
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(s)~~Symbol		Name of Each Exchange on which Registered
Class A Common Stock, $0.0001 par value ~~per share~~		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 ☑

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		~~14,259,479~~16,327,346 shares outstanding as of ~~August 5, 2019~~May 04, 2020
Class B Common Stock, $0.0001 par value		~~1,883,423~~1,852,608 shares outstanding as of ~~August 5, 2019~~May 04, 2020

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION	34
	Item 1.	Financial Statements (unaudited)	34
		Condensed Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	34
		Condensed Consolidated Statements of Operations and Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	45
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	56
		Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2022
	Item 3.	Quantitative and Qualitative Disclosures about Market Risks	3436
	Item 4.	Controls and Procedures	34
~~PART II. OTHER INFORMATION~~		3536
PART II.		OTHER INFORMATION	37
	Item 1A.	Risk Factors	3537
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 6.	Exhibits	38
~~Item 6. Exhibits~~			38
SIGNATURE		39

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, ~~(including~~including 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.

Table of Contents

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.

Table of Contents

PART I. FINANCIAL INFORMATION

I~~tem 1.Financial Statements~~

Item 1.

Financial Statements

ACM

ACM RESEARCH, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

	March 31, 2020			December 31, 2019
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

June 30,
2019

December 31,
2018

Assets

Current assets:

Cash and cash equivalents
$27,578
$27,124
Accounts receivable, less allowance for doubtful accounts of $0 as of June 30, 2019 and $0 as of December 31, 2018 (note 3)
  31,393
  24,608
Other receivables
  2,388
  3,547
Inventories (note 4)
  45,494
  38,764
Prepaid expenses
  1,547
  1,985
        Total current assets
  108,400
  96,028
Property, plant and equipment, net (note 5)
  3,376
  3,708
Operating lease right-of-use assets, net (note 8)
  4,550
  -
Intangible assets, net
  307
  274
Deferred tax assets (note 15)
  1,635
  1,637
Long-term investments (note 10)
  1,738
  1,360
Other long-term assets
  263
  40
                         Total assets
  120,269
  103,047
Liabilities and Stockholders’ Equity


Current liabilities:


    Short-term borrowings (note 6)
  15,110
  9,447
    Accounts payable
  18,238
  16,673
Advances from customers
  5,684
  8,417
   Income taxes payable
  1,016
  1,193
Other payables and accrued expenses (note 7)
  11,993
  10,410
Current portion of operating lease liability (note 8)
  1,360
  -
            Total current liabilities
  53,401
  46,140
Long-term operating lease liability (note 8)
  3,190
  -
Other long-term liabilities (note 9)
  3,963
  4,583
                Total liabilities
  60,554
  50,723
Commitments and contingencies (note 16)


Stockholders’ equity:


Common stock – Class A, par value $0.0001: 50,000,000 shares authorized as of June 30, 2019 and December 31, 2018. 14,229,942 shares issued and outstanding as of June 30, 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: 2,409,738 shares authorized as of June 30, 2019 and December 31, 2018. 1,883,423 shares issued and outstanding as of June 30, 2019 and 1,898,423 shares issued and outstanding as of December 31, 2018 (note 13)
  -
  -
Additional paid in capital
  58,101
  56,567
Accumulated surplus (deficit)
  2,781
  (3,387)
Accumulated other comprehensive loss
  (1,168)
  (857)
               Total stockholders’ equity
  59,715
  52,324
                      Total liabilities and stockholders’ equity
$120,269
$103,047

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

Table of Contents

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.

ATable of ContentsCM

ACM RESEARCH, INC.

Condensed Consolidated Statements of ~~Operations~~Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2020 and ~~Comprehensive Income~~2019

~~(In~~ (In thousands, except share and per share data)

(Unaudited)

	Common Stock Class A				Common Stock Class B
	Shares		Amount		Shares		Amount		Additional Paid- in Capital		Accumulated Surplus		Accumulated Other Comprehensive 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 June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Revenue
$29,010
$20,873
$49,489
$30,616
Cost of revenue
  15,879
  12,149
  27,532
  16,770
        Gross profit
  13,131
  8,724
  21,957
  13,846
Operating expenses:




    Sales and marketing
  2,924
  2,682
  4,793
  4,537
    Research and development
  3,341
  2,419
  6,106
  3,960
    General and administrative
  2,205
  1,292
  4,146
  4,922
         Total operating expenses, net
  8,470
  6,393
  15,045
  13,419
         Income from operations
  4,661
  2,331
  6,912
  427
Interest income
  24
  14
  33
  17
Interest expense
  (194)
  (149)
  (333)
  (252)
Other income, net
  543
  1,066
  282
  311
Equity income in net income of affiliates
  153
  117
  269
  118
        Income before income taxes
  5,187
  3,379
  7,163
  621
Income tax expense (note 15)
  (876)
  (164)
  (995)
  (186)
        Net income
$4,311
$3,215
$6,168
$435
Comprehensive income:




    Net income
  4,311
  3,215
  6,168
  435
    Foreign currency translation adjustment
  (968)
  (1,036)
  (311)
  (331)
         Total comprehensive Income (note 2)
$3,343
$2,179
$5,857
$104





Net income per common share (note 2):




     Basic
$0.27
$0.20
$0.38
$0.03
     Diluted
$0.23
$0.18
$0.33
$0.02






Weighted average common shares outstanding used in computing per share amounts (note 2):



     Basic
  16,090,937
  15,838,540
  16,067,924
  15,611,863
     Diluted
  18,604,347
  18,119,733
  18,455,534
  17,669,650

	Common Stock Class A				Common Stock Class B
	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.

A~~CM RESEARCH, INC.~~6

~~Condensed Consolidated Statements~~

Table of ~~Changes in Stockholders’ Equity~~Contents

~~For the Three Months Ended June 30, 2019 and 2018~~

~~(In thousands, except share and per share data)~~

~~(Unaudited)~~

Common

Common






Stock Class A

Stock Class B

Shares

Amount

Shares

Amount

Additional Paid-in Capital

Accumulated Surplus (Deficit)

Accumulated Other Comprehensive Loss

Total Stockholders’ Equity

Balance at April 1, 2019
  14,176,690
$1
  1,898,423
$-
$57,371
$(1,530)
$(200)
$55,642
Net income
  -
  -
  -
  -
  -
  4,311
  -
  4,311
Foreign currency translation adjustment
  -
  -
  -
  -
  -
  -
  (968)
  (968)
Exercise of stock option
  38,252
  -
  -
  -
  112
  -
  -
  112
Stock-based compensation
  -
  -
  -
  -
  618
  -
  -
  618
Conversion of class B common shares to Class A common shares
  15,000
  -
  (15,000)
  -
  -
  -
  -
  -
Balance at June 30, 2019
  14,229,942
$1
  1,883,423
$-
$58,101
$2,781
$(1,168)
$59,715

Common

Common






Stock Class A

Stock Class B

Shares

Amount

Shares

Amount

Additional Paid-in Capital

Accumulated Surplus (Deficit)

Accumulated Other Comprehensive Income (Loss)

Total Stockholders’ Equity

Balance at April 1, 2018
  13,390,270
$1
  2,409,738
$-
  54,915
$(12,741)
  827
  43,002
Net income
  -
  -
  -
  -
  -
  3,215
  -
  3,215
Foreign currency translation adjustment
  -
  -
  -
  -
  -
  -
  (1,036)
  (1,036)
Exercise of stock option
  77,504
  -
  -
  -
  231
  -
  -
  231
Stock-based compensation
  -
  -
  -
  -
  185
  -
  -
  185
Conversion of class B common shares to Class A common shares
  489,565
  -
  (489,565)
  -
  -
  -
  -
  -
Balance at June 30, 2018
  13,957,339
$1
  1,920,173
$-
  55,331
$(9,526)
$(209)
  45,597

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

ACM RESEARCH, INC.

Condensed Consolidated Statements of ~~Changes in Stockholders’ Equity (Continued)~~

~~For the Six Months Ended June 30, 2019 and 2018~~

~~(In thousands, except share and per share data)~~

~~(Unaudited)~~

Common
Stock Class A

Common
Stock Class B

Shares

Amount

Shares

Amount

Additional Paid-in Capital

Accumulated Surplus (Deficit)

Accumulated Other Comprehensive Loss

Total Stockholders’ Equity

Balance at January 1, 2019
  14,110,315
$1
  1,898,423
$-
$56,567
$(3,387)
$(857)
$52,324
Net income
  -
  -
  -
  -
  -
  6,168
  -
  6,168
Foreign currency translation adjustment
  -
  -
  -
  -
  -
  -
  (311)
  (311)
Exercise of stock option
  104,627
  -
  -
  -
  172
  -
  -
  172
Stock-based compensation
  -
  -
  -
  -
  1,362
  -
  -
  1,362
Conversion of class B common shares to Class A common shares
  15,000
  -
  (15,000)
  -
  -
  -
  -
  -
Balance at June 30, 2019
  14,229,942
$1
  1,883,423
$-
$58,101
$2,781
$(1,168)
$59,715

Common
Stock Class A

Common
Stock Class B

Shares

Amount

Shares

Amount

Additional Paid-in Capital

Accumulated Surplus (Deficit)

Accumulated Other Comprehensive Income (Loss)

Total Stockholders’ Equity

Balance at January 1, 2018
  12,935,546
$1
  2,409,738
$-
  49,695
$(9,961)
  122
  39,857
Net income
  -
  -
  -
  -
  -
  435
  -
  435
Foreign currency translation adjustment
  -
  -
  -
  -
  -
  -
  (331)
  (331)
Exercise of stock option
  134,726
  -
  -
  -
  295
  -
  -
  295
Stock-based compensation
  -
  -
  -
  -
  2,360
  -
  -
  2,360
Conversion of class B common shares to Class A common shares
  489,565
  -
  (489,565)
  -
  -
  -
  -
  -
Exercise of common stock warrant issued to SMC
  397,502

  -

  -
  -

2,981

  -

  -

  2,981

Balance at June 30, 2018
  13,957,339
$1
  1,920,173
$-
  55,331
$(9,526)
$(209)
  45,597

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

A~~CM RESEARCH, INC.~~

~~Condensed Consolidated Statements of~~ Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,		Three Months Ended March 31,
	2019	2018	2020			2019
Cash flows from operating activities:
Net income	$6,168	$435	$	1,963		$	1,857
Adjustments to reconcile net income from operations to net cash used in
operating activities:
Adjustments to reconcile net income from operations to net cash used in operating activities:
Depreciation and amortization	388	173		212			191
Loss on disposals of property, plant and equipment	299
Equity income in net income of affiliates	(269)	(118)		(148	)		(116	)
Deferred income taxes	(1)	-		35			-
Stock-based compensation	1,362	2,360		689			744
Net changes in operating assets and liabilities:							-
Accounts receivable	(6,837)	(6,858)		(6,902	)		99
Other receivables	1,150	1,124		(683	)		669
Inventory	(6,783)	(12,328)		(931	)		(2,759	)
Prepaid expenses	412	(1,785)		(11	)		190
Other long-term assets	(223)	46		36			-
Accounts payable	1,600	10,486		5,617			(3,757	)
Advances from customers	(2,703)	1,799		195			45
Income tax payable	(1,011)	187		263			15
Other payables and accrued expenses	2,453	632		1,779			1,013
Other long-term liabilities	(612)	(271)		1,715			(1,373	)
Net cash used in operating activities	(4,607)	(4,118)
Net cash provided by (used in) operating activities				3,829			(3,182	)

Cash flows from investing activities:
Purchase of property and equipment	(325)	(882)		(118	)		(115	)
Purchase of intangible assets	(71)	(157)		-			(1	)
Investments in unconsolidated affiliates	(109)
Net cash used in investing activities	(505)	(1,039)		(118	)		(116	)

Cash flows from financing activities:
Proceeds from short-term borrowings	15,023	10,153		2,681			8,285
Repayments of short-term borrowings	(9,346)	(5,252)		(12,415	)		(5,084	)
Proceeds from stock option exercise to common stock	172	295		175			60
Net cash provided by financing activities	5,849	5,196
Net cash provided by (used in) financing activities				(9,559	)		3,261

Effect of exchange rate changes on cash and cash equivalents	$(283)	$(285)
Net (decrease) increase in cash and cash equivalents	$454	$(246)
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	$27,578	$17,435
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	$333	$252	$	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

ATable of ContentsCM

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.

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.

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ACM RESEARCH, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

In June ~~17,~~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 ~~“IPO”~~“STAR IPO”), of ACM Shanghai shares in the PRC. ACM Shanghai is currently ~~our principal~~ACM’s primary operating ~~company~~subsidiary, and ~~a wholly-owned subsidiary~~at the time of ~~ACM Research. Following the Listing and IPO, ACM Shanghai will be a majority-owned subsidiary of ACM Research.~~

~~ACM RESEARCH, INC.~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

announcement, was wholly owned by ACM. As an initial step in qualifying for the Listing and STAR IPO, onin June ~~12,~~ 2019 ACM Shanghai entered into agreements with seven investors (the “First Tranche Investors”), pursuant to which ~~those investors~~the First Tranche Investors agreed to pay a purchase price totaling RMB ~~187.9 million~~187,900 (equivalent to ~~$27.3 million)~~$27,300) to ACM Shanghai for shares representing 4.2% of the then-outstanding ACM Shanghai shares. ~~Pursuant to these agreements, the investors are obligated to fund their purchases (see note 17) after~~In November 2019 ACM Shanghai ~~made~~entered into agreements with eight PRC-based investment firms (the “Second Tranche Investors”), pursuant to which the ~~required filings~~Second Tranche Investors agreed to acquire shares of ACM Shanghai for an aggregate of RMB 228,200 (equivalent to $32,400) for the ~~capital increase with~~same purchase price per share paid by the ~~local agency~~First Tranche Investors. Following the issuance of shares to the Second Tranche Investors, 91.7% of the ~~PRC Ministry~~outstanding shares of ~~Commerce. Once it has received payment~~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 ~~the purchase prices from~~ all of the ~~parties,~~shares of Cleanchip by ACM to ACM Shanghai ~~is obligated to process necessary PRC governmental registrations~~ for the capital increase with the local branch of the PRC State Administration for Market Regulation. Upon completion of those registrations, the investors will be regarded as the owners of their subscribed shares.$3,500. The reorganization and sale had no impact on ACM’s consolidated financial statements.

~~In March 2019, ACM Shanghai formed a wholly owned subsidiary~~The Company has direct or indirect interests 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 5.0 million ($727). As of June 30, 2019, no capital had been injected in this new subsidiary.following subsidiaries:

		Effective interest held as at
Name of subsidiaries	Place and date of incorporation	March 31, 2020			December 31, 2019
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 ~~include~~of ACM and its subsidiaries including ACM Shanghai and its subsidiaries, which include ACM Wuxi, ACM Shengwei, and CleanChip (the subsidiaries of which include ACM California and ACM ~~Korea. Subsidiaries~~Korea). 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 ~~SEC~~Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements 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, ~~2018~~2019 included in ~~the Company’s~~ACM’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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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 ~~June 30, 2019,~~March 31, 2020, the condensed consolidated statements of operations and comprehensive income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the condensed consolidated statements of changes in stockholders’ equity for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and the condensed consolidated statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ 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 ~~June 30, 2019~~March 31, 2020 and the results of operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 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.

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ACM RESEARCH, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Basic and Diluted Net Income per Common Share

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

	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
	2019	2018	2019	2018	2020		2019
Numerator:
Net income	$4,311	$3,215	$6,168	$435	$	1,963	$	1,857
Denominator:
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	16,090,937	15,838,540	16,067,924	15,611,863		18,120,363		16,044,655
Effect of dilutive securities	2,513,410	2,281,193	2,387,610	2,057,787		2,946,273		2,180,662
Weighted average shares outstanding, diluted	18,604,347	18,119,733	18,455,534	17,669,650		21,066,636		18,225,317

Net income per common share:
Basic	$0.27	$0.20	$0.38	$0.03	$	0.09	$	0.12
Diluted	$0.23	$0.18	$0.33	$0.02	$	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 ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the net income per common share attributable to each class is the same under the “two-class” method. As such, the two classes of common stock have been presented on a combined basis in the condensed consolidated statements of operations and comprehensive income and in the above computation of net income per common share.

Diluted net income per common share reflects the potential dilution from securities that could share in ACM’s earnings. ACM’s potential dilutive securities consist of warrants and stock options for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~ ~~Certain potential dilutive securities were excluded from the net income 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”) ~~2016-02,~~ 2018-13,~~Leases (Topic 842). 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, the Company adopted ASU 2016-02. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, ~~Targeted Improvements to ASC 842~~, ~~Leases~~, which included an option to not restate comparative periods in transition and elect to use the effective date of Accounting Standards Codification (“ASC”) 842 as the date of initial application of transition, which the Company elected. As a result of its adoption of ASC 842 as of January 1, 2019, the Company recorded operating lease right-of-use assets of $5,109 and lease liabilities of $5,109. The adoption of ASC 842 had no impact on the Company’s profit or cash flows for the three and six month period ended June 30, 2019. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the historical lease classification. Additional information and disclosures required by this new standard are contained in note 8.

~~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 2018-07,~~ ~~Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting, 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 clarifies 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 recognition standard set forth in ASU 2014-09, ~~Revenue from Contracts with Customers (Topic 606). Effective January 1, 2019, the Company adopted ASU 2018-07, which did not have a material impact on the Company’s consolidated financial statements.~~

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In August 2018, the FASB issued ASU 2018-13,~~ Fair Value Measurement (Topic 820), 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. The ~~Company is evaluating the impact of the~~ adoption of ASU 2018-13 did not have a material impact on ~~its~~the Company’s consolidated financial statements.

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ACM RESEARCH, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Recent Accounting Pronouncements Not Yet Adopted

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, 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 files periodic reports with the Securities and Exchange Commission 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. The Company is evaluating the impact of the adoption of ASU 2017-04 on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaced the 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. The Company ~~will adopt ASU 2016-13 effective January 1, 2020. The Company~~ is evaluating the impact of this standard on its consolidated financial statements, including accounting policies, processes, and systems, ~~but does not expect~~and expects the standard will have a ~~material~~minor impact on its consolidated financial statements.

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

NOTE 3 – ACCOUNTS RECEIVABLE

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, accounts receivable consisted of the following:

	June 30,	December 31,
	2019	2018	March 31, 2020		December 31, 2019
Accounts receivable	$31,393	$24,608	$	37,260	$	31,091
Less: Allowance for doubtful accounts	-	-		-		-
Total	$31,393	$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 ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019. At ~~June 30, 2019~~ March 31, 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.

~~ACM RESEARCH, INC.~~

~~Notes to~~ ~~Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

NOTE 4 – INVENTORIES

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, inventory consisted of the following:

	June 30, 2019	December 31, 2018	March 31, 2020		December 31, 2019
Raw materials	$17,425	$12,646	$	15,796	$	15,105
Work in process	15,103	9,631		17,622		10,407
Finished goods	12,966	16,487		11,569		19,284
Total inventory, gross	45,494	38,764
Inventory reserve	-
Total inventory, net	$45,494	$38,764
Total inventory			$	44,987	$	44,796

~~At June 30, 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.

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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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, property, plant and equipment consisted of the following:

	June 30,	December 31,
	2019	2018	March 31, 2020			December 31, 2019
Manufacturing equipment	$3,948	$9,703	$	3,883		$	3,902
Office equipment	601	512		685			627
Transportation equipment	126	184		170			124
Leasehold improvement	1,424	1,379		1,425			1,442
Total cost	6,099	11,778		6,163			6,095
Less: Total accumulated depreciation	(2,831)	(8,102)		(3,266	)		(3,077	)
Construction in progress	108	32		598			601
Total property, plant and equipment, net	$3,376	$3,708	$	3,495		$	3,619

Depreciation expense was ~~$177~~$185 and ~~$88~~$175 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $352 and $173 for the six months ended June 30, 2019 and 2018,~~ 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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, short-term borrowings consisted of the following:

June 30,
2019

December 31,
2018

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.
  3,565

Line of credit up to RMB 30,000 from Bank of China Pudong Branch, due on June 6,2019 with annual interest rate of 5.22%,secured by certain of the Company’s intellectual property and the Company’s CEO and fully repaid on June 6,2019.
  -
  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 and fully repaid on June 13,2019.
  -
  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.
  1,455

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%.
  1,455

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%.
  728

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%.
  728

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.
  3,251

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.
  1,164

Line of credit up to RMB 50,000 from China Everbright Bank, due on June 26, 2020 with an annual interest rate of 5.66%, guaranteed by the Company’s CEO.
  2,764

Total
$15,110
$9,447

	March 31, 2020		December 31, 2019
Line of credit up to RMB 50,000 from Bank of Shanghai Pudong Branch, due on January 23, 2020 with an annual interest rate of 5.22%, guaranteed by the Company’s CEO and Cleanchip Technologies Limited.It was fully repaid on January 23, 2020.		-		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 ~~$194~~$111 and ~~$149~~$139 for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018, respectively, and $333 and $252 for the six months ended June 30, 2019 and 2018,~~ respectively.

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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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, other payable and accrued expenses consisted of the following:

	June 30, 2019	December 31, 2018	March 31, 2020		December 31, 2019
Lease expenses and payable for leasehold improvement due to a related party (note 11)	$52	$53
Accrued commissions	2,455	2,931	$	4,593	$	4,082
Accrued warranty	2,338	1,710		3,092		2,811
Accrued payroll	1,392	626		2,775		2,092
Accrued professional fees	234	64		403		165
Accrued machine testing fees	2,859	3,076		1,424		1,456
Others	2,663	1,950		2,044		2,268
Total	$11,993	$10,410	$	14,331	$	12,874

NOTE 8 –LEASES

The Company leases space under non-cancelable operating leases for several office and manufacturing locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions.

Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, it applies a portfolio approach for determining the incremental borrowing rate.

The components of lease expense were as follows:

			Three Months Ended March 31,
	Three months ended June 30, 2019	Six months ended June 30, 2019	2020		2019
Operating lease cost	$264	$701	$	377	$	437
Short-term lease cost	7	25		50		18
Lease cost	$271	$726	$	427	$	455

Supplemental cash flow information related to operating leases was as follows for the period ended ~~June 30, 2019:~~March 31, 2020 and 2019 respectively:

Three months
ended
June 30,
2019

Six months
ended
June 30,
2019

Cash paid for amounts included in the measurement of lease liabilities:

     Operating cash outflow from operating leases
  271
  726

	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

Table of Contents

ACM RESEARCH, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

(in thousands, except share and per share data)

Maturities of lease liabilities for all operating leases were as follows as of ~~June 30, 2019:~~March 31, 2020:

December 31

2019
$728
2020
  1,488
2021
  1,475
2022
  1,495
2023
  53
2024
  13
Total lease payments
  5,252
Less: Interest
  (702)
Present value of lease liabilities
$4,550

	December 31,
2020	$	1,128
2021		1,488
2022		1,495
2023		53
2024		13
Total lease payments		4,177
Less: Interest		(630	)
Present value of lease liabilities	$	3,547

The weighted average remaining lease terms and discount rates for all operating leases were as follows as of ~~June 30, 2019:~~March 31, 2020:

	~~June 30,~~ ~~2019~~
~~Remaining lease term and discount rate:~~
~~Weighted average remaining lease term (years)~~	~~3.50~~
~~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 ~~PRC~~several 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 ~~June 30, 2019,~~March 31, 2020, and December 31, ~~2018,~~2019, other long-term liabilities consisted of the following unearned government subsidies:

	March 31, 2020		December 31, 2019
Subsidies to Stress Free Polishing project, commenced in 2008 and 2017	$	1,191	$	1,251
Subsidies to Electro Copper Plating project, commenced in 2014		2,445		2,666
Subsidies to Polytetrafluoroethylene, commenced in 2018		123		135
Subsidies to Tahoe-Single Bench Clean,commenced in 2020		1,910		-
Other		161		134
Total	$	5,830	$	4,186

June 30,
2019

December 31,
2018

Subsidies to Stress Free Polishing project, commenced in 2008 and 2017
$1,362
$1,483
Subsidies to Electro Copper Plating project, commenced in 2014
  2,370
  2,860
Subsidies to Polytetrafluoroethylene, commenced in 2018
  158
  178
Other
  73
  62
Total
$3,963
$4,583

NOTE 10 – LONG-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 ~~cost~~equity method.

June 30,
2019

December 31,
2018

Investment – equity method
$1,629
$1,360
Investment – cost method
109
-
Total
$1,738
$1,360
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.

	March 31, 2020		December 31, 2019
Ninebell	$	1,694	$	1,538
Shengyi		109		107
Hefei Shixi		4,212		4,289
Total	$	6,015	$	5,934

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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 $2,483 and $1,865 during the three months ended June 30, 2019 and 2018, and $4,803 and $2,835 during the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and December 31, 2018, accounts payable due to Ninebell were $2,131 and $1,477, respectively, and prepaid expenses prepaid to Ninebell for material purchases were $751 and $572, respectively.

~~ACM purchased materials from Shengyi amounting to $192 during the three and six months ended June 30, 2019. As of June 30, 2019, accounts payable due to Shengyi was $189.~~

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 pays a monthly rental fee of RMB 366 (equivalent to $55). The required security deposit was RMB 1,077 (equivalent to $163). The Company incurred leasing expenses under the lease agreement of $150 and $147 during the three months ended June 30, 2019 and 2018, respectively, and $300 and $319 during the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and December 31, 2018, payables to Zhangjiang Group for lease expenses and leasehold improvements recorded as other payables and accrued expenses amounted to $52 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, including Jian Wang, the Chief Executive Officer and President of ACM Shanghai and the brother of David H. Wang (a related ~~party (note 11)~~party), delivered RMB 20,124 ~~(approximately $2,981~~($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. ~~SMC is a limited partnership incorporated in the PRC, whose partners consist of employees of ACM Shanghai.~~ 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 SMC Warrant in full and purchased 397,502 shares of Class A common stock (note 12).

~~NOTE 12 – WARRANT LIABILITY~~

~~On December 9, 2016, ACM Shanghai received~~ SMC borrowed the ~~SMC Investment from SMC for potential investment pursuant~~funds to ~~terms to be subsequently negotiated, and on March 14, 2017, ACM, ACM Shanghai and SMC entered into the SMC Agreement pursuant to which, in exchange for the SMC Investment, ACM issued~~pay the SMC Warrant ~~to SMC (note 11).~~

~~The SMC Warrant, 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 SMC 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 Black-Scholes valuation model was used to value the SMC Warrant.

~~On March 30, 2018, ACM entered into a warrant~~ exercise ~~agreement with ACM Shanghai and SMC~~price pursuant to ~~which SMC exercised the SMC Warrant in full by issuing to ACM~~ a senior secured promissory note in the principal amount of ~~$3,000. ACM then transferred such~~$2,981 issued to the Company (the “SMC Note”). The note ~~to ACM Shanghai in exchange for an intercompany promissory note of ACM Shanghai in the principal amount of $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 performance~~described in the following paragraph, in the third quarter of ~~its~~2019 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 interest~~separate transaction in August, 2019, ACM Shanghai repaid $1,161 of the ~~397,502~~SMC 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 to~~from certain directors, employees and SMC upon ~~its~~the exercise of the underwriters’ over-allotment option in connection with the public offering in August 2019. The total consideration to the directors, employees and SMC, ~~Warrant. Upon the issuance~~in exchange for their surrender of ~~397,502~~an 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 against~~net proceeds per share ACM received from the ~~SMC Investment.~~

over-allotment option in connection with the offering.

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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 50,000,000 shares of Class A common stock and 2,409,738 shares of Class B common stock, each with a par value of $0.0001. Each share of Class A common stock is entitled to 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 stockholders.

~~On March 30, 2018, SMC exercised the SMC Warrant in full (note 12) to purchase 397,502 shares of Class A common stock.~~

During the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~the Company~~ACM issued ~~104,627~~70,478 and 66,375 shares of Class A common stock upon option exercises by employees and non-employees, ~~and an additional 15,000~~respectively. During the three months ended March 31, 2020, ACM issued 64,717 shares of Class A common stock upon ~~conversion of an equal number of shares of Class B common stock.~~a cashless warrant exercise by a non-employee.

There were issued and outstanding ~~14,229,942~~16,317,346 shares of Class A common stock and ~~1,883,423~~1,862,608 shares of Class B common stock at ~~June 30, 2019~~March 31, 2020, and ~~14,110,315~~16,182,151 shares of Class A common stock and ~~1,898,423~~1,862,608 shares of Class B common stock at December 31, ~~2018.~~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, 2020 are presented in the following table:

Balance at December 31, 2019	$	60,162
Net income attributable to redeemable non-controlling interests		258
Effect of foreign currency translation 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 consisting~~consists of employee and non-employee awards ~~were~~ issued under the 1998 Stock Option Plan, ~~and~~the 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

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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 ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:

Number of Option Share

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
  295,000
  6.50
  16.81

Exercised
  (48,098)
  0.78
  2.62

Expired
  (628)
  0.55
  3.00

Forfeited
  (4,085)
  1.90
  4.83

Outstanding at June 30, 2019
  2,745,594
  2.07
  5.48
  7.14 years
Vested and exercisable at June 30, 2019
  1,608,352

	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 ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company recognized employee stock-based compensation expense ~~of $291~~$431 and ~~$170, respectively. During the six months ended June 30, 2019 and 2018, the Company recognized employee stock-based compensation expense of $512 and $263,~~$221, respectively. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, $3,662~~2019, $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 ~~1.51~~1.29 years and ~~1.62~~1.47 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

~~Stock options to acquire 295,000 and 295,000 shares, respectively, of Class A common stock were granted to employees during the three and six months ended June 30, 2019.~~Non-employee Awards

The following table summarizes the Company’s non-employee ~~share~~stock option activities during the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:

Number of Option Shares

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
  (56,529)
  0.33
  0.81
  -
Expired
  -
  -
  -
  -
Forfeited
  -
  -
  -
  -
Outstanding at June 30, 2019
  1,155,845
$0.81
$2.66
  6.62 years

Vested and exercisable at June 30, 2019
  986,572

	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

~~ACM RESEARCH, INC.~~

~~Notes to~~ ~~Condensed Consolidated Financial Statements (unaudited)~~

~~(in thousands, except share and per share data)~~

The Company 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 the Company adopted ASU 2018-07, for all nonemployee awards that have not vested as of December 31, 2018. The cumulative-effect adjustment to retained earnings as of January 1, 2019 was immaterial to the financial statements as a whole. Accordingly, the Company did not record this adjustment as of January 1, 2019. Furthermore, for future awards, compensation expense is based on the market value of the shares at the grant date.

During the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company recognized stock-based compensation expense of ~~$327~~$172 and $14523, respectively, related to share option ~~vesting.~~ ~~During the six months ended June 30, 2019 and 2018,~~ ~~the Company recognized stock-based compensation expense of $850 and $2,097, respectively, related to share option vesting.~~grants. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, $863~~2019, $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 ~~0.64~~0.22 years and ~~1.31~~0.23 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

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ACM RESEARCH, INC.

Notes to Condensed Consolidated Financial Statements (unaudited)

(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 particular~~both 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 six months ended June~~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 has~~had recorded a valuation allowance for the full amount of net deferred tax assets in the United States, as the realization of deferred tax assets 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 six~~ months ended ~~June 30, 2019 and December~~March 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 ~~"more~~more 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.

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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 ~~$876~~$304 and ~~$164~~$119 during the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $995 and $186 during the six months ended June 30, 2019 and 2018,~~ respectively.

As of ~~June 30, 2019,~~March 31, 2020, the ~~Company's~~Company’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 ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

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, ~~1999~~2009 through December 31, ~~2017. This is due to~~2019. To the ~~Company’s~~extent the Company has tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.

Income Tax Expense

The following presents components of income tax expense for the indicated 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 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, 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.

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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 enacted on March 27, 2020. It contains several provisions that may have financial statement effects. Key aspects of the CARES Act include the following:

Repealed the 80% taxable income limitation for 2018, 2019 and 2020. Also allows those years to be carried back up to five years

Allows corporations to claim 100% of AMT credits in 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 ~~Tax Cuts and Jobs~~CARES Act ~~(the "Tax Act"), enacted~~is not expected have a material impact on ~~December 22, 2017, introduced significant changes to U.S.~~ income ~~tax law. Effective January 1, 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new~~ taxes on certain foreign-sourced earnings and certain intercompany payments. 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 ~~six months ended June 30, 2019. The accounting for the tax effects of the Tax Act was completed in 2018.~~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 ~~June 30, 2019,~~March 31, 2020, the Company ~~did not have any~~had $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 ~~June 30, 2019,~~March 31, 2020, the Company did not have any legal proceedings.

~~NOTE 17 – SUBSEQUENT EVENTS~~

~~In connection with the Listing and the IPO, in July 2019, ACM Shanghai submitted the required filings for approval~~Table of its capital increase with the local agency of the PRC Ministry of Commerce (see note 1). Once ACM Shanghai has received payment of the funding from all committed investors, ACM Shanghai is to process additional PRC governmental registrations for the capital increase with the local branch of the PRC State Administration for Market Regulation. Upon successful completion of those registrations, the investors will be issued additional equity, representing 4.2% of the outstanding ACM Shanghai shares.Contents

I~~tem~~

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

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-looking~~forward‑looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the ~~forward-looking~~forward‑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 ~~$41.7 million, or 84% of total revenue, for the first six months of 2019 compared to $28.7~~$22.8 million, or 94% of total revenue, for the ~~first six~~three months ending March 31, 2020 compared to $12.8 million, or 63% of ~~2018.~~total revenue, for the three months ending 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 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 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 6595 single-wafer wet cleaning and other front-end processing tools, more than 5585 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 has~~tools 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~~

Table of ~~megasonic waves to deliver megasonic energy in a highly uniform manner on a microscopic level;~~Contents

●

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

In 2009 we introduced SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process.

In 2016 we introduced TEBO technology, which can be applied at numerous steps during the fabrication of small node conventional two-dimensional and three-dimensional patterned wafers.

In August 2018 we introduced the Ultra-C Tahoe wafer cleaning tool, which delivers high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high temperature single-wafer cleaning tools.

In March 2019 we introduced (a) the Ultra ECP AP or Advanced Wafer Level Packaging tool, a back-end assembly tool used for bumping, or applying copper, tin and nickel to wafers at the die-level prior to packaging, and (b) the Ultra ECP MAP or Multi Anode Plating tool, a front-end process tool that utilizes our proprietary technology to deliver world-class electrochemical copper planting for copper interconnect applications.

In April 2020 we introduced the Ultra Furnace, our first system developed for multiple dry processing applications.

In May 2020 we introduced the Ultra C Family of semi-critical cleaning systems, including the 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 2007~~Since that time, we ~~began to focus~~have 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 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.

●

~~Four private equity funds and other entities based in the PRC have paid to ACM Shanghai a total of RMB 141.8 million ($20.6 million) to be applied to purchase 3.1% of ACM Shanghai’s shares at~~

●	In June 2019 ACM Shanghai entered into agreements with seven investors, or the First Tranche Investors, pursuant to which the First Tranche Investors purchased ACM Shanghai shares for a total of RMB 187.9 million ($27.3 million as of June 12, 2019).

●

In November 2019 ACM Shanghai entered into agreements with each of the First Tranche Investors and eight PRC-based investment firms, or the Second Tranche Investors, pursuant to which the Second Tranche Investors subsequently purchased ACM Shanghai shares, or the Second Tranche Shares, for a total of RMB 228.2 million ($32.4 million as of November 29, 2019). The purchase price per Second Tranche Share was equal to the purchase price per share paid by the First Tranche Investors and was based on a pre-investment enterprise valuation of ACM Shanghai of RMB 4.84 billion ($688.9 million as of November 29, 2019).

As of March 31, 2020, 91.7% of the outstanding shares of ACM Shanghai ~~of RMB 4.65 billion ($674.5 million).~~

●

~~Two entities~~were owned by ~~certain employees~~ACM Research, 3.8% are owned by the First Tranche Investors and 4.5% are owned by the Second Tranche Investors. The board of directors of ACM Shanghai ~~have paid to~~will consist of nine members, seven of whom will be nominated by ACM ~~Shanghai a total~~Research and two of ~~RMB 26.1 million ($3.8 million) to purchase 0.7%~~whom will be nominated by two of ~~ACM Shanghai’s shares at a purchase price based on a pre-investment enterprise valuation of ACM Shanghai of RMB 3.72 billion ($539.6 million), a discount of 20% from~~ the ~~purchase price paid by the other investors.~~

●

A private equity fund based in Hong Kong has agreed to pay a total of RMB 20.0 million ($2.9 million) to purchase 0.4% of ACM Shanghai’s shares at a purchase price based on a pre-investment enterprise valuation of ACM Shanghai of RMB 4.65 billion ($674.5 million). We expect this investor will, consistent with contractual obligations, fund their investment by September 2019, but ACM Shanghai’s receipt of those funds is not necessary for ACM Shanghai to satisfy STAR Market listing requirements.

Second Tranche Investors.

Once it has received payment of the purchase prices, ACM Shanghai is to process necessary PRC governmental registrations for the capital increase with the local branch of the PRC State Administration for Market Regulation. Upon completion of those registrations, the investors will be regarded as the owners of their subscribed shares.

~~ACM Shanghai and the investors have agreed to use their respective best efforts to facilitate the completion,~~If, within three years from the date on which ~~the~~ ACM Shanghai shares ~~are~~were issued to the ~~investors, of~~First Tranche Investors, the ~~Listing and the~~ STAR ~~IPO, with the STAR IPO to be completed at a pre-offering valuation of not less than RMB 5.15 billion ($747.1 million). If, by the end of such three-year period, the~~ Listing and the STAR IPO have not been completed and the China Securities Regulatory Commission has not otherwise approved the registration of ACM Shanghai’s ~~Listing~~listing application, each ~~investor~~First Tranche Investor will have the right to require that ACM Shanghai repurchase, and ACM Shanghai will have the right to purchase, the ~~investor’s~~First Tranche Investor’s ACM Shanghai shares for a price equal to the initial purchase price paid by the ~~investor,~~First Tranche Investor, without interest.

If ACM Shanghai does not officially submit application documents for the STAR Listing to the Shanghai Stock Exchange by December 31, 2022, each Second Tranche Investor will have the right to require that ACM Shanghai repurchase, and ACM Shanghai will have the right to require that each Second Tranche Investor sell to ACM Shanghai, such Second Tranche Investor’s Second Tranche Shares for a price equal to the initial purchase price paid by the Second Tranche Investor, without interest.

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We have determined, voluntarily and not pursuant to any contractual or legal obligation, that pending either (a) ACM Shanghai’s submission of the application documents for the STAR Listing to the Shanghai Stock Exchange or (b) application to repurchase the Second Tranche Shares, ACM Shanghai will deposit, and hold in reserve, all of the proceeds received from the ~~share sales~~sale of Additional Placement Shares in segregated cash and cash-equivalent ~~accounts pending either (a) completion~~accounts.

Transactions Relating to SMC Investment

In December 2016 Shengxin (Shanghai) Management Consulting Limited Partnership, or SMC, paid 20,123,500 RMB ($3.0 million as of the ~~Listing~~date of funding), or the SMC Investment, to ACM Shanghai for investment pursuant to terms to be subsequently negotiated. SMC is a PRC limited partnership owned by employees of ACM Shanghai, including Jian Wang, the general partner of SMC. Jian Wang is the Chief Executive Officer and President of ACM Shanghai and the brother of David H. Wang, our Chief Executive Officer, President and Chair of the Board.

In March 2017, (a) ACM Research issued to SMC a warrant, or the Warrant, exercisable to purchase 397,502 shares of Class A common stock at a price of $7.50 per share, for a total exercise price of $3.0 million and (b) ACM Shanghai agreed to repay the SMC Investment within 60 days after the exercise of the Warrant.

In March 2018 SMC exercised the Warrant in full, as a result of which (1) ACM Research issued 397,502 shares of Class A common stock to SMC, (2) SMC borrowed the funds to pay the Warrant exercise price pursuant to a senior secured promissory note, or the SMC Note, in the principal amount of $3.0 million issued to ACM Shanghai, which in turn issued to ACM Research a promissory note, or the Intercompany Note, in the principal amount of $3.0 million in payment of the Warrant exercise price. Each of the two notes bears interest at a rate of 3.01% per annum and matures on August 17, 2023. The SMC Note was secured by a pledge of the shares issued upon exercise of the Warrant.

In connection with its follow-on public offering of Class A common stock in August 2019, ACM Research agreed to purchase a total of 154,821 of the Warrant shares from SMC at a per share price of $13.195, of which (a) $1.2 million was applied to reduce SMC’s obligations to ACM Shanghai under the SMC Note, and which ACM Research then withheld for its own account and applied to reduce ACM Shanghai’s obligations to ACM Research under the Intercompany Note and (b) the remaining $0.9 million was paid to SMC. In a separate transaction, ACM Shanghai repaid $1.2 million of the SMC Investment in cash, which reduced the amount of the SMC Investment due to SMC to $1.8 million.

In preparation for the STAR IPO, ACM Shanghai is required to terminate its financial relationship with SMC. In order to facilitate such termination, on April 30, 2020, ACM Research entered into two agreements relating to outstanding obligations among ACM Research, ACM Shanghai and SMC. Pursuant to such agreements (i) ACM Shanghai assigned to ACM its rights under the SMC Note, including the right to receive payment of the $1.8 million payable thereunder; (ii) ACM Research cancelled the outstanding $1.8 million obligation of ACM Shanghai under the Intercompany Note, (iii) SMC transferred its remaining 242,681 Warrant shares to ACM Research, and (iv) in exchange for such 242,681 Warrant shares, ACM Research agreed to deliver to SMC certain consideration agreed upon by ACM Research and SMC, subject to obtaining certain PRC regulatory approvals. ACM Research and SMC agreed that if the required approvals are not obtained by December 31, 2023, ACM Research will cancel the SMC Note as consideration for the 242,681 Warrant shares. In a separate transaction in April, 2020, ACM Shanghai repaid the remaining $1.8 million of the SMC Investment in cash.

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COVID–19 Outbreak

COVID–19, or ~~(b) application~~the coronavirus, originated in Wuhan, China, in December 2019 and has subsequently spread rapidly across the PRC and globally. The COVID–19 outbreak affected our business and operating results for the first quarter of 2020. The COVID–19 situation continues to ~~repurchase~~develop rapidly, and it is impossible for us to predict the ~~shares~~effect and ultimate impact of the COVID–19 outbreak on our business operations and results. While the quarantine, social distancing and other regulatory measures instituted or recommended in response to COVID–19 are expected to be temporary, the duration of the business disruptions, and related financial impact, of the outbreak cannot be estimated at this time. For an explanation of some of the risks we potentially face, please read carefully the information provided under “Item 1A. Risk Factors—Risks Related to the COVID–19 Outbreak,” which is incorporated by reference in “Item 1A. Risk Factors” of Part II of this report.

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

Operations: We conduct substantially all of our product development, manufacturing, support and services in the PRC, and those activities have been directly impacted by the COVID–19 outbreak and related restrictions on transportation and public appearances. In February 2020 our ACM Shanghai headquarters were closed for an additional six days beyond the normal Lunar New Year Holiday in accordance with Shanghai government restrictions related to the outbreak. We took steps before and after the Lunar New Year to ensure no employees took unreasonable risks to rush back to work. Currently more than 95% of our staff have returned to work at both of our Shanghai facilities. To date we have not experienced absenteeism of management or other key employees, other than certain of our executive officers being delayed in traveling back to the PRC after working from our California office in February. Our corporate headquarters are located in Alameda County in the San Francisco Bay Area and are the subject of a number of state and county public health directives and orders. These actions have not negatively impacted our business to date, however, because of the limited number of employees at our headquarters and the nature of the work they generally perform.

Customers: Our customers’ business operations have been, and are continuing to be, subject to business interruptions arising from the ~~investors.~~COVID–19 outbreak. Historically a majority of our revenue from sales of single-wafer wet cleaning equipment for front-end manufacturing has been derived from customers located in the PRC and surrounding areas that have been impacted by COVID–19. Three customers that accounted for 73.8% of our revenue in 2019 and 87.6% of our revenue in 2018 are based in the PRC and Korea. One of those customers, Yangtze Memory Technologies Co., Ltd. — which accounted for 27.5% of our 2019 revenue and 39.6% of our 2018 revenue — is based in Wuhan. While Yangtze Memory Technologies Co., Ltd. and other key customers continued to operate their fabrication facilities without interruption during and after the first quarter of 2020, they were forced to restrict access of service personnel and deliveries to and from their facilities. A portion of the shipments we previously had expected to deliver in the first quarter of 2020 were postponed due in part to these factors. We believe these deliveries represent deferred, not lost, shipments and revenue, which we are working to recover by increasing our manufacturing output in the second and third quarters of 2020.

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

Projects: Our strategy includes a number of plans to ~~enter into additional agreements in~~support the ~~year ending December 31, 2019 pursuant~~growth of our core business, including the proposed STAR Listing and STAR IPO with respect to ~~which certain existing ACM Research stockholders and other investors could purchase additional~~ shares of ACM Shanghai ~~for an aggregate purchase price~~described above as well as ACM Shanghai’s proposed acquisition of ~~approximately $42 million. We expect~~land rights in the Lingang area of Shanghai where we intend to construct a new research and development center and factory. The extent to which COVID–19 impacts these projects will depend on future developments that ~~if we were~~are highly uncertain, but to ~~enter any such agreements,~~date, the ~~purchase price and other terms~~timing of ~~those agreements would be substantially similar to those under the agreements entered into with the investors other than the employee entities.~~these potential projects has not been delayed or disrupted by COVID–19 or related government measures.

~~PRC~~

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Government Research and Development Funding

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

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

●

Government subsidies relating to current expenses are reflected as reductions of those expenses in the periods in which they are reported. Those reductions totaled ~~$2.0~~$0.2 million in the first ~~six~~three months of ~~2019,~~2020, as compared to ~~$0.4~~$1.3 million in the first ~~six~~three months of ~~2018.~~

●2019.

Government grants used to acquire depreciable assets are transferred from long-term liabilities to property, plant and equipment when the assets are acquired and then the recorded amounts of the assets are credited to other income over the useful lives of the assets. Related government subsidies recognized as other income totaled ~~less than $100,000~~$37,000 and $35,000 in the first ~~six~~three months of 2020 and 2019, ~~and 2018.~~

respectively.

How We Evaluate Our Operations

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

●

We define “shipments” of tools to include (a)a “repeat” delivery to a customer of a type of tool that the customer has previously accepted, for which we recognize revenue upon delivery, and (b)a “first-time” delivery of a tool to a customer on an approval basis, for which we may recognize revenue in the future if contractual conditions are met and customer acceptance is received.

●

We define “adjusted EBITDA” as our net income excluding interest expense (net), income tax benefit (expense), depreciation and amortization, and stock-based compensation. We define adjusted EBITDA to also exclude restructuring costs, although we have not incurred any such costs to date.

●

We define “free cash flow” as net cash provided by operating activities less purchases of property and equipment (net of proceeds from disposals) and of intangible assets.

●

We define “adjusted operating income” as our income from operations excluding stock-based compensation.

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 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 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.

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

Shipments

Shipments consist of two components:

●

a shipment to a customer of a type of tool that the customer has previously-accepted, for which we recognize revenue when the tool is delivered; and

●

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

“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.

Shipments in the three months ended ~~June 30, 2019~~March 31, 2020 totaled ~~$33~~$12 million, as compared to ~~$21 million in the three months ended June 30, 2018 and~~ $14 million in the three months ended March 31, ~~2019. Shipments in the six months ending June 30,~~ 2019, ~~totaled $47 million, as compared to $31~~and $25 million in the ~~six~~three months ended ~~June 30, 2018.~~December 31, 2019.

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

Adjusted EBITDA

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

●

adjusted EBITDA excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future;

●

we exclude stock-based compensation expense from adjusted EBITDA and adjusted operating income, although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;

●

the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

●

adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

●

adjusted EBITDA does not reflect interest expense, or the requirements necessary to service interest or principal payments on debt;

●

adjusted EBITDA does not reflect income tax expense (benefit) or the cash requirements to pay taxes;

●

adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

●

although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

●

adjusted EBITDA includes expense reductions and non-operating other income attributable to PRC governmental grants, which may mask the effect of underlying developments in net income, including trends in current expenses and interest expense, and free cash flow includes the PRC governmental grants, the amount and timing of which can be difficult to predict and are outside our control.

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

	Three Months Ended March 31,
	2020			2019
	(in thousands)
Adjusted EBITDA Data:
Net income	$	1,963		$	1,857
Interest expense (income), net		(224	)		130
Income tax expense		304			119
Depreciation and amortization		212			191
Stock based compensation		689			744
Adjusted EBITDA	$	2,944		$	3,041

Six Months Ended June 30,

2019

2018

(in thousands)

Adjusted EBITDA Data:

Net Income
$6,168
$435
Interest expense, net
  300
  235
Income tax expense
  995
  186
Depreciation and amortization
  388
  173
Stock based compensation
  1,362
  2,360
Adjusted EBITDA
$9,213
$3,389

Adjusted EBITDA in the ~~six~~three months ended ~~June 30, 2019, increased~~March 31, 2020, decreased by ~~$5.8 million~~$97,000 as compared to the same period in ~~2018,~~2019, due to an increase of ~~$5.7 million~~$354,000 of interest income and a decrease of $55,000 in ~~net income,~~stock-based compensation expense, offset in part by an increase of ~~$65,000~~$185,000 in ~~interest~~income tax expense, an increase of ~~$809,000~~$106,000 in net income ~~tax expense,~~ and an increase of ~~$215,000~~$21,000 in depreciation and ~~amortization, offset in part by a decrease of $998,000 in stock-based compensation expense.~~amortization. We do not exclude from adjusted EBITDA expense reductions and non-operating other income attributable to PRC governmental grants because we consider and incorporate the expected amounts and timing of those grants in incurring expenses and capital expenditures. If we did not receive the grants, our cash expenses therefore would be lower, and our cash position would not be materially affected, to the extent we have accurately anticipated the amounts of the grants. For additional information regarding our PRC grants, please see “—Key Components of Results of Operations—PRC Government Research and Development Funding.”

●

allocated overhead for rent and utilities.

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

Other Income and Expenses

Three Months Ended June 30,

2019

2018

% Change 2019 v 2018

(in thousands)

Interest expense, net
$(170)
$(135)
  25.9%
Other income, net
  543
  1,066
  (49.1)

	Three Months Ended March 31,
	2020			2019
	(in thousands)
Interest Income	$	335		$	9
Interest Expense		(111	)		(139	)
Interest Income (expense), Net	$	224		$	(130	)

Other Income (expense), Net	$	677		$	(261	)

Interest ~~expense~~income consists of interest earned on our cash and equivalents and restricted cash accounts, offset by interest expense incurred from outstanding short-term borrowings. ~~Interest expense increased by $35,000~~We earned $224,000 of interest income, net in the three months ended ~~June 30, 2019~~March 31, 2020 as compared to ~~the three months ended June 30, 2018, principally as a result~~incurring ($130,000) of ~~increased borrowings under short-term bank loans. We earn~~ interest ~~income from depositary accounts. Interest income was nominal~~expense, net in the three months ended ~~June 30, 2019~~March 31, 2019. This was a result of a larger balance of cash and ~~2018.~~equivalents and restricted cash along with reduced borrowings under short-term bank loans.

~~Non-operating~~

Other income (expense), net primarily reflects (a) gains or losses recognized from the impact of exchange rates on our foreign currency-denominated working-capital transactions and (b) depreciation of assets acquired with government subsidies, as described under “—Key Components of Results of Operations—PRC Government Research and Development Funding” above. ~~Our non-operating~~Other income (expense), net was ~~$543,000~~$677,000 in the three months ended ~~June 30, 2019~~March 31, 2020 due to primarily to gains and losses ofresulting from changes in the ~~RMB to US~~RMB-to-U.S. dollar exchange rate during the quarter, compared to ~~non-operating expense~~Other income (expense), net of ~~$1.1 million~~($261,000) in the three months ended ~~June 30, 2018~~March 31, 2019 due to gains and losses ~~of RMB-to-US~~resulting from changes in the RMB-to-U.S. dollar exchange rate during the quarter.

Income Tax Expense

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

Three Months Ended June 30,

2019

2018

(in thousands)

Current:

    U.S. federal
$-
$-
    U.S. state

  -
    Foreign
  (876)
  -
        Total current income tax expense
  (876)
  -
Deferred:


    U.S. federal

  -
    U.S. state

  -
    Foreign

  (164)
        Total deferred income expense
  -
  (164)
            Total current income tax expense
$(876)
$(164)

On December 22, 2017, the Tax Cuts and Jobs Act, or the Tax Act, was enacted into law. The new legislation contains several key tax provisions that affect us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 31, 2017. There were no adjustments made in the three months ended June 30, 2019. The accounting for the tax effects of the Tax Act was completed in 2018.

	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	)

As we collect and prepare necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially affect our provision for income taxes and effective tax rate in the period in which the adjustments are made. There were no adjustments made in the first nine months of 2018.

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.

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~~Comparison~~The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020. It contains several provisions that may have financial statement effects. Key Aspects of ~~Six Months Ended June 30,~~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 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

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

Six Months Ended June 30,

2019

2018

Y/Y % Change

(in thousands)

Revenue
$49,489
$30,616
61.6%

Net Income Attributable to Redeemable Non-Controlling Interests

~~The increase~~As described above under “—STAR Market Listing and IPO,” in ~~revenue~~2019, ACM Shanghai sold a total number of ~~$18.9 million in~~shares representing 8.3% of its outstanding ACM Shanghai shares. ACM Research continues to hold the remaining 91.7% of ACM Shanghai’s outstanding shares. As a result, commencing with the three months ended ~~June~~September 30, 2019, we reflect, as ~~compared~~net income attributable to redeemable non-controlling interests, the portion of our net income allocable to the ~~same period in 2018, was driven primarily by a $13.0 million increase~~minority holders of ~~revenue from single-wafer cleaning tools. The~~ revenue increase reflected an increased number of tools shipped, coupled with higher selling prices associated with the equipment sold and customer acceptances from prior period shipments received and recognized as revenue during the six-months ended June 30, 2019.

~~Cost of Revenue and Gross Margin~~

Six Months Ended June 30,

2019

2018

Y/Y % Change

(in thousands)

Cost of revenue
$27,532
$16,770
  64.2%
Gross profit
$21,957
$13,846
  58.6
Gross margin
  44.4%
  45.2%

(86 bps)

Cost of revenue increased $10.8 million and gross profit increased $8.1 million in the six months ended June 30, 2019, as compared to the corresponding period in 2018, primarily due to increased sales volume. Gross margin decreased by 86 basis points during the six months ended June 30, 2019, from the comparable period in 2018.

~~Operating Expenses~~

Six Months Ended June 30,

2019

2018

Y/Y % Change

(in thousands)

Sales and marketing expense
$4,793
$4,537
  5.6%
Research and development expense
  6,106
  3,960
  54.2
General and administrative expense
  4,146
  4,922
  (15.8)
Total operating expenses
$15,045
$13,419
  12.1

~~Sales and marketing expense~~ ~~increased by $256,000 in the six months ended June 30, 2019, as compared to the corresponding period in 2018.~~

~~Research and development expense~~ increased by $2.1 million in the six months ended June 30, 2019 as compared to the corresponding period in 2018, principally as a result of increases in testing fees and personnel costs. Research and development expense represented 12.3% and 12.9% of our revenue in the six months ended June 30, 2019 and 2018, respectively. Without reduction by grant amounts received from PRC governmental authorities (see “—Key Components of Results of Operations—PRC Government Research and Development Funding”), gross research and development expense totaled $8.1 million, or 16.4% of revenue, in the six months ended June 30, 2019 and $4.4 million, or 14.2% of revenue, in the six months ended June 30, 2018. Research and development expense relates to the development of new products and processes and encompasses our research, development and customer support activities.

~~General and administrative expense~~ ~~decreased by $776,000 in the six months ended June 30, 2019 as compared to the corresponding period in 2018.~~

~~Other Income and Expenses~~

Six Months Ended June 30,

2019

2018

Y/Y % Change

(in thousands)

Interest expense, net
$(300)
$(235)
  27.7%
Other income, net
  282
  311
  (9.3)

~~Interest expense increased by $65,000 in the six months ended June 30, 2019 as compared to~~ACM Shanghai shares. In the three months ended June 30, 2018, principally as a result of increased borrowings under short-term bank loans. We earn interest income from depositary accounts. Interest income was nominal in the six months ended June 30, 2019 and 2018.

Our non-operating income was $282,000 in the six months ended June 30, 2019 due to gains and losses of the RMB to US dollar exchange rate during the quarter, compared to non-operating income of $311,000 in the six months ended June 30, 2018 due to gains and losses of RMB-to-US dollar exchange rate during the quarter.March 31, 2020, this amount totaled $258,000.

~~Income Tax Expense~~

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

Six Months Ended June 30,

2019

2018

(in thousands)

Current:

U.S. federal
$-
$-
U.S. state
  -
  -
Foreign
  (995)
  -
Total current tax expense
  (995)
  -
Deferred:


U.S. federal
  -
  -
U.S. state
  -
  -
Foreign

  (186)
Total deferred tax expense


Total income tax expense
  (995)
  (186)

~~There were no adjustments with respect to the Tax Act made in the six months ended June 30, 2019.~~

Liquidity and Capital Resources

During the first ~~six~~three months of ~~2019~~2020, we funded our technology development and operations principally through our beginning cash balance, application of net proceeds from ~~the initial~~a follow-on public offering of Class A common stock ~~and concurrent private placements~~ in ~~November 2017 and, to a lesser extent, from~~2019, short-term borrowings by ACM Shanghai from local financial ~~institutions. During the six month period ended June 30, 2019, our operations used~~institutions, and cash flow ~~of $4.6 million, and we received $1.5 million research and development grants~~ from ~~local and central PRC governmental authorities.~~operating activities.

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.

~~As described above under “—Overview—Proposed Listing~~

Table of ACM Shanghai Shares on STAR Market,” proceeds received from investors to purchase shares of ACM Shanghai in the third quarter of 2019 will be deposited and held in reserve in segregated cash and cash-equivalent accounts pending either (a) completion of the STAR Market listing and PRC initial public offering or (b) application to repurchase the shares from the investors. As a result, during that period those proceeds will not be available to operate our business or for other corporate purposes.Contents

Sources of Funds

Cash Flow from Operating Activities. Our operations provided cash flow of $3.8 million in the first three months of 2020. Our cash flow from operating activities is influenced by (a) the level of net income, (b) the amount of cash we invest in personnel and technology development to support anticipated future growth in our business, (c) increases in the number of customers using our products, and (d) the amount and timing of payments by customers.

Equity and ~~Equity-Related Securities~~Equity-related securities. . During the three months ended ~~June 30, 2019~~March 31, 2020, we received proceeds of ~~$172,000~~$175,000 from sales of Class A common stock pursuant to option exercises.

~~Indebtedness~~.Short-Term Loan Facilities. ~~ACM Shanghai is a party to lines of credit~~We have short-term borrowing with ~~five~~two banks, as follows:

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

Lender Agreement Date
Maturity Date

Annual
Interest Rate

Maximum Borrowing
Amount(1)

Amount Outstanding
at June 30, 2019





(in thousands)
Bank of China Pudong Branch August 2018 August 2019 5.22% RMB30,000
$4,365                             -
Bank of Shanghai Pudong Branch January 2019 January 2020 5.22% RMB50,000 RMB24,500
$7,275 $3,565
Shanghai Rural Commercial Bank February 2019 January 2020 5.66% RMB20,000 RMB10,000
$2,910 $1,455
Bank of Communications January 2019 January 2020 - 5.66% RMB20,000 RMB20,000
February 2020 $2,911 $2,911
China Everbright Bank February 2019 March 2020 - 4.94% - RMB50,000 RMB49,352
June 2020 5.66% $7,275 $7,179

RMB170,000 RMB103,852
$24,736                      15,110

(1)	Converted from RMB and KRW to dollars as of March 31, 2020

~~(1)Converted from RMB to dollars as of June 30, 2019.~~

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 Bank~~IBK 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

	~~June 30,~~ ~~2019~~
	~~(in thousands)~~
~~Cash and cash equivalents~~	$~~27,578~~
~~Accounts receivable, less allowance for doubtful amounts~~	~~31,393~~
~~Inventory~~	~~45,494~~
~~Working capital~~	$~~104,465~~

Our cash and cash equivalents at ~~June 30, 2019~~March 31, 2020 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.

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Uses of Funds

~~Cash Flow from Operating Activities~~.Capital Expenditures. ~~Our operations used cash flow of $4.6~~We incurred $0.1 million in capital expenditures in the first ~~six~~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 incurred $505,000 of capital expenditures~~2020, versus $0.1 million during the ~~six months ended June 30, 2019 and had no unpaid capital commitment as of June 30,~~same period in 2019. ACM Shanghai is currently evaluating the desirability of entering into an agreement to purchase land in the Shanghai PRC region that could serve as a site for a future production facility and research and development center, and that would require additional capital expenditures for ACM Shanghai in 2019 or 2020.

~~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 six 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 ~~June 30, 2019,~~March 31, 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.~~

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

I~~tem 3. Quantitative and Qualitative Disclosures about Market Risks~~

Item 3.

Quantitative and Qualitative Disclosures about Market Risks

~~Market risk represents~~We are a smaller reporting company as defined by Item 10(f)(1) of Regulation S-K under the ~~risk~~Securities Act of ~~loss that may impact our financial position due~~1933 and as such are not required 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.provide information under this Item.

~~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 RMB. The RMB is not freely convertible into foreign currencies for capital account transactions. The value of the RMB 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 RMB to the U.S. dollar, and the RMB 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 RMB and the U.S. dollar remained within a narrow band. Since September 2010, the RMB 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 RMB 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 June 30, 2019, we had unrestricted cash and cash equivalents totaling $27.6 million. This amount was 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.

I~~tem~~

Item 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 ~~June 30, 2019.~~March 31, 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 ~~June 30, 2019,~~March 31, 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.

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Changes in Internal Control over Financial Reporting

During the three months ended ~~June 30, 2019,~~March 31, 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

I~~tem 1A. Risk Factors~~

Item 1.

Legal Proceedings

From time to time we may become involved in legal 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 material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

There have been no material developments with regard to legal proceedings in the three months ended March 31, 2020 or in the subsequent period up to the date of this report.

Investing in Class A common stock involves a high degree of risk. You should consider and read carefully all of the information contained in this report, including the consolidated financial statements and related notes set forth in “Item 1. Financial Statements” of Part I above, before making an investment decision. You should also review carefully

ITEM 1A.

RISK FACTORS

There were no material changes to the risk factors ~~set forth~~discussed in ~~“Item 1A. Risk~~Item 1A, “Risk Factors” of Part I ofin our Annual Report. ~~Other than as~~In addition to the other information set forth ~~below, there have been no material changes to~~in this report, you should carefully consider those risk factors, ~~since~~which could materially affect our business, financial condition and future operating results. Those risk factors are not the ~~filing of~~only 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 additional~~company. Additional risks and uncertainties not ~~presently~~currently known to us or that we currently ~~believe~~deem to be immaterial ~~could materially and adversely affect 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~~also may ~~lose all or part of your investment.~~

If we are unable to implement our strategy to expand our PRC operations by completing the Listing and the STAR IPO, our ability to strengthen our market position and operations in the PRC, including our ability to increase our revenues and augment our product line, could be materially impaired.

We may not be able to complete the Listing and the STAR IPO for a number of reasons, many of which are outside our control. ACM Shanghai must succeed in obtaining PRC governmental approvals required to permit the Listing and the STAR IPO, and one or more of those approvals may be denied, or significantly delayed, by the PRC regulators for reasons outside our control or unknown to us. Similarly, the Listing application may be denied or delayed by the Shanghai Stock Exchange in its discretion.

If we are unable to complete the Listing and the STAR IPO, we may not otherwise be able to realize the advantages to our PRC operations contemplated by our business strategy, including improving our ability to market our products, building our brand in the PRC markets, assisting our sales efforts to new customers and encouraging additional purchases of our tools by existing customers. Because it may be more than three years before we know whether the Listing and the STAR IPO will be completed, we may, in the interim, forego or postpone other alternative actions to strengthen our market position and operations in the PRC.

PRC companies are critical to the global semiconductor industry, and our current business is substantially concentrated in the PRC market. Our inability to build, or any delay in growing, our PRC-based operations over the next three years would materially and adversely limit our operations and operating results, including our revenue growth. In addition, during that time, the process underlying the Listing and the STAR IPO could result in significant diversion of management time as well as substantial out-of-pocket costs, which could further impair our ability to expand our business.

Even if we complete the Listing and the STAR IPO, we may not achieve the results contemplated by our business strategy and our strategy for growth in the PRC may not result in increases in the price of the Class A common stock.

We cannot assure you that, even if the Listing and the STAR IPO are completed, we will realize any or all of our anticipated benefits of the Listing and the STAR IPO. Our completion of the Listing and the STAR IPO may not have the anticipated effects of including the strengthening of our market position and operations in the PRC. If the Listing and the STAR IPO are completed, ACM Shanghai will have broad discretion in the use of the proceeds from the initial sales of shares to investors and the proceeds from the STAR IPO, and it may not spend or invest those proceeds in a manner that results in our operating success or with which ACM Research stockholders agree. Our failure to successfully leverage the completion of the Listing and the STAR IPO to expand our PRC business could result in a decrease in the price of the Class A common stock, and we cannot assure you that the success of ACM Shanghai will have a an attendant positive effect on the price of the Class A common stock.

Completion of the Listing and the STAR IPO may take three years or longer. In order to help ensure that proceeds from the current placements of shares with PRC investors can be repaid if necessary under the terms of the applicable agreements, ACM Shanghai will reserve those proceeds in segregated accounts and therefore those proceeds will not be available to fund our operations in the PRC. In the interim, ACM Shanghai may require additional funding from ACM Research in order to proceed to augment its PRC operations, and we cannot give any assurance that such capital will be available from ACM Research at all in terms acceptable to us. Any such inability to obtain funds may impair the ability of ACM Shanghai to grow its operations, which could have a material adverse effect on our ~~consolidated~~business, financial condition and operating ~~results and on the price of the Class A common stock.~~

results.

~~ACM Shanghai’s status as a publicly traded company that is controlled, but less than wholly owned, by ACM Research could have an adverse effect on us.~~

As the result of actions being taken in connection with the Listing and the STAR IPO, ACM Shanghai will no longer be a wholly owned subsidiary of ACM Research, and the interests of ACM Shanghai may diverge from the interests of ACM Research and its other subsidiaries in the future. We may face conflicts of interest in managing, financing, engaging in transactions with ACM Shanghai, or allocating business opportunities between our subsidiaries, including future arrangements for operating subsidiaries other than ACM Shanghai to license and use our intellectual property. Substantially all of our intellectual property has been developed in the PRC and is owned by ACM Shanghai. As we expand our global operations through operating subsidiaries outside of the PRC, those operating subsidiaries may need to license intellectual property from ACM Shanghai in order to operate, and there can be no assurance that conflicts of interest will not preclude those operating subsidiaries from licensing the required intellectual property from ACM Shanghai on reasonable terms or at all.

ACM Research will retain majority ownership of ACM Shanghai after the STAR IPO, but ACM Shanghai will be managed by a separate board of directors and officers and those directors and officers will owe fiduciary duties to the various stakeholders of ACM Shanghai, including ACM Research. In the operation of ACM Shanghai’s business, there may be situations that arise whereby the directors and officers of ACM Shanghai, in the exercise of their fiduciary duties, take actions that may be contrary to the best interests of ACM Research.

In the future, ACM Shanghai may issue options, restricted shares and other forms of share-based compensation to its directors, officers and employees, which could dilute ACM Research’s ownership in ACM Shanghai. In addition, ACM Shanghai may engage in capital raising activities in the future that could further dilute ACM Research’s ownership interest.

~~We may not be able to protect our intellectual property rights throughout the world, including the PRC, which could materially, negatively affect our business.~~

Filing, prosecuting and defending patents on our products or proprietary technologies in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States, including the PRC, can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Substantially all of our intellectual property has been developed in the PRC and is owned by ACM Shanghai. Implementation and enforcement of intellectual property-related laws in China has historically been lacking due primarily to ambiguities in PRC intellectual property law. Accordingly, protection of intellectual property and proprietary rights in the PRC may not be as effective as in the United States or other countries. As a result, third parties could illegally use the technologies and proprietary processes that we have developed and compete with us, which could negatively affect any competitive advantage we enjoy, dilute our brand and harm our operating results. Litigation may be necessary to enforce our intellectual property rights, and given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, there is no guarantee litigation would result in an outcome favorable to us.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license and may adversely affect our business.

~~Proceeds received by ACM Shanghai in connection with the Listing and the STAR IPO may not be available to ACM Research, which could impair our efforts to expand outside of the PRC.~~

Proceeds received by ACM Shanghai from the current placements of shares with PRC investors and from the STAR IPO will be used to grow and support our PRC operations. Those proceeds generally will not be available for distribution to ACM Research. Under existing PRC laws and regulations, it may be difficult, if not impossible, for ACM Research to be able to receive dividends comprised of funds generated by ACM Shanghai and, even if such dividends can be paid from the PRC to the United States, after the completion of the Listing and the STAR IPO, any such dividends can be paid to ACM Research only if other holders of ACM Shanghai shares receive their pro rata dividends.

ACM Research will be responsible for managing our global expansion, which will be critical to our long-term business success. Because funds raised or generated by ACM Shanghai are unlikely to be readily distributable to ACM Research, it is likely that ACM Research will require additional capital in the future in order to fund global operations. We cannot give any assurance that such capital will be available at all in terms acceptable to us.

No company with stock publicly traded in the United States has effected a STAR Market listing of stock of a PRC-based subsidiary, and it is therefore difficult to predict the effect of the proposed Listing and STAR IPO on the Class A common stock.

The China Securities Regulatory Commission initially launched the STAR Market in June 2019 and trading on the Market began in July 2019. We believe we are the first publicly traded U.S. company to propose an initial public offering of shares of a PRC subsidiary on the STAR Market. As a result, no assurance can be given regarding the effect of the Listing and the STAR IPO on the market price of the Class A common stock. The market price of Class A common stock may be volatile or may decline, for reasons other than the risk and uncertainties described above, as the result of investor negativity or uncertainty with respect to the impact of the proposed Listing and STAR IPO.

ACM Research stockholders were not entitled to purchase ACM Shanghai shares in the pre-Listing placement, and they may have limited opportunities to purchase ACM Shanghai shares even if the Listing and the STAR IPO are completed. Investors may elect to invest in our business and operations by purchasing ACM Shanghai shares in the STAR IPO or on the STAR Market rather than purchasing ACM Research Class A common stock, and that reduction in demand could lead to a decrease in the market price for the Class A common stock.

~~Techniques employed by manipulative short sellers in Chinese small cap stocks could be used to drive down the market price of our common stock.~~

Short selling is the practice of selling securities that the seller does not own but rather has, supposedly, borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s best interests for the price of the stock to decline, many short sellers, referred to as “disclosed shorts,” publish, or arrange for the publication of, negative opinions regarding an issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short. While traditionally these disclosed shorts were limited in their ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding document creation, videotaping and publication by weblog, or “blogging,” have allowed many disclosed shorts to publicly attack an issuer’s credibility, strategy and veracity by means of so-called research reports that mimic the type of investment analysis performed by large Wall Street firm and independent research analysts. These short attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers with business operations based in the PRC and who have limited trading volumes and are susceptible to higher volatility levels than large-cap stocks, can be particularly vulnerable to such short attacks.

These short seller publications are not regulated by any governmental, self-regulatory organization or other official authority in the United States and are not subject to the certification requirements imposed by the Securities and Exchange Commission in Regulation AC (Regulation Analyst Certification); accordingly, the opinions they express may be based on factual distortions and fabrications. In light of the limited risks involved in publishing such information and the enormous profits that can be made from running successful short attacks, it is likely that disclosed shorts will continue to issue such reports.

While we intend to strongly defend our public filings against any short seller attacks, we may be constrained, either by principles of freedom of speech, applicable state laws known as Anti-SLAPP (Strategic Lawsuits Against Public Participation) statutes or issues of commercial confidentiality, in the manner in which we can proceed against the short seller. You should be aware that in light of the relative freedom to operate that such persons enjoy – oftentimes blogging from outside the U.S. with little or no assets or identity requirements – should we be targeted for such an attack, our stock will likely suffer from a temporary, or possibly long term, decline in market price should the rumors created not be dismissed by market participants.

Item 2.

I~~tem 2.~~ Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Equity Securities

In ~~June 2019~~the three months ended March 31, 2020, we issued and sold to ~~an employee~~employees and consultants an aggregate of ~~2,001~~35,001 unregistered shares of Class A common stock upon the exercise of stock options at a per share exercise ~~price of~~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 Initial Public Offering Proceeds

The net proceeds of 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 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 net proceeds to purchase inventory and ~~an additional $2.1 million in the~~ ordinary course of business operations.

ITable of Contents~~tem 6.Exhibits~~

Item 6.

Exhibits

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

Exhibit Number		Description

~~10.01~~10.01†‡		~~Form of Capital Increase~~Employment Agreement dated January 8, 2018 between ACM Research ~~Inc.~~(Shanghai), Inc and ~~certain investors~~
~~10.01(a)~~		~~Schedule identifying agreements substantially identical to the form of Capital Increase Agreement filed as Exhibit 10.01 hereto~~ Lisa Feng
10.02		~~Form of~~Note Assignment and Cancellation Agreement dated April 30, 2020 by and among ACM Research, Inc., ACM Research (Shanghai), Inc. and Shengxin (Shanghai) Management Consulting Limited Partnership
10.03		Share Transfer and Note Cancellation Agreement dated April 30, 2020 between ACM Research, Inc. and ~~certain Investors~~
~~10.02(a)~~		~~Schedule identifying agreements substantially identical to the form of Agreement filed as Exhibit 10.02 hereto~~ Shengxin (Shanghai) Management Consulting Limited Partnership
31.01		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~32.01~~32.01*		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.

S~~IGNATURE~~38

Table of Contents

Delaware		94-3290283
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

	Three Months Ended March 31,
	2020									2019
	Actual (GAAP)			SBC			Adjusted (Non-GAAP)			Actual (GAAP)			SBC			Adjusted (Non-GAAP)
	(in thousands)
Revenue	$	24,348		$	-		$	24,348		$	20,479		$	-		$	20,479
Cost of revenue		(14,120	)		(45	)		(14,075	)		(11,653	)		(30	)		(11,623	)
Gross profit		10,228			(45	)		10,273			8,826			(30	)		8,856
Operating expenses:
Sales and marketing		(3,005	)		(94	)		(2,911	)		(1,869	)		(34	)		(1,835	)
Research and development		(3,677	)		(187	)		(3,490	)		(2,765	)		(86	)		(2,679	)
General and administrative		(2,328	)		(363	)		(1,965	)		(1,941	)		(594	)		(1,347	)
Income (loss) from operations	$	1,218		$	(689	)	$	1,907		$	2,251		$	(744	)	$	2,995

	Common		Common
	Stock Class A		Stock Class B
	Shares	Amount	Shares	Amount	Additional Paid-in Capital	Accumulated Surplus (Deficit)	Accumulated Other Comprehensive Loss	Total Stockholders’ Equity
Balance at April 1, 2019	14,176,690	$1	1,898,423	$-	$57,371	$(1,530)	$(200)	$55,642
Net income	-	-	-	-	-	4,311	-	4,311
Foreign currency translation adjustment	-	-	-	-	-	-	(968)	(968)
Exercise of stock option	38,252	-	-	-	112	-	-	112
Stock-based compensation	-	-	-	-	618	-	-	618
Conversion of class B common shares to Class A common shares	15,000	-	(15,000)	-	-	-	-	-
Balance at June 30, 2019	14,229,942	$1	1,883,423	$-	$58,101	$2,781	$(1,168)	$59,715

	December 31
2019	$728
2020	1,488
2021	1,475
2022	1,495
2023	53
2024	13
Total lease payments	5,252
Less: Interest	(702)
Present value of lease liabilities	$4,550

	June 30, 2019	December 31, 2018
Investment – equity method	$1,629	$1,360
Investment – cost method	109	-
Total	$1,738	$1,360

	Number of Option Share	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	295,000	6.50	16.81
Exercised	(48,098)	0.78	2.62
Expired	(628)	0.55	3.00
Forfeited	(4,085)	1.90	4.83
Outstanding at June 30, 2019	2,745,594	2.07	5.48	7.14 years
Vested and exercisable at June 30, 2019	1,608,352

	Number of Option Shares	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	(56,529)	0.33	0.81	-
Expired	-	-	-	-
Forfeited	-	-	-	-
Outstanding at June 30, 2019	1,155,845	$0.81	$2.66	6.62 years
Vested and exercisable at June 30, 2019	986,572

	ACM RESEARCH, INC.

Date: ~~August 9, 2019~~ May 8, 2020	By:	/s/ ~~Lisa Feng~~Mark McKechnie
		~~Lisa Feng~~Mark McKechnie
		~~Interim~~ Chief Financial Officer, ~~Chief Accounting Officer~~Executive Vice President and Treasurer ~~(Principal~~ (Principal Financial Officer)