| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The Company’s condensed consolidated financial statements include the accounts of ACM and its subsidiaries, including ACM Shanghai and its
subsidiaries, which include ACM Wuxi, ACM Shengwei, ACM Beijing, and CleanChip (the subsidiaries of which include ACM California and ACM Korea). ACM’s subsidiaries are those entities in which ACM, directly or indirectly, controls a majority of the
voting power. All significant intercompany transactions and balances have been eliminated upon consolidation. The accompanying condensed consolidated financial statements of
the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission for
reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the
historical consolidated financial statements of the Company for the year ended December 31, 2021 included in ACM’s Annual Report on Form 10-K for the year ended December 31, 2021. The accompanying condensed consolidated balance sheet as of June 30, 2022, condensed consolidated statements of operations and comprehensive income (loss) for the
three and six months ended June 30, 2022 and 2021, condensed consolidated statements of changes in equity for the three and six months ended June 30, 2022 and 2021, and condensed consolidated statements of cash flows for the three and six months
ended June 30, 2022 and 2021 are unaudited. In the opinion of management, these unaudited condensed consolidated financial statements of the Company reflect all adjustments that are necessary for a fair presentation of the Company’s financial
position and results of operations. Such adjustments are of a normal recurring nature, unless otherwise noted. The balance sheet as of June 30, 2022 and the results of operations for the three and six months ended June 30, 2022 are not
necessarily indicative of the results to be expected for any future period Common Stock Split Unless otherwise indicated, all prior period share and per share amounts, common stock, other capital, and retained earnings
information presented in the accompanying financial statements and these notes thereto has been retroactively adjusted to reflect the impact of the Stock Split (Note 1). Proportional adjustments were also made to outstanding awards under the
Company’s stock-based compensation plans. Reclassification Certain prior year amounts related to related party transactions have been reclassified to conform to current year presentation. Also, a portion
of the prior period balance for retained earnings on the Company’s consolidated balance sheet as of December 31, 2021 has been reclassified to Statutory surplus reserve to conform to the current period presentation. These reclassifications did not
have a material impact on the previously reported financial statements. COVID-19 Assessment The worldwide COVID-19 health pandemic and
related government and private sector responsive actions have adversely affected the economies and financial markets of many countries and specifically have negatively impacted the Company’s business operations, including in the PRC and the
United States. The continuation of the COVID-19 pandemic could continue to result in economic uncertainty and global economic policies that could reduce demand for the Company’s products and its customers’ chips and have a material adverse impact
on the Company’s business, operating results and financial condition. The Company conducts substantially all of its product development, manufacturing, support and services in the PRC, and those activities have been directly
impacted by COVID-19 and related restrictions on transportation and public appearances.
•
In March 2022, several regions in China began to experience elevated levels of COVID-19 infections, and the PRC government instituted policies to restrict the spread of the virus. The
policies began with an increase of “spot quarantines,” under which a positive polymerase chain reaction (PCR) or other test would result in the quarantining of individual buildings, groups of buildings, or even full neighborhoods. The
policies were later expanded to full-city quarantines, including in the City of Shanghai, where substantially all of ACM Shanghai’s operations are located. COVID-19 related restrictions in Shanghai began to limit employee access to, and
logistics activities of, ACM Shanghai’s offices and production facilities in the Pudong district of Shanghai in March 2022, and therefore limited ACM Shanghai’s ability to ship finished products to customers and to produce new products.
Spot quarantines in mid-March 2022 began to impact a number of ACM Shanghai’s employees and led to a closure of ACM Shanghai’s administrative and R&D offices in Zhangjiang in the Pudong district. A subsequent quarantine of the
entire Pudong region of Shanghai was imposed in late March 2022 and impacted the operation of ACM Shanghai’s Chuansha production facility. Although the facility remained partially operational with a number of personnel staying on-site
for a prolonged period, the level of production declined significantly versus more normal levels. Furthermore, a number of the Company’s customers have substantial operations based in operations areas of the PRC, including in the City
of Shanghai, subject to a full-city restrictions, which began limiting the operations of those customers since the first quarter of 2022, including inhibiting their ability to receive, implement and operate new tools for their
manufacturing facilities. As a result, in some cases, ACM Shanghai was required to defer shipments of finished products to these customers because of operational and logistical limitations affecting customers other than, or in addition
to, ACM Shanghai.
•
In late April 2022, ACM Shanghai began to increase the level of its operations at the Chuansha manufacturing site using the “closed loop method,” in which a limited collection of
workers remain together as a group between a single hotel, the ACM Shanghai facility, and a dedicated bus transportation route, also referred to as “two spots and one line,” and had resumed substantially all of its Chuansha
manufacturing site operations by the end of the second quarter of 2022. On July 1, 2022, the Company transitioned operations at the Chuansha facility to a more normal production process, in which workers we able to return home
following their factory shifts.
•
In mid-June 2022, substantially all of ACM Shanghai’s R&D and administrative employees were allowed to return to work at the ZhangJiang facility following a 6-8 week period of
restricted access during which many employees had continued to work from home. ACM Shanghai has established several policies to help avoid or limit future outbreaks among employees and aimed at protecting employee safety and limiting
the possibility of a facility reclosing. For the first six months of 2022, the Company experienced a negative impact to revenue and shipments as a result of restricted access and
logistics to its Shanghai-based production and administrative facilities. Thirteen tools amounting to $13 million in revenue and $24 million
in shipments that could not be shipped to customers in the three-months ended March 30, 2022 were subsequently shipped in the three months ended June 30, 2022. As a
result of the restrictions, t , and general administrative inefficiencies The Company anticipates that the effects of the PRC restrictions may continue for several months, with an expected increase of PRC operations, production
capacity and global logistics as Shanghai and other areas in the PRC begin to reopen. The Company cannot assure that closures or reductions of operations or production, whether of ACM Shanghai or of some of its key customers, may not be extended
or re-introduced in the second half of 2022 as the result of business interruptions arising from protective measures being taken by the PRC and other governmental agencies or of other consequences of COVID-19. The Company’s corporate headquarters are located in San Mateo County in the San Francisco Bay Area. The effects of actions taken by local governmental agencies in
the future may negatively impact productivity, disrupt the business of the Company and delay timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to
conduct its business in the ordinary course. To date, the Company’s operations in South Korea, including the R&D center and production facilities of ACM Korea and the business development activities of
Hanguk ACM CO., LTD, have been largely unaffected directly by government restrictions relating to the COVID-19 pandemic. The worldwide prolonged and broad-based shift to remote working environments resulting from COVID-19 continues to create inherent productivity, connectivity, and
oversight challenges and could affect the Company’s ability to enhance, develop and support existing products and services, detect and prevent spam and problematic content, hold product sales and marketing events, and generate new sales leads. In
addition, the changed environment under which the Company is operating could have an effect on its internal controls over financial reporting as well as its ability to comply with a number of timing and quality requirements. Additional or extended
governmental quarantines, restrictions or regulations could significantly impact the ability of the Company’s employees and vendors to work productively. Governmental restrictions have been inconsistent globally and it remains unclear when a return
to worksite locations or travel will be permitted or what restrictions will be in place in those environments. As the Company continues to return its workforce to the office in 2022, it may experience increased costs as it prepares and maintains
its facilities for a safe work environment and experiments with hybrid work models and it may suffer additional adverse effects on its ability to compete effectively and maintain its corporate culture. Extended
periods of interruption to the Company’s corporate, development or manufacturing facilities due to the COVID-19 pandemic could cause the Company to lose revenue and market share, which would depress its financial performance and could be difficult
to recapture. The Company’s business may also be harmed if travel to or from the PRC or the United States continues to be restricted or inadvisable or if members of management and other employees are absent because they contract COVID-19, they
elect not to come to work due to the illness affecting others in the Company’s office or laboratory facilities, or they are subject to quarantines or other governmentally imposed restrictions. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported revenues and expenses during the reported period in the condensed consolidated financial
statements and accompanying notes. The Company’s significant accounting estimates and assumptions include, but are not limited to, those used for revenue recognition and deferred revenue, the valuation and recognition of fair value of trading
securities, stock-based compensation arrangements, realization of deferred tax assets, assessment for impairment of long-lived assets, allowance for doubtful accounts, inventory valuation, depreciable lives of property, plant and equipment and useful
life of intangible assets. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates and assumptions. Cash, Cash Equivalents and Restricted Cash Cash The following table presents cash, cash equivalents and restricted cash, according to jurisdiction as of June 30, 2022 and December 31, 2021:
June 30, 2022
December 31, 2021
United States
$
29,742
$
34,852
Mainland China
240,229
469,494
China Hong Kong 52,529 52,527
South Korea
1,844
6,194
Total
$
324,344
$
563,067 The amounts in mainland China do not include short-term and long-term time deposits which totaled $144,530 and $0 for the periods ending June 30, 2022 and
December 31, 2021, respectively. Cash held in the U.S. exceeds the Federal Deposit Insurance Corporation (“FDIC”) insurance limits and is subject to risk of loss. No losses have
been experienced to date. For amounts held in mainland China, PRC banks are subject to a series of risk control regulatory standards from PRC bank regulatory authorities.
The Company is required to obtain approval from the State Administration of Foreign Exchange (“SAFE”) to transfer funds in or out of the PRC. SAFE requires a valid agreement to approve the transfers, which are processed through a bank. Other than
PRC foreign exchange restrictions, the Company is not subject to any PRC restrictions and limitations on its ability to transfer funds among subsidiaries. Cash held in mainland China exceeds the insurance limits and is subject to risk of loss. No
losses have been experienced to date. Amounts held in South Korea exceed the Korea Deposit Insurance Corporation (“KDIC”) insurance limits and is subject to risk of loss. No losses
have been experienced to date. There is no additional restriction for the transfer of cash from bank accounts in the U.S., South Korea, and Hong Kong. For sales through CleanChip and ACM
Research, a certain amount of sales proceeds is repatriated back to ACM Shanghai in accordance with the transfer pricing arrangements in the ordinary course of business. For purchases made by ACM California on behalf of ACM Shanghai, cash payments
in accordance with the transfer pricing arrangements are delivered to ACM California from ACM Shanghai. ACM California borrows intercompany loans from CleanChip for working capital purposes. For the six months ended June 30, 2022 and 2021, no transfers, dividends, or distributions have been made between ACM Research and its
subsidiaries, including ACM Shanghai, or to holders of ACM Research Class A common stock. Time Deposits Time deposits are deposited with banks in mainland China with
fixed periods and interest rates which can’t be withdrawn before maturity. They are also subject to risk control regulatory standards above upon maturity. Time deposits consisted of the following:
June 30, 2022
December 31,
2021
Deposit in China Merchant Bank which will mature on January 29, 2023 2.25
$
40,230
$
-
Deposit in China Everbright Bank which will mature on January 29, 2023 2.25
14,900
-
Deposit in China Industrial Bank which will mature on January 30, 2023 2.15
14,900
-
Deposit in China Merchant Bank which will mature on January 29, 2024 2.85
29,800
-
Deposit in Bank of Ningbo which will mature on February 17, 2024 2.85
44,700
-
$
144,530
$
- For the three and six months ended June 30, 2022, respectively, interest income related to time deposits was $951 and $1,539, respectively. Intangible Assets, Net Intangible assets consist of software used for finance, manufacturing, and research and development purposes. Assets are valued at cost at the
time of acquisition and are amortized over their beneficial periods. If a contract specifies a beneficial period, then the intangible asset is amortized over a term not exceeding the beneficial period. For those intangible assets with contracts
that do not specify a beneficial period or for which local law does not specify a beneficial period, management estimates the beneficial period based on the period over which the asset is expected to contribute directly or indirectly to the cash
flows in accordance with ASC 350, Intangibles—Goodwill
and Other Revenue Recognition The Company derives revenue principally from the sale of semiconductor capital equipment. Revenue from contracts with customers is recognized
using the following five steps pursuant ASC Topic 606, Revenue from Contracts with Customers
1.
Identify the contract(s) with a customer;
2.
Identify the performance obligations in the contract;
3.
Determine the transaction price;
4.
Allocate the transaction price to the performance obligations in the contract; and
5.
Recognize revenue when (or as) the entity satisfies a performance obligation. A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of
promises) that is distinct. The transaction price is the amount of consideration a company expects to be entitled from a customer in exchange for providing the goods or services. The unit of account for revenue recognition is a performance obligation (a good or service). A contract may contain one or more performance
obligations. Performance obligations are accounted for separately if they are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily
available to the customer, and the good or service is distinct in the context of the contract. Otherwise performance obligations are combined with other promised goods or services until the Company identifies a bundle of goods or services that is
distinct. Promises in contracts which do not result in the transfer of a good or service are not performance obligations, as well as those promises that are administrative in nature, or are immaterial in the context of the contract. The Company
has addressed whether various goods and services promised to the customer represent distinct performance obligations. The Company applied the guidance of ASC Topic 606 in order to verify which promises should be assessed for classification as
distinct performance obligations. The Company’s performance obligations in connection with a sale of equipment generally include production, delivery and installation, together with the provision of a warranty. Given that the Company’s products
are customized based on specifications of its customers, the Company determines that the promise to the customer is to provide a customized product solution. The product and customization services are inputs into the combined item for which
customer has contracted and, as a result, the product and installation services are not separately identifiable and are combined into a single performance obligation. Delivery of goods to a customer is not a separate performance obligation since
control of the goods normally does not transfer to the customer before shipment. The Company’s warranties provide assurance that its products will function as expected and in accordance with certain specifications. The Company’s warranties are
intended to safeguard the customer against existing defects and do not provide any incremental service to the customer. They are not separate performance obligations and accounted for under ASC 460, Guarantees The transaction price is allocated to all the separate performance obligations in an arrangement. It reflects the amount of consideration to
which the Company expects to be entitled in exchange for transferring goods or services, which may include an estimate of variable consideration to the extent that it is probable of not being subject to significant reversals in the future based
on the Company’s experience with similar arrangements. The transaction price excludes amounts collected on behalf of third parties, such as sales taxes. This is done on a relative selling price basis using standalone selling prices (“SSP”). The
SSP represents the price at which the Company would sell that good or service on a standalone basis at the inception of the contract. Given the requirement for establishing SSP for all performance obligations, if the SSP is directly observable
through standalone sales, then such sales should be considered in the establishment of the SSP for the performance obligation. For some sale contracts, in addition to the sale of semiconductor capital equipment, the Company also provides certain spare parts to the
customers. The Company defers revenue associated with spare parts sold together with its tool products, including production, delivery, installation and warranty which are accounted for as one
performance obligation, Revenue is recognized when the Company satisfies each performance obligation by transferring control of the promised goods or services to the
customer. Goods or services can transfer at a point in time (upon the acceptance of the products or upon the arrival at the destination as stipulated in the shipment terms) in a sale arrangement. In general, the Company recognizes revenue when a
tool has been demonstrated to meet the customer’s predetermined specifications and is accepted by the customer. If terms of the sale provide for a lapsing customer acceptance period, the Company recognizes revenue as of the earlier of the
expiration of the lapsing acceptance period and customer acceptance. In the following circumstances, however, the Company recognizes revenue upon shipment or delivery, when legal title to the tool is passed to a customer as follows:
●
When the customer has previously accepted the same tool with the same specifications and the Company can objectively demonstrate that the tool meets all of the required acceptance criteria;
●
When the sales contract or purchase order contains no acceptance agreement or lapsing acceptance provision and the Company can objectively demonstrate that the tool meets all of the required acceptance criteria;
●
When the customer withholds acceptance due to issues unrelated to product performance, in which case revenue is recognized when the system is performing as intended and meets predetermined specifications; or
●
When the Company’s sales arrangements do not include a general right of return. The Company offers maintenance services, which consist principally of the installation and replacement of parts and small-scale modifications to
the equipment. The related revenue and costs of revenue are recognized when parts have been delivered and installed and the customers have obtained control of the parts. The Company incurs costs related to the acquisition of its contracts with customers in the form of sales commissions. Sales commissions are paid
to third party representatives and distributors. Contractual agreements with these parties outline commission structures and rates to be paid. Generally speaking, the contracts are all individual procurement decisions by the customers and are not
for significant periods of time, nor do they include renewal provisions. As such, all contracts have an economic life of significantly less than a year. Accordingly, the Company expenses sales commissions when incurred. These costs are recorded
within sales and marketing expenses. The Company, therefore, does not have contract assets. The Company does not incur any costs to fulfill the contracts with customers that are not already reported in compliance with another applicable
standard (for example, inventory or plant, property and equipment). The Company receives payments from customers prior to the transfer of control either upon contract sign-off and/or the delivery of evaluation
tools, they are recorded as advances from customers. Basic and Diluted Net Income per Common Share Basic and diluted net income per common share are calculated as follows, as adjusted to give effect to the Stock Split:
Three Months Ended June 30,
Six
Months Ended June 30,
2022
2021
2022
2021
Numerator:
Net income
$
16,748
$
7,334
$
9,305
$
13,156
Less: Net income attributable to non-controlling interests
4,512
767
2,855
1,119
Net income available to common stockholders, basic
$
12,236
$
6,567
$
6,450
$
12,037
Less: Dilutive effect arising from stock-based awards by ACM Shanghai 230 - 147 -
Net income available to common stockholders, diluted $ 12,006 $ 6,567 $ 6,303 $ 12,037
Weighted average shares outstanding, basic (1)
59,177,643
57,370,977
59,003,484
56,868,585
Effect of dilutive securities
6,301,034
8,052,255
6,769,489
8,169,999
Weighted average shares outstanding, diluted
65,478,677
65,423,232
65,772,973
65,038,584
Net income per common share:
Basic
0.21
0.11
0.11
0.21
Diluted
$
0.18
$
0.10
$
0.10
$
0.19
(1)
Prior period results have been adjusted to reflect the three
ACM has been authorized to issue Class A and Class B common stock since
redomesticating in Delaware in November The classes of
common stock are substantially identical in all material respects, except for voting rights. Since ACM did not declare any cash dividends during the
and six months ended June or the net income per common share attributable to each class is the same under the “ -class” method. As such, the classes of common stock have been presented on a combined basis in the condensed consolidated statements of
operations and comprehensive income and in the above computation of net income per common share. Diluted net income per common share reflects the potential dilution from securities,
including stock options and issued warrants, that could share in ACM’s earnings. Certain potential dilutive securities were excluded from the net income per share calculation because the impact would be anti-dilutive. ACM’s potential dilutive
securities consist of stock options for the months ended June Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, time deposits, and
accounts receivable. The Company deposits and invests its cash with financial institutions that management believes are creditworthy. The Company is potentially subject to concentrations of credit risks in its accounts receivable. For the three months ended June 30, 2022 and
2021, four customers accounted for 59.7%
and two customers accounted for 73.3%
of revenue, respectively. For the six months ended June 30, 2022 and 2021, four customers accounted for 55.0% and two customers accounted for 57.3% of revenue, respectively. As of June 30, 2022 and December 31, 2021, four
customers accounted for 70.4% and two
customers accounted for 53.8%, respectively, of the Company’s accounts receivables. The Company believes that the receivable balances
from these largest customers do not represent a significant credit risk based on past collection experience. Recent Accounting Pronouncements Not Yet Adopted In June 2016 the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments In November 2019 the FASB issued ASU 2019-10, Financial
Instruments Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. Derivatives and Hedging (Topic 815) Leases (Topic 842) since January 1, 2019. |
