Condensed Consolidated Balance Sheets
|
|
|
|
|
|
(in thousands,
except share and per share data)
|
Assets
|
|
|
Current
assets:
|
|
|
Cash
and cash equivalents
|
$
17,435
|
$
17,681
|
Accounts
receivable, less allowance for doubtful accounts of $0 as of
June 30, 2018 and $0 as of December 31, 2017 (note
3)
|
33,289
|
26,762
|
Other
receivables
|
1,308
|
2,491
|
Inventories
(note 4)
|
27,531
|
15,388
|
Prepaid
expenses
|
2,316
|
546
|
Other
current assets
|
-
|
46
|
Total
current assets
|
81,879
|
62,914
|
Property,
plant and equipment, net (note 5)
|
3,050
|
2,340
|
Intangible
assets, net
|
231
|
106
|
Deferred
tax assets (note 15)
|
1,278
|
1,294
|
Investment
in affiliates, equity method (note 10)
|
1,355
|
1,237
|
Other
long-term assets
|
40
|
-
|
Total
assets
|
$
87,833
|
$
67,891
|
Liabilities and Stockholders’ Equity
|
|
|
Current
liabilities:
|
|
|
Short-term
borrowings (note 6)
|
$
9,932
|
$
5,095
|
Warrant
liability (note 8)
|
-
|
3,079
|
Accounts
payable
|
17,755
|
7,419
|
Advances
from customers
|
1,931
|
143
|
Income
taxes payable
|
231
|
44
|
Other
payables and accrued expenses (note 7)
|
6,518
|
6,037
|
Total
current liabilities
|
36,367
|
21,817
|
Other
long-term liabilities (note 9)
|
5,869
|
6,217
|
Total
liabilities
|
42,236
|
28,034
|
Commitments and contingencies (note 16)
|
|
|
Stockholders’
equity:
|
|
|
Common stock – Class A, par value $0.0001:
100,000,000 shares authorized as of June 30, 2018 and December 31,
2017. 13,957,339 shares issued and outstanding as of June 30, 2018
and 12,935,546 shares issued and outstanding as of December 31,
2017 (note 13
)
|
1
|
1
|
Common stock–Class B, par value $0.0001:
7,303,533 shares authorized as of June 30, 2018 and December 31,
2017. 1,920,173 shares issued and outstanding as of June 30, 2018
and 2,409,738 shares issued and outstanding as of December 31, 2017
(note 13
)
|
-
|
-
|
Additional
paid in capital
|
55,331
|
49,695
|
Accumulated
deficit
|
(9,526
)
|
(9,961
)
|
Accumulated
other comprehensive income (loss)
|
(209
)
|
122
|
Total
stockholders’ equity
|
45,597
|
39,857
|
Total
liabilities and stockholders’ equity
|
$
87,833
|
$
67,891
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss)
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
(In thousands, except share and per share data)
|
Revenue
|
$
20,873
|
$
8,763
|
$
30,616
|
$
14,423
|
Cost
of revenue
|
12,149
|
5,312
|
16,770
|
8,570
|
Gross
profit
|
8,724
|
3,451
|
13,846
|
5,853
|
Operating
expenses:
|
|
|
|
|
Sales
and marketing
|
2,682
|
1,420
|
4,537
|
2,583
|
Research
and development
|
2,419
|
939
|
3,960
|
1,867
|
General
and administrative
|
1,292
|
1,294
|
4,922
|
3,158
|
Total
operating expenses, net
|
6,393
|
3,653
|
13,419
|
7,608
|
Income (loss)
from operations
|
2,331
|
(202
)
|
427
|
(1,755
)
|
Interest
income
|
14
|
3
|
17
|
5
|
Interest
expense
|
(149
)
|
(86
)
|
(252
)
|
(164
)
|
Other
income (expense), net
|
1,066
|
(228
)
|
311
|
(292
)
|
Equity
income in net income of affiliates
|
117
|
-
|
118
|
-
|
Income (loss)
before income taxes
|
3,379
|
(513
)
|
621
|
(2,206
)
|
Income
tax benefit (expense) (note 15)
|
(164
)
|
32
|
(186
)
|
(749
)
|
Net income
(loss)
|
3,215
|
(481
)
|
435
|
(2,955
)
|
Less:
net income (loss) attributable to non-controlling
interests
|
-
|
177
|
-
|
(208
)
|
Net income (loss) attributable to ACM Research,
Inc.
|
$
3,215
|
$
(658
)
|
$
435
|
$
(2,747
)
|
Comprehensive
income (loss)
|
|
|
|
|
Net
income (loss)
|
3,215
|
(481
)
|
435
|
(2,955
)
|
Foreign
currency translation adjustment
|
(1,036
)
|
220
|
(331
)
|
264
|
Comprehensive
income (loss)
|
2,179
|
(261
)
|
104
|
(2,691
)
|
Less:
Comprehensive income (loss) attributable to non-controlling
interests
|
-
|
259
|
-
|
(110
)
|
Total comprehensive income (loss) attributable to ACM Research,
Inc. (note 2)
|
$
2,179
|
$
(520
)
|
$
104
|
$
(2,581
)
|
|
|
|
|
|
Net
income (loss) attributable to ACM Research, Inc. per common share
(note 2):
|
|
|
|
|
Basic
|
$
0.20
|
$
(0.13
)
|
$
0.03
|
$
(0.56
)
|
Diluted
|
$
0.18
|
$
(0.13
)
|
$
0.02
|
$
(0.56
)
|
|
|
|
|
|
Weighted
average common shares outstanding used in computing per share
amounts (note 2):
|
|
|
|
|
Basic
|
15,838,540
|
5,086,989
|
15,611,863
|
4,927,973
|
Diluted
|
18,119,733
|
5,086,989
|
17,669,650
|
4,927,973
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
|
Six Months Ended
June 30,
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
Net
income (loss)
|
$
435
|
$
(2,955
)
|
Adjustments
to reconcile net loss from operations to net cash provided by
operating activities:
|
|
|
Depreciation
and amortization
|
173
|
118
|
Equity
income in net income of affiliates
|
(118
)
|
-
|
Deferred
income taxes
|
-
|
747
|
Stock-based
compensation
|
2, 360
|
1,348
|
Net
changes in operating assets and liabilities:
|
|
|
Accounts
receivable
|
(6,858
)
|
4,095
|
Other
receivables
|
1,124
|
(413
)
|
Inventory
|
(12,328
)
|
(2,189
)
|
Prepaid
expenses
|
(1,785
)
|
(631
)
|
Other
current assets
|
46
|
(762
)
|
Accounts
payable
|
10,486
|
2,921
|
Advances
from customers
|
1,799
|
(236
)
|
Income
tax payable
|
187
|
-
|
Other
payables and accrued expenses
|
632
|
704
|
Other
long-term liabilities
|
(271
)
|
236
|
Net
cash (used in) provided by operating activities
|
(4,118
)
|
2,983
|
|
|
|
Cash flows from investing activities:
|
|
|
Purchase
of property and equipment
|
(882
)
|
(26
)
|
Purchase
of intangible assets
|
(157
)
|
(36
)
|
Net
cash used in investing activities
|
(1,039
)
|
(62
)
|
|
|
|
Cash
flows from financing activities:
|
|
|
Proceeds
from short-term borrowings
|
10,153
|
4,584
|
Repayments
of short-term borrowings
|
(5,252
)
|
(4,861
)
|
Proceeds
from stock option exercise to common stock
|
295
|
378
|
Net
cash provided by financing activities
|
$
5,196
|
$
101
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
$
(285
)
|
$
65
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
$
(246
)
|
$
3,087
|
Cash
and cash equivalents at beginning of period
|
17,681
|
10,119
|
Cash and cash equivalents at end of period
|
$
17,435
|
$
13,206
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
Interest
paid
|
$
252
|
$
164
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
N
OTE 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 initially financed its
Shanghai operations in part through sales of non-controlling equity
interests in ACM Shanghai.
In 2007
the Company began to focus its development efforts on single-wafer
wet-cleaning solutions for the front-end chip fabrication process.
The Company introduced its SAPS megasonic technology, which can be
applied in wet wafer cleaning at numerous steps during the chip
fabrication process, in 2009. It introduced its TEBO technology,
which can be applied at numerous steps during the fabrication of
small node two-dimensional conventional and three-dimensional
patterned wafers, in March 2016. The Company has designed its
equipment models for SAPS and TEBO solutions using a modular
configuration that enables it to create a wet-cleaning tool meeting
the specific requirements of a customer, while using pre-existing
designs for chamber, electrical, chemical delivery and other
modules. 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. On November 8, 2017, ACM purchased the remaining 18.36%
of ACM Shanghai’s equity interest held by Shanghai Pudong
High-Tech Investment Co., Ltd. (“PDHTI”) and Shanghai
Zhangjiang Science & Technology Venture Capital Co., Ltd.
(“ZSTVC”). At December 31, 2017, ACM owned all of the
outstanding equity interests of ACM Shanghai, and indirectly
through ACM Shanghai, owned all of the outstanding equity interests
of ACM Wuxi.
On
September 13, 2017, ACM effectuated a 1-for-3 reverse stock 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 these notes and the accompanying
condensed consolidated financial statements have been adjusted
retrospectively to reflect the reverse stock split.
On
November 2, 2017, the Registration Statement on Form S-1 (File No.
333- 220451) for ACM’s initial public offering of Class A
common stock (the “IPO”) was declared effective by the
U.S. Securities and Exchange Commission. Shares of Class A common
stock began trading on the Nasdaq Global Market on November 3,
2017, and the closing for the IPO was held on November 7,
2017.
In
December 2017 ACM formed a wholly owned subsidiary in the Republic
of Korea, ACM Research Korea CO., LTD. (“ACM Korea”),
to serve customers based in Republic of Korea and perform sales,
marketing, research and development activities for new products and
solutions.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The
consolidated accounts include ACM and its subsidiaries, ACM
Shanghai, ACM Wuxi, CleanChip and ACM Korea. 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 financial statements of the
Company have been prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”) for interim financial information and the
rules and regulations of the Securities and Exchange Commission
(“SEC”) for reporting on Form 10-Q. Accordingly, they
do not include all the information and footnotes required by GAAP
for complete financial statements herein. The unaudited 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, 2017 included in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2017.
The
accompanying condensed consolidated balance sheet as of June 30,
2018, the condensed consolidated statements of operations and
comprehensive income (loss) for the three and six months ended June
30, 2018 and 2017, and the condensed consolidated statements of
cash flows for the six months ended June 30, 2018 and 2017 are
unaudited. In the opinion of management, the unaudited condensed
consolidated financial statements of the Company reflect all
adjustments that are necessary for a fair presentation of the
Company’s financial position and results of operations. Such
adjustments are of a normal recurring nature, unless otherwise
noted. The balance sheet as of June 30, 2018 and the results of
operations for the three months and six months ended June 30, 2018
are not necessarily indicative of the results to be expected for
any future period.
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.
Basic and Diluted Net Income (Loss) attributable to ACM per Common
Share
Basic
and diluted net income (loss) attributable to ACM per common share
is calculated as follows:
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|
|
|
|
|
Numerator:
|
|
|
|
|
Net
income (loss)
|
$
3,215
|
$
(481
)
|
$
435
|
$
(2,955
)
|
Net
income (loss) attributable to
non-controlling
interest
|
-
|
177
|
-
|
(208
)
|
Net
income (loss) attributable to ACM,
basic
and diluted
|
$
3,215
|
$
(658
)
|
$
435
|
$
(2,747
)
|
Denominator:
|
|
|
|
|
Weighted
average shares outstanding, basic
|
15,838,540
|
5,086,989
|
15,611,863
|
4,927,973
|
Effect of dilutive securities
|
2,281,193
|
-
|
2,057,787
|
-
|
Weighted average shares outstanding, diluted
|
18,119,733
|
5,086,989
|
17,669,650
|
4,927,973
|
Net
income (loss) attributable to ACM per common share:
|
|
|
|
|
Basic
|
$
0.20
|
$
(0.13
)
|
$
0.03
|
$
(0.56
)
|
Diluted
|
$
0.18
|
$
(0.13
)
|
$
0.02
|
$
(0.56
)
|
ACM has
been authorized to issue Class A and Class B common stock since
redomesticating in Delaware in November 2016. The two classes of
common stock are substantially identical in all material respects,
except for voting rights. Since ACM did not declare any dividends
during the three and six months ended June 30, 2018 and 2017, 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, warrants and
stock options for the three and six months ended June 30, 2018 and
2017.
Certain potential dilutive
securities were excluded from the net income (loss) per share
calculation because the impact would be
anti-dilutive.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May
2017, the
Financial Accounting
Standards Board
(“FASB”) issued Accounting
Standards Update (“ASU”) No. 2017-09,
Compensation—Stock Compensation (Topic
718): Scope of Modification Accounting
(“ASU 2017-09”)
, 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 adoption of ASU 2017-09
did not have a material impact on the Company’s 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
(“ASU 2017-05”)
, which
clarifies the scope of nonfinancial asset guidance in 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 adoption of ASU 2017-05
did not have a material impact on the Company’s consolidated
financial statements.
In
November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230):
Restricted Cash
(“ASU
2016-18”)
, 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 adoption of ASU
2016-18 did not have a material impact on the Company’s
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
(“ASU 2016-15”)
,
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 adoption of ASU
2016-15 did not have material impact on the Company’s
consolidated financial statements.
In January 2016, the FASB issued ASU No.
2016-01,
“Financial Instruments
– Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities”
(“ASU 2016-01”). The
amendments in this update require all equity investments to be
measured at fair value with changes in the fair value recognized
through net income (other than those accounted for under the equity
method of accounting or those that result in consolidation of the
investee). The amendments in this update also require an entity to
present separately in other comprehensive income the portion of the
total change in the fair value of a liability resulting from a
change in the instrument-specific credit risk when the entity has
elected to measure the liability at fair value in accordance with
the fair value option for financial instruments. In addition, the
amendments in this update eliminate the requirement to disclose the
method(s) and significant assumptions used to estimate the fair
value that is required to be disclosed for financial instruments
measured at amortized cost on the balance sheet for public
entities. For public business entities, the amendments in ASU
2016-01 are effective for fiscal years beginning after December 15,
2017, including interim periods within those fiscal years. Except
for the early application guidance discussed in ASU 2016-01, early
adoption of the amendments in this update is not permitted. The
adoption of the ASU 2016-01 did not have a material impact on the
Company’s consolidated financial
statements.
In May
2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic
606)
(“ASU 2014-09”), which amended the
existing accounting standards for revenue recognition. ASU 2014-09
establishes principles for recognizing revenue upon the transfer of
promised goods or services to customers, in an amount that reflects
the expected consideration received in exchange for those goods or
services. ASU 2014-09 and its related clarifying ASUs are effective
for annual reporting periods beginning after December 15, 2017 and
interim periods within those annual periods.
On
January 1, 2018, the Company adopted ASC Topic 606,
Revenue from Contracts with Customers,
and all the related amendments (the “New Revenue
Standard”) to all contracts which were not completed as of
January 1, 2018 using the modified retrospective method. The
Company does not have open contracts that may result in any changes
to revenues applying the New Revenue Standard.
The
Company derives revenue principally from the sale of single-wafer
wet cleaning equipment. Revenue from contracts with customers is
recognized using the following five steps pursuant to the New
Revenue Standard:
1. Identify
the contract(s) with a customer;
2. Identify
the performance obligations in the contract;
3. Determine
the transaction price;
4. Allocate
the transaction price to the performance obligations in the
contract; and
5. Recognize
revenue when (or as) the entity satisfies a performance
obligation.
A
contract contains a promise (or promises) to transfer goods or
services to a customer. A performance obligation is a promise (or a
group of promises) that is distinct. The transaction price is the
amount of consideration a company expects to be entitled from a
customer in exchange for providing the goods or
services.
The
unit of account for revenue recognition is a performance obligation
(a good or service). A contract may contain one or more performance
obligations. Performance obligations are accounted for separately
if they are distinct. A good or service is distinct if the customer
can benefit from the good or service either on its own or together
with other resources that are readily available to the customer,
and the good or service is distinct in the context of the contract.
Otherwise performance obligations are combined with other promised
goods or services until the Company identifies a bundle of goods or
services that is distinct. Promises in contracts which do not
result in the transfer of a good or service are not performance
obligations, as well as those promises that are administrative in
nature, or are immaterial in the context of the contract. The
Company has addressed whether various goods and services promised
to the customer represent distinct performance obligations. The
Company applied the guidance of ASC Topic 606-10-25-16 through 18
in order to verify which promises should be assessed for
classification as distinct performance obligations. The
Company’s contracts with customers include more than one
performance obligation. For example, the delivery of a piece of
equipment generally includes the promise to install the equipment
in the customer’s facility. The Company’s performance
obligations in connection with a sale of equipment generally
include production, delivery and installation, together with the
provision of a warranty.
The
transaction price is allocated to all the separate performance
obligations in an arrangement. It reflects the amount of
consideration to which the Company expects to be entitled in
exchange for transferring goods or services, which may include an
estimate of variable consideration to the extent that it is
probable of not being subject to significant reversals in the
future based on the Company’s experience with similar
arrangements. The transaction price excludes amounts collected on
behalf of third parties, such as sales taxes. This is done on a
relative selling price basis using standalone selling prices
(“SSP”). The SSP represents the price at which the
Company would sell that good or service on a standalone basis at
the inception of the contract. Given the requirement for
establishing SSP for all performance obligations, if the SSP is
directly observable through standalone sales, then such sales
should be considered in the establishment of the SSP for the
performance obligation. All of the Company’s products were
sold in stand-alone arrangements, the Company does not have
observable SSPs for most performance obligations as they are not
regularly sold on a standalone basis. Production, delivery and
installation of a product, together with provision of a warranty,
are a single unit of accounting.
Revenue
is recognized when the Company satisfies each performance
obligation by transferring control of the promised goods or
services to the customer. Goods or services can transfer at a point
in time (upon the acceptance of the products or upon the arrival at
the destination as stipulated in the shipment terms) in a sale
arrangement. In general, the Company recognizes revenue when a tool
has been demonstrated to meet the customer’s predetermined
specifications and is accepted by the customer. If terms of the
sale provide for a lapsing customer acceptance period, the Company
recognizes revenue as of the earlier of the expiration of the
lapsing acceptance period and customer acceptance. In the following
circumstances, however, the Company recognizes revenue upon
shipment or delivery, when legal title to the tool is passed to a
customer as follows:
●
When the customer
has previously accepted the same tool with the same specifications
and the Company can objectively demonstrate that the tool meets all
of the required acceptance criteria;
●
When the sales
contract or purchase order contains no acceptance agreement or
lapsing acceptance provision and the Company can objectively
demonstrate that the tool meets all of the required acceptance
criteria;
●
When the customer
withholds acceptance due to issues unrelated to product
performance, in which case revenue is recognized when the system is
performing as intended and meets predetermined specifications;
or
●
When the
Company’s sales arrangements do not include a general right
of return.
The
Company offers post-warranty period services, which consist
principally of the installation and replacement of parts and
small-scale modifications to the equipment. The related revenue and
costs of revenue are recognized when parts have been delivered and
installed, risk of loss has passed to the customer, and collection
is probable. The Company does not expect revenue from extended
maintenance service contracts to represent a material portion of
its revenue in the future. As such, the Company has concluded that
its revenue recognition under the adoption of the New Revenue
Standard will remain the same as previously reported and will not
have material impacts to its condensed consolidated financial
statements.
The Company
incurs costs related to the acquisition of its contracts with
customers in the form of sales commissions. Sales commissions are
paid to third party representatives and distributors. Contractual
agreements with these parties outline commission structures and
rates to be paid. Generally speaking, the contracts are all
individual procurement decisions by the customers and are not for
significant periods of time, nor do they include renewal
provisions. As such, all contracts have an economic life of
significantly less than a year. Accordingly, the Company expenses
sales commissions when incurred in accordance with the practical
expedient in the New Revenue Standard when the underlying contract
asset is less than one year. These costs are recorded within sales
and marketing expenses.
Generally,
all contracts have expected durations of one year or less.
Accordingly, the Company applies the practical expedient allowed in
the New Revenue Standard and does not disclose information about
remaining performance obligations that have original expected
durations of one year or less.
The
Company does not incur any costs to fulfill the contracts with
customers that are not already reported in compliance with another
applicable standard (for example, inventory or plant, property and
equipment).
Recent Accounting Pronouncements Not Yet Adopted
In June
2018, the FASB issued ASU 2018-07,
Compensation — Stock Compensation (Topic
718) — Improvements to Nonemployee Share-Based Payment
Accounting
(“ASU 2018-07”), which simplifies
several aspects of the accounting for nonemployee share-based
payment transactions resulting from expanding the scope of Topic
718, Compensation-Stock Compensation, to include share-based
payment transactions for acquiring goods and services from
nonemployees. Some of the areas for simplification apply only to
nonpublic entities. ASU 2018 07 specifies that Topic 718
applies to all share-based payment transactions in which a grantor
acquires goods or services to be used or consumed in a
grantor’s own operations by issuing share-based payment
awards. ASU 2018-07 also clarify that Topic 718 does not apply to
share-based payments used to effectively provide (1) financing
to the issuer or (2) awards granted in conjunction with selling
goods or services to customers as part of a contract accounted for
under the New Revenue Standard. ASU 2018-07 is effective for
public business entities for fiscal years beginning after December
15, 2018, including interim periods within that fiscal year. Early
adoption is permitted. The Company does not expect the adoption of
ASU 2018 07 to have a material impact on its consolidated
financial statements and related disclosures.
In
February 2018, the FASB issued ASU No. 2018-02,
Income Statement—Reporting Comprehensive
Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income
(“ASU 2018-02”), which provides financial
statement preparers with an option to reclassify stranded tax
effects within accumulated other comprehensive income to retained
earnings in each period in which the effect of the change in the
U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act
(or portion thereof) is recorded. The amendments in
ASU 2018-02 are effective for all entities for fiscal years
beginning after December 15, 2018, and interim periods within those
fiscal years. Early adoption of ASU 2018-02 is permitted, including
adoption in any interim period for the public business entities for
reporting periods for which financial statements have not yet been
issued. The amendments in ASU 2018-02 should be applied either
in the period of adoption or retrospectively to each period (or
periods) in which the effect of the change in the U.S. federal
corporate income tax rate in the Tax Cuts and Jobs Act is
recognized. The Company is evaluating the impact of the adoption of
ASU 2018-02 on its consolidated financial statements.
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
(“ASU 2017-11”)
, 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
ASU 2017-11
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
ASU 2017-11
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 2017-11 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
(“ASU 2017-04”)
,
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.
ASU 2017-04
does not amend the optional
qualitative assessment of goodwill impairment. A business entity
that is an SEC filer must adopt the amendments in
ASU 2017-04
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
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
(“ASU 2016-02”)
. The
amendments in
ASU 2016-02
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 lease 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 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 evaluating the impact of the adoption of ASU 2016-02 on its
consolidated financial statements.
NOTE 3 – ACCOUNTS RECEIVABLE
At June
30, 2018 and December 31, 2017, accounts receivable consisted of
the following:
|
|
|
Accounts
receivable
|
$
33,289
|
$
26,762
|
Less:
Allowance for doubtful accounts
|
-
|
-
|
Total
|
$
33,289
|
$
26,762
|
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 June 30, 2018 or December 31,
2017. At June 30,
2018 and December
31, 2017, accounts receivable of $2,266 and
$1,805,
respectively,
were pledged as
collateral for borrowings from financial
institutions.
NOTE 4 – INVENTORIES
At June
30, 2018 and December 31, 2017, inventory consisted of the
following:
|
|
|
Raw
materials
|
$
14,827
|
$
6,181
|
Work
in process
|
7,235
|
4,328
|
Finished
goods
|
5,469
|
4,879
|
Total
inventory, gross
|
27,531
|
15,388
|
Inventory
reserve
|
-
|
-
|
Total
inventory, net
|
$
27,531
|
$
15,388
|
At June
30, 2018 and December 31, 2017, the Company did not have an
inventory reserve and no inventory was pledged as collateral for
borrowings from financial institutions.
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET
At June
30, 2018 and December 31, 2017, property, plant and equipment
consisted of the following:
|
|
|
Manufacturing
equipment
|
$
9,573
|
$
9,660
|
Office
equipment
|
525
|
463
|
Transportation
equipment
|
201
|
203
|
Leasehold
improvement
|
245
|
277
|
Total
cost
|
10,544
|
10,603
|
Less:
Total accumulated depreciation
|
(8,282
)
|
(8,263
)
|
Construction
in progress
|
788
|
-
|
Total
property, plant and equipment, net
|
$
3,050
|
$
2,340
|
Depreciation
expense was $88 and $66 for the three months ended June 30, 2018
and 2017, respectively, and $173 and $118 for the six months ended
June 30, 2018 and 2017, respectively.
NOTE 6 – SHORT-TERM BORROWINGS
At June
30, 2018 and December 31, 2017, short-term borrowings consisted of
the following:
|
|
|
Line
of credit up to $30 million RMB from Bank of China Pudong Branch,
due on March 5, 2018 with annual interest rate of 5.69%, secured by
certain of the Company’s intellectual property and fully
repaid on March 5, 2018
|
$
-
|
$
2,219
|
Line
of credit up to $30 million RMB from Bank of China Pudong Branch,
due on September 11, 2018 with annual interest rate of 5.69%,
secured by certain of the Company’s intellectual property and
guaranteed by the Company’s Chief Executive Officer and
President (“CEO”)
|
1,511
|
-
|
Line
of credit up to $30 million RMB from Bank of China Pudong Branch,
due on September 24, 2018 with annual interest rate of 5.69%,
secured by certain of the Company’s intellectual property and
guaranteed by the CEO
|
1,511
|
-
|
Line
of credit up to $25 million RMB from Bank of Shanghai Pudong
Branch, due on various dates of October, 2018 with an annual
interest rate of 5.66%, guaranteed by the CEO and fully repaid on
May 8, 2018
|
-
|
2,111
|
Line
of credit up to $50 million RMB from Bank of Shanghai Pudong
Branch, due on April 17, 2019 with an annual interest rate of
4.99%, guaranteed by the CEO
|
3,133
|
-
|
Line
of credit up to $5 million RMB from Shanghai Rural Commercial Bank,
due on November 21, 2018 with an annual interest rate of 5.44%,
guaranteed by the CEO and pledged by accounts
receivable
|
755
|
765
|
Line
of credit up to $10 million RMB from Shanghai Rural Commercial
Bank, due on January 23,2019 with an annual interest rate of 5.44%,
guaranteed by the CEO and pledged by accounts
receivable
|
1,511
|
-
|
Line
of credit up to $10 million RMB from Bank of Communications, due on
December 28 2018 with an annual interest rate of 5.66%
|
1,511
|
-
|
Total
|
$
9,932
|
$
5,095
|
Interest
expense related to short-term borrowings amounted to $149 and $86
for the three months ended June 30, 2018 and 2017, respectively,
and $252 and $164, for the six months ended June 30, 2018 and 2017,
respectively.
NOTE 7 – OTHER PAYABLE AND ACCRUED EXPENSES
At June
30, 2018 and December 31, 2017, other payable and accrued expenses
consisted of the following:
|
|
|
Lease
expenses and payable for leasehold improvement due to a related
party (note 11)
|
$
162
|
$
2,024
|
Accrued
commissions
|
1,574
|
836
|
Accrued
warranty
|
1,256
|
839
|
Accrued
payroll
|
432
|
745
|
Accrued
professional fees
|
253
|
60
|
Accrued
machine testing fees
|
1,295
|
684
|
Others
|
1,546
|
849
|
Total
|
$
6,518
|
$
6,037
|
NOTE 8 – WARRANT LIABILITY
On
December 9, 2016, Shengxin (Shanghai) Management Consulting Limited
Partnership (“SMC”), a related party (note 11),
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 (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 Class A common stock at a price of $7.50 per
share.
The
warrant issued to SMC, while outstanding as of December 31, 2017,
was classified as a liability as it was conditionally puttable in
accordance with FASB ASC 480,
Distinguishing Liabilities from Equity
.
The fair value of the warrant was adjusted for changes in fair
value at each reporting period but could not be lower than the
proceeds of the SMC Investment. The corresponding non-cash gain or
loss of the changes in fair value was recorded in earnings. The
methodology used to value the warrant was the Black-Scholes
valuation model.
On March 30, 2018, ACM entered into
a warrant exercise agreement with ACM Shanghai and SMC pursuant to
which SMC exercised its warrant in full by issuing to ACM a senior
secured promissory note in the principal amount of approximately
$3,000. ACM then transferred the SMC note to ACM Shanghai in
exchange for an intercompany promissory note of ACM Shanghai in the
principal amount of approximately $3,000. Each of the two notes
bears interest at a rate of 3.01% per annum and matures on August
17, 2023. As security for its performance of its obligations under
its note, SMC granted to ACM Shanghai a security interest in the
397,502 shares of Class A common stock issued to SMC upon its
exercise of the warrant. Upon the issuance of 397,502 shares of
Class A common stock to SMC, the senior secured promissory note
issued to AMC by SMC was offset by the SMC investment.
NOTE 9 – OTHER LONG-TERM LIABILITIES
Other
long-term liabilities represent government subsidies received from
PRC governmental authorities for development and commercialization
of certain technology but not yet recognized. As of June 30, 2018,
and December 31, 2017, other long-term liabilities consisted of the
following unearned government subsidies:
|
|
|
Subsidies
to Stress Free Polishing project, commenced in 2008 and
2017
|
$
1,720
|
$
1,952
|
Subsidies
to Electro Copper Plating project, commenced in 2014
|
3,943
|
4,265
|
Subsidies
to Polytetrafluoroethylene, commenced in 2018
|
206
|
-
|
Total
|
$
5,869
|
$
6,217
|
NOTE 10 – 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.
NOTE 11– RELATED PARTY BALANCES AND TRANSACTIONS
On
August 18, 2017, ACM and Ninebell, its equity method investment
affiliate (note 10), 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 was secured by a pledge of Ninebell’s
accounts receivable due from ACM and all money that Ninebell
received from ACM. Ninebell repaid the loan in March 2018.
ACM purchased materials from Ninebell
amounting to $1,865 and $981 during the three months ended June 30,
2018 and 2017, and $2,835 and $1,821 during the six months ended
June 30, 2018 and 2017, respectively. As of June 30, 2018 and
December 31, 2017, accounts payable due to Ninebell were $1,498 and
$2,123, respectively, and prepaid to Ninebell for material
purchases was $824 and $229, respectively.
In 2007
ACM Shanghai entered into an operating lease agreement with
Shanghai Zhangjiang Group Co., Ltd. (“Zhangjiang
Group”) to lease manufacturing and office space located in
Shanghai, China. An affiliate of Zhangjiang Group holds 787,098
shares of Class A common stock that it acquired in September 2017
for $5,903. 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. From January
1 to April 25, 2018, ACM Shanghai leased the property on a
month-to-month basis. On April 26, 2018, ACM Shanghai entered into
a renewed lease with Zhangjiang Group for the period from January
1, 2018 through December 31, 2022. Under the lease, ACM Shanghai
will pay a monthly rental fee of approximately RMB 366 (equivalent
to $55). The required security deposit is RMB 1,077 (equivalent to
$163). T
he Company incurred leasing
expenses under the lease agreement of $147 and $137 during the
three months ended June 30, 2018 and 2017, respectively, and $319
and $296 during the six months ended June 30, 2018 and 2017,
respectively. As of June 30, 2018 and December 31, 2017, payables
to Zhangjiang Group for lease expenses and leasehold improvements
recorded as other payables and accrued expenses amounted to $162
and $2,024, 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 (note 8). SMC is a limited partnership incorporated in
the PRC, whose partners consist of employees of ACM Shanghai. 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 Class A common stock at a price of $7.50 per
share, for a total exercise price of $2,981. On March 30, 2018, SMC
exercised the warrant and purchased 397,502 shares of Class A
common stock (note 8).
NOTE 12 – LEASES
ACM
leases its administrative, research and development and
manufacturing facilities under various operating leases. Future
minimum lease payments under non-cancelable lease agreements as of
June 30, 2018 and December 31, 2017 were as follows:
|
|
|
2018
|
$
601
|
$
50
|
2019
|
1,383
|
22
|
2020
|
1,362
|
-
|
2021
|
1,392
|
-
|
2022
|
1,428
|
-
|
Total
|
$
6,166
|
$
72
|
Total
lease expense was
$563 and $189 for
the three months ended June 30, 2018 and 2017, respectively, and
$1,058 and $504 for the six months ended June 30, 2018 and 2017,
respectively.
NOTE 13 – 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 declared by the Board of Directors unless the Board
of Directors declares different dividends to the Class A common
stock and Class B common stock by getting approval from a majority
of common stock holders.
In
August 2017 ACM entered into a securities purchase agreement with
PDHTI and its subsidiary Pudong Science and Technology (Cayman)
Co., Ltd. (“PST”), in which ACM agreed to bid, in an
auction process mandated by PRC regulations, to purchase
PDHTI’s 10.78% equity interest 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.
In
August 2017 ACM entered into a securities purchase agreement with
ZSTVC and its subsidiary Zhangjiang AJ Company Limited
(“ZJAJ”), in which ACM agreed to bid, in an auction
process mandated by PRC regulations, to purchase ZSTVC’s
7.58% equity interest 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.
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 10).
In
November 2017 ACM issued 2,233,000 shares of Class A common stock
and received net proceeds of $11,664 from the IPO and concurrently
ACM issued an additional 1,333,334 shares of Class A common stock
in a private placement for net proceeds of $7,053.
Upon
the completion of the IPO on November 2, 2017, the Company issued a
five-year warrant (the “Underwriter's Warrant”) to Roth
Capital Partners, LLC, the lead underwriter of the IPO, for the
purchase of up to 80,000 shares of Class A common stock at an
exercise price of $6.16 per share. The Underwriter’s Warrant
was immediately exercisable and expires on November 1, 2022. The
Underwriter's Warrant is equity classified and its fair value was
$137 at the IPO closing date, using the Black Scholes model with
the following assumptions: volatility of 28.26%, a dividend rate of
0%, and a risk-free discount rate of 2%.
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 10).
At
various dates during 2017, ACM issued 472,889 shares of Class A
common stock upon options exercises by certain employee and
non-employees. During the three months and six months ended June
30, 2018, the Company issued 77,504 and 134,726 shares of Class A
common stock, respectively, upon options exercises by certain
employees and non employees.
On
March 30, 2018, SMC exercised its warrant (note 8) and purchased
397,502 shares of Class A common stock.
At June
30, 2018 and December 31, 2017, the number of shares of Class A
common stock issued and outstanding was 13,957,339 and 12,935,546,
respectively. At June 30, 2018 and December 31, 2017, the number of
shares of Class B common stock issued and outstanding was 1,920,173
and 2,409,738, respectively. During the three months and six months
ended June 30, 2018, 489,565 and 489,565 shares of Class B common
stock, respectively, were converted into Class A common
stock.
NOTE 14– 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 and as standalone
options.
Employee Awards
The
following table summarizes the Company’s employee share
option activities during the six months ended June 30,
2018:
|
|
Weighted Average Grant Date Fair Value
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Term
|
Outstanding
at December 31, 2017
|
2,045,616
|
$
0.66
|
$
2.46
|
7.57
years
|
Granted
|
500,000
|
2.26
|
5.31
|
|
Exercised
|
(118,059
)
|
0.50
|
2.07
|
|
Expired
|
(2,575
)
|
0.55
|
3.00
|
|
Forfeited
|
(100,887
)
|
0.77
|
3.18
|
|
Outstanding
at June 30, 2018
|
2,324,095
|
1.01
|
3.05
|
7.58
years
|
Vested
and exercisable at June 30, 2018
|
1,168,983
|
|
|
|
During the three months ended June 30, 2018 and 2017, the Company
recognized employee stock-based compensation expense of $170 and
$67, respectively. During the six months ended June 30, 2018 and
2017, the Company recognized employee stock-based compensation
expense of $263 and $128, respectively As of June 30, 2018 and
December 31, 2017, $1,495 and $1,690, 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 1.84 years and
1.77 years, respectively. Total recognized compensation cost may be
adjusted for future changes in estimated forfeitures.
The fair value of each option granted to an employee during the six
months ended June 30, 2018 was estimated on the grant date using
the Black-Scholes valuation model with the following assumptions.
No options were granted to employees during the three months ended
June 30, 2018.
|
|
Fair
value of common share(1)
|
$
5.31
|
Expected
term in years(2)
|
6.25
|
Volatility(3)
|
39.14
%
|
Risk
free interest rate(4)
|
2.55
%
|
Expected
dividend(5)
|
0.00
%
|
(1)
Exercise price is market close price of Class A common stock at
grant date of January 25, 2018.
(2)
Expected term of
share options is based on the average of the vesting period and the
contractual term for each grant, in accordance with Staff
Accounting Bulletin 110.
(3)
Volatility is
calculated based on the historical volatility of comparable
companies in the period equal to the expected term of each
grant.
(4)
Risk-free interest
rate is based on the yields of U.S. Treasury securities with
maturities similar to the expected term of the share options in
effect at the time of grant.
(5)
Expected dividend
is assumed to be 0% as ACM has no history or expectation of paying
dividends on its common stock.
Non-employee Awards
The
following table summarizes the Company’s non-employee share
option activities during the six months ended June 30,
2018:
|
|
Weighted Average Grant Date Fair Value
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Term
|
Outstanding
at December 31, 2017
|
1,326,676
|
$
0.78
|
2.52
|
|
Granted
|
-
|
-
|
-
|
-
|
Exercised
|
(16,667
)
|
0.50
|
3.00
|
-
|
Expired
|
-
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
-
|
-
|
Outstanding
at June 30, 2018
|
1,310,009
|
$
0.76
|
2.51
|
|
Vested
and exercisable at June 30, 2018
|
900,569
|
|
|
|
During the three months ended June 30, 2018 and 2017, the Company
recognized non-employee stock-based compensation expense of $14 and
$446, respectively. During the six months ended June 30, 2018 and
2017, the Company recognized non-employee stock-based compensation
expense of $2,097 and $1,220.
The fair value of each option granted to a non-employee during the
six months ended June 30, 2018 was calculated by application of the
Black-Scholes valuation model with the following assumptions. No
options were granted to any non-employee during the six months
ended June 30, 2018.
|
|
Fair
value of common share(1)
|
$
10.78
|
Expected
term in years(2)
|
3.08-5.36
|
Volatility(3)
|
43.50-45.48
%
|
Risk
free interest rate(4)
|
2.39
%-2.73%
|
Expected
dividend(5)
|
0.00
%
|
(1)
Exercise
price was market close price of Class A common stock at June 30,
2018.
(2)
Expected term of
share options is based on the average of the vesting period and the
contractual term for each grant, in accordance with Staff
Accounting Bulletin 110.
(3)
Volatility is
calculated based on the historical volatility of comparable
companies in the period equal to the expected term of each
grant.
(4)
Risk-free interest
rate is based on the yields of U.S. Treasury securities with
maturities similar to the expected term of the share options in
effect at the time of grant.
(5)
Expected dividend
is assumed to be 0% as ACM has no history or expectation of paying
a dividend on its common stock.
NOTE 15 – 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 results and U.S. pre-tax loss for the six months ended
June 30, 2018, 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
United States, as the realization of deferred tax assets is
uncertain. ACM Shanghai 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 three and six months ended June 30, 2018 and
December 31, 2017.
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.
The
Company’s effective tax rate differs from statutory rates of
21% for U.S. federal income tax purposes and 15% to 25% for Chinese
income tax purposes due to the effects of the valuation allowance
and certain permanent differences from book-tax differences. As a
result, the Company recorded income tax expense of $164 and income
tax benefit of $32 during the three months ended June 30, 2018 and
2017, respectively. For the six months ended June 30, 2018 and
2017, the Company recorded income tax expense of $186 and $749,
respectively.
As of
June 30, 2018, 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 three
and six months ended June 30, 2018.
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, 2017. To the extent the Company has tax attribute
carry-forwards, the tax years in which the attribute was generated
may still be adjusted upon examination by the U.S. Internal Revenue
Service, state or foreign tax authorities to the extent utilized in
a future period. The Tax Cuts and Jobs Act (the “Tax
Act”) enacted on December 22, 2017 introduced significant
changes to U.S. income tax law. Effective January 1, 2018, the Tax
Act reduced the U.S. statutory tax rate from 35% to 21% and created
new taxes on certain foreign-sourced earnings and certain
intercompany payments. Due to the timing of the enactment and the
complexity involved in applying the provisions of the Tax Act, the
Company made reasonable estimates of the effects and recorded
provisional amounts in its financial statements as of December 31,
2017. As the Company collects and prepares necessary data, and
interprets the Tax Act and any additional guidance issued by the
U.S. Treasury Department, the U.S. Internal Revenue Service and
other standard-setting bodies, the Company may make adjustments to
the provisional amounts. Those adjustments may materially affect
the Company’s provision for income taxes and effective tax
rate in the period in which the adjustments are made. There were no
adjustments made in the three and six months ended June 30, 2018.
The accounting for the tax effects of the Tax Act will be completed
later in 2018.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
The
Company leases offices under non-cancelable operating lease
agreements. See note 12 for future minimum lease payments under
non-cancelable operating lease agreements with initial terms of one
year or more.
As of
June 30, 2018, the Company was part to several contracts for
construction of equipment and facilities. Total outstanding
commitments under these contracts were $759 and $0 at June 30, 2018
and December 31, 2017, respectively. The Company expects to pay off
all the balances within a year.
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. As of June 30, 2018 the Company did not
have any legal proceedings.