
Current portion of operating lease liability (note 11)  2,171   1,417 
Total current liabilities  128,035   102,908 
Long-term borrowings (note 12)  17,444   17,979 
Long-term operating lease liability (note 11)  3,178   2,880 
Deferred tax liability (note 20)  1,276   1,286 
Other long-term liabilities (note 13)  6,639   8,034 
Total liabilities  156,572   133,087 
Commitments and contingencies (note 21)  0   0 
Stockholders’ equity:        
Common stock – Class A, par value $0.0001: 50,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 17,239,967 shares issued and outstanding as of March 31, 2021 and 16,896,693 shares issued and outstanding as of December 31, 2020 (note 17)
  2   2 
Common stock–Class B, par value $0.0001: 2,409,738 shares authorized as of March 31, 2021 and December 31, 2020; 1,769,272 shares issued and outstanding as of March 31, 2021 and 1,802,606 shares issued and outstanding as of December 31, 2020 (note 17)
  0   0 
Additional paid in capital  104,591   102,004 
Accumulated surplus  39,757   34,287 
Accumulated other comprehensive income  3,961   4,857 
Total ACM Research, Inc. stockholders’ equity  148,311   141,150 
Non-controlling interests  66,936   67,020 
Total stockholders’ equity  215,247   208,170 
Total liabilities and stockholders’ equity $371,819  $341,257 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4
Table of Contents

ACM RESEARCH, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(inIn thousands, except share and per share data)
(unaudited)(Unaudited)

 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2020  2019  2021  2020 
Revenue $47,665  $33,427  $111,062  $82,916 
Revenue (note 3) $43,732  $24,348 
Cost of revenue  27,324   17,173   61,137   44,705   25,687   14,120 
Gross profit  20,341   16,254   49,925   38,211   18,045   10,228 
Operating expenses:                        
Sales and marketing  3,924   3,886   11,524   8,679   5,308   3,005 
Research and development  4,343   3,492   13,241   9,598   5,504   3,677 
General and administrative  4,568   1,846   9,100   5,992   3,783   2,328 
Total operating expenses, net  12,835   9,224   33,865   24,269   14,595   9,010 
Income from operations  7,506   7,030   16,060   13,942   3,450   1,218 
Interest income  179   95   834   128   49   335 
Interest expense  (272)  (205)  (611)  (538)  (189)  (111)
Change in fair value of financial liability  (6,533)  0   (11,964)  0 
Unrealized gain on trading securities  8,970   0   8,970   0 
Other income (expense), net  (1,759)  1,850   (933)  2,132 
Equity income (loss) in net income (loss) of affiliates  182   (9)  539   260 
Unrealized loss on trading securities  (1,047)  0 
Other income, net  469   677 
Equity income in net income of affiliates  320   148 
Income before income taxes  8,273   8,761   12,895   15,924   3,052   2,267 
Income tax benefit (expense) (note 17)  1,747   328   (416)  (667)
Income tax benefit (expense) (note 20)  2,770   (304)
Net income  10,020   9,089   12,479   15,257   5,822   1,963 
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests  1,393   307   2,228   307   352   258 
Net income attributable to ACM Research, Inc. $8,627  $8,782  $10,251  $14,950  $5,470  $1,705 
Comprehensive income:                        
Net income $10,020  $9,089  $12,479  $15,257   5,822   1,963 
Foreign currency translation adjustment  5,757   (2,591)  4,099   (2,902)  (1,332)  (1,900)
Comprehensive Income  15,777   6,498   16,578   12,355   4,490   63 
Less: Comprehensive income attributable to non-controlling interests and redeemable non-controlling interests  2,698   307   3,614   307   (83)  (694)
Comprehensive income attributable to ACM Research, Inc. $13,079  $6,191  $12,964  $12,048  $4,573  $757 
                        
Net income attributable to ACM Research, Inc. per common share (note 2):                        
Basic $0.47  $0.52  $0.57  $0.91  $0.29  $0.09 
Diluted $0.40  $0.45  $0.48  $0.80  $0.25  $0.08 
                        
Weighted average common shares outstanding used in computing per share amounts (note 2):                Weighted average common shares outstanding used in computing per share amounts (note 2):     
Basic  18,201,943   16,999,746   18,124,665   16,381,944   18,786,870   18,120,363 
Diluted  21,555,296   19,354,214   21,257,661   18,699,010   21,868,280   21,066,636 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
Table of Contents

ACM RESEARCH, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended September 30, 2020 and 2019
 (in(In thousands, except share and per share data)
(unaudited)(Unaudited)
 
  
Common
Stock Class A
  
Common
Stock Class B
                
  Shares  Amount  Shares  Amount  
Additional Paid-
in Capital
  
Accumulated
Surplus
  
Accumulated
Other
Comprehensive
Income (Loss)
  Non-controlling interests  
Total
Stockholders’
Equity
 
Balance at December 31, 2019  16,182,151  $2   1,862,608  $0  $83,487  $15,507  $(1,675) $0  $97,321 
Net income  -   0   -   0   0   10,251   0   1,585   11,836 
Foreign currency translation adjustment  -   0   -   0   0   0   2,712   2,233   4,945 
Exercise of stock options  592,946   0   0   0   2,191   0   0   0   2,191 
Stock-based compensation  -   0   -   0   4,323   0   0   0   4,323 
Conversion of class B common shares to Class A common shares  60,002   0   (60,002)  0   0   0   0   0   0 
Share cancellation (note 12)  (242,681)  0   0   0   (9,715)  0   0   0   (9,715)
Issuance of warrants (note 12)  -   0   -   0   19,859   0   0   0   19,859 
Exercise of stock warrants  64,717   0   0   0   0   0   0   0   0 
Reclassification of redeemable non-controlling interest  -   0   -   0   0   0   0   59,958   59,958 
Balance at September 30, 2020  16,657,135  $2   1,802,606  $0  $100,145  $25,758  $1,037  $63,776  $190,718 
  
Common
Stock Class A
  
Common
Stock Class B
                
  Shares  Amount  Shares  Amount  
Additional Paid-
in Capital
  
Accumulated
Surplus
  
Accumulated
Other
Comprehensive
Income
  Non-controlling interests  
Total
Stockholders’
Equity
 
Balance at December  31, 2020  16,896,693  $2   1,802,606  $0   102,004  $34,287   4,857   67,020   208,170 
Net income attributable to ACM Research, Inc.  -   0   -   0   0   5,470   0   352   5,822 
Foreign currency translation adjustment  -   0   -   0   0   0   (896)  (436)  (1,332)
Exercise of stock options  309,940   0   0   0   1,377   0   0   0   1,377 
Stock-based compensation  -   0   -   0   1,210   0   0   0   1,210 
Conversion of Class B common stock to Class A common stock  33,334   0   (33,334)  0   0   0   0   0   0 
Balance at March 31, 2021  17,239,967  $2   1,769,272  $0  $104,591  $39,757  $3,961  $66,936  $215,247 

  
Common
Stock Class A
  
Common
Stock Class B
             
  Shares  Amount  Shares  Amount  
Additional Paid-
in Capital
  
Accumulated Surplus
(Deficit)
  
Accumulated
Other
Comprehensive
Loss
  
Total
Stockholders’
Equity
 
Balance at December 31, 2018  14,110,315  $1   1,898,423  $0  $56,567  $(3,387) $(857) $52,324 
Net income attributable to ACM Research, Inc.  -   0   -   0   0   14,950   0   14,950 
Foreign currency translation adjustment  -   0   -   0   0   0   (2,220)  (2,220)
Exercise of stock options  193,642   0   0   0   312   0   0   312 
Cancellation of stock options  0   0   0   0   (576)  0   0   (576)
Stock-based compensation  -   0   -   0   2,919   0   0   2,919 
Issuance of Class A common stock in connection with public offering  2,053,572   1   0   0   26,462   0   0   26,463 
Share repurchase  (214,286)  0   0   0   (2,827)  0   0   (2,827)
Conversion of Class B common stock to Class A common stock  35,815   0   (35,815)  0   0   0   0   0 
Balance at September 30, 2019  16,179,058  $2   1,862,608  $0  $82,857  $11,563  $(3,077)  91,345 
  
Common
Stock Class A
  
Common
Stock Class B
             
  Shares  Amount  Shares  Amount  
Additional Paid-
in Capital
  
Accumulated
Surplus
  
Accumulated
Other
Comprehensive
Loss
  
Total
Stockholders’
Equity
 
Balance at December 31, 2019  16,182,151  $2   1,862,608  $0  $83,487  $15,507  $(1,675) $97,321 
Net income attributable to ACM Research, Inc.  -   0   -   0   0   1,705   0   1,705 
Foreign currency translation adjustment  -   0   -   0   0   0   (948)  (948)
Exercise of stock options  70,478   0   0   0   175   0   0   175 
Stock-based compensation  -   0   -   0   689   0   0   689 
Exercise of stock warrants  64,717   0   0   0   0   0   0   0 
Balance at March 31, 2020  16,317,346  $2   1,862,608  $0  $84,351  $17,212  $(2,623) $98,942 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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ACM RESEARCH, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended September 30, 2020 and 2019
(in thousands, except share and per share data)
(unaudited)

 
Common
Stock Class A
  
Common
Stock Class B
                
  Shares  Amount  Shares  Amount  
Additional
Paid-in Capital
  
Accumulated
Surplus
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Non-
controlling
interests
  
Total
Stockholders’
Equity
 
Balance at June 30, 2020  16,250,092  $2   1,802,606  $0  $76,189  $17,131  $(3,415) $61,078  $150,985 
Net income  -   0   -   0   0   8,627   0   1,393   10,020 
Foreign currency translation adjustment  -   0   -   0   0   0   4,452   1,305   5,757 
Exercise of stock options  407,043   0   0   0   1,318   0   0   0   1,318 
Stock-based compensation  -   0   -   0   2,779   0   0   0   2,779 
Issuance of warrants (note 12)  -   0   -   0   19,859   0   0   0   19,859 
Balance at September 30, 2020  16,657,135  $2   1,802,606  $0  $100,145  $25,758  $1,037  $63,776  $190,718 

 
Common
Stock Class A
  
Common
Stock Class B
             
  Shares  Amount  Shares  Amount  
Additional
Paid-in Capital
  
Accumulated
Surplus
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
Stockholders’
Equity
 
Balance at June 30, 2019  14,229,942  $1   1,883,423  $0  $58,101  $2,781  $(1,168) $59,715 
Net income attributable to ACM Research, Inc.  -   0   -   0   0   8,782   0   8,782 
Foreign currency translation adjustment  -   0   -   0   0   0   (1,909)  (1,909)
Exercise of stock options  89,015   0   0   0   140   0   0   140 
Cancellation of stock options  0   0   0   0   (576)  0   0   (576)
Stock-based compensation  -   0   -   0   1,557   0   0   1,557 
Issuance of Class A common stock in connection with public offering  2,053,572   1   0   0   26,462   0   0   26,463 
Share repurchases  (214,286)  0   0   0   (2,827)  0   0   (2,827)
Conversion of Class B common stock to Class A common stock  20,815   0   (20,815)  0   0   0   0   0 
Balance at September 30, 2019  16,179,058  $2   1,862,608  $0  $82,857  $11,563  $(3,077) $91,345 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ACM RESEARCH, INC.
Condensed Consolidated Statements of Cash Flows
 (in(In thousands)
(unaudited)(Unaudited)
 
 Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2021  2020 
Cash flows from operating activities:            
Net income $12,479  $15,257  $5,822  $1,963 
Adjustments to reconcile net income from operations to net cash used in operating activities:                
Depreciation and amortization  774   586   546   212 
Loss on disposals of property, plant and equipment  1   296   26   0 
Equity income in net income of affiliates  (539)  (260)  (320)  (148)
Unrealized gain on trading securities  (8,970)  0 
Unrealized loss on trading securities  1,047   0 
Deferred income taxes  (4,632)  (757)  (2,929)  35 
Stock-based compensation  4,323   2,919   1,210   689 
Change in fair value of financial liability  11,964   0 
Net changes in operating assets and liabilities:                
Accounts receivable  (27,575)  (19,634)  (4,602)  (6,902)
Other receivables  (3,512)  1,187   (1,850)  (683)
Inventory  (18,362)  (5,889)  (15,276)  (931)
Prepaid expenses  (3,371)  323   (83)  (11)
Other long-term assets  (839)  (182)  21   36 
Accounts payable  22,023   (417)  9,492   5,617 
Advances from customers  (1,142)  746   14,932   195 
Income tax payable  389   162   75   263 
Other payables and accrued expenses  5,962   2,352   3,181   1,779 
Deferred revenue  819   0   1,315   0 
Other long-term liabilities  2,172   (1,441)  (1,865)  1,715 
Net cash flow used in operating activities  (8,036)  (4,752)
Net cash provided by operating activities  10,742   3,829 
                
Cash flows from investing activities:                
Purchase of property and equipment  (3,583)  (832)  (1,466)  (118)
Purchase of intangible assets  (81)  (114)  (112)  0 
Purchase of land-use-right  (9,331)  0 
Purchase of trading securities  (14,680)  0 
Prepayment for property  (6,978)  0 
Investments in unconsolidated affiliates  0   (4,348)
Net cash used in investing activities  (34,653)  (5,294)  (1,578)  (118)
                
Cash flows from financing activities:                
Proceeds from short-term borrowings  31,068   18,267   4,211   2,681 
Repayments of short-term borrowings  (16,881)  (11,770)  (6,744)  (12,415)
Repayments of notes payable  (1,820)  0 
Repayments of long-term borrowings  (224)  0 
Proceeds from stock option exercise to common stock  2,191   312   1,377   175 
Proceeds from issuance of Class A common stock in connection with public offering, net of direct issuance expenses of $2,287  0   26,463 
Payment for repurchase of Class A common stock  0   (785)
Payment for cancellation of stock option  0   (576)
Proceeds from issuance of common stock to redeemable Non-controlling interest  0   27,264 
Net cash provided by financing activities  14,558   59,175 
Net cash used in financing activities  (1,380)  (9,559)
                
Effect of exchange rate changes on cash, cash equivalents and restricted cash $2,475  $(2,407) $(754) $(1,002)
Net increase (decrease) in cash, cash equivalents and restricted cash $(25,656) $46,722  $7,030  $(6,850)
                
Cash, cash equivalents and restricted cash at beginning of period  117,859   27,124   71,766   117,859 
Cash, cash equivalents and restricted cash at end of period $92,203  $73,846  $78,796  $111,009 
                
Supplemental disclosure of cash flow information:                
Interest paid $611  $538 
Interest paid, net of capitalized interest $189  $111 
Cash paid for income taxes $4,606  $0  $63  $0 
                
Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows:                
Cash and cash equivalents $92,203  $47,264   78,796   52,283 
Restricted cash  0   26,582   0   58,726 
Cash, cash equivalents and restricted cash $92,203  $73,846  $78,796  $111,009 
Non-cash financing activities:        
Non-cash used in financing activities:        
Warrant conversion to common stock $399  $0  $0  $399 
Share cancellation, note 12 $9,715  $0 
Issuance of warrant for settlement of financial liability and cancellation of note receivable $19,859  $0 
Cashless exercise of stock options $83  $0 
 
The accompanying notes are an integral part of these condensed consolidated financial statements

statements.
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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)


NOTE 1 – DESCRIPTION OF BUSINESS
 
ACMACM Research, Inc. (“ACM”) and its subsidiaries (collectively with ACM, the “Company”) develop, manufacture and sell single-wafer wet cleaning and other equipment used to improve the manufacturing process and yield for advanced integrated chips. The Company markets and sells its single-wafer wet-cleaning equipment under the brand name “Ultra C,” based on the Company’s proprietary Space Alternated Phase Shift (“SAPS”) and, Timely Energized Bubble Oscillation (“TEBO”), and Tahoe technologies. These tools are designed to remove random defects from a wafer surface efficiently, without damaging the wafer or its features, even at increasingly advanced process nodes.

ACM was incorporated in California in 1998, and it initially focused on developing tools for manufacturing process steps involving the integration of ultra low-K materials and copper. The Company’s early efforts focused on stress-free copper-polishing technology, and it sold tools based on that technology in the early 2000s.

In 2006 the Company established its operational center in Shanghai in the People’s Republic of China (the “PRC”), where it operates through ACM’s subsidiary ACM Research (Shanghai), Inc. (“ACM Shanghai”). ACM Shanghai was formed initially in 2005 to help establish and build relationships with integrated circuit manufacturers in the PRC, and the Company initially financed its Shanghai operations in part through sales of non-controlling equity interests in ACM Shanghai.

In 2007 the Company began to focus its development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process. The Company introduced its SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process, in 2009. It introduced its TEBO technology, which can be applied at numerous steps during the fabrication of small node two-dimensional conventional and three-dimensional patterned wafers, in March 2016. The Company has designed its equipment models for SAPS and TEBO solutions using a modular configuration that enables it to create a wet-cleaning tool meeting the specific requirements of a customer, while using pre-existing designs for chamber, electrical, chemical delivery and other modules. In August 2018, the Company introduced its Ultra-C Tahoe wafer cleaning tool, which can deliver high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high-temperature single-wafer cleaning tools. Based on its electro-chemical plating (“ECP”) technology, in 2019 the Company introduced its Ultra ECP ap, or “Advanced Packaging,” tool for bumping, or applying copper, tin and nickel to semiconductor wafers at the die-level, and its Ultra ECP map, or “Multi-Anode Partial Plating,” tool to deliver advanced electrochemical copper plating for copper interconnect applications in front-end wafer fabrication processes. The Company also offers a range of custom-made equipment, including cleaners, coaters and developers, to back-end wafer assembly and packaging factories, principally in the PRC.

In 2011 ACM Shanghai formed a wholly owned subsidiary in the PRC, ACM Research (Wuxi), Inc. (“ACM Wuxi”), to manage sales and service operations.

In November 2016 ACM redomesticated from California to Delaware pursuant to a merger in which ACM Research, Inc., a California corporation, was merged into a newly formed, wholly owned Delaware subsidiary, also named ACM Research, Inc.

In June 2017 ACM formed a wholly owned subsidiary in Hong Kong, CleanChip Technologies Limited (“CleanChip”), to act on the Company’s behalf in Asian markets outside the PRC by, for example, serving as a trading partner between ACM Shanghai and its customers, procuring raw materials and components, performing sales and marketing activities, and making strategic investments.
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In August 2017 ACM purchased 18.77% of ACM Shanghai’s equity interests held by Shanghai Science and Technology Venture Capital Co., Ltd. On November 8, 2017, ACM purchased the remaining 18.36% of ACM Shanghai’s equity interest held by third parties, Shanghai Pudong High-Tech Investment Co., Ltd. (“PDHTI”) and Shanghai Zhangjiang Science & Technology Venture Capital Co., Ltd. (“ZSTVC”). At December 31, 2017, ACM owned all of the outstanding equity interests of ACM Shanghai, and indirectly through ACM Shanghai, owned all of the outstanding equity interests of ACM Wuxi.

On September 13, 2017, ACM effectuated a 1-for-3 reverse stock split of Class A and Class B common stock. Unless otherwise indicated, all share numbers, per share amount, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have been adjusted retrospectively to reflect the reverse stock split.

On November 2, 2017, the Registration Statement on Form S-1 (File No. 333- 220451) for ACM’s initial public offering of Class A common stock (the “IPO”) was declared effective by the U.S. Securities and Exchange Commission. Shares of Class A common stock began trading on the Nasdaq Global Market on November 3, 2017, and the closing for the IPO was held on November 7, 2017.

In December 2017 ACM formed a wholly owned subsidiary in the Republic of Korea, ACM Research Korea CO., LTD. (“ACM Korea”), to serve customers based in Republic of Korea and perform sales, marketing, research and development activities for new products and solutions.

In March 2019 ACM Shanghai formed a wholly owned subsidiary in the PRC, Shengwei Research (Shanghai), Inc. (“ACM Shengwei”), to manage activities related to addition of future long-term production capacity.

In June 2019 CleanChipCleanchip formed a wholly owned subsidiary in California, ACM Research (CA), Inc. (“ACM California”), to provide procurement services on behalf of ACM Shanghai.Shanghai.
 
In June 2019 ACM announced plans to complete, over the nextfollowing three years, a listing (the “STAR Listing”) of shares of ACM Shanghai on the Shanghai Stock Exchange’s new Sci-Tech innovAtion boaRd, known as the STAR Market, and a concurrent initial public offering (the “STAR IPO”) of ACM Shanghai shares in the PRC. ACM Shanghai is currently ACM’s primary operating subsidiary, and at the time of announcement, was wholly owned by ACM. To meet a STAR Listing requirement that it have multiple independent stockholders in the PRC, ACM Shanghai completed private placements of its shares in June and November 2019, following which, as of September 30, 2020, the private placement investors held a total of 8.3% of the outstanding shares of ACM Shanghai and ACM Research held the remaining 91.7%. As part of the STAR Listing process, in June 2020 the ownership interests held by the private investors were reclassified from redeemable non-controlling interests to non-controlling interests as the redemption feature was terminated. (Note 15)terminated (note 18).

InIn preparation for the STAR IPO, the CompanyACM completed a reorganization in December 2019 that included the sale of all of the shares of CleanChipCleanchip by ACM to ACM Shanghai for $3,500. The reorganization and sale had no impact on the Company’s consolidatedACM’s consolidated financial statements. 

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

The Company has direct or indirect interests in the following subsidiaries:
 
   Effective interest held as at    Effective interest held as at 
Name of subsidiariesPlace and date of incorporation September 30, 2020  December 31, 2019 Place and date of incorporation March 31, 2021  December 31, 2020 
ACM Research (Shanghai), Inc.China, May 2005  91.7%  91.7%PRC, May 2005  91.7%  91.7%
ACM Research (Wuxi), Inc.China, July 2011  91.7%  91.7%PRC, July 2011  91.7%  91.7%
CleanChip Technologies LimitedHong Kong, June 2017  91.7%  91.7%Hong Kong, June 2017  91.7%  91.7%
ACM Research Korea CO., LTD.Korea, December 2017  91.7%  91.7%Korea, December 2017  91.7%  91.7%
Shengwei Research (Shanghai), Inc.China, March 2019  91.7%  91.7%PRC, March 2019  91.7%  91.7%
ACM Research (CA), Inc.USA, June 2019  91.7%  91.7%USA, June 2019  91.7%  91.7%
ACM Research (Cayman), Inc.Cayman Islands, April 2019  100.0%  100.0%Cayman Islands, April 2019  100.0%  100.0%

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation
 
The Company’s condensed consolidated financial statements include the accounts of ACM and its subsidiaries, including ACM Shanghai and its subsidiaries, which include ACM Wuxi, ACM Shengwei and CleanChip (the subsidiaries of which include ACM California and ACM Korea). ACM’s subsidiaries are those entities in which ACM, directly andor indirectly, controls more than one halfa majority of the voting power. All significant intercompany transactions and balances have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The unauditedaccompanying condensed consolidated financial statements herein should be read in conjunction with the historical consolidated financial statements of the Company for the year ended December 31, 20192020 included in ACM’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.

The accompanying condensed consolidated balance sheet as of September 30, 2020,March 31, 2021, condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, condensed consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, and condensed consolidated statements of cash flows for the ninethree months ended September 30,March 31, 2021 and 2020 and 2019 are unaudited. In the opinion of management, thethese unaudited condensed consolidated financial statements of the Company reflect all adjustments that are necessary for a fair presentation of the Company’s financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of September 30, 2020March 31, 2021 and the results of operations for the three and nine months ended September 30, 2020March 31, 2021 are not necessarily indicative of the results to be expected for any future period.
 
COVID-19 Assessment
 
The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. In December 2019 a series of emergency quarantine measures taken by the PRC government disrupted domestic business activities during the weeks after the initial outbreak of COVID-19. Since that time, an increasing number of countries, including the United States, have imposed restrictions on travel to and from the PRC and elsewhere, as well as general movement restrictions, business closures and other measures imposed to slow the spread of COVID-19. The situation continues to develop, however, and it is impossible to predict the effect and ultimate impact of the COVID-19 outbreak on the Company’s business operations and results. While the quarantine, social distancing and other regulatory measures instituted or recommended in response to COVID-19 are expected to be temporary, the duration of the business disruptions, and related financial impact, cannot be estimated at this time. The COVID-19 outbreak has been declared a worldwide health pandemic that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn and changes in global economic policy that could reduce demand for the Company’s products and its customers’ chips and have a material adverse impact on the Company’s business, operating results and financial condition. Through September 30, 2020March 31, 2021 the Company didhad not experienceexperienced a significant negative impact of COVID-19 on its operations, capital and financial resources, including overall liquidity position.

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The Company conducts substantially all of its product development, manufacturing, support and services in the PRC, and those activities have been directly impacted by the COVID-19 outbreak and related restrictions on transportation and public appearances. In February 2020 ACM RESEARCH, INC.
NotesShanghai’s headquarters were closed for an additional six days beyond the normal Lunar New Year Holiday in accordance with Shanghai government restrictions related to Condensed Consolidated Financial Statements (unaudited)
(dollarsthe outbreak. The Company cannot assure that further closures or reductions of its PRC operations or production may not be necessary in thousands, except shareupcoming months as the result of business interruptions arising from protective measures being taken by the PRC and per share data)other governmental agencies or of other consequences of the COVID-19 outbreak.

The Company’s corporate headquarters are located in Alameda County in the San Francisco Bay Area of California. In order to attempt to mitigate the COVID-19 pandemic, in March 2020 (a) the State of California declared a state of emergency related to the spread of COVID-19, (b) the San Francisco Department of Public Health announced aggressive recommendations to reduce the spread of the virus, (c) the health officers of 6 San Francisco Bay Area counties, including Alameda County, issued shelter-in-place orders, which (i) direct all individuals living in those counties to shelter at their places of residence (subject to limited exceptions), (ii) direct all businesses and governmental agencies to cease non-essential operations at physical locations in those counties, (iii) prohibit all non-essential gatherings of any number of individuals, (iv) order cessation of all non-essential travel, and (d) the Governor of California and the State Public Health Officer and Director of the California Department of Public Health ordered all individuals living in the State of California to stay at their place of residence for an indefinite period of time (subject to limited exceptions). The effects of these types of actions in the future may negatively impact productivity, disrupt the business of the Company and delay timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course.

The prolonged and broad-based shift to a remote working environment continues to create inherent productivity, connectivity, and oversight challenges and could affect our ability to enhance, develop and support existing products and services, detect and prevent spam and problematic content, hold product sales and marketing events, and generate new sales leads, among others. In addition, the changed environment under which the Company is operating could have an effect on its internal controls over financial reporting as well as the Company’s ability to meet a number of its compliance requirements in a timely or quality manner. Additional and/or extended, governmental lockdowns, restrictions or new regulations could significantly impact the ability of our employees and vendors to work productively. Governmental restrictions have been globally inconsistent and it remains unclear when a return to worksite locations or travel will be permitted or what restrictions will be in place in those environments. As the Company continues to return its workforce in more office locations in 2021, it may experience increased costs as it prepares its facilities for a safe return to work environment and experiment with hybrid work models, in addition to potential effects on its ability to compete effectively and maintain its corporate culture.

Extended periods of interruption to the Company’s corporate, development or manufacturing facilities due to the COVID-19 outbreak could cause the Company to lose revenue and market share, which would depress its financial performance and could be difficult to recapture. The Company’s business may also be harmed if travel to or from the PRC or the United States continues to be restricted or inadvisable or if members of management and other employees are absent because they contract the coronavirus, they elect not to come to work due to the illness affecting others in the Company’s office or laboratory facilities, or they are subject to quarantines or other governmentally imposed restrictions.
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Use of Estimates
 
The preparation of condensedthe consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported revenuerevenues and expenses during the reported period in the condensed consolidated financial statements and accompanying notes. The Company’s significant accounting estimates and assumptions include, but are not limited to, those used for the valuation and recognition of fair value of trading securities, stock-based compensation arrangements and valuation of financialwarrant liability, realization of deferred tax assets, assessment for impairment of long-lived assets, allowance for doubtful accounts, inventory valuation for excess and obsolete inventories, lower of cost and market value or net realizable value of inventories, depreciable lives of property and equipment and useful life of intangible assets.

Management believes that theevaluates these estimates judgments and assumptions are reasonable, based on information available at the time they are made.a regular basis. Actual results could differ materially from those estimates.estimates and assumptions.

Basic and Diluted Net Income per Common Share
 
Basic and diluted net income per common share isare calculated as follows:

 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2020  2019  2021  2020 
Numerator:                  
Net income $10,020  $9,089  $12,479  $15,257  $5,822  $1,963 
Net income attributable to non-controlling interests and redeemable non-controlling interests  1,393   307   2,228   307   352   258 
Net income available to common stockholders, basic and diluted $8,627  $8,782  $10,251  $14,950  $5,470  $1,705 
                        
Weighted average shares outstanding, basic  18,201,943   16,999,746   18,124,665   16,381,944   18,786,870   18,120,363 
Effect of dilutive securities  3,353,353   2,354,468   3,132,996   2,317,066   3,081,410   2,946,273 
Weighted average shares outstanding, diluted  21,555,296   19,354,214   21,257,661   18,699,010   21,868,280   21,066,636 
                        
Net income per common share:                        
Basic $0.47  $0.52  $0.57  $0.91   0.29   0.09 
Diluted $0.40  $0.45  $0.48  $0.80  $0.25  $0.08 

ACM has been authorized to issue Class A and Class B common stock since redomesticating in Delaware in November 2016. The two classes of common stock are substantially identical in all material respects, except for voting rights. Since ACM did not declare any dividends during the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, the net income per common share attributable to each class is the same under the “two-class” method. As such, the two classes of common stock have been presented on a combined basis in the condensed consolidated statements of operations and comprehensive income and in the above computation of net income per common share.
 
Diluted net income per common share reflects the potential dilution from securities, including stock options and issued warrants, that could share in ACM’s earnings. Certain potential dilutive securities were excluded from the net income per share calculation because the impact would be anti-dilutive. ACM’s potential dilutive securities consist of warrants and stock options for the three and nine months ended September 30, 2020March 31, 2021 and 2019.

Land use right, net

The land use right represents the cost to purchase a right to use state-owned land in the PRC with lease terms of 50 years expiring in 2070, for which an upfront lump-sum payment was made during the first nine months of 2020. The Company classifies the land use right as non-current assets on the condensed consolidated balance sheets.

The land use right is carried at cost less accumulated amortization and impairment losses, if any. Amortization is computed using the straight-line method over the term specified in the land use right certificate, which is 50 years.
 
Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, restricted cash and accounts receivable. The Company deposits and invests its cash with financial institutions that management believes are creditworthy.
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The Company is potentially subject to concentrations of credit risks in its accounts receivable. For the ninethree months ended September 30,March 31, 2021 and 2020, and 2019, the Company’s 3 largest customers accounted for 79.8%60.1% and 72.3%97.4%, respectively, of revenue. For the three months ended September 30,As of March 31, 2021 and December 31, 2020, and 2019, the Company’s 3 largest customers accounted for 72.1%77.3% and 98.6%, respectively, of revenue. As of September 30, 2020 and December 31, 2019, the Company’s 3 largest customers accounted for 76.9% and 67.7%76.1%, respectively, of the Company’s accounts receivables. The Company believes that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience.

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

Recent Accounting Pronouncements
 
Recently Adopted Accounting Pronouncements
 
In August 2018,December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2018-13,No. 2019-12, Fair Value MeasurementIncome Taxes (Topic 820)740): Simplifying the Accounting for Income Taxes, which eliminates, adds. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. It also improves consistent application of and modifies certain disclosure requirementssimplifies GAAP for fair value measurements.other areas of Topic 740 by clarifying and amending existing guidance. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculate for recurring and nonrecurring Level 3 fair value measurements. The amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year, with early adoption permitted.Company adopted ASU 2019-12 on January 1, 2021. The adoption of ASU 2018-132019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. The Company adopted ASU 2020-04 on January 1, 2021.  The adoption of ASU 2020-04 did not have a material impact on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaced the pre-existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

In October 2019, the FASB issued ASU 2019-10,Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the U.S. Securities and Exchange Commission (“SEC”) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company was eligible to be an SRC based on its SRC determination as of November 15, 2019 (which is a smaller reporting company, implementation is not needed untilthe issuance date of ASU 2019-10) in accordance with SEC regulations, the Company will adopt the standards for the year beginning January 1, 2023. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The Company is evaluating the impact of this standard on its consolidated financial statements, including accounting policies, processes and systems and expects the standard will have a minor impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is evaluating the impact of the adoption of ASU 2019-12, but does not expect it to have a material impact on income taxes as reported in its consolidated financial statements. 

NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company assesses revenues based upon the nature or type of goods or services it provides and the geographic location of the related businesses. The following tables present disaggregated revenue information:
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Three Months Ended March 31,
 
  2021  2020 
Single Wafer Cleaning, Tahoe and Semi-Critical Cleaning Equipment $32,413  $22,784 
ECP (front-end and packaging), Furnace and Other Technologies  5,550   0 
Advanced Packaging (excluding ECP), Services & Spares  5,769   1,564 
Total Revenue By Product Category  43,732   24,348 
         
Wet cleaning and other front-end processing tools  31,900   22,784 
Advanced packaging, other back-end processing tools, services and spares  11,832   1,564 
Total Revenue Front-end and Back-End
 $43,732  $24,348 

 
Three Months Ended March 31,
 
  2021  2020 
Mainland China $43,696  $24,289 
Other Regions  36   59 
  $43,732  $24,348 



NOTE 34 – ACCOUNTS RECEIVABLE
 
At ASeptember 30, 2020t March 31, 2021 and December 31, 2019,2020 accounts receivable consisted of the following:following:
 
 
September 30,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Accounts receivable $59,796  $31,091  $60,394  $56,441 
Less: Allowance for doubtful accounts  0   0   0   0 
Total $59,796  $31,091  $60,394  $56,441 
 
TheThe Company reviews accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. No allowance for doubtful accounts was considered necessary at September 30, 2020March 31, 2021 and December 31, 2019. At September2020 30, 2020 and December 31, 2019, accounts receivable of $0 and $1,433, respectively, were pledged as collateral for borrowings from financial institutions.. 

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

NOTE 45 – INVENTORIES
 
At SeptemberMarch 30, 202031, 2021 and December 31, 2019,2020 inventory consisted of the following:
 
 
September 30,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Raw materials $27,254  $15,105  $34,631  $32,391 
Work in process  13,882   10,407   21,461   23,871 
Finished goods  23,046   19,284   47,134   32,377 
Total inventory $64,182  $44,796  $103,226  $88,639 
 
At March 31, 2021 and December 31, 2020, the Company held an inventory reserve of $1,124 and $1,140, respectively. System shipments of first-tools to an existing or prospective customer, for which ownership does not transfer until customer acceptance, are classified as finished goods inventory and carried at cost until ownership is transferred.

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NOTE 56 – PROPERTY, PLANT AND EQUIPMENT, NET
 
At September 30, 2020March 31, 2021 and December 31, 2019,2020, property, plant and equipment consisted of the following:
 
 
September 30,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Manufacturing equipment $4,093  $3,902  $5,924  $5,966 
Office equipment  926   627   1,260   1,047 
Transportation equipment  177   124   213   216 
Leasehold improvement  1,471   1,442   2,551   2,398 
Total cost  6,667   6,095   9,948   9,627 
Less: Total accumulated depreciation  (3,751)  (3,077)  (4,049)  (3,745)
Construction in progress  3,058   601   2,873   2,310 
Total property, plant and equipment, net $5,974  $3,619  $8,772  $8,192 
 
Depreciation expense was $195$439 and $176$185 for the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, and $respectively.569 and $528 for the nine months ended September 30, 2020 and 2019, respectively. 

NOTE 7 – LAND USE RIGHT, NET
13
 A summary of land use right is as follows:

  
March 31,
2021
  
December 31,
2020
 
Land use right purchase amount $9,674  $9,744 
Less: Accumulated amortization  (145)  (98)
Land use right, net $9,529  $9,646 

In 2020 ACM Shanghai, through its wholly owned subsidiary ACM Shengwei, entered into an agreement for a 50-year land use right in the Lingang region of Shanghai. In July 2020 ACM Shengwei began a multi-year construction project for a new 1,000,000 square foot development and production center that will incorporate new manufacturing systems and automation technologies, and will provide floor space to support significantly increase production capacity and related research and development activities.

The amortization for the three months ended March 31, 2020 was $49.

The annual amortization of land use right for each of the five succeeding years is as follows:

 Year ending December 31,   
2021 $196 
2022  196 
2023  196 
2024  196 
2025  196 


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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)NOTE 8 – OTHER LONG-TERM ASSETS

At March 31, 2021 and December 31, 2020, other long-term assets consisted of the following:

  March 31, 2021  
December 31,
2020
 
Prepayment for property $39,474  $39,450 
Security deposit for land use right  750   756 
Others  251   290 
Total other long-term assets $40,475  $40,496 

The prepayment for property is for the housing in Lingang, Shanghai, which consists of (1) the contractual amount to acquire the property and (2) capitalized interest charges on the long-term loan related to acquisition of the property, which amounted to  $317 as of  March 31, 2021. The property is pledged for a long-term loan from China Merchants Bank (note 12).

NOTE 69 – SHORT-TERM BORROWINGS
 
At September 30, 2020March 31, 2021 and December 31, 2019,2020, short-term and long-term borrowings consisted of the following:
 
  
September 30,
2020
  
December 31,
2019
 
Line of credit up to RMB 50,000 from Bank of Shanghai Pudong Branch, due on January 23, 2020 with an annual interest rate of 5.22%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited. It was fully repaid on January 23, 2020. $0  $5,057 
Line of credit up to RMB 20,000 from Shanghai Rural Commercial Bank, due on February 21, 2020 with an annual interest rate of 5.66%, guaranteed by the Company’s CEO and pledged by accounts receivable. It was fully repaid on February 21, 2020.  0   1,433 
Line of credit up to RMB 20,000 from Bank of Communications, due on January 18, 2020 with an annual interest rate of 5.66% and fully repaid on January 19, 2020.  0   1,433 
Line of credit up to RMB 20,000 from Bank of Communications, due on January 22, 2020 with an annual interest rate of 5.66% and fully repaid on January 22, 2020.  0   717 
Line of credit up to RMB 20,000 from Bank of Communications, due on February 14, 2020 with an annual interest rate of 5.66% and fully repaid on February 14, 2020.  0   717 
Line of credit up to RMB 50,000 from China Everbright Bank, due on March 25, 2020 with an annual interest rate of 4.94%, guaranteed by the Company’s CEO and fully repaid on March 24, 2020.  0   3,250 
Line of credit up to RMB 50,000 from China Everbright Bank, due on April 17, 2020 with an annual interest rate of 5.66%, guaranteed by the Company’s CEO and fully repaid on April 2, 2020.  0   1,146 
Line of credit up to RMB 80,000 from China Everbright Bank, due on April 1, 2021 with an annual interest rate of 4.70%, guaranteed by the Company’s CEO.  4,404   0 
Line of credit up to RMB 80,000 from China Everbright Bank, due on June 27, 2021 with an annual interest rate of 4.25%, guaranteed by the Company’s CEO.  1,321   0 
Line of credit up to RMB 80,000 from China Everbright Bank, due on April 29, 2021 with an annual interest rate of 2.80%, guaranteed by the Company’s CEO.  820   0 
Line of credit up to RMB 80,000 from China Everbright Bank, due on June 27, 2021 with an annual interest rate of 2.70%, guaranteed by the Company’s CEO.  2,079   0 
Line of credit up to RMB 20,000 from Bank of Communications, due on April 12, 2021 with an annual interest rate of 4.65%.  1,468   0 
Line of credit up to RMB 20,000 from Bank of Communications, due on May 24, 2021 with an annual interest rate of 3.65%.  1,468   0 
Line of credit up to RMB 70,000 from Bank of Shanghai Pudong Branch, due on May 27, 2021 with an annual interest rate of 4.68%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.  2,466   0 
Line of credit up to RMB 70,000 from Bank of Shanghai Pudong Branch, due on June 27, 2021 with an annual interest rate of 4.68%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.  1,321   0 
Line of credit up to RMB 70,000 from Bank of Shanghai Pudong Branch, due on May 28, 2021 with an annual interest rate of 3.48%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.  2,441   0 
Line of credit up to RMB 70,000 from Bank of Shanghai Pudong Branch, due on June 7, 2021 with an annual interest rate of 3.50%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.  1,521   0 
Line of credit up to RMB 70,000 from Bank of Shanghai Pudong Branch, due on June 16, 2021 with an annual interest rate of 3.50%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.  1,837   0 
Line of credit up to RMB 30,000 from Bank of China Pudong Branch, due on December 17, 2020 with annual interest rate of 4.35%, guaranteed by the Company’s CEO.  2,496   0 
Line of credit up to RMB 80,000 from China Merchants Bank,due on August 10, 2021 with annual interest rate of 3.85%.  1,321   0 
Line of credit up to RMB 80,000 from China Merchants Bank,due on August 25, 2021 with annual interest rate of 3.85%.  2,936   0 
Line of credit up to KRW 500,000 from Industrial Bank of Korea, due on July 11, 2021 with an annual interest rate of 3.99%,guaranteed by the ACM-KOREA CEO.  428   0 
Total $28,327  $13,753 
  
March 31,
2021
  
December 31,
2020
 
Line of credit up to RMB 80,000 from China Everbright Bank,
      
1)due on April 1, 2021 with an annual interest rate of 4.70%. *1 and fully repaid on March 23, 2021.
  0   4,599 
2)due on June 27, 2021 with an annual interest rate of 4.25%. *1
  1,370   1,380 
3)due on April 29, 2021 with an annual interest rate of 2.80%. *1 and fully repaid on March 23, 2021.
  0   820 
4)due on June 27, 2021 with an annual interest rate of 2.70%. *1
  2,080   2,080 
5)due on September 30, 2021 with an annual interest rate of 2.50%. *1
  2,855   0 
Line of credit up to RMB 20,000 from Bank of Communications,
        
1)due on April 12, 2021 with an annual interest rate of 4.65%.  1,522   1,533 
2)due on May 24, 2021 with an annual interest rate of 3.65%.  1,522   1,533 
Line of credit up to RMB 70,000 from Bank of Shanghai Pudong Branch,        
1)due on May 27, 2021 with an annual interest rate of 4.68%. *2  2,557   2,575 
2)due on June 27, 2021 with an annual interest rate of 4.68%. *2 and fully repaid on March 29, 2021.  0   1,380 
3)due on May 28, 2021 with an annual interest rate of 3.48%. *2  2,442   2,442 
4)due on June 7, 2021 with an annual interest rate of 3.50%. *2  1,521   1,521 
5)due on June 16, 2021 with an annual interest rate of 3.50%. *2  1,837   1,838 
Line of credit up to RMB 80,000 from China Merchants Bank,        
1)due on August 10, 2021 with annual interest rate of 3.85%.  1,370   1,380 
2)due on August 25, 2021 with annual interest rate of 3.85%.  3,044   3,066 
3)due on February 1, 2022 with annual interest rate of 3.85%.  1,370   0 
Total $23,490  $26,147 
 
Interest*1 Guaranteed by ACM’s Chief Executive Officer
*2 Guaranteed by ACM’s Chief Executive Officer and CleanChip

For the three months ended March 31, 2021 and 2020, interest expense related to short-term borrowings amounted to $272$189 and $205 for the three months ended September 30, 2020 and 2019, respectively, and $611 and $538 for the nine months ended September 30, 2020 and 2019,$111, respectively.

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

NOTE 710 – OTHER PAYABLE AND ACCRUED EXPENSES
 
At September 30, 2020March 31, 2021 and December 31, 2019,2020, other payable and accrued expenses consisted of the following:

 
September 30,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Accrued commissions $7,785  $4,082  $7,838  $7,127 
Accrued warranty  3,449   2,811   4,196   3,975 
Accrued payroll  2,960   2,092   4,422   3,068 
Accrued professional fees  40   165   211   384 
Accrued machine testing fees  1,481   1,456   1,632   1,595 
Others  2,779   2,268   3,586   2,656 
Total $18,494  $12,874  $21,885  $18,805 


NOTE 811 – LEASES
 
The Company leases space under non-cancelable operating leases for several office and manufacturing locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions.
 
Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.
 
As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, it applies a portfolio approach for determining the incremental borrowing rate.
 
The components of lease expense were as follows:

 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2020  2019  2021  2020 
Operating lease cost $384  $363  $1,139  $1,064  $515  $377 
Short-term lease cost  73   92   170   117   79   50 
Lease cost $457  $455  $1,309  $1,181  $594  $427 

Supplemental cash flow information related to operating leases was as follows for the three months ended March 31,2021 and nine-month periods ended 2020September 30, 2020: and 2019, respectively:
  Three Months Ended March 31, 
  2021  2020 
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash outflow from operating leases $594  $427 

 Three Months Ended September 30,  Nine Months Ended September 30, 
  2020  2019  2020  2019 
Cash paid for amounts included in the measurement of lease liabilities:            
Operating cash outflow from operating leases $457  $455  $1,309  $1,181 
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Maturities of lease liabilities for all operating leases were as follows as of September 30, 2020:March 31, 2021:
 
  December 31, 
2020 $390 
2021  1,592 
2022  1,580 
2023  912 
2024  872 
2025  22 
Total lease payments  5,368 
Less: Interest  (800)
Present value of lease liabilities $4,568 

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  December 31, 
2021 $1,834 
2022  2,439 
2023  978 
2024  876 
2025  22 
Total lease payments  6,149 
Less: Interest  (800)
Present value of lease liabilities $5,349 

ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of March 31,September 30, 20202021 and December 31, 20192020:
 
 
September 30,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Remaining lease term and discount rate:            
Weighted average remaining lease term (years)  3.70   3.02   1.93   2.11 
Weighted average discount rate  5.29%  5.43%  4.87%  5.14%


NOTE 12 – LONG-TERM BORROWINGS

At March 31,2021 and December 31,2020, long-term borrowings consisted of the following:

 
March 31,
2021
  
December 31,
2020
 
Loan from China Merchants Bank $19,042  $19,570 
Less: Current portion  (1,598)  (1,591)
  $17,444  $17,979 

The loan from China Merchants Bank is for the purpose of purchasing property in Lingang, Shanghai. The loan is repayable in 120 installments with the last installment due in November 2030, with an annual interest rate of 4.65%. The loan is pledged by the property of ACM Shengwei and guaranteed by ACM Shanghai. As of March 31,2021, the right certificate of the pledged property has not been obtained and the procedures of the formal pledge registration in the bank had not been completed.

Scheduled principal payments for the outstanding long-term loan as of March 31,2021 are as follows:

Year ending December 31,   
2021 $1,191 
2022  1,654 
2023  1,733 
2024  1,815 
2025 and onwards  12,649 
  $19,042 

For the three months ended March 31,2021, interest related to long-term borrowings of $317 was incurred, of which $0 was charged to interest expenses and $317 was capitalized as other long-term assets.
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NOTE 913 – OTHER LONG-TERM LIABILITIES
 
Other long-term liabilities represent government subsidies that we have received from PRC governmental authorities including China’s Ministry of Science and Technology, the Shanghai Municipal Commission of Economy and Information, and the Shanghai Science and Technology Committee, for development and commercialization of certain technology but have not yet earned and recognized. As of September 30, 2020March 31,2021 and December 31, 2019,2020, other long-term liabilities consisted of the following unearned government subsidies:

 
September 30,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Subsidies to Stress Free Polishing project, commenced in 2008 and 2017 $1,126  $1,251  $1,221  $1,266 
Subsidies to Electro Copper Plating project, commenced in 2014  2,188   2,666   2,016   2,156 
Subsidies to Polytetrafluoroethylene, commenced in 2018  125   135   51   130 
Subsidies to Tahoe-Single Bench Clean, commenced in 2020  1,962   0   1,005   1,544 
Subsidies to Backside Clean-YMTC National Project, commenced in 2020  751   0   1,941   2,591 
Other  302   134   405   347 
Total $6,454  $4,186  $6,639  $8,034 

NOTE 1014 – LONG TERM INVESTMENTSLONG-TERM INVESTMENT
 
InOn September 6,2017, ACM and Ninebell Co., Ltd. (“Ninebell”), a Korean company that is one of the Company’s principal materialsmaterial suppliers, entered into an ordinary share purchase agreement, effective as of September 11,2017, pursuant to which Ninebell issued to ACM ordinary shares representing 20% of Ninebell’s post-closing equity for a purchase price of $1,200,$1,200, and a common stock purchase agreement, effective as of September 11,2017,pursuant to which ACM issued 133,334 shares of Class A common stock to Ninebell for a purchase price of $1,000$1,000 at $7.50 $7.50 per share. The investment in Ninebell is accounted for under the equity method.
 
On June 27,2019, ACM Shanghai and Shengyi Semiconductor Technology Co., Ltd. (“Shengyi”), a company based in Wuxi, China that is one of the Company’s componentscomponent suppliers, entered into an agreement pursuant to which Shengyi issued to ACM Shanghai shares representing 15% of Shengyi’s post-closing equity for a purchase price of $109.$109. The investment in Shengyi is accounted for under the equity method.
 
On September 5,2019, ACM Shanghai, entered into a Partnership Agreement with 6 other investors, as limited partners, and Beijing Shixi Qingliu Investment Co., Ltd., as general partner and manager, with respect to the formation of Hefei Shixi Chanheng Integrated Circuit Industry Venture Capital Fund Partnership (LP) (“Hefei Shixi”), a Chinese limited partnership based in Hefei, China. Pursuant to such Partnership Agreement, on September 30,2019, ACM Shanghai invested $4,200,RMB 30,000 ($4,200), which represented 10% of the Partnership’spartnership’s total subscribed capital. The investment in Hefei Shixi Chanheng Integrated Circuit Industry Venture Capital Fund Partnership (LP) is accounted for under the equity method.method in accordance with ASC 323-30-S99-1.

The componentsCompany treats the equity investment in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of long-term investments were as follows:the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment.

  
September 30,
2020
  
December 31,
2019
 
Ninebell $2,088  $1,538 
Shengyi  134   107 
Hefei Shixi  4,358   4,289 
Total $6,580  $5,934 
  
March 31,
2021
  
December 31,
2020
 
Ninebell $1,988  $1,666 
Shengyi  157   134 
Hefei Shixi  4,487   4,540 
Total $6,632  $6,340 

For the three months ended March 31,2021 and 2020, the Company’s share of equity investees’ net income was $320 and $148, respectively, which amounts were included in equity income in net income of affiliates in the accompanying condensed consolidated statements of operations and comprehensive income.
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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

NOTE 1115 – TRADING SECURITIES

Pursuant to a Partnership Agreement dated June 9, 2020 (the “Partnership Agreement”) and a Supplementary Agreement thereto dated June 15, 2020 (the “Supplementary Agreement”), ACM Shanghai became a limited partner of Qingdao Fortune-Tech Xinxing Capital Partnership (L.P.), a Chinese limited partnership based in Shanghai, China (the “Partnership”) of which China Fortune-Tech Capital Co., Ltd serves as general partner and thirteen unaffiliated entities serve, with ACM Shanghai, as limited partners. The Partnership was formed to establish a special fund that would purchase, in a strategic placement, shares of Semiconductor Manufacturing International Corporation, (“SMIC”) to be listed on the STAR Market. SMIC is a Shanghai-based foundry that has been a customer of the Company’s single-wafer wet-cleaning tools. The limited partners of the Partnership contributed to the fund a total of RMB 2.224 billion ($315,000), of which ACM Shanghai contributed RMB 100 million ($14.2 million), or 4.3% of the total contribution, on June 18, 2020.2020.

Upon the closing of the SMIC offering in July 2020, the initial number of SMIC shares owned by the Partnership was apportioned to all of the limited partners in proportion to their respective capital contributions (4.3% in the case of ACM Shanghai). All of the SMIC shares acquired by the Partnership are subject, under applicable Chinese laws, to lock-up restrictions that prevent sales of the shares for one year after the shares were acquired. Thereafter an individual limited partner will be able to instruct the general partner to sell, on behalf of the limited partner, all or a portion of the limited partner’s apportioned shares, subject to compliance with all laws, regulations, trading rules, the Partnership Agreement and the Supplementary Agreement. Alternatively, following the lock-up period, limited partners holding at least 30percent of the total SMIC shares held by the Partnership will be able, pursuant to a call auction in accordance with the Supplementary Agreement, to cause the general partner to arrange to sell all of the shares desired to be offered by each of the limited partners that complies with procedural requirements provided in the Supplementary Agreement.

As SMIC was listed on the STAR Market in July 2020, ACM Shanghai’s investment is accounted for as trading securities and is stated at fair market value, which is classified as Level 2 of the hierarchy established under ASC No. 820 with valuations based on quoted prices for identical securities in active markets, less a discount applied to reflect the remaining lock-up period.

The components of trading securities were as follows:

 
September 30,
2020
  
December 31,
2019
  
March 31,
2021
  
December 31,
2020
 
Trading securities listed in Shanghai Stock Exchange            
Cost $14,680  $0  $14,912  $15,020 
                
Market value $23,888  $0  $27,003  $28,239 

Unrealized gainloss on trading securities, net of exchange differenceamounted to $8,970($1,047) for the three and nine months ended September 30,March 31, 2020.

NOTE 12 – FINANCIAL LIABILITY CARRIED AT FAIR VALUE

In December 2016 Shengxin (Shanghai) Management Consulting Limited Partnership (“SMC”) paid 20,123,500 RMB ($2,981 as of the date of funding) (the “SMC Investment”) to ACM Shanghai for investment pursuant to terms to be subsequently negotiated. SMC is a PRC limited partnership partially owned by employees of ACM Shanghai.

In March 2017 (a) ACM issued to SMC a warrant (the “Warrant”) exercisable to purchase 397,502 shares of Class A common stock at a price of $7.50 per share, for a total exercise price of $2,981, and (b) ACM Shanghai agreed to repay the SMC Investment within 60 days after the exercise of the Warrant. In March 2018 SMC exercised the Warrant in full, as a result of which (1) ACM issued 397,502 shares of Class A common stock to SMC, (2) SMC borrowed the funds to pay the Warrant exercise price pursuant to a senior secured promissory note (the “SMC Note”) in the principal amount of $2,981 issued to ACM Shanghai, which in turn issued to ACM a promissory note (the “Intercompany Note”) in the principal amount of $2,981 in payment of the Warrant exercise price. Each of the SMC Note and the Intercompany Note bears interest at a rate of 3.01% per annum and matures on August 17, 2023. The SMC Note was secured by a pledge of the shares issued upon exercise of the Warrant.

In connection with its follow-on public offering of Class A common stock in August 2019, ACM agreed to purchase a total of 154,821 of the Warrant shares from SMC at a per share price of $13.195, of which (a) $1,161 was applied to reduce SMC’s obligations to ACM Shanghai under the SMC Note, and which ACM then withheld for its own account and applied to reduce ACM Shanghai’s obligations to ACM under the Intercompany Note, and (b) the remaining $882 was paid to SMC. In a separate transaction, ACM Shanghai repaid $1,161 of the SMC Investment in cash, which reduced the amount of the SMC Investment due to SMC to $1,820.

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

The SMC Note and SMC Investment are offsetting items in the Company’s consolidated balance sheet in accordance with Accounting Standards Codification 210-20-45-1 up to April 30, 2020.

In preparation for the STAR IPO, ACM Shanghai was required to terminate its financial relationship with SMC. In order to facilitate such termination, on April 30, 2020, ACM entered into 2 agreements relating to outstanding obligations among ACM Research, ACM Shanghai and SMC. Pursuant to such agreements: (i) ACM Shanghai assigned to ACM its rights under the SMC Note, including the right to receive payment of the $1,820 payable thereunder; (ii) ACM cancelled the outstanding $1,820 obligation of ACM Shanghai under the Intercompany Note; (iii) SMC surrendered its remaining 242,681 Warrant shares to ACM Research; and (iv) in exchange for such 242,681 Warrant shares, ACM agreed to deliver to SMC certain consideration (“SMC Consideration”) agreed upon by ACM Research and SMC, subject to obtaining certain PRC regulatory approvals. Under the agreements, if the required approvals were not obtained by December 31, 2023, ACM would cancel the SMC Note as consideration for the 242,681 Warrant shares. In a separate transaction in April 2020, ACM Shanghai repaid the remaining $1,820 of the SMC Investment in cash.

For the period beginning April 30, 2020 the SMC Consideration is accounted for as a financial liability, and the Company applies fair value option to measure the SMC Consideration in accordance with Accounting Standards Codification 825-15-4a. On April 30, 2020, the SMC Consideration was $9,715. The financial liability was remeasured to fair value as of the end of each of the reporting periods.

On July 29, 2020 ACM and SMC entered into an amended agreement under which, in settlement of the SMC Consideration, ACM issued to SMC a warrant (the “SMC 2020 Warrant”) to purchase 242,681 shares of Class A common stock at a purchase price of $7.50 per share, and ACM cancelled the SMC Note. The financial liability was remeasured to fair value of $21,679 as of July 29, 2020, and was retired with the issuance of the SMC 2020 Warrant.  The Company recognized a change in fair value of financial liability of $6,533 and $11,964 for the three and nine months ended September 30, 2020, respectively, which was charged to the consolidated statement of operations.

The SMC 2020 Warrant was initially measured at fair value at the issuance date and classified as equity permanently in accordance with Accounting Standards Codification 815. The fair value of the SMC 2020 Warrant amounted to $21,679 based on the grant date using the Black-Scholes valuation model with the following assumptions:

Nine Months Ended
September 30,
2020
Fair value of common share(1)$89.28
Expected term in years(2)3.42
Volatility(3)47.42%
Risk-free interest rate(4)0.15%
Expected dividend(5)0%

(1) Fair value of Class A common stock was the closing market price of the Class A common stock on July 29, 2020.
(2) Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.
(3) Volatility is calculated based on the historical volatility of the stock of companies comparable to ACM in the period equal to the expected term of each grant.
(4) Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.
(5)Expected dividend is assumed to be 0% as ACM has no history or expectation of paying a dividend on its common stock.

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

NOTE 1316 – RELATED PARTY BALANCES AND TRANSACTIONS

Prepaid expenses 
September 30,
2020
  
December 31,
2019
  March 31, 2021  December 31, 2020 
Ninebell $2,272  $348  $1,778  $1,607 

Accounts payable 
September 30,
2020
  
December 31,
2019
  March 31, 2021  December 31, 2020 
Ninebell $3,197  $727  $2,925  $2,898 
Shengyi  609   488   1,585   1,195 
Total $3,806  $1,215  $4,510  $4,093 
 
Three Months Ended March 31
 
Purchase of materials 2021  2020 
Ninebell $6,882  $2,153 
Shengyi  358   58 
Total $7,240  $2,211 

 
Three Months Ended September 30
  
Nine Months Ended September 30
 
Purchase of materials 2020  2019  2020  2019 
Ninebell $4,029  $2,591  $9,552  $7,395 
Shengyi  599   261   1,113   453 
Total $4,628  $2,852  $10,665  $7,848 

 Three Months Ended September 30  Nine Months Ended September 30  Three Months Ended March 31 
Service fee charged by 2020  2019  2020  2019  2021  2020 
Shengyi $14  $0  $204  $0  $142  $46 
Ninebell  22   0   22   0   0   0 
Total $36  $0  $226  $0  $142  $46 

NOTE 1417 – COMMON STOCK
 
ACM is authorized to issue 50,000,000 shares of Class A common stock and 2,409,738 shares of Class B common stock, each with a par value of $0.0001. Each share of Class A common stock is entitled to 1 vote, and each share of Class B common stock is entitled to 20 votes and is convertible at any time into 1 share of Class A common stock. Shares of Class A common stock and Class B common stock are treated equally, identically and ratably with respect to any dividends declared by the Board of Directors unless the Board of Directors declares different dividends to the Class A common stock and Class B common stock by getting approval from a majority of common stockholders.
 
During the ninethree months ended September 30, 2020 and 2019,March 31, 2021, ACM issued 592,946 and 193,642309,940 shares of Class A common stock upon option exercises by employees and non-employees respectively.and an additional 33,334 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock. During the ninethree months ended September 30,March 31, 2020, ACM issued 70,478 shares of Class A common stock upon option exercises by employees and non-employees, and an additional 64,717 shares of Class A common stock upon a cashless warrant exercise by a non-employee.

DuringAt March 31, 2021 and December 31, 2020 the three months ended September 30, 2020 and 2019, ACM issued 407,043 and 89,015 shares, respectively,number of Class A common stock upon option exercises by employees and non-employees.

During the nine months ended September 30, 2020, SMC transferred and cancelled its ownership of 242,681shares of Class A common stock to ACM in exchange for the SMC 2020 Warrant (Note 12)

There were issued and outstanding 16,657,135 shareswas 17,239,967, and 16,896,693, respectively.

At March 31, 2021 and December 31, 2020, the number of Class A common stock and 1,802,606 shares of Class B common stock at September 30, 2020issued and 16,182,151 shares of Class A common stockoutstanding was 1,769,272 and 1,862,608 shares of Class B common stock at December 31, 2019. 1,802,606, respectively.

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

NOTE 1518 – REDEEMABLE NON-CONTROLLING INTERESTS
 
The components of the change in redeemable non-controlling interests for the nine months ended September 30, 2020 are presented in the following table:

Balance at December 31, 2019 $60,162 
Net income attributable to redeemable non-controlling interests  643 
Effect of foreign currency translation gain attributable to redeemable non-controlling interests  (847)
Reclassification of redeemable non-controlling interest  (59,958)
Balance at September 30, 2020 $0 

Upon the submission of application documents by ACM Shanghai for the STAR Listing and the STAR IPO to the Shanghai Stock Exchange duringDuring the second quarter of 2020, the redemption feature of the private placement funding (Note 1) terminated and the aggregate proceeds of the funding therefore were reclassified from redeemable non-controlling interests to non-controlling interests. Further, uponAt March 31, 2020, the terminationbalance of such redemption feature, the Company released the aggregate proceedsredeemable non-controlling interest was nil.

The components of the private placement funding from reserved cash, whichchange in the Company previously had voluntarily imposedredeemable non-controlling interests for the three months ended March 31, 2020 are presented in light of a potential redemption.the following table:

Balance at December 31, 2019
 $60,162 
Net income attributable to redeemable non-controlling interests  258 
Effect of foreign currency translation gain attributable to redeemable non-controlling interests  (953)
Balance at March 31, 2020
 $59,467 

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

NOTE 1619 – STOCK-BASED COMPENSATION
 
In January 2020 ACM Shanghai adopted a 2019 Stock Option Incentive Plan (the “Subsidiary Stock Option Plan”) that provides for, among other incentives, the granting to officers, directors, employees of options to purchase shares of ACM Shanghai’s common stock. The fair value of the stock options granted is estimated at the date of grant based on the Black-Scholes option pricing model using assumptions generally consistent with those used for ACM’s stock options. Because ACM Shanghai shares are not currently publicly traded, the expected volatility is estimated with reference to the average historical volatility of a group of publicly traded companies that are believed to have similar characteristics to ACM Shanghai.

ACM’s stock-based compensation consists of employee and non-employee awards issued under theits 1998 Stock Option Plan, and theits 2016 Omnibus Incentive Plan,  and as standalone options. ACM granted stock options to employees under the 2016 Omnibus Incentive Plan during the ninethree months ended September 30, 2020.March 31, 2021. The vesting condition may consist of a service period determined by the Board of Directors for sa grant or certain performance conditions determined by the Board of Directors for a grant. The fair value of the stock options granted with service period based condition is estimated at the date of grant using the Black-Scholes option pricing model. The fair value of the stock options granted with market based condition is estimated at the date of grant using the Monte Carlo simulation model.

The following table summarizes the components of stock-based compensation expense included in the consolidated statements of operations:
 
 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2020  2019  2021  2020 
Stock-Based Compensation Expense:                  
Cost of revenue $44  $154  $132  $213  $71  $45 
Sales and marketing expense  237   172   495   252   505   94 
Research and development expense  193   759   568   939   229   187 
General and administrative expense  2,305   472   3,128   1,515   405   363 
 $2,779  $1,557  $4,323  $2,919  $1,210  $689 
 
 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2020  2019  2021  2020 
Stock-based compensation expense by type:                  
Employee stock purchase plan $2,651  $1,329  $3,717  $1,841  $1,085  $431 
Non-employee stock purchase plan  44   228   356   1,078   40   172 
Subsidiary option grants  84   0   250   0   85   86 
 $2,779  $1,557  $4,323  $2,919  $1,210  $689 
 
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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

Employee Awards

The following table summarizes the Company’s employee share option activities during the nine monthsthree-months ended September 30, 2020:March 31, 2021:

  
Number of
Option Share
  
Weighted
Average Grant
Date Fair Value
  
Weighted
Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
Outstanding at December 31, 2019  2,994,063  $2.59  $6.77 7.05 years
Granted  778,399   11.98   28.70  
Exercised  (327,917)  1.56   4.33  
Expired  0   0   0  
Forfeited/cancelled  (40,515)  4.94   13.04  
Outstanding at September 30, 2020  3,404,030  $4.81  $11.95 7.14 years
Vested and exercisable at September 30, 2020  2,061,793              
 
 
Number of
Option Share
 
Weighted
Average Grant
Date Fair Value
 
Weighted
Average
Exercise
Price
 
Weighted Average
Remaining
Contractual Term
Outstanding at December 31, 2020
3,191,411 $5.13 $12.73 7.13 years
Granted106,400  50.67  111.98  
Exercised(255,582)  1.78  4.55  
Forfeited/cancelled(11,989)  27.45  62.58  
Outstanding at March 31, 2021
3,030,240  6.93 $16.70 7.22 years
Vested and exercisable at March 31, 2021
1,809,322          
As of September 30, 2020March 31, 2021 and December 31, 2019, 2020,$9,69712,340  and $4,7128,733,, respectively, of total unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards for ACM were expected to be recognized over a weighted-average period of 1.961.92 years and 1.471.89 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

Non-employee Awards

The following table summarizes ACM’s non-employee stock option activities during the nine months ended September 30, 2020:

  
Number of
Option Shares
  
Weighted
Average Grant
Date Fair Value
  
Weighted
Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
Outstanding at December 31, 2019  1,101,613  $0.82  $2.69 5.85 years
Granted  20,000   10.29   25.60  
Exercised  (265,029)  0.91   3.34  
Expired  0              
Forfeited/cancelled  (111)  0.30   0.75    
Outstanding at September 30, 2020  856,473  $1.01  $3.02 5.11 years
Vested and exercisable at September 30, 2020  819,819              
As of September 30, 2020 and December 31, 2019, $235 and $406, respectively, of total unrecognized non-employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards were expected to be recognized over a weighted-average period of 0.11 years and 0.23 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

The fair value of options granted to employee and non-employee with a service period based condition is estimated on the grant date using the Black-Scholes valuation model with the following assumptions.valuation.

Nine Months Ended
September 30,
Year Ended
December 31,
 20202019
Fair value of common share(1)$22.07-85.27$13.64-16.81
Expected term in years(2)5.50-6.256.25
Volatility(3)42.17%-48.15%39.91%-40.35%
Risk-free interest rate(4)0.27%-0.82%1.69%-2.46%
Expected dividend(5)0%0%

(1)Fair value of Class A common stock value was the closing market price of the Class A common stock on the grant date.
(2)Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.
(3)Volatility is calculated based on the historical volatility of the stock of companies comparable to ACM in the period equal to the expected term of each grant.
(4)Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.
(5)Expected dividend is assumed to be 0% as ACM has no history or expectation of paying a dividend on its common stock.

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

The fair value of option granted to employee with market based condition is estimated on the grant date using the Monte Carlo simulation model with the following assumptions.

Nine Months Ended Three months ended
 September 30,March 31,
2021
2020
Fair value of common share(1)
share(1)
$48.25$-22.07
51.07
Expected term in years(2)
years(2)
9.20 - 9.80
 5.50-6.25
Volatility(3)
Volatility(3)
45.10%
48.53%
Risk-free interest rate(4)
rate(4)
2.68%
1.00%
Expected dividend(5)
dividend(5)
0%

(1)FairEqual to closing value of Class A common stock value was the closing market price of the Class A common stock on the grant date.
(2)Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.
(3)Volatility is calculated based on the historical volatility of the stock ofACM’s comparable companies comparable to ACM in the period equal to the expected term of each grant.
(4)Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.
(5)
Expected dividend is assumed to be 0%0% as ACM has no history or expectation of paying a dividend on its common stock.

Non-employee Awards
The following table summarizes the Company’s non-employee share option activities during the three months ended March 31, 2021:
 
Number of
Option Shares
 
Weighted
Average Grant
Date Fair Value
 
Weighted
Average
Exercise
Price
 
Weighted Average
Remaining
Contractual Term
Outstanding at December 31, 2020
836,038 $1.02 $3.07 
4.92 years
Granted0  0  0  
Exercised(54,358)  1.51  5.44  
Expired0  0  0    
Forfeited/cancelled(76)  0.30  0.75    
Outstanding at March 31, 2021
781,604 $0.99 $2.91 
4.64 years
Vested and exercisable at March 31, 2021
773,139          
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As of March 31, 2021 and December 31, 2020, $155 and $195, respectively, of total unrecognized non-employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards were expected to be recognized over a weighted-average period of 0.08 years and 0.09 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

ACM Shanghai Option Grants

The following table summarizes the ACM Shanghai employee stock option activities during the ninethree months ended September 30, 2020:March 31, 2021:

 
Number of
Option Shares in
ACM Shanghai
  
Weighted
Average Grant
Date Fair Value
  
Weighted
Average
Exercise
Price
  
Weighted Average
Remaining
Contractual Term
 
Number of
Option Shares in
ACM Shanghai
 
Weighted
Average Grant
Date Fair Value
 
Weighted
Average
Exercise
Price
 
Weighted Average
Remaining
Contractual Term
Outstanding at December 31, 2019  0  $0  $0   - 
Outstanding at December 31, 2020
5,423,654 $0.23 $1.89 
3.50 years
Granted  5,869,808   0.22   1.87     0  0  0  
Exercised  0   0   0     0  0  0  
Expired  0   0   0     0  0  0  
Forfeited/cancelled  (330,770)  0.23   1.87     (46,154)  0.24  2.00  
Outstanding at September 30, 2020  5,539,038  $0.22  $1.87  3.76 years 
Vested and exercisable at September 30, 2020  0             
Outstanding at March 31, 2021
5,377,500 $0.24 $2.00 3.26 years
Vested and exercisable at March 31, 2021
0          
 
During the three and nine months ended September 30,March 31, 2021 and 2020, the Company recognized stock-based compensation expense of $84$85 and $250,$86, respectively, related to stock option grants of ACM Shanghai. As of September 30,March 31, 2021 and 2020, $911$779 and $822, respectively, of total unrecognized non-employee stock-based compensation expense, net of estimated forfeitures, related to ACM Shanghai stock-based awards were expected to be recognized over a weighted-average period of 2.75 years.2.3 years and 2.5 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

NOTE 1720 – INCOME TAXES
 
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted.

The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods) and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Prior to September 30, 2019, the Company had recorded a valuation allowance for the full amount of net deferred tax assets in the United States, as the realization of deferred tax assets was uncertain.  Since September 30, 2019, the Company has not maintained a valuation allowance except for a partial valuation allowance on certain U.S. deferred tax assets.  In order to recognize the remaining U.S. deferred tax assets that continue to be subject to a valuation allowance, the Company will need to generate sufficient U.S. taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.
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ACM Shanghai has shown a three-year historical cumulative profit and has projections of future income. As a result, the Company does not maintain a valuation allowance.

The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a more likely than not threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.

The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 15% to 25% for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences from book-tax differences. As a result, the Company recorded income tax benefit (expense) of $1,747$2,770 and $328$(304) during the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively, and $(416) and $(667) during the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020,March 31, 2021, the Company’s total unrecognized tax benefits were $155,$570 of which $422 would not affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax provisions as a component of tax expense. NaN interest or penalties were recognized for the ninethree months ended September 30, 2020.March 31, 2021.

The Company files income tax returns in the United States and state and foreign jurisdictions. The federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for the tax years ended December 31, 20092010 through December 31, 2019.2020. To the extent the Company has tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.

The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 15% to 25% for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the value of client equity securities received for services and the treatment of stock-based compensation.compensation and non-US research expenses. The Company’s 3 PRC subsidiaries, ACM Shanghai, ACM Wuxi and ACM Shengwei, are liable for PRC corporate income taxes at the rates of 15%, 25% and 25%, respectively. Pursuant to the Corporate Income Tax Law of the PRC, ACM’s PRC subsidiaries generally would be liable for PRC corporate income taxes as a rate of 25%. According to Guoshuihan 2009 No. 203, an entity certified as an “advanced and new technology enterprise” is entitled to a preferential income tax rate of 15%. ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016 and 2018, with an effective period of three years.years.
 
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ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollars in thousands, except share and per share data)

ACM files income tax returns in the United States and state and foreign jurisdictions. Those federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for 2009 through 2019.2020. To the extent ACM has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service or state or foreign tax authorities to the extent utilized in a future period.

The U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020. It contains several provisions that may have financial statement effects. Key aspects of the CARES Act include the following:

repealed the 80% taxable income limitation for 2018, 2019 and 2020, and allows those years to be carried back up to five years;
allows corporations to claim 100% of AMT credits in 2019, and provides for an election to take the entire refundable credit amount in 2018;
raised the Section 163(j) ATI limit from 30% to 50% for businesses; and
made technical corrections to TCJA for Qualified Improvement Property (“QIP”) and designates QIP as 15-year property for depreciation purposes, which makes QIP a category eligible for 100% bonus depreciation
 
The CARES Act ishas not expected to havehad a material impact on income taxes in the Company’s consolidated financial statements. 
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In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as the elimination of exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, the recognition of deferred tax liabilities for outside basis differences, ownership changes in investments, and tax basis step-up in goodwill obtained in a transaction that is not a business combination. The guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The impact of the adoption by the Company on its condensed consolidated financial statements and disclosures is immaterial.

Income tax expensebenefit (expense) was as follows:

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2020  2019  2020  2019 
  (in thousands)  (in thousands) 
Total income tax benefit (expense) $1,747  $328  $(416) $(667)
 Three Months Ended March 31, 
  2021  2020 
Total income tax benefit (expense) $2,770  $(304)

NOTE 1821 – COMMITMENTS AND CONTINGENCIES
 
The Company leases offices under non-cancelable operating lease agreements. See note 8 for future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more.

As of SeptemberMarch 30,31, 2020,2021, the Company had $1,3693,429 of open capital commitments.

Covenants in ACM Shengwei’s Grant Contract for State-owned Construction Land Use Right in Shanghai City with the China (Shanghai) Pilot Free Trade Zone Lin-gangLingang Special Area Administration require, among other things, that ACM Shengwei pay liquidated damages in the event that (a) it does not make a total investment (including the costs of construction, fixtures, equipment and grant fees) of at least RMB 450.0 million ($63,400) or (b) within six years after the land use right is obtained, the Company does not (i) generate a minimum specified amount of annual sales of products manufactured on the granted land or (ii) pay to the PRC at least RMB 157.6 million ($22,000) in annual total taxes (including value-added taxes, corporate income tax, personal income taxes, urban maintenance and construction taxes, education surcharges, stamp taxes, and vehicle and shipping taxes) as a result of operations in connection with the granted land. As of March 31, 2021, the Company had paid in total $10,328 for its Lingang-related investments.

From time to time
In the normal course of business, the Company is subject to contingencies, including legal proceedings includingand environmental claims inarising out of the ordinarynormal course of businessbusinesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter.  Some of these contingencies involve claims that are subject to substantial uncertainties and unascertainable damages.

The Company’s management has evaluated all such proceedings and claims that existed as of March 31, 2021 and December 31, 2020. In the opinion of management, no provision for liability nor disclosure was required as of March 31, 2021 related to any claim against the Company because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to patent infringements. such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.

As of September 30, 2020,March 31, 2021, the Company did not have anyhad 1 outstanding legal proceedings.proceeding. On December 21, 2020, a putative class action lawsuit against ACM and 3 of its officers was filed in the U.S. District Court for the Northern District of California under the caption Kain v. ACM Research, Inc., et al., No. 3:20-cv-09241. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks monetary damages in an unspecified amount as well as costs and expenses incurred in the litigation. On April 15, 2021,  the court appointed Mr. Kain as lead plaintiff, finding that no better-suited candidates emerged during the statutory sixty-day period following public notice of the lawsuit.  ACM’s management believes the claims are without merit and intend to vigorously defend this litigation. The Company is currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss or estimate a range of possible loss.

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

You should read the following discussion of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, or our Annual Report. The following discussion contains forward‑looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward‑looking statements. Factors that could cause or contribute to these differences include those discussed in Part I, Item 1A. “Risk Factors” in our Annual Report, as well as those discussed below and elsewhere in this report, particularly in the section titled “Item 1A. Risk Factors” in Part II below.

Overview

We supply advanced, innovative capital equipment developed for the global semiconductor industry. Fabricators of advanced integrated circuits, or chips, can use our single-wafer wet-cleaning and other front-end processing tools in numerous steps to improve product yield, even at increasingly advanced process nodes. We have designed these tools for use in fabricating foundry, logic and memory chips, including dynamic random-access memory, or DRAM, and 3D NAND-flash memory chips. We also develop, manufacture and sell a range of advanced packaging tools to wafer assembly and packaging customers.

Revenue from wet cleaning and other front-end processing tools totaled $31.9 million, or 72.9% of total revenue, for the three months ended March 31, 2021, as compared to $22.8 million, or 93.6% of total revenue, for the same period in 2020. Selling prices for our single-wafer wet-cleaning and other front-end processing tools range from $2$1 million to more than $5 million. Our customers for single-wafer wet-cleaning and other front-end cleaningprocessing tools have included Semiconductor Manufacturing International Corporation, Shanghai Huali Microelectronics Corporation, The Huahong Group, SK Hynix Inc. and, Yangtze Memory Technologies Co., Ltd. We recognized revenueLtd, and ChangXin Memory Technologies.

Revenue from sales of single-wafer wet cleaningadvanced packaging, other back-end processing tools, services and other front-end processing equipment totaling $38.4spares totaled $11.8 million, or 80.3%27.1% of total revenue for the three months ending September 30, 2020ended March 31, 2021, as compared to $28.3$1.6 million, or 84.8%6.4% of total revenue for the correspondingsame period in 2019. We recognized revenue2020.  Selling prices for these tools range from sales of single-wafer wet cleaning$0.5 million to more than $4 million.  Our customers for advanced packaging, and other front-endback-end processing equipment totaling $99.0 million, or 89.1%tools have included Jiangyin Changdian Advanced Packaging Co. Ltd., a leading PRC-based wafer bumping packaging house that is a subsidiary of total revenue, forJCET Group Co., Ltd.; Nantong Tongfu Microelectronics Co., Ltd., a PRC-based chip assembly and testing company that is a subsidiary of Nantong Fujitsu Microelectronics Co., Ltd.; Nepes Co., Ltd.,  a semiconductor packaging company based in South Korea which acquired the nine months ending September 30, 2020 compared to $70.1 million, or 84.5%operations of total revenue, for the corresponding periodDeca Technologies’ Philippines manufacturing facility in 2019.2020;  and Wafer Works Corporation, a leading PRC-based wafer supplier.

Based on Gartner’s December 2019 estimates, the market for global wafer cleaning equipment (auto wet stations, single-wafer processors, and other clean process) grew by 20% to $3.46 billion in 2018, decreased by 5% to $3.28 billion in 2019, and was expected to decrease by 6% to $3.07 billion in 2020. We estimate, based on third-party reports and on customer and other information, that our cleaning products addresscurrent product portfolio addresses more than 80%$5 billion of thisthe global wafer equipment market.  By product line, we estimate an approximately $2.5 billion market opportunity is addressed by our wafer cleaning equipment, market.$1.7 billion by our furnace equipment, $500 million by our electro-chemical plating, or ECP equipment, and more than $300 million by our stress-free polishing, or SFP, advanced packaging, wafer processing, and other back-end processing equipment. By major equipment segment, Gartner estimates a 2020 global market size of $3.5 billion for wafer cleaning equipment (auto wet stations, single-wafer processors, batch spray processors, and other clean process equipment), $2.4 billion for furnace equipment (tube CVD, oxidation/diffusion furnace, and batch atomic layer deposition), and $546 million for ECD (electro-chemical deposition).  Based on Gartner’s estimates, the total available global market for these equipment segments increased by 15% from $5.6 billion in 2019 to $6.4 billion in 2020, and is expected to increase by 6% to $6.8 billion in 2021.

We focushave focused our selling efforts on establishing a referenceable base of leading foundry, logic and memory chip makers, whose use of our products can influence decisions by other manufacturers. We believe this customer base will helphas helped us penetrate the mature chip manufacturing markets and build credibility with additional industry leaders. UsingWe have used a “demo-to-sales” process we have placedto place evaluation equipment, or “first tools,” with a number of selected customers.

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Since 2009 we have delivered more than 120 single-wafer150 wet cleaning and other front-end processing tools, more than 105130 of which have been accepted by customers and thereby generated revenue to us and theus. The balance of whichthe delivered tools are awaiting customer acceptance should contractual conditions be met. To date, a substantial majority of our sales of single-wafer wet cleaning equipment for front-end manufacturing have been to customers located in Asia, and we anticipate that a substantial majority of our revenue from these products will continue to come from customers located in this region for the foreseeable future. We have begun to add to our efforts to further address customers in North America, Western Europe and Southeast Asia by expanding our direct sales and services teams and increasing our global marketing activities.

Since our formation in 1998, we haveWe are focused on building a strategic portfolio of intellectual property to support and protect our key innovations. Our tools have been developed using our key proprietary technologies:

•●
Space Alternated Phase Shift, or SAPS, technology for flat and patterned wafer surfaces (such as(deep via or deep trench with stronger structure) wafer surfaces. , whichSAPS technology employs alternating phases of megasonic waves to deliver megasonic energy in a highly uniform manner on a microscopic level;level. We have shown SAPS technology to be more effective than conventional megasonic and jet spray technologies in removing random defects across an entire wafer, with increasing relative effectiveness at more advanced production nodes.
•●
Timely Energized Bubble Oscillation, or TEBO, technology for patterned wafer surfaces at advanced process nodes, which provides. TEBO technology has been developed to provide effective, damage-free cleaning for 2D and 3D patterned wafers with fine feature sizes;sizes. We have demonstrated the damage-free cleaning capabilities of TEBO technology on patterned wafers for feature nodes as small as 1xnm (16 to 19 nanometers, or nm), and we have shown TEBO technology can be applied in manufacturing processes for patterned chips with 3D architectures having aspect ratios as high as 60‑to‑1.
•●
Tahoe technology for cost and environmental savingssavings. , whichTahoe technology delivers high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is typically consumed by conventional high-temperature single-wafer cleaning tools; andtools.
•●
Electro-Chemical Plating, or ECP technology for advanced metal platingplating. , which includesOur Ultra ECP AP,ap, or Advanced Packaging, technology was developed for back-end assembly processes andto deliver a more uniform metal layer at the notch area of wafers prior to packaging. Our Ultra ECP MAP,map, or Multi-Anode Partial Plating, technology was developed for front-end wafer fabrication processes.processes to deliver advanced electrochemical copper plating for copper interconnect applications. Ultra ECP map offers improved gap-filling performance for ultra-thin seed layer applications, which is critical for advanced nodes at 14nm and beyond.

In 2020 we introduced and delivered a range of new tools intended to broaden our revenue opportunity with global semiconductor manufacturers.  Product extensions include the Ultra SFP ap tool for advanced packaging solutions, the Ultra C VI  18-chamber single wafer cleaning tool for advanced memory devices, and the Ultra ECP 3d platform for through-silicon-via, or tsv,  application. New product lines include the Ultra fn Furnace, our first dry processing tool, and a suite of semi-critical cleaning systems which include single wafer back side cleaning, scrubber, and auto bench cleaning tools.

We have been issued more than 350 patents in the United States, the People’s Republic of China or PRC, Japan, Singapore, South Korea and Taiwan.

We conduct substantially alla substantial majority of our product development, manufacturing, support and services in the People’s RepublicPRC, with additional product development and subsystem production in South Korea.  Substantially all of China, or the PRC. All of our integrated tools are built to order at our manufacturing facilities in the Pudong region of Shanghai, which facilities now encompass a total of 136,000236,000 square feet of floor space for production capacity, with 50,000an additional 100,000 square feet having been added in 2021 with the lease of a second quarter of 2020 through an expansion ofbuilding at our second facility in the Pudong region of Shanghai. In May 2020 ACM Shanghai, through its wholly owned subsidiary Shengwei Research (Shanghai), Inc., entered into an agreement for a land use right in the Lingang region of Shanghai. In July 2020 Shengwei Research (Shanghai), Inc. began a multi-year construction project for a new 1,000,000 square foot development and production center. The planned 1,000,000 square foot facilitycenter that will incorporate state-of-the-art manufacturing systems and automation technologies, and will provide the floor space to support significantly moreincrease production capacity and related research and development activities when fully-staffed and supplied.activities. Our experience has shown that chip manufacturers in the PRC and throughout Asia demand equipment meeting their specific technical requirements and prefer building relationships with local suppliers. We will continue to seek to leverage our local presence in the PRC to address the growing market for semiconductor manufacturing equipment in the region by working closely with regional chip manufacturers to understand their specific requirements, encourage them to adopt our SAPS, TEBO, Tahoe and ECP technologies, and enable us to design innovative products and solutions to address their needs.

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We have been issued more than 285 patents in the United States, the PRC, Japan, Korea, Singapore and Taiwan.

Corporate Background

ACM Research was incorporated in California in 1998 and redomesticated in Delaware in 2016. We perform strategic planning, marketing, and financial activities at our global corporate headquarters in Fremont, California.

Initially we focused on developing tools for chip manufacturing process steps involving the integration of ultra‑low‑K materials and copper. In the early 2000s we sold tools based on stress-free copper polishing technology. In 2007 we began to focus our development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process. Since that time, we have strategically built our technology base and expanded our product offerings:

•
In 2009 we introduced SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process.
•
In 2016 we introduced TEBO technology, which can be applied at numerous steps during the fabrication of small node conventional two-dimensional and three-dimensional patterned wafers.
•
In August 2018 we introduced the Ultra-C Tahoe wafer cleaning tool, which delivers high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high temperature single-wafer cleaning tools.
•
In March 2019 we introduced (a) the Ultra ECP AP or Advanced Wafer Level Packaging tool, a back-end assembly tool used for bumping, or applying copper, tin and nickel to wafers at the die-level prior to packaging, and (b) the Ultra ECP MAP or Multi Anode Plating tool, a front-end process tool that utilizes our proprietary technology to deliver world-class electrochemical copper planting for copper interconnect applications.
•
In April 2020 we introduced the Ultra Furnace, our first system developed for multiple dry processing applications.
•
In May 2020 we introduced the Ultra C Family of semi-critical cleaning systems, including the Ultra C b for backside clean, the Ultra C wb automated wet bench, and the Ultra C s scrubber.

To help us establish and build relationships with chip manufacturers in the PRC, in 2006 we moved our operational center to Shanghai and began to conduct our business through our subsidiary ACM Shanghai. Since that time, we have expanded our geographic presence:

•
In 2011 we formed a wholly owned subsidiary in the PRC, ACM Research (Wuxi), Inc., which now is a wholly owned subsidiary of ACM Shanghai, to manage sales and service operations.
•
In June 2017 we formed a subsidiary in Hong Kong, CleanChip Technologies Limited, which now is a wholly owned subsidiary of ACM Shanghai, to act on our behalf in Asian markets outside the PRC by, for example, serving as a trading partner between ACM Shanghai and its customers, procuring raw materials and components, performing sales and marketing activities, and making strategic investments.
•
In December 2017 we formed a subsidiary in the Republic of Korea, ACM Research Korea CO., LTD., which now is a wholly owned subsidiary of ACM Shanghai, to serve our customers based in the Republic of Korea and perform sales, marketing, and research and development activities.
•
In March 2019 ACM Shanghai formed a wholly owned subsidiary in the PRC, Shengwei Research (Shanghai), Inc., to manage activities related to addition of future long-term production capacity.

We currently conduct the majority of our product development, support and services, and substantially all of our manufacturing, at ACM Shanghai. Our Shanghai operations position us to be near many of our current and potential new customers in the PRC (including Taiwan), Korea and throughout Asia, providing convenient access and reduced shipping and manufacturing costs.

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Our initial factory is located in the Pudong Region of Shanghai and has a total of 36,000 square feet of available floor space.
Our second production facility is located in the Chuansha district of Pudong, approximately 11 miles from our initial factory.  In September 2018 we announced the opening of athe first building of our second factory, also in the Pudong region of Shanghai. This facilityproduction facility. The first building initially had a total of 50,000 square feet of available floor space for production capacity, which was increased by 50,000 square feet in the second quarter of 2020.  During the three months ended March 31, 2021, we leased a second building immediately adjacent to our second factory, which increased our available floor space for production by another 100,000 square feet, bringing to total available floor space for production capacity of second production facility to 200,000 square feet.
In July 2020 ACM Shanghai began a multi-year construction project to build a development and production center in the Lingang region of Shanghai. The new facility is expected to have a total of 1,000,000 square feet of available floor space for production. capacity.

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Recent Developments

STAR Market Listing and IPO

In June 2019 we announced our intention to complete:complete, within the following three years:

a listing, which we refer to as the STAR Listing, of shares of ACM Shanghai on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd, known as the STAR Market; and
a concurrent initial public offering, which we refer to as the STAR IPO, of ACM Shanghai shares in the PRC, at a pre-offering valuation of not less than RMB 5.15 billion ($747.1 million).

We believe the STAR Listing will help us scale our business in mainland PRC, as we continue to seek to broaden our markets in Europe, Japan, South Korea, Taiwan and the United States. Our global headquarters will continue to be located in Fremont, California, and we are committed to maintaining the listing of Class A common stock on the Nasdaq Global Market.

To qualify for the STAR Listing, ACM Shanghai was required to have multiple independent stockholders in the PRC. In June and November 2019, ACM Shanghai entered into private placement agreements with fifteen investors pursuant to which the investors purchased ACM Shanghai shares for a total of RMB 416.1 million ($59.7 million as of the investment dates). As of September 30,December 31, 2020, 91.7% of the outstanding shares of ACM Shanghai were owned by ACM Research and 8.3% were owned by the private placement investors.

Upon the submission of application documents by ACM Shanghai for the STAR Listing and STAR IPO to the Shanghai Stock Exchange during the second quarter of 2020, the shares of ACM Shanghai issued to the private placement investors were reclassified from redeemable non-controlling interests to non-controlling interests. Upon the termination of such redemption feature, we released the aggregate proceeds of the private placement funding from reserved cash, which we previously had voluntarily imposed in light of a potential redemption.

On September 30, 2020, the application was approved by the Listing Committee of the STAR Market. The Listing Committee subsequently determined to reassess the approval application in light of ACM Shanghai’s sharesallegations regarding our business and operations that were contained in a report issued by J Capital Research USA Ltd. on October 8, 2020 and an ensuing putative class action lawsuit against our company and three of our executive officers filed on December 21, 2020 (See “Item 1. Legal Proceedings” of Part II of this report). Pending the completion of the Listing Committee’s reassessment, the STAR MarketListing remains subject to submission of formal registration and to review and approval by the China Securities Regulatory Commission.

ACM Shanghai currently proposes to offer up to ten percent of its shares in the STAR IPO. The net proceeds of the STAR IPO are expected to be used to fund:

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the land lease for, and construction of, ACM Shanghai’s proposed development and production center in the Lingang region of Shanghai;
product development to upgrade and expand our process equipment targeted at more advanced process nodes, including technical improvement and development of TEBO megasonic cleaning equipment, Tahoe single wafer wet bench combined cleaning equipment, front-end brush scrubbing equipment, auto bench cleaning equipment, front end process electroplating equipment, Stress Free Polish equipment and vertical furnace equipment;equipment, additional new products to expand our product portfolio; and
working capital.

COVID–19 Outbreak

Following its initial outbreak in December 2019, COVID–19, or the coronavirus, spread across the PRC, the United States and globally. The COVID–19 outbreak has affected our business and operating results forsince the first quarter of 2020. Since that time, our personnel have been largely unable to travel between our offices in the United States and our facilities in the PRC, which may impact our ability to effectively operate our company and to oversee our operations. The COVID–19 situation continues to evolve, and it is impossible for us to predict the effect and ultimate impact of the COVID–19 outbreak on our business operations and results. While the quarantine, social distancing and other regulatory measures instituted or recommended in response to COVID–19 are expected to be temporary, the duration of the business disruptions, and related financial impact, of the outbreak cannot be estimated at this time. For an explanation of some of the risks we potentially face, please read carefully the information provided under “Item 1A. Risk Factors—Risks Related to the COVID–19 Outbreak,” of Part I of our Annual Report which is incorporated by reference in “Item 1A. Risk Factors” of Part II of this report.Report.

The following summary reflects our expectations and estimates based on information known to us as of the date of this filing:

•
Operations: We conduct substantially all of our product development, manufacturing, support and services in the PRC, and those activities have been directly impacted by the COVID–19 outbreak and related restrictions on transportation and public appearances. In February 2020 our ACM Shanghai headquarters were closed for an additional six days beyond the normal Lunar New Year Holiday in accordance with Shanghai government restrictions related to the outbreak. We took steps before and after the Lunar New Year to ensure no employees took unreasonable risks to rush back to work. Currently substantially all of our staff have returned to work at both of our Shanghai facilities. To date we have not experienced absenteeism of management or other key employees, other than certain of our executive officers being delayed in traveling back to the PRC after working from our California office in February.February 2021. Our corporate headquarters are located in Alameda County in the San Francisco Bay Area of California and are the subject of a number of state and county public health directives and orders. These actions have not negatively impacted our business to date, however, because of the limited number of employees at our headquarters and the nature of the work they generally perform.

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•
CustomersCustomers:: Our customers’ business operations have been, and are continuing to be, subject to business interruptions arising from the COVID–19 outbreak. Historically a majority of our revenue from sales of single-wafer wet cleaning equipment for front-end manufacturing has been derived from customers located in the PRC and surrounding areas that have been impacted by COVID–19. Three customers that accounted for 73.8%75.8% of our revenue in 2020, 73.8% in 2019 and 87.6% of our revenue in 2018 are based in the PRC and South Korea. One of those customers, Yangtze Memory Technologies Co., Ltd. — which accounted for 26.8% of our 2020 revenue, 27.5% of our 2019 revenue and 39.6% of our 2018 revenue — is based in Wuhan. While Yangtze Memory Technologies Co., Ltd. and other key customers continued to operate their fabrication facilities without interruption during and after the first quarter of 2020, they were forced to restrict access of service personnel and deliveries to and from their facilities. A portion of the shipments we previously had expected to deliver in the first quarter of 2020 were postponed due to these factors, and were subsequently delivered in the second quarter of 2020.

•
Suppliers: Our global supply chain includes components sourced from the PRC, Japan, Taiwan, the United States and Europe. While the COVID–19 outbreak has resulted in significant governmental measures being implemented to control the spread of COVID–19 around the world, to date we have not experienced material issues with our supply chain. As with our customers, we continue to be in close contact with our key suppliers to help ensure we are able to identify any potential supply issues that may arise.

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•
Projects: Our strategy includes a number of plans to support the growth of our core business, including the STAR Listing and STAR IPO with respect to shares of ACM Shanghai described above as well as ACM Shanghai’s recent acquisition of a land use right in the Lingang area of Shanghai where we began construction of a new research and development center and factory in July 2020. The extent to which COVID–19 impacts these projects will depend on future developments that are highly uncertain, but to date, the timing of these ongoing projects has not been delayed or disrupted by COVID–19 or related government measures.

PRC Government Research and Development Funding

ACM Shanghai has received six special government grants from the PRC’s Ministry of Science and Technology, the Shanghai Municipal Commission of Economy and Information, and the Shanghai Science and Technology Committee. The first grant, which was awarded in 2008, relates to the development and commercialization of 65nm to 45nm stress-free polishing technology. The second grant was awarded in 2009 to fund interest expense on short-term borrowings. The third grant was made in 2014 and relates to the development of electro copper-plating technology. The fourth grant was made in June 2018 and related to development of polytetrafluoroethylene. The fifth grant was made in 2020, and relates to the development of Tahoe single bench cleaning technologies. The sixth grant was made in 2020, and relates to the development of backside cleaning technologies. These governmental authorities provide the majority of the funding, although ACM Shanghai is also required to invest certain amounts in the projects.

The governmental grants contain certain operating conditions, and we are required to go through a government due diligence process once the project is complete. The grants therefore are recorded as long-term liabilities upon receipt, although we are not required to return any funds we receive. Grant amounts are recognized in our statements of operations and comprehensive income as follows:

Government subsidies relating to current expenses are reflected
●Government subsidies relating to current expenses are recorded as reductions of those expenses in the periods in which the current expenses are recorded. For the three months ended March 31, 2021 and 2020, related government subsidies recognized as reductions of relevant expenses in the consolidated statements of operations and comprehensive income were $1.9 million and $0.2 million, respectively.
●Government subsidies related to depreciable assets are credited to income over the useful lives of the related assets for which the grant was received. For the three months ended March 31, 2021 and 2020, related government subsidies recognized as other income in the consolidated statements of operations and comprehensive income were $39,000, and $37,000, respectively.

Unearned government subsidies received are deferred for recognition and recorded as other long-term liabilities (see note 13 in the periods in which they are reported. Those reductions totaled $0.7 million and $2.9 millionNotes to Condensed Consolidated Financial Statements included herein under “Item 1. Financial Statements.”) in the first nine monthsbalance sheet until the criteria for such recognition are satisfied.

Net Income Attributable to Non-Controlling Interests and Redeemable Non-Controlling Interests

As described above under “—Recent Developments—STAR Market Listing and IPO”, in 2019, ACM Shanghai sold a total number of shares representing 8.3% of its outstanding ACM Shanghai shares. ACM Research continues to hold the remaining 91.7% of ACM Shanghai’s outstanding shares. During the second quarter of 2020, the redemption feature of the private placement funding terminated and 2019 respectively.the aggregate proceeds of the funding were reclassified from redeemable non-controlling interests to non-controlling interests. As a result, we reflect, as net income attributable to non-controlling interests and redeemable non-controlling interests, the portion of our net income allocable to the minority holders of ACM Shanghai shares.

Government grants used to acquire depreciable assets are transferred from long-term liabilities to property, plant and equipment when the assets are acquired, and the recorded amounts
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Table of the assets are credited to other income over the useful lives of the assets. These credits totaled $110,000 and $111,000 in the first nine months of 2020 and 2019, respectively.Contents

How We Evaluate Our Operations

We present information below with respect to four measures of financial performance:

We define “shipments” of tools to include (a) a “repeat” delivery to a customer of a type of tool that the customer has previously accepted, for which we recognize revenue upon delivery, and (b)a “first-time” delivery of a tool to a customer on an approval basis, for which we may recognize revenue in the future if contractual conditions are met and customer acceptance is received.
We define “adjusted EBITDA” as our net income excluding interest expense (net), income tax benefit (expense), depreciation and amortization, and stock-based compensation. We define adjusted EBITDA to also exclude restructuring costs, although we have not incurred any such costs to date.

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We define “free cash flow” as net cash provided by operating activities less purchases of property and equipment (net of proceeds from disposals) and of intangible assets.
We define “adjusted operating income” as our income from operations excluding stock-based compensation.
●We define “shipments” of tools to include (a) a “repeat” delivery to a customer of a type of tool that the customer has previously accepted, for which we recognize revenue upon delivery, and (b) a “first-time” delivery of a “first tool” to a customer on an approval basis, for which we may recognize revenue in the future if contractual conditions are met and customer acceptance is received.
●We define “adjusted EBITDA” as our net income excluding interest expense (net), income tax benefit (expense), depreciation and amortization, and stock-based compensation. We define adjusted EBITDA to also exclude restructuring costs, although we have not incurred any such costs to date.
●We define “free cash flow” as net cash provided by operating activities less purchases of property and equipment (net of proceeds from disposals) and of intangible assets.
●We define “adjusted operating income (loss)” as our income (loss) from operations excluding stock-based compensation.

These financial measures are not based on any standardized methodologies prescribed by accounting principles generally accepted in the United States, or GAAP, and are not necessarily comparable to similarly titled measures presented by other companies.

We have presented shipments, adjusted EBITDA, free cash flow and adjusted operating income (loss) because they are key measures used by our management and board of directors to understand and evaluate our operating performance, to establish budgets and to develop operational goals for managing our business. We believe that these financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of the expenses eliminated in calculating adjusted EBITDA and adjusted operating income (loss) can provide useful measures for period-to-period comparisons of our core operating performance and that the exclusion of property and equipment purchases from operating cash flow can provide a usual means to gauge our capability to generate cash. Accordingly, we believe that these financial measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

Shipments, adjusted EBITDA, free cash flow and adjusted operating income (loss) are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP.

Shipments

Shipments consist of two components:

a shipment to a customer of a type of tool that the customer has previously-accepted, for which we recognize revenue when the tool is delivered; and
a shipment to a customer of a type of tool that the customer is receiving and evaluating for the first time, in each case a “first tool,” for which we may recognize revenue at a later date, subject to the customer’s acceptance of the tool upon the tool’s satisfaction of applicable contractual requirements.
●a shipment to a customer of a type of tool that the customer has previously accepted, for which we recognize revenue when the tool is delivered; and
●a shipment to a customer of a type of tool that the customer is receiving and evaluating for the first time, in each case a “first tool,” for which we may recognize revenue at a later date, subject to the customer’s acceptance of the tool upon the tool’s satisfaction of applicable contractual requirements.

“First tool” shipments can be made to either an existing customer that not previously accepted that specific type of tool in the past ─ for example, a delivery of a SAPS V tool to a customer that previously had received only SAPS II tools ─ or to a new customer that has never purchased any tool from us.

Shipments in the three months ended September 30, 2020March 31, 2021 totaled $59$74 million, as compared to $43$12 million in the three months ended September 30, 2019,March 31, 2020, and $45$67 million in the three months ended June 30,December 31, 2020. Shipments in the nine months ended September 30, 2020 totaled $116 million, as compared to $90 million in the corresponding period in 2019.

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The dollar amount attributed to a “first tool” shipment is equal to the consideration we expect to receive if any and all contractual requirements are satisfied and the customer accepts the tool. There are a number of limitations related to the use of shipments in evaluating our business, including that customers have significant discretion in determining whether to accept our tools and their decision not to accept delivered tools is likely to result in our inability to recognize revenue from the delivered tools.

Adjusted EBITDA

There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent. Some of these limitations are:

adjusted EBITDA excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future;
we exclude stock-based compensation expense from adjusted EBITDA and adjusted operating income, although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;
the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;
adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;
adjusted EBITDA does not reflect interest expense, or the requirements necessary to service interest or principal payments on debt;

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adjusted EBITDA does not reflect income tax expense (benefit) or the cash requirements to pay taxes;
adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and
adjusted EBITDA includes expense reductions and non-operating other income attributable to PRC governmental grants, which may mask the effect of underlying developments in net income, including trends in current expenses and interest expense, and free cash flow includes the PRC governmental grants, the amount and timing of which can be difficult to predict and are outside our control.
●adjusted EBITDA excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future;
●we exclude stock-based compensation expense from adjusted EBITDA and adjusted operating income (loss), although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;
●the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;
●adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;
●adjusted EBITDA does not reflect interest expense, or the requirements necessary to service interest or principal payments on debt;
●adjusted EBITDA does not reflect income tax expense (benefit) or the cash requirements to pay taxes;
●adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
●although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and
●adjusted EBITDA includes expense reductions and non-operating other income attributable to PRC governmental grants, which may mask the effect of underlying developments in net income, including trends in current expenses and interest expense, and free cash flow includes the PRC governmental grants, the amount and timing of which can be difficult to predict and are outside our control.

The following table reconciles net income, the most directly comparable GAAP financial measure, to adjusted EBITDA:

 Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2021  2020 
 (in thousands)  (in thousands) 
Adjusted EBITDA Data:            
Net Income $12,479  $15,257  $5,822  $1,963 
Interest expense (income), net  (223)  410   140   (224)
Income tax expense  416   667 
Income tax expense (benefit)  (2,770)  304 
Depreciation and amortization  774   586   546   212 
Stock based compensation  4,323   2,919   1,210   689 
Change in fair value of financial liability  11,964   - 
Unrealized gain on trading securities  (8,970)  - 
Unrealized loss on trading securities  1,047   - 
Adjusted EBITDA $20,763  $19,839  $5,995  $2,944 

Adjusted
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The $3.1 million increase in adjusted EBITDA infor the nine monthsthree-months ended September 30, 2020 increased by $0.9 millionMarch 31, 2021 as compared to the same period in 2019 due to a decrease2020 reflected an increase of $2.8$1.0 million in unrealized loss on trading securities, an increase of $3.9 million in net income, a decrease of $9.0 million from unrealized gain on trading securities, a decrease of $0.6 million in net interest expense, and a decrease of $0.3 million income tax expense, and was offset by an increase of $12.0$0.5 million in non-cash, non-operatingstock-based compensation, and an increase of $0.4 million in interest expense, and an increase of $1.4$0.3 million in stock-based compensation expense. depreciation and amortization, offset by a tax benefit for the three-months ended March 31, 2021 as compared to a tax expense for the same period on 2020.

We do not exclude from adjusted EBITDA expense reductions and non-operating other income attributable to PRC governmental grants because we consider and incorporate the expected amounts and timing of those grants in incurring expenses and capital expenditures. If we did not receive the grants, our cash expenses therefore would be lower, and our cash position would not be materially affected, to the extent we have accurately anticipated the amounts of the grants. For additional information regarding our PRC grants, please see “—Key Components of Results of Operations—PRC Government Research and Development Funding.”

Free Cash Flow

The following table reconciles net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure, to free cash flow:

 Nine Months Ended September 30,  Three Months Ended March 31, 
 2020  2019  2021  2020 
 (in thousands)  (in thousands) 
Free Cash Flow Data:            
Net cash used in operating activities $(8,036) $(4,752)
Net cash provided by operating activities $10,742  $3,829 
Purchase property and equipment  (3,583)  (832)  (1,466)  (118)
Purchase of intangible assets  (81)  (114)  (112)  - 
Purchase of land-use-right  (9,331)  - 
Purchase of trading securities  (14,680)  - 
Free cash flow $(35,711) $(5,698) $9,164  $3,711 

FreeThe $5.5 million increase in free cash flow declined by $30.0 million infor the nine monthsthree-months ended September 30, 2020,March 31, 2021 as compared to the same period in 2019, primarily due to (a) investments in ACM Shanghai’s development and production center in2020 reflected the Lingang region of Shanghai, (b) purchase of long-term investments in Qingdao Fortune-Tech Xinxing Capital Partnership (L.P.), a Chinese limited partnership based in Shanghai which participated in the Star Market IPO of Semiconductor Manufacturing International Corporation, or SMIC, in which ACM Shanghai is a limited partner, (c) factors driving net cash provided by operating activities, (an increaseincluding increases in advances from customers, accounts payable, other long-term liabilitiespayables and accrued expenses and net income, partly offset by increases in inventory, accounts receivables, and other liabilities. These were partly offset by an increase in accounts receivable and other receivables), and (d) increasedof purchases of property and equipment.equipment and intangible assets.  Consistent with our methodology for calculating adjusted EBITDA, we do not adjust free cash flow for the effects of PRC government subsidies, because we take those subsidies into account in incurring expenses and capital expenditures.

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Adjusted Operating Income

Adjusted operating income excludes stock-based compensation.compensation from income from operations. Although stock-based compensation is an important aspect of the compensation of our employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. The use of non-GAAP financial measures excluding stock-based compensation has limitations, however. If we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher and our cash holdings would be less. The following table reflectstables reflect the exclusion of stock-based compensation, or SBC, from line items comprising income from operations:

` Nine Months Ended September 30, 
  2020  2019 
  
Actual
(GAAP)
  SBC  
Adjusted
(Non-
GAAP)
  
Actual
(GAAP)
  SBC  
Adjusted
(Non-GAAP)
 
  (in thousands) 
Revenue $111,062  $-  $111,062  $82,916  $-  $82,916 
Cost of revenue  (61,137)  (132)  (61,005)  (44,705)  (213)  (44,492)
Gross profit  49,925   (132)  50,057   38,211   (213)  38,424 
Operating expenses:                        
Sales and marketing  (11,524)  (495)  (11,029)  (8,679)  (252)  (8,427)
Research and development  (13,241)  (568)  (12,673)  (9,598)  (939)  (8,659)
General and administrative  (9,100)  (3,128)  (5,972)  (5,992)  (1,515)  (4,477)
Income from operations  16,060   (4,323)  20,383   13,942   (2,919)  16,861 
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 Three Months Ended March 31, 
  2021  2020 
  
Actual
(GAAP)
  SBC  
Adjusted
(Non-GAAP)
  
Actual
(GAAP)
  SBC  
Adjusted
(Non-GAAP)
 
  (in thousands) 
Revenue $43,732  $-  $43,732  $24,348  $-  $24,348 
Cost of revenue  (25,687)  (71)  (25,616)  (14,120)  (45)  (14,075)
Gross profit  18,045   (71)  18,116   10,228   (45)  10,273 
Operating expenses:                        
Sales and marketing  (5,308)  (505)  (4,803)  (3,005)  (94)  (2,911)
Research and development  (5,504)  (229)  (5,275)  (3,677)  (187)  (3,490)
General and administrative  (3,783)  (405)  (3,378)  (2,328)  (363)  (1,965)
Income from operations  3,450   (1,210)  4,660   1,218   (689)  1,907 

Adjusted operating income for the ninethree months ended on September 30, 2020March 31, 2021 increased by $3.5$2.7 million, as compared with the same period in 2019,2020, due to a $2.1$2.2 million increase in income from operations, and a $1.4$0.5 million increase in stock-based compensation expense.

Critical Accounting Policies and Significant Judgments and Estimates

There were no significant changes in our critical accounting policies or significant judgments or estimates during the ninethree months ended September 30, 2020March 31, 2021 to augment the critical accounting estimates disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report, other than those described in the notes to the condensed consolidated financial statements included in this report, including the adoption of the Financial Accounting Standards Board’s Accounting Standards Update 2019-12, 2018-13, Fair Value MeasurementIncome Taxes (Topic 820)740): Simplifying the Accounting for Income Taxes and 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting effective January 1, 2020.2021. For information regarding the impact of recently adopted accounting standards, refer to note 2 to the condensed consolidated financial statements included in this report.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in our Annual Report and is updated in note 2 to the condensed consolidated financial statements included in this report.

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Results of Operations

The following table sets forth our results of operations for the periods presented, as percentages of revenue:revenue.

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2020  2019  2020  2019 
Revenue  100.0%  100.0%  100.0%  100.0%
Cost of revenue  57.3   51.4   55.0   53.9 
Gross margin  42.7   48.6   45.0   46.1 
Operating expenses:                
Sales and marketing  8.2   11.6   10.4   10.5 
Research and development  9.1   10.4   11.9   11.6 
General and administrative  9.6   5.5   8.2   7.2 
Total operating expenses, net  26.9   27.6   30.5   29.3 
Income from operations  15.8   21.0   14.5   16.8 
Interest income (expense), net  (0.2)  (0.3)  0.2   (0.5)
Change in fair value of financial liability  (13.7)  -   (10.8)  - 
Unrealized gain on trading securities  18.8   -   8.1   - 
Other income (expense), net  (3.7)  5.5   (0.8)  2.6 
Equity income (loss) in net income (loss) of affiliates  0.4   (0.0)  0.5   0.3 
Income before income taxes  17.4   26.2   11.6   19.2 
Income tax benefit (expense)  3.7   1.0   (0.4)  (0.8)
Net income  21.1   27.2   11.3   18.4 
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests  2.9   0.9   2.0   0.4 
Net income attributable to ACM Research, Inc.  18.2%  26.3%  9.3%  18.0%
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 Three Months Ended March 31, 
  2021  2020 
Revenue  100.0%  100.0%
Cost of revenue  58.7   58.0 
Gross margin  41.3   42.0 
Operating expenses:        
Sales and marketing  12.1   12.3 
Research and development  12.6   15.1 
General and administrative  8.7   9.6 
Total operating expenses, net  33.4   37.0 
Income from operations  7.9   5.0 
Interest income (expense), net  (0.3)  0.9 
Unrealized loss on trading securities  (2.4)  - 
Other income (expense), net  1.1   2.8 
Equity income in net income of affiliates  0.7   0.6 
Income before income taxes  7.0   9.3 
Income tax benefit (expense)  6.3   (1.2)
Net income  13.3   8.1 
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests  0.8   1.1 
Net income attributable to ACM Research, Inc.  12.5%  7.0%

Comparison of Three Months Ended September 30,March 31, 2021 and 2020 and 2019

Revenue

` Three Months Ended March 31,    
 Three Months Ended September 30,     2021  2020  % Change 
Single Wafer Cleaning, Tahoe and Semi-Critical Cleaning Equipment  32,413   22,784   42.3%
ECP (front-end and packaging), Furnace and Other Technologies  5,550   -  NM 
Advanced Packaging (excluding ECP), Services & Spares  5,769   1,564   268.9%
Total Revenue By Product Category  43,732   24,348   79.6%
 2020  2019  
% Change
2020 v 2019
             
` (in thousands)    
Revenue $47,665  $33,427   42.6%
Wet cleaning and other front-end processing tools  31,900   22,784   40.0%
Advanced packaging, other back-end processing tools, services and spares  11,832   1,564   656.7%
Total Revenue Front-end and Back-End  43,732   24,348   79.6%

The increase in revenue of $14.2Revenue increased by $19.4 million in the three months ended September 30, 2020March 31, 2021 as compared to the same period in 2019 consisted of an2020.  The increase was due to a $10.3 million increase in revenue of $10.0from advanced packaging and other back-end processing tools, services and spares, and a $9.6 million increase in revenue from single-waferwet cleaning and other front-end processing equipment and an increase in revenue of $4.2 million from back-end wafer assembly and packaging equipment and spares.tools.

Cost of Revenue and Gross Margin

 Three Months Ended September 30,     Three Months Ended March 31,    
 2020  2019  
% Change
2020 v 2019
  2021  2020  
% Change
2021 v 2020
 
 (in thousands)     (in thousands)    
Cost of revenue $27,324  $17,173   59.1% $25,687  $14,120   81.9%
Gross profit  20,341   16,254   25.1%  18,045   10,228   76.4%
Gross margin  42.67%  48.63%  -6.0   41.3%  42.0%  -0.7 

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Cost of revenue increased $10.2$11.6 million and gross profit increased $4.1$7.8 million in the three months ended September 30, 2020March 31, 2021 as compared to the corresponding period in 20192020 due to the increased sales volume, partly offset by a 6.0%0.7% point decrease in gross margin, whichthat reflected differences in product mix.

Gross margin may vary from period to period, primarily related to the level of utilization and the timing and mix of purchase orders. We expect gross margin to be between 40.0% and 45.0% for the foreseeable future, with direct manufacturing costs approximating 50.0% to 55.0% of revenue and overhead costs totaling 5.0% of revenue.

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Operating Expenses

 Three Months Ended September 30,     Three Months Ended March 31,   
 2020  2019  
% Change
2020 v 2019
  2021  2020  
% Change
2021 v 2020
 
 (in thousands)     (in thousands)    
Sales and marketing expense $3,924  $3,886   1.0% $5,308  $3,005   76.6%
Research and development expense  4,343   3,492   24.4%  5,504   3,677   49.7%
General and administrative expense  4,568   1,846   147.5%  3,783   2,328   62.5%
Total operating expenses $12,835  $9,224   39.1% $14,595  $9,010   62.0%

Sales and marketing expense increased by $38,000$2.3 million in the three months ended September 30, 2020March 31, 2021 as compared to the corresponding period in 2019.2020. The increase was due in part to the addition of resources to support sales and marketing efforts in North America and Europe, and other factors.  Sales and marketing expense consists primarily of:

compensation of personnel associated with pre- and after-sale support and other sales and marketing activities, including stock-based compensation;
sales commissions paid to independent sales representatives;
fees paid to sales consultants;
shipping and handling costs for transportation of products to customers;
cost of trade shows;
travel and entertainment; and
allocated overhead for rent and utilities.

Research and development expense increased by $851,000$1.8 million in the three months ended September 30, 2020March 31, 2021 as compared to the corresponding period in 2019,2020, principally as a result of increases in new product development, testing fees and personnel costs. Research and development expense represented 9.1%12.6% and 10.4%15.1% of our revenue in the three months ended September 30,March 31, 2021 and 2020, and 2019, respectively. Without reduction by grant amounts received from PRC governmental authorities (see “—Government Research and Development Funding”), gross research and development expense totaled $4.7$7.4 million, or 13.1%17.1% of total revenue, in the three months ended September 30, 2020March 31, 2021 and $4.4$3.7 million, or 13.1%15.9% of revenue, in the corresponding period in 2019.2020. Research and development expense relates to the development of new products and processes and encompasses our research, development and customer support activities. Research and development expense consists primarily of:

compensation of personnel associated with our research and development activities, including stock based compensation;
costs of components and other research and development supplies;
travel expense associated with customer support;
amortization of costs of software used for research and development purposes; and
allocated overhead for rent and utilities.

General and administrative expense increased $2.7$1.5 million in the three months ended September 30, 2020March 31, 2021 as compared to the corresponding period in 2019.2020. General and administrative expense consists primarily of:

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compensation of executive, accounting and finance, human resources, information technology, and other administrative personnel, including stock-based compensation;
professional fees, including accounting and corporate legal and defense fees;
other corporate expenses;expenses including insurance; and
allocated overhead for rent and utilities.

We expect that, for the foreseeable future, general and administrative expenses will increase in absolute dollars, as we incur additional costs associated with growing our business and operating as a public company in the United States and the PRC.

Unrealized loss from trading securities

We recorded an unrealized loss of $1.0 million for the three months ended March 31, 2021 based on a change in market value of ACM Shanghai’s indirect investment in SMIC shares on the STAR Market as is described in note 15 to the condensed consolidated financial statements included in this report.

 Three months ended March 31, 
  2021  2020 
  (in thousands) 
Unrealized loss on trading securities $(1,047) $- 

Other Income and Expenses

  Three Months Ended September 30,    
  2020  2019  
% Change
2020 v 2019
 
  (in thousands)    
Interest Income $179  $95   88.4%
Interest Expense  (272)  (205)  32.7%
Interest Income (expense), net $(93) $(110)  -15.5%
             
Other income (expense), net $(1,759) $1,850   -195.1%

 Three Months Ended March 31,    
  2021  2020  
% Change
2021 v 2020
 
  (in thousands)    
Interest Income $49  $335   -85.4%
Interest Expense  (189)  (111)  70.3%
Interest Income (expense), net $(140) $224   -162.5%
             
Other income, net $469  $677   -30.7%

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Interest income consists of interest earned on our cash and equivalents and restricted cash accounts, offset by interest expense incurred from outstanding short-term borrowings. We incurred $93,000$140,000 of interest expense, net in the three months ended September 30, 2020March 31, 2021 as compared to $110,000$224,000 of net interest expense, netincome in the corresponding period in 2019.2020.  This was a result of a largerlower balance of cash and equivalents and lower interest rates on these balances, offset by increased borrowings under short-term bank loans.

Other income, net primarily reflects (a) gains or losses recognized from the impact of exchange rates on our foreign currency-denominated working-capital transactions and (b) depreciation of assets acquired with government subsidies, as described under “—Government Research and Development Funding” above. Other income (expense), declined by $3.6 million$208,000 in the three months ended September 30, 2020March 31, 2021 as compared to Other income (expense) in the corresponding period in 2019,2020, due primarily to a realized lossesgain of $2.5 million$411,000 resulting from changes in the RMB-to-U.S. dollar exchange rate, compared to a realized gain of $1.8 million$575,000 in the prior year period, which was partly offset by higher other income related to PRC funding in the three months ended September 30, 2020 compared to the prior year period.

Change in fair value of financial liability

We recognized a change in fair value of financial liability of $6.5 million for the three months ended September 30, 2020, which was charged to the condensed consolidated statement of operations, as described in note 12 to the condensed consolidated financial statements included in this report,

Unrealized gain from trading securities

We recorded an unrealized gain of $9.0 million for the three months ended September 30, 2020 based on the change in market value of ACM Shanghai’s indirect investment in SMIC shares on the STAR Market as is described in note 11 to the condensed consolidated financial statements included in this report.

Income Tax ExpenseBenefit (Expense)

The following presents components of income tax expensebenefit (expense) for the indicated periods:

  Three Months Ended September 30, 
  2020  2019 
  (in thousands) 
Total  income tax benefit (expense) $1,747  $328 
 Three Months Ended March 31, 
  2021  2020 
  (in thousands) 
Total income tax benefit (expense) $2,770  $(304)

We recognized a tax benefit of $2.8 million for the three months ended March 31, 2021 as compared to a tax expense of $0.3 million for prior year period.    The benefit in 2021 primarily resulted from tax deductions related to the exercise of stock options during the period, as compared to smaller  deductions for the same item in the prior year period.

Our effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 15% to 25% for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the value of client equity securities received for services and the treatment of stock-based compensation.compensation including the impact from stock option exercises and non-US research expenses. Our two PRC subsidiaries, ACM Shanghai and ACM Wuxi, are liable for PRC corporate income taxes at the rates of 15% and 25%, respectively. Pursuant to the Corporate Income Tax Law of the PRC, our PRC subsidiaries generally would be liable for PRC corporate income taxes as a rate of 25%. According to Guoshuihan 2009 No. 203, an entity certified as an “advanced and new technology enterprise” is entitled to a preferential income tax rate of 15%. ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016 and 2018, with an effective period of three years.

We file income tax returns in the United States and state and foreign jurisdictions. Those federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for 2009 through 2016.2020. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state or foreign tax authorities to the extent utilized in a future period.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020. It contains several provisions that may have financial statement effects. Key Aspects of the CARES Act include the following:

repealed the 80% taxable income limitation for 2018, 2019 and 2020, and allows those years to be carried back up to five years;
allows corporations to claim 100% of AMT credits in 2019, and provides for an election to take the entire refundable credit amount in 2018;
raised the Section 163(j) ATI limit from 30% to 50% for businesses; and
made technical corrections to TCJA for Qualified Improvement Property (“QIP”) and designates QIP as 15-year property for depreciation purposes, which makes QIP a category eligible for 100% bonus depreciation.

The CARES Act ishas not expected havehad a material impact on income taxes in the Company’s consolidated financial statements.

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Net Income Attributable to Non-Controlling Interests and Redeemable Non-Controlling Interests

  Three Months Ended September 30,    
  2020  2019  
% Change
2020 v 2019
 
  (in thousands)    
Net income attributable to non-controlling interests $1,393  $307   353.7%
 Three Months Ended March 31,    
  2021  2020  
% Change
2021 v 2020
 
  (in thousands)    
Net income attributable to non-controlling interests $352  $258   36.4%

As described above under “—STAR Market Listing and IPO,” in 2019, ACM Shanghai sold a total number of shares representing 8.3% of its outstanding ACM Shanghai shares. ACM Research continues to hold the remaining 91.7% of ACM Shanghai’s outstanding shares. As a result, commencing with the three months ended September 30, 2019, we reflect, as net income attributable to non-controlling interests and redeemable non-controlling interests, the portion of our net income allocable to the minority holders of ACM Shanghai shares. In the three months ended September 30, 2020,March 31, 2021, this amount totaled $1.4 million$352,000 as compared to $0.3 million$258,000 in the corresponding period in 2019.

Comparison of Nine Months Ended September 30, 2020 and 2019

Revenue
  Nine Months Ended September 30,    
  2020  2019  
% Change
2020 v 2019
 
  (in thousands)    
Revenue $111,062  $82,916   33.9%

The increase in revenue of $28.1 million in the nine months ended September 30, 2020 as compared to the same period in 2019 reflected increases in revenue of $28.9 million from single-wafer cleaning and other front-end processing equipment, offset by a decrease in revenue of $0.8 million from back-end wafer assembly and packaging equipment and spares.

Cost of Revenue and Gross Margin

  Nine Months Ended September 30,    
  2020  2019  
% Change
2020 v 2019
 
  (in thousands)    
Cost of revenue $61,137  $44,705   36.8%
Gross profit  49,925   38,211   30.7%
Gross margin  44.95%  46.08%  -1.1 

Cost of revenue increased $16.4 million and gross profit increased $11.7 million in the nine months ended September 30, 2020, as compared to the corresponding period in 2019, due to increased sales volume and higher gross margin. Gross margin decreased by 1.1 percentage points during the nine months ended September 30, 2020, as compared to the comparable period in 2019 due to differences in product mix.

Gross margin may vary from period to period, primarily related to the level of utilization and the timing and mix of purchase orders. We expect gross margin to be between 40.0% and 45.0% for the foreseeable future, with direct manufacturing costs approximating 50.0% to 55.0% of revenue and overhead costs totaling 5.0% of revenue.

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Operating Expenses

  Nine Months Ended September 30,    
  2020  2019  
% Change
2020 v 2019
 
  (in thousands)    
Sales and marketing expense $11,524  $8,679   32.8%
Research and development expense  13,241   9,598   38.0%
General and administrative expense  9,100   5,992   51.9%
Total operating expenses $33,865  $24,269   39.5%

Sales and marketing expense increased by $2.8 million in the nine months ended September 30, 2020, as compared to the corresponding period in 2019. Sales and marketing expense consists primarily of:

compensation of personnel associated with pre and aftersales support and other sales and marketing activities, including stock-based compensation;
sales commissions paid to independent sales representatives;
fees paid to sales consultants;
shipping and handling costs for transportation of products to customers;
cost of trade shows;
travel and entertainment; and
allocated overhead for rent and utilities.

Research and development expense increased by $3.6 million in the nine months ended September 30, 2020 as compared to the corresponding period in 2019, principally as a result of increases in testing fees and personnel costs. Research and development expense represented 11.9% and 11.6% of our revenue in the nine months ended September 30, 2020 and 2019, respectively. Without reduction by grant amounts received from PRC governmental authorities (see “—Government Research and Development Funding”), gross research and development expense totaled $13.9 million, or 12.5% of revenue, in the nine months ended September 30, 2020 and $12.5 million, or 15.1% of revenue, in the corresponding period in 2019. Research and development expense relates to the development of new products and processes and encompasses our research, development and customer support activities. Research and development expense consists primarily of:

compensation of personnel associated with our research and development activities, including stock based compensation;
costs of components and other research and development supplies;
travel expense associated with customer support;
amortization of costs of software used for research and development purposes; and
allocated overhead for rent and utilities.

General and administrative expense increased by $3.1 million in the nine months ended September 30, 2020 as compared to the corresponding period in 2019. General and administrative expense consists primarily of:

compensation of executive, accounting and finance, human resources, information technology, and other administrative personnel, including stock-based compensation;
professional fees, including accounting and legal fees;
other corporate expenses; and
allocated overhead for rent and utilities.

We expect that, for the foreseeable future, general and administrative expenses will increase in absolute dollars, as we incur additional costs associated with growing our business and operating as a public company in the United States and the PRC.

Other Income and Expenses

  Nine Months Ended September 30,    
  2020  2019  
% Change
2020 v 2019
 
  (in thousands)    
Interest Income $834  $128   551.6%
Interest Expense  (611)  (538)  13.6%
Interest Income (expense), net $223  $(410)  -154.4%
             
Other income (expense), net $(933) $2,132   -143.8%

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Interest income consists of interest earned on our cash and equivalents and restricted cash accounts, offset by interest expense incurred from outstanding short-term borrowings. We earned $223,000 of interest income, net in the nine months ended September 30, 2020 as compared to incurring ($410,000) of interest expense, net in the corresponding period in 2019. This was a result of a larger balance of cash and equivalents and restricted cash partly offset by  increased borrowings under short-term bank loans.

Other income, net primarily reflects (a) gains or losses recognized from the impact of exchange rates on our foreign currency-denominated working-capital transactions and (b) depreciation of assets acquired with government subsidies, as described under “—Government Research and Development Funding” above. Other income (expense), declined by $3.1 million in the nine months ended September 30, 2020 as compared to Other income (expense) in the corresponding period in 2019, due primarily to realized losses of $2.0 million resulting from changes in the RMB-to-U.S. dollar exchange rate, compared to a gain of $2.3 million in the prior year period.  This was partly offset by higher other income related to PRC funding in the nine months ended September 30, 2020 compared to the prior year period.

Change in fair value of financial liability

We recognized a change in fair value of financial liability of $12.0 million for the nine months ended September 30, 2020, which was charged to the condensed consolidated statement of operations, as described in note 12 to the condensed consolidated financial statements included in this report.

Unrealized gain from trading securities

We recorded an unrealized gain of $9.0 million for the nine months ended September 30, 2020 based on the change in market value of ACM Shanghai’s indirect investment in SMIC shares on the STAR Market as is described in note 11 to the condensed consolidated financial statements included in this report.

Income Tax Expense

The following presents components of income tax expense for the indicated periods:

  Nine Months Ended September 30, 
  2020  2019 
  (in thousands)    
Total  income tax expense $(416) $(667)

Our effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 15% to 25% for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the value of client equity securities received for services and the treatment of stock-based compensation. Our two PRC subsidiaries, ACM Shanghai and ACM Wuxi, are liable for PRC corporate income taxes at the rates of 15% and 25%, respectively. Pursuant to the Corporate Income Tax Law of the PRC, our PRC subsidiaries generally would be liable for PRC corporate income taxes as a rate of 25%. According to Guoshuihan 2009 No. 203, an entity certified as an “advanced and new technology enterprise” is entitled to a preferential income tax rate of 15%. ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016 and 2018, with an effective period of three years.

We file income tax returns in the United States and state and foreign jurisdictions. Those federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for 2009 through 2016. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state or foreign tax authorities to the extent utilized in a future period.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020. It contains several provisions that may have financial statement effects. Key Aspects of the CARES Act include the following:

repealed the 80% taxable income limitation for 2018, 2019 and 2020, and also allows those years to be carried back up to five years;
allows corporations to claim 100% of AMT credits in 2019, and also provides for an election to take the entire refundable credit amount in 2018;
raises Section 163(j) ATI limit from 30% to 50% for businesses; and
makes technical corrections to TCJA for Qualified Improvement Property (“QIP”), and designates QIP as 15-year property for depreciation purposes, which makes QIP a category eligible for 100% bonus depreciation.

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The CARES Act is not expected have a material impact on income taxes in the Company’s consolidated financial statements.

Net Income Attributable to Non-Controlling Interests and Redeemable Non-Controlling Interests

  Nine Months Ended September 30,    
  2020  2019  
% Change
2020 v 2019
 
  (in thousands)    
Net income attributable to non-controlling interests $2,228  $307   625.7%

As described above under “—STAR Market Listing and IPO,” in 2019 ACM Shanghai sold 8.3% of its shares to private placement investors in connection with the STAR Listing. ACM Research continues to hold the remaining 91.7% of ACM Shanghai’s outstanding shares. As a result, commencing with the nine months ended September 30, 2019, we have reflected, as net income attributable to non-controlling interests and redeemable non-controlling interests, the portion of our net income allocable to the minority holders of ACM Shanghai shares. In the nine months ended September 30, 2020, this amount totaled $2.3 million, as compared to $0.3 million for the prior year period.

Liquidity and Capital Resources

During the first ninethree months of 2020,2021, we funded our technology development and operations principally through our beginning cash balance including application of net proceeds from our initial public offering and follow-on public offering of Class A common stock in 2017 and 2019, respectively, and net proceeds from our private equity raises and short-term borrowings by ACM Shanghai from local financial institutions.

We believe our existing cash and cash equivalents, our cash flow from operating activities, and short-term bank borrowings by ACM Shanghai will be sufficient to meet our anticipated cash needs for at least the next twelve months. We do not expect that our anticipated cash needs for the next twelve months will require our receipt of any PRC government subsidies. Our future working capital needs will depend on many factors, including the rate of our business and revenue growth, the payment schedules of our customers, and the timing of investment in our research and development as well as sales and marketing. To the extent our cash and cash equivalents, cash flow from operating activities and short-term bank borrowings are insufficient to fund our future activities in accordance with our strategic plan, we may determine to raise additional funds through public or private debt or equity financings or additional bank credit arrangements. We also may need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies and products. If additional funding is necessary or desirable, we may not be able to obtain bank credit arrangements or to affect an equity or debt financing on terms acceptable to us or at all.

In 2020 ACM Shanghai, through its wholly owned subsidiary Shengwei Research (Shanghai), Inc., entered into a Grant Contract for State-owned Construction Land Use Right in Shanghai City (Category of R&D Headquarters and Industrial Projects), or the Grant Agreement, with the China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration. Shengwei Research (Shanghai), Inc.  obtained rights to use approximately 43,000 square meters (10.6 acres) of land in the Lingang Heavy Equipment Industrial Zone of Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone for a period of fifty years, commencing on the date of delivery of the land in July 2020, which we refer to as the Delivery Date.

In exchange for its land use rights, Shengwei Research (Shanghai), Inc. paid aggregate grant fees of RMB 61.7 million ($9.5 million), and a performance deposit of RMB 12.3 million ($1.9 million), which is equal to 20% of the aggregate grant fees, to secure its achievement of the following performance milestones:

the start of construction within 6 months after the Delivery Date (60% of the performance deposit);
the completion of construction within 30 months after the Delivery Date (20% of the performance deposit); and
the start of production within 42 months after the Delivery Date (20% of the performance deposit.

Upon satisfaction of a milestone, the portion of the performance deposit attributable to that milestone will be repayable to Shengwei Research (Shanghai), Inc. within ten business days. If the achievement of any of the above milestones is delayed or abandoned, Shengwei Research (Shanghai), Inc. may be subject to additional penalties and may lose its rights to both the use of the granted land and any partially completed facilities on that land.

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Covenants in the Grant Agreement require that, among other things, Shengwei Research (Shanghai), Inc. will be required to pay liquidated damages in the event that (a) it does not make a total investment  (including the costs of construction, fixtures, equipment and grant fees) of at least RMB 450.0 million ($63.4 million) or (b) within six years after the Delivery Date, we do not (i) generate a minimum specified amount of annual sales of products manufactured on the granted land or (ii) pay to the PRC at least RMB 157.6 million ($22.2 million) in annual total taxes (including value-added taxes, corporate income tax, personal income taxes, urban maintenance and construction taxes, education surcharges, stamp taxes, and vehicle and shipping taxes) as a result of operations in connection with the granted land.

Sources of Funds

Cash Flow from Operating Activities. Our operations usedprovided cash flow of $8.0$10.7 million in the first ninethree months of 2020.2021. Our cash flow from operating activities is influenced by (a) the level of net income, (b) the amount of cash we invest in personnel and technology development to support anticipated future growth in our business, (c) increases in the number of customers using our products, and (d) the amount and timing of payments by customers.

Equity and Equity-related Securities. During the ninethree months ended September 30, 2020,March 31, 2021, we received proceeds of $2.2$1.4 million from sales of Class A common stock pursuant to option exercises.

Release of Voluntarily Restricted Proceeds. During the nine months ended September 30, 2020, we released the restrictions on $58.8 million of the cash proceeds received from the private placement investors that purchased ACM Shanghai shares in anticipation of the STAR Listing (see “—Recent Developments—STAR Market ListingShort-Term and IPO” above). Previously, due to the investors’ redemption rights, we had voluntarily chosen to hold the proceeds as restricted cash. These redemption rights were removed upon submission of the STAR Listing application.

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Short-TermLong-Term Loan Facilities. We have short-term and long-term borrowings with threefive banks, as follows:

LenderAgreement DateMaturity Date 
Annual
Interest Rate
  
Maximum Borrowing
Amount(1)
  
Amount Outstanding
at September 30, 2020
  Agreement Date Maturity Date 
Annual
Interest Rate
  
Maximum Borrowing
Amount(1)
  
Amount Outstanding
at March 31, 2021
 
     (in thousands) 
Bank of China Pudong BranchJune 2020December 2020  4.35% RMB30,000  RMB17,000 
      $4,404  $2,496      (in thousands) 
Bank of Shanghai Pudong BranchApril 2020May 2021 - June 2021  3.48%-4.68% RMB70,000  RMB65,296 April 2020
May 2021 -
June 2021
  3.48%-4.68% RMB70,000  RMB54,911 
      $10,276  $9,585       $10,654  $8,357 
Bank of CommunicationsApril 2020April 2021 - May 2021  3.65%-4.65% RMB20,000  RMB20,000 April 2020
April 2021 -
May 2021
  3.65%-4.65% RMB20,000  RMB20,000 
      $2,936  $2,936       $3,044  $3,044 
China Everbright BankApril 2020April 2021 - June 2021  2.7%-4.7% RMB80,000  RMB58,749 April 2020
April 2021 -
September 2021
  2.5%-4.7% RMB80,000  RMB41,424 
      $11,744  $8,625       $12,176  $6,305 
China Merchants BankAugust 2020August 2021  3.85% RMB80,000  RMB29,000 August 2020August 2021 -February 2022  3.85% RMB80,000  RMB38,000 
      $11,744  $4,257       $12,176  $5,784 
China Merchants BankNovember 2020Repayable by installments and the last installments repayable in November 2030  4.65% RMB128,500  RMB125,108 
      $19,558  $19,042 
Industrial Bank of KoreaJuly 2020July 2021  3.99% KRW500,000  KRW500,000 July 2020July 2021  3.99% KRW500,000  NIL 
      $428  $428       $428   - 
      $41,532  $28,327       $58,036  $42,532 

(1)Converted from RMB to dollars as of September 30, 2020.March 31, 2021. All of the amounts owing under the line of credit with China Everbright Bank and Bank of China Pudong Branch are guaranteed by Dr. David Wang, our Chief Executive Officer, President and Chair of the Board. All of the amounts owing under the line of credit with Bank of Shanghai Pudong Branch are guaranteed by Dr. Wang and CleanChip Technologies LTD, a wholly owned subsidiary of ACM Shanghai. All of the amounts owing under the line of credit with Industrial Bank of Korea are guaranteed by YY Kim, CEOChief Executive Officer of ACM Research (Korea).

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Government Research and Development Grants. As described under “Government“—Key Components of Results of Operations—PRC Government Research and Development Funding,” ACM Shanghai has received research and development grants from local and central PRC governmental authorities. ACM Shanghai received cash payments of $2.9 million$584,000 related to such grants received in the ninefirst three months ended September 30, 2020,of 2021, as compared to received cash payments of $1.5$1.9 million related to such grants received duringin the same period in 2019.of 2020. Not all grant amounts are received in the year in which a grant is awarded. Because of the nature and terms of the grants, the amounts and timing of payments under the grants are difficult to predict and vary from period to period. In addition, we expect to apply for additional grants when available in the future, but the grant application process can extend for a significant period of time and we cannot predict whether, or when, we will determine to apply for any such grants.

Working Capital. The following table sets forth selected working capital information:

  September 30, 2020 
  (in thousands) 
Cash and cash equivalents $92,203 
Accounts receivable, less allowance for doubtful amounts  59,796 
Inventory  64,182 
Working capital $216,181 
 March 31, 2021 
  (in thousands) 
Total current assets $286,552 
Total current liabilities  128,035 
Working capital $158,517 

Our cash and cash equivalents at September 30, 2020March 31, 2021 were unrestricted and held for working capital purposes. ACM Shanghai, our only direct PRC subsidiary, is, however, subject to PRC restrictions on distributions to equity holders. We currently intend for ACM Shanghai to retain all available funds any future earnings for use in the operation of its business and do not anticipate its paying any cash dividends. We have not entered into, and do not expect to enter into, investments for trading or speculative purposes. Our accounts receivable balance fluctuates from period to period, which affects our cash flow from operating activities. Fluctuations vary depending on cash collections, client mix, and the timing of shipment and acceptance of our tools.

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings to support the operation of and to finance the growth and development of our business and do not anticipate paying any cash dividends in the foreseeable future.

Uses of Funds

Capital Expenditures. We incurred $3.7$1.6 million in capital expenditures during the three months ended March 31, 2021, versus $0.1 in the first nine months of 2020, compared to $0.9 million duringcapital expenditures in the same period in 2019.

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Trading Securities. ACM Shanghai made an indirect investment of $14.7 million in SMIC shares on the STAR Market through ACM Shanghai’s investment in Qingdao Limited Partnership Fund, during the first nine months of 2020, as is described in note 11 to the condensed consolidated financial statements included in this report.

Lingang-Related Investments.  ACM Shanghai, through its wholly owned subsidiary Shengwei Research (Shanghai), Inc., purchased a land use right for $9.3 million2020. Capital expenditures in the first ninethree months ended March 31, 2021 were incurred principally for the addition of 2020, as described in note 2production capacity and general maintenance and improvements to the condensed financial statements included in this report. ACM Shanghai pre-paid $7.0 million in the first nine months of 2020 for a deposit towards a potential purchase of housing properties which was recorded in other long term assets in the condensed consolidated balance sheets.our global facilities.

Off-Balance Sheet Arrangements

As of September 30, 2020,March 31, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S‑K under the Securities Act of 1933.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of provisions that reduce our reporting and other obligations from those otherwise generally applicable to public companies. We may take advantage of these provisions until December 31, 2020, at which time we will become a “large accelerated filer” for purposes of the SEC’s disclosure requirements as the result of the market value of our capital stock held by non-affiliates exceeding $700 million as of June 30, 2020. We have chosen to take advantage of some of the emerging growth company provisions, and as a result we may not provide stockholders with all of the information that is provided by other public companies. We have, however, irrevocably elected not to avail ourselves, as would have been permitted by Section 107 of the JOBS Act, of the extended transition period provided in Section 7(a)(2)(B)S-K of the Securities Act of 1933 for complying with new or revised accounting standards, and we therefore will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.Exchange Commission.

Item 3.Quantitative and Qualitative Disclosures aboutAbout Market Risks

WeOur market risks and the ways we manage them are a smaller reporting company as defined bysummarized in the section captioned “Part II, Item 10(f)(1)7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes in the first three months of Regulation S-K under the Securities Act2021 to our market risks or to our management of 1933 and as such are not required to provide information under this Item.risks.

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Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, evaluated the effectiveness of our company’s disclosure controls and procedures as of September 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e)pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company inor the reports that it files or submits under the Securities Exchange Act, as of 1934 is recorded, processed, summarizedDecember 31, 2020. The evaluation included certain internal control areas in which we have made and reported, withinare continuing to make changes to improve and enhance controls. In designing and evaluating the time periods specified in the rules and forms of the SEC. Disclosuredisclosure controls and procedures, include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizesrecognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectivesthe desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management necessarily appliesis required to apply its judgment in evaluating the cost-benefit relationshipbenefits of possible controls and procedures. Based onprocedures relative to their costs. The effectiveness of the evaluationdisclosure controls and procedures is also necessarily limited by the staff and other resources available to management and the geographic diversity of our company’s operations. As a result of the COVID-19 pandemic, beginning in 2020 we have faced additional challenges in operating and monitoring our disclosure controls and procedures as a result of September 30, 2020,employees working remotely and management travel being limited. In addition, we face potential heightened cybersecurity risks as our chief executive officerlevel of dependence on our IT networks and chief financial officerrelated systems increases, stemming from employees working remotely, and the number of malware campaigns and phishing attacks preying on the uncertainties surrounding the COVID‑19 pandemic increases.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date,March 31, 2021, our company’s disclosure controls and procedures over financial reporting were effective.effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting and Remediation Efforts

During the three months ended September 30, 2020,There were no changes were identified toin our internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or wereare reasonably likely to materially affect, our internal control over financial reporting. We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting and may from time to time make changes to enhance their effectiveness and ensure that our systems evolve with our business.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Securities Class Action Lawsuit
On December 21, 2020, a putative class action lawsuit against our company and three of our executive officers was filed in the U.S. District Court for the Northern District of California under the caption Kain v. ACM Research, Inc., et al., No. 3:20-cv-09241, which we refer to as the Securities Class Action. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks monetary damages in an unspecified amount as well as costs and expenses incurred in the litigation.  On April 15, 2021, the court appointed Mr. Kain as lead plaintiff, finding that no better suited candidates emerged during the statutory sixty-day period following public notice of the lawsuit .  Our management believes the claims are without merit and intend to vigorously defend this litigation.  We are currently unable to predict the outcome of this lawsuit and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

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From time to time we may become involved in other legal proceedings or may be subject to claims arising in the ordinary course of our business. Although the results of litigationthese proceedings and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

There have been no material developments with regard to legal proceedings in the nine months ended September 30, 2020 or in the subsequent period up to the date of this report.

ItemITEM 1A.Risk FactorsRISK FACTORS

Except as set forth below, and Item 1A, “Risk Factors” of Part II in our Quarterly Report for the quarterly period ended June 30, 2020, there were no material changes to the risk factors discussed in Item 1A, “Risk Factors” of Part I in our Annual Report. In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition and future operating results. Those risk factors are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and operating results.

Short sellersWe could be adversely affected if proposed legislation is adopted regarding improved access to audit and other information and audit inspections of accounting firms, including registered public accounting firms operating in the PRC such as our stockauditor, or if Nasdaq’s proposals requiring additional criteria to companies operating in “restrictive markets” become effective.

BDO China, our independent registered public accounting firm, is not inspected by the U.S. Public Company Accounting Oversight Board, or PCAOB, as described in “Item 1A. Risk Factors—Regulatory Risks—Our auditor, as a registered public accounting firm operating in the PRC, is not permitted to be inspected by the Public Company Accounting Oversight Board, and consequently investors may be manipulative and may drive downdeprived of the market pricebenefits of such inspections.” in our Class A common stock.Annual Report. We are one of 283 companies named in PCAOB’s list of “Public Companies that are Audit Clients of PCAOB-Registered Firms from Non-U.S. Jurisdictions where the PCAOB is Denied Access to Conduct Inspections.”

Short selling isOn March 24, 2021, the practice of selling securities that a seller does not own but rather has borrowed,U.S. Securities and Exchange Commission, or intendsSEC, adopted interim final amendments to borrow, from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securitiesimplement congressionally mandated submission and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the securities short. The use of the Internet, social media, and blogging have allowed short sellers to publicly attack a company’s credibility, strategy and veracity by means of so-called “research reports” that mimic the type of investment analysis performed by legitimate securities research analysts. Issuers with limited trading volumes or substantial retail stockholder bases can be particularly susceptible to higher volatility levels, and can be particularly vulnerable to such short attacks.

Short seller publications are not regulated by any governmental or self-regulatory organization or any other official authority in the United States and are not subject to the certification requirements imposed by the SEC in Regulation Analyst Certification. Accordingly, the opinions they express may be based on distortions of actual facts or, in some cases, outright fabrications. In light of the limited risks involved in publishing such information, and the significant profits that can be made from running successful short attacks, short sellers will likely continue to issue such reports.

While we intend to strongly defend our public filings against any such short seller attacks, in many situations we could be constrained, either by principles of freedom of speech, applicable state law or issues of commercial confidentiality, in the manner in which we are able to proceed against the relevant short seller.

Such short-seller attacks have, and may cause in the future, temporary or possibly long term, declines in the market price of Class A common stock.

Our ability to sell our tools to Chinese customers may be restricted by regulatory actions

The Bureau of Industry and Securitydisclosure required of the U.S. DepartmentHolding Foreign Companies Accountable Act. These interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K and other forms with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of Commerce has added,a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and may continueany such identified registrant will be required to add, certain PRC entitiessubmit documentation to the Entity List,SEC establishing that it is not owned or otherwise restrictcontrolled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the exportregistrant’s annual report regarding the audit arrangements of, American technology toand governmental influence on, such a registrant. This action is the PRC. For example,latest in September 2020, certaina series of recent proposed actions:

In December 2018 the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by U.S. suppliersregulators in their oversight of capital equipment to Semiconductor Manufacturing International Corporation, or SMIC, onefinancial statement audits of U.S.-listed reporting companies with significant operations in the PRC.

In June 2019 a bipartisan group of lawmakers introduced bills in both houses of the largest chip manufacturersU.S. Congress that, if passed, would have required the SEC to maintain a list of foreign reporting companies for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges Act, also referred to as the EQUITABLE Act, would have prescribed increased disclosure requirements for these reporting companies and, beginning in 2025, provided for the PRC, received lettersdelisting from U.S. stock exchanges of reporting companies included on the SEC’s list for three consecutive years.

In May 2020 the U.S. Department of Commerce informing them of additional license requirements for shipments toSenate approved a bill entitled the SMIC. The Entity List and other actions“Holding Foreign Companies Accountable Act,” which, if also approved by the U.S. DepartmentHouse of Commerce impose limitationsRepresentatives, would allow the SEC to delist the stocks of foreign companies listed on US exchanges that are audited by firms not allowed to be inspected by the supply of certain U.S. products and services to the affected entities, including a requirement that an export license be obtained in order to export products and services to the listed entities.  Challenges faced by SMIC and its key suppliers could indirectly impact SMIC’s demand for our products.PCAOB.

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In May 2020 Nasdaq requested approval by the SEC of proposals that would impact companies with businesses principally administered in jurisdictions defined as “restrictive markets,” which likely would encompass the PRC. These proposals contemplate, among other things, the application of more stringent listing criteria if a listed company’s auditor does not demonstrate a PCAOB inspection record (as is the case with our auditor), employee expertise and training, or geographic or other resources sufficient to perform the company’s audit satisfactorily. Examples of more stringent criteria that Nasdaq could apply include requiring: (a) higher levels of equity, assets, earnings or liquidity than are otherwise needed; (b) that any public offering to be underwritten on a firm commitment basis (involving more due diligence by the underwriter); and (c) the imposition of lock-up restrictions on directors and officers to allow market mechanisms to determine an appropriate price for shares before the insiders could sell. Alternatively, Nasdaq could deny continued listing to a company.

In April 2020, the SEC and the PCAOB issued a joint statement highlighting the significant disclosure, financial reporting and other risks associated with emerging market investments, including the PCAOB’s continued inability to inspect audit work papers of auditors in the PRC.
We cannot be certain
It remains unclear what additionalthe SEC’s implementation the process related to the March 2021 interim final amendments will entail or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S. government may take with respect tocompanies that have significant operations in the PRC entities, and whetherhave securities listed on a U.S. stock exchange. Any such actions will impact our relationships with our PRC-based customers, including changes to the Entity List restrictions, export regulations, tariffs or other trade restrictions, or whether the Chinese government may take any actions in response to U.S. government action that may adverselycould materially affect our abilityoperations and stock price, including by resulting in our being de-listed from Nasdaq or being required to do business with our PRC-based customers. Even in the absence ofengage a new restrictions, tariffs or trade actions imposed by the U.S. or Chinese government, our PRC-based customers may take actions to reduce dependence on the supply of components subject to potential U.S. trade regulations, including our tools,audit firm, which could have a material adverse effect on our operating results. We are unable to predict the duration of the restrictions imposed by the U.S. government or of any additional governmental actions that may impact our relationships with our PRC-based customers, any of which could have a long-term adverse effect on our business, operating resultswould require significant expense and financial condition.management time.

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

Recent Sales of Unregistered Equity Securities

In the three months ended September 30, 2020,March 31, 2021, we issued, and soldpursuant to employees and consultantsthe exercise of stock options at a per share exercise price of $0.75 per share, an aggregate of 150,162 unregistered109,152 shares of Class A common stock uponthat were not registered under the exerciseSecurities Act of stock options at per share exercise prices between $0.75 and $1.50. These transactions did not involve any underwriters, any underwriting discounts or commissions, or any public offering.1933.  We believe the offers, salesoffer and issuancessale of thesethose shares were exempt from registration under the Securities Act of 1933 by virtue of Section 4(a)(2) thereof (or Regulation D promulgated thereunder) because the issuance of securities to the recipientsthey did not involve a public offeringoffering. The recipients of the shares acquired the securities for investment only and not with a view to or for sale in reliance onconnection with any distribution thereof, and appropriate legends were recorded with respect to the shares. The recipients of the shares were accredited investors under Rule 701 under said Act because the transactions were pursuant to a contract relating to compensation as provided under such rule.501 of Regulation D.

Item 5.Other Information

In the following summary, amounts in Renminbi, or RMB, have been translated into U.S. dollars solely for the convenience of the reader. The translations have been made at the conversion rate of RMB 6.4734 to U.S. $1.00 effective as of May 4, 2021, as published by the PRC’s State Administration of Foreign Exchange.

On February 1, 2021, ACM Shanghai entered into a Plant Lease Contract with Shanghai Shengyu Culture Development Co., Ltd., or the Plant Lease Contract. Pursuant to the Plant Lease Contract, ACM Shanghai is leasing an industrial plant facility of approximately 106,076 square feet located in Shanghai, PRC for the period from February 1, 2021 to January 15, 2023. Under the Plant Lease Contract, ACM Shanghai will pay a monthly rental fee of approximately $69,457, such payment to be made every three months. In accordance with the terms of the Plant Lease Contract, ACM Shanghai will also pay property management fees to the property management company, Shanghai Renlian Real Estate Management Co., Ltd. in the amount of $3,197 per month. ACM Shanghai plans to use the industrial plant facility for semiconductor equipment assembly, storage, and office work purposes.

The foregoing summary of the Plant Lease Contract is qualified in its entirety by reference to the text of the Plant Lease Contract, which is being filed as Exhibit 10.01 to this report and is incorporated in this report by reference.

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Item 6.Exhibits

The following exhibits are being filed as part of this report:

Exhibit
NumberNo.
 Description
4.01‡
 Warrant to Purchase Class A Common Stock issued to Shengxin (Shanghai) Management Consulting Limited Partnership dated July 29, 2020
10.0110.01*+±
 Amendment No.
Plant Lease Contract dated as of February 1, to Share Transfer and Note Cancellation Agreement dated July 29, 2020 between ACM Research, Inc. and Shengxin (Shanghai) Management Consulting Limited Partnership
10.02
Adoption Agreement dated July 29, 2020 between ACM Research, Inc. and Shengxin (Shanghai) Management Consulting Limited Partnership (amending the Second Amended and Restated Registration Rights Agreement between ACM Research, Inc. and certain of its stockholders filed with the SEC on October 18, 2017 as Exhibit 10.09 to Amendment No. 1 to Registration Statement on Form S-1)
10.032021 b‡+
Facilities Agreement dated August 3, 2020 between China Merchants Bank Co., Ltd. Shanghai Branch andetween ACM Research (Shanghai), Inc. and Shanghai Shengyu Culture Development Co., Ltd.
31.01
 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02
 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01*
 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101)

*Unofficial English translation of original document prepared in Mandarin Chinese.
‡ Certain information redacted and replaced with “[***]”.
+ Unofficial English translation of original document prepared in Mandarin Chinese.
*The certifications attached as Exhibit 32.01 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
+Certain annexes have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted exhibit will be furnished to the Securities Exchange Commission or its staff upon request.
±Certain information redacted and replaced with “[***]”.
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SIGNATURESIGNATURES

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.

 ACM RESEARCH, INC.
Date: November 9, 2020May 7, 2021By:/s/ Mark McKechnie 
  Mark McKechnie 
  
Chief Financial Officer, Executive Vice President and Treasurer
(Principal Financial Officer)

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