What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-02 compared with 2022-03-01 · 860 added, 633 removed, 1020 unchanged (59% of the section changed)

2 unchanged sentences

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm ( Armanino LLP , San Ramon, California , PCAOB ID# 32 )

Report of Independent Registered Public Accounting Firm ( BDO China Shu Lun Pan Certified Public Accountants LLP , Shenzhen, China , PCAOB ID# 1818 )

Consolidated Balance Sheets as of December 31, 2022

Consolidated Statements of Operations and Comprehensive Income for the Years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2022, 2021 and 2020

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

To the Board of Directors and

Stockholders of ACM Research, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of ACM Research, Inc.

and subsidiaries (the Company) as of December 31, 2022, and the

related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2022, and the

related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and

the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s

internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the

Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2023 , expressed an adverse opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the

Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the

applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated

financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable

basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were

communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on

the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

As described in Notes 2 and 3 to the consolidated financial statements, the Company derives revenue principally from the sale of semiconductor

Revenue from the sale of semiconductor equipment is recognized when the Company satisfies performance obligations by transferring the control over products promised in the contract with customer, which is the point in time when the

equipment has been demonstrated to meet the customer’s predetermined specifications and is accepted by the customer.

For repeat orders, the Company recognizes revenue upon shipment or delivery, and when legal title to the semiconductor equipment is

passed to a customer.

For first tool orders, the Company recognizes revenue upon customer acceptance.

These revenue contracts contain multiple performance obligations, such as delivery of goods, installation, training and software updates.

these performance obligations are identified, the total contract consideration, including offer of free goods that can be used towards future purchases, is allocated to the performance obligations.

We identified the evaluation of performance obligations and the timing of revenue recognition of those performance obligations as a critical audit

matter because the Company’s revenue contracts have a variety of specifications, payment terms and customer acceptance clauses.

Significant judgement is applied by the Company regarding the identified performance obligations in distinguishing the

contract consideration of the systems to be delivered.

Auditing the allocation of the total contract consideration to these performance obligations and evaluating customer acceptance clauses involves especially challenging auditor judgment in

evaluating the appropriateness of the Company’s revenue recognition of various contracts.

The primary procedures we performed to address this critical audit matter included:

Tested the design and operating effectiveness of controls over revenue recognition including management’s controls related to the identification and evaluation

of performance obligations in contracts with customers and the allocation of the total contract consideration to these performance obligations, and assessment of contract terms

Evaluated management’s accounting policies and practices including the reasonableness of management’s judgments and assumptions relating to the timing of

revenue recognition of those performance obligations including evaluation of customer acceptance clauses

Tested a sample of revenue contracts and underlying support documents to evaluate appropriateness of management’s revenue recognition

Tested the completeness and accuracy of management’s calculation of revenue and associated timing of revenue recognized

Valuation of Inventories

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company records inventory at the lower of cost or net realizable value.

Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value based upon assumptions about future demand and market conditions.

If actual demand were to be substantially

lower than estimated, there could be a significant adverse impact on the carrying value of inventories and results of operations.

We identified the evaluation of net realizable value write down adjustments to certain inventories for excess or obsolescence as a critical audit

Auditing management’s estimates for excess and obsolete inventory involved subjective auditor judgment because management’s assessment of whether a write down is required, and the measurement of any excess of cost over net realizable value,

is judgmental and considers a number of qualitative factors that are affected by market and economic conditions outside the Company’s control.

The primary procedures we performed to address this critical audit matter included:

Tested the design and operating effectiveness of internal controls over management’s assessment of inventory valuation, including the development of

management’s assumptions related to future demand and market condition

Evaluated the significant assumptions (e.g., forecasts related to the Company’s future manufacturing schedules, customer demand, technological and/or market

obsolescence, and possible alternative uses) and the underlying data used in management’s excess and obsolete inventory valuation assessment

Evaluated certain inventories for excess or obsolescence by comparing the Company’s sales and inventory consumption forecast to historical sales, historical

inventory usage and known customer orders

Tested the completeness and accuracy of underlying data used in calculating the inventory valuation assessment related to the provisions for excess or

Impact on Consolidated Financial Statements of Material Weaknesses in Internal Control Over Reporting - Refer to Management’s

Report on Internal Control Over Financial Reporting

Critical Audit Matter Description

As discussed in Management’s Report on Internal Control Over Financial Reporting, the Company identified material weaknesses in certain components

of the Internal Control—Integrated Framework (2013) issued by COSO.

These material weaknesses contribute to the potential for there to have been material

accounting errors in substantially all consolidated financial statement account balances and disclosures, and result in a critical audit matter that required us to increase the extent of our audit effort, including the need to modify the nature,

timing, and extent of our audit procedures.

How the Critical Audit Matter Was Addressed in the Audit

As a result of the material weaknesses, in performing our audit procedures we lowered the threshold for investigating differences between recorded

amounts and independent expectations developed by us that we would have otherwise used, and increased the number of selections we would have otherwise made if the Company’s controls were designed and operating effectively.

We have served as the Company’s auditor since 2022.

San Ramon, California

March 1, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of ACM Research, Inc.

Adverse Opinion on Internal Control over Financial Reporting

We have audited ACM Research, Inc.

and subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2022, based on

criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of

December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a

reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management’s

The Company did not design and maintain effective internal control over financial reporting based on the criteria established in the COSO

Specifically, control deficiencies constituted material weaknesses, either individually or in the aggregate, related to:

risk assessment procedures and monitoring activities, including insufficient identification and assessment of risks impacting the design,

implementation, and operating effectiveness of internal control over financial reporting, and insufficient evaluation and determination as to whether the components of internal control were present and functioning .

information technology controls related to:

(i) user access controls to ensure appropriate segregation of duties and adequately restrict user

and privileged access to financial applications, programs, and data to appropriate Company personnel;

(ii) computer operations controls to ensure that critical information is monitored, and data backups are authorized and monitored;

appropriate controls to evaluate automated controls;

and (iv) appropriate controls to validate the completeness and accuracy of key reports used within controls across substantially all financial statement areas.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated

financial statements, and this report does not affect our report dated March 1, 2023, on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United

States) (PCAOB), the consolidated balance sheet and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash

flows of the Company, and our report dated March 1, 2023, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the

effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting .

Our responsibility is to

express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over

financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we

considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial

reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any

evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

San Ramon, California

March 1, 2023

Report of Independent Registered Public Accounting Firm

To The Shareholders and Board of Directors

ACM Research, Inc.

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of ACM Research, Inc.

and subsidiaries (the “Company”) as of December 31,

2021 and 2020, the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively

referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its

operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles

generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal

control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee

of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2022 expressed an unqualified opinion thereon.

We have audited the accompanying consolidated balance sheet of ACM Research, Inc.

and subsidiaries (the “Company”) as of December 31, 2021, the related

consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated

financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for each of the

two years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion

on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and

the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our responsibility is to express an opinion on the

Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company

in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits also included evaluating the

accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements

that were communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or

complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate

opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition related to sale of semiconductor capital equipment

As described in Notes 2 and 3 to the consolidated financial statements, the Company derives revenue principally from the sale of

semiconductor capital equipment.

Revenue of sale of semiconductor capital equipment is recognized when the Company satisfies performance obligations by transferring the control over products promised in the contract with customer, which is the

point of time when the equipment has been demonstrated to meet the customer’s predetermined specifications and is accepted by the customer.

For revenue contracts that provide for a lapsing customer acceptance period, the Company recognizes revenue

as of the earlier of the expiration of the lapsing acceptance period or customer acceptance.

We identified the timing of revenue recognition as a

critical audit matter because the Company’s revenue contracts have a variety of specifications, payment terms and customer acceptance clauses.

Auditing these elements involved especially challenging auditor judgment in evaluating the appropriateness of the Company’s revenue recognition.

The primary procedures we performed to address this critical audit matter included:

Testing the design and operating effectiveness of controls over revenue recognition including management’s controls related to the identification and

evaluation of performance obligations in contracts with customers and assessment of contract terms.

Evaluating management’s accounting policies and practices including the reasonableness of management’s judgments and assumptions relating to the

Company’s revenue recognition including evaluation of customer acceptance clauses.

Testing a sample of revenue contracts and underlying order documents to evaluate appropriateness of management’s revenue recognition including

assessment of customer acceptance clauses.

BDO China Shu Lun Pan Certified Public Accountants LLP

We have served as the Company's auditor since 2015.

We served as the Company’s auditor from 2015 to 2022.

Shenzhen, The People’s Republic of China

March 1, 2022

March 1, 2022, except for the effects of the common stock split

discussed in Notes 1 and 2 to the consolidated financial statements, as to which the date is March 1, 2023.

ACM RESEARCH, INC.

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Cash and cash equivalents

Restricted cash

Short-term time deposits (note 2)

Trading securities (note 16)

Accounts receivable, less allowance for doubtful accounts of $ 0 as of December 31, 2021 and December 31, 2020 (note 4)

Income tax recoverable

Accounts receivable (note 4)

Income tax receivable

Other receivables

Inventories (note 5)

Advances to related party (note 17)

Prepaid expenses

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Intangible assets, net

Long-term time deposits (note 2)

Deferred tax assets (note 20)

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Other long-term assets (note 8)

Liabilities and Stockholders’ Equity

Liabilities and Equity

Current liabilities:

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Current portion of long-term borrowings (note 12)

Related party accounts payable (note 17)

Accounts payable

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Stockholders’ equity:

Common stock – Class A, par value $ 0.0001 :

150,000,000 shares authorized as of December 31, 2021 and 50,000,000 shares authorized as of December 31, 2020 ; 17,869,643 shares

issued and outstanding as of December 31, 2021 and 16,896,693 shares issued and outstanding as of December 31, 2020 (note

Common stock–Class B, par value $ 0.0001 :

5,307,816 shares authorized as of December 31, 2021 and 2,409,738 shares authorized as of December 31, 2020 ; 1,695,938 shares

issued and outstanding as of December 31, 2021 and 1,802,606 shares issued and outstanding as of December 31, 2020 (note

Class A Common stock (1) (note 18)

Class B Common stock (1) (note 18)

Additional paid-in capital

Accumulated surplus

Accumulated other comprehensive income

Retained earnings

Statutory surplus reserve (note 23)

Accumulated other comprehensive income (loss)

Total ACM Research, Inc.

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Non-controlling interests

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total liabilities and equity

(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 2 for details.

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

ACM RESEARCH, INC.

Consolidated Statements of Operations and Comprehensive Income

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share data)

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General and administrative

Total operating expenses, net

Total operating expenses

Income from operations

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Change in fair value of financial liability

Unrealized gain on trading securities

Realized gain from sale of trading securities

Unrealized gain (loss) on trading securities

Other income (expense), net

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Income tax benefit (expense) (note 20)

Net income attributable to non-controlling interests and redeemable non-controlling interests

Net income attributable to non-controlling interests

Net income attributable to ACM Research, Inc.

Comprehensive income:

Foreign currency translation adjustment

Comprehensive Income

Comprehensive income attributable to non-controlling interests and redeemable non-controlling interests

Comprehensive income attributable to ACM Research, Inc.

Comprehensive income (loss):

Foreign currency translation adjustment, net of tax

Comprehensive income (loss)

Comprehensive income (loss) attributable to non-controlling interests

Comprehensive income (loss) attributable to ACM Research, Inc.

Net income attributable to ACM Research, Inc.

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

(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 2 for details.

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

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Additional Paid-

Accumulated Surplus

Retained earnings

Statutory Surplus

Accumulated Other

Comprehensive

Income (Loss)

Non-controlling

Stockholders’

Balance at December 31, 2018

Net income attributable to ACM Research, Inc.

Foreign currency translation adjustment

Exercise of stock options

Cancellation of stock options

Stock-based compensation

Issuance of Class A common stock in connection with public offering

Share repurchase

Conversion of Class B common stock to Class A common stock

Exercise of stock warrants issued to HFG

Non-controlling interests

Balance at December 31, 2019

Appropriation to statutory surplus reserves

Foreign currency translation adjustment

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Balance at December 31, 2020

Appropriation to statutory surplus reserves

Foreign currency translation adjustment

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Stock-based compensation

Exercise of warrants

Exercise of stock warrants

Conversion of Class B common stock to Class A common stock

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Balance at December 31, 2021

Appropriation to statutory surplus reserves

Foreign currency translation adjustment

Exercise of stock options

Stock-based compensation

Conversion of Class B common stock to Class A common stock

Balance at December 31, 2022

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 2 for details.

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

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Loss on disposals of property, plant and equipment

Realized gain on trading securities

Equity income in net income of affiliates

Unrealized gain on trading securities

Unrealized loss (gain) on trading securities

Deferred income taxes

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Other receivables

Advances to related party (note 17)

Prepaid expenses

Other long-term assets

Related party accounts payable (note 17)

Accounts payable

Advances from customers

Income tax payable

Deferred revenue

Income taxes payable

FIN-48 payable

Other payables and accrued expenses

Deferred revenue

Other long-term liabilities

Net cash flow (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

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Prepayment for property

Investments in unconsolidated affiliates

Increase of time deposits

Proceeds from selling trading securities

Investments in affiliates

Dividends from unconsolidated affiliates

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Repayments of notes payable

Proceeds from stock option exercise to common stock

Proceeds from issuance of Class A common stock in connection with public offering, net of direct issuance expenses of $ 2,287

Payment for repurchase of Class A common stock

Payment for cancellation of stock option

Proceeds from issuance of common stock to redeemable Non-controlling interest

Proceeds from exercise of stock options

Proceeds from a subsidiary equity issuance, net of issuance costs

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Cash paid for income taxes

Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of

Reconciliation of cash, cash equivalents and restricted cash in consolidated statements of cash flows:

Cash and cash equivalents

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Warrant conversion to common stock

Share cancellation, (note 16)

Share cancellation

Cashless exercise of stock options

Issuance of warrant for settlement of financial liability and cancellation of note receivable

Non-cash investing activities:

Transfer of prepayment for property to property, plant and equipment

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

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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.

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.

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.

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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.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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

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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.

(“ACM Korea”), to serve customers based in the Republic of

Korea and perform sales, marketing, research and development activities for new products and solutions.

In March 2019, ACM Shanghai formed a wholly owned subsidiary in the PRC, Shengwei Research (Shanghai), Inc.

(“ACM Shengwei”), to manage activities related to the

addition of future long-term production capacity.

In June 2019, CleanChip formed a wholly owned subsidiary in California, ACM Research (CA), Inc.

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As part of the STAR Listing process, in June 2020 the

ownership interests held by the private investors were reclassified from redeemable non-controlling interests to non-controlling interests as the redemption feature was terminated (note 19).

ownership interests held by the private investors were reclassified from redeemable non-controlling interests to non-controlling interests as the redemption feature was terminated.

In preparation for the STAR IPO, ACM completed a reorganization in December 2019 that included the sale of all of the shares of CleanChip by ACM to ACM Shanghai for $ 3,500 .

The reorganization and sale had no impact on ACM’s consolidated financial statements.

In August 2021 ACM formed a wholly owned subsidiary Singapore, ACM research (Singapore) PTE, Ltd.

to perform sales, marketing, and other business development activities.

In August 2021, ACM formed a wholly owned subsidiary in Singapore, ACM research (Singapore) PTE, Ltd.

to perform sales, marketing, and other business development

In November 2021, ACM’s operating subsidiary ACM Shanghai, completed its STAR IPO and its shares began trading on the STAR Market.

5 unchanged sentences

outstanding ACM Shanghai shares.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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

Place and date of

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.

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

Place and date of

Name of subsidiaries

5 unchanged sentences

CleanChip Technologies Limited

Hong Kong, September 2017

Hong Kong, June 2017

ACM Research Korea CO., LTD.

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Singapore, August 2021

ACM Research (Beijing), Inc.

PRC, February 2022

Hanguk ACM CO., LTD

Korea, March 2022

ACM Research (Lingang) Inc., or ACM Lingang, is the English name referred to by its Chinese language name Shengwei Research (Shanghai), Inc.

in prior filings

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Company’s consolidated financial statements include the accounts of ACM and its subsidiaries, including ACM Shanghai and its subsidiaries, which include ACM Wuxi,

ACM Shengwei and CleanChip (the subsidiaries of which include ACM California and ACM Korea).

ACM 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 and indirectly, controls more than one half of the voting power.

All significant intercompany

transactions and balances have been eliminated upon consolidation.

All significant

intercompany transactions and balances have been eliminated upon consolidation.

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 of the business disruptions, and related financial impact, 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.

Through Dece mber 31, 2021, the Company had not experienced a significant negative

impact from COVID-19 on its operations, capital and financial resources, including overall liquidity position.

The worldwide COVID-19 health pandemic and related government and private sector responsive actions have adversely affected the economies and financial markets of many

countries and specifically have negatively impacted the Company’s business operations, including in the PRC and the United States.

The continuation of the COVID-19 pandemic could continue to result in economic uncertainty and global economic policies

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.

The Company conducts substantially all of its product development, manufacturing, support and services in

the PRC, and those activities have been directly impacted by the COVID-19 pandemic and related restrictions on transportation and public appearances.

The Company cannot assure that closures or reductions of its PRC operations or production may not

be necessary in upcoming months as the result of business interruptions arising from protective measures being taken by the PRC and other governmental agencies or of other consequences of the COVID-19 pandemic.

The Company’s corporate headquarters are located in San Mateo County in the San Francisco Bay Area.

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.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The prolonged and broad-based shift to a remote working environment continues to create inherent

productivity, connectivity, and oversight challenges and could affect our ability to enhance, develop and support existing products and services, detect and prevent spam and problematic content, hold product sales and marketing events, and generate

new sales leads, among others.

In addition, the changed environment under which the Company is operating could have an effect on its internal controls over financial reporting as well as our ability to meet a number of its compliance requirements

in a timely or quality manner.

Additional and/or extended, governmental lockdowns, restrictions or new regulations could significantly impact the ability of our employees and vendors to work productively.

Governmental restrictions have been

globally inconsistent and it remains unclear when a return to worksite locations or travel will be permitted or what restrictions will be in place in those environments.

As the Company prepares to return its workforce in more locations back to the

office in 2022, it may experience increased costs as it prepares its facilities for a safe return to work environment and experiment with hybrid work models, in addition to potential effects on its ability to compete effectively and maintain its

corporate culture.

Extended periods of interruption to our corporate, development or manufacturing facilities due to the

COVID-19 pandemic could cause the Company to lose revenue and market share, which would depress its financial performance and could be difficult to recapture.

The Company’s business may also be harmed if travel to or from the PRC or the United

States continues to be restricted or inadvisable or if members of management and other employees are absent because they contract the coronavirus, they elect not to come to work due to the illness affecting others in the Company’s office or

laboratory facilities, or they are subject to quarantines or other governmentally imposed restrictions.

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.

policies began with an increase of “spot quarantines,” 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.

policies were later expanded to full-city quarantines, 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 in March 2022, and therefore limited ACM Shanghai’s ability to ship finished products to customers and to produce new products.

Spot quarantines 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 quarantine of the

entire Pudong region of Shanghai was imposed in late March 2022 and impacted the operation of ACM Shanghai’s Chuansha production facility.

Although the facility remained partially operational with a number of personnel staying on-site

for a prolonged period, the level of production declined significantly versus more normal levels.

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 full-city restrictions, which began 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 was required to defer shipments of finished products to these customers because of operational and logistical limitations affecting customers other than, or in addition

to, ACM Shanghai.

In late April 2022, ACM Shanghai began to increase the level of its operations at the Chuansha manufacturing site using the “closed loop method,” in which a limited collection of

workers remain 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,” and had resumed substantially all of its Chuansha

manufacturing site operations by the end of the second quarter of 2022.

On July 1, 2022, the Company transitioned operations at the Chuansha facility to a more normal production process, in which workers were able to return home

following their factory shifts.

In mid-June 2022, substantially all of ACM Shanghai’s R&D and administrative employees were allowed to return to work at the ZhangJiang facility following a 6–8-week period of

restricted access during which many employees had continued to work from home.

ACM Shanghai established several policies to help avoid or limit future outbreaks among employees and aimed at protecting employee safety and limiting the

possibility of a facility reclosing.

The effects of the PRC restrictions continued for several months, with a gradual return of PRC operations, production capacity, and global logistics as Shanghai and other areas in the PRC began to

The Company cannot assure you 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 the future 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.

In December 2022, the PRC government relaxed its zero-COVID policies, which resulted in large scale COVID-19 infections throughout China, including Shanghai.

A significant number of

ACM Shanghai employees were also infected, and in many cases missed work for one or several weeks, which caused administrative and operational challenges in late 2022 and early 2023.

The Company cannot assure you that illnesses of ACM

Shanghai employees, or of its customers, suppliers or other third parties, may not result in closures, reductions of PRC operations or production, or additional administrative inefficiencies in the upcoming months or quarters.

During the first six months of 2022, the Company experienced a negative impact to revenue and shipments as a result of restricted access and logistics to its

Shanghai-based production and administrative facilities.

Thirteen tools amounting to $ 13 million in revenue and $ 24 million in shipments that could not

be shipped to customers in the three-months ended March 31, 2022 were subsequently shipped in the three months ended June 30, 2022.

As a result of the restrictions, the Company experienced a modest increase to operational costs due to increased

logistics costs and inefficiencies that resulted from the restrictions, and an increase in cash used in operations due in part to an increase in accounts receivables that resulted from a shift of shipments towards the latter part of the period .

During the year ended December 31, 2022, the Company experienced general inefficiencies in administrative, research and development and other activities due to some

employees who were required to quarantine ‘in place’ at their residence due presumably to the detected possible exposure to COVID infections.

In many cases, the employees were able to work remotely to mitigate the effects.

With the relaxation of

the PRC’s zero-COVID policies in December 2022, and the subsequent widespread infections of China’s population, the Company anticipates potential impacts to its PRC operations for the foreseeable future .

The Company’s corporate headquarters are located in Fremont, California.

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.

To date, the Company’s operations in South Korea, including the R&D center and production facilities of ACM Korea and the business development activities of Hanguk ACM CO., LTD, have been largely

unaffected directly by government restrictions relating to the COVID-19 pandemic.

The worldwide 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 comply with a

number of timing and quality requirements.

Additional or extended governmental quarantines, 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.

Use of Estimates

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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.

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.

Common Stock Split

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.

Proportional adjustments were also made to outstanding awards under the Company’s stock-based compensation plans.

Reclassifications

Certain prior year amounts in the notes to the Consolidated Financial Statements, have been reclassified to conform with the current year

presentation.

These classifications within the statements had no impact on the Company’s results of operations.

Certain prior year amounts in the notes to the Consolidated Financial Statements have been reclassified to conform with the current year presentation.

classifications within the statements had no impact on the Company’s results of operations.

Restrictions by the U.S.

Department of Commerce on PRC-Based Semiconductor Producers

In early October 2022 the U.S.

government enacted new rules aimed at restricting U.S.

support for the PRC’s ability to manufacture advanced semiconductors.

include new export license requirements for exports, re-exports or transfers to or within the PRC of additional types of semiconductor manufacturing items, items for use in manufacturing designated types of semiconductor manufacturing equipment in

the PRC, and semiconductor manufacturing equipment for use at certain IC manufacturing and development facilities in the PRC.

In addition, the U.S.

government imposed new restrictions by which U.S.

persons anywhere in the world are effectively

barred from engaging in certain activities related to the development and production of certain semiconductors at PRC fabrication facilities meeting specified criteria, even if no items subject to the EAR are involved.

ACM Shanghai has determined that several of its customers have PRC-based facilities that meet the restricted criteria, and has also determined that several of its

products may meet the parameters of export control classification numbers, or ECCNs, affected by the restrictions.

Accordingly, depending on the details of the final implementation of these new restrictions and associates licensing policies, ACM

may not be able to import, or may face substantial restrictions in importing, parts from the United States to support tool shipments to such facilities, or to be embedded into tools defined by affected ECCNs.

ACM and ACM Shanghai have

implemented modifications to their existing business policies and practices in response to the new restrictions, including by imposing limitations on the activities of their U.S.

persons and their supply chains more broadly to comply with the new

ACM and ACM Shanghai believe that as a result of the new restrictions, several ACM Shanghai customers have significantly reduced production and related capital

spending at facilities meeting the restricted advanced node capabilities.

In addition, ACM Shanghai has experienced challenges as the companies in its supply chain adapt their policies to the new regulations.

These factors had an adverse impact

on ACM Shanghai’s shipments and sales in the three months ended December 31, 2022.

ACM and ACM Shanghai anticipate these factors will continue to have an adverse impact on ACM Shanghai’s shipments and sales in future periods.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, bank deposits that are unrestricted as to withdrawal and use, and highly liquid investments with an original maturity

date of three months or less at the date of purchase.

Cash and cash equivalents consist of cash on hand and bank deposits that are unrestricted as to withdrawal and use, and highly liquid investments with an original

maturity date of three months or less at the date of purchase.

At times, cash deposits may exceed government-insured limits.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Restricted cash

Restricted cash represents deposits not readily available to ACM.

Restricted cash as of December 31, 2019 represented cash hold in reserve, all of the proceeds received

from issuance of common stock to redeemable non-controlling interest in segregated cash and cash-equivalent accounts.

restricted cash as of December 31, 2020, as the redemption feature of these proceeds was terminated during the second quarter of 2020.

The following table presents cash and cash equivalents, according to jurisdiction as of December 31, 2022 and December 31, 2021:

United States

Mainland China

China Hong Kong

The amounts in mainland China do not include short-term and

long-term time deposits which totaled $ 172,448 and $ 0 at December 31, 2022 and 2021, respectively.

Cash held in the U.S.

exceeds the Federal Deposit Insurance

Corporation (“FDIC”) insurance limits and is subject to risk of loss.

No losses have been experienced to date.

Cash amounts held by ACM Shanghai at PRC banks in mainland China

are subject to a series of risk control regulatory standards from PRC bank regulatory authorities.

ACM Shanghai is required to obtain approval from the State Administration of Foreign Exchange (“SAFE”) to transfer funds into or out of the PRC.

requires a valid agreement to approve the transfers, which are processed through a bank.

Other than these PRC foreign exchange restrictions, ACM Shanghai is not subject to any PRC restrictions and limitations on its ability to transfer funds to ACM

Research or among our other subsidiaries.

However, cash held by ACM Shanghai in mainland China does exceed applicable insurance limits and is subject to risk of loss, although no such losses have been experienced to date.

ACM California periodically procures goods and services on behalf

of ACM Shanghai.

For these transactions, ACM Shanghai makes cash payments to ACM California in accordance with applicable transfer pricing arrangements.

For the year ended December 31, 2022, cash payments from ACM

Shanghai to ACM California for the procurement of goods was $ 37.0 million and for services was $ 3.3 million.

ACM California periodically borrows funds for working capital advances from its direct parent, CleanChip.

ACM California repays or renews these intercompany loans

in accordance with their terms.

For sales through CleanChip and ACM Research, a certain amount of

sales or advance payments from customer proceeds is repatriated back to ACM Shanghai, a subsidiary, in accordance with applicable transfer pricing arrangements in the ordinary course of business.

ACM Research provides services to certain customers

located in the U.S., Europe and other regions outside of mainland China to support the evaluation of first tools and provide support for tools under warranty on behalf of ACM Shanghai.

For these transactions, ACM Shanghai makes cash payments to ACM

Research, Inc.

in accordance with applicable transfer pricing arrangements.

Subsequent to June 30, 2020, with the exception of sales and

services-related transfer-pricing payments in the ordinary course of business, no cash transfers, dividends or other payments or distributions have been made between ACM Research and ACM Shanghai.

The Company intends to retain any future earnings

to finance the operations and expenses of the business, and do not expect to distribute earnings or declare or pay any dividends in the foreseeable future.

Amounts held in South Korea exceed the Korea Deposit Insurance

Corporation (“KDIC”) insurance limits and are subject to risk of loss.

No losses have been experienced to date.

There is no additional restriction for the transfer of cash from

bank accounts in the U.S., South Korea, and Hong Kong.

For the years ended December 31, 2022 and 2021, with the exception

of sales and services-related transfer-pricing payments in the ordinary course of business, no transfers, dividends, or distributions have been made between ACM Research and its subsidiaries, including ACM Shanghai, or to holders of ACM Research

Class A common stock.

Time Deposits

Time deposits are deposited with banks in mainland China with fixed terms and interest rates which cannot be withdrawn before maturity.

They are also subject to

the risk control regulatory standards described above upon maturity.

Time deposits consisted of the following:

Deposit in China Merchant Bank which matures on January 29, 2023 with an annual interest rate of 2.25 %

Deposit in China Everbright Bank which matures on January 29, 2023 with an annual interest rate of 2.25 %

Deposit in China Everbright Bank which matures on May 22, 2023 with an annual interest rate of 5.07 %

Deposit in China Industrial Bank which matures on January 30, 2023 with an annual interest rate of 2.15 %

Deposit in China Merchant Bank which matures on January 29, 2024 with an annual interest rate of 2.85 %

Deposit in Bank of Ningbo which matures on February 17, 2024 with an annual interest rate of 2.85 %

Deposit in Shanghai Pudong Development Bank which matures on October 20, 2025 with an annual interest rate of 3.10 %

Deposit in Shanghai Pudong Development Bank which matures on November 14, 2025 with an annual interest rate of 3.10 %

Deposit in Shanghai Pudong Development Bank which matures on December 8, 2025 with an annual interest rate of 3.10 %

Deposit in Shanghai Pudong Development Bank which matures on December 15, 2025 with an annual interest rate of 3.10 %

Deposit in Shanghai Pudong Development Bank which matures on December 30, 2025 with an annual interest rate of 3.10 %

For the years ended December 31, 2022 and 2021, respectively,

interest income related to time deposits was $ 3,472 and $ 0 , respectively.

Accounts Receivable

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At December 31, 2022, and 2021, the Company, based on a review of its

outstanding balances and its customers, determined the allowance for doubtful accounts in the amount of $ 0 and $ 0 respectively.

outstanding balances and its customers, determined the allowance for doubtful accounts was both $ 0 .

Land Use Right, Net

The land use right represents the cost to purchase a right to use state-owned land in the PRC with lease terms of 50 years expiring in 2070, for which an upfront lump-sum payment was made during the year ended December 31, 2020.

The Company classifies the land use right as non-current assets on the

consolidated balance sheets (note 7).

The Company classifies the land use right as non-current assets

on the consolidated balance sheets (note 7).

The land use right is carried at cost less accumulated amortization and impairment losses, if any.

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Betterments or renewals are capitalized when incurred.

Plant, property and equipment is reviewed each

Property, plant, and equipment is reviewed each

year to determine whether any events or circumstances indicate that the carrying amount of the assets may not be recoverable.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Estimated useful lives of assets in the United States are as follows:

impairment charge that was recognized for the years ended December 31, 2022 and 2021.

Estimated useful lives of assets are as follows:

Buildings and Plants

Computer and office equipment

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shorter of lease term or estimated useful life

ACM’s subsidiaries follow regulations for depreciation of fixed assets implemented under the PRC’s Enterprise Income Tax Law, which state that the minimum useful lives

used for calculating depreciation for fixed assets are as follows:

Electronic equipment

Manufacturing equipment

for small to medium-sized equipment, 5 years;

large equipment,

for small to medium-sized equipment, 5 to 10 years;

for large equipment,

estimated by purchasing department at time of acceptance

Furniture and fixtures

Transportation equipment

Electronic equipment

Leasehold improvements

remaining lease term for improvements on leased fixed assets or,

for large improvements, estimated useful life;

not less than 3 years for non-fixed asset repairs

Expenditures for maintenance and repairs that neither materially add to the value of the property nor appreciably prolong the life of the property are charged to expense

Upon retirement or sale of an asset, the cost of the asset and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to income.

Expenditures for maintenance and

repairs that neither materially add to the value of the property nor appreciably prolong the life of the property are charged to expense as incurred.

Upon retirement or sale of an asset, the cost of the asset and the related accumulated

depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to income.

Intangible Assets, Net

Intangible assets consist of software used for finance, manufacturing, and research and development purposes.

Assets are valued at cost at the time of acquisition and

are amortized over their beneficial periods.

If a contract specifies a beneficial period, then the intangible asset is amortized over a term not exceeding the beneficial period.

If the contract does not specify a beneficial period, then the

intangible asset is amortized over a term not exceeding the valid period specified by local law.

If neither the contract nor local law specifies a beneficial period, then the intangible asset is amortized over a period of up to 10 years.

Currently, the software that the Company uses is amortized for between two and ten-years , based on its functionality and useful life in accordance with the policy described above.

Intangible assets consist of capitalized software license and other related fees for items used for finance, manufacturing, and research and development purposes.

are valued at cost at the time of acquisition and are amortized over their beneficial periods.

If a contract specifies a license period, then the intangible asset is amortized over a term not exceeding the license period.

For those intangible assets

with contracts that do not specify a license term or for which local law does not specify a license term, management estimates the amortization period based on the period over which the asset is expected to contribute directly or indirectly to the

cash flows in accordance with ASC 350, Intangibles—Goodwill and Other .

The Company estimated these intangible assets have a useful life of 10 years or less, and accordingly, they are amortized up to 10

As of December 31, 2022 and December 31, 2021, there was no impairment charge that was recognized.

The Company uses the equity method of accounting for its investment in, and earning or loss of, companies that it does not control but over which it does exert

significant influence.

The Company considers whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that recorded value may not be recoverable.

Company reviews its investments for other-than-temporary impairment whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable.

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See note 14 for discussion of equity method investment.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company elects to measure its investments in other equity securities that the Company does not have control nor significant influence on the investee at cost minus

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future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition.

If the sum of the expected future undiscounted cash flow is less than the carrying value of the assets, the Company recognizes an

If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an

impairment loss based on the excess of the carrying value over the fair value.

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Recognize revenue when (or as) the entity satisfies a performance obligation.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

A contract contains a promise (or promises) to transfer goods or services to a customer.

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services promised to the customer represent distinct performance obligations.

The Company applied the guidance of ASC Topic 606-10-25-16 through 18 in order to verify which promises should be assessed for classification as distinct performance

The Company’s contracts with customers include more than one performance obligation.

For example, the delivery of a piece of equipment generally includes the promise to install the equipment in the customer’s facility.

The Company applied the guidance of ASC Topic 606 in order to verify which promises should be assessed for classification as distinct performance obligations.

The Company’s

performance obligations in connection with a sale of equipment generally include production, delivery and installation, together with the provision of a warranty.

performance obligations in connection with a sale of equipment generally include production, delivery, installation, training and software updates.

Given that the Company’s products are customized based on specifications of its customers, the Company determines that the promise to the customer is to provide a

customized product solution.

The product and customization services are inputs into the combined item for which the customer has contracted and, as a result, the product and installation services are not separately identifiable and are combined

into a single performance obligation.

Delivery of goods to a customer is not a separate performance obligation since control of the goods normally does not transfer to the customer before shipment.

The Company’s warranties provide assurance that

its products will function as expected and in accordance with certain specifications.

The Company’s warranties are intended to safeguard the customer against existing defects and do not provide any incremental service to the customer.

separate performance obligations and accounted for under ASC 460, Guarantees .

Production, delivery, installation, training and software updates are a single unit of accounting.

The transaction price is allocated to all the separate performance obligations in an arrangement.

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The transaction price excludes amounts collected on behalf of third parties, such as sales taxes.

This is done on a relative selling price basis using standalone selling prices (“SSP”).

This is done on a relative selling price basis using stand-alone selling prices (“SSP”).

The SSP represents the price at which the

Company would sell that good or service on a standalone basis at the inception of the contract.

Company would sell that good or service on a stand-alone basis at the inception of the contract.

Given the requirement for establishing SSP for all performance obligations, if the SSP is directly observable through standalone sales, then such sales

should be considered in the establishment of the SSP for the performance obligation.

The Company does not have observable SSPs for most performance obligations as the obligations are not regularly sold on a standalone basis.

Production, delivery and

installation of a product, together with provision of a warranty, are a single unit of accounting.

For some sale contracts, in addition to the sale of semiconductor capital equipment, the Company also provides certain spare parts to the customers.

defers revenue associated with spare parts sold together with its tool products, including production, delivery, installation, training, and software updates which are accounted for as one performance obligation, based on stand-alone observable selling prices for which it receives payments in advance and recognizes the revenue upon the subsequent shipment

of the spare parts, which is expected within one year.

The deferred revenue for spare parts was $ 4,174 and $ 3,180 at December 31, 2022 and 2021, respectively.

Revenue is recognized when the Company satisfies each performance obligation by transferring control of the promised goods or services to the customer.

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meet the customer’s predetermined specifications and is accepted by the customer.

If terms of the sale provide for a lapsing customer acceptance period, the Company recognizes revenue as of the earlier of the expiration of the lapsing acceptance

period and customer acceptance.

In the following circumstances, however, the Company recognizes revenue upon shipment or delivery, when legal title to the tool is passed to a customer as follows:

When the customer has previously accepted the same tool with the same specifications and the Company can objectively demonstrate that the tool meets all of the required acceptance

When the sales contract or purchase order contains no acceptance agreement or lapsing acceptance provision and the Company can objectively demonstrate that the tool meets all of

the required acceptance criteria;

When the customer withholds acceptance due to issues unrelated to product performance, in which case revenue is recognized when the system is performing as intended and meets

predetermined specifications;

When the sales contract or purchase order contains no acceptance agreement and the Company can objectively demonstrate that the tool meets all of the required acceptance criteria;

When the Company’s sales arrangements do not include a general right of return.

The Company offers post-warranty period services, which consist principally of the installation and replacement of parts and small-scale modifications to the equipment.

The related revenue and costs of revenue are recognized when parts have been delivered and installed and the customers have obtained control of the parts.

The Company does not expect revenue from extended maintenance service contracts to represent a

material portion of its revenue in the future.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company offers maintenance services, which consist principally of the installation and replacement of parts and small-scale modifications to the equipment.

related revenue and costs of revenue are recognized when parts have been delivered and installed and the customers have obtained control of the parts.

The Company incurs costs related to the acquisition of its contracts with customers in the form of sales commissions.

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marketing expenses.

The Company, therefore, does not have contract assets.

The Company does not incur any costs to fulfill the contracts with customers that are not already reported in compliance with another applicable standard (for example,

inventory or plant, property and equipment).

The Company receives payments from customers prior to the transfer of control either upon contract sign-off and/or the delivery of evaluation tools, which are recorded

as advances from customers.

Cost of Revenue

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All other borrowing costs

are recognized in interest expenses in the consolidated statements of operations and comprehensive income in the period in which they are incurred.

For each of its products, the Company generally provides a standard assurance type warranty ranging from 12 to 36 months and covering replacement of the product during the warranty

are recognized in interest expense in the consolidated statements of operations and comprehensive income in the period in which they are incurred.

For each of its products, the Company generally provides a standard assurance type warranty ranging from 12 to 36 months and covering replacement of the product during the

warranty period.

The Company accounts for the estimated warranty costs as sales and marketing expenses at the time revenue is recognized.

Warranty obligations are affected by historical failure rates and associated replacement costs.

Utilizing historical

warranty cost records, the Company calculates a rate of warranty expenses to revenue to determine the estimated warranty charge.

historical warranty cost records, the Company calculates a rate of warranty expenses to revenue to determine the estimated warranty charge.

The Company updates these estimated charges on a regular basis.

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respectively.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Year Ended December 31,

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grant was made in 2014 and relates to the development of electro copper-plating technology.

The fourth grant was made in June 2018 and related to development of polytetrafluoroethylene.

The fifth grant was made in 2020, and relates to the development

of Tahoe single bench cleaning technologies.

The fourth grant was made in June 2018 and relates to the development of polytetrafluoroethylene.

The fifth grant was made in 2020 and relates to the

development of Tahoe single bench cleaning technologies.

As of December 31, 2022, the fourth and fifth grants had been fully utilized.

The sixth grant was made in 2020 and relates to the development of other cleaning technologies.

The seventh grant was made in

2021, and relates to the development of the R&D and production center in the Lin-gang Special Area of Shanghai.

These governmental authorities provide significant funding, although ACM Shanghai and ACM Shengwei is also required to invest certain

amounts in the projects.

The seventh grant

was made in 2021 and relates to the development of the R&D and production center in the Lin-gang Special Area of Shanghai.

These governmental authorities provide significant funding, although ACM Shanghai and ACM Shengwei is also required to

invest certain amounts in the projects.

The governmental grants contain certain operating conditions, and the Company is required to go through a government due diligence process once the project is complete.

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31, 2022, 2021, and 2020, related government subsidies recognized as other income in the consolidated statements of operations and comprehensive income were $ 306 , $ 200 , and $ 149 , respectively.

Unearned government subsidies received are deferred for recognition and recorded as other long-term liabilities (note 13) in the balance sheet until the criteria for

such recognition are satisfied.

Unearned government subsidies received are deferred and recorded as other long-term liabilities (note 13) in the balance sheet until the criteria for such recognition

are satisfied.

Stock-based Compensation

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expense corresponding to the service function of the employees and non-employee consultants and directors.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between

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Basic and Diluted Net Income per Common Share

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

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

Year Ended December 31,

Net income attributable to non-controlling interests and redeemable non-controlling interests

Net income attributable to non-controlling interests

Net income available to common stockholders, basic

Dilutive effect arising from share-based awards by ACM Shanghai

Dilutive effect arising from stock-based awards by ACM Shanghai

Net income available to common stockholders, diluted

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Net income per common share:

Basic and diluted net income per common share are presented using the two-class method, which allocates undistributed earnings to common stock and any participating

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 2 for details.

Basic and diluted net income per common share is presented using the two-class method, which allocates undistributed earnings to common stock and any participating

securities according to dividend rights and participation rights on a proportionate basis.

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ACM did not have any participating securities outstanding during the three-year period ending December 31, 2022.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

ACM has been authorized to issue Class A and Class B common stock since redomesticating in Delaware in November 2016.

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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 and diluted net income per common share are presented using the two-class method, which

allocates undistributed earnings to common stock and any participating securities according to dividend rights and participation rights on a proportionate basis.

Under the two-class method, basic net income (per common share is computed by dividing

the sum of distributed and undistributed earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

ACM did not have any participating securities outstanding during the

three-year period ending December 31, 2021.

Diluted net income per common share reflects the potential dilution from securities, including stock

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were not included in the calculation of diluted net income per share in the periods presented where their inclusion would be anti-dilutive were 1,795,340 ,

78,000 and 606,000 the

years ended December 31, 2021, 2020 and 2019, respectively.

98,800 and 78,000 the years

ended December 31, 2022, 2021, and 2020, respectively.

Comprehensive Income Attributable to the Company

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establishes standards for the reporting and display of comprehensive income or loss, requiring its components to be reported in a financial statement with the same prominence as other financial statements.

The comprehensive income attributable to the

Company was $ 42,009 , $ 25,312 ,

The comprehensive income (loss) attributable

to the Company was ($ 10,392 ), $ 42,009 ,

and $ 25,312 for the years ended December 31, 2022, 2021 and 2020, respectively.

Statutory reserves

Statutory surplus reserve

The income of ACM’s PRC subsidiaries is distributable to their shareholders after transfers to reserves as required under relevant PRC laws and regulations and the

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losses, however, statutory surplus reserves must be maintained at a minimum of 25% of share capital after such usage.

ACM Shanghai estimated a statutory surplus reserve of $ 8,312 and $ 4,388 based on an accumulated profit as of December 31, 2021 and 2020,

respectively, which is included in the accumulated surplus in the consolidated balance sheets.

ACM Shanghai estimated a statutory surplus reserve of $ 16,881 and $ 8,312 based on an accumulated profit as of December 31,

2022 and 2021, respectively, which is included in the statutory surplus reserve in the consolidated balance sheets.

Fair Value of Financial Instruments

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are classified and disclosed in one of the following three categories:

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Valuations for assets and liabilities traded in active exchange markets.

Valuations are obtained from readily available pricing sources for market transactions

involving identical assets or liabilities.

Valuations are obtained from readily available pricing sources for

market transactions involving identical assets or liabilities.

Valuations for assets and liabilities traded in less active dealer or broker markets.

Valuations are obtained from third party pricing services for identical or

similar assets or liabilities.

Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and

similar techniques, and not based on market exchange, dealer or broker traded transactions.

Valuations are obtained from third party pricing

services for identical or similar assets or liabilities.

Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash

flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions.

Level 3 valuations incorporate certain unobservable assumptions and projections in determining the fair value assigned to such assets.

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Fair Value Measured or Disclosed on a Recurring Basis

Trading securities - The fair value of trading securities derives from the on quoted prices for identical securities in active markets at the balance sheet date, less a discount applied to reflect the remaining lock-up period.

The Company classifies the

valuation techniques that use these inputs as Level 1 and Level 2 fair value measurement as of December 31, 2021 and 2022, respectively (note 16).

Financial liability – The fair value of financial liability are classified

Trading securities - The fair value of trading securities derives from the quoted prices for identical securities in active markets at the balance sheet date, less a discount applied to reflect the remaining lock-up period.

The Company classifies the valuation

techniques that use these inputs as Level 1 and Level 2 fair value measurement as of December 31, 2022 and 2021, respectively.

Financial liability – The fair value of financial liability is classified

within Level 3 as the fair values are measured based on the inputs linked to the choice of settlement by the counter party that are unobservable in the market.

Other financial items for disclosure purpose —The fair value of other financial items of the Company, other than long-term borrowings for disclosure purpose, including cash and cash equivalents, accounts receivable, other receivables, short-term borrowings,

Other financial items for disclosure purpose —The fair value of other financial items of the Company, other than long-term borrowings for disclosure purposes, including cash and cash equivalents, accounts receivable, other receivables, short-term borrowings,

accounts payable, advances from customers, and other payables and accrued expenses, approximate their carrying value due to their short-term nature.

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approximates its fair value as the market interest rate did not significantly change from the borrowing date to December 31, 2022.

Quoted Prices

Liabilities (Level 1)

Inputs (Level 2)

Inputs (Level 3)

As of December 31, 2022:

Cash equivalents

Trading securities

Short-term borrowings

Long-term borrowings

As of December 31, 2021:

Cash equivalents

Trading securities

Short-term borrowings

Long-term borrowings

Operating and Financial Risks

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, restricted cash and accounts receivable.

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, time deposits, and accounts receivable.

Company deposits and invests its cash with financial institutions that management believes are creditworthy.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company is potentially subject to concentrations of credit risks in its accounts receivable.

In the year ended December 31, 2021 and 2020, a total of two and three customers, respectively,

individually accounted for greater than ten percent of the Company’s revenue:

The Company is potentially subject to

concentrations of credit risks in its accounts receivable.

For the years ended December 31, 2022 and December 31, 2021, three customers

accounted for 43.8 % and two

customers accounted for 48.9 % of revenue, respectively.

of December 31, 2022 and December 31, 2021, two customers accounted for 42.6 % and 53.8 %, respectively, of the Company’s accounts

The Company believes that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience.

Interest Rate Risk

As of December 31, 2021 and 2020, the balance of the Company’s short term bank borrowings (note 9), matured at various dates within the following year and did not expose

the Company to interest rate risk.

As of December 31, 2021, the balance of the Company’s long-term borrowings (note 12) carried a fixed interest rate and the Company may have been exposed to fair value interest rate risk.

As of December 31, 2022 and 2021, the balance of the Company’s short term bank borrowings (note 9) were scheduled to mature at various dates within the following year

and thus exposed the Company to modest interest rate risk.

As of December 31, 2022, the balance of the Company’s long-term borrowings (note 12) carry a fixed interest rate, and the Company may be exposed to the fair value interest rate risk.

Liquidity Risk

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dollars for reporting purposes.

Because the Company has not engaged in any hedging activities, it cannot predict the impact of future exchange rate fluctuations on the results of its operations and it may experience economic losses as a result

of foreign currency exchange rate fluctuations.

Since the Company has not engaged in any hedging activities, it cannot predict the impact of future exchange rate fluctuations on the results of its operations, and it may experience economic losses as a result of

foreign currency exchange rate fluctuations.

Transactions of ACM’s subsidiaries involving foreign currencies are recorded in functional currency according to the rate of exchange prevailing on the date when the

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Total foreign currency translation adjustment was ($ 59,102 ), $ 4,695 , and $ 10,493 for the years ended December 31, 2022, 2021 and 2020, respectively.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

In accordance with FASB ASC Topic 830, Foreign Currency Matters , the Company

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Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740):

Simplifying the

Accounting for Income Taxes.

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

It also improves consistent application of and simplifies GAAP for other areas of Topic 740 by

clarifying and amending existing guidance.

The Company adopted ASU 2019-12 on January 1, 2021.

The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No.

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform.

2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform.

The Company adopted ASU 2020-04 on January 1, 2021.

The adoption of ASU 2020-04 did

not have a material impact on the Company’s consolidated financial statements.

The adoption of ASU 2020-04

did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 replaced the pre-existing incurred loss impairment methodology with a methodology that reflects

expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans

and other financial instruments.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

In October 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses

(Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842) , which defers the effective date for public filers that are considered small reporting companies (“SRC”) as defined by the U.S.

Securities and Exchange Commission

(“SEC”) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Since the Company was eligible to be an SRC based on its SRC determination

as of November 15, 2019 (which is 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.

Fair Value Measurement of Equity

Securities Subject to Contractual Sale Restrictions.

In June 2022, the FASB issued an

accounting standard update which clarifies how the fair value of equity securities subject to contractual sale restrictions is determined (Topic 820).

The amendment clarifies that a contractual sale restriction should not be considered in

measuring fair value.

It also requires certain qualitative and quantitative disclosures related to equity securities subject to contractual sale restrictions.

This authoritative guidance will be effective for the year beginning January 1, 2024

with early adoption permitted.

The Company is currently evaluating the effect of this new guidance on its consolidated financial statements .

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.

In advance of the issuance of ASU 2019-10, the Company adopted

ASU 2017-12, Derivatives and Hedging (Topic 815) and ASU 2016-02, Leases (Topic 842) since January 1, 2019.

ASU 2019-10 defers the effective date of ASU 2016-13 for public filers that are considered small reporting companies (“SRC”) as defined

by the 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 amendments in ASU 2016-13 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 not have a significant impact on its consolidated financial statements.

NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company assesses revenues based upon the nature or type of goods or services it provides and the geographic location of the related business.

The Company assesses revenues based upon the nature or type of goods or services it provides and the geographic location of the customer facility.

The following tables

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Other Regions

Below are the accounts receivables and contract

liabilities balances as of:

Accounts receivable

Advances from customers

Deferred revenue

During the year ended

December 31, 2022, advances from customers increased by $ 100.9 million, due to an increase of payments made by customers for first tools under evaluation, and an increase in customer pre-payments for tools prior to delivery.

NOTE 4 – ACCOUNTS RECEIVABLE

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Allowance for doubtful accounts

The $ 77.4 million increase in accounts receivable for the twelve months ended 2022 corresponds to a $ 129.1 million increase in revenue for the same period.

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

No allowance for doubtful accounts was considered necessary at December 31, 2021 and 2020.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Based on the age of the balance, a customer’s payment history and credit worthiness, current economic trends and reasonable and supportable forecasts, the Company determined there were no collectability issues at December 31, 2022 and

2021, and no allowance for doubtful accounts was

NOTE 5 – INVENTORIES

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Total inventory

At December 31, 2021 and 2020, the Company held an inventory reserve of $ 1,215

and $ 1,140 respectively.

At December 31, 2021 and 2020, respectively,

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, totaling $ 91,724 and $ 32,377 respectively.

At December 31, 2021 and 2020,

the value of finished goods inventory for which customers are contractually obligated to take ownership upon acceptance totaled $ 71,889

and $ 20,834 , respectively.

Inventories are stated at the lower of cost or net realizable value on a moving weighted average basis.

At December 31, 2022 and December 31, 2021, the value of finished goods inventory, which is comprised of first-tools at customer physical locations, for which customers were contractually obligated to take ownership upon acceptance, totaled $ 123,169 and $ 71,889 , respectively.

The $ 119,869

increase in raw materials and work-in-process inventory at December 31, 2022 compared to December 31, 2021 was due to additional purchase of supplies to support a higher level of expected total shipments for the next several quarters, and to reduce

the risk of supply chain delays to meet anticipated customer demand for the Company’s products.

The $ 55,187 increase in finished goods

inventory at December 31, 2022 compared to December 31, 2021 primarily reflects a higher value of first-tools under evaluation by existing or prospective customers, due to shipments made, net of customer acceptances during the period.

The Company’s products each require a certain degree of customization, and the substantial majority of the

work-in-process inventory and finished goods inventory is built to meet a specific customer order for repeat shipment of first tool delivery.

At the end of each period, the Company assesses the status of each item in work-in-process and finished

goods and inventory.

The Company recognizes a loss or impairment if in management’s judgement the inventory cannot be sold or used for production, if it has been damaged or should be considered as obsolete, or if the net realizable value is lower

than the cost.

At the end of each period, the Company also assesses the status of its raw materials.

recognizes a loss or impairment for any raw materials aged more than three years for which the Company determines it is not likely to be

used in future production.

The three-year aging is based on the Company’s assessment of technology change, its requirement to maintain

stock for warranty coverage, and other factors.

During the years ended December 31, 2022 and December 31, 2021, inventory write-downs of $ 2,248 and $ 75 were recognized in cost of

revenue, respectively.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

At December 31, 2022 and 2021, property, plant and equipment consisted of the following:

Buildings and plants

Manufacturing equipment

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Leasehold improvement

Total accumulated depreciation

Total accumulated depreciation and amortization

Construction in progress

Total property, plant and equipment, net

Depreciation expense was $ 2,099 , $ 826 , and $ 713 the years ended December 31,

2021, 2020 and 2019, respectively.

During the years ended December 31, 2021 and 2020, the Company retired certain fully depreciated manufacturing equipment with cost of $ 0 and $ 446 , respectively.

Depreciation expense was $ 4,839 , $ 2,099 , and $ 826 for the years ended December 31, 2022, 2021, and 2020,

respectively.

Buildings and plants represent Lingang housing property that was transferred to ACM Shengwei in January 2022 at a value of $ 41,497 , which includes the purchase price and accumulated interest,

and with estimated useful lives of 30 -years (Note 8) .

Buildings and plants are pledged as security for loans from China Merchants Bank (Note 12) .

Construction in progress primarily reflects

costs incurred related to the construction of several facilities in Lingang by ACM Shengwei, and are scheduled to begin production in 2023 and beyond.

NOTE 7 – LAND USE RIGHT, NET

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Land use right, net

In 2020 ACM Shanghai, through its wholly owned subsidiary Shengwei Research (Shanghai), Inc., entered into an agreement for a 50-year land use right in the Lingang region of Shanghai.

In July 2020, Shengwei Research (Shanghai), Inc.

began a multi-year construction project for a new 1,000,000 square foot development and production center that will incorporate new manufacturing systems and automation technologies, and will provide

floor space to support significantly increase production capacity and related research and development activities.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The amortization for the year ended December 31, 2021 and 2020 was $ 199

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 years ended December 31, 2022 and 2021 was $ 189

and $ 199 , respectively.

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Year ending December 31,

2027 and thereafter

NOTE 8 – OTHER LONG-TERM ASSETS

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Security deposit for land use right

Prepayment for property - Zhangjiang New Building

Total other long-term assets

The prepayment for property - Lingang is for the housing in Lingang, Shanghai, which consists of (1) the contractual amount to acquire the property and (2) capitalized

interest charges on the long-term loan related to acquisition of the property, which amounted to $ 986 as of December 31, 2021.

2022, ACM Shengwei received ownership of the apartment units and corresponding land use rights.

The property is pledged for a long-term loan from China Merchants Bank (note 12).

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Prepayment for property – Zhangjiang New Building is for the planned new corporate

headquarters of ACM Shanghai.

NOTE 9 – SHORT-TERM BORROWINGS

At December 31, 2022 and December 31, 2021, short-term and long-term borrowings consisted of the following:

Line of credit up to RMB 80,000 from China Everbright Bank,

1)due on April 1, 2021 with an annual interest rate of 4.70 %.

*1 and fully repaid on March 23, 2021 .

2)due on June 27, 2021 with an annual interest rate of 4.25 %.

*1 and fully repaid on June 28, 2021 .

3)due on April 29, 2021 with an annual interest rate of 2.80 %.

*1 and fully repaid on March 23, 2021 .

4)due on June 27, 2021 with an annual interest rate of 2.70 %.

*1 and fully repaid on June 25, 2021 .

Line of credit up to RMB 20,000 from Bank of Communications,

1)due on April 12, 2021 with an annual interest rate of 4.65 % and fully repaid on April 12, 2021 .

2)due on May 24, 2021 with an annual interest rate of 3.65 % and fully repaid on May 24, 2021 .

Line of credit up to RMB 100,000 from Bank of Shanghai Pudong Branch,

1)due on May 27, 2021 with an annual interest rate of 4.68 %.

*2 and fully repaid on May 27, 2021 .

2)due on June 27, 2021 with an annual interest rate of 4.68 %.

*2 and fully repaid on March 29, 2021 .

3)due on May 28, 2021 with an annual interest rate of 3.48 %.

*2 and fully repaid on May 28, 2021 .

4)due on June 7, 2021 with an annual interest rate of 3.50 %.

*2 and fully repaid on June 7, 2021 .

5)due on June 16, 2021 with an annual interest rate of 3.50 %.

*2 and fully repaid on June 16, 2021 .

Line of credit up to RMB 80,000 from China Merchants Bank,

1)due on August 10,2021 with annual interest rate of 3.85 % and fully repaid on August 10, 2021 .

2)due on August 25,2021 with annual interest rate of 3.85 % and fully repaid on August 25, 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) due on June 7, 2022 with an annual interest rate of 2.7 % and fully repaid on June 7, 2022 .(1)

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 %.

1) due on October 21, 2022 with annual interest rate of 1.95 % and fully repaid on September 27, 2022 .

2) due on August 17, 2023 with an annual interest rate of 3.40 % .

3) due on September 1, 2023 with an annual interest rate of 3.60 % .

4) due on December 16, 2023 with an annual interest rate of 3.00 %.

Line of credit up to RMB 100,000 from Bank of Communications,

1)due on October 25, 2022

with an annual interest rate of 3.85 %.

*1 guaranteed

by ACM’s Chief Executive Officer

*2 guaranteed

by ACM’s Chief Executive Officer and Cleanchip Technologies Limited

*3 guaranteed by Cleanchip Technologies Limited

For the years ended December 31, 2021, 2020 and 2019, interest expense related to short-term borrowings amounted to $ 700 , $ 897 , and $ 745 , respectively.

NOTE 10 – OTHER PAYABLE AND ACCRUED EXPENSES

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

1) due on October 25, 2022 with an annual interest rate of 3.85 % and fully repaid on July 1, 2022 .

2) due on August 11, 2023 with an annual interest rate of 3.60 % .

3) due on September 5, 2023 with an annual interest rate of 3.50 % .

Line of credit up to RMB 40,000 from Bank of China,

1) due on August 26, 2023 with an annual interest rate of 3.15 %.

Line of credit up to RMB 100,000 from China Merchants Bank,

1) due on July 21, 2023 with an annual interest rate of 3.50 % .

2) due on July 27, 2023 with an annual interest rate of 3.50 %.

3) due on August 1, 2023 with an annual interest rate of 3.50 %.

4) due on August 3, 2023 with an annual interest rate of 3.50 % .

5) due on August 7, 2023 with an annual interest rate of 3.50 % .

6) due on August 14, 2023 with an annual interest rate of 3.50 % .

7) due on August 15, 2023 with an annual interest rate of 3.50 % .

8) due on August 21, 2023 with an annual interest rate of 3.50 % .

9) due on August 28, 2023 with an annual interest rate of 3.50 % .

10) due on September 13, 2023 with an annual interest rate of 3.50 % .

11) due on September 20, 2023 with an annual interest rate of 3.50 % .

12) due on September 29, 2023 with an annual interest rate of 3.50 % .

(1) Guaranteed by CleanChip

For the years ended December 31, 2022, 2021 and 2020,

interest expense related to short-term borrowings amounted to $ 810 , $ 700 , and $ 897 , respectively.

NOTE 10 – OTHER PAYABLES AND ACCRUED EXPENSES

At December 31, 2022 and 2021, other payables and accrued expenses consisted of the following:

Accrued commissions

3 unchanged sentences

Accrued machine testing fees

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Accrued machine sales fees

NOTE 11 – LEASES

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Weighted average discount rate

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 12 – LONG-TERM BORROWINGS

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with an annual interest rate of 4.65 %.

The loan is pledged by the property of Shengwei Research (Shanghai) Inc.

and guaranteed by ACM

Research (Shanghai) Inc.

As of December 31, 2021, the right certificate of the pledged property has not been obtained and the procedures of the formal pledge registration in the bank had not been completed.

The loan is pledged by the property of ACM Shengwei and guaranteed by ACM Research (Shanghai), Inc.

Two loans from Bank of China are for the purpose of funding ACM Shanghai project expenditures.

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installments, with the last installments due in June 2024 and September 2024 .

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

Scheduled principal payments for the outstanding long-term loans as of December 31, 2022 are as follows:

Year ending December 31,

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other long-term assets.

For the year ended December 31, 2020, $ 72 of interest related to long-term borrowings was incurred, and

capitalized, as other long-term assets.

For the year ended December 31, 2021, $ 1,040 of interest related to long-term borrowings was incurred, of which $ 65 was charged to interest expense and $ 975

was capitalized as other long-term assets.

NOTE 13 – OTHER LONG-TERM LIABILITIES

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Subsidies to Electro Copper Plating project, commenced in 2014

Subsidies to Polytetrafluoroethylene, commenced in 2018

Subsidies to Tahoe-Single Bench Clean, commenced in 2020

Subsidies to other cleaning tools, commenced in 2020

Subsidies to SW Lingang R&D development in 2021

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 14 – LONG-TERM INVESTMENT

Subsidies to CO2 Technology

NOTE 14 – LONG-TERM INVESTMENTS

On September 6, 2017, ACM and Ninebell Co., Ltd.

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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.

On August 17, 2022, ACM Singapore and Wooil Flucon Co., Ltd.

(“Wooil”), a company based in South Korea and a potential component supplier to the Company, entered into an

agreement pursuant to which Wooil, on September 1, 2022, issued to ACM Singapore shares representing 20 % of Wooil’s post-closing equity

for a purchase price of $ 1,000 .

The investment in Wooil is accounted for under the equity method.

The Company treats each equity investment in the consolidated financial statements under the equity method and they are classified as long-term investments.

equity method, an 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.

The Company concluded that the investments were not impaired and did not record any

impairment charges related to the investments for any prior periods.

Equity investee:

Other investee:

years ended December 31, 2022, 2021 and 2020, the Company’s share of equity investees’ net income was $ 4,666 , $ 4,637 and $ 655 , respectively, which was

included in income on equity method investment in the accompanying consolidated statements of operations and comprehensive income.

For the year ended December 31, 2021, 2020 and 2019, dividends received from its equity investee was $ 0 , $ 555 and $ 0 , respectively, which was offset in part by a reduction in the carrying value of the Company’s share of equity investees’ net income.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

included in equity income in net income of affiliates in the accompanying consolidated statements of operations and comprehensive income.

For the years ended December 31, 2022, 2021 and 2020, dividends received from its equity investee was $ 0 , $ 0 and $ 555 , respectively, which was offset in part by a reduction in the carrying value of the Company’s share of equity investees’ net income.

NOTE 15 – FINANCIAL LIABILITY CARRIED AT FAIR VALUE

In December 2016 Shengxin (Shanghai) Management Consulting Limited Partnership (“SMC”) paid 20,123,500 RMB ($ 2,981 as of the date of funding) (the “SMC

Investment”) to ACM Shanghai for investment pursuant to terms to be subsequently negotiated.

In December 2016, Shengxin (Shanghai) Management Consulting Limited Partnership (“SMC”) paid 20,123,500 RMB ($ 2,981 as of the date of funding) (the “SMC Investment”) to ACM

Shanghai for investment pursuant to terms to be subsequently negotiated.

SMC is a PRC limited partnership partially owned by employees of ACM Shanghai.

In March 2017 (a) ACM issued to SMC a warrant (the “Warrant”) exercisable to purchase 397,502 shares of Class A common stock at a price of $ 7.50 per share, for a total exercise price of $ 2,981 , and (b) ACM Shanghai agreed to repay the SMC Investment within 60 days after the exercise of the Warrant.

In March 2018 SMC exercised the Warrant in full, as a result of which (1) ACM issued 397,502 shares of Class A common stock to SMC, (2) SMC borrowed the funds to pay the Warrant exercise price pursuant to a senior secured promissory note (the “SMC Note”) in the principal amount of $ 2,981 issued to ACM Shanghai, which in turn issued to ACM a promissory note (the “Intercompany Note”) in the principal amount of $ 2,981 in payment of the Warrant exercise price.

Each of the SMC Note and the Intercompany Note bore interest at a rate of 3.01 % per annum and matured on August 17, 2023 .

The SMC Note was secured by a pledge of the shares issued upon exercise of the Warrant.

In March 2017, (a) ACM issued to SMC a warrant (the “Warrant”) exercisable to purchase 1,192,506 shares of Class A common stock at a price of $ 2.50 per share, for a

total exercise price of $ 2,981 , and (b) ACM Shanghai agreed to repay the SMC Investment within 60 days after the exercise of the Warrant.

In March 2018, SMC exercised the Warrant in full, as a result of which (1) ACM issued 1,192,506 shares of Class A common stock to SMC, (2) SMC borrowed the funds to pay the Warrant exercise price pursuant to a senior secured promissory note (the “SMC Note”) in the

principal amount of $ 2,981 issued to ACM Shanghai, which in turn issued to ACM a promissory note (the “Intercompany Note”) in the principal

amount of $ 2,981 in payment of the Warrant exercise price.

Each of the SMC Note and the Intercompany Note bears an interest at a rate of 3.01 % per annum and matured on August 17, 2023 .

The SMC Note is secured by a pledge of the shares issued upon exercise of the Warrant.

In connection with its follow-on public offering of Class A common stock in August 2019, ACM agreed to purchase a total of 464,463 of the Warrant shares from SMC at a per share price of $ 4.40 ,

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On April 30, 2020, the SMC Consideration was $ 9,715 which was for cancellation of the

Warrant shares and recorded in the equity.

Warrant shares and recorded in equity.

The financial liability was remeasured to fair value as of the end of each of the reporting periods.

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The Company recorded the difference of $ 19,859 between the SMC 2020 Warrant of $ 21,679

and the SMC Note of $ 1,820 into the equity.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

and the SMC Note of $ 1,820 into equity.

The SMC 2020 Warrant was initially measured at fair value at the issuance date and classified as equity permanently in accordance with ASC 815.

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history or expectation of paying a dividend on its common stock.

Prior period results have been adjusted to reflect

the Stock Split effected in March 2022.

See Note 2 for details.

On June 9, 2021, subsequent to its obtaining the necessary PRC approvals, SMC exercised the 2020 Warrant by paying the $ 1,820 exercise price to ACM and surrendering the 2020 Warrant to ACM.

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SMIC is a Shanghai-based foundry that has been a customer of the Company’s single-wafer wet-cleaning tools.

partners of the Partnership contributed to the fund a total of RMB 2.224 billion ($ 315.0 million), of which ACM Shanghai contributed RMB 100 million

($ 14.2 million), or 4.3 % of

the total contribution, on June 18, 2020.

partners of the Partnership contributed to the fund a total of RMB 2.224 billion ($ 315.0 million), 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

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Following the expiration of the lock-up period in July 2021, the trading securities are stated at fair market value, which is classified as Level 1 of the hierarchy established under

ASC 820 with valuations based on quoted prices for identical securities in active markets at December 31, 2021.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

ASC 820 with valuations based on quoted prices for identical securities in active markets at December 31, 2022 and 2021.

Pursuant to an Agreement entered into on September 19, 2022 (the “Agreement”), ACM Shanghai became a limited partner of the Nuode Asset Fund Pujiang No.

Asset Management Plan (“Nuode Asset Fund”) a Chinese limited partnership formed by Nuode Asset Management Co., Ltd, a financial services firm based in Shanghai, China.

Nuode Asset Fund was formed to establish a special fund with the purpose to

participate in certain technology related investments in China.

Subsequent to the future purchase, any investment will be held by Nuode Asset Fund and restricted for a minimum period of six months .

The limited partners of the Nuode Asset Fund contributed a total of RMB 160

million ($ 22,160 ) to the fund, of which ACM Shanghai contributed RMB 30 million ($ 4,196 ), or 18.75 % of the total contribution, on September 27, 2022.

In December 2022, the Nuode Asset Fund purchased shares in the secondary stock offering of a publicly traded PRC-stock listing.

The number of shares owned by Nuode Asset Fund was apportioned to all of the limited partners in proportion to their

respective capital contributions ( 18.75 % in the case of ACM Shanghai).

All of the shares acquired by Nuode Asset fund are subject, under

applicable Chinese laws, to lock-up restrictions that prevent sales of the shares for six months after the shares were acquired.

ACM Shanghai’s investment is accounted for as trading securities and is stated at fair market value.

At December 31,

2022, the fair market value is classified as Level 2 of the hierarchy established under ASC 820 with valuations based on quoted prices for identical securities in active markets, less a discount applied to reflect the remaining lock-up period.

The components of trading securities were as follows:

Trading securities listed in Shanghai Stock Exchange

For the year ended December 31, 2021 and 2020, unrealized gain on trading securities, net of exchange

difference amounted to $ 607 and $ 12,574 , respectively .

years ended December 31, 2022 and 2021, unrealized gain on trading securities, net of exchange difference amounted to $( 7,855 ) and $ 607 , respectively.

During the year ended December 31, 2022, the Company received $ 4,577 in proceeds from the sale of trading securities, including a realized gain of $ 1,116 .

NOTE 17 – RELATED PARTY BALANCES AND TRANSACTIONS

Prepaid expenses

Ninebell is an equity investee of ACM (Note 14) and is the Company’s principal supplier of robotic delivery system subassemblies used in our single-wafer cleaning equipment.

The Company purchases equipment through arms-length

transactions from Ninebell for production in the ordinary course of business.

The Company pays for a portion of the equipment in advance and is obligated for the remaining amounts upon receipt of the product.

All related party outstanding

balances are short-term in nature and are expected to be settled in cash.

Shengyi is an equity investee of ACM Shanghai (Note 14) and is one of the Company’s component suppliers in China.

purchases components from Shengyi for production in the ordinary course of business.

The Company pays for a portion of the raw materials in advance and is obligated for the remaining amounts upon receipt of the product.

The following tables represents related party transactions with the equity

investees as of December 31, 2022 and 2021 :

Advances to related party

Accounts payable

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Service fee charged by

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 18 – COMMON STOCK

At December 31, 2020, ACM was authorized to issue 50,000,000 shares of Class A common stock and 2,409,738 shares

of Class B common stock, each with a par value of $ 0.0001 .

On July 13, 2021, the Company filed a certificate of amendment to its

restated certificate of incorporation with the Secretary of State of the State of Delaware.

The amendment i) increased the authorized number of shares of Class A common stock from 50,000,000 to 150,000,000 with 60,000,000 of the 100,000,000 additional

authorized shares of Class A common stock reserved for issuance only as dividends on outstanding shares of Class A common stock;

ii) increased the authorized number of shares of Class B common stock from 2,409,738 to 5,307,816 , with all of the authorized but unissued

shares of Class B common stock being available for issuance only as dividends on outstanding shares of Class B common stock;

and iii) removed a now obsolete provision related to the automatic conversion of Class B common stock into Class A common

The amendment to ACM’s certificate of incorporation that increased the number of authorized Class A common stock and Class B common stock was approved by ACM’s stockholders on June 2, 2021.

At December 31, 2021, ACM was authorized to issue 150,000,000 shares of Class A common stock and 5,307,816

At December 31, 2021 and 2022, ACM was 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 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 15) to purchase 397,502 shares of Class A common stock.

During the year ended December 31, 2020 ,

SMC transferred and cancelled its ownership of 242,681 shares of

Class A common stock to ACM in exchange for the SMC 2020 Warrant (note 15 ).

the year ended December 31, 2021, the Company issued 623,601 shares of Class A common stock upon options exercises by certain employees

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

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.

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.

the year ended December 31, 2022, ACM issued 980,354 shares of Class A common stock upon option exercises by employees and non-employees

and an additional 66,003 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock.

year ended December 31, 2021, the Company issued 1,870,803 shares of Class A common stock upon options exercises by certain employees

and non-employees and an additional 320,004 shares of Class A common stock upon conversion of an equal number of shares of Class B

common stock.

During the year ended December 31, 2020, ACM issued 832,504 shares of Class A common stock upon option exercises by

employees and non-employees and an additional 60,002 shares of Class A common stock upon conversion of an equal number of shares of

Class B common stock.

During the year ended December 31, 2019, ACM issued 195,297 shares of Class A common stock upon option exercises

by employees and non-employees and an additional 35,815 shares of Class A common stock upon conversion of an equal number of shares of

Class B common stock.

During the year ended December 31, 2021, ACM issued 728,043

shares of Class A common stock upon the warrant exercise SMC (Note 15).

During the year ended December 31, 2020, ACM issued 64,717

shares of Class A common stock upon cashless warrant exercises by non-employees.

During the year ended December 31, 2019, ACM issued 1,438

shares of Class A common stock upon cashless warrant exercises by non-employees.

In August 2019, ACM sold a total of 2,053,572 shares of

Class A common stock to the public at a price of $ 14.00 per share for aggregate gross proceeds of $ 28,750 .

Net proceeds to ACM excluded an underwriting discount and offering expenses totaling $ 2,287 .

ACM repurchased outstanding shares from certain directors, employees and SMC upon the exercise of the underwriters’ over-allotment option using a portion of ACM’s net proceeds from the public offering for the

purpose of share constructive retirement.

A total of 214,286 repurchased shares were accounted for share retirement during the year ended

December 31, 2019.

At December 31, 2022 and 2021 , the number of shares of Class A common stock issued and outstanding was 54,655,286

2 unchanged sentences

respectively.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOTE 19 – REDEEMABLE NON-CONTROLLING INTERESTS

The Company recorded

initial carrying amount of redeemable non-controlling interests at fair value on the date of issuance, and presented in temporary equity on the consolidated balance sheets initially.

As the non-controlling

interests would be redeemable at a fixed purchase price, it is classified as common-share non-controlling interests redeemable at other than fair value.

The Company applied the entire adjustment method (income classification) for subsequent

measurement in accordance with Financial Accounting Standards Board (the “FASB”) Accounting Standards Classification (“ASC”) ASC 480-10-S99.

During the second quarter

of 2020, the redemption feature of the private placement funding terminated and the aggregate proceeds of the funding therefore were reclassified from redeemable non-controlling interests to non-controlling interests.

At September 30, 2020, the

balance of redeemable non-controlling interest was nil .

The components of the

change in the redeemable non-controlling interests for the year ended December 31, 2020 are presented in the following table:

Balance at December 31, 2019

Net income attributable to redeemable non-controlling interests

Effect of foreign currency translation gain attributable to redeemable non-controlling interests

Reclassification of redeemable non-controlling interest

Balance at December 31, 2020

NOTE 19 – 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.

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 did not begin trading

until November 2021, 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.

Shanghai adopted a 2019 Stock Option Incentive Plan (the “Subsidiary Stock Option Plan”) that provides for, among other incentives, the granting to officers, directors, and employees of options to purchase shares of ACM Shanghai’s common stock.

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 did not begin

trading until November 2021, 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

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years ended December 31, 2022, 2021, and 2020.

The vesting condition may consist of 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.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

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 a 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 a 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:

7 unchanged sentences

Stock-based compensation expense by type:

Employee stock purchase plan

Non-employee stock purchase plan

Subsidiary option grants

Employee stock option plan

Non-employee stock option plan

Subsidiary stock option plan

The fair value of options granted to employees with a service

4 unchanged sentences

12.79 - 17.02

13.64 - 16.81

Expected term in years(2)

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Expected dividend is assumed to be 0 % as ACM has no history or expectation of paying a dividend on its common stock.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

During the year ended December 31, 2021, no option was granted to employee with market based condition.

the year ended December 31, 2020, the fair value of option granted to an employee with market based condition was estimated on the grant date using the Monte Carlo simulation model with the following assumptions:

Prior period results have been adjusted to reflect the Stock Split effected in March 2022.

See Note 2 for details.

During the years ended December 31, 2022 and 2021, no options were granted to employees with a market-based

the year ended December 31, 2020, the fair values of option granted to employees with a market-based condition was estimated on the grant date using the Monte Carlo simulation model with the following assumptions:

Fair value of common share(1)

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Expected dividend is assumed to be 0 %, as ACM has no history or expectation of paying a dividend on its common stock.

Prior period results have been adjusted to reflect the Stock Split effected in March 2022.

See Note 2 for details.

Employee Awards

The following table summarizes the Company’s employee share option activities during the years ended December 31, 2020, 2021 and 2022:

Option Shares (1)

Average Grant

Date Fair Value (1)

Exercise Price (1)

Weighted Average

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Vested and exercisable at December 31, 2022

As of December 31, 2021 and 2020, $ 9,544 and $ 8,733 , respectively, of total unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards for ACM

were expected to be recognized over a weighted-average period of 1.61 years and 1.89 years, respectively.

results have been adjusted to reflect the Stock Split effected in March 2022.

See Note 2 for details.

As of December 31, 2022, $ 16,009 of total unrecognized

employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards for ACM was expected to be recognized over a weighted-average period of 1.53 years.

Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Non-employee Awards

3 unchanged sentences

Date Fair Value (1)

Exercise Price (1)

Weighted Average

8 unchanged sentences

Vested and exercisable at December 31, 2022

Prior period results have been adjusted to reflect the Stock Split effected in March 2022.

See Note 2 for details.

As of December 31, 2022 and 2021, $ 55 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 0.09 years, respectively.

Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

both expected to be recognized over a weighted-average period of 0.06 years.

Total recognized compensation cost may be adjusted for

future changes in estimated forfeitures.

ACM Shanghai Option Grants

3 unchanged sentences

Date Fair Value

Exercise Price

Weighted Average

3 unchanged sentences

Outstanding at December 31, 2021

Forfeited/cancelled

Outstanding at December 31, 2022

Vested and exercisable at December 31, 2022

During the year ended December 31, 2021 and 2020, the Company recognized stock-based compensation expense of $ 349 and $ 332 , related to stock option grants of ACM Shanghai.

During the years ended December 31, 2022 and 2021, the Company recognized stock-based compensation expense of $ 338 and $ 349 , related to stock option grants of ACM Shanghai.

December 31, 2022 and 2021, $ 160 and $ 525

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 1.5 and 2.5 years.

Total recognized compensation cost may be

adjusted for future changes in estimated forfeitures.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Total recognized compensation

cost may be adjusted for future changes in estimated forfeitures.

NOTE 20 – INCOME TAXES

The following represent the U.S.

foreign components of income before income tax for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

(in thousands)

Income before income taxes

The following represent components of the income tax benefit (expense) for the years ended December 31, 2022, 2021 and 2020:

1 unchanged sentence

(in thousands)

current tax benefit (expense)

Total current tax expense

deferred tax benefit (expense)

Total deferred tax benefit

Total income tax benefit (expense)

Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2021 and 2020 are presented below:

Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 2022, 2021, and 2020 are presented

Year Ended December 31,

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Deferred revenue (offshore)

Unrealized gain on trading securities

Equity Investments

Equity Investments and unrealized gain on trading securities

Total deferred tax liabilities

Translation difference

Deferred tax assets, net

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Based on all available evidence, a partial valuation allowance has been established against some net deferred tax assets as of December 31, 2022 and 2021, based on estimates of recoverability.

In order to fully realize the U.S.

In order to fully realize the deferred tax

assets, the Company must generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

As of December 31, 2022 and 2021, the Company had valuation allowances, respectively, of $ 49 and $ 160 for U.S federal purposes, $ 277 and $ 237 for U.S.

state purposes and $ 522 and $ 323 for PRC income tax purposes.

state purposes and $ 1,456 and $ 522 for PRC income tax

As of December 31, 2022 and 2021, the Company had net operating loss carry-forwards of, respectively, $ 4,385 and $ 56,077 for U.S federal purposes, $ 545 and $ 545 for U.S.

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ACM conducted an analysis of its stock ownership under IRC Section 382 and $ 4,385 of the net operating loss carryforwards are subject to annual limitation as a result of the ownership change in 2017.

The net operating loss carryforwards are not expected to expire

before utilization.

The net operating loss carryforwards are not expected to expire before utilization.

The Company’s effective tax rate differs from statutory rates of 21 %

federal income tax purposes and 12.5 % to 25 % for PRC income tax purpose due to the effects of the valuation allowance and certain permanent differences as they pertain to book-tax differences in employee stock-based compensation and the value of client shares received for services.

Pursuant to the Corporate Income Tax Law of the PRC, all of the Company’s PRC subsidiaries are liable to PRC Corporate

Income Taxes at a rate of 25 %, except for ACM Shanghai.

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”) became effective on January 1, 2022.

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 repeal the capitalization requirement.

Pursuant to the Corporate Income Tax Law of the PRC, all of the Company’s

PRC subsidiaries are liable to PRC Corporate Income Taxes at a rate of 25 %, except for ACM Shanghai.

According to Guoshuihan 2009 No.

203, if an entity is certified as an “advanced

and new technology enterprise,” it is entitled to a preferential income tax rate of 12.5 %.

ACM Shanghai obtained the certificate of

“advanced and new technology enterprise” in each of 2012, 2016 and 2018 with an effective period of three years , and the provision for PRC

corporate income tax for ACM Shanghai is calculated by applying the income tax rate of 12.5 % for the years ended December 31, 2021,

2020 and 2019.

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, 2018, and 2021, with an effective period of three years .

In 2021, ACM Shanghai was certified as an eligible integrated circuit

production enterprise and is entitled to a preferential income tax rate of 12.5 % from January 1, 2020 to December 31, 2022.

provision for PRC corporate income tax for ACM Shanghai is calculated by applying the income tax rate of 12.5 % for the years ended

December 31, 2022, 2021 and 2020.

Income tax expense for the years ended December 31, 2022, 2021 and 2020 differed from the amounts computed by applying the statutory U.S.

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Total income tax expense (benefit)

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Tax positions are evaluated in a two-step process.

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Reductions for tax positions related to prior years

Reductions to unrecognized tax benefits related to lapsing statute of limitations

Ending balance

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The Company recognizes interest and penalties related to uncertain tax positions in income tax

As of December 31, 2021 and 2020, respectively, the Company had $ 44 and $ 44 of accrued penalties related to uncertain tax positions, all of which was recognized in the Company’s consolidated statements of operations and comprehensive income for the year then ended.

The amount of the unrecognized tax benefit that, if recognized, would impact the effective tax rate was $ 5,950 as of December 31, 2021.

As of December 31, 2022 and 2021, respectively, the Company had $ 508 and $ 44 of accrued penalties related to uncertain tax positions, all of which was recognized in the Company’s consolidated statements of operations and comprehensive income for the

year then ended.

The amount of the unrecognized tax benefit that, if recognized, would impact the effective tax rate was $ 8,360 as of

December 31, 2022.

There were no ongoing examinations by taxing authorities as of December 31, 2022 or 2021.

The Company intends to indefinitely reinvest the PRC earnings outside of the United States as of December 31, 2021 and 2020.

Thus, deferred taxes are not provided in the

United States for unremitted earnings in the PRC.

As of December 31,

2022, the Company has not made a provision for U.S.

or additional foreign withholding taxes on approximately $ 90 million of undistributed

earnings of its foreign subsidiaries that is indefinitely reinvested.

Generally, such amounts become subject to U.S.

taxation upon the remittance of dividends and under certain other circumstances.

It is not practicable to estimate the amount of

deferred tax liability related to investments in these foreign subsidiaries.

NOTE 21 – SEGMENT INFORMATION

2 unchanged sentences

ACM’s Chief Executive Officer, receives and reviews the results of the operations for all major type of equipment as a whole when making decisions about allocating resources and assessing performance of the Company.

In accordance with FASB ASC

280-10, the Company is not required to report segment information.

For geographical reporting, revenue by geographic location is determined by the

location of customers’ facilities to which products were shipped.

Long-lived assets consist primarily of property, plant and equipment, other long-term assets, and right-of-use assets and are attributed to the geographic location in which they are

Long-lived assets

by geographic region as of the years ended were as follows:

Long-lived assets by geography:

Mainland China

United States

NOTE 22 – COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

with initial terms of one year or more.

As of December 31, 2021 and 2020, the Company had $ 5,463 and

$ 1,173 of open capital commitments, respectively.

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.

As of December 31, 2022, the Company had $ 102,906 of open

capital commitments.

Covenants in ACM Shengwei’s Grant Contract for State-owned Construction Land Use Right in Shanghai City (Category of R&D Headquarters and Industrial Projects)

with the China (Shanghai) Pilot Free Trade Zone Lingang Special Area Administration require, among other things, that ACM Shengwei pay liquidated damages in the event that (a) it does not make a total investment (including the costs of

construction, fixtures, equipment and grant fees) of at least RMB 450.0 million ($ 63,400 ) or (b) within six years after the land use right is

obtained, the Company does not (i) generate a minimum specified amount of annual sales of products manufactured on the granted land or (ii) pay to the PRC at least RMB 157.6 million ($ 22,000 ) in annual total taxes (including

value-added taxes, corporate income tax, personal income taxes, urban maintenance and construction taxes, education surcharges, stamp taxes, and vehicle and shipping taxes) as a result of operations in connection with the granted land.

As of December 31, 2022 and December 31, 2021, the Company had paid in total $ 35,376 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 .

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company’s management has evaluated all such proceedings and claims that existed as of December 31,

2021 and 2020.

In the opinion of management, no provision for liability nor disclosure was required as of December 31, 2021 related to any claim against the Company because:

(a) there is not a reasonable possibility that a loss exceeding amounts

already recognized (if any) may be incurred with respect to such claim;

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 December 31, 2022 and 2021.

In the opinion of management, no

provision for liability nor disclosure was required as of December 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 December 31, 2021, the Company had one outstanding legal proceeding regarding securities class

On December 21, 2020, a putative class action lawsuit against ACM and three of its current executive officers was filed in the U.S.

District Court for the Northern District of California under the caption Kain v.

ACM Research, Inc., et al.

3:20-cv-09241.

The complaint asserted claims under Sections 10(b) and 20(a) of

the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and sought monetary damages in an unspecified amount as well as costs and expenses incurred in the litigation.

The suit was dismisse d with prejudice on January 10,

NOTE 24 – RESTRICTED NET ASSETS

In accordance with the PRC’s Foreign Enterprise Law, ACM Shanghai, Shengwei Research (Shanghai), Inc., and ACM Wuxi are required to make contributions to a statutory

surplus reserve (note 2).

As a result of PRC laws and regulations that require annual appropriations of 10% of net after-tax profits to be set aside prior to payment of dividends as a general

reserve fund or statutory surplus fund, ACM Shanghai is restricted in its ability to transfer a portion of its net assets to ACM (including any assets received as distributions from Shengwei Research (Shanghai), Inc.

and ACM Wuxi.

Amounts restricted

included paid-in capital and statutory reserve funds, as determined pursuant to PRC accounting standards and regulations, were $ 671,750 , $ 119,377 and $ 113,168 as of December 31,

2021, 2020 and 2019, respectively.

NOTE 23 – STATUTORY SURPLUS RESERVE

In accordance with the PRC’s Foreign Enterprise Law, ACM Shanghai, ACM Shengwei, and ACM Wuxi are required to make appropriation to reserve funds,

comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income in accordance with generally accepted accounting principles of PRC (“PRC GAAP”).

Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP

until the reserve is equal to 50% of the entities’ registered capital.

The amount is calculated annually at the end of each calendar year.

The balances of statutory reserve funds were $ 16,881 and $ 8,312 as of December 31, 2022 and December 31, 2021,

respectively, and are presented as statutory surplus reserve on the Company’s consolidated balance sheets.

NOTE 24 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with Rule 4-08(e)(3) of Regulation S-X of the SEC and concluded that

it was applicable for the Company to disclose the financial information for ACM only.

Certain information and footnote disclosures generally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

footnote disclosure contains supplemental information relating to the operations of ACM separately.

The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with Rule 4-08(e)(3) of Regulation S-X of the SEC

and concluded that it was applicable for the Company to disclose the financial information for ACM only.

Certain information and footnote disclosures generally included in financial statements prepared in accordance with GAAP have been condensed or

The footnote disclosure contains supplemental information relating to the operations of ACM separately.

ACM’s subsidiaries did not pay any dividends to ACM during the periods presented.

ACM did not have significant capital or other commitments, long-term obligations, or guarantees as of December 31, 2022 or 2021.

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The following represents condensed unconsolidated financial information of ACM only as of December 31, 2022 and 2021, and for the years ended December 31, 2022, 2021 and

CONDENSED BALANCE SHEET

CONDENSED BALANCE SHEETS

Current assets:

9 unchanged sentences

Accounts payable

Other payable

Other payables

Income taxes payable

3 unchanged sentences

Total stockholders’ equity

Total liabilities and stockholders equity

CONDENSED STATEMENT OF OPERATIONS

Total liabilities and stockholder’s equity

CONDENSED STATEMENTS OF OPERATIONS

Year Ended December 31,

11 unchanged sentences

Income before income taxes

Income tax expense

ACM RESEARCH, INC.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

CONDENSED STATEMENT OF CASH FLOWS

Income tax benefit

CONDENSED STATEMENTS OF CASH FLOWS

Year Ended December 31,

Net cash used in operating activities

Net cash provided by investing activities

Net cash used by investing activities

Net cash provided by financing activities

1 unchanged sentence

Cash and cash equivalents, beginning of year

Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents, end of year

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Dismissal of Previous Independent Registered Public Accounting Firm

On May 12, 2022, the Audit Committee of our Board of Directors, or the Audit Committee, completed a competitive selection process to determine our independent registered public accounting firm for

the fiscal year ended December 31, 2022.

The Audit Committee invited to participate in this process several independent public accounting firms that are subject to inspection by the PCAOB.

As a result of this process, on May 16, 2022, we

dismissed BDO China as our independent registered public accounting firm.

BDO China, which audited our consolidated financial statements from 2015 through 2021, is not inspected by the PCAOB and therefore was not considered by the Audit

Committee in selecting our independent registered public accounting firm for the fiscal year ended December 31, 2022.

The reports of BDO China on our consolidated financial statements and internal control over financial reporting for the fiscal years ended December 31, 2021 and 2020 did not contain an adverse

opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the fiscal years ended December 31, 2021 and 2020 and in the subsequent interim period through March 31, 2022, there were (a) no “disagreements” (as defined in Item 304(a)(1)(iv) of

Regulation S‑K and the related instructions) with BDO China on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure that, if not resolved to the satisfaction of BDO China, would have

caused BDO China to make reference thereto in its reports on the consolidated financial statements for the fiscal years ended December 31, 2021 and 2020 and (b) no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S‑K).

We provided a copy of the foregoing disclosures to BDO China and requested that BDO China furnish us with a letter addressed to the SEC, pursuant to Item 304(a)(3) of Regulation S-K, stating

whether or not BDO China agreed with the above disclosures.

A copy of BDO China’s letter furnished pursuant to that request is filed as Exhibit 16.01.

Engagement of New Independent Registered Public Accounting Firm

On May 12, 2022, the Audit Committee also approved the engagement of Armanino LLP as our new independent registered public accounting firm to perform independent audit services for the fiscal year

ended December 31, 2022.

Armanino LLP is subject to inspection by the PCAOB.

The engagement of Armanino LLP became effective on May 19, 2022.

During the fiscal years ended December 31, 2021 and 2020 and in the subsequent interim period through March 31, 2022, neither we nor anyone on our behalf consulted with Armanino LLP with respect

to either (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to our consolidated financial statements, and no written report or

oral advice was provided to us by Armanino LLP that was an important factor that we considered in reaching a decision as to any accounting, auditing or financial reporting issue or (b) any matter that was the subject of a “disagreement” (as

defined in Item 304(a)(1)(iv) of Regulation S‑K and the related instructions) or a “reportable event” (as defined in Item 304(a)(1)(v) of Regulation S‑K).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data