1. Having access to the sales details and relevant sales contracts and checking the EX-warehouse records, customer receipt records, acceptance forms and relevant sales collection records of relevant sales products to verify the authenticity of sales revenue;

2. Checking the sales mode of the Issuer during the Reporting Period through interviews;

3. Seeking confirmation on the income and accounts receivable from key customers by sending letters; and

4. Interviewing customers to understand their business relationship with the Issuer.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to the sales revenue:

1. Reviewing the sales contracts and acceptance forms of SMIC to reexamine the accuracy of the Company’s revenue from SMIC; and

2. Reviewing the sales contracts and acceptance forms of Huahong Group and Yangtze Memory to reexamine the accuracy of revenue from Huahong Group and Yangtze Memory.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

1. During the Reporting Period, the sales revenue amount of the Issuer is true and accurate.

2. It is reasonable for the difference between the sales data disclosed for the top five customers and that for the top five final customers as to the sales revenue from Yangtze Memory and Huahong Group in 2018.

8. Other Challenge 8: About R&D Expenses (Index of Verification in Response to the Short-sell Report, No. 24)

Challenge in the Short-sell Report (Short-sell Report, p.29):

“We think most of the $12.9 mln spent on R&D is actually a cost of goods sold. Our interviews indicate that a big chunk of R&D activity consists of customizing and building machines for sale.”

Response:

I. Clarification by the Issuer

The Company’s R&D expenses are all generated by actual R&D activities; the Company has accurately grouped the R&D expenses and production costs, and the Company has not included production costs into the R&D expenses. Relevant disclosures and clarifications have been made by the Company in “Q26.2” in the Reply to the Letter of First Round Review-related Inquiries and “Q3” in the Reply to the Letter of Second Round Review-related Inquiries.

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(i) Investment of R&D Expenses by the Company

The Company has always attached great importance to the research and development of new products and new technologies, and has established an innovation mechanism and innovation system to encourage the R&D team to develop products suitable for market demand, and to promote the integration of scientific research, development, production and market. During the Reporting Period, the Company successfully developed new products, such as single wafer wet bench combined cleaning equipment, wet bench cleaning equipment, back-end advanced packaging and electroplating equipment, front-end copper interconnection electroplating equipment, front-end brushing equipment, and vertical furnace tube equipment.

During the Reporting Period, the Company’s R&D expenses were as follows:

Unit: RMB10,000

Item	Jan.-Jun. 2020		2019		2018		2017
Item	Amount	Proportion	Amount	Proportion	Amount	Proportion	Amount	Proportion
Employee benefits	2,602.47	45.86%	4,731.41	47.66%	3,020.84	38.04%	1,633.14	31.30%
Material consumption	1,874.79	33.04%	2,664.11	26.84%	2,007.19	25.27%	2,063.33	39.55%
Share-based payment	263.92	4.65%	752.70	7.58%	168.81	2.13%	33.44	0.64%
Travel expenses	260.74	4.59%	582.91	5.87%	420.73	5.30%	289.27	5.54%
Depreciation and amortization	144.83	2.55%	267.96	2.70%	216.89	2.73%	201.08	3.85%
Rental expenses	102.84	1.81%	236.03	2.38%	224.50	2.83%	149.53	2.87%
Service charge	108.40	1.91%	215.74	2.17%	106.33	1.34%	112.04	2.15%
Test and development expenses	-	0.00%	50.93	0.51%	1,566.36	19.72%	435.24	8.34%
other expenses	316.90	5.58%	425.01	4.28%	209.84	2.64%	300.17	5.75%
Total	5,674.90	100.00%	9,926.80	100.00%	7,941.50	100.00%	5,217.24	100.00%

During the Reporting Period, the amount of R&D expenses of the Company was RMB52.1724 million, RMB79.415 million, RMB99.268 million and RMB56.749 million, accounting for 20.57%, 14.43%, 13.12% and 15.96% of operating income, respectively. The Company has invested a relatively large amount in product research and development in the early stage and continuous improvement in the later stage during the reporting period, with the R&D expenses increased year by year.

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(ii) The Company’s R&D Expenses Occurred in Real Background of R&D Activities

The Company’s R&D activities mainly cover new technologies and new products related to semiconductor special equipment and are continuous to keep improving the performance of existing products. During the Reporting Period, the Company’s R&D expenses occurred in the background of actual R&D activities. The corresponding R&D projects and amounts are as follows:

Unit: RMB10,000

Project	Jan.-Jun. 2020	2019	2018	2017
SAPS cleaning technology	1,170.75	4,215.52	3,482.72	1,509.02
ECP electrochemistry electroplating technology	1,648.55	2,144.10	2,187.17	2,526.12
WET bench cleaning technology	783.17	927.15	208.06	-
Backside cleaning technology	345.11	688.98	325.06	76.50
Tahoe technology	161.45	449.17	253.52	4.61
Furnace vertical furnace tube technology	494.09	422.41	201.38	-
Backend Tools advanced packaging wet process technology	408.64	395.58	647.67	443.25
SFP stress-free polishing technology	243.04	265.23	270.08	561.36
TEBO cleaning technology	286.01	259.69	329.10	96.39
Development and industrialization of polytetrafluoroethylene chamber manufacturing process for semiconductor equipment	9.20	28.13	13.94	-
Other	124.90	130.83	22.79	-
Total	5,674.90	9,926.80	7,941.50	5,217.24

(iii) The Company’s R&D Expenses and Production Costs are Accurately Grouped

During the Reporting Period, the Company differentiated the resources input of R&D activities and production activities, and carried out different accounting treatments, as follows:

1. Direct materials

R&D activities: The Company’s R&D department applied for the materials based on the R&D project demand, and received the materials corresponding to the R&D project number through the ERP system after approval. The Company calculated the materials for the R&D independently according to the R&D project number, and included the relevant amount of materials into the R&D expenses of the corresponding R&D project.

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Production activities: As per the Company’s production mode, it first carried out customized product design according to a customer order, and after the bill of materials (“BOM”) of a production order was determined based on the design drawing, its production department would obtain materials according to the BOM of the production order number. The materials for the Company’s production were calculated independently according to the production project number, and the relevant amounts of materials were included in the corresponding product production costs.

2. Employee benefits

R&D activities: The Company included the salaries, bonuses, allowances, subsidies, social insurances, housing provident funds and other labor costs into the employee benefits among the R&D expenses, of which the salaries of R&D personnel were calculated by the human resources department according to the attendance records and the evaluation of the R&D department.

Production activities: The Company included the salaries, bonuses, allowances, subsidies, social insurances, housing provident funds and other labor costs of production personnel and workshop management personnel into the product production costs, of which the salaries of production personnel were calculated by the human resources department according to the attendance records and the evaluation of the production department.

The monthly employee benefits in the form of payroll summary were reviewed by the manager of the human resources department and the general manager of the Company. The financial department calculated production costs, labor and R&D expenses, and employee benefits according to the production costs and R&D expenses listed in the payroll summary after review.

3. Other expenses

Other expenses, including depreciation and amortization expenses, travel expenses, test and development expenses, rental expenses, were grouped as follows:

(1) Depreciation and amortization expenses: Based on the use of fixed assets, the Company included the amortization expenses related to the production activities into the production costs, and those related to the R&D activities into the R&D expenses;

(2) Travel expenses: The Company has established a sound expense reimbursement system and process, clearly stipulating the approval process, the reimbursement process and the documents required for reimbursement in respect of the employees’ business trips and accommodations, based on which relevant R&D expenses and productions costs were recorded by the financial staff according to the department of the employee being reimbursed and the nature of expense incurred;

(3) Test and development expenses: The costs incurred by entrusting the downstream semiconductor manufacturing enterprise to test and evaluate new equipment developed by the Company were included into the R&D expenses; and

(4) Rental expenses: The Company apportioned the rental expenses according to the facility area actually used by the production and R&D departments, which were included in the production costs and R&D expenses, respectively.

In sum, the Issuer independently grouped and calculated R&D expenses and production costs according to R&D activities and production activities, the division and grouping of which were reasonable and accurate.

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(iv) No Products Formed by the Company’s R&D Activities were Sold Externally

Through R&D activities, the Company has mastered a series of new technologies, developed a number of new products and continuously improved the performance of existing products. In each reporting period, the products formed by the Company’s R&D activities were mainly sample modules, and no R&D prototype has been formed. No sample modules formed by the R&D activities have been sold.

During the Reporting Period, sample modules would be developed by the Company in the course of R&D activities according to the principle scheme and technical design of the R&D project for the realization of specific new technologies or functions. The sample modules were mainly used for testing and verification to find the existing problems and defects, verify the function and performance, and continue to improve the process technology.

During the Reporting Period, the Company’s costs arising from the sale of equipment were included in the operating costs; the sample modules formed in the R&D process have never been sold, the expenditures of which were included into the R&D expenses, and the relevant accounting treatment was conducted according to the provisions of the accounting standards for business enterprises.

(v) The Company’s R&D Achievements have been Successfully Applied

In each reporting period, a series of new technologies have been formed in the Company’s R&D activities, such as “SAPS megasonic cleaning technology, fully automatic wet bench phosphoric acid cleaning technology, wet bench single wafer combined cleaning technology, multi-anode electroplating technology.” The above R&D achievements involve product types as follows:

Unit: Set, RMB10,000

Product Type	R&D Achievements	Key Customers	Realized Sales Amount
Product Type	R&D Achievements	Key Customers	Jan.-Jun. 2020	2019	2018	2017
Single-wafer cleaning equipment	SAPS megasonic cleaning technology, TEBO megasonic cleaning technology, backside cleaning technology	Yangtze Memory, Hynix, Huahong Group, SMIC	27,742.82	55,099.52	50,135.96	21,492.48
Wet bench cleaning equipment	Fully automatic wet bench phosphoric acid cleaning technology	Huahong Group	1,828.29	4,801.36	-	-
Single wafer wet bench combined cleaning equipment	Wet bench single wafer combined cleaning technology	Huahong Group	-	2,621.43	-	-

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Semiconductor electroplating equipment	Multi-anode electroplating technology, electroplating jig sealing technology, multi-anode flow field distribution control technology, etc.	Huahong Group, JCET	-	7,857.39	1,191.13	-
Advanced packaging wet process equipment	Application technology of SFP advanced packaging process, single wafer combined equipment technology based on packaging degumming process, compact and high-yield wet process equipment architecture technology, etc.	NSI, SMIC, JCET, Xiamen Tongfu	4,867.48	3,961.12	2,634.07	3,421.33
Vertical furnace tube equipment	High temperature oxidation deposition technology, silicon nitride deposition technology, etc.	Huahong Group	-	-	-	-

Note: The vertical furnace tube equipment is a new product developed by the Issuer in 2018 and has not been sold during the Reporting Period.

The above information has been disclosed in “Q3” of the Reply to the Letter of Second Round Review-related Inquiries.

In sum, during the Reporting Period: the Company’s R&D expenses were all generated by actual R&D activities; the Company’s R&D expenses and production costs were accurately grouped, without including the production costs into the R&D expenses; the products formed by the Company’s R&D activities were not sold externally, and the R&D activities were not used to customize and manufacture equipment for sales.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Interviewing the R&D principal of the Issuer to understand the organizational structure, business process, personnel division standard, project implementation and project achievement concerning R&D; having access to and reviewing the statement of major R&D projects and R&D project initiation reports of the Issuer during the Reporting Period, and checking whether the relevant R&D projects are initiated, approved and whether the calculation system has been effectively implemented;

2. Reviewing the detailed account of R&D expenses to check the expenditure and grouping of various expenses, interviewing the R&D department and financial directors to understand the reasons for the change of R&D expenses during the Reporting Period, and analyzing the changes of R&D expenses in each period based on the available business performance changes and R&D plans;

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3. Checking the cost accounting method of the Issuer to see whether such method matches the production process flow; checking the BOM for production of the Issuer by sampling, and verifying the same with the records of production materials; checking the grouping method of the Company’s employee benefits and the list of employees whose benefits were included in the production costs and R&D expenses and double-checking their departments; having access to the detailed list of manufacturing expenses and the form of working hours allocation to double-check whether the manufacturing expenses were grouped accurately;

4. Having access to the ledgers, lists, proposals, acceptance reports and other data of R&D projects, double-checking the accuracy of R&D investment identification; checking the materials requisitions related to R&D activities to verify the rationality and accuracy of R&D costs grouping and allocation; and

5. Reviewing the sales list and sales contracts to find out whether the sales of R&D prototypes were involved; having access to the memorandum book of R&D prototypes to see the management and sales of R&D prototypes.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to R&D expenses:

1. Further consulting and checking the source of “$12.9 mln spent on R&D” mentioned in the Short-sell Report, and making a comparative analysis with the government subsidies received by the Company;

2. Further checking the Company’s R&D expenditure and grouping; and

3. Further spot-checking the BOM of the Issuer.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

The Issuer set up the R&D projects separately, received materials and calculated the costs separately according to the R&D projects; the R&D projects and production projects of the Issuers were distinguished from each other, without using the R&D activities to customize and manufacture equipment for sales.

9. Other Challenge 9: About VAT (Index of Verification in Response to the Short-sell Report, No.25)

Challenge in the Short-sell Report (Short-sell Report, p.30):

“In the itemized tax-payable table of ACMR’s disclosures, there is no disclosed Value-Added Tax (VAT) payable: this is highly unusual and in fact almost impossible for an equipment maker. We think the company improperly claims tax exemptions by reporting that parts are imported as part of its capital investment and for R&D when really these are raw materials for operational production.”

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Response:

I. Clarification by the Issuer

It is reasonable and accurate that there was no VAT payable in the closing balance of taxes payable by the Issuer, and no production costs were included into the R&D expenses. The Company has disclosed the R&D expenses in “Q26.2” of the Reply to the Letter of First Round Review-related Inquiries and “Q3” of the Reply to the Letter of Second Round Review-related Inquiries.

(i) Relevant provisions on value added tax

According to the relevant provisions of China’s tax law, general trade and counter-purchase processing are the trading ways by which raw materials are imported. The import tariff and value-added tax shall be levied for raw materials imported through general trade, and the tax “exemption, offset and refund” measures shall apply to those exported through such a way. The import of raw materials through counter-purchase processing shall be filed with the customs, under which way the raw materials shall be tax-free when imported, while the processed products are subject to the “exemption, offset and refund” tax policy when exported. When importing raw materials for production and processing, the Issuer adopted the method of counter-purchase processing, and completed such procedures of raw material import, material requisition and production, export sales, and manual cancellation in accordance with the filing manual. When importing raw materials for purposes other than production and processing (such as parts sales or R&D self-use), the Issuer did so through general trade, declaring and paying tariff and value-added tax for the import according to the regulations.

Section II. (8) of the Announcement of the State Administration of Taxation on Issues Concerning the Administrative Measures for Value-added Tax and Consumption Tax on Export Goods and Labor Services ( [2013] No. 12) stipulates that “goods governed by value-added tax refund (exemption) policies applicable to the export of integrated circuit design enterprises, software design enterprises, animation design enterprises and other high-tech enterprises which are treated as general value-added taxpayers, the tax exemption, offset and refund measures shall apply, and taxpayers shall apply for export tax refund (exemption) according to Article IV of the said Measures and the relevant provisions of this Announcement.” Accordingly, the Issuer is qualified to be identified for the purpose of taxation as a taxpayer enjoying tax refund (exemption) for export goods. When selling goods, the Issuer generally delivers the goods to the bonded area or logistics park as agreed by the relevant parties, and handles the export declaration procedures for each batch of goods in accordance with the relevant provisions. At the same time, according to the relevant provisions of the tax law, the goods sold to the bonded area or logistics park shall be deemed to have been exported, for which the Issuer can enjoy the “exemption, offset and refund” tax policy in terms of the VAT. After customs declaration, the Issuer will apply for export tax refund as per relevant regulations.

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(ii) Export tax refund of the Company

In 2017, 2018 and 2019, the Issuer received export tax refunds as follows:

Unit: RMB10,000

Item	2019	2018	2017
VAT refund received	5,141.52	3,161.69	2,294.49

The Issuer was entitled to the VAT exemption and refund policy according to the regulations. There was no VAT payable in the balance of the tax payable by the Issuer at the end of the Reporting Period.

(iii) No production costs have been included by the Company into the R&D expenses

The Company’s R&D expenses were all generated by actual R&D activities; the Company has grouped the R&D expenses and the production costs accurately, and no production costs have been included into the R&D expenses. For relevant analysis, please refer to “Other Challenge 8: About R&D Expenses” herein.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Checking the relevant customs declaration methods for the Company to import raw materials;

2. Spot-checking the import declaration records and relevant import tax vouchers of imported raw materials for production and processing, parts sales or R&D self use, respectively, of the Company;

3. Acquiring the certificate of non-major tax violation issued by Shanghai Pudong New Area Tax Bureau under the State Taxation Administration;

4. Having access to the VAT declaration forms and the applications for export tax exemption and refund, checking the same with the book records, and having access to and checking the receipt vouchers of export tax refunds; and

5. Having access to the ledgers, lists, proposals, acceptance reports and other data of R&D projects, double-checking the accuracy of R&D investment identification; checking the materials requisitions related to R&D activities to verify the rationality and accuracy of R&D expenses grouping and allocation.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to the situation that there is no VAT payable in the closing balance of taxes payable:

1. Further spot-checking the relevant declaration materials of the Company’s imported raw materials;

2. Further consulting the measures concerning “exemption, offset and refund” of export taxes;

3. Further reviewing the VAT declaration forms and export tax exemption and refund application forms; and

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4. Further checking the information on the Company’s R&D expenditure and grouping.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

At the end of each reporting period, it is reasonable that there is no VAT payable in the closing balance of taxes payable by the Issuer, and no production costs have been found to be included into the R&D expenses.

10. Other Challenge 10: About the False Declaration of Goods Imported through Pudong Airport (Index of Verification in Response to the Short-sell Report, No. 26)

Challenge in the Short-sell Report (Short-sell Report, pp.30-31):

“False declarations of goods imported through the Pudong Airport. We think the company improperly claims tax exemptions by reporting that parts are imported as part of its capital investment and for R&D when really these are raw materials for operational production. A supplier told us he believes the CEO, David Wang, may hand-carry some of the components to China. This would seem too petty a means for evading taxes, but there is evidence from the disclosures that it is true. ACMR had to pay a fine on October 9, 2019 for a false declaration at the Shanghai Pudong International Airport, where ACMR staff apparently carried parts ‘used for power of silicon chip cleaning machine.’ Procuring inventory via staff air luggage is not sustainable for a publicly listed company that claims to be expanding operations.”

Response:

I. Clarification by the Issuer

The Company has disclosed the administrative penalty by Pudong Airport Customs, which was imposed due to the wrong declaration of commodity code, rather than “ACMR staff apparently carried parts ‘used for power of silicon chip cleaning machine’” as alleged in the Short-sell Report; the import declaration procedures have been completed by it for imported parts and no production cost was included by it into the R&D expenses. Relevant disclosures of administrative penalties have been made by the Company in “Section VII.VI. Violations of Laws or Regulations by the Issuer” in the Prospectus and in “Q11” of the Reply to the Letter of First Round Review-related Inquiries. The facts that the Company did not include the production costs into the R&D expenses have been disclosed by it in “Q26.2” of the Reply to the Letter of First Round Review-related Inquiries and in “Q3” of the Reply to the Letter of Second Round Review-related Inquiries.

(i) Penalty imposed by Shanghai Pudong International Airport on the Company

On October 9, 2019, Shanghai Pudong International Airport issued an Administrative Penalty Decision (Hu Pu Ji Guan Jian Wei Zi [2019] No. 2546) to the Company, stating that “the party involved holding the declaration form numbered 223320191001125917 applied to the customs authority for importing goods in the trading means of general trade, but the declaration was found to be untrue after examination: the specifications and model of goods in the third item were declared as resistors switching different value of resistance through band switches within the designated scope of frequency, but were actually used for power attenuation of silicon wafer cleaning machines; the commodity code was declared as 8543709990 but actually was 8548900002.” According to Article 86.3 of the Customs Law of the PRC and Article 15(1) of the Regulation of the PRC on the Implementation of Customs Administrative Penalty, a fine of RMB1,000 was imposed on the Company.

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The above-mentioned customs administrative penalty imposed on the Company does not amount to a major violation of laws and regulations given the fine was in a small sum and has been paid in full.

According to Administrative Penalty Decision, the administrative penalty was imposed on the Company because of the wrong declaration of the commodity code.

The above information has been disclosed and clarified in “Section VII.VI. Violations of Laws or Regulations by the Issuer” of the Prospectus.

(ii) The Company has completed the import declaration procedures for imported parts

The Company has completed the import declaration procedures for the imported parts and paid relevant taxes and fees, never evading the customs declaration procedures to avoid the import tariff.

For the relevant procedures for imported parts of the Company, please refer to “Other Challenge 11: About Overseas Procurement” herein.

(iii) The Company has not included production costs into R&D expenses

The Company’s R&D expenses were all generated by actual R&D activities; the Company has accurately grouped the R&D expenses and production costs, and has not included the production costs into the R&D expenses. For relevant analysis, please refer to “Other Challenge 8: About R&D Expenses” herein.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Having access to the Administrative Penalty Decision issued by Shanghai Pudong International Airport Customs to the Company and the fine payment voucher thereof to verify the penalty situation;

2. Reviewing relevant provisions of the Customs Law of the PRC and the Regulation of the PRC on the Implementation of Customs Administrative Penalty to confirm whether the administrative penalty imposed on the Company is a major violation of laws and regulations;

3. Having access to the ledgers, lists, proposals, acceptance reports and other data of R&D projects, double-checking the accuracy of R&D investment identification; checking the materials requisitions related to R&D activities to verify the rationality and accuracy of R&D expenses grouping and allocation;

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4. Having access to the import declaration certificates, import documents, tax payment vouchers and other documents concerning the imported parts of the Issuer to verify whether the Issuer has fulfilled the customs import declaration procedures; and

5. Checking the website of the Customs to find out whether the Company was or is subject to any administrative penalty.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to the import of parts:

1. Further spot-checking the relevant declaration materials of the Company’s imported raw materials;

2. Further reviewing the administrative penalty decision issued by Shanghai Pudong International Airport Customs to ACMSH (before restructuring); and

3. Further checking from the Issuer about the handling procedures of imported parts and the specific reasons for the administrative penalty decision issued by Shanghai Pudong International Airport Customs to ACMSH (before restructuring).

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

The above-mentioned customs administrative penalty on the Company does not amount to a major violation of laws and regulation given the small fine imposed; the administrative penalty imposed on the Company was due to the wrong declaration of commodity; the Company has completed the import declaration procedures for imported parts; and the Company has never included the production costs in R&D expenses.

11. Other Challenge 11: About Overseas Procurement (Index of Verification in Response to the Short-sell Report, No.33)

Challenge in the Short-sell Report (Short-sell Report, p.88):

“ACMR discloses that the U.S. company purchases parts and ships them to China. However, U.S. bills of lading show no exports by ACMR. Because the volume of manufacturing is small—about 25 machines per year—and the most valuable parts relatively small, the parts could be carried into China, thus avoiding import tariffs.”

Response:

I. Clarification by the Issuer

The Company has fulfilled the customs declaration procedures for imported parts, and the senior executives or employees of the Issuer have never carried parts to avoid import tariffs.

1. The Company has completed the customs declaration procedures relating to imported goods for the parts purchased from ACMR and the imported parts.

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The Company purchased parts from ACMR, some of which were delivered directly to the Issuer by the end suppliers, and some were delivered to the Issuer by ACMR. In case of the former, it is the suppliers who went through the export-related procedures directly; likewise, in case of the latter, it is ACMR who handled the customs declaration procedures. The Company has completed the import customs declaration procedures for the parts purchased from ACMR and other suppliers, never evading the customs declaration procedures to avoid the import tariffs.

2. It is unfeasible to carry the main parts purchased from ACMR and the imported parts.

The parts imported by the Company from ACMR are mainly valves, flow meters, megasonic generators, etc., with a large number of parts and various specifications. Taking the purchase of megasonic generators (the core part of cleaning equipment) as an example, the Company purchased 271 megasonic generators each of which is large in size in 2019, so it is unfeasible to carry them.

3. It is unnecessary to carry the main parts purchased from ACMR and the imported parts.

The semiconductor special equipment industry, which the Company is in, is one of the industries that China strongly encourages to develop. In order to promote the development of the semiconductor industry, enhance the industrial innovation ability and international competitiveness, the central and local governments of China have launched a series of policies to encourage and support the development of such industry, including the exemption of customs duties and import value-added tax on the imported goods within the list for integrated chip manufacturers importing productive raw materials and consumables for their own use. The parts imported by the Company are mainly key parts, most of which are within the list and enjoy the preferential treatment for exemption of tariffs and import value-added tax on imported goods. It is unnecessary for the Company to import key parts by having representatives carry them.

4. The Company has not engaged in tax evasion or smuggling.

According to the Enterprise Credit Status Certificate issued by Shanghai Customs and the inquiry from the website of the credit publicity platform of import and export business of Customs of the PRC (website: http://credit.customs.gov.cn/), the Company is recognized by custom as an enterprise with general credit. The Company has not been identified as a dishonest enterprise, representing that it has not committed smuggling crime, evasion of tariffs, etc. as stipulated in Article 12 of the Measures of the Customs of the PRC for the Administration of Enterprise Credit. In addition, according to the documents issued by the local tax authority where the Company is located, the Company has not evaded taxes.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Reviewing the purchase agreements, orders and purchase lists signed between the Issuer and ACMR to check the status of parts purchased by the Issuer from ACMR;

2. Having access to the customs declaration certificates, export certificates and other documents of the parts exported by ACMR to verify whether ACMR has fulfilled the customs declaration procedures for export;

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3. Having access to the import declaration certificates, import documents, tax payment vouchers and other materials of the parts imported by the Issuer to verify whether the Issuer has fulfilled the customs declaration procedures for import;

4. Checking the website of the customs to find out whether the Company was or is subject to any administrative penalty;

5. Reviewing the Enterprise Credit Status Certificate issued by Shanghai Customs and relevant supporting policies for the related integrated chip industry; and

6. Reviewing the documents issued by the local tax authority where the Company is located.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to the import of parts:

1. Further spot-checking the relevant declaration materials of the Company’s imported raw materials;

2. Further querying whether the Company has been imposed with other customs administrative penalties through the network; and

3. Further checking the handling procedures for imported parts from the Issuer.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

The Company has fulfilled the import declaration procedures for imported parts.

12. Other Challenge 12: About Sales Quantity of Electroplating Equipment (Index of Verification in Response to the Short-sell Report, No.15)

Challenge in the Short-sell Report (Short-sell Report, p.21):

“ACMR reported making far fewer electroplating machines indicated in interviews with two former executives with direct knowledge of the electroplating operation.”

Response:

I. Clarification by the Issuer

The output and sales volume of semiconductor electroplating equipment disclosed by the Company are accurate, which have been disclosed in “Section VI.III.(I) Output and Sales of Main Products” of the Prospectus, as detailed below:

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“During the reporting period, the Company’s output and sales were as follows:

Unit: Set

Product Category	Item	Jan.-Jun. 2020	2019	2018	2017
Semiconductor cleaning equipment	Output	19	28	22	11
	Sales	13	26	21	11
	Sales-output ratio	68.42%	92.86%	95.45%	100%
Semiconductor electroplating equipment	Output	1	4	-	1
	Sales	-	4	1	-
	Sales-output ratio	-	100%	-	-
Advanced packaging wet process equipment	Output	7	9	13	7
	Sales	10	7	6	7
	Sales-output ratio	142.86%	77.78%	46.15%	100%”

Since its establishment, the Company has been dedicated to the R&D, production and sales of semiconductor special equipment. ACMR, the controlling shareholder of the Company, was established in 1998, and since then has been engaged in the R&D of semiconductor special equipment. In 2005, ACMR invested in the establishment of the Company’s predecessor ACMSH (before restructuring) in Shanghai, and also invested the right to use the semiconductor special equipment-related technologies developed by ACMR in the early stage therein. On the basis of such technologies, the Issuer has carried out further technological development and innovation, and continued the technical R&D and technology accumulation of semiconductor special equipment.

After years of R&D and marketing promotion of the back-end advanced packaging electroplating equipment as one of its early business directions, the Company obtained orders for the same from JCET in 2018. The front-end copper interconnection electroplating equipment was ordered by Huahong Group in 2019.

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(i) Semiconductor electroplating equipment formed by production

Changes in the output of semiconductor electroplating equipment of the Company in 2017, 2018 and 2019 were as follows:

Project No.	2017				2018			2019			Revenue recognition time
Project No.	Opening unfinished goods	Start production	Output	Closing unfinished goods	Start production	Output	Closing unfinished goods	Start production	Output	Closing unfinished goods	Revenue recognition time
40201		1	1								2018
40202					1		1		1		2019
40203					1		1		1		2019
40204					1		1		1		2019
40205								1	1		2019
40206								1		1
40207								1		1
40208								1		1
Total		1	1		3		3	4	4	3

(ii) Semiconductor electroplating equipment formed by R&D

Before 2016, the Issuer formed two semiconductor electroplating equipment prototypes in the R&D process. During the Reporting Period, no sales order was placed for the two prototypes, and in other words the Issuer has not sold the same.

In sum, from 2017 to 2019, the Company only produced and sold 5 sets of semiconductor electroplating equipment. The Company has not hidden the income and profit of semiconductor electroplating equipment.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Interviewing the general manager of the Issuer to understand the production of its products;

2. Checking the sales orders of the Issuer’s semiconductor electroplating equipment;

3. Having access to the memorandum book of R&D prototypes to understand the management and sales of such prototypes; and

4. Acquiring the certificate of non-violation of laws and regulations issued by the competent tax authority of the Issuer.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to the output and sales of electroplating equipment:

1. Checking from the Issuer on the time of being granted the electroplating business orders;

2. Checking the input and output of the Company’s electroplating equipment; and

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3. Further checking the management and sales of electroplating equipment R&D prototypes.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

The output and sales of semiconductor electroplating equipment disclosed by the Issuer are accurately reported.

13. Other Challenge 13: About Supplier (Index of Verification in Response to the Short-sell Report, No.34)

Challenge in the Short-sell Report (Short-sell Report, pp.38-39):

“Our interviews with suppliers show a disparity with company representations.”

Response:

I. Clarification by the Issuer

The procurement from key suppliers disclosed by the Company is true and accurate. The Company has disclosed the amount, proportion and contents of purchase from the key suppliers in “Section VI.IV(II) Procurement from the Top Five Suppliers” of the Prospectus.

The Short-sell Report alleges that the interviews with ACMR’s suppliers show a disparity with the information disclosed by the Company, as detailed below:

Name of Supplier	Challenge in the Short-sell Report	Actual Situation
NINEBELL Co., Ltd.	ACMR owns 20%. Original company rents out office printers to businesses. Current business appears to do software integration for robotic parts. A longtime ACMR executive told us that NINEBELL is simply a pass-through for ACMR. We believe NINEBELL has no original technology.	NINEBELL is the key supplier of robotic arm having its own R&D team, who can well cooperate in the Company’s diversified and different types of robotic arms, with fast delivery and good service. For details, please refer to “Core Challenge 5: About NINEBELL” in Part A hereof.
ACMR	ACMR discloses that the U.S. company purchases parts and ships them to China. However, U.S. bills of lading show no exports by ACMR. Because the volume of manufacturing is small - about 25 machines per year - and the most valuable parts are relatively small, the parts could be carried into China, thus avoiding import tariffs.	Please refer to “Other Challenge 11: About Overseas Procurement” in Part B hereof.
MKS Instruments	We spoke with eight company representatives. Seven said ACMR was not a client. One named all the company’s clients and insisted “I can confirm that ACMR is not a direct client.” The eighth said that ACMR is a client but he could not say anything further.	Direct business with MKS began in 2011; initially it is valves and pressure gauges that were purchased from it; in 2015, the first ozone generator was purchased, and the purchase amount increased year by year; in 2018, MKS required the Company to change its supplier from MKS Instruments (Shanghai) Ltd. to MKS Instruments (Hong Kong) Limited from April 2018 due to its internal adjustment.

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GPM- Goodwill Precision Machinery (Suzhou) Co., Ltd.	We made four calls to this company. One, to the company’s switchboard, was an automatic hang-up. One employee said that the company “sells some low-end products” to ACMR. Another said that ACMR is a customer for pre-assembled product.	Key supplier of chamber parts
C&U	We spoke with four executives of this company, and none had heard of ACMR.	The Issuer has never purchased from it.
Product Systems Inc. (ProSys)	A sales rep told us that ACMR makes purchases in California. ProSys sources commented that ACMR is an assembler and integrator but not an originator of technology. The ProSys sales agent in China, Leadin Way, does not make any sales to ACMR.	ACMR purchased megasonic generator through Product Systems Inc. USA, the key supplier of key component of megasonic cleaning equipment.
Nomura Micro Science Ltd.	Nomura Micro Science is not represented in China. ACMR jointly owns a patent with Nomura.	The patent that ACMSH jointly owns with it has been disclosed in the Prospectus.
DOUBLE MERITS HOLDINGS LIMITED	The only company we can find called “Double Merits” is identified by Bloomberg as an asset management company.	PINASON (Shanghai) Co., Ltd. acts as the agent of white knight pump and process technology heater, which has registered Double Merits Holdings Limited overseas to carry out the business of USD orders
SAS Technology Limited	A representative of the company said that ACMR is a client.	Supplier of pump
Tokyo Keiso (Beijing) Instrument Co., Ltd.	A representative of the company said that ACMR is a client and that sales volume to them grew 30-50% in 2019.	Supplier of flowmeter
Fujikin of China, Inc.	We spoke with three executives of this company. Two said that ACMR is not a client, and one of them checked an internal client list to confirm.	Key supplier of gas panel, which also supplies all kinds of stainless steel joints, valves, MFC and other gas components
Shanghai Molan Electromechanical Equipment Co., Ltd.	An executive said that ACMR is a client.	Supplier of electronic modules

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Wuxi Paisi Technology Co., Ltd	An employee of this company said that Wuxi Paisi has provided PVC welding services to ACMR for cabinet shells.	Supplier of cabinet
Advance Electric America Co., Inc	ACMR purchases components from Advance in the United States. But it would be easy to buy components in China: Advance’s agent in China in Lush Mount (http://www.lush-mount.com/). We spoke with three Lush Mount representatives. They acknowledged that ACMR was a client but a small one: “We sell very little to ACMR, not even the value of a car.”	Advance only sells valve bodies with relatively backward styles through Chinese agents; the Company purchased customized valve bodies from Advance Electric America Co., Inc.; it did not purchase the customized valve bodies required from domestic Chinese agents.
Harrington Industrial Plastics	Harrington sells products to ACMR. The company does not sell products in China or have an agent there.	Flarelink joints were purchased from it.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Interviewing the general manager and the procurement director of the Issuer to understand the procurement of the Company;

2. Interviewing the key suppliers of the Issuer to understand the cooperation background, business dealings and whether there is any relationship between the Company and the suppliers; and

3. Having access to the purchase orders or contracts with the suppliers to check the authenticity of the purchases.

After the release of the Short-sell Report, the Sponsor has further performed the following procedures with respect to the Company’s suppliers:

1. Further checking the business between the Company and its suppliers from the procurement director of the Issuer; and

2. Having access to the interviews with suppliers and the purchase orders, and conducting comparative analysis with the information of suppliers provided by the Issuer.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

The Issuer has accurately disclosed the specific information on the aforesaid suppliers.

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14. Other Challenge 14: About Machines Bearing the Ultra Trademark on Premises at NINEBELL (Index of Verification in Response to the Short-sell Report, NO.19)

Challenge in the Short-sell Report (Short-sell Report, p.23):

“ACMR’s key supplier in Korea, NINEBELL Co. Ltd. stores finished inventory for ACMR. When our investigator visited NINEBELL, on premises were ACMR machines bearing the Ultra trademark. NINEBELL is disclosed as a supplier to ACMR, not a sales agent; the fact that machines are on premises at NINEBELL indicates that they are being sold by a third party.”

Response:

I. Clarification by the Issuer

The Company has accurately recognized its revenue, whose details of equipment sales during the Reporting Period have been disclosed in “Q14.3” and “Q15.1” of the Reply to the Letter of First Round Review-related Inquiries.

(i) Reasons why the machines on premises at NINEBELL bear company trademark

During the Reporting Period, NINEBELL was the key supplier of robotic arms, a key part of the Company’s equipment. The robotic arms purchased by the Company from NINEBELL are complete sets of system products, composed of robotic arms, wafer handling platforms, robot control modules and equipment racks. With respect to the equipment rack, the appearance, shape and size are provided by the Company according to the different requirements of customers and then designed and purchased by NINEBELL itself. NINEBELL will assemble the robotic arm, wafer handling platform, robot control module and other supporting components in the equipment rack, and deliver the products to the Company after debugging and testing. The Company, for ease of subsequent assembly, testing and sales of other parts, requested NINEBELL to print the trademarks of relevant products and equipment of the Company on the equipment rack.

In sum, the machines with company trademark on premises of NINEBELL are the equipment racks for assembling robotic arms and their supporting components. It is reasonable that such machines bear the trademark.

(ii) The Company’s revenue is true and accurate

The Company has recognized its revenue, which is reported accurately, according to its revenue recognition policy. Details of the equipment sales during the Reporting Period have been accurately disclosed by the Company, without undercount of revenue.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Interviewing the procurement director of the Issuer to check the specific situation of robotic arms purchased by the Company from NINEBELL;

2. Interviewing the CEO of NINEBELL to check the cooperation background and procurement content between NINEBELL and the Company;

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3. Having access to sales details and relevant sales contracts, checking the EX-warehouse records, customer receipt records, acceptance forms and relevant sales collection records of relevant sales products to verify the authenticity of sales revenue;

4. Checking the sales mode of the Issuer during the Reporting Period through interviews;

5. Seeking confirmation on the income and accounts receivable from key customers by sending letters; and

6. Interviewing customers to understand their business relationship with the Issuer.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to NINEBELL:

1. Further checking from the Issuer’s procurement director about the process of purchasing robotic arms by the Company and the reasons for the equipment with company trademark on premises of NINEBELL;

2. Further checking from NINEBELL about the reasons for the equipment with the company trademark on its premises and whether it purchased equipment for the Issuer; and

3. Reexamining and checking the sales details, contracts, EX-warehouse records, acceptance forms and payment receipts concerning the Company’s products.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

It is reasonable that the machines on premises at NINEBELL, which are the equipment racks for assembling robotic arm and their supporting components, bear company trademark; the Company’s revenue is accurately reported.

15. Other Challenge 15: About Warranty Fee (Index of Verification in Response to the Short-sell Report, No.9)

Challenge in the Short-sell Report (Short-sell Report, p.13):

“Warranty. We estimate the gap between cash outflow for parts and inflow under “other” income at roughly $11 mln. This may be under-reported warranty or out-of-warranty service repair expense.”

Response:

I. Clarification by the Issuer

During the Reporting Period, adequate provisions have been made for the after-sales service fees of the Issuer. The Issuer has disclosed the after-sales service fees in “Q26.1” of the Reply to the Letter of First Round Review-related Inquiries.

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It is unreasonable for the Short-sell Report to compare the “other cash received relating to operating activities” and “other cash paid relating to operating activities” in the cash flow statement with the cash inflow for parts. Pursuant to the Chinese accounting standards for business enterprises, “other cash received relating to operating activities” refers to the cash received from operating activities, such as government subsidies received and penalty incomes, other than “cash received from sales of goods and rendering of services” and “tax refunds received,” etc. “Other cash paid relating to operating activities” refers to the cash paid for operating activities, such as period expenses and penalty expenses, other than “cash paid for goods and services,” “cash paid to and for employees” and “various taxes and fees paid,” etc. JCAP was unclear about the Chinese accounting standards for business enterprises, mistakenly identifying the “other cash received relating to operating activities” and “other cash paid relating to operating activities” in the cash flow statement as the cash flow for “other business” in the operating income of the Issuer.

During the Reporting Period, the Company’s actual after-sales service fees in comparison of the provisions made for after-sales service fees are as follows:

Unit: RMB10,000

Item	Jan.-Jun. 2020	2019	2018	2017
Actual after-sales service fees	140.75	471.14	244.10	1,046.02
Provisions for after-sales service fees	569.48	1,360.12	1,174.57	1,337.49

During the Reporting Period, the actual after-sales service fees of the Company were RMB10.4602 million, RMB2.441 million, RMB4.7114 million and RMB1.4075 million respectively. In 2016 and 2017, the Company sold more products with new technology, and customers put forward more rectification requirements during use, as a result of which, the Company used more materials for after-sales services to meet the customer requirements. Therefore, the actual after-sales service fees of the Company in 2017 were comparatively high. In 2018, 2019 and January to June 2020, with the improvement of process maturity and stability of the Company’s equipment, the actual after-sales service fees have decreased compared with those in 2017.

During the Reporting Period, the Company’s provisions for after-sales service fees were greater than the actual after-sales service fees, representing the adequate provisions made by the Company for the after-sales service fees. The above information has been disclosed and clarified in “Q26.1” of the Reply to the Letter of First Round Review-related Inquiries.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Checking and evaluating whether the management’s accounting estimate of the accrued liabilities recognition is rational by reviewing the sales policies and sales contracts, communication with the management and analysis of relevant documents;

2. Reexamining the process of making provisions for accrued liabilities, including the base and fee rate for provision, etc.; and

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3. Comparing the provisions of the previous period and the actual amount to evaluate whether the provisions made for the accrued liabilities in the current period is rational.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to the after-sales service fees:

Further reexamining the process of making provision for accrued liabilities, including the base and fee rate for provision, etc.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

It is unreasonable and incorrect for the Short-sell Report to identify the “other cash received relating to operating activities” and “other cash paid relating to operating activities” in the cash flow statement as the cash flow for sales of parts among “other business” in the operating income of the Issuer.

16. Other Challenge 16: About ACMR’s Information Disclosure on Agent (Index of Verification in Response to the Short-sell Report, No.13)

Challenge in the Short-sell Report (Short-sell Report, p.18):

1. “

At least three of these agents are related parties whose relationship has not been disclosed to U.S. investors.”

2. “Lida is responsible for 41% of ACMR 2019 sales and is owned by an undisclosed related party. The ¥15.26 mln commission that ACMR reported paying to Lida in 2019 represented 45% of Lida’s income. These facts are disclosed to the Chinese regulator in response to questions about the draft registration document. But the English-language 8-K fails to mention these things.”

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Response:

I. Clarification by the Issuer

(i) Information Disclosure by ACMR on the Issuer’s IPO

According to the information disclosure documents of ACMR, ACMR has made the following written information disclosures on the IPO of the Issuer:

1. ACMR has disclosed the information relating to the IPO, such as the listing plan of ACMSH, the introduction of investors, the investment projects with raised funds, the English translation of ACMSH’s Prospectus as well as the commitments executed by ACMSH’s controlling shareholder and de facto controller, etc., in the regular reports or interim reports among its filings with the U.S. Securities and Exchange Commission (“SEC”).

2. ACMR has issued relevant press releases on its official website (at https://www.acmrcsh.com/, the same below) discussing or mentioning the IPO, including the plan and schedule of the IPO of the issuer, as well as the two rounds of pre-IPO equity financing.

3. ACMR has made references to the IPO in certain Investor Presentations that have been posted on its website.

In sum, ACMR has made disclosures with respect to the IPO in its filings with the SEC, which it believes, after consultation with its U.S. lawyers as to SEC disclosure requirements, are appropriate and compliant.

(ii) The SEC Does Not Require Disclosure of Detailed Information on Agent

1. ACMR has disclosed the practice of paying commissions to its third-party agents in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of its annual report. After consultation with its U.S. lawyers, ACMR understands that SEC disclosure requirements generally do not require that a reporting company specifically identify its third-party agents, absent the status of those agents as “related parties.” In accordance with the relevant SEC disclosure requirements (Regulation S-K Item 101, Description of Business), ACMR is required to disclose a customer’s name and its relationship with the company if sales to that customer are 10% or more of the company’s consolidated revenues and the information is material to an understanding of the company’s business, but no similar disclosure is required with respect to third-party agents.

2. After consultation with its U.S. lawyers with respect to the scope of applicable SEC disclosure requirements, ACMR understand that a listed company might be required to identify its agents as “related persons” in the following circumstances:

The SEC disclosure requirements (Regulation S-K Item 404, Transactions with related persons, promoters and certain control persons) require that ACMR describe any transaction in which ACMR was or is to be a participant if (a) the amount involved exceeds $120,000 and (b) any related person had or will have a direct or indirect material interest. A “related person” of a company is defined to be: (1) an executive officer or director (or director nominee) of the company, (ii) a shareholder owning more than 5% of any class of the company’s voting securities, or (iii) an immediate family member of any of the above.

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As no agent of the Issuer is a related person as defined by SEC disclosure requirements, ACMR believes it is not required to disclose the information of agents in related-party transactions.

3. In conclusion, based upon an analysis of the facts in accordance with the disclosure obligations identified by the U.S. lawyers, the information disclosure filings by ACMR with the SEC comply with the relevant SEC disclosure requirements and there are no relevant NASDAQ listing rules, Delaware laws or other applicable laws or regulations of the SEC governing information disclosure that require ACMR to disclose specific detailed information on agents that are not within the definition of related parties. Therefore there is no legal basis for the Short-sell Report to challenge that ACMR failed to disclose the relevant information on agents.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Reviewing legal guidance provided to ACMR by overseas lawyers, reviewing Regulation Fair Disclosure of the SEC on Selective Disclosure and Insider Trading and the NASDAQ listing rules, having access to the websites of the SEC and ACMR to check the information disclosure documents of ACMR such as announcements, press releases and investor presentations related to the IPO issued by ACMR, and checking the relevant information disclosure by ACMR on the carve-out concerning the listing of the Issuer on the STAR MARKET;

2. Reviewing legal guidance provided to ACMR by overseas lawyers and the information disclosure documents of ACMR to confirm that the information disclosures of ACMR after its listing on NASDAQ have not been subject to any government investigation, lawsuit, arbitration or administrative punishment, or any NASDAQ inquiry for non-compliance with relevant laws and regulations; and

3. Reviewing the annual reports and quarterly reports of ACMR to understand its disclosures relating to agents.

After the release of the Short-sell Report, the Sponsor performed the following further procedures with respect to the foregoing:

1. Seeking the legal guidance of overseas lawyers through e-mail to assist in determining whether ACMR’s disclosure of information with respect to the agents complies with laws and regulations; and

2. Reviewing relevant provisions of the SEC Disclosure Requirements (Regulation S-K Item 101, Description of Business and Regulation S-K Item 404).

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(ii) Verification Opinions

Upon verification, the Sponsor opines that:

1. ACMR has made information disclosures concerning the IPO, and the disclosure of information by ACMR after its listing on NASDAQ complies with relevant laws and regulations, does not involve any government investigation, lawsuit, arbitration or administrative punishment, and has not received any SEC or NASDAQ inquiry with respect to the IPO;

2. The information disclosure filings by ACMR with the SEC comply with the relevant SEC Disclosure Requirements. There are no relevant NASDAQ listing rules, Delaware laws and applicable laws and regulations of the SEC governing information disclosure that require ACMR to make information disclosure on agents. There is no legal basis at all for the Short-sell Report to challenge that ACMR failed to disclose the relevant information on agents.

17. Other Challenge 17: About Other Challenges (Index of Verification in Response to the Short-sell Report, No.1, 2, 31, 35)

Challenge in the Short-sell Report (Short-sell Report, pp.2, 3, 4, 33, 34, 41):

1. “The team around ACMR is better known for stock promotion than for management. The former ACMR CFO, Xu Min, who left soon after the IPO to join China Online Education Group, was previously CFO of well-known fraud UTStarcom. Before that, Xu was a research analyst at Roth covering cleantech. Lisa Yilu Feng, CFO of the China subsidiary, formerly worked at Lumenis, an Israeli company at which two top executives were charged with revenue accounting fraud to inflate sales.

The company’s auditor is Daniel Ho of BDO Shu Lun Pan. He has audited other companies widely regarded as frauds such as Orient Paper, now a penny stock trading as IT Tech, and Origin Agritech (SEED).”

2. “We visited the ACMR office in California. The company reports five staff there. No one was on premises between 3:30 and 5 in the afternoon on a Wednesday. The company reports it pays $3,600 per month for the space; neighbors with similar spaces told us they paid from $1,400-$1,700. The amount, if overstated, is immaterial. But over months of looking at this company, we have come to feel that every number it publishes is inflated.”

3. “The company is pushing to IPO substantially all the company assets in Shanghai in order to raise cash. This will significantly dilute U.S. investors.”

Response:

I. Clarification by the Issuer

(i) Clarification on the Company’s CFO and ACMR’s Auditor

LISA YI LU FENG, the CFO of the Company, did not participate in the accounting fraud to inflate sales of Lumenis, Ltd. alleged in the Short-sell Report; Daniel Ho, an employee of the auditor of ACMR, did not fail to discover due to incompetency accounting frauds as referenced in the Short-sell Report; MIN XU, the former CFO of ACMR, based on his tenure, had nothing to do with the frauds of UTStarcom referenced in the Short-sell Report.

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The Short-sell Report mismatches events and people at different time points, thereby misleading investors, as detailed below:

1. According to the relevant announcements of UTStarcom, on July 24, 2007, UTStarcom released a self-examination report, indicating that an amount of USD28 million as stock incentive expenses was overstated in its financial statements in the preceding five years due to the adoption of a wrong option award date, resulting in a decrease in the company’s net profit. The audit committee under UTStarcom’s board of directors, after consultation with the company’s management, determined that the company’s previously submitted financial statements from 2000 to 2006 would no longer be reliable.

MIN XU served as CFO of UTStarcom from August 21, 2014 to November 11, 2016, and served as CFO of ACMR from November 14, 2016 to January 24, 2018.

In sum, MIN XU has not associated with the relevant matters mentioned in UT Starcom’s self-examination report.

2. LISA YI LU FENG, the CFO of the Company, never participated in the accounting fraud to inflate sales of Lumenis in Israel mentioned in the Short-sell Report. The Short-sell Report suggests that LISA YI LU FENG may have been involved in the alleged misconduct. According to the statement made by LISA YI LU FENG, there are misleading statements in the Short-sell Report: (1) the Lumenis-related event as referred to in the Short-sell Report is based on a lawsuit filed by the U.S. Federal Communications Commission against the CEO and CFO of Lumenis with respect to their inflating revenue in 2002 to 2003; (2) during this period, LISA YI LU FENG served as accounting director and was responsible for the general payments and receipts of several specific balance sheet accounts of Lumenis’s US subsidiary (acquired by Lumenis from Coherent Inc.); (3) LISA YI LU FENG neither had knowledge of nor participated in the revenue recognition reporting process of the parent company Lumenis, Ltd, which was headquartered in Israel; and (4) due to the existence of a multi-level executive directors, LISA YI LUFENG did not report directly to the CFO in the organization.

Margaret Lin, a manager of Lumenis and the direct supervisor of LISA YI LU FENG, made a statement on this regard, confirming that LISA YI LU FENG had no decision-making as to the recognition of revenue during the period from 2001 to June 2003, when she worked for Lumenis, Ltd.

Based on the above, the Company believes that LISA YI LU FENG has never been involved in the accounting fraud to inflate sales of Lumenis, Ltd., as alleged in the Short-sell Report.

3. Daniel Ho is a certified public accountant. The Short-sell Report alleges that “Daniel Ho has audited other companies widely regarded as frauds” to imply Daniel Ho was incompetent and failed to detect accounting frauds, which is misleading.

(1) Orient Paper, Inc.

Orient Paper, Inc, a US-listed company (“Orient Paper”) at the time, was sold short by short sellers in 2010. The short-sell report pointed out that the company overstated profits and that the production and operation of its plants were far lower than the “scale and degree” shown by its financial data.

Orient Paper engaged Loeb & Loeb, Deloitte Financial Consulting Services Limited and TransAsia Layers to jointly investigate the relevant charges. However, the 4-month investigation found nothing to support the short sellers’ assertions.

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The SEC began an informal investigation into Orient Paper in December 2010. In July 2013, Orient Paper announced that it had received notice from the SEC that SEC had completed an investigation into the company without intention to take any enforcement action.

Daniel Ho was responsible for the audit of Orient Paper in the fiscal year 2016, prior to which, he had never been involved in the audit thereof. Moreover, Orient Paper has not been found by the SEC upon up to three years of investigation to be fraudulent.

(2) Origin Agritech Ltd. (SEED)

BDO CHINA SHU LUN PAN CERTIFIED PUBLIC ACCOUNTANTS LLP (“BDO”) was the auditor of Origin Agritech Ltd. from the fiscal year ended September 30, 2011 until January 3, 2020, when the audit committee and the board of directors of Origin Agritech Ltd. decided to hire BF Borgers CPA PC to replace BDO with respect to audit services.

Daniel Ho worked on BDO’s audit of Origin Agritech, Ltd. since the end of fiscal year 2018, before which he had never participated in the audit work for BDO.

To the best of BDO’s knowledge, Origin Agritech, Ltd. has never been accused by short sellers or other as engaging in fraud, nor has any event been found to have an impact on the financial statements of Origin Agritech, Ltd. audited by BDO.

Based on the above, the Company considers the assertion in the Short-sell Report that “Daniel Ho has audited other companies widely regarded as frauds such as Orient Paper, now a penny stock trading as IT Tech, and Origin Agritech (SEED)” as misleading.

(ii) Clarification on the working hours and rent of ACMR

Due to the COVID-19 outbreak in the United State, ACMR has encouraged employees to work from home as much as possible. Therefore, the point in the Short-sell Report that “no one was on premises between 3:30 and 5 in the afternoon on a Wednesday” does not suggest any wrong-doing on that specific day.

The Issuer has disclosed in “Section VII.X.(II) Non-recurrent Related-party Transactions” of the Prospectus about the Issuer subletting partial space of ACMR to ACM CA:

“On January 1, 2020, ACM CA, a subsidiary of the Company, signed a sublease agreement with ACMR, stipulating that ACMR shall sublet 50% of the office space at 42307 Osgood Road, Room B, Suite I, Fremont, CA94539 that it leases from D&J Construction. Inc. to ACM CA for a period from January 1, 2020 to March 31, 2021, at a monthly rent of USD1,650.00 from January 1, 2020 to March 31, 2020, and USD1,695.00 from April 1, 2020 to March 31, 2021.”

In the Short-sell Report, it is asserted that ACMR reports it pays USD3,600 per month for the space. Such rent was the overall monthly rent (including the partial space sublet to ACM CA) from April 1, 2020 to March 31, 2021. The reason for the difference between 50% of the monthly rent of USD3,600 and the monthly rent disclosed by the Issuer is that the monthly rent disclosed by the Issuer does not include the maintenance cost of the leased public area.

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The Issuer has compared the market price of the office space leased by ACMR with that of the nearby leased office space as follows:

Address	Monthly Rent
ACMR (42307 Osgood Road, room B, suite I, Fremont)	USD1.13 / sq ft
47800-47810 WestingHouse Dr, Fremont, CA	USD1.40 / sq ft
43297-43301 Osgood Rd, Fremont, CA	USD1.50 / sq ft
47811-47825 Warm Springs Blvd, Fremont, CA	USD1.30 / sq ft
41320 Boyce Rd, Fremont, CA	USD1.35 / sq ft
3777-3797 Spinnaker Ct, Fremont, CA	USD1.30 / sq ft

Note: The rental market prices of office spaces close in distance to and similar in size with the office space of ACMR are searched via Internet for the comparison.

As shown in the table above, the rental fee of ACMR’s office space in California is generally consistent with the local rental market price.

(iii) Clarification on the Company’s listing on the STAR Market diluting U.S. investors

The Company’s listing on the STAR Market, on the one hand, is to improve the popularity of ACMR in China; and on the other hand, is a result after consideration of the financing cost as the financial cost on the STAR Market in China is lower than that on the NASDAQ in the United States. The price of ACMR’s second capital increase on NASDAQ in August 2019 was based on ACMR’s market capitalization of about RMB1.6 billion; while the price of the two capital increases of the Company in the middle and end of 2019 was based on the Company’s market capitalization of about RMB5 billion. As a result, the IPO financing in China will be less dilutive to ACMR’s shareholders. The allegation in the Short-sell Report that “this will significantly dilute U.S. investors” is incorrect.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Reviewing the questionnaire of LISA YI LU FENG and obtaining the certificate of non-violation of laws and regulations of LISA YI LU FENG; and

2. Having access to the leasing agreement on the office space in California between ACMR and ACM CA to check whether the disclosure is accurate.

After the release of the Short-sell Report, the Sponsor performed the following further procedures in response to other challenges:

1. Checking the relevant announcements of UTStarcom, as well as the relevant employment and resignation announcements of MIN XU in UTStarcom;

2. Reviewing the relevant announcements of ACMR to understand the resignation of MIN XU;

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3. Reviewing the relevant statement of LISA YI LU FENG and the statement made by Margaret Lin, a manager of Lumenis and the direct supervisor of LISA YI LU FENG, on the relevant issues;

4. Reviewing the relevant statement of Daniel Ho;

5. Checking the local rental market price through the Internet, and comparing the same with that of ACMR; and

6. Reviewing the relevant industrial and commercial registration information on the Company’s capital increases in June and November 2019; and reviewing the announcements made by ACMR to understand the relevant situation of its refinancing.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

1. The CFO of the Company did not participate in the accounting fraud to inflate sales of Lumenis, Ltd. as asserted in the Short-sell Report; Daniel Ho, an employee of the auditor of ACMR, did not fail to discover the accounting fraud due to incompetence as implied in the Short-sell Report; MIN XU, the former CFO of ACMR, judging from his tenure had nothing to do with the frauds of UTStarcom as implied in the Short-sell Report.

2. The rental fee paid by ACMR and the Issuer for the office space in California is basically in line with the local rental market price.

3. The Company’s listing on the STAR Market will not significantly dilute the U.S. investors.

18. Other Comments in the Short-sell Report (Index of Verification in Response to the Short-sell Report, No. 6, 27, 28, 29, 30, 36)

Other Comments in the Short-sell Report are mainly as follows (Short-sell Report, pp.8, 32, 33, 42):

1. Customers on the U.S. blacklist

"On September 8, shares of ACMR fell by 30% based on a rumor that the U.S. Department of Commerce would blacklist a key customer, Semiconductor Manufacturing International (SMIC). Shares in SMIC had closed down 23% in Hong Kong on September 4, following reports that the U.S. might blacklist the company. Being added to the U.S. “entity list” would mean that U.S. companies would need a special license to do business with SMIC. SMIC is currently on a S&P BBB- rating, just above junk bond level. Shares have come back, but we believe based on conversations with U.S. government sources that SMIC will ultimately be blacklisted. We think there is a possibility that all of ACMR’s Chinese customers—about 80% of sales, if SK Hynix is reclassified as Korean—will come under U.S. sanctions. Selling low-quality equipment for discount prices, ACMR is able to penetrate independent Chinese fabs that earn government subsidies for buying “domestic.” But ACMR will not penetrate companies like Intel and TSMC, which require reliability and a track record. That means that the ACMR market is much more vulnerable to U.S. sanctions than are peers.

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2. Some assembly required

We have spoken with a half dozen production workers at ACMR’s Shanghai plant, with more than a dozen suppliers, and with customers. We have concluded that ACMR purchases valuable parts from third parties and performs a low-value assembly operation that principally entails connecting tubes (the machine “plumbing”) and electrical circuits and then testing the machines. That is contrary to the bull case on ACMR: company presentations constantly stress “differentiated megasonic technology” and “proprietary technology.”

A former longtime R&D employee of ACMR told us that when he joined the company, “I felt there was no technological content in their product. A components supplier who has known ACMR for a decade told us: “They don’t have much in way of R&D, a lab, manufacturing. It’s an assembly operation.”

A longtime ACMR sales executive told us customers identify products by searching images online. The company does not have a Chinese-language website, and a he told us that to find products, we should search Baidu. “That’s what I do. I search with the term ‘ACM Research semiconductor.’” Clients provide ACMR with specifications, and ACMR builds the machine to order, with assembly taking about two weeks and testing taking another two weeks.

By speaking with the suppliers, we learned that most of them sell to small factories that pre-assemble portions of the machines. The ACMR staff then connect up the plumbing and electrical circuits at the company’s factory in Shanghai and on customer premises.

3. ACMR U.S.

ACMR in California is the company’s largest supplier, purchasing “valves, contacts, etc.” in the United States and shipping them to China. This channel is rife with opportunity for hiding costs. Before 2019, ACMR was both a supplier and a “customer” for ACMR in China. That simply obscures the transaction chain for auditors.

4. Wafer-cleaning technology

Wafer-cleaning technology is a mature and low-margin area, and ACMR has opted to be a provider of complete equipment sets rather than a technological innovator. Single-wafer cleaning technology: “is actually the simplest part of the industry and the equipment is so simple,” an industry expert told us in a phone call. “And so low tech that Applied, Lam, Tokyo Electron don’t bother with it because it’s low tech. The technology really hasn’t changed a hell of a lot in 40 years.”

Response:

I. Clarification by the Issuer

(i) The Sanctions Imposed by the US Government on the Issuer’s Customers

In respect of Sino-US trade disputes, the Company has disclosed the following risks in “Section IV. II. (III) Risks of Escalated International Trade Dispute” of the Prospectus:

“(III) Risks of Escalated International Trade Dispute

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The trade dispute between the US and China has escalated since 2018. The US government imposed additional custom duties on specific imported products originated from China in July, August, and September 2018, June and September 2019, and February 2020. For each round of changes in the custom duties imposed by the US, the Chinese government responded by imposing additional custom duties on specific products imported from the US. In the future, it is likely that the US and Chinese governments will continue to impose additional custom duties or set other trade barriers on specific products originated from each other.

The additional custom duties imposed by the US and Chinese governments, and the uncertainty in surrounding economies, could adversely affect the semiconductor industry, including the demands on semiconductor special equipment from wafer manufacturing, packaging, and testing enterprises. Further deterioration of trade policies, custom duties, additional taxes, export restrictions, or other trade barriers in the country of operation may adversely affect the production or sales capabilities of the Company’s customers and harm the operating conditions of the Company’s customers, leading to reduced demands of such customers for equipment products of the Company. In addition, if the Chinese government imposes additional custom duties on raw materials or parts purchased by the Company from the US, the operating costs of the Company may increase, leading to material adverse effects on the operating incomes, results of operation, or financial conditions of the Company.”

(ii) Assembly of the Issuer

1. Assembly

As a semiconductor special equipment enterprise facing international technology frontier and adhering to independent innovation, the Company follows the global industry practice, mainly engaging in technology and process research and development, product design and manufacturing, and providing equipment and process solutions for customers.

The Company itself hardly engages in parts processing business. It does not produce standard parts (valves, pumps, heaters, flow meters, etc.) and machining parts by itself, which are all purchased and outsourced. According to the design of the product, the Company has organized the purchase and outsourcing of parts and components, and has established a sound supply chain system in the US, Korea and Mainland China and maintained close cooperation with the core suppliers, thus ensuring the supply of key parts.

The Company’s core technology is the design of a core process chamber (including SAPS megasonic cleaning, TEBO megasonic cleaning, multi-anode local copper plating and stress-free polishing), the design and final software integration of wafer transmission, a chemical supply system and an electronic control system. After assembly and testing, the semiconductor equipment needs to be subject to strict verification and reliability testing on the production line. In the process of R&D, design and production of semiconductor equipment, great and long-term research and development efforts need to be put into the selection of valuable parts, pipeline layout and circuit design, the process of which is more than just component assembly. During the certification of the first customer Hynix’s single wafer SAPS megasonic cleaning equipment, the Company had to shut down the machine once every three months due to the poor selection of an electronic component type, the failure automatically disappearing after the machine was restarted. In order to find out the root cause of the failure, the Company installed a camera near the component for around-the-clock monitoring and took up to three months before getting to the bottom of the failure.

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In sum, each part of semiconductor equipment must be selected and designed carefully, and be tested for a long term. Meanwhile, sophisticated arrangements are required to be made to the chemical pipeline as to the directional design and circuit layout, otherwise the process results and reliability of the equipment will be affected.

With the technical advantages through long-term R&D accumulation, the Company has formed differentiated proprietary technology in the semiconductor special equipment industry, so as to maintain its market position in the industry.

2. R&D

For the technical content of the Company’s products, please refer to the response in “(iv) Wafer Cleaning Technology” hereof.

The Company’s process laboratory in Shanghai is composed of 400 square meters of thousand-class ultra clean rooms and 80 square meters of first-class ultra clean rooms. The Company’s R&D personnel conduct demonstrative experiments for customers and the early equipment development in the R&D laboratory. According to the general practice of semiconductor equipment industry, the later process R&D and product technical verification is completed on the customer side, mainly because the customer has complete measurement equipment and product verification and production R&D line enabling continuous technical testing and verification for semiconductor equipment.

3. The Company Website

Since its establishment, the Company has always adhered to the global development strategy. With its English website, the Company can better connect with the international semiconductor special equipment industry, and rapidly expand to other countries and regions; in addition, the Company’s downstream customers are professional enterprises in the semiconductor industry who, through access to the Company’s English website, can more easily compare the product description, technical parameters and performance advantages of the Company with those of other international semiconductor special equipment enterprises.

Therefore, the Company has been conducting brand and product publicity using the English-language website of ACMR. The official website in Chinese language is being built to provide better services for customers and investors in Mainland China.

In addition, the Company generally develops new customers in two ways, of which one is referral by the existing customers or sales agents, and the other is search of the Company through its website by unknown customers. After a new customer takes the initiative to contact the Company, the Company will introduce in depth the standards and specifications of its existing products and equipment to the customers time after time, conduct necessary demonstrative experiments in its laboratory according to the special needs of the customer, determine the final equipment specifications and then move forward to business negotiation until the order is confirmed. Usually, such process requires repeated visits to the customer, which may take 3 months to 1 year, and even longer in case of a customer with special demands. After that, the Company will design and manufacture the equipment as per the order, with the whole manufacturing process to encompass purchasing parts (2 months), assembling (1 month) and testing (2-4 weeks).

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The allegations in the Short-sell Report about intentional simplification of the sales and production process, and the possibility of determining product specifications by searching products on the Internet, are inconsistent with the facts.

(iii) ACMR

For the related-party transactions between the Company and ACMR, relevant disclosures have been made by the Company in “Section VII. X. (I) Recurrent Related-Party Transactions” of the Prospectus, as follows:

“During the Reporting Period, the Company purchased raw materials such as valves, sensors, joints, pumps and so on through ACMR. The main reason is that it is more convenient and economical to a certain extent for ACMR, an enterprise registered in the United States, to purchase products from American and Japanese suppliers. The price of raw materials purchased by the Company from ACMR was based on the price at which ACMR purchased from its suppliers, without obviously unfair price in relate-party transactions.

The Company has set up a subsidiary, ACM CA, to replace ACMR for purchasing raw materials as an agent in the United States, so as to thoroughly solve the recurrent related-party transactions of purchasing raw materials through ACMR.

No obviously unfair price in the related-party transactions between the Company and ACMR exists.”

(iv) Wafer Cleaning Technology

The importance of semiconductor cleaning in the chip manufacturing process has been disclosed by the Company in “Section VI.II.(III.3.(1) Cleaning Equipment” of the Prospectus, as follows:

“① Importance of semiconductor cleaning in the chip manufacturing process

Cleaning is an important process link throughout the semiconductor industry chain. It is used to clean the impurities that may exist in each step of semiconductor silicon wafer manufacturing, wafer manufacturing, and packaging and testing in order to prevent impurities from affecting the high-yield rate of chips and the performance of chips. At present, with the chip manufacturing process becoming more and more advanced, the requirements for the control of wafer surface pollutants are getting higher, and after each repetitive process such as photolithography, etching, and deposition, a cleaning process is required.

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Semiconductor cleaning refers to the non-destructive cleaning of the wafer surface to remove particles, natural oxide layers, metal pollution, organic matters, sacrificial layers, polishing residues and other impurities in the semiconductor manufacturing process. The categories, sources and main harm of pollutants in semiconductor cleaning are as follows:

Pollutant	Source	Main Harm
Particles	Environment and other engineering processes	Affect the subsequent photolithography and dry etching processes, causing device short circuit.
Natural oxidation layer	Environment	Affect the subsequent oxidation and deposition processes, causing the electrical property to fail.
Metal pollution	Environment and other engineering processes	Affect the subsequent oxidation process, causing the electrical property to fail.
Organic matters	Dry etching byproducts and environment	Affect the subsequent deposition process, causing the electrical property to fail.
Sacrificial layer	Oxidation/deposition process	Affect specific subsequent processes, causing the electrical property to fail.
Polishing residues	Grinding fluid	Affect specific subsequent processes, causing the electrical property to fail.

In order to ensure the yield and performance of the chip, the above-mentioned various contaminants on the surface of the wafer need to be controlled within the range of process requirements during the wafer manufacturing process. All wafer manufacturing processes must be carried out in a strictly controlled purification environment. At the same time, it is necessary to evaluate whether the surface characteristics of the wafer meet the requirements of the process before each step. Currently, chip technology nodes are constantly improving, from 55nm, 40nm, 28nm to 14nm, 7nm and below, the requirements for the control of contaminants on the wafer surface are becoming higher and higher, and a cleaning process is required before and after repetitive processes such as photolithography, etching, and deposition process.

In the semiconductor silicon wafer manufacturing process, the polished silicon wafer needs to be cleaned to ensure its surface smoothness and performance, thereby improving the yield in the follow-up process; in the wafer manufacturing process, it needs to be cleaned before and after photolithography, etching, deposition and other key processes to remove polluting chemical impurities on the wafer and reduce the defect rate; in the packaging stage, it needs to go through TSV cleaning, UBM/RDL cleaning, etc. based on the packaging process. The technical requirements of the aforementioned cleaning process are one of the most important factors affecting the chip yield, quality and reliability.

As wafer manufacturing process continues to develop towards higher precision, the complexity of the chip structure is increasing, and the sensitivity of chips to impurity content is also increasing accordingly. Small impurities will directly affect the yield of chip products. In the hundreds of chip manufacturing processes, a large number of small pollutants will inevitably be generated or contacted. In order to minimize the impact of impurities on chip yield, the current chip manufacturing process has set up a cleaning process after repeated processes such as photolithography, etching, deposition, etc. The number of cleaning steps accounts for over 30% of all chip manufacturing process steps, the highest proportion among all chip manufacturing process steps. And as the technology node continues to progress, the number and importance of cleaning processes will continue to increase, and the demand for cleaning equipment will increase accordingly when the same chip manufacturing capacity is achieved.”

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For example, the number of cleaning steps of dynamic memory under 20nm node (more than 200) reaches 1/3 of the total 600 process steps. In particular, the cleaning of small particles and 3D structure has become a challenge in the industry. The Company’s self-developed SAPS megasonic cleaning technology, which is the first in the world, solves the problem of uniformity on megasonic energy in the silicon surface, thus improving the efficiency of cleaning tiny particles on the plane; the TEBO megasonic cleaning technology fundamentally avoids bubble implosion through controlling the temperature inside the bubble, which in turn resulting in non-destructive cleaning on the fragile tiny 3D structure. The two technologies have solved the two major problems of megasonic cleaning technology that have plagued the global semiconductor industry for many years, for which the Company has applied for global patent protection to establish its leading position in the field of megasonic cleaning in the next decade or so. Recalling the global development of megasonic cleaning technology, from 2000 to 2010, many international semiconductor manufacturers and research institutions, including Applied Materials, were developing the next generation of megasonic cleaning technology, but they all gave up because of the above two major problems.

At present, Lam, TEL and other international well-known cleaning equipment enterprises are continuing to invest in the R&D of wafer cleaning technology, while there are also core cleaning products in the market.

Therefore, statements such as “single-wafer cleaning technology is actually the simplest part of the industry and the equipment is so simple” and “so low tech that Applied, Lam, TEL don’t bother with it because it’s low tech. The technology really hasn’t changed a hell of a lot in 40 years” included in the Short-sell Report are inconsistent with the facts.

(v) Conclusion

In sum, other comments on the Issuer in the Short-sell Report involve no challenge against the authenticity, accuracy and completeness of the disclosure of information by the Issuer.

II. Verification Procedures and Opinions

(i) Verification Procedures

Before the release of the Short-sell Report, the Sponsor performed the following verification procedures:

1. Reviewing the relevant reports on Sino-US trade disputes to analyze the risks faced by the Issuer;

2. Reviewing the fixed assets account of the Issuer to understand its machinery equipment and fixed assets;

3. Interviewing the general manager of the Issuer to understand its production mode, production process, as well as the development mode of new customers;

4. Accessing to the website of the Issuer and interviewing the general manager of the Issuer to understand the background and reasons for the establishment of the website;

5. Obtaining and comparing the sales orders between the Issuer and ACMR and those between ACMR and final customers to recheck the fairness of the sales price;

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6. Reviewing the details of procurement by ACMR from its suppliers, and comparing the same with the details of procurement by the issuer from ACMR;

7. Reviewing the statements of ACMR to analyze its gross profit margins and expenses, etc.; and

8. Interviewing key customers and suppliers to check the authenticity and fairness of the business.

After the release of the Short-sell Report, the Sponsor performed the following further procedures in response to the above situation:

1. Reviewing and double-checking the disclosures of ACMR;

2. Inquiring the Issuer’s sales staff to check how the Issuer’s customers familiarize themselves with the products and the website; and

3. Checking the R&D situation of enterprises in the semiconductor cleaning equipment industry.

(ii) Verification Opinions

Upon verification, the Sponsor opines that:

1. The Issuer has disclosed the risks of escalated international trade disputes in the Prospectus;

2. The Issuer hardly engages in the business of parts processing, and has formed differentiated proprietary technology in the semiconductor special equipment industry with its technical advantages through long-term R&D accumulation;

3. It is reasonable for the Issuer to use the English-language website to publicize the brand and products;

4. No obviously unfair price exists in related-party transactions between the Issuer and ACMR;

5. Semiconductor cleaning technology is an important process link throughout the semiconductor industry chain, with high technical level;

6. Other comments on the Issuer in the Short-sell Report involve no challenge against the authenticity, accuracy and completeness of the disclosure of information by the Issuer.

Part C - General Opinion of the Sponsor

The Issuer’s clarifications herein have covered the challenges in the Short-sell Report, and the Sponsor has conducted corresponding verification and rendered express verification opinions and conclusions thereon.

(Remainder hereof is intentionally left blank)

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Company	Stock Code	Whether it is operated in China	Date of JCAP’s report	Stock price on the report date	Stock reaction after the report	Stock price on Nov. 20, 2020
Northern Dynasty Minerals Ltd.	NAK	No	Sep. 9, 2020	USD1.06	7.07%	USD0.90
STAAR Surgical Company	STAA	Yes	Aug. 11, 2020	USD48.25	-6.16%	USD82.14
Ideanomics, Inc.	IDEX	Yes	Jun. 25, 2020	USD2.44	-21.04%	USD1.53
NOVAGOLD RESOURCES INC.	NG	No	May 28, 2020	USD9.71	-8.83%	USD10.54
GDS Holdings Limited	GDS	Yes	Mar. 26, 2019	USD56.09	-1.67%	USD87.83
Enphase Energy, Inc.	ENPH	No	Oct. 25, 2019	USD24.55	5.77%	USD131.22
WiseTech Global Ltd.	WTC.AX	Yes	Oct. 16, 2019	AUD30.00	-10.18%	AUD30.63
BeiGene, Ltd.	BGNE	Yes	Sep. 5, 2019	USD131.03	-6.78%	USD284.46
A.O. Smith Corporation	AOS	Yes	May 16, 2019	USD45.12	-6.27%	USD55.91
Uxin Limited	UXIN	Yes	Apr. 16, 2019	USD1.95	-36.07%	USD1.22
Fanhua Inc.	FANH	Yes	Jan. 17, 2019	USD20.10	-12.42%	USD14.43
China Customer Relations Centers, Inc.	CCRC	Yes	Jan. 14, 2018	USD12.39	4.29%	USD4.98
Sorrento Therapeutics, Inc.	SRNE	Yes	Mar. 27, 2018	USD4.60	-26.98%	USD7.73
Remark Holdings, Inc.	MARK	Yes	Feb. 6, 2018	USD6.95	-24.86%	USD1.18
IP Group plc	IPO	Yes	Dec. 14, 2017	GBP145.00	-0.17%	GBP83.60
Harvey Norman Holdings Limited	HVN	No	Apr. 4, 2017	USD4.27	-1.77%	4.61

No.	Challenge	Short- sell Report Page Number	Response to the Challenge
1	ACMR is borrowing at high rates of interest, and the company is pushing to IPO substantially all the company assets in Shanghai in order to raise cash. This will significantly dilute U.S. investors.	2	Other Challenge 17: About Other Challenges
2	The team around ACMR is better known for stock promotion than for management. The former ACMR CFO, Xu Min, who left soon after the IPO to join China Online Education Group, was previously CFO of well-known fraud UTStarcom.1 Before that, Xu was a research analyst at Roth covering cleantech. Lisa Yilu Feng, CFO of the China subsidiary, formerly worked at Lumenis, an Israeli company at which two top executives were charged with revenue accounting fraud to inflate sales. The company’s auditor is Daniel Ho of BDO Shu Lun Pan. He has audited other companies widely regarded as frauds such as Orient Paper, now a penny stock trading as IT Tech, and Origin Agritech (SEED).	3-4	Other Challenge 17: About Other Challenges
3	Hyped We think ACMR overstates the price of many of its machines by about 20%. The actual costs, revenue, and profit are hidden when the company diverts revenue from over 90% of sales to five on-paper-only companies. The company reports an average price of $3.6 mln for its single-wafer cleaning machines, while we estimate $2.8 mln per machine. One of the very few customers that did not go through a sales agency in 20194 told us within a narrow range what the company had paid for two wafer-cleaning machines purchased in 2019. ACMR disclosures show prices 15-22% higher than this customer reported to us.	4	Core Challenge 1: About Equipment Price
4	Grossly overstated margins Not only is revenue overstated, but we have a mountain of evidence showing inflated profits. We believe that Screen Holdings, which commands roughly 40% of the world market for wafer-cleaning equipment, is the company most directly comparable to ACMR. Screen owns more technology and more manufacturing equipment. Screen reports gross margins of 23.7%. Screen (DNS) is 26x the size of ACMR and has more equipment and technology. It also has 40% of the world market in the same product category. So why are ACMR’s gross margins double?	4-5	Core Challenge 2: About Gross Profit Margin

5	Building stuff without equipment The true nature of ACMR’s business is readily available for investors to see in the company’s disclosures. ACMR has virtually no capital equipment. So-called “manufacturing equipment” at cost on the balance sheet in Q2 2020 amounted to $3.9 mln. This equipment was actually reduced in 2019 when production was supposed to “ramp.” The value of office equipment added since the start of 2019 greatly exceeds the value of added manufacturing equipment. The company opened a new factory in 2018, yet the amount spent on construction in progress during 2017 and 2018 is negligible, and the depreciated PPE machinery values clearly show older machinery, not brand new and still barely depreciated capital assets. By far the most valuable piece of equipment in the factory is for testing, not production. How do you build high-tech machines with $3.9 mln in manufacturing equipment at cost? ACMR is building a new, 1 mln square foot production and R&D base in the Lingang park in Shanghai. Only 11% of the roughly $127 mln being invested is for “equipment and software investment,” while a staggering 31%, or $40.9 mln, is for “raw materials for trial production.”7 We question why the company needs to capitalize such large amounts of otherwise inventory costs for “trial” production when it already has an apparently established production process. ACMR is spending nearly 3x as much on “materials for trial production” in the new facility as on manufacturing equipment and software.	5-8	Other Challenge 1: About Fixed Assets
6	Wafer-cleaning technology is a mature and low-margin area, and ACMR has opted to be a provider of complete equipment sets rather than a technological innovator. Single-wafer cleaning technology: “is actually the simplest part of the industry and the equipment is so simple,” an industry expert told us in a phone call. “And so low tech that Applied, Lam, Tokyo Electron don’t bother with it because it’s low tech. The technology really hasn’t changed a hell of a lot in 40 years.”	8	Other Comments in the Short-sell Report
7	We find this puzzling: why does ACMR require a guarantee from its CEO for some $25 mln in loans, when the company in Q2 had $86.4 mln in cash? If ACMR prefers not to use its cash, why not collateralize offshore dollars for Renminbi? Moreover, these loans are clearly labelled as lines of credit, not long-term loans for past capital expenditure, for example. With all that cash in the bank, why does the company need “lines of credit”, 13 of them? Cash is missing in the STAR IPO company accounts vs the U.S. GAAP accounts. That gap may be explained by cash in the Caymans company that belongs to the U.S.-listed entity. But we question why the cash is there when the company is taking out large short-term lines of credit on mainland China and whether the balance can be properly audited in the Caymans.	8-11	Other Challenge 2: About Guarantee and Bank Loan

	We suspect that a chunk of cash may be missing from the STAR IPO group. We suspect that a chunk of cash may be missing from the STAR IPO group. The IPO group includes in its account cash deposited overseas: The Shanghai company has most of the sales and COGS. The Hong Kong company exists as a convenience for processing payments in U.S. dollars; its net income should be moved promptly to the Shanghai accounts. But the Shanghai company shows negative operating cash flows, while the consolidated STAR IPO group shows big positive operating cash flows. That difference indicates that a lot of cash is circulating offshore with very little apparent COGS. If the cash is really there at all.
8	Inventory There is a large mismatch between what clients have told us and what ACMR reports. ACMR claims nearly $20 mln in inventory of delivered machines—meaning completed machines that have not been paid for and are sitting on customer premises. This is an astonishing 45% of total inventory. But most clients say they pay for 90% of their orders by the time of delivery and the balance within 30 days of receiving the machine. ACMR employees tell us they ship machines as soon as they are assembled. There is no room for inventory of completed goods. We believe that the $19.6 mln in finished-goods inventory reported by the company is an invention.	12	Other Challenge 3: About Inventory
9	Warranty We estimate the gap between cash outflow for parts and inflow under “other” income at roughly $11 mln. This may be under-reported warranty or out-of-warranty service repair expense.	13	Other Challenge 15: About Warranty Fee
10	Unreported customer deposits We have found disparities between the company's disclosures and our interview evidence of customer deposits. Only one customer, SK Hynix, reported the same terms as the company reported. All small customers reported paying 30-40% on ordering. According to the company, some of these machines are “demo” models, also customized which reduces the potential for resale. But every customer we spoke with except one reported the same payment terms: 30% downpayment on placing the order, 60% when the order is shipped, and 10% when the client tests and accepts the equipment. Advances from customers were $8.42 mln at end 2018 when full year revenue was $74.64 mln. By end Q2 2020, advances from customers were $8.78 mln, yet annualized Q2 2020 revenue was $156.2 mln (4 x $39.05 mln). Revenue has basically doubled, while advances from customers have stayed flat. Customer deposits should at least match the momentum in business activity	13-15	Other Challenge 4: About Deposits Received

11	Magically appearing liability In Q2 2020, ACMR reported a financial liability of $15.1 mln, which essentially appeared out of nowhere. Creating a new liability helps the company work off fake assets. The liability had arisen out of a complicated series of back-and-forth transactions between AMCR in the U.S. and ACMR Shanghai. The Shanghai company had received $2.98 mln for warrants issued to an employee owned company—and had lent that company the money to buy the warrants. ACMR Shanghai passed the obligation to U.S. shareholders then upvalued it to $15.1 mln. Presto, U.S. shareholders lose $15.1 mln in assets.	15	Other Challenge 5: About Liabilities
12	We went back to procurement managers at the largest customers, and three agreed to detailed interviews. None of the three had heard of the agents that ACMR reported were responsible for their sales. The customers we spoke with are some of the largest and together represent the majority of disclosed sales.	15-17	Core Challenge 3: About Agent
13	At least three of these agents are related parties whose relationship has not been disclosed to U.S. investors. Lida is responsible for 41% of ACMR 2019 sales and is owned by an undisclosed related party. The ¥15.26 mln commission that ACMR reported paying to Lida in 2019 represented 45% of Lida’s income.10 These facts are disclosed to the Chinese regulator in response to questions about the draft registration document. But the English-language 8K fails to mention these things.	18	Other Challenge 16: About ACMR’s Information Disclosure on Agent
14	ACMR makes the ridiculous claim that Wang’s company, Shengyi Semiconductor Technology (Wuxi) Co., Ltd., sells them filters—a commodity product that is super abundant in China—for 62% less than competitors. Lida is currently a Hong Kong-registered company. Prior to 2018, the company was registered in the U.K. Wang Beiyi owned one-thirds of the equity, and the other third belonged to someone with the same name as ACMR’s sales director, Liu Zheng. We think Lida Technology is skimming money from ACMR by booking some of the sales on its own account instead of giving the revenue to ACMR. We interviewed several people involved with building and selling ACMR’s electroplating devices, which are all sold by Lida. The interviewees gave us a clear count of how many the company had produced in 2015-2019.	18-21	Core Challenge 4: About LIDA

Preface - Background Analysis	3

Part A - Core Challenges in the Short-sell Report and the Responses thereto	14
1. Core Challenge 1: About Equipment Price	14
2. Core Challenge 2: About Gross Profit Margin	16
3. Core Challenge 3: About Agent	21
4. Core Challenge 4: About LIDA	32
5. Core Challenge 5: About NINEBELL	38

Part B - Other Challenges in the Short-sell Report and the Responses thereto	45
1. Other Challenge 1: About Fixed Assets	45
2. Other Challenge 2: About Guarantee and Bank Loan	50
3. Other Challenge 3: About Inventory	57
4. Other Challenge 4: About Deposits Received	61
5. Other Challenge 5: About Liabilities	66
6. Other Challenge 6: About Hanwool	69
7. Other Challenge 7: About Sales Differences	72
8. Other Challenge 8: About R&D Expenses	76
9. Other Challenge 9: About VAT	82
10. Other Challenge 10: About the False Declaration of Goods Imported through Pudong Airport	85
11. Other Challenge 11: About Overseas Procurement	87
12. Other Challenge 12: About Sales Quantity of Electroplating Equipment	89
13. Other Challenge 13: About Supplier	92
14. Other Challenge 14: About Machines Bearing the Ultra Trademark on Premises at NINEBELL	94
15. Other Challenge 15: About Warranty Fee	96
16. Other Challenge 16: About ACMR’s Information Disclosure on Agent	98
17. Other Challenge 17: About Other Challenges	101
18. Other Comments in the Short-sell Report	105

Part C – General Opinion of the Sponsor	112

The photograph below, which the Short-sell Report describes as depicting NINEBELL’s product assembly workshop, actually shows NINEBELL’s packaging and delivery workshop.		The photograph below shows NINEBELL’S actual product assembly workshop.

15	ACMR reported making far fewer electroplating machines indicated in interviews with two former executives with direct knowledge of the electroplating operation.	21	Other Challenge 12: About Sales Quantity of Electroplating Equipment
16	“Hanwool, which ACMR claims is “not dependent” on the company.”	22	Other Challenge 6: About Hanwool
17	Related party B: Hanwool The head of Hanwool Scientific, agent for sales to SK Hynix, has simultaneously headed ACM Korea since 2017, according to his LinkedIn profile. ACMR discloses that its Korean subsidiary has hired all the Hanwool staff—but the Hanwool account remain separate. On page 8-1-118 of its “first response” to the Chinese regulator, on August 11, 2020, the company says: “Currently, the Hanwool Scientific Co. Ltd. team has already joined ACM Korea.” Hanwool is always paired in the company’s sales disclosures with TJM Partners Ltd., which we think is also a related party.	22	Other Challenge 6: About Hanwool
18	We have interviewed several current and former executives of SK Hynix. They told us that the company inventory lists three more machines than ACMR has disclosed selling.	23	Other Challenge 7: About Sales Differences
19	ACMR’s key supplier in Korea, NINEBELL Co. Ltd. stores finished inventory for ACMR. When our investigator visited NINEBELL, on premises were ACMR machines bearing the Ultra trademark. NINEBELL is disclosed as a supplier to ACMR, not a sales agent; the fact that machines are on premises at NINEBELL indicates that they are being sold by a third party.	23	Other Challenge 14: About Machines Bearing the Ultra Trademark on Premises at NINEBELL
20	Customer-Reported Sales vs Company-Reported Sales	24	Other Challenge 7: About Sales Differences
21	TJM PARTNERS LTD.：A Korean company established in 2004 by Mok Jung Lai, who is also a principal of HJS Eng, a co-patent holder for many of the ACMR and Nomura patents. The company always works with Hanwool and does not appear to have separate operations.	26	Other Challenge 6: About Hanwool
22	Acting as own “agent” Yangtze Memory and Huahong were both customers and end customers. In other words, Yangtze Memory and Huahong were collecting hefty commissions on selling to themselves.	27	Other Challenge 7: About Sales Differences

23	Gap between sales to customers and to the same “final” customers (mln USD)	27	Other Challenge 7: About Sales Differences
24	We think most of the $12.9 mln spent on R&D is actually a cost of goods sold. Our interviews indicate that a big chunk of R&D activity consists of customizing and building machines for sale.	29	Other Challenge 8: About R&D Expenses
25	In the itemized tax-payable table of ACMR’s disclosures, there is no disclosed Value-Added Tax (VAT) payable: this is highly unusual and in fact almost impossible for an equipment maker. We think the company improperly claims tax exemptions by reporting that parts are imported as part of its capital investment and for R&D when really these are raw materials for operational production.	30	Other Challenge 9: About VAT
26	We think the company improperly claims tax exemptions by reporting that parts are imported as part of its capital investment and for R&D when really these are raw materials for operational production. A supplier told us he believes the CEO, David Wang, may hand-carry some of the components to China. This would seem too petty a means for evading taxes, but there is evidence from the disclosures that it is true. ACMR had to pay a fine on October 9, 2019 for a false declaration at the Shanghai Pudong International Airport, where ACMR staff apparently carried parts “used for power of silicon chip cleaning machine.”17 Procuring inventory via staff air luggage is not sustainable for a publicly listed company that claims to be expanding operations.”	30-31	Other Challenge 10: About the False Declaration of Goods Imported through Pudong Airport
27	A former longtime R&D employee of ACMR told us that when he joined the company, “I felt there was no technological content in their product. A components supplier who has known ACMR for a decade told us: “They don’t have much in way of R&D, a lab, manufacturing. It’s an assembly operation.	32	Other Comments in the Short-sell Report
28	We have spoken with a half dozen production workers at ACMR’s Shanghai plant, with more than a dozen suppliers, and with customers. We have concluded that ACMR purchases valuable parts from third parties and performs a low-value assembly operation that principally entails connecting tubes (the machine “plumbing”) and electrical circuits and then testing the machines. That is contrary to the bull case on ACMR: company presentations constantly stress “differentiated megasonic technology” and “proprietary technology.”	32	Other Comments in the Short-sell Report
29	A longtime ACMR sales executive told us customers identify products by searching images online. The company does not have a Chinese-language website, and a he told us that to find products, we should search Baidu. “That’s what I do. I search with the term ‘ACM Research semiconductor.’” Clients provide ACMR with specifications, and ACMR builds the machine to order, with assembly taking about two weeks and testing taking another two weeks. By speaking with the suppliers, we learned that most of them sell to small factories that pre-assemble portions of the machines. The ACMR staff then connect up the plumbing and electrical circuits at the company’s factory in Shanghai and on customer premises.	33	Other Comments in the Short-sell Report

30	ACMR in California is the company’s largest supplier, purchasing “valves, contacts, etc.” in the United States and shipping them to China. This channel is rife with opportunity for hiding costs. Before 2019, ACMR was both a supplier and a “customer” for ACMR in China. That simply obscures the transaction chain for auditors.	33	Other Comments in the Short-sell Report
31	We visited the ACMR office in California. The company reports five staff there. No one was on premises between 3:30 and 5 in the afternoon on a Wednesday. The company reports it pays $3,600 per month for the space; neighbors with similar spaces told us they paid from $1,400-$1,700. The amount, if overstated, is immaterial. But over months of looking at this company, we have come to feel that every number it publishes is inflated.	33-34	Other Challenge 17: About Other Challenges
32	We have evidence that NINEBELL is buying the robotic arms it sells to ACMR from a Japanese supplier. Curiously, with $8.9 mln in purchases, ACMR could not have obtained even half of its robotic arm assemblies from NINEBELL. We learned in a lengthy interview that the assemblies cost about $650,000. At this price, the 2019 value of procurement would have paid for 14 robotic arms at most, while the company used at least 32. But our investigator visited Ninebell in the Seongnam suburb of Seoul and found that the company was buying robotic arms from the Japanese company Yaskawa.	35-37	Core Challenge 5: About NINEBELL
33	ACMR discloses that the U.S. company purchases parts and ships them to China. However, U.S. bills of lading show no exports by ACMR. Because the volume of manufacturing is small—about 25 machines per year—and the most valuable parts relatively small, the parts could be carried into China, thus avoiding import tariffs.	38	Other Challenge 11: About Overseas Procurement
34	Our interviews with suppliers show a disparity with company representations.	38-39	Other Challenge 13: About Supplier
35	The company is pushing to IPO substantially all the company assets in Shanghai in order to raise cash	41	Other Challenge 17: About Other Challenges
36	Customers on the U.S. blacklist On September 8, shares of ACMR fell by 30% based on a rumor that the U.S. Department of Commerce would blacklist a key customer, Semiconductor Manufacturing International (SMIC). Shares in SMIC had closed down 23% in Hong Kong on September 4, following reports that the U.S. might blacklist the company.21 Being added to the U.S. “entity list” would mean that U.S. companies would need a special license to do business with SMIC. SMIC is currently on a S&P BBB- rating, just above junk bond level. Shares have come back, but we believe based on conversations with U.S. government sources that SMIC will ultimately be blacklisted. We think there is a possibility that all of ACMR’s Chinese customers—about 80% of sales, if SK Hynix is reclassified as Korean—will come under U.S. sanctions. Selling low-quality equipment for discount prices, ACMR is able to penetrate independent Chinese fabs that earn government subsidies for buying “domestic.” But ACMR will not penetrate companies like Intel and TSMC, which require reliability and a track record. That means that the ACMR market is much more vulnerable to U.S. sanctions than are peers.	42	Other Comments in the Short-sell Report

Item	Revenue (RMB10,000)	Quantity (Set)	Average Price (RMB10,000)	Average Price (USD10,000)
Single-wafer cleaning equipment	55,099.52	22	2,504.52	362.97
Including: 4 chambers	3,173.31	3	1,057.77	153.30
8 chambers	13,451.24	6	2,241.87	324.91
12 chambers	32,304.78	11	2,936.80	425.62
8-chamber back cleaning equipment	6,170.19	2	3,085.10	447.12

Type	Equipment Model	Quantity (Set)	Contract Price (USD10,000)	Arrival Date
Single-wafer cleaning equipment	Ultra C378 (8-Chamber)	1	280.00	Apr. 25, 2019
Single-wafer cleaning equipment	Ultra C348 (8-Chamber)	1	320.00	Jul. 1, 2020

Item	Jan. - Jun. 2020		2019		2018		2017
Item	Gross Profit Margin	Revenue Share	Gross Profit Margin	Revenue Share	Gross Profit Margin	Revenue Share	Gross Profit Margin	Revenue Share
Semiconductor cleaning equipment	45.10%	85.87%	45.34%	84.10%	44.50%	92.91%	44.94%	86.27%
Semiconductor electroplating equipment	-	-	39.25%	10.57%	16.68%	2.21%	-	-
Advanced packaging wet process equipment	39.69%	14.13%	44.73%	5.33%	42.73%	4.88%	41.42%	13.73%
Total	44.33%	100.00%	44.67%	100.00%	43.80%	100.00%	44.46%	100.00%

Company Name	Jan.-Jun. 2020	2019	2018	2017
NAURA	36.32%	40.53%	38.38%	36.59%
AMEC	33.92%	34.93%	35.50%	38.59%
KINGSEMI	44%	46.62%	46.49%	41.68%
HZCCTECH	49.65%	51.15%	55.60%	57.10%
Average	40.97%	43.31%	43.99%	43.49%
Company	44.33%	44.67%	43.80%	44.46%

Company Name	Product Name	Gross Profit Margin in 2019
NAURA	Electronic process equipment, mainly including semiconductor equipment such as cleaning and etching equipment, vacuum equipment and lithium battery equipment	35.23%
AMEC	Special equipment, mainly including etching equipment, MOCVD equipment, etc.	34.93%
KINGSEMI	Single-wafer wet equipment, mainly including cleaning equipment, degumming equipment and wet etching equipment	51.90%
HZCCTECH	Integrated circuit electronic industry special equipment, mainly including testing equipment, sorting equipment, etc.	51.15%
PNC System	Semiconductor equipment, mainly including wet etching equipment, cleaning equipment, etc.	32.08%
Average Gross Profit Margin		41.06%
Issuer	Semiconductor equipment, mainly including semiconductor cleaning equipment, semiconductor electroplating equipment and advanced packaging wet process equipment	44.67%

Product Category	Revenue Amount in FY2019 (JPY 100 million)	Revenue Share
Semiconductor equipment	2,525	69.3%
Panel equipment	482	13.2%
Display manufacturing device and film forming equipment	492	13.5%
PCB-related equipment	123	3.4%
Other	19	0.6%
Total	3,642	100.0%

Item	January to June 2020	2019	2018	2017
Sales revenue realized through agents	31,995.15	69,002.21	50,364.93	24,088.24
Operating income	35,555.41	75,673.30	55,026.91	25,358.73
Proportion	89.99%	91.18%	91.53%	94.99%

Company	January to June 2020		2019		2018		2017
Company	Operating revenue	Ratios of expenses to sales	Operating revenue	Operating revenue	Operating revenue	Operating revenue	Operating revenue	Operating revenue
NAURA	217,699.68	5.61%	405,831.29	5.87%	332,385.1	5.08%	222,281.9	5.63%
AMEC	97,840.43	10.18%	194,694.93	10.12%	163,928.8	13.21%	97,192.1	16.66%
KINGSEMI	6,245.58	21.91%	21,315.67	9.67%	20,999.05	8.24%	18,988.5	10.56%
HZCCTECH	31,828.90	13.18%	39,883.41	13.59%	21,612.15	14.40%	17,979.5	10.25%
Mean value	88,403.65	12.7%	165,431.32	9.81%	134,731.3	10.23%	89,110.5	10.77%
ACMSH	35,555.41	11.96%	75,673.30	11.20%	55,026.91	10.91%	25,358.7	17.15%

Agent	Country or region of Registration	Year of establishment
TJM PARTNERS LTD.	Korea	2014
LIDA TECHNOLOGY CO.,LIMITED	Hong Kong, UK	2013
MOTION ELECTRONICS CO.,LTD	Hong Kong	2010
ZAIN TECHNOLOGY CO.,LTD	Taiwan	2008
HANWOOL SCIENTIFIC CO.,LTD.	Korea	2006

Company Name	Gross Profit Margin in FY2019
Lam	45.15%
TEL	41.16%
Applied Materials	43.72%
Screen Holdings (DNS）	27.61%
Issuer	44.67%

Agent	Commission rate
TJM Partners Ltd.	3%, 5%
Lida Technology Co., Limited	2.5%, 4%, 5%
Motion Electronics Co., Ltd	3%
Zain Technology Co., Ltd	3%
Hanwool Scientific Co., Ltd.	0.5%, 3%, 3.5%

Agent	Main business	Income structure
TJM PARTNERS LTD.	Management consultant and trade, with its market area in Korea	From 2017 to 2019, the income from the Company accounted for 50%, 44% and 50.5%, respectively
LIDA TECHNOLOGY CO.,LIMITED	Sales of semiconductor equipment, components and raw materials as agent. In addition to the Company, it has also signed agency agreements with Shanghai Xipu Hanxin Electronic Technology Co., Ltd., Shanghai Hongfeng Industrial Co., Ltd., Taiwan KINIK Company and other Japanese companies	The main source of income was from agency. From 2017 to 2019, the income from the Company accounted for 33%, 35% and 45%, respectively, maintaining a steady increase
MOTION ELECTRONICS CO.,LTD	Import and export agency, mainly providing import and export agency services for semiconductor companies Yangtze Memory, Wuhan Xinxin Semiconductor Manufacturing Co., Ltd., Shanghai Huali Microelectronics Corporation, Cryptom Inc., Germany LEYBOLD, etc. Due to the overlap of some customers and the Company, and the establishment of good relations with many semiconductor enterprises in the early stage, it provided sales agency services for the Company.	The income was mainly from import agency business, not semiconductor equipment agency sales business
ZAIN TECHNOLOGY CO.,LTD	Sales and maintenance agency of patent products. The main products are quartz components, etc., and the main customers include Lianhua Electronics Co., Ltd. and TSMC.	The income mainly came from the sales of its products, with the agency income accounting for a relatively low proportion
HANWOOL SCIENTIFIC CO.,LTD.	Rendering sales services on semiconductor equipment, remote control system, and acting as sales agents	The income was mainly from the Company

Agent	Agency period	Proportion to the agency income/ operating income in the current year	Whether there was significant dependence or not
TJM PARTNERS LTD.	2017, 2018, 2019	50%, 44%, 50.5%	No
LIDA TECHNOLOGY CO.,LIMITED	2017, 2018, 2019	33%, 35%, 45%, 42%	No
MOTION ELECTRONICS CO., LTD	From January to June 2020	45%, 58%, 15%	No
ZAIN TECHNOLOGY CO., LTD	2019	12.38%	No
HANWOOL SCIENTIFIC CO., LTD.	From 2017 to June 2019	100%, 100%, 100%	Stopped sales through the agent

LIDA TECHNOLOGY CO.,LIMITED
Incorporated in	January 2018
Registered Capital	HK$1.0 million
Registered Address	Hong Kong
Legal Representative	BEIYI WANG
Main Business	Sales agent of semiconductor materials, semiconductor equipment and semiconductor parts
Shareholder Name/Shareholding	BEIYI WANG/100%

Jan-Jun. 2020
Type of raw materials	From Shengyi Technology		From other suppliers	Average unit price difference
Type of raw materials	Quantity	Average unit price	Average unit price	Average unit price difference
Filter	125.00	0.95	1.91	-50.26%
Cooler	3.00	81.00	160.94	-49.67%
2019
Type pf raw materials	From Shengyi Technology		From other suppliers	Average unit price difference
Type pf raw materials	Quantity	Average unit price	Average unit price	Average unit price difference
Filter	51.00	1.28	3.35	-61.79%
Wafer handling platform	8.00	33.52	41.78	-19.77%
Cooler	3.00	83.00	160.94	-48.43%
CO2 hybrid generator	1.00	10.80	14.78	-26.93%

Jan.-Jun. 2020
Item	Actual amount	Analog amount	Discrepancy amount	Discrepancy rate
Operating cost	19,483.72	19,843.73	360.02	1.85%
Total profit	4,272.93	3,912.91	-360.02	-8.43%
Net profit	3,754.95	3,448.94	-306.01	-8.15%
2019
Item	Actual amount	Analog amount	Discrepancy amount	Discrepancy rate
Operating cost	41,515.84	41,925.29	409.45	0.99%
Total profit	15,311.91	14,902.46	-409.45	-2.67%
Net profit	13,488.73	13,140.70	-348.03	-2.58%

Product	Corresponding customer	Price index
Cooler	Other third-party customer 1	105.00
	Other third-party customer 2	105.00
	Company	100.00

Product Model	Average purchase price before becoming a shareholder	Average purchase price after becoming a shareholder	Discrepancy rate	Reasons for discrepancy
Robotic Arm (8-chamber)	256,460.00	246,050.00	-4.06%	The unit purchase price decreased with the increase of purchased quantity.
Robotic Arm (12-chamber)	350,000.00	335,250.00	-4.21%

S/N	Profile of Comparable Company
1	YASKAWA Electric Corporation (OTCMKT: YASKY, TYO: 6506) is a manufacturer of servo systems, motion controllers, AC motor drivers and industrial robots, including, among others, welding, assembly, painting and handling robots. In 2019, its industrial robots accounted for 37% of its revenue.
2	Brooks Automation, Inc. (NASDAQ: BRKS) is a manufacturer in the field of automation and vacuum equipment and instrument solutions. It provides atmospheric and vacuum robots, robot modules and tool automation systems, etc.
3	Nidec Corporation (TYO: 6594), as the “world’s leading comprehensive motor manufacturer,” provides precise micro-motor to super large-motor products as well as peripheral application equipment and services for information and communication equipment, office automation equipment, household appliances, automobile, commercial and industrial equipment, environmental energy and other industries.
4	RORZE CORPORATION (TYO: 6323) is a well-known manufacturer of wafer conveying systems, with robot products including, among others, ROBOT conveying screening machines for semiconductor wafers and LCD substrates and industrial robots.

Item	Current consumption of robotic arms from NINEBELL	Purchase-sell-stock information of equipment corresponding to robotic arms from NINEBELL				Discrepancy
Item	Current consumption of robotic arms from NINEBELL	Quantity in production at the beginning of the period	New production quantity in the current period	Current output	Quantity in production at the end of the period	Discrepancy
Formula	①	②	③	④	⑤=②+③-④	⑥=①-③
2019	32	3	31	32	2	1

Category	Original Value	Book Value	Newness Rate
Machines and equipment	2,819.09	1,124.06	39.87%
Means of transport	120.68	58.88	48.79%
Computers and electronic devices	389.41	211.66	54.35%
Office equipment	84.82	29.13	34.34%
Total	3,414.00	1,423.73	41.70%

S/N	Equipment	Original Value	Book Value	Newness Rate
1	Double-beam system electron microscope	726.13	359.00	49.44%
2	Wafer surface particle scanning device	300.53	143.83	47.86%
3	Bench prototype Module 300mm Wet station (SPM+HQDR Module)	246.26	205.41	83.41%
4	Semiconductor etching equipment	145.55	7.28	5%
5	Silicon wafer stress and thickness measuring instrument FSM	125.07	66.78	53.39%
6	Chemical mixer	82.16	4.11	5%
7	Hitachi Ion Milling Equipment	72.90	53.32	73.14%
8	POGD-0220 shape measuring instrument	67.19	58.70	87.36%
9	2 sets of scanning electron microscope	65.75	3.29	5%
10	ECI Qualilab QL-10EZ copper plating solution analyzer	58.94	37.52	63.66%

Classification	Original Value	Book Value	Newness Rate
Machinery equipment	2,819.09	1,124.06	39.87%
Transportation	120.68	58.88	48.79%
Computer and electronic equipment	389.41	211.66	54.35%
Office equipment	84.82	29.13	34.34%
Total	3,414.00	1,423.73	41.70%

Company name	Original value at the end of 2019	Book value at the end of 2019	Newness rate	Operating income in 2019
AMEC	13,072.64	2,201.88	16.84%	194,694.93
KINGSEMI	6,107.81	3,977.98	65.13%	21,315.67
NAURA	130,169.82	78,092.77	59.99%	405,831.29
HZCCTECH	4,593.42	2,084.90	45.39%	39,883.41
Issuer	2,787.16	1,196.90	42.94%	75,673.30

S/N	Project Name	Amount	Ratio
1	Civil engineering and decoration	30,337.28	34.38%
2	Equipment and software investment	9,662.72	10.95%
3	Development or design	6,292.36	7.13%
4	Raw materials for trial production	27,266.87	30.90%
5	Fuel and power for trial production	1,993.43	2.26%
6	Test (or inspection)	2,097.45	2.38%
7	Reserve	4,194.89	4.75%
8	Land purchase	6,400.00	7.25%
Total		88,245.00	100.00%

Place of Deposit	Dec. 31, 2019 (RMB10,000)
Mainland China	28,740.03
Hong Kong, China	14,507.61
South Korea	240.27
U.S.	511.95
Total	43,999.86

Date	Use of Expenditure	Amount
Jan. 2020	Loan repayment	1,000.00
Jan. 2020	Loan repayment	1,220.00
Jan. 2020	Loan repayment	1,309.25
Jan. 2020	Loan repayment	1,000.00
Jan. 2020	Loan repayment	500.00
Feb. 2020	Loan repayment	500.00
Feb. 2020	Loan repayment	1,000.00
Mar. 2020	Loan repayment	2,269.76
Apr. 2020	Loan repayment	800.00
May 2020	Deposit of grant fees under the grant contract for state-owned construction land use right	1,233.60
May 2020	Performance bond for land grant	1,233.60
Jun. 2020	Grant contract for state-owned construction land use right	4,934.40
Jun. 2020	Subscription funds for the Lease-sell Public Rental Housing (Phase III) Project of Lingang Industrial Park	4,750.00
Jun. 2020	Subscribed capital contribution to the strategic placement of China Fortune-Tech Capital	4,000.00
Jun. 2020	Subscribed capital contribution to the strategic placement of China Fortune-Tech Capital	6,000.00
Total		31,750.61

Item	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash in ACMR’s consolidated financial statements	117,859	27,124	17,681
Including: ACMR (single)	27,733	13,160	10,874
ACM Cayman	-	-	-
Company (consolidated)	90,126	13,964	6,807

Company	Place of Deposit	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Source/Use
CleanChip HK	Hong Kong, China	14,507.61	6,696.58	261.29	Sales proceeds, daily operation of the company
ACMKR	Korea	240.27	135.84	65.89	Daily operation of the company
ACM CA	U.S.	511.95	-	-	Daily operation of the company
-	Total	15,259.82	6,832.42	327.18	-