ACM Research, Inc. 10-Q

Item 1. Financial Statements ACM RESEARCH, INC. Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited) March 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 380,311 $ 563,067 Short-term time deposits 74,025 - Trading securities (note 15) 25,772 29,498 Accounts receivable, less allowance for doubtful accounts of $ 0 as of March 31 , 2022 and December 31 , 2021 (note 4) 106,351 105,553 Income tax recoverable 1,607 1,082 Other receivables 23,602 18,979 Inventories (note 5) 271,538 218,116 Prepaid expenses 21,771 16,639 Total current assets 904,977 952,934 Property, plant and equipment, net (note 6) 57,680 14,042 Land use right, net (note 7) 9,661 9,667 Operating lease right-of-use assets, net (note 11) 4,028 4,182 Intangible assets, net 748 477 Long-term time deposits 78,750 - Deferred tax assets (note 19) 15,303 13,166 Long-term investments (note 14) 12,666 12,694 Other long-term assets (note 8) 3,559 45,017 Total assets 1,087,372 1,052,179 Liabilities and Stockholders’ Equity Current liabilities: Short-term borrowings (note 9) 9,600 9,591 Current portion of long-term borrowings (note 12) 2,441 2,410 Accounts payable 108,494 101,350 Advances from customers 82,036 52,824 Deferred revenue 2,699 3,180 Income taxes payable (note 19) ( 1,744 ) 254 FIN-48 payable (note 19) 2,292 2,282 Other payables and accrued expenses (note 10) 36,555 31,735 Current portion of operating lease liability (note 11) 2,076 2,313 Total current liabilities 244,449 205,939 Long-term borrowings (note 12) 22,344 22,957 Long-term operating lease liability (note 11) 1,952 1,869 Deferred tax liability (note19) 1,308 1,302 Other long-term liabilities (note 13) 8,545 8,447 Total liabilities 278,598 240,514 Commitments and contingencies (note 20) Stockholders’ equity: Common stock (1) – Class A, par value $ 0.0001 : 150,000,000 shares authorized as of March 31 , 2022 and December 31, 2021 ; 54,035,280 shares issued and outstanding as of March 31 , 2022 and 53,608,929 shares issued and outstanding as of December 31 , 2021 (note 17) 5 5 Common stock (1) –Class B, par value $ 0.0001 : 5,307,816 shares authorized as of March 31 , 2022 and December 31, 2021 ; 5,086,812 shares issued and outstanding as of March 31 , 2022 and 5,087,814 shares issued and outstanding as of December 31 , 2021 (note 17) 1 1 Additional paid in capital 597,143 595,045 Accumulated surplus 66,258 72,044 Accumulated other comprehensive income 10,979 9,109 Total ACM Research, Inc. stockholders’ equity 674,386 676,204 Non-controlling interests 134,388 135,461 Total stockholders’ equity 808,774 811,665 Total liabilities and stockholders’ equity $ 1,087,372 $ 1,052,179 (1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in March 2022. See Note 1 for details The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ACM RESEARCH, INC. Condensed Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share data) (Unaudited) Three Months Ended March 31, 2022 2021 Revenue (note 3) $ 42,186 $ 43,732 Cost of revenue 22,500 25,687 Gross profit 19,686 18,045 Operating expenses: Sales and marketing 6,697 5,308 Research and development 17,346 5,504 General and administrative 4,949 3,783 Total operating expenses, net 28,992 14,595 Income (loss) from operations ( 9,306 ) 3,450 Interest income 1,805 49 Interest expense ( 261 ) ( 189 ) Unrealized loss on trading securities ( 3,858 ) ( 1,047 ) Other income, net 237 469 Equity income (loss) in net income (loss) of affiliates ( 71 ) 320 Income (loss) before income taxes ( 11,454 ) 3,052 Income tax benefit (note 19) 4,011 2,770 Net income (loss) ( 7,443 ) 5,822 Less: Net income (loss) attributable to non-controlling interests ( 1,657 ) 352 Net income (loss) attributable to ACM Research, Inc. $ ( 5,786 ) $ 5,470 Comprehensive income: Net income (loss) ( 7,443 ) 5,822 Foreign currency translation adjustment 2,454 ( 1,332 ) Comprehensive Income (loss) ( 4,989 ) 4,490 Less: Comprehensive income (loss) attributable to non-controlling interests ( 1,073 ) ( 83 ) Comprehensive income (loss) attributable to ACM Research, Inc. $ ( 3,916 ) $ 4,573 Net income (loss) attributable to ACM Research, Inc. per common share (note 2): Basic $ ( 0.10 ) $ 0.10 Diluted $ ( 0.09 ) $ 0.08 Weighted average common shares outstanding used in computing per share amounts (note 2): Basic (1) 58,827,390 56,360,610 Diluted (1) 65,950,922 65,604,840 (1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in March 2022. See Note 1 for details The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ACM RESEARCH, INC. Condensed Consolidated Statements of Changes in Stockholders’ Equity (In thousands, except per share data) (Unaudited) Common Stock Class A Common Stock Class B Shares (1) Amount (1) Shares (1) Amount (1) Additional Paid- in Capital (1) Accumulated Surplus Accumulated Other Comprehensive Income Non-controlling interests Total Stockholders’ Equity Balance at December 31, 2020 50,690,079 $ 5 5,407,818 $ 1 $ 102,000 $ 34,287 $ 4,857 $ 67,020 $ 208,170 Net income - - - - - 5,470 - 352 5,822 Foreign currency translation adjustment - - - - - - ( 896 ) ( 436 ) ( 1,332 ) Exercise of stock options 929,820 - - - 1,377 - - - 1,377 Stock-based compensation - - - - 1,210 - - - 1,210 Conversion of Class B common stock to Class A common stock 100,002 - ( 100,002 ) - - - - - - Balance at March 31, 2021 51,719,901 $ 5 5,307,816 $ 1 $ 104,587 $ 39,757 $ 3,961 $ 66,936 $ 215,247 Common Stock Class A Common Stock Class B Shares (1) Amount (1) Shares (1) Amount (1) Additional Paid- in Capital (1) Accumulated Surplus Accumulated Other Comprehensive Income Non-controlling interests Total Stockholders’ Equity Balance at December 31, 2021 53,608,929 $ 5 5,087,814 $ 1 $ 595,045 $ 72,044 $ 9,109 $ 135,461 $ 811,665 Net loss - - - - - ( 5,786 ) - ( 1,657 ) ( 7,443 ) Foreign currency translation adjustment - - - - - - 1,870 584 2,454 Exercise of stock options 425,349 - - - 724 - - - 724 Stock-based compensation - - - - 1,374 - - - 1,374 Conversion of Class B common stock to Class A common stock 1,002 - ( 1,002 ) - - - - - - Balance at March 31, 2022 54,035,280 $ 5 5,086,812 $ 1 $ 597,143 $ 66,258 $ 10,979 $ 134,388 $ 808,774 (1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in March 2022. See Note 1 for details The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ACM RESEARCH, INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 7,443 ) $ 5,822 Adjustments to reconcile net income from operations to net cash used in operating activities Depreciation and amortization 1,213 546 Loss on disposals of property, plant and equipment - 26 Equity (income) loss in net (income) loss of affiliates 71 ( 320 ) Unrealized loss on trading securities 3,858 1,047 Deferred income taxes ( 2,081 ) ( 2,929 ) Stock-based compensation 1,374 1,210 Net changes in operating assets and liabilities: Accounts receivable ( 284 ) ( 4,602 ) Other receivables ( 4,893 ) ( 1,850 ) Inventory ( 52,503 ) ( 15,276 ) Prepaid expenses ( 5,015 ) ( 83 ) Other long-term assets ( 119 ) 21 Accounts payable 6,681 9,492 Advances from customers 29,273 14,932 Income tax payable ( 1,999 ) 75 FIN-48 payable 10 - Other payables and accrued expenses 1,274 3,181 Deferred revenue 2,699 1,315 Other long-term liabilities 155 ( 1,865 ) Net cash flow (used in) provided by operating activities ( 27,729 ) 10,742 Cash flows from investing activities: Purchase of property and equipment ( 3,176 ) ( 1,466 ) Purchase of intangible assets ( 408 ) ( 112 ) Increase of short-term time deposits ( 74,025 ) - Increase of long-term time deposits ( 78,750 ) - Net cash used in investing activities ( 156,359 ) ( 1,578 ) Cash flows from financing activities: Proceeds from short-term borrowings - 4,211 Repayments of short-term borrowings - ( 6,744 ) Repayments of long-term borrowings ( 696 ) ( 224 ) Proceeds from stock option exercise to common stock 724 1,377 Net cash (used in) provided by financing activities 28 ( 1,380 ) Effect of exchange rate changes on cash and cash equivalents $ 1,304 $ ( 754 ) Net increase (decrease) in cash and cash equivalents $ ( 182,756 ) $ 7,030 Cash and cash equivalents at beginning of period 563,067 71,766 Cash and cash equivalents at end of period $ 380,311 $ 78,796 Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest $ 261 $ 189 Cash paid for income taxes $ - $ 63 Non-cash financing activities: Cashless exercise of stock options $ 39 $ 83 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 1 – DESCRIPTION OF BUSINESS A CM 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, which are based on the Company’s proprietary Space Alternated Phase Shift (“SAPS”) and Timely Energized Bubble Oscillation (“TEBO”) technologies, under the brand name “Ultra C.” These tools are designed to remove random defects from a wafer surface efficiently, without damaging the wafer or its features, even at increasingly advanced process nodes. ACM was incorporated in California in 1998, and it initially focused on developing tools for manufacturing process steps involving the integration of ultra low-K materials and copper. The Company’s early efforts focused on stress-free copper-polishing technology, and it sold tools based on that technology in the early 2000s. In 2006 the Company established its operational center in Shanghai in the People’s Republic of China (the “PRC”), where it operates through ACM’s subsidiary ACM Research (Shanghai), Inc. (“ACM Shanghai”). ACM Shanghai was formed to help establish and build relationships with integrated circuit manufacturers in the PRC, and the Company initially financed its Shanghai operations in part through sales of non-controlling equity interests in ACM Shanghai. In 2007 the Company began to focus its development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process. The Company introduced its SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process, in 2009. It introduced its TEBO technology, which can be applied at numerous steps during the fabrication of small node two-dimensional conventional and three-dimensional patterned wafers, in March 2016. The Company has designed its equipment models for SAPS and TEBO solutions using a modular configuration that enables it to create a wet-cleaning tool meeting the specific requirements of a customer, while using pre-existing designs for chamber, electrical, chemical delivery and other modules. In August 2018, the Company introduced its Ultra-C Tahoe wafer cleaning tool, which can deliver high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high-temperature single-wafer cleaning tools. Based on its electro-chemical plating (“ECP”) technology, the Company introduced in March 2019 its Ultra ECP AP, or “Advanced Packaging,” tool for bumping, or applying copper, tin and nickel to semiconductor wafers at the die-level, and its Ultra ECP MAP, or “Multi-Anode Partial Plating,” tool to deliver advanced electrochemical copper plating for copper interconnect applications in front-end wafer fabrication processes. The Company also offers a range of custom-made equipment, including cleaners, coaters and developers, to back-end wafer assembly and packaging factories, principally in the PRC. In 2011 ACM Shanghai formed a wholly owned subsidiary in the PRC, ACM Research (Wuxi), Inc. (“ACM Wuxi”), to manage sales and service operations. In November 2016 ACM re-domesticated 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 interests held by third parties, Shanghai Pudong High-Tech Investment Co., Ltd. and Shanghai Zhangjiang Science & Technology Venture Capital Co., Ltd. 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. On November 2, 2017, the Registration Statement on Form S-1 (File No. 333-220451) for ACM’s initial public offering of Class A common stock was declared effective by the U.S. Securities and Exchange Commission. Shares of Class A common stock began trading on the Nasdaq Global Market on November 3, 2017, and the closing for the offering was held on November 7, 2017. In December 2017 ACM formed a wholly owned subsidiary in the Republic of Korea, ACM Research Korea CO., LTD. (“ACM Korea”), to serve customers based in Republic of Korea and perform sales, marketing, research and development activities for new products and solutions. 8 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) In March 2019 ACM Shanghai formed a wholly owned subsidiary in the PRC, Shengwei Research (Shanghai), Inc. (“ACM Shengwei”), to manage activities related to addition of future long-term production capacity. In June 2019 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 “STAR Listing”) of shares of ACM Shanghai on the Shanghai Stock Exchange’s Sci-Tech innovAtion boaRd, known as the STAR Market, and a concurrent initial public offering (the “STAR IPO”) of ACM Shanghai shares in the PRC. ACM Shanghai is currently ACM’s primary operating subsidiary, and at the time of announcement, was wholly owned by ACM. To meet a STAR Listing requirement that it have multiple independent stockholders in the PRC, ACM Shanghai completed private placements of its shares in June and November 2019, following which, as of September 30, 2020, the private placement investors held a total of 8.3 % of the outstanding shares of ACM Shanghai and ACM Research held the remaining 91.7 %. As part of the STAR Listing process, in June 2020 the ownership interests held by the private investors were reclassified from redeemable non-controlling interests to non-controlling interests as the redemption feature was terminated. I n preparation for the STAR IPO, ACM completed a reorganization in December 2019 that included the sale of all of the shares of CleanChip by ACM to ACM Shanghai for $ 3,500 . The reorganization and sale had no impact on ACM’s c onsolidated financial statements. In August 2021 ACM formed a wholly owned subsidiary in Singapore, ACM Research (Singapore) PTE, Ltd. to perform sales, marketing, and other business development activities. In November 2021 ACM Shanghai completed its STAR Listing and STAR IPO and its shares began trading on the STAR Market. In the STAR IPO, ACM Shanghai issued 43,355,753 shares, representing 10 % of the total 433,557,100 shares outstanding after the issuance. The shares were issued at a public offering price of RMB 85.00 per share, and the net proceeds of the STAR IPO, after issuance costs, totaled $ 545,512 . Upon completion of the STAR IPO, ACM owned 82.5 % of the outstanding ACM Shanghai shares. In February 2022 ACM Shanghai formed a wholly owned subsidiary in China, ACM Research (Beijing), Inc. (“ACM Beijing”), to perform sales, marketing and other business development activities. In March 2022 ACM formed a wholly owned subsidiary in South Korea, Hanguk ACM CO., LTD, to perform business development and other related activities. In March 2022 the Board of Directors of ACM declared a 3 -for-1 stock split of Class A and Class B common stock effected in the form of a stock dividend (the “Stock Split”). Each stockholder of record at the close of business on March 16, 2022, received a dividend of two additional shares of Class A common stock for each then-held share of Class A common stock and two additional shares of Class B common stock for each then-held share of Class B common stock, which were distributed after the close of trading on March 23, 2022. Unless otherwise indicated, all share numbers, per share amount, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have been adjusted retrospectively to reflect the Stock Split . The Company has direct or indirect interests in the following subsidiaries: Effective interest held as at Name of subsidiaries Place and date of incorporation March 31, 2022 December 31, 2021 ACM Research (Shanghai), Inc. PRC, May 2005 82.5 % 82.5 % ACM Research (Wuxi), Inc. PRC, July 2011 82.5 % 82.5 % CleanChip Technologies Limited Hong Kong, June 2017 82.5 % 82.5 % ACM Research Korea CO., LTD. Korea, December 2017 82.5 % 82.5 % Shengwei Research (Shanghai), Inc. PRC, March 2019 82.5 % 82.5 % ACM Research (CA), Inc. USA, April 2019 82.5 % 82.5 % ACM Research (Cayman), Inc. Cayman Islands, April 2019 100.0 % 100.0 % ACM Research (Singapore) PTE. Ltd. Singapore, August 2021 100.0 % 100.0 % ACM Research (Beijing), Inc. PRC, February 2022 82.5 % — Hanguk ACM CO., LTD. Korea, March 2022 100.0 % — 9 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The Company’s condensed consolidated financial statements include the accounts of ACM and its subsidiaries, including ACM Shanghai and its subsidiaries, which include ACM Wuxi, ACM Shengwei, ACM Beijing, and CleanChip (the subsidiaries of which include ACM California and ACM Korea). ACM’s subsidiaries are those entities in which ACM, directly or indirectly, controls a majority of the voting power. All significant intercompany transactions and balances have been eliminated upon consolidation. The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements of the Company for the year ended December 31, 2021 included in ACM’s Annual Report on Form 10-K for the year ended December 31, 2021. The accompanying condensed consolidated balance sheet as of March 31, 2022, condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2022 and 2021, condensed consolidated statements of changes in stockholders’ equity for the three months ended March 31, 2022 and 2021, and condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited. In the opinion of management, these unaudited condensed consolidated financial statements of the Company reflect all adjustments that are necessary for a fair presentation of the Company’s financial position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of March 31, 2022 and the results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for any future period. Common Stock Split Unless otherwise indicated, all prior period share and per share amounts, common stock, other capital, and retained earnings information presented in the accompanying financial statements and these notes thereto has been retroactively adjusted to reflect the impact of the Stock Split (Note 1). Proportional adjustments were also made to outstanding awards under the Company’s stock-based compensation plans. COVID-19 Assessment The outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. In December 2019 a series of emergency quarantine measures taken by the PRC government disrupted domestic business activities during the weeks after the initial outbreak of COVID-19. Since that time, an increasing number of countries, including the United States, have imposed restrictions on travel to and from the PRC and elsewhere, as well as general movement restrictions, business closures and other measures imposed to slow the spread of COVID-19. The situation continues to develop, however, and it is impossible to predict the effect and ultimate impact of the COVID-19 pandemic 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 or future repetitions of the business disruptions, and related financial impacts, cannot be estimated at this time. COVID-19 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. 10 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) The Company conducts substantially all of its product development, manufacturing, support and services in the PRC, and those activities have been directly impacted by COVID-19 and related restrictions on transportation and public appearances. In March 2022, several regions in China began to experience elevated levels of COVID-19 infections, and the PRC government instituted policies to restrict the spread of the virus. The policies began with an increase of “ spot lockdowns,” under which a positive polymerase chain reaction (PCR) or other test would result in the quarantining of individual buildings, groups of buildings, or even full neighborhoods. The policies were later expanded to full-city lockdowns, including in the City of Shanghai, where substantially all of ACM Shanghai’s operations are located. COVID-19 related restrictions in Shanghai began to limit employee access to, and logistics activities of, ACM Shanghai’s offices and production facilities in the Pudong district of Shanghai during the first quarter of 2022, and therefore limited ACM Shanghai’s ability to ship finished products to customers and to produce new products. Spot lockdowns in mid-March 2022 began to impact a number of ACM Shanghai’s employees and led to a closure of ACM Shanghai’s administrative and R&D offices in Zhangjiang in the Pudong district. A subsequent lockdown of the entire Pudong region of Shanghai was imposed in late March 2022 and impacted the operation of ACM Shanghai’s Chuansha production facility. Furthermore, a number of the Company’s customers have substantial operations based in operations areas of the PRC, including in the City of Shanghai, subject to the full-city lockdown restrictions, which have been limiting the operations of those customers since the first quarter of 2022, including inhibiting their ability to receive, implement and operate new tools for their manufacturing facilities. As a result, in some cases, ACM Shanghai has been required to defer shipments of finished products to these customers because of operational and logistics limitations affecting customers rather than, or in addition to, ACM Shanghai. The Company has begun to resume some operations using the “closed loop method,” in which a limited collection of workers remains together as a group between a single hotel, the ACM Shanghai facility, and a dedicated bus transportation route, also referred to as “two spots and one line.” The Company anticipates that the lockdowns and their effects will be temporary but may continue for several months, with a gradual return of PRC operations, production capacity, and global logistics as Shanghai and other areas in the PRC begin to reopen. The Company cannot assure that closures or reductions of PRC operations or production, whether of ACM Shanghai or of some of its key customers, may not be extended in upcoming months as the result of business interruptions arising from protective measures being taken by the PRC and other governmental agencies or of other consequences of COVID-19. The Company’s corporate headquarters are located in San Mateo County in the San Francisco Bay Area. The effects of actions taken by local governmental agencies in the future may negatively impact productivity, disrupt the business of the Company and delay timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course. The prolonged and broad-based shift to remote working environments resulting from COVID-19 continues to create inherent productivity, connectivity, and oversight challenges and could affect the Company’s ability to enhance, develop and support existing products and services, detect and prevent spam and problematic content, hold product sales and marketing events, and generate new sales leads. In addition, the changed environment under which the Company is operating could have an effect on its internal controls over financial reporting as well as its ability to meet a number of its compliance requirements in a timely or quality manner. Additional or extended governmental lockdowns, restrictions or regulations could significantly impact the ability of the Company’s employees and vendors to work productively. Governmental restrictions have been inconsistent globally and it remains unclear when a return to worksite locations or travel will be permitted or what restrictions will be in place in those environments. As the Company prepares to return its workforce to the office in more locations in 2022, it may experience increased costs as it prepares its facilities for a safe return to work environment and experiments with hybrid work models and may suffer additional adverse effects on its ability to compete effectively and maintain its corporate culture. Extended periods of interruption to the Company’s corporate, development or manufacturing facilities due to COVID-19 could cause the Company to lose revenue and market share, which would depress its financial performance and could be difficult to recapture. The Company’s business may also be harmed if travel to or from the PRC or the United States continues to be restricted or inadvisable or if members of management and other employees are absent because they contract COVID-19, they elect not to come to work due to the illness affecting others in the Company’s office or laboratory facilities, or they are subject to quarantines or other governmentally imposed restrictions. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported revenues and expenses during the reported period in the consolidated financial statements and accompanying notes. The Company’s significant accounting estimates and assumptions include, but are not limited to, those used for the valuation and recognition of fair value of trading securities, stock-based compensation arrangements and warrant liability, realization of deferred tax assets, assessment for impairment of long-lived assets, allowance for doubtful accounts, inventory valuation for excess and obsolete inventories, lower of cost and market value or net realizable value of inventories, depreciable lives of property and equipment and useful life of intangible assets. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates and assumptions. 11 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) Basic and Diluted Net Income per Common Share Basic and diluted net income per common share are calculated as follows, as adjusted to give effect to the Stock Split: Three Months Ended March 31, 2022 2021 Numerator: Net income (loss) $ ( 7,443 ) $ 5,822 Less: Net income (loss) attributable to non-controlling interests ( 1,657 ) 352 Net income (loss) available to common stockholders, basic $ ( 5,786 ) $ 5,470 Less: Dilutive effect arising from share-based awards by ACM Shanghai ( 86 ) - Net income (loss) available to common stockholders, diluted $ ( 5,700 ) $ 5,470 Weighted average shares outstanding, basic 58,827,390 56,360,610 Effect of dilutive securities 7,123,532 9,244,230 Weighted average shares outstanding, diluted 65,950,922 65,604,840 Net income (loss) per common share: Basic ( 0.10 ) 0.10 Diluted $ ( 0.09 ) $ 0.08 ACM has been authorized to issue Class A and Class B common stock since redomesticating in Delaware in November 2016. The two classes of common stock are substantially identical in all material respects, except for voting rights. Since ACM did not declare any cash dividends during the three months ended March 31, 2022 or 2021, 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 consolidated statements of operations and comprehensive income and in the above computation of net income per common share. Diluted net income per common share reflects the potential dilution from securities, including stock options and issued warrants, that could share in ACM’s earnings. Certain potential dilutive securities were excluded from the net income per share calculation because the impact would be anti-dilutive. ACM’s potential dilutive securities consist of warrants and stock options for the three months ended March 31, 2022 and 2021. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, time deposits, and accounts receivable. The Company deposits and invests its cash with financial institutions that management believes are creditworthy. The Company is potentially subject to concentrations of credit risks in its accounts receivable. For the three months ended March 31, 2022 and 2021, the Company’s three largest customers in total accounted for 62.6 % and 60.1 %, respectively, of revenue. As of March 31, 2022 and December 31, 2021, the Company’s two largest customers in total accounted for 53.2 % and 53.8 %, respectively, of the Company’s accounts receivables. The Company believes that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience. Recent Accounting Pronouncements Not Yet Adopted In June 2016 the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-13 replaced the pre-existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In November 2019 the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the U.S. Securities and Exchange Commission (“SEC”) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Since the Company was eligible to be an SRC based on its SRC determination as of November 15, 2019 (which is the issuance date of ASU 2019-10) in accordance with SEC regulations, the Company will adopt the standards for the year beginning January 1, 2023. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. The Company is evaluating the impact of this standard on its consolidated financial statements, including accounting policies, processes and systems and expects the standard will have a minor impact on its consolidated financial statements. 12 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS The Company assesses revenues based upon the nature or type of goods or services it provides and the geographic location of the related businesses. The following tables present disaggregated revenue information: Three Months Ended March 31 , 2022 2021 Single wafer cleaning, Tahoe and semi-critical cleaning equipment $ 26,033 $ 32,413 ECP (front-end and packaging), furnace and other technologies 12,248 5,550 Advanced packaging (excluding ECP), services & spares 3,905 5,769 Total Revenue By Product Category $ 42,186 $ 43,732 Wet cleaning and other front-end processing tools $ 31,702 $ 31,900 Advanced packaging, other processing tools, services and spares 10,484 11,832 Total Revenue Fron t-end and Back-End $ 42,186 $ 43,732 Three Months Ended March 31 , 2022 2021 Mainland China $ 42,130 $ 43,696 Other Regions 56 36 $ 42,186 $ 43,732 NOTE 4 – ACCOUNTS RECEIVABLE A t March 31, 2022 and December 31, 2021, accounts receivable consisted of the followin g: March 31, 2022 December 31, 2021 Accounts receivable $ 106,351 $ 105,553 Less: Allowance for doubtful accounts - - Total $ 106,351 $ 105,553 T he Company reviews accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. No allowance for doubtful accounts was considered necessary at March 31, 2022 or December 31, 2021 . NOTE 5 – INVENTORIES At March 31, 2022 and December 31, 2021, inventory consisted of the following: March 31, 2022 December 31, 2021 Raw materials $ 108,157 $ 90,552 Work in process 56,755 35,840 Finished goods 106,626 91,724 Total inventory $ 271,538 $ 218,116 At March 31, 2022 and December 31, 2021, the Company held an inventory reserve of $ 1,826 and $ 1,215 , respectively. At March 31, 2022 and December 31, 2021, finished goods inventory included system shipments of first-tools to existing or prospective customers, for which ownership does not transfer until customer acceptance or customer purchase, of $ 97,887 , and $ 91,724 , respectively. At March 31, 2022 and December 31, 2021, the value of finished goods inventory for which customers were contractually obligated to take ownership upon acceptance totaled $ 79,422 and $ 71,889 , respectively. 13 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET At March 31, 2022 and December 31, 2021, property, plant and equipment consisted of the following: March 31, 2022 December 31, 2021 Buildings and plants $ 41,577 $ - Manufacturing equipment 8,738 7,973 Office equipment 2,559 2,012 Transportation equipment 217 217 Leasehold improvement 4,821 4,134 Total cost 57,912 14,336 Less: Total accumulated depreciation ( 6,837 ) ( 5,900 ) Construction in progress 6,605 5,606 Total property, plant and equipment, net $ 57,680 $ 14,042 Depreciation expense was $ 1,083 and $ 439 for the three months ended March 31, 2022 and 2021, respectively. Buildings and plants represents Lingang Housing transferred to ACM Shengwei in January 2022 at a value of $ 41,497 (RMB 263,979 ), including the purchase price and accumulated interest, and with estimated useful lives of 30 -year (note 8). Buildings and plants are pledged as security for loans from China Merchants Bank (note 12). NOTE 7 – LAND USE RIGHT, NET A summary of land use right is as follows: March 31, 2022 December 31, 2021 Land use right purchase amount $ 10,011 $ 9,966 Less: accumulated amortization ( 350 ) ( 299 ) Land use right, net $ 9,661 $ 9,667 In 2020 ACM Shanghai, through its wholly owned subsidiary ACM Shengwei, entered into an agreement for a 50-year land use right in the Lingang region of Shanghai. In July 2020 ACM Shengwei began a multi-year construction project for a new 1,000,000 square foot development and production center that will incorporate new manufacturing systems and automation technologies and will provide floor space to support significantly increased production capacity and related research and development activities. The amortization for the three months ended March 31, 2022 and 2021 was $ 50 and $ 49 , respectively. The annual amortization of land use right for each of the next five years is as follows: Year ending December 31, 2022 $ 200 2023 200 2024 200 2025 200 2026 200 14 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 8 – OTHER LONG-TERM ASSETS At March 31, 2022 and December 31, 2021, other long-term assets consisted of the following: March 31, 2022 December 31, 2021 Prepayment for property - Lingang $ - $ 42,111 Prepayment for property, plant and equipment and other non-current assets 1,159 440 Prepayment for property - lease deposit 718 429 Security deposit for land use right 776 773 Others 906 1,264 Total other long-term assets $ 3,559 $ 45,017 Prepayment for property – Lingang is for the housing in Lingang, Shanghai and consists of (1) the contractual amount to acquire the property and (2) capitalized interest charges on the long-term loan related to acquisition of the property, which amounted to $ 1,048 at the time of transfer and $ 986 as of December 31 , 2021. Pursuant to contractual agreements, ownership of the housing in Lingang, Shanghai was transferred to ACM Shengwei in January 2022 at a value of $ 41,497 at the time of transfer, and $ 42,111 as of December 31, 2021, which reflected the purchase price and cumulative capitalized interest charges related to the long-term loan from China Merchants Bank (note 12) . Subsequent to the transfer of ownership, Prepayment for property – Lingang, was reclassed to property plant and equipment (note 6). NOTE 9 – SHORT-TERM BORROWINGS At March 31, 2022 and December 31, 2021, short-term borrowings consisted of the following: March 31, 2022 December 31, 2021 Line of credit up to RMB 100,000 from Bank of Shanghai Pudong Branch, 1)due on June 7,2022 with an annual interest rate of 2.7 %. (1) $ 4,617 $ 4,616 Line of credit up to RMB 150,000 from China Everbright Bank, 1)due on October 21,2022 with annual interest rate of 1.95 %. 3,408 3,407 Line of credit up to RMB 60,000 from Bank of Communications, 1)due on October 25,2022 with an annual interest rate of 3.85 %. 1,575 1,568 Total $ 9,600 $ 9,591 (1) Guaranteed by CleanChip For the three months ended March 31, 2022 and 2021, interest expense related to short-term borrowings amounted to $ 63 and $ 189 , respectively. 15 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 10 – OTHER PAYABLE AND ACCRUED EXPENSES At March 31, 2022 and December 31, 2021, other payable and accrued expenses consisted of the following: March 31, 2022 December 31, 2021 Accrued commissions $ 11,648 $ 12,507 Accrued warranty 6,914 6,631 Accrued payroll 8,317 5,684 Accrued professional fees 601 785 Accrued machine testing fees 1,094 149 Others 7,981 5,979 Total $ 36,555 $ 31,735 NOTE 11 – LEASES The Company leases space under non-cancelable operating leases for several office and manufacturing locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions. Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, it applies a portfolio approach for determining the incremental borrowing rate. The components of lease expense were as follows: Three Months Ended March 31, 2022 2021 Operating lease cost $ 647 $ 515 Short-term lease cost 175 79 Lease cost $ 822 $ 594 Supplemental cash flow information related to operating leases was as follows for the three months ended March 31, 2022 and 2021 : Three Months Ended March 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow from operating leases $ 822 $ 594 16 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) As of March 31, 2022, maturities of outstanding lease liabilities for all operating leases were as follows: December 31, 2022 $ 1,858 2023 1,265 2024 1,018 2025 56 2026 37 2027 4 Total lease payments $ 4,238 Less: Interest ( 210 ) Present value of lease liabilities $ 4,028 The weighted average remaining lease terms and discount rates for all operating leases were as follows as of March 31, 2022 and December 31, 2021 : March 31, 2022 December 31, 2021 Remaining lease term and discount rate: Weighted average remaining lease term (years) 1.68 1.37 Weighted average discount rate 4.37 % 4.54 % NOTE 12 – LONG-TERM BORROWINGS At March 31 , 2022 and December 31, 2021, long-term borrowings consisted of the following: March 31, 2022 December 31, 2021 Loan from China Merchants Bank $ 18,051 $ 18,390 Loans from Bank of China 6,734 6,977 Less: Current portion ( 2,441 ) ( 2,410 ) $ 22,344 $ 22,957 The loan from China Merchants Bank is for the purpose of purchasing property in Lingang, Shanghai. The loan is repayable in 120 total installments with the last installment due in November 2030 , with an annual interest rate of 4.65 % . The loan is pledged by the property of ACM Shengwei and guaranteed by ACM Shanghai. As of March 31 , 2022, the right certificate of the pledged property has not been obtained and the procedures of the formal pledge registration in the bank had not been completed. Scheduled principal payments for the outstanding long-term loan as of March 31 , 2022 are as follows: Year ending December 31 2022 $ 1,724 2023 2,502 2024 7,470 2025 1,968 2026 and onwards 11,121 $ 24,785 For the three months ended March 31 , 2022 and 2021, respectively, interest related to long-term borrowings of $ 258 and $ 317 was incurred, of which $ 198 and $ 0 was charged to interest expenses and $ 60 and $ 317 was capitalized as property plant and equipment and other long-term assets, respectively. 17 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 13 – OTHER LONG-TERM LIABILITIES Other long-term liabilities represent government subsidies received from PRC governmental authorities for development and commercialization of certain technology but not yet recognized. As of March 31 , 2022 and December 31, 2021, other long-term liabilities consisted of the following unearned government subsidies: March 31, 2022 December 31, 2021 Subsidies to Stress Free Polishing project, commenced in 2008 and 2017 $ 737 $ 791 Subsidies to Electro Copper Plating project, commenced in 2014 153 160 Subsidies to other cleaning tools,commenced in 2020 979 1,014 Subsidies to SW Lingang R&D development in 2021 5,985 5,958 Other 691 524 Total $ 8,545 $ 8,447 NOTE 14 – LONG-TERM INVESTMENT On September 6, 2017, ACM and Ninebell Co., Ltd. (“Ninebell”), a Korean company that is one of the Company’s principal material suppliers, entered into an ordinary share purchase agreement, effective as of September 11, 2017, pursuant to which Ninebell issued to ACM ordinary shares representing 20 % of Ninebell’s post-closing equity for a purchase price of $ 1,200 , and a common stock purchase agreement, effective as of September 11, 2017, pursuant to which ACM issued 133,334 shares of Class A common stock to Ninebell for a purchase price of $ 1,000 at $ 7.50 per share. The investment in Ninebell is accounted for under the equity method. On June 27, 2019, ACM Shanghai and Shengyi Semiconductor Technology Co., Ltd. (“Shengyi”), a company based in Wuxi, China that is one of the Company’s component suppliers, entered into an agreement pursuant to which Shengyi issued to ACM Shanghai shares representing 15 % of Shengyi’s post-closing equity for a purchase price of $ 109 . The investment in Shengyi is accounted for under the equity method. On September 5, 2019, ACM Shanghai, entered into a Partnership Agreement with 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 RMB 30,000 ( $ 4,200 ) , which represented 10 % of the partnership’s total subscribed capital. The investment in Hefei Shixi is accounted for under the equity method in accordance with Accounting Standards Codification, or ASC, 323 - 30 -S 99 - 1. On October 29, 2021, ACM Shanghai and Waferworks (Shanghai) Co., Ltd (“Waferworks”), a company based in Shanghai and one of the Company’s customers, entered into an agreement pursuant to which Waferworks issued to ACM Shanghai shares representing 0.25 % of Waferworks’ post-closing equity for a purchase price of $ 1,568 . As there is no readily determinable fair value, the Company measures the investment in Waferworks at cost minus impairment, if any. The Company treats the equity investment in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to the investment. Equity investee: March 31, 2022 December 31, 2021 Ninebell $ 2,945 $ 3,051 Shengyi 269 211 Hefei Shixi 7,877 7,864 Subtotal 11,091 11,126 Other investee: Waferworks 1,575 1,568 Total $ 12,666 $ 12,694 For the three months ended March 31, 2022 and 2021, the Company’s share of equity investees’ net income (loss) was ($ 71 ) and $ 320 , respectively, which amounts were included in equity income (loss) in net income (loss) of affiliates in the accompanying condensed consolidated statements of operations and comprehensive income. 18 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 15 – TRADING SECURITIES Pursuant to a Partnership Agreement dated June 9, 2020 (the “Partnership Agreement”) and a Supplementary Agreement thereto dated June 15, 2020 (the “Supplementary Agreement”), ACM Shanghai became a limited partner of Qingdao Fortune-Tech Xinxing Capital Partnership (L.P.), a Chinese limited partnership based in Shanghai (the “Partnership”) of which China Fortune-Tech Capital Co., Ltd serves as general partner and thirteen unaffiliated entities serve, with ACM Shanghai, as limited partners. The Partnership was formed to establish a special fund that would purchase, in a strategic placement, shares of SMIC to be listed on the STAR Market. The limited partners of the Partnership contributed to the fund a total of RMB 2.224 billion ($ 315,000 ), of which ACM Shanghai contributed RMB 100 million ($ 14.2 million), or 4.3 % of the total contribution, on June 18, 2020 . Upon the closing of the SMIC offering in July 2020 , the initial number of SMIC shares owned by the Partnership was apportioned to all of the limited partners in proportion to their respective capital contributions ( 4.3 % in the case of ACM Shanghai). An individual limited partner will be able to instruct the general partner to sell, on behalf of the limited partner, all or a portion of the limited partner’s apportioned shares, subject to compliance with all laws, regulations, trading rules, the Partnership Agreement and the Supplementary Agreement. Alternatively, limited partners holding at least thirty percent of the total SMIC shares held by the Partnership will be able, pursuant to a call auction in accordance with the Supplementary Agreement, to cause the general partner to arrange to sell all of the shares desired to be offered by each of the limited partners that complies with procedural requirements provided in the Supplementary Agreement. As SMIC was listed on the STAR Market in July 2020, ACM Shanghai’s investment is accounted for as trading securities and is stated at fair market value, which is classified as Level 1 of the hierarchy established under ASC 820 with valuations based on quoted prices for identical securities in active markets at March 31, 2022 and December 31, 2021. The components of trading securities were as follows: March 31, 2022 December 31, 2021 Trading securities listed in Shanghai Stock Exchange Cost $ 15,431 $ 15,363 Market value 25,772 29,498 Unrealized loss on trading securities, net of exchange difference amounted to ($ 3,858 ) and ($ 1,047 ) for the three months ended March 31, 2022 and 2021, respectively. 19 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 16 – RELATED PARTY BALANCES AND TRANSACTIONS Prepaid expenses March 31, December 31, 2022 2021 Ninebell $ 4,501 $ 2,383 Accounts payable March 31, December 31, 2022 2021 Ninebell $ 4,982 $ 5,703 Shengyi 1,995 2,196 Total $ 6,977 $ 7,899 Three Months Ended March 31 Purchase of materials 2022 2021 Ninebell $ 7,379 $ 6,882 Shengyi 585 358 Total $ 7,964 $ 7,240 Three Months Ended March 31 Service fee charged by 2022 2021 Shengyi $ 34 $ 142 Total $ 34 $ 142 NOTE 17 – COMMON STOCK In March 2022 ACM effectuated the Stock Split, which was a 3 -for-1 stock split of Class A and Class B common stock in the form of a stock dividend. Each stockholder of record at the close of business on March 16, 2022, received a dividend of two additional shares of Class A common stock for each then-held share of Class A common stock and two additional shares of Class B common stock for each then-held share of Class B common stock, which were distributed after the close of trading on March 23, 2022. ACM is authorized to issue 150,000,000 shares of Class A common stock and 5,307,816 shares of Class B common stock, each with a par value of $ 0.0001 . Each share of Class A common stock is entitled to 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 of ACM unless such Board of Directors declares different dividends to the Class A common stock and Class B common stock by getting approval from a majority of common stockholders. During the three months ended March 31, 2022, ACM issued 425,349 shares of Class A common stock upon option exercises by employees and non-employees, and an additional 1,002 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock. During the three months ended March 31, 2021, ACM issued 929,820 shares of Class A common stock upon option exercises by employees and non-employees and an additional 100,002 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock. At March 31, 2022 and December 31, 2021, the number of shares of Class A common stock issued and outstanding was 54,035,280 and 53,608,929 , respectively. At March 31, 2022 and December 31, 2021, the number of shares of Class B common stock issued and outstanding was 5,086,812 and 5,087,814 , respectively. 20 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 18 – STOCK-BASED COMPENSATION In January 2020 ACM Shanghai adopted a 2019 Stock Option Incentive Plan (the “Subsidiary Stock Option Plan”) that provides for, among other incentives, the granting to officers, directors, employees of options to purchase shares of ACM Shanghai’s common stock. The fair value of the stock options granted is estimated at the date of grant based on the Black-Scholes option pricing model using assumptions generally consistent with those used for ACM’s stock options. Because ACM Shanghai shares have a short history of trading on a public market, the expected volatility is estimated with reference to the average historical volatility of a group of publicly traded companies that are believed to have similar characteristics to ACM Shanghai. ACM’s stock-based compensation consists of employee and non-employee awards issued under its 1998 Stock Option Plan, its 2016 Omnibus Incentive Plan and as standalone options. ACM granted stock options to employees under the 2016 Omnibus Incentive Plan during the three months ended March 31, 2022. The vesting condition may consist of a service period determined by the Board of Directors for a grant or certain performance conditions determined by the Board of Directors for a grant. The fair value of the stock options granted with service period based condition is estimated at the date of grant using the Black-Scholes option pricing model. The fair value of the stock options granted with market based condition is estimated at the date of grant using the Monte Carlo simulation model. The following table summarizes the components of stock-based compensation expense included in the consolidated statements of operations: Three Months Ended March 31, 2022 2021 Stock-Based Compensation Expense: Cost of revenue $ 113 $ 71 Sales and marketing expense 354 505 Research and development expense 411 229 General and administrative expense 496 405 $ 1,374 $ 1,210 Three Months Ended March 31, 2022 2021 Stock-based compensation expense by type: Employee stock purchase plan $ 1,273 $ 1,085 Non-employee stock purchase plan 11 40 Subsidiary option grants 90 85 $ 1,374 $ 1,210 Employee Awards The following table summarizes the Company’s employee share option activities during the three-months ended March 31, 2022: Number of Option Shares (1) Weighted Average Grant Date Fair Value Weighted Average Exercise Price Weighted Average Remaining Contractual Term Outstanding at December 31, 2021 8,402,247 2.45 5.88 6.53 years Granted 853,500 11.49 25.45 Exercised ( 273,264 ) 0.97 2.45 Forfeited/cancelled - - - Outstanding at March 31, 2022 8,982,483 $ 3.36 $ 7.85 6.64 years Vested and exercisable at March 31, 2022 5,772,480 (1) Prior period results have been adjusted to reflect the Stock Split effected in March 2022. See Note 1 for details. 21 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) As of March 31, 2022 and December 31, 2021 , $ 17,097 and $ 9,544 , respectively, of total unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards for ACM were expected to be recognized over a weighted-average period of 1.62 years and 1.61 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures. The fair value of options granted to employees with a service period based condition is estimated on the grant date using the Black-Scholes valuation. Three-months ended March 31, Year-ended December 31, 2022 (6) 2021 (6) Fair value of common share(1) $ 25.45 $ 27.58 - 37.33 Expected term in years(2) 5.50 - 6.25 6.25 Volatility(3) 49.43 % 48.53 - 49.47 % Risk-free interest rate(4) 1.70 % 1.00 %- 1.44 % Expected dividend(5) 0 % 0 % (1) Equal to closing value on the grant date. (2) Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110. (3) Volatility is calculated based on the historical volatility of ACM’s comparable companies in the period equal to the expected term of each grant. (4) Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant. (5) Expected dividend is assumed to be 0 % as ACM has no history or expectation of paying a dividend on its common stock. (6) Prior period results have been adjusted to reflect the Stock Split effected in March 2022. See Note 1 for details. Non-employee Awards The following table summarizes the Company’s non-employee share option activities during the three months ended March 31, 2022: Number of Option Shares (1) Weighted Average Grant Date Fair Value Weighted Average Exercise Price Weighted Average Remaining Contractual Term Outstanding at December 31, 2021 2,067,018 0.33 0.97 3.98 years Granted - - - Exercised ( 152,085 ) 0.23 0.61 Expired - - - Forfeited/cancelled ( 1,413 ) 0.16 0.37 Outstanding at March 31, 2022 1,913,520 $ 0.34 $ 1.00 3.87 years Vested and exercisable at March 31, 2022 1,883,520 (1) Prior period results have been adjusted to reflect the Stock Split effected in March 2022. See Note 1 for details. 22 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) As of March 31, 2022 and December 31, 2021, $ 90 and $ 102 , 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 0.06 years and 0.06 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures. ACM Shanghai Option Grants The following table summarizes the ACM Shanghai employee stock option activities during the three months ended March 31, 2022: Number of Option Shares in ACM Shanghai Weighted Average Grant Date Fair Value Weighted Average Exercise Price Weighted Average Remaining Contractual Term Outstanding at December 31, 2021 5,377,500 $ 0.24 $ 2.04 2.50 years Granted - - - Exercised - - - Expired - - - Forfeited/cancelled - - - Outstanding at March 31, 2022 5,377,500 $ 0.24 $ 2.04 2.26 years Vested and exercisable at March 31, 2022 - During the three months ended March 31, 2022 and 2021, the Company recognized stock-based compensation expense of $ 90 and $ 85 , respectively, related to stock option grants of ACM Shanghai. As of March 31, 2022 and December 31, 2021, $ 438 and $ 525 , respectively, of total unrecognized non-employee stock-based compensation expense, net of estimated forfeitures, related to ACM Shanghai stock-based awards were expected to be recognized over a weighted-average period of 1.26 years and 1.5 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures. NOTE 19 – INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted. The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods) and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Prior to September 30, 2019, the Company had recorded a valuation allowance for the full amount of net deferred tax assets in the United States, as the realization of deferred tax assets was uncertain. Since September 30, 2019, the Company has not maintained a valuation allowance except for a partial valuation allowance on certain U.S. deferred tax assets. In order to recognize the remaining U.S. deferred tax assets that continue to be subject to a valuation allowance, the Company will need to generate sufficient U.S. taxable income in future periods before the expiration of the deferred tax assets governed by the tax code. ACM Shanghai has shown a three-year historical cumulative profit and has projections of future income. As a result, the Company does not maintain a valuation allowance. The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a more likely than not threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. 23 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (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 12.5 % to 25 % for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences from book-tax differences. As a result, the Company recorded income tax benefit (expense) of $ 4,011 and $ 2,770 during the three months ended March 31, 2022 and 2021, respectively. The benefit in 2022 primarily resulted from the tax effect of the operating loss generated. The increase in our effective income tax rate for the three months ended March 31, 2022 compared to the same period of the prior year was primarily due to a new requirement to capitalize and amortize previously deductible research and experimental expenses resulting from a change in Section 174 made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) which became effective on January 1, 2022, and a decrease in discrete tax benefits associated with stock-based compensation deductions. Under the TCJA, the Company is required to capitalize, and subsequently amortize R&D expenses over fifteen years for research activities conducted outside of the U.S. The capitalization of overseas R&D expenses resulted in a significant increase in the Company’s global intangible low-taxed income inclusion. Congress is considering legislation, but legislation has not passed, that would defer the capitalization requirement to later years. As of March 31, 2022, the Company’s total unrecognized tax benefits were $ 6,066 of which $ 5,950 would affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax provisions as a component of tax expense. $ 71 of interest or penalties were recognized for the three months ended March 31, 2022. 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 through December 31, 2021. To the extent the Company has tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period. The Company’s effective tax rate differs from statutory rates of 21 % for U.S. federal income tax purposes and 12.5 % to 25 % for Chinese income tax purposes due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences in the treatment of stock-based compensation and non-US research expenses. The Company’s three PRC subsidiaries, ACM Shanghai, ACM Wuxi and Shengwei, are liable for PRC corporate income taxes at the rates of 12.5 %, 25 % and 25 %, respectively. Pursuant to the Corporate Income Tax Law of the PRC, ACM’s PRC subsidiaries generally would be liable for PRC corporate income taxes as a rate of 25 %. According to Guoshuihan 2009 No. 203, an entity certified as an “advanced and new technology enterprise” is entitled to a preferential income tax rate of 12.5 %. ACM Shanghai was certified as an “advanced and new technology enterprise” in 2012 and again in 2016 and 2018, with an effective period of three years . ACM files income tax returns in the United States and state and foreign jurisdictions. Those federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for 1999 through 2021. To the extent ACM has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service or state or foreign tax authorities to the extent utilized in a future period. Income tax benefit (expense) was as follows: Three Months Ended March 31, 2022 2021 Total income tax benefit $ 4,011 $ 2,770 24 Table of Contents ACM RESEARCH, INC. Notes to Condensed Consolidated Financial Statements (in thousands, except share and per share data) NOTE 20 – COMMITMENTS AND CONTINGENCIES The Company leases offices under non-cancelable operating lease agreements. See note 11 for future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more. As of March 31, 2022, the Company had $ 3,738 of open capital commitments. Covenants in Shengwei’s Grant Contract for State-owned Construction Land Use Right in Shanghai City with the China (Shanghai) Pilot Free Trade Zone Lingang Special Area Administration require, among other things, that Shengwei pay liquidated damages in the event that (a) it does not make a total investment (including the costs of construction, fixtures, equipment and grant fees) of at least RMB 450.0 million ($ 63,400 ) or (b) within six years after the land use right is obtained, the Company does not (i) generate a minimum specified amount of annual sales of products manufactured on the granted land or (ii) pay to the PRC at least RMB 157.6 million ($ 22,000 ) in annual total taxes (including value-added taxes, corporate income tax, personal income taxes, urban maintenance and construction taxes, education surcharges, stamp taxes, and vehicle and shipping taxes) as a result of operations in connection with the granted land. As of March 31, 2022 and December 31, 2021, the Company had paid in total $ 14,894 and $ 13,265 , respectively for its Lingang-related investments. In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. Some of these contingencies involve claims that are subject to substantial uncertainties and unascertainable damages. The Company’s management has evaluated all such proceedings and claims that existed as of March 31, 2022 or December 31, 2021. In the opinion of management, no provision for liability nor disclosure was required as of March 31, 2022 related to any claim against the Company because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. As of March 31, 2022, the Company had no outstanding legal proceedings. 25 Table of Contents