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● | performance of products, including particle removal efficiency, rate of damage to wafer structures, high temperature chemistry, throughput, tool uptime and reliability, safety, chemical waste treatment, and environmental impact; |
● | gap filling capability, the deposited film thickness uniformity within wafer and wafer to wafer, particle generated on the wafer during the processes; |
● | service support capability and spare parts delivery time; innovation and development of functionality and features that are must-haves for advanced fabrication nodes; |
● | ability to anticipate customer requirements, especially for advanced process nodes of less than 45nm; ability to identify new process applications; |
● | brand recognition and reputation; and |
● | skill and capability of personnel, including design engineers, manufacturing engineers and technicians, application engineers, and service engineers. |
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service support capability and spare parts delivery time;
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innovation and development of functionality and features that are must-haves for advanced fabrication nodes;
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ability to anticipate customer requirements, especially for advanced process nodes of less than 45nm;
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ability to identify new process applications;
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brand recognition and reputation; and
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skill and capability of personnel, including design engineers, manufacturing engineers and technicians, application engineers, and service engineers.
In addition, semiconductor manufacturers must make a substantial investment to qualify and integrate new equipment into semiconductor production lines. Some manufacturers have announced they will fabricatebegan fabricating chips for the 10nm5nm node beginning in 20172020 and the 7nm3nm node commencing in 2018, and we have one customer that currently is evaluating implementation of our equipment for both the 10nm and 7nm nodes.2022. Once a semiconductor manufacturer has selected a particular supplier’s equipment and qualified it for production, the manufacturer generally maintains that selection for that specific production application and technology node as long as the supplier’s products demonstrate performance to specification in the installed base. Accordingly, we may experience difficulty in selling to a given manufacturer if that manufacturer has qualified a competitor’s equipment. If, however, that cleaning equipment constrains chip yield, we expect, based on our experience to date, that the manufacturer will evaluate implementing new equipment that cleans more effectively.
We focus on the high-end fabrication market with advanced nodes, and we believe we compete favorably with respect to the factors described above. Most of our competitors offer single-wafer cleaning products using jet spray technology, which has relatively poor particle removal efficiency for random defects less than 30nm in size and presents increased risk of damage to the fragile patterned architectures of wafers at advanced process nodes. Certain of our competitors offer single-wafer cleaning products with megasonic cleaning capability, but we believe these products, which use conventional megasonic technology, are unable to maintain energy dose uniformity on the entire wafer and often lack the ability to repeat the requisite uniform energy dose wafer to wafer in production, resulting in poor efficiency in removing random defects, longer processing time and greater loss of material. In addition, these conventional megasonic products generate transient cavitation, which results in more incidents of damage to wafer structures with feature sizes of 70nm or less. We design our cleaning tools equipped with our proprietary SAPS, TEBO and TEBOTahoe technologies, which we believe offer better performance, much less chemical consumption, and lower cost of consumables, including at advanced process nodes of 22nm or less. Moreover, with our operations based in Shanghai, we are well positioned to take advantage of the Chinese government’s policies to develop an independent domestic semiconductor supply chain.
Employees
As of December 31, 2017,2021, we had 191877 full-time equivalent employees, of whom 2285 were in administration, 50200 were in manufacturing, 80371 were in research and development, and 39 221were in sales and marketing and customer services. Of these employees, 183783 were located in mainland China and the PRC, 4Taiwan region, 84 were located in Korea and 410 were based in the United States.
We have never had a work stoppage, and none of our employees are represented by a labor organization or subject to any collective bargaining arrangements. We consider our employee relations to be good.
We compete in the highly competitive semiconductor equipment industry, with operations principally in the PRC. Attracting, developing, and retaining skilled and experienced employees in research and development, manufacturing, sales and marketing, and other positions is crucial to our ability to compete effectively. Our ability to recruit and retain such employees depends on a number of factors, including our corporate culture and work environment, informed by our values and behaviors, our corporate philosophy of talent development and career opportunities, and compensation and benefits.
Recruitment, Retention and Benefits
To attract and retain qualified employees and key talent, we offer total compensation packages that are competitive with comparable companies, particularly in the PRC and, specifically, Shanghai.
We provide training and development programs to our employees, and we have trained many of our key engineers and managers for more than a decade. Retention of these key employees is critical to secure our future growth and technology development. To assist in employee retention and recruitment, we intend to offer employee housing in the Lingang region of Shanghai in connection with ACM Shanghai’s acquisition of a land use right in Lingang, where we began construction of a new research and development center and factory in July 2020.
Health and Safety, Pandemic Response
When it comes to employee safety, we are committed to providing a safe work environment for our employees that meets or exceeds local environmental, health, and safety laws and regulations. As a result of the COVID-19 pandemic, we have augmented certain of our normal business practices to ensure that we promote health and safety for our employees. We have established safety policies and protocols, and we regularly update our employees with respect to any changes. A majority of our workforce provide services that cannot be performed remotely, and we have prioritized the health of those individuals that continue to work at our facilities. We have provided personal protective equipment and cleaning supplies. We require masks to be worn in our facilities and have prohibited all non-essential domestic and international travel for all employees. We have also provided general information updates and support for our employees to ensure that they have resources and information to protect their health and that of those around them, including their families and co-workers.
COVID-19 Pandemic
Following its initial outbreak in December 2019, COVID–19, or the coronavirus, spread across the PRC, the United States and globally. The COVID–19 outbreak has affected our business and operating results since the first quarter of 2020. Since that time, travel between our offices in the United States and our facilities in the PRC has been and will likely continue to be restricted, which has and may continue to impact our ability to effectively operate our company and to oversee our operations. The COVID–19 situation continues to evolve, and it is impossible for us to predict the effect and ultimate impact of the COVID–19 outbreak on our business operations and results. We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business, including our operations, customers, suppliers and projects. While the ongoing regulatory measures instituted or recommended in response to COVID–19 are expected to be temporary, the duration of the business disruptions, and related financial impact, of the outbreak cannot be estimated at this time.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID‑19 Pandemic” of Part II of this report for additional discussion of our expectations and estimates related to the COVID-19 Pandemic.
Environmental
Severe weather events, including earthquakes, fires, floods, heat waves, hurricanes and other environmental disasters, could pose a threat to our manufacturing and research and development activities through physical damage to our operating facilities or equipment or disruption of power supply or telecommunications infrastructure. The frequency and intensity of severe weather events are reportedly increasing throughout the world as part of broader climate changes. Global weather pattern changes may also pose long-term risks of physical impacts to our business. We maintain disaster recovery and business continuity plans that would be implemented to help us recover in the event of severe weather events that interrupt our business. See “Item 1A. Risk FactorsFactors—General—Our production facilities could be damaged or disrupted by a natural disaster, war, terrorist attacks or other catastrophic events.”
Concerns about climate change have resulted in various laws and regulations that are intended to limit carbon emissions and address other environmental concerns. In recent years, the PRC, where our production facilities are located, has undertaken comprehensive sustainability initiatives that are requiring companies to meet new environmental standards and deal with higher energy and other production costs. Environmental laws and regulations may impose new or unexpected either directly through, for example, higher energy costs or indirectly through increased costs of compliance or of failing to comply with these laws and regulations. These laws and regulations might increase the cost of construction, maintenance and operation of our new research and development center and factory in the Lingang region of Shanghai.
We do not currently expect that existing or pending climate change laws and regulations will be material to our results of operations in the foreseeable future. Climate change could, however, have a direct effect on our customer base of semiconductor fabricators, whose operations typically require copious quantities of power and water and a number of chemicals. Chip fabrication operations often result in significant amounts of wastewater, which can contain a number of harmful contaminants, including antimony, arsenic, hydrofluoric acid and hydrogen peroxide, that historically have resulted in groundwater pollution and related violations of environmental laws. Moreover, water and chemical demands for semiconductor fabrication are expected to increase with the production of more advanced chips at smaller process nodes. As a result, some leading chip fabricators have begun to invest in conservation and treatment technologies for water and chemicals.
We have designed some of our tools to require significantly reduced levels of environmentally harmful chemicals, which helps customers face increased environmental laws and regulations. SAPS and TEBO technologies use environmentally friendly dilute chemicals, such as dilute hydrofluoric acid, RCA SC-1 solution, ozonated de-ionized water and functional de-ionized water with dissolved hydrogen. In interconnect and barrier metals applications based on SAPS technology, for example, these chemical solutions take the place of chemicals such as piranha solution, a high-temperature mixture of sulfuric acid and hydrogen peroxide used by conventional wet wafer cleaning processes. Similarly, Tahoe technology delivers high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is typically consumed by conventional high-temperature single-wafer cleaning tools. For additional information, see “—Our Technology and Product Offerings—Wet Cleaning Equipment for Front End Production Processes.”
Available Information
We are required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission, or the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, are also available free of charge on our website at www.acmrcsh.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
Investors should note that we announce material information to our investors and others using filings with the SEC, press releases, public conference calls, webcasts or our website (www.acmrcsh.com), including news and announcements regarding our financial performance, key personnel, our brands and our business strategy. Information that we post on our corporate website could be deemed material to investors. We encourage investors to review the information we post on these channels. We may from time to time update the list of channels we will use to communicate information that could be deemed material and will post information about any such change on www.acmrcsh.com. The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this or any of our other filings with the SEC.
Investing in Class A common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information contained in this report, including the consolidated financial statements and related notes set forth in “Item 1. Financial Statements” of Part I above, before making an investment decision. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, results of operations or cash flows. In any such case, the trading price of Class A common stock could decline, and you may lose all or part of your investment. This report also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.
Risk Factor Summary
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. The risks are discussed more fully below and include, but are not limited to, the risks summarized below.
Risks Related to Our Business and Our Industry
● | our potential future needs for additional capital that may not be available at all or on terms acceptable to us; |
● | the cyclicality in the semiconductor industry that may lead to substantial variations in demand for our products, |
● | industry manufacturers of integrated circuits, or chips, adopting our Space Alternated Phase Shift or SAPS, Timely Energized Bubble Oscillation or TEBO, Tahoe and Electro-Chemical Plating or ECP, and furnace and other capital equipment, or tools; |
● | our SAPS, TEBO, Tahoe, ECP, furnace and other technologies not achieving widespread market acceptance; |
● | our ability to continue to enhance our existing single-wafer wet cleaning tools and identifying and entering new product markets; |
● | our ability to establish and maintain a reputation for credibility and product quality; |
● | our ability to expand our customer base; |
● | our dependence on a small number of customers for a substantial portion of our revenue; |
● | our long and unpredictable sales cycle, including our incurrence of significant expenses long before we can recognize revenue from new products, if at all; |
● | difficulties in forecasting demand for our tools; |
● | our reliance on third parties to manufacture significant portions of our tools and our ability to manage our relationships with these parties; |
● | any shortage of components or subassemblies, which could result in delayed delivery of products to us or in increased costs to us; |
● | our dependence on a limited number of suppliers, including single source suppliers, for critical components and subassemblies; |
● | our dependence on our Chief Executive Officer and President and other senior management and key employees; |
We have incurred significant losses since our inception and we are uncertain about our future profitability.Regulatory Risks
● | changes in government trade policies that could limit the demand for our tools and increase the cost of our tools; |
● | regulatory action limiting our ability to sell our tools to Chinese customers; |
● | changes in political and economic policies with respect to the People’s Republic of China or PRC; |
● | the PRC’s currency exchange control and government restrictions on investment repatriation may impact our ability to transfer funds outside of the PRC; |
We have incurred significant losses since our inception in 1998, and as of December 31, 2017 we had an accumulated deficit of $10.0 million. We may not be able to generate sufficient revenue to achieve and sustain profitability. We expect our costs to increase in future periods, which could negatively affect our future operating results if our revenue does not increase. In particular, we expect to continue to expend substantial financial and other resources on:
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research and development, including continued investments in our research and development team;
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sales and marketing, including a significant expansion of our sales organization, both domestically and internationally, building our brand, and providing our single-wafer wet cleaning equipment and other capital equipment, or tools, for evaluation by customers;
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the cost of goods being manufactured and sold for our installed base;
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expansion of field service; and
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general and administrative expenses, including legal and accounting expenses related to being a public company.
These investments may not result in increased revenue or growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, then our business, financial position and results of operations will be harmed and we may not be able to achieve or maintain profitability over the long term. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our financial performance may be harmed and we may not achieve or maintain profitability in the future.
We currently have limited revenue and may not be able to regain or maintain profitability.
To date we have only generated limited revenue from sales of our products. Our revenue totaled $27.4 million in 2016 and $36.5 million in 2017. Our revenue was not sufficient to cover our operating expenses prior to 2015, and our net income decreased to $2.4 million in 2016 from $7.9 million in 2015. In 2017 we incurred an operating loss of $0.9 million, as compared to net income of $2.4 million in 2016. Our ability to generate significant revenue and operate profitably depends upon our ability to commercialize our Ultra C single-wafer wet cleaning equipment based on our SAPS and TEBO technologies. Our ability to generate significant product revenue from our current tools or future tool candidates also depends on a number of additional factors, including our ability to:
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achieve market acceptance of Ultra C equipment based on SAPS technology as well as Ultra C equipment based on TEBO technology;
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increase our customer base, including the establishment of relationships with companies in the United States;
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continue to expand our supplier relationships with third parties; and
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establish and maintain our reputation for providing efficient on-time delivery of high quality products.
● | the inability of the U.S. Public Company Accounting Oversight Board, or PCAOB, to inspect our auditor, as a registered public accounting firm operating in the PRC and the adoption of proposed legislation related to companies operating in “restrictive markets”; |
If we fail to regain and sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce our operations or even shut down.
We may require additional capital in the future and we cannot give any assurance that such capital will be available at all or available on terms acceptable to us and, if it is available, additional capital raised by us may dilute holders of Class A common stock.
We may need to raise funds in the future, depending on many factors, including:
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the costs of applying our existing technologies to new or enhanced products;
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the costs of developing new technologies and introducing new products;
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the costs associated with protecting our intellectual property;
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the costs associated with our expansion, including capital expenditures, increasing our sales and marketing and service and support efforts, and expanding our geographic operations;
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our ability to continue to obtain governmental subsidies for developmental projects in the future;
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future debt repayment obligations; and
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the number and timing of any future acquisitions.
To the extent that our existing sources of cash, together with any cash generated from operations, are insufficient to fund our activities, we may need to raise additional funds through public or private financings, strategic relationships, or other arrangements. Additional funding may not be available to us on acceptable terms or at all. If adequate funding is not available, we may be required to reduce expenditures, including curtailing our growth strategies and reducing our product development efforts, or to forego acquisition opportunities.
If we succeed in raising additional funds through the issuance of equity or convertible securities, then the issuance could result in substantial dilution to existing stockholders. Furthermore, the holders of these new securities or debt may have rights, preferences and privileges senior to those of the holders of Class A common stock. In addition, any preferred equity issuance or debt financing that we may obtain in the future could have restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
Our quarterly operating results can be difficult to predict and can fluctuate substantially, which could result in volatility in the price of Class A common stock.
Our quarterly revenue and other operating results have varied in the past and are likely to continue to vary significantly from quarter to quarter. Accordingly, you should not rely upon our past quarterly financial results as indicators of future performance. Any variations in our quarter-to-quarter performance may cause our stock price to fluctuate. Our financial results in any given quarter can be influenced by a variety of factors, including:
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the cyclicality of the semiconductor industry and the related impact on the purchase of equipment used in the manufacture of integrated circuits, or chips;
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the timing of purchases of our tools by chip fabricators, which order types of tools based on multi-year capital plans under which the number and dollar amount of tool purchases can vary significantly from year to year;
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the relatively high average selling price of our tools and our dependence on a limited number of customers for a substantial portion of our revenue in any period, whereby the timing and volume of purchase orders or cancellations from our customers could significantly reduce our revenue for that period;
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the significant expenditures required to customize our products often exceed the deposits received from our customers;
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the lead time required to manufacture our tools;
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the timing of recognizing revenue due to the timing of shipment and acceptance of our tools;
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our ability to sell additional tools to existing customers;
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the changes in customer specifications or requirements;
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the length of our product sales cycle;
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changes in our product mix, including the mix of systems, upgrades, spare parts and service;
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the timing of our product releases or upgrades or announcements of product releases or upgrades by us or our competitors, including changes in customer orders in anticipation of new products or product enhancements;
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our ability to enhance our tools with new and better functionality that meet customer requirements and changing industry trends;
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constraints on our suppliers’ capacity;
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the timing of investments in research and development related to releasing new applications of our technologies and new products;
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delays in the development and manufacture of our new products and upgraded versions of our products and the market acceptance of these products when introduced;
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our ability to control costs, including operating expenses and the costs of the components and subassemblies used in our products;
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the costs related to the acquisition and integration of product lines, technologies or businesses; and
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the costs associated with protecting our intellectual property, including defending our intellectual property against third-party claims or litigation.
Seasonality has played an increasingly important role in the market for chip manufacturing tools. The period of November through February has been a particularly weak period historically for manufacturers of chip tools, in part because capital equipment needed to support manufacturing of chips for the December holidays usually needs to be in the supply chain by no later than October and chip makers in Asia often wait until after Chinese New Year, which occurs in January or February, before implementing their capital acquisition plans. The timing of new product releases also has an impact on seasonality, with the acquisition of manufacturing equipment occurring six to nine months before a new release.
Many of these factors are beyond our control, and the occurrence of one or more of them could cause our operating results to vary widely. As a result, it is difficult for us to forecast our quarterly revenue accurately. Our results of operations for any quarter may not be indicative of results for future quarters and quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Variability in our periodic operating results could lead to volatility in our stock price. Because a substantial proportion of our expenses are relatively fixed in the short term, our results of operations will suffer if revenue falls below our expectations in a particular quarter, which could cause the price of Class A common stock to decline. Moreover, as a result of any of the foregoing factors, our operating results might not meet our announced guidance or expectations of public market analysts or investors, in which case the price of Class A common stock could decrease significantly.
Cyclicality in the semiconductor industry is likely to lead to substantial variations in demand for our products, and as a result our operating results could be adversely affected.
The chip industry has historically been cyclic and is characterized by wide fluctuations in product supply and demand. From time to time, this industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product and technology cycles, excess inventories and declines in general economic conditions. This cyclicality could cause our operating results to decline dramatically from one period to the next.
Our business depends upon the capital spending of chip manufacturers, which, in turn, depends upon the current and anticipated market demand for chips. During industry downturns, chip manufacturers often have excess manufacturing capacity and may experience reductions in profitability due to lower sales and increased pricing pressure for their products. As a result, chip manufacturers generally sharply curtail their spending during industry downturns and historically have lowered their spending more than the decline in their revenues. If we are unable to control our expenses adequately in response to lower revenue from our customers, our operating results will suffer and we could experience operating losses.
Conversely, during industry upturns we must successfully increase production output to meet expected customer demand. This may require us or our suppliers, including third-party contractors, to order additional inventory, hire additional employees and expand manufacturing capacity. If we are unable to respond to a rapid increase in demand for our tools on a timely basis, or if we misjudge the timing, duration or magnitude of such an increase in demand, we may lose business to our competitors or incur increased costs disproportionate to any gains in revenue, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.
The PRC government is implementing focused policies, including state-led investment initiatives, that aim to create and support an independent domestic semiconductor supply chain spanning from design to final system production. If these policies, which include loans and subsidies, result in lower demand for equipment than is expected by equipment manufacturers, the resulting overcapacity in the chip manufacturing equipment market could lead to excess inventory and price discounting that could have a material adverse effect on our business and operating results.
Our success will depend on industry chip manufacturers adopting our SAPS and TEBO technologies.
To date our strategy for commercializing our tools has been to place them with selected industry leaders in the manufacturing of memory and logic chips, the two largest chip categories, to enable those leading manufacturers to evaluate our technologies, and then leverage our reputation to gain broader market acceptance. In order for these industry leaders to adopt our tools, we need to establish our credibility by demonstrating the differentiated, innovative nature of our SAPS and TEBO technologies. Our SAPS technology has been tested and purchased by industry leaders, but has not achieved, and may never achieve, widespread market acceptance. We have initiated a similar commercialization process for our TEBO technology with a selected group of industry leaders. If these leading manufacturers do not agree that our technologies add significant value over conventional technologies or do not otherwise accept and use our tools, we may need to spend a significant amount of time and resources to enhance our technologies or develop new technologies. Even if these leading manufacturers adopt our technologies, other manufacturers may not choose to accept and adopt our tools and our products may not achieve widespread adoption. Any of the above factors would have a material adverse effect on our business, results of operations and financial condition.
If our SAPS and TEBO technologies do not achieve widespread market acceptance, we will not be able to compete effectively.
The commercial success of our tools will depend, in part, on gaining substantial market acceptance by chip manufacturers. Our ability to gain acceptance for our products will depend upon a number of factors, including:
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our ability to demonstrate the differentiated, innovative nature of our SAPS and TEBO technologies and the advantages of our tools over those of our competitors;
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compatibility of our tools with existing or potential customers’ manufacturing processes and products;
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the level of customer service available to support our products; and
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the experiences our customers have with our products.
In addition, obtaining orders from new customers may be difficult because many chip manufacturers have pre-existing relationships with our competitors. Chip manufacturers must make a substantial investment to qualify and integrate wet processing equipment into a chip production line. Due, in part, to the cost of manufacturing equipment and the investment necessary to integrate a particular manufacturing process, a chip manufacturer that has selected a particular supplier’s equipment and qualified that equipment for production typically continues to use that equipment for the specific production application and process node, which is the minimum line width on a chip, as long as that equipment continues to meet performance specifications. Some of our potential and existing customers may prefer larger, more established vendors from which they can purchase equipment for a wider variety of process steps than our tools address. Further, because the cleaning process with our TEBO equipment can be up to five times longer than cleaning processes based on other technologies, we must convince chip manufacturers of the innovative, differentiated nature of our technologies and the benefits associated with using our tools. If we are unable to obtain new customers and continue to achieve widespread market acceptance of our tools, then our business, operations, financial results and growth prospects will be materially and adversely affected.
If we do not continue to enhance our existing single-wafer wet cleaning tools and achieve market acceptance, we will not be able to compete effectively.
We operate in an industry that is subject to evolving standards, rapid technological changes and changes in customer demands. Additionally, if process nodes continue to shrink to ever-smaller dimensions and conventional two-dimensional chips reach their critical performance limitations, the technology associated with manufacturing chips may advance to a point where our Ultra C equipment based on SAPS and TEBO technologies becomes obsolete. Accordingly, the future of our business will depend in large part upon the continuing relevance of our technological capabilities, our ability to interpret customer and market requirements in advance of tool deliveries, and our ability to introduce in a timely manner new tools that address chip makers’ requirements for cost-effective cleaning solutions. We expect to spend a significant amount of time and resources developing new tools and enhancing existing tools. Our ability to introduce and market successfully any new or enhanced cleaning equipment is subject to a wide variety of challenges during the tool’s development, including the following:
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accurate anticipation of market requirements, changes in technology and evolving standards;
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the availability of qualified product designers and technologies needed to solve difficult design challenges in a cost-effective, reliable manner;
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our ability to design products that meet chip manufacturers’ cost, size, acceptance and specification criteria, and performance requirements;
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the ability and availability of suppliers and third-party manufacturers to manufacture and deliver the critical components and subassemblies of our tools in a timely manner;
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market acceptance of our customers’ products, and the lifecycle of those products; and
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our ability to deliver products in a timely manner within our customers’ product planning and deployment cycle.
Certain enhancements to our Ultra C equipment in future periods may reduce demand for our pre-existing tools. As we introduce new or enhanced cleaning tools, we must manage the transition from older tools in order to minimize disruptions in customers’ ordering patterns, avoid excessive levels of older tool inventories and ensure timely delivery of sufficient supplies of new tools to meet customer demand. Furthermore, product introductions could delay purchases by customers awaiting arrival of our new products, which could cause us to fail to meet our expected level of production orders for pre-existing tools.
Our success will depend on our ability to identify and enter new product markets.
We expect to spend a significant amount of time and resources identifying new product markets in addition to the market for cleaning solutions and in developing new products for entry into these markets. Our TEBO technology took eight years to develop, and development of any new technology could require a similar, or even longer, period of time. Product development requires significant investments in engineering hours, third-party development costs, prototypes and sample materials, as well as sales and marketing expenses, which will not be recouped if the product launch is unsuccessful. We may fail to predict the needs of other markets accurately or develop new, innovative technologies to address those needs. Further, we may not be able to design and introduce new products in a timely or cost-efficient manner, and our new products may be more costly to develop, may fail to meet the requirements of the market, or may be adopted slower than we expect. If we are not able to introduce new products successfully, our inability to gain market share in new product markets could adversely affect our ability to sustain our revenue growth or maintain our current revenue levels.
If we fail to establish and maintain a reputation for credibility and product quality, our ability to expand our customer base will be impaired and our operating results may suffer.
We must develop and maintain a market reputation for innovative, differentiated technologies and high quality, reliable products in order to attract new customers and achieve widespread market acceptance of our products. Our market reputation is critical because we compete against several larger, more established competitors, many of which supply equipment for a larger number of process steps than we do to a broader customer base in an industry with a limited number of customers. In these circumstances, traditional marketing and branding efforts are of limited value, and our success depends on our ability to provide customers with reliable and technically sophisticated products. If the limited customer base does not perceive our products and services to be of high quality and effectiveness, our reputation could be harmed, which could adversely impact our ability to achieve our targeted growth.
We operate in a highly competitive industry and many of our competitors are larger, better-established, and have significantly greater operating and financial resources than we have.
The chip equipment industry is highly competitive, and we face substantial competition throughout the world in each of the markets we serve. Many of our current and potential competitors have, among other things:
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greater financial, technical, sales and marketing, manufacturing, distribution and other resources;
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established credibility and market reputations;
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longer operating histories;
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broader product offerings;
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more extensive service offerings, including the ability to have large inventories of spare parts available near, or even at, customer locations;
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local sales forces; and
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more extensive geographic coverage.
These competitors may also have the ability to offer their products at lower prices by subsidizing their losses in wet cleaning with profits from other lines of business in order to retain current or obtain new customers. Among other things, some competitors have the ability to offer bundled discounts for customers purchasing multiple products. Many of our competitors have more extensive customer and partner relationships than we do and may therefore be in a better position to identify and respond to market developments and changes in customer demands. Potential customers may prefer to purchase from their existing suppliers rather than a new supplier, regardless of product performance or features. If we are not able to compete successfully against existing or new competitors, our business, operating results and financial condition will be negatively affected.
We depend on a small number of customers for a substantial portion of our revenue, and the loss of, or a significant reduction in orders from, one of our major customers could have a material adverse effect on our revenue and operating results. There are also a limited number of potential customers for our products.
The chip manufacturing industry is highly concentrated, and we derive a significant portion of our revenue from the sale of our products to a small number of customers. In 2017, 55.2% of our revenue was derived from four customers: SK Hynix Inc., 18.1%; Shanghai Integrated Circuit Research and Development Center Ltd., 14.1%; JiangYin ChangDian Advanced Packaging Co. Ltd., 12.8% and Yangtze Memory Technologies Co., Ltd, 10.2%. In 2016, 99.3% of our revenue was derived from four customers: Shanghai Huali Microelectronics Corporation, 33.7%; Semiconductor Manufacturing International Corporation, 25.0%; SK Hynix Inc., 24.0%; and JiangYin ChangDian Advanced Packaging Co. Ltd., 16.6%. As a consequence of the concentrated nature of our customer base, our revenue and results of operations may fluctuate from quarter to quarter and are difficult to estimate, and any cancellation of orders or any acceleration or delay in anticipated product purchases or the acceptance of shipped products by our larger customers could materially affect our revenue and results of operations in any quarterly period.
We may be unable to sustain or increase our revenue from our larger customers or offset the discontinuation of concentrated purchases by our larger customers with purchases by new or existing customers. We expect a small number of customers will continue to account for a high percentage of our revenue for the foreseeable future and that our results of operations may fluctuate materially as a result of such larger customers’ buying patterns. Thus, our business success depends on our ability to maintain strong relationships with our customers. The loss of any of our key customers for any reason, or a change in our relationship with any of our key customers, including a significant delay or reduction in their purchases, may cause a significant decrease in our revenue, which we may not be able to recapture due to the limited number of potential customers.
We have seen, and may see in the future, consolidation of our customer base. Industry consolidation generally has negative implications for equipment suppliers, including a reduction in the number of potential customers, a decrease in aggregate capital spending and greater pricing leverage on the part of consumers over equipment suppliers. Continued consolidation of the chip industry could make it more difficult for us to grow our customer base, increase sales of our products and maintain adequate gross margins.
Our customers do not enter into long-term purchase commitments, and they may decrease, cancel or delay their projected purchases at any time.
In accordance with industry practice, our sales are on a purchase order basis, which we seek to obtain three to four months in advance of the expected product delivery date. Until a purchase order is received, we do not have a binding purchase commitment. Our SAPS and TEBO customers to date have provided us with non-binding one- to two-year forecasts of their anticipated demands, but those forecasts can be changed at any time, without any required notice to us. Because the lead-time needed to produce a tool customized to a customer’s specifications can extend up to six months, we may need to begin production of tools based on non-binding forecasts, rather than waiting to receive a binding purchase order. No assurance can be made that a customer’s forecast will result in a firm purchase order within the time period we expect, or at all.
If we do not accurately predict the amount and timing of a customer’s future purchases, we risk expending time and resources on producing a customized tool that is not purchased by a particular customer, which may result in excess or unwanted inventory, or we may be unable to fulfill an order on the schedule required by a purchase order, which would result in foregone sales. Customers may place purchase orders that exceed forecasted amounts, which could result in delays in our delivery time and harm our reputation. In the future a customer may decide not to purchase our tools at all, may purchase fewer tools than it did in the past or may otherwise alter its purchasing patterns, and the impact of any such actions may be intensified given our dependence on a small number of large customers. Our customers make major purchases periodically as they add capacity or otherwise implement technology upgrades. If any significant customers cancel, delay or reduce orders, our operating results could suffer.
We may incur significant expenses long before we can recognize revenue from new products, if at all, due to the costs and length of research, development, manufacturing and customer evaluation process cycles.
We often incur significant research and development costs for products that are purchased by our customers only after much, or all, of the cost has been incurred or that may never be purchased. We allow new customers, or existing customers considering new products, to evaluate products without any payment becoming due unless the product is ultimately accepted, which means we may invest $1.0 to $2.0 million in manufacturing a tool that may never be accepted and purchased or may be purchased months or even years after production. In the past we have borrowed money in order to fund first-time purchase order equipment and next-generation evaluation equipment. When we complete a first-time sale, we may not receive payment for up to 24 months. Even returning customers may take as long as six months to make any payments. If our sales efforts are unsuccessful after expending significant resources, or if we experience delays in completing sales, our future cash flow, revenue and profitability may fluctuate or be materially adversely affected.
Our sales cycle is long and unpredictable, which results in variability of our financial performance and may require us to incur high sales and marketing expenses with no assurance that a sale will result, all of which could adversely affect our profitability.
Our results of operations may fluctuate, in part, because of the resource-intensive nature of our sales efforts and the length and variability of our sales cycle. A sales cycle is the period between initial contact with a prospective customer and any sale of our tools. Our sales process involves educating customers about our tools, participating in extended tool evaluations and configuring our tools to customer-specific needs, after which customers may evaluate the tools. The length of our sales cycle, from initial contact with a customer to the execution of a purchase order, is generally 6 to 24 months. During the sales cycle, we expend significant time and money on sales and marketing activities and make investments in evaluation equipment, all of which lower our operating margins, particularly if no sale occurs or if the sale is delayed as a result of extended qualification processes or delays from our customers’ customers.
The duration or ultimate success of our sales cycle depends on factors such as:
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efforts by our sales force;
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the complexity of our customers’ manufacturing processes and the compatibility of our tools with those processes;
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our customers’ internal technical capabilities and sophistication; and
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our customers’ capital spending plans and processes, including budgetary constraints, internal approvals, extended negotiations or administrative delays.
It is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, we may not recognize revenue from our sales efforts for extended periods of time, or at all. The loss or delay of one or more large transactions in a quarter could impact our results of operations for that quarter and any future quarters for which revenue from that transaction is lost or delayed. In addition, we believe that the length of the sales cycle and intensity of the evaluation process may increase for those current and potential customers that centralize their purchasing decisions.
Difficulties in forecasting demand for our tools may lead to periodic inventory shortages or excess spending on inventory items that may not be used.
We need to manage our inventory of components and production of tools effectively to meet changing customer requirements. Accurately forecasting customers’ needs is difficult. Our tool demand forecasts are based on multiple assumptions, including non-binding forecasts received from our customers years in advance, each of which may introduce error into our estimates. Inventory levels for components necessary to build our tools in excess of customer demand may result in inventory write-downs and could have an adverse effect on our operating results and financial condition. Conversely, if we underestimate demand for our tools or if our manufacturing partners fail to supply components we require at the time we need them, we may experience inventory shortages. Such shortages might delay production or shipments to customers and may cause us to lose sales. These shortages may also harm our credibility, diminish the loyalty of our channel partners or customers.
A failure to prevent inventory shortages or accurately predict customers’ needs could result in decreased revenue and gross margins and harm our business.
Some of our products and supplies may become obsolete or be deemed excess while in inventory due to rapidly changing customer specifications, changes in product structure, components or bills of material as a result of engineering changes, or a decrease in customer demand. We also have exposure to contractual liabilities to our contract manufacturers for inventories purchased by them on our behalf, based on our forecasted requirements, which may become excess or obsolete. Our inventory balances also represent an investment of cash. To the extent our inventory turns are slower than we anticipate based on historical practice, our cash conversion cycle extends and more of our cash remains invested in working capital. If we are not able to manage our inventory effectively, we may need to write down the value of some of our existing inventory or write off non-saleable or obsolete inventory. Any such charges we incur in future periods could materially and adversely affect our results of operations.
The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenue and net income, and we are unlikely to forecast such effects with any certainty in advance.
If our tools contain defects or do not meet customer specifications, we could lose customers and revenue.
Highly complex tools such as our may develop defects during the manufacturing and assembly process. We may also experience difficulties in customizing our tools to meet customer specifications or detecting defects during the development and manufacturing of our tools. Some of these failures may not be discovered until we have expended significant resources in customizing our tools, or until our tools have been installed in our customers’ production facilities. These quality problems could harm our reputation as well as our customer relationships in the following ways:
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our customers may delay or reject acceptance of our tools that contain defects or fail to meet their specifications;
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we may suffer customer dissatisfaction, negative publicity and reputational damage, resulting in reduced orders or otherwise damaging our ability to retain existing customers and attract new customers;
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we may incur substantial costs as a result of warranty claims or service obligations or in order to enhance the reliability of our tools;
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the attention of our technical and management resources may be diverted;
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we may be required to replace defective systems or invest significant capital to resolve these problems; and
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we may be required to write off inventory and other assets related to our tools.
In addition, defects in our tools or our inability to meet the needs of our customers could cause damage to our customers’ products or manufacturing facilities, which could result in claims for product liability, tort or breach of warranty, including claims from our customers. The cost of defending such a lawsuit, regardless of its merit, could be substantial and could divert management’s attention from our ongoing operations. In addition, if our business liability insurance coverage proves inadequate with respect to a claim or future coverage is unavailable on acceptable terms or at all, we may be liable for payment of substantial damages. Any or all of these potential consequences could have an adverse impact on our operating results and financial condition.
Warranty claims in excess of our estimates could adversely affect our business.
We have provided warranties against manufacturing defects of our tools that range from 12 to 36 months in duration. Our product warranty requires us to provide labor and parts necessary to repair defects. To date we have not accrued a significant liability contingency for potential warranty claims. Warranty claims substantially in excess of our expectations, or significant unexpected costs associated with warranty claims, could harm our reputation and could cause customers to decline to place new or additional orders, which could have a material adverse effect on our business, results of operations and financial condition.
We rely on third parties to manufacture significant portions of our tools and our failure to manage our relationships with these parties could harm our relationships with our customers, increase our costs, decrease our sales and limit our growth.
Our tools are complex and require components and subassemblies having a high degree of reliability, accuracy and performance. We rely on third parties to manufacture most of the subassemblies and supply most of the components used in our tools. Accordingly, we cannot directly control our delivery schedules and quality assurance. This lack of control could result in shortages or quality assurance problems. These issues could delay shipments of our tools, increase our testing costs or lead to costly failure claims.
We do not have long-term supply contracts with some of our suppliers, and those suppliers are not obligated to perform services or supply products to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. In addition, we attempt to maintain relatively low inventories and acquire subassemblies and components only as needed. There are significant risks associated with our reliance on these third-party suppliers, including:
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potential price increases;
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capacity shortages or other inability to meet any increase in demand for our products;
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reduced control over manufacturing process for components and subassemblies and delivery schedules;
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limited ability of some suppliers to manufacture and sell subassemblies or parts in the volumes we require and at acceptable quality levels and prices, due to the suppliers’ relatively small operations and limited manufacturing resources;
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increased exposure to potential misappropriation of our intellectual property; and
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limited warranties on subassemblies and components supplied to us.
Any delays in the shipment of our products due to our reliance on third-party suppliers could harm our relationships with our customers. In addition, any increase in costs due to our suppliers increasing the price they charge us for subassemblies and components or arising from our need to replace our current suppliers that we are unable to pass on to our customers could negatively affect our operating results.
Any shortage of components or subassemblies could result in delayed delivery of products to us or in increased costs to us, which could harm our business.
The ability of our manufacturers to supply our tools is dependent, in part, upon the availability certain components and subassemblies. Our manufacturers may experience shortages in the availability of such components or subassemblies, which could result in delayed delivery of products to us or in increased costs to us. Any shortage of components or subassemblies or any inability to control costs associated with manufacturing could increase the costs for our products or impair our ability to ship orders in a timely cost-efficient manner. As a result, we could experience cancellation of orders, refusal to accept deliveries or a reduction in our prices and margins, any of which could harm our financial performance and results of operations.
We depend on a limited number of suppliers, including single source suppliers, for critical components and subassemblies, and our business could be disrupted if they are unable to meet our needs.
We depend on a limited number of suppliers for components and subassemblies used in our tools. Certain components and subassemblies of our tools have only been purchased from our current suppliers to date, and changing the source of those components and subassemblies may result in disruptions during the transition process and entail significant delay and expense. We rely on Product Systems, Inc., or ProSys, as the sole supplier of megasonic transducers, a key subassembly used in our single-wafer cleaning equipment. We also rely on Ninebell Co., Ltd., or Ninebell, which is the principal supplier of robotic delivery system subassemblies used in our single-wafer cleaning equipment. An adverse change to our relationship with ProSys or Ninebell would disrupt our production of single-wafer cleaning equipment and could cause substantial harm to our business.
With some of these suppliers, we do not have long-term agreements and instead purchase components and subassemblies through a purchase order process. As a result, these suppliers may stop supplying us components and subassemblies, limit the allocation of supply and equipment to us due to increased industry demand or significantly increase their prices at any time with little or no advance notice. Our reliance on a limited number of suppliers could also result in delivery problems, reduced control over product pricing and quality, and our inability to identify and qualify another supplier in a timely manner.
Moreover, some of our suppliers may experience financial difficulties that could prevent them from supplying us with components or subassemblies used in the design and manufacture of our products. In addition, our suppliers, including our sole supplier ProSys, may experience manufacturing delays or shut downs due to circumstances beyond their control, such as labor issues, political unrest or natural disasters. Any supply deficiencies could materially and adversely affect our ability to fulfill customer orders and our results of operations. We have in the past and may in the future, experience delays or reductions in supply shipments, which could reduce our revenue and profitability. If key components or materials are unavailable, our costs would increase and our revenue would decline.
We have depended on PRC governmental subsidies to help fund our technology development since 2008, and our failure to obtain additional subsidies may impede our development of new technologies and may increase our cost of capital, either of which could make it difficult for us to expand our product base.
We received subsidies from local and central governmental authorities in the PRC in 2008, 2009 and 2014. These grants have provided a majority of the funding for our development and commercialization of stress-free polishing and electro copper-plating technologies. If we are unable to obtain similar governmental subsidies for development projects in the future, we may need to raise additional funds through public or private financings, strategic relationships, or other arrangements, which could force us to reduce our efforts to develop technologies beyond SAPS and TEBO. To the extent that we receive a lower level of, or no, governmental subsidies in the future, we may need to raise additional funds through public or private financings, strategic relationships, or other arrangements.
The success of our business will depend on our ability to manage any future growth.
We have experienced rapid growth in our business recently due, in part, to an expansion of our product offerings and an increase in the number of customers that we serve. For example, our headcount grew by 18.7% during 2016 and by an additional 28.1% during 2017. We will seek to continue to expand our operations in the future, including by adding new offices, locations and employees. Managing our growth has placed and could continue to place a significant strain on our management, other personnel and our infrastructure. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, enhance our technological capabilities, satisfy customer requirements, respond to competitive pressures or otherwise execute our business plan. In addition, any inability to manage our growth effectively could result in operating inefficiencies that could impair our competitive position and increase our costs disproportionately to the amount of growth we achieve. To manage our growth, we believe we must effectively:
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hire, train, integrate and manage additional qualified engineers for research and development activities, sales and marketing personnel, service and support personnel and financial and information technology personnel;
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manage multiple relationships with our customers, suppliers and other third parties; and
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continue to enhance our information technology infrastructure, systems and controls.
Our organizational structure has become more complex, and we will need to continue to scale and adapt our operational, financial and management controls, as well as our reporting systems and procedures. The continued expansion of our infrastructure will require us to commit substantial financial, operational and management resources before our revenue increases and without any assurances that our revenue will increase.
We are highly dependent on our Chief Executive Officer and President and other senior management and key employees, and we currently do not have a permanent Chief Financial Officer.
Our success largely depends on the skills, experience and continued efforts of our management, technical and sales personnel, including in particular Dr. David H. Wang, our Chair of the Board, Chief Executive Officer, President and founder.In January 2018 we notified our former Chief Financial Officer of the termination of his employment effective January 24, 2018. Our Chief Accounting Officer, who joined us effective January 24, 2018, currently is serving as our interim Chief Financial Officer. We are uncertain as to when we will be able to identify and hire a successor Chief Financial Office, and we may incur significant expense in recruiting and hiring such a successor. If one or more of our other senior management were unable or unwilling to continue their employment with us, we may not be able to replace them in a timely manner. We may incur additional expenses to recruit and retain qualified replacements. We do not currently maintain key person life insurance policies on any of our employees. Our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected. In addition, our senior management may join a competitor or form a competing company. All of our senior management are at-will employees, which means either we or the employeemay terminate their employment at any time. The loss of Dr. Wang or other key management personnel, including our former Chief Financial Officer, could significantly delay or prevent the achievement of our business objectives.
Failure to attract and retain qualified personnel could put us at a competitive disadvantage and prevent us from effectively growing our business.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. There is substantial competition for experienced management, technical and sales personnel in the chip equipment industry. If qualified personnel become scarce or difficult to attract or retain for compensation-related or other reasons, we could experience higher labor, recruiting or training costs. New hires may require significant training and time before they achieve full productivity and may not become as productive as we expect. If we are unable to retain and motivate our existing employees and attract qualified personnel to fill key positions, we may experience inadequate levels of staffing to develop and market our products and perform services for our customers, which could have a negative effect on our operating results.
Our ability to utilize certain U.S. and state net operating loss carryforwards may be limited under applicable tax laws.
As of December 31, 2017, we had net operating loss carryforward amounts, or NOLs, of $20.1 million for U.S. federal income tax purposes and $536,000 for U.S. state income tax purposes. The federal and state NOLs will expire at various dates beginning in 2019.
Utilization of these NOLs could be subject to a substantial annual limitation if the ownership change limitations under U.S. Internal Revenue Code Sections 382 and 383 and similar U.S. state provisions are triggered by changes in the ownership of our capital stock. Such an annual limitation would result in the expiration of the NOLs before utilization. Our existing NOLs may be subject to limitations arising from previous ownership changes, including in connection with our initial public offering and concurrent private placement in November 2017 and any future follow-on public offerings. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change. Regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, may cause our existing NOLs to expire or otherwise become unavailable to offset future income tax liabilities. Additionally, U.S. state NOLs generated in one state cannot be used to offset income generated in another U.S. state. For these reasons, we may be limited in our ability to realize tax benefits from the use of our NOLs, even if our profitability would otherwise allow for it.
Acquisitions that we pursue in the future, whether or not consummated, could result in other operating and financial difficulties.
In the future we may seek to acquire additional product lines, technologies or businesses in an effort to increase our growth, enhance our ability to compete, complement our product offerings, enter new and adjacent markets, obtain access to additional technical resources, enhance our intellectual property rights or pursue other competitive opportunities. We may also make investments in certain key suppliers to align our interests with such suppliers. If we seek acquisitions, we may not be able to identify suitable acquisition candidates at prices we consider appropriate. We cannot readily predict the timing or size of our future acquisitions, or the success of any future acquisitions.
To the extent that we consummate acquisitions or investments, we may face financial risks as a result, including increased costs associated with merged or acquired operations, increased indebtedness, economic dilution to gross and operating profit and earnings per share, or unanticipated costs and liabilities. Acquisitions may involve additional risks, including:
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the acquired product lines, technologies or businesses may not improve our financial and strategic position as planned;
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we may determine we have overpaid for the product lines, technologies or businesses, or that the economic conditions underlying our acquisition have changed;
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we may have difficulty integrating the operations and personnel of the acquired company;
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we may have difficulty retaining the employees with the technical skills needed to enhance and provide services with respect to the acquired product lines or technologies;
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the acquisition may be viewed negatively by customers, employees, suppliers, financial markets or investors;
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we may have difficulty incorporating the acquired product lines or technologies with our existing technologies;
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we may encounter a competitive response, including price competition or intellectual property litigation;
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we may become a party to product liability or intellectual property infringement claims as a result of our sale of the acquired company’s products;
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we may incur one-time write-offs, such as acquired in-process research and development costs, and restructuring charges;
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we may acquire goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges;
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our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; and
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our due diligence process may fail to identify significant existing issues with the target business.
From time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. These negotiations could result in significant diversion of management time, as well as substantial out-of-pocket costs, any of which could have a material adverse effect on our business, operating results and financial condition.
Future declines in the semiconductor industry, and the overall world economic conditions on which the industry is significantly dependent, could have a material adverse impact on our results of operations and financial condition.
Our business depends on the capital equipment expenditures of chip manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits. With the consolidation of customers within the industry, the chip capital equipment market may experience rapid changes in demand driven both by changes in the market generally and the plans and requirements of particular customers. Global economic and business conditions, which are often unpredictable, have historically impacted customer demand for our products and normal commercial relationships with our customers, suppliers and creditors. Additionally, in times of economic uncertainty our customers’ budgets for our tools, or their ability to access credit to purchase them, could be adversely affected. This would limit their ability to purchase our products and services. As a result, economic downturns could cause material adverse changes to our results of operations and financial condition including:
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a decline in demand for our products;
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an increase in reserves on accounts receivable due to our customers’ inability to pay us;
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an increase in reserves on inventory balances due to excess or obsolete inventory as a result of our inability to sell such inventory;
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valuation allowances on deferred tax assets;
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asset impairments including the potential impairment of goodwill and other intangible assets;
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a decline in the value of our investments;
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exposure to claims from our suppliers for payment on inventory that is ordered in anticipation of customer purchases that do not come to fruition;
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a decline in the value of certain facilities we lease to less than our residual value guarantee with the lessor; and
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challenges maintaining reliable and uninterrupted sources of supply.
Fluctuating levels of investment by chip manufacturers may materially affect our aggregate shipments, revenue, operating results and earnings. Where appropriate, we will attempt to respond to these fluctuations with cost management programs aimed at aligning our expenditures with anticipated revenue streams, which could result in restructuring charges. Even during periods of reduced revenues, we must continue to invest in research and development and maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our profitability and other financial results.
We conduct substantially all of our operations outside the United States and face risks associated with conducting business in foreign markets.
All of our sales in 2016 and 2017 were made to customers outside the United States. Our manufacturing center has been located in Shanghai, PRC since 2006 and substantially all of our operations are located in the PRC. We expect that all of our significant activities will remain outside the United States in the future. We are subject to a number of risks associated with our international business activities, including:
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imposition of, or adverse changes in, foreign laws or regulatory requirements;
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the need to comply with the import laws and regulations of various foreign jurisdictions, including a range of U.S. import laws;
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potentially adverse tax consequences, including withholding tax rules that may limit the repatriation of our earnings, and higher effective income tax rates in foreign countries where we conduct business;
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competition from local suppliers with which potential customers may prefer to do business;
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seasonal reduction in business activity, such as during Chinese, or Lunar, New Year in parts of Asia and in other periods in various individual countries;
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increased exposure to foreign currency exchange rates;
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reduced protection for intellectual property;
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longer sales cycles and reliance on indirect sales in certain regions;
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increased length of time for shipping and acceptance of our products;
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greater difficulty in responding to customer requests for maintenance and spare parts on a timely basis;
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greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods;
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difficulties in staffing and managing foreign operations and the increased travel, infrastructure and legal and compliance costs associated with multiple international locations;
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heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, our consolidated financial statements; and
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general economic conditions, geopolitical events or natural disasters in countries where we conduct our operations or where our customers are located, including political unrest, war, acts of terrorism or responses to such events.
In particular, the Asian market is extremely competitive, and chip manufacturers may be aggressive in seeking price concessions from suppliers, including chip equipment manufacturers.
We may not be successful in developing and implementing policies and strategies that will be effective in managing these risks in each country in which we do business. Our failure to manage these risks successfully could adversely affect our business, operating results and financial condition.
Fluctuation in foreign currency exchange rates may adversely affect our results of operations and financial position.
Our results of operations and financial position could be adversely affected as a result of fluctuations in foreign currency exchange rates. Although our financial statements are denominated in U.S. dollars, a sizable portion of our revenues and costs are denominated in other currencies, primarily the Chinese Renminbi. Because many of our raw material purchases are denominated in Renminbi while the majority of the purchase orders we receive are denominated in U.S. dollars, exchange rates have a significant effect on our gross margin. We have not engaged in any foreign currency exchange hedging transactions to date, and any strategies that we may use in the future to reduce the adverse impact of fluctuations in foreign currency exchange rates may not be successful. Our foreign currency exposure with respect to assets and liabilities for which we do not have hedging arrangements could have a material impact on our results of operations in periods when the U.S. dollar significantly fluctuates in relation to unhedged non-U.S. currencies in which we transact business.
Changes in political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.
Substantially all of our operations are conducted in the PRC, and a substantial majority of our revenue is sourced from the PRC. Accordingly, our financial condition and results of operations are affected to a significant extent by economics, political and legal developments in the PRC.
The Chinese economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC are still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over economic growth in the PRC by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions, and providing preferential treatment to particular industries or companies.
While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In the past the PRC government has implemented measures to control the pace of economic growth, and similar measures in the future may cause decreased economic activity, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses, financial condition and results of operations.
Although the PRC government has been implementing policies to develop an independent domestic semiconductor industry supply chain, there is no guaranteed time frame in which these initiatives will be implemented. We cannot guarantee that the implementation of these policies will result in additional revenue to us or that our presence in the PRC will result in support from the PRC government. To the extent that any capital investment or other assistance from the PRC government is not provided to us, it could be used to promote the products and technologies of our competitors, which could adversely affect our business, operating results and financial condition.
We are subject to government regulation, including import, export, economic sanctions, and anti-corruption laws and regulations, that may limit our sales opportunities, expose us to liability and increase our costs.
Our products are subject to import and export controls in jurisdictions in which we distribute or sell our products. Import and exports control and economic sanctions laws and regulations include restrictions and prohibitions on the sale or supply of certain products and on our transfer of parts, components, and related technical information and know-how to certain countries, regions, governments, persons and entities.
Various countries regulate the importation of certain products through import permitting and licensing requirements and have enacted laws that could limit our ability to distribute our products. The exportation, re-exportation, transfers within foreign countries and importation of our products, including by our partners, must comply with these laws and regulations, and any violations may result in reputational harm, government investigations and penalties, and a denial or curtailment of exporting. Complying with export control and sanctions laws for a particular sale may be time consuming, may increase our costs, and may result in the delay or loss of sales opportunities. If we are found to be in violation of U.S. sanctions or export control laws, or similar laws in other jurisdictions, we and the individuals working for us could incur substantial fines and penalties. Changes in export, sanctions or import laws or regulations may delay the introduction and sale of our products in international markets, require us to spend resources to seek necessary government authorizations or to develop different versions of our products, or, in some cases, prevent the export or import of our products to certain countries, regions, governments, persons or entities, which could adversely affect our business, financial condition and operating results.
We are subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, as well as similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their intermediaries from offering or making improper payments to non-U.S. officials for the purpose of obtaining, retaining or directing business. Our exposure for violating these laws and regulations increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Breaches of our cybersecurity systems could degrade our ability to conduct our business operations and deliver products to our customers, result in data losses and the theft of our intellectual property, damage our reputation, and require us to incur significant additional costs to maintain the security of our networks and data.
We increasingly depend upon our information technology systems to conduct our business operations, ranging from our internal operations and product development and manufacturing activities to our marketing and sales efforts and communications with our customers and business partners. Computer programmers may attempt to penetrate our network security, or that of our website, and misappropriate our proprietary information or cause interruptions of our service. Because the techniques used by such computer programmers to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. We have also outsourced a number of our business functions to third-party contractors, including our manufacturers, and our business operations also depend, in part, on the success of our contractors’ own cybersecurity measures. Accordingly, if our cybersecurity systems and those of our contractors fail to protect against unauthorized access, sophisticated cyberattacks and the mishandling of data by our employees and contractors, our ability to conduct our business effectively could be damaged in a number of ways, including sensitive data regarding our employees or business, including intellectual property and other proprietary data, could be stolen. Should this occur, we could be subject to significant claims for liability from our customers and regulatory actions from governmental agencies. In addition, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed. Consequently, our financial performance and results of operations could be adversely affected.
Our production facilities could be damaged or disrupted by a natural disaster, war, terrorist attacks or other catastrophic events.
Our manufacturing facilities are subject to risks associated with natural disasters, such as earthquakes, fires, floods tsunami, typhoons and volcanic activity, environmental disasters, health epidemics, and other events beyond our control such as power loss, telecommunications failures, and uncertainties arising out of armed conflicts or terrorist attacks. A substantial majority of our facilities as well as our research and development personnel are located in the PRC. Any catastrophic loss or significant damage to any of our facilities would likely disrupt our operations, delay production, and adversely affect our product development schedules, shipments and revenue. In addition, any such catastrophic loss or significant damage could result in significant expense to repair or replace the facility and could significantly curtail our research and development efforts in a particular product area or primary market, which could have a material adverse effect on our operations and operating results.
Our management and auditors identified a material weakness in our internal control over financial reporting that, if not properly remediated, could result in material misstatements in our consolidated financial statements that could cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our stock.
Neither we nor BDO China Shu Lun Pan Certified Public Accountants LLP, or BDO China, our independent registered public accounting firm, has performed a comprehensive assessment of our internal control over financial reporting, as defined by the American Institute of Certified Public Accountants, for purposes of identifying and reporting material weaknesses and other control deficiencies. We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act and therefore are not required to assess the effectiveness of our internal control over financial reporting. Further, BDO China has not been engaged to express, nor has it expressed, an opinion on the effectiveness of our internal control over financial reporting.
In connection with its audit of our consolidated financial statements as of, and for the year ended, December 31, 2016, BDO China informed us that it had identified a material weakness in our internal control over financial reporting relating to our lack of sufficient qualified financial reporting and accounting personnel with an appropriate level of expertise to properly address complex accounting issues under accounting principles generally accepted in the United States, or GAAP, and to prepare and review our consolidated financial statements and related disclosures to fulfill GAAP and SEC financial reporting requirements. As of December 31, 2017, we considered we were still in a transitional period to enhance the quality of our accounting and financial reporting function, we determined that the above mentioned material weakness had not been fully remediated. We have taken, and are continuing to take, remedial measures to improve the effectiveness of our controls, including by hiring additional accounting and finance personnel and by engaging outside consulting firms, although we now are also seeking to identify a qualified candidate to succeed our former Chief Financial Officer whose employment terminated effective January 24, 2018.
The existence of material weaknesses is an indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period, and the process of designing and implementing effective internal controls and procedures will be a continual effort that may require us to expend significant resources to establish and maintain a system of controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we take will be sufficient to remediate the material weakness identified by BDO China or that we will implement and maintain adequate controls over our financial processes and reporting in the future in order to avoid additional material weaknesses or controlled deficiencies in our internal control over financing reporting. If our remediation efforts are not successful or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately or on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence and cause the trading price of Class A common stock to decline. Moreover, ineffective controls could significantly hinder our ability to prevent fraud.
Our auditor, as a registered public accounting firm operating in the PRC, is not permitted to be inspected by the Public Company Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspections.
BDO China is the independent registered public accounting firm that issued the audit report included in this report in connection with our consolidated financial statements as of, and for the years ended, December 31, 2017 and 2016. BDO China, as an auditor of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board, or PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable professional standards. BDO China is located in the PRC. The PCAOB is currently unable to conduct inspections on auditors in the PRC without the approval of PRC authorities, and therefore BDO China, like other independent registered public accounting firms operating in the PRC, is currently not inspected by the PCAOB.
In May 2013 the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission and the Ministry of Finance of China pursuant to which the Ministry of Finance established a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in both the PRC and the United States. More specifically, the Memorandum of Understanding provides a mechanism for the parties to request and receive from each other assistance in obtaining documents and information in furtherance of their investigative duties. In addition the PCAOB is engaged in continuing discussions with the China Securities Regulatory Commission and the Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and to audit PRC companies whose securities are listed on U.S. stock exchanges.
The PCAOB’s inspections of firms outside of the PRC have identified deficiencies in audit procedures and quality control procedures, and such deficiencies may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections of BDO China with respect to its audit of our consolidated financial statements may make it more difficult for investors to evaluate BDO China’s audit procedures and quality control procedures by depriving investors of potential benefits from improvements that could have been facilitated by PCAOB inspections.
Risks RelatingRelated to Our STAR Market Listing
● | our ability to implement our strategy to expand our PRC operations; |
● | our ability to achieve the results contemplated by our business strategy and our strategy for growth in the PRC and expectations related to the STAR Market listing; |
● | the effect of ACM Shanghai’s status as a publicly traded company that is controlled, but less than wholly owned, by ACM Research; |
● | our ability to manage potentially inconsistent accounting and disclosure requirements of ACM Research and ACM Shanghai as a result of the STAR Market Listing; |
Risks Related to Our Intellectual Property and Data Security
● | our ability to protect our intellectual property, including in the PRC; |
● | breaches of our cybersecurity systems; |
Our success depends on our ability to protect our intellectual property, including our SAPS and TEBO technologies.
Our commercial success depends in part on our ability to obtain and maintain patent and trade secret protection for our intellectual property, including our SAPS and TEBO technologies and the design of our Ultra C equipment, as well as our ability to operate without infringing upon the proprietary rights of others. There can be no assurance that our patent applications will result in additional patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents issued will not be infringed, designed around, or invalidated by third parties. Even issued patents may later be found unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for our intellectual property is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. This failure to properly protect the intellectual property rights relating to our products and technologies could have a material adverse effect on our financial condition and results of operations.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
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The U.S. Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.
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Patent applications may not result in any patents being issued.
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Patents that may be issued may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage.
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Our competitors may seek or may have already obtained patents that will limit, interfere with, or eliminate our ability to make, use and sell our potential product candidates.
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The PRC and other countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates.
In addition, we rely on the protection of our trade secrets and know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality and non-disclosure agreements with third parties and confidential information and inventions agreements with key employees, customers and suppliers, other parties may still obtain this information or may come upon this information independently. If any of these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced.
We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Competitors may infringe upon our patents. If our technologies are adopted, we believe that competitors may try to match our technologies and tools in order to compete. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. An adverse result in any litigation or defense proceedings, including our current suits, could put one or more of our patents at risk of being invalidated, found to be unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. In addition, any future patent litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel. Most of our competitors are larger than we are and have substantially greater resources, and they therefore are likely to be able to sustain the costs of complex patent litigation longer than we could. An adverse outcome in such litigation or proceedings may expose us to loss of our proprietary position.
We may not be able to protect our intellectual property rights throughout the world, which could materially, negatively affect our business.
Filing, prosecuting and defending patents on our products or proprietary technologies in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States, including the PRC, can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rightsRisks Related to the same extent as federal and state laws in the United States. Consequently, competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.COVID‑19 Pandemic
● | impacts on our global supply chain due to the COVID‑19 pandemic, and our ability to successfully manage the demand, supply, and operational challenges associated with the global semiconductor shortage; |
● | the impact of the COVID‑19 pandemic on our currently planned projects and investments in the PRC, including the STAR IPO; |
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license and may adversely affect our business.
If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation could have a material adverse effect on our business.
Our success depends on our ability to develop, manufacture, market and sell our products without infringing upon the proprietary rights of third parties. Numerous U.S. and foreign-issued patents and pending patent applications owned by third parties exist in the fields in which we are developing products, some of which may contain claims that overlap with the subject matter of our intellectual property. A third party has claimed in the past, and others may claim in the future, that our technology or products infringe their intellectual property. In some instances third parties may initiate litigation against us in an effort to prevent us from using our technology in alleged violation of their intellectual property rights. The risk of such a lawsuit will likely increase as our size and the number and scope of our products increase and as our geographic presence and market share expand.
Any potential intellectual property claims or litigation commenced against us could:
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be time consuming and expensive to defend, whether or not meritorious;
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force us to stop selling products or using technology that allegedly infringes the third party’s intellectual property rights;
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delay shipments of our products;
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require us to pay damages or settlement fees to the party claiming infringement;
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require us to attempt to obtain a license to the relevant intellectual property, which may not be available on reasonable terms or at all;
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force us to attempt to redesign products that contain the allegedly infringing technology, which could be expensive or which we may be unable to do;
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require us to indemnify our customers, suppliers or other third parties for any loss caused by their use of our technology that allegedly infringes the third party’s intellectual property rights; or
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divert the attention of our technical and managerial resources.
Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents upon which our products or technologies may infringe. Similarly, there may be issued patents relevant to our products of which we are not aware.
Risks Related to Ownership of Class A Common Stock
● | the volatility in the market price of Class A common stock; |
● | manipulative short sellers of our stock, which may drive down the market price of our Class A common stock and could result in litigation; |
● | the difficulty to predict the effect of the STAR Listing and STAR IPO on the Class A common stock; |
● | the dual class structure of Class A common stock, which has the effect of concentrating voting control with our executive officers and directors; and |
● | the limited experience of our management team managing a public company, including a “large accelerated filer.” |
Risk Factors
Risks Related to Our Business and Our Industry
We may require additional capital in the future and we cannot give any assurance that such capital will be available at all or available on terms acceptable to us and, if it is available, additional capital raised by us may dilute holders of Class A common stock.
We may need to raise funds in the future, depending on many factors, including:
● | the costs of applying our existing technologies to new or enhanced products; |
● | the costs of developing new technologies and introducing new products; |
● | the costs associated with protecting our intellectual property; |
● | the costs associated with our expansion, including capital expenditures and Lingang-related land purchases and deposits, and with increasing our sales and marketing and service and support efforts, and with expanding our geographic operations; |
● | our ability to continue to obtain governmental subsidies for developmental projects in the future; |
● | future debt repayment obligations; and |
● | the number and timing of any future acquisitions. |
To the extent that our existing sources of cash, together with any cash generated from operations, are insufficient to fund our activities, we may need to raise additional funds through public or private financings, strategic relationships, or other arrangements. Additional funding may not be available to us on acceptable terms or at all. If adequate funding is not available, we may be required to reduce expenditures, including curtailing our growth strategies and reducing our product development efforts, or to forego acquisition opportunities.
Proceeds received by ACM Shanghai from the initial placements of shares with PRC investors and from STAR IPO, in connection with the STAR Listing, of ACM Shanghai shares on the STAR Market will be used to grow and support our PRC operations. Those proceeds generally are not available for distribution to ACM Research. Under existing PRC laws and regulations, it may be difficult, if not impossible, for ACM Research to be able to receive dividends comprised of funds generated by ACM Shanghai and, even if such dividends can be paid from the PRC to the United States, any such dividends can be paid to ACM Research only if other holders of ACM Shanghai shares receive their pro rata dividends. As a result, it is unlikely that funds raised or generated by ACM Shanghai will be readily distributable to ACM Research.
If we succeed in raising additional funds through the issuance of equity or convertible securities, then the issuance could result in substantial dilution to existing stockholders. Furthermore, the holders of these new securities or debt may have rights, preferences and privileges senior to those of the holders of Class A common stock. In addition, any preferred equity issuance or debt financing that we may obtain in the future could have restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
Our quarterly operating results can be difficult to predict and can fluctuate substantially, which could result in volatility in the price of Class A common stock.
Our quarterly revenue and other operating results have varied in the past and are likely to continue to vary significantly from quarter to quarter. Accordingly, you should not rely upon our past quarterly financial results as indicators of future performance. Any variations in our quarter-to-quarter performance may cause our stock price to fluctuate. Our financial results in any given quarter can be influenced by a variety of factors, including:
● | the cyclicality of the semiconductor industry and the related impact on the purchase of equipment used in the manufacture of chips; |
● | the timing of purchases of our tools by chip fabricators, which order types of tools based on multi-year capital plans under which the number and dollar amount of tool purchases can vary significantly from year to year; |
● | the relatively high average selling price of our tools and our dependence on a limited number of customers for a substantial portion of our revenue in any period, whereby the timing and volume of purchase orders or cancellations from our customers could significantly reduce our revenue for that period; |
● | the significant expenditures required to customize our products often exceed the deposits received from our customers; |
● | the lead time required to manufacture our tools; |
● | the timing of recognizing revenue due to the timing of shipment and acceptance of our tools; |
● | our ability to sell additional tools to existing customers; |
● | the changes in customer specifications or requirements; |
● | the length of our product sales cycle; |
● | changes in our product mix, including the mix of systems, upgrades, spare parts and service; |
● | the timing of our product releases or upgrades or announcements of product releases or upgrades by us or our competitors, including changes in customer orders in anticipation of new products or product enhancements; |
● | our ability to enhance our tools with new and better functionality that meet customer requirements and changing industry trends; |
● | constraints on our suppliers’ capacity; |
● | our ability to sell our tools to Chinese customers due to regulatory restrictions, including the addition of our customers to the Entity List; |
● | the ability of other suppliers to provide sufficient quantities of their tools to our Chinese customers which may indirectly the production plans of our customers and result in a reduction of demand for our tools; |
● | the timing of investments in research and development related to releasing new applications of our technologies and new products; |
● | delays in the development and manufacture of our new products and upgraded versions of our products and the market acceptance of these products when introduced; |
● | our ability to control costs, including operating expenses and the costs of the components and subassemblies used in our products; |
● | the costs related to the acquisition and integration of product lines, technologies or businesses; and |
● | the costs associated with protecting our intellectual property, including defending our intellectual property against third-party claims or litigation. |
Seasonality has played an increasingly important role in the market for chip manufacturing tools. The period of November through February has been a particularly weak period historically for manufacturers of chip tools, in part because capital equipment needed to support manufacturing of chips for the December holidays usually needs to be in the supply chain by no later than October and chip makers in Asia often wait until after Chinese, or Lunar, New Year, which occurs in January or February, before implementing their capital acquisition plans. The timing of new product releases also has an impact on seasonality, with the acquisition of manufacturing equipment occurring six to nine months before a new release.
Many of these factors are beyond our control, and the occurrence of one or more of them could cause our operating results to vary widely. As a result, it is difficult for us to forecast our quarterly revenue accurately. Our results of operations for any quarter may not be indicative of results for future quarters and quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Variability in our periodic operating results could lead to volatility in our stock price. Because a substantial proportion of our expenses are relatively fixed in the short term, our results of operations will suffer if revenue falls below our expectations in a particular quarter, which could cause the price of Class A common stock to decline. Moreover, as a result of any of the foregoing factors, our operating results might not meet our announced guidance or expectations of public market analysts or investors, in which case the price of Class A common stock could decrease significantly.
Cyclicality in the semiconductor industry is likely to lead to substantial variations in demand for our products, and as a result our operating results could be adversely affected.
The chip industry has historically been cyclic and is characterized by wide fluctuations in product supply and demand. From time to time, this industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product and technology cycles, excess inventories and declines in general economic conditions. This cyclicality could cause our operating results to decline dramatically from one period to the next.
Our business depends upon the capital spending of chip manufacturers, which, in turn, depends upon the current and anticipated market demand for chips. During industry downturns, chip manufacturers often have excess manufacturing capacity and may experience reductions in profitability due to lower sales and increased pricing pressure for their products. As a result, chip manufacturers generally sharply curtail their spending during industry downturns and historically have lowered their spending more than the decline in their revenues. If we are unable to control our expenses adequately in response to lower revenue from our customers, our operating results will suffer and we could experience operating losses.
Conversely, during industry upturns we must successfully increase production output to meet expected customer demand. This may require us or our suppliers, including third-party contractors, to order additional inventory, hire additional employees and expand manufacturing capacity. If we are unable to respond to a rapid increase in demand for our tools on a timely basis, or if we misjudge the timing, duration or magnitude of such an increase in demand, we may lose business to our competitors or incur increased costs disproportionate to any gains in revenue, which could have a material adverse effect on our business, results of operations, financial condition or cash flows.
The PRC government is implementing focused policies, including state-led investment initiatives, that aim to create and support an independent domestic semiconductor supply chain spanning from design to final system production. If these policies, which include loans and subsidies, result in lower demand for equipment than is expected by equipment manufacturers, the resulting overcapacity in the chip manufacturing equipment market could lead to excess inventory and price discounting that could have a material adverse effect on our business and operating results.
Our success will depend on industry chip manufacturers adopting our SAPS, TEBO, Tahoe, ECP, furnace and other technologies.
To date our strategy for commercializing our tools has been to place them with selected industry leaders in the manufacturing of memory and logic chips, the two largest chip categories, to enable those leading manufacturers to evaluate our technologies, and then leverage our reputation to gain broader market acceptance. In order for these industry leaders to adopt our tools, we need to establish our credibility by demonstrating the differentiated, innovative nature of our SAPS, TEBO and Tahoe technologies. Our SAPS technology has been tested and purchased by industry leaders, but has not achieved, and may never achieve, widespread market acceptance. We have initiated a similar commercialization process for our TEBO technology with a selected group of industry leaders. If these leading manufacturers do not agree that our technologies add significant value over conventional technologies or do not otherwise accept and use our tools, we may need to spend a significant amount of time and resources to enhance our technologies or develop new technologies. Even if these leading manufacturers adopt our technologies, other manufacturers may not choose to accept and adopt our tools and our products may not achieve widespread adoption. Any of the above factors would have a material adverse effect on our business, results of operations and financial condition.
If our SAPS, TEBO, Tahoe ECP, furnace and other technologies do not achieve widespread market acceptance, we will not be able to compete effectively.
The commercial success of our tools will depend, in part, on gaining substantial market acceptance by chip manufacturers. Our ability to gain acceptance for our products will depend upon a number of factors, including:
● | our ability to demonstrate the differentiated, innovative nature of our SAPS, TEBO, Tahoe, ECP, furnace and other technologies and the advantages of our tools over those of our competitors; |
● | compatibility of our tools with existing or potential customers’ manufacturing processes and products; |
● | the level of customer service available to support our products; and |
● | the experiences our customers have with our products. |
In addition, obtaining orders from new customers may be difficult because many chip manufacturers have pre-existing relationships with our competitors. Chip manufacturers must make a substantial investment to qualify and integrate wet processing equipment into a chip production line. Due, in part, to the cost of manufacturing equipment and the investment necessary to integrate a particular manufacturing process, a chip manufacturer that has selected a particular supplier’s equipment and qualified that equipment for production typically continues to use that equipment for the specific production application and process node, which is the minimum line width on a chip, as long as that equipment continues to meet performance specifications. Some of our potential and existing customers may prefer larger, more established vendors from which they can purchase equipment for a wider variety of process steps than our tools address. Further, because the cleaning process with our TEBO equipment can be up to five times longer than cleaning processes based on other technologies, we must convince chip manufacturers of the innovative, differentiated nature of our technologies and the benefits associated with using our tools. If we are unable to obtain new customers and continue to achieve widespread market acceptance of our tools, then our business, operations, financial results and growth prospects will be materially and adversely affected.
If we do not continue to enhance our existing single-wafer wet cleaning tools and achieve market acceptance, we will not be able to compete effectively.
We operate in an industry that is subject to evolving standards, rapid technological changes and changes in customer demands. Additionally, if process nodes continue to shrink to ever-smaller dimensions and conventional two-dimensional chips reach their critical performance limitations, the technology associated with manufacturing chips may advance to a point where our Ultra C equipment based on SAPS, TEBO, Tahoe, ECP, furnace and other technologies becomes obsolete. Accordingly, the future of our business will depend in large part upon the continuing relevance of our technological capabilities, our ability to interpret customer and market requirements in advance of tool deliveries, and our ability to introduce in a timely manner new tools that address chip makers’ requirements for cost-effective cleaning solutions. We expect to spend a significant amount of time and resources developing new tools and enhancing existing tools. Our ability to introduce and market successfully any new or enhanced cleaning equipment is subject to a wide variety of challenges during the tool’s development, including the following:
● | accurate anticipation of market requirements, changes in technology and evolving standards; |
● | the availability of qualified product designers and technologies needed to solve difficult design challenges in a cost-effective, reliable manner; |
● | our ability to design products that meet chip manufacturers’ cost, size, acceptance and specification criteria, and performance requirements; |
● | the ability and availability of suppliers and third-party manufacturers to manufacture and deliver the critical components and subassemblies of our tools in a timely manner; |
● | market acceptance of our customers’ products, and the lifecycle of those products; and |
● | our ability to deliver products in a timely manner within our customers’ product planning and deployment cycle. |
Certain enhancements to our Ultra C equipment in future periods may reduce demand for our pre-existing tools. As we introduce new or enhanced cleaning tools, we must manage the transition from older tools in order to minimize disruptions in customers’ ordering patterns, avoid excessive levels of older tool inventories and ensure timely delivery of sufficient supplies of new tools to meet customer demand. Furthermore, product introductions could delay purchases by customers awaiting arrival of our new products, which could cause us to fail to meet our expected level of production orders for pre-existing tools.
Our success will depend on our ability to identify and enter new product markets.
We expect to spend a significant amount of time and resources identifying new product markets in addition to the market for cleaning solutions and in developing new products for entry into these markets. Our TEBO technology took eight years to develop, and development of any new technology could require a similar, or even longer, period of time. Product development requires significant investments in engineering hours, third-party development costs, prototypes and sample materials, as well as sales and marketing expenses, which will not be recouped if the product launch is unsuccessful. We may fail to predict the needs of other markets accurately or develop new, innovative technologies to address those needs. Further, we may not be able to design and introduce new products in a timely or cost-efficient manner, and our new products may be more costly to develop, may fail to meet the requirements of the market, or may be adopted slower than we expect. If we are not able to introduce new products successfully, our inability to gain market share in new product markets could adversely affect our ability to sustain our revenue growth or maintain our current revenue levels.
If we fail to establish and maintain a reputation for credibility and product quality, our ability to expand our customer base will be impaired and our operating results may suffer.
We must develop and maintain a market reputation for innovative, differentiated technologies and high quality, reliable products in order to attract new customers and achieve widespread market acceptance of our products. Our market reputation is critical because we compete against several larger, more established competitors, many of which supply equipment for a larger number of process steps than we do to a broader customer base in an industry with a limited number of customers. In these circumstances, traditional marketing and branding efforts are of limited value, and our success depends on our ability to provide customers with reliable and technically sophisticated products. If the limited customer base does not perceive our products and services to be of high quality and effectiveness, our reputation could be harmed, which could adversely impact our ability to achieve our targeted growth.
We operate in a highly competitive industry and many of our competitors are larger, better-established, and have significantly greater operating and financial resources than we have.
The chip equipment industry is highly competitive, and we face substantial competition throughout the world in each of the markets we serve. Many of our current and potential competitors have, among other things:
● | greater financial, technical, sales and marketing, manufacturing, distribution and other resources; |
● | established credibility and market reputations; |
● | longer operating histories; |
● | broader product offerings; |
● | more extensive service offerings, including the ability to have large inventories of spare parts available near, or even at, customer locations; |
● | more extensive geographic coverage. |
These competitors may also have the ability to offer their products at lower prices by subsidizing their losses in wet cleaning with profits from other lines of business in order to retain current or obtain new customers. Among other things, some competitors have the ability to offer bundled discounts for customers purchasing multiple products. Many of our competitors have more extensive customer and partner relationships than we do and may therefore be in a better position to identify and respond to market developments and changes in customer demands. Potential customers may prefer to purchase from their existing suppliers rather than a new supplier, regardless of product performance or features. If we are not able to compete successfully against existing or new competitors, our business, operating results and financial condition will be negatively affected.
We depend on a small number of customers for a substantial portion of our revenue, and the loss of, or a significant reduction in orders from, one of our major customers could have a material adverse effect on our revenue and operating results. There are also a limited number of potential customers for our products.
The chip manufacturing industry is highly concentrated, and we derive most of our revenue from a limited number of customers. A total of two customers accounted for 48.9% of our revenue in 2021, three customers accounted for 75.8% of our revenue in 2020, and three customers accounted for 73.8% of our revenue in 2019.
As a consequence of the concentrated nature of our customer base, our revenue and results of operations may fluctuate from quarter to quarter and are difficult to estimate, and any cancellation of orders or any acceleration or delay in anticipated product purchases or the acceptance of shipped products by our larger customers could materially affect our revenue and results of operations in any quarterly period.
We may be unable to sustain or increase our revenue from our larger customers or offset the discontinuation of concentrated purchases by our larger customers with purchases by new or existing customers. We expect a small number of customers will continue to account for a high percentage of our revenue for the foreseeable future and that our results of operations may fluctuate materially as a result of such larger customers’ buying patterns. Thus, our business success depends on our ability to maintain strong relationships with our customers. The loss of any of our key customers for any reason, or a change in our relationship with any of our key customers, including a significant delay or reduction in their purchases, may cause a significant decrease in our revenue, which we may not be able to recapture due to the limited number of potential customers.
We have seen, and may see in the future, consolidation of our customer base. Industry consolidation generally has negative implications for equipment suppliers, including a reduction in the number of potential customers, a decrease in aggregate capital spending and greater pricing leverage on the part of consumers over equipment suppliers. Continued consolidation of the chip industry could make it more difficult for us to grow our customer base, increase sales of our products and maintain adequate gross margins.
Our customers do not enter into long-term purchase commitments, and they may decrease, cancel or delay their projected purchases at any time.
In accordance with industry practice, our sales are on a purchase order basis, which we seek to obtain three to four months in advance of the expected product delivery date. Until a purchase order is received, we do not have a binding purchase commitment. Our customers to date have provided us with non-binding one- to two-year forecasts of their anticipated demands, but those forecasts can be changed at any time, without any required notice to us. Because the lead-time needed to produce a tool customized to a customer’s specifications can extend up to six months, we may need to begin production of tools based on non-binding forecasts, rather than waiting to receive a binding purchase order. No assurance can be made that a customer’s forecast will result in a firm purchase order within the time period we expect, or at all.
If we do not accurately predict the amount and timing of a customer’s future purchases, we risk expending time and resources on producing a customized tool that is not purchased by a particular customer, which may result in excess or unwanted inventory, or we may be unable to fulfill an order on the schedule required by a purchase order, which would result in foregone sales. Customers may place purchase orders that exceed forecasted amounts, which could result in delays in our delivery time and harm our reputation. In the future a customer may decide not to purchase our tools at all, may purchase fewer tools than it did in the past or may otherwise alter its purchasing patterns, and the impact of any such actions may be intensified given our dependence on a small number of large customers. Our customers make major purchases periodically as they add capacity or otherwise implement technology upgrades. If any significant customers cancel, delay or reduce orders, our operating results could suffer.
We may incur significant expenses long before we can recognize revenue from new products, if at all, due to the costs and length of research, development, manufacturing and customer evaluation process cycles.
We often incur significant research and development costs for products that are purchased by our customers only after much, or all, of the cost has been incurred or that may never be purchased. We allow some new customers, or existing customers considering new products, to evaluate products without any payment becoming due unless the product is ultimately accepted, which means we may invest a significant amount in manufacturing a tool that may never be accepted and purchased or may be purchased months or even years after production. In the past we have borrowed money in order to fund first-time purchase order equipment and next-generation evaluation equipment. When we deliver evaluation equipment, or a “first tool,” we may not recognize revenue or receive payment for the tool for 24 months or longer. Even returning customers may take as long as six months to make any payments. If our sales efforts are unsuccessful after expending significant resources, or if we experience delays in completing sales, our future cash flow, revenue and profitability may fluctuate or be materially adversely affected.
Our sales cycle is long and unpredictable, which results in variability of our financial performance and may require us to incur high sales and marketing expenses with no assurance that a sale will result, all of which could adversely affect our profitability.
Our results of operations may fluctuate, in part, because of the resource-intensive nature of our sales efforts and the length and variability of our sales cycle. A sales cycle is the period between initial contact with a prospective customer and any sale of our tools. Our sales process involves educating customers about our tools, participating in extended tool evaluations and configuring our tools to customer-specific needs, after which customers may evaluate the tools. The length of our sales cycle, from initial contact with a customer to the execution of a purchase order, is generally 6 to 24 months. During the sales cycle, we expend significant time and money on sales and marketing activities and make investments in evaluation equipment, all of which lower our operating margins, particularly if no sale occurs or if the sale is delayed as a result of extended qualification processes or delays from our customers’ customers.
The duration or ultimate success of our sales cycle depends on factors such as:
● | efforts by our sales force; |
● | the complexity of our customers’ manufacturing processes and the compatibility of our tools with those processes; |
● | our customers’ internal technical capabilities and sophistication; and |
● | our customers’ capital spending plans and processes, including budgetary constraints, internal approvals, extended negotiations or administrative delays. |
It is difficult to predict exactly when, or even if, we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, we may not recognize revenue from our sales efforts for extended periods of time, or at all. The loss or delay of one or more large transactions in a quarter could impact our results of operations for that quarter and any future quarters for which revenue from that transaction is lost or delayed. In addition, we believe that the length of the sales cycle and intensity of the evaluation process may increase for those current and potential customers that centralize their purchasing decisions.
Difficulties in forecasting demand for our tools may lead to periodic inventory shortages or excess spending on inventory items that may not be used.
We need to manage our inventory of components and production of tools effectively to meet changing customer requirements. Accurately forecasting customers’ needs is difficult. Our tool demand forecasts are based on multiple assumptions, including non-binding forecasts received from our customers years in advance, each of which may introduce error into our estimates. Inventory levels for components necessary to build our tools in excess of customer demand may result in inventory write-downs and could have an adverse effect on our operating results and financial condition. Conversely, if we underestimate demand for our tools or if our manufacturing partners fail to supply components we require at the time we need them, we may experience inventory shortages. Such shortages might delay production or shipments to customers and may cause us to lose sales. These shortages may also harm our credibility, diminish the loyalty of our channel partners or customers.
A failure to prevent inventory shortages or accurately predict customers’ needs could result in decreased revenue and gross margins and harm our business.
Some of our products and supplies may become obsolete or be deemed excess while in inventory due to rapidly changing customer specifications, changes in product structure, components or bills of material as a result of engineering changes, or a decrease in customer demand. We also have exposure to contractual liabilities to our contract manufacturers for inventories purchased by them on our behalf, based on our forecasted requirements, which may become excess or obsolete. Our inventory balances also represent an investment of cash. To the extent our inventory turns are slower than we anticipate based on historical practice, our cash conversion cycle extends and more of our cash remains invested in working capital. If we are not able to manage our inventory effectively, we may need to write down the value of some of our existing inventory or write off non-saleable or obsolete inventory. Any such charges we incur in future periods could materially and adversely affect our results of operations.
The difficulty in forecasting demand also makes it difficult to estimate our future results of operations and financial condition from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenue and net income, and we are unlikely to forecast such effects with any certainty in advance.
If our tools contain defects or do not meet customer specifications, we could lose customers and revenue.
Highly complex tools such as our may develop defects during the manufacturing and assembly process. We may also experience difficulties in customizing our tools to meet customer specifications or detecting defects during the development and manufacturing of our tools. Some of these failures may not be discovered until we have expended significant resources in customizing our tools, or until our tools have been installed in our customers’ production facilities. These quality problems could harm our reputation as well as our customer relationships in the following ways:
● | our customers may delay or reject acceptance of our tools that contain defects or fail to meet their specifications; |
● | we may suffer customer dissatisfaction, negative publicity and reputational damage, resulting in reduced orders or otherwise damaging our ability to retain existing customers and attract new customers; |
● | we may incur substantial costs as a result of warranty claims or service obligations or in order to enhance the reliability of our tools; |
● | the attention of our technical and management resources may be diverted; |
● | we may be required to replace defective systems or invest significant capital to resolve these problems; and |
● | we may be required to write off inventory and other assets related to our tools. |
In addition, defects in our tools or our inability to meet the needs of our customers could cause damage to our customers’ products or manufacturing facilities, which could result in claims for product liability, tort or breach of warranty, including claims from our customers. The cost of defending such a lawsuit, regardless of its merit, could be substantial and could divert management’s attention from our ongoing operations. In addition, if our business liability insurance coverage proves inadequate with respect to a claim or future coverage is unavailable on acceptable terms or at all, we may be liable for payment of substantial damages. Any or all of these potential consequences could have an adverse impact on our operating results and financial condition.
Warranty claims in excess of our estimates could adversely affect our business.
We have provided warranties against manufacturing defects of our tools that range from 12 to 36 months in duration. Our product warranty requires us to provide labor and parts necessary to repair defects. As of December 31, 2021, we had accrued $6.8 million in liability contingency for potential warranty claims. Warranty claims substantially in excess of our expectations, or significant unexpected costs associated with warranty claims, could harm our reputation and could cause customers to decline to place new or additional orders, which could have a material adverse effect on our business, results of operations and financial condition.
We rely on third parties to manufacture significant portions of our tools and our failure to manage our relationships with these parties could harm our relationships with our customers, increase our costs, decrease our sales and limit our growth.
Our tools are complex and require components and subassemblies having a high degree of reliability, accuracy and performance. We rely on third parties to manufacture most of the subassemblies and supply most of the components used in our tools. Accordingly, we cannot directly control our delivery schedules and quality assurance. This lack of control could result in shortages or quality assurance problems. In addition, supply chain constraints have intensified due to COVID-19. See also “Risks Related to the COVID 19 Outbreak—Our global supply chain may be materially adversely impacted due to the COVID‑19 pandemic.”These issues and our ability to manage increased demand could delay shipments of our tools, increase our testing or production costs or lead to costly failure claims.
We do not have long-term supply contracts with some of our suppliers, and those suppliers are not obligated to perform services or supply products to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. In addition, we attempt to maintain relatively low inventories and acquire subassemblies and components only as needed. There are significant risks associated with our reliance on these third-party suppliers, including:
● | potential price increases; |
● | capacity shortages or other inability to meet any increase in demand for our products; |
● | reduced control over manufacturing process for components and subassemblies and delivery schedules; |
● | limited ability of some suppliers to manufacture and sell subassemblies or parts in the volumes we require and at acceptable quality levels and prices, due to the suppliers’ relatively small operations and limited manufacturing resources; |
● | increased exposure to potential misappropriation of our intellectual property; and |
● | limited warranties on subassemblies and components supplied to us. |
Any delays in the shipment of our products due to our reliance on third-party suppliers could harm our relationships with our customers. In addition, any increase in costs due to our suppliers increasing the price they charge us for subassemblies and components or arising from our need to replace our current suppliers that we are unable to pass on to our customers could negatively affect our operating results.
Any shortage of components or subassemblies could result in delayed delivery of products to us or in increased costs to us, which could harm our business.
The ability of our manufacturers to supply our tools is dependent, in part, upon the availability certain components and subassemblies. Our manufacturers may experience shortages in the availability of such components or subassemblies, which could result in delayed delivery of products to us or in increased costs to us. Any shortage of components or subassemblies or any inability to control costs associated with manufacturing could increase the costs for our products or impair our ability to ship orders in a timely cost-efficient manner. As a result, we could experience cancellation of orders, refusal to accept deliveries or a reduction in our prices and margins, any of which could harm our financial performance and results of operations.
We depend on a limited number of suppliers, including single source suppliers, for critical components and subassemblies, and our business could be disrupted if they are unable to meet our needs.
We depend on a limited number of suppliers for components and subassemblies used in our tools. Certain components and subassemblies of our tools have only been purchased from our current suppliers to date and changing the source of those components and subassemblies may result in disruptions during the transition process and entail significant delay and expense. We rely on: Product Systems, Inc., or ProSys, as the sole supplier of megasonic transducers, a key subassembly used in our single-wafer cleaning equipment; Ninebell Co., Ltd., or Ninebell, as the principal supplier of robotic delivery system subassemblies used in our single-wafer cleaning equipment; and Advanced Electric Co. Inc., as a key supplier of valves used in our single-wafer cleaning equipment. An adverse change to our relationship with any of these suppliers would disrupt our production of single-wafer cleaning equipment and could cause substantial harm to our business.
With some of these suppliers, we do not have long-term agreements and instead purchase components and subassemblies through a purchase order process. As a result, these suppliers may stop supplying us components and subassemblies, limit the allocation of supply and equipment to us due to increased industry demand or significantly increase their prices at any time with little or no advance notice. Our reliance on a limited number of suppliers could also result in delivery problems, reduced control over product pricing and quality, and our inability to identify and qualify another supplier in a timely manner.
Moreover, some of our suppliers may experience financial difficulties that could prevent them from supplying us with components or subassemblies used in the design and manufacture of our products. In addition, our suppliers, including our sole supplier ProSys, may experience manufacturing delays or shut downs due to circumstances beyond their control, such as labor issues, political unrest or natural disasters. Any supply deficiencies could materially and adversely affect our ability to fulfill customer orders and our results of operations. We have in the past and may in the future, experience delays or reductions in supply shipments, which could reduce our revenue and profitability. If key components or materials are unavailable, our costs would increase and our revenue would decline.
We have depended on PRC governmental subsidies to help fund our technology development since 2008, and our failure to obtain additional subsidies may impede our development of new technologies and may increase our cost of capital and our operational expenses, either of which could make it difficult for us to expand our product base.
We received subsidies from local and central governmental authorities in the PRC in 2008, 2009, 2014, 2018, 2019, 2020 and 2021. These grants have provided a significant portion of the funding for our development and commercialization of stress-free polishing and electro copper-plating technologies. If we are unable to obtain similar governmental subsidies for development projects in the future, our operating expenses could increase, or we may need to raise additional funds through public financings, or other arrangements, which could force us to reduce our efforts to develop technologies beyond SAPS, TEBO, Tahoe and ECP.
The success of our business will depend on our ability to manage any future growth.
We have experienced rapid growth in our business recently due, in part, to an expansion of our product offerings and an increase in the number of customers that we serve. For example, our headcount grew by 62% in 2021, 50% in 2020, and 32% in 2019. We will seek to continue to expand our operations in the future, including by adding new offices, locations and employees. Managing our growth has placed and could continue to place a significant strain on our management, other personnel and our infrastructure. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, develop new products, enhance our technological capabilities, satisfy customer requirements, respond to competitive pressures or otherwise execute our business plan. In addition, any inability to manage our growth effectively could result in operating inefficiencies that could impair our competitive position and increase our costs disproportionately to the amount of growth we achieve. To manage our growth, we believe we must effectively:
● | hire, train, integrate and manage additional qualified engineers for research and development activities, sales and marketing personnel, service and support personnel and financial and information technology personnel; |
● | manage multiple relationships with our customers, suppliers and other third parties; and |
● | continue to enhance our information technology infrastructure, systems and controls. |
Our organizational structure has become more complex, including as a result of the STAR Listing and the STAR IPO. We will need to continue to scale and adapt our operational, financial and management controls, as well as our reporting systems and procedures, at both ACM Research and ACM Shanghai. The continued expansion of our infrastructure will require us to commit substantial financial, operational and management resources before our revenue increases and without any assurances that our revenue will increase.
We are highly dependent on our Chief Executive Officer and President and other senior management and key employees.
Our success largely depends on the skills, experience and continued efforts of our management, technical and sales personnel, including in particular Dr. David H. Wang, the Chair of the Board, Chief Executive Officer and President of ACM Research. All of our senior management are at-will employees, which means either we or the employee may terminate their employment at any time. If one or more of our other senior management were unable or unwilling to continue their employment with us, we may not be able to replace them in a timely manner. Moreover, in connection with the STAR Listing and the STAR IPO, ACM Shanghai is now managed by a group of officers separate from those of ACM Research and those officers owe fiduciary duties to the various stakeholders of ACM Shanghai. We do not have employment or retention agreements with, or maintain key person life insurance policies on, any of our employees. Our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected. In addition, our senior management may join a competitor or form a competing company. The loss of Dr. Wang or other key management personnel, including our Chief Financial Officer, could significantly delay or prevent the achievement of our business objectives.
Failure to attract and retain qualified personnel could put us at a competitive disadvantage and prevent us from effectively growing our business.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. There is substantial competition for experienced management, technical and sales personnel in the chip equipment industry. If qualified personnel become scarce or difficult to attract or retain for compensation-related or other reasons, we could experience higher labor, recruiting or training costs. New hires may require significant training and time before they achieve full productivity and may not become as productive as we expect. If we are unable to retain and motivate our existing employees and attract qualified personnel to fill key positions, we may experience inadequate levels of staffing to develop and market our products and perform services for our customers, which could have a negative effect on our operating results.
Our ability to utilize certain U.S. and state net operating loss carryforwards may be limited under applicable tax laws.
As of December 31, 2021, we had net operating loss carryforward amounts, or NOLs, of $56.1 million for U.S. federal income tax purposes and $0.5 million for U.S. state income tax purposes. As of December 31, 2020, we had NOLs of $45.0 million for U.S. federal income tax purposes and $545,000 for U.S. state income tax purposes. The federal and state NOLs will expire at various dates in the future.
Utilization of these NOLs could be subject to a substantial annual limitation if the ownership change limitations under U.S. Internal Revenue Code Sections 382 and 383 and similar U.S. state provisions are triggered by changes in the ownership of our capital stock. Such an annual limitation would result in the expiration of the NOLs before utilization. Our existing NOLs may be subject to limitations arising from previous ownership changes, including in connection with our initial public offering and concurrent private placement in November 2017, our follow on public offering in August 2019, and any future equity issuances. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change. Regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, may cause our existing NOLs to expire or otherwise become unavailable to offset future income tax liabilities. Additionally, U.S. state NOLs generated in one state cannot be used to offset income generated in another U.S. state. For these reasons, we may be limited in our ability to realize tax benefits from the use of our NOLs, even if our profitability would otherwise allow for it.
Acquisitions that we pursue in the future, whether or not consummated, could result in other operating and financial difficulties.
In the future we may seek to acquire additional product lines, technologies or businesses in an effort to increase our growth, enhance our ability to compete, complement our product offerings, enter new and adjacent markets, obtain access to additional technical resources, enhance our intellectual property rights or pursue other competitive opportunities. We may also make investments in certain key suppliers to align our interests with such suppliers. If we seek acquisitions, we may not be able to identify suitable acquisition candidates at prices we consider appropriate. We cannot readily predict the timing or size of our future acquisitions, or the success of any future acquisitions.
To the extent that we consummate acquisitions or investments, we may face financial risks as a result, including increased costs associated with merged or acquired operations, increased indebtedness, economic dilution to gross and operating profit and earnings per share, or unanticipated costs and liabilities. Acquisitions may involve additional risks, including:
● | the acquired product lines, technologies or businesses may not improve our financial and strategic position as planned; |
● | we may determine we have overpaid for the product lines, technologies or businesses, or that the economic conditions underlying our acquisition have changed; |
● | we may have difficulty integrating the operations and personnel of the acquired company; |
● | we may have difficulty retaining the employees with the technical skills needed to enhance and provide services with respect to the acquired product lines or technologies; |
● | the acquisition may be viewed negatively by customers, employees, suppliers, financial markets or investors; |
● | we may have difficulty incorporating the acquired product lines or technologies with our existing technologies; |
● | we may encounter a competitive response, including price competition or intellectual property litigation; |
● | we may encounter difficulties related to required CFIUS approval (see also “—Regulatory and Litigation Risks—Certain of our investments may be subject to review by and approval from CFIUS, which may prevent us from taking advantage of investment opportunities that would otherwise be advantageous to our stockholders”); |
● | we may become a party to product liability or intellectual property infringement claims as a result of our sale of the acquired company’s products; |
● | we may incur one-time write-offs, such as acquired in-process research and development costs, and restructuring charges; |
● | we may acquire goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges; |
● | our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; and |
● | our due diligence process may fail to identify significant existing issues with the target business. |
From time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. These negotiations could result in significant diversion of management time, as well as substantial out-of-pocket costs, any of which could have a material adverse effect on our business, operating results and financial condition.
Future declines in the semiconductor industry, and the overall world economic conditions on which the industry is significantly dependent, could have a material adverse impact on our results of operations and financial condition.
Our business depends on the capital equipment expenditures of chip manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits. With the consolidation of customers within the industry, the chip capital equipment market may experience rapid changes in demand driven both by changes in the market generally and the plans and requirements of particular customers. Global economic and business conditions, which are often unpredictable, have historically impacted customer demand for our products and normal commercial relationships with our customers, suppliers and creditors. Additionally, in times of economic uncertainty our customers’ budgets for our tools, or their ability to access credit to purchase them, could be adversely affected. This would limit their ability to purchase our products and services. As a result, economic downturns could cause material adverse changes to our results of operations and financial condition including:
● | a decline in demand for our products; |
● | an increase in reserves on accounts receivable due to our customers’ inability to pay us; |
● | an increase in reserves on inventory balances due to excess or obsolete inventory as a result of our inability to sell such inventory; |
● | valuation allowances on deferred tax assets; |
● | asset impairments including the potential impairment of goodwill and other intangible assets; |
● | a decline in the value of our investments; |
● | exposure to claims from our suppliers for payment on inventory that is ordered in anticipation of customer purchases that do not come to fruition; |
● | a decline in the value of certain facilities we lease to less than our residual value guarantee with the lessor; and |
● | challenges maintaining reliable and uninterrupted sources of supply. |
Fluctuating levels of investment by chip manufacturers may materially affect our aggregate shipments, revenue, operating results and earnings. Where appropriate, we will attempt to respond to these fluctuations with cost management programs aimed at aligning our expenditures with anticipated revenue streams, which could result in restructuring charges. Even during periods of reduced revenues, we must continue to invest in research and development and maintain extensive ongoing worldwide customer service and support capabilities to remain competitive, which may temporarily harm our profitability and other financial results.
We conduct substantially all of our operations outside the United States and face risks associated with conducting business in foreign markets.
Substantially all of our sales in 2021, 2020 and 2019 were made to customers outside the United States. Our manufacturing center has been located in Shanghai since 2006 and substantially all of our operations are located in the PRC. We expect that all of our significant activities will remain outside the United States in the future. We are subject to a number of risks associated with our international business activities, including:
● | imposition of, or adverse changes in, foreign laws or regulatory requirements, such as work stoppages and travel restrictions imposed in connection with the COVID-19 pandemic; |
● | the need to comply with the import laws and regulations of various foreign jurisdictions, including a range of U.S. import laws; |
● | potentially adverse tax consequences, including withholding tax rules that may limit the repatriation of our earnings, and higher effective income tax rates in foreign countries where we conduct business; |
● | competition from local suppliers with which potential customers may prefer to do business; |
● | seasonal reduction in business activity, such as during the Lunar New Year in parts of Asia and in other periods in various individual countries; |
● | increased exposure to foreign currency exchange rates; |
● | reduced protection for intellectual property; |
● | longer sales cycles and reliance on indirect sales in certain regions; |
● | increased length of time for shipping and acceptance of our products; |
● | greater difficulty in responding to customer requests for maintenance and spare parts on a timely basis; |
● | greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods; |
● | difficulties in staffing and managing foreign operations and the increased travel, infrastructure and legal and compliance costs associated with multiple international locations; |
● | heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, our consolidated financial statements; and |
● | general economic conditions, geopolitical events or natural disasters in countries where we conduct our operations or where our customers are located, including political unrest, war, acts of terrorism or responses to such events. |
In particular, the Asian market is extremely competitive, and chip manufacturers may be aggressive in seeking price concessions from suppliers, including chip equipment manufacturers.
We may not be successful in developing and implementing policies and strategies that will be effective in managing these risks in each country in which we do business. Our failure to manage these risks successfully could adversely affect our business, operating results and financial condition.
Fluctuation in foreign currency exchange rates may adversely affect our results of operations and financial position.
Our results of operations and financial position could be adversely affected as a result of fluctuations in foreign currency exchange rates. Although our financial statements are denominated in U.S. dollars, a sizable portion of our costs are denominated in other currencies, principally the Chinese Renminbi and, to a lesser extent, the South Korean Won. Because many of our raw material purchases are denominated in Renminbi while the majority of the purchase orders we receive are denominated in U.S. dollars, exchange rates have a significant effect on our gross margin. We have not engaged in any foreign currency exchange hedging transactions to date, and any strategies that we may use in the future to reduce the adverse impact of fluctuations in foreign currency exchange rates may not be successful. Our foreign currency exposure with respect to assets and liabilities for which we do not have hedging arrangements could have a material impact on our results of operations in periods when the U.S. dollar significantly fluctuates in relation to unhedged non-U.S. currencies in which we transact business.
Regulatory Risks
Changes in government trade policies could limit the demand for our tools and increase the cost of our tools.
General trade tensions between the United States and the PRC escalated beginning in 2018. In each of July, August and September 2018, June and September 2019, and February 2020, the U.S. government imposed a round of new or higher tariffs on specified imported products originating from the PRC in response to what the U.S. government characterizes as unfair trade practices. The PRC government responded to each of these rounds of U.S. tariff changes by imposing new or higher tariffs on specified products imported from the United States. Higher duties on existing tariffs and further rounds of tariffs have been announced or threatened by U.S. and PRC leaders.
The imposition of tariffs by the U.S. and PRC governments and the surrounding economic uncertainty may negatively impact the semiconductor industry, including reducing the demand of fabricators for capital equipment such as our tools. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit the ability of our customers to manufacture or sell semiconductors or to make the manufacture or sale of semiconductors more expensive and less profitable, which could lead those customers to fabricate fewer semiconductors and to invest less in capital equipment such as our tools. In addition, if the PRC were to impose additional tariffs on raw materials, subsystems or other supplies that we source from the United States, our cost for those supplies would increase. As a result of any of the foregoing events, the imposition or new or additional tariffs may limit our ability to manufacture tools, increase our selling and/or manufacturing costs, decrease margins, or inhibit our ability to sell tools or to purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions.
Our ability to sell our tools to Chinese customers may be restricted by regulatory actions.
The Bureau of Industry and Security of the U.S. Department of Commerce, or BIS, recently has imposed and may continue to impose additional restrictions, including licensing requirements, under the Export Administration Regulations, or EAR, with respect to certain PRC companies that impact the supply of U.S. products and certain non‑U.S. products incorporating U.S. content, or that are manufactured using certain U.S. technology or software, to such companies and the sourcing of U.S. items by non-U.S. companies for use in manufacturing products for such companies. For example, BIS has recently added a number of PRC entities to the Entity List under the EAR which means that any items subject to the EAR, including certain non-U.S. produced products with U.S. content, require a BIS license for supply to the listed entities. Among other companies, in December 2020, SMIC, one of the largest chip manufacturers in the PRC, was added to the Entity List. Challenges faced by SMIC and its key suppliers as a result of the listing could indirectly impact SMIC’s demand for, or our ability to supply, our products.
We cannot be certain what additional actions the U.S. government may take with respect to PRC entities, and whether such actions will impact our relationships with our PRC-based customers, including changes to the Entity List restrictions, other export regulations, tariffs or other trade restrictions, or whether the PRC government may take any actions in response to U.S. government action that may adversely affect our ability to do business with our PRC-based customers. Even in the absence of new restrictions, tariffs or trade actions imposed by the U.S. or PRC government, our PRC-based customers may take actions to reduce dependence on the supply of products subject to potential U.S. trade regulations, including our tools, which could have a material adverse effect on our operating results. We are unable to predict the duration of the restrictions imposed by the U.S. government or of any additional governmental actions that may impact our relationships with our PRC-based customers, any of which could have a long-term adverse effect on our business, operating results and financial condition.
Changes in political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.
Substantially all of our operations are conducted in the PRC, and a substantial majority of our revenue is sourced from the PRC. Accordingly, our financial condition and results of operations are affected to a significant extent by economics, political and legal developments in the PRC.
The Chinese economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC are still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over economic growth in the PRC by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions, and providing preferential treatment to particular industries or companies.
While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In the past the PRC government has implemented measures to control the pace of economic growth, and similar measures in the future may cause decreased economic activity, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses, financial condition and results of operations.
Although the PRC government has been implementing policies to develop an independent domestic semiconductor industry supply chain, there is no guaranteed time frame in which these initiatives will be implemented. We cannot guarantee that the implementation of these policies will result in additional revenue to us or that our presence in the PRC will result in support from the PRC government. To the extent that any capital investment or other assistance from the PRC government is not provided to us, it could be used to promote the products and technologies of our competitors, which could adversely affect our business, operating results and financial condition.
Changes in political and economic policies with respect to the PRC may make it difficult for us to release the benefit of our investments.
On November 12, 2020, then-President Trump issued an executive order, or the Order, establishing a new sanctions program designed to prohibit U.S. persons from entering into transactions in certain publicly traded securities, as well as derivatives and securities designed to provide investment exposure to such securities, of any “Communist Chinese military company,” or CCMC, as designated by the U.S. Department of Defense, or DOD, or the U.S. Secretary of the Treasury. Continued ownership of such securities by U.S. persons would be prohibited after a one-year divestment period from the time of designation of the issuer. A number of PRC issuers have been designated under this program and more could be added.
On December 3, 2020, SMIC was designated as a CCMC by the DOD, which was subsequently removed as of June 3, 2021. If SMIC had remained on the list at December 3, 2021, ACM Shanghai’s continued possession of SMIC securities could have subjected ACM Shanghai and ACM Research to penalties. Certain implementation matters related to the scope of, and compliance with, the Order have not yet been resolved, and the ultimate application and enforcement of the Order may change due to, among other things, the change in the U.S. Presidential administration.
In addition, SMIC may be designated as a CCMC in the future, or we may seek to conduct business transactions with entities on the CCMC list in the future. Although the Order does not prohibit commercial relations with CCMC companies other than the securities transactions noted above, certain other export restrictions have been imposed under the Export Administration Regulations on some CCMC companies. These and any similar future U.S. government restrictions on our suppliers or customers may adversely affect our business operations in the PRC, overall company results or our financial condition.
The PRC’s currency exchange control and government restrictions on investment repatriation may impact our ability to transfer funds outside of the PRC, which could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, otherwise fund and conduct our business, or pay dividends on our common stock.
We generate substantially all of our revenue through ACM Shanghai, our PRC subsidiary. PRC statutory laws and regulations permit payments of dividends by ACM Shanghai only out of its retained earnings, which are determined in accordance with PRC accounting standards and regulations that differ from U.S. generally accepted accounting principles. The PRC regulations and ACM Shanghai’s articles of association require annual appropriations of 10% of net after-tax profits to be set aside, prior to payment of dividends, as a reserve or surplus fund, which restricts ACM Shanghai’s ability to transfer a portion of its net assets to us. Such reserved funds can only be used for specific purposes and are not transferable to ACM in the form of loans, advances or cash dividends.
As a result of these and other restrictions under PRC laws and regulations as well as restrictions under ACM Shanghai’s bank loan agreements, we may be significantly restricted in our ability to transfer a portion of ACM Shanghai’s net assets to ACM or other subsidiaries of ACM. We have no assurance that PRC governmental authorities in the future will not limit further or eliminate the ability of ACM Shanghai to purchase foreign currencies and transfer such funds to ACM to meet its liquidity or other business needs. Any inability to access funds in the PRC, if and when needed for use outside of the PRC, could have a material and adverse effect on our liquidity and our business.
Certain of our investments may be subject to review by and approval from CFIUS, which may prevent us from taking advantage of investment opportunities that would otherwise be advantageous to our stockholders.
Certain of our investments may be subject to review by and approval from the U.S. Committee on Foreign Investment in the U.S., or CFIUS. In the event that CFIUS reviews one or more of the our investments, there can be no assurances that we will be able to maintain or proceed with such investments on terms acceptable to us. Additionally, CFIUS may seek to impose limitations on one or more such investments that may prevent us from maintaining or pursuing investment opportunities that we otherwise would have maintained or pursued, which could adversely affect the performance of our investments and thus our overall performance. Certain of our stockholders may be non-U.S. investors, and in the aggregate, may comprise a substantial portion of our net asset value, which may increase the risks of such limitations being imposed in connection with investments pursued or made by us. Legislative and regulatory changes, including changes to agency practice, in the future may negatively impact our ability to realize value from certain existing and future investments, including by limiting exit opportunities or causing us to favor buyers that we believe are less likely to require CFIUS review, even in circumstances where other buyers may offer better terms or more consideration.
We are subject to government regulation, including import, export, economic sanctions, and anti-corruption laws and regulations, that may limit our sales opportunities, expose us to liability and increase our costs.
Our products are subject to import and export controls in jurisdictions in which we distribute or sell our products. Import and exports control and economic sanctions laws and regulations include restrictions and prohibitions on the sale or supply of certain products and on our transfer of parts, components, and related technical information and know-how to certain countries, regions, governments, persons and entities.
Various countries regulate the importation of certain products through import permitting and licensing requirements and have enacted laws that could limit our ability to distribute our products. The exportation, re-exportation, transfers within foreign countries and importation of our products, including by our partners, must comply with these laws and regulations, and any violations may result in reputational harm, government investigations and penalties, and a denial or curtailment of exporting. Complying with export control and sanctions laws for a particular sale may be time consuming, may increase our costs, and may result in the delay or loss of sales opportunities. If we are found to be in violation of U.S. sanctions or export control laws, or similar laws in other jurisdictions, we and the individuals working for us could incur substantial fines and penalties. Changes in export, sanctions or import laws or regulations may delay the introduction and sale of our products in international markets, require us to spend resources to seek necessary government authorizations or to develop different versions of our products, or, in some cases, prevent the export or import of our products to certain countries, regions, governments, persons or entities, which could adversely affect our business, financial condition and operating results.
We are subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, as well as similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their intermediaries from offering or making improper payments to non-U.S. officials for the purpose of obtaining, retaining or directing business. Our exposure for violating these laws and regulations increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.
Our auditor, as a registered public accounting firm operating in the PRC, is not permitted to be inspected by the Public Company Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspections.
BDO China Shu Lun Pan Certified Public Accountants LLP, or BDO China, is the independent registered public accounting firm that issued the audit report included in this report in connection with our consolidated financial statements as of, and for the years ended, December 31, 2021, 2020 and 2019. BDO China, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable professional standards. BDO China is located in the PRC. The PCAOB is currently unable to conduct inspections of auditors in the PRC without the approval of PRC authorities, and therefore BDO China, like other independent registered public accounting firms operating in the PRC, is currently not inspected by the PCAOB.
In May 2013 the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the China Securities Regulatory Commission and the Ministry of Finance of China pursuant to which the Ministry of Finance established a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in both the PRC and the United States. More specifically, the Memorandum of Understanding provides a mechanism for the parties to request and receive from each other assistance in obtaining documents and information in furtherance of their investigative duties. In addition the PCAOB is engaged in continuing discussions with the China Securities Regulatory Commission and the Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and to audit PRC companies whose securities are listed on U.S. stock exchanges.
The PCAOB’s inspections of firms outside of the PRC have identified deficiencies in audit procedures and quality control procedures, and such deficiencies may be addressed as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct inspections of BDO China with respect to its audit of our consolidated financial statements may make it more difficult for investors to evaluate BDO China’s audit procedures and quality control procedures by depriving investors of potential benefits from improvements that could have been facilitated by PCAOB inspections.
We could be adversely affected if proposed legislation is adopted regarding improved access to audit and other information and audit inspections of accounting firms, including registered public accounting firms operating in the PRC such as our auditor, or if Nasdaq’s proposals requiring additional criteria to companies operating in “restrictive markets” become effective.
BDO China, our independent registered public accounting firm, is not inspected by the PCAOB, as described in the preceding risk factor. We are one of 283 companies named in PCAOB’s list of “Public Companies that are Audit Clients of PCAOB-Registered Firms from Non-U.S. Jurisdictions where the PCAOB is Denied Access to Conduct Inspections.”
On March 24, 2021, the SEC adopted interim final amendments to implement congressionally mandated submission and disclosure required of the Holding Foreign Companies Accountable Act, and on December 2, 2021, the SEC adopted final amendments to finalize rules implementing the submission and disclosures in the Holding Foreign Companies Accountable Act. These final amendments apply to registrants that the SEC identifies as having filed an annual report on Form 10-K and other forms with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. Any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant. These actions are the latest in a series of recent proposed actions:
In December 2018 the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by U.S. regulators in their oversight of financial statement audits of U.S.-listed reporting companies with significant operations in the PRC.
In June 2019 a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress that, if passed, would have required the SEC to maintain a list of foreign reporting companies for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges Act, also referred to as the EQUITABLE Act, would have prescribed increased disclosure requirements for these reporting companies and, beginning in 2025, provided for the delisting from U.S. stock exchanges of reporting companies included on the SEC’s list for three consecutive years.
In May 2020 Nasdaq requested approval by the SEC of proposals that would impact companies with businesses principally administered in jurisdictions defined as “restrictive markets,” which likely would encompass the PRC. These proposals contemplate, among other things, the application of more stringent listing criteria if a listed company’s auditor does not demonstrate a PCAOB inspection record (as is the case with our auditor), employee expertise and training, or geographic or other resources sufficient to perform the company’s audit satisfactorily. Examples of more stringent criteria that Nasdaq could apply include requiring: (a) higher levels of equity, assets, earnings or liquidity than are otherwise needed; (b) that any public offering to be underwritten on a firm commitment basis (involving more due diligence by the underwriter); and (c) the imposition of lock-up restrictions on directors and officers to allow market mechanisms to determine an appropriate price for shares before the insiders could sell. Alternatively, Nasdaq could deny continued listing to a company.
In April 2020 the SEC and the PCAOB issued a joint statement highlighting the significant disclosure, financial reporting and other risks associated with emerging market investments, including the PCAOB’s continued inability to inspect audit work papers of auditors in the PRC.
The Holding Foreign Companies Accountable Act, which became law in December 2020, includes requirements for the SEC to identify issuers whose audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The Holding Foreign Companies Accountable Act also requires that, to the extent that the PCAOB has been unable to inspect an issuer’s auditor for three consecutive years since 2021, the SEC shall prohibit its securities registered in the United States from being traded on any national securities exchange or over-the-counter market in the United States. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the Holding Foreign Companies Accountable Act to require the SEC to prohibit an issuer’s securities from trading on any national securities exchange or over-the-counter market in the United States if the PCAOB has been unable to inspect an issuer’s auditor for two consecutive years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the Holding Foreign Companies Accountable Act, which provides a framework for the PCAOB to use when determining, as contemplated under the Holding Foreign Companies Accountable Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB designated China and Hong Kong as jurisdictions where the PCAOB is not allowed to conduct full and complete audit inspections and has identified firms registered in such jurisdictions, including BDO China Shu Lun Pan Certified Public Accountants LLP, our independent registered public accounting firm. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms.
It remains unclear what further actions the SEC, the PCAOB or Nasdaq may take to address these issues and what impact those actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange. Any such actions could materially affect our operations and stock price, including by resulting in our being de-listed from Nasdaq or being required to engage a new audit firm, which would require significant expense and management time.
Risks Related to Our STAR Market Listing
We may not achieve the results contemplated by our business strategy and our strategy for growth in the PRC may not result in increases in the price of Class A common stock.
We cannot assure you that we will realize any or all of our anticipated benefits of the STAR Listing and the STAR IPO, which may not have the anticipated effects of including the strengthening of our market position and operations in the PRC. ACM Shanghai continues to have broad discretion in the use of the proceeds from the initial sales of shares to investors and the proceeds from the STAR IPO, and it may not spend or invest those proceeds in a manner that results in our operating success or with which ACM Research stockholders agree. Our failure to successfully leverage the completion of the STAR Listing and the STAR IPO to expand our PRC business could result in a decrease in the price of the Class A common stock, and we cannot assure you that the success of ACM Shanghai will have a an attendant positive effect on the price of the Class A common stock.
PRC companies are critical to the global semiconductor industry, and our current business is substantially concentrated in the PRC market. Our inability to build, or any delay in growing, our PRC-based operations would materially and adversely limit our operations and operating results, including our revenue growth.
ACM Shanghai’s status as a publicly traded company that is controlled, but less than wholly owned, by ACM Research could have an adverse effect on us.
In November 2021, we completed the STAR Listing and STAR IPO with respect to shares of ACM Shanghai. ACM Shanghai is our principal operating company and, prior to the STAR Listing process, was a wholly owned subsidiary of ACM Research. As the result of actions taken in connection with the STAR Listing and the STAR IPO, ACM Shanghai is no longer a wholly owned subsidiary of ACM Research, and the interests of ACM Shanghai may diverge from the interests of ACM Research and its other subsidiaries in the future. We may face conflicts of interest in managing, financing or engaging in transactions with ACM Shanghai, or allocating business opportunities between our subsidiaries, including future arrangements for operating subsidiaries other than ACM Shanghai to license and use our intellectual property. Substantially all of our intellectual property has been developed in the PRC and is owned by ACM Shanghai. As we expand our global operations through operating subsidiaries outside of the PRC, those operating subsidiaries may need to license intellectual property from ACM Shanghai in order to operate, and there can be no assurance that conflicts of interest will not preclude those operating subsidiaries from licensing the required intellectual property from ACM Shanghai on reasonable terms or at all.
ACM Research retains majority ownership of ACM Shanghai since the STAR IPO, but ACM Shanghai is managed by a separate board of directors and officers and those directors and officers will owe fiduciary duties to the various stakeholders of ACM Shanghai, including shareholders other than ACM Research. In the operation of ACM Shanghai’s business, there may be situations that arise whereby the directors and officers of ACM Shanghai, in the exercise of their fiduciary duties, take actions that may be contrary to the best interests of ACM Research.
In the future, ACM Shanghai may issue options, restricted shares and other forms of share-based compensation to its directors, officers and employees, which could dilute ACM Research’s ownership in ACM Shanghai. In addition, ACM Shanghai may engage in capital raising activities in the future that could further dilute ACM Research’s ownership interest.
ACM Research and ACM Shanghai both are public reporting companies but each is subject to separate, and potentially inconsistent, accounting and disclosure requirements, which may lead to investor confusion or uncertainty that could cause decreased demand for, or fluctuations in the price of, one or both of the companies’ publicly traded shares.
Since ACM Shanghai completed the STAR Listing and the STAR IPO in November 2021, it has been subject to accounting, disclosure and other regulatory requirements of the STAR Market. At the same time, ACM Research remains subject to accounting, disclosure and other regulatory requirements of the SEC and the Nasdaq Global Market, or Nasdaq. As a result, ACM Research and ACM Shanghai periodically will disclose information simultaneously pursuant to differing laws and regulations. Even though substantially all of the operations of ACM Research are currently conducted through ACM Shanghai, the information disclosed by the two companies will differ, and may differ materially from time to time, due to the distinct, and potentially inconsistent, accounting standards applicable to the two companies and disclosure requirements imposed by securities regulatory authorities, as well as differences in language, culture and expression habit, in composition of investors in the United States and PRC, and in the capital markets of the United States and the PRC.
Differing disclosures could lead to confusion or uncertainty among investors in the publicly traded shares of one or both companies. Differences between the price of ACM Shanghai shares on the STAR Market and the price of ACM Research Class A common stock on Nasdaq could lead to increased volatility, as some investors seek to arbitrage price differences. Moreover, such volatility could be exacerbated by the fact that ACM Shanghai shares currently represent substantially all of the assets of ACM Research.
Risks Related to Our Intellectual Property and Data Security
Our success depends on our ability to protect our intellectual property, including our SAPS, TEBO, Tahoe, ECP, furnace and other technologies.
Our commercial success depends in part on our ability to obtain and maintain patent and trade secret protection for our intellectual property, including our SAPS, TEBO, Tahoe, ECP, furnace and other technologies and the design of our Ultra C equipment, as well as our ability to operate without infringing upon the proprietary rights of others. There can be no assurance that our patent applications will result in additional patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents issued will not be infringed, designed around, or invalidated by third parties. Even issued patents may later be found unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for our intellectual property is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. This failure to properly protect the intellectual property rights relating to our products and technologies could have a material adverse effect on our financial condition and results of operations.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
● | The U.S. Patent and Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case. |
● | Patent applications may not result in any patents being issued. |
● | Patents that may be issued may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage. |
● | Our competitors may seek or may have already obtained patents that will limit, interfere with, or eliminate our ability to make, use and sell our potential product candidates. |
● | The PRC and other countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates. |
In addition, we rely on the protection of our trade secrets and know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality and non-disclosure agreements with third parties and confidential information and inventions agreements with key employees, customers and suppliers, other parties may still obtain this information or may come upon this information independently. If any of these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced.
We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Competitors may infringe upon our patents. If our technologies are adopted, we believe that competitors may try to match our technologies and tools in order to compete. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. An adverse result in any litigation or defense proceedings, including our current suits, could put one or more of our patents at risk of being invalidated, found to be unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. In addition, any future patent litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel. Most of our competitors are larger than we are and have substantially greater resources, and they therefore are likely to be able to sustain the costs of complex patent litigation longer than we could. An adverse outcome in such litigation or proceedings may expose us to loss of our proprietary position.
We may not be able to protect our intellectual property rights throughout the world, including the PRC, which could materially, negatively affect our business.
Filing, prosecuting and defending patents on our products or proprietary technologies in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States, including the PRC, can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
The significant majority of our intellectual property has been developed in the PRC and is owned by ACM Shanghai. Implementation and enforcement of intellectual property-related laws in the PRC has historically been lacking due primarily to ambiguities in PRC intellectual property law. Accordingly, protection of intellectual property and proprietary rights in the PRC may not be as effective as in the United States or other countries. As a result, third parties could illegally use the technologies and proprietary processes that we have developed and compete with us, which could negatively affect any competitive advantage we enjoy, dilute our brand and harm our operating results. Litigation may be necessary to enforce our intellectual property rights, and given the relative unpredictability of the PRC’s legal system and potential difficulties enforcing a court judgment in the PRC, there is no guarantee litigation would result in an outcome favorable to us.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license and may adversely affect our business.
If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation could have a material adverse effect on our business.
Our success depends on our ability to develop, manufacture, market and sell our products without infringing upon the proprietary rights of third parties. Numerous U.S. and foreign-issued patents and pending patent applications owned by third parties exist in the fields in which we are developing products, some of which may contain claims that overlap with the subject matter of our intellectual property. A third party has claimed in the past, and others may claim in the future, that our technology or products infringe their intellectual property. In some instances third parties may initiate litigation against us in an effort to prevent us from using our technology in alleged violation of their intellectual property rights. The risk of such a lawsuit will likely increase as our size and the number and scope of our products increase and as our geographic presence and market share expand.
Any potential intellectual property claims or litigation commenced against us could:
● | be time consuming and expensive to defend, whether or not meritorious; |
● | force us to stop selling products or using technology that allegedly infringes the third party’s intellectual property rights; |
● | delay shipments of our products; |
● | require us to pay damages or settlement fees to the party claiming infringement; |
● | require us to attempt to obtain a license to the relevant intellectual property, which may not be available on reasonable terms or at all; |
● | force us to attempt to redesign products that contain the allegedly infringing technology, which could be expensive or which we may be unable to do; |
● | require us to indemnify our customers, suppliers or other third parties for any loss caused by their use of our technology that allegedly infringes the third party’s intellectual property rights; or |
● | divert the attention of our technical and managerial resources. |
Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents upon which our products or technologies may infringe. Similarly, there may be issued patents relevant to our products of which we are not aware.
Breaches of our cybersecurity systems could degrade our ability to conduct our business operations and deliver products to our customers, result in data losses and the theft of our intellectual property, damage our reputation, and require us to incur significant additional costs to maintain the security of our networks and data.
We increasingly depend upon our information technology systems to conduct our business operations, ranging from our internal operations and product development and manufacturing activities to our marketing and sales efforts and communications with our customers and business partners. Computer programmers may attempt to penetrate our network security, or that of our website, and misappropriate our proprietary information or cause interruptions of our service. Because the techniques used by such computer programmers to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. We have also outsourced a number of our business functions to third-party contractors, including our manufacturers, and our business operations also depend, in part, on the success of our contractors’ own cybersecurity measures. Additionally, we face potential heightened cybersecurity risks during the COVID-19 pandemic as our level of dependence on our IT networks and related systems increases, stemming from employees working remotely, and the number of malware campaigns and phishing attacks preying on the uncertainties surrounding the COVID‑19 pandemic increases. These heightened cybersecurity risks may increase our vulnerability to cyber-attacks and cause disruptions to our internal control procedures. Accordingly, if our cybersecurity systems and those of our contractors fail to protect against unauthorized access, sophisticated cyberattacks and the mishandling of data by our employees and contractors, our ability to conduct our business effectively could be damaged in a number of ways, including sensitive data regarding our employees or business, including intellectual property and other proprietary data, could be stolen. Should this occur, we could be subject to significant claims for liability from our customers and regulatory actions from governmental agencies. In addition, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed. Consequently, our financial performance and results of operations could be adversely affected.
Risks Related to the COVID‑19 Pandemic
The outbreak of COVID‑19, the coronavirus, continues both in the United States and globally, and related government and private sector responsive actions are adversely affecting our business operations.
We have set forth below key risks from the COVID‑19 pandemic that we have identified or experienced to date. The situation continues to evolve, however, and it is impossible to predict the effect and ongoing impact of the COVID‑19 pandemic on our business operations and results. While the quarantine, social distancing and other regulatory measures instituted or recommended in response to COVID‑19 were expected to be temporary, such measures have remained in effect, and have changed, over the last year, and the duration of the business disruptions, and related financial impact, cannot be estimated at this time. The COVID‑19 pandemic could ultimately reduce demand for our products and our customers’ chips and have a material adverse impact on our business, operating results and financial condition.
Substantially all of our operations are located in areas impacted by the COVID‑19 pandemic, and those operations have been, and may continue to be, adversely affected by the COVID‑19 pandemic.
We conduct substantially all of our product development, manufacturing, support and services in the PRC, and those activities have been directly impacted by the COVID‑19 pandemic and related restrictions on transportation and public appearances. We cannot assure you that closures or reductions of our PRC operations or production may not be necessary in upcoming months as the result of business interruptions arising from protective measures being taken by the PRC and other governmental agencies or of other consequences of the COVID‑19 pandemic.
Our corporate headquarters are located in San Mateo County in the San Francisco Bay area. The effects of actions taken by local governmental or other agencies may in the future may negatively impact productivity, disrupt our business and delay timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.
The prolonged and broad-based shift to a remote working environment continues to create inherent productivity, connectivity, and oversight challenges and could affect our ability to enhance, develop and support existing products and services, detect and prevent spam and problematic content, hold product sales and marketing events, and generate new sales leads, among others. In addition, the changed environment under which we are operating could have an effect on our internal controls over financial reporting as well as our ability to meet a number of our compliance requirements in a timely or quality manner. Additional and/or extended, governmental lockdowns, restrictions or new regulations could significantly impact the ability of our employees and vendors to work productively. Governmental restrictions have been globally inconsistent and it remains unclear when a return to worksite locations or travel will be permitted or what restrictions will be in place in those environments. We may experience increased costs as we continue to maintain our facilities for a safe work environment, in addition to potential effects on our ability to compete effectively and maintain our corporate culture.
Extended periods of interruption to our corporate, development or manufacturing facilities due to the COVID‑19 pandemic could cause us to lose revenue and market share, which would depress our financial performance and could be difficult to recapture. Our business may also be harmed if travel to or from the PRC or the United States continues to be restricted or inadvisable or if members of management and other employees are absent because they contract the coronavirus, they elect not to come to work due to the illness affecting others in our office or laboratory facilities, or they are subject to quarantines or other governmentally imposed restrictions.
Our global supply chain may be materially adversely impacted due to the COVID‑19 pandemic.
We rely upon the facilities of our global suppliers with operations in the PRC, Japan, Taiwan and the United States to support our business. We source the substantial majority of our components from Asia. The pandemic has resulted in significant governmental measures in many countries being implemented to control the spread of COVID‑19, including restrictions on manufacturing and the movement of employees both in and out of China and within many regions of the PRC. As a result of COVID‑19 and the measures designed to contain its spread, our suppliers may not have the materials, capacity, or capability to supply our components according to our schedule and specifications. Further, there may be logistics issues, including our ability and our supply chain’s ability to quickly ramp up production, and transportation demands that may cause further delays. Supply chain constraints have intensified due to COVID-19, which has contributed to global shortages coupled with increased demand in the supply of semiconductors. If our suppliers’ operations are curtailed, we may need to seek alternate sources of supply, which may be more expensive. Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations. While the disruptions and restrictions on the ability to travel, quarantines and temporary closures of the facilities of our suppliers, as well as general limitations on movement in the region, are expected to be temporary, the duration of the production and supply chain disruption, and related financial impact, cannot be estimated at this time. Should the production and distribution closures continue for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows. Business disruptions could also negatively affect the sources and availability of components and materials that are essential to the operation of our business. Moreover, our customers source a range of production equipment, supplies and services from other suppliers with operations around the world, and any reduction in supply capacity at those customers’ factories due to the COVID‑19 pandemic may reduce or even halt those customers’ production and result in a decrease in the demand for our products.
The COVID‑19 pandemic could negatively impact our currently planned projects and investments in the PRC..
Our strategy includes a number of plans to support the growth of our core business. In November 2021 we completed the STAR Listing and STAR IPO with respect to shares of ACM Shanghai, in May 2020 ACM Shanghai, through its wholly owned subsidiary Shengwei Research (Shanghai), Inc., entered into an agreement for a land use right in the Lingang region of Shanghai, and in July 2020 Shengwei Research (Shanghai), Inc. began a multi-year construction project for a new 1,000,000 square foot development and production center that will incorporate state-of-the-art manufacturing systems and automation technologies, and will provide floor space to support significantly increase production capacity and related research and development activities.. The extent to which COVID-19 impacts these projects will depend on future developments that are highly uncertain and cannot be predicted. If the disruptions posed by COVID‑19 and related government measures, or other matters of global concern, continue for an extensive period of time, our ability to consummate one or both of these planned projects could be materially adversely affected.
In September 2019 ACM Shanghai entered into a partnership agreement for the purposes of engaging in equity venture capital investments in strategic emerging and high-tech industries with a focus on the semiconductor industry. We cannot predict the ongoing effect that the COVID‑19 outbreak in the PRC will have on companies that would otherwise be desirable investments for the partnership, and the outbreak or related governmental actions could significantly impair the ability of the partnership to identify desirable investments or our ability to realize the anticipated benefits of the partnership.
Risks Related to Ownership of Class A Common Stock
The market price of Class A common stockhas been and may continue to be volatile, which could result in substantial losses for investors purchasing our shares
Class A common stock only commenced trading on the Nasdaq Global Market, or Nasdaq, on November 3, 2017, and the market price of Class A common stock has been, and could continue to be, subject to significant fluctuations. The market price of Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
● | actual or anticipated fluctuations in our revenue and other operating results; |
● | the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; |
● | actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; |
● | changes in projections for the chips or chip equipment industries or in the operating performance or expectations and stock market valuations of chip companies, chip equipment companies or technology companies in general; |
● | changes in operating results; |
● | any changes in the financial projections we may provide to the public, our failure to meet these projections, or changes in recommendations by any securities analysts that elect to follow Class A common stock; |
● | additional shares of Class A common stock being sold into the market by us or our existing stockholders or the anticipation of such sales; |
● 45
actual or anticipated fluctuations in our revenue and other operating results;
● | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; |
● | lawsuits threatened or filed against us; |
● | litigation and other developments relating to our patents or other proprietary rights or those of our competitors; |
● | developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and |
● | general economic trends, including changes in the demand for electronics or information technology or geopolitical events such as war or acts of terrorism, or any responses to such events. |
●
the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
●
actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
●
changes in projections for the chips or chip equipment industries or in the operating performance or expectations and stock market valuations of chip companies, chip equipment companies or technology companies in general;
●
changes in operating results;
●
any changes in the financial projections we may provide to the public, our failure to meet these projections, or changes in recommendations by any securities analysts that elect to follow Class A common stock;
●
additional shares of Class A common stock being sold into the market by us or our existing stockholders or the anticipation of such sales;
●
price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
●
lawsuits threatened or filed against us;
●
litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
●
developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and
●
general economic trends, including changes in the demand for electronics or information technology or geopolitical events such as war or acts of terrorism, or any responses to such events.
In recent years, the stock market in general, and Nasdaq in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations.
As a newly public company, ourOur stock price may be volatile, and securities class action litigation has often been instituted against companies following periods of volatility of their stock price. Any such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
In the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. ThisFor example, during the quarter ended December 31, 2020, such a suit was filed against our company and certain members of our management team as described in “Item 3. Legal Proceedings.” Although the suit was dismissed with prejudice on January 10, 2022, similar litigation if instituted against us,in the future could result in substantial costs and a diversion of our management’s attention and resources.
Few if any companies with stock publicly traded in the United States has effected a STAR Market listing of stock of a PRC-based subsidiary, and it is therefore difficult to predict the effect of the STAR Listing and STAR IPO on the Class A common stock.
40
The China Securities Regulatory Commission initially launched the STAR Market in June 2019 and trading on the Market began in July 2019. In November 2021 ACM Shanghai completed the STAR Listing and the STAR IPO. We believe we are one of the first publicly traded U.S. companies to complete an initial public offering of shares of a PRC subsidiary on the STAR Market. As a result, no assurance can be given regarding the effect of the STAR Listing and the STAR IPO on the market price of the Class A common stock. The market price of Class A common stock may be volatile or may decline, for reasons other than the risk and uncertainties described above, as the result of investor negativity or uncertainty with respect to the impact of the STAR Listing and STAR IPO.
ACM Research stockholders were not entitled to purchase ACM Shanghai shares in the pre-STAR Listing placement, and they may have limited opportunities to purchase ACM Shanghai shares now that the STAR Listing and the STAR IPO have been completed. Investors may elect to invest in our business and operations by purchasing ACM Shanghai shares on the STAR Market rather than purchasing ACM Research Class A common stock, and that reduction in demand could lead to a decrease in the market price for the Class A common stock.
An active trading market for Class A common stock may not be sustained.
Class A common stock has been listed on Nasdaq only since November 3, 2017, and we cannot assure you that an active trading market for Class A common stock will be sustained or maintained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. There can be no assurance that we will be able to successfully develop or maintain a liquid market for Class A common stock.
We have broad discretion in the use46
![graphic](https://capedge.com/proxy/10-K/0001140361-22-007348/image00004.jpg)
Report of Independent Registered Public Accounting Firm
TheShareholders and Board of Directors and Stockholders of
ACM Research, Inc.
Fremont, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of ACM Research, Inc. and its subsidiaries (the “Company”) as of December 31, 20172021 and 2016,2020, the related consolidated statements of operations and comprehensive income, (loss), changes in redeemable convertible preferred stock and stockholders’ equity, (deficit), and cash flows for each of the twothree years in the period ended December 31, 2017,2021, 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, 20172021 and 2016,2020, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 20172021,in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2022 expressed an unqualified opinion thereon.
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”)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. The Company is not required to have, nor were we engaged to perform, an audit
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.
Critical Audit Matter
/s/
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition related to sale of semiconductor capital equipment
As described in Notes 2 and 3 to the consolidated financial statements, the Company derives revenue principally from the sale of semiconductor capital equipment. Revenue of sale of semiconductor capital equipment is recognized when the Company satisfies performance obligations by transferring the control over products promised in the contract with customer, which is the point of time when the equipment has been demonstrated to meet the customer’s predetermined specifications and is accepted by the customer. For revenue contracts that provide for a lapsing customer acceptance period, the Company recognizes revenue as of the earlier of the expiration of the lapsing acceptance period or customer acceptance.
We identified the timing of revenue recognition as a critical audit matter because the Company’s revenue contracts have a variety of specifications, payment terms and customer acceptance clauses. Auditing these elements involved especially challenging auditor judgment in evaluating the appropriateness of the Company’s revenue recognition.
The primary procedures we performed to address this critical audit matter included:
Testing the design and operating effectiveness of controls over revenue recognition including management’s controls related to the identification and evaluation of performance obligations in contracts with customers and assessment of contract terms.
Evaluating management’s accounting policies and practices including the reasonableness of management’s judgments and assumptions relating to the Company’s revenue recognition including evaluation of customer acceptance clauses.
Testing a sample of revenue contracts and underlying order documents to evaluate appropriateness of management’s revenue recognition including assessment of customer acceptance clauses.
BDO China Shu Lun Pan Certified Public Accountants LLP
We have served as the Company's auditor since 2015.
Shenzhen, The People’s Republic of China
March 22, 20181, 2022
ACM RESEARCH, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
| |
| | |
Assets | (in thousands, except share data) |
Current assets: | | |
Cash and cash equivalents | $17,681 | $10,119 |
Accounts receivable, less allowance for doubtful accounts of $0 and $0 as of December 31, 2017 and 2016, respectively (note 3) | 26,762 | 16,026 |
Other receivables | 2,491 | 1,763 |
Inventory (note 4) | 15,388 | 11,666 |
Prepaid expenses | 546 | 720 |
Other current assets | 46 | 53 |
Total current assets | 62,914 | 40,347 |
Property, plant and equipment, net (note 5) | 2,340 | 2,262 |
Intangible assets, net | 106 | 17 |
Deferred tax assets (note 17) | 1,294 | 1,841 |
Investment in affiliates, equity method (note 11) | 1,237 | - |
| $67,891 | $44,467 |
| | |
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) | | |
Current liabilities: | | |
Short-term borrowings (note 6) | $5,095 | $4,761 |
Notes payable | 11 | 11 |
Investors’ deposits (note 8) | - | 2,902 |
Warrant liability (note 9) | 3,079 | — |
Accounts payable (including amounts due to a related party of $2,118and $508 at December 31, 2017 and 2016, respectively (note 12)) | 7,419 | 5,173 |
Advances from customers | 143 | 215 |
Income taxes payable | 44 | 44 |
Other payables and accrued expenses (including amounts due to a related-party of $2,024 and $1,883 as of December 31, 2017 and 2016, respectively (note 12) (note 7)) | 6,026 | 3,963 |
| | |
Total current liabilities | 21,817 | 17,069 |
Other long-term liabilities (note 10) | 6,217 | 6,879 |
Total liabilities | 28,034 | 23,948 |
| | |
Commitments and contingencies (Note 18) | | |
Redeemable convertible preferred stock, with par value $0.0001 as of December 31, 2017 and 2016: | | |
Series A: 385,000 shares authorized, no shares issued or outstanding as of December 31, 2017; 385,000 shares issued and outstanding as of December 31, 2016 (liquidation value of $0 and $308 at December 31, 2017 and 2016) | - | 288 |
Series B: 1,572,000 shares authorized, no shares issued or outstanding as of December 31, 2017; 1,572,000 issued and outstanding as of December 31, 2016 (liquidation value of $0 and $1,572 at December 31, 2017 and 2016) | - | 1,572 |
Series C: 1,360,962 shares authorized, no shares issued or outstanding as of December 31, 2017; 1,360,962 issued and outstanding as of December 31, 2016 (liquidation value of $0 and $2,041 at December 31,2017 and 2016). | - | 2,041 |
Series D: 2,659,975 shares authorized, no shares issued or outstanding as of December 31, 2017; 1,326,642 shares issued and outstanding as of December 31, 2016 (liquidation value of $0 and $4,975 at December 31, 2017 and 2016) | - | 4,975 |
Series E: 10,718,530 shares authorized, no shares issued or outstanding as of December 31, 2017 and 2016 | - | - |
Series F: 6,000,000 shares authorized, no shares issued or outstanding as of December 31, 2017; 3,663,254 issued and outstanding as of December 31, 2016 (liquidation value of $0 and $9,158 at December 31, 2017 and 2016) | - | 9,158 |
Total redeemable convertible preferred stock (note 15) | - | 18,034 |
Stockholders’ equity (deficit): | | |
Common stock – Class A, with par value $0.0001: 100,000,000 shares authorized, 12,935,546 shares issued and outstanding as of December 31, 2017; 100,000,000 shares authorized and 2,228,740 shares issued and outstanding as of December 31, 2016 (note 14) | 1 | 1 |
Common stock – Class B, with par value $0.0001: 7,303,533 shares authorized and 2,409,738 shares issued and outstanding as of December 31, 2017 and 2016 (note 14) | - | 1 |
Additional paid in capital | 49,695 | 7,620 |
Accumulated deficit | (9,961) | (9,643) |
Accumulated other comprehensive income (loss) | 122 | (413) |
Total ACM Research, Inc. stockholders’ (deficit) equity | 39,857 | (2,434) |
Non-controlling interests | - | 4,919 |
Total stockholders’ equity | 39,857 | 2,485 |
| | |
Total liabilities, redeemable convertible preferred stock and stockholders’ equity | $67,891 | $44,467 |
| | December 31, | |
| | 2021 | | | 2020 | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 563,067 | | | $ | 71,766 | |
Trading securities (note 16) | | | 29,498 | | | | 28,239 | |
Accounts receivable, less allowance for doubtful accounts of $0 as of December 31, 2021 and December 31, 2020 (note 4) | | | 105,553 | | | | 56,441 | |
Income tax recoverable
| | | 1,082
| | | | 0
| |
Other receivables | | | 18,979 | | | | 9,679 | |
Inventories (note 5) | | | 218,116 | | | | 88,639 | |
Prepaid expenses | | | 16,639 | | | | 5,892 | |
Total current assets | | | 952,934 | | | | 260,656 | |
Property, plant and equipment, net (note 6) | | | 14,042 | | | | 8,192 | |
Land use right, net (note 7) | | | 9,667 | | | | 9,646 | |
Operating lease right-of-use assets, net (note 11) | | | 4,182 | | | | 4,297 | |
Intangible assets, net | | | 477 | | | | 554 | |
Deferred tax assets (note 21) | | | 13,166 | | | | 11,076 | |
Long-term investments (note 14) | | | 12,694 | | | | 6,340 | |
Other long-term assets (note 8) | | | 45,017 | | | | 40,496 | |
Total assets | | | 1,052,179 | | | | 341,257 | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Short-term borrowings (note 9) | | | 9,591 | | | | 26,147 | |
Current portion of long-term borrowings (note 12) | | | 2,410 | | | | 1,591 | |
Accounts payable | | | 101,350 | | | | 35,603 | |
Advances from customers | | | 52,824 | | | | 17,888 | |
Deferred revenue | | | 3,180 | | | | 1,343 | |
Income taxes payable (note 21) | | | 254 | | | | 31 | |
FIN-48 payable (note 21) | | | 2,282 | | | | 83 | |
Other payables and accrued expenses (note 10) | | | 31,735 | | | | 18,805 | |
Current portion of operating lease liability (note 11) | | | 2,313 | | | | 1,417 | |
Total current liabilities | | | 205,939 | | | | 102,908 | |
Long-term borrowings (note 12) | | | 22,957 | | | | 17,979 | |
Long-term operating lease liability (note 11) | | | 1,869 | | | | 2,880 | |
Deferred tax liability (note 21) | | | 1,302 | | | | 1,286 | |
Other long-term liabilities (note 13) | | | 8,447 | | | | 8,034 | |
Total liabilities | | | 240,514 | | | | 133,087 | |
Commitments and contingencies (note 23) | | | 0 | | | | 0 | |
Stockholders’ equity: | | | | | | | | |
Common stock – Class A, par value $0.0001: 150,000,000 shares authorized as of December 31, 2021 and 50,000,000 shares authorized as of December 31, 2020; 17,869,643 shares issued and outstanding as of December 31, 2021 and 16,896,693 shares issued and outstanding as of December 31, 2020 (note 18) | | | 2 | | | | 2 | |
Common stock–Class B, par value $0.0001: 5,307,816 shares authorized as of December 31, 2021 and 2,409,738 shares authorized as of December 31, 2020; 1,695,938 shares issued and outstanding as of December 31, 2021 and 1,802,606 shares issued and outstanding as of December 31, 2020 (note 18) | | | 0 | | | | 0 | |
Additional paid in capital | | | 595,049 | | | | 102,004 | |
Accumulated surplus | | | 72,044 | | | | 34,287 | |
Accumulated other comprehensive income | | | 9,109 | | | | 4,857 | |
Total ACM Research, Inc. stockholders’ equity | | | 676,204 | | | | 141,150 | |
Non-controlling interests | | | 135,461 | | | | 67,020 | |
Total stockholders’ equity | | | 811,665 | | | | 208,170 | |
Total liabilities and stockholders’ equity | | $ | 1,052,179 | | | $ | 341,257 | |
The accompanying notes are an integral part of these consolidated financial statements.
84
ACM RESEARCH, INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
| |
| | |
| (in thousands, except share and per share data) |
Revenue | $36,506 | $27,371 |
Cost of revenue | 19,281 | 14,042 |
Gross profit | 17,225 | 13,329 |
Operating expenses: | | |
Sales and marketing | 5,500 | 3,907 |
Research and development | 5,138 | 3,259 |
General and administrative | 5,887 | 2,673 |
Total operating expenses, net | 16,525 | 9,839 |
Income from operations | 700 | 3,490 |
Interest income | 9 | 16 |
Interest expense | (277) | (181) |
Other expense, net | (794) | (343) |
Equity in net income of affiliates | 37 | - |
Income (loss) before income taxes | (325) | 2,982 |
Income tax expense (note 17) | (547) | (595) |
Net income (loss) | (872) | 2,387 |
Less: Net income (loss) attributable to non-controlling interests | (554) | 1,356 |
Net income (loss) attributable to ACM Research, Inc. | (318) | 1,031 |
Comprehensive income (loss): | | |
Net income (loss) | (872) | 2,387 |
Foreign currency translation adjustment | 472 | (522) |
Comprehensive income (loss) | (400) | 1,865 |
Less: Comprehensive income (loss) attributable to non-controlling interests | (369) | 1,161 |
Total comprehensive income (loss) attributable to ACM Research, Inc. (note 2) | $(31) | $704 |
Net income (loss) per common share (note 2): | | |
Basic | $(0.05) | $0.30 |
Diluted | (0.05) | $0.18 |
Weighted-average common shares outstanding used in computing per share amounts (note 2): | | |
Basic | 6,865,390 | 2,176,315 |
Diluted | 6,865,390 | 3,792,137 |
(In thousands, except per share data)
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Revenue (note 3) | | $ | 259,751 | | | $ | 156,624 | | | $ | 107,524 | |
Cost of revenue | | | 144,895 | | | | 87,025 | | | | 56,870 | |
Gross profit | | | 114,856 | | | | 69,599 | | | | 50,654 | |
Operating expenses: | | | | | | | | | | | | |
Sales and marketing | | | 26,733 | | | | 16,773 | | | | 11,902 | |
Research and development | | | 34,207 | | | | 19,119 | | | | 12,900 | |
General and administrative | | | 15,214 | | | | 12,215 | | | | 8,061 | |
Total operating expenses, net | | | 76,154 | | | | 48,107 | | | | 32,863 | |
Income from operations | | | 38,702 | | | | 21,492 | | | | 17,791 | |
Interest income | | | 505 | | | | 897 | | | | 333 | |
Interest expense | | | (765 | ) | | | (982 | ) | | | (745 | ) |
Change in fair value of financial liability | | | 0 | | | | (11,964 | ) | | | 0 | |
Unrealized gain on trading securities | | | 607 | | | | 12,574 | | | | 0 | |
Other income (expense), net | | | (631 | ) | | | (3,377 | ) | | | 1,393 | |
Equity income in net income of affiliates | | | 4,637 | | | | 655 | | | | 168 | |
Income before income taxes | | | 43,055 | | | | 19,295 | | | | 18,940 | |
Income tax benefit (expense) (note 21) | | | (134 | ) | | | 2,382 | | | | 518 | |
Net income | | | 42,921 | | | | 21,677 | | | | 19,458 | |
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests | | | 5,164 | | | | 2,897 | | | | 564 | |
Net income attributable to ACM Research, Inc. | | $ | 37,757 | | | $ | 18,780 | | | $ | 18,894 | |
Comprehensive income: | | | | | | | | | | | | |
Net income | | | 42,921 | | | | 21,677 | | | | 19,458 | |
Foreign currency translation adjustment | | | 4,695 | | | | 10,493 | | | | (899 | ) |
Comprehensive Income | | | 47,616 | | | | 32,170 | | | | 18,559 | |
Less: Comprehensive income attributable to non-controlling interests and redeemable non-controlling interests | | | 5,607 | | | | 6,858 | | | | 483 | |
Comprehensive income attributable to ACM Research, Inc. | | $ | 42,009 | | | $ | 25,312 | | | $ | 18,076 | |
| | | | | | | | | | | | |
Net income attributable to ACM Research, Inc. per common share (note 2): | | | | | | | | | | | | |
Basic | | $ | 1.96 | | | $ | 1.03 | | | $ | 1.12 | |
Diluted | | $ | 1.73 | | | $ | 0.89 | | | $ | 0.99 | |
| | | | | | | | | | | | |
Weighted average common shares outstanding used in computing per share amounts (note 2): | | | | | | | | | | | | |
Basic | | | 19,218,236 | | | | 18,233,361 | | | | 16,800,623 | |
Diluted | | | 21,785,572 | | | | 21,183,469 | | | | 19,135,497 | |
The accompanying notes are an integral part of these consolidated financial statements.
85
ACM RESEARCH, INC.
Consolidated Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except per share data)
| Redeemable Convertible Preferred Stock | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity (Deficit) |
| (in thousands, except share data) |
Balance at January 1, 2016 | 385,000 | $288 | 1,572,000 | $1,572 | 1,360,962 | $2,041 | 1,326,642 | $4,975 | — | $— | — | $— | $8,876 | 2,047,403 | $280 | — | $— | — | $— | $2,243 | $(10,675) | $(84) | $3,757 | $(4,479) |
Net income | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 1,031 | — | 1,356 | 2,387 |
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (329) | (193) | (522) |
Redomestication | — | — | — | — | — | — | — | — | — | — | — | — | — | (2,047,403)
| (280) | — | — | 2,047,403 | 1 | 279 | — | — | — | — |
Issuance of stock | — | — | — | — | — | — | — | — | — | — | 3,615,800 | 9,039 | 9,039 | — | — | — | — | — | — | — | — | — | — | — |
Debt conversion | — | — | — | — | — | — | — | — | — | — | 47,454 | 119 | 119 | — | — | 1,812,069 | 1 | — | — | 4,131 | — | — | — | 4,132 |
Exercise of stock option | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 416,671 | — | 362,335 | — | 584 | — | — | — | 584 |
compensation | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 383 | — | — | — | 383 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | 385,000 | $288 | 1,572,000 | $1,572 | 1,360,962 | $2,041 | 1,326,642 | $4,975 | — | $— | 3,663,254 | $9,158 | $18,034 | — | $— | 2,228,740 | $1 | 2,409,738 | $1 | $7,620 | $(9,643) | $(413) | $4,919 | $2,485 |
Net loss | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (318) | — | (554) | (872) |
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 535 | 185 | 720 |
Exercise of stock option | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 472,887 | — | — | — | 396 | — | — | — | 396 |
Stock-based compensation | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 1,622 | — | — | — | 1,622 |
Purchase of non-controlling interest | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (16,258) | — | — | (4,550) | (20,808) |
Issuance of Series E Preferred Stock | — | — | — | — | — | — | — | — | 4,998,508 | $5,800 | — | — | 5,800 | — | — | — | — | — | — | — | — | — | — | — |
Issuance of Common Stock to Ninebell | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 133,334 | — | — | — | 1,000 | — | — | — | 1,000 |
Issuance of Common Stock to Shanghai and Pudong VC | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 1,906,674 | — | — | — | 14,299 | — | — | — | 14,299 |
Convertible preferred shares converted to common shares in connection with initial public offering | (385,000) | (288) | (1,572,000) | (1,572) | (1,360,962) | (2,041)
| (1,326,642) | (4,975) | (4,998,508) | (5,800) | (3,663,254) | (9,158) | (23,834) | — | — | 4,627,577 | — | — | — | 23,834 | — | — | — | 23,834 |
Issuance of Class A common stock in connection with initial public offering and concurrent private placement, net of issuance costs of $2,791 and underwriter's warrant of $137 | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 3,566,334 | — | — | — | 17,044 | — | — | — | 17,044 |
Issuance of underwriter's warrant
| — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 137 | — | — | — | 137 |
Reclassification of reverse split par value | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (1) | 1 | — | — | — | — |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017 | - | $- | - | $- | - | $- | - | $- | - | $- | - | $- | $- | — | $— | 12,935,546 | $1 | 2,409,738 | $- | $49,695 | $(9,961) | $122 | $- | $39,857 |
| | Common Stock Class A | | | Common Stock Class B | | | | | | | | | | | | | | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Additional Paid- in Capital | | | Accumulated Surplus (Deficit) | | | Accumulated Other Comprehensive Income (Loss) | | | Non-controlling interests | | | Total Stockholders’ Equity | |
Balance at December 31, 2018 | | | 14,110,315 | | | $ | 1 | | | | 1,898,423 | | | $ | 0 | | | $ | 56,567 | | | $ | (3,387 | ) | | $ | (857 | ) | | $ | 0 | | | $ | 52,324 | |
Net income attributable to ACM Research, Inc. | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 18,894 | | | | 0 | | | | 0 | | | | 18,894 | |
Foreign currency translation adjustment | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 0 | | | | (818 | ) | | | 0 | | | | (818 | ) |
Exercise of stock options | | | 195,297 | | | | 0 | | | | 0 | | | | 0 | | | | 317 | | | | 0 | | | | 0 | | | | 0 | | | | 317 | |
Cancellation of stock options | | | | | | | | | | | | | | | | | | | (576 | ) | | | | | | | | | | | 0 | | | | (576 | ) |
Stock-based compensation | | | - | | | | 0 | | | | - | | | | 0 | | | | 3,572 | | | | 0 | | | | 0 | | | | 0 | | | | 3,572 | |
Issuance of Class A common stock in connection with public offering | | | 2,053,572 | | | | 1 | | | | 0 | | | | 0 | | | | 26,434 | | | | 0 | | | | 0 | | | | 0 | | | | 26,435 | |
Share repurchase | | | (214,286 | ) | | | 0
| | | | 0
| | | | 0
| | | | (2,827 | ) | | | 0
| | | | 0
| | | | 0
| | | | (2,827 | ) |
Conversion of Class B common stock to Class A common stock | | | 35,815 | | | | 0 | | | | (35,815 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Exercise of stock warrants issued to HFG | | | 1,438 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Balance at December 31, 2019 | | | 16,182,151 | | |
| 2 | | | | 1,862,608 | | |
| 0 | | |
| 83,487 | | |
| 15,507 | | |
| (1,675 | ) | |
| 0 | | |
| 97,321 | |
Net income | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 18,780 | | | | 0 | | | | 2,254 | | | | 21,034 | |
Foreign currency translation adjustment | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 0 | | | | 6,532 | | | | 4,808 | | | | 11,340 | |
Exercise of stock options | | | 832,504 | | | | 0 | | | | 0 | | | | 0 | | | | 2,745 | | | | 0 | | | | 0 | | | | 0 | | | | 2,745 | |
Stock-based compensation | | | - | | | | 0 | | | | - | | | | 0 | | | | 5,628 | | | | 0 | | | | 0 | | | | 0 | | | | 5,628 | |
Conversion of class B common shares to Class A common shares | | | 60,002 | | | | 0 | | | | (60,002 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Share cancellation (note 16) | | | (242,681 | ) | | | 0 | | | | 0 | | | | 0 | | | | (9,715 | ) | | | 0 | | | | 0 | | | | 0 | | | | (9,715 | ) |
Issuance of warrants (note 16) | | | - | | | | 0 | | | | - | | | | 0 | | | | 19,859 | | | | 0 | | | | 0 | | | | 0 | | | | 19,859 | |
Exercise of stock warrants | | | 64,717 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | 0 | | | | 0 | | | | 0 | |
Reclassification of redeemable non-controlling interest | | | - | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 59,958 | | | | 59,958 | |
Balance at December 31, 2020 | | | 16,896,693 | | | | 2 | | | | 1,802,606 | | | | 0 | | | | 102,004 | | | | 34,287 | | | | 4,857 | | | | 67,020 | | | | 208,170 | |
Net income
| | | -
| | | | 0 | | | | -
| | | | 0 | | | | 0 | | | | 37,757 | | | | 0 | | | | 5,164 | | | | 42,921 | |
Foreign currency translation adjustment
| | | -
| | | | 0 | | | | -
| | | | 0 | | | | 0 | | | | 0 | | | | 4,252 | | | | 443 | | | | 4,695 | |
Exercise of stock options
| | | 623,601
| | | | 0 | | | | 0
| | | | 0 | | | | 3,430 | | | | 0 | | | | 0 | | | | 0 | | | | 3,430 | |
Stock-based compensation
| | | -
| | | | 0 | | | | -
| | | | 0 | | | | 5,117 | | | | 0 | | | | 0 | | | | 0 | | | | 5,117 | |
Exercise of warrants
| | | 242,681
| | | | 0
| | | | 0
| | | | 0
| | | | 1,820
| | | | 0
| | | | 0
| | | | 0
| | | | 1,820
| |
Conversion of Class B common stock to Class A common stock
| | | 106,668
| | | | 0
| | | | (106,668 | ) | | | 0
| | | | 0
| | | | 0
| | | | 0
| | | | 0
| | | | 0
| |
Proceeds from a subsidiary equity issuance, net of issuance costs
| | | 0
| | | | 0
| | | | 0
| | | | 0 | | | | 482,678 | | | | 0 | | | | 0 | | | | 62,834 | | | | 545,512 | |
Balance at December 31, 2021 | | | 17,869,643
| | |
| 2
| | | | 1,695,938
| | | $
| 0 | | | $
| 595,049 | | | $
| 72,044 | | | $
| 9,109 | | | $
| 135,461 | | | $
| 811,665 | |
The accompanying notes are an integral part of these consolidated financial statements.
86
ACM RESEARCH, INC.
Consolidated Statements of Cash Flows
(In thousands)
| |
| | |
| |
Cash flows from operating activities: | | |
Net income (loss) | $(872) | $2,387 |
Adjustments to reconcile net income (loss) from operations to net cash provided by operating activities: | | |
Depreciation and amortization | 271 | 187 |
Undistributed earnings from investments in equity method affiliates | (37) | - |
Loss on disposals of fixed assets, intangible assets and other long-term assets | 1 | 3 |
Net loss from debt conversion and interest waiver | - | 1,608 |
Deferred income taxes | 659 | 436 |
Stock-based compensation | 1,622 | 383 |
Net changes in operating assets and liabilities: | | |
Accounts receivable | (9,757) | (4,724) |
Other receivables | 332 | (621) |
Inventory | (3,073) | (3,055) |
Prepaid expenses | 256 | 219 |
Other current assets | 8 | (47) |
Accounts payable | 1,905 | 3,177 |
Advances from customers | (127) | (4,078) |
Other payables and accrued expenses | 1,789 | 276 |
Other long-term liabilities | (1,078) | 147 |
Net cash used in operating activities | (8,101) | (3,702) |
| | |
Cash flows from investing activities: | | |
Purchase of property and equipment | (651) | (795) |
Purchase of intangible assets | (115) | (22) |
Proceed from disposal of property and equipment | - | 7 |
Loan to related party | (946) | - |
Purchase of non-controlling interest | (20,808) | - |
Investment in affiliates, equity method | (1,200) | - |
Net cash used in investing activities | (23,720) | (810) |
| | |
Cash flows from financing activities: | | |
Proceeds from short-term borrowings | 11,154 | 5,918 |
Repayments of short-term borrowings | (11,110) | (7,575) |
Investors’ deposit | - | 2,902 |
Proceeds from stock option exercise to common stock | 396 | 410 |
Proceeds from issuance of Series E convertible preferred stock | 5,800 | - |
Proceeds from issuance of Series F convertible preferred stock | - | 9,040 |
Proceeds from issuance of common stock in connection with initial public offering and concurrent private placement, net of direct issuance expenses of $1,254 | 18,717 | - |
Payment of initial public offering expenses | (1,537)
| - |
Investment in affiliates, equity method
| 1,000 | - |
Repayments of notes payable | - | (141) |
Proceeds from issuance of common stock for non-controlling interest purchase | 14,300 | - |
Net cash provided by financing activities | 38,720 | 10,554 |
| | |
Effect of exchange rate changes on cash and cash equivalents | 663 | (324) |
| | |
Net increase in cash and cash equivalents | 7,562 | 5,718 |
Cash and cash equivalents at beginning of period | 10,119 | 4,401 |
Cash and cash equivalents at end of period | $17,681 | $10,119 |
| | |
Supplemental disclosure of cash flow information: | | |
Interest paid | $277 | $181 |
| | |
Non-cash financing activities: | | |
Debt conversion to Class A common stock | - | $1,486 |
Debt conversion to Series F convertible preferred stock | - | $119 |
Exercise of stock option in lieu of the cash repayment of notes payable | - | $174 |
Preferred stock conversion to common stock in connection with initial public offering | $23,834 | - |
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Cash flows from operating activities: | | | | | | | | | |
Net income | | $ | 42,921 | | | $ | 21,677 | | | $ | 19,458 | |
Adjustments to reconcile net income from operations to net cash used in operating activities | | | | | | | | | | | | |
Depreciation and amortization | | | 2,353 | | | | 1,055 | | | | 788 | |
Loss on disposals of property, plant and equipment | | | 0 | | | | 25 | | | | 294 | |
Equity income in net income of affiliates | | | (4,637 | ) | | | (655 | ) | | | (168 | ) |
Unrealized gain on trading securities | | | (607 | ) | | | (12,574 | ) | | | 0 | |
Deferred income taxes | | | (1,840 | ) | | | (4,085 | ) | | | (3,719 | ) |
Stock-based compensation | | | 5,117 | | | | 5,628 | | | | 3,572 | |
Change in fair value of financial liability | | | 0 | | | | 11,964 | | | | 0 | |
Net changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | (47,624 | ) | | | (22,085 | ) | | | (6,961 | ) |
| | | (1,082 | ) | | | 0
| | | | 0
| |
Other receivables | | | (8,420 | ) | | | (6,882 | ) | | | 891 | |
Inventory | | | (127,656 | ) | | | (40,768 | ) | | | (6,658 | ) |
Prepaid expenses | | | (10,606 | ) | | | (3,518 | ) | | | (83 | ) |
Other long-term assets | | | (4,521 | ) | | | (99 | ) | | | (151 | ) |
Accounts payable | | | 65,211 | | | | 21,275 | | | | (3,058 | ) |
Advances from customers | | | 34,831 | | | | 8,578 | | | | 705 | |
Income tax payable | | | 226 | | | | (3,137 | ) | | | 1,952 | |
FIN-48 payable | | | 2,200 | | | | (83 | ) | | | 0 | |
Other payables and accrued expenses | | | 10,551 | | | | 5,236 | | | | 2,865 | |
Deferred revenue | | | 3,180 | | | | 1,343 | | | | 0 | |
Other long-term liabilities | | | 310 | | | | 3,558 | | | | (324 | ) |
Net cash flow (used in) provided by operating activities | | | (40,093 | ) | | | (13,547 | ) | | | 9,403 | |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchase of property and equipment | | | (9,153 | ) | | | (5,211 | ) | | | (971 | ) |
Purchase of intangible assets | | | (559 | ) | | | (324 | ) | | | (154 | ) |
Purchase of land-use-right | | | 0 | | | | (9,744 | ) | | | 0 | |
Purchase of trading securities | | | 0 | | | | (15,020 | ) | | | 0 | |
Prepayment for property | | | 0 | | | | (40,206 | ) | | | 0 | |
Investments in unconsolidated affiliates | | | (1,568 | ) | | | 0 | | | | (4,406 | ) |
Dividends from unconsolidated affiliates | | | 0 | | | | 555 | | | | 0 | |
Net cash used in investing activities | | | (11,280 | ) | | | (69,950 | ) | | | (5,531 | ) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from short-term borrowings | | | 22,884 | | | | 32,573 | | | | 18,423 | |
Repayments of short-term borrowings | | | (39,809 | ) | | | (20,234 | ) | | | (14,005 | ) |
Proceeds from long-term borrowings | | | 7,056 | | | | 19,699 | | | | 0 | |
Repayments of long-term borrowings | | | (2,127 | ) | | | (129 | ) | | | 0 | |
Repayments of notes payable | | | 0 | | | | (1,820 | ) | | | 0 | |
Proceeds from stock option exercise to common stock | | | 3,430 | | | | 2,745 | | | | 317 | |
Proceeds from issuance of Class A common stock in connection with public offering, net of direct issuance expenses of $2,287 | | | 0 | | | | 0 | | | | 26,434 | |
Payment for repurchase of Class A common stock | | | 0 | | | | 0 | | | | (2,827 | ) |
Payment for cancellation of stock option | | | 0 | | | | 0 | | | | (576 | ) |
Proceeds from issuance of common stock to redeemable Non-controlling interest | | | 0 | | | | 0 | | | | 59,679 | |
Proceeds from a subsidiary equity issuance, net of issuance costs
| | | 545,512 | | | | 0 | | | | 0 | |
Proceeds from warrant exercise to common stock
| | | 1,820 | | | | 0 | | | | 0 | |
Net cash provided by financing activities | | | 538,766 | | | | 32,834 | | | | 87,445 | |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | $ | 3,908 | | | $ | 4,570 | | | $ | (582 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 491,301 | | | $ | (46,093 | ) | | $ | 90,735 | |
| | | | | | | | | | | | |
Cash, cash equivalents and restricted cash at beginning of period | | | 71,766 | | | | 117,859 | | | | 27,124 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 563,067 | | | $ | 71,766 | | | $ | 117,859 | |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
Interest paid, net of capitalized interest | | $ | 765 | | | $ | 982 | | | $ | 745 | |
Cash paid for income taxes | | $ | 1,132 | | | $ | 4,971 | | | $ | 1,156 | |
| | | | | | | | | | | | |
Reconciliation of cash, cash equivalents and restricted cash in condensed consolidated statements of cash flows: | | | | | | | | | | | | |
Cash and cash equivalents | | | 563,067 | | | | 71,766 | | | | 58,261 | |
Restricted cash | | | 0 | | | | 0 | | | | 59,598 | |
Cash, cash equivalents and restricted cash | | $ | 563,067 | | | $ | 71,766 | | | $ | 117,859 | |
Non-cash financing activities: | | | | | | | | | | | | |
Warrant conversion to common stock | | $ | 0 | | | $ | 399 | | | $ | 9 | |
Share cancellation, (note 16) | | $ | 0 | | | $ | 9,715 | | | $ | 0 | |
Cashless exercise of stock options
| | $ | 137 | | | $ | 0 | | | $ | 0 | |
Issuance of warrant for settlement of financial liability and cancellation of note receivable | | $ | 0 | | | $ | 19,859 | | | $ | 0 | |
The accompanying notes are an integral part of these consolidated financial statements.
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,” lines of equipment 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 redomesticatedre-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.("SSTVC"). 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, and 2016, respectively, ACM owned 100% and 62.87%all of the outstanding equity interests of ACM Shanghai, and indirectly through ACM Shanghai, owned 100% and 62.87%all of the outstanding equity interests of ACM Wuxi, respectively.Wuxi.
On September 13, 2017, ACM effectuated a 1-for-3 reverse stock split (the “Reverse 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 thosethese notes and the accompanying condensed consolidated financial statements have been adjusted retrospectively to reflect the Reverse Split.reverse stock split.
On November 2, 2017, the Registration Statement on Form S-1 (File No. 333- 220451) for ourACM’s initial public offering of Class A common stock or IPO,(the “IPO”) was declared effective by the SEC.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 our customers based in Republic of Korea and perform sales, marketing, research and delveopmentdevelopment activities for new products and solutions.
In March 2019 ACM Shanghai formed a wholly owned subsidiary in the PRC, Shengwei Research (Shanghai), Inc., to manage activities related to addition of future long-term production capacity.
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 (note 19).
In preparation for the STAR IPO, ACM completed a reorganization in December 2019 that included the sale of all of the shares of Cleanchip by ACM to ACM Shanghai for $3,500. The reorganization and sale had no impact on ACM’s consolidated financial statements.
In August 2021 ACM formed a wholly owned subsidiary Singapore, ACM research (Singapore) PTE, Ltd. to perform sales, marketing, and other business development activities.
In November 2021, ACM’s operating subsidiary ACM KoreaShanghai, 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.
The Company has not yet commenced its operation duringdirect or indirect interests in the year ended December 31, 2017.
following subsidiaries:
| Place and date of | Effective interest held as at December 31, |
Name of subsidiaries | incorporation | 2021 | 2020 |
ACM Research (Shanghai), Inc. | PRC, May 2005 | 82.5% | 91.7% |
ACM Research (Wuxi), Inc. | PRC, July 2011 | 82.5% | 91.7% |
CleanChip Technologies Limited | Hong Kong, September 2017 | 82.5% | 91.7% |
ACM Research Korea CO., LTD. | Korea, December 2017 | 82.5% | 91.7% |
Shengwei Research (Shanghai), Inc. | PRC, March 2019 | 82.5% | 91.7% |
ACM Research (CA), Inc. | USA, April 2019 | 82.5% | 91.7% |
ACM Research (Cayman), Inc. | Cayman Islands, April 2019 | 100.0% | 100.0% |
ACM Research (Singapore) PTE. Ltd.
| Singapore, August 2021
| 100.0%
| NM
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanyingCompany’s consolidated financial statements ofinclude the Company have been prepared in accordance with accounting principles generally accepted in the United Statesaccounts of America (“GAAP”). The consolidated accounts include ACM and its subsidiaries, including ACM Shanghai and its subsidiaries, which include ACM Wuxi, ACM Shengwei and CleanChip (the subsidiaries of which include ACM California and ACM KoreaKorea). SubsidiariesACM’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 outbreak of COVID-19, the coronavirus, has grown both in the United States and globally, and related government and private sector responsive actions have adversely affected the Company’s business operations. In December 2019 a series of emergency quarantine measures taken by the PRC government disrupted domestic business activities during the weeks after the initial outbreak of COVID-19. Since that time, an increasing number of countries, including the United States, have imposed restrictions on travel to and from the PRC and elsewhere, as well as general movement restrictions, business closures and other measures imposed to slow the spread of COVID-19. The situation continues to develop, however, and it is impossible to predict the effect and ultimate impact of the COVID-19 pandemic on the Company’s business operations and results. While the quarantine, social distancing and other regulatory measures instituted or recommended in response to COVID-19 are expected to be temporary, the duration of the business disruptions, and related financial impact, cannot be estimated at this time. COVID-19 has been declared a worldwide health pandemic that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn and changes in global economic policy that could reduce demand for the Company’s products and its customers’ chips and have a material adverse impact on the Company’s business, operating results and financial condition. Through December 31, 2021, the Company had not experienced a significant negative impact from COVID-19 on its operations, capital and financial resources, including overall liquidity position.
The Company conducts substantially all of its product development, manufacturing, support and services in the PRC, and those activities have been directly impacted by the COVID-19 pandemic and related restrictions on transportation and public appearances. The Company cannot assure that closures or reductions of its PRC operations or production may not be necessary in upcoming months as the result of business interruptions arising from protective measures being taken by the PRC and other governmental agencies or of other consequences of the COVID-19 pandemic.
The Company’s corporate headquarters are located in San Mateo County in the San Francisco Bay Area. The effects of actions taken by local governmental agencies in the future may negatively impact productivity, disrupt the business of the Company and delay timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course.
The prolonged and broad-based shift to a remote working environment continues to create inherent productivity, connectivity, and oversight challenges and could affect our ability to enhance, develop and support existing products and services, detect and prevent spam and problematic content, hold product sales and marketing events, and generate new sales leads, among others. In addition, the changed environment under which the Company is operating could have an effect on its internal controls over financial reporting as well as our ability to meet a number of its compliance requirements in a timely or quality manner. Additional and/or extended, governmental lockdowns, restrictions or new regulations could significantly impact the ability of our employees and vendors to work productively. Governmental restrictions have been globally inconsistent and it remains unclear when a return to worksite locations or travel will be permitted or what restrictions will be in place in those environments. As the Company prepares to return its workforce in more locations back to the office in 2022, it may experience increased costs as it prepares its facilities for a safe return to work environment and experiment with hybrid work models, in addition to potential effects on its ability to compete effectively and maintain its corporate culture.
Extended periods of interruption to our corporate, development or manufacturing facilities due to the COVID-19 pandemic could cause the Company to lose revenue and market share, which would depress its financial performance and could be difficult to recapture. The Company’s business may also be harmed if travel to or from the PRC or the United States continues to be restricted or inadvisable or if members of management and other employees are absent because they contract the coronavirus, they elect not to come to work due to the illness affecting others in the Company’s office or laboratory facilities, or they are subject to quarantines or other governmentally imposed restrictions.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported revenues and expenses during the reported period in the consolidated financial statements and accompanying notes. The Company’s significant accounting estimates and assumptions include, but are not limited to, those used for the valuation and recognition of fair value of trading securities, stock-based compensation arrangements and warrant liability, realization of deferred tax assets, assessment for impairment of long-lived assets, allowance for doubtful accounts, inventory valuation for excess and obsolete inventories, lower of cost and market value or net realizable value of inventories, depreciable lives of property and equipment and useful life of intangible assets.
Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates and assumptions.
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, bank deposits that are unrestricted as to withdrawal and use, and highly liquid investments with an original maturity date of three months or less at the date of purchase. At times, cash deposits may exceed government-insured limits.
Restricted cash
Restricted cash represents deposits not readily available to ACM. Restricted cash as of December 31, 2019 represented cash hold in reserve, all of the proceeds received from issuance of common stock to redeemable non-controlling interest in segregated cash and cash-equivalent accounts. There was 0 restricted cash as of December 31, 2020, as the redemption feature of these proceeds was terminated during the second quarter of 2020.
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, and current economic trends.trends and reasonable and supportable forecasts. Accounts are written off after all collection efforts have been exhausted. At December 31, 20172021, and 2016,2020, the Company, based on a review of its outstanding balances and its customers, determined nothe allowance for doubtful accounts in the amount of $0 and $0 respectively.
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 necessary.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, 20172021 and 2016.2020.
● | 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 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. Plant, property 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.
Estimated useful lives of assets in the United States are as follows:
| |
Computer and office equipment | 3 to 5 years |
Furniture and fixtures | 5 years |
Leasehold improvements | shorter of lease term or estimated useful life |
ACM’s subsidiaries follow regulations for depreciation of fixed assets implemented under the PRC’s Enterprise Income Tax Law, which state that the minimum useful lives used for calculating depreciation for fixed assets are as follows:
| |
Manufacturing equipment | for small to medium-sized equipment, 5 years; for large equipment, estimated by purchasing department at time of acceptance |
Furniture and fixtures | 5 years |
Transportation equipment | 4 to 5 years |
Electronic equipment | 3 to 5 years |
Leasehold improvements | remaining lease term for improvements on leased fixed assets or, for large improvements, estimated useful life; not less than 3 years for non-fixed asset repairs |
Expenditures for maintenance and repairs that neither materially add to the value of the property nor appreciably prolong the life of the property are charged to expense as incurred. Upon retirement or sale of an asset, the cost of the asset and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to income.
Intangible Assets, Net
Intangible assets consist of software used for finance, manufacturing, and research and development purposes. Assets are valued at cost at the time of acquisition and are amortized over their beneficial periods. If a contract specifies a beneficial period, then the intangible asset is amortized over a term not exceeding the beneficial period. If the contract does not specify a beneficial period, then the intangible asset is amortized over a term not exceeding the valid period specified by local law. If neither the contract nor local law specifies a beneficial period, then the intangible asset is amortized over a period of up to 10 years. Currently, the software that the Company uses is amortized over a two-year periodfor between two and ten-years, based on its functionality and useful life in accordance with the policy described above.
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 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 flow 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.
Leases
Each leaseThe Company determines if an arrangement is classified at the inception date as either a capital lease or an operating lease. For the lessee, a lease is a capitalat inception. Operating leases are included in operating lease if any ofright-of-use (“ROU”) assets, other current liabilities and operating lease liabilities in the following conditions exist: (a) ownership is transferredconsolidated balance sheets.
ROU assets represent the Company’s right to the lessee by the end of the lease term; (b) there is a bargain purchase option; (c)use an underlying asset for the lease term, isand lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at least 75% of the property’s estimated remaining economic life; or (d)commencement date based on the present value of the minimum lease payments atover the beginninglease term. As most of the lease term is 90% or more ofCompany’s leases do not provide an implicit rate, the fairCompany uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. It uses the leased propertyimplicit 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 leasor atlease when it is reasonably certain that the inception date. A capitalCompany will exercise that option. Lease expense for lease payments is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations and comprehensive incomerecognized on a straight-line basis over the terms of underlying lease. The Company had no capital lease for either of the periods presented.term.
Redeemable Convertible Preferred Stock
The Company recorded each series of convertible preferred stock at fair value on the date of issuance, net of issuance costs. The convertible preferred stock is recorded outside of stockholders’ equity (deficit) because, in the event of certain deemed liquidation events considered not solely within the Company’s control (such as a merger, acquisition, or sale of all or substantially all of the Company’s assets), the convertible preferred stock will become redeemable at the option of the holders. The Company has not adjusted the carrying value of any series of convertible preferred stock to the liquidation preference of such series because it is uncertain whether or when an event would occur that would obligate the Company to pay the liquidation preferences to holders of convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur.
Revenue Recognition
The Company recognizes revenue when all the following conditions are met:
●
there is persuasive evidence of an arrangement;
●
the product delivery has occurred and the Company has transferred major risks and remunerations over the ownership of the product to the buyer or a service has been fully rendered and completed;
●
the collection of the receivable is probable; and
●
the amount of the payment is fixed or determinable.
The Company derives revenue principally from salesthe 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 606-10-25-16 through 18 in order to verify which promises should be assessed for classification as distinct performance obligations. The Company’s contracts with customers include more than one performance obligation. For example, the delivery of a piece of equipment generally includes the promise to install the equipment in the customer’s facility. The Company’s performance obligations in connection with a sale of equipment generally include production, delivery and installation, together with the provision of a warranty.
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 standalone selling prices (“SSP”). The SSP represents the price at which the Company would sell that good or service on a standalone basis at the inception of the contract. Given the requirement for establishing SSP for all performance obligations, if the SSP is directly observable through standalone sales, then such sales should be considered in the establishment of the SSP for the performance obligation. The Company does not have observable SSPs for most performance obligations as the obligations are not regularly sold on a standalone basis. Production, delivery and installation of a product, together with provision of a warranty, are a single unit of accounting.
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 the producta tool has been demonstrated to meet the customer’s predetermined specifications and is accepted by the customer. If terms of the sale provide for a lapsing customer acceptance period, the Company recognizes revenue uponas of the earlier of the expiration of the lapsing acceptance period and customer acceptance. In the following circumstances, however, the Company recognizes revenue upon shipment or delivery, when the legal title ofto the producttool is passed to a customer: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 or lapsing acceptance provision and the Company can objectively demonstrate that the tool meets all of the required acceptance criteria; |
● | When the customer withholds acceptance due to issues unrelated to product performance, in which case revenue is recognized when the system is performing as intended and meets predetermined specifications; or |
● | When the Company’s sales arrangements do not include a general right of return. |
●
when the customer has previously accepted the same tool with the same specifications and when 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 or no lapsing acceptance provision and when the Company can objectively demonstrate that the tool meets all of the required acceptance criteria;
●
when the customer withholds acceptance due to issues unrelated to product performance, in which case revenue is recognized when the system is performing as intended and meets predetermined specifications; or
●
the Company’s sales arrangements do not include a general right of return.
Customization, production, installation and delivery are essential elements of the functionality of a delivered machine; the services offered, principally the warranty, are not essential to the functionality of the machine. The Company treats the customization, production, installation and delivery of machines, together with the provision of related warranty and other services, as a single unit of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements. All of the Company’s products were sold in stand-alone arrangements during the year ended December 31, 2017 and 2016.
After the warrantyoffers post-warranty period has expired, the Company will also provide customers with post-warranty services, which mainly includeconsist principally of the installation and replacement of parts and small-scale modifications to the existing products.equipment. The related revenue and costs of revenue are recognized as revenue and cost of revenue, respectively, when the parts have been delivered and installed riskand the customers have obtained control of loss has passedthe parts. The Company does not expect revenue from extended maintenance service contracts to represent a material portion of its revenue in the future.
The Company incurs costs related to the customer,acquisition of its contracts with customers in the form of sales commissions. Sales commissions are paid to third party representatives and collectiondistributors. 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 resulting receivable is probable.Company expenses sales commissions when incurred. These costs are recorded within sales and marketing expenses.
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).
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 yearyears ended December 31, 20172021, 2020 and 2016,2019, shipping and handling costs included in sales and marketing expenses were $139$923, $76, and $75,$172, 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 expenses in the consolidated statements of operations and comprehensive income in the period in which they are incurred. No borrowing costs were capitalized for the year ended December 31, 2017 or 2016.
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 yearyears ended December 31, 20172021, 2020 and 2016,2019 respectively.
| |
| | |
Balance at beginning of period | $290 | $459 |
Additions | 736 | 544 |
Utilized | (187) | (713) |
Balance at end of period | $839 | $290 |
96
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Balance at beginning of period | |
| 3,975 | | |
| 2,811 | | |
| 1,710 | |
Additions | | | 5,026 | | | | 3,101 | | | | 2,105 | |
Utilized | | | (2,370 | ) | | | (1,937 | ) | | | (1,004 | ) |
Balance at end of period | | $ | 6,631 | | | $ | 3,975 | | | $ | 2,811 | |
Government Subsidies
ACM Shanghai has been awarded three subsidies from local and central governmental authorities in the PRC.received 7 special government grants. The first subsidy,grant, which was awarded in October 2008, relates to the development and commercialization of 65-45 nanometer Stress Free Polishing65nm to 45nm stress-free polishing technology. The second subsidygrant was awarded in April 2009 to fund interest expenses forexpense on short-term borrowings. The third subsidygrant was awardedmade in January 2014 and relates to the development of Electro Copper Platingelectro copper-plating technology. The PRCfourth grant was made in June 2018 and related to development of polytetrafluoroethylene. The fifth grant was made in 2020, and relates to the development of Tahoe single bench cleaning technologies. As of December 31, 2021, 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 will provide the majority of thesignificant funding, although ACM Shanghai and ACM Shengwei is also required to invest certain amounts in the projects.
The government subsidiesgovernmental 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. The grantreceipt, although the Company is not required to return any funds it receives. Grant amounts are recognized in the statements of operations and comprehensive income:
●
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, 2017 and 2016, related government subsidies recognized as reductions of relevant expenses in the consolidatedour statements of operations and comprehensive income were $3,421 and $6,244 respectively.
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, 2021, 2020 and 2019, related government subsidies recognized as reductions of relevant expenses in the consolidated statements of operations and comprehensive income were $11,260, $2,658 and $3,195, 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, 2021, 2020 and 2019, related government subsidies recognized as other income in the consolidated statements of operations and comprehensive income were $200, $149, and $147, respectively. |
●
Government subsidies for short-term borrowings’ interest expenses are reported as reductions of interest expenses in the period the interest is accrued, which were $0 and $99 for the years ended December 31, 2017 and 2016.
●
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, 2017 and 2016, related government subsidies recognized as other income in the consolidated statements of operations and comprehensive income were $135 and $127, respectively.
Unearned government subsidies received are deferred for recognition and recorded as other long-term liabilities (note 10)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, and FASB ASC Subtopic 505-50, Equity-Based Payments to Non-Employees.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.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 employee’s service function.function of the employees and non-employee consultants and directors.
Stock-based awards granted97
Income Taxes
The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are accounteddetermined 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.
Basic and Diluted Net Income per Common Share
Basic and diluted net income per common share are calculated as follows:
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Numerator: | | | | | | | | | |
Net income | | $ | 42,921 | | | $ | 21,677 | | | $ | 19,458 | |
Less: Net income attributable to non-controlling interests and redeemable non-controlling interests | | | 5,164 | | | | 2,897 | | | | 564 | |
Net income available to common stockholders, basic
| | $
| 37,757
| | | $ | 18,780 | | | $
| 18,894 | |
Less: Dilutive effect arising from share-based awards by ACM Shanghai
| | | 108 | | | | 0 | | | | 0 | |
Net income available to common stockholders, diluted | | $ | 37,649
| | | $ | 18,780
| | | $ | 18,894
| |
Weighted average shares outstanding, basic | | | 19,218,236 | | | | 18,233,361 | | | | 16,800,623 | |
Effect of dilutive securities | | | 2,567,336 | | | | 2,950,108 | | | | 2,334,874 | |
Weighted average shares outstanding, diluted | | | 21,785,572 | | | | 21,183,469 | | | | 19,135,497 | |
| | | | | | | | | | | | |
Net income per common share: | | | | | | | | | | | | |
Basic | | | 1.96 | | | | 1.03 | | | | 1.12 | |
Diluted | | $ | 1.73 | | | $ | 0.89 | | | $ | 0.99 | |
Basic and diluted net income per common share are presented using the two-class method, which allocates undistributed earnings to common stock and any participating securities according to dividend rights and participation rights on a proportionate basis. Under the two-class method, basic net income per common share is computed by dividing the sum of distributed and undistributed earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. ACM did not have any participating securities outstanding during the three-year period ending December 31, 2021.
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, 2021, 2020 and 2019, 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 and diluted net income per common share are presented using the two-class method, which allocates undistributed earnings to common stock and any participating securities according to dividend rights and participation rights on a proportionate basis. Under the two-class method, basic net income (per common share is computed by dividing the sum of distributed and undistributed earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. ACM did not have any participating securities outstanding during the three-year period ending December 31, 2021.
Diluted net income per common share reflects the potential dilution from securities, including stock 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 98,800, 78,000 and 606,000 the years ended December 31, 2021, 2020 and 2019, 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 attributable to the Company was $42,009, $25,312, and $18,076 for the years ended December 31, 2021, 2020 and 2019, respectively.
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 $8,312 and $4,388 based on an accumulated profit as of December 31, 2021 and 2020, respectively, which is included in the accumulated surplus in the consolidated balance sheets.
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 awardsinputs 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 earlierend of (a)each reporting period. In certain cases, the date at whichinputs 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 commitment for performance by the non-employee to earn the awards is reached and (b) the date at which the non-employee’s performance is complete. Recurring Basis
Trading securities - The fair value of such non-employee awards is re-measuredtrading securities derives from the on quoted prices for identical securities in active markets at each reportingthe balance sheet date, usingless a discount applied to reflect the remaining lock-up period. The Company classifies the valuation techniques that use these inputs as Level 1 and Level 2 fair value measurement as of December 31, 2021 and 2022, respectively (note 16).
Financial liability – The fair value of financial liability are classified within Level 3 as the fair value at each period end untilvalues are measured based on the vesting date. Changesinputslinked to the choice of settlement by the counter party that are unobservable in the market.
Other financial items for disclosure purpose—The fair value betweenof other financial items of the reporting datesCompany, other than long-term borrowings for disclosure purpose, 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 recognized bysubject to fixed interest rate approximates its fair value as the graded vesting method.market interest rate did not significantly change from the borrowing date to December 31, 2021.
Operating and Financial Risks
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, restricted cash and accounts receivable. 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. FourIn the year ended December 31, 2021 and 2020, a total of 2 and 3 customers, respectively, individually accounted for greater than ten percent of the Company’s revenue for the year ended 2017 and two of those customers individually accounted for greater than ten percent of the Company’s revenue in 2016:revenue:
| | December 31, | |
| | 2021 | | | 2020 | |
Customer A | | | 28.1 | % | | | 36.9 | % |
Customer B | | | 20.8 | % | | | 26.8 | % |
Customer C | | | * | | | | 12.1 | % |
Total | | | 48.9 | % | | | 75.8 | % |
| |
| | |
Customer A | * | 33.7% |
Customer B | 18.10% | 25.00 |
Customer C | * | 24.00 |
Customer D | 12.77 | 16.60 |
Customer E | 14.12 | * |
Customer F | 10.23 | * |
* Customer accounted for less than 10% of revenue in the period.
Interest Rate Risk
As of December 31, 20172021 and 2016,2020, the balance of the Company’s short term bank borrowings (note 6) was short-term in nature,9), matured at various dates within the following year and did not expose the Company to interest rate risk. As of December 31, 2021, the balance of the Company’s long-term borrowings (note 12) carried a fixed interest rate and the Company may have been exposed to fair value interest rate risk.
Liquidity RiskFair Value of Financial Instruments
The Company’s working capitalUnder 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 December 31, 2017the measurement date. In determining the fair value, the Company uses various methods including market, income and 2016 was sufficientcost 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 meet its then-current requirements.the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Company may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitionsuses 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 decidesis required to pursue. Inprovide 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 Chinese 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”). Changes in the relative values of U.S. dollars and Chinese 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. Because the Company has not engaged in any hedging activities, it cannot predict the impact of future exchange rate fluctuations on the results of its operations and it may experience economic losses as a result of foreign currency exchange rate fluctuations.
Transactions of ACM’s subsidiaries involving foreign currencies are recorded in functional currencyfollowing information according to the rate of exchange prevailing onfair value hierarchy. The fair value hierarchy ranks the date when the transaction occurs. The ending balancesquality and reliability of the Company’s foreign currency accountsinformation used to determine fair values. Financial assets and liabilities carried at fair value are converted into functional currency usingclassified and disclosed in one of the ratefollowing three categories:
Level 1: Valuations for assets and liabilities traded in active exchange prevailingmarkets. 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. Net gainsIn 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 losses resultingconsiders 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 foreign exchange transactions are includedthe on quoted prices for identical securities in the consolidated statements of operations and comprehensive income. Total exchange gain (loss) was, respectively, $1,052 and $ (746) for the years ended December 31, 2017 and 2016.
In accordance with FASB ASC Topic 830, Foreign Currency Matters, the Company translates assets and liabilities into U.S. dollars from RMB using the rate of exchange prevailingactive markets at the applicable balance sheet date, less a discount applied to reflect the remaining lock-up period. The Company classifies the valuation techniques that use these inputs as Level 1 and Level 2 fair value measurement as of December 31, 2021 and 2022, respectively (note 16).
Financial liability – The fair value of financial liability are classified within Level 3 as the consolidated statementsfair values are measured based on the inputslinked to the choice of operationssettlement by the counter party that are unobservable in the market.
Other financial items for disclosure purpose—The fair value of other financial items of the Company, other than long-term borrowings for disclosure purpose, including cash and comprehensive incomecash equivalents, accounts receivable, other receivables, short-term borrowings, accounts payable, advances from customers, and consolidated statementsother 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, 2021.
Operating and Financial Risks
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash flowsand cash equivalents, restricted cash and accounts receivable. The Company deposits and invests its cash with financial institutions that management believes are translated at an average rate during the reporting period. Adjustments resulting from the translation are recorded creditworthy.
100
NOTE 4 – ACCOUNTS RECEIVABLE
At December 31, 20172021 and 2016,2020, accounts receivable consisted of the following:
| | December 31, | |
| | 2021 | | | 2020 | |
Accounts receivable | | $ | 105,553 | | | $ | 56,441 | |
Less: Allowance for doubtful accounts | | | 0 | | | | 0 | |
Total | | $ | 105,553 | | | $ | 56,441 | |
| |
| | |
Accounts receivable | $26,762 | $16,026 |
Less: Allowance for doubtful accounts | — | — |
Total | $26,762 | $16,026 |
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. NoNaN allowance for doubtful accounts iswas considered necessary at December 31, 20172021 and 2016. At December 31, 2017, accounts receivable of $1,805 (RMB 11,800) was pledged as collateral for borrowings from financial institutions (note 6).2020.
NOTE 5 – INVENTORIES
NOTE 4 – INVENTORY
At December 31, 20172021 and 2016,2020, inventory consisted of the following:
| | December 31, | |
| | 2021 | | | 2020 | |
Raw materials | | $ | 90,552 | | | $ | 32,391 | |
Work in process | | | 35,840 | | | | 23,871 | |
Finished goods | | | 91,724 | | | | 32,377 | |
Total inventory | | $ | 218,116 | | | $ | 88,639 | |
| |
| | |
Raw materials | $6,181
| $7,698 |
Work in process | 4,328 | 1,260 |
Finished goods | 4,879
| 2,708 |
| | |
Total inventory, gross | 15,388 | 11,666 |
Inventory reserve | — | — |
Total inventory, net | $15,388 | $11,666 |
TheAt December 31, 2021 and 2020, the Company did not set up anyheld an inventory reserve as of $1,215 and $1,140 respectively. At December 31, 20172021 and 2020, respectively, finished goods inventory included system shipments of first-tools to existing or 2016prospective customers, for which ownership does not transfer until customer acceptance or customer purchase, totaling $91,724 and no$32,377 respectively. At December 31, 2021 and 2020, the value of finished goods inventory was pledged as collateral for borrowings from financial institutions.which customers are contractually obligated to take ownership upon acceptance totaled $71,889 and $20,834, respectively.
NOTE 56 – PROPERTY, PLANT AND EQUIPMENT, NET
At December 31, 20172021 and 2016,2020, property, plant and equipment consisted of the following:
| | December 31, | |
| | 2021 | | | 2020 | |
Manufacturing equipment | | $ | 7,973 | | | $ | 5,966 | |
Office equipment | | | 2,012 | | | | 1,047 | |
Transportation equipment | | | 217 | | | | 216 | |
Leasehold improvement | | | 4,134 | | | | 2,398 | |
Total cost | | | 14,336 | | | | 9,627 | |
Less: Total accumulated depreciation | | | (5,900 | ) | | | (3,745 | ) |
Construction in progress | | | 5,606 | | | | 2,310 | |
Total property, plant and equipment, net | | $ | 14,042 | | | $ | 8,192 | |
| |
| | |
Manufacturing equipment | $9,660 | $8,566 |
Office equipment | 463 | 410 |
Transportation equipment | 203 | 191 |
Leasehold improvement | 277 | 224 |
Total cost | 10,603 | 9,391 |
Less: Total accumulated depreciation | (8,263) | (7,562) |
Construction in progress | - | 433 |
Total property, plant and equipment, net | $2,340 | $2,262 |
Depreciation expense was $243$2,099, $826, and $180 for$713 the years ended December 31, 20172021, 2020 and 2016,2019, respectively. During the years ended December 31, 2021 and 2020, the Company retired certain fully depreciated manufacturing equipment with cost of $0 and $446, respectively.
NOTE 67 – LAND USE RIGHT, NET
A summary of land use right is as follows:
| | December 31, | |
| | 2021 | | | 2020 | |
Land use right purchase amount | | $ | 9,966 | | | $ | 9,744 | |
Less: accumulated amortization | | | (299 | ) | | | (98 | ) |
Land use right, net | | $ | 9,667 | | | $ | 9,646 | |
In 2020 ACM Shanghai, through its wholly owned subsidiary Shengwei Research (Shanghai), Inc., entered into an agreement for a 50-year land use right in the Lingang region of Shanghai. In July 2020, Shengwei Research (Shanghai), Inc. began a multi-year construction project for a new 1,000,000 square foot development and production center that will incorporate new manufacturing systems and automation technologies, and will provide floor space to support significantly increase production capacity and related research and development activities.
The amortization for the year ended December 31, 2021 and 2020 was $199 and $98 respectively.
The annual amortization of land use right for each of the five succeeding years is as follows:
Year ending December 31, | | | |
2022 | |
| 199 | |
2023 | | | 199 | |
2024 | | | 199 | |
2025 | | | 199 | |
2026 | | | 199 | |
NOTE 8 – OTHER LONG-TERM ASSETS
At December 31, 2021 and 2020, other long-term assets consisted of the following:
| | December 31, | |
| | 2021 | | | 2020 | |
Prepayment for property - Lingang
| | $ | 42,111 | | | $ | 39,450 | |
Prepayment for property, plant and equipment and other non-current assets
| | | 440 | | | | 0 | |
Prepayment for property - lease deposit
| | | 429 | | | | 0 | |
Security deposit for land use right | | | 773 | | | | 756 | |
Others | | | 1,264 | | | | 290 | |
Total other long-term assets | | $ | 45,017 | | | $ | 40,496 | |
The prepayment for property - Lingang is for the housing in Lingang, Shanghai, which consists of (1) the contractual amount to acquire the property and (2) capitalized interest charges on the long-term loan related to acquisition of the property, which amounted to $986 as of December 31, 2021. In January 2022, ACM Shengwei received ownership of the apartment units and corresponding land use rights. The property is pledged for a long-term loan from China Merchants Bank (note 12).
NOTE 9 – SHORT-TERM BORROWINGS
At December 31, 20172021 and 2016,December 31, 2020, short-term and long-term borrowings consisted of the following:
| | |
Borrowings from Bank of China, due on February 10, 2017 with annual interest rate of 4.8%, secured by certain of the Company’s intellectual property and fully repaid on February 13, 2017 | $- | $1,222 |
Borrowings from Bank of Shanghai Pudong Branch, due on June 24, 2017 with an annual interest rate of 5.66%, guaranteed by the Company’s CEO and fully repaid on June 25, 2017 | - | 281 |
Line of credit up to $3,605 (RMB 25,000) from Bank of Shanghai Pudong Branch, due on July 3, 2017 with floating interest (interest rate of 5.66% at December 31, 2016), guaranteed by the Company’s CEO and fully repaid on May 18, 2017 | - | 1,455 |
Line of credit up to $3,670 from Bank of Shanghai Pudong Branch, due on July 3, 2017 with an annual interest rate of 3.2%, guaranteed by the Company’s CEO and fully repaid on June 7, 2017 | - | 1,803 |
Line of credit up to $4,590 (RMB 30,000) from Bank of China Pudong Branch, due on March 5, 2018 with floating interest rate (annual interest rate of 4.80% at December 31, 2017), secured by certain of the Company’s intellectual property | 2,219 | - |
Line of credit up to $3,825 (RMB 25,000) from Bank of Shanghai Pudong Branch, various withdraws due in October 2018 with floating interest rate (annual interest rate of 5.66% at December 31, 2017), guaranteed by the Company’s CEO | 2,111 | - |
Borrowings from Shanghai Rural Commercial Bank, due on November 21, 2018 with annual interest rate of 5.44%, pledged by ACM Shanghai’s accounts receivable (note 3) and guaranteed by the Company’s CEO. | 765 | - |
Total | $5,095 | $4,761 |
| | December 31, | |
| | 2021 | | | 2020 | |
Line of credit up to RMB 80,000 from China Everbright Bank, | | | | | | |
1)due on April 1, 2021 with an annual interest rate of 4.70%. *1 and fully repaid on March 23, 2021. | | $ | 0 | | | $ | 4,599 | |
2)due on June 27, 2021 with an annual interest rate of 4.25%. *1 and fully repaid on June 28, 2021. | | | 0 | | | | 1,380 | |
3)due on April 29, 2021 with an annual interest rate of 2.80%. *1 and fully repaid on March 23, 2021. | | | 0 | | | | 820 | |
4)due on June 27, 2021 with an annual interest rate of 2.70%. *1 and fully repaid on June 25, 2021. | | | 0 | | | | 2,080 | |
Line of credit up to RMB 20,000 from Bank of Communications, | | | | | | | | |
1)due on April 12, 2021 with an annual interest rate of 4.65% and fully repaid on April 12, 2021. | | | 0 | | | | 1,533 | |
2)due on May 24, 2021 with an annual interest rate of 3.65% and fully repaid on May 24, 2021. | | | 0 | | | | 1,533 | |
Line of credit up to RMB 70,000 from Bank of Shanghai Pudong Branch, | | | | | | | | |
1)due on May 27, 2021 with an annual interest rate of 4.68%. *2 and fully repaid on May 27, 2021. | | | 0 | | | | 2,575 | |
2)due on June 27, 2021 with an annual interest rate of 4.68%. *2 and fully repaid on March 29, 2021. | | | 0 | | | | 1,380 | |
3)due on May 28, 2021 with an annual interest rate of 3.48%. *2 and fully repaid on May 28, 2021. | | | 0 | | | | 2,442 | |
4)due on June 7, 2021 with an annual interest rate of 3.50%. *2 and fully repaid on June 7, 2021. | | | 0 | | | | 1,521 | |
5)due on June 16, 2021 with an annual interest rate of 3.50%. *2 and fully repaid on June 16, 2021. | | | 0 | | | | 1,838 | |
Line of credit up to RMB 80,000 from China Merchants Bank, | | | | | | | | |
1)due on August 10,2021 with annual interest rate of 3.85% and fully repaid on August 10, 2021. | | | 0 | | | | 1,380 | |
2)due on August 25,2021 with annual interest rate of 3.85% and fully repaid on August 25, 2021. | | | 0 | | | | 3,066 | |
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%. *3 | | | 4,616 | | | | 0 | |
Line of credit up to RMB 150,000 from China Everbright Bank, | | | | | | | | |
1)due on October 21, 2022 with annual interest rate of 1.95%. | | | 3,407 | | | | 0 | |
Line of credit up to RMB 60,000 from Bank of Communications, | | | | | | | | |
1)due on October 25, 2022 with an annual interest rate of 3.85%. | | | 1,568 | | | | 0 | |
Total | | $ | 9,591 | | | $ | 26,147 | |
*1 guaranteed by ACM’s Chief Executive Officer
*2 guaranteed by ACM’s Chief Executive Officer and Cleanchip Technologies Limited
*3 guaranteed by Cleanchip Technologies Limited
For the years ended December 31, 20172021, 2020 and 2016,2019, interest expense related to short-term borrowings amounted to $272$700, $897, and $179$745, respectively.
NOTE 710 – OTHER PAYABLE AND ACCRUED EXPENSES
At December 31, 20172021 and 2016,2020, other payable and accrued expenses consisted of the following:
| | December 31, | |
| | 2021 | | | 2020 | |
Accrued commissions | | $ | 12,507 | | | $ | 7,127 | |
Accrued warranty | | | 6,631 | | | | 3,975 | |
Accrued payroll | | | 5,684 | | | | 3,068 | |
Accrued professional fees | | | 785 | | | | 384 | |
Accrued machine testing fees | | | 149 | | | | 1,595 | |
Others | | | 5,979 | | | | 2,656 | |
Total | | $ | 31,735 | | | $ | 18,805 | |
| |
| | |
Lease expenses and payable for leasehold improvement due to a related party (note 12) | $2,024 | $1,883 |
Commissions | 836 | 757 |
Accrued warranty | 839 | 290 |
Accrued payroll | 745 | 398 |
Accrued professional fees | 60 | 46 |
Accrued machine testing fees | 684 | - |
Others | 838 | 589 |
Total | $6,026 | $3,963 |
106
NOTE 811 – INVESTORS’ DEPOSITSLEASES
OnThe 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, | |
| | 2021 | | | 2020 | | | 2019 | |
Operating lease cost | | $ | 2,451 | | | $ | 1,541 | | | $
| 1,432 | |
Short-term lease cost | | | 394 | | | | 236 | | | | 165 | |
Lease cost | | $ | 2,845 | | | $ | 1,777 | | | $
| 1,597 | |
Supplemental cash flow information related to operating leases was as follows for the years ended December 9, 2016, Shengxin (Shanghai) Management Consulting Limited Partnership (“SMC”), a related party (note 12), delivered RMB 20,124 (approximately $2,98131, 2021, 2020 and 2019:
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019
| |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | | |
Operating cash outflow from operating leases | | $ | 2,845 | | | $ | 1,777 | | | $ | 1,597 | |
Maturities of lease liabilities for all operating leases were as follows as of December 31, 2021:
| | December 31, | |
2022 | | $ | 2,385 | |
2023 | | | 1,063 | |
2024 | | | 929 | |
2025 | | | 19 | |
Total lease payments | | | 4,396 | |
Less: Interest | | | (214 | ) |
Present value of lease liabilities | | $ | 4,182 | |
The weighted average remaining lease terms and discount rates for all operating leases were as follows as of December 31, 2021 and 2020:
| | December 31, | |
| | 2021 | | | 2020 | |
Remaining lease term and discount rate: | | | | | | |
Weighted average remaining lease term (years) | | | 1.37 | | | | 2.11 | |
Weighted average discount rate | | | 4.54 | % | | | 5.14 | % |
NOTE 12 – LONG-TERM BORROWINGS
At December 31, 2021 and 2020, long-term borrowings consisted of the close of business on such date) in cash (the “SMC Investment”) to ACM Shanghai for potential investment pursuant to terms to be subsequently negotiated. On March 14, 2017, ACM, ACM Shanghai and SMC entered into a securities purchase agreement pursuant to which, in exchangefollowing:
| | December 31, | |
| | 2021 | | | 2020 | |
Loan from China Merchants Bank | | $ | 18,390 | | | $ | 19,570 | |
Loans from Bank of China | | | 6,977 | | | | 0 | |
Less: Current portion | | | (2,410 | ) | | | (1,591 | ) |
| | $ | 22,957 | | | $ | 17,979 | |
The loan from China Merchants Bank is for the SMC Investment,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 Shengwei Research (Shanghai) Inc. and guaranteed by ACM issued to SMC a warrant exercisable to purchase 397,502 shares of ACM’s Class A common stock at a price of $7.50 per share (note 9).
NOTE 9 – WARRANT LIABILITY
On December 9, 2016, SMC delivered the SMC Investment to ACM Shanghai for potential investment pursuant to terms to be subsequently negotiated.Research (Shanghai) Inc. As of December 31, 2016,2021, the termsright certificate of the SMC Investmentpledged property has not been obtained and the procedures of the formal pledge registration in the bank had not yet been negotiated andcompleted.
NaN loans from Bank of China are for the SMC Investment was recorded as investors’ deposit.
On March 14, 2017, ACM,purpose of funding ACM Shanghai project expenditures. The loans bear interest at an annual rate of 2.6% and SMC entered into a securities purchase agreement (the “SMC Agreement”) pursuant to which,are repayable in exchange6 installments, with the last installments due in June 2024 and September 2024.
Scheduled principal payments for the SMC Investment, ACM issued to SMC a warrant exercisable, for cash or on a cashless basis, to purchase, at any time on or before May 17, 2023, all, but not less than all,outstanding long-term loan as of 397,502 shares of ACM’s Class A common stock at a price of $7.50 per share. Under the SMC Agreement, if SMC does not exercise the warrant by May 17, 2023, ACM Shanghai will be obligated, subject to approval of governmental authorities and ACM Shanghai’s equity holders, to deliver an equity interest of 3.6394% (subject to dilution) in satisfaction of the SMC Investment. If SMC exercises the warrant or if SMC does not exercise the warrant and the issuance of the equity interest in ACM Shanghai is not completed by August 17, 2023 due to the inability of the parties to obtain required governmental or equity holder approvals, then ACM Shanghai will be obligated to pay to SMC, in satisfaction of the SMC Investment, an amount equal to $2,981, converted into RMB at the lesser of 6.75 and the then-current RMB-to- US dollar exchange rate.
In accordance with FASB ASC 480, Distinguishing Liabilities from Equity, the warrant is classified as a liability as the warrant is conditional puttable. The fair value of the warrant is adjusted for changes in fair value at each reporting period but cannot be lower than the proceeds of the SMC Investment. The corresponding non-cash gain or loss of the changes in fair value is recorded in earnings. The methodology used to value the warrant was the Black-Scholes valuation model with the following assumptions:
| |
| |
Fair value of common share (1) | $5.25
|
Expected term in years (2) | 5.38
|
Volatility (3) | 28.71%
|
Risk-free interest rate (4) | 2.20%
|
Expected dividend (5) | 0%
|
(1) Common stock price was the close price at December 31, 2017.2021 are as follows:
(2) Expected term
Year ending December 31, | | | |
2022 | | $ | 2,410 | |
2023 | | | 2,491 | |
2024 | | | 7,436 | |
2025 | | | 1,959 | |
2026 and onwards | | | 11,071 | |
| | $ | 25,367 | |
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. For the warrant represents the period from the current balance sheet dateyear ended December 31, 2020, $72 of interest related to the warrant expiration date.long-term borrowings was incurred, and capitalized, as other long-term assets.
(3) Volatility is calculated based on the historical volatility of ACM’s comparable companies in the period equal to the expected term of the warrant.
(4) Risk-free interest rate is based on the yields of U.S. treasury securities with maturities similar to the expected term of the warrant.
(5) Expected dividend is assumed to be 0% as ACM has no history or expectation of paying a dividend on its common stock.
NOTE 1013 – 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, 20172021 and 2016,2020, other long-term liabilities consisted of the following unearned government subsidies:
| | December 31, | |
| | 2021 | | | 2020 | |
Subsidies to Stress Free Polishing project, commenced in 2008 and 2017 | | $ | 791 | | | $ | 1,266 | |
Subsidies to Electro Copper Plating project, commenced in 2014 | | | 160 | | | | 2,156 | |
Subsidies to Polytetrafluoroethylene, commenced in 2018 | | | 0 | | | | 130 | |
Subsidies to Tahoe-Single Bench Clean, commenced in 2020 | | | 0 | | | | 1,544 | |
Subsidies to other cleaning tools,commenced in 2020 | | | 1,014 | | | | 2,591 | |
Subsidies to SW Lingang R&D development in 2021 | | | 5,958 | | | | 0 | |
Other | | | 524 | | | | 347 | |
Total | | $ | 8,447 | | | $ | 8,034 | |
| |
| | |
Subsidies to Stress Free Polishing project, commenced in 2008 and 2017 | $1,952 | $1,958 |
Subsidies to Electro Copper Plating project, commenced in 2014 | 4,265 | 4,921 |
Total | $6,217 | $6,879 |
108
NOTE 1114 – EQUITY METHODLONG-TERM INVESTMENT
On September 6, 2017, ACM and Ninebell Co., Ltd. (“Ninebell”), a Korean company that is one of the Company’s principal materialsmaterial suppliers, entered into an ordinary share purchase agreement, effective as of September 11, 2017, pursuant to which Ninebell issued to ACM ordinary shares representing 20% of Ninebell’s post-closing equity for a purchase price of $1,200, and a common stock purchase agreement, effective as of September 11, 2017, pursuant to which ACM issued 133,334 shares of Class A common stock to Ninebell for a purchase price of $1,000 at $7.50 per share. The investment in Ninebell is accounted for under the equity method. Undistributed earnings attributable to ACM’s equity method investment represented $37
On June 27, 2019, ACM Shanghai and Shengyi Semiconductor Technology Co., Ltd. (“Shengyi”), a company based in Wuxi, China that is one of the consolidated retained earnings at December 31, 2017.
NOTE 12 – RELATED PARTY BALANCES AND TRANSACTIONS
On August 18, 2017, ACM and Ninebell, its equity method investment affiliate (note 11),Company’s component suppliers, entered into a loanan agreement pursuant to which Shengyi issued to ACM made an interest-free loanShanghai shares representing 15% of $946 to Ninebell, payableShengyi’s post-closing equity for a purchase price of $109. The investment in 180 days or automatically extended another 180 days if in default. The loanShengyi is secured by a pledge of Ninebell’s accounts receivable due from ACM and all money that Ninebell receives from ACM. As of December 31, 2017 and 2016, accounts payable due to Ninebell was $2,118 and $508, respectively.accounted for under the equity method.
In 2007,On September 5, 2019, ACM Shanghai, entered into an operating lease agreementa Partnership Agreement with Shanghai Zhangjiang Group6 other investors, as limited partners, and Beijing Shixi Qingliu Investment Co., Ltd. (“Zhangjiang Group”), group companyas general partner and manager, with respect to the formation of ZSTVC, which is our current investor and previous holder of non-controlling interestsHefei Shixi Chanheng Integrated Circuit Industry Venture Capital Fund Partnership (LP), a Chinese limited partnership based in ACM Shanghai (note 14), to lease manufacturing and office space located in Shanghai,Hefei, China. Pursuant to such Partnership Agreement, on September 30, 2019, ACM Shanghai invested RMB 30,000 ($4,200), which represented 10% of the leasepartnership’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 Zhangjiang Group provided $771pursuant to which Waferworks issued to ACM Shanghai shares representing 0.25% of Waferworks’ post-closing equity for leasehold improvements. In September 2016,a purchase price of $1,568. As there is no readily determinable fair value, the lease agreement was amendedCompany measures the investment in Waferworks at cost minus impairment, if any.
The Company treats the equity investment in the consolidated financial statements under the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Company’s share of the incorporated-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post incorporation change in the Company’s share of the investee’s net assets and any impairment loss relating to modify payment terms and extend the lease throughinvestment.
| | December 31, | |
| | 2021 | | | 2020 | |
Ninebell | | $ | 3,051 | | | $ | 1,666 | |
Shengyi | | | 211 | | | | 134 | |
Hefei Shixi | | | 7,864 | | | | 4,540 | |
Subtotal
| | | 11,126 | | | | 6,340 | |
Other investee:
| | | | | | | | |
Waferworks
| | | 1,568 | | | | 0 | |
Total | | $ | 12,694 | | | $ | 6,340 | |
For the years ended December 31, 2017. During2021, 2020 and 2019, the Company’s share of equity investees’ net income was $4,637, $655 and $168, respectively, which was included in income on equity method investment in the accompanying consolidated statements of operations and comprehensive income. For the year ended December 31, 20172021, 2020 and 2016,2019, dividends received from its equity investee was $0, $555 and $0, respectively, which was offset in part by a reduction in the Company incurred leasing expenses undercarrying value of the lease agreementCompany’s share of $638 and $640, respectively. As of December 31, 2017, and December 31, 2016, payables to Zhangjiang Group for lease expenses and leasehold improvements recorded as other payables and accrued expenses, amounted to $2,024 and $1,883, respectively (note 7).equity investees’ net income.
NOTE 15 – FINANCIAL LIABILITY CARRIED AT FAIR VALUE
On
In December 9, 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 received the SMC Investment from SMC for potential investment pursuant to terms to be subsequently negotiated (notes 8 and 9).negotiated. SMC is a PRC limited partnership incorporated in the PRC, whose partners consist ofpartially owned by employees of ACM Shanghai. As of December 31,
In March 2017 and 2016, investors’ deposits from SMC amounted to $0, and $2,902, respectively. On March 14, 2017, ACM, ACM Shanghai and SMC entered into a securities purchase agreement (the “SMC Agreement”) pursuant to which, in exchange for the SMC Investment,(a) ACM issued to SMC a warrant (the “Warrant”) exercisable for cash or on a cashless basis, to purchase at any time on or before May 17, 2023, all, but not less than all, of 397,502 shares of ACM’s Class A common stock at a price of $7.50 per share, for a total exercise price of $2,981. Under$2,981, and (b) ACM Shanghai agreed to repay the SMC Agreement, ifInvestment within 60 days after the exercise of the Warrant. In March 2018 SMC does notexercised the Warrant in full, as a result of which (1) ACM issued 397,502 shares of Class A common stock to SMC, (2) SMC borrowed the funds to pay the Warrant exercise price pursuant to a senior secured promissory note (the “SMC Note”) in the warrant by May 17, 2023,principal amount of $2,981 issued to ACM Shanghai, will be obligated, subjectwhich in turn issued to approvalACM a promissory note (the “Intercompany Note”) in the principal amount of governmental authorities and ACM Shanghai’s equity holders, to deliver an equity interest$2,981 in payment of 3.6394% (subject to dilution) in satisfactionthe Warrant exercise price. Each of the SMC Investment. IfNote and the Intercompany Note bore interest at a rate of 3.01% per annum and matured on August 17, 2023. The SMC exercisesNote was secured by a pledge of the shares issued upon exercise of the Warrant.
In connection with its follow-on public offering of Class A common stock in August 2019, ACM agreed to purchase a total of 154,821 of the Warrant shares from SMC at a per share price of $13.195, of which (a) $1,161 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 2 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 242,681 Warrant shares to ACM Research; and (iv) in exchange for such 242,681 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 242,681 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 the 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 or if(the “SMC 2020 Warrant”) to purchase 242,681 shares of Class A common stock at a purchase price of $7.50 per share, and ACM cancelled the SMC does not exercise the warrantNote. 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 the equity.
The SMC 2020 Warrant was initially measured at fair value at the issuance date and classified as equity interestpermanently in ACM Shanghai is not completed by August 17, 2023 due to the inability of the parties to obtain required governmental or equity holder approvals, then ACM Shanghai will be obligated to pay to SMC, in satisfactionaccordance with ASC 815. The fair value of the SMC Investment,2020 Warrant amounted to $21,679, based on the grant date using the Black-Scholes valuation model with the following assumptions:
| | July 29, 2020 | |
Fair value of common share(1) | | $ | 89.28 | |
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. |
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 242,681 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 amount equalindividual limited partner will be able to $2,981, converted into RMB atinstruct the lessergeneral partner to sell, on behalf of 6.75the 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 then-current RMB-to-US dollar exchange rate.Supplementary Agreement. Alternatively, following the lock-up period, limited partners holding at least 30percent 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.
NOTE 13 – LEASESAs 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, 2021.
The components of approximately 3,000 square feet for its headquarters in Fremont, California, at a rate of $2 per month. On March 22, 2017, ACM amended the lease agreement to extend the lease term through March 31, 2019 and increase the base rent to $3 per month.
ACM Shanghai entered into an operating lease agreement with Zhangjiang Group (a related party, see note 12) in 2007 for manufacturing and office space of approximately 63,510 square feet in Shanghai, China. The lease terms and its payment terms are subject to modification and extension with Zhangjiang Group from time to time. The lease with Zhangjiang Group expired on December 31, 2017 and we are now leasing the property on a month-to-month basis as we negotiate the terms of the lease.
ACM Wuxi leases office space in Wuxi, China, at a rate of less than $1 per month.
Future minimum lease payments under non-cancelable lease agreements as of December 31, 2017trading securities were as follows:
| | December 31, | |
| | 2021 | | | 2020 | |
Trading securities listed in Shanghai Stock Exchange | | | | | | |
Cost | | $ | 15,363 | | | $ | 15,020 | |
Market value | | $ | 29,498 | | | $ | 28,239 | |
Rent expense was $670 an $675 forFor the yearsyear ended December 31, 20172021 and 2016, respectively.2020, unrealized gain on trading securities, net of exchange difference amounted to $607 and $12,574, respectively.
NOTE 1417 – RELATED PARTY BALANCES AND TRANSACTIONS
| | December 31,
| |
Prepaid expenses | | 2021 | | | 2020 | |
Ninebell | | $ | 2,383 | | | $ | 1,607 | |
| | December 31,
| |
Accounts payable | | 2021 | | | 2020 | |
Ninebell | | $ | 5,703 | | | $ | 2,898 | |
Shengyi | | | 2,196 | | | | 1,195 | |
Total | | $ | 7,899 | | | $ | 4,093 | |
| | Year Ended December 31 | |
Purchase of materials | | 2021
| | | 2020
| | | 2019
| |
Ninebell | | $ | 33,659 | | | $ | 15,251 | | | $ | 8,572 | |
Shengyi | | | 2,434 | | | | 2,300 | | | | 856 | |
Total | | $ | 36,093 | | | $ | 17,551 | | | $ | 9,428 | |
| | Year Ended December 31 | |
Service fee charged by | | 2021
| | | 2020
| | | 2019
| |
Shengyi | | $ | 561 | | | $ | 322 | | | $ | 0 | |
Ninebell | | | 0 | | | | 22 | | | | 0 | |
Total | | $ | 561 | | | $
| 344 | | | $ | 0 | |
NOTE 18 – COMMON STOCK
At December 31, 2020, ACM iswas authorized to issue 100,000,00050,000,000 shares of Class A common stock and 7,303,5332,409,738 shares of Class B common stock, each with a par value of $0.0001. On July 13, 2021, the Company filed a certificate of amendment to its restated certificate of incorporation with the Secretary of State of the State of Delaware. The amendment i) increased the authorized number of shares of Class A common stock from 50,000,000 to 150,000,000 with 60,000,000 of the 100,000,000 additional authorized shares of Class A common stock reserved for issuance only as dividends on outstanding shares of Class A common stock; ii) increased the authorized number of shares of Class B common stock from 2,409,738 to 5,307,816, with all of the authorized but unissued shares of Class B common stock being available for issuance only as dividends on outstanding shares of Class B common stock; and iii) removed a now obsolete provision related to the automatic conversion of Class B common stock into Class A common stock. The amendment to ACM’s certificate of incorporation that increased the number of authorized Class A common stock and Class B common stock was approved by ACM’s stockholders on June 2, 2021.
At December 31, 2021, ACM was authorized to issue 150,000,000 shares of Class A common stock and 5,307,816 shares of Class B common stock, each with a par value of $0.0001. Each share of Class A common stock is entitled to one1 vote, and each share of Class B common stock is entitled to twenty20 votes and is convertible at any time into one1 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 if declared by the Board of Directors unless the Board of Directors declares different dividends to the Class A common stock and Class B common stock by getting approval from a majority of common stock holders.
In August 2017 ACM entered into a securities purchase agreement with PDHTI and its subsidiary Pudong Science and Technology (Cayman) Co., Ltd. (“PST”),On March 30, 2018, SMC exercised the SMC Warrant in which ACM agreed to bid, in an auction process mandated by PRC regulations,full (note 15) to purchase PDHTI’s 10.78% equity interests in ACM Shanghai397,502 shares of Class A common stock. During the year ended December 31, 2020, SMC transferred and to sellcancelled its ownership of 242,681 shares of Class A common stock to PST. On September 8, 2017,ACM in exchange for the SMC 2020 Warrant (note 15).
During the year ended December 31, 2021, the Company issued 623,601 shares of Class A common stock upon options exercises by certain employees and non-employees and an additional 106,668 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock. During the year ended December 31, 2020, ACM issued 1,119,576832,504 shares of Class A common stock upon option exercises by employees and non-employees and an additional 60,002 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock. During the year ended December 31, 2019, ACM issued 195,297 shares of Class A common stock upon option exercises by employees and non-employees and an additional 35,815 shares of Class A common stock upon conversion of an equal number of shares of Class B common stock.
During the year ended December 31, 2021, ACM issued 242,681 shares of Class A common stock upon the warrant exercise SMC (Note 15). During the year ended December 31, 2020, ACM issued 64,717 shares of Class A common stock upon cashless warrant exercises by non-employees. During the year ended December 31, 2019, ACM issued 1,438 shares of Class A common stock upon cashless warrant exercises by non-employees.
In August 2019, ACM sold a total of 2,053,572 shares of Class A common stock to PST forthe public at a purchase price of $7.50$14.00 per share representingfor aggregate gross proceeds of $28,750. Net proceeds to ACM excluded an aggregate purchase priceunderwriting discount and offering expenses totaling $2,287. ACM repurchased outstanding shares from certain directors, employees and SMC upon the exercise of $8,397.
In August 2017 ACM entered intothe underwriters’ over-allotment option using a securities purchase agreement with ZSTVC and its subsidiary Zhangjiang AJ Company Limited (“ZJAJ”), in which ACM agreed to bid, in an auction process mandated by PRC regulations, to purchase ZSTVC’s 7.58% equity interests in ACM Shanghai and to sell sharesportion of Class A common stock to ZJAJ. On September 8, 2017, ACM issued 787,098 shares of Class A common stock to ZJAJ for a purchase price of $7.50 per share, or an aggregate purchase price of $5,903.
In September 2017 ACM issued 133,334 shares of Class A common stock to Ninebell for a purchase price of $7.50 per share, or an aggregate purchase price of $1,000 (note 11).
In November 2017 ACM issued 2,233,000 shares of Class A common stock and receivedACM’s net proceeds from the public offering for the purpose of $11,664 from IPO and concurrently ACM issued additional 1,333,334share constructive retirement. A total of 214,286 repurchased shares of Class A common stock through a private placementwere accounted for net proceeds of $7,053.
In connection withshare retirement during the completion of IPO on November 2, 2017, the Company issued a five-year warrant to Roth Capital Partners, LLC, the Company's IPO underwriter, up to 80,000 shares ("Underwriter's Warrant") of the Company's Class A common stock at the exercise price of $6.16. The Underwriter's Warrant is immediately exercisable and expires on November 1, 2022. The Underwriter's Warrant is equity classified and the fair value was $137 at the IPO offering date, using the Black Scholes model with the following assumptions: volatility - 28.26%, dividend rate - 0%, and risk free discount rate- 2%.
At various dates during 2017, ACM issued 472,889 shares of Class A common stock for options exercised by certain employee and non-employees.
Atyear ended December 31, 20172019.
At December 31, 2021 and 2016,2020, the number of shares of Class A common stock issued and outstanding was 12,935,546 17,869,643 and 2,228,740,16,896,693, respectively. At December 31, 20172021 and 2016,2020, the number of shares of Class B common stock issued and outstanding was 2,409,738. 1,695,938 and 1,802,606, respectively.
NOTE 19 – REDEEMABLE NON-CONTROLLING INTERESTS
The Company recorded initial carrying amount of redeemable non-controlling interests at fair value on the date of issuance, and presented in temporary equity on the consolidated balance sheets initially.
NOTE 15 – REDEEMABLE CONVERTIBLE PREFERRED STOCK
Upon ACM’s redomestication in Delaware in November 2016, ACM had 22,696,467 authorized shares of preferred stock, of which 385,000, 1,572,000, 1,360,962, 2,659,975, 10,718,530, and 6,000,000 shares were designated as Series A, Series B, Series C, Series D, Series E and Series F preferred stock, respectively.
In March 2017 ACM entered intoAs the non-controlling interests would be redeemable at a securities purchase agreement, amended in July 2017, with SSTVC pursuant to which, effective as of August 31, 2017, ACM acquired SSTVC’s equity interests in ACM Shanghai for afixed purchase price, it is classified as common-share non-controlling interests redeemable at other than fair value. The Company applied the entire adjustment method (income classification) for subsequent measurement in accordance with Financial Accounting Standards Board (the “FASB”) Accounting Standards Classification (“ASC”) ASC 480-10-S99.
During the second quarter of $6,154 (RMB 40,000)2020, the redemption feature of the private placement funding terminated and issuedthe aggregate proceeds of the funding therefore were reclassified from redeemable non-controlling interests to SSTVC 4,998,508 sharesnon-controlling interests. At September 30, 2020, the balance of Series E convertible preferred stock for a purchase price of $5,800.redeemable non-controlling interest was nil.
The numbercomponents of issued and outstanding shares ofthe change in the redeemable convertible preferred stock as ofnon-controlling interests for the year ended December 31, 2017 and 2016 were as follows:
| | |
Series A convertible preferred stock | - | 385,000 |
Series B convertible preferred stock | - | 1,572,000 |
Series C convertible preferred stock | - | 1,360,962 |
Series D convertible preferred stock | - | 2,659,975 |
Series E convertible preferred stock | - | - |
Series F convertible preferred stock | - | 6,000,000 |
| - | 11,977,937 |
Shares of ACM’s convertible preferred stock have rights, preferences and privileges as follows:
Voting Rights
Each share of Series A through Series F convertible preferred stock is entitled to a number of votes equal to the number of whole shares of common stock into which such share can be converted.
Dividends
Holders of Series A through Series F convertible preferred stock have a non-cumulative right to participate in and receive the same dividends as may be declared for common stockholders, as and if declared by the Board of Directors, payable out of funds legally available.
Conversion
Each share of Series A through Series F convertible preferred stock is convertible at any time, at the option of the holder. At November 3, 2017, the IPO date, each share of Series A, B, E and F convertible preferred stock was convertible into one-third share of Class A common stock, each share of Series C convertible preferred stock was convertible into 0.3544 shares of Class A common stock, and each share of Series D convertible preferred stock was convertible into 0.4562 shares of Class A common stock. All Series A through Series F convertible preferred stock converted automatically into a total of 4,625,577 shares of Class A common stock upon the closing of the IPO. At December 31, 2016, 2,960,968 shares of Class A common stock were reserved for issuance upon conversion of outstanding Series A through Series F convertible preferred stock.
Liquidation Preferences
Holders of Series A through Series F convertible preferred stock2020 are entitled to receive specified liquidation amountspresented in the event of a liquidation, dissolution or winding-up of ACM or of certain deemed liquidation events. The deemed liquidation events generally include (a) a merger or stock sale after which new stockholders would own a majority of the voting stock of ACM and (b) a sale of all or substantially all of the assets of the Company.following table:
Balance at December 31, 2019 | | $ | 60,162 | |
Net income attributable to redeemable non-controlling interests | | | 643 | |
Effect of foreign currency translation gain attributable to redeemable non-controlling interests | | | (847 | ) |
Reclassification of redeemable non-controlling interest | | | (59,958 | ) |
Balance at December 31, 2020 | | $ | 0 | |
In the event of a liquidation, dissolution or winding-up of ACM or a deemed liquidation, the holders of Series A through Series F convertible preferred stock shall be entitled to be paid, prior to and in preference to the holders of common stock, an amount equal to $0.80, $1.00, $1.50, $3.75, $1.00 and $2.50 per share of Series A through Series F convertible preferred stock, respectively, plus any accumulated and unpaid dividends as of the redemption date.
NOTE 1620 – STOCK-BASED COMPENSATION
On April 29, 1998,In January 2020 ACM Shanghai adopted a 2019 Stock Option Incentive Plan (the “Subsidiary Stock Option Plan”) that provides for, among other incentives, the granting to officers, directors, employees of options to purchase shares of ACM Shanghai’s common stock. The fair value of the stock options granted is estimated at the date of grant based on the Black-Scholes option pricing model using assumptions generally consistent with those used for ACM’s stock options. Because ACM Shanghai shares 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 (the “1998 Plan”). Theand the 2016 Omnibus Incentive Plan and as standalone options. ACM granted stock options issuedto employees under the 2016 Omnibus Incentive Plan consisted of incentive stock options (“ISOs”)during the years ended December 31, 2021, 2020 and nonstatutory stock options (“NSOs”) that should be determined at the time of grant. ISOs could be granted only to employees. NSOs could be granted to employees, directors and consultants. The option price of each ISO and each NSO could not be less than 100% or less than 85% of the fair market value of stock price at the time of grant, respectively.2019. The vesting condition may consist of service period was to be determined by the Board of Directors for each grant. The total number of shares of common stock reserved under the 1998 Plan, as amended, was 766,667. If any option granted under the 1998 Plan expiresa grant, or otherwise terminates without having been exercised in full, the shares of common stock subject to that option would become available for re-grant. At March 3, 2014, the 1998 Plan terminated and no further grants under the 1998 Plan could be made thereunder, although certain previously granted options remained outstanding in accordance with their terms.
On December 28, 2016, ACM adopted the 2016 Omnibus Incentive Plan (the “2016 Plan”). Under the 2016 Plan, the aggregate number of shares of Class A common stock that may be issued shall equal the sum of (a) 2,333,334 and (b) an annual increase on the first day of each year beginning in 2018 and ending in 2026 equal to the lesser of (i) 4% of the shares of Class A and Class B common stock outstanding (on an as-converted basis) on the last day of the immediately preceding year and (ii) such smaller number of shares as may beperformance conditions determined by the Board. A maximumBoard of 2,333,334 shares is availableDirectors for issuance as ISOs under the 2016 Plan. Besidesa grant. The fair value of the stock options granted with service period based condition is estimated at the 2016 Plan also authorizes issuancedate of grant using the Black-Scholes option pricing model. The fair value of the stock appreciation rights, restricted stock, restricted stock units,options granted with market based condition is estimated at the date of grant using the Monte Carlo simulation model.
The following table summarizes the components of stock-based compensation expense included in the consolidated statements of operations:
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Stock-Based Compensation Expense: | | | | | | | | | |
Cost of revenue | | $ | 397 | | | $ | 175 | | | $ | 250 | |
Sales and marketing expense | | | 1,802 | | | | 1,199 | | | | 328 | |
Research and development expense | | | 1,115 | | | | 763 | | | | 1,093 | |
General and administrative expense | | | 1,803 | | | | 3,491 | | | | 1,901 | |
| | $ | 5,117 | | | $ | 5,628 | | | $ | 3,572 | |
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Stock-based compensation expense by type: | | | | | | | | | |
Employee stock purchase plan | | $ | 4,674 | | | $ | 4,900 | | | $ | 2,265 | |
Non-employee stock purchase plan | | | 94 | | | | 396 | | | | 1,307 | |
Subsidiary option grants | | | 349 | | | | 332 | | | | 0 | |
| | $ | 5,117 | | | $ | 5,628 | | | $ | 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, | |
| | | | | | | | | |
Fair value of common share(1) | | $ | 38.38-51.07 | | | $ | 22.07-85.27 | | | $ | 13.64-16.81 | |
Expected term in years(2) | | | 6.25
| | | | 5.50-6.25 | | | | 6.25
| |
Volatility(3) | | | 48.53-49.47 | % | | | 42.17%-48.15 | % | | | 39.91%-40.35 | % |
Risk-free interest rate(4) | | | 1.00%-1.44 | % | | | 0.44%-0.82 | % | | | 1.69%-2.46 | % |
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. |
During the year ended December 31, 2021, 0 option was granted to employee with market based condition. During the year ended December 31, 2020, the fair value of option granted to an employee with market based condition was estimated on December 27, 2026.the grant date using the Monte Carlo simulation model with the following assumptions:
| | Year Ended December 31, | |
| | 2020 | |
Fair value of common share(1) | | $ | 22.07 | |
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. |
Employee Awards
The following table summarizes ACM’sthe Company’s employee share option activities:
| | Weighted Average Grant Date Fair Value
| Weighted Average Exercise Price
| Weighted Average Remaining Contractual Term
|
Outstanding at December 31, 2015 | 1,500,010 | $0.48 | $1.02 | 5.60 |
Granted | 1,009,371 | 0.54 | 3.00 | |
Exercised | (409,004) | 0.42 | 0.75 | |
Expired | - | - | - | |
Forfeited | - | - | - | |
Outstanding at December 31, 2016 | 2,100,377 | 0.54 | 2.03 | 7.83 |
Granted | 140,002 | 2.28 | 6.75 | |
Exercised | (174,334) | 0.45 | 0.75 | |
Expired | (3,752) | 0.54 | 3.00 | |
Forfeited | (16,677) | 0.54 | 3.00 | |
Outstanding at December 31, 2017 | 2,045,616 | $0.66 | $2.46 | 7.57 |
Vested and exercisable at December 31, 2017 | 1,010,313 | | | |
Duringactivities during the years ended December 31, 20172019, 2020 and 2016, ACM recognized2021:
| | Number of Option Share | | | Weighted Average Grant Date Fair Value | | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term |
Outstanding at December 31, 2018 | | | 2,503,405 | | | $ | 0.91 | | | $ | 4.09 | | 7.30 years |
Granted | | | 656,000 | | | | 6.29 | | | | 16.21 | | |
Exercised | | | (106,768 | ) | | | 0.60 | | | | 2.09 | | |
Expired | | | (2,757 | ) | | | 3.34 | | | | 8.16 | | |
Forfeited/cancelled | | | (55,817 | ) | | | 2.38 | | | | 6.23 | | |
Outstanding at December 31, 2019 | | | 2,994,063 | | | | 2.59 | | | | 6.77 | | 7.05 years |
Granted | | | 786,399 | | | | 12.17 | | | | 29.17 | | |
Exercised | | | (547,189 | ) | | | 1.34 | | | | 3.78 | | |
Forfeited/cancelled | | | (41,862 | ) | | | 4.80 | | | | 12.65 | | |
Outstanding at December 31, 2020 | | | 3,191,411 | | | | 5.13 | | | | 12.73 | | 7.13 years |
Granted | | | 140,400 | | | | 48.16 | | | | 106.15 | | |
Exercised | | | (477,058 | ) | | | 2.46 | | | | 6.30 | | |
Forfeited/cancelled | | | (54,004 | ) | | | 24.97 | | | | 57.10 | | |
Outstanding at December 31, 2021 | | | 2,800,749 | | | $ | 7.36 | | | $ | 17.65 | | 6.53 years |
Vested and exercisable at December 31, 2021 | | | 1,922,180 | | | | | | | | | | |
As of December 31, 2021 and 2020, $9,544 and $8,733, respectively, of total unrecognized employee stock-based compensation expense, net of $271estimated forfeitures, related to stock-based awards for ACM were expected to be recognized over a weighted-average period of 1.61 years and $92,1.89 years, respectively. 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, 2019, 2020 and 2021:
| | Number of Option Shares | | | Weighted Average Grant Date Fair Value | | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term |
Outstanding at December 31, 2018 | | | 1,212,374 | | | $ | 0.78 | | | $ | 2.57 | | 6.66 years |
Granted | | | 0 | | | | 0 | | | | 0 | | |
Exercised | | | (88,529 | ) | | | 0.45 | | | | 1.06 | | |
Expired | | | 0 | | | | 0 | | | | 0 | | |
Forfeited/cancelled | | | (22,232 | ) | | | 0.55 | | | | 3.00 | | |
Outstanding at December 31, 2019 | | | 1,101,613 | | | | 0.82 | | | | 2.69 | | 5.85 years |
Granted | | | 20,000 | | | | 10.29 | | | | 25.60 | | |
Exercised | | | (285,315 | ) | | | 0.88 | | | | 3.17 | | |
Expired | | | 0 | | | | 0 | | | | 0 | | |
Forfeited/cancelled | | | (260 | ) | | | 0.30 | | | | 0.75 | | |
Outstanding at December 31, 2020 | | | 836,038 | | | | 1.02 | | | | 3.07 | | 4.92 years |
Granted | | | 0 | | | | 0 | | | | 0 | | |
Exercised | | | (146,543 | ) | | | 1.12 | | | | 3.83 | | |
Expired | | | 0 | | | | 0 | | | | 0 | | |
Forfeited/cancelled | | | (489 | ) | | | 0.34 | | | | 0.84 | | |
Outstanding at December 31, 2021 | | | 689,006 | | | $ | 1.00 | | | $ | 2.91 | | 3.98 years |
Vested and exercisable at December 31, 2021 | | | 677,756 | | | | | | | | | | |
As of December 31, 20172021 and 2016, $7292020, $102 and $726,$195, respectively, of total unrecognized employeenon-employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards were expected to be recognized over a weighted-average period of 1.770.06 years and 2.250.09 years, respectively. Total unrecognizedrecognized compensation cost may be adjusted for future changes in estimated forfeitures.
The fair value of each option granted to employee is estimated on the grant date using the Black-Scholes valuation model with the following assumptions.
| December 31, |
| 2017 | | 2016 |
Fair value of common share(1) | $5.60-7.59 | | $2.28 |
Expected term in years(2) | 6.25 | | 5.75-6.25 |
Volatility(3) | 28.62% -29.18% | | 29.93% |
Risk-free interest rate(4) | 2.21%-2.22% | | 2.02%-2.32% |
Expected dividend(5) | 0% | | 0% |
(1)
Common stock value was the close market value on December 31, 2017.
ACM Shanghai Option Grants(2)
Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.
(3)
Volatility is calculated based on the historical volatility of ACM’s comparable companies in the period equal to the expected term of each grant.
(4)
Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.
(5)
Expected dividend is assumed to be 0% as ACM has no history or expectation of paying a dividend on its common stock.
Non-employee Awards
The following table summarizes ACM’s non-employee sharethe ACM Shanghai employee stock option activities:
| | | | |
| | | | |
| | | | |
Outstanding at December 31, 2015 | 1,533,343 | $0.48 | $0.99 | 5.53 |
Granted | 415,225 | 0.54 | 3.00 | |
Exercised | (370,003) | 0.45 | 0.75 | |
Expired | - | - | - | |
Forfeited | - | - | - | |
Outstanding at December 31, 2016 | 1,578,565 | 0.51 | 1.58 | 6.81 |
Granted | 196,669 | 2.25
| 6.90
| |
Exercised | (298,555) | 0.39 | 0.93 | |
Expired | (133,336) | 0.45 | 0.75 | |
Forfeited | (16,667) | 2.58 | 7.50 | |
Outstanding at December 31, 2017 | 1,326,676 | 0.78
| 2.52
| 7.54
|
Vested and exercisable at December 31, 2017 | 754,799 | | | |
Duringactivities during the years ended December 31, 20172021 and 2016,2020:
| | 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, 2019 | | | 0 | | | $ | 0 | | | $ | 0 | | - |
Granted | | | 5,869,808 | | | | 0.23 | | | | 1.89 | | |
Exercised | | | 0 | | | | 0 | | | | 0 | | |
Expired | | | 0 | | | | 0 | | | | 0 | | |
Forfeited/cancelled
| | | (446,154 | ) | | | 0.23 | | | | 1.89 | | |
Outstanding at December 31, 2020 | | | 5,423,654 | | | $ | 0.23 | | | $ | 1.89 | | 3.50 years |
Granted | | | 0 | | | | 0 | | | | 0 | | |
Exercised | | | 0 | | | | 0 | | | | 0 | | |
Expired | | | 0 | | | | 0 | | | | 0 | | |
Forfeited/cancelled | | | (46,154 | ) | | | 0.24 | | | | 2.04 | | |
Outstanding at December 31, 2021 | | | 5,377,500 | | | $ | 0.24 | | | $ | 2.04 | | 2.50 years |
Vested and exercisable at December 31, 2021 | | | 0 | | | | | | | | | | |
During the year ended December 31, 2021 and 2020, the Company recognized stock-based compensation expense of $349 and $332, related to stock option grants of ACM Shanghai. As of December 31, 2021 and 2020, $525 and $822 of total unrecognized non-employee stock-based compensation expense, net of $1,351estimated forfeitures, related to ACM Shanghai stock-based awards were expected to be recognized over a weighted-average period of 1.5 and $291, respectively.2.5 years. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.
The fair value of each option granted to non-employees is re-measured at each period end until the vesting date using the Black-Scholes valuation model with the following assumptions:
| December 31, |
| 2017 | | 2016 |
Fair value of common share(1) | $5.25-7.59 | | $2.28 |
Expected term in years(2) | 3.58-6.25 | | 2.11-6.24 |
Volatility(3) | 28.71%-29.41% | | 29.93% |
Risk-free interest rate(4) | 1.62%-2.43% | | 1.00%-2.25% |
Expected dividend(5) | 0% | | 0% |
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
1.
Common stock value was the close market value on December 31, 2017.
2.
Expected term of share options is based on the average of the vesting period and the contractual term for each grant according to Staff Accounting Bulletin 110.
3.
Volatility is calculated based on the historical volatility of ACM’s comparable companies in the period equal to the expected term of each grant.
4.
Risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the share options in effect at the time of grant.
5.
Expected dividend is assumed to be 0% as ACM has no history or expectation of paying a dividend on its common stock.
NOTE 1721 – INCOME TAXES
The following represent components of the income tax benefit (expense) for the years ended December 31, 20172021, 2020 and 2016:2019:
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | (in thousands)
| |
Current: | | | | | | | | | |
U.S. federal | | $ | (91 | ) | | $ | (61 | ) | | $
| 0 | |
U.S. state | | | (2 | ) | | | (2 | ) | | | 0 | |
Foreign | | | (2,195 | ) | | | (2,014 | ) | | | (3,176 | ) |
Total current tax expense | | | (2,288 | ) | | | (2,077 | ) | | | (3,176 | ) |
Deferred: | | | | | | | | | | | | |
U.S. federal | | | 2,089 | | | | 7,325 | | | | 3,728 | |
U.S. state | | | 0 | | | | 0 | | | | 0 | |
Foreign | | | 65 | | | | (2,866 | ) | | | (34 | ) |
Total deferred tax benefit | | | 2,154 | | | | 4,459 | | | | 3,694 | |
Total income tax benefit (expense)
| | $ | (134 | ) | | $ | 2,382 | | | $ | 518 | |
| |
| | |
Current: | |
U.S. federal | $- | $- |
U.S. state | - | (1) |
Foreign | - | - |
Total current tax expense | - | (1) |
Deferred: | | |
U.S. federal | - | - |
U.S. state | - | - |
Foreign | (547) | (594) |
Total deferred tax expense | (547) | (594) |
Total income tax expense | $(547) | $(595) |
Tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets at December 31, 20172021 and 20162020 are presented below:
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019
| |
| | | | | | |
Deferred tax assets: | | | | | | | | | |
Net operating loss carry forwards (offshore) | | $ | 522 | | | $ | 323 | | | $ | 216 | |
Net operating loss carry forwards (U.S.) and credit | | | 12,173 | | | | 9,981 | | | | 3,218 | |
Deferred revenue (offshore) | | | 361 | | | | 556 | | | | 1,181 | |
Accruals (U.S.) | | | 15 | | | | 22 | | | | 15 | |
Reserves and other (offshore) | | | 1,528 | | | | 884 | | | | 426 | |
Stock-based compensation (U.S.) | | | 2,283 | | | | 1,599 | | | | 1,168 | |
Property and equipment (U.S.) | | | 1 | | | | 164 | | | | 3 | |
Lease liability | | | 559 | | | | 659 | | | | 0 | |
Total gross deferred tax assets | | | 17,442 | | | | 14,188 | | | | 6,227 | |
Less: valuation allowance | | | (919 | ) | | | (848 | ) | | | (896 | ) |
Total deferred tax assets | | | 16,523 | | | | 13,340 | | | | 5,331 | |
Deferred tax liabilities: | | | | | | | | | | | | |
Fixed assets | | | (589 | ) | | | (697 | ) | | | 0 | |
Deferred revenue (offshore) | | | (1,486 | ) | | | (967 | ) | | | 0 | |
Unrealized gain on trading securities | | | 0 | | | | (1,886 | ) | | | 0 | |
Equity Investments
| | | (2,584 | ) | | | 0 | | | | 0 | |
Total deferred tax liabilities | | | (4,659 | ) | | | (3,550 | ) | | | 0 | |
Translation difference | | | 0 | | | | 0 | | | | 0 | |
Deferred tax assets, net | | $ | 11,864 | | | $ | 9,790 | | | $ | 5,331 | |
| |
| | |
Deferred tax assets: | | |
Net operating loss carry forwards (offshore) | $4,418 | $1,029 |
Net operating loss carry forwards (U.S.) and credit | 683 | 5,815 |
Deferred revenue (offshore) | 656 | 840 |
Accruals (U.S.) | 18 | 18 |
Reserves and other (offshore) | 495 | 43 |
Stock-based compensation (U.S.) | 453 | 342 |
Property and equipment (U.S.) | 2 | 3 |
Total gross deferred tax assets | 6,725 | 8,090 |
Less: valuation allowance | (5,431) | (6,249) |
Total deferred tax assets | 1,294 | 1,841 |
Total deferred tax liabilities | - | - |
Translation difference | - | - |
Deferred tax assets, net | $1,294 | $1,841 |
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, 20172021 and 2016,2020, based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given its historical losses and the uncertainty with respect to its ability to generate sufficient profits from its business model from all tax jurisdictions. In order to fully realize the U.S. 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. The valuation allowance
118
On DecemberNOTE 22 2017,– SEGMENT INFORMATION
The Company is engaged in the 2017 Tax Cutsdeveloping, manufacture and Jobs Act (the Tax Act) was enacted into lawsale of single-wafer wet cleaning equipment, which have been organized as 1 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 new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reductionresults of the corporate income tax rate to 21% effective January 1, 2018, among others. We areoperations for all major type of equipment as a whole when making decisions about allocating resources and assessing performance of the Company. In accordance with FASB ASC 280-10, the Company is not required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities.
report segment information.
NOTE 1823 – COMMITMENTS AND CONTINGENCIES
The Company leases offices under non-cancelable operating lease agreements. The rental expenses were $670 and $675 for the years ended December 31, 2017 and 2016, respectively. See note 1311 for future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more.
TheAs of December 31, 2021 and 2020, the Company did not have anyhad $5,463 and $1,173 of open capital commitments, during respectively.
In the reported periods.
From time to timenormal course of business, the Company is subject to contingencies, including legal proceedings includingand environmental claims inarising out of the ordinarynormal course of businessbusinesses 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, 2021 and 2020. In the opinion of management, no provision for liability nor disclosure was required as of December 31, 2021 related to any claim against the Company because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to patent infringements.such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.
As of December 31, 2021, the Company had one outstanding legal proceeding regarding securities class action. On December 21, 2020, a putative class action lawsuit against ACM and three of its current executive officers was filed in the U.S. District Court for the Northern District of California under the caption Kain v. ACM Research, Inc., et al., No. 3:20-cv-09241. The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and sought monetary damages in an unspecified amount as well as costs and expenses incurred in the litigation. The suit was dismissed with prejudice on January 10, 2022.
NOTE 1924 – RESTRICTED NET ASSETS
In accordance with the PRC’s Foreign Enterprise Law, ACM Shanghai, Shengwei Research (Shanghai), Inc., and ACM Wuxi are required to make contributions to a statutory surplus reserve (note 2).
As a result of PRC laws and regulations that require annual appropriations of 10% of net after-tax profits to be set aside prior to payment of dividends as a general reserve fund or statutory surplus fund, ACM Shanghai is restricted in its ability to transfer a portion of its net assets to ACM (including any assets received as distributions from Shengwei Research (Shanghai), Inc. and ACM Wuxi).Wuxi. Amounts restricted included paid-in capital and statutory reserve funds, as determined pursuant to PRC accounting standards and regulations, were $29,927$671,750, $119,377 and $113,168 as of December 31, 20172021, 2020 and 2016.2019, respectively.
NOTE 20– SUBSEQUENT EVENTS
On January 12, 2018, ACM Shanghai entered into an operating lease for manufacturing space of approximately 103,318 square feet in Shanghai, China effective as of January 16, 2018. The lease term is five years and expires on January 15, 2022. During the first year, the lease space is 51,659 square feet with monthly payments of RMB 270 starting from the second month of the lease. From January 16, 2019, the lease space will be increased to 103,318 square feet with monthly payments of RMB 390. The monthly payments for the third and four year is RMB 409 and RMB 430 for the fifth year.
On January 25 2018, the Company’s board approved a total of 500,000 shares of stock options to its employees and consultants at the exercise price of $5.31 per share
NOTE 21 – 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, 2017 and 2016.2021 or 2020.
The following represents condensed unconsolidated financial information of ACM only as of December 31, 2021 and 2020, and for the years ended December 31, 20172021, 2020 and 2016:2019:
CONDENSED BALANCE SHEET
| |
| | |
Assets | | |
Current assets: | | |
Cash and cash equivalents | $10,874 | $7,264 |
Accounts Receivable | 118 | - |
Inventory | 565 | 1,042 |
Due from intercompany | 12,669 | 1,986 |
Other receivable | 50 | 3 |
Total current assets | 24,276 | 10,295 |
Investment in unconsolidated subsidiaries | 15,476 | 6,583 |
Due from related party | 946 | - |
Total assets | 40,698 | 16,878 |
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity | | |
Notes payable | 11 | 11 |
Accounts payable | 739 | 1,176 |
Other payable | 47 | 47 |
Income taxes payable | 44 | 44 |
Total liabilities | 841 | 1,278 |
Total redeemable convertible preferred stocks | - | 18,034 |
Total stockholders’ equity (deficit)
| 39,857 | (2,434) |
Total liabilities, redeemable convertible preferred stock and stockholders’ equity | $40,698 | $16,878 |
| | December 31, | |
| | 2021 | | | 2020 | |
Assets | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 29,536 | | | $ | 30,188 | |
Accounts receivable
| | | 16
| | | | 0
| |
Due from intercompany | | | 0 | | | | 0 | |
Other receivable | | | 48 | | | | 5 | |
Prepaid expenses | | | 594 | | | | 359 | |
Total current assets | | | 30,194 | | | | 30,552 | |
Deferred tax assets | | | 13,166 | | | | 11,076 | |
Investment in unconsolidated subsidiaries | | | 637,961 | | | | 102,455 | |
Total assets | | | 681,321 | | | | 144,083 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Accounts payable | | | 875 | | | | 1,278 | |
Other payable | | | 404 | | | | 255 | |
Income taxes payable | | | 254 | | | | 31 | |
FIN-48 payable | | | 2,282 | | | | 83 | |
Deferred tax liability | | | 1,302 | | | | 1,286 | |
Total liabilities | | | 5,117 | | | | 2,933 | |
Total stockholders’ equity | | | 676,204 | | | | 141,150 | |
Total liabilities and stockholders equity | | $ | 681,321 | | | $ | 144,083 | |
CONDENSED STATEMENT OF OPERATIONS
| |
| | |
Revenue | $6,985 | $5,803 |
Cost of revenue | (6,394) | (5,346) |
Gross profit | 591 | 457 |
Operating expenses: | | |
Sales and marketing expenses | (368) | (64) |
General and administrative expenses | (3,961) | (1,202) |
Research and development expenses | (50) | (6) |
Loss from operations | (3,788) | (815) |
Equity in earnings of unconsolidated subsidiaries | 3,475 | 3,561 |
Other income (expense), net | - | (1,608) |
Interest expense, net | (5) | (106) |
Income (loss) before income taxes | (318) | 1,032 |
Income tax expense (benefit) | - | (1) |
Net income (loss) | $(318) | $1,031 |
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Revenue | | $ | 16 | | | $ | 1,776 | | | $ | 10,683 | |
Cost of revenue | | | 0 | | | | (1,707 | ) | | | (10,036 | ) |
Gross profit | | | 16 | | | | 69 | | | | 647 | |
Operating expenses: | | | | | | | | | | | | |
Sales and marketing expenses | | | (2,443 | ) | | | (1,361 | ) | | | (490 | ) |
General and administrative expenses | | | (5,116 | ) | | | (5,010 | ) | | | (3,639 | ) |
Research and development expenses | | | 0 | | | | 0 | | | | (476 | ) |
Loss from operations | | | (7,543 | ) | | | (6,302 | ) | | | (3,958 | ) |
Equity in earnings of unconsolidated subsidiaries | | | 43,866 | | | | 36,273 | | | | 22,510 | |
Change in fair value of financial liability | | | 0 | | | | (11,964 | ) | | | 0 | |
Interest income, net | | | 54 | | | | 90 | | | | 231 | |
Interest expense, net | | | 0 | | | | 0 | | | | (67 | ) |
Other income, net | | | 1,380 | | | | 683 | | | | 178 | |
Income before income taxes | | | 37,757 | | | | 18,780 | | | | 18,894 | |
Income tax expense | | | 0 | | | | 0 | | | | 0 | |
Net income | | $ | 37,757 | | | $ | 18,780 | | | $ | 18,894 | |
CONDENSED STATEMENT OF CASH FLOWS
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Net cash used in operating activities | | $ | (5,902 | ) | | $ | (290 | ) | | $ | (7,957 | ) |
Net cash provided by investing activities | | | 0 | | | | 0 | | | | 0 | |
Net cash provided by financing activities | | | 5,250 | | | | 2,745 | | | | 23,347 | |
Net increase (decrease) in cash and cash equivalents | | | (652 | ) | | | 2,455 | | | | 15,390 | |
Cash and cash equivalents, beginning of year | | | 30,188 | | | | 27,733 | | | | 13,161 | |
Effect of exchange rate changes on cash and cash equivalents | | | 0 | | | | 0 | | | | (818 | ) |
Cash and cash equivalents, end of year | | $ | 29,536 | | | $ | 30,188 | | | $ | 27,733 | |
Condensed Statement of Cash Flows
Item 9A. | Controls and Procedures |
| |
| | |
Net cash used in operating activities | $(13,848) | $(2,220) |
Net cash used in investing activities | (21,754) | - |
Net cash provided by financing activities | 38,676
| 9,309 |
Net increase in cash and cash equivalents | 3,074 | 7,089 |
Cash and cash equivalents, beginning of year | 7,264 | 504 |
Effect of exchange rate changes on cash and cash equivalents | 536 | (329) |
Cash and cash equivalents, end of year | $10,874 | $7,264 |
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief AccountingFinancial Officer, evaluated the effectiveness of our company’s disclosure controls and procedures pursuant to Rule 13a-15 (e) and 15d-14 (e) under the Securities Exchange Act of 1934, or the Exchange Act, as of December 31, 2017.2021. The evaluation included certain internal control areas in which we have made and are continuing to make changes to improve and enhance controls. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The effectiveness of the disclosure controls and procedures is also necessarily limited by the staff and other resources available to management and the geographic diversity of our company’s operations. As a result of the COVID-19 pandemic, in 2021 we have faced additional challenges in operating and monitoring our disclosure controls and procedures as a result of employees working remotely and management travel being limited. In addition, we face potential heightened cybersecurity risks as our level of dependence on our IT networks and related systems increases, stemming from employees working remotely, and the number of malware campaigns and phishing attacks preying on the uncertainties surrounding the COVID‑19 pandemic increases.
Based on that evaluation, our Chief Executive Officer and Chief AccountingFinancial Officer concluded that, as of December 31, 2021, our company’s disclosure controls and procedures arewere effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SECSecurities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief AccountingFinancial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
This report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
Previously Identified Material Weaknesses in Internal Control Over Financial Reporting
Our managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internalas defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, a company's principal executive and principal financial officers and effected by the company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, andgeneral accepted accounting principles. The company’s internal control over financial reporting includes those policies and procedures that:
● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; |
● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of our company; and |
● 124
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
●
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made in accordance with authorizations of management and directors of the company; and
●
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 financial statements.
● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. ProjectionsAlso, 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.
In connection with its audits of our consolidated financial statements as of, and for the year ended, December 31, 2016, BDO China Shu Lun Pan Certified Public Accountants LLP, or BDO China, informed us that it had identified a material weakness in our internal control over financial reporting relating to our lack of sufficient qualified financial reporting and accounting personnel with an appropriate level of expertise to properly address complex accounting issues under GAAP and to prepare and review our consolidated financial statements and related disclosures to fulfill GAAP and SEC financial reporting requirements. A material weakness is a 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 annual or interim financial statements will not be prevented or detected on a timely basis.
Our management, includingwith the participation of our Chief Executive Officer who is our principal executive officer, and our Chief Accounting Officer and interim Chief Financial Officer, who is our principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2021. In making this assessment, our management used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2021.
BDO China Shu Lun Pan Certified Public Accountants LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting and Remediation Efforts
No changes were identified to our internal control over financial reporting during the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to review and document our disclosure controls and procedures, including our internal control over financial reporting and may from time to time make changes to enhance their effectiveness and ensure that our systems evolve with our business.
![graphic](https://capedge.com/proxy/10-K/0001140361-22-007348/image00004.jpg)
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
ACM Research, Inc.
Fremont, California
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, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in Internal Control—An Integrated Framework (2013). As of, and during the year ended, December 31, 2017, we considered we were still in a transitional period to improve and enhance the quality of our accounting andall material respects, effective internal control over financial reporting function, we determined that the above mentioned material weakness had not been fully remediated. Management concluded that, as of December 31, 2017,2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 1, 2022 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 “Item 9A, 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting 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 not effective.
Remediation Efforts
We have taken,maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and are continuing to take, remedial measures to improvetesting 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 controls, including by hiring additional accounting and finance personnel and by engaging outside consulting firms. In particular, in January 2018 we hiredaudit provides a new Chief Accounting Officer. Because the employment ofreasonable basis for our former Chief Financial Officer terminated in January 2018, our new Chief Accounting Officer is also serving as interim Chief Financial Officer while we conduct a search for a permanent Chief Financial Officer. We are continuing to add personnel and take other remedial steps, and management expects to remedy the identified material weakness by no later than the second quarter of 2018.opinion.
Item 9B. Other InformationNone.
Definition and Limitations of Internal Control over Financial Reporting
PART IIIA 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 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 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 financial statements.
ITEM 10. Directors, Executive Officers and Corporate GovernanceBecause 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.
BDO China Shu Lun Pan Certified Public Accountants LLP
Information responsive to this item is incorporated herein by reference to ACM’s definitive proxy statement with respect to our 2018 Annual MeetingShenzhen, The People’s Republic of Stockholders to be filed with the SEC within 120 days after the endChina
March 1, 2022
PART III
ITEM 11. Executive CompensationItem 10. | Directors, Executive Officers and Corporate Governance |
Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this report.
Item 11. | Executive Compensation |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation responsive to this item is incorporated herein by reference toour definitive proxy statement with respect to our 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year coveredby this report.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
ITEM 13. Certain Relationships and Related Transactions, and Director IndependenceInformation responsive to this item is incorporated herein by reference toour definitive proxy statement with respect to our 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year coveredby this report.
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
ITEM 14. Principal Accounting Fees and ServicesInformation responsive to this item is incorporated herein by reference toour definitive proxy statement with respect to our 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year coveredby this report.
Item 14. | Principal Accounting Fees and Services |
Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this report.
PART IV
Item 15. | Exhibits and Financial Statement Schedules |
ITEM 15. Exhibits and Financial Statement Schedules(a)
See “Item 8. Financial Statements and Supplementary Data─Data – Index to Consolidated Financial Statements” of Part II above and “Exhibit Index” below.
(b)
See “Exhibit Index” below.
ITEM 16. Form 10-K Summary
None.
EXHIBIT INDEX
Exhibit No. | | Description |
| | Restated Certificate of Incorporation of ACM Research, Inc.
|
| | (incorporated herein by reference to Exhibit 3.01 to the Current Report on Form 8-K filed on November 14, 2017) |
| | Certificate of Amendment to Restated Certificate of Incorporation of ACM Research, Inc., dated July 13, 2021 (incorporated herein by reference to Exhibit 3.01 to the Current Report filed on July 13, 2021) |
| | Restated Bylaws of ACM Research, Inc. (incorporated herein by reference to Exhibit 3.02 to the Current Report on Form 8-K filed on November 14, 2017) |
| | Senior Secured Promissory Note dated March 30, 2018 issued by Shengxin (Shanghai) Management Consulting Limited Partnership to ACM Research (Shanghai), Inc. (incorporated herein by reference to Exhibit 10.03 to the Quarterly Report on Form 10-Q filed on May 14, 2018) |
| | WarrantIntercompany Promissory Note dated March 14, 201730, 2018 issued by ACM Research (Shanghai), Inc. to ACM Research, Inc. (incorporated herein by reference to Exhibit 10.04 to the Quarterly Report on Form 10-Q filed on May 14, 2018) |
| | Warrant Exercise Agreement dated March 30, 2018 by and among ACM Research, Inc., ACM Research (Shanghai), Inc., and Shengxin (Shanghai) Management Consulting Limited Partnership (incorporated herein by reference to Exhibit 10.02 to the Quarterly Report on Form 10-Q filed on May 14, 2018) |
| | Warrant to Purchase Class A Common Stock issued to Shengxin (Shanghai) Management Consulting Limited Partnership dated July 29, 2020 (incorporated herein by reference to Exhibit 4.01 to the Quarterly Report on Form 10-Q filed on August 10, 2020) |
| | |
4.02# | | Form of Warrant dated November 2, 2017 issued to the underwritersDescription of ACM Research, Inc.'s initial public offering exercisable for an aggregate of 80,000 shares of Class A common stock
|
| | ’s Securities |
| | Lease dated March 22, 2017 between ACM Research, Inc. and D&J Construction, Inc. |
| | (incorporated herein by reference to Exhibit 10.01 to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Lease Amendment dated September 6, 2016February 28, 2018 between ACM Research, Inc. and D&J Construction, Inc. (incorporated herein by reference to Exhibit 10.06 to the Amended Quarterly Report on Form 10-Q/A filed on October 15, 2018) |
| | Lease Amendment dated February 4, 2019 between ACM Research, Inc. and D&J Construction, Inc. (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 8, 2019) |
| | Lease Amendment dated January 4, 2021 between ACM Research, Inc. and D&J Construction, Inc. |
| | Lease Agreement dated April 26, 2018 between ACM Research (Shanghai), Inc. and Shanghai Zhangjiang Group Co., Ltd. (incorporated herein by reference to Exhibit 10.01 to the Amended Quarterly Report on Form 10-Q/A filed on October 15, 2018) |
| | |
10.03# | | UnderwritingLease Agreement dated November 2, 2017January 18, 2018 between ACM Research (Shanghai), Inc. and Roth Capital Partners, LLC, as representative ofShanghai Shengyu Culture Development Co., Ltd. (incorporated herein by reference to Exhibit 10.05 to the several underwriters namedAmended Quarterly Report on Schedule I thereto
|
| | Form 10-Q/A filed on October 15, 2018) |
| | Securities Purchase Agreement dated March 14, 2017 by and among ACM Research, Inc., Shengxin (Shanghai) Management Consulting Limited Partnership and ACM Research (Shanghai), Inc. |
| | (incorporated herein by reference to Exhibit 10.03 to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Securities Purchase Agreement dated March 23, 2017 between ACM Research, Inc. and Shanghai Science and Technology Venture Capital Co., Ltd., as amended |
| | (incorporated herein by reference to Exhibit 10.04 to the Amended Registration Statement on Form S-1/A filed on October 18, 2017) |
| | Securities Purchase Agreement dated August 31, 2017 by and among ACM Research, Inc., Shanghai Pudong High-Tech Investment Co., Ltd. and Pudong Science and Technology (Cayman) Co., Ltd. |
| | |
| | Securities Purchase Agreement dated August 31, 2017 by and among ACM Research, Inc., Shanghai Zhangjiang Science & Technology Venture Capital Co., Ltd. and Zhangjiang AJ Company Limited |
| | |
| | Ordinary Share Purchase Agreement dated September 6, 2017 by and among ACM Research, Inc., Ninebell Co., Ltd. and Moon-Soo Choi (incorporated herein by reference to Exhibit 10.07 to the Amended Registration Statement on Form S-1/A filed on October 18, 2017) |
| | |
| | Class A Common Stock Purchase Agreement dated September 6, 2017 by and among ACM Research, Inc., Ninebell Co., Ltd. and Moon-Soo Choi |
| | |
| | Form of Second Amended and Restated Registration Rights Agreement to be entered into between ACM Research, Inc. and certain of its stockholders (incorporated herein by reference to Exhibit 10.09 to the Amended Registration Statement on Form S-1/A filed on October 18, 2017) |
| | Stock Purchase Agreement, dated October 11, 2017, by and among ACM Research, Inc., Xunxin (Shanghai) Capital Co., Limited, Xinxin (Hongkong) Capital Co., Limited and David H. Wang |
| | (incorporated herein by reference to Exhibit 10.10 to the Amended Registration Statement on Form S-1/A filed on October 18, 2017) |
| | Stock Purchase Agreement, dated October 16, 2017, by and between ACM Research, Inc. and Victorious Way Limited |
| | |
| | Nomination and Voting Agreement, dated October 11, 2017, by and among Xinxin (Hongkong) Capital Co., Limited, ACM Research, Inc., David H. Wang, and the individuals named therein |
| | (incorporated herein by reference to Exhibit 10.12 to the Amended Registration Statement on Form S-1/A filed on October 18, 2017) |
| | Termination Agreement between ACM Research, Inc. and Xinxin (Hongkong) Capital Co., Limited, dated as of May 18, 2021 (incorporated herein by reference to Exhibit 10.01 to the Current Report on Form 8-K filed on May 21, 2021) |
| | Voting Agreement, dated March 23, 2017, by and among Shanghai Technology Venture Capital Co., Ltd. (also known as Shanghai Science and Technology Venture Capital Co., Ltd.) and ACM Research, Inc. |
| | (incorporated herein by reference to Exhibit 10.13 to the Amended Registration Statement on Form S-1/A filed on October 18, 2017) |
| | Form of Capital Increase Agreement between ACM Research, Inc. and certain investors (incorporated herein by reference to Exhibit 10.01 to the Quarterly Report on Form 10-Q filed on August 12, 2019) |
| | Schedule identifying agreements substantially identical to the form of Capital Increase Agreement filed as Exhibit 10.12 hereto (incorporated herein by reference to Exhibit 10.01(a) to the Quarterly Report on Form 10-Q filed on August 12, 2019) |
| | Form of Agreement between ACM Research, Inc. and certain Investors (incorporated herein by reference to Exhibit 10.02 to the Quarterly Report on Form 10-Q filed on August 12, 2019) |
| | Schedule identifying agreements substantially identical to the form of Agreement filed as Exhibit 10.13 hereto (incorporated herein by reference to Exhibit 10.02(a) to the Quarterly Report on Form 10-Q filed on August 12, 2019) |
| | Partnership Agreement of Hefei Shixi Chanheng Integrated Circuit Industry Venture Capital Fund Partnership (LP) dated September 5, 2019 by and among Infotech National Emerging Industry Venture Investment Guidance Fund (LP), Hefei Guozheng Asset Management Co, Ltd., Hefei Economic and Technological Development Zone Industrial Investment Guidance Fund Co., Ltd., ACM Research (Shanghai), Inc., Hefei Tongyi Equity Investment Partnership (LP), Shenzen Waitan Technology Development Co., Ltd., and Beijing Shixi Qingliu Investment Co., Ltd. (incorporated herein by reference to Exhibit 10.03 to the Quarterly Report on Form 10-Q filed on November 13, 2019) |
| | 2016 Omnibus Incentive Plan of ACM Research, Inc. |
| | (incorporated herein by reference to Exhibit 10.01 to the Quarterly Report on Form 10-Q filed on December 8, 2017) |
| | Form of Incentive Stock Option Grant Notice and Agreement under 2016 Omnibus Incentive Plan |
| | (incorporated herein by reference to Exhibit 10.10(a) to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Form of Non-qualified Stock Option Grant Notice and Agreement under 2016 Omnibus Incentive Plan |
| | (incorporated herein by reference to Exhibit 10.10(b) to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Form of Restricted Stock Unit Grant Notice and Agreement under 2016 Omnibus Incentive Plan |
| | (incorporated herein by reference to Exhibit 10.10(c) to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Form of Nonstatutory Stock Option Agreement of ACM Research, Inc. |
| | (incorporated herein by reference to Exhibit 10.11 to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | 1998 Stock Option Plan of ACM Research, Inc. |
| | (incorporated herein by reference to Exhibit 10.12 to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Form of Incentive Stock Option Agreement under 1998 Stock Option Plan |
| | (incorporated herein by reference to Exhibit 10.12(a) to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Form of Non-statutory Stock Option Agreement under 1998 Stock Option Plan (incorporated herein by reference to Exhibit 10.12(b) to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | |
| | Form of Indemnification Agreement entered into between ACM Research, Inc. and certain of its directors and officers |
| | (incorporated herein by reference to Exhibit 10.13 to the Registration Statement on Form S-1 filed on September 13, 2017) |
| | Executive Retention AgreementLetter agreement dated November 14, 2016June 12, 2019 between ACM Research, Inc. and Min Xu |
| | Mark McKechnie (incorporated herein by reference to Exhibit 10.02 to the Current Report on Form 8-K filed on August 13, 2019) |
| | Line of CreditEmployment Agreement dated August 21,January 8, 2018 between ACM Research (Shanghai), Inc and Lisa Feng
|
| | Note Assignment and Cancellation Agreement dated April 30, 2020 by and among ACM Research, Inc., ACM Research (Shanghai), Inc. and Shengxin (Shanghai) Management Consulting Limited Partnership (incorporated herein by reference to Exhibit 10.02 to the Quarterly Report Form 10-Q filed on May 8, 2020) |
| | Share Transfer and Note Cancellation Agreement dated April 30, 2020 between ACM Research, Inc. and Shengxin (Shanghai) Management Consulting Limited Partnership (incorporated herein by reference to Exhibit 10.03 to the Quarterly Report on Form 10-Q filed on May 8, 2020) |
| | Amendment No. 1 to Share Transfer and Note Cancellation Agreement dated July 29, 2020 between ACM Research, Inc. and Shengxin (Shanghai) Management Consulting Limited Partnership (incorporated herein by reference to Exhibit 10.01 to the Quarterly Report on Form 10-Q filed on November 9, 2020) |
| | Grant Contract for State-owned Construction Land Use Right in Shanghai City (Category of R&D Headquarters and Industrial Projects) dated as of May 7, 2020 between ACM Research (Lingang), Inc. and China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration (incorporated herein by reference to Exhibit 10.01 to the Current Report on Form 8-K filed on May 13, 2020) |
| | Commitment Letter Regarding the Lock-up of Shares, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.01 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding Shareholding Intent and Intent to Reduce Shareholding, effective as of May 26, 2020, of ACM Research, Inc. and David H. Wang (incorporated herein by reference to Exhibit 10.02 to the Current Report to Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding the Plan and Binding Measures for Stabilizing the Stock Price of ACM Research (Shanghai), Inc. Within Three Years After Listing, effective as of May 26, 2020, of ACM Research, Inc., ACM Research (Shanghai), Inc., and certain individuals named therein (incorporated herein by reference to Exhibit 10.03 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding Fraudulent Issuance of Listed Shares, effective as of May 26, 2020, of ACM Research, Inc., ACM Research (Shanghai), Inc. and David H. Wang (incorporated herein by reference to Exhibit 10.04 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding the Lack of False Records, Misleading Statements or Major Omissions in the Preliminary Information Document, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.05 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding Making Up for Diluted Immediate Returns, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.06 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding Unfulfilled Commitment on Binding Measures, effective as of May 26, 2020, of ACM Research, Inc. and David H. Wang (incorporated herein by reference to Exhibit 10.07 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding the Avoidance of Competition in the Same Industry, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.08 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding the Standardization and Reduction of Related Transactions, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.09 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding the Avoidance of Funds Occupation and Illegal Guarantee, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.10 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Statement and Commitment Letter, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.11 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding Property Lease Matters, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.12 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding Social Insurance and Housing Provident Fund Matters, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.13 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Commitment Letter Regarding Foreign Exchange Matters, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.14 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Confirmation and Commitment Letter Regarding the Historical Evolution Related Matters Regarding ACM Research (Shanghai), Inc., effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.15 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Confirmation Letter, effective as of May 26, 2020, of ACM Research, Inc. (incorporated herein by reference to Exhibit 10.16 to the Current Report on Form 8-K filed on June 1, 2020) |
| | Qingdao Fortune-Tech Xinxing Capital Partnership (L.P.) Partnership Agreement, dated June 9, 2020, among China Fortune Tech Capital Co., Ltd., as general partner, and the several limited partners named therein, including ACM Research (Shanghai), Inc. (incorporated herein by reference to Exhibit 10.01 to the Current Report on Form 8-K filed on July 7, 2020) |
| | Supplementary Agreement to Partnership Agreement of Qingdao Fortune-Tech Xinxing Capital Partnership (L.P.), dated June 15, 2020, among China Fortune Tech Capital Co., Ltd., as general partner, and the several limited partners named therein, including ACM Research (Shanghai), Inc. (incorporated herein by reference to Exhibit 10.02 to the Current Report on Form 8-K filed on July 7, 2020) |
| | Adoption Agreement dated July 29, 2020 between ACM Research, Inc. and Shengxin (Shanghai) Management Consulting Limited Partnership (amending the Second Amended and Restated Registration Rights Agreement between ACM Research, Inc. and certain of its stockholders filed with the SEC on October 18, 2017 as Exhibit 10.09 to Amendment No. 1 to Registration Statement on Form S-1) (incorporated herein by reference to Exhibit 10.02 to the Quarterly Report on Form 10-Q filed on November 9, 2020) |
| | Form of Shanghai Public Rental Housing Overall Pre-Sale Contract (incorporated herein by reference to Exhibit 10.01 to the Current Report on Form 8-K filed on February 25, 2021) |
| | Schedule identifying agreements substantially identical to the form of Shanghai Public Rental Housing Overall Pre-Sale Contract filed as Exhibit 10.43 hereto (incorporated herein by reference to Exhibit 10.01(a) to the Current Report on Form 8-K filed on February 25, 2021) |
| | Loan and Mortgage Contract dated November 19, 2020 between China Merchants Bank Co., Ltd., Shanghai Pilot Free Trade Zone Lin-Gang Special Area Sub-branch and Shengwei Research (Shanghai), Inc. (incorporated herein by reference to Exhibit 10.02 to the Current Report on Form 8-K filed on February 25, 2021) |
| | Irrevocable Letter of Guarantee dated November 19, 2020 between China Merchants Bank Co., Ltd., Shanghai Pilot Free Trade Zone Lin-Gang Special Area Sub-branch and ACM Research (Shanghai), Inc. (incorporated herein by reference to Exhibit 10.03 to the Current Report on Form 8-K filed on February 25, 2021) |
| | Plant lease Contract dated as of February 1, 2021 between ACM Research (Shanghai), Inc. and Shanghai PudongShengyu Culture Development Zone Branch of Bank of China Limited |
| | |
| | Line of Credit Agreement dated August 21, 2017 between ACM Research (Shanghai), Inc. and Bank of Shanghai Co., Ltd. Pudong Branch |
| | (incorporated herein by reference to Exhibit 10.01 to the Quarterly Report on Form 10-Q filed on May 7, 2021) |
| | List of Subsidiaries of ACM Research, Inc. |
| | |
| | Consent of BDO China Shu Lan Pan Certified Public Accountants LLP |
| | |
31.01 | | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
31.02 | | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
32.01 | | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | |
101.INS | | Inline XBRL Instance Document |
| | (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101) |
# Previously filed.
+ Indicates management contract or compensatory plan.
+ | Indicates management contract or compensatory plan. |
‡ | Certain information in this exhibit was omitted by means of redacting a portion of the text and replacing it with [***] |
† | Unofficial English translation of original document prepared in Mandarin Chinese. |
* | Certain appendices have been omitted pursuant to Item 601(a)(5) of Regulation S-K. We hereby undertake to furnish copies of the omitted appendices upon request by the Securities and Exchange Commission, provided that we may request confidential treatment pursuant to Rule 24b‑2 of the Securities Exchange Act of 1934 for the appendices so furnished. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of March 22, 2018.1, 2021.
| ACM RESEARCH, INC. | |
| | | |
| By: | /s/ David H. Wang
| |
| | David H. Wang | |
| | Chief Executive Officer and President | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated onas of March 22, 2018:1, 2021:
Signature | | Title |
| | |
/s/ David H. Wang
| | |
David H. Wang | | | Chief Executive Officer, President and Director |
David H. Wang | | (Principal Executive Officer) |
| | |
/s/ Lisa Feng
Mark A. McKechnie | | |
Mark A. McKechnie | | | Interim Chief Financial Officer, Chief Executive Vice President and Treasurer(Principal Financial and Accounting Officer and Treasurer |
Lisa Feng | | (Principal Accounting Officer)
|
| | |
/s/ Haiping Dun
| | Director |
Haiping Dun | | Director |
| | |
/s/ Chenming Hu | | |
Chenming Hu | | Director |
| | |
/s/ Tracy Liu
| | Director |
Tracy Liu | | Director |
| | |
/s/ Yinan Xiang
| | |
Yinan Xiang | | Director |
Yinan Xiang
| | |