ACM Research, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Consolidated Financial Statements 90 Report of Independent Registered Public Accounting Firm ( Armanino LLP , San Ramon, California , PCAOB ID# 32 ) 91 Report of Independent Registered Public Accounting Firm ( BDO China Shu Lun Pan Certified Public Accountants LLP , Shenzhen, China , PCAOB ID# 1818 ) 95 Consolidated Balance Sheets as of December 31, 2022 and 2021 97 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2022, 2021 and 2020 98 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2022, 2021 and 2020 99 Consolidated Statements of Cash Flows for the Years ended December 31, 2022, 2021 and 2020 100 Notes to Consolidated Financial Statements 101 90 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 judgments. 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 equipment. 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. Once 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. 91 Table of Contents 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 matter. 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 obsolescence 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. Armanino LLP We have served as the Company’s auditor since 2022. San Ramon, California March 1, 2023 92 Table of Contents 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). In 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 assessment. The Company did not design and maintain effective internal control over financial reporting based on the criteria established in the COSO framework. Specifically, control deficiencies constituted material weaknesses, either individually or in the aggregate, related to: 1) 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 . 2) 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; (iii) 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. 93 Table of Contents 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 company; 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. Armanino LLP San Ramon, California March 1, 2023 94 Table of Contents Report of Independent Registered Public Accounting Firm To The Shareholders and Board of Directors ACM Research, Inc. Fremont, California 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, 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 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. 95 Table of Contents 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. We believe that our audits provide a reasonable basis for our opinion. BDO China Shu Lun Pan Certified Public Accountants LLP We served as the Company’s auditor from 2015 to 2022. Shenzhen, The People’s Republic of China 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. 96 Table of Contents ACM RESEARCH, INC. Consolidated Balance Sheets (In thousands, except per share data) December 31, December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 247,951 $ 562,548 Restricted cash 500 519 Short-term time deposits (note 2) 70,492 - Trading securities (note 16) 20,209 29,498 Accounts receivable (note 4) 182,936 105,553 Income tax receivable - 1,082 Other receivables 29,617 18,979 Inventories (note 5) 393,172 218,116 Advances to related party (note 17) 3,322 2,383 Prepaid expenses 15,607 14,256 Total current assets 963,806 952,934 Property, plant and equipment, net (note 6) 82,875 14,042 Land use right, net (note 7) 8,692 9,667 Operating lease right-of-use assets, net (note 11) 2,489 4,182 Intangible assets, net 1,255 477 Long-term time deposits (note 2) 101,956 - Deferred tax assets (note 20) 6,703 13,166 Long-term investments (note 14) 17,459 12,694 Other long-term assets (note 8) 50,265 45,017 Total assets $ 1,235,500 $ 1,052,179 Liabilities and Equity Current liabilities: Short-term borrowings (note 9) $ 56,004 $ 9,591 Current portion of long-term borrowings (note 12) 2,322 2,410 Related party accounts payable (note 17) 14,468 7,899 Accounts payable 101,735 93,451 Advances from customers 153,773 52,824 Deferred revenue 4,174 3,180 Income taxes payable (note 20) 3,469 254 FIN-48 payable (note 20) 6,686 2,282 Other payables and accrued expenses (note 10) 52,201 31,735 Current portion of operating lease liability (note 11) 1,382 2,313 Total current liabilities 396,214 205,939 Long-term borrowings (note 12) 18,687 22,957 Long-term operating lease liability (note 11) 1,107 1,869 Deferred tax liability (note 20) - 1,302 Other long-term liabilities (note 13) 7,321 8,447 Total liabilities 423,329 240,514 Commitments and contingencies (note 21) Equity : Stockholders’ equity: Class A Common stock (1) (note 18) 5 5 Class B Common stock (1) (note 18) 1 1 Additional paid-in capital 604,089 595,045 Retained earnings 94,426 63,732 Statutory surplus reserve (note 23) 16,881 8,312 Accumulated other comprehensive income (loss) ( 40,546 ) 9,109 Total ACM Research, Inc. stockholders’ equity 674,856 676,204 Non-controlling interests 137,315 135,461 Total equity 812,171 811,665 Total liabilities and equity $ 1,235,500 $ 1,052,179 (1) Prior period results have been adjusted to reflect the three -for-one stock split effected in the form of a stock dividend in March 2022. See Note 2 for details. The accompanying notes are an integral part of these consolidated financial statements. 97 Table of Contents ACM RESEARCH, INC. Consolidated Statements of Operations and Comprehensive Income (Loss) (In thousands, except per share data) Year Ended December 31, 2022 2021 2020 Revenue (note 3) $ 388,832 $ 259,751 $ 156,624 Cost of revenue 205,217 144,895 87,025 Gross profit 183,615 114,856 69,599 Operating expenses: Sales and marketing 39,889 26,733 16,773 Research and development 62,226 34,207 19,119 General and administrative 22,465 15,214 12,215 Total operating expenses 124,580 76,154 48,107 Income from operations 59,035 38,702 21,492 Interest income 8,740 505 897 Interest expense ( 1,655 ) ( 765 ) ( 982 ) Change in fair value of financial liability - - ( 11,964 ) Realized gain from sale of trading securities 1,116 - - Unrealized gain (loss) on trading securities ( 7,855 ) 607 12,574 Other income (expense), net 3,315 ( 631 ) ( 3,377 ) Equity income in net income of affiliates 4,666 4,637 655 Income before income taxes 67,362 43,055 19,295 Income tax benefit (expense) (note 20) ( 16,798 ) ( 134 ) 2,382 Net income 50,564 42,921 21,677 Less: Net income attributable to non-controlling interests 11,301 5,164 2,897 Net income attributable to ACM Research, Inc. $ 39,263 $ 37,757 $ 18,780 Comprehensive income (loss): Net income $ 50,564 $ 42,921 $ 21,677 Foreign currency translation adjustment, net of tax ( 59,102 ) 4,695 10,493 Comprehensive income (loss) ( 8,538 ) 47,616 32,170 Less: Comprehensive income (loss) attributable to non-controlling interests 1,854 5,607 6,858 Comprehensive income (loss) attributable to ACM Research, Inc. $ ( 10,392 ) $ 42,009 $ 25,312 Net income attributable to ACM Research, Inc. per common share (note 2): Basic $ 0.66 $ 0.65 $ 0.34 Diluted $ 0.59 $ 0.58 $ 0.30 Weighted average common shares outstanding used in computing per share amounts (note 2): Basic (1) 59,235,975 57,654,708 54,700,083 Diluted (1) 65,341,771 65,356,716 63,550,407 (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. 98 Table of Contents ACM RESEARCH, INC. Consolidated Statement of Changes in Stockholders’ Equity (In thousands, except per share data) Common Common Stock Class A Stock Class B Shares (1) Amount Shares (1) Amount Additional Paid- in Capital Retained earnings Statutory Surplus Reserve Accumulated Other Comprehensive Income Non-controlling interests Total Equity Balance at December 31, 2019 48,546,453 $ 5 5,587,824 $ 1 $ 83,483 $ 14,436 $ 1,071 $ ( 1,675 ) $ - $ 97,321 Net income - - - - - 18,780 - - 2,254 21,034 Appropriation to statutory surplus reserves - - - - - ( 3,317 ) 3,317 - - - Foreign currency translation adjustment - - - - - - - 6,532 4,808 11,340 Exercise of stock options 2,497,512 - - - 2,745 - - - - 2,745 Stock-based compensation - - - - 5,628 - - - - 5,628 Conversion of class B common shares to Class A common shares 180,006 - ( 180,006 ) - - - - - - - Share cancellation (note 16) ( 728,043 ) - - - ( 9,715 ) - - - - ( 9,715 ) Issuance of warrants (note 16) - - - - 19,859 - - - - 19,859 Exercise of stock warrants 194,151 - - - - - - - - - Reclassification of redeemable non-controlling interest - - - - - - - - 59,958 59,958 Balance at December 31, 2020 50,690,079 5 5,407,818 1 102,000 29,899 4,388 4,857 67,020 208,170 Net income - - - - - 37,757 - - 5,164 42,921 Appropriation to statutory surplus reserves - - - - - ( 3,924 ) 3,924 - - - Foreign currency translation adjustment - - - - - - - 4,252 443 4,695 Exercise of stock options 1,870,803 - - - 3,430 - - - - 3,430 Stock-based compensation - - - - 5,117 - - - - 5,117 Exercise of stock warrants 728,043 - - - 1,820 - - - - 1,820 Conversion of Class B common stock to Class A common stock 320,004 - ( 320,004 ) - - - - - - - Proceeds from a subsidiary equity issuance, net of issuance costs - - - - 482,678 - - - 62,834 545,512 Balance at December 31, 2021 53,608,929 5 5,087,814 1 595,045 63,732 8,312 9,109 135,461 811,665 Net income - - - - - 39,263 - - 11,301 50,564 Appropriation to statutory surplus reserves - - - - - ( 8,569 ) 8,569 - - - Foreign currency translation adjustment - - - - - - - ( 49,655 ) ( 9,447 ) ( 59,102 ) Exercise of stock options 980,354 - - - 1,314 - - - - 1,314 Stock-based compensation - - - - 7,730 - - - - 7,730 Conversion of Class B common stock to Class A common stock 66,003 - ( 66,003 ) - - - - - - - Balance at December 31, 2022 54,655,286 $ 5 5,021,811 $ 1 $ 604,089 $ 94,426 $ 16,881 $ ( 40,546 ) $ 137,315 $ 812,171 (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. 99 Table of Contents ACM RESEARCH, INC. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income $ 50,564 $ 42,921 $ 21,677 Adjustments to reconcile net income from operations to net cash used in operating activities Depreciation and amortization 5,366 2,353 1,055 Loss on disposals of property, plant and equipment ( 12 ) - 25 Realized gain on trading securities ( 1,116 ) - - Equity income in net income of affiliates ( 4,666 ) ( 4,637 ) ( 655 ) Unrealized loss (gain) on trading securities 7,855 ( 607 ) ( 12,574 ) Deferred income taxes 4,027 ( 1,840 ) ( 4,085 ) Stock-based compensation 7,730 5,117 5,628 Change in fair value of financial liability - - 11,964 Net changes in operating assets and liabilities: Accounts receivable ( 88,655 ) ( 47,624 ) ( 22,085 ) Income tax recoverable - ( 1,082 ) - Other receivables ( 7,331 ) ( 8,420 ) ( 6,882 ) Inventories ( 193,314 ) ( 127,656 ) ( 40,768 ) Advances to related party (note 17) ( 939 ) ( 776 ) ( 1,259 ) Prepaid expenses ( 3,695 ) ( 9,830 ) ( 2,259 ) Other long-term assets 3,986 ( 4,521 ) ( 99 ) Related party accounts payable (note 17) 6,569 3,806 2,878 Accounts payable 17,501 61,405 18,397 Advances from customers 104,258 34,831 8,578 Deferred revenue 994 226 ( 3,137 ) Income taxes payable 3,236 2,200 ( 83 ) FIN-48 payable 4,404 10,551 5,236 Other payables and accrued expenses 23,406 3,180 1,343 Other long-term liabilities ( 2,362 ) 310 3,558 Net cash used in operating activities ( 62,194 ) ( 40,093 ) ( 13,547 ) Cash flows from investing activities: Purchase of property and equipment ( 91,094 ) ( 9,153 ) ( 5,211 ) Purchase of intangible assets ( 1,426 ) ( 559 ) ( 324 ) Purchase of land-use-right - - ( 9,744 ) Purchase of trading securities ( 4,279 ) - ( 15,020 ) Prepayment for property - - ( 40,206 ) Increase of time deposits ( 172,448 ) - - Proceeds from selling trading securities 4,577 - - Investments in affiliates ( 1,000 ) ( 1,568 ) - Dividends from unconsolidated affiliates - - 555 Net cash used in investing activities ( 265,670 ) ( 11,280 ) ( 69,950 ) Cash flows from financing activities: Proceeds from short-term borrowings 56,004 22,884 32,573 Repayments of short-term borrowings ( 9,224 ) ( 39,809 ) ( 20,234 ) Proceeds from long-term borrowings - 7,056 19,699 Repayments of long-term borrowings ( 2,223 ) ( 2,127 ) ( 129 ) Repayments of notes payable - - ( 1,820 ) Proceeds from exercise of stock options 1,314 3,430 2,745 Proceeds from a subsidiary equity issuance, net of issuance costs - 545,512 - Proceeds from warrant exercise to common stock - 1,820 - Net cash provided by financing activities 45,871 538,766 32,834 Effect of exchange rate changes on cash, cash equivalents and restricted cash $ ( 32,623 ) $ 3,908 $ 4,570 Net increase (decrease) in cash, cash equivalents and restricted cash $ ( 314,616 ) $ 491,301 $ ( 46,093 ) Cash, cash equivalents and restricted cash at beginning of period 563,067 71,766 117,859 Cash, cash equivalents and restricted cash at end of period $ 248,451 $ 563,067 $ 71,766 Supplemental disclosure of cash flow information: Interest paid, net of capitalized interest $ 1,655 $ 765 $ 982 Cash paid for income taxes $ 3,586 $ 1,132 $ 4,971 Reconciliation of cash, cash equivalents and restricted cash in consolidated statements of cash flows: Cash and cash equivalents $ 247,951 $ 562,548 $ 71,766 Restricted cash 500 519 - Cash, cash equivalents and restricted cash $ 248,451 $ 563,067 $ 71,766 Non-cash financing activities: Warrant conversion to common stock $ - $ - $ 399 Share cancellation $ - $ - $ 9,715 Cashless exercise of stock options $ 221 $ 137 $ - Issuance of warrant for settlement of financial liability and cancellation of note receivable $ - $ - $ 19,859 Non-cash investing activities: Transfer of prepayment for property to property, plant and equipment $ 41,497 $ - - The accompanying notes are an integral part of these consolidated financial statements. 100 Table of Contents ACM RESEARCH, INC. Notes to Consolidated Financial Statements (in thousands, except share and per share data) NOTE 1 – DESCRIPTION OF BUSINESS ACM Research, Inc. (“ACM”) and its subsidiaries (collectively with ACM, the “Company”) develop, manufacture and sell single-wafer wet cleaning equipment used to improve the manufacturing process and yield for advanced integrated chips. The Company markets and sells its single-wafer wet-cleaning equipment, under the brand name “Ultra C,” based on the Company’s proprietary Space Alternated Phase Shift (“SAPS”) and Timely Energized Bubble Oscillation (“TEBO”) technologies. These tools are designed to remove random defects from a wafer surface efficiently, without damaging the wafer or its features, even at increasingly advanced process nodes. ACM was incorporated in California in 1998, and it initially focused on developing tools for manufacturing process steps involving the integration of ultra-low-K materials and copper. The Company’s early efforts focused on stress-free copper-polishing technology, and it sold tools based on that technology in the early 2000s. In 2006, the Company established its operational center in Shanghai in the People’s Republic of China (the “PRC”), where it operates through ACM’s subsidiary, ACM Research (Shanghai), Inc. (“ACM Shanghai”). ACM Shanghai was formed to help establish and build relationships with integrated circuit manufacturers in the PRC, and the Company initially financed its Shanghai operations in part through sales of non-controlling equity interests in ACM Shanghai. In 2007, the Company began to focus its development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process. The Company introduced its SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process, in 2009. It introduced its TEBO technology, which can be applied at numerous steps during the fabrication of small node two-dimensional conventional and three-dimensional patterned wafers, in March 2016. The Company has designed its equipment models for SAPS and TEBO solutions using a modular configuration that enables it to create a wet-cleaning tool meeting the specific requirements of a customer, while using pre-existing designs for chamber, electrical, chemical delivery and other modules. In August 2018, the Company introduced its Ultra-C Tahoe wafer cleaning tool, which can deliver high cleaning performance with significantly less sulfuric acid than typically consumed by conventional high-temperature single-wafer cleaning tools. Based on its electro-chemical plating (“ECP”) technology, the Company introduced in March 2019 its Ultra ECP AP, or “Advanced Packaging,” tool for bumping, or applying copper, tin and nickel to semiconductor wafers at the die-level, and its Ultra ECP MAP, or “Multi-Anode Partial Plating,” tool to deliver advanced electrochemical copper plating for copper interconnect applications in front-end wafer fabrication processes. The Company also offers a range of custom-made equipment, including cleaners, coaters and developers, to back-end wafer assembly and packaging factories, principally in the PRC. In 2011, ACM Shanghai formed a wholly owned subsidiary in the PRC, ACM Research (Wuxi), Inc. (“ACM Wuxi”), to manage sales and service operations. In November 2016, ACM re-domesticated from California to Delaware pursuant to a merger in which ACM Research, Inc., a California corporation, was merged into a newly formed, wholly owned Delaware subsidiary, also named ACM Research, Inc. In June 2017, ACM formed a wholly owned subsidiary in Hong Kong, CleanChip Technologies Limited (“CleanChip”), to act on the Company’s behalf in Asian markets outside the PRC by, for example, serving as a trading partner between ACM Shanghai and its customers, procuring raw materials and components, performing sales and marketing activities, and making strategic investments. In August 2017, ACM purchased 18.77 % of ACM Shanghai’s equity interests held by Shanghai Science and Technology Venture Capital Co., Ltd. On November 8, 2017, ACM purchased the remaining 18.36 % of ACM Shanghai’s equity interest held by third parties, Shanghai Pudong High-Tech Investment Co., Ltd. (“PDHTI”) and Shanghai Zhangjiang Science & Technology Venture Capital Co., Ltd. (“ZSTVC”). At December 31, 2017, ACM owned all of the outstanding equity interests of ACM Shanghai, and indirectly through ACM Shanghai, owned all of the outstanding equity interests of ACM Wuxi. 101 Table of Contents On September 13, 2017, ACM effectuated a 1-for- 3 reverse stock split of Class A and Class B common stock. Unless otherwise indicated, all share numbers, per share amount, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have been adjusted retrospectively to reflect the reverse stock split. On November 2, 2017, the Registration Statement on Form S-1 (File No. 333- 220451) for ACM’s initial public offering of Class A common stock (the “IPO”) was declared effective by the U.S. Securities and Exchange Commission. Shares of Class A common stock began trading on the Nasdaq Global Market on November 3, 2017, and the closing for the IPO was held on November 7, 2017. In December 2017, ACM formed a wholly owned subsidiary in the Republic of Korea, ACM Research Korea CO., LTD. (“ACM Korea”), to serve customers based in 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. (“ACM California”), to provide procurement services on behalf of ACM Shanghai. In June 2019, ACM announced plans to complete over the next three years a listing (the “STAR Listing”) of shares of ACM Shanghai on the Shanghai Stock Exchange’s new Sci-Tech innovAtion boaRd, known as the STAR Market, and a concurrent initial public offering (the “STAR IPO”) of ACM Shanghai shares in the PRC. ACM Shanghai is currently ACM’s primary operating subsidiary, and at the time of announcement, was wholly owned by ACM. To meet a STAR Listing requirement that it have multiple independent stockholders in the PRC, ACM Shanghai completed private placements of its shares in June and November 2019, following which, as of September 30, 2020, the private placement investors held a total of 8.3 % of the outstanding shares of ACM Shanghai and ACM Research held the remaining 91.7 %. As part of the STAR Listing process, in June 2020 the ownership interests held by the private investors were reclassified from redeemable non-controlling interests to non-controlling interests as the redemption feature was terminated. 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 in Singapore, ACM research (Singapore) PTE, Ltd. to perform sales, marketing, and other business development activities. In November 2021, ACM’s operating subsidiary ACM Shanghai, completed its STAR IPO and its shares began trading on the STAR Market. In the STAR IPO, ACM Shanghai issued 43,355,753 shares, representing 10 % of the total 433,557,100 shares outstanding after the issuance. The shares were issued at a public offering price of RMB 85.00 per share, and the net proceeds of the STAR IPO, after issuance costs, totaled $ 545,512 . Upon completion of the STAR IPO, ACM owned 82.5 % of the outstanding ACM Shanghai shares. In February 2022, ACM Shanghai formed a wholly owned subsidiary in China, ACM Research (Beijing), Inc. (“ACM Beijing”), to perform sales, marketing and other business development activities. In March 2022, ACM formed a wholly owned subsidiary in South Korea, Hanguk ACM CO., LTD, to perform business development and other related activities. In March 2022, the Board of Directors of ACM declared a 3 -for-1 stock split of Class A and Class B common stock effected in the form of a stock dividend (the “Stock Split”). Each stockholder of record at the close of business on March 16, 2022, received a dividend of two additional shares of Class A common stock for each then-held share of Class A common stock and two additional shares of Class B common stock for each then-held share of Class B common stock, which were distributed after the close of trading on March 23, 2022. Unless otherwise indicated, all share numbers, per share amount, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have been adjusted retrospectively to reflect the Stock Split. 102 Table of Contents The Company has direct or indirect interests in the following subsidiaries: Effective interest held as at Place and date of December 31, Name of subsidiaries incorporation 2022 2021 ACM Research (Shanghai), Inc. PRC, May 2005 82.5 % 82.5 % ACM Research (Wuxi), Inc. PRC, July 2011 82.5 % 82.5 % CleanChip Technologies Limited Hong Kong, June 2017 82.5 % 82.5 % ACM Research Korea CO., LTD. Korea, December 2017 82.5 % 82.5 % Shengwei Research (Shanghai), Inc. PRC, March 2019 82.5 % 82.5 % ACM Research (CA), Inc. USA, April 2019 82.5 % 82.5 % ACM Research (Cayman), Inc. Cayman Islands, April 2019 100.0 % 100.0 % ACM Research (Singapore) PTE. Ltd. Singapore, August 2021 100.0 % 100.0 % ACM Research (Beijing), Inc. PRC, February 2022 82.5 % - Hanguk ACM CO., LTD Korea, March 2022 100.0 % - 1. 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 Basis of Presentation and Principles of Consolidation 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, 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. COVID-19 Assessment 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. 103 Table of Contents The Company conducts substantially all of its product development, manufacturing, support and services in the PRC, and those activities have been directly impacted by COVID-19 and related restrictions on transportation and public appearances. • In March 2022, several regions in China began to experience elevated levels of COVID-19 infections, and the PRC government instituted policies to restrict the spread of the virus. The policies began with an increase of “spot 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. The 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 reopen. 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. 104 Table of Contents 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 The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported revenues and expenses during the reported period in the consolidated financial statements and accompanying notes. The Company’s significant accounting estimates and assumptions include, but are not limited to, those used for the valuation and recognition of fair value of trading securities, stock-based compensation arrangements, realization of deferred tax assets, assessment for impairment of long-lived assets, allowance for doubtful accounts, inventory valuation for excess and obsolete inventories, lower of cost and market value or net realizable value of inventories, depreciable lives of property and equipment and useful life of intangible assets. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates and assumptions. 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. 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. The rules 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. 105 Table of Contents 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 regulations. 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 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. The following table presents cash and cash equivalents, according to jurisdiction as of December 31, 2022 and December 31, 2021: December 31, 2022 2021 United States $ 25,011 $ 34,852 Mainland China 129,695 469,494 China Hong Kong 89,187 52,527 South Korea 4,007 5,675 Singapore 51 - Total $ 247,951 $ 562,548 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. SAFE 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. 106 Table of Contents 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: December 31, 2022 2021 Deposit in China Merchant Bank which matures on January 29, 2023 with an annual interest rate of 2.25 % $ 38,772 $ - Deposit in China Everbright Bank which matures on January 29, 2023 with an annual interest rate of 2.25 % 14,360 - Deposit in China Everbright Bank which matures on May 22, 2023 with an annual interest rate of 5.07 % 3,000 - Deposit in China Industrial Bank which matures on January 30, 2023 with an annual interest rate of 2.15 % 14,360 - Deposit in China Merchant Bank which matures on January 29, 2024 with an annual interest rate of 2.85 % 28,720 - Deposit in Bank of Ningbo which matures on February 17, 2024 with an annual interest rate of 2.85 % 43,080 - Deposit in Shanghai Pudong Development Bank which matures on October 20, 2025 with an annual interest rate of 3.10 % 7,180 - Deposit in Shanghai Pudong Development Bank which matures on November 14, 2025 with an annual interest rate of 3.10 % 7,180 - Deposit in Shanghai Pudong Development Bank which matures on December 8, 2025 with an annual interest rate of 3.10 % 4,308 - Deposit in Shanghai Pudong Development Bank which matures on December 15, 2025 with an annual interest rate of 3.10 % 4,308 - Deposit in Shanghai Pudong Development Bank which matures on December 30, 2025 with an annual interest rate of 3.10 % 7,180 - $ 172,448 $ - 107 Table of Contents For the years ended December 31, 2022 and 2021, respectively, interest income related to time deposits was $ 3,472 and $ 0 , respectively. Accounts Receivable Accounts receivable are presented net of an allowance for doubtful accounts. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, a customer’s historical payment history and credit worthiness, current economic trends and reasonable and supportable forecasts. Accounts are written off after all collection efforts have been exhausted. 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 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 land use right is carried at cost less accumulated amortization and impairment losses, if any. Amortization is computed using the straight-line method over the term specified in the land use right certificate, which is 50 years. Inventory Inventory consists of raw materials and related goods, work-in-progress, finished goods, and other consumable materials such as spare parts. Finished goods typically are shipped from the Company’s warehouse within one month of completion. Inventory was recorded at the lower of cost or net realizable value at December 31, 2022 and 2021. ● The cost of a general inventory item is determined using the weighted moving average method. Under the weighted moving average method, the Company calculates the new average price of all items of a particular inventory stock each time one or more items of that stock are purchased. The then-current average price of the stock is used for purposes of determining cost of inventory or cost of revenue. The cost of an inventory item purchased specifically for a customized product is determined using the specific identification method. Low-cost consumable materials and packaging materials are expensed as incurred. ● Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete or dispose. The Company assesses the recoverability of all inventories quarterly to determine if any adjustments are required. Potential excess or obsolete inventory is written off based on management’s analysis of inventory levels and estimates of future 12-month demand and market conditions. Property, Plant and Equipment, Net Property, Plant and Equipment are recorded at cost less accumulated depreciation and any provision for impairment in value. Depreciation begins when the asset is placed in service and is calculated by using the straight-line method over the estimated useful life of an asset (or, if shorter, over the lease term). Betterments or renewals are capitalized when incurred. 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. There was no impairment charge that was recognized for the years ended December 31, 2022 and 2021. 108 Table of Contents Estimated useful lives of assets are as follows: Buildings and Plants 30 years Computer and office equipment 3 to 5 years Furniture and fixtures 5 years Leasehold improvements shorter of lease term or estimated useful life Electronic equipment 3 to 5 years Manufacturing equipment for small to medium-sized equipment, 5 to 10 years; for large equipment, estimated by purchasing department at time of acceptance Transportation equipment 4 to 5 years 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 capitalized software license and other related fees for items 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 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 years. As of December 31, 2022 and December 31, 2021, there was no impairment charge that was recognized. Investments 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 the recorded value may not be recoverable. The 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. Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment is other-than-temporary and this analysis requires estimating the fair value of the investment. The determination of fair value of the investment involves considering factors such as current economic and market conditions, the operating performance of the entities including current earnings trends and forecasted cash flows, and other company and industry specific information. If the Company considers any decline to be other than temporary (based on various factors, including historical financial results and the overall health of the investee), then a write-down would be recorded to estimated fair value. See note 14 for discussion of equity method investment. 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 impairment, if any for those equity securities without a readily determinable fair value. All marketable securities are classified as trading securities and trading securities and are stated at fair market value, less a discount applied to reflect the remaining lock-up period when the securities are subject to lock-up period. Fair market value is determined by the most recently traded price of the security at the balance sheet date. Net realized and unrealized gains and losses on trading securities are included in the consolidated statements of operations. The cost of investments sold is based on the average cost method. Interest and dividend income earned are included in other income (expense), net. Valuation of Long-Lived Assets Long-lived assets are evaluated for impairment whenever events or changes in circumstance indicate that the carrying value of the assets may not be fully recoverable or that the useful life of the assets is shorter than the Company had originally estimated. When these events or changes occur, the Company evaluates the impairment of the long-lived assets by comparing the carrying value of the assets to an estimate of 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 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. No impairment charge was recognized for either of the periods presented. 109 Table of Contents Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. It uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Revenue Recognition The Company derives revenue principally from the sale of semiconductor capital equipment. Revenue from contracts with customers is recognized using the following five steps pursuant ASC Topic 606, Revenue from Contracts with Customers : 1. Identify the contract(s) with a customer; 2. Identify the performance obligations in the contract; 3. Determine the transaction price; 4. Allocate the transaction price to the performance obligations in the contract; and 5. Recognize revenue when (or as) the entity satisfies a performance obligation. A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of promises) that is distinct. The transaction price is the amount of consideration a company expects to be entitled from a customer in exchange for providing the goods or services. The unit of account for revenue recognition is a performance obligation (a good or service). A contract may contain one or more performance obligations. Performance obligations are accounted for separately if they are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the good or service is distinct in the context of the contract. Otherwise, performance obligations are combined with other promised goods or services until the Company identifies a bundle of goods or services that is distinct. Promises in contracts which do not result in the transfer of a good or service are not performance obligations, as well as those promises that are administrative in nature, or are immaterial in the context of the contract. The Company has addressed whether various goods and services promised to the customer represent distinct performance obligations. 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, 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. They are not separate performance obligations and accounted for under ASC 460, Guarantees . Production, delivery, installation, training and software updates are a single unit of accounting. 110 Table of Contents The transaction price is allocated to all the separate performance obligations in an arrangement. It reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services, which may include an estimate of variable consideration to the extent that it is probable of not being subject to significant reversals in the future based on the Company’s experience with similar arrangements. 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 stand-alone selling prices (“SSP”). The SSP represents the price at which the 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. For some sale contracts, in addition to the sale of semiconductor capital equipment, the Company also provides certain spare parts to the customers. The Company 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. Goods or services can transfer at a point in time (upon the acceptance of the products or upon the arrival at the destination as stipulated in the shipment terms) in a sale arrangement. In general, the Company recognizes revenue when a tool has been demonstrated to meet the customer’s predetermined specifications and is accepted by the customer. 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 criteria; ● 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 maintenance 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 incurs costs related to the acquisition of its contracts with customers in the form of sales commissions. Sales commissions are paid to third party representatives and distributors. Contractual agreements with these parties outline commission structures and rates to be paid. Generally speaking, the contracts are all individual procurement decisions by the customers and are not for significant periods of time, nor do they include renewal provisions. As such, all contracts have an economic life of significantly less than a year. Accordingly, the Company expenses sales commissions when incurred. These costs are recorded within sales and 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. 111 Table of Contents Cost of Revenue Cost of revenue primarily consists of: direct materials, comprised principally of parts used in assembling equipment, together with crating and shipping costs; direct labor, including salaries and other labor related expenses attributable to the Company’s manufacturing department; and allocated overhead cost, such as personnel cost, depreciation expense, and allocated administrative costs associated with supply chain management and quality assurance activities, as well as shipping insurance premiums. Research and Development Costs Research and development costs relating to the development of new products and processes, including significant improvements and refinements to existing products or to the process of supporting customer evaluations of tools, including the development of new tools for evaluation by customers during the product demonstration process, are expensed as incurred. Shipping and Handling Costs Shipping and handling costs, which relate to transportation of products to customer locations, are charged to selling and marketing expense. For the years ended December 31, 2022, 2021 and 2020, shipping and handling costs included in sales and marketing expenses were $ 1,507 , $ 923 , and $ 76 , respectively. Borrowing Costs Borrowing costs attributable directly to the acquisition, construction or production of qualifying assets that require a substantial period of time to be ready for their intended use or sale are capitalized as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalized. All other borrowing costs are recognized in interest expense in the consolidated statements of operations and comprehensive income in the period in which they are incurred. Warranty 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. The Company updates these estimated charges on a regular basis. Warranty obligations are included in other payables and accrued expenses in the consolidated balance sheets. The following table shows changes in the Company’s warranty obligations for the years ended December 31, 2022, 2021 and 2020, respectively. Year Ended December 31, 2022 2021 2020 Balance at beginning of period $ 6,631 $ 3,975 $ 2,811 Additions 5,379 5,026 3,101 Utilized ( 3,230 ) ( 2,370 ) ( 1,937 ) Balance at end of period $ 8,780 $ 6,631 $ 3,975 Government Subsidies ACM Shanghai has received seven special government grants. The first grant, which was awarded in 2008, relates to the development and commercialization of 65nm to 45nm stress-free polishing technology. The second grant was awarded in 2009 to fund interest expense on short-term borrowings. The third grant was made in 2014 and relates to the development of electro copper-plating technology. The fourth grant was made in June 2018 and 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. 112 Table of Contents 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. The grants therefore are recorded as long-term liabilities upon receipt, although the Company is not required to return any funds it receives. Grant amounts are recognized in our statements of operations and comprehensive income as follows: ● Government subsidies relating to current expenses are recorded as reductions of those expenses in the periods in which the current expenses are recorded. For the years ended December 31, 2022, 2021, and 2020, related government subsidies recognized as reductions of relevant expenses in the consolidated statements of operations and comprehensive income were $ 1,201 , $ 11,260 and $ 2,658 , respectively. ● Government subsidies related to depreciable assets are credited to income over the useful lives of the related assets for which the grant was received. For the years ended December 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 and recorded as other long-term liabilities (note 13) in the balance sheet until the criteria for such recognition are satisfied. Stock-based Compensation ACM grants stock options to employees and non-employee consultants and directors and accounts for those stock-based awards in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. Stock-based awards granted to employees and non-employee consultants and directors are measured at the fair value of the awards on the grant date and are recognized as expenses either (a) immediately on grant, if no vesting conditions are required or (b) using the graded vesting method, net of estimated forfeitures, over the requisite service period. The fair value of stock options is determined using the Black-Scholes valuation model when there is only service condition attached or the Monte Carlo valuation model when there is performance condition attached. Stock-based compensation expense, when recognized, is charged to the category of operating expense corresponding to the service function of the employees and non-employee consultants and directors. Income Taxes The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable values. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made. Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax. 113 Table of Contents Basic and Diluted Net Income per Common Share Basic and diluted net income per common share is calculated as follows: Year Ended December 31, 2022 2021 2020 Numerator: Net income $ 50,564 $ 42,921 $ 21,677 Less: Net income attributable to non-controlling interests 11,301 5,164 2,897 Net income available to common stockholders, basic $ 39,263 $ 37,757 $ 18,780 Less: Dilutive effect arising from stock-based awards by ACM Shanghai 584 108 - Net income available to common stockholders, diluted $ 38,679 $ 37,649 $ 18,780 Weighted average shares outstanding, basic (1) 59,235,975 57,654,708 54,700,083 Effect of dilutive securities 6,105,796 7,702,008 8,850,324 Weighted average shares outstanding, diluted 65,341,771 65,356,716 63,550,407 Net income per common share: Basic $ 0.66 $ 0.65 $ 0.34 Diluted $ 0.59 $ 0.58 $ 0.30 (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. 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. 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, 2022. ACM has been authorized to issue Class A and Class B common stock since redomesticating in Delaware in November 2016. The two classes of common stock are substantially identical in all material respects, except for voting rights. Since ACM did not declare any dividends during the years ended December 31, 2022, 2021 and 2020, the net income per common share attributable to each class is the same under the “two-class” method. As such, the two classes of common stock have been presented on a combined basis in the consolidated statements of operations and comprehensive income and in the above computation of net income per common share. Diluted net income per common share reflects the potential dilution from securities, including stock options and issued warrants, that could share in ACM’s earnings. Certain potential dilutive securities were excluded from the net income per share calculation because the impact would be anti-dilutive. The number of potentially dilutive shares that 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 , 98,800 and 78,000 the years ended December 31, 2022, 2021, and 2020, respectively. Comprehensive Income Attributable to the Company The Company applies FASB ASC Topic 220, Comprehensive Income , which 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 (loss) attributable to the Company was ($ 10,392 ), $ 42,009 , and $ 25,312 for the years ended December 31, 2022, 2021 and 2020, respectively. 114 Table of Contents 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 subsidiaries’ Articles of Association. As stipulated by the relevant laws and regulations in the PRC, the PRC subsidiaries are required to maintain reserves, including reserves for statutory surpluses and public welfare funds that are not distributable to shareholders. A PRC subsidiary’s appropriations to the reserves are approved by its board of directors. At least 10% of annual statutory after-tax profits, as determined in accordance with PRC accounting standards and regulations, is required to be allocated to the statutory surplus reserves. If the cumulative total of the statutory surplus reserves reaches 50% of a PRC subsidiary’s registered capital, any further appropriation is optional. Statutory surplus reserves may be used to offset accumulated losses or to increase the registered capital of a PRC subsidiary, subject to approval from the relevant PRC authorities, and are not available for dividend distribution to the subsidiary’s shareholders. The PRC subsidiaries are prohibited from distributing dividends unless any losses from prior years have been offset. Except for offsetting prior years’ 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 $ 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 Under the FASB’s authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: Level 1: 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. Level 2: 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. Level 3: 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. All transfers between fair value hierarchy levels are recognized by the Company at the end of each reporting period. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety, requires judgment and considers factors specific to the investment. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risks associated with investment in those instruments. Fair Value Measured or Disclosed on a Recurring Basis 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. 115 Table of Contents 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. The carrying value of the long-term borrowings which are subject to fixed interest rate approximates its fair value as the market interest rate did not significantly change from the borrowing date to December 31, 2022. Quoted Prices in Active Markets for Identical Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total As of December 31, 2022: Assets Cash equivalents $ 247,951 $ - $ - $ 247,951 Trading securities 20,209 - - 20,209 $ 268,160 $ - $ - $ 268,160 Liabilities: Short-term borrowings $ - $ 56,004 $ - $ 58,326 Long-term borrowings - 21,009 - 18,687 $ - $ 77,013 $ - $ 77,013 As of December 31, 2021: Assets Cash equivalents $ 562,548 $ - $ - $ 562,548 Trading securities 29,498 - - 29,498 $ 592,046 $ - $ - $ 592,046 Liabilities: Short-term borrowings $ - $ 9,591 $ - $ 9,591 Long-term borrowings - 25,367 - 25,367 $ - $ 34,958 $ - $ 34,958 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, time deposits, and accounts receivable. The Company deposits and invests its cash with financial institutions that management believes are creditworthy. The Company is potentially subject to concentrations of credit risks in its accounts receivable. For the 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. As of December 31, 2022 and December 31, 2021, two customers accounted for 42.6 % and 53.8 %, respectively, of the Company’s accounts receivables. The Company believes that the receivable balances from these largest customers do not represent a significant credit risk based on past collection experience. 116 Table of Contents 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 The Company’s working capital at December 31, 2022 and 2021 was sufficient to meet its then-current requirements. The Company may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions the Company decides to pursue. In the long run, the Company intends to rely primarily on cash flows from operations and additional borrowings from financial institutions in order to meet its cash needs. If those sources are insufficient to meet cash requirements, the Company may seek to issue additional debt or equity. Country Risk The Company has significant investments in the PRC. The operating results of the Company may be adversely affected by changes in the political and social conditions in the PRC and by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Foreign Currency Risk and Translation The Company’s consolidated financial statements are presented in U.S. dollars, which is the Company’s reporting currency, while the functional currency of ACM’s subsidiaries is the Chinese Renminbi (“RMB”), and the Korean Won. Changes in the relative values of U.S. dollars and RMB affect the Company’s reported levels of revenues and profitability as the results of its operations are translated from RMB into U.S. dollars for reporting purposes. 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 transaction occurs. The ending balances of the Company’s foreign currency accounts are converted into functional currency using the rate of exchange prevailing at the end of each reporting period. Net gains and losses resulting from foreign exchange fluctuations as marked to market at year-end are included in the consolidated statements of operations and comprehensive income. Total foreign currency translation adjustment was ($ 59,102 ), $ 4,695 , and $ 10,493 for the years ended December 31, 2022, 2021 and 2020, respectively. In accordance with FASB ASC Topic 830, Foreign Currency Matters , the Company translates assets and liabilities into U.S. dollars from RMB or Korean Won using the rate of exchange prevailing at the applicable balance sheet date and the consolidated statements of operations and comprehensive income and consolidated statements of cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded in stockholders’ (deficit) equity as part of accumulated other comprehensive income (loss). Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of operations and comprehensive income. 117 Table of Contents Translations of amounts from RMB and Korean Won into U.S. dollars were made at the following exchange rates for the respective dates and periods: At December 31, 2022 2021 2020 Consolidated balance sheets: RMB to $1.00 6.9638 6.3757 6.5232 KRW to $1.00 1,262.63 1,145.48 1,088.14 Consolidated statements of operations and comprehensive income: RMB to $1.00 6.7249 6.4515 6.8966 KRW to $1.00 1,288.66 1,190.48 1,179.25 Recently Adopted Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 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. Recent Accounting Pronouncements Not Yet Adopted 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. 118 Table of Contents 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 customer facility. The following tables present disaggregated revenue information: Year Ended December 31, 2022 2021 2020 % Change 2022 v 2021 Single Wafer Cleaning, Tahoe and Semi-Critical Cleaning Equipment $ 272,939 $ 189,208 $ 131,248 44.3 % ECP (front-end and packaging), Furnace and Other Technologies 77,482 33,210 13,343 133.3 % Advanced Packaging (excluding ECP), Services & Spares 38,411 37,333 12,033 2.9 % Total Revenue By Product Category $ 388,832 $ 259,751 $ 156,624 49.7 % Wet cleaning and other front-end processing tools $ 308,528 $ 202,268 $ 136,317 52.5 % Advanced packaging, other processing tools, services and spares 80,304 57,483 20,307 39.7 % Total Revenue Front-end and Back-End $ 388,832 $ 259,751 $ 156,624 49.7 % Year Ended December 31, 2022 2021 2020 Mainland China $ 377,752 $ 258,615 $ 154,359 Other Regions 11,080 1,136 2,265 $ 388,832 $ 259,751 $ 156,624 Below are the accounts receivables and contract liabilities balances as of: December 31, December 31, 2022 2021 Accounts receivable $ 182,936 $ 105,553 Advances from customers 153,773 52,824 Deferred revenue 4,174 3,180 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 At December 31, 2022 and 2021, accounts receivable consisted of the following: December 31, 2022 2021 Accounts receivable $ 182,936 $ 105,553 Less: Allowance for doubtful accounts - - Total $ 182,936 $ 105,553 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 balances. 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 necessary. 119 Table of Contents NOTE 5 – INVENTORIES At December 31, 2022 and 2021, inventory consisted of the following: December 31, 2022 2021 Raw materials $ 167,135 $ 90,552 Work-in-process 79,126 35,840 Finished goods 146,911 91,724 Total inventory $ 393,172 $ 218,116 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. The Company 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: December 31, 2022 2021 Buildings and plants $ 35,864 $ - Manufacturing equipment 9,298 7,973 Office equipment 3,691 2,012 Transportation equipment 407 217 Leasehold improvement 7,173 4,134 Total cost 56,433 14,336 Less: Total accumulated depreciation and amortization ( 10,047 ) ( 5,900 ) Construction in progress 36,489 5,606 Total property, plant and equipment, net $ 82,875 $ 14,042 120 Table of Contents 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 A summary of land use right is as follows: December 31, 2022 2021 Land use right purchase amount $ 9,149 $ 9,966 Less: accumulated amortization ( 457 ) ( 299 ) Land use right, net $ 8,692 $ 9,667 In 2020 ACM Shanghai, through its wholly owned subsidiary, ACM Shengwei, entered into an agreement for a 50-year land use right in the Lingang region of Shanghai. In July 2020, ACM Shengwei began a multi-year construction project for a new 1,000,000 square foot development and production center that will incorporate new manufacturing systems and automation technologies and will provide floor space to support significantly increased production capacity and related research and development activities. The amortization for the years ended December 31, 2022 and 2021 was $ 189 and $ 199 , respectively. The annual amortization of land use right for each of the five succeeding years is as follows: Year ending December 31, 2023 $ 200 2024 200 2025 200 2026 200 2027 and thereafter 7,892 Total $ 8,692 NOTE 8 – OTHER LONG-TERM ASSETS At December 31, 2022 and 2021, other long-term assets consisted of the following: December 31, 2022 2021 Prepayment for property - Lingang $ - $ 42,111 Prepayment for property, plant and equipment and other non-current assets 704 440 Prepayment for property - lease deposit 393 429 Security deposit for land use right 708 773 Prepayment for property - Zhangjiang New Building 47,251 - Others 1,209 1,264 Total other long-term assets $ 50,265 $ 45,017 Prepayment for property – Zhangjiang New Building is for the planned new corporate headquarters of ACM Shanghai. 121 Table of Contents NOTE 9 – SHORT-TERM BORROWINGS At December 31, 2022 and December 31, 2021, short-term and long-term borrowings consisted of the following: December 31, 2022 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 % and fully repaid on June 7, 2022 .(1) $ - $ 4,616 Line of credit up to RMB 150,000 from China Everbright Bank, 1) due on October 21, 2022 with annual interest rate of 1.95 % and fully repaid on September 27, 2022 . - 3,407 2) due on August 17, 2023 with an annual interest rate of 3.40 % . 8,616 - 3) due on September 1, 2023 with an annual interest rate of 3.60 % . 8,616 - 4) due on December 16, 2023 with an annual interest rate of 3.00 %. 4,308 - 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 % and fully repaid on July 1, 2022 . - 1,568 2) due on August 11, 2023 with an annual interest rate of 3.60 % . 8,616 - 3) due on September 5, 2023 with an annual interest rate of 3.50 % . 5,744 - 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 %. 5,744 - 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 % . 1,292 - 2) due on July 27, 2023 with an annual interest rate of 3.50 %. 1,292 - 3) due on August 1, 2023 with an annual interest rate of 3.50 %. 1,292 - 4) due on August 3, 2023 with an annual interest rate of 3.50 % . 1,292 - 5) due on August 7, 2023 with an annual interest rate of 3.50 % . 1,293 - 6) due on August 14, 2023 with an annual interest rate of 3.50 % . 1,293 - 7) due on August 15, 2023 with an annual interest rate of 3.50 % . 1,293 - 8) due on August 21, 2023 with an annual interest rate of 3.50 % . 1,005 - 9) due on August 28, 2023 with an annual interest rate of 3.50 % . 1,292 - 10) due on September 13, 2023 with an annual interest rate of 3.50 % . 1,292 - 11) due on September 20, 2023 with an annual interest rate of 3.50 % . 1,293 - 12) due on September 29, 2023 with an annual interest rate of 3.50 % . 431 - Total $ 56,004 $ 9,591 (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: December 31, 2022 2021 Accrued commissions $ 14,890 $ 12,507 Accrued warranty 8,780 6,631 Accrued payroll 12,201 5,684 Accrued professional fees 724 785 Accrued machine testing fees 1,215 149 Accrued machine sales fees 5,874 - Others 8,517 5,979 Total $ 52,201 $ 31,735 122 Table of Contents NOTE 11 – LEASES The Company leases space under non-cancelable operating leases for several office and manufacturing locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions. Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, it applies a portfolio approach for determining the incremental borrowing rate. The components of lease expense were as follows: Year Ended December 31, 2022 2021 2020 Operating lease cost $ 2,816 $ 2,451 $ 1,541 Short-term lease cost 786 394 236 Lease cost $ 3,602 $ 2,845 $ 1,777 Supplemental cash flow information related to operating leases was as follows for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow from operating leases $ 3,602 $ 2,845 $ 1,777 Maturities of lease liabilities for all operating leases were as follows as of December 31, 2022: December 31, 2023 $ 1,461 2024 1,065 2025 67 2026 49 2027 10 Total lease payments $ 2,652 Less: Interest ( 163 ) Present value of lease liabilities $ 2,489 The weighted average remaining lease terms and discount rates for all operating leases were as follows as of December 31, 2022 and 2021: December 31, 2022 2021 Remaining lease term and discount rate: Weighted average remaining lease term (years) 2.00 1.37 Weighted average discount rate 4.25 % 4.54 % 123 Table of Contents NOTE 12 – LONG-TERM BORROWINGS At December 31, 2022 and 2021, long-term borrowings consisted of the following: December 31, 2022 2021 Loan from China Merchants Bank $ 15,265 $ 18,390 Loans from Bank of China 5,744 6,977 Less: Current portion ( 2,322 ) ( 2,410 ) $ 18,687 $ 22,957 The loan from China Merchants Bank is for the purpose of purchasing property in Lingang, Shanghai. The loan is repayable in 120 installments with the last installment due in November 2030 , with an annual interest rate of 4.65 %. The loan is pledged by the property of ACM Shengwei and guaranteed by ACM Research (Shanghai), Inc. Two loans from Bank of China are for the purpose of funding ACM Shanghai project expenditures. The loans bear interest at an annual rate of 2.6 % and are repayable in 6 installments, with the last installments due in June 2024 and September 2024 . Scheduled principal payments for the outstanding long-term loans as of December 31, 2022 are as follows: Year ending December 31, 2023 $ 2,322 2024 6,841 2025 1,813 2026 1,886 2027 and onwards 8,147 $ 21,009 For the year ended December 31, 2022, $ 845 of interest related to long-term borrowings was incurred, of which $ 845 was charged to interest expense and $ 0 was 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 Other long-term liabilities represent government subsidies received from PRC governmental authorities for development and commercialization of certain technology but not yet recognized (note 2). As of December 31, 2022 and 2021, other long-term liabilities consisted of the following unearned government subsidies: December 31, 2022 2021 Subsidies to Stress Free Polishing project, commenced in 2008 and 2017 $ 611 $ 791 Subsidies to Electro Copper Plating project, commenced in 2014 119 160 Subsidies to other cleaning tools, commenced in 2020 785 1,014 Subsidies to SW Lingang R&D development in 2021 4,266 5,958 Subsidies to CO2 Technology 965 - Other 575 524 Total $ 7,321 $ 8,447 124 Table of Contents NOTE 14 – LONG-TERM INVESTMENTS On September 6, 2017, ACM and Ninebell Co., Ltd. (“Ninebell”), a Korean company that is one of the Company’s principal material suppliers, entered into an ordinary share purchase agreement, effective as of September 11, 2017, pursuant to which Ninebell issued to ACM ordinary shares representing 20 % of Ninebell’s post-closing equity for a purchase price of $ 1,200 , and a common stock purchase agreement, effective as of September 11, 2017, pursuant to which ACM issued 400,002 shares of Class A common stock to Ninebell for a purchase price of $ 1,000 at $ 2.50 per share. The investment in Ninebell is accounted for under the equity method. On June 27, 2019, ACM Shanghai and Shengyi Semiconductor Technology Co., Ltd. (“Shengyi”), a company based in Wuxi, China that is one of the Company’s component suppliers, entered into an agreement pursuant to which Shengyi issued to ACM Shanghai shares representing 15 % of Shengyi’s post-closing equity for a purchase price of $ 109 . The investment in Shengyi is accounted for under the equity method. On September 5, 2019, ACM Shanghai entered into a Partnership Agreement with six other investors, as limited partners, and Beijing Shixi Qingliu Investment Co., Ltd., as general partner and manager, with respect to the formation of Hefei Shixi Chanheng Integrated Circuit Industry Venture Capital Fund Partnership (LP), a Chinese limited partnership based in Hefei, China. Pursuant to such Partnership Agreement, on September 30, 2019, ACM Shanghai invested RMB 30,000 ($ 4,200 ), which represented 10 % of the partnership’s total subscribed capital. The investment in Hefei Shixi Chanheng Integrated Circuit Industry Venture Capital Fund Partnership (LP) is accounted for under the equity method in accordance with ASC 323-30-S99-1. On October 29, 2021, ACM Shanghai and Waferworks (Shanghai) Co., Ltd, or Waferworks, a company based in Shanghai, China, and one of the Company’s customers, entered into an agreement pursuant to which Waferworks issued to ACM Shanghai shares representing 0.25 % of Waferworks’ post-closing equity for a purchase price of $ 1,568 . As there is no readily determinable fair value, the Company measures the investment in Waferworks at cost minus impairment, if any. 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. Under the 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. December 31, Equity investee: 2022 2021 Ninebell $ 5,199 $ 3,051 Wooil 1,011 - Shengyi 1,168 211 Hefei Shixi 8,645 7,864 Subtotal 16,023 11,126 Other investee: Waferworks 1,436 1,568 Total $ 17,459 $ 12,694 For the 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 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. 125 Table of Contents 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. 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 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 , of which (a) $ 1,161 was applied to reduce SMC’s obligations to ACM Shanghai under the SMC Note, and which ACM then withheld for its own account and applied to reduce ACM Shanghai’s obligations to ACM under the Intercompany Note, and (b) the remaining $ 882 was paid to SMC. In a separate transaction, ACM Shanghai repaid $ 1,161 of the SMC Investment in cash, which reduced the amount of the SMC Investment due to SMC to $ 1,820 . The SMC Note and SMC Investment are offsetting items in the Company’s consolidated balance sheet in accordance with ASC 210-20-45-1 up to April 30, 2020. In preparation for the STAR IPO, ACM Shanghai was required to terminate its financial relationship with SMC. In order to facilitate such termination, on April 30, 2020, ACM entered into two agreements relating to outstanding obligations among ACM Research, ACM Shanghai and SMC. Pursuant to such agreements: (i) ACM Shanghai assigned to ACM its rights under the SMC Note, including the right to receive payment of the $ 1,820 payable thereunder; (ii) ACM cancelled the outstanding $ 1,820 obligation of ACM Shanghai under the Intercompany Note; (iii) SMC surrendered its remaining 728,043 Warrant shares to ACM Research; and (iv) in exchange for such 728,043 Warrant shares, ACM agreed to deliver to SMC certain consideration (“SMC Consideration”) agreed upon by ACM Research and SMC, subject to obtaining certain PRC regulatory approvals. Under the agreements, if the required approvals were not obtained by December 31, 2023, ACM would cancel the SMC Note as consideration for the 728,043 Warrant shares. In a separate transaction in April 2020, ACM Shanghai repaid the remaining $ 1,820 of the SMC Investment in cash. For the period beginning April 30, 2020, the SMC Consideration is accounted for as a financial liability, and the Company applies fair value option to measure the SMC Consideration in accordance with ASC 825-10-15-4a. On April 30, 2020, the SMC Consideration was $ 9,715 which was for cancellation of the Warrant shares and recorded in equity. The financial liability was remeasured to fair value as of the end of each of the reporting periods. On July 29, 2020, ACM and SMC entered into an amended agreement under which, in settlement of the SMC Consideration, ACM issued to SMC a warrant (the “SMC 2020 Warrant”) to purchase 728,043 shares of Class A common stock at a purchase price of $ 2.50 per share, and ACM cancelled the SMC Note. The financial liability was remeasured to fair value of $ 21,679 as of July 29, 2020, and was retired with the issuance of the SMC 2020 Warrant. The Company recognized a change in fair value of financial liability of $ 11,964 for the year ended December 31, 2020, which was reflected in the consolidated statement of operations. The Company recorded the difference of $ 19,859 between the SMC 2020 Warrant of $ 21,679 and the SMC Note of $ 1,820 into equity. 126 Table of Contents The SMC 2020 Warrant was initially measured at fair value at the issuance date and classified as equity permanently in accordance with ASC 815. The fair value of the SMC 2020 Warrant amounted to $ 21,679 , based on the grant date using the Black-Scholes valuation model with the following assumptions: July 29, 2020 (6) Fair value of common share(1) $ 29.76 Expected term in years(2) 3.42 Volatility(3) 47.42 % Risk-free interest rate(4) 0.15 % Expected dividend(5) 0 % (1) Fair value of Class A common stock was the closing market price of the Class A common stock on July 29, 2020. (2) Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110. (3) Volatility is calculated based on the historical volatility of the stock of companies comparable to ACM in the period equal to the expected term of each grant. (4) Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant. (5) Expected dividend is assumed to be 0%, as ACM has no history or expectation of paying a dividend on its common stock. (6) Prior period results have been adjusted to reflect the Stock Split effected in March 2022. See Note 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. In return, ACM delivered 728,043 shares of ACM Class A common stock to SMC. NOTE 16 – TRADING SECURITIES Pursuant to a Partnership Agreement dated June 9, 2020 (the “Partnership Agreement”) and a Supplementary Agreement thereto dated June 15, 2020 (the “Supplementary Agreement”), ACM Shanghai became a limited partner of Qingdao Fortune-Tech Xinxing Capital Partnership (L.P.), a Chinese limited partnership based in Shanghai, China (the “Partnership”) of which China Fortune-Tech Capital Co., Ltd serves as general partner and thirteen unaffiliated entities serve, with ACM Shanghai, as limited partners. The Partnership was formed to establish a special fund that would purchase, in a strategic placement, shares of Semiconductor Manufacturing International Corporation, (“SMIC”) to be listed on the STAR Market. SMIC is a Shanghai-based foundry that has been a customer of the Company’s single-wafer wet-cleaning tools. The limited partners of the Partnership contributed to the fund a total of RMB 2.224 billion ($ 315.0 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 Partnership was apportioned to all of the limited partners in proportion to their respective capital contributions ( 4.3 % in the case of ACM Shanghai). All of the SMIC shares acquired by the Partnership are subject, under applicable Chinese laws, to lock-up restrictions that prevent sales of the shares for one year after the shares were acquired. Thereafter an individual limited partner will be able to instruct the general partner to sell, on behalf of the limited partner, all or a portion of the limited partner’s apportioned shares, subject to compliance with all laws, regulations, trading rules, the Partnership Agreement and the Supplementary Agreement. Alternatively, following the lock-up period, limited partners holding at least thirty percent of the total SMIC shares held by the Partnership will be able, pursuant to a call auction in accordance with the Supplementary Agreement, to cause the general partner to arrange to sell all of the shares desired to be offered by each of the limited partners that complies with procedural requirements provided in the Supplementary Agreement. As SMIC was listed on the STAR Market in July 2020, ACM Shanghai’s investment is accounted for as trading securities and is stated at fair market value. At December 31, 2020, 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. 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, 2022 and 2021. 127 Table of Contents 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. 783 Single 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: December 31, 2022 2021 Trading securities listed in Shanghai Stock Exchange Cost $ 14,779 $ 15,363 Market value $ 20,209 $ 29,498 For the 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 Ninebell 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 Shengyi is an equity investee of ACM Shanghai (Note 14) and is one of the Company’s component suppliers in China. The Company 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. 128 Table of Contents The following tables represents related party transactions with the equity investees as of December 31, 2022 and 2021 : December 31, Advances to related party 2022 2021 Ninebell $ 3,322 $ 2,383 December 31, Accounts payable 2022 2021 Ninebell $ 10,526 $ 5,703 Shengyi 3,942 2,196 Total $ 14,468 $ 7,899 Year Ended December 31 Purchase of materials 2022 2021 2020 Ninebell $ 40,985 $ 33,659 $ 15,251 Shengyi 5,350 2,434 2,300 Total $ 46,335 $ 36,093 $ 17,551 Year Ended December 31 Service fee charged by 2022 2021 2020 Shengyi $ 543 $ 561 $ 322 Ninebell - - 22 Total $ 543 $ 561 $ 344 NOTE 18 – COMMON STOCK 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. 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. During 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. During the 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, 2021, ACM issued 728,043 shares of Class A common stock upon the warrant exercise SMC (Note 15). At December 31, 2022 and 2021 , the number of shares of Class A common stock issued and outstanding was 54,655,286 and 53,608,929 , respectively. At December 31, 2022 and 2021 , the number of shares of Class B common stock issued and outstanding was 5,021,811 and 5,087,814 , respectively. 129 Table of Contents 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, and employees of options to purchase shares of ACM Shanghai’s common stock. The fair value of the stock options granted is estimated at the date of grant based on the Black-Scholes option pricing model using assumptions generally consistent with those used for ACM’s stock options. Because ACM Shanghai shares 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 compensation consists of employee and non-employee awards issued under the 1998 Stock Option Plan and the 2016 Omnibus Incentive Plan and as standalone options. ACM granted stock options to employees under the 2016 Omnibus Incentive Plan during the years ended December 31, 2022, 2021, and 2020. 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: Year Ended December 31, 2022 2021 2020 Stock-Based Compensation Expense: Cost of revenue $ 520 $ 397 $ 175 Sales and marketing expense 1,877 1,802 1,199 Research and development expense 2,565 1,115 763 General and administrative expense 2,768 1,803 3,491 $ 7,730 $ 5,117 $ 3,572 Year Ended December 31, 2022 2021 2020 Stock-based compensation expense by type: Employee stock option plan $ 7,346 $ 4,674 $ 4,900 Non-employee stock option plan 46 94 396 Subsidiary stock option plan 338 349 332 $ 7,730 $ 5,117 $ 3,572 The fair value of options granted to employees with a service period-based condition is estimated on the grant date using the Black-Scholes valuation model with the following assumptions: Year ended December 31, 2022 (6) 2021 (6) 2020 (6) Fair value of common share(1) $ 16.83 - 25.45 $ 12.79 - 17.02 $ 7.36 - 28.42 Expected term in years(2) 5.50 - 6.25 6.25 5.50 - 6.25 Volatility(3) 49.43 - 50.87 % 48.53 - 49.47 % 42.17 %- 48.15 % Risk-free interest rate(4) 1.7 %- 3.04 % 1.00 %- 1.44 % 0.44 %- 0.82 % Expected dividend(5) 0 % 0 % 0 % (1) Fair value of Class A common stock value was the closing market price of the Class A common stock on the grant date. (2) Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110. (3) Volatility is calculated based on the historical volatility of the stock of companies comparable to ACM in the period equal to the expected term of each grant. (4) Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant. (5) Expected dividend is assumed to be 0 % as ACM has no history or expectation of paying a dividend on its common stock. (6) Prior period results have been adjusted to reflect the Stock Split effected in March 2022. See Note 2 for details. 130 Table of Contents During the years ended December 31, 2022 and 2021, no options were granted to employees with a market-based condition. During 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: Year Ended December 31, 2020 (6) Fair value of common share(1) $ 7.36 Expected term in years(2) 9.20 - 9.80 Volatility(3) 45.10 % Risk-free interest rate(4) 2.68 % Expected dividend(5) 0 % (1) Fair value of Class A common stock value was the closing market price of the Class A common stock on the grant date. (2) Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110. (3) Volatility is calculated based on the historical volatility of the stock of companies comparable to ACM in the period equal to the expected term of each grant. (4) Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant. (5) Expected dividend is assumed to be 0 %, as ACM has no history or expectation of paying a dividend on its common stock. (6) Prior period results have been adjusted to reflect the Stock Split effected in March 2022. See Note 2 for details. 131 Table of Contents Employee Awards The following table summarizes the Company’s employee share option activities during the years ended December 31, 2020, 2021 and 2022: Number of Option Shares (1) Weighted Average Grant Date Fair Value (1) Weighted Average Exercise Price (1) Weighted Average Remaining Contractual Term Outstanding at December 31, 2019 8,982,189 $ 0.86 $ 2.26 7.05 years Granted 2,359,197 4.06 9.72 Exercised ( 1,641,567 ) 0.45 1.26 Forfeited/cancelled ( 125,586 ) 1.60 4.22 Outstanding at December 31, 2020 9,574,233 $ 1.71 $ 4.24 7.13 years Granted 421,200 16.05 35.38 Exercised ( 1,431,174 ) 0.82 2.10 Forfeited/cancelled ( 162,012 ) 8.32 19.03 Outstanding at December 31, 2021 8,402,247 $ 2.45 $ 5.88 6.53 years Granted 1,653,300 10.31 22.41 Exercised ( 416,546 ) 1.20 2.97 Forfeited/cancelled ( 427,360 ) 11.41 25.24 Outstanding at December 31, 2022 9,211,641 $ 3.58 $ 8.24 6.36 years Vested and exercisable at December 31, 2022 6,346,725 (1) 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, $ 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. Non-employee Awards The following table summarizes the Company’s non-employee share option activities during the years ended December 31, 2020, 2021 and 2022: Number of Option Shares (1) Weighted Average Grant Date Fair Value (1) Weighted Average Exercise Price (1) Weighted Average Remaining Contractual Term Outstanding at December 31, 2019 3,304,839 $ 0.27 $ 0.90 5.85 years Granted 60,000 3.43 8.53 Exercised ( 855,945 ) 0.29 1.06 Forfeited/cancelled ( 780 ) 0.10 0.25 Outstanding at December 31, 2020 2,508,114 $ 0.34 $ 1.02 4.92 years Exercised ( 439,629 ) 0.37 1.28 Forfeited/cancelled ( 1,467 ) 0.11 0.28 Outstanding at December 31, 2021 2,067,018 $ 0.33 $ 0.97 3.98 years Exercised ( 563,808 ) 0.21 0.51 Forfeited/cancelled ( 19,552 ) 0.21 0.48 Outstanding at December 31, 2022 1,483,658 $ 0.38 $ 1.15 3.68 years Vested and exercisable at December 31, 2022 1,464,908 (1) 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 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. 132 Table of Contents ACM Shanghai Option Grants The following table summarizes the ACM Shanghai employee stock option activities during the years ended December 31, 2022 and 2021: Number of Option Shares in ACM Shanghai Weighted Average Grant Date Fair Value Weighted Average Exercise Price Weighted Average Remaining Contractual Term Outstanding at December 31, 2020 5,423,654 $ 0.23 $ 1.89 3.50 years Forfeited/cancelled ( 46,154 ) 0.24 2.04 Outstanding at December 31, 2021 5,377,500 $ 0.24 $ 2.04 2.50 years Outstanding at December 31, 2022 5,377,500 $ 0.23 $ 1.93 1.76 years Vested and exercisable at December 31, 2022 2,688,771 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. As of 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 0.8 and 1.5 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures. NOTE 20 – INCOME TAXES The following represent the U.S. and foreign components of income before income tax for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 (in thousands) U.S. federal $ ( 3,456 ) $ ( 4,389 ) $ ( 16,688 ) Foreign 70,818 47,444 35,983 Income before income taxes $ 67,362 $ 43,055 $ 19,295 The following represent components of the income tax benefit (expense) for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 (in thousands) Current: U.S. federal $ ( 479 ) $ ( 91 ) $ ( 61 ) U.S. state ( 18 ) ( 2 ) ( 2 ) Total U.S. current tax benefit (expense) ( 497 ) ( 93 ) ( 63 ) Foreign ( 11,139 ) ( 2,195 ) ( 2,014 ) Total current tax expense ( 11,636 ) ( 2,288 ) ( 2,077 ) Deferred: U.S. federal ( 10,927 ) 2,089 7,325 U.S. state 8 - - Total U.S. deferred tax benefit (expense) ( 10,919 ) 2,089 7,325 Foreign 5,757 65 ( 2,866 ) Total deferred tax benefit ( 5,162 ) 2,154 4,459 Total income tax benefit (expense) $ ( 16,798 ) $ ( 134 ) $ 2,382 133 Table of Contents 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 below: Year Ended December 31, 2022 2021 2020 Deferred tax assets: Net operating loss carry forwards (offshore) $ 1,456 $ 522 $ 323 Net operating loss carry forwards (U.S.) and credit 1,246 12,173 9,981 Deferred revenue (offshore) 1,826 361 556 Accruals (U.S.) 100 15 22 Reserves and other (offshore) 3,655 1,528 884 Stock-based compensation (U.S.) 3,289 2,283 1,599 Property and equipment (U.S.) - 1 164 Lease liability 414 559 659 Total gross deferred tax assets 11,986 17,442 14,188 Less: valuation allowance ( 1,782 ) ( 919 ) ( 848 ) Total deferred tax assets 10,204 16,523 13,340 Deferred tax liabilities: Fixed assets ( 443 ) ( 589 ) ( 697 ) Deferred revenue (offshore) - ( 1,486 ) ( 967 ) Equity Investments and unrealized gain on trading securities ( 3,059 ) ( 2,584 ) ( 1,886 ) Total deferred tax liabilities ( 3,502 ) ( 4,659 ) ( 3,550 ) Deferred tax assets, net $ 6,702 $ 11,864 $ 9,790 The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available 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 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. 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 $ 1,456 and $ 522 for PRC income tax purposes. 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. state purposes and $ 6,474 and $ 2,086 for PRC income tax purposes . Such losses begin expiring in 2037 , 2032 and 2025 for U.S. federal, U.S. state and PRC income tax purposes, respectively. As of December 31, 2022 and 2021, the Company had research credit carry-forwards of, respectively, $ 61 and $ 200 for U.S. federal purposes and $ 377 and $ 377 for U.S. state purposes. Such credits begin expiring in 2023 for U.S. federal carry-forwards. There is no expiration date for U.S. state carry-forwards. Under provisions of the U.S. Internal Revenue Code (the “IRC”), a limitation applies to the use of the U.S. net operating loss and credit carry-forwards that would be applicable if ACM experiences an “ownership change,” as defined in IRC Section 382. 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. 134 Table of Contents The Company’s effective tax rate differs from statutory rates of 21 % for U.S. federal income tax purposes and 12.5 % to 25 % for 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 non-US research expense. 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, 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. 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, 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. federal income tax rate of 21 % to pretax income as a result of the following: Year Ended December 31, 2022 2021 2020 Effective tax rate reconciliation: Income tax provision at statutory rate 21.00 % 21.00 % 21.00 % Stock Compensation ( 2.72 ) ( 12.75 ) ( 36.99 ) Foreign rate differential ( 9.43 ) ( 11.60 ) ( 5.07 ) Other permanent difference ( 0.26 ) ( 0.23 ) 11.71 Foreign income taxed in US 19.86 10.32 6.05 Foreign Research Expense ( 4.79 ) ( 6.59 ) ( 8.80 ) Change in valuation allowance 1.28 0.16 ( 0.25 ) Total income tax expense (benefit) 24.94 % 0.31 % ( 12.35 )% Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The aggregate changes in the balance of gross unrecognized tax benefits, which excludes interest and penalties, for the years ended December 31, 2022 and 2021, were as follows: Year Ended December 31, 2022 2021 2020 Beginning balance $ 6,066 $ 570 $ 44 Increase of unrecognized tax benefits taken in prior years - 52 116 Increase of unrecognized tax benefits related to current year 2,623 5,476 410 Reductions for tax positions related to prior years ( 241 ) ( 32 ) - Ending balance $ 8,448 $ 6,066 $ 570 The Company is subject to taxation in the United States, California and foreign jurisdictions. The federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for the tax years ended December 31, 2000 through December 31, 2022. To the extent the Company has tax attribute carry-forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the U.S. Internal Revenue Service or by state or foreign tax authorities to the extent utilized in a future period. The Company had $ 8,448 and $ 6,066 of unrecognized tax benefits as of December 31, 2022 and 2021, respectively. 135 Table of Contents The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. 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. 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 The Company is engaged in the developing, manufacture and sale of single-wafer wet cleaning equipment, which have been organized as one reporting segment as the equipment has substantially similar nature and economic characteristics. The Company’s principal operating decision maker, 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. 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 located. Long-lived assets by geographic region as of the years ended were as follows: December 31, 2022 2021 Long-lived assets by geography: Mainland China $ 140,481 $ 71,534 South Korea 3,830 1,324 United States 10 50 Total $ 144,321 $ 72,908 NOTE 22 – COMMITMENTS AND CONTINGENCIES The Company leases offices under non-cancelable operating lease agreements. See note 11 for future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more. As of 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. 136 Table of Contents In the normal course of business, the Company is subject to contingencies, including legal proceedings and environmental claims arising out of the normal course of businesses that relate to a wide range of matters, including among others, contracts breach liability. The Company records accruals for such contingencies based upon the assessment of the probability of occurrence and, where determinable, an estimate of the liability. Management may consider many factors in making these assessments including past history, scientific evidence and the specifics of each matter. Some of these contingencies involve claims that are subject to substantial uncertainties and unascertainable damages. The Company’s management has evaluated all such proceedings and claims that existed as of 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. 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. 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. 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 2020: 137 Table of Contents CONDENSED BALANCE SHEETS December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 23,853 $ 29,536 Accounts receivable 24 16 Due from intercompany - - Other receivable 5,017 48 Prepaid expenses 134 594 Total current assets 29,028 30,194 Deferred tax assets 6,703 13,166 Investment in unconsolidated subsidiaries 653,926 637,961 Total assets $ 689,657 $ 681,321 Liabilities and Stockholders’ Equity Accounts payable $ 236 $ 875 Other payables 4,409 404 Income taxes payable 3,469 254 FIN-48 payable 6,686 2,282 Deferred tax liability - 1,302 Total liabilities 14,800 5,117 Total stockholders’ equity 674,857 676,204 Total liabilities and stockholder’s equity $ 689,657 $ 681,321 CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, 2022 2021 2020 Revenue $ 569 $ 16 $ 1,776 Cost of revenue - - ( 1,707 ) Gross profit 569 16 69 Operating expenses: Sales and marketing expenses ( 3,193 ) ( 2,443 ) ( 1,361 ) General and administrative expenses ( 5,421 ) ( 5,116 ) ( 5,010 ) Research and development expenses - - - Loss from operations ( 8,045 ) ( 7,543 ) ( 6,302 ) Equity in earnings of unconsolidated subsidiaries 32,145 43,866 36,273 Change in fair value of financial liability - - ( 11,964 ) Interest income, net 57 54 90 Interest expense, net ( 7 ) - - Other income, net 2,148 1,380 683 Income before income taxes 26,298 37,757 18,780 Income tax benefit 12,965 - - Net income $ 39,263 $ 37,757 $ 18,780 138 Table of Contents CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 2022 2021 2020 Net cash used in operating activities $ ( 5,997 ) $ ( 5,902 ) $ ( 290 ) Net cash used by investing activities ( 1,000 ) - - Net cash provided by financing activities 1,314 5,250 2,745 Net increase (decrease) in cash and cash equivalents ( 5,683 ) ( 652 ) 2,455 Cash and cash equivalents, beginning of year 29,536 30,188 27,733 Cash and cash equivalents, end of year $ 23,853 $ 29,536 $ 30,188 139 Table of Contents Item 9. 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).