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 ~~March 31,~~September 30, 2021

☐	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

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		~~NASDAQ Global~~The Nasdaq Stock Market LLC

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 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.

Class	Number of Shares Outstanding
Class A Common Stock, $0.0001 par value	~~17,268,562~~17,811,907 shares outstanding as of ~~May 4,~~November 3, 2021
Class B Common Stock, $0.0001 par value	~~1,714,272~~1,695,938 shares outstanding as of ~~May 4,~~November 3, 2021

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION	4
	Item 1.	Financial Statements (unaudited)	4
		Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2021 and December 31, 2020	4
		Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020	5
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020	6
		Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020	78
		Notes to Condensed Consolidated Financial Statements	89
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2729
	Item 3.	Quantitative and Qualitative Disclosures about Market Risks	4350
	Item 4.	Controls and Procedures	4450
PART II.		OTHER INFORMATION	4451
	Item 1.	Legal Proceedings	4451
	Item 1A.	Risk Factors	4552
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4652
	Item 5.	Other Information	46
	Item 6.	Exhibits	4752
~~Signatures~~Signature			4853

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~~��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.

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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 under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – 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 Equipment, Worldwide, 4Q20 Update” (December 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.

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~~PART I.FINANCIAL INFORMATION~~

PART I.

FINANCIAL INFORMATION

~~Item 1.Financial Statements~~

Item 1.

Financial Statements

ACM RESEARCH, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	78,796	$	71,766	$	65,036	$	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
Trading securities (note 16)						30,219		28,239
Accounts receivable, less allowance for doubtful accounts of $0 as of September 30, 2021 and December 31, 2020 (note 4)						84,787		56,441
Other receivables		11,216		9,679		13,165		9,679
Inventories (note 5)		103,226		88,639		176,609		88,639
Prepaid expenses		5,917		5,892		7,531		5,892
Total current assets		286,552		260,656		377,347		260,656
Property, plant and equipment, net (note 6)		8,772		8,192		10,005		8,192
Land use right, net (note 7)		9,529		9,646		9,556		9,646
Operating lease right-of-use assets, net (note 11)		5,349		4,297		4,599		4,297
Intangible assets, net		602		554		556		554
Deferred tax assets (note 20)		13,908		11,076
Deferred tax assets (note 21)						15,795		11,076
Long-term investments (note 14)		6,632		6,340		7,408		6,340
Other long-term assets (note 8)		40,475		40,496		44,243		40,496
Total assets		371,819		341,257		469,509		341,257
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings (note 9)		23,490		26,147		15,201		26,147
Current portion of long-term borrowings (note 12)		1,598		1,591		2,351		1,591
Accounts payable		44,721		35,603		92,825		35,603
Advances from customers		32,668		17,888		52,681		17,888
Deferred revenue		1,315		1,343		2,403		1,343
Income taxes payable (note 20)		105		31
FIN-48 payable (note 20)		82		83
Income taxes payable (note 21)						1,233		31
FIN-48 payable (note 21)						83		83
Other payables and accrued expenses (note 10)		21,885		18,805		25,950		18,805
Current portion of operating lease liability (note 11)		2,171		1,417		2,480		1,417
Total current liabilities		128,035		102,908		195,207		102,908
Long-term borrowings (note 12)		17,444		17,979		23,080		17,979
Long-term operating lease liability (note 11)		3,178		2,880		2,119		2,880
Deferred tax liability (note 20)		1,276		1,286
Deferred tax liability (note 21)						1,293		1,286
Other long-term liabilities (note 13)		6,639		8,034		5,303		8,034
Total liabilities		156,572		133,087		227,002		133,087
Commitments and contingencies (note 21)		0		0		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
Common stock – Class A, par value $0.0001: 150,000,000 shares authorized as of September 30, 2021 and 50,000,000 shares authorized as of December 31, 2020; 17,798,740 shares issued and outstanding as of September 30, 2021 and 16,896,693 shares issued and outstanding as of December 31, 2020 (note 18)						2		2
Common stock–Class B, par value $0.0001: 5,307,816 shares authorized as of September 30, 2021 and 2,409,738 shares authorized as of December 31, 2020; 1,707,605 shares issued and outstanding as of September 30, 2021 and 1,802,606 shares issued and outstanding as of December 31, 2020 (note 18)						0		0
Additional paid in capital		104,591		102,004		110,776		102,004
Accumulated surplus		39,757		34,287		56,479		34,287
Accumulated other comprehensive income		3,961		4,857		5,759		4,857
Total ACM Research, Inc. stockholders’ equity		148,311		141,150		173,016		141,150
Non-controlling interests		66,936		67,020		69,491		67,020
Total stockholders’ equity		215,247		208,170		242,507		208,170
Total liabilities and stockholders’ equity	$	371,819	$	341,257	$	469,509	$	341,257

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

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ACM RESEARCH, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share data)

(Unaudited)

		Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020			2021			2020			2021			2020
Revenue (note 3)		$	43,732		$	24,348		$	67,013		$	47,665		$	164,609		$	111,062
Cost of revenue			25,687			14,120			37,328			27,324			95,199			61,137
Gross profit			18,045			10,228			29,685			20,341			69,410			49,925
Operating expenses:
Sales and marketing			5,308			3,005			6,363			3,924			17,460			11,524
Research and development			5,504			3,677			7,856			4,343			21,293			13,241
General and administrative			3,783			2,328			3,671			4,568			11,081			9,100
Total operating expenses, net			14,595			9,010			17,890			12,835			49,834			33,865
Income from operations			3,450			1,218			11,795			7,506			19,576			16,060
Interest income			49			335			33			179			113			834
Interest expense			(189	)		(111	)		(191	)		(272	)		(574	)		(611	)
Unrealized loss on trading securities			(1,047	)		0
Other income, net			469			677
Change in fair value of financial liability									0			(6,533	)		0			(11,964	)
Unrealized gain (loss) on trading securities									(919	)		8,970			1,817			8,970
Other income (expenses), net									(255	)		(1,759	)		(683	)		(933	)
Equity income in net income of affiliates			320			148			421			182			1,036			539
Income before income taxes			3,052			2,267			10,884			8,273			21,285			12,895
Income tax benefit (expense) (note 20)			2,770			(304	)
Income tax benefit (expense) (note 21)									266			1,747			3,021			(416	)
Net income			5,822			1,963			11,150			10,020			24,306			12,479
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests			352			258			995			1,393			2,114			2,228
Net income attributable to ACM Research, Inc.		$	5,470		$	1,705		$	10,155		$	8,627		$	22,192		$	10,251
Comprehensive income:
Net income			5,822			1,963			11,150			10,020			24,306			12,479
Foreign currency translation adjustment			(1,332	)		(1,900	)		(409	)		5,757			1,259			4,099
Comprehensive Income			4,490			63			10,741			15,777			25,565			16,578
Less: Comprehensive income attributable to non-controlling interests and redeemable non-controlling interests			(83	)		(694	)		757			2,698			2,471			3,614
Comprehensive income attributable to ACM Research, Inc.		$	4,573		$	757		$	9,984		$	13,079		$	23,094		$	12,964

Net income attributable to ACM Research, Inc. per common share (note 2):
Basic		$	0.29		$	0.09		$	0.52		$	0.47		$	1.16		$	0.57
Diluted		$	0.25		$	0.08		$	0.46		$	0.40		$	1.02		$	0.48

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			18,786,870			18,120,363			19,422,546			18,201,943			19,113,353			18,124,665
Diluted			21,868,280			21,066,636			22,042,516			21,555,296			21,730,340			21,257,661

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 Nine Months Ended September 30, 2021 and 2020

(In thousands, except 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		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		-		0		-			0		0		22,192		0		2,114		24,306
Foreign currency translation adjustment		-		0		-			0		0		0		902		357		1,259
Exercise of stock options		564,365		0		0			0		3,129		0		0		0		3,129
Stock-based compensation		-		0		-			0		3,823		0		0		-		3,823
Exercise of warrants		242,681		0		0			0		1,820		0		0		0		1,820
Conversion of Class B common stock to Class A common stock		95,001		0		(95,001	)		0		0		0		0		0		0
Balance at September 30, 2021		17,798,740	$	2		1,707,605		$	0	$	110,776	$	56,479	$	5,759	$	69,491	$	242,507

	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		(242,681	)		0		0			0		(9,715	)		0		0			0		(9,715	)
Issuance of warrants (note 15)		-			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

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

~~(In~~For the Three Months Ended September 30, 2021 and 2020

(In thousands, except 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
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		Accumulated Other Comprehensive Income			Non-controlling interests			Total Stockholders’ Equity
Balance at June 30, 2021		17,668,409	$	2		1,707,605	$	0	$	108,566	$	46,324	$	5,931		$	68,733		$	229,556
Net income		-		0		-		0		0		10,155		0			995			11,150
Foreign currency translation adjustment		-		0		-		0		0		0		(172	)		(237	)		(409	)
Exercise of stock options		130,331		0		0		0		932		0		0			0			932
Stock-based compensation		-		0		-		0		1,278		0		0			0			1,278
Balance at September 30, 2021		17,798,740	$	2		1,707,605	$	0	$	110,776	$	56,479	$	5,759		$	69,491		$	242,507

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

	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 15)		-		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

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 thousands)

(Unaudited)

	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net income	$	24,306		$	12,479
Adjustments to reconcile net income from operations to net cash used in operating activities
Depreciation and amortization		1,597			774
Loss on disposals of property, plant and equipment		0			1
Equity income in net income of affiliates		(1,036	)		(539	)
Unrealized gain on trading securities		(1,817	)		(8,970	)
Deferred income taxes		(4,666	)		(4,632	)
Stock-based compensation		3,823			4,323
Change in fair value of financial liability		0			11,964
Net changes in operating assets and liabilities:
Accounts receivable		(28,135	)		(27,575	)
Other receivables		(3,227	)		(3,512	)
Inventory		(87,613	)		(18,362	)
Prepaid expenses		(1,616	)		(3,371	)
Other long-term assets		(3,747	)		(839	)
Accounts payable		57,283			22,023
Advances from customers		34,879			(1,142	)
Income tax payable		1,204			389
Other payables and accrued expenses		5,938			5,962
Deferred revenue		2,403			819
Other long-term liabilities		(3,398	)		2,172
Net cash used in operating activities		(3,822	)		(8,036	)

Cash flows from investing activities:
Purchase of property and equipment		(5,059	)		(3,583	)
Purchase of intangible assets		(418	)		(81	)
Purchase of land-use-right		0			(9,331	)
Prepayment for property		0			(6,978	)
Purchase of trading securities		0			(14,680	)
Net cash used in investing activities		(5,477	)		(34,653	)

Cash flows from financing activities:
Proceeds from short-term borrowings		17,988			31,068
Repayments of short-term borrowings		(28,988	)		(16,881	)
Proceeds from long-term borrowings		6,939			0
Repayments of long-term borrowings		(1,193	)		0
Repayments of notes payable		0			(1,820	)
Proceeds from stock option exercise to common stock		3,129			2,191
Proceeds from warrant exercise to common stock		1,820			0
Net cash provided by (used in) financing activities		(305	)		14,558

Effect of exchange rate changes on cash, cash equivalents and restricted cash	$	2,874		$	2,475
Net (decrease) in cash, cash equivalents and restricted cash	$	(6,730	)	$	(25,656	)

Cash, cash equivalents and restricted cash at beginning of period		71,766			117,859
Cash, cash equivalents and restricted cash at end of period	$	65,036		$	92,203

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest	$	574		$	611
Cash paid for income taxes	$	606		$	4,606

Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows:
Cash and cash equivalents		65,036			92,203
Restricted cash		0			0
Cash, cash equivalents and restricted cash	$	65,036		$	92,203
Non-cash used in financing activities:
Warrant conversion to common stock	$	0		$	399
Share cancellation	$	0		$	9,715
Cashless exercise of stock options	$	118		$	0
Issuance of warrant for settlement of financial liability and cancellation of note receivable	$	0		$	19,859

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 thousands)~~

~~(Unaudited)~~

Three Months Ended March 31,
2021 2020
Cash flows from operating activities:
Net income $ 5,822 $ 1,963
Adjustments to reconcile net income from operations to net cash used in operating activities:
Depreciation and amortization 546 212
Loss on disposals of property, plant and equipment 26 0
Equity income in net income of affiliates (320 ) (148 )
Unrealized loss on trading securities 1,047 0
Deferred income taxes (2,929 ) 35
Stock-based compensation 1,210 689
Net changes in operating assets and liabilities:
Accounts receivable (4,602 ) (6,902 )
Other receivables (1,850 ) (683 )
Inventory (15,276 ) (931 )
Prepaid expenses (83 ) (11 )
Other long-term assets 21 36
Accounts payable 9,492 5,617
Advances from customers 14,932 195
Income tax payable 75 263
Other payables and accrued expenses 3,181 1,779
Deferred revenue 1,315 0
Other long-term liabilities (1,865 ) 1,715
Net cash provided by operating activities 10,742 3,829

Cash flows from investing activities:
Purchase of property and equipment (1,466 ) (118 )
Purchase of intangible assets (112 ) 0
Net cash used in investing activities (1,578 ) (118 )

Cash flows from financing activities:
Proceeds from short-term borrowings 4,211 2,681
Repayments of short-term borrowings (6,744 ) (12,415 )
Repayments of long-term borrowings (224 ) 0
Proceeds from stock option exercise to common stock 1,377 175
Net cash used in financing activities (1,380 ) (9,559 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash $ (754 ) $ (1,002 )
Net increase (decrease) in cash, cash equivalents and restricted cash $ 7,030 $ (6,850 )

Cash, cash equivalents and restricted cash at beginning of period 71,766 117,859
Cash, cash equivalents and restricted cash at end of period $ 78,796 $ 111,009

Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest $ 189 $ 111
Cash paid for income taxes $ 63 $ 0

Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows:
Cash and cash equivalents 78,796 52,283
Restricted cash 0 58,726
Cash, cash equivalents and restricted cash $ 78,796 $ 111,009
Non-cash used in financing activities:
Warrant conversion to common stock $ 0 $ 399
Cashless exercise of stock options $ 83 $ 0

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

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~~ACM RESEARCH, INC.~~

Notes to ~~Condensed~~ Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 1 – DESCRIPTION OF BUSINESS

ACM Research, Inc. (“ACM”) and its subsidiaries (collectively with ACM, the “Company”) develop, manufacture and sell wet cleaning and other equipment used to improve the manufacturing process and yield for advanced integrated chips. The Company markets and sells its wet-cleaning equipment under the brand name “Ultra C,” based on the Company’s proprietary Space Alternated Phase Shift (“SAPS”), 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 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.

~~Table of Contents~~

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.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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~~offering 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~~April 2019 ~~Cleanchip~~CleanChip formed a wholly owned subsidiary in California, ACM Research (CA), Inc. (“ACM California”), to provide procurement services on behalf of ACM Shanghai.

In June 2019 ACM announced plans to complete, over the following 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 ~~18)~~19).

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

In August 2021 ACM formed a wholly owned subsidiary Singapore, ACM research (Singapore) PTE, Ltd. to perform sales, marketing, and other business development activities.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company has direct or indirect interests in the following subsidiaries:

Effective interest held as at
Name of subsidiaries Place and date of incorporation March 31, 2021 December 31, 2020
ACM Research (Shanghai), Inc. PRC, May 2005 91.7 % 91.7 %
ACM Research (Wuxi), Inc. PRC, July 2011 91.7 % 91.7 %
CleanChip Technologies Limited Hong Kong, June 2017 91.7 % 91.7 %
ACM Research Korea CO., LTD. Korea, December 2017 91.7 % 91.7 %
Shengwei Research (Shanghai), Inc. PRC, March 2019 91.7 % 91.7 %
ACM Research (CA), Inc. USA, June 2019 91.7 % 91.7 %
ACM Research (Cayman), Inc. Cayman Islands, April 2019 100.0 % 100.0 %

		Effective interest held as at
Name of subsidiaries	Place and date of incorporation	September 30, 2021			December 31, 2020
ACM Research (Shanghai), Inc.	PRC, May 2005		91.7	%		91.7	%
ACM Research (Wuxi), Inc.	PRC, July 2011		91.7	%		91.7	%
CleanChip Technologies Limited	Hong Kong, September 2017		91.7	%		91.7	%
ACM Research Korea CO., LTD.	Korea, December 2017		91.7	%		91.7	%
Shengwei Research (Shanghai), Inc.	PRC, March 2019		91.7	%		91.7	%
ACM Research (CA), Inc.	USA, April 2019		91.7	%		91.7	%
ACM Research (Cayman), Inc.	Cayman Islands, April 2019		100.0	%		100.0	%
ACM Research (Singapore) PTE, Ltd.	Singapore, August 2021		100.0	%		0.0	%

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 or indirectly, controls a 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.~~10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements of the Company for the year ended December 31, 2020 included in ACM’s Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2020.~~2020.

The accompanying condensed consolidated balance sheet as of ~~March 31,~~September 30, 2021, condensed consolidated statements of operations and comprehensive income for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020, condensed consolidated statements of changes in stockholders’ equity for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020, and condensed consolidated statements of cash flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020 are unaudited. In the opinion of management, these 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 ~~March 31,~~September 30, 2021 and the results of operations for the three and nine months ended ~~March 31,~~September 30, 2021 are not necessarily indicative of the results to be expected for any future period.

COVID-19 Assessment

~~COVID-19 Assessment~~

The outbreak of ~~COVID-19,~~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.~~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.~~COVID-19 and its variants. The situation continues to develop, and it is impossible to predict the effect and ultimate impact of the ~~COVID-19~~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~~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~~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 ~~March 31,~~September 30, 2021 the Company had not experienced a significant negative impact of ~~COVID-19~~COVID-19 on its operations, capital and financial resources, including overall liquidity position. The Company continues to monitor the impact of the COVID-19 pandemic on all aspects of its business.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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~~COVID-19 outbreak and related restrictions on transportation and public appearances. In February 2020 ACM Shanghai’s 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. The Company cannot assure that further closures or reductions of its PRC operations or production may not be necessary in upcoming months as the result of business interruptions arising from protective measures being taken by the PRC and other governmental agencies or of other consequences of the ~~COVID-19~~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 effects of any future actions by 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 6the San Francisco Bay Area counties ~~including Alameda County, issued shelter-in-place orders, which (i) direct all individuals living in those counties~~or other local health officials that intended 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)mitigate 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 futureCOVID-19 pandemic 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. Employees of the Company may be exposed to COVID-19 or other variants of the virus, and as a result the Company may experience reduction in productivity or exposure to potential claims from employees or regulatory authorities regarding the adequacy of the Company’s protections with respect to the spread of COVID-19 at its physical locations, which may affect the Company’s business, results of operations and reputation.

Extended periods of interruption to the Company’s corporate, development or manufacturing facilities due to the ~~COVID-19~~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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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Use of Estimates

The preparation of the 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 revenues and expenses during the reported period in the 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 warrant 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 evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates and assumptions.

Basic and Diluted Net Income per Common Share

Basic and diluted net income per common share are calculated as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020
Numerator:
Net income	$	5,822	$	1,963	$	11,150	$	10,020	$	24,306	$	12,479
Net income attributable to non-controlling interests and redeemable non-controlling interests		352		258
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests						995		1,393		2,114		2,228
Net income available to common stockholders, basic and diluted	$	5,470	$	1,705	$	10,155	$	8,627	$	22,192	$	10,251

Weighted average shares outstanding, basic		18,786,870		18,120,363		19,422,546		18,201,943		19,113,353		18,124,665
Effect of dilutive securities		3,081,410		2,946,273		2,619,970		3,353,353		2,616,987		3,132,996
Weighted average shares outstanding, diluted		21,868,280		21,066,636		22,042,516		21,555,296		21,730,340		21,257,661

Net income per common share:
Basic		0.29		0.09	$	0.52	$	0.47	$	1.16	$	0.57
Diluted	$	0.25	$	0.08	$	0.46	$	0.40	$	1.02	$	0.48

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 ~~March 31,~~ September 30,2021 and 2020, the net income per common share attributable to each class is the same under the ~~“two-class”~~“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~~nine months ended ~~March 31,~~ September 30,2021, and stock options for the three and nine months ended September 30, 2021. ACM’s potential dilutive securities consist of warrants and stock options for the three and nine months ended September 30, 2020.

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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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company is potentially subject to concentrations of credit risks in its accounts receivable. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, the Company’s 3 largest customers accounted for ~~60.1%~~65.6% and ~~97.4%~~79.8%, respectively, of revenue. For the three months ended September 30, 2021 and 2020, the Company’s 3 largest customers accounted for 77.1% and 72.1%, respectively, of revenue. As of ~~March 31,~~September 30, 2021 and December 31, 2020, the Company’s 3 largest customers accounted for ~~77.3%~~73.8% and ~~76.1%~~75.8%, 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.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. ~~2019-12,~~2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU ~~2019-12~~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 simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted ASU ~~2019-12~~2019-12 on January 1,2021. The adoption of ASU ~~2019-12~~2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. ~~2020-04,~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU ~~2020-04~~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~~2020-04 on January 1,2021. The adoption of ASU ~~2020-04~~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,~~ 2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU ~~2016-13~~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~~2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. ASU ~~2016-13~~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,~~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 the issuance date of ASU ~~2019-10)~~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.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Single wafer cleaning, Tahoe and semi-critical cleaning equipment	$	49,448	$	38,344	$	127,322	$	94,468
ECP (front-end and packaging), furnace and other technologies		8,200		4,850		13,750		9,340
Advanced packaging (excluding ECP), services & spares		9,365		4,471		23,537		7,254
Total Revenue By Product Category	$	67,013	$	47,665	$	164,609	$	111,062

Wet cleaning and other front-end processing tools	$	49,448	$	38,344	$	127,322	$	98,958
Advanced packaging, other processing tools, services and spares		17,565		9,321		37,287		12,104
Total Revenue Front-end and Back-End	$	67,013	$	47,665	$	164,609	$	111,062

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Mainland China	$	66,887	$	46,881	$	164,319	$	110,174
Other Regions		126		784		290		888
	$	67,013	$	47,665	$	164,609	$	111,062

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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 4 – ACCOUNTS RECEIVABLE

At ~~March 31,~~September 30, 2021 and December 31, 2020 accounts receivable consisted of the following:

	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Accounts receivable	$	60,394	$	56,441	$	84,787	$	56,441
Less: Allowance for doubtful accounts		0		0		0		0
Total	$	60,394	$	56,441	$	84,787	$	56,441

The 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. NoNaN allowance for doubtful accounts was considered necessary at ~~March 31,~~September 30, 2021 and December 31, 2020.

NOTE 5 – INVENTORIES

At ~~March~~ ~~31,~~September 30, 2021 and December 31, 2020 inventory consisted of the following:

	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Raw materials	$	34,631	$	32,391	$	65,029	$	32,391
Work in process		21,461		23,871		29,682		23,871
Finished goods		47,134		32,377		81,898		32,377
Total inventory	$	103,226	$	88,639	$	176,609	$	88,639

At ~~March 31,~~September 30, 2021 and December 31, 2020, the Company held an inventory reserve of ~~$1,124~~$1,112 and $1,140, respectively. ~~System~~At September 30, 2021 and December 31, 2020, finished goods inventory included system shipments of first-tools to an existing or prospective ~~customer,~~customers, for which ownership does not transfer until customer acceptance or customer purchase, totaling $81,898 and $32,275, respectively. Those tools are ~~classified as finished goods inventory and~~ carried at cost until ownership is transferred.

At September 30, 2021 and December 31, 2020, finished goods inventory included tools for which customers are contractually obligated to take ownership upon acceptance totaling $58,928 and $20,834, respectively.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

At ~~March 31,~~September 30, 2021 and December 31, 2020, property, plant and equipment consisted of the following:

	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020
Manufacturing equipment	$	5,924		$	5,966		$	6,992		$	5,966
Office equipment		1,260			1,047			1,642			1,047
Transportation equipment		213			216			214			216
Leasehold improvement		2,551			2,398			2,932			2,398
Total cost		9,948			9,627			11,780			9,627
Less: Total accumulated depreciation		(4,049	)		(3,745	)		(5,120	)		(3,745	)
Construction in progress		2,873			2,310			3,345			2,310
Total property, plant and equipment, net	$	8,772		$	8,192		$	10,005		$	8,192

Depreciation expense was ~~$439~~$501 and ~~$185~~$195 for the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively, and $1,407 and $569 for the nine months ended September30,2021 and 2020,respectively.

NOTE 7 – LAND USE RIGHT, NET

A summary of land use right is as follows:

	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020
Land use right purchase amount	$	9,674		$	9,744		$	9,801		$	9,744
Less: Accumulated amortization		(145	)		(98	)		(245	)		(98	)
Land use right, net	$	9,529		$	9,646		$	9,556		$	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~~Amortization expense was $49 for the three months ended ~~March 31, 2020 was $49.~~September 30, 2021, and $147 for the nine months ended September 30, 2021.

The ~~annual~~remaining 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

Year ending December 31,
2021	$	49
2022		196
2023		196
2024		196
2025		196

~~Table of Contents~~

NOTE 8 – OTHER LONG-TERM ASSETS

At ~~March 31,~~September 30, 2021 and December 31, 2020, other long-term assets consisted of the following:

	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Prepayment for property	$	39,474	$	39,450
Prepayment for property - Lingang					$	40,433	$	39,450
Prepayment for property, plant and equipment and other non-current assets						1,692		0
Prepayment for property - lease deposit						422		0
Security deposit for land use right		750		756		760		756
Others		251		290		936		290
Total other long-term assets	$	40,475	$	40,496	$	44,243	$	40,496

The prepayment for property - Lingang 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~~757 as of ~~March 31,~~September 30, 2021. The property is pledged for a long-term loan from China Merchants Bank (note 12).

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 9 – SHORT-TERM BORROWINGS

At ~~March 31,~~September 30, 2021 and December 31, 2020, short-term ~~and long-term~~ borrowings consisted of the following:

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

	September 30, 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 and fully repaid on June 28, 2021.		0		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 and fully repaid on June 25, 2021.		0		2,080
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% and fully repaid on April 12, 2021.		0		1,533
2)due on May 24, 2021 with an annual interest rate of 3.65% and fully repaid on May 24, 2021.		0		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 and fully repaid on May 27, 2021.		0		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 and fully repaid on May 28, 2021.		0		2,442
4)due on June 7, 2021 with an annual interest rate of 3.50%. *2 and fully repaid on June 7, 2021.		0		1,521
5)due on June 16, 2021 with an annual interest rate of 3.50%. *2 and fully repaid on June 16, 2021.		0		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% and fully repaid on August 10, 2021.		0		1,380
2)due on August 25, 2021 with annual interest rate of 3.85% and fully repaid on August 25, 2021.		0		3,066
3)due on February 1, 2022 with annual interest rate of 3.85%.		1,388		0
4)due on May 26, 2022 with annual interest rate of 3.9%.		1,388		0
5)due on February 2, 2022 with annual interest rate of 3.95%.		1,465		0
6)due on February 2, 2022 with annual interest rate of 3.95%.		1,465		0
7)due on February 2, 2022 with annual interest rate of 3.95%.		1,387		0
Line of credit up to RMB 100,000 from Bank of Shanghai Pudong Branch,
1)due on June 7, 2022 with an annual interest rate of 2.7%. *3		4,618		0
Line of credit up to RMB 40,000 from Bank of China,
1)due on June 15, 2022 with an annual interest rate of 3.86%.		3,068		0
Line of credit up to KRW 500,000 from Industrial Bank of Korea (IBK)
1)due on July 11, 2022 with an annual interest rate of 5.40%. *4		422		0
Total	$	15,201	$	26,147

*1 Guaranteed by ACM’s Chief Executive Officer

*2 Guaranteed by ACM’s Chief Executive Officer and CleanChip

*3 Guaranteed by CleanChip

*4 Guaranteed by ACM Korea’s Chief Executive Officer

For the three months ended ~~March~~ ~~31,~~September 30, 2021 and 2020,, interest expense related to short-term borrowings amounted to ~~$189~~$176 and ~~$111, respectively.~~

$272, respectively, and $556 and $611 for the nine months ended September 30, 2021 and 2020.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 10 – OTHER PAYABLE AND ACCRUED EXPENSES

At ~~March 31,~~September 30, 2021 and December 31, 2020, other payable and accrued expenses consisted of the following:

March 31,
2021

December 31,
2020

Accrued commissions $ 7,838 $ 7,127
Accrued warranty 4,196 3,975
Accrued payroll 4,422 3,068
Accrued professional fees 211 384
Accrued machine testing fees 1,632 1,595
Others 3,586 2,656
Total $ 21,885 $ 18,805

	September 30, 2021		December 31, 2020
Accrued commissions		10,527		7,127
Accrued warranty		5,117		3,975
Accrued payroll		3,492		3,068
Accrued professional fees		40		384
Accrued machine testing fees		1,825		1,595
Others		4,949		2,656
Total	$	25,950	$	18,805

NOTE 11 – 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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020
Operating lease cost	$	515	$	377	$	632	$	384	$	1,807	$	1,139
Short-term lease cost		79		50		105		73		258		170
Lease cost	$	594	$	427	$	737	$	457	$	2,065	$	1,309

Supplemental cash flow information related to operating leases was as follows for the three and nine months ended ~~March~~ ~~31,~~September 30, 2021 and 2020~~2020~~:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases	$	594	$	427	$	737	$	457	$	2,065	$	1,309

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Maturities of lease liabilities for all operating leases were as follows as of ~~March 31, 2021:~~September 30, 2021:

	December 31,			December 31,
2021	$	1,834			631
2022		2,439			2,292
2023		978			1,020
2024		876			914
2025		22			19
Total lease payments		6,149			4,876
Less: Interest		(800	)		(277	)
Present value of lease liabilities	$	5,349		$	4,599

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of ~~March~~ September 30~~31,~~, 2021 and December 31, 2020:

March 31,
2021

December 31,
2020

Remaining lease term and discount rate:
Weighted average remaining lease term (years) 1.93 2.11
Weighted average discount rate 4.87 % 5.14 %

	September 30, 2021			December 31, 2020
Remaining lease term and discount rate:
Weighted average remaining lease term (years)		1.50			2.11
Weighted average discount rate		4.58	%		5.14	%

NOTE 12 – LONG-TERM BORROWINGS

At ~~March~~ September 30~~31,~~, 2021 and December 31, 2020, long-term borrowings consisted of the following:

	March 31, 2021			December 31, 2020			September 30, 2021			December 31, 2020
Loan from China Merchants Bank	$	19,042		$	19,570		$	18,492		$	19,570
Loans from Bank of China							$	6,939			0
Less: Current portion		(1,598	)		(1,591	)		(2,351	)		(1,591	)
	$	17,444		$	17,979		$	23,080		$	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~~ September 30~~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.

The loans from Bank of China are for the purpose of funding ACM Shanghai research activities. The loans bear interest at an annual rate of 2.6% and is repayable in 6 installments, with the last installments due in June 2024 and September 2024.

Scheduled principal payments for the outstanding long-term loan as of ~~March~~ September 30~~31,~~, 2021 are as follows:

Year ending December 31,
Year ending December 31
2021	$	1,191	$	484
2022		1,654		2,370
2023		1,733		2,450
2024		1,815		7,313
2025 and onwards		12,649		12,814
	$	19,042	$	25,431

For the three months ended ~~March~~ September 30~~31,~~, 2021, interest related to long-term borrowings of $~~317~~232 was incurred, of which $015 was charged to interest expenses and $~~317~~217 was capitalized as other long-term assets. For the nine months ended September 30, 2021, interest related to long-term borrowings of $776 was incurred, of which $18 was charged to interest expenses and $758 was capitalized as other long-term assets.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 13 – OTHER LONG-TERM LIABILITIES

Other long-term liabilities represent government subsidies received from PRC governmental authorities for development and commercialization of certain technology but not yet recognized. As of ~~March~~ September 30~~31,~~, 2021 and December 31, 2020, other long-term liabilities consisted of the following unearned government subsidies:

March 31,
2021

December 31,
2020

Subsidies to Stress Free Polishing project, commenced in 2008 and 2017 $ 1,221 $ 1,266
Subsidies to Electro Copper Plating project, commenced in 2014 2,016 2,156
Subsidies to Polytetrafluoroethylene, commenced in 2018 51 130
Subsidies to Tahoe-Single Bench Clean, commenced in 2020 1,005 1,544
Subsidies to Backside Clean-YMTC National Project, commenced in 2020 1,941 2,591
Other 405 347
Total $ 6,639 $ 8,034

	September 30, 2021		December 31, 2020
Subsidies to Stress Free Polishing project, commenced in 2008 and 2017	$	949	$	1,266
Subsidies to Electro Copper Plating project, commenced in 2014		901		2,156
Subsidies to Polytetrafluoroethylene, commenced in 2018		0		130
Subsidies to Tahoe-Single Bench Clean, commenced in 2020		185		1,544
Subsidies to Backside Clean-YMTC National Project, commenced in 2020		2,779		2,591
Other		489		347
Total	$	5,303	$	8,034

NOTE 14 – LONG-TERM INVESTMENT

On September 6, 2017, ACM and Ninebell Co., Ltd. (“Ninebell”), a Korean company that is one of the Company’s principal material 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, 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 at $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 component 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. 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), a Chinese limited partnership based in Hefei, China. Pursuant to such Partnership Agreement, on September 30, 2019, ACM Shanghai invested RMB 30,000 ($4,200), which represented 10% of the partnership’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 in accordance with ASC 323-30-S99-1.

The Company 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 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.

	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Ninebell	$	1,988	$	1,666	$	2,713	$	1,666
Shengyi		157		134		186		134
Hefei Shixi		4,487		4,540		4,509		4,540
Total	$	6,632	$	6,340	$	7,408	$	6,340

~~For the~~ ~~three~~ ~~months ended March~~ ~~31,2021~~ ~~and~~ ~~2020,~~ ~~the~~The Company’s share of equity investees’ net income was $~~320~~421 and $~~148,~~182, for the three months ended September 30, 2021 and 2020, respectively, and $1,036 and $539 for the nine months ended September 30, 2021 and 2020, 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 Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 15 – 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 as an 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 “2017 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 2017 Warrant. In March 2018 SMC exercised the 2017 Warrant in full, as a result of which (1) ACM issued 397,502 shares of Class A common stock to SMC (the “2017 Warrant Shares”), (2) SMC borrowed the funds to pay the 2017 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 2017 Warrant exercise price. Each of the SMC Note and the Intercompany Note bore interest at a rate of 3.01% per annum and matured on August 17, 2023. The SMC Note was secured by a pledge of the 2017 Warrant Shares.

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 2017 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.

The SMC Note and SMC Investment were offsetting items in the Company’s consolidated balance sheet in accordance with ASC 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 2017 Warrant Shares to ACM Research; and (iv) in exchange for such 242,681 2017 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 2017 Warrant Shares. In a separate transaction in April 2020, ACM Shanghai repaid the remaining $1,820 of the SMC Investment in cash.

Beginning April 30, 2020, the SMC Consideration was accounted for as a financial liability, and the Company applied the fair value measurement option to value the SMC Consideration in accordance with ASC 825-10-15-4a. On April 30, 2020, the SMC Consideration was $9,715, which reflected cancellation of the 2017 Warrant Shares and was recorded in equity. The financial liability was remeasured to fair value as of the end of each subsequent reporting period.

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 “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 2020 Warrant. The Company recognized a change in fair value of financial liability of $11,964 for the year ended December 31, 2020, which was reflected in the consolidated statement of operations. The Company recorded the difference of $19,859 between the 2020 Warrant of $21,679 and the SMC Note of $1,820 into equity.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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

	July 29, 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 was based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.

(3)	Volatility was 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 was 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 was assumed to be 0%, as ACM had no history or expectation of paying a dividend on its common stock.

On June 9, 2021, subsequent to its obtaining the necessary PRC approvals, SMC exercised the 2020 Warrant by paying the $1,820 exercise price to ACM and surrendering the 2020 Warrant to ACM. In return, ACM delivered 242,681 shares of ACM Class A common stock to SMC.

NOTE 1516 – 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.

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. At December 31, 2020, the fair market value ~~which~~ is classified as Level 2 of the hierarchy established under ASC 820 with valuations based on quoted prices for identical securities in active markets, less a discount applied to reflect the remaining lock-up period. Following the expiration of the lock-up period in July 2021, the trading securities are stated at fair market value, which is classified as Level 1 of the hierarchy established under ASC 820 with valuations based on quoted prices for identical securities in active markets at September 30, 2021.

The components of trading securities were as follows:

	March 31, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Trading securities listed in Shanghai Stock Exchange
Cost	$	14,912	$	15,020	$	15,108	$	15,020

Market value	$	27,003	$	28,239	$	30,219	$	28,239

Unrealized ~~loss~~gain (loss) on trading securities, net of ~~exchange difference~~ ~~amounted to~~ ($~~1,047)~~919) and $8,970 for the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively, and $1,817 and $8,970 for the nine months ended September 30, 2021 and 2020.

respectively.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 1617 – RELATED PARTY BALANCES AND TRANSACTIONS

Prepaid expenses		March 31, 2021				December 31, 2020				September 30, 2021				December 31, 2020
Ninebell		$	1,778			$	1,607			$	2,192			$	1,607

Accounts payable March 31, 2021 December 31, 2020
Ninebell $ 2,925 $ 2,898
Shengyi 1,585 1,195
Total $ 4,510 $ 4,093

	Three Months Ended March 31
Purchase of materials	2021		2020
Accounts payable					September 30, 2021		December 31, 2020
Ninebell	$	6,882	$	2,153	$	6,340	$	2,898
Shengyi		358		58		1,920		1,195
Total	$	7,240	$	2,211	$	8,260	$	4,093

Three Months Ended March 31
Service fee charged by 2021 2020
Shengyi $ 142 $ 46
Ninebell 0 0
Total $ 142 $ 46

	Three Months Ended September 30,				Nine Months Ended September 30,
Purchase of materials	2021		2020		2021		2020
Ninebell	$	7,455	$	4,029	$	21,833	$	9,552
Shengyi		1,108		599		1,753		1,113
Total	$	8,563	$	4,628	$	23,586	$	10,665

	Three Months Ended September 30,				Nine Months Ended September 30,
Service fee charged by	2021		2020		2021		2020
Shengyi	$	144	$	14	$	403	$	204
Ninebell		0		22		0		22
Total	$	144	$	36	$	403	$	226

NOTE 1718 – COMMON STOCK

At December 31, 2020, ACM iswas 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. On July 13, 2021, the Company filed a certificate of amendment to its restated certificate of incorporation with the Secretary of State of the State of Delaware. The amendment i) increased the authorized number of shares of Class A common stock from 50,000,000 to 150,000,000 with 60,000,000 of the 100,000,000 additional authorized shares of Class A common stock reserved for issuance only as dividends on outstanding shares of Class A common stock; ii) increased the authorized number of shares of Class B common stock from 2,409,738 to 5,307,816, with all of the authorized but unissued shares of Class B common stock being available for issuance only as dividends on outstanding shares of Class B common stock; and iii) removed a now obsolete provision related to the automatic conversion of Class B common stock into Class A common stock.

The amendment to ACM’s certificate of incorporation that increased the number of authorized Class A common stock and Class B common stock was approved by ACM’s stockholders on June 2, 2021. As a result, at September 30, 2021, ACM is authorized to issue 150,000,000 shares of Class A common stock and 5,307,816 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 three months ended ~~March 31,~~September 30, 2021, ACM issued ~~309,940~~130,331 shares of Class A common stock upon option exercises by employees and non-employees.

During the nine months ended September 30, 2021, ACM issued 564,365 shares of Class A common stock upon option exercises by employees and non-employees, and an additional ~~33,334~~95,001 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock.

During the nine months ended September 30, 2021, ACM issued 242,681 shares of Class A common stock upon the warrant exercise by SMC (Note 15).

During the three months ended September 30, 2020, ACM issued 407,043 shares of Class A common stock upon option exercises by employees and non-employees.

During the nine months ended September 30, 2020, ACM issued 592,946 shares of Class A common stock upon option exercises by employees and non-employees, and an additional 60,002 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock. During the ~~three~~nine months ended ~~March 31,~~September 30, 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.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

During the nine months ended September 30, 2020, SMC transferred its ownership of 242,681 shares of Class A common stock to ACM in exchange for the SMC Consideration. The 242,681 shares were cancelled during the nine months ended September 30, 2020. (Note 15)

At ~~March 31,~~September 30, 2021 and December 31, 2020, the number of shares of Class A common stock issued and outstanding was ~~17,239,967,~~17,798,740, and 16,896,693, respectively.

At ~~March 31,~~September 30, 2021 and December 31, 2020, the number of shares of Class B common stock issued and outstanding was ~~1,769,272~~1,707,605 and 1,802,606, respectively.

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NOTE 1819 – REDEEMABLE NON-CONTROLLING INTERESTS

During the second quarter of 2020, the redemption feature of the private placement funding terminated and the aggregate proceeds of the funding therefore were reclassified from redeemable non-controlling interests to non-controlling interests. At ~~March 31,~~September 30, 2020, the balance of redeemable non-controlling interest was nil.

The components of the change in the redeemable non-controlling interests for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 are presented in 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

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

NOTE 1920 – 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 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 its 1998 Stock Option Plan, its 2016 Omnibus Incentive Plan, and as standalone options. ACM granted stock options to employees under the 2016 Omnibus Incentive Plan during the three and nine months ended ~~March 31,~~September 30, 2021. The vesting condition may consist of a service period determined by the Board of Directors for a 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.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The following table summarizes the components of stock-based compensation expense included in the consolidated statements of operations:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020
Stock-Based Compensation Expense:
Cost of revenue	$	71	$	45	$	108	$	44	$	289	$	132
Sales and marketing expense		505		94		417		237		1,400		495
Research and development expense		229		187		293		193		801		568
General and administrative expense		405		363		460		2,305		1,333		3,128
	$	1,210	$	689	$	1,278	$	2,779	$	3,823	$	4,323

Three Months Ended March 31,
2021 2020
Stock-based compensation expense by type:
Employee stock purchase plan $ 1,085 $ 431
Non-employee stock purchase plan 40 172
Subsidiary option grants 85 86
$ 1,210 $ 689

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Stock-based compensation expense by type:
Employee stock purchase plan	$	1,179	$	2,651	$	3,481	$	3,717
Non-employee stock purchase plan		12		44		82		356
Subsidiary option grants		87		84		260		250
	$	1,278	$	2,779	$	3,823	$	4,323

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

	Number of Option Share	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	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		3,191,411		$	5.13	$	12.73	7.13 years
Granted	106,400		50.67		111.98			138,400			48.18		106.15
Exercised	(255,582)		1.78		4.55			(443,683	)		2.39		6.15
Forfeited/cancelled	(11,989)		27.45		62.58			(33,404	)		32.66		73.94
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
Outstanding at September 30, 2021								2,852,724		$	7.32	$	17.57	6.78 years
Vested and exercisable at September 30, 2021								1,844,193

As of ~~March 31,~~September 30, 2021 and December 31, 2020, $,~~$12,340~~10,677 and $$8,733, 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 ~~1.92~~1.82 years and 1.89 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

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

		Nine Months Ended
		~~Three months ended~~ ~~March 31,~~September 30, 2021
Fair value of common ~~share(1)~~ share(1)		$~~48.25~~-~~51.07~~	82.75-111.98
Expected term in ~~years(2)~~ years(2)			5.50-6.25
~~Volatility(3)~~ Volatility(3)			48.53%-49.47
Risk-free interest ~~rate(4)~~ rate(4)			1.00%-1.12%
Expected ~~dividend(5)~~ dividend(5)	0%		0	%

(1)	Equal to closing value 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 ACM’s comparable companies 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 00%% as ACM has no history or expectation of paying a dividend on its common stock.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Non-employee Awards

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

	Number of Option Shares	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	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		836,038		$	1.02	$	3.07	4.92 years
Granted	0		0		0			0			0		0
Exercised	(54,358)		1.51		5.44			(120,682	)		1.23		4.29
Expired	0		0		0			0			0		0
Forfeited/cancelled	(76)		0.30		0.75			(250	)		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
Outstanding at September 30, 2021								715,106		$	0.99	$	2.86	4.15 years
Vested and exercisable at September 30, 2021								702,606

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As of ~~March 31,~~September 30, 2021 and December 31, 2020, ~~$155~~$113 and ~~$195,~~$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~~0.07 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 ~~three~~nine months ended ~~March 31,~~September 30, 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, 2020	5,423,654	$	0.23	$	1.89	3.50 years		5,423,654		$	0.23	$	1.89	_3.50 years
Granted	0		0		0			0			0		0
Exercised	0		0		0			0			0		0
Expired	0		0		0			0			0		0
Forfeited/cancelled	(46,154)		0.24		2.00			(46,154	)		0.24		2.01
Outstanding at March 31, 2021	5,377,500	$	0.24	$	2.00	3.26 years
Vested and exercisable at March 31, 2021	0
Outstanding at September 30, 2021								5,377,500		$	0.24	$	2.01	2.76 years
Vested and exercisable at September 30, 2021								0

~~During the three months ended March 31,~~As of September 30, 2021 and December 31, 2020, ~~the Company recognized stock-based compensation expense of $85 and $86, respectively, related to stock option grants of ACM Shanghai. As of March 31, 2021 and 2020, $779~~$605 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 ~~2.3~~1.75 years and ~~2.5~~2.50 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

NOTE 2021 – 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.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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.

As of ~~March 31,~~September 30, 2021, the Company’s total unrecognized tax benefits were $570 of which $422 would 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 ~~three~~nine months ended ~~March 31,~~September 30, 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, ~~2010~~2002 through December 31, 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%~~12.5% 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 treatment of stock-based 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%~~12.5%, 25% and ~~25%~~16.5%, 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. In 2021, ACM Shanghai was certified as an eligible integrated circuit production enterprise and is entitled to a preferential income tax rate of 12.5% from January 1, 2020 to December 31, 2022.

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~~2002 through 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 has not had 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~~intra-period 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.

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ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Income tax benefit (expense) was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Total income tax benefit (expense)	$	266	$	1,747	$	3,021	$	(416	)

Three Months Ended March 31,
2021 2020
Total income tax benefit (expense) $ 2,770 $ (304 )

NOTE 2122 – COMMITMENTS AND CONTINGENCIES

The Company leases offices under non-cancelable operating lease agreements. See note 811 for future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more.

As of ~~March~~September ~~31,~~30, 2021, the Company had $~~3,429~~2,663 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 Lingang 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,~~September 30, 2021, the Company had paid in total ~~$10,328~~$10,977 for its Lingang-related investments.

In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses 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,~~September 30, 2021 and December 31, 2020. In the opinion of management, no provision for liability nor disclosure was required as of ~~March 31,~~September 30, 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 such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.

As of ~~March 31,~~September 30, 2021, the Company had 1 outstanding legal proceeding. On December 21, 2020, a ~~putative~~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. On May 27, 2021, defendants filed a motion to dismiss Mr. Kain’s complaint. On September 9, 2021, the court granted defendants’ motion to dismiss with leave to amend. On October 7, 2021, Mr. Kain filed a second amended complaint. On October 21, 2021, defendants filed a motion to dismiss Mr. Kain’s second amended complaint. Defendants’ motion to dismiss currently scheduled to be heard by the court on December 2, 2021. ACM’s management believes the claims are without merit and ~~intend~~intends 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.

NOTE 23 – SUBSEQUENT EVENT

On November 1, 2021, ACM announced that the Shanghai Stock Exchange had published ACM Shanghai's updated STAR IPO prospectus and STAR IPO timetable on its website.

On November 4, 2021, ACM advised that the Shanghai Stock Exchange had announced the pricing of the STAR IPO shares of ACM Shanghai. In the IPO, ACM Shanghai proposes to issue 43,355,753 shares, which will represent 10% of the total 433,557,100 shares to be outstanding after the IPO. Of the shares issued in the IPO, 7,699,357 shares will be issued via direct placement to private equity investors. The proposed offering price of shares in the IPO is RMB 85.00 per share, which, if completed, would result in total gross proceeds of the IPO to ACM Shanghai of approximately RMB 3.685 billion (approximately $575,000 as of November 4, 2021). After the IPO, ACM will own approximately 82.5% of the outstanding shares of ACM Shanghai.

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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, 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 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~~$49.4 million, or ~~72.9%~~73.8% of total revenue, for the three months ended ~~March 31,~~September 30, 2021, as compared to ~~$22.8~~$38.4 million, or ~~93.6%~~80.4% of total revenue, for the same period in 2020. Revenue from wet cleaning and other front-end processing tools totaled $127.3 million, or 77.3% of total revenue, for the nine months ended September 30, 2021, as compared to $99.0 million, or 89.1% of total revenue, for the same period in 2020. Selling prices for our wet-cleaning and other front-end processing tools range from $1 million to more than $5 million. Our customers for wet-cleaning and other front-end processing tools have included Semiconductor Manufacturing International Corporation, Shanghai Huali Microelectronics Corporation, The Huahong Group, SK Hynix Inc., Yangtze Memory Technologies Co., Ltd, and ChangXin Memory Technologies.

Revenue from advanced packaging, other ~~back-end~~ processing tools, services and spares totaled ~~$11.8~~$17.6 million, or ~~27.1%~~26.2% of total revenue for the three months ended ~~March 31,~~September 30, 2021, as compared to ~~$1.6~~$9.3 million, or ~~6.4%~~19.6% of total revenue for the same period in 2020. Revenue from advanced packaging, other processing tools, services and spares totaled $37.3 million, or 22.7% of total revenue for the nine months ended September 30, 2021, as compared to $12.1 million, or 10.9% of total revenue for the same period in 2020. Selling prices for these tools range from $0.5 million to more than $4 million. Our customers for advanced packaging, and other ~~back-end~~ processing tools have included Jiangyin Changdian Advanced Packaging Co. Ltd., a leading PRC-based wafer bumping packaging house that is a subsidiary of JCET 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 operations of Deca Technologies’ Philippines manufacturing facility in 2020; and Wafer Works Corporation, a leading PRC-based wafer supplier.

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We estimate, based on third-party reports and on customer and other information, that our current product portfolio addresses more than $5 billion of the global wafer equipment market. By product line, we estimate an approximately $2.5 billion market opportunity is addressed by our wafer cleaning equipment, $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 have 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 has helped us penetrate the mature chip manufacturing markets and build credibility with additional industry leaders. We have used a “demo-to-sales” process to place evaluation equipment, or “first tools,” with a number of selected customers.

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Since 2009 we have delivered more than ~~150~~195 wet cleaning and other front-end processing tools, more than ~~130~~160 of which have been accepted by customers and thereby generated revenue to us. The balance of the 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.

We 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 (deep via or deep trench with stronger structure) wafer surfaces. SAPS technology employs alternating phases of megasonic waves to deliver megasonic energy in a highly uniform manner on a microscopic 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. TEBO technology has been developed to provide effective, damage-free cleaning for 2D and 3D patterned wafers with fine feature 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.

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●•	Tahoe technology for cost and environmental savings. Tahoe 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.

●•

ECP technology for advanced metal plating. Our Ultra ECP ap, or Advanced Packaging, technology was developed for back-end assembly processes to deliver a more uniform metal layer at the notch area of wafers prior to packaging. Our Ultra ECP map, or Multi-Anode Partial Plating, technology was developed for front-end wafer fabrication 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 a substantial majority of our product development, manufacturing, support and services in the PRC, with additional product development and subsystem production in South Korea. Substantially 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 236,000 square feet of floor space for production capacity, with an additional 100,000 square feet having been added in 2021 with the lease of a second building at our ~~second facility in the~~ Pudong ~~region of Shanghai.~~facility. 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 that will incorporate state-of-the-art manufacturing systems and automation technologies, and will provide floor space to support significantly increase production capacity and related research and development 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 technologies, and enable us to design innovative products and solutions to address their needs.

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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~~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.

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•

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.

In August 2021 we formed a wholly owned subsidiary in Singapore, ACM Research (Singapore) PTE, Ltd. to perform sales, marketing, and other business development activities.

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 the first building of our second production 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,~~In February 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, 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 ~~December 31,~~September 30, 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 allegations 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~~

Following the completion of the Listing Committee’s reassessment, on June 10, 2021, the application for registration for the STAR ~~Listing remains subject~~IPO was submitted by the Shanghai Stock Exchange Commission to ~~submission of formal registration and to review and approval by~~ the China Securities Regulatory Commission. In August 2021, ACM Shanghai entered into the issuance process for the STAR IPO following the receipt of the approval of its STAR IPO registration from the China Securities Regulatory Commission, which approval will remain valid until August 17, 2022.

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, additional new products to expand our product portfolio; and

working capital.

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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 since 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, including as the result of variants, and it is impossible for us to predict the effect and ultimate impact of the COVID–19 outbreak on our business operations and results. We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business, including our operations, customers, suppliers and projects. 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.

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 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.

•

Customers: 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 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.

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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 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.

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 nine months ended September 30, 2021 and 2020, related government subsidies recognized as reductions of relevant expenses in the consolidated statements of operations and comprehensive income were $7.1 million and $0.8 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 nine months ended September 30, 2021 and 2020, related government subsidies recognized as other income in the consolidated statements of operations and comprehensive income were $136,000 and $110,000, respectively.

Unearned government subsidies received are deferred for recognition and recorded as other long-term liabilities (see note 13 in the ~~Notes~~notes to ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements included herein under “Item 1. Financial ~~Statements.”~~Statements”) in the balance 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 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.

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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 “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.~~

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.

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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

“First tool” shipments can be made to either an existing customer that has 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 ~~March 31,~~September 30, 2021 totaled ~~$74~~$99 million, as compared to ~~$12~~$59 million in the three months ended ~~March 31,~~September 30, 2020, and ~~$67~~$82 million in the three months ended ~~December 31, 2020.~~June 30, 2021.

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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, or if the customer subsequently determines in its discretion to purchase the tool. There are a number of limitations related to the use of shipments in evaluating our business, including that customers have significant, or in some cases total, discretion in determining whether to accept or purchase our tools after evaluation and their decision not to accept or purchase delivered tools is likely to result in our inability to recognize revenue from the delivered tools.

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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 (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.

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;

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;

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

Three Months Ended March 31,
2021 2020
(in thousands)
Adjusted EBITDA Data:
Net Income $ 5,822 $ 1,963
Interest expense (income), net 140 (224 )
Income tax expense (benefit) (2,770 ) 304
Depreciation and amortization 546 212
Stock based compensation 1,210 689
Unrealized loss on trading securities 1,047 -
Adjusted EBITDA $ 5,995 $ 2,944

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	Nine Months Ended September 30,
	2021			2020
	(in thousands)
Adjusted EBITDA Data:
Net Income	$	24,306		$	12,479
Interest expense (income), net		461			(223	)
Income tax expense (benefit)		(3,021	)		416
Depreciation and amortization		1,597			774
Stock based compensation		3,823			4,323
Change in fair value of financial liability		-			11,964
Unrealized gain on trading securities		(1,817	)		(8,970	)
Adjusted EBITDA	$	25,349		$	20,763

The ~~$3.1~~$4.6 million increase in adjusted EBITDA for the ~~three-months~~nine months ended ~~March 31,~~September 30, 2021 as compared to the same period in 2020 reflected an increase of ~~$1.0 million in unrealized loss on trading securities, an increase of $3.9~~$11.6 million in net income, an increase of ~~$0.5~~$7.1 million ~~in stock-based compensation, and~~due to unrealized gain on trading securities, an increase of ~~$0.4 million in interest expense, and an increase of $0.3~~$0.8 million in depreciation and amortization, and a $0.7 million increase due to net interest expense versus net income, offset by a decrease of $12.0 million due to no contribution from change in fair value of financial liability, and a decrease of $3.4 million due to an income tax benefit ~~for the three-months ended March 31, 2021 as compared to a~~versus an income tax expense ~~for the same period on 2020.~~and a decrease of $0.5 million in stock-based compensation.

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 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.”

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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:

	Three Months Ended March 31,						Nine Months Ended September 30,
	2021			2020			2021			2020
	(in thousands)						(in thousands)
Free Cash Flow Data:
Net cash provided by operating activities	$	10,742		$	3,829
Net cash used in operating activities							$	(3,822	)	$	(8,036	)
Purchase property and equipment		(1,466	)		(118	)		(5,059	)		(3,583	)
Purchase of intangible assets		(112	)		-			(418	)		(81	)
Purchase of land-use-right								-			(9,331	)
Purchase of trading securities								-			(14,680	)
Free cash flow	$	9,164		$	3,711		$	(9,299	)	$	(35,711	)

The ~~$5.5~~$26.4 million increase in free cash flow for the ~~three-months~~nine months ended ~~March 31,~~September 30, 2021 as compared to the same period in 2020 reflected ~~the factors driving~~a $4.2 million increase due to a reduced amount of net cash ~~provided~~used by operating activities, ~~including increases~~a $1.8 million increase in advances from customers, accounts payable, other payables and accrued expenses and net income, partly offset by increases in inventory, accounts receivables, and other liabilities. These were partly offset by an increase of purchasespurchase of property and equipment and intangible ~~assets.~~assets, a $9.3 million increase due to no payments in 2021 for land-use right and property, and a $14.7 million increase due to no purchase of trading securities in 2021. 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.

Adjusted Operating Income

Adjusted operating income excludes stock-based 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 tables reflect the exclusion of stock-based compensation, or SBC, from line items comprising income from operations:

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	Three Months Ended March 31,																		Nine Months Ended September 30,
	2021									2020									2021									2020
	Actual (GAAP)			SBC			Adjusted (Non-GAAP)			Actual (GAAP)			SBC			Adjusted (Non-GAAP)			Actual (GAAP)			SBC			Adjusted (Non-GAAP)			Actual (GAAP)			SBC			Adjusted (Non-GAAP)
	(in thousands)																		(in thousands)
Revenue	$	43,732		$	-		$	43,732		$	24,348		$	-		$	24,348		$	164,609		$	-		$	164,609		$	111,062		$	-		$	111,062
Cost of revenue		(25,687	)		(71	)		(25,616	)		(14,120	)		(45	)		(14,075	)		(95,199	)		(289	)		(94,910	)		(61,137	)		(132	)		(61,005	)
Gross profit		18,045			(71	)		18,116			10,228			(45	)		10,273			69,410			(289	)		69,699			49,925			(132	)		50,057
Operating expenses:
Sales and marketing		(5,308	)		(505	)		(4,803	)		(3,005	)		(94	)		(2,911	)		(17,460	)		(1,400	)		(16,060	)		(11,524	)		(495	)		(11,029	)
Research and development		(5,504	)		(229	)		(5,275	)		(3,677	)		(187	)		(3,490	)		(21,293	)		(801	)		(20,492	)		(13,241	)		(568	)		(12,673	)
General and administrative		(3,783	)		(405	)		(3,378	)		(2,328	)		(363	)		(1,965	)		(11,081	)		(1,333	)		(9,748	)		(9,100	)		(3,128	)		(5,972	)
Income from operations		3,450			(1,210	)		4,660			1,218			(689	)		1,907			19,576			(3,823	)		23,399			16,060			(4,323	)		20,383

Adjusted operating income for the ~~three~~nine months ended on ~~March 31,~~September 30, 2021 increased by ~~$2.7~~$3.0 million, as compared with the same period in 2020, due to a ~~$2.2~~$3.5 million increase in income from operations, ~~and~~offset by a $0.5 million ~~increase~~decrease in stock-based compensation expense.

Critical Accounting Policies and Estimates

There were no significant changes in our critical accounting policies or significant judgments or estimates during the ~~three~~nine months ended ~~March 31,~~September 30, 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, Income Taxes (Topic 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, 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.

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	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020			2021			2020
Revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		58.7			58.0			55.7			57.3			57.8			55.0
Gross margin		41.3			42.0			44.3			42.7			42.2			45.0
Operating expenses:
Sales and marketing		12.1			12.3			9.5			8.2			10.6			10.4
Research and development		12.6			15.1			11.7			9.1			12.9			11.9
General and administrative		8.7			9.6			5.5			9.6			6.7			8.2
Total operating expenses, net		33.4			37.0			26.7			26.9			30.3			30.5
Income from operations		7.9			5.0			17.6			15.8			11.9			14.5
Interest income (expense), net		(0.3	)		0.9			(0.2	)		(0.2	)		(0.3	)		0.2
Unrealized loss on trading securities		(2.4	)		-
Change in fair value of financial liability								-			(13.7	)		-			(10.8	)
Unrealized gain (loss) on trading securities								(1.4	)		18.8			1.1			8.1
Other income (expense), net		1.1			2.8			(0.4	)		(3.7	)		(0.4	)		(0.8	)
Equity income in net income of affiliates		0.7			0.6			0.6			0.4			0.6			0.5
Income before income taxes		7.0			9.3			16.2			17.4			12.9			11.6
Income tax benefit (expense)		6.3			(1.2	)		0.4			3.7			1.8			(0.4	)
Net income		13.3			8.1			16.6			21.1			14.8			11.2
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests		0.8			1.1			1.5			2.9			1.3			2.0
Net income attributable to ACM Research, Inc.		12.5	%		7.0	%		15.1	%		18.2	%		13.5	%		9.2	%

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

Revenue

` Three Months Ended March 31,
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 %

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 %

	Three Months Ended September 30,
	2021		2020		% Change 2021 v 2020
`	(in thousands)
Revenue	$	67,013	$	47,665		40.6	%

Single wafer cleaning, Tahoe and semi-critical cleaning equipment	$	49,448	$	38,344		29.0	%
ECP (front-end and packaging), furnace and other technologies		8,200		4,850		69.1	%
Advanced packaging (excluding ECP), services & spares		9,365		4,471		109.5	%
Total Revenue by Product Category	$	67,013	$	47,665		40.6	%

Wet cleaning and other front-end processing tools	$	49,448	$	38,344		29.0	%
Advanced packaging, other processing tools, services and spares		17,565		9,321		88.4	%
Total Revenue Front and Back-End	$	67,013	$	47,665		40.6	%

Revenue increased by ~~$19.4~~$19.3 million in the three months ended ~~March 31,~~September 30, 2021 as compared to the same period in 2020. The increase was due to a ~~$10.3 million increase in revenue from advanced packaging and other back-end processing tools, services and spares, and a $9.6~~$11.1 million increase in revenue from wet cleaning and other front-end processing ~~tools.~~tools revenue, and a $8.2 million increase from advanced packaging and other processing tools, services and spares.

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Cost of Revenue and Gross Margin

	Three Months Ended March 31,									Three Months Ended September 30,
	2021			2020			% Change 2021 v 2020			2021			2020			% Change 2021 v 2020
	(in thousands)									(in thousands)
Cost of revenue	$	25,687		$	14,120			81.9	%	$	37,328		$	27,324			36.6	%
Gross profit		18,045			10,228			76.4	%		29,685			20,341			45.9	%
Gross margin		41.3	%		42.0	%		-0.7			44.3	%		42.7	%		1.5

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Cost of revenue increased ~~$11.6~~$10.0 million and gross profit increased ~~$7.8~~$9.3 million in the three months ended ~~March 31,~~September 30, 2021 as compared to the corresponding period in 2020 due to the increased sales volume, ~~partly offset by a 0.7% point decrease~~and 1.5% increase in gross margin, that reflected differences in product ~~mix.~~mix and other factors.

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.

Operating Expenses

	Three Months Ended March 31,							Three Months Ended September 30,
	2021		2020		% Change 2021 v 2020			2021		2020		% Change 2021 v 2020
	(in thousands)							(in thousands)
Sales and marketing expense	$	5,308	$	3,005		76.6	%	$	6,363	$	3,924		62.2	%
Research and development expense		5,504		3,677		49.7	%		7,856		4,343		80.9	%
General and administrative expense		3,783		2,328		62.5	%		3,671		4,568		-19.6	%
Total operating expenses	$	14,595	$	9,010		62.0	%	$	17,890	$	12,835		39.4	%

Sales and marketing expense increased by ~~$2.3~~$2.4 million in the three months ended ~~March 31,~~September 30, 2021 as compared to the corresponding period in 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 ~~$1.8~~$3.5 million in the three months ended ~~March 31,~~September 30, 2021 as compared to the corresponding period in 2020, principally as a result of increases in new product development, testing fees and personnel costs. Research and development expense represented ~~12.6%~~11.7% and ~~15.1%~~9.1% of our revenue in the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively. Without reduction by grant amounts received from PRC governmental authorities (see “—Government Research and Development Funding”), gross research and development expense totaled ~~$7.4~~$10.8 million, or ~~17.1%~~16.1% of total revenue, in the three months ended ~~March 31,~~September 30, 2021 and ~~$3.7~~$4.7 million, or ~~15.9%~~10.0% of revenue, in the corresponding period in 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:

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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 decreased $0.9 million in the three months ended September 30, 2021 as compared to the corresponding period in 2020. The decrease was due in part to higher stock-based compensation expenses in the prior-year period. 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 corporate legal and defense fees;

other corporate 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 gain (loss) from trading securities

	Three Months Ended September 30,
	2021			2020		% Change 2021 v 2020
	(in thousands)
Unrealized gain (loss) on trading securities		(919	)		8,970		-110.2	%

We recorded an unrealized loss of $0.9 million for the three months ended September 30, 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 16 to the condensed consolidated financial statements included in this report.

Other Income and Expenses

	Three Months Ended September 30,
	2021			2020			% Change 2021 v 2020
	(in thousands)
Interest Income	$	33		$	179			-81.6	%
Interest Expense		(191	)		(272	)		-29.8	%
Interest Income (expense), net	$	(158	)	$	(93	)		69.9	%

Other income (expense), net	$	(255	)	$	(1,759	)		-85.5	%

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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 $158,000 of interest expense, net in the three months ended September 30, 2021 as compared to $93,000 of interest expense, net in the corresponding period in 2020. This was a result of a lower balance of cash and equivalents and lower interest rates on these balances, offset by increased borrowings under short-term and long-term bank loans.

Other income (expense), 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), increased by $1.5 million in the three months ended September 30, 2021 as compared to Other income (expense) in the corresponding period in 2020, due primarily to a smaller realized loss of $0.2 million resulting from changes in the RMB-to-U.S. dollar exchange rate, compared to a realized loss of $2.5 million in the prior year period.

Income Tax Benefit

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

	Three Months Ended September 30,
	2021			2020
	(in thousands)
Total income tax benefit		$	266		$	1,747

We recognized a tax benefit of $266 for the three months ended September 30, 2021 as compared to a tax benefit of $1,747 for the prior year period. The decreased tax benefit in 2021 primarily resulted from tax deductions related to the exercise of stock options during the period, as compared to larger 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 12.5% to 25% for Chinese income tax purposes due to the treatment of stock-based compensation including the impact from stock option exercises and non-US research expenses. 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 12.5%. 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. In 2021, ACM Shanghai was certified as an eligible integrated circuit production enterprise and is entitled to a preferential income tax rate of 12.5% from January 1, 2020 to December 31, 2022.

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 2002 through 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.

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

	Three Months Ended September 30,
	2021		2020		% Change 2021 v 2020
	(in thousands)
Net income attributable to non-controlling interests	$	995	$	1,393		-28.6	%

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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, 2021, this amount totaled $1.0 million as compared to $1.4 million in the corresponding period in 2020.

Comparison of Nine Months Ended September 30, 2021 and 2020

Revenue

	Nine Months Ended September 30,
	2021		2020		% Change 2021 v 2020
`	(in thousands)
Revenue	$	164,609	$	111,062		48.2	%

Single wafer cleaning, Tahoe and semi-critical cleaning equipment	$	127,322	$	94,468		34.8	%
ECP (front-end and packaging), furnace and other technologies		13,750		9,340		47.2	%
Advanced packaging (excluding ECP), services & spares		23,537		7,254		224.5	%
Total Revenue By Product Category	$	164,609	$	111,062		48.2	%

Wet cleaning and other front-end processing tools	$	127,322	$	98,958		28.7	%
Advanced packaging, other processing tools, services and spares		37,287		12,104		208.1	%
Total Revenue Front-end and Back-End	$	164,609	$	111,062		48.2	%

Revenue increased by $53.5 million in the nine months ended September 30, 2021 as compared to the same period in 2020. The increase was due to a $28.4 million increase in revenue from wet cleaning and other front-end processing tools revenue, and a $25.2 million increase from advanced packaging and other processing tools, services and spares.

Cost of Revenue and Gross Margin

	Nine Months Ended September 30,
	2021			2020			% Change 2021 v 2020
	(in thousands)
Cost of revenue	$	95,199		$	61,137			55.7	%
Gross profit		69,410			49,925			39.0	%
Gross margin		42.2	%		45.0	%		-2.8

Cost of revenue increased $34.1 million and gross profit increased $19.5 million in the nine months ended September 30, 2021 as compared to the corresponding period in 2020 due to the increased sales volume, partly offset by a 2.8% point decrease in gross margin, which reflected differences in product mix.

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Operating Expenses

	Nine Months Ended September 30,
	2021		2020		% Change 2021 v 2020
	(in thousands)
Sales and marketing expense	$	17,460	$	11,524		51.5	%
Research and development expense		21,293		13,241		60.8	%
General and administrative expense		11,081		9,100		21.8	%
Total operating expenses	$	49,834	$	33,865		47.2	%

Sales and marketing expense increased by $5.9 million in the nine months ended September 30, 2021 as compared to the corresponding period in 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 $8.1 million in the nine months ended September 30, 2021 as compared to the corresponding period in 2020, principally as a result of increases in new product development, testing fees and personnel costs. Research and development expense represented 13.0% and 11.9% of our revenue in the nine months ended September 30, 2021 and 2020, respectively. Without reduction by grant amounts received from PRC governmental authorities (see “—Government Research and Development Funding”), gross research and development expense totaled $28.4 million, or 17.3% of total revenue, in the nine months ended September 30, 2021 and $14.0 million, or 12.6% of revenue, in the corresponding period in 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 ~~$1.5~~$2.0 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to the corresponding period in 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 including insurance; and

allocated overhead for rent and utilities.

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Unrealized ~~loss~~gain from trading securities

	Nine Months Ended September 30,
	2021		2020		% Change 2021 v 2020
	(in thousands)
Unrealized gain on trading securities		1,817		8,970		-79.7	%

We recorded an unrealized ~~loss~~gain of ~~$1.0~~$1.8 million for the ~~three~~nine months ended ~~March 31,~~September 30, 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 1516 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 March 31,									Nine Months Ended September 30,
	2021			2020			% Change 2021 v 2020			2021			2020			% Change 2021 v 2020
	(in thousands)									(in thousands)
Interest Income	$	49		$	335			-85.4	%	$	113		$	834			-86.5	%
Interest Expense		(189	)		(111	)		70.3	%		(574	)		(611	)		-6.1	%
Interest Income (expense), net	$	(140	)	$	224			-162.5	%	$	(461	)	$	223			-306.7	%

Other income, net	$	469		$	677			-30.7	%	$	(683	)	$	(933	)		-26.8	%

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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 incurred ~~$140,000~~$461,000 of interest expense, net in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to ~~$224,000~~$223,000 of net interest income in the corresponding period in 2020. This was a result of a lower balance of cash and equivalents and lower interest rates on these balances, offset by increased borrowings under short-term and long-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~~increased by ~~$208,000~~$0.3 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to Other income (expense) in the corresponding period in 2020, due primarily to a smaller realized ~~gain~~loss of ~~$411,000~~$683,000 resulting from changes in the RMB-to-U.S. dollar exchange rate, compared to a realized gain of ~~$575,000~~$2.0 million in the prior year period.

Income Tax Benefit (Expense)

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

Three Months Ended March 31,
2021 2020
(in thousands)
Total income tax benefit (expense) $ 2,770 $ (304 )

	Nine Months Ended September 30,
	2021			2020
	(in thousands)
Total income tax benefit (expense)		$	3,021		$	(416	)

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We recognized a tax benefit of ~~$2.8~~$3.0 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 as compared to a tax expense of ~~$0.3 million~~($416,000) 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%~~12.5% to 25% for Chinese income tax purposes due to the treatment of stock-based 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%~~12.5% 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. In 2021, ACM Shanghai was certified as an eligible integrated circuit production enterprise and is entitled to a preferential income tax rate of 12.5% from January 1, 2020 to December 31, 2022.

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~~2002 through 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~~

~~The CARES Act has not had 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 March 31,
2021 2020
% Change
2021 v 2020

(in thousands)
Net income attributable to non-controlling interests $ 352 $ 258 36.4 %

	Nine Months Ended September 30,
	2021		2020		% Change 2021 v 2020
	(in thousands)
Net income attributable to non-controlling interests	$	2,114	$	2,228		-5.1	%

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~~nine months ended ~~March 31,~~September 30, 2021, this amount totaled ~~$352,000~~$2.1 million as compared to ~~$258,000~~$2.3 million in the corresponding period in 2020.

Liquidity and Capital Resources

During the first ~~three~~nine months of 2021, we funded our technology development and operations principally through our beginning cash balance 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.

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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 provided cash flow of $10.7 million in the first three months of 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 ~~three~~nine months ended ~~March 31,~~September 30, 2021, we received proceeds of ~~$1.4~~$3.1 million from sales of Class A common stock pursuant to option ~~exercises.~~exercises, and we received proceeds of $1.8 million pursuant to a warrant exercise for shares of Class A common stock.

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

Lender	Agreement Date	Maturity Date	Annual Interest Rate			Maximum Borrowing Amount(1)		Amount Outstanding at March 31, 2021		Agreement Date	Maturity Date	Annual Interest Rate			Maximum Borrowing Amount(1)		Amount Outstanding at September 30, 2021
						(in thousands)									(in thousands)
Bank of Shanghai Pudong Branch	April 2020	May 2021 - June 2021		3.48%-4.68	%	RMB70,000		RMB54,911		June 2021	June 2022		2.70	%	RMB100,000		RMB29,946
						$	10,654	$	8,357
Bank of Communications	April 2020	April 2021 - May 2021		3.65%-4.65	%	RMB20,000		RMB20,000
						$	3,044	$	3,044						$	15,420	$	4,618
China Everbright Bank	April 2020	April 2021 - September 2021		2.5%-4.7	%	RMB80,000		RMB41,424		July 2021	June 2024				RMB150,000		$	0
						$	12,176	$	6,305						$	23,130	$	0
China Merchants Bank	August 2020	August 2021 -February 2022		3.85	%	RMB80,000		RMB38,000		August 2020	February 2022 - May 2022		3.85%-3.95	%	RMB80,000		RMB46,000
						$	12,176	$	5,784						$	12,336	$	7,093
Bank of China										June 2021	June 2022		3.86	%	RMB40,000		RMB19,900
															$	6,168	$	3,068
China Merchants Bank	November 2020	Repayable by installments and the last installments repayable in November 2030		4.65	%	RMB128,500		RMB125,108		November 2020	Repayable by installments and the last installments repayable in November 2030		4.65	%	RMB128,500		RMB119,920
															$	19,815	$	18,492
Bank of China										June 2021	Repayable by installments and the last installments repayable in June 2024		2.60	%	RMB10,000		RMB10,000
															$	1,542	$	1,542
Bank of China										September 2021	Repayable by installments and the last installments repayable in September 2024		2.60	%	RMB35,000		RMB35,000
						$	19,558	$	19,042						$	5,397	$	5,397
Industrial Bank of Korea	July 2020	July 2021		3.99	%	KRW500,000		NIL		July 2021	July 2022		5.40	%	KRW500,000		KRW500,000
						$	428		-						$	422	$	422
						$	58,036	$	42,532						$	84,230	$	40,632

(1)

Converted from RMB to dollars as of ~~March 31,~~September 30, 2021. All of the amounts owing under the line of credit with China Everbright Bank 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, Chief Executive Officer of ACM Research (Korea).

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Government Research and Development Grants. As described under “—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 ~~$584,000~~$4.2 million related to such grants in the first ~~three~~nine months of 2021, as compared to received cash payments of ~~$1.9~~$2.9 million in the same period 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:

March 31, 2021
(in thousands)
Total current assets $ 286,552
Total current liabilities 128,035
Working capital $ 158,517

	September 30, 2021
	(in thousands)
Cash and cash equivalents	$	65,036
Accounts receivable, less allowance for doubtful amounts		84,787
Inventory		176,609
Working capital	$	326,432

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Our cash and cash equivalents at ~~March 31,~~September 30, 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

Cash Flow Used by Operating Activities. Our operations used cash flow of $3.8 million in the first nine months of 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.

Capital Expenditures. We incurred ~~$1.6~~$5.5 million in capital expenditures during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, versus ~~$0.1~~$3.7 million in ~~million~~ capital expenditures in the same period of 2020. Capital expenditures in the ~~three~~nine months ended ~~March 31,~~September 30, 2021 were incurred principally for the addition of production capacity and general maintenance and improvements to our global facilities.

Off-Balance Sheet Arrangements

As of ~~March 31,~~September 30, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K of the Securities and Exchange Commission.

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

Our market risks and the ways we manage them are summarized in the section captioned “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual ~~Report on Form 10-K for the year ended December 31, 2020.~~Report. There have been no material changes in the first ~~three~~nine months of 2021 to our market risks or to our management of such 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 Officer and Chief Financial Officer, evaluated the effectiveness of our company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, or the Exchange Act, as of ~~December 31, 2020.~~September 30, 2021. The evaluation included certain internal control areas in which we have made and are continuing to make changes to improve and enhance controls. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The effectiveness of the disclosure 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 employees working remotely and management travel being limited. In addition, we face potential heightened cybersecurity risks as our level of dependence on our IT networks and related 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.

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Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~March 31,~~September 30, 2021, our company’s disclosure controls and procedures were 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

There were no changes in our internal control over financial reporting during the three months ended ~~March 31,~~September 30, 2021 that have materially affected, or are 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.

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 .~~lawsuit. On May 27, 2021, defendants filed a motion to dismiss Mr. Kain’s complaint. On September 9, 2021, the court granted defendants’ motion to dismiss with leave to amend. On October 7, 2021, Mr. Kain filed a second amended complaint. On October 21, 2021, defendants filed a motion to dismiss Mr. Kain’s second amended complaint. Defendants’ motion to dismiss is currently scheduled to be heard by the court on December 2, 2021. 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 these 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.

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ITEM 1A.

RISK FACTORS

Except as set forth below, there were no material changes to the risk factors discussed in ~~Item~~“Item 1A, ~~“Risk~~Risk Factors” of Part I in our Annual ~~Report.~~Report on Form 10-K for the fiscal year ended December 31, 2020, as amended and supplemented by the information in “Item 1A. Risk Factors” of Part II in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021. In addition to the other information set forth in this report, you should carefully consider those risk factors, as so amended and supplemented, 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.

We 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 auditor, 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 deprived of the benefits of such inspections.” in our 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.”

On March 24, 2021, the U.S. Securities and Exchange Commission, or SEC, adopted interim final amendments to implement congressionally mandated submission and disclosure required of the U.S. Holding 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 a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant. This action is the latest in a series of recent proposed actions:

In December 2018 the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by U.S. regulators in their oversight of financial 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 U.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 delisting from U.S. stock exchanges of reporting companies included on the SEC’s list for three consecutive years.

In May 2020 the U.S. Senate approved a bill entitled the “Holding Foreign Companies Accountable Act,” which, if also approved by the U.S. House of Representatives, 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 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.

It remains unclear what the 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. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange. Any such actions could materially affect our operations and stock price, including by resulting in our being de-listed from Nasdaq or being required to engage a new audit firm, which would require significant expense and management time.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~Recent Sales of Unregistered Equity Securities~~

In the three months ended ~~March 31,~~September 30, 2021, we issued, pursuant to the exercise of stock options at a per share exercise price of ~~$0.75~~$1.50 per share, an aggregate of ~~109,152~~6,000 shares of Class A common stock that were not registered under the Securities Act of 1933. We believe the offer and sale of those 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 they did not involve a public offering. The recipients of the shares acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were recorded with respect to the shares. ~~The recipients of the shares were accredited investors under 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 filed as part of this report:

Exhibit No.		Description
		Certificate of Incorporation:
3.01(a)		Restated Certificate of Incorporation of ACM Research, Inc. dated November 7, 2017 (incorporated by reference to Exhibit 3.01 to Current Report on Form 8-K filed on November 14, 2017)
~~10.01*+±~~3.01(b)		~~Plant Lease Contract dated as~~ Certificate of ~~February 1, 2021 between~~ Amendment to Restated Certificate of Incorporation of ACM Research, ~~(Shanghai)~~Inc., ~~Inc. and Shanghai Shengyu Culture Development Co., Ltd.~~dated July 13, 2021 (incorporated by reference to Exhibit 3.01 to Current Report on Form 8-K filed on July 13, 2021)
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
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101)

*	~~Unofficial English translation of original document prepared in Mandarin Chinese.~~

+	~~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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SIGNATURE~~SIGNATURES~~

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

	ACM RESEARCH, INC.

Date: ~~May 7,~~November 5, 2021	By:	/s/ Mark McKechnie
		Mark McKechnie
		Chief Financial Officer, Executive Vice President and Treasurer (Principal Financial Officer)

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