Washington, D.C. 20549
ACM Research, Inc.
| | |
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 Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐☑ |
Non-accelerated filer | ☐ | Smaller reporting company | ☑ |
| | Emerging growth company | ☑ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) 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 ☑
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered |
Class A Common Stock, $0.0001 par value per share | ACMR | Nasdaq Global Market |
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 | | 14,196,96616,327,346 shares outstanding as of May 9, 201904, 2020 |
Class B Common Stock, $0.0001 par value | | 1,895,0901,852,608 shares outstanding as of May 9, 201904, 2020 |
| | 4 |
| Item 1. | | 4 |
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| 4 |
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| 4 |
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| 5 |
| | | 6 |
| | | 67 |
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| 78 |
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| | 2022 |
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| | 3136 |
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| | 3136 |
PART II. | | 37 |
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| 32 | 37 |
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| 32 |
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| 3237 |
| Item 6. | | 38 |
| 32 |
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| 3339 |
We conduct our business operations principally through ACM Research (Shanghai), Inc., or ACM Shanghai, a subsidiary of ACM Research, Inc., or ACM Research. Unless the context requires otherwise, references in this report to “our company,” “our,” “us,” “we” and similar terms refer to ACM Research, Inc. (including its predecessor prior to its redomestication from California to Delaware in November 2016) and its subsidiaries, (includingincluding ACM Shanghai),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 and ULTRA C 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.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors, including those described or incorporated by reference in “Item 1A. Risk Factors” of Part II of this report, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.
The information included in this report under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview” contains statistical data and estimates, including forecasts, that are based on information provided by Gartner, Inc., or Gartner, in “Forecast: Semiconductor Wafer Fab Manufacturing Equipment (Including Wafer-Level Packaging), Worldwide, 4Q19 Update” (December 2019), 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.
PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATIONItem 1.Financial StatementsCondensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
| | | | | | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 52,283 | | | $ | 58,261 | |
Restricted cash | | | 58,726 | | | | 59,598 | |
Accounts receivable, less allowance for doubtful accounts of $0 as of March 31, 2020 and $0 as of December 31, 2019 (note 3) | | | 37,260 | | | | 31,091 | |
Other receivables | | | 3,236 | | | | 2,603 | |
Inventories (note 4) | | | 44,987 | | | | 44,796 | |
Prepaid expenses | | | 1,985 | | | | 2,047 | |
Total current assets | | | 198,477 | | | | 198,396 | |
Property, plant and equipment, net (note 5) | | | 3,495 | | | | 3,619 | |
Operating lease right-of-use assets, net (note 8) | | | 3,547 | | | | 3,887 | |
Intangible assets, net | | | 307 | | | | 344 | |
Deferred tax assets (note 15) | | | 5,212 | | | | 5,331 | |
Long-term investments (note 10) | | | 6,015 | | | | 5,934 | |
Other long-term assets | | | 155 | | | | 192 | |
Total assets | | | 217,208 | | | | 217,703 | |
Liabilities, Redeemable Non-controlling Interests and Stockholders’ Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Short-term borrowings (note 6) | | | 3,892 | | | | 13,753 | |
Accounts payable | | | 18,616 | | | | 13,262 | |
Advances from customers | | | 9,236 | | | | 9,129 | |
Income taxes payable | | | 3,347 | | | | 3,129 | |
Other payables and accrued expenses (note 7) | | | 14,331 | | | | 12,874 | |
Current portion of operating lease liability (note 8) | | | 1,345 | | | | 1,355 | |
Total current liabilities | | | 50,767 | | | | 53,502 | |
Long-term operating lease liability (note 8) | | | 2,202 | | | | 2,532 | |
Other long-term liabilities (note 9) | | | 5,830 | | | | 4,186 | |
Total liabilities | | | 58,799 | | | | 60,220 | |
Commitments and contingencies (note 17) | | | | | | | | |
Redeemable non-controlling interests (note 13) | | | 59,467 | | | | 60,162 | |
Stockholders’ equity: | | | | | | | | |
Common stock – Class A, par value $0.0001: 50,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 16,317,346 shares issued and outstanding as of March 31, 2020 and 16,182,151 shares issued and outstanding as of December 31, 2019 (note 12) | | | 2 | | | | 2 | |
Common stock–Class B, par value $0.0001: 2,409,738 shares authorized as of March 31, 2020 and December 31, 2019; 1,862,608 shares issued and outstanding as of March 31, 2020 and December 31, 2019 (note 12) | | | - | | | | - | |
Additional paid in capital | | | 84,351 | | | | 83,487 | |
Accumulated surplus | | | 17,212 | | | | 15,507 | |
Accumulated other comprehensive loss | | | (2,623 | ) | | | (1,675 | ) |
Total stockholders’ equity | | | 98,942 | | | | 97,321 | |
Total liabilities, redeemable non-controlling interests, and stockholders’ equity | | $ | 217,208 | | | $ | 217,703 | |
| March 31, 2019 | December 31, 2018 |
| (unaudited) |
| (in thousands, except share and per share data) |
Assets | | |
Current assets: | | |
Cash and cash equivalents | $27,367 | $27,124 |
Accounts receivable, less allowance for doubtful accounts of $0 as of March 31, 2019 and $0 as of December 31, 2018 (note 3) | 25,070 | 24,608 |
Other receivables | 2,982 | 3,547 |
Inventories (note 4) | 42,253 | 38,764 |
Prepaid expenses | 1,833 | 1,985 |
Total current assets | 99,505 | 96,028 |
Property, plant and equipment, net (note 5) | 3,719 | 3,708 |
Operating lease right-of-use assets, net (note 8) | 4,787 | - |
Intangible assets, net | 263 | 274 |
Deferred tax assets (note 15) | 1,669 | 1,637 |
Investment in affiliates, equity method (note 10) | 1,476 | 1,360 |
Other long-term assets | - | 40 |
Total assets | 111,419 | 103,047 |
Liabilities and Stockholders’ Equity | | |
Current liabilities: | | |
Short-term borrowings (note 6) | 12,829 | 9,447 |
Accounts payable | 13,333 | 16,673 |
Advances from customers | 8,469 | 8,417 |
Income taxes payable | 1,228 | 1,193 |
Other payables and accrued expenses (note 7) | 11,834 | 10,410 |
Current portion of operating lease liability (note 8) | 1,326 | - |
Total current liabilities | 49,019 | 46,140 |
Long-term operating lease liability (note 8) | 3,462 | - |
Other long-term liabilities (note 9) | 3,296 | 4,583 |
Total liabilities | 55,777 | 50,723 |
Commitments and contingencies (note 16) | | |
Stockholders’ equity: | | |
Common stock – Class A, par value $0.0001: 100,000,000 shares authorized as of March 31, 2019 and December 31, 2018. 14,176,690 shares issued and outstanding as of March 31, 2019 and 14,110,315 shares issued and outstanding as of December 31, 2018 (note 13) | 1 | 1 |
Common stock–Class B, par value $0.0001: 7,303,533 shares authorized as of March 31, 2019 and December 31, 2018. 1,898,423 shares issued and outstanding as of March 31, 2019 and 1,898,423 shares issued and outstanding as of December 31, 2018 (note 13) | - | - |
Additional paid in capital | 57,371 | 56,567 |
Accumulated deficit | (1,530) | (3,387) |
Accumulated other comprehensive loss | (200) | (857) |
Total stockholders’ equity | 55,642 | 52,324 |
Total liabilities and stockholders’ equity | $111,419 | $103,047 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ACM RESEARCH, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income (In thousands, except share and per share data)
(Unaudited)
| | Three Months Ended March 31, | |
| | 2020 | | | 2019 | |
Revenue | | $ | 24,348 | | | $ | 20,479 | |
Cost of revenue | | | 14,120 | | | | 11,653 | |
Gross profit | | | 10,228 | | | | 8,826 | |
Operating expenses: | | | | | | | | |
Sales and marketing | | | 3,005 | | | | 1,869 | |
Research and development | | | 3,677 | | | | 2,765 | |
General and administrative | | | 2,328 | | | | 1,941 | |
Total operating expenses, net | | | 9,010 | | | | 6,575 | |
Income from operations | | | 1,218 | | | | 2,251 | |
Interest income | | | 335 | | | | 9 | |
Interest expense | | | (111 | ) | | | (139 | ) |
Other income (expense), net | | | 677 | | | | (261 | ) |
Equity income in net income of affiliates | | | 148 | | | | 116 | |
Income before income taxes | | | 2,267 | | | | 1,976 | |
Income tax expense (note 15) | | | (304 | ) | | | (119 | ) |
Net income | | | 1,963 | | | | 1,857 | |
Less: Net income attributable to redeemable non-controlling interests | | | 258 | | | | - | |
Net income attributable to ACM Research, Inc. | | $ | 1,705 | | | $ | 1,857 | |
Comprehensive income: | | | | | | | | |
Net income | | | 1,963 | | | | 1,857 | |
Foreign currency translation adjustment | | | (1,900 | ) | | | 657 | |
Comprehensive Income
| | | 63 | | | | 2,514 | |
Less: Comprehensive income attributable to redeemable non-controlling interests | | | (694 | ) | | | - | |
Comprehensive income attributable to ACM Research, Inc. | | $ | 757 | | | $ | 2,514 | |
| | | | | | | | |
Net income attributable to ACM Research, Inc. per common share (note 2): | | | | | | | | |
Basic | | $ | 0.09 | | | $ | 0.12 | |
Diluted | | $ | 0.08 | | | $ | 0.10 | |
| | | | | | | | |
Weighted average common shares outstanding used in computing per share amounts (note 2): | | | | | |
Basic | | | 18,120,363 | | | | 16,044,655 | |
Diluted | | | 21,066,636 | | | | 18,225,317 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ACM RESEARCH, INC.
Condensed Consolidated Statements of
OperationsChanges in Stockholders’ EquityFor the Three Months Ended March 31, 2020 and Comprehensive Income (Loss)2019
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | 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 | | | $ | - | | | $ | 83,487 | | | $ | 15,507 | | | $ | (1,675 | ) | | $ | 97,321 | |
Net income attributable to ACM Research, Inc. | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,705 | | | | - | | | | 1,705 | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (948 | ) | | | (948 | ) |
Exercise of stock options | | | 70,478 | | | | - | | | | - | | | | - | | | | 175 | | | | - | | | | - | | | | 175 | |
Stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | 689 | | | | - | | | | - | | | | 689 | |
Exercise of stock warrants | | | 64,717 | | | | - | | | | - | | | | - | | | | | | | | - | | | | - | | | | - | |
Balance at March 31, 2020 | | | 16,317,346 | | | $ | 2 | | | | 1,862,608 | | | $ | - | | | $ | 84,351 | | | $ | 17,212 | | | $ | (2,623 | ) | | $ | 98,942 | |
| Three Months Ended March 31, |
| 2019 | 2018 |
| (Unaudited) |
| ( In thousands, except share and per share data) |
Revenue | $20,479 | $9,743 |
Cost of revenue | 11,653 | 4,621 |
Gross profit | 8,826 | 5,122 |
Operating expenses: | | |
Sales and marketing | 1,869 | 1,855 |
Research and development | 2,765 | 1,541 |
General and administrative | 1,941 | 3,630 |
Total operating expenses, net | 6,575 | 7,026 |
Income (loss) from operations | 2,251 | (1,904) |
Interest income | 9 | 3 |
Interest expense | (139) | (103) |
Other expense, net | (261) | (755) |
Equity income in net income of affiliates | 116 | 1 |
Income (loss) before income taxes | 1,976 | (2,758) |
Income tax expense (note 15) | (119) | (22) |
Net income (loss) | $1,857 | $(2,780) |
Comprehensive income (loss): | | |
Net income (loss) | 1,857 | (2,780) |
Foreign currency translation adjustment | 657 | 705 |
Total comprehensive Income (loss) (note 2) | $2,514 | $(2,075) |
| | |
Net income (loss) per common share (note 2): | | |
Basic | $0.12 | $(0.18) |
Diluted | $0.10 | $(0.18) |
| | |
Weighted average common shares outstanding used in computing per share amounts (note2): | | |
Basic | 16,044,655 | 15,383,086 |
Diluted | 18,225,317 | 15,383,086 |
| | | | | | | | | | | | | | | | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Additional Paid- in Capital | | | Accumulated Deficit | | | Accumulated Other Comprehensive Loss | | | Total Stockholders’ Equity | |
Balance at December 31, 2018 | | | 14,110,315 | | | $ | 1 | | | | 1,898,423 | | | $ | - | | | $ | 56,567 | | | $ | (3,387 | ) | | $ | (857 | ) | | $ | 52,324 | |
Net income attributable to ACM Research, Inc. | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,857 | | | | - | | | | 1,857 | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 657 | | | | 657 | |
Exercise of stock options | | | 66,375 | | | | - | | | | - | | | | - | | | | 60 | | | | - | | | | - | | | | 60 | |
Stock-based compensation | | | - | | | | - | | | | - | | | | - | | | | 744 | | | | - | | | | - | | | | 744 | |
Balance at March 31, 2019 | | | 14,176,690 | | | $ | 1 | | | | 1,898,423 | | | | - | | | $ | 57,371 | | | $ | (1,530 | ) | | $ | (200 | ) | | $ | 55,642 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ACM RESEARCH, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(in thousands, except share and per share data)
| | | | | | |
| | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | Total Stockholders’ Equity (Deficit) |
Balance at January 1, 2019 | 14,110,315 | $1 | 1,898,423 | $- | $56,567 | $(3,387) | $(857) | $52,324 |
Net income | - | - | - | - | - | 1,857 | - | 1,857 |
Foreign currency translation adjustment | - | - | - | - | - | - | 657 | 657 |
Exercise of stock option | 66,375 | - | - | - | 60 | - | - | 60 |
| - | - | - | - | 744 | - | - | 744 |
Balance at March 31, 2019 | 14,176,690 | $1 | 1,898,423 | $- | $57,371 | $(1,530) | $(200) | $55,642 |
| | | | | | |
| | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | Total Stockholders’ Equity (Deficit) |
Balance at January 1, 2018 | 12,935,546 | $1 | 2,409,738 | $- | $49,695 | $(9,961) | $122 | $39,857 |
Net income | - | - | - | - | - | (2,780) | - | (2,780) |
Foreign currency translation adjustment | - | - | - | - | - | - | 705 | 705 |
Exercise of stock option | 57,222 | - | - | - | 64 | - | - | 64 |
Stock-based compensation | - | - | - | - | 2,175 | - | - | 2,175 |
Exercise of common stock warrant issued to SMC | 397,502 | - | - | - | 2,981 | - | - | 2,981 |
Balance at March 31, 2018 | 13,390,270 | $1 | 2,409,738 | $- | $54,915 | $(12,741) | $827 | $43,002 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |
| | | | Three Months Ended March 31, | |
| | | 2020 | | 2019 | |
Cash flows from operating activities: | | | | | | |
Net income (loss) | $1,857 | $(2,780) | |
Adjustments to reconcile net loss from operations to net cash provided by | | |
operating activities: | | |
Net income | | | $ | 1,963 | | | $ | 1,857 | |
Adjustments to reconcile net income from operations to net cash used in operating activities: | | | | | | | | | |
Depreciation and amortization | 191 | 80 | | | 212 | | | | 191 | |
Equity income in net income of affiliates | (116) | (1) | | | (148 | ) | | | (116 | ) |
Deferred income taxes | - | | | 35 | | | | - | |
Stock-based compensation | 744 | 2,175 | | | 689 | | | | 744 | |
Net changes in operating assets and liabilities: | | | | | | | | - | |
Accounts receivable | 99 | 14 | | | (6,902 | ) | | | 99 | |
Other receivables | 669 | 1,331 | | | (683 | ) | | | 669 | |
Inventory | (2,759) | (3,896) | | | (931 | ) | | | (2,759 | ) |
Prepaid expenses | 190 | (1,791) | | | (11 | ) | | | 190 | |
Other current assets | - | 3 | |
Other long-term assets | | | | 36 | | | | - | |
Accounts payable | (3,757) | (2,364) | | | 5,617 | | | | (3,757 | ) |
Advances from customers | 45 | 87 | | | 195 | | | | 45 | |
Income tax payable | 15 | - | | | 263 | | | | 15 | |
Other payables and accrued expenses | 1,013 | 27 | | | 1,779 | | | | 1,013 | |
Other long-term liabilities | (1,373) | (278) | | | 1,715 | | | | (1,373 | ) |
Net cash used in operating activities | (3,182) | (7,393) | |
Net cash provided by (used in) operating activities | | | | 3,829 | | | | (3,182 | ) |
| | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment | (115) | (395) | | | (118 | ) | | | (115 | ) |
Purchase of intangible assets | (1) | - | | | - | | | | (1 | ) |
Net cash used in investing activities | (116) | (395) | | | (118 | ) | | | (116 | ) |
| | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from short-term borrowings | 8,285 | 7,387 | | | 2,681 | | | | 8,285 | |
Repayments of short-term borrowings | (5,084) | (2,306) | | | (12,415 | ) | | | (5,084 | ) |
Proceeds from stock option exercise to common stock | 60 | 62 | | | 175 | | | | 60 | |
Net cash provided by financing activities | 3,261 | 5,143 | |
Net cash provided by (used in) financing activities | | | | (9,559 | ) | | | 3,261 | |
| | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | $280 | $150 | |
Net (decrease) increase in cash and cash equivalents | $243 | $(2,495) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | $ | (1,002 | ) | | $ | 280 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | $ | (6,850 | ) | | $ | 243 | |
| | | | | | | | | |
Cash and cash equivalents at beginning of period | 27,124 | 17,681 | |
Cash and cash equivalents at end of period | $27,367 | $15,186 | |
Cash, cash equivalents and restricted cash at beginning of period | | | | 117,859 | | | | 27,124 | |
Cash, cash equivalents and restricted cash at end of period | | | $ | 111,009 | | | $ | 27,367 | |
| | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | |
Interest paid | $139 | $103 | | $ | 111 | | | $ | 139 | |
| | | | | | | | | |
Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows: | | | | | | | | | |
Cash and cash equivalents | | | | 52,283 | | | | 27,367 | |
Restricted cash | | | | 58,726 | | | | - | |
Cash, cash equivalents and restricted cash | | | $ | 111,009 | | | $ | 27,367 | |
Non-cash financing activities: | | | | | | | | | |
Warrant conversion to common stock | | | $ | 399 | | | $ | - | |
The accompanying notes are an integral part of these condensed consolidated financial statements
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (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 single-wafer wet cleaning equipment used to improve the manufacturing process and yield for advanced integrated chips. The Company markets and sells its single-wafer wet-cleaning equipment, under the brand name “Ultra C,” based on the Company’s proprietary Space Alternated Phase Shift (“SAPS”) and Timely Energized Bubble Oscillation (“TEBO”) 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. 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.
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.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(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 condensed consolidated financial statements have been adjusted retrospectively to reflect the reverse stock split.
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., to manage activities related to addition of future long-term production capacity. The subsidiary was formed with registered capital of RMB 5,000 ($727). As of March 31, 2020, $142 had been injected into this subsidiary.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
In June 2019 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 next three years a listing (the “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. As an initial step in qualifying for the Listing and STAR IPO, in June 2019 ACM Shanghai entered into agreements with seven investors (the “First Tranche Investors”), pursuant to which the First Tranche Investors agreed to pay a purchase price totaling RMB 187,900 (equivalent to $27,300) to ACM Shanghai for shares representing 4.2% of the then-outstanding ACM Shanghai shares. In November 2019 ACM Shanghai entered into agreements with eight PRC-based investment firms (the “Second Tranche Investors”), pursuant to which the Second Tranche Investors agreed to acquire shares of ACM Shanghai for an aggregate of RMB 228,200 (equivalent to $32,400) for the same purchase price per share paid by the First Tranche Investors. Following the issuance of shares to the Second Tranche Investors, 91.7% of the outstanding shares of ACM Shanghai were owned by ACM, 3.8% were owned by the First Tranche Investors, and 4.5% were owned by the Second Tranche Investors. Because the First Tranche Investors and the Second Tranche Investors have the right to require ACM Shanghai to repurchase their ownership interests in ACM Shanghai at a fixed purchase price, those ownership interests are classified as redeemable non-controlling interests.
In preparation for the STAR IPO, ACM completed a reorganization in December 2019 that included the sale of all of the shares of Cleanchip by ACM to ACM Shanghai for $3,500. The reorganization and sale had no impact on ACM’s consolidated financial statements.
The Company has direct or indirect interests in the following subsidiaries:
| | | Effective interest held as at | |
Name of subsidiaries | Place and date of incorporation | | | | | | |
ACM Research (Shanghai), Inc. | China, May 2006 | | | 91.7 | % | | | 91.7 | % |
ACM Research (Wuxi), Inc. | China, 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 | % |
Shangwei Research (Shanghai), Inc. | China, 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 | % |
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements include the accounts includeof 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. SubsidiariesKorea). ACM’s subsidiaries are those entities in which ACM, directly and indirectly, controls more than one half 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 SECSecurities and Exchange Commission for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements herein. The unaudited condensed consolidated financial statements herein should be read in conjunction with the historical consolidated financial statements of the Company for the year ended December 31, 20182019 included in the Company’sACM’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
The accompanying condensed consolidated balance sheet as of March 31, 2019,2020, the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2020 and 2019, the condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2020 and 2018,2019, and the condensed consolidated statements of cash flows for the three months ended March 31, 20192020 and 20182019 are unaudited. In the opinion of management, the 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, 20192020 and the results of operations for the three months ended March 31, 20192020 are not necessarily indicative of the results to be expected for any future period.
COVID-19 Assessment
The outbreak of COVID‑19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. COVID‑19 originated in Wuhan, China, in December 2019, and a series of emergency quarantine measures taken by the PRC government disrupted domestic business activities in the PRC during the weeks after the initial outbreak of COVID‑19. Since that time, an increasing number of countries, including the United States, have imposed restrictions on travel to and from the PRC and elsewhere, as well as general movement restrictions, business closures and other measures imposed to slow the spread of COVID‑19. The situation continues to develop rapidly, however, and it is impossible to predict the effect and ultimate impact of the COVID‑19 outbreak on the Company’s business operations and results. While the quarantine, social distancing and other regulatory measures instituted or recommended in response to COVID‑19 are expected to be temporary, the duration of the business disruptions, and related financial impact, cannot be estimated at this time. The COVID‑19 outbreak has been declared a worldwide health pandemic that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn and changes in global economic policy that could reduce demand for the Company’s products and its customers’ chips and have a material adverse impact on the Company’s business, operating results and financial condition.
Use of Estimates
The preparation of condensed 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 revenue and expenses during the reported period in the condensed consolidated financial statements and accompanying notes. The Company’s significant accounting estimates and assumptions include, but are not limited to, those used for the valuation and recognition of 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 of the Company believes that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results could differ materially from those estimates.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Basic and Diluted Net Income (Loss) per Common Share
Basic and diluted net income (loss) per common share is calculated as follows:
| Three Months Ended March 31, |
| | |
Numerator: | | |
Net income (loss) | $1,857 | $(2,780) |
Denominator: | | |
Weighted average shares outstanding, basic | 16,044,655 | 15,383,086 |
Effect of dilutive securities | 2,180,662 | - |
Weighted average shares outstanding, diluted | 18,225,317 | 15,383,086 |
Net income (loss) per common share: | | |
Basic | $0.12 | $(0.18) |
Diluted | $0.10 | $(0.18) |
| | Three Months Ended March 31, | |
| | 2020 | | | 2019 | |
Numerator: | | | | | | |
Net income | | $ | 1,963 | | | $ | 1,857 | |
Net income attributable to redeemable non-controlling interest | | | 258 | | | | - | |
Net income available to common stockholders, basic and diluted | | $ | 1,705 | | | $ | 1,857 | |
| | | | | | | | |
Weighted average shares outstanding, basic | | | 18,120,363 | | | | 16,044,655 | |
Effect of dilutive securities | | | 2,946,273 | | | | 2,180,662 | |
Weighted average shares outstanding, diluted | | | 21,066,636 | | | | 18,225,317 | |
| | | | | | | | |
Net income per common share: | | | | | | | | |
Basic | | $ | 0.09 | | | $ | 0.12 | |
Diluted | | $ | 0.08 | | | $ | 0.10 | |
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 months ended March 31, 20192020 and 2018,2019, the net income (loss) per common share attributable to each class is the same under the “two-class” method. As such, the two classes of common stock have been presented on a combined basis in the condensed consolidated statements of operations and comprehensive income (loss) and in the above computation of net income (loss)per common share.
Diluted net income (loss) per common share reflects the potential dilution from securities that could share in ACM’s earnings. ACM’s potential dilutive securities consist of convertible preferred stocks, warrants and stock options for the three months ended March 31, 20192020 and 2018. Certain potential dilutive securities were excluded from the net income (loss) per share calculation because the impact would be anti-dilutive.2019.
Concentration of Credit Risk
The Company is potentially subject to concentrations of credit risks in its accounts receivable. For the three months ended March 31, 2020 and 2019, the Company’s three largest customers for the period accounted for 97.4% and 62.7% of revenue. As of March 31, 2020 and December 31, 2019 the Company’s three largest customers accounted for 76.1% and 67.7% 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 February 2016,August 2018, the Financial Accounting Standards Board (“FASB” (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, 2018-13,Leases (Topic 842)(“ASU 2016-02”). The amendments in ASU 2016-02 create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP.
Effective January 1, 2019, we adopted the ASU 2016-02, Leases, which requires the recognition of lease assets and these liabilities by leases for those leases classified as an operating lease under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August, 2018, the FASB issues ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition which we elected. As a result of the adoption of ASC 842 on January 1, 2019, we recorded both operating lease right-of-use (“ROU”) assets of $5,109 and lease liabilities of $5,109. The adoption of ASC 842 had no impact on our profit or loss and cash flows for the three-month period ended March 31, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which allowed us to carry forward the historical lease classification. Additional information and disclosures required by this new standard are contained in Note 8, ‘Operating lease right-of-use assets’.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
In June 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation (Topic 718) — Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Some of the areas for simplification apply only to nonpublic entities. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASU 2018-07 also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under the New Revenue Standard.
Effective January 1, 2019, we adopted ASU 2018-07 and it did not have a material impact on our condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820)(“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The modified standard eliminates the requirement to disclose changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements and requires changes in unrealized gains and losses be included in other comprehensive income for recurring Level 3 fair value measurements of instruments. The standard also requires the disclosure of the range and weighted average used to develop significant unobservable inputs and how weighted average is calculate for recurring and nonrecurring Level 3 fair value measurements. The amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within that fiscal year, with early adoption permitted. We are currently evaluating the impact of theThe adoption of ASU 2018-13 did not have a material impact on ourthe Company’s consolidated financial statements.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and Other (Topic 350): Simplifying the Test for Goodwill Impairment(“ASU 2017-04”), which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. A business entity that is an SEC filer must adopt the amendments in ASU 2017-04 for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of the adoption of ASU 2017-04 on our consolidated financial statements.per share data)
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In October 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which defers the effective date for public filers that are considered small reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company is a smaller reporting company, implementation is not needed until 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. We will adopt ASU 2016-13 effective January 1, 2020. We are currentlyThe Company is evaluating the impact of this standard on ourits consolidated financial statements, including accounting policies, processes, and systems, but do not expectand expects the standard will have a materialminor impact on ourits consolidated financial statements.
ACM RESEARCH, INC.
In December 2019, the FASB issued ASU 2019-12, NotesIncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to Condensed Consolidated Financial Statements (unaudited)
(the general principles in thousands, except shareTopic 740. The amendments also improve consistent application of and per share data)simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is evaluating the impact of the adoption of ASU 2019-12, but does not expect it to have a material impact on income taxes as reported in its consolidated financial statements.
NOTE 3 – ACCOUNTS RECEIVABLE
At March 31, 20192020 and December 31, 2018,2019, accounts receivable consisted of the following:
| | | |
| | | | | | | | |
Accounts receivable | $25,070 | $24,608 | | $ | 37,260 | | | $ | 31,091 | |
Less: Allowance for doubtful accounts | - | | | - | | | | - | |
Total | $25,070 | $24,608 | | $ | 37,260 | | | $ | 31,091 | |
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. No allowance for doubtful accounts was considered necessary at March 31, 20192020 or December 31, 2018.2019. At March 31, 2019 2020 and December 31, 2018,2019, accounts receivable of $0 and $1,457, $1,433, respectively, were pledged as collateral for borrowings from financial institutions.
NOTE 4 – INVENTORIES
At March 31, 20192020 and December 31, 2018,2019, inventory consisted of the following:
| | | | | | | | |
Raw materials | $13,285 | $12,646 | | $ | 15,796 | | | $ | 15,105 | |
Work in process | 15,981 | 9,631 | | 17,622 | | | 10,407 | |
Finished goods | 12,987 | 16,487 | | | 11,569 | | | | 19,284 | |
Total inventory, gross | 42,253 | 38,764 | |
Inventory reserve | - | |
Total inventory, net | $42,253 | $38,764 | |
Total inventory
| | | $ | 44,987 | | | $ | 44,796 | |
At March 31, 2019 and December 31, 2018, the Company did not have an inventory reserve and no inventory was pledged as collateral for borrowings from financial institutions. System shipments of first-tools to an existing or prospective customer, for which ownership does not transfer until customer acceptance, are classified as finished goods inventory and carried at cost until ownership is transferred.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET
At March 31, 20192020 and December 31, 2018,2019, property, plant and equipment consisted of the following:
| | | |
| | | | | | | | |
Manufacturing equipment | $9,894 | $9,703 | | $ | 3,883 | | | $ | 3,902 | |
Office equipment | 549 | 512 | | 685 | | | 627 | |
Transportation equipment | 129 | 184 | | 170 | | | 124 | |
Leasehold improvement | 1,444 | 1,379 | | | 1,425 | | | | 1,442 | |
Total cost | 12,016 | 11,778 | | 6,163 | | | 6,095 | |
Less: Total accumulated depreciation | (8,377) | (8,102) | | (3,266 | ) | | (3,077 | ) |
Construction in progress | 80 | 32 | | | 598 | | | | 601 | |
Total property, plant and equipment, net | $3,719 | $3,708 | | $ | 3,495 | | | $ | 3,619 | |
Depreciation expense was $175$185 and $85$175 for the three months ended March 31, 20192020 and 2018,2019, respectively.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
NOTE 6 – SHORT-TERM BORROWINGS
At March 31, 20192020 and December 31, 2018,2019, short-term borrowings consisted of the following:
| | |
Line of credit up to RMB 50,000 from Bank of Shanghai Pudong Branch, due on April 17,2019 with an annual interest rate of 4.99%, guaranteed by the Company’s CEO and fully repaid on March 27, 2019. | $- | $3,133 |
Line of credit up to RMB 50,000 from Bank of Shanghai Pudong Branch, due on February 14,2019 with an annual interest rate of 5.15%, guaranteed by the Company’s CEO and fully repaid on February 14, 2019. | - | 485 |
Line of credit up to RMB 50,000 from Bank of Shanghai Pudong Branch, due on January 23, 2020 with an annual interest rate of 5.22%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.
| 668 | |
Line of credit up to RMB 30,000 from Bank of China Pudong Branch, due on June 06, 2019 with annual interest rate of 5.22%, secured by certain of the Company’s intellectual property and the Company’s CEO. | 2,228 | 2,186 |
Line of credit up to RMB 30,000 from Bank of China Pudong Branch, due on June 13, 2019 with annual interest rate of 5.22%, secured by certain of the Company’s intellectual property and the Company’s CEO. | 2,228 | 2,186 |
Line of credit up to RMB 10,000 from Shanghai Rural Commercial Bank, due on January 23, 2019 with an annual interest rate of 5.44%, guaranteed by the Company’s CEO and pledged by accounts receivable,and fully repaid on January 23, 2019. | - | 1,457 |
Line of credit up to RMB 20,000 from Shanghai Rural Commercial Bank, due on February 21, 2020 with an annual interest rate of 5.66%, guaranteed by the Company’s CEO and pledged by accounts receivable. | 1,485 | |
Line of credit up to RMB 20,000 from Bank of Communications, due on January 18, 2020 with an annual interest rate of 5.66%. | 1,485 | |
Line of credit up to RMB 20,000 from Bank of Communications, due on January 22, 2020 with an annual interest rate of 5.66%. | 743 | |
Line of credit up to RMB 20,000 from Bank of Communications, due on February 14, 2020 with an annual interest rate of 5.66%. | 742 | |
Line of credit up to RMB 50,000 from China Everbright Bank, due on March 25, 2020 with an annual interest rate of 4.94%, guaranteed by the Company’s CEO. | 3,250 | |
Total | $12,829 | $9,447 |
| | | | | | |
Line of credit up to RMB 50,000 from Bank of Shanghai Pudong Branch, due on January 23, 2020 with an annual interest rate of 5.22%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.It was fully repaid on January 23, 2020. | | | - | | | | 5,057 | |
Line of credit up to RMB 20,000 from Shanghai Rural Commercial Bank, due on February 21, 2020 with an annual interest rate of 5.66%, guaranteed by the Company’s CEO and pledged by accounts receivable.It was fully repaid on February 21, 2020. | | | - | | | | 1,433 | |
Line of credit up to RMB 20,000 from Bank of Communications, due on January 18, 2020 with an annual interest rate of 5.66% and fully repaid on January 19, 2020. | | | - | | | | 1,433 | |
Line of credit up to RMB 20,000 from Bank of Communications, due on January 22, 2020 with an annual interest rate of 5.66% and fully repaid on January 22, 2020. | | | - | | | | 717 | |
Line of credit up to RMB 20,000 from Bank of Communications, due on February 14, 2020 with an annual interest rate of 5.66% and fully repaid on February 14, 2020. | | | - | | | | 717 | |
Line of credit up to RMB 50,000 from China Everbright Bank, due on March 25, 2020 with an annual interest rate of 4.94%, guaranteed by the Company’s CEO and fully repaid on March 24, 2020. | | | - | | | | 3,250 | |
Line of credit up to RMB 50,000 from China Everbright Bank, due on April 17, 2020 with an annual interest rate of 5.66%, guaranteed by the Company’s CEO. | | | 1,129 | | | | 1,146 | |
Line of credit up to RMB 50,000 from China Everbright Bank, due on August 24, 2020 with an annual interest rate of 5.22%, guaranteed by the Company’s CEO. | | | 2,681 | | | | | |
Line of credit up to KRW 500,000 from Industrial Bank of Korea (IBK), due on July 11, 2020 with an annual interest rate of 4.17%, guaranteed by the ACM-KOREA CEO. | | | 82 | | | | | |
Total | | $ | 3,892 | | | $ | 13,753 | |
Interest expense related to short-term borrowings amounted to $139$111 and $103$139 for the three months ended March 31, 20192020 and 2018,2019 respectively.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
NOTE 7 – OTHER PAYABLE AND ACCRUED EXPENSES
At March 31, 20192020 and December 31, 2018,2019, other payable and accrued expenses consisted of the following:
| | | | | | | | |
Lease expenses and payable for leasehold improvement due to a related party (note 11) | $- | $53 | |
Accrued commissions | 2,663 | 2,931 | | $ | 4,593 | | | $ | 4,082 | |
Accrued warranty | 2,017 | 1,710 | | 3,092 | | | 2,811 | |
Accrued payroll | 1,240 | 626 | | 2,775 | | | 2,092 | |
Accrued professional fees | 139 | 64 | | 403 | | | 165 | |
Accrued machine testing fees | 2,978 | 3,076 | | 1,424 | | | 1,456 | |
Others | 2,797 | 1,950 | | | 2,044 | | | | 2,268 | |
Total | $11,834 | $10,410 | | $ | 14,331 | | | $ | 12,874 | |
NOTE 8 –LEASES
We leaseThe 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 ourthe Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right-of–usethe Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. WeThe Company regularly evaluateevaluates the renewal options, and when they are reasonably certain of exercise, we includethe Company includes the renewal period in ourits lease term.
As most of ourthe Company’s leases do not provide an implicit rate, we use ourthe 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. We haveThe Company has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, we applyit applies a portfolio approach for determining the incremental borrowing rate.
The components of our lease expense arewere as follows:
| |
Operating lease cost | $437
|
Short-term lease cost | 18
|
Lease cost | $455
|
| | Three Months Ended March 31, | |
| | 2020 | | | 2019 | |
Operating lease cost | | $ | 377 | | | $ | 437 | |
Short-term lease cost | | | 50 | | | | 18 | |
Lease cost | | $ | 427 | | | $ | 455 | |
Supplemental cash flow information related to our operating leases was as follows for the period ended March 31, 2019:
2020 and 2019 respectively:
| | | Three Months Ended March 31, | | | | 2020 | | | 2019 | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | Operating cash outflow from operating leases | | $ | 427 | | | $ | 455 | |
Three months ended
March 31,
2019
|
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash outflow from operating leases | 455
|
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Maturities of our lease liabilities for all operating leases arewere as follows as of March 31, 2019:2020:
| | | December 31, | |
2019 | $1,057 | |
2020 | 1,424 | | $ | 1,128 | |
2021 | 1,456 | | 1,488 | |
2022 | 1,494 | | 1,495 | |
2023 | 53 | | 53 | |
2024 | 13 | | | 13 | |
Total lease payments | 5,497 | | 4,177 | |
Less: Interest | (710) | | | (630 | ) |
Present value of lease liabilities | $4,787 | | $ | 3,547 | |
The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of March 31, 2019:2020:
Remaining lease term and discount rate: | |
Weighted average remaining lease term (years) | 3.80
|
Weighted average discount rate | 5.43%
|
| | March 31, 2020 | | | December 31, 2019 | |
Remaining lease term and discount rate: | | | | | | |
Weighted average remaining lease term (years) | | | 2.80 | | | | 3.02 | |
Weighted average discount rate | | | 5.43 | % | | | 5.43 | % |
NOTE 9 – OTHER LONG-TERM LIABILITIES
Other long-term liabilities represent government subsidies received from PRCseveral governmental authorities, including China’s Ministry of Science and Technology, the Shanghai Municipal Commission of Economy and Information, and the Shanghai Science and Technology Committee, for development and commercialization of certain technology but not yet recognized. As of March 31, 2019,2020, and December 31, 2018,2019, other long-term liabilities consisted of the following unearned government subsidies:
| | | | | | | | |
Subsidies to Stress Free Polishing project, commenced in 2008 and 2017 | $1,449 | $1,483 | | $ | 1,191 | | | $ | 1,251 | |
Subsidies to Electro Copper Plating project, commenced in 2014 | 1,598 | 2,860 | | 2,445 | | | 2,666 | |
Subsidies to Polytetrafluoroethylene, commenced in 2018 | 171 | 178 | | 123 | | | 135 | |
Subsidies to Tahoe-Single Bench Clean,commenced in 2020 | | | 1,910 | | | - | |
Other | 78 | 62 | | | 161 | | | | 134 | |
Total | $3,296 | $4,583 | | $ | 5,830 | | | $ | 4,186 | |
NOTE 10 – EQUITY METHODLONG-TERM INVESTMENT
On September 6, 2017, ACM and Ninebell Co., Ltd. (“Ninebell”), a Korean company that is one of the Company’s principal materials 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.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 components 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 six other investors, as limited partners, and Beijing Shixi Qingliu Investment Co., Ltd., as general partner and manager, with respect to the formation of Hefei Shixi Chanheng Integrated Circuit Industry Venture Capital Fund Partnership (LP) (“Hefei Shixi”), a Chinese limited partnership based in Hefei, China. Pursuant to such Partnership Agreement, on September 30, 2019, ACM Shanghai invested $4,200, 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.
| | | | | | |
Ninebell | | $ | 1,694 | | | $ | 1,538 | |
Shengyi | | | 109 | | | | 107 | |
Hefei Shixi | | | 4,212 | | | | 4,289 | |
Total | | $ | 6,015 | | | $ | 5,934 | |
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
NOTE 11– RELATED PARTY BALANCES AND TRANSACTIONS
On August 18, 2017, ACM and Ninebell, its equity method investment affiliate (note 10), entered into a loan agreement pursuant to which ACM made an interest-free loan of $946 to Ninebell, payable in 180 days or automatically extended another 180 days if in default. The loan was secured by a pledge of Ninebell’s accounts receivable due from ACM and all money that Ninebell received from ACM. Ninebell repaid the loan in March 2018. ACM purchased materials from Ninebell amounting to $2,320 and $970 during the three months ended March 31, 2019 and 2018. As of March 31, 2019 and December 31, 2018, accounts payable due to Ninebell were $1,476 and $1,477, respectively, and prepaid to Ninebell for material purchases were $871 and $572, respectively.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
In 2007 ACM Shanghai entered into an operating lease agreement with Shanghai Zhangjiang Group Co., Ltd. (“Zhangjiang Group”) to lease manufacturing and office space located in Shanghai, China. An affiliate of Zhangjiang Group holds 787,098 shares of Class A common stock that it acquired in September 2017 for $5,903. Pursuant to the lease agreement, Zhangjiang Group provided $771 to ACM Shanghai for leasehold improvements. In September 2016 the lease agreement was amended to modify payment terms and extend the lease through December 31, 2017. From January 1 to April 25, 2018, ACM Shanghai leased the property on a month-to-month basis. On April 26, 2018, ACM Shanghai entered into a renewed lease with Zhangjiang Group for the period from January 1, 2018 through December 31, 2022. Under the lease, ACM Shanghai would pay a monthly rental fee of approximately RMB 366 (equivalent to $55). The required security deposit is RMB 1,077 (equivalent to $163). The Company incurred leasing expenses under the lease agreement of $150 and $172 during the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 and December 31, 2018, payables to Zhangjiang Group for lease expenses and leasehold improvements recorded as other payables and accrued expenses amounted to $0 and $53, respectively (note 7).
| | Three months ended March 31 | |
Purchase of materials | | 2020 | | | 2019 | |
Ninebell | | $ | 2,153 | | | $ | 2,320 | |
Shengyi | | | 58 | | | | - | |
Total | | $ | 2,211 | | | $ | 2,320 | |
| | | | | | | | |
Prepaid expenses | | March 31, 2020 | | | December 31, 2019 | |
Ninebell | | $ | 648 | | | $ | 348 | |
| | | | | | | | |
Accounts payable | | March 31, 2020 | | | December 31, 2019 | |
Ninebell | | $ | 2,604 | | | $ | 727 | |
Shengyi | | | 189 | | | | 488 | |
Total | | $ | 2,793 | | | $ | 1,215 | |
On December 9, 2016, Shengxin (Shanghai) Management Consulting Limited Partnership (“SMC”), a PRC limited partnership owned by employees of ACM Shanghai, receivedincluding Jian Wang, the SMC Investment from SMCChief Executive Officer and President of ACM Shanghai and the brother of David H. Wang (a related party), delivered RMB 20,124 ($2,981 as of the close of business on such date) in cash (the “SMC Investment”) to ACM Shanghai for potential investment pursuant to terms to be subsequently negotiated (note 8). SMC is a limited partnership incorporated in the PRC, whose partners consist of employees of ACM Shanghai.negotiated. On March 14, 2017, ACM, ACM Shanghai and SMC entered into a securities purchase agreement (the “SMC Agreement”) pursuant to which, in exchange for the SMC Investment, (a) ACM issued to SMC a warrant (the “SMC Warrant”) exercisable, for cash or on a cashless basis, to purchase, at any time on or before May 17, 2023, all, but not less than all, of 397,502 shares of Class A common stock at a price of $7.50 per share, for a total exercise price of $2,981.$2,981 and (b) ACM Shanghai agreed to repay the SMC Investment within 60 days after exercise of the SMC Warrant. On March 30, 2018, SMC exercised the warrantSMC Warrant in full and purchased 397,502 shares of Class A common stock (note 12).
NOTE 12 – WARRANT LIABILITY
On December 9, 2016, Shengxin (Shanghai) Management Consulting Limited Partnership (“SMC”), a related party (note 11), delivered RMB 20,124 (approximately $2,981 as of SMC borrowed the close of business on such date) in cash (the “SMC Investment”)funds to ACM Shanghai for potential investment pursuant to terms to be subsequently negotiated
On March 14, 2017, ACM, ACM Shanghai and SMC entered into a securities purchase agreement (the “SMC Agreement”) pursuant to which, in exchange forpay the SMC Investment, ACM issued to SMC a warrant exercisable, for cash or on a cashless basis, to purchase, at any time on or before May 17, 2023, all, but not less than all, of 397,502 shares of Class A common stock at aWarrant exercise price of $7.50 per share.
The warrant issued to SMC, while outstanding as of December 31, 2017, was classified as a liability as it was conditionally puttable in accordance with FASB ASC 480, Distinguishing Liabilities from Equity. The fair value of the warrant was adjusted for changes in fair value at each reporting period but could not be lower than the proceeds of the SMC Investment. The corresponding non-cash gain or loss of the changes in fair value was recorded in earnings. The methodology used to value the warrant was the Black-Scholes valuation model.
On March 30, 2018, ACM entered into a warrant exercise agreement with ACM Shanghai and SMC pursuant to which SMC exercised its warrant in full by issuing to ACM a senior secured promissory note in the principal amount of approximately $3,000. ACM then transferred$2,981 issued to the SMCCompany (the “SMC Note”). The note to ACM Shanghai in exchange for an intercompany promissory note of ACM Shanghai in the principal amount of approximately $3,000. Each of the two notes bears interest at a rate of 3.01% per annum and matures on August 17, 2023.2023 and is secured by a pledge of the shares issued upon exercise of the SMC Warrant. As security for its performancedescribed in the following paragraph, in the third quarter of its2019 ACM repurchased a total of 154,821 of the SMC Warrant shares from SMC at a per share price of $13.195, of which (a) $1,161 was applied to reduce SMC’s obligations under its note, SMC granted to ACM Shanghai under the SMC Note and the remaining $882 was paid to SMC. In a security interestseparate transaction in August, 2019, ACM Shanghai repaid $1,161 of the 397,502SMC Investment in cash.
On August 14, 2019, ACM entered into an equity purchase agreement under which it agreed to repurchase, at a price per share of $13.195 (the net proceeds per share ACM received in a public offering of Class A common stock, as described in note 12), shares of Class A common stock issued tofrom certain directors, employees and SMC upon itsthe exercise of the warrant. Uponunderwriters’ over-allotment option in connection with the issuancepublic offering in August 2019. The total consideration to the directors, employees and SMC, in exchange for their surrender of 397,502an aggregate of 214,286 shares of Class A common stock and cancellation of options to SMC,acquire 53,571 shares of Class A common stock amounted to a total of $3,403, which was based at a price of $13.195 per share equal to the senior secured promissory note issued to AMC by SMC was offset againstnet proceeds per share ACM received from the SMC investment.
over-allotment option in connection with the offering.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
NOTE 1312 – COMMON STOCK
ACM is authorized to issue 100,000,00050,000,000 shares of Class A common stock and 7,303,5332,409,738 shares of Class B common stock, each with a par value of $0.0001. Each share of Class A common stock is entitled to one vote, and each share of Class B common stock is entitled to twenty votes and is convertible at any time into one 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 stock holders.stockholders.
At December 31, 2017, the number of shares of Class A common stock issued and outstanding was 12,935,546. At December 31, 2017, the number of shares of Class B common stock issued and outstanding was 2,409,738, respectively.
On March 30, 2018, SMC exercised its warrant (note 12) and purchased 397,502 shares of Class A common stock.
At March 31, 2018, the number of shares of Class A common stock issued and outstanding was 13,390,270. At March 31, 2018, the number of shares of Class B common stock issued and outstanding was 2,409,738. During the three months ended March 31, 2018, no share of Class B common stock was converted into Class A common stock.
At December 31, 2018, the number of2020 and 2019, ACM issued 70,478 and 66,375 shares of Class A common stock issuedupon option exercises by employees and outstanding was 14,110,315. At December 31, 2018, the number of shares of Class B common stock issued and outstanding was 1,898,423.non-employees, respectively. During the three months ended March 31, 2019, the Company2020, ACM issued 66,37564,717 shares of Class A common stock respectively, upon options exercisesa cashless warrant exercise by certain employeesa non-employee.
There were issued and non-employees. Duringoutstanding 16,317,346 shares of Class A common stock and 1,862,608 shares of Class B common stock at March 31, 2020, and 16,182,151 shares of Class A common stock and 1,862,608 shares of Class B common stock at December 31, 2019.
NOTE 13 – REDEEMABLE NON-CONTROLLING INTERESTS
The components of the change in the redeemable non-controlling interests for the three months ended March 31, 2019, no shares of Class B common stock were converted into Class A common stock.2020 are presented in the following table:
At March 31, 2019, the number of shares of Class A common stock issued and outstanding was 14,176,790. At March 31, 2019, the number of shares of Class B common stock issued and outstanding was 1,898,423.
Balance at December 31, 2019 | | $ | 60,162 | |
Net income attributable to redeemable non-controlling interests | | | 258 | |
Effect of foreign currency translation loss attributable to redeemable non-controlling interests | | | (953 | ) |
Balance at March 31, 2020 | | $ | 59,467 | |
NOTE 14– STOCK-BASED COMPENSATION
ACM’s stock-based compensation awards consistingconsists of employee and non-employee awards were issued under the 1998 Stock Option Plan, andthe 2016 Omnibus Incentive Plan and as standalone options. In January 2020, ACM Shanghai, adopted a 2019 Stock Option Incentive Plan (the “Subsidiary Stock Option Plan”) which provides for, among other incentives, the granting to officers, directors, employees of ACM Shanghai options to purchase shares in ACM Shanghai’s common stock. The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes option pricing model using assumptions generally consistent with those used for Company stock options. Because ACM Shanghai is 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.
The following table summarizes the components of stock-based compensation expense included in the consolidated statements of operations:
| | Three Months Ended March 31, | |
| | 2020 | | | 2019 | |
Stock-Based Compensation Expense: | | | | | | |
Cost of revenue | | $ | 45 | | | $ | 30 | |
Sales and marketing expense | | | 94 | | | | 34 | |
Research and development expense | | | 187 | | | | 86 | |
General and administrative expense | | | 363 | | | | 594 | |
| | $ | 689 | | | $ | 744 | |
| | Three Months Ended March 31, | |
| | 2020 | | | 2019 | |
Stock-based compensation expense by type: | | | | | | |
Employee stock purchase plan | | $ | 431 | | | $ | 221 | |
Non-employee stock purchase plan | | | 172 | | | | 523 | |
Subsidiary option grants | | | 86 | | | | - | |
| | $ | 689 | | | $ | 744 | |
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Employee Awards
The following table summarizes the Company’s employee share option activities during the three months ended March 31, 2019:2020:
| | Weighted Average Grant Date Fair Value | Weighted Average Exercise Price | Weighed Average Remaining Contractual Term |
Outstanding at December 31, 2018 | 2,503,405 | $0.91 | $4.09 | 7.30 years |
Granted | - | - | - | |
Exercised | (11,375) | 0.65 | 1.68 | |
Expired | (628) | 0.55 | 3.00 | |
Forfeited | -
| - | - | |
Outstanding at March 31, 2019 | 2,491,402 | $1.53 | $4.10 | 7.06 years |
Vested and exercisable at March 31, 2019 | 1,544,974 | | | |
| | Number of Option Share | | | Weighted Average Grant Date Fair Value | | | Weighted
Average Exercise Price | | Weighed Average Remaining Contractual Term |
Outstanding at December 31, 2019 | | | 2,994,063 | | | $ | 2.59 | | | $ | 6.77 | | 7.05 years |
Granted | | | 20,000 | | | | 9.11 | | | | 22.95 | | |
Exercised | | | (26,032 | ) | | | 1.31 | | | | 3.60 | | |
Expired | | | - | | | | - | | | | - | | |
Forfeited/cancelled | | | (22,000 | ) | | | 6.46 | | | | 16.74 | | |
Outstanding at March 31, 2020 | | | 2,966,031 | | | $ | 2.61 | | | $ | 6.83 | | 6.81 years |
Vested and exercisable at March 31, 2020 | | | 1,859,052 | | | | | | | | | | |
During the three months ended March 31, 20192020 and 2018,2019, the Company recognized employee stock-based compensation expense of$431 and $221, and $93, respectively. As of March 31, 20192020 and December 31, 2018, $2,2032019, $4,317 and $2,424,$4,712, respectively, of total unrecognized 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 1.411.29 years and 1.621.47 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.
No options were granted to employees during the three months ended March 31, 2019.
Non-employee Awards
The following table summarizes the Company’s non-employee sharestock option activities during the three months ended March 31, 2019:2020:
| | Weighted Average Grant Date Fair Value | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term |
Outstanding at December 31, 2018 | 1,212,374 | $0.78 | $2.57 | 6.66 years |
Granted | - | - | - |
|
Exercised | (55,000) | 0.32 | 0.75 |
|
Expired | - | - | - |
|
Forfeited | - | - | - |
|
Outstanding at March 31, 2019 | 1,157,374 | $0.78 | $2.57 | 6.66 years |
Vested and exercisable at March 31, 2019 | 950,237 | | | |
We adopted ASU 2018-07 on January 1, 2019 and the stock-based compensation expense for grants before the adoption of ASU 2018-07 is based on the grant date fair value as of December 31, 2018, which was the last business day before we adopted ASU 2018-07, for all nonemployee awards that have not vested as of December 31, 2018. Furthermore, for future awards, compensation expense is based on the market value of the shares at the grant date. Refer to "Note 2 - Summary of Significant Accounting Policies" for further discussion on our adoption of ASU 2018-07.
| | Number of Option Shares | | | Weighted Average Grant Date Fair Value | | | Weighted
Average Exercise
Price | | Weighted Average Remaining Contractual Term |
Outstanding at December 31, 2019 | | | 1,101,613 | | | $ | 0.82 | | | $ | 2.69 | | 5.85 years |
Granted | | | 20,000 | | | | 10.29 | | | | 25.60 | | |
Exercised | | | (44,446 | ) | | | 0.44 | | | | 1.82 | | |
Expired | | | - | | | | | | | | | | |
Forfeited/cancelled | | | - | | | | | | | | | | |
Outstanding at March 31, 2020 | | | 1,077,167 | | | $ | 1.01 | | | $ | 3.15 | | 5.75 years |
Vested and exercisable at March 31, 2020 | | | 1,007,076 | | | | | | | | | | |
During the three months ended March 31, 20192020 and 2018,2019, the Company recognized stock-based compensation expense of $523$172 and $2,083523 for the three months ended March 31, 2019 and 2018,, respectively, related to share option vesting.grants. As of March 31, 20192020 and December 31, 2018, $1,1902019, $419 and $1,713,$406, respectively, of total unrecognized non-employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards were expected to be recognized over a weighted-average period of 1.370.22 years and 1.310.23 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
Subsidiary Option Grants
The following table summarizes the ACM Shanghai employee stock option activities during the three months ended March 31, 2020:
| | Number of Option Shares in ACM Shanghai | | | Weighted Average Grant Date Fair Value | | | Weighted
Average Exercise Price | | Weighed Average Remaining Contractual Term |
Outstanding at December 31, 2019 | | | - | | | $ | - | | | $ | - | | - |
Granted | | | 5,869,808 | | | | 0.22 | | | | 1.87 | | |
Exercised | | | - | | | | - | | | | - | | |
Expired | | | - | | | | - | | | | - | | |
Forfeited/cancelled | | | (192,308 | ) | | | 0.23 | | | | 1.87 | | |
Outstanding at March 31, 2020 | | | 5,677,500 | | | $ | 0.22 | | | $ | 1.87 | | 4.26 years |
Vested and exercisable at March 31, 2020 | | | - | | | | | | | | | | |
During the three months ended March 31, 2020, the Company recognized stock-based compensation expense of $86 related to stock option grants of ACM Shanghai. As of March 31, 2020 $1,106 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 3.26 years. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.
NOTE 15 – 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. Based on all available
As of each reporting date, management considers new evidence, in particularboth positive and negative, that could affect its view of the Company’s three-year historical cumulative losses, recent operating results and U.S. pre-tax loss for the three months ended March 31,future realization of deferred tax assets. Prior to September 30, 2019, the Company recorded a valuation allowance against its U.S. net deferred tax assets. In order to fully realize the U.S. deferred tax assets, the Company will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.
In each period since inception, the Company hashad recorded a valuation allowance for the full amount of net deferred tax assets in the United States, as the realization of deferred tax assets iswas 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.
ACM Shanghai has shown a three-year historical cumulative profit and has projections of future income. As a result, the Company maintained a partial consolidated valuation allowance for the three and nine months ended March 31, 2019 and December 31, 2018.2020.
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 "moremore likely than not"not threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
The Company’s effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 15% to 25% for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences from book-tax differences. As a result, the Company recorded income tax expense of $119$304 and $22$119 during the three months ended March 31, 20192020 and 2018,2019, respectively.
As of March 31, 2019,2020, the Company'sCompany’s total unrecognized tax benefits were approximately $44, which would not affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax provisions as a component of tax expense. No interest or penalties were recognized for the three months ended March 31, 2019.
2020.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
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, 19992009 through December 31, 2017. This is due to2019. To the Company’sextent 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.
Income Tax Expense
The Tax Cuts and Jobs Act (the "Tax Act"), enacted on December 22, 2017, introduced significant changes to U.S.following presents components of income tax law. Effective January 1, 2018,expense for the Tax Act reduced the U.S. statutoryindicated periods:
| | Three Months Ended March 31, | |
| | 2020 | | | 2019 | |
| | (in thousands) | |
Current: | | | | | | |
U.S. federal | | $ | (10 | ) | | $ | - | |
U.S. state | | | - | | | | - | |
Foreign | | | (257 | ) | | | - | |
Total current tax expense | | | (267 | ) | | | - | |
Deferred: | | | | | | | | |
U.S. federal | | | (28 | ) | | | - | |
U.S. state | | | - | | | | - | |
Foreign | | | (9 | ) | | | (119 | ) |
Total deferred tax benefit | | | (37 | ) | | | (119 | ) |
Total income tax expense | | $ | (304 | ) | | $ | (119 | ) |
Our effective tax rate differs from 35%statutory rates of 21% for U.S. federal income tax purposes and 15% to 21% and created new taxes on certain foreign-sourced earnings and certain intercompany payments. Due25% for Chinese income tax purposes due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of December 31, 2017. There were no adjustments made in the three months ended March 31, 2019. The accounting for the tax effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the value of client equity securities received for services. Our two PRC subsidiaries, ACM Shanghai and ACM Wuxi, are liable for PRC corporate income taxes at the rates of 15% and 25%, respectively. Pursuant to the Corporate Income Tax Law of the PRC, 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.
We file income tax returns in the United States and state and foreign jurisdictions. Those federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for 2009 through 2016. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state or foreign tax authorities to the extent utilized in a future period.
ACM RESEARCH, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(in thousands, except share and per share data)
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was completedenacted 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. Also allows those years to be carried back up to five years
Allows corporations to claim 100% of AMT credits in 2018.2019. It also provides for an election to take the entire refundable credit amount in 2018
Section 163(j) ATI limit raised from 30% to 50% for businesses
Technical corrections to TCJA for Qualified Improvement Property (“QIP”). Designates as 15-year property for depreciation purposes, which makes QIP a category eligible for 100% bonus depreciation
The CARES Act is not expected have a material impact on income taxes in the Company’s financial statements.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
The Company leases offices under non-cancelable operating lease agreements. See note 128 for future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more.
As of March 31, 2019,2020, the Company did not have anyhad $636 of open capital commitments.
From time to time the Company is subject to legal proceedings, including claims in the ordinary course of business and claims with respect to patent infringements. As of March 31, 2019,2020, the Company did not have any legal proceedings.
| 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, 2018,2019, or our Annual Report. The following discussion contains forward-lookingforward‑looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-lookingforward‑looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section titled “Item 1A. Risk Factors” in Part II below.
Overview
We supply advanced, innovative capital equipment developed for the global semiconductor industry. Fabricators of advanced integrated circuits, or chips, can use our single-wafer wet-cleaning 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.
Selling prices for our single-wafer wet-cleaning tools range from $2 million to more than $5 million. Our customers for single-wafer wet-cleaning and other front-end cleaning tools have included Semiconductor Manufacturing International Corporation, Shanghai Huali Microelectronics Corporation, SK Hynix Inc. and Yangtze Memory Technologies Co., Ltd. We recognized revenue from sales of single-wafer wet cleaning and other front-end processing equipment totaling $13.0$22.8 million, or 94% of total revenue, for the three months ending March 31, 2020 compared to $12.8 million, or 63% of total revenue, for the first three months ofending March 31, 2019.
Based on Gartner’s December 2019 estimates, the market for global wafer cleaning equipment (auto wet stations, single-wafer processors, and other clean process) grew by 20% to $3.46 billion in 2018, decreased by 5% to $3.28 billion in 2019, and $9.5 million, or 98%was expected to decrease by 6% to $3.07 billion in 2020. We estimate, based on third-party reports and on customer and other information, that our tools address more than 50% of total revenue, for the first three months of 2018.this global wafer cleaning equipment market.
We focus our selling efforts on establishing a referenceable base of leading foundry, logic and memory chip makers, whose use of our products can influence decisions by other manufacturers. We believe this customer base will help us penetrate the mature chip manufacturing markets and build credibility with additional industry leaders. Using a “demo-to-sales” process, we have placed evaluation equipment, or “first tools,” with a number of selected customers. Since 2009 we have delivered more than 6095 single-wafer wet cleaning and other front-end processing tools, more than 5085 of which have been accepted by customers and thereby generated revenue to us and the balance of which are awaiting customer acceptance should contractual conditions be met.
Since our formation in 1998, we have focused on building a strategic portfolio of intellectual property to support and protect our key innovations. Our wet-cleaning equipment hastools have been developed using our key proprietary technologies:
● | Space Alternated Phase Shift, or SAPS, technology for flat and patterned wafer surfaces, which employs alternating phases of megasonic waves to deliver megasonic energy in a highly uniform manner on a microscopic level; |
● | Timely Energized Bubble Oscillation, or TEBO, technology for patterned wafer surfaces at advanced process nodes, which provides effective, damage-free cleaning for 2D and 3D patterned wafers with fine feature sizes; |
● | Tahoe technology for cost and environmental savings, which delivers high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is typically consumed by conventional high-temperature single-wafer cleaning tools; and |
● | Electro-Chemical Plating, or ECP, technology for advanced metal plating, which includes Ultra ECP AP, or Advanced Packaging, technology for back-end assembly processes and Ultra ECP MAP, or Multi-Anode Partial Plating, technology for front-end wafer fabrication processes. |
●22
Space Alternated Phase Shift, or SAPS, technology for flat and patterned wafer surfaces, which employs alternating phases
●
Timely Energized Bubble Oscillation, or TEBO, technology for patterned wafer surfaces at advanced process nodes, which provides effective, damage-free cleaning for 2D and 3D patterned wafers with fine feature sizes; and
●
Tahoe technology for cost and environmental savings, which delivers high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is typically consumed by conventional high-temperature single-wafer cleaning tools.
We have been issued more than 220 patents in the United States, the People’s Republic of China or PRC, Japan, Korea, Singapore and Taiwan.
We conduct substantially all of our product development, manufacturing, support and services in the PRC. All of our tools are built to order at our manufacturing facilities in Shanghai, which encompass 86,000 square feet of floor space for production capacity. In November 2019 ACM Shanghai entered into an agreement initiating a bidding process to acquire land rights to build a development and production center in the Lingang region of Shanghai. 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 to address the growing market for semiconductor manufacturing equipment in the region by working closely with regional chip manufacturers to understand their specific requirements, encourage them to adopt our SAPS, TEBO, Tahoe and TahoeECP technologies, and enable us to design innovative products and solutions to address their needs.
We have been issued more than 285 patents in the United States, the People’s Republic of China or PRC, Japan, Korea, Singapore and Taiwan.
Corporate Background
ACM Research was incorporated in California in 1998 and redomesticated in Delaware in 2016. We perform strategic planning, marketing, and financial activities at our global corporate headquarters in Fremont, California.
Initially we focused on developing tools for chip manufacturing process steps involving the integration of ultra-low-Kultra‑low‑K materials and copper. In the early 2000s we sold tools based on stress-free copper polishing technology. In 2007 we began to focus our development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process. Since that time, we have strategically built our technology base and expanded our product offerings:
In 2009 we introduced SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process.
In 2016 we introduced TEBO technology, which can be applied at numerous steps during the fabrication of small node conventional two-dimensional and three-dimensional patterned wafers.
In August 2018 we introduced the Ultra-C Tahoe wafer cleaning tool, which delivers high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high temperature single-wafer cleaning tools.
In March 2019 we introduced (a) the Ultra ECP AP or Advanced Wafer Level Packaging tool, a back-end assembly tool used for bumping, or applying copper, tin and nickel to wafers at the die-level prior to packaging, and (b) the Ultra ECP MAP or Multi Anode Plating tool, a front-end process tool that utilizes our proprietary technology to deliver world-class electrochemical copper planting for copper interconnect applications.
In April 2020 we introduced the Ultra Furnace, our first system developed for multiple dry processing applications.
In May 2020 we introduced the Ultra C Family of semi-critical cleaning systems, including the UltraC 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. In 2007Since that time, we began to focushave expanded our development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process.geographic presence:
In 2009 we introduced SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process. In 2016 we introduced TEBO technology, which can be applied at numerous steps during the fabrication of small node conventional two-dimensional and three-dimensional patterned wafers. In August 2018, we introduced the Ultra-C Tahoe wafer cleaning tool, which delivers high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high temperature single-wafer cleaning tools.
In 2011 ACM Shanghai formed a wholly owned subsidiary in the PRC, ACM Research (Wuxi), Inc., to manage sales and service operations.
In June 2017 we formed a wholly owned subsidiary in Hong Kong, CleanChip Technologies Limited, 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 wholly owned subsidiary in the Republic of Korea, ACM Research Korea CO., LTD., to serve our customers based in the Republic of Korea and perform sales, marketing, and research and development activities.
In September 2018 we announced the opening of a second factory in the Pudong region of Shanghai. The new facility has a total of 50,000 square feet of available floor space for production capacity. This is in addition
We present information below with respect to four measures of financial performance:
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.
“First tool” shipments can be made to either an existing customer that not previously accepted that specific type of tool in the past ─ for example, a delivery of 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.
The dollar amount attributed to a “first tool” shipment is equal to the consideration we expect to receive if any and all contractual requirements are satisfied and the customer accepts the tool. There are a number of limitations related to the use of shipments in evaluating our business, including that customers have significant discretion in determining whether to accept our tools and their decision not to accept delivered tools is likely to result in our inability to recognize revenue from the delivered tools.
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:
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.
The following table sets forth our results of operations for the periods presented, as percentages of revenue.revenue:
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.
The following presents components of income tax expense for the indicated periods:
Our effective tax rate differs from statutory rates of 21% for U.S. federal income tax purposes and 15% to 25% for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the value of client equity securities received for services. Our two PRC subsidiaries, ACM Shanghai and ACM Wuxi, are liable for PRC corporate income taxes at the rates of 15% and 25%, respectively. Pursuant to the Corporate Income Tax Law of the PRC, our PRC subsidiaries generally would be liable for PRC corporate income taxes as a rate of 25%. According to Guoshuihan 2009 No. 203, an entity certified as an “advanced and new technology enterprise” is entitled to a preferential income tax rate of 15%. ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016 and 2018, with an effective period of three years..years.
We file income tax returns in the United States and state and foreign jurisdictions. Those federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for 2009 through 2016. To the extent we have tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state or foreign tax authorities to the extent utilized in a future period.
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.
Indebtedness.Short-Term Loan Facilities. ACM Shanghai is a party to lines of creditWe have short-term borrowing with fivetwo banks, as follows:
Lender | | Agreement Date | | Maturity Date | | Annual Interest Rate | | Maximum Borrowing Amount (1) | | Amount Outstanding at March 31, 2019 |
| | | | | | | | (in thousands) |
Bank of China Pudong Branch | | August 2018 | | August 2019 | | 5.22% | | RMB30,000 | | RMB30,000 |
| | | | | | | | $4,456 | | $4,456 |
Bank of Shanghai Pudong Branch | | January 2019 | | January 2020 | | 5.22% | | RMB50,000 | | RMB4,500 |
| | | | | | | | $7,425 | | $668 |
Shanghai Rural Commercial Bank | | Feburary 2019 | | January 2020 | | 5.66% | | RMB 20,000 | | RMB 10,000 |
| | | | | | | | $2,970 | | $1,485 |
Bank of Communications | | January 2019 | | January 2020 | | 5.66% | | RMB20,000 | | RMB20,000 |
| | | | | | | | $2,970 | | $2,970 |
China Everbright Bank | | Feburary 2019 | | Feburary 2020 | | 4.94% | | RMB50,000 | | RMB21,893 |
| | | | | | | | $7,425 | | $3,250 |
| | | | | | | | | | |
| | | | | | | | RMB170,000 | | RMB86,393 |
| | | | | | | | $25,246 | | $12,829 |
(1)
Converted from RMB to dollars as of March 31, 2019.
Lender | | Agreement Date | | Maturity Date | | Annual Interest Rate | | | Maximum Borrowing Amount(1) | | | Amount Outstanding
at March 31,
2020 | |
China Everbright Bank | | April 2019 | | April 2020 -August 2020 | | | 5.22%-5.66 | % | | RMB50,000 | | | RMB27,000 | |
| | | | | | | | | | $ | 7,055 | | | $ | 3,810 | |
IBK (Industrial Bank of Korea) | | July 2019 | | July 2020 | | | 4.17 | % | | KRW500,000 | | | KRW100,000 | |
| | | | | | | | | | $ | 410 | | | $ | 82 | |
| | | | | | | | | | $ | 7,465 | | | $ | 3,892 | |
(1) | Converted from RMB and KRW to dollars as of March 31, 2020 |
All of the amounts owing under the line of credit with China Everbright Bank of China Pudong Branch are secured by ACM Shanghai’s intellectual property and guaranteed by Dr. David Wang, our Chief Executive Officer, President and Chair of the Board, Chief Executive Officer and President. All of the amounts owing under the lines of credit with Bank of Shanghai Pudong Branch are guaranteed by Dr. Wang and Cleanchip Technologies Ltd.Board. All of the amounts owing under the line of credit with Shanghai Rural Commercial Bank are secured by accounts receivable and guaranteed by Dr. Wang. All of the amounts owing under the lines of credit with China Everbright BankIBK are guaranteed by Dr. Wang.
YY Kim, CEO of ACM Research (Korea).
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 $1.9 million related to such grants received in the three months ended March 31, 2020, as compared to cash payments of $22,000 related to such grants received during the same period in 2019. 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.Capital. The following table sets forth selected working capital information:
| | March 31, 2020 | |
| | (in thousands) | |
Cash and cash equivalents | | $ | 52,283 | |
Accounts receivable, less allowance for doubtful amounts | | | 37,260 | |
Inventory | | | 44,987 | |
Working capital | | $ | 134,530 | |
| |
| |
Cash and cash equivalents | $27,367
|
Accounts receivable, less allowance for doubtful amounts | 25,070
|
Inventory | 42,253
|
Working capital | $94,690
|
Our cash and cash equivalents at March 31, 20192020 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 from Operating Activities.Capital Expenditures. Our operations used cash flow of $3.2We incurred $0.1 million in capital expenditures in the first three months of 2019. Our cash flow from operating activities is influenced by (a) the amount of cash we invest in personnel and technology development to support anticipated future growth in our business, (b) the magnitude of our product sales and associated gross profits, and (c) the amount and timing of payments by customers.
Capital Expenditures. We estimate that our capital expenditures in 2019 will total approximately $2.4 million. We have entered into certain capital purchase contracts related to future capital expenditures. We incurred $117,000 of capital expenditures2020, versus $0.1 million during the three months ended March 31, 2019 and had no unpaid capital commitment as of March 31,same period in 2019.
Contractual Obligations and Requirements. Our contractual obligations and other commercial commitments are summarized in the section captioned “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Requirements” in our Annual Report. Other than changes that occurred in the ordinary course of business, we had no material changes to our contractual obligations reported in our Annual Report during the first three months of 2019. For additional discussion, see note 16 to our condensed consolidated financial statements included elsewhere in this report.
Effects of Inflation
Inflation and changing prices have not had a material effect on our business, and we do not expect that they will materially affect our business in the foreseeable future. Any impact of inflation on cost of revenue and operating expenses, especially employee compensation costs, may not be readily recoverable in the price of our product offerings.
Off-Balance Sheet Arrangements
As of March 31, 2019,2020, we did not have any significant off-balance sheet arrangements, as defined in Item303(a)Item303 (a)(4)(ii) of Regulation S-K ofunder the Securities and Exchange Commission or SEC, except the operating lease commitment disclosed in the unaudited condensed consolidated financial statements.Act of 1933.
Emerging Growth Company Status
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of provisions that reduce our reporting and other obligations from those otherwise generally applicable to public companies. We may take advantage of these provisions until the earliest of December 31, 2022 or such time that we have annual revenue greater than $1.0 billion, the market value of our capital stock held by non-affiliates exceeds $700 million or we have issued more than $1.0 billion of non-convertible debt in a three-year period. We have chosen to take advantage of some of these provisions, and as a result we may not provide stockholders with all of the information that is provided by other public companies. We have, however, irrevocably elected not to avail ourselves, as would have been permitted by Section 107 of the JOBS Act, of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards, and we therefore will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies
| Quantitative and Qualitative Disclosures about Market Risks |
Item 3. QuantitativeWe are a smaller reporting company as defined by Item 10(f)(1) of Regulation S-K under the Securities Act of 1933 and Qualitative Disclosures about Market Risksas such are not required to provide information under this Item.
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign exchange rates and interest rates. We do not hold or issue financial instruments for trading purposes.
Foreign Exchange Risk
Although our financial statements and product pricing are denominated in U.S. dollars, a sizable portion of our costs are denominated in other currencies, primarily the Renminbi. The Renminbi is not freely convertible into foreign currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in the PRC’s political and economic conditions and by the PRC’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and September 2010, this appreciation subsided and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since September 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.
Interest Rate Risk
At March 31, 2019, we had unrestricted cash and cash equivalents totaling $27.4 million. These amounts were held for working capital purposes and were held primarily in checking accounts of various banks. We believe we do not have any material exposure to changes in our cash balance as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income.
ItemItem 4. Controls and Procedures | Controls and Procedures |
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and interim chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019.2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.forms of the Securities and Exchange Commission, or the SEC. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2019,2020, our chief executive officer and interim chief financial officer concluded that, as of such date, our disclosure controls and procedures over financial reporting were effective.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2019,2020, no changes were identified to our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
PART II. OTHER INFORMATION
InvestingFrom time to time we may become involved in Class A common stock involveslegal proceedings or may be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a high degree of risk. You should consider and read carefully allmaterial adverse effect on our business, operating results, financial condition or cash flows. Regardless of the information contained in this report, including the consolidated financial statementsoutcome, litigation can have an adverse impact on us because of defense and related notes set forth in “Item 1. Financial Statements”settlement costs, diversion of Part I above, before making an investment decision. You should also review carefully the risk factors set forth in “Item 1A. Risk Factors” of Part I of our Annual Report. management resources and other factors.
There have been no material developments with regard to legal proceedings in the three months ended March 31, 2020 or in the subsequent period up to the date of this report.
There were no material changes to the risk factors discussed in Item 1A, “Risk Factors” of Part I in our Annual Report. In addition to the other information set forth in this report, you should carefully consider those risk factors, sincewhich could materially affect our business, financial condition and future operating results. Those risk factors are not the filing ofonly risks facing our Annual Report with the SEC on March 14, 2019. The occurrence of any of the risks described in our Annual Report, or additionalcompany. Additional risks and uncertainties not presentlycurrently known to us or that we currently believedeem to be immaterial could materially and adversely affectalso may have a material adverse effect on our business, financial condition results of operations or cash flows. In any such case, the trading price of Class A common stock could decline, and you may lose all or part of your investment.operating results.
Item 2. | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Recent Sales of Unregistered Equity Securities
In the three months ended March of 201931, 2020, we issued and sold to employees and consultants an aggregate of 65,00035,001 unregistered shares of Class A common stock upon the exercise of stock options at per share exercise prices between $0.75 and $1.50. These transactions did not involve any underwriters, any underwriting discounts or commissions, or any public offering. We believe the offers, sales and issuances of these shares were exempt from registration under the Securities Act of 1933 by virtue of Section 4(a)(2) thereof (or Regulation D promulgated thereunder) because the issuance of securities to the recipients did not involve a public offering or in reliance on Rule 701 under said Act because the transactions were pursuant to a contract relating to compensation as provided under such rule. The recipients of the shares represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the shares issued in these transactions. The recipients had adequate access, through a relationship with us, to information about us. The sales of these shares were made without any general solicitation or advertising.
Use of IPOInitial Public Offering Proceeds
The net proceeds of the IPO,our initial public offering of Class A common stock in November 2017, after deducting underwriting discounts and commissions and offering expenses, were $17.3 million. There has been no material change in the planned use of IPO proceeds from that described in the final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933 on November 3, 2017. To date we have applied $10.8 million of the IPOnet proceeds to purchase inventory and an additional $2.1 million in the ordinary course of business operations.
The following exhibits are being filed as part of this report:
Exhibit Number | | Description |
| | |
| | Line of CreditEmployment Agreement dated February 25, 2019January 8, 2018 between ACM Research (Shanghai), Inc.Inc and Bank of Shanghai Pudong Branch | | Lisa Feng |
| | Line of CreditNote Assignment and Cancellation Agreement dated February 19, 2019 betweenApril 30, 2020 by and among ACM Research, Inc., ACM Research (Shanghai), Inc. and Shanghai Rural Commercial Bank | | Shengxin (Shanghai) Management Consulting Limited Partnership |
| | Line of CreditShare Transfer and Note Cancellation Agreement dated January 24, 2019 between ACM Research (Shanghai), Inc. and Bank of Communications Shanghai Zhangjiang Branch | | |
| | Line of Credit Agreement dated January 24, 2019 between ACM Research (Shanghai), Inc. and Bank of Communications Shanghai Zhangjiang Branch | | |
| | Line of Credit Agreement dated February 19, 2019 between ACM Research (Shanghai), Inc. and Bank of Communications Shanghai Zhangjiang Branch | | |
| | Line of Credit Agreement dated JanuaryApril 30, 2019 between ACM Research (Shanghai), Inc. and China Everbright Branch | | |
| | Lease Amendment dated February 4, 20192020 between ACM Research, Inc. and D&J Construction Inc. | | Shengxin (Shanghai) Management Consulting Limited Partnership |
| | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
| | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | |
101.INS | | XBRL Instance Document | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
† | Indicates management contract or compensatory plan. |
‡ | Certain sensitive personally identifiable information in this exhibit was omitted by means of redacting a portion of the text and replacing it with [***]. |
*
| The certifications attached as Exhibit 32.01 accompany the Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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 8, 2020 | By: | /s/ Mark McKechnie | |
| | | |
Date: May 14, 2019 | By: | /s/ Lisa FengMark McKechnie | |
| | Lisa Feng | |
| | Interim Chief Financial Officer, Chief Accounting OfficerExecutive Vice President and Treasurer (Principal (Principal Financial Officer) | |
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