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OFFON

ACM RESEARCH, INC.

(ACMR)
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ACM RESEARCH : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/06/2021 | 05:25pm EDT
You should read the following discussion of our financial condition and results
of operations together with our condensed consolidated financial statements and
the related notes and other financial information included elsewhere in this
report and our Annual Report on Form 10-K for the fiscal year ended December 31,
2020, or our Annual Report. The following discussion contains forward­looking
statements that reflect our plans, estimates, and beliefs. Our actual results
could differ materially from those discussed in the forward­looking statements.
Factors that could cause or contribute to these differences include those
discussed in Part I, Item 1A. "Risk Factors" in our Annual Report, as well as
those discussed below and elsewhere in this report, particularly in the section
titled "Item 1A. Risk Factors" in Part II below.

Overview


We supply advanced, innovative capital equipment developed for the global
semiconductor industry. Fabricators of advanced integrated circuits, or chips,
can use our wet-cleaning and other front-end processing tools in numerous steps
to improve product yield, even at increasingly advanced process nodes. We have
designed these tools for use in fabricating foundry, logic and memory chips,
including dynamic random-access memory, or DRAM, and 3D NAND-flash memory chips.
We also develop, manufacture and sell a range of advanced packaging tools to
wafer assembly and packaging customers.

Revenue from wet cleaning and other front-end processing tools totaled $46.0
million, or 85.4% of total revenue, for the three months ended June 30, 2021, as
compared to $37.8 million, or 96.9% of total revenue, for the same period in
2020. Revenue from wet cleaning and other front-end processing tools totaled
$77.9 million, or 79.8% of total revenue, for the six months ended June 30,
2021, as compared to $60.6 million, or 95.6% of total revenue, for the same
period in 2020. Selling prices for our wet-cleaning and other front-end
processing tools range from $1 million to more than $5 million. Our customers
for wet-cleaning and other front-end processing tools have included
Semiconductor Manufacturing International Corporation, Shanghai Huali
Microelectronics Corporation, The Huahong Group, SK Hynix Inc., Yangtze Memory
Technologies Co., Ltd, and ChangXin Memory Technologies.

Revenue from advanced packaging, other processing tools, services and spares
totaled $7.9 million, or 14.6% of total revenue for the three months ended June
30, 2021, as compared to $1.2 million, or 3.1% of total revenue for the same
period in 2020.  Revenue from advanced packaging, other processing tools,
services and spares totaled $19.7 million, or 20.2% of total revenue for the six
months ended June 30, 2021, as compared to $2.8 million, or 4.4% of total
revenue for the same period in 2020.  Selling prices for these tools range from
$0.5 million to more than $4 million.  Our customers for advanced packaging, and
other processing tools have included Jiangyin Changdian Advanced Packaging Co.
Ltd., a leading PRC-based wafer bumping packaging house that is a subsidiary of
JCET Group Co., Ltd.; Nantong Tongfu Microelectronics Co., Ltd., a PRC-based
chip assembly and testing company that is a subsidiary of Nantong Fujitsu
Microelectronics Co., Ltd.; Nepes Co., Ltd.,  a semiconductor packaging company
based in South Korea which acquired the operations of Deca Technologies'
Philippines manufacturing facility in 2020;  and Wafer Works Corporation, a
leading PRC-based wafer supplier.

We estimate, based on third-party reports and on customer and other information,
that our current product portfolio addresses more than $5 billion of the global
wafer equipment market.  By product line, we estimate an approximately $2.5
billion market opportunity is addressed by our wafer cleaning equipment, $1.7
billion by our furnace equipment, $500 million by our electro-chemical plating,
or ECP equipment, and more than $300 million by our stress-free polishing, or
SFP, advanced packaging, wafer processing, and other back-end processing
equipment. By major equipment segment, Gartner estimates a 2020 global market
size of $3.5 billion for wafer cleaning equipment (auto wet stations,
single-wafer processors, batch spray processors, and other clean process
equipment), $2.4 billion for furnace equipment (tube CVD, oxidation/diffusion
furnace, and batch atomic layer deposition), and $546 million for ECD
(electro-chemical deposition).  Based on Gartner's estimates, the total
available global market for these equipment segments increased by 15% from $5.6
billion in 2019 to $6.4 billion in 2020, and is expected to increase by 6% to
$6.8 billion in 2021.

We have focused our selling efforts on establishing a referenceable base of
leading foundry, logic and memory chip makers, whose use of our products can
influence decisions by other manufacturers. We believe this customer base has
helped us penetrate the mature chip manufacturing markets and build credibility
with additional industry leaders. We have used a "demo-to-sales" process to
place evaluation equipment, or "first tools," with a number of selected
customers.

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Since 2009 we have delivered more than 170 wet cleaning and other front-end
processing tools, more than 145 of which have been accepted by customers and
thereby generated revenue to us. The balance of the delivered tools are awaiting
customer acceptance should contractual conditions be met. To date, a substantial
majority of our sales of equipment have been to customers located in Asia, and
we anticipate that a substantial majority of our revenue will continue to come
from customers located in this region for the foreseeable future. We have begun
to add to our efforts to further address customers in North America, Western
Europe and Southeast Asia by expanding our direct sales and services teams and
increasing our global marketing activities.

We are focused on building a strategic portfolio of intellectual property to
support and protect our key innovations. Our tools have been developed using our
key proprietary technologies:

• Space Alternated Phase Shift, or SAPS, technology for flat and patterned (deep

via or deep trench with stronger structure) wafer surfaces. SAPS technology

employs alternating phases of megasonic waves to deliver megasonic energy 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, with increasing relative

effectiveness at more advanced production nodes.

• Timely Energized Bubble Oscillation, or TEBO, technology for patterned wafer

surfaces at advanced process nodes. TEBO technology has been developed to

provide effective, damage-free cleaning for 2D and 3D patterned wafers 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 (16

to 19 nanometers, or nm), and we have shown TEBO technology can be applied in

manufacturing processes for patterned chips with 3D architectures having aspect

ratios as high as 60­to­1.

• Tahoe technology for cost and environmental savings. Tahoe technology delivers

high cleaning performance using significantly less sulfuric acid and hydrogen

peroxide than is typically consumed by conventional high-temperature

single-wafer cleaning tools.

• ECP technology for advanced metal plating. Our Ultra ECP ap, or Advanced

Packaging, technology was developed for back-end assembly processes to deliver

a more uniform metal layer at the notch area of wafers prior to packaging. Our

Ultra ECP map, or Multi-Anode Partial Plating, technology was developed for

front-end wafer fabrication processes to deliver advanced electrochemical

copper plating for copper interconnect applications. Ultra ECP map offers

improved gap-filling performance for ultra-thin seed layer applications, which

is critical for advanced nodes at 14nm and beyond.




In 2020 we introduced and delivered a range of new tools intended to broaden our
revenue opportunity with global semiconductor manufacturers.  Product extensions
include the Ultra SFP ap tool for advanced packaging solutions, the Ultra C VI
18-chamber single wafer cleaning tool for advanced memory devices, and the Ultra
ECP 3d platform for through-silicon-via, or tsv, application. New product lines
include the Ultra fn Furnace, our first dry processing tool, and a suite of
semi-critical cleaning systems which include single wafer back side cleaning,
scrubber, and auto bench cleaning tools.

We have been issued more than 350 patents in the United States, the People's Republic of China or PRC, Japan, Singapore, South Korea and Taiwan.


We conduct a substantial majority of our product development, manufacturing,
support and services in the PRC, with additional product development and
subsystem production in South Korea.  Substantially all of our integrated tools
are built to order at our manufacturing facilities in the Pudong region of
Shanghai, which facilities now encompass a total of 236,000 square feet of floor
space for production capacity, with an additional 100,000 square feet having
been added in 2021 with the lease of a second building at our second facility in
the Pudong region of Shanghai. In May 2020 ACM Shanghai, through its wholly
owned subsidiary Shengwei Research (Shanghai), Inc., entered into an agreement
for a land use right in the Lingang region of Shanghai. In July 2020Shengwei
Research (Shanghai), Inc. began a multi-year construction project for a new
1,000,000 square foot development and production center that will incorporate
state-of-the-art manufacturing systems and automation technologies, and will
provide floor space to support significantly increase production capacity and
related research and development activities. 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 will continue to seek to leverage our local presence in the PRC to
address the growing market for semiconductor manufacturing equipment in the
region by working closely with regional chip manufacturers to understand their
specific requirements, encourage them to adopt our technologies, and enable us
to design innovative products and solutions to address their needs.

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Corporate Background

ACM Research was incorporated in California in 1998 and redomesticated in Delaware in 2016. We perform strategic planning, marketing, and financial activities at our global corporate headquarters in Fremont, California.


Initially we focused on developing tools for chip manufacturing process steps
involving the integration of ultra­low­K materials and copper. In the early
2000s we sold tools based on stress-free copper polishing technology. In 2007 we
began to focus our development efforts on single-wafer wet-cleaning solutions
for the front-end chip fabrication process. Since that time, we have
strategically built our technology base and expanded our product offerings:

• In 2009 we introduced SAPS megasonic technology, which can be applied in wet

wafer cleaning at numerous steps during the chip fabrication process.

• In 2016 we introduced TEBO technology, which can be applied at numerous steps

during the fabrication of small node conventional two-dimensional and

three-dimensional patterned wafers.

• In August 2018 we introduced the Ultra C Tahoe wafer cleaning tool, which

delivers high cleaning performance with significantly less sulfuric acid than

typically consumed by conventional high temperature single-wafer cleaning

tools.

• In March 2019 we introduced (a) the Ultra ECP AP or Advanced Wafer Level

Packaging tool, a back-end assembly tool used for bumping, or applying copper,

tin and nickel to wafers at the die-level prior to packaging, and (b) the Ultra

ECP MAP or Multi Anode Plating tool, a front-end process tool that utilizes our

proprietary technology to deliver world-class electrochemical copper planting

for copper interconnect applications.

• In April 2020 we introduced the Ultra Furnace, our first system developed for

multiple dry processing applications.

• In May 2020 we introduced the Ultra C Family of semi-critical cleaning systems,

including the Ultra C b for backside clean, the Ultra C wb automated wet bench,

and the Ultra C s scrubber.




To help us establish and build relationships with chip manufacturers in the PRC,
in 2006 we moved our operational center to Shanghai and began to conduct our
business through our subsidiary ACM Shanghai. Since that time, we have expanded
our geographic presence:

• In 2011 we formed a wholly owned subsidiary in the PRC, ACM Research (Wuxi),

Inc., which now is a wholly owned subsidiary of ACM Shanghai, to manage sales

and service operations.

• In June 2017 we formed a subsidiary in Hong Kong, CleanChip Technologies

Limited, which now is a wholly owned subsidiary of ACM Shanghai, to act on our

behalf in Asian markets outside the PRC by, for example, serving as a trading

partner between ACM Shanghai and its customers, procuring raw materials and

components, performing sales and marketing activities, and making strategic

investments.

• In December 2017 we formed a subsidiary in the Republic of Korea, ACM Research

Korea CO., LTD., which now is a wholly owned subsidiary of ACM Shanghai, to

serve our customers based in the Republic of Korea and perform sales,

marketing, and research and development activities.

• In March 2019 ACM Shanghai formed a wholly owned subsidiary in the PRC,

Shengwei Research (Shanghai), Inc., to manage activities related to addition of

  future long-term production capacity.



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We currently conduct the majority of our product development, support and
services, and substantially all of our manufacturing, at ACM Shanghai. Our
Shanghai operations position us to be near many of our current and potential new
customers in the PRC (including Taiwan), Korea and throughout Asia, providing
convenient access and reduced shipping and manufacturing costs.

• Our initial factory is located in the Pudong Region of Shanghai and has a total

of 36,000 square feet of available floor space.

• Our second production facility is located in the Chuansha district of Pudong,

approximately 11 miles from our initial factory. In September 2018 we

announced the opening of the first building of our second production facility.

The first building initially had a total of 50,000 square feet of available

floor space for production capacity, which was increased by 50,000 square feet

in the second quarter of 2020. In February 2021, we leased a second building

immediately adjacent to our second factory, which increased our available floor

space for production by another 100,000 square feet, bringing to total

available floor space for production capacity of second production facility to

200,000 square feet.

• In July 2020 ACM Shanghai began a multi-year construction project to build a

development and production center in the Lingang region of Shanghai. The new

facility is expected to have a total of 1,000,000 square feet of available

floor space for production. capacity.



Recent Developments

STAR Market Listing and IPO

In June 2019 we announced our intention to complete, within the following three years:

• a listing, which we refer to as the STAR Listing, of shares of ACM Shanghai on

the Shanghai Stock Exchange's Sci-Tech innovAtion boaRd, known as the STAR

Market; and

• a concurrent initial public offering, which we refer to as the STAR IPO, of ACM

Shanghai shares in the PRC, at a pre-offering valuation of not less than RMB

5.15 billion ($747.1 million).




We believe the STAR Listing will help us scale our business in mainland PRC, as
we continue to seek to broaden our markets in Europe, Japan, South Korea, Taiwan
and the United States. Our global headquarters will continue to be located in
Fremont, California, and we are committed to maintaining the listing of Class A
common stock on the Nasdaq Global Market.

To qualify for the STAR Listing, ACM Shanghai was required to have multiple
independent stockholders in the PRC. In June and November 2019, ACM Shanghai
entered into private placement agreements with fifteen investors pursuant to
which the investors purchased ACM Shanghai shares for a total of RMB 416.1
million ($59.7 million as of the investment dates). As of June 30, 2020, 91.7%
of the outstanding shares of ACM Shanghai were owned by ACM Research and 8.3%
were owned by the private placement investors.

Upon the submission of application documents by ACM Shanghai for the STAR
Listing and STAR IPO to the Shanghai Stock Exchange during the second quarter of
2020, the shares of ACM Shanghai issued to the private placement investors were
reclassified from redeemable non-controlling interests to non-controlling
interests. Upon the termination of such redemption feature, we released the
aggregate proceeds of the private placement funding from reserved cash, which we
previously had voluntarily imposed in light of a potential redemption.

On September 30, 2020, the application was approved by the Listing Committee of
the STAR Market. The Listing Committee subsequently determined to reassess the
approval application in light of allegations regarding our business and
operations that were contained in a report issued by J Capital Research USA Ltd.
on October 8, 2020 and an ensuing putative class action lawsuit against our
company and three of our executive officers filed on December 21, 2020 (See
"Item 1. Legal Proceedings" of Part II of this report).

Following the completion of the Listing Committee's reassessment, on June 10,
2021, the application for registration for the STAR Market IPO was submitted by
the Shanghai Stock Exchange Commission (the "SSEC") to the China Securities
Regulatory Commission.  The STAR Listing remains subject to review and approval
by the China Securities Regulatory Commission.

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ACM Shanghai currently proposes to offer up to ten percent of its shares in the
STAR IPO. The net proceeds of the STAR IPO are expected to be used to fund:

• the land lease for, and construction of, ACM Shanghai's proposed development

and production center in the Lingang region of Shanghai;

• product development to upgrade and expand our process equipment targeted at

more advanced process nodes, including technical improvement and development of

TEBO megasonic cleaning equipment, Tahoe single wafer wet bench combined

cleaning equipment, front-end brush scrubbing equipment, auto bench cleaning

equipment, front end process electroplating equipment, Stress Free Polish

equipment and vertical furnace equipment, additional new products to expand our

  product portfolio; and


• working capital.



COVID-19 Outbreak

Following its initial outbreak in December 2019, COVID-19, or the coronavirus,
spread across the PRC, the United States and globally. The COVID-19 outbreak has
affected our business and operating results since the first quarter of 2020.
Since that time, our personnel have been largely unable to travel between our
offices in the United States and our facilities in the PRC, which may impact our
ability to effectively operate our company and to oversee our operations. The
COVID-19 situation continues to evolve, including as the result of variants, and
it is impossible for us to predict the effect and ultimate impact of the
COVID-19 outbreak on our business operations and results. We continue to monitor
the impact of the COVID-19 pandemic on all aspects of our business, including
our operations, customers, suppliers and projects. While the quarantine, social
distancing and other regulatory measures instituted or recommended in response
to COVID-19 are expected to be temporary, the duration of the business
disruptions, and related financial impact, of the outbreak cannot be estimated
at this time. For an explanation of some of the risks we potentially face,
please read carefully the information provided under "Item 1A. Risk
Factors-Risks Related to the COVID-19 Outbreak," of Part I of our Annual Report.

The following summary reflects our expectations and estimates based on information known to us as of the date of this filing:

• Operations: We conduct substantially all of our product development,

manufacturing, support and services in the PRC, and those activities have been

directly impacted by the COVID-19 outbreak and related restrictions on

transportation and public appearances. In February 2020 our ACM Shanghai

headquarters were closed for an additional six days beyond the normal Lunar New

Year Holiday in accordance with Shanghai government restrictions related to the

outbreak. We took steps before and after the Lunar New Year to ensure no

employees took unreasonable risks to rush back to work. Currently substantially

all of our staff have returned to work at both of our Shanghai facilities. To

date we have not experienced absenteeism of management or other key employees,

other than certain of our executive officers being delayed in traveling back to

the PRC after working from our California office in February 2021. Our

corporate headquarters are located in Alameda County in the San Francisco Bay

Area of California and are the subject of a number of state and county public

health directives and orders. These actions have not negatively impacted our

business to date, however, because of the limited number of employees at our

headquarters and the nature of the work they generally perform.

• Customers: Our customers' business operations have been, and are continuing to

be, subject to business interruptions arising from the COVID-19 outbreak.

Historically a majority of our revenue from sales of single-wafer wet cleaning

equipment for front-end manufacturing has been derived from customers located

in the PRC and surrounding areas that have been impacted by COVID-19. Three

customers that accounted for 75.8% of our revenue in 2020, 73.8% in 2019 and

87.6% of our revenue in 2018 are based in the PRC and South Korea. One of those

customers, Yangtze Memory Technologies Co., Ltd. - which accounted for 26.8% of

our 2020 revenue, 27.5% of our 2019 revenue and 39.6% of our 2018 revenue - is

based in Wuhan. While Yangtze Memory Technologies Co., Ltd. and other key

customers continued to operate their fabrication facilities without

interruption during and after the first quarter of 2020, they were forced to

restrict access of service personnel and deliveries to and from their

facilities. A portion of the shipments we previously had expected to deliver in

the first quarter of 2020 were postponed due to these factors, and were

subsequently delivered in the second quarter of 2020.

• Suppliers: Our global supply chain includes components sourced from the PRC,

Japan, Taiwan, the United States and Europe. While the COVID-19 outbreak has

resulted in significant governmental measures being implemented to control the

spread of COVID-19 around the world, to date we have not experienced material

issues with our supply chain. As with our customers, we continue to be in close

contact with our key suppliers to help ensure we are able to identify any

potential supply issues that may arise.

• Projects: Our strategy includes a number of plans to support the growth of our

core business, including the STAR Listing and STAR IPO with respect to shares

of ACM Shanghai described above as well as ACM Shanghai's recent acquisition of

a land use right in the Lingang area of Shanghai where we began construction of

a new research and development center and factory in July 2020. The extent to

which COVID-19 impacts these projects will depend on future developments that

are highly uncertain, but to date, the timing of these ongoing projects has not

  been delayed or disrupted by COVID-19 or related government measures.



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PRC Government Research and Development Funding

ACM Shanghai has received six special government grants from the PRC's Ministry
of Science and Technology, the Shanghai Municipal Commission of Economy and
Information, and the Shanghai Science and Technology Committee. The first grant,
which was awarded in 2008, relates to the development and commercialization of
65nm to 45nm stress-free polishing technology. The second grant was awarded in
2009 to fund interest expense on short-term borrowings. The third grant was made
in 2014 and relates to the development of electro copper-plating technology. The
fourth grant was made in June 2018 and related to development of
polytetrafluoroethylene. The fifth grant was made in 2020, and relates to the
development of Tahoe single bench cleaning technologies. The sixth grant was
made in 2020, and relates to the development of backside cleaning technologies.
These governmental authorities provide the majority of the funding, although ACM
Shanghai is also required to invest certain amounts in the projects.

The governmental grants contain certain operating conditions, and we are
required to go through a government due diligence process once the project is
complete. The grants therefore are recorded as long-term liabilities upon
receipt, although we are not required to return any funds we receive. Grant
amounts are recognized in our statements of operations and comprehensive income
as follows:

• Government subsidies relating to current expenses are recorded as reductions of

those expenses in the periods in which the current expenses are recorded. For

the six months ended June 30, 2021 and 2020, related government subsidies

recognized as reductions of relevant expenses in the consolidated statements of

operations and comprehensive income were $4.2 million and $0.3 million,

respectively.

• Government subsidies related to depreciable assets are credited to income over

the useful lives of the related assets for which the grant was received. For

the six months ended June 30, 2021 and 2020, related government subsidies

recognized as other income in the consolidated statements of operations and

comprehensive income were $80,000 and $73,000, respectively.




Unearned government subsidies received are deferred for recognition and recorded
as other long-term liabilities (see note 13 in the notes to condensed
consolidated financial statements included herein under "Item 1. Financial
Statements") in the balance sheet until the criteria for such recognition are
satisfied.

Net Income Attributable to Non-Controlling Interests and Redeemable Non-Controlling Interests


As described above under "-Recent Developments-STAR Market Listing and IPO", in
2019, ACM Shanghai sold a total number of shares representing 8.3% of its
outstanding ACM Shanghai shares. ACM Research continues to hold the remaining
91.7% of ACM Shanghai's outstanding shares. During the second quarter of 2020,
the redemption feature of the private placement funding terminated and the
aggregate proceeds of the funding were reclassified from redeemable
non-controlling interests to non-controlling interests. As a result, we reflect,
as net income attributable to non-controlling interests and redeemable
non-controlling interests, the portion of our net income allocable to the
minority holders of ACM Shanghai shares.

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How We Evaluate Our Operations

We present information below with respect to four measures of financial performance:

• We define "shipments" of tools to include (a) a "repeat" delivery to a customer

of a type of tool that the customer has previously accepted, for which we

recognize revenue upon delivery, and (b) a "first-time" delivery of a "first

tool" to a customer on an approval basis, for which we may recognize revenue in

the future if contractual conditions are met and customer acceptance is

received.

• We define "adjusted EBITDA" as our net income excluding interest expense (net),

income tax benefit (expense), depreciation and amortization, and stock-based

compensation. We define adjusted EBITDA to also exclude restructuring costs,

although we have not incurred any such costs to date.

• We define "free cash flow" as net cash provided by operating activities less

purchases of property and equipment (net of proceeds from disposals) and of

intangible assets.

• We define "adjusted operating income (loss)" as our income (loss) from

operations excluding stock-based compensation.




These financial measures are not based on any standardized methodologies
prescribed by accounting principles generally accepted in the United States, or
GAAP, and are not necessarily comparable to similarly titled measures presented
by other companies.

We have presented shipments, adjusted EBITDA, free cash flow and adjusted
operating income (loss) because they are key measures used by our management and
board of directors to understand and evaluate our operating performance, to
establish budgets and to develop operational goals for managing our business. We
believe that these financial measures help identify underlying trends in our
business that could otherwise be masked by the effect of the expenses that we
exclude. In particular, we believe that the exclusion of the expenses eliminated
in calculating adjusted EBITDA and adjusted operating income (loss) can provide
useful measures for period-to-period comparisons of our core operating
performance and that the exclusion of property and equipment purchases from
operating cash flow can provide a usual means to gauge our capability to
generate cash. Accordingly, we believe that these financial measures provide
useful information to investors and others in understanding and evaluating our
operating results, enhancing the overall understanding of our past performance
and future prospects, and allowing for greater transparency with respect to key
financial metrics used by our management in its financial and operational
decision-making.

Shipments, adjusted EBITDA, free cash flow and adjusted operating income (loss) are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP.

Shipments

Shipments consist of two components:

• a shipment to a customer of a type of tool that the customer has previously

accepted, for which we recognize revenue when the tool is delivered; and

• a shipment to a customer of a type of tool that the customer is receiving and

evaluating for the first time, in each case a "first tool," for which we may

recognize revenue at a later date, subject to the customer's acceptance of the

tool upon the tool's satisfaction of applicable contractual requirements.

"First tool" shipments can be made to either an existing customer that not previously accepted that specific type of tool in the past - for example, a delivery of a SAPS V tool to a customer that previously had received only SAPS II tools - or to a new customer that has never purchased any tool from us.

Shipments in the three months ended June 30, 2021 totaled $82 million, as compared to $45 million in the three months ended June 30, 2020, and $74 million in the three months ended March 31, 2021.

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The dollar amount attributed to a "first tool" shipment is equal to the
consideration we expect to receive if any and all contractual requirements are
satisfied and the customer accepts the tool. There are a number of limitations
related to the use of shipments in evaluating our business, including that
customers have significant discretion in determining whether to accept our tools
and their decision not to accept delivered tools is likely to result in our
inability to recognize revenue from the delivered tools.

Adjusted EBITDA

There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent. Some of these limitations are:

• adjusted EBITDA excludes depreciation and amortization and, although these are

non-cash expenses, the assets being depreciated or amortized may have to be

replaced in the future;

• we exclude stock-based compensation expense from adjusted EBITDA and adjusted

operating income (loss), although (a) it has been, and will continue to be for

the foreseeable future, a significant recurring expense for our business and an

important part of our compensation strategy and (b) if we did not pay out a

portion of our compensation in the form of stock-based compensation, the cash

salary expense included in operating expenses would be higher, which would

affect our cash position;

• the expenses and other items that we exclude in our calculation of adjusted

EBITDA may differ from the expenses and other items, if any, that other

companies may exclude from adjusted EBITDA when they report their operating

results;

• adjusted EBITDA does not reflect changes in, or cash requirements for, working

capital needs;

• adjusted EBITDA does not reflect interest expense, or the requirements

necessary to service interest or principal payments on debt;

• adjusted EBITDA does not reflect income tax expense (benefit) or the cash

requirements to pay taxes;

• adjusted EBITDA does not reflect historical cash expenditures or future

requirements for capital expenditures or contractual commitments;

• although depreciation and amortization charges are non-cash charges, the assets

being depreciated and amortized will often have to be replaced in the future,

and adjusted EBITDA does not reflect any cash requirements for such

replacements; and

• adjusted EBITDA includes expense reductions and non-operating other income

attributable to PRC governmental grants, which may mask the effect of

underlying developments in net income, including trends in current expenses and

interest expense, and free cash flow includes the PRC governmental grants, the

amount and timing of which can be difficult to predict and are outside our

  control.



The following table reconciles net income, the most directly comparable GAAP financial measure, to adjusted EBITDA:

                                                  Six Months Ended June 30,
                                                  2021                2020
                                                       (in thousands)
Adjusted EBITDA Data:
Net Income                                    $      13,156$       2,459
Interest expense (income), net                          303                (316 )
Income tax expense (benefit)                         (2,755 )             

2,163

Depreciation and amortization                         1,031                 

441

Stock based compensation                              2,545               

1,544

Change in fair value of financial liability               -               

5,431

Unrealized gain on trading securities                (2,736 )                 -
Adjusted EBITDA                               $      11,544$      11,722



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The $0.2 million decrease in adjusted EBITDA for the six-months ended June 30,
2021 as compared to the same period in 2020 reflected an increase of $10.7
million in net income, a $0.6 million increase due to net interest expense
versus net income, a decrease of $4.9 million due to an income tax benefit
versus an income tax expense, an increase of $0.6 million in depreciation and
amortization, an increase of $1.0 million in stock-based compensation, a
decrease of $5.4 million due to no contribution from change in fair value of
financial liability, and a decrease of $2.7 million due to unrealized gain on
trading securities.

We do not exclude from adjusted EBITDA expense reductions and non-operating
other income attributable to PRC governmental grants because we consider and
incorporate the expected amounts and timing of those grants in incurring
expenses and capital expenditures. If we did not receive the grants, our cash
expenses therefore would be lower, and our cash position would not be affected,
to the extent we have accurately anticipated the amounts of the grants. For
additional information regarding our PRC grants, please see "-Key Components of
Results of Operations-PRC Government Research and Development Funding."

Free Cash Flow


The following table reconciles net cash provided by (used in) operating
activities, the most directly comparable GAAP financial measure, to free cash
flow:

                                                          Six Months Ended June 30,
                                                          2021                2020
                                                               (in thousands)
Free Cash Flow Data:
Net cash provided by (used in) operating activities   $        241$      (10,651 )
Purchase property and equipment                             (2,353 )             (1,529 )
Purchase of intangible assets                                 (431 )                (55 )
Prepayment for land-use-right and property                       -              (15,438 )
Purchase of long-term investments                                -              (14,130 )
Free cash flow                                        $     (2,543 )$      (41,803 )



The $39.3 million increase in free cash flow for the six months ended June 30,
2021 as compared to the same period in 2020 reflected a $10.9 million increase
due to net cash provided by operating activities versus net used by operating
activities, a $15.4 million increase due to no prepayments in 2021 for land-use
right and property, and a $14.1 million increase due to no purchase of
investment securities in 2021, and a $0.8 million increase in purchase of
property and equipment, and a $0.4 million increase in purchase of intangible
assets.  Consistent with our methodology for calculating adjusted EBITDA, we do
not adjust free cash flow for the effects of PRC government subsidies, because
we take those subsidies into account in incurring expenses and capital
expenditures.

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Adjusted Operating Income

Adjusted operating income excludes stock-based compensation from income from
operations. Although stock-based compensation is an important aspect of the
compensation of our employees and executives, determining the fair value of
certain of the stock-based instruments we utilize involves a high degree of
judgment and estimation and the expense recorded may bear little resemblance to
the actual value realized upon the vesting or future exercise of the related
stock-based awards. Furthermore, unlike cash compensation, the value of stock
options, which is an element of our ongoing stock-based compensation expense, is
determined using a complex formula that incorporates factors, such as market
volatility, that are beyond our control. Management believes it is useful to
exclude stock-based compensation in order to better understand the long-term
performance of our core business and to facilitate comparison of our results to
those of peer companies. The use of non-GAAP financial measures excluding
stock-based compensation has limitations, however. If we did not pay out a
portion of our compensation in the form of stock-based compensation, the cash
salary expense included in operating expenses would be higher and our cash
holdings would be less. The following tables reflect the exclusion of
stock-based compensation, or SBC, from line items comprising income from
operations:

                                                           Six Months Ended June 30,
                                               2021                                         2020
                              Actual                       Adjusted        Actual                       Adjusted
                              (GAAP)          SBC         (Non-GAAP)       (GAAP)          SBC         (Non-GAAP)
                             (in thousands)
Revenue                      $  97,596     $       -     $     97,596$  63,397     $       -     $     63,397
Cost of revenue                (57,871 )        (181 )        (57,690 )     (33,813 )         (88 )        (33,725 )
Gross profit                    39,725          (181 )         39,906        29,584           (88 )         29,672
Operating expenses:
Sales and marketing            (11,097 )        (983 )        (10,114 )      (7,600 )        (258 )         (7,342 )
Research and development       (13,437 )        (508 )        (12,929 )      (8,898 )        (375 )         (8,523 )
General and administrative      (7,410 )        (873 )         (6,537 )      (4,532 )        (823 )         (3,709 )
Income from operations           7,781        (2,545 )         10,326         8,554        (1,544 )         10,098



Adjusted operating income for the six months ended on June 30, 2021 increased by
$0.2 million, as compared with the same period in 2020, due to a $0.8 million
decrease in income from operations, offset by a $1 million increase in
stock-based compensation expense.

Critical Accounting Policies and Estimates


There were no significant changes in our critical accounting policies or
significant judgments or estimates during the six months ended June 30, 2021 to
augment the critical accounting estimates disclosed under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report, other than those described in the notes to the
condensed consolidated financial statements included in this report, including
the adoption of the Financial Accounting Standards Board's Accounting Standards
Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes and 2020-04, Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting effective January 1,
2021. For information regarding the impact of recently adopted accounting
standards, refer to note 2 to the condensed consolidated financial statements
included in this report.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in our Annual Report and is updated in note 2 to the condensed consolidated financial statements included in this report.

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Results of Operations

The following table sets forth our results of operations for the periods presented, as percentages of revenue.

                                                            Three Months Ended June 30,            Six Months Ended June 30,
                                                             2021                2020               2021               2020
Revenue                                                          100.0 %             100.0 %           100.0 %            100.0 %
Cost of revenue                                                   59.8                50.4              59.3               53.3
Gross margin                                                      40.2                49.6              40.7               46.7
Operating expenses:
Sales and marketing                                               10.7                11.8              11.4               12.0
Research and development                                          14.7                13.4              13.8               14.0
General and administrative                                         6.7                 5.6               7.6                7.1
Total operating expenses, net                                     32.1                30.8              32.7               33.2
Income from operations                                             8.1                18.8               8.0               13.5
Interest income (expense), net                                    (0.3 )               0.2              (0.3 )              0.5
Change in fair value of financial liability                          -               (13.9 )               -               (8.6 )
Unrealized gain on trading securities                              7.0                   -               2.8                  -
Other income (expense), net                                       (1.7 )               0.4              (0.4 )              1.3
Equity income in net income of affiliates                          0.5                 0.5               0.6                0.6
Income before income taxes                                        13.6                 6.0              10.7                7.3
Income tax benefit (expense)                                       0.0                (4.8 )             2.8               (3.4 )
Net income                                                        13.6                 1.2              13.5                3.9
Less: Net income attributable to non-controlling
interests and redeemable non-controlling interests                 1.4                 1.5               1.1                1.3
Net income attributable to ACM Research, Inc.                     12.2 %              (0.3 )%           12.3 %              2.6 %



Comparison of Three Months Ended June 30, 2021 and 2020

Revenue

                                                         Three Months Ended June 30,
                                                                                               % Change
                                                          2021                 2020           2021 v 2020
                                                               (in thousands)
Single Wafer Cleaning, Tahoe and Semi-Critical
Cleaning Equipment                                   $       45,461$       33,340              36.4 %
ECP (front-end and packaging), Furnace and Other
Technologies                                         $            -       $        4,490            -100.0 %
Advanced Packaging (excluding ECP), Services &
Spares                                               $        8,403$        1,219             589.6 %
Total Revenue by Product Category                    $       53,864$       39,049              37.9 %

Wet cleaning and other front-end processing tools $ 45,974 $

       37,830              21.5 %
Advanced packaging, other processing tools,
services and spares                                  $        7,890$        1,219             547.3 %
Total Revenue Front and Back-End$       53,864$       39,049              37.9 %



Revenue increased by $14.8 million in the three months ended June 30, 2021 as
compared to the same period in 2020.  The increase was due to a $7.6 million
increase in revenue from wet cleaning and other front-end processing tools
revenue, and a $7.2 million increase from advanced packaging and other
processing tools, services and spares.

Cost of Revenue and Gross Margin

                      Three Months Ended June 30,
                                                            % Change
                       2021                 2020           2021 v 2020
                            (in thousands)
Cost of revenue   $       32,184$       19,693              63.4 %
Gross profit              21,680               19,356              12.0 %
Gross margin                40.2 %               49.6 %            -9.4 %



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Cost of revenue increased $12.5 million and gross profit increased $2.3 million
in the three months ended June 30, 2021 as compared to the corresponding period
in 2020 due to the increased sales volume, partly offset by a 9.4% point
decrease in gross margin, that reflected differences in product mix.

Gross margin may vary from period to period, primarily related to the level of
utilization and the timing and mix of purchase orders. We expect gross margin to
be between 40.0% and 45.0% for the foreseeable future, with direct manufacturing
costs approximating 50.0% to 55.0% of revenue and overhead costs totaling 5.0%
of revenue.

Operating Expenses

                                                         Three Months Ended June 30,
                                                                                               % Change
                                                          2021                 2020           2021 v 2020
                                                               (in thousands)
Sales and marketing expense                          $        5,789$        4,595              26.0 %
Research and development expense                              7,933                5,221              51.9 %
General and administrative expense                            3,627                2,204              64.6 %
Total operating expenses                             $       17,349$       12,020              44.3 %



Sales and marketing expense increased by $1.2 million in the three months ended
June 30, 2021 as compared to the corresponding period in 2020. The increase was
due in part to the addition of resources to support sales and marketing efforts
in North America and Europe, and other factors.  Sales and marketing expense
consists primarily of:

• compensation of personnel associated with pre- and after-sale support and other

sales and marketing activities, including stock-based compensation;

• sales commissions paid to independent sales representatives;

• fees paid to sales consultants;

• shipping and handling costs for transportation of products to customers;



 • cost of trade shows;


• travel and entertainment; and

• allocated overhead for rent and utilities.




Research and development expense increased by $2.7 million in the three months
ended June 30, 2021 as compared to the corresponding period in 2020, principally
as a result of increases in new product development, testing fees and personnel
costs. Research and development expense represented 14.7% and 13.4% of our
revenue in the three months ended June 30, 2021 and 2020, respectively. Without
reduction by grant amounts received from PRC governmental authorities (see
"-Government Research and Development Funding"), gross research and development
expense totaled $10.2 million, or 18.8% of total revenue, in the three months
ended June 30, 2021 and $5.3 million, or 13.7% of revenue, in the corresponding
period in 2020. Research and development expense relates to the development of
new products and processes and encompasses our research, development and
customer support activities. Research and development expense consists primarily
of:

• compensation of personnel associated with our research and development

activities, including stock based compensation;

• costs of components and other research and development supplies;

• travel expense associated with customer support;

• amortization of costs of software used for research and development purposes;

and

• allocated overhead for rent and utilities.

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General and administrative expense increased $1.4 million in the three months
ended June 30, 2021 as compared to the corresponding period in 2020. General and
administrative expense consists primarily of:


• compensation of executive, accounting and finance, human resources, information

technology, and other administrative personnel, including stock-based

compensation;

• professional fees, including accounting and corporate legal and defense fees;

• other corporate expenses including insurance; and

• allocated overhead for rent and utilities.




We expect that, for the foreseeable future, general and administrative expenses
will increase in absolute dollars, as we incur additional costs associated with
growing our business and operating as a public company in the United States and
the PRC.

Unrealized gain from trading securities


We recorded an unrealized gain of $3.8 million for the three months ended June
30, 2021 based on a change in market value of ACM Shanghai's indirect investment
in SMIC shares on the STAR Market as is described in note 16 to the condensed
consolidated financial statements included in this report.

                                          Three Months Ended June 30,
                                               2021                2020
                                                 (in thousands)
Unrealized gain on trading securities                3,783             -



Other Income and Expenses

                                     Three Months Ended June 30,
                                                                           % Change
                                     2021                  2020           2021 v 2020
                                           (in thousands)
Interest Income                  $          31         $         320             -90.3 %
Interest Expense                          (194 )                (228 )           -14.9 %
Interest Income (expense), net   $        (163 )       $          92            -277.2 %

Other income (expense), net      $        (897 )       $         149            -702.0 %



Interest income consists of interest earned on our cash and equivalents and
restricted cash accounts, offset by interest expense incurred from outstanding
short-term borrowings. We incurred $163,000 of interest expense, net in the
three months ended June 30, 2021 as compared to $92,000 of net interest income
in the corresponding period in 2020.  This was a result of a lower balance of
cash and equivalents and lower interest rates on these balances, offset by
increased borrowings under short-term bank loans.

Other income, net primarily reflects (a) gains or losses recognized from the
impact of exchange rates on our foreign currency-denominated working-capital
transactions and (b) depreciation of assets acquired with government subsidies,
as described under "-Government Research and Development Funding" above. Other
income (expense), declined by $1 million in the three months ended June 30, 2021
as compared to Other income (expense) in the corresponding period in 2020, due
primarily to a realized loss of $894,000 resulting from changes in the
RMB-to-U.S. dollar exchange rate, compared to a realized loss of $85,000 in the
prior year period.

Income Tax Benefit (Expense)

The following presents components of income tax expense for the indicated
periods:

                                 Three Months Ended June 30,
                               2021                   2020
                                       (in thousands)
Total  income tax expense   $       (15 )       $          (1,859 )




We recognized a tax expense of $15,000 for the three months ended June 30, 2021
as compared to a tax expense of $1.9 million for the prior year period. The
decreased tax expense in 2021 primarily resulted from tax deductions related to
the exercise of stock options during the period, as compared to smaller
deductions for the same item in the prior year period.


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Our effective tax rate differs from statutory rates of 21% for U.S. federal
income tax purposes and 12.5% to 25% for Chinese income tax purposes due to the
treatment of stock-based compensation including the impact from stock option
exercises and non-US research expenses. Pursuant to the Corporate Income Tax Law
of the PRC, our PRC subsidiaries generally would be liable for PRC corporate
income taxes as a rate of 25%. According to Guoshuihan 2009 No. 203, an entity
certified as an "advanced and new technology enterprise" is entitled to a
preferential income tax rate of 12.5%. ACM Shanghai was certified as an
"advanced and new technology enterprise" in 2012 and again in 2016 and 2018,
with an effective period of three years.  In 2021, ACM Shanghai was certified as
an eligible integrated circuit production enterprise and is entitled to a
preferential income tax rate of 12.5% from January 1, 2020 to December 31, 2022.


We file income tax returns in the United States and state and foreign
jurisdictions. Those federal, state and foreign income tax returns are under the
statute of limitations subject to tax examinations for 2009 through 2020. To the
extent we have tax attribute carryforwards, the tax years in which the attribute
was generated may still be adjusted upon examination by the Internal Revenue
Service or state or foreign tax authorities to the extent utilized in a future
period.

Net Income Attributable to Non-Controlling Interests and Redeemable
Non-Controlling Interests

                                                           Three Months Ended June 30,
                                                                                                 % Change
                                                           2021                  2020           2021 v 2020
                                                                 (in thousands)

Net income attributable to non-controlling interests $ 767

  $         577              32.9 %



As described above under "-STAR Market Listing and IPO," in 2019, ACM Shanghai
sold a total number of shares representing 8.3% of its outstanding ACM Shanghai
shares. ACM Research continues to hold the remaining 91.7% of ACM Shanghai's
outstanding shares. As a result, commencing with the three months ended
September 30, 2019, we reflect, as net income attributable to non-controlling
interests and redeemable non-controlling interests, the portion of our net
income allocable to the minority holders of ACM Shanghai shares. In the three
months ended June 30, 2021, this amount totaled $767,000 as compared to $577,000
in the corresponding period in 2020.

Comparison of Six Months Ended June 30, 2021 and 2020

Revenue

                                                                        Six Months Ended June 30,
                                                                                                            % Change
                                                                        2021                2020           2021 v 2020
                                                                           

(in thousands) Single Wafer Cleaning, Tahoe and Semi-Critical Cleaning Equipment $ 77,874$ 56,124

              38.8 %
ECP (front-end and packaging), Furnace and Other Technologies               5,550               4,490              23.6 %
Advanced Packaging (excluding ECP), Services & Spares                      14,172               2,783             409.4 %
Total Revenue By Product Category                                   $      97,596$      63,397              53.9 %

Wet cleaning and other front-end processing tools                   $      77,874$      60,614              28.5 %
Advanced packaging, other processing tools, services and spares            19,722               2,783             608.8 %
Total Revenue Front-end and Back-End                                $      97,596$      63,397              53.9 %



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Revenue increased by $34.2 million in the six months ended June 30, 2021 as
compared to the same period in 2020.  The increase was due to a $17.3 million
increase in revenue from wet cleaning and other front-end processing tools
revenue, and a $16.9 million increase from advanced packaging and other
processing tools, services and spares.

Cost of Revenue and Gross Margin

                      Six Months Ended June 30,
                                                          % Change
                      2021                2020           2021 v 2020
                           (in thousands)
Cost of revenue   $      57,871$      33,813              71.2 %
Gross profit             39,725              29,584              34.3 %
Gross margin               40.7 %              46.7 %            -6.0 %



Cost of revenue increased $24.1 million and gross profit increased $10.1 million
in the six months ended June 30, 2021 as compared to the corresponding period in
2020 due to the increased sales volume, partly offset by a 6.0% point decrease
in gross margin, which reflected differences in product mix.

Gross margin may vary from period to period, primarily related to the level of
utilization and the timing and mix of purchase orders. We expect gross margin to
be between 40.0% and 45.0% for the foreseeable future, with direct manufacturing
costs approximating 50.0% to 55.0% of revenue and overhead costs totaling 5.0%
of revenue.

Operating Expenses

                                         Six Months Ended June 30,
                                                                             % Change
                                         2021                2020           2021 v 2020
                                              (in thousands)
Sales and marketing expense          $      11,097$       7,600              46.0 %
Research and development expense            13,437               8,898              51.0 %
General and administrative expense           7,410               4,532              63.5 %
Total operating expenses             $      31,944$      21,030              51.9 %



Sales and marketing expense increased by $3.5 million in the six months ended
June 30, 2021 as compared to the corresponding period in 2020. The increase was
due in part to the addition of resources to support sales and marketing efforts
in North America and Europe, and other factors.  Sales and marketing expense
consists primarily of:

• compensation of personnel associated with pre- and after-sale support and other

sales and marketing activities, including stock-based compensation;

• sales commissions paid to independent sales representatives;

• fees paid to sales consultants;

• shipping and handling costs for transportation of products to customers;



 • cost of trade shows;


• travel and entertainment; and

• allocated overhead for rent and utilities.




Research and development expense increased by $4.5 million in the six months
ended June 30, 2021 as compared to the corresponding period in 2020, principally
as a result of increases in new product development, testing fees and personnel
costs. Research and development expense represented 13.8% and 14.0% of our
revenue in the six months ended June 30, 2021 and 2020, respectively. Without
reduction by grant amounts received from PRC governmental authorities (see
"-Government Research and Development Funding"), gross research and development
expense totaled $17.6 million, or 18.1% of total revenue, in the six months
ended June 30, 2021 and $9.2 million, or 14.5% of revenue, in the corresponding
period in 2020. Research and development expense relates to the development of
new products and processes and encompasses our research, development and
customer support activities. Research and development expense consists primarily
of:

• compensation of personnel associated with our research and development

activities, including stock based compensation;

• costs of components and other research and development supplies;

• travel expense associated with customer support;

• amortization of costs of software used for research and development purposes;

and

• allocated overhead for rent and utilities.

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General and administrative expense increased $2.9 million in the six months
ended June 30, 2021 as compared to the corresponding period in 2020. General and
administrative expense consists primarily of:

• compensation of executive, accounting and finance, human resources, information

technology, and other administrative personnel, including stock-based

compensation;

• professional fees, including accounting and corporate legal and defense fees;

• other corporate expenses including insurance; and

• allocated overhead for rent and utilities.




We expect that, for the foreseeable future, general and administrative expenses
will increase in absolute dollars, as we incur additional costs associated with
growing our business and operating as a public company in the United States and
the PRC.

Unrealized gain from trading securities


We recorded an unrealized gain of $2.7 million for the six months ended June 30,
2021 based on a change in market value of ACM Shanghai's indirect investment in
SMIC shares on the STAR Market as is described in note 16 to the condensed
consolidated financial statements included in this report.

                                           Six Months Ended June 30,
                                              2021                2020
                                                (in thousands)
Unrealized gain on trading securities               2,736             -



Other Income and Expenses

                                   Six Months Ended June 30,
                                                                      % Change
                                     2021                2020        2021 v 2020
                                         (in thousands)
Interest Income                  $          80         $    655             -87.8 %
Interest Expense                          (383 )           (339 )            13.0 %
Interest Income (expense), net   $        (303 )$    316            -195.9 %

Other income, net                $        (428 )$    826            -151.8 %



Interest income consists of interest earned on our cash and equivalents and
restricted cash accounts, offset by interest expense incurred from outstanding
short-term borrowings. We incurred $303,000 of interest expense, net in the six
months ended June 30, 2021 as compared to $316,000 of net interest income in the
corresponding period in 2020.  This was a result of a lower balance of cash and
equivalents and lower interest rates on these balances, offset by increased
borrowings under short-term bank loans.

Other income, net primarily reflects (a) gains or losses recognized from the
impact of exchange rates on our foreign currency-denominated working-capital
transactions and (b) depreciation of assets acquired with government subsidies,
as described under "-Government Research and Development Funding" above. Other
income (expense), declined by $1.2 million in the six months ended June 30, 2021
as compared to Other income (expense) in the corresponding period in 2020, due
primarily to a realized loss of $483,000 resulting from changes in the
RMB-to-U.S. dollar exchange rate, compared to a realized gain of $490,000 in the
prior year period.

Income Tax Benefit (Expense)

The following presents components of income tax benefit (expense) for the
indicated periods:

                                         Six Months Ended June 30,
                                          2021               2020
                                               (in thousands)
Total  income tax benefit (expense)   $      2,755$      (2,163 )



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We recognized a tax benefit of $2.8 million for the six months ended June 30,
2021 as compared to a tax expense of $2.2 million for prior year period. The
benefit in 2021 primarily resulted from tax deductions related to the exercise
of stock options during the period, as compared to smaller deductions for the
same item in the prior year period.


Our effective tax rate differs from statutory rates of 21% for U.S. federal
income tax purposes and 12.5% to 25% for Chinese income tax purposes due to the
treatment of stock-based compensation including the impact from stock option
exercises and non-US research expenses. Our two PRC subsidiaries, ACM Shanghai
and ACM Wuxi, are liable for PRC corporate income taxes at the rates of 12.5%
and 25%, respectively. Pursuant to the Corporate Income Tax Law of the PRC, our
PRC subsidiaries generally would be liable for PRC corporate income taxes as a
rate of 25%. According to Guoshuihan 2009 No. 203, an entity certified as an
"advanced and new technology enterprise" is entitled to a preferential income
tax rate of 15%. ACM Shanghai was certified as an "advanced and new technology
enterprise" in 2012 and again in 2016 and 2018, with an effective period of
three years. In 2021, ACM Shanghai was certified as an eligible integrated
circuit production enterprise and is entitled to a preferential income tax rate
of 12.5% from January 1, 2020 to December 31, 2022.


We file income tax returns in the United States and state and foreign
jurisdictions. Those federal, state and foreign income tax returns are under the
statute of limitations subject to tax examinations for 2009 through 2020. To the
extent we have tax attribute carryforwards, the tax years in which the attribute
was generated may still be adjusted upon examination by the Internal Revenue
Service or state or foreign tax authorities to the extent utilized in a future
period.

Net Income Attributable to Non-Controlling Interests and Redeemable
Non-Controlling Interests

                                                            Six Months Ended June 30,
                                                                                                 % Change
                                                            2021                  2020          2021 v 2020
                                                                 (in thousands)

Net income attributable to non-controlling interests $ 1,119

    $       835              34.0 %



As described above under "-STAR Market Listing and IPO," in 2019, ACM Shanghai
sold a total number of shares representing 8.3% of its outstanding ACM Shanghai
shares. ACM Research continues to hold the remaining 91.7% of ACM Shanghai's
outstanding shares. As a result, commencing with the three months ended
September 30, 2019, we reflect, as net income attributable to non-controlling
interests and redeemable non-controlling interests, the portion of our net
income allocable to the minority holders of ACM Shanghai shares. In the six
months ended June 30, 2021, this amount totaled $1.1 million as compared to $0.8
million in the corresponding period in 2020.

Liquidity and Capital Resources

During the first six months of 2021, we funded our technology development and operations principally through our beginning cash balance and short-term borrowings by ACM Shanghai from local financial institutions.


We believe our existing cash and cash equivalents, our cash flow from operating
activities, and short-term bank borrowings by ACM Shanghai will be sufficient to
meet our anticipated cash needs for at least the next twelve months. We do not
expect that our anticipated cash needs for the next twelve months will require
our receipt of any PRC government subsidies. Our future working capital needs
will depend on many factors, including the rate of our business and revenue
growth, the payment schedules of our customers, and the timing of investment in
our research and development as well as sales and marketing. To the extent our
cash and cash equivalents, cash flow from operating activities and short-term
bank borrowings are insufficient to fund our future activities in accordance
with our strategic plan, we may determine to raise additional funds through
public or private debt or equity financings or additional bank credit
arrangements. We also may need to raise additional funds in the event we
determine in the future to effect one or more acquisitions of businesses,
technologies and products. If additional funding is necessary or desirable, we
may not be able to obtain bank credit arrangements or to affect an equity or
debt financing on terms acceptable to us or at all.

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In 2020 ACM Shanghai, through its wholly owned subsidiary Shengwei Research
(Shanghai), Inc., entered into a Grant Contract for State-owned Construction
Land Use Right in Shanghai City (Category of R&D Headquarters and Industrial
Projects), or the Grant Agreement, with the China (Shanghai) Pilot Free Trade
Zone Lin-gang Special Area Administration. Shengwei Research (Shanghai), Inc.
obtained rights to use approximately 43,000 square meters (10.6 acres) of land
in the Lingang Heavy Equipment Industrial Zone of Lin-gang Special Area of China
(Shanghai) Pilot Free Trade Zone for a period of fifty years, commencing on the
date of delivery of the land in July 2020, which we refer to as the Delivery
Date.

In exchange for its land use rights, Shengwei Research (Shanghai), Inc. paid
aggregate grant fees of RMB 61.7 million ($9.5 million), and a performance
deposit of RMB 12.3 million ($1.9 million), which is equal to 20% of the
aggregate grant fees, to secure its achievement of the following performance
milestones:

• the start of construction within 6 months after the Delivery Date (60% of the

performance deposit);

• the completion of construction within 30 months after the Delivery Date (20% of

the performance deposit); and

• the start of production within 42 months after the Delivery Date (20% of the

   performance deposit.



Upon satisfaction of a milestone, the portion of the performance deposit
attributable to that milestone will be repayable to Shengwei Research
(Shanghai), Inc. within ten business days. If the achievement of any of the
above milestones is delayed or abandoned, Shengwei Research (Shanghai), Inc. may
be subject to additional penalties and may lose its rights to both the use of
the granted land and any partially completed facilities on that land.

Covenants in the Grant Agreement require that, among other things, Shengwei
Research (Shanghai), Inc. will be required to pay liquidated damages in the
event that (a) it does not make a total investment  (including the costs of
construction, fixtures, equipment and grant fees) of at least RMB 450.0 million
($63.4 million) or (b) within six years after the Delivery Date, we do not (i)
generate a minimum specified amount of annual sales of products manufactured on
the granted land or (ii) pay to the PRC at least RMB 157.6 million ($22.2
million) in annual total taxes (including value-added taxes, corporate income
tax, personal income taxes, urban maintenance and construction taxes, education
surcharges, stamp taxes, and vehicle and shipping taxes) as a result of
operations in connection with the granted land.

Sources of Funds


Cash Flow from Operating Activities. Our operations provided cash flow of $0.2
million in the first six months of 2021. Our cash flow from operating activities
is influenced by (a) the level of net income, (b) the amount of cash we invest
in personnel and technology development to support anticipated future growth in
our business, (c) increases in the number of customers using our products, and
(d) the amount and timing of payments by customers.

Equity and Equity-related Securities. During the six months ended June 30, 2021,
we received proceeds of $2.2 million from sales of Class A common stock pursuant
to option exercises, and we received proceeds of $1.8 million pursuant to a
warrant exercise for shares of Class A common stock.

                                       46

--------------------------------------------------------------------------------

Table of Contents Short-Term and Long-Term Loan Facilities. We have short-term and long-term borrowings with five banks, as follows:

                                                                              Maximum             Amount
                                                            Annual           Borrowing         Outstanding
     Lender        Agreement Date     Maturity Date      Interest Rate       Amount(1)       at June 30, 2021
                                                                                      (in thousands)
Bank of Shanghai  June 2021         June 2022
Pudong Branch                                                      2.70 %    RMB100,000RMB29,829$    15,480     $            4,618

China EverbrightApril 2020September 2021 Bank

                                                               2.50 %     RMB80,000RMB18,439$    12,384     $            2,854
China Merchants   August 2020       August 2021 -
Bank                                May 2022                 3.85%-3.95 %     RMB80,000RMB75,000$    12,384     $           11,610
Bank of China     June 2021         June 2022                      3.86 %     RMB40,000RMB19,900$     6,192     $            3,080
                                    Repayable by
                                    installments and
China Merchants   November 2020     the last
Bank                                installments
                                    repayable in
                                    November 2030                  4.65 %    RMB128,500RMB122,529$    19,892     $           18,968
                                    Repayable by
                                    installments and
Bank of China     June 2021         the last
                                    installments
                                    repayable in June
                                    2024                           2.60 %     RMB10,000RMB10,000$     1,548     $            1,548
Industrial Bank   July 2020         July 2021
of Korea                                                           3.99 %    KRW500,000                    NIL
                                                                            $       443     $                -
                                                                            $    68,323     $           42,678



(1) Converted from RMB to dollars as of June 30, 2021. All of the amounts owing

under the line of credit with China Everbright Bank are guaranteed by Dr.

David Wang, our Chief Executive Officer, President and Chair of the Board.

All of the amounts owing under the line of credit with Bank of Shanghai

Pudong Branch are guaranteed by CleanChip Technologies LTD, a wholly owned

subsidiary of ACM Shanghai. All of the amounts owing under the line of credit

with Industrial Bank of Korea are guaranteed by YY Kim, Chief Executive

     Officer of ACM Research (Korea).



                                       47
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  Table of Contents
Government Research and Development Grants. As described under "-Key Components
of Results of Operations-PRC Government Research and Development Funding," ACM
Shanghai has received research and development grants from local and central PRC
governmental authorities. ACM Shanghai received cash payments of $0.6 million
related to such grants in the first six months of 2021, as compared to received
cash payments of $2.8 million in the same period of 2020. Not all grant amounts
are received in the year in which a grant is awarded. Because of the nature and
terms of the grants, the amounts and timing of payments under the grants are
difficult to predict and vary from period to period. In addition, we expect to
apply for additional grants when available in the future, but the grant
application process can extend for a significant period of time and we cannot
predict whether, or when, we will determine to apply for any such grants.

Working Capital. The following table sets forth selected working capital
information:

                                                            June 30, 2021
                                                           (in thousands)
Cash and cash equivalents                                  $        70,209
Accounts receivable, less allowance for doubtful amounts            71,357
Inventory                                                          136,852
Working capital                                            $       278,418



Our cash and cash equivalents at June 30, 2021 were unrestricted and held for
working capital purposes. ACM Shanghai, our only direct PRC subsidiary, is,
however, subject to PRC restrictions on distributions to equity holders. We
currently intend for ACM Shanghai to retain all available funds any future
earnings for use in the operation of its business and do not anticipate its
paying any cash dividends. We have not entered into, and do not expect to enter
into, investments for trading or speculative purposes. Our accounts receivable
balance fluctuates from period to period, which affects our cash flow from
operating activities. Fluctuations vary depending on cash collections, client
mix, and the timing of shipment and acceptance of our tools.

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.

Uses of Funds



Capital Expenditures. We incurred $2.8 million in capital expenditures during
the six months ended June 30, 2021, versus $1.6 million in capital expenditures
in the same period of 2020. Capital expenditures in the six months ended June
30, 2021 were incurred principally for the addition of production capacity and
general maintenance and improvements to our global facilities.


Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K of the Securities and Exchange Commission.

© Edgar Online, source Glimpses

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