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Space Alternated Phase Shift, or SAPS, technology for flat and Timely Energized Bubble Oscillation, or TEBO, technologies. We developed our proprietary technologies to enable manufacturers to produce chips that reach their ultimate physical limitations while maintaining product yield, which is the percentage of chips on apatterned wafer ~~that meet manufacturing specifications.~~

~~Since 2007 we have focused our development efforts on developing single-wafer wet cleaning equipment based on differentiated proprietary technology:~~

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~~Our~~surfaces. Introduced in 2009, SAPS technology ~~which we introduced in 2009,~~ employs alternating phases of megasonic waves to deliver megasonic energy ~~to flat and patterned wafer surfaces~~ in a highly uniform manner on a microscopic level. We have shown SAPS technology to be more effective than conventional megasonic and jet spray technologies in removing random defects across an entire wafer as node sizes shrink from 300nm to ~~45nm, including node sizes, for which jet spray technology has proven to be ineffective.~~20nm and lower.

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~~Our~~Timely Energized Bubble Oscillation, or TEBO, technology ~~which we introduced~~for patterned wafer surfaces at advanced process nodes. Introduced in March 2016, TEBO technology has been developed to provide effective, damage-free cleaning for both conventional two-dimensional, or 2D, and three-dimensional, or 3D, patterned wafers at advanced process nodes. We have demonstrated the damage-free cleaning capabilities of TEBO technology on 3D patterned wafers for feature nodes as small as 16nm.

~~As of March 19, 2018, we had been issued more than 140 patents in the United States, the People’s Republic of China or the PRC, Japan, Korea, Singapore and Taiwan.~~

We seek to market our single-wafer wet processing equipment by first establishing a referenceable base of leading logic and memory chip makers, whose use of our products can influence decisions by other manufacturers. Our SAPS technology employs alternating phases of megasonic waves to deliver megasonic energy to flat and patterned wafer surfaces in a highly uniform manner on a microscopic level. We believe this process is helping us penetrate the mature integrated circuit manufacturing markets and build credibility with industry leaders. Since beginning to place evaluation SAPS equipment with a small number of selected customers in 2009, we have worked on equipment improvements and qualification with those customers, who include a leading Korean memory chip company and four leading PRC memory and logic chip foundries. Using a similar “demo-to-sales” process, we have placed TEBO evaluation equipment with a leading PRC foundry and a leading Taiwanese foundry and we recognized revenue from our initial sale of TEBO equipment in 2016. Our revenue from the selected customers’ purchases of single-wafer wet cleaning equipment totaled $19.3 million, or 53.2% of our revenue, in 2017 and $21.5 million, or 78.4% of our total revenue, in 2016.

In 2006 we established our operational center in Shanghai, and we currently conduct substantially all of our development and manufacturing activities in the PRC. Our Shanghai operations position us near potential customers in not only the PRC but also Taiwan, Korea and throughout Asia, giving us increased access to those customers and reducing shipping and manufacturing costs for equipment they purchase. We continue to perform strategic planning and marketing activities in our corporate headquarters in Fremont, California, and we intend to increase the personnel and functions at our Fremont headquarters as part of our plan to expand our market presence in North America and Europe.

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~~Industry Background~~

Semiconductors are the foundation of the exponential growth of digital technologies and applications. For more than thirty years, strong demand for personal computers, tablet computers, mobile phones and other digital products has fueled the growth of the semiconductor industry. Today the migration of computing, networking and storage to the cloud and the proliferation of “smart” appliances, buildings, cars and devices—the “Internet of Things”—are driving semiconductor development and manufacturing. IC Insights, Inc. (January 2018) estimates that worldwide semiconductor shipments grew from 103.7 billion units in 1987 to 986.2 billion units in 2017 and will increase at a rate of 9.0% to reach 1.1 trillion units in 2018.

~~Continuing Demand for Faster, Better, Cheaper Chips~~

New and enhanced digital applications and products have relied on the development and deployment of progressively faster and more powerful—but ever smaller and less costly—semiconductors known as integrated circuits, or chips. A chip is an array of transistors and other circuit elements built on a wafer of substrate material, typically silicon, with wiring and other interconnects that connect the circuit elements to each other and to outside devices. Chips store and manipulate data in binary form, with the two largest categories of integrated circuits being memory chips, for data storage and retrieval, and logic chips, for computer processing and control.

For a half century the number of transistors that can fit in a given area has roughly doubled every two years, a rate of improvement referred to as “Moore’s Law.” Chip feature sizes have been repeatedly scaled down to pack more transistors in smaller chips. The minimum line width on a chip, known as the node, shrank from 30,000nm in 1963 to 1,000nm in 1989, 90nm in 2003 and 14nm in 2014. A chip today may contain more than thirty billion transistors, with features finer than one ten-thousandth of the diameter of a human hair.

In recent years, however, the rate of chip improvement delivered solely by shrinking feature sizes has slowed. At the 22nm node, transistor and interconnect parameters for conventional chips, in which features are arrayed in 2D structures, begin to approach their critical performance limitations. For example, photolithography, a key chip manufacturing process that projects 193nm laser light through masks to print patterns on a wafer surface, may be unable to create patterning with sufficient resolution and selectivity. Moreover, the feature density and power levels of a 22nm chip may require additional circuit elements, such as special circuitry to correct errors or to track and adapt to performance variations, that occupy chip area and increase cost.

In order to extend Moore’s Law, chip designers and manufacturers are developing and implementing technologies and architectures to transition to advanced chips with 3D structures. Logic chip makers are rapidly adopting use of 3D, fin-shaped Fin Field Effect Transistors, or ~~FinFET, which provide faster switching while consuming less power. For memory chip manufacturers,~~ ~~3D NAND~~ ~~stacks memory cells to deliver greater capacity at lower cost and~~ ~~3D cross point, a transistor-less memory cell architecture, is being developed to accelerate processing of massive data sets.~~ ~~EUV lithography~~ is a promising manufacturing technology that could improve patterning capability and increase feature density at nodes of 5nm and beyond by extending photolithography to the extreme ultraviolet wavelength of 13.5nm.

~~Escalating Need for Advanced Chip Manufacturing Equipment~~

~~Manufacturing steps differ for logic and memory chips, but all chips are manufactured in two general processes:~~

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In the front-end fabrication process, hundreds of copies of functional circuitry are created on a 100–to 300–millimeter, or mm, silicon wafer over a period of 6 to 8 weeks. A sequence of a few hundred complex, repetitive steps forms transistors, other circuit elements and interconnects on the wafer through the deposit and selective removal of successive material layers, using ~~photolithography~~ ~~to create a design,~~ ~~deposition~~ ~~to add layers of materials,~~ ~~etching~~ ~~to remove unwanted exposed materials, and~~ ~~chemical mechanical planarization~~ or ~~CMP~~ ~~to smooth the surface for the next cycle of process steps.~~

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In the back-end assembly and testing process, a completed wafer from the front-end process is cut into individual “dies.” Each die is tested against specifications and, if compliant, encapsulated in a package that protects the die and supports critical power and electrical connections. The resulting chip is then subjected to final electrical and reliability tests.

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Manufacturing advanced chips at smaller nodes requires a more complex process flow that incorporates enhanced, more expensive capital equipment, or tools, to perform increasingly complex process steps, as well as an increased number of tools to perform a greater number of process steps per wafer. A chip fabrication plant, or fab, may have more than 500 highly specialized tools representing more than 70 categories of equipment, all situated in an environmentally controlled “clean room.” As a result, construction of a new advanced fab can cost between $5 and $10 billion (Semiconductor Industry Association/Nathan Associates, May 2016). Semiconductor Equipment and Materials International or SEMI (December 2017) estimates that worldwide fab tool billings totaled $57.0 billion in 2017 and will reach $63.0 billion by 2017, an increase of 10.5%.

Because of the significant capital expenditures and manufacturing expenses, chip makers focus on improving their yield, which is the percentage of chips on a wafer that conform to specifications. Even with use of precision tools in a controlled manufacturing environment, a substantial number of chips may contain defects and be rejected, directly impacting cost-per-chip and profitability. We estimate that a 1% decrease in yield can reduce annual profits by $30 to $50 million for a fab producing dynamic random-access memory, or DRAM, chips on 100,000 wafers per month—and a 1% yield loss may decrease profits even more for a fab making logic chips, which typically have higher prices. Moreover, lower yield may necessitate greater fab capacity, increasing capital expenditures.

New technologies and architectures introduced in transitioning to more advanced nodes can lead to significant yield loss. We believe chip manufacturers with state-of-the-art, established fabs for process nodes of 22nm or more typically target a yield of 90% or more, but yield can drop to as low as 50% when, for example, a manufacturer migrates to chips incorporating FinFET. To reduce yield loss, a manufacturer transitioning to a more advanced node must implement additional fabrication steps and new process capabilities, which in turn require innovative, reliable front-end tool solutions.

~~Growing Influence of the PRC Across the Semiconductor Industry~~

The PRC is both the largest and the fastest-growing market for semiconductors. According to a study by PricewaterhouseCoopers (November 2017), during the ten-year period ending in 2016, the PRC’s semiconductor consumption grew at a CAGR of 12.0% while worldwide consumption increased by only 3.2%, and in 2016 the PRC consumed 58.5% of the world’s semiconductors. 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. The PRC has already made significant progress across the principal semiconductor industry sectors, as shown in the following market information compiled by PricewaterhouseCoopers (September and November 2017):

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The chip design, or “fabless,” industry is the fastest growing segment of the PRC’s semiconductor industry, with revenue increasing from $2.3 billion in 2006 to $24.8 billion in 2016, a CAGR of 26.6%.

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China’s share of worldwide semiconductor manufacturing capacity expanded from 7.3% in 2006 to 14.2% in 2016, and its semiconductor manufacturing revenue increased at a CAGR of 15.4% over the ten-year period ending in 2016.

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~~China’s semiconductor packaging, assembly and test revenue also grew at a CAGR of 14.2% over the ten-year period ending in 2015.~~

The PRC’s semiconductor tools industry produced less than 0.5% of the world’s semiconductor manufacturing equipment in 2014 (International Trade Association of U.S. Department of Commerce, July 2016). The PRC’s governmental goals anticipate significant growth in all segments of the domestic semiconductor industry, however, and tool manufacturers with a Chinese presence should experience support from both upstream and downstream Chinese companies in the semiconductor supply chain.

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~~Emerging Criticality of Wafer Cleaning~~

In the chip fabrication process, random defects such as particles, residual chemicals and other contaminants can lead directly to yield loss by distorting images for pattern formation in a lithographic step, obstructing deposition of a film, blocking an etch or otherwise impairing chip performance. Random defects can originate from substrate material, tools, fab personnel, clean room air and nearly every other aspect of the manufacturing process. Shapes and sizes of random defects vary widely, and with each decrease in process node, the dimension of the smallest random defect that can cause a chip to fail, known as the “killer defect” size, shrinks.

Chip fabrication includes steps designed to eliminate random defects without collapsing patterns, causing loss of materials or otherwise damaging features. The number of these steps has increased dramatically with chip complexity. Cleaning is now the most frequently repeated step in chip fabrication and may be performed in as many as 200 steps for each wafer. A sub-optimal cleaning process has repeated opportunities to reduce yield by being either insufficiently forceful, which leaves random defects behind, or overly aggressive, which damages the chip. Over the past decade, fabricators seeking to improve cleaning performance have switched from batch processes, in which several wafers are processed at the same time, to single-wafer cleaning tools.

~~There are two basic types of cleaning methods.~~ ~~Wet cleaning~~ ~~uses liquid chemistry by applying combinations of solvents, acids and water to spray, scrub, etch and dissolve random defects.~~ ~~Dry cleaning~~ uses gas phase chemistry, relying on chemical reactions and techniques such as lasers, aerosols and ozonated chemistries. Wet cleaning typically outperforms dry cleaning in achieving wafer surface cleanliness and smoothness, and it is the standard method for single-wafer cleaning, constituting more than 90% of the cleaning steps in the fabrication process. RCA clean, a standardized process using hot alkaline and acidic hydrogen peroxide solutions, has been the industry standard for wet cleaning for a quarter century.

Wet cleaning’s chemistry has not changed appreciably over the past 25 years, but its implementation has shifted from simple immersion to increasingly sophisticated techniques such as jet spraying and megasonic vibration. Jet spray cleaning shoots high-velocity, tens of micron-sized water droplets at a wafer surface to remove random defects. Megasonic cleaning transmits acoustic waves through a fluid bath to produce, in a process known as transient cavitation, bubble oscillation that dislodges random defects. The cavitation can dislodge defects unreachable by jet spray, but the bubbles collapse quickly and can generate energy that damages wafer features.

As jet spray and megasonic cleaning techniques have continued to develop, chip makers have regularly upgraded from simple tanks with on-off switches to complex, specialized, expensive single-wafer cleaning tools.

~~Inadequacy of Traditional Single-Wafer Cleaning Technologies~~

At process nodes of 100nm or more, chips consisted of 2D features and architectures, which made wafer cleaning relatively straightforward. Cleaning was most commonly performed in batch processes using an immersion tool with megasonic energy. Megasonic vibrations transmit at relatively high frequencies and therefore create smaller bubbles that remove more-diminutive defects and that generate lower levels of destructive transient energy when they collapse.

As process nodes shrank below 100nm, equipment manufacturers introduced single-wafer megasonic cleaning tools, which processed wafers one by one, rather than in batches. Because these tools did not deliver energy uniformly across the wafer surface, manufacturers found the tools did not clean wafers thoroughly and evenly and, increasingly as process nodes continued to shrink, led to damage to patterned wafer structures. Equipment makers also began to offer single-wafer cleaning tools that used jet spraying rather than acoustic vibrations. The physical energyof jet spraying enabled these tools to be used with less assertive chemicals, which reduced wafer material loss. Once process nodes reach 45nm, however, the force of jet sprayed water droplets can damage finer chip features and jet spraying can fail to eliminate killer defect-sized contaminants due to its reduced lateral fluid speed as the fluid approaches the wafer surfaces.

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~~As process nodes continue to shrink to 22nm and less, finer feature sizes and denser, more complex architectures make the cleaning process even more complicated and challenging:~~

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Random defects are harder to remove as the killer defect size decreases. Smaller random defects are denser and bind to a wafer more strongly than larger contaminants, and additional energy is required to deliver greater levels of necessary force to more minuscule sizes.

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New 3D architectures are often more delicate or fragile than 2D conventional structures. FinFET structures, for example, are relatively tall, thin and deep, which makes them more susceptible to damage or destruction by the physical force of jet sprays and megasonic transient cavitation used in the cleaning process.

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New chip technologies and architectures amplify cleaning challenges. It is, for example, progressively more difficult to remove random defects from the bottom of a chip structure, such as a via, as the “aspect ratio” of the structure’s depth to its width increases. While conventional 2D structures typically have aspect ratios of 3-to-1 or less, FinFET structures have aspect ratios of 10-to-1 currently and are expected to have aspect ratios in excess of 20-to-1 for future process nodes. Moreover, aspect ratios for 3D NAND, 3D cross point and other 3D structures may reach 60-to-1.

Effective, damage-free cleaning poses a significant challenge for manufacturers seeking to fabricate chips in the advanced process nodes available today or introduced in the future, including the 10nm node announced for 2017 and the 7nm node announced for 2018. In order to extend Moore’s law, chip manufacturers must be able to remove ever smaller random defects from not only flat wafer surfaces but also progressively more intricate, finer-featured 3D chip architectures, in each case without incurring damage or material loss that curtails yield and profits. Because fabrication of chips at 22nm or less requires an increasingly complex, specialized process flow, a next-generation single-wafer cleaning tool solution should be designed to be easily tailored to meet a manufacturer’s unique process requirements. The single-wafer cleaning tools should produce less environmentally harmful chemical waste and should be easily accessible to manufacturers in the burgeoning Chinese market.

~~Our Solutions~~

We have developed single-wafer wet cleaning equipment that chip manufacturers can use in numerous steps of the fabrication process in order to avoid yield loss at existing and future process nodes. Using our proprietary technologies, we have designed our wet cleaning equipment to remove random defects from chip wafers with fine feature sizes, complex patterning, dense circuit architectures and high aspect ratios more effectively than traditional jet spray and transient megasonic technologies. Key elements of our solutions include:

~~Differentiated technologies for advanced chips~~. Our proprietary single-wafer wet cleaning technologies control the power intensity and distribution of megasonic cleaning in order to remove random defects from a wafer surface effectively, without damaging the wafer or its features, even at process nodes of 22nm or less. We developed these technologies to help semiconductor manufacturers produce chips that reach their ultimate physical limitations.

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~~Flat and patterned wafer surfaces.~~ Our SAPS technology, which we introduced in 2009, employs alternating phases of megasonic waves to deliver megasonic energy to flat and patterned wafer surfaces in a highly uniform manner on a microscopic level. We have shown SAPS technology to be more effective than conventional megasonic and jet spray technologies in removing random defects across an entire wafer as node sizes shrink from 300nm to 45nm, including node sizes less than 50nm in size, for which jet spray technology has proven to be ineffective. Based on their initial mass production experience with SAPS equipment, customers have increased their use of SAPS equipment by adding cleaning steps to the manufacturing processes for advanced chips in order to achieve higher yields and reduce chemical usage.

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~~High-aspect ratio conventional 2D and advanced 3D patterned wafer surfaces.~~ ~~Our TEBO technology, which we introduced in March 2016, has been developed to provide effective, damage-free cleaning for both conventional~~ 2D and 3D patterned wafers at advanced process nodes. TEBO technology provides multi-parameter control of bubble cavitation during megasonic cleaning by using a sequence of rapid pressure changes to force bubbles to oscillate at controlled sizes, shapes and temperatures. Because the bubbles oscillate instead of imploding or collapsing, TEBO technology avoids the pattern damage caused by transient cavitation in traditional megasonic cleaning processes.with fine feature sizes. We have demonstrated the damage-free cleaning capabilities of TEBO technology on patterned wafers for feature nodes as small as 1xnm (16nm to 19nm), and we have shown ~~that~~ TEBO technology can be applied in manufacturing processes for patterned chips with 3D architectures ~~such as FinFET, DRAM, 3D NAND and 3D cross point memory~~ having aspect ratios as high as 60-to-1. ~~We believe TEBO~~

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Tahoe technology ~~can be applied~~ for ~~even smaller process nodes. TEBO tools are currently being evaluated~~cost and environmental savings. Introduced in August 2018, Tahoe technology delivers high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is typically consumed by ~~a selected group of leading memory and logic chip manufacturers.~~conventional high-temperature single-wafer cleaning tools.

~~China-based operations~~. In 2006 we established our operational center in Shanghai, and currently we conduct substantially all of our development and manufacturing activities in the PRC. This strategy positions us near potential customers throughout Asia, giving us increased access to those customers and reducing shipping and manufacturing costs for equipment they purchase. SEMI (November 2016) estimates 78% of new front-end facilities and production lines starting operation from 2017 through 2020 will be constructed in Asia, with 42% expected to be built in the PRC. Our Shanghai location also gives us access to a large pool of highly qualified potential employees.

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~~Extensive intellectual property protection. Since our formation in 1998, we~~We have ~~focused on building a strategic portfolio of intellectual property to support and protect our key innovations, including most recently our SAPS and TEBO technologies. As of March 19, 2018, we had~~ been issued more than ~~140~~220 patents in the United States, the People’s Republic of China or PRC, Japan, Korea, Singapore and Taiwan.

~~Custom-made wafer assembly packaging solutions. In addition to~~We conduct substantially all of our product ~~offerings for single-wafer cleaning in the front-end wafer fabrication process, we leverage our technology~~development, manufacturing, support and expertise to provide a wide range of advanced packaging equipment, such as coaters, developers, photoresist strippers, scrubbers, wet etchers and copper-plating tools, to back-end wafer assembly and packaging factories, particularlyservices in the PRC. ~~For these offerings, we focus on providing customized equipment with competitive performance, service and pricing.~~

~~Our Strategy~~

Our objective is to be the leading global provider of a full range of wet cleaning equipment for the manufacture of advanced integrated circuits. To achieve this goal, we are pursuing the following strategies:

~~Extend technology leadership~~.~~We intend to build upon our technology leadership~~in wet processing by continuing to develop and refine our differentiated SAPS and TEBO technologies and equipment to address cleaning challenges presented by the manufacture of increasingly advanced chip nodes. Our investment in research and development totaled $5.1 million, or 14.1%All of our ~~revenue,~~tools are built to order at our manufacturing facilities in ~~2017 and $3.3 million, or 11.9%~~Shanghai, which encompass 86,000 square feet of ~~our revenue, in 2016. We will continue to invest in product development and to strengthen our global patent portfolio in strategic jurisdictions.~~

~~Establish referenceable customer base~~. In commercializing our SAPS equipment, we placed evaluation equipment with selected customers, who subsequently purchased additional SAPS equipment to enable them to add more cleaning steps during their manufacturing processes. Using a similar “demo-to-sales” process, we have placed TEBO evaluation equipment with a leading PRC foundry and a leading Taiwanese foundry and we recognized revenue from our initial sale of TEBO equipment in 2016. Based on our market experience, we believe that implementation of our SAPS and TEBO equipment by selected leading memory and logic chip manufacturers will encourage evaluation of our equipment by other manufacturers, who will view the leading companies’ implementation as a validation of our equipment that facilitates a shorter evaluation process.

~~Leverage local presence to address growing Chinese market. The market~~floor space for ~~semiconductor manufacturing equipment in the PRC is expected to grow markedly in the upcoming years.~~production capacity. Our experience has shown that chip manufacturers in the PRC and throughout Asia demand equipment meeting their specific technical requirements and prefer building relationships with local suppliers. We ~~established our operations in Shanghai a decade ago, and we~~ will continue to ~~work~~seek to leverage our local presence to address the growing market for semiconductor manufacturing equipment in the region by working closely with regional chip manufacturers ~~in the PRC and throughout Asia~~ to understand their specific requirements, encourage them to adopt our SAPS, TEBO and ~~TEBO~~Tahoe technologies, and enable us to design innovative products and solutions to address their needs.

~~Continue to improve performance through operational excellence.~~ We actively manage our business through principles of operational excellence designed to ensure continuous improvement of our key operational and financial metrics. As we increase the breadth of our product offerings and the size of our operations and customer base, we must continue to develop and implement these principles in order to improve the efficiency and quality of our operations, satisfy our customers’ needs, and meet our financial goals.

~~Pursue strategic acquisitions~~Our Technology and ~~relationships~~.To complement and accelerate our internal growth, we may pursue acquisitions of businesses, technologies, products or business relationships that will expand the functionality of our products, provide access to new markets or customers, or otherwise complement our existing operations. We also may seek to expand our product and service offerings by entering into business relationships involving additional distribution channels, investments in other enterprises and joint ventures, or similar arrangements. In September 2017, we acquired 20% of the outstanding equity of Ninebell, one of our key subassembly providers.

~~Our Products and Technologies~~Product Offerings

~~We develop, manufacture and sell~~Single Wafer Wet Cleaning Equipment for Front End Production Processes

Chip fabricators can use our single-wafer ~~wet cleaning equipment usable at~~wet-cleaning tools in numerous steps ~~of the chip manufacturing process flow~~ to improve product yield during the front-end production process, during which individual devices are patterned in the chip prior to being interconnected on the wafer. Based on our review of third-party reports and other information, we estimate that the global market for ~~conventional 2D~~single wafer wet cleaning tools will increase from $3.1 billion in 2018 to $4.3 billion in 2023, representing a compound annual growth rate of 6.8%. We estimate our Ultra-C SAPS, TEBO and ~~advanced 3D patterned chips at small process nodes.~~ Tahoe product offerings address approximately 50% of this market.

Our wet-cleaning equipment has been developed using our proprietary SAPS, TEBO and Tahoe technologies, which ~~we market and sell under the brand name “Ultra C,” is designed~~allow our tools to remove random defects from a wafer surface effectively, without damaging ~~the~~a wafer or its features, even at an increasingly advanced process ~~nodes.~~

~~After incorporating in 1998, we initially focused~~nodes (the minimum line widths on ~~developing tools for manufacturing process steps involving the integration~~a chip) of ultra-low-K materials and copper. Ultra-low-K materials, which insulate better than silicon, presented opportunities for size scaling and performance improvement, and higher conductivity copper had begun to replace aluminum in forming interconnects. Our early efforts focused in particular on stress-free copper-polishing technology, and we sold tools based on that technology in the early 2000s.

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In 2006 we established our operational center in Shanghai. This strategic decision was made to help us establish and build relationships with chip manufacturers in China and throughout Asia, which helps us to understand their requirements and to develop innovative technologies and tools addressing their needs.

~~In 2007 we began to focus our development efforts on single-wafer wet-cleaning solutions for the front-end fabrication process.~~22 nanometers, or nm, or less. We have developed innovative, proprietary technologies that reintroduce megasonic technology to the wafer cleaning process. Our approach is based on our understanding of the shortfalls and limitations of previously existing megasonic cleaning technologies that led to ineffective cleaning and damaged chip features. In 2009 we introduced our proprietary Space Alternated Phase Shift, or SAPS, megasonic technology, which can be applied in flat patterned wafer cleaning at numerous steps during the chip fabrication process. By delivering megasonic energy uniformly across a wafer, SAPS technology eliminates the particle removal inefficiencies that characterized traditional megasonic cleaning technologies. In March 2016 we introduced our proprietary Timely Energized Bubble Oscillation, or TEBO, technology, which can be applied at numerous steps during the fabrication of small node conventional 2D and 3D patterned wafers. By providing multi-parameter control of bubble cavitation during megasonic cleaning, TEBO technology avoids the fine-pattern damage caused by previously existing megasonic cleaning processes.

~~We have designed our equipment models for SAPS and TEBO solutions using~~use a modular configuration that enables us 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. Our modular approach supports a wide range of customer needs and facilitates the adaptation of our model tools for use with the optimal chemicals selected to meet a customer’s requirements. Our tools are offered principally for use in manufacturing chips from 300mm silicon wafers, but we also offer solutions for 150mm and 200mm wafers and for nonstandard substrates, including compound semiconductor, quartz, sapphire, glass, and ~~glass.~~plastics.

~~In addition to our~~ SAPS Technology, Applications and TEBO tool offerings, we offer a range of custom-made equipment, such as cleaners, coaters, developers, photoresist strippers, wet etchers and copper-plating tools, to back-end wafer assembly and packaging factories, principally in the PRC.Equipment

~~Space Alternated Phase Shift Cleaning~~

SAPS Technology

SAPS technology delivers megasonic energy uniformly to every point on an entire wafer by alternating phases of megasonic waves in the gap between a megasonic transducer and the wafer. Radicals for removing random defects are generated in dilute solution, and the radical generation is promoted by megasonic energy. Unlike “stationary” megasonic transducers used by conventional megasonic cleaning methods, SAPS technology moves or tilts a transducer while a wafer rotates, enabling megasonic energy to be delivered uniformly across all points on the wafer, even if the wafer is warped. The mechanical force of cavitations generated by megasonic energy enhances the mass transfer rate of dislodged random defects and improves particle removal efficiency.

By delivering megasonic energy in a highly uniform manner on a microscopic level, SAPS technology can precisely control the intensity of megasonic energy and can effectively remove random defects of all sizes across the entire wafer in less total cleaning time than conventional megasonic cleaning products, without loss of material or roughing of wafer surfaces. We have conducted trials demonstrating SAPS technology to be more effective than conventional megasonic and jet spray cleaning technologies as defect sizes shrink from 300nm to ~~45nm.~~20nm and below. These trials show that ~~SAPs~~SAPS technology has an even greater relative advantage over conventional jet spray technology ~~when~~for cleaning defects between 50 and 65nm in size, and ~~that SAPs technology continues~~we expect the relative benefits of SAPS will continue to ~~be effective for defects of sizes between 45 nm and 50nm, for which jet spray technology has proven to be ineffective.~~apply in cleaning even smaller defect sizes.

SAPS Applications

SAPS megasonic cleaning technology can be applied during the chip fabrication process to clean wafer surfaces and interconnects. It also can be used to clean, and lengthen the lifetime of recycled test wafers.

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Wafer Surfaces. SAPS technology can enhance removal of random defects following planarization and deposition, which are among the most important, and most repeated, steps in the fabrication process:

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Post CMP: Chemical mechanical planarization, or CMP, uses an abrasive chemical slurry following other fabrication processes, such as deposition and etching, in order to achieve a smooth wafer surface in preparation for subsequent processing steps. SAPS technology can be applied following each CMP process to remove residual random defects deposited or formed during CMP.

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Post Hard Mask Deposition: As part of the photolithographical patterning process, a mask is applied with each deposition of a material layer to prevent etching of material intended to be retained. Hard masks have been developed to etch high aspect-ratio features of advanced chips that traditional masks cannot tolerate. SAPS technology can be applied following each deposition step involving hard masks that use nitride, oxide or carbon based materials to achieve higher etch selectivity and resolution.

For these purposes, SAPS technology uses ~~environmentally friendly~~environmentally-friendly dilute chemicals, reducing chemical consumption. Chemical types include dilute solutions of chemicals used in RCA cleaning, such as dilute hydrofluoric acid and RCA SC-1 solutions, and, for higher quality wafer cleaning, functional de-ionized water produced by dissolving hydrogen,, nitrogen or carbon dioxide in water containing a small amount of chemicals, such as ammonia. Functional water removes random defects by generating radicals, and megasonic excitation can be used in conjunction with functional water to further increase the generation of radicals. Functional water has a lower cost and environmental impact than RCA solutions, and using functional water is more efficient in eliminating random defects than using dilute chemicals or de-ionized water alone. We have shown that SAPS megasonic technology using functional water exhibits high efficiency in removing random defects, especially particles smaller than 65nm, with minimal damage to structures.

Interconnects and Barrier ~~Metals.~~Metals. Each successive advanced process node has led to finer feature sizes of interconnects such as contacts, which form electrical pathways between a transistor and the first metal layer, and vias, which form electrical pathways between two metal layers. Advanced nodes have also resulted in higher aspect ratios for interconnect structures, with thinner, redesigned metal barriers being used to prevent diffusion. SAPS technology can improve the removal of residues and other random defects from interconnects during the chip fabrication process:

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Post Contact/Via Etch: Wet etching processes are commonly used to create patterns of high-density contacts and vias. SAPS technology can be applied after each such etching process to remove random defects that could otherwise lead to electrical shorts.

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Pre Barrier Metal Deposition: Copper wiring requires metal diffusion barriers at the top of via holes to prevent electrical leakage. SAPS technology can be applied prior to deposition of barrier metal to remove residual oxidized copper, which otherwise would adhere poorly to the barrier and impair performance.

For these applications, SAPS technology uses 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. These chemical solutions take the place of piranha solution, a high-temperature mixture of sulfuric acid and hydrogen peroxide used by conventional wet wafer cleaning processes. We have shown that SAPS technology exhibits greater efficiency in removing random defects, and lower levels of material loss, than conventional processes, and our chemical solutions are less expensive and more environmentally conscious than piranha solution.

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Recycled Test Wafers. In addition to using silicon wafers for chip production, chip manufacturers routinely process wafers through a limited portion of the front-end fabrication steps in order to evaluate the health, performance and reliability of those steps. Manufacturers also use wafers for non-product purposes such as inline monitoring. Wafers used for purposes other than manufacturing revenue products are known as test wafers, and it is typical for twenty to thirty percent of the wafers circulating in a fab to be test wafers. In light of the significant cost of wafers, manufacturers seek to re-use a test wafer for more than one test. As test wafers are recycled, surface roughness and other defects progressively impair the ability of a wafer to complete tests accurately. SAPS technology can be applied to reduce random defect levels of a recycled wafer, enabling the test wafer to be reclaimed for use in additional testing processes. For these purposes, SAPS technology includes improved fan filter units that balances intake and exhaust flows, precise temperature and concentration controls that ensure better handling of concentrated acid processes, and two-chemical recycle capability that reduces chemical consumption.

SAPS Equipment

We currently offer two models of wet wafer cleaning equipment based on our SAPS technology, Ultra C SAPS II and Ultra C SAPS V. Each of these models is a single-wafer, serial-processing tool that can be~~configured to customer specifications and, in conjunction with appropriate dilute~~

We currently offer two principal models of wet wafer cleaning equipment based on our SAPS technology, Ultra C SAPS II and Ultra C SAPS V. Each of these models is a single-wafer, serial-processing tool that can be configured to customer specifications and, in conjunction with appropriate dilute chemicals, used to remove random defects from wafer surfaces or interconnects and barrier metals as part of the chip front-end fabrication process or for ~~purposes of~~ recycling test wafers. By combining our megasonic and chemical cleaning technologies, we have designed these tools to remove random defects with greater efficacy and efficiency than conventional wafer cleaning processes, with enhanced process flexibility and reduced quantities of chemicals. Each of our SAPS models was initially built to meet specific requirements of a key customer. ~~We expect the~~The sales prices of our SAPS tools generally to range between $2.5 million and $5.0 million, although the sales price of a particular tool will vary depending upon the required specifications.

SAPS II ~~was released~~(released in ~~2011. Its key features~~2011). Highlights of our SAPS II equipment include:

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compact design, with footprint of 2.65m x 4.10m x 2.85m (WxDxH), requiring limited clean room floor space;

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●up to 8 chambers, providing throughput of up to 225 wafers per hour;

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●double-sided cleaning capability, with up to 5 cleaning chemicals for process flexibility;

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●2-chemical recycling capability for reduced chemical consumption;

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●image wafer detection method for lowering wafer breakage rates; and

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●chemical delivery module for delivery of dilute hydrofluoric acid, RCA SC-1 solution, functional de-ionized water and carbon dioxide to each of the chambers.

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SAPS V ~~which was released~~(released in ~~2014, offers increased productivity for chip manufacturers moving to advanced nodes.~~2014). SAPS V ~~provides all of the features and functionality of~~includes SAPS II ~~upgraded as follows:~~features with the following upgrades:

	● ●compact design, with footprint of 2.55m x 5.1m x 2.85m (WxDxH); ● up to 12 chambers, providing throughput of up to 375 wafers per hour; ● chemical supply system integrated into mainframe; ● inline mixing method replaces tank auto-changing, reducing process time; and ● improved drying technology using hot isopropyl alcohol and de-ionized water.

	TEBO Technology, Applications and Equipment

~~Timely Energized Bubble Oscillation Cleaning~~

TEBO Technology

We developed TEBO technology for application in wet wafer cleaning during the fabrication of ~~both conventional~~ 2D and 3D ~~patterned~~ wafers with fine feature sizes. TEBO technology facilitates effective cleaning even with patterned features too small or fragile to be addressed by conventional jet spray and megasonic cleaning technologies.

TEBO technology solves the problems created by transient cavitation in conventional megasonic cleaning processes. Cavitation is the formation of bubbles in a liquid, and transient cavitation is a process in which a bubble in fluid implodes or collapses. In conventional megasonic cleaning processes, megasonic energy forms bubbles and then causes those bubbles to implode or collapse, blasting destructive high-pressure, high-temperature micro jets toward the wafer surface. Our internal testing has confirmed that at any level of megasonic energy capable of removing random defects, the sonic energy and mechanical force generated by transient cavitation are sufficiently strong to damage fragile patterned structures with features less than 70nm.

TEBO technology provides multi-parameter control of cavitation by using a sequence of rapid changes in pressure to force a bubble in liquid to oscillate at controlled sizes, shapes and temperatures, rather than implode or collapse. As a result, cavitation remains stable during TEBO megasonic cleaning processes, and a chip fabricator can, using TEBO technology, apply the level of megasonic energy needed to remove random defects without incurring the pattern damage created by transient cavitation in conventional megasonic cleaning.

We have demonstrated the damage-free cleaning capabilities of TEBO technology on customers’ patterned wafers as small as 1xnm (16nm to 19nm), and we believe TEBO technology will be applicable in even smaller fabrication process nodes. TEBO technology can be applied in manufacturing processes for conventional 2D chips with fine features and advanced chips with 3D structures, including Fin Field Effect Transistors or FinFET, DRAM, 3D NAND and 3D cross point memory, ~~aswell as~~and we expect it will be applicable to other 3D architectures ~~that may be~~ developed in the future, such as carbon nanotubes and quantum devices. As a result of the thorough, controlled nature of TEBO processes, cleaning time for TEBO-based solutions may take longer than conventional megasonic cleaning processes. Conventional processes have proven ineffective, however, for process nodes of 20nm or less, and we believe the increased yield that can be achieved by using TEBO technology for nodes up to 70nm can more than offset the cost of the additional time in utilizing TEBO technology.

TEBO Applications

At process nodes of 28nm and less, chip makers face escalating challenges in eliminating nanometric particles and maintaining the condition of inside pattern surfaces. In order to maintain chip quality and avoid yield loss, cleaning technologies must control random defects of diminishing killer defect sizes, without roughing or otherwise damaging surfaces of transistors, interconnects or other wafer features. TEBO technology can be applied in numerous steps throughout the manufacturing process flow for effective, damage-free cleaning:

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Memory Chips: We estimate that TEBO technology can be applied in ~~up to a total of 47~~as many as 50 steps in the fabrication of a ~~dynamic random-access memory, or~~ DRAM chip, consisting of 8up to 10 steps in cleaning ISO structures, 1920 steps in cleaning buried gates, and 20 steps in cleaning high aspect-ratio storage nodes and stacked films.

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Logic Chips: In the fabrication process for a logic chip with a FinFET structure, we estimate that TEBO technology can be used in 15 or more cleaning steps.

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For purposes of solving inside pattern surface conditions for memory or logic chips, TEBO technology uses environmentally friendly dilute chemicals such as RCA SC-1 and hydrogen gas doped functional water.

TEBO Equipment

We currently offer two models of wet wafer cleaning equipment based on our TEBO technology, Ultra C TEBO II and Ultra C TEBO V. Each of these models is a single-wafer, serial-processing tool that can be configured to customer specifications and, in conjunction with appropriate dilute chemicals, used at numerous manufacturing processing steps for effective, damage-free cleaning of chips at process nodes 28nm or less. TEBO equipment solves the problem of pattern damage caused by transient cavitation in conventional jet spray and megasonic cleaning processes, providing better particle removal efficiency with limited material loss or roughing. TEBO equipment currently is being evaluated by a select group of leading memory and logic chip customers, some of which recently have indicated an intent to move to production. ~~We expect the~~The sales prices of our TEBO tools generally to range between $3.5 million and $6.5 million, although the sales price of a particular tool will vary depending upon the required specifications.

Each model of TEBO equipment includes:

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an equipment front-end module, or EFEM, which moves wafers from chamber to chamber;

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●one or more chamber modules, each equipped with a TEBO megasonic generator system;

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●an electrical module to provide power for the tool; and

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●a chemical delivery module.

Ultra C TEBO II ~~was released~~(released in ~~2016. Its key features include:~~
2016). Highlights:

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compact design, with footprint of 2.25m x 2.25m x 2.85m (WxDxH);

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up to 8 chambers with an upgraded transport system and optimized robotic scheduler, providing throughput of up to 300 wafers per hour;

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EFEM module consisting of 4 load ports, transfer robot and 1 process robot; and

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focus on dilute chemicals contributes to environmental sustainability and lower cost of ownership.

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Ultra C TEBO V ~~also was introduced~~(released in ~~2016, and its key features~~2016). Highlights of our Ultra C TEBO V equipment include:

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footprint of 2.45m x 5.30m x 2.85m (WxDxH);

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up to 12 chamber modules, providing throughput of up to 300 wafers per hour;

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EFEM module consisting of 4 load ports, 1 transfer robot and 1 process robot; and

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chemical delivery module for delivery of isopropyl alcohol, dilute hydrofluoric acid, RCA SC-1 solution, functional de-ionized water and carbon dioxide to each of the chambers.

~~Custom-Made Wafer~~Tahoe Overview

Our Ultra-C Tahoe wafer cleaning tool can deliver high cleaning performance using significantly less sulfuric acid and hydrogen peroxide than is typically consumed by conventional high-temperature single-wafer cleaning tools. During normal single-wafer cleaning processes, only a fraction of the acid reacts with the wafer surface, while the majority is wasted as acid spins off the wafer and cannot be recycled. In addition to providing cost savings resulting from vastly reduced acid consumption, Ultra-C Tahoe meets the needs of customers who face increased environmental regulations and demand new, more environmentally-friendly tools. We announced our first purchase order for an Ultra C Tahoe tool in August 2018, and we delivered the tool to a strategic customer in January of 2019.

Single-Wafer Tools for Back-End Assembly and Packaging ~~Equipment~~

We leverage our technology and expertise to provide a range of single-wafer tools for back-end wafer assembly and packaging ~~factories, principally in the PRC.~~factories. We develop, manufacture and sell a wide range of advanced packaging tools, such as coaters, developers, photoresist strippers, scrubbers, wet etchers and copper-plating tools. We focus on providing custom-made, differentiated equipment that incorporates customer-requested features at a competitive price. ~~The sales~~Selling prices for these tools ~~generally~~ range ~~between~~from approximately $500,000 ~~and $1.0 million, and these offerings generated $5.7 million, or 20.9%, of our revenue in 2016 and $4.2 million, or 13.5%, of our revenue in 2015.~~to more than $2 million.

For example, our Ultra C Coater is used in applying photoresist, a light-sensitive material used in photolithography to transfer a pattern from a mask onto a wafer. Coaters typically provide input and output elevators, shuttle systems and other devices to handle and transport wafers during the coating process. Unlike most coaters, the Ultra C Coater is fully automated. ~~In addition, based~~Based on requests from customers, we developed and incorporated the special function of chamber auto-clean module into the Ultra C Coater, which further differentiates it from other products in the market. The Ultra C Coater is designed to deliver improved throughput and more efficient tool utilization while eliminating particle generation.

Our other advanced packaging tools include: Ultra C Developer, which applies liquid developer to selected parts of photoresist to resolve an image; Ultra C PR Megasonic-Assisted Stripper, which removes photoresist; Ultra C Scrubber, which scrubs and cleans wafers; and Ultra C Thin Wafer Scrubber, which addresses a sub-market of cleaning very thin wafers for certain Asian assembly factories; and Ultra C Wet Etcher, which etches silicon wafers and copper and titanium interconnects.

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Our Customers

As of December 31, ~~2017, customers~~2018, chip fabricators had purchased and deployed more than ~~30 Ultra C SAPS and TEBO~~55 of our single-wafer wet cleaning tools. ~~All~~To date, all of our sales ~~in 2016 and 2017 were~~of single-wafer wet cleaning equipment for front-end manufacturing have been to customers located in Asia, and we anticipate that a substantial majority of our revenue from these products will continue to come from customers located in this region for the near future. We have increased our efforts to penetrate the markets in North America and Western Europe, and we believe we are well positioned to begin generating sales in those regions.

We generate most of our revenue from a limited number of customers as the result of our strategy of initially placing ~~SAPS - and TEBO-based~~single-wafer wet cleaning equipment with a small number of leading chip manufacturers that are driving technology trends and key capability implementation. In 2018, 85.7% of our revenue was derived from three customers: Yangtze Memory Technologies Co., Ltd., a leading PRC memory chip company, together with one of its subsidiaries, accounted for 38.8% of our revenue; Shanghai Huali Microelectronics Corporation, a leading PRC foundry, accounted for 23.6% of our revenue; and SK Hynix Inc., a leading Korean memory chip company, accounted for 23.3% of our revenue. In 2017, 55.2% of our revenue was derived from four customers: SK Hynix Inc.~~, a leading Korean memory chip company that~~ accounted for 18.1% of our revenue; Shanghai Integrated Circuit Research and Development Center Ltd., a public research consortia for the Chinese semiconductor industry, ~~that~~ accounted for 14.1% of our revenue; JiangYin ChangDian Advanced Packaging Co. Ltd., a leading PRC foundry, ~~that~~ accounted for 12.8% of our revenue; and Yangtze Memory Technologies Co., Ltd., ~~a leading PRC memory chip company that,~~ together with one of its subsidiaries, accounted ~~10.2% of our revenue. In 2016 99.3% of our revenue was derived from four customers: Shanghai Huali Microelectronics Corporation, a leading PRC foundry that accounted~~ for 33.7% of our revenue; Semiconductor Manufacturing International Corporation, a leading PRC foundry that accounted for 25.0% of our revenue; SK Hynix Inc. accounted for 24.0% of our revenue; and JiangYin ChangDian Advanced Packaging Co. Ltd., a leading PRC foundry that accounted for 16.6%10.2% of our revenue.

Based on our market experience, we believe that implementation of our single-wafer wet cleaning equipment by one of our selected ~~leading companies~~chip manufacturers will attract and encourage other manufacturers to evaluate our equipment, because the leading company’s implementation will serve as validation of our equipment and ~~will~~could enable the other manufacturers to shorten their evaluation processes. We placed our first ~~SAPS-based~~SAPS tool in 2009 as a prototype. We worked closely with the customer for two years in debugging and modifying the tool, and the customer then spent two more years of qualification and running pilot production before beginning volume manufacturing. Our revenue in 2015 included sales of ~~SAPS-based~~SAPS tools following the customer’s completion of its qualification process. We ~~expect~~believe that the period from new product introduction to high volume manufacturing ~~will be three years or less~~could range from one to several years.

For our back-end wafer assembly and packaging customers, we focus on providing custom-made, differentiated single wafer wet cleaning equipment that incorporates a customer’s requested features at a competitive price. Our primary customers of these products in 2018 included: Deca Technologies, a wafer-level interconnect foundry with headquarters in Arizona and manufacturing in the ~~future. Please see “Item 1A. Risk Factors—Risks Related to Our Business and Our Industry—We depend on~~Phillipines that is a ~~small number~~majority-owned, independent subsidiary of ~~customers for~~Cypress Semiconductor Corp.; JiangYin ChangDian Advanced Packaging Co. Ltd., a ~~substantial portion~~leading PRC foundry that is also one of the largest customers of our ~~revenue,~~front end of line equipment; Nantong Tongfu Microelectronics Co., Ltd., a PRC-based chip assembly and testing company that is a subsidiary of Nantong Fujitsu Microelectronics Co., Ltd.; and Wafer Works Corporation, a leading wafer supplier based in the loss of, or a significant reduction in orders from, one or more 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.”

Customers continue to establish joint ventures, alliances and licensing arrangements that have the potential to positively or negatively impact our competitive position and market opportunities. A material reduction in orders from our large customers could adversely affect our results of operations and projected financial condition. Our business depends upon the expenditures of semiconductor manufacturers. Semiconductor manufacturers’ businesses, in turn, depend on many factors, including their financial capability, the current and anticipated market demand for integrated circuits, the global economy and the availability of equipment capacity to support that demand.PRC.

Sales and Marketing

We market and sell our products worldwide using a combination of our direct sales force and third-party representatives. We employ direct sales teams in Asia, Europe and North America, and have located these teams near our customers, primarily in the PRC, Korea, Taiwan and the United States. Each sales person has specific local market expertise. We also employ field application engineers, who are typically co-located with our direct sales teams, to provide technical pre- and post-sale support tours and other assistance to existing and potential customers throughout the customers’ fab planning and production line qualification and fab expansion phases. Our field application engineers are organized by end markets as well as core competencies in hardware, control system, software and process development to support our customers.

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To supplement our direct sales teams, we have contacts with several independent sales representatives in the PRC, Taiwan and Korea. We select these independent representatives based on their ability to provide effective field sales, marketing forecast and technical support for our products. In the case of representatives, our customers place purchase orders with us directly rather than with the representatives.

Our sales have historically been made using purchase orders with agreed technical specifications. Our sales terms and conditions are generally consistent with industry practice, but may vary from customer to customer. We seek to obtain a purchase order ~~three~~two to four months ahead of the customer’s desired delivery date. For some customers, we receive a letter of intent three weeks ahead, followed by the corresponding purchase order five weeks ahead, of the customer’s desired delivery date. Consistent with industry practice, we allow customers to reschedule or cancel orders on relatively short notice. Because of our relatively short delivery period and our practice of permitting rescheduling or cancellation, we believe that backlog is not a reliable indicator of our future revenue.

Our marketing team focuses on our product strategy and technology road maps, product marketing, new product introduction processes, demand assessment and competitive analysis, customer requirement communication and public relations. Our marketing team also has the responsibility to conduct environmental scans, study industry trends and arrange our participation at major trade shows.

Manufacturing

All of our products are built to order at our ~~facility in Shanghai.~~Shanghai facilities. Our first manufacturing facility has a total of 36,000 square feet, with 8,000 square feet of class 10,000 clean room space for product assembly and testing, plus 800 square feet of class 1 clean room space for product demonstration purposes. The rest of the area is used for product sub-assembly, component inventory and manufacturing related offices. A class designation for a clean room denotes the number of particles of size 0.5mm or larger permitted per cubic foot of air. Our manufacturing facility is ISO-9000 certified, and we have implemented certain manufacturing science-based factory practices such as constraint management, statistical process control and failure mode and effect analysis methodology.

In ~~each~~September 2018, we began production at our second factory, located ten miles from our Shanghai headquarters. The new facility provides an additional 50,000 square feet of ~~2016 and 2017, we sourced approximately one-third~~floor space for production capacity. We plan to shift an increasing portion of ~~the parts and components ($8.0 million in 2016 and $10.8M in 2017) for~~ our ~~products from Chinese suppliers and the remaining parts and components were sourced from suppliers in the United States and,~~future production to ~~a lesser extent, Japan and Korea~~this factory based on its modernized capabilities.

We purchase some of the components and assemblies that we include in our products from single source suppliers. We believe that we could obtain and qualify alternative sources to supply these components. Nevertheless, any prolonged inability to obtain these components could have an adverse effect on our operating results and could unfavorably impact our customer relationships. Please see “Item 1A. Risk Factors—Risks Related to Our Business and Our Industry—We depend on a limited number of suppliers, including single source suppliers, for critical components and assemblies, and our business could be disrupted if they are unable to meet our needs.”

Research and Development

We believe that our success depends in part on our ability to develop and deliver breakthrough technologies and capabilities to meet our customers’ ever-more challenging technical requirements. For this reason, we devote significant financial and personnel resources to research and development. Our research and development team is comprised of highly skilled engineers and technologists with extensive experience in megasonic technology, cleaning processes and chemistry, mechanical design, and control system design. ~~As of December 31, 2017, approximately half of our research and development personnel hold advanced technical degrees.~~ To supplement our internal expertise, we also ~~collaborate~~collaborated with external research and development entities such as International SEMATECH, a global consortium of computer chip manufacturers, on specific areas of interests and retain, as technical advisors, several experts in semiconductor technology.

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For the foreseeable future we are focusing on enhancing our ~~existing~~ Ultra C SAPS, TEBO and ~~TEBO~~Tahoe tools and integrating additional capabilities to meet and anticipate requirements from our existing and potential customers. Our particular areas of focus include development of the following:

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new cleaning steps for Ultra C SAPS cleaners for application in logic chips and for DRAM, 3D NAND and 3D cross point memory technologies;

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new cleaning steps for Ultra C TEBO cleaners for FinFET in logic chips, gates in DRAM, and deep vias in both 3D NAND and 3D cross point memory technologies;

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new hardware, including new system platforms, new and additional chamber structures and new chemical blending systems; and

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new software to integrate new functionalities to improve tool performance.

Longer term, we are working on new proprietary process capabilities based on our existing tool hardware platforms. We are also working to integrate our tools with third-party tools in adjacent process areas in the chip manufacturing flow. Without reduction by grant amounts received from PRC governmental authorities (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Components of Results of Operations—PRC Government Research and Development Funding”), our grossOur research and development expense totaled ~~$8.6~~$10.4 million, or ~~23.4%~~13.9% of revenue in ~~2017~~2018 and ~~$9.5~~$5.1 million, or ~~34.7%~~14.1% of revenue in ~~2016.~~2017. We intend to continue to invest in research and development to support and enhance our existing cleaning products and to develop future product offerings to build and maintain our technology leadership position.

Intellectual Property

Our success and future revenue growth depend, in part, on our ability to protect our intellectual property. We control access to and use of our proprietary technologies, software and other confidential information through the use of internal and external controls, including contractual protections with employees, consultants, advisors, customers, partners and suppliers. We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality procedures, to protect our proprietary technologies and processes. All employees and consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship.

We have aggressively pursued intellectual property since our founding in 1998. We focus our patent efforts in the United States, and, when justified by cost and strategic importance, we file corresponding foreign patent applications in strategic jurisdictions such as the European Union, the PRC, Japan, Korea, Singapore, and Taiwan. Our patent strategy is designed to provide a balance between the need for coverage in our strategic markets and the need to maintain costs at a reasonable level.

As of December 31, ~~2017,~~2018, we had 20 issued patents, and ~~numerous~~20 patents pending, ~~applications~~ in the United States. These patents carry expiration dates from ~~2018~~2022 through ~~2027.~~2038. Many of the US patents and applications have also been filed internationally, in one or more of the European Union, PRC, Japan, Korea, Singapore and Taiwan.

Specifically, we own patents in wafer cleaning, electro-polishing and plating, wafer preparation, and other semiconductor processing technologies. We have been issued more than 220 patents in the United States, the People’s Republic of China or PRC, Japan, Korea, Singapore and Taiwan.

We currently manufacture advanced single-wafer cleaning systems equipped with our SAPS, TEBO and ~~TEBO~~Tahoe technologies. Our wafer cleaning technologies are protected by US Patent Numbers 8580042, 8671961, 9070723 and 9281177, as well as their corresponding international patents. We have 2231 patents granted internationally protecting our SAPS technologies. We also have filed ~~four~~9 international patent applications for key TEBO technologies, and 2 for Tahoe, in accordance with the Patent Cooperation Treaty, in anticipation of filing in the U.S. national phase.

In addition to the above core technologies, we have patents reflecting innovations in other aspects of wafer cleaning systems, such as cleaning solution recycling and wafer holding and positioning. During a wafer cleaning cycle, multiple cleaning solutions may be sequentially used. Our cleaning solution recycling technology prevents cross-contamination and allows recycling of the cleaning solutions. These innovations are protected by US Patent Numbers 6248222, 6495007, 6749728, 6726823, 6447668 and 7136173, as well as their corresponding international patents.

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~~We have~~ technologies for stress-free polishing, or SFP, and electrochemical plating, or ECP, that are used in certain of our tools. SFP is an integral part of the ~~CMP~~electro polishing process. Our technology was a breakthrough in electro-chemical-copper-planarization technology when it was first introduced, because it can polish, stress-free, ~~oxidizing tantalum barrier~~copper layers used in copper low-K interconnects. Our innovations in SFP and ECP are reflected in US Patent Numbers ~~6395152, 6837984, 6440295,~~ 6638863 ~~6391166~~ and 8518224, and their corresponding international counterparts.

We also have technologies in other semiconductor processing areas, such as wafer preparation and some specific processing steps. The wafer preparation technology is covered by US Patent Numbers 8383429 and 9295167. The specific processing steps ~~include US Patent Number 7119008 titled “Integrating metal layers with ultra-low-K dielectrics,” and~~includes US Patent Number 8598039 titled “Barrier layer removal method and apparatus.”

To date we have not granted licenses to third parties under the patents described above. Not all of these patents have been implemented in products. We may enter into licensing or cross-licensing arrangements with other companies in the future.

We cannot assure you that any patents will issue from any of our pending applications. Any rights granted under any of our existing or future patents may not provide meaningful protection or any commercial advantage to us. With respect to our other proprietary rights, it may be possible for third parties to copy or otherwise obtain and use our proprietary technology or marks without authorization or to develop similar technology independently.

The semiconductor equipment industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which have resulted in often protracted and expensive litigation. We may in the future initiate claims or litigation against third parties to determine the validity and scope of proprietary rights of others. In addition, we may in the future initiate litigation to enforce our intellectual property rights or the rights of our customers or to protect our trade secrets.

Our customers could become the target of litigation relating to the patent or other intellectual property rights of others. This could trigger technical support and indemnification obligations in some of our customer agreements. These obligations could result in substantial expenses, including the payment by us of costs and damages related to claims of patent infringement. In addition to the time and expense required for us to provide support or indemnification to our customers, any such litigation could disrupt the businesses of our customers, which in turn could hurt our relations with our customers and cause the sale of our products to decrease. We do not have any insurance coverage for intellectual property infringement claims for which we may be obligated to provide indemnification.

Additional information about the risks relating to our intellectual property is provided under “Item 1A. Risk Factors—Risks Relating to Our Intellectual Property.”

Competition

The chip equipment industry is characterized by rapid change and is highly competitive throughout the world. We compete with semiconductor equipment companies located around the world, and we may also face competition from new and emerging companies, including new competitors from the PRC. We consider our principal competitors to be those companies that provide single-wafer cleaning products to the market, including ~~Lam Research Corp., DNS Electronics LLC, Tokyo Electron Ltd., SEMES Co. Ltd., Mujin Electronics Co., Ltd. and~~ Beijing Sevenstar Science & Technology Co., Ltd.

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, DNS Electronics LLC, Lam Research Corp., Mujin Electronics Co., Ltd., SEMES Co. Ltd. and Tokyo Electron Ltd.

Compared to our company, our current and potential competitors may have:

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better established credibility and market reputations, longer operating histories, and broader product offerings;

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significantly greater financial, technical, marketing and other resources, which may allow them to pursue design, development, manufacturing, sales, marketing, distribution and service support of their products;

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more extensive customer and partner relationships, which may position them to identify and respond more successfully to market developments and changes in customer demands; and

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multiple product offerings, which may enable them to offer bundled discounts for customers purchasing multiple products or other incentives that we cannot match or offer.

The principal competitive factors in our market include:

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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;

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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 fabricate~~began fabricating chips for the 10nm node ~~beginning~~ in 2017 and the 7nm node ~~commencing~~ in 2018, and we have one customer that currently is evaluating implementation of our equipment ~~for both the 10nm and 7nm~~at these nodes. 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 ~~TEBO~~Tahoe 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.~~

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Employees

As of December 31, ~~2017,~~2018, we had ~~191~~273 full-time equivalent employees, of whom 22 were in administration, 5084 were in manufacturing, 8096 were in research and development, and 3971 were in sales and marketing and customer services. Of these employees, ~~183~~253 were located in the ~~PRC, 4~~mainland China and Taiwan, 17 were located in Korea and 43 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.

I~~tem~~Available Information

We are required to file annual, quarterly and current reports, proxy statements and other information with 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.americanrenal.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.

Investors should note that we currently 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.

Item 1A.

Risk Factors

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.

Risks Related to Our Business and Our Industry

We have incurred significant losses since our inception and we are uncertain about our future profitability.

We have incurred significant losses since our inception in 1998, and as of December 31, ~~2017~~2018 we had an accumulated deficit of ~~$10.0~~$3.4 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~~$74.6 million in ~~2016~~2018 and $36.5 million in 2017. ~~Our revenue was not sufficient to cover our operating expenses prior to 2015, and our~~In 2018 we generated net income ~~decreased~~of $6.6 million, as compared 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~~$872,000 in ~~2016.~~2017. 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.~~equipment. 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 and Tahoe 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.

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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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our sales growth;

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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.

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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 and ~~TEBO~~Tahoe 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 ~~TEBO~~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 and ~~TEBO~~Tahoe 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, TEBO and ~~TEBO~~Tahoe 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.

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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 and ~~TEBO~~Tahoe 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.

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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~~most of our revenue from ~~the sale~~a limited number of customers. In 2018, 85.7% of our ~~products to~~revenue was derived from three customers: Yangtze Memory Technologies Co., Ltd., a ~~small number~~leading PRC memory chip company, together with one of ~~customers.~~its subsidiaries, accounted for 38.8% of our revenue; Shanghai Huali Microelectronics Corporation, a leading PRC foundry, accounted for 23.6% of our revenue; and SK Hynix Inc., a leading Korean memory chip company, accounted for 23.3% of our revenue. In 2017, 55.2% of our revenue was derived from four customers: SK Hynix Inc., accounted for 18.1%; of our revenue; Shanghai Integrated Circuit Research and Development Center Ltd., a public research consortia for the Chinese semiconductor industry, accounted for 14.1%; of our revenue; JiangYin ChangDian Advanced Packaging Co. Ltd., a leading PRC foundry, accounted for 12.8% of our revenue; and Yangtze Memory Technologies Co., ~~Ltd,~~Ltd., together with one of its subsidiaries, accounted for 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%. revenue.

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.

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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 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 $1.0 to ~~$2.0~~$4.0 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~~deliver evaluation equipment, or a ~~first-time sale,~~“first tool,” we may not recognize revenue or receive payment for ~~up to~~the tool for 24 ~~months.~~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:

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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.

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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.

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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~~As of December 31, 2018, we ~~have not~~had accrued ~~a significant~~$1.7 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. 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.

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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, 2014 and ~~2014.~~2018. 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, TEBO and ~~TEBO.~~Tahoe. 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%~~28% during ~~2016~~2017 and by an additional ~~28.1%~~35% during ~~2017.~~2018. 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,~~Officer, 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.

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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,~~2018, we had net operating loss carryforward amounts, or NOLs, of ~~$20.1~~$17 million for U.S. federal income tax purposes and ~~$536,000~~$714,000 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.

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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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restructuring charges;

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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~~2017 and ~~2017~~2018 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~~principally the Chinese ~~Renminbi.~~Renminbi and, to a lesser extent, the 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.

Changes in government trade policies could limit the demand for our tools and increase the cost of our tools or adversely impact our supply chain.

General trade tensions between the U.S. and PRC escalated in 2018. In each of July, August and September 2018, 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 three 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.

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.

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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.

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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~~In connection with the audit of our consolidated financial statements for 2017, 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~~even after remediation, 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,~~During the nine months ended September 30, 2018, 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,took 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~~which our management considered, as of September 30, 2018, to ~~identify a qualified candidate to succeed our former Chief Financial Officer whose employment terminated effective January 24, 2018.~~
have fully remediated the identified material weakness.

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~~2018 and ~~2016.~~2017. 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.

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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 Relating to Our Intellectual Property

Our success depends on our ability to protect our intellectual property, including our SAPS, TEBO and ~~TEBO~~Tahoe 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 and ~~TEBO~~Tahoe 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.

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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 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.

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.

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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 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;

●

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

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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, our 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. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

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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 use of the net proceeds from our initial public offering and the concurrent private placement, and we may not succeed in using those net proceeds effectively.~~

In November 2017 we issued and sold 2,233,000 shares of Class A common stock in our initial public offering, or IPO, and an additional 1,333,334 shares of Class A common stock in a private placement, which we refer to as the concurrent private placement. We cannot specify with any certainty the particular uses of the net proceeds that we received from the IPO and the concurrent private placement. Our management has broad discretion in the application of these net proceeds, including working capital and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds in a manner that does not produce income or that loses value.

If securities or industry analysts do not publish research or reports about us, our business or our market, or if they publish negative evaluations of Class A common stock or the stock of other companies in our industry, the price of our stock and trading volume could decline.

The trading market for Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade the Class A common stock or publish inaccurate or unfavorable research about our business, the Class A common stock price would likely decline. In addition, if one or more of these analysts ceases coverage of the Class A common stock or fails to publish reports about the Class A common stock on a regular basis, we could lose visibility in the financial markets, which in turn could cause the Class A common stock price or trading volume to decline.

Requirements associated with being a public reporting company ~~will increase our~~involve significant ongoing costs ~~significantly, as well as~~and can divert significant company resources and management attention.

We are subject to the reporting requirements of the Securities Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other rules and regulations of the SEC. We are working with our legal, independent accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public reporting company. These areas include corporate governance, corporate control, disclosure controls and procedures, and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. Compliance with the various reporting and other requirements applicable to public reporting companies will require considerable time, attention of management and financial resources. In addition, the changes we make may not be sufficient to allow us to satisfy our obligations as a public reporting company on a timely basis.

The listing requirements of Nasdaq require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements. The reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve as our directors or executive officers, or to obtain certain types of insurance, including director and officer liability insurance, on acceptable terms.

We have never paid and do not intend to pay cash dividends and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of Class A common stock.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Accordingly, you may only receive a return on your investment in Class A common stock if the market price of Class A common stock increases.

Our ability to pay dividends on Class A common stock depends significantly on our receiving distributions of funds from our subsidiaries in the PRC. PRC statutory laws and regulations permit payments of dividends by those subsidiaries only out of their 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 our subsidiaries’ 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 our subsidiaries’ ability to transfer a portion of their net assets to us. In addition, our subsidiaries’ short-term bank loans restrict their ability to pay dividends to us.

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The dual class structure of Class A common stock has the effect of concentrating voting control with our executive officers and directors, including our Chief Executive Officer and President, which will limit or preclude your ability to influence corporate matters.

Class B common stock has twenty votes per share and Class A common stock has one vote per share. As of March ~~19, 2018,~~8, 2019, stockholders who hold shares of Class B common stock, who consist principally of our executive officers, employees, directors and their respective affiliates, collectively held ~~78.8%~~72.8% of the voting power of our outstanding capital stock. Because of the twenty-to-one voting ratio between Class B and Class A common stock, holders of Class B common stock collectively will continue to control a majority of the combined voting power of Class A common stock and therefore be able to control all matters submitted to our stockholders for approval so long as the shares of Class B common stock represent at least 4.8% of all outstanding shares of Class A and Class B common stock. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future. This concentrated control could also discourage a potential investor from acquiring Class A common stock due to the limited voting power of such stock relative to the Class B common stock and might harm the market price of Class A common stock.

Future transfers by holders of Class B common stock will result in those shares converting to Class A common stock, subject to limited exceptions. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.

~~Substantial future sales of shares by existing stockholders, or the perception that such sales may occur, could cause our stock price to decline.~~

If our existing stockholders, particularly our directors and executive officers, sell substantial amounts of Class A common stock in the public market, or are perceived by the public market as intending to sell substantial numbers of shares of Class A common stock, the trading price of Class A common stock could decline below the initial public offering price. As of March 19, 2018, only the shares of Class A common stock sold in the IPO and an additional 113,984 shares not subject to lock-up agreements were freely tradable in the public market. Holders of substantially all of the outstanding shares of Class A common stock, including all of our officers and directors, have entered into contractual lock-up agreements with the underwriters of the IPO pursuant to which they have agreed, subject to certain exceptions, not to sell or otherwise transfer any of their common stock or securities convertible into or exchangeable for shares of common stock until May 2, 2018. We and the lead underwriter in the IPO may, however, permit these holders to sell shares prior to the expiration of the lock-up agreements with the underwriters. On May 2, 2018, up to 13,169,506 shares of Class A common stock will be eligible for sale in the public market, including 9,600,558 shares held by directors, executive officers and other affiliates that will be subject to volume and other limitations under Rule 144 under the Securities Act.

Delaware law and provisions in our ~~restated~~ charter and bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of Class A common stock.

Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. Our ~~restated~~ charter and bylaws contain provisions that may make the acquisition of our company more difficult, including the following:

●

our dual class common stock structure provides holders of Class B common stock with the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the total number of outstanding shares of Class A and Class B common stock;

●

when the outstanding shares of Class B common stock represent less than a majority of the combined voting power of common ~~stock:~~stock;

●

amendments to our ~~restated~~ charter or bylaws will require the approval of two-thirds of the combined vote of our then-outstanding shares of Class A and Class B common stock;

●

vacancies on the board of directors will be able to be filled only by the board and not by stockholders;

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the board, which currently is not staggered, will be automatically separated into three classes with staggered three-year terms;

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●

directors will only be able to be removed from office for cause; and

●

our stockholders will only be able to take action at a meeting and not by written consent;

●

only our chair, our chief executive officer or a majority of our directors is authorized to call a special meeting of stockholders;

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advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders;

●

our ~~restated~~ charter authorizes undesignated preferred stock, the terms of which may be established, and shares of which may be issued, without stockholder approval; and

●

cumulative voting in the election of directors is prohibited.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders holding more than 15% of our outstanding voting stock from engaging in certain business combinations with us. Any provision of our charter or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of Class A common stock, and could also affect the price that some investors are willing to pay for Class A common stock.

Our ~~restated~~ charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders.

Our ~~restated~~ charter provides that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for:

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any derivative action or proceeding brought on our behalf;

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any action asserting a claim of breach of a fiduciary duty owed to us, our stockholders, creditors or other constituents by any of our directors, officers, other employees, agents or stockholders;

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any action asserting a claim arising under the Delaware General Corporation Law, our charter or bylaws, or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware; or

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any action asserting a claim that is governed by the internal affairs doctrine.

By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our ~~restated~~ charter related to choice of forum. The choice of forum provision in our ~~restated~~ charter may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers, other employees, agents or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our ~~restated~~ charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.

Our management team has limited experience managing a public company.

~~Prior to the IPO, none~~The experience of the current members of our management team ~~had experience~~in managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public ~~companies.~~companies is limited to their experience with our company since our initial public offering in November 2017. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could materially adversely affect our business, financial condition and operating results.

We are currently an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make Class A common stock less attractive to investors.

We are currently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and not being required to comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements. We cannot predict whether investors will find the Class A common stock less attractive if we rely on these exemptions. If some investors find the Class A common stock less attractive as a result, there may be a less active trading market, and more volatile trading price, for Class A common stock.

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We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, particularly after we are no longer an “emerging growth company,” which could adversely affect our business, operating results and financial condition.

As a public company, and particularly after we cease to be an “emerging growth company,” we will continue to incur significant legal, accounting and other expenses. We are subject to the reporting requirements of the Securities and Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations of Nasdaq. These requirements have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to maintain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve as our executive officers or on the board of directors, particularly to serve on the audit and compensation committees.

The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, beginning with respect to the year ending December 31, 2018, Section 404 of the Sarbanes-Oxley Act, or Section 404, will require our management to perform system and process evaluation and testing to allow it to report on the effectiveness of our internal control over financial reporting.

We are currently evaluating our internal controls, identifying and remediating deficiencies in those internal controls and documenting the results of our evaluation, testing and remediation. Please see “—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.”

Investor perceptions of our company may suffer if deficiencies are found, which could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

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Item 2: Properties

I~~tem 1B: Unresolved Staff Comments~~

~~None.~~

I~~tem 2: Properties~~

We have occupied our current corporate headquarters in Fremont, California, since February 2008, under a lease that, as amended in ~~March 2017,~~February 2019, extends through March ~~2019.~~ 2021.

We conduct ~~our~~ research and development, ~~and manufacturing and~~ service support operations, and a portion of manufacturing in aour ACM Shanghai headquarters. This facility consists of ~~approximately~~ 60,000 square feet, of which 36,000 square feet are allocated for manufacturing, and is ~~dedicated to manufacturing,~~ located in the Zhangjiang ~~Hi~~Hi Tech Park in ~~Shanghai, PRC.~~Shanghai. We have leased this facility since 2007. The lease terms and its payment terms are subject to modification and extension with Zhangjiang Group from time to time. We extended the lease for a 60-month term from January 1, 2018 until January 1, 2022.

In January 2018, ACM Shanghai entered into an operating lease for a second manufacturing space located in Shanghai, ten miles from its headquarters. The lease ~~with Zhangjiang Group expired~~covers a total of 103,318 square feet, of which 50,000 square feet are allocated for production. The lease term is five years and expires 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.~~ January 15, 2022.

In addition, we provide sales support and customer service operations from leased office space in Jiangying ~~PRC,~~and Wuxi in the PRC, and Icheon in Korea.

I~~tem~~Item 3: Legal Proceedings

From time to time we may become involved in legal proceedings or may be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

I~~tem 4: Mine Safety Disclosures~~

~~Not applicable.~~

P~~ART II~~

I~~tem 5:~~

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Information Regarding the Trading of Common Stock

The Class A common stock has traded on NASDAQ Global Market under the symbol “ACMR” since November 3, 2017.Prior to that time, there was no public market for the Class A common stock. ~~The table below lists the high and low sales prices of the Class A common stock, as reported by the Nasdaq Global Market~~.

High

Low

Fourth Quarter 2017 (from November 3, 2017)
$8.48
$4.91

The Class B common stock is not listed or traded on any stock exchange.

Holders of Common Stock

As of March ~~19, 2018,~~8, 2019, there were ~~136~~14,176,690 holders of record of shares of Class A common stock and 581,898,423 holders of record of shares of Class B common stock. The actual number of holders of Class A common stock is substantially greater and includes stockholders who are beneficial owners and whose shares are held of record by banks, brokers, and other financial institutions.

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~~Dividends~~

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings to support the operation of and to finance the growth and development of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends on Class A and Class common stock will be made at the discretion of the board of directors and will depend on various factors, including our results of operations, financial condition, liquidity requirements, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that the board may deem relevant.

Our ability to pay dividends on Class A and Class B common stock depends significantly on our receiving distributions of funds from our subsidiaries in the PRC. PRC statutory laws and regulations permit payments of dividends by those subsidiaries only out of their 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 our subsidiaries’ 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 our subsidiaries’ ability to transfer a portion of their net assets to us. As of December 31, 2017, no cash was restricted under those PRC regulations or our subsidiaries’ articles because our subsidiaries had never generated net after-tax profits. In addition, our subsidiaries’ short-term bank loans restrict their ability to pay dividends to us.

Securities Authorized for Issuance Under Equity Compensation Plans

The information required by this item will be set forth in the definitive proxy statement we will file in connection with our ~~2018~~2019 Annual Meeting of Stockholders and is incorporated by reference herein.

Sales of Unregistered Securities

Set forth below is information regarding ~~the~~ shares of capital stock ~~and options granted by us~~we issued in ~~2017~~2018 that were not registered under the Securities Act of ~~1933.~~1933:

(1)

~~We granted stock options to purchase an aggregate of 336,671 shares of Class A common stock, with exercise prices ranging from $5.60 to $7.50 per share.~~

~~(2)~~

We issued an aggregate of ~~472,889~~94,694 shares of Class A common stock pursuant to the exercise of stock options at per share exercise prices ranging from $0.75 to ~~$3.00.~~$3.00 per share.

~~(3)~~ (2)

In March ~~2017~~2018 we issued ~~a warrant to acquire~~ 397,502 shares of Class A common stock pursuant to an exercise of a warrant issued in March 2017 in exchange for ~~an aggregate purchase price~~a senior secured promissory note in the principal amount of ~~$2,981,265.~~approximately $3 million.

~~(4)~~

~~In March 2017 we issued 4,998,508 shares of Series E convertible preferred stock for an aggregate purchase price of $5,800,000.~~

~~(5)~~

~~In August 2017 we issued 1,119,576 shares of Class A common stock for an aggregate purchase price of $8,396,820.~~

~~(6)~~

~~In August 2017 we issued 787,098 shares of Class A common stock for an aggregate purchase price of $5,903,235.~~

~~(7)~~

~~In September 2017 we issued 133,334 shares of Class A common stock for an aggregate purchase price of $1,000,000.~~

~~(8)~~

~~In November 2017 we issued 1,333,334 shares of Class A common stock in a concurrent private placement at a price of $5.60 per share.~~

~~(9)~~

~~In November 2017 we issued warrants to acquire an aggregate of 80,000 shares of Class A common stock for an aggregate purchase price of $492,800.~~

The offers, sales, grants and issuances of the securities described in paragraphs (1) and (2) were deemed to be exempt from registration under the Securities Act of 1933 in reliance on Rule 701. The recipients of such securities were our employees, officers, directors, bona fide consultants and advisors and received the securities under our 1998 Stock Option Plan, written compensation contracts or our 2016 Omnibus Incentive Plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

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The offer, sale and issuance of the securities described in ~~paragraphs (3) through (9)~~paragraph (1) were exempt from registration under the Securities Act of 1933 by virtue of Section 4(a)(2) thereof (or Regulation D promulgated thereunder) because the issuance of securities to the recipients did not involve a public offering, or in reliance on Rule 701 because the transaction was pursuant to a contract relating to compensation as provided under such rule. The offer, sale and issuance of the security described in paragraph (2) was deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act in that the issuance of the securities to the accredited investors did not involve a public offering. The recipients of the securities in ~~these~~the transactions under paragraphs (1) and (2) acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions. The recipients of the securities in these transactions were accredited investors under Rule 501 of Regulation D.

~~Use of Proceeds~~

The Registration Statement on Form S-1 (File No. 333- 220451) for the IPO was declared effective by the SEC on November 2, 2017. Shares of Class A common stock began trading on the Nasdaq Global Market on November 3, 2017.

The underwriters of the IPO were Roth Capital Partners, LLC, Craig-Hallum Capital Group LLC and The Benchmark Company, LLC. The offering commenced on November 2, 2017 and did not terminate until the sale of all of the shares offered.

We paid to the underwriters of the IPO underwriting discounts and commissions totaling $841,036 in connection with the sale of 2,233,000 shares of Class A common stock. In addition, we incurred expenses of $1.9 million which, when added to the underwriting discounts and commissions, amounted to total expenses of $2.7 million. As a result, the IPO net proceeds, after deducting underwriting discounts and commissions and offering expenses, were $17.3 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10.0% or more of any class of our equity securities or to any other affiliates.

There has been no material change in the planned use of IPO proceeds from that described in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) under the Securities Act of 1933 on November 3, 2017.

~~To date we have applied $7.8 million of the proceeds to purchase inventories and $1.0 million in our normal course of business operations.~~

~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers~~

~~None.~~

Transfer Agent

The transfer agent and registrar for the Class A common stock and the Class B common stock is Computershare Trust Company, N.A.

I~~tem 6: Selected Financial Data~~

~~Not applicable.~~

Item 7.

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I~~tem 7:~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

42307 Osgood Road, Suite I Fremont, California		94539
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share		Nasdaq Global Market

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated file ~~(Do not check if a smaller reporting company)~~☐	Smaller reporting company ☑
	Emerging growth company ☑

Class		Number of Shares Outstanding
Class A Common Stock, $0.0001 par value		14,176,690 shares outstanding as of March 8, 2019
Class B Common Stock, $0.0001 par value		1,898,423 shares outstanding as of March 8, 2019

PART I
~~ITEM~~Item 1	Business		~~Business~~ 3
Item 1A	Risk Factors		6 14
~~ITEM 1A~~ Item 2	Properties		~~Risk Factors~~ 37
Item 3	Legal Proceedings		23 38
~~ITEM 1B~~					~~Unresolved Staff Comments~~	45 PART II
~~ITEM 2~~ Item 5		~~Properties~~		45
~~ITEM 3~~		~~Legal Proceedings~~		45
~~ITEM 4~~		~~Mine Safety Disclosures~~		45

~~PART II~~
~~ITEM 5~~		Market for Registrant’s Common Equity, Related Stockholder Matters and
	Issuer Purchases of Equity Securities		45 39
~~ITEM 6~~ Item 7		~~Selected Financial Data~~		47
~~ITEM 7~~		Management’s Discussion and Analysis of Financial Condition and Results of Operations		48 40
~~ITEM 7A~~ Item 8		~~Quantitative and Qualitative Disclosures about Market Risk~~		72
~~ITEM 8~~		Financial Statements and Supplementary Data		73 63
~~ITEM 9~~ Item 9A	Controls and Procedures		~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~		~~107~~ 98
~~ITEM 9A~~					~~Controls and Procedures~~	~~107~~PART III
~~ITEM 9B~~ Item 10		~~Other Information~~		~~108~~

~~PART III~~
~~ITEM 10~~		Directors, Executive Officers and Corporate Governance		~~109~~ 99
~~ITEM~~Item 11	Executive Compensation		~~Executive Compensation~~		~~109~~ 99
~~ITEM~~Item 12		Security Ownership of Certain Beneficial Owners and Management and
	Related Stockholder Matters		~~109~~ 99
~~ITEM~~Item 13		Certain Relationships and Related Transactions, and Director Independence		~~109~~ 99
~~ITEM~~Item 14		Principal Accountant Fees and Services		~~109~~

~~PART IV~~ 99
~~ITEM~~PART IV
Item 15	Exhibits and Financial Statement Schedules	~~109~~ 100
~~ITEM 16~~	~~Form 10-K Summary~~	~~109~~
Signatures
~~Signatures~~		~~112~~102

	High	Low
Fourth Quarter 2017 (from November 3, 2017)	$8.48	$4.91

			Year Ended December 31,
	2017	2016	2018	2017
	(in thousands)		(in thousands)
Stock-Based Compensation Expense:
Cost of revenue	$21	$11	$71	$21
Sales and marketing expense	53	5	120	53
Research and development expense	50	5	255	50
General and administrative expense	1,499	362	2,917	1,499
	$1,623	$383	$3,363	$1,623

Grant Dates	Number of Common Shares Underlying Options Granted	Exercise Price per Common Share	Estimated Fair Value per Common Share	Number of Common Shares Underlying Options Granted	Exercise Price per Common Share	Estimated Fair Value per Common Share
May 1, 2015	783,338	$1.50		783,338	$1.50
September 8, 2015	263,335	1.50		263,335	1.50
December 28, 2016	1,424,596	3.00	2.28	1,424,596	3.00	2.28
March 9, 2017	33,334	7.50		33,334	7.50
May 9, 2017	183,335	7.50		183,335	7.50
November 2, 2017	120,002	5.60		120,002	5.60
January 25, 2018				500,000	5.31
August 1, 2018				245,700	13.85

	Year ended December 31,		% Change
	2017	2016	2016 v 2017
	(in thousands)
Revenue	$36,506	$27,371	33%

Issue Date	Transaction	Gross Proceeds
		(in thousands)
2016	Option exercises	$584
2017	Option exercises	396
September 2017	Private placements	15,300
November 2017	IPO	12,504
November 2017	Concurrent private placement	7,467
2018	Option Exercises	62
		$36,313

Lender	Agreement Date	Maturity Date	Annual Interest Rate	Maximum Borrowing Amount(1)	Amount Outstanding at December 31, 2018
				(in thousands)
Bank of China Pudong Branch	August 2018	August 2019	5.22%	RMB30,000	RMB30,000
				$4,372	$4,372
Bank of Shanghai Pudong Branch	February 2018	January 2019	5.15%	RMB50,000	RMB24,836
				$7,800	$3,618
Shanghai Rural Commercial Bank	January 2018	January 2019	5.44%	RMB10,000	RMB10,000
				$1,457	$1,457
				RMB90,000	RMB64,836
				$13,629	$9,447

	December 31, ~~2017~~ 2018
	(in thousands)
Cash and cash equivalents	$~~17,681~~27,124
Accounts receivable, less allowance for doubtful amounts	~~26,762~~24,608
Inventory	~~15,388~~38,764
~~Working capital~~Total	~~41,097~~$90,496

	Year Ended December 31,		Year Ended December 31,
	2017	2016	2018	2017
	(in thousands)		（in thousands）
Adjusted EBITDA Data:
Net income (loss)	$(872)	$2,387
Net income (loss) attributable to ACM Research, Inc.			$6,574	$(318)
Interest expense, net	268	165	469	268
Income tax expense	547	595	806	547
Depreciation and amortization	271	187	417	271
Stock-based compensation	1,622	383	3,363	1,622
Adjusted EBITDA	$1,836	$3,717	$11,629	$2,390

	Year Ended December 31,
	2018	2017
	（in thousands）
Free Cash Flow Data:
Net cash provided by (used in) operating activities	$6,909	$(8,101)
Purchase of property and equipment	(1,830)	(651)
Purchase of intangible assets	(241)	(115)
Free cash flow	$4,839	$(8,867)

	Year Ended December 31,
	2018			2017
	Actual (GAAP)	SBC	Adjusted (Non-GAAP)	Actual (GAAP)	SBC	Adjusted (Non-GAAP)
	(in thousands)
Adjusted Operating Income:
Revenue	$74,643	$-	$74,643	$36,506	$-	$36,506
Cost of revenue	(40,194)	(71)	(40,123)	(19,281)	(21)	(19,260)
Gross profit	34,449	(71)	34,520	17,225	(21)	17,246
Operating expenses:
Sales and marketing	(9,611)	(120)	(9,491)	(5,500)	(53)	(5,447)
Research and development	(10,380)	(255)	(10,125)	(5,138)	(50)	(5,088)
General and administrative	(7,987)	(2,917)	(5,070)	(5,887)	(1,499)	(4,388)
Income (loss) from operations	$6,471	$(3,363)	$9,834	$700	$(1,623)	$2,323

	Year Ended December 31,
	2017			2016
	Actual		Adjusted	Actual		Adjusted
	(GAAP)		(Non-GAAP)	(GAAP)		(Non-GAAP)
	(in thousands)
Revenue	$36,506	$—	$36,506	$27,371	$—	$27,371
Cost of revenue	(19,281)	(21)	(19,260)	(14,042)	(11)	(14,031)
Gross profit	17,225	(21)	17,246	13,329	(11)	13,340
Operating expenses:
Sales and marketing	(5,500)	(53)	(5,447)	(3,907)	(5)	(3,902)
Research and development	(5,138)	(50)	(5,088)	(3,259)	(5)	(3,254)
General and administrative	(5,887)	(1,499)	(4,388)	(2,673)	(362)	(2,311)
Income (loss) from operations	$700	$(1,623)	$2,323	$3,490	$(383)	$3,873

	Page
Consolidated Financial Statements	74 63

Report of Independent Registered Public Accounting Firm	7464

Consolidated Balance Sheets as of December 31, ~~2017~~2018 and ~~2016~~2017	7566

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, ~~2017~~2018 and ~~2016~~2017	7667

Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years ended December 31, ~~2017~~2018 and ~~2016~~2017	7768

Consolidated Statements of Cash Flows for the Years ended December 31, ~~2017~~2018 and ~~2016~~2017	7869

Notes to Consolidated Financial Statements	7970

	December 31,
	2017	2016
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	-
Total assets	$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

	Redeemable Convertible Preferred Stock																								Redeemable Convertible Preferred Stock
	Series A		Series B		Series C		Series D		Series E		Series F			Common Stock		Common Stock Class A		Common Stock Class B							Series A		Series B		Series C		Series D		Series E		Series F			Common Stock Class A		Common Stock Class B
	shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Total Amount	Shares	Amount	Shares	Amount	Shares	Amount	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Non-controlling Interest	Total Stockholders’ Equity (Deficit)	shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Total Amount	Shares	Amount	Shares	Amount	Additional Paid-in Capital	Accumulated Income (Deficit)	Accumulated Other Comprehensive Income (Loss)	Non-controlling Interest	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		—	—
Debt conversion	—										47,454	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	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)	—																		(318)	—	(554)	(872)
Foreign currency translation adjustment	—													—	—							535	185	720	—																			535	185	720
Exercise of stock option	—													—	—	472,887	—			396	—			396	—													472,887	—			396	—			396
Stock-based compensation	—													—	—					1,622	—			1,622	—																	1,622	—			1,622
Purchase of non-controlling interest	—													—	—					(16,258)	—		(4,550)	(20,808)	—																	(16,258)	—		(4,550)	(20,808)
Issuance of Series E Preferred Stock	—								4,998,508	$5,800	—		5,800	—	—										—								4,998,508	$5,800	—		5,800	—
Issuance of Common Stock to Ninebell	—													—	—	133,334	—			1,000	—			1,000	—													133,334	—			1,000	—			1,000
Issuance of Common Stock to Shanghai and Pudong VC	—													—	—	1,906,674	—			14,299	—			14,299	—													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	(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
Proceeds from initial public, net of capitalized IPO cost and issuance costs of $2,791																									—													3,566,334	—			17,181	—			17,181
Reclassification of reverse split par value	—													—	—				(1)	1	—				—																(1)	1	—

Balance at December 31, 2017	-	$-	-	$-	-	$-	-	$-	-	$-	-	$-		—	$—	12,935,546	$1	2,409,738	$-	$49,695	$(9,961)	$122	$-	$39,857	-	$-	-	$-	-	$-	-	$-	-	$-	-	$-		12,935,546	$1	2,409,738	$-	$49,695	$(9,961)	$122	$-	$39,857
Net income																									—																		6,574	—		6,574
Foreign currency translation adjustment																									—																			(979)	—	(979)
Exercise of stock option																									—													265,952	—			528	—			528
Stock-based compensation																									—																	3,363	—			3,363
Conversion of class B common shares to Class A common shares																									—													511,315	—	(511,315)	—
Exercise of common stock warrant issued to SMC																									—													397,502	—			2,981	—			2,981
Balance at December 31, 2018																									-	$-	-	$-	-	$-	-	$-	-	$-	-	$-		14,110,315	$1	1,898,423	$-	$56,567	$(3,387)	$(857)	$-	$52,324


~~Computer and office equipment~~	~~3 to 5 years~~
~~Furniture and fixtures~~	~~5 years~~
~~Leasehold improvements~~	~~shorter of lease term or estimated useful life~~


~~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 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~~

Computer and office equipment	3 to 5 years
Furniture and fixtures	5 years
Leasehold improvements	shorter of lease term or estimated useful life

	Year ended December 31,		Year Ended December 31
	2017	2016	2018	2017
Customer A	*	33.7%	24.17%	*
Customer B	18.10%	25.00	23.83	18.10
Customer C	*	24.00	*	12.77
Customer D	12.77	16.60	*	14.12
Customer E	14.12	*	39.63	10.23
Customer F	10.23	*

~~Consolidated balance sheets:~~
~~At December 31, 2017~~	~~RMB 6.5359 to $1.00~~
~~At December 31, 2016~~	~~RMB 6.9348 to $1.00~~

~~Consolidated statements of operations and comprehensive income:~~
~~Year ended December 31, 2017~~	~~RMB 6.7522 to $1.00~~
~~Year ended December 31, 2016~~	~~RMB 6.6401 to $1.00~~

Consolidated balance sheets:
At December 31, 2018	RMB 6.8634 to $1.00
At December 31, 2017	RMB 6.5359 to $1.00
At December 31, 2018	KRW 1,114.83 to $1.00
At December 31, 2017	No transactions in Korean Won

Consolidated statements of operations and comprehensive income:
Year ended December 31, 2018	RMB 6.6181 to $1.00
Year ended December 31, 2017	RMB 6.7522 to $1.00
Year ended December 31, 2018	KRW 1,100.11 to $1.00
Year ended December 31, 2017	No transactions in Korean Won

	For the Year Ended December 31,		For the Year Ended December 31
	2017	2016	2018	2017
Numerator:
Net income (loss)	$(872)	$2,387	$6,574	$(872)
Net income (loss) attributable to non-controlling interest	(554)	1,356
Net income allocated to participating securities	-	386
Net income (loss) available to common stockholders, basic and diluted	$(318)	$645
Net loss attributable to non-controlling interest			-	(554)
Net income (loss) attributable to ACM, basic and diluted			6,574	$(318)
Denominator:
Weighted average shares outstanding, basic	6,865,390	2,176,315	15,788,460	6,865,390
Effect of dilutive securities	-	1,615,822	2,123,645	-
Weighted average shares outstanding, diluted	6,865,390	3,792,137	17,912,105	6,865,390
Net income (loss) per common share:
Net income (loss) attributable to ACM per common share:
Basic	$(0.05)	$0.30	$0.42	$(0.05)
Diluted	$(0.05)	$0.18	$0.37	$(0.05)

	Fair Value Measurement at Reporting Date Using				Fair Value Measurement at Reporting Date Using
	Quoted Prices in Active Markets for Identical Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total	Quoted Prices in Active Markets for Identical Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
	(in thousands)				(in thousands)
As of December 31, 2017:
As of December 31, 2018:
Liabilities:
Short-term borrowings					$-	$9,447	$-	$9,447
					$-	$9,447	$-	$9,447

As of December 31, 2017:
Liabilities:
Short-term borrowings	$—	$5,095	$—	$5,095	$-	$5,095	$-	$5,095
Warrant liability	—		3,079		-		3,079
					$-	$5,095	$3,079	$8,174
	—	5,095	3,079	8,174

As of December 31, 2016:
Liabilities:
Short-term borrowings	$—	$4,761	$—	$4,761

	December 31, 2017	December 31, 2016
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,~~
	~~2017~~
~~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%

	December 31,		December 31
	2017	2016	2018	2017
Subsidies to Stress Free Polishing project, commenced in 2008 and 2017	$1,952	$1,958	$1,483	$1,952
Subsidies to Electro Copper Plating project, commenced in 2014	4,265	4,921	2,860	4,265
Subsidies to Polytetrafluoroethylene, commenced in 2018			178	-
Other			62	-
Total	$6,217	$6,879	$4,583	$6,217

	December 31, 2017	December 31, 2018
2018	$50
2019	22	$1,391
2020		1,371
2021		1,403
2022		1,441
Total	$72	$5,606

	2017	2016
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

	Number of Option Shares	Weighted Average Grant Date Fair Value	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Number of Option Shares	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	2,100,377	$0.54	$2.03	7.83 years
Granted	140,002	2.28	6.75		140,002	2.28	6.75
Exercised	(174,334)	0.45	0.75		(174,334)	0.45	0.75
Expired	(3,752)	0.54	3.00		(3,752)	0.54	3.00
Forfeited	(16,677)	0.54	3.00		(16,677)	0.54	3.00
Outstanding at December 31, 2017	2,045,616	$0.66	$2.46	7.57	2,045,616	0.66	2.46	7.57 years
Vested and exercisable at December 31, 2017	1,010,313
Granted					745,700	1.52	8.12
Exercised					(151,650)	0.53	2.06
Expired					(4,622)	0.55	3.00
Forfeited					(131,639)	0.97	3.87
Outstanding at December 31, 2018					2,503,405	0.91	4.09	7.30 years
Vested and exercisable at December 31, 2018					1,327,189

		Weighted		Weighted Average	Number of Option Shares	Weighted Average Grant Date Fair Value	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term
	Number of	Average Grant	Average Exercise	Remaining
	Option Shares	Date Fair Value	Price	Contractual Term
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	1,578,565	$0.51	$1.58	6.81 years
Granted	196,669	2.25	6.90		196,669	2.25	6.90
Exercised	(298,555)	0.39	0.93		(298,555)	0.39	0.93
Expired	(133,336)	0.45	0.75		(133,336)	0.45	0.75
Forfeited	(16,667)	2.58	7.50		(16,667)	2.58	7.50
Outstanding at December 31, 2017	1,326,676	0.78	2.52	7.54	1,326,676	0.78	2.52	7.54 years
Vested and exercisable at December 31, 2017	754,799
Granted					-
Exercised					(114,302)	0.43	1.92	-
Expired					-
Forfeited					-
Outstanding at December 31, 2018					1,212,374	$0.78	2.57	6.66 years
Vested and exercisable at December 31, 2018					946,691

Exhibit No.		Description
~~3.01#~~3.03		Restated Certificate of Incorporation of ACM Research, Inc.

~~3.02#~~3.04		Restated Bylaws of ACM Research, Inc.
4.01
~~4.01#~~		~~Warrant dated March 14, 2017 issued by ACM Research, Inc. to Shengxin (Shanghai) Management Consulting Limited Partnership~~

~~4.02#~~		Form of Warrant dated November 2, 2017 issued to the underwriters of ACM Research, Inc.'s initial public offering exercisable for an aggregate of 80,000 shares of Class A common stock
4.02		Senior Secured Promissory Note dated March 30, 2018 issued by Shengxin (Shanghai) Management Consulting Limited Partnership to ACM Research (Shanghai), Inc.
4.03		Intercompany Promissory Note dated March 30, 2018 issued by ACM Research (Shanghai), Inc. to ACM Research, Inc.
~~10.01#~~10.01(a)		Lease dated March 22, 2017 between ACM Research, Inc. and D&J Construction, Inc.
10.01(b)		Lease Amendment dated February 28, 2018 between ACM Research, Inc. and D&J Construction, Inc.
~~10.02#~~10.01(c)		Lease Amendment dated ~~September 6, 2016~~February 4, 2019 between ACM Research, Inc. and D&J Construction, Inc.
10.02		Lease Agreement dated April 26, 2018 between ACM Research (Shanghai), Inc. and Shanghai Zhangjiang Group Co., Ltd.
10.03
~~10.03#~~		~~Underwriting~~Lease Agreement dated ~~November 2, 2017~~January 18, 2018 between ACM Research (Shanghai), Inc. and ~~Roth Capital Partners, LLC, as representative of the several underwriters named on Schedule I thereto~~
		Shanghai Shengyu Culture Development Co., Ltd.
~~10.04#~~10.04		Securities Purchase Agreement dated March 14, 2017 by and among ACM Research, Inc., Shengxin (Shanghai) Management Consulting Limited Partnership and ACM Research (Shanghai), Inc.

~~10.05#~~10.05		Securities Purchase Agreement dated March 23, 2017 between ACM Research, Inc. and Shanghai Science and Technology Venture Capital Co., Ltd., as amended

~~10.06#~~10.06		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.

~~10.07#~~10.07		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

~~10.08#~~10.08		Ordinary Share Purchase Agreement dated September 6, 2017 by and among ACM Research, Inc., Ninebell Co., Ltd. and Moon-Soo Choi

~~10.09#~~10.09		Class A Common Stock Purchase Agreement dated September 6, 2017 by and among ACM Research, Inc., Ninebell Co., Ltd. and Moon-Soo Choi

~~10.10#~~10.10		Form of Second Amended and Restated Registration Rights Agreement to be entered into between ACM Research, Inc. and certain of its stockholders