Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

NOTE 1 – DESCRIPTION OF BUSINESS

ACM Research, Inc. (“ACM”) and its subsidiaries (collectively with ACM, the “Company”) develop, manufacture and sell single-wafer wet cleaning equipment used to improve the manufacturing process and yield for advanced integrated chips. The Company markets and sells, under the brand name “Ultra C,” lines of equipment based on the Company’s proprietary Space Alternated Phase Shift (“SAPS”) and Timely Energized Bubble Oscillation (“TEBO”) technologies. These tools are designed to remove random defects from a wafer surface efficiently, without damaging the wafer or its features, even at increasingly advanced process nodes.

ACM was incorporated in California in 1998, and it initially focused on developing tools for manufacturing process steps involving the integration of ultra low-K materials and copper. The Company’s early efforts focused on stress-free copper-polishing technology, and it sold tools based on that technology in the early 2000s.

In 2006 the Company established its operational center in Shanghai in the People’s Republic of China (the “PRC”), where it operates through ACM’s subsidiary ACM Research (Shanghai), Inc. (“ACM Shanghai”). ACM Shanghai was formed to help establish and build relationships with integrated circuit manufacturers in the PRC, and the Company financed its Shanghai operations in part through sales of non-controlling equity interests in ACM Shanghai.

In 2007 the Company began to focus its development efforts on single-wafer wet-cleaning solutions for the front-end chip fabrication process. The Company introduced its SAPS megasonic technology, which can be applied in wet wafer cleaning at numerous steps during the chip fabrication process, in 2009. It introduced its TEBO technology, which can be applied at numerous steps during the fabrication of small node two-dimensional conventional and three-dimensional patterned wafers, in March 2016. The Company has designed its equipment models for SAPS and TEBO solutions using a modular configuration that enables it to create a wet-cleaning tool meeting the specific requirements of a customer, while using pre-existing designs for chamber, electrical, chemical delivery and other modules. The Company also offers a range of custom-made equipment, including cleaners, coaters and developers, to back-end wafer assembly and packaging factories, principally in the PRC.

In 2011 ACM Shanghai formed a wholly owned subsidiary in the PRC, ACM Research (Wuxi), Inc. (“ACM Wuxi”), to manage sales and service operations.

In November 2016 ACM redomesticated from California to Delaware pursuant to a merger in which ACM Research, Inc., a California corporation, was merged into a newly formed, wholly owned Delaware subsidiary, also named ACM Research, Inc.

In June 2017 ACM formed a wholly owned subsidiary in Hong Kong, CleanChip Technologies Limited (“CleanChip”), to act on the Company’s behalf in Asian markets outside the PRC by, for example, serving as a trading partner between ACM Shanghai and its customers, procuring raw materials and components, performing sales and marketing activities, and making strategic investments.

In August 2017 ACM purchased 18.77% of ACM Shanghai’s equity interests held by Shanghai Science and Technology Venture Capital Co., Ltd. (“SSTVC”). As of September 30, 2017, and December 31, 2016, respectively, ACM owned 81.64% and 62.87% of the outstanding equity interests of ACM Shanghai, and indirectly through ACM Shanghai, owned 81.64% and 62.87% of the outstanding equity interests of ACM Wuxi, respectively. In August 2017 ACM entered into securities purchase agreements pursuant to which ACM proposes to acquire the remaining outstanding non-controlling equity interests of ACM Shanghai (see note 14).

On September 13, 2017, ACM effectuated a 1-for-3 reverse stock split (the “Reverse Split”) of Class A and Class B common stock. Unless otherwise indicated, all share numbers, per share amount, share prices, exercise prices and conversion rates set forth in those notes and the accompanying condensed consolidated financial statements have been adjusted retrospectively to reflect the Reverse Split.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of 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”). The consolidated accounts include ACM and its subsidiaries, ACM Shanghai, ACM Wuxi and CleanChip. Subsidiaries are those entities in which ACM, directly and indirectly, controls more than one half of the voting power. All significant intercompany transactions and balances have been eliminated upon consolidation.

The accompanying condensed consolidated balance sheet as of September 30, 2017, the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016 are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements of the Company reflect all adjustments, which 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 September 30, 2017 and the results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for any future period. The condensed consolidated financial statements herein should be read in conjunction with the historical consolidated financial statements of the Company for the year ended December 31, 2016.

Unaudited Pro Forma Balance Sheet

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2017 gives effect to the automatic conversion of all of the Company’s outstanding redeemable convertible preferred stock into shares of Class A common stock, which occurred upon completion of an IPO of common stock on November 7, 2017.

Use of Estimates

The preparation of 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 the valuation and recognition of stock-based compensation arrangements and warrant liability, realization of deferred tax assets, assessment for impairment of long-lived assets, allowance for doubtful accounts, inventory valuation for excess and obsolete inventories, lower of cost and market value or net realizable value of inventories, depreciable lives of property and equipment, and useful life of intangible assets. Management of the Company believes that the estimates, judgments and assumptions are reasonable, based on information available at the time they are made. Actual results could differ materially from those estimates.

Restricted Cash

Restricted cash is money that is reserved for a specific purpose and therefore not available for immediate or general business use. At September 30, 2017 and December 31, 2016, restricted cash was $433 and $0, respectively. The restricted cash represents a deposit for a letter of credit issued for international purchase.

Deferred Initial Public Offering (“IPO”) Costs

Direct costs incurred by the Company attributable to its IPO of Class A common stock in the United States were deferred and recorded in other current assets and will be offset against the gross proceeds received from the IPO. At September 30, 2017 and December 31, 2016, deferred IPO costs were $819 and $41, respectively.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

Basic and diluted net income (loss) per common share is presented using the two-class method, which allocates undistributed earnings to common stock and any participating securities according to dividend rights and participation rights on a proportionate basis. Under the two-class method, basic net income (loss) per common share is computed by dividing the sum of distributed and undistributed earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Shares of ACM’s Series A, B, C, D, E and F convertible preferred stock are participating securities, as the holders are entitled to participate in and receive the same dividends as may be declared for common stockholders on a pro-rata, if-converted basis.

ACM has been authorized to issue Class A and Class B common stock since redomesticating in Delaware in November 2016. The two classes of common stock are substantially identical in all material respects, except for voting rights. Since ACM did not declare any dividends for the three and nine months ended September 30, 2017 and 2016, the net income (loss) per common share attributable to each class is the same under the “two-class” method. As such, the two classes of common stock have been presented on a combined basis in the consolidated statements of operations and comprehensive income (loss) and in the above computation of net income (loss) per common share.

Diluted net income (loss) per common share reflects the potential dilution from securities that could share in ACM’s earnings. ACM’s potential dilutive securities consist of convertible preferred stocks, stock options and warrants for the three and nine months ended September 30, 2017 and 2016. Certain potential dilutive securities were excluded from the net income (loss) per share calculation because the impact would be anti-dilutive.

Fair Value of Financial Instruments

Under the authoritative guidance of the Financial Accounting Standards Board (“FASB”) on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable,

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

market corroborated or generally unobservable inputs. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

All transfers between fair value hierarchy levels are recognized by the Company at the end of each reporting period. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risks associated with investment in those instruments.

Fair Value Measured or Disclosed on a Recurring Basis

Short-term borrowings —Interest rates under the borrowing agreements with the lending parties were determined based on the prevailing interest rates in the market. The Company classifies the valuation techniques that use these inputs as Level 2 fair value measurement.

Warrant liability —The fair value of the warrant liability derives from the Black-Scholes valuation model which incorporates certain unobservable assumptions (note 9). The Company classifies the valuation techniques that use these inputs as Level 3 fair value measurement.

Other financial items for disclosure purpose —The fair value of other financial items of the Company for disclosure purpose, including cash and cash equivalents, accounts receivable, other receivables, prepaid expenses, other current assets, notes payable, investors’ deposits, accounts payable, advances from customers, income taxes payable, and other payables and accrued expenses, approximate their carrying value due to their short-term nature.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

As of September 30, 2017 and December 31, 2016, information about inputs into the fair value measurement of the Company’s liabilities that are measured and recorded at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:

Fair Value Measured on a Non-Recurring Basis

The Company reviews long-lived assets for impairment annually or more frequently if events or changes in circumstances indicate the possibility of impairment. Long-lived assets are measured at fair value on a nonrecurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. In determining the fair value, the Company used projections of cash flows directly associated with, and which are expected to arise as a direct result of, the use and eventual disposition of the assets. This approach required significant judgments including the Company’s projected net cash flows, which were derived using the most recent available estimate for the reporting unit containing the assets tested. Several key assumptions included periods of operation, projections of product pricing, production levels, product costs, market supply and demand, and inflation.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted in the Consolidated Financial Statements for the Nine Months Ended September 30, 2017

In April 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09,  Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which simplifies several aspects of the accounting for employee stock-based payment transactions. The areas for simplification in ASU No. 2016-09 include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this ASU were effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The adoption of ASU No. 2016-09 did not have a material impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17,  Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes . Topic 740,  Income Taxes , requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference. To simplify the presentation of deferred income taxes, the amendments in ASU No. 2015-17 require that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The adoption of ASU No. 2015-17 did not have a material impact on the Company’s consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

In July 2015, the FASB issued ASU No. 2015-11,  Inventory (Topic 330): Simplifying the Measurement of Inventory . The amendments in this update require an entity to measure inventory within the scope of ASU No. 2015-11 (the amendments in ASU No. 2015-11 do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost) at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is uncharged for inventory measured using last-in, first-out or the retail inventory method. The amendments in ASU No. 2015-11 more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards. ASU No. 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU No. 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 did not have a material impact on the Company’s consolidated financial statements. The relevant descriptions have been included in the inventory accounting policy.

In August 2014, the FASB issued ASU No. 2014-15,  Presentation of Financial Statements—Going Concern . The amendments in this update require management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern for both annual and interim reporting. The guidance is effective for the Company for the annual period ended after December 15, 2016 and interim periods thereafter. Management performed an evaluation of the Company’s ability to fund operations and to continue as a going concern according to the FASB Accounting Standards Codification (“ASC”) Topic 205-40,  Presentation of Financial Statements—Going Concern . The adoption of ASU No. 2014-15 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In July 2017, the FASB issued ASU No. 2017-11,  Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815):  (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception , which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company is evaluating the impact of the adoption of ASU No. 2017-11 on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09,  Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting , which provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company does not expect the adoption of ASU No. 2017-09 to have a material impact on its consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-05,  Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets , which clarifies the scope of nonfinancial asset guidance in

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

Subtopic 610-20. This ASU also clarifies that derecognition of all businesses and nonprofit activities (except those related to conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in accordance with the derecognition and deconsolidation guidance in Subtopic 810-10. The amendments in this ASU also provide guidance on the accounting for so-called “partial sales” of nonfinancial assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other noncontrolled investee. The amendments in this ASU are effective for annual reporting reports beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company does not expect the adoption of ASU No. 2017-05 to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04,  Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which removes Step 2 from the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. A business entity that is a U.S. Securities and Exchange Commission filer must adopt the amendments in this ASU for its annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is evaluating the impact of the adoption of ASU 2017-04 on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18,  Statement of Cash Flows (Topic 230): Restricted Cash , which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU No. 2016-18 to have a material impact on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15,  Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which addresses the following cash flow issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years and are effective for all other entities for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact of the adoption of ASU No. 2016-15 on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02,  Leases (Topic 842) . The amendments in this update create Topic 842,  Leases , and supersede the leases requirements in Topic 840,  Leases . Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

amendments in ASU No. 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Early application of the amendments in ASU No. 2016-02 is permitted. The Company is in the process of evaluating the impact of the adoption of ASU No. 2016-02 on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09,  Revenue from Contracts with Customers (Topic 606) . ASU No. 2014-09 supersedes the revenue recognition requirements in “ Revenue Recognition (Topic 605) ”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The FASB issued ASU No. 2015-14,  Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date  in August 2015. The amendments in ASU No. 2015-14 defer the effective date of ASU No. 2014-09. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Further to ASU No. 2014-09 and ASU No. 2015-14, the FASB issued ASU No. 2016-08,  Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)  in March 2016, ASU No. 2016-10,  Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing  in April 2016, ASU No. 2016-12,  Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients , and ASU No. 2016-20,  Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers , respectively. The amendments in ASU No. 2016-08 clarify the implementation guidance on principal versus agent considerations, including indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. ASU No. 2016-10 clarifies guideline related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. The updates in ASU No. 2016-10 include targeted improvements based on input the FASB received from the Transition Resource Group for Revenue Recognition and other stakeholders. It seeks to proactively address areas in which diversity in practice potentially could arise, as well as to reduce the cost and complexity of applying certain aspects of the guidance both at implementation and on an ongoing basis. ASU No. 2016-12 addresses narrow-scope improvements to the guidance on collectability, non-cash consideration, and completed contracts at transition. Additionally, the amendments in this ASU provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The amendments in ASU No. 2016-20 represents changes to make minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The effective date and transition requirements for ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20 are the same as ASU No. 2014-09. The Company will adopt ASU No. 2014-09, ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-12 and ASU No. 2016-20 at January 1, 2018 if the IPO is completed by December 31, 2017. The Company is in the process of assessing the potential effects of these ASUs on its consolidated financial statements, business processes, systems and controls. While the assessment process is ongoing, the Company anticipates adopting ASC Topic 606,  Revenue from Contracts with Customers , using the modified retrospective transition approach. Under this approach, ASC Topic 606 would apply to all new contracts initiated on or after January 1, 2018. For existing contracts that have remaining obligations as of January 1, 2018, any difference between the recognition criteria in these ASUs and the Company’s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of accumulated deficit. The Company does not expect the adoption of these ASUs to have a material impact on its consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

The Company reviews accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. No allowance for doubtful accounts was considered necessary at September 30, 2017 or December 31, 2016. At September 30, 2017 and December 31, 2016, no accounts receivable were pledged as collateral for borrowings from financial institutions.

At September 30, 2017 and December 31, 2016, the Company did not have an inventory reserve and no inventory was pledged as collateral for borrowings from financial institutions.

Depreciation expense was $55 and $31 for the three months ended September 30, 2017 and 2016, respectively, and $162 and $119 for the nine months ended September 30, 2017 and 2016, respectively.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

Interest expense related to short-term borrowings amounted to $33 and $39 for the three months ended September 30, 2017 and 2016, respectively, and $196 and $150 for the nine months ended September 30, 2017 and 2016, respectively.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

NOTE 8 – INVESTORS’ DEPOSITS

On December 9, 2016, Shengxin (Shanghai) Management Consulting Limited Partnership (“SMC”), a related party (note 12), delivered RMB 20,124 (approximately $2,981 as of the close of business on such date) in cash (the “SMC Investment”) to ACM Shanghai for potential investment pursuant to terms to be subsequently negotiated. On March 14, 2017, ACM, ACM Shanghai and SMC entered into a securities purchase agreement pursuant to which, in exchange for the SMC Investment, ACM issued to SMC a warrant exercisable to purchase 397,502 shares of ACM’s Class A common stock at a price of $7.50 per share (note 9).

NOTE 9 – WARRANT LIABILITY

On December 9, 2016, SMC delivered the SMC Investment to ACM Shanghai for potential investment pursuant to terms to be subsequently negotiated. As of December 31, 2016, the terms of the SMC Investment had not yet been negotiated and the SMC Investment was recorded as investors’ deposit.

On March 14, 2017, ACM, ACM Shanghai and SMC entered into a securities purchase agreement (the “SMC Agreement”) pursuant to which, in exchange for the SMC Investment, ACM issued to SMC a warrant exercisable, for cash or on a cashless basis, to purchase, at any time on or before May 17, 2023, all, but not less than all, of 397,502 shares of ACM’s Class A common stock at a price of $7.50 per share. Under the SMC Agreement, if SMC does not exercise the warrant by May 17, 2023, ACM Shanghai will be obligated, subject to approval of governmental authorities and ACM Shanghai’s equity holders, to deliver an equity interest of 3.6394% (subject to dilution) in satisfaction of the SMC Investment. If SMC exercises the warrant or if SMC does not exercise the warrant and the issuance of the equity interest in ACM Shanghai is not completed by August 17, 2023 due to the inability of the parties to obtain required governmental or equity holder approvals, then ACM Shanghai will be obligated to pay to SMC, in satisfaction of the SMC Investment, an amount equal to $2,981, converted into RMB at the lesser of 6.75 and the then-current RMB-to-US dollar exchange rate.

In accordance with FASB ASC 480, Distinguishing Liabilities from Equity , the warrant is classified as a liability as the warrant is conditional puttable. The fair value of the warrant is adjusted for changes in fair value at each reporting period but cannot be lower than the proceeds of the SMC Investment. The corresponding non-cash gain or loss of the changes in fair value is recorded in earnings. The methodology used to value the warrant was the Black-Scholes valuation model with the following assumptions:

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

NOTE 11 – EQUITY METHOD INVESTMENT

On September 6, 2017, ACM and Ninebell Co., Ltd. (“Ninebell”), a Korean company that is one of the Company’s principal materials suppliers, entered into an ordinary share purchase agreement, effective as of September 11, 2017, pursuant to which Ninebell issued to ACM ordinary shares representing 20% of Ninebell’s post-closing equity for a purchase price of $1,200, and a common stock purchase agreement, effective as of September 11, 2017, pursuant to which ACM issued 133,334 shares of Class A common stock to Ninebell for a purchase price of $1,000 at $7.50 per share. The investment in Ninebell is accounted for under the equity method. Undistributed earnings attributable to ACM’s equity method investment represented $20 of the consolidated retained earnings at September 30, 2017.

NOTE 12 – RELATED PARTY BALANCES AND TRANSACTIONS

On August 18, 2017, ACM and Ninebell, its equity method investment affiliate (note 11), entered into a loan agreement, pursuant to which ACM made an interest-free loan of $946 to Ninebell, payable in 180 days or automatically extended another 180 days if in default. The loan is secured by a pledge of Ninebell’s accounts receivable due from ACM and all money that Ninebell receives from ACM. ACM purchased materials from Ninebell amounting to $807 and $382 during the three months ended September 30, 2017 and 2016, respectively, and $2,624 and $1,446 during the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017 and December 31, 2016, accounts payable due to Ninebell was $1,925 and $508, respectively.

In 2007, ACM Shanghai entered into an operating lease agreement with Shanghai Zhangjiang Group Co., Ltd. (“Zhangjiang Group”), one of the holders of non-controlling interests in ACM Shanghai, to lease manufacturing and office space located in Shanghai, China. Pursuant to the lease agreement, Zhangjiang Group provided $771 to ACM Shanghai for leasehold improvements. In September 2016, the lease agreement was amended to modify payment terms and extend the lease through December 31, 2017. During the three and nine months ended September 30, 2017 and 2016, the Company incurred leasing expenses under the lease agreement of $130, $161, $451 and $491, respectively. As of September 30, 2017, and December 31, 2016, payables to Zhangjiang Group for lease expenses and leasehold improvements recorded as other payables and accrued expenses, amounted to $2,024 and $1,883, respectively (note 7).

On December 9, 2016, ACM Shanghai received the SMC Investment from SMC for potential investment pursuant to terms to be subsequently negotiated (notes 8 and 9). SMC is a limited partnership incorporated in the PRC, whose partners consist of employees of ACM Shanghai. As of September 30, 2017, and December 31, 2016, investors’ deposits from SMC amounted to $0, and $2,902, respectively. On March 14, 2017, ACM, ACM Shanghai and SMC entered into a securities purchase agreement (the “SMC Agreement”) pursuant to which, in exchange for the SMC Investment, ACM issued to SMC a warrant exercisable, for cash or on a cashless basis, to purchase, at any time on or before May 17, 2023, all, but not less than all, of 397,502 shares of ACM’s Class A common stock at a price of $7.50 per share, for a total exercise price of $2,981. Under the SMC Agreement, if SMC does not exercise the warrant by May 17, 2023, ACM Shanghai will be obligated, subject to approval of governmental authorities and ACM Shanghai’s equity holders, to deliver an equity interest of 3.6394% (subject to dilution) in satisfaction of the

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

SMC Investment. If SMC exercises the warrant or if SMC does not exercise the warrant and the issuance of the equity interest in ACM Shanghai is not completed by August 17, 2023 due to the inability of the parties to obtain required governmental or equity holder approvals, then ACM Shanghai will be obligated to pay to SMC, in satisfaction of the SMC Investment, an amount equal to $2,981, converted into RMB at the lesser of 6.75 and the then-current RMB-to-US dollar exchange rate.

NOTE 13 – LEASES

ACM entered into a two-year lease agreement in March 2015 for office and warehouse space of approximately 3,000 square feet for its headquarters in Fremont, California, at a rate of $2 per month. On March 22, 2017, ACM amended the lease agreement to extend the lease term through September 30, 2018 and increase the base rent to $3 per month.

ACM Shanghai entered into an operating lease agreement with Zhangjiang Group (a related party, see note 12) in 2007 for manufacturing and office space of approximately 63,510 square feet in Shanghai, China. The lease agreement has been amended several times to modify payment terms and extend the lease term, most recently through December 31, 2017. Monthly rent is $58 during 2017.

ACM Wuxi leases office space in Wuxi, China, at a rate of less than $1 per month.

Future minimum lease payments under the non-cancelable lease agreements as of September 30, 2017 and December 31, 2016 were as follows:

Rent expense was $140 and $168 for the three months ended September 30, 2017 and 2016, respectively, and $476 and $437 for the nine months ended September 30, 2017 and 2016, respectively.

NOTE 14 – COMMON STOCK

ACM is authorized to issue 100,000,000 shares of Class A common stock and 7,303,533 shares of Class B common stock, each with a par value of $0.0001. Each share of Class A common stock is entitled to one vote, and each share of Class B common stock is entitled to twenty votes and is convertible at any time into one share of Class A common stock. Shares of Class A common stock and Class B common stock are treated equally, identically and ratably with respect to any dividends if declared by the Board of Directors unless the Board of Directors declares different dividends to the Class A common stock and Class B common stock by getting approval from a majority of common stock holders.

In August 2017 ACM entered into a securities purchase agreement with Shanghai Pudong High-Tech Investment Co., Ltd. (“PDHTI”) and its subsidiary Pudong Science and Technology (Cayman) Co., Ltd. (“PST”), in which ACM agreed to bid, in an auction process mandated by PRC regulations, to purchase PDHTI’s 10.78% equity interests in ACM Shanghai and to sell shares of Class A common stock to PST. On September 8, 2017, ACM issued 1,119,576 shares of Class A common stock to PST for a purchase price of $7.50 per share, representing an aggregate purchase price of $8,397. The non-controlling equity interest transfer to ACM is subject to Chinese government’s approval and had not been closed as of September 30, 2017.

In August 2017 ACM entered into a securities purchase agreement with Shanghai Zhangjiang Science & Technology Venture Capital Co., Ltd. (“ZSTVC”) and its subsidiary Zhangjiang AJ Company Limited (“ZJAJ”), in which ACM agreed to bid, in an auction process mandated by PRC regulations, to purchase ZSTVC’s 7.58% equity interests in ACM Shanghai and to sell shares of Class A common stock to ZJAJ. On September 8, 2017, ACM issued 787,098 shares of Class A common stock to ZJAJ for a purchase price of $7.50 per share, or an aggregate purchase price of $5,903. The non-controlling equity interest transfer to ACM is subject to Chinese government’s approval and had not been closed as of September 30, 2017.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

In September 2017 ACM issued 133,334 shares of Class A common stock to Ninebell for a purchase price of $7.50 per share, or an aggregate purchase price of $1,000 (note 11).

At various dates during the nine months ended September 30, 2017, ACM issued 472,887 shares of Class A common stock for options exercised by certain employee and non-employees.

At September 30, 2017 and December 31, 2016, the number of shares of Class A common stock issued and outstanding was 4,741,635 and 2,228,740, respectively. At September 30, 2017 and December 31, 2016, the number of shares of Class B common stock issued and outstanding was 2,409,738.

NOTE 15 – REDEEMABLE CONVERTIBLE PREFERRED STOCK

Upon ACM’s redomestication in Delaware in November 2016, ACM had 22,696,467 authorized shares of preferred stock, of which 385,000, 1,572,000, 1,360,962, 2,659,975, 10,718,530, and 6,000,000 shares were designated as Series A, Series B, Series C, Series D, Series E and Series F preferred stock, respectively.

In March 2017 ACM entered into a securities purchase agreement, amended in July 2017, with Shanghai Science and Technology Venture Capital Co., Ltd. (“SSTVC”) pursuant to which, effective as of August 31, 2017, ACM acquired SSTVC’s equity interests in ACM Shanghai for a purchase price of $6,154 (RMB 40,000) and issued to SSTVC 4,998,508 shares of Series E convertible preferred stock for a purchase price of $5,800.

The number of outstanding shares of Series A, Series B, Series C, Series D, Series E and Series F was 385,000, 1,572,000, 1,360,962, 1,326,642, 4,998,508 and 3,663,254, and 385,000, 1,572,000, 1,360,962, 1,326,642, 0 and 3,663,254, respectively, at September 30, 2017 and December 31, 2016.

Shares of ACM’s convertible preferred stock have rights, preferences and privileges as follows:

Voting Rights

Each share of Series A through Series F convertible preferred stock is entitled to a number of votes equal to the number of whole shares of common stock into which such share can be converted.

Dividends

Holders of Series A through Series F convertible preferred stock have a non-cumulative right to participate in and receive the same dividends as may be declared for common stockholders, as and if declared by the Board of Directors, payable out of funds legally available.

Conversion

Each share of Series A through Series F convertible preferred stock is convertible at any time, at the option of the holder. At September 30, 2017, each share of Series A, B, E and F convertible preferred stock was convertible into one-third share of Class A common stock, each share of Series C convertible preferred stock was convertible into 0.3544 shares of Class A common stock, and each share of Series D convertible preferred stock was convertible into 0.4562 shares of Class A common stock. The Series A through Series F convertible preferred stock will convert automatically into Class A common stock upon the closing of an initial public offering of Class A common stock with aggregate proceeds of at least $20,000 and a per-share price of at least $15.00. At September 30, 2017 and December 31, 2016, 4,627,577 shares and 2,960,968 shares of Class A common stock were reserved for issuance upon conversion of outstanding Series A through Series F convertible preferred stock.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

Liquidation Preferences

Holders of Series A through Series F convertible preferred stock are entitled to receive specified liquidation amounts in the event of a liquidation, dissolution or winding-up of ACM or of certain deemed liquidation events. The deemed liquidation events generally include (a) a merger or stock sale after which new stockholders would own a majority of the voting stock of ACM and (b) a sale of all or substantially all of the assets of the Company.

In the event of a liquidation, dissolution or winding-up of ACM or a deemed liquidation, the holders of Series A through Series F convertible preferred stock shall be entitled to be paid, prior to and in preference to the holders of common stock, an amount equal to $0.80, $1.00, $1.50, $3.75, $1.00 and $2.50 per share of Series A through Series F convertible preferred stock, respectively, plus any accumulated and unpaid dividends as of the redemption date.

NOTE 16 – STOCK-BASED COMPENSATION

ACM’s stock-based compensation awards consisting of employee and non-employee awards were issued under the 1998 Stock Option Plan and 2016 Omnibus Incentive Plan.

ACM recognized employee stock-based compensation expense of $72 and $22 during the three months ended September 30, 2017 and 2016, respectively, and $200 and $68 during the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, and December 31, 2016, $712 and $726, respectively, of total unrecognized employee stock-based compensation expense, net of estimated forfeitures, related to stock-based awards were expected to be recognized over a weighted-average period of 1.92 years and 2.25 years, respectively. Total recognized compensation cost may be adjusted for future changes in estimated forfeitures.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

The fair value of each option granted to an employee during the nine months ended September 30, 2017 was estimated on the grant date using the Black-Scholes valuation model with the following assumptions. No options were granted to employees during the nine months ended September 30, 2016.

The Company recognized non-employee stock-based compensation expense of $272 and $(23) during the three months ended September 30, 2017 and 2016, respectively, and $1,492 and $125 during the nine months ended September 30, 2017 and 2016, respectively.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

The fair value of each option granted to a non-employee during the nine months ended September 30, 2017 was calculated by application of the Black-Scholes valuation model with the following assumptions. No options were granted to any non-employee during the nine months ended September 30, 2016.

NOTE 17 – INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period during which such rates are enacted.

The Company considers all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry-forward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on all available evidence, in particular the Company’s three-year historical cumulative losses, recent operating losses and U.S. pre-tax loss for the nine months ended September 30, 2017, the Company recorded a valuation allowance against its U.S. net deferred tax assets. In order to fully realize the U.S. deferred tax assets, the Company will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code.

In each period since inception, the Company has recorded a valuation allowance for the full amount of net deferred tax assets in the US, as the realization of deferred tax assets is uncertain. The China subsidiary has shown a three year historical cumulative profit and has projections of future income. As a result, the Company maintained a partial consolidated valuation allowance for the nine months ended September 30, 2017 and 2016.

The Company accounts for uncertain tax positions in accordance with the authoritative guidance on income taxes under which the Company may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.

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Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data)

The Company’s effective tax rate differs from statutory rates of 34% for U.S. federal income tax purposes and 15%-25% for Chinese income tax purpose due to the effects of the valuation allowance and certain permanent differences as it pertains to book-tax differences. As a result, the company recorded a tax provision of $471 and $59 for the nine months ended September 30, 2017 and 2016.

As of September 30, 2017, the Company’s total unrecognized tax benefits were approximately $44, which would not affect the effective tax rate if recognized. The Company will recognize interest and penalties, when they occur, related to uncertain tax provisions as a component of tax expense. No interest or penalties were recognized for the nine months ended September 30, 2017.

The Company files income tax returns in the United States, and state and foreign jurisdictions. The federal, state and foreign income tax returns are under the statute of limitations subject to tax examinations for the tax years ended December 31, 2009 through December 31, 2016. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may be adjusted upon examination by the U.S. Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.

As of September 30, 2017 and December 31, 2016, the Company intended that its PRC earnings would be indefinitely reinvested outside of the United States. Thus, deferred taxes were not, for U.S. federal income tax purposes, provided with respect to unremitted earnings from the PRC.

NOTE 18 – COMMITMENTS AND CONTINGENCIES

The Company leases offices under non-cancelable operating lease agreements. The rental expenses were $473 and $511 for the nine months ended September 30, 2017 and 2016, respectively. See note 13 for future minimum lease payments under non-cancelable operating lease agreements with initial terms of one year or more.

The Company did not have any capital commitments during the reported periods.

From time to time the Company is subject to legal proceedings, including claims in the ordinary course of business and claims with respect to patent infringements.