What changed in this filing

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Item 9A. Controls and Procedures

2023-02-28 compared with 2022-02-28 · 502 added, 418 removed, 861 unchanged (52% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2022.

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Changes in Internal Control over Financial Reporting.

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In August 2021, we completed the acquisition of CSI.

There has been no change in our internal control over financial reporting during the year ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In 2022, we completed the acquisition of Inform Diagnostics and Fulgent Pharma.

See Note 15 of "Notes to Consolidated Financial Statements" for more information.

We are currently integrating CSI into our operations and internal control processes.

As we complete this integration, we are analyzing, evaluating, and where necessary, making changes in control and procedures related to the CSI business, which we expect to complete within one year after the date of acquisition.

Pursuant to the SEC’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2021 excludes CSI to the extent that they are not yet integrated into our internal controls environment.

Management’s Annual Report on Internal Control over Financial Reporting .

We are currently integrating Inform Diagnostics and Fulgent Pharma into our operations and internal control processes.

As we complete this integration, we are analyzing, evaluating, and where necessary, making changes in control and procedures related to the business of Inform Diagnostics and Fulgent Pharma, which we expect to complete within one year after the date of acquisition.

Pursuant to the SEC’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at December 31, 2022 excludes Inform Diagnostics and Fulgent Pharma to the extent that they are not yet integrated into our internal controls environment.

Management’s Annual Report on Internal Control over Financial Reporting .

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022.

Management reviewed the results of its assessment with our Audit and Compliance Committee.

The effectiveness of our internal control over financial reporting, excluding controls at components, as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K.

The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K.

As permitted by the Securities and Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition.

In August 2021, we acquired CSI.

Pursuant to applicable rules, because we have not yet fully incorporated the internal controls and procedures of the acquired entity into our internal control over financial reporting, management excluded certain elements related to the acquired business from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2021.

The excluded elements of the CSI business represented 2% of our revenue and 6% of our total assets as of and for the year ended December 31, 2021.

In 2022, we acquired Inform Diagnostics and Fulgent Pharma.

Pursuant to applicable rules, because we have not yet fully incorporated the internal controls and procedures of the acquired entity into our internal control over financial reporting, management excluded the acquired businesses from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2022.

The Inform Diagnostics and Fulgent Pharma business represented 14% of our revenue and 20% of our total assets as of and for the year ended December 31, 2022.

Inherent Limitations on Disclosure Controls and Procedures and Internal Control over Financial Reporting

Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of

possible controls and procedures relative to their costs.

Because of these inherent limitations, our disclosure and internal controls may not prevent or detect all instances of fraud, misstatements or other control issues.

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We have audited the internal control over financial reporting of Fulgent Genetics, Inc.

and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control —

Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 28, 2023, expressed an unqualified opinion on those financial statements.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment of internal control over financial reporting certain elements related to Cytometry Specialists, Inc, ("CSI, Inc") which was acquired in August 2021.

The excluded elements of CSI, Inc represented 2% of the Company’s revenue and 6% of the Company’s total assets as of and for the year ended December 31, 2021.

Accordingly, our audit did not include the internal control over financial reporting for certain elements related to CSI, Inc.

As described in "Management’s Annual Report on Internal Control over Financial Reporting,"management excluded from its assessment the internal control over financial reporting at Inform Diagnostics, Inc.

and Fulgent Pharma Holdings, Inc.

which were acquired on April 26, 2022 and November 7, 2022, respectively, and whose financial statements constitute 14% of revenues and 20% of total assets of the consolidated financial statement amounts as of and for the year ended December 31, 2022.

Accordingly, our audit did not include the internal control over financial reporting at Inform Diagnostics, Inc.

and Fulgent Pharma Holdings, Inc.

Basis for Opinion

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management’s Annual Report on Internal Control over Financial Reporting".Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance.

Directors, Executive Off icers and Corporate Governance.

The information required by this item is incorporated by reference to the definitive proxy statement for our 2023 annual meeting of stockholders or an amendment to this report, in either case to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2022.

Executive Compensation.

Executiv e Compensation.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Own ers and Management and Related Stockholder Matters.

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Principal Accounting Fees and Services.

Principal Accou nting Fees and Services.

Exhibits, Financial Statement Schedules.

Consolidated Financial Statements.

Exhibits and Financ ial Statement Schedules.

(a)(1) Consolidated Financial Statements.

The following financial statements are included immediately following the signature page hereof and are filed as part of this report:

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Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Income for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Stockholders’

Equity for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020

Notes to Consolidated Financial Statements

Financial Statement Schedules.

(a)(2) Financial Statement Schedules.

All financial statement schedules have been omitted, as they are not required, not applicable, or the required information is otherwise included.

(a)(3) Exhibits.

The information required by this Item 15(a)(3) is set forth on the Exhibit Index immediately preceding the signature page of this report and is incorporated herein by reference.

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Form of Certificate of Common Stock of the registrant .

Investor’s Rights Agreement, dated May 17, 2016, by and between Fulgent Therapeutics LLC and Xi Long USA, Inc.

Description of the registrant’s securities.

Investor’s Rights Agreement, dated May 17, 2016, by and between Fulgent Therapeutics LLC and Xi Long USA, Inc.

Description of the registrant’s securities.

Form of Indemnification Agreement between the registrant and each of its officers and directors.

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Reference Exhibit

Commercial Lease, dated April 1, 201 8 , by and between 4401 Santa Anita Corporation and Fulgent Genetics, Inc.

Equity Distribution Agreement, dated August 30, 2019, by and between Fulgent Genetics, Inc.

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Amended and Restated 2016 Omnibus Incentive Plan

Agr eement for Purchase and Sale of Property, dated July 23, 2020

Agreement for Purchase and Sale of Property, dated July 23, 2020

Aircraft Purchase Agreement, dated August 18, 2020, by and between ServiceMaster Acceptance Corporation and the Company

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Restructuring Agreement of Fujian Fujun Gene Biotech Co., Ltd.

Amended and Restated Commercial Lease Agreement, dated May 6, 2016, by and

Incorporated by

Reference Exhibit

Amended and Restated Commercial Lease Agreement, dated May 6, 2016, by and between Store Master Funding IX, LLC and Cytometry Specialists, Inc.

between Store Master Funding IX, LLC and Cytometry Specialists, Inc.

Fulgent Genetics, Inc.

Incentive Compensation Recoupment Policy.

Agreement and Plan of Merger by and among Fulgent Therapeutics LLC, solely for purpose of Section 6.20, Fulgent Genetics, Inc., Ducks Acquisition Sub, Inc., Symphony Buyer, Inc., solely in its capacity as the representative of Symphony’s securityholders, Avista Capital Partners IV GP, L.P.

and solely for purposes of Section 6.21, Article VIII and Section 10.14, those company stockholders set forth on the signature page thereto, dated as of April 16, 2022.

Amended and Restated Non-Employee Director Compensation Policy, dated as of August 1, 2022.

Form of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under the Fulgent Pharma Holdings, Inc.

2022 Omnibus Incentive Plan

Agreement and Plan of Merger, by and among Fulgent Genetics, FG Merger Sub, Inc., Fulgent Pharma Holdings, Inc.

and solely for purposes of Section 2.4, Section 5.5, Article VI, Section 7.8 and Section 7.14, those company stockholders set forth on the signature page thereto, dated November 7, 2022

Rule 10b5-1 Issuer Repurchase Plan, by and between Fulgent Genetics, Inc.

and Piper Sandler & Co., dated December 15, 2022

Commercial Lease Addendum (II), dated January 6, 2023, by and between Fulgent Therapeutics LLC and E&E Plaza LLC

Commercial Lease Agreement, dated October 20, 2008, by and between Inform Diagnostics, Inc.

and iSTAR CTL I, L.P.

Commercial Lease Amendment (I), dated December 30, 2013, by and between Inform Diagnostics, Inc.

and LC Med Property TT, LLC

Commercial Lease Amendment (II), dated February 3, 2014, by and between Inform Diagnostics, Inc.

and LC Med Property TT, LLC

Commercial Lease Agreement by and between Inform Diagnostics and Crawford Street DE, LLC

2022 Fulgent Pharma Holdings, Inc.

Omnibus Incentive Plan

Subsidiaries of the registrant.

Incorporated by

Reference Exhibit

Consent of Deloitte & Touche LLP, independent registered public accounting firm, relating to the financial statements of the registrant.

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document – the instance document does not appear in

Inline XBRL Instance Document –

the instance document does not appear in

the Interactive Data File because XBRL tags are embedded within the Inline

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/s/ Ming Hsieh

President, Chief Executive Officer

Chief Executive Officer

POWER OF ATTORNEY

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/s/ Ming Hsieh

President, Chief Executive Officer and Chairman of the Board

Chief Executive Officer and Chairman of the Board

February 28, 2023

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(principal financial and accounting officer)

/s/ John Bolger

/s/ Michael Nohaile

February 28, 2023

Michael Nohaile

/s/ Regina Groves

February 28, 2023

Regina Groves

/s/ Linda Marsh

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Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Income for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Stockholders’

Equity for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Fulgent Genetics, Inc.

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We have audited the accompanying consolidated balance sheets of Fulgent Genetics, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combinations—CSI Acquisition — Refer to Notes 2 and 15 to the financial statements

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combinations—Inform Diagnostics Acquisition —

Refer to Notes 2 and 15 to the financial statements

Critical Audit Matter Description

In August 2021, the Company acquired 100% of the outstanding equity of Cytometry Specialists, Inc., or CSI, a multi-site reference laboratory business in the United States.

This acquisition was accounted for under the acquisition method of accounting for business combinations.

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on their respective fair values, including a customer relationships intangible asset in the amount of $27.6 million.

We identified the fair value of the customer relationships intangible asset as a critical audit matter because of the significant estimates and assumptions management makes to determine its fair value.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows, the selection of the discount rates, and customer attrition rate.

The Company completed the acquisition of Symphony Buyer, Inc., or Inform Diagnostics on April 26, 2022, and accounted for the transaction under the acquisition method of accounting for business combinations.

Management estimated the fair value of the customer relationship intangible asset using the multi-period excess earnings method, which is a specific discounted cash flow method.

The fair value determination of the customer relationship intangible asset required management to make significant estimates and assumptions related to future cash flows and the of the discount rate.

We identified the customer relationship intangible asset for Inform Diagnostics as a critical audit matter because of the significant estimates and assumptions management makes to fair value this asset.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows and the selection of the discount rate for the customer relationship intangible asset.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the fair value of the customer relationships intangible asset for CSI, included the following, among others:

We tested the operating effectiveness of controls over the valuation of the customer relationships intangible asset, including management’s controls over projected future cash flows, the discount rates, and customer attrition rate.

We assessed the reasonableness of management’s key estimates and assumptions by comparing the estimates and assumptions to historical results, relevant peer companies, and third-party industry reports.

With the assistance of our fair value specialists, we evaluated the valuation assumptions by:

Testing the source information underlying the determination of the valuation assumptions and testing the mathematical accuracy of the calculations.

Developing a range of independent estimates for certain assumptions and comparing those to the assumptions selected by management.

Our audit procedures related to forecasts of future cash flows and the selection of the discount rate for the customer relationship intangible asset included the following, among others:

We tested the effectiveness of controls over the valuation of the customer relationship intangible asset, including management’s controls over forecasts of future cash flows and selection of the discount rate.

We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results and certain peer companies.

With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:

We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.

Business Combinations—Fulgent Pharma Holdings, Inc.

Refer to Notes 2 and 15 to the financial statements

The Company completed the acquisition of Fulgent Pharma Holdings, Inc.

on November 7, 2022, and accounted for the transaction under the acquisition method of accounting for business combination.

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on their respective fair values, which included an in-process research and development (“IPR&D”) intangible asset, in the amount of $64.6 million.

Management estimated the fair value of the IPR&D intangible asset using the multi-period excess earnings method, which is a specific discounted cash flow method.

The fair value determination of the IPR&D intangible asset required management to make significant estimates and assumptions related to future cash flows and the selection of the discount rate.

We identified the IPR&D intangible asset for Fulgent Pharma Holdings, Inc.

as a critical audit matter because of the significant estimates and assumptions management makes to fair value this asset.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s future cash flows and the selection of the discount rate for the IPR&D intangible asset.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to forecasts of future cash flows and the selection of the discount rate for the IPR&D intangible asset included the following, among others:

We tested the effectiveness of controls over the valuation of the IPR&D intangible asset, including management’s controls over forecasts of future cash flows and selection of the discount rate.

We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to relevant peer companies and third-party industry reports.

With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate by:

We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.

/s/ DELOITTE & TOUCHE LLP

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Marketable securities

Trade accounts receivable, net of allowance for credit losses of $ 11,217 and $ 1,898 as of December 31, 2021 and 2020, respectively

Trade accounts receivable, net of allowance for credit losses of $ 41,205 and $ 11,217

Other current assets

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Other long-term assets

Liabilities and Stockholders’ Equity

Liabilities and Stockholders’

Current liabilities

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Contingent consideration

Notes payable

Notes payable, current portion

Other current liabilities

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Commitments and contingencies (Note 8)

Stockholders’ equity

Common stock, $ 0.0001 par value per share, 50,000 shares authorized, 30,160 and 28,178 shares issued and outstanding at December 31, 2021 and 2020, respectively

Preferred stock, $ 0.0001 par value per share, 1,000 shares authorized, no shares issued or outstanding at December 31, 2021 and 2020

Stockholders’

Common stock, $ 0.0001 par value per share, 50,000 shares authorized, 31,248 shares issued and 29,438 shares outstanding and 30,160 shares issued and outstanding

Preferred stock, $ 0.0001 par value per share, 1,000 shares authorized, no shares issued or outstanding

Additional paid-in capital

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Retained earnings

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Noncontrolling interest

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total stockholders’

Total liabilities and stockholders’

The accompanying notes are an integral part of these consolidated financial statements.

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FULGENT GENETICS, INC.

Consolidated Statements of Operations

Consolidated Statem ents of Income

(in thousands, except per share)

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Amortization of intangible assets

Restructuring costs

Total operating expenses

Operating income (loss)

Operating income

Interest and other income, net

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Gain (loss) on equity-method investments

Net income (loss) from consolidated operations

Net income from consolidated operations

Net loss attributable to noncontrolling interests

Net income (loss) attributable to Fulgent

Net income (loss) per common share attributable to Fulgent:

Net income attributable to Fulgent

Net income per common share attributable to Fulgent:

Weighted-average common shares:

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FULGENT GENETICS, INC.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

(in thousands)

Year Ended December 31,

Net income (loss) from consolidated operations

Net income from consolidated operations

Other comprehensive income (loss):

Foreign currency translation gain (loss)

Net unrealized (loss) gain on available-for-sale debt securities, net of tax

Comprehensive income (loss) from consolidated operations

Foreign currency translation (loss) gain

Net (loss) gain on available-for-sale debt securities, net of tax

Comprehensive income from consolidated operations

Net loss attributable to noncontrolling interest

Foreign currency translation gain attributable to noncontrolling interest

Foreign currency translation loss (gain) attributable to noncontrolling interest

Comprehensive loss attributable to noncontrolling interest

Comprehensive income (loss) attributable to Fulgent

Comprehensive income attributable to Fulgent

The accompanying notes are an integral part of these consolidated financial statements.

FULGENT GENETICS, INC.

Consolidated Statements of Stockholders’ Equity

Consolidated Statement s of Stockholders’

(in thousands)

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Issuance of common stock at an average of $ 42.90 per share, net

Issuance of common stock at an average of $ 48.70 per share, net

Common stock withholding for employee tax obligations

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Issuance of common stock at an average of $ 64.83 per share, net

Issuance of common stock at an average of $ 42.90 per share, net

Issuance of common stock at an average of $ 48.70 per share, net

Common stock withholding for employee tax obligations

Other comprehensive gain, net

Cumulative effect of accounting change

Cumulative tax effect of accounting change

Noncontrolling interest assumed related to acquisitions

Other comprehensive loss, net

Net income (loss)

Balance at December 31, 2021

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Restricted stock awards

Issuance of common stock at an average of $ 64.83 per share, net

Common stock withholding for employee tax obligations

Cumulative effect of accounting change

Cumulative tax effect of accounting change

Noncontrolling interest assumed related to acquisitions

Repurchase of common stock

Common stock issued in a business combination (1)

Other comprehensive loss, net

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Balance at December 31, 2022

(1) As of December 31, 2022, 371,006 shares of the Company's common stock were not issued and heldback by the Company as partial security for the indemnification obligations in connection with the business combination of Fulgent Pharma.

The accompanying notes are an integral part of these consolidated financial statements.

FULGENT GENETICS, INC.

Consolidated Statements of Cash Flows

Consolidated Statem ents of Cash Flows

(in thousands)

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Cash flow from operating activities:

Net income (loss) from consolidated operations

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income from consolidated operations

Adjustments to reconcile net income to net cash provided by operating activities:

Equity-based compensation

Depreciation and amortization

Provision for credit losses

Noncash lease expense

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Amortization of premium of marketable securities

Provision for credit losses

Deferred taxes

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Changes in operating assets and liabilities:

Accounts receivable

Trade accounts receivable

Other current and long-term assets

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Purchase of marketable securities

Purchase of preferred stock of privately held company

Contingent consideration payout related to a business acquisition

Purchase of redeemable preferred stock

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Cash flow from financing activities:

Repurchase of common stock

Common stock withholding for employee tax obligations

Proceeds from public offerings of common stock, net of issuance costs

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Proceeds from exercise of stock options

Principal paid for finance lease

Common stock withholding for employee tax obligations

Principal paid for finance leases

Repayment of notes payable

Borrowing under margin account

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

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Supplemental disclosures of non-cash investing and financing activities:

Contingent consideration for business acquisition included in current liabilities

Stock consideration in a business combination

Maturities of marketable securities in other current assets

Purchases of fixed assets in notes payable

Purchases of fixed assets in accounts payable

Operating lease right-of-use assets obtained in exchange for lease liabilities

Finance lease right-of-use assets obtained in exchange for lease liabilities

Operating lease right-of-use assets reduced due to lease modification or termination

Operating lease right-of-use assets obtained in exchange for lease liabilities

Contingent consideration for business acquisition included in current liabilities

Public offerings proceeds in other receivable included in other current assets

Finance lease right-of-use assets obtained in exchange for lease liabilities

Public offerings costs included in accounts payable

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The Company uses the equity method to account for its investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies.

All significant intercompany accounts and transactions are eliminated from the accompanying consolidated financial statements.

All intercompany accounts and transactions are eliminated from the accompanying consolidated financial statements.

Nature of the Business

Fulgent Genetics, Inc., together with its subsidiaries and an affiliated professional corporation, or PC, collectively referred to as the Company, unless otherwise noted or the context otherwise requires, is a technology company offering large-scale COVID-19 testing services, molecular diagnostic testing services and comprehensive genetic testing designed to provide physicians with clinically actionable diagnostic information to improve the quality of patient care.

The PC was established in November 2021, with which the Company has a management services arrangement, and the PC provides professional pathology and related professional services to its patients.

A cornerstone of the Company’s business is its ability to provide expansive options and flexibility for all clients’ unique testing needs.

To this end, the Company has developed a proprietary technology platform allowing it to offer a broad and flexible test menu and to continually expand and improve its proprietary genetic reference library, while maintaining accessible pricing, high accuracy and competitive turnaround times.

Combining next generation sequencing, or NGS, with its technology platform, the Company performs full-gene sequencing with deletion/duplication analysis in single-gene tests;

pre-established, multi-gene, disease-specific panels;

and customized panels that can be tailored to meet specific customer needs .

Fulgent Genetics, Inc., together with its subsidiaries and affiliated professional corporations, or PCs, collectively referred to as the Company, unless otherwise noted or the context otherwise requires, is a technology-based company with a well-established clinical diagnostic business and a therapeutic development business.

Its clinical diagnostic business offers molecular diagnostic testing services, comprehensive genetic testing, and high-quality anatomic pathology laboratory services designed to provide physicians and patients with clinically actionable diagnostic information to improve the quality of patient care.

Its therapeutic development business is focused on developing drug candidates for treating a broad range of cancers using a novel nanoencapsulation and targeted therapy platform designed to improve the therapeutic window and pharmacokinetic profile of new and existing cancer drugs.

The Company aims to transform from a genomic diagnostic business into a fully integrated precision medicine company.

Summary of Significant Accounting Policies

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These estimates, judgments and assumptions are based on historical data and experience available at the date of the accompanying consolidated financial statements, as well as various other factors management believes to be reasonable under the circumstances, including but not limited to the potential impacts arising from the recent global pandemic related to COVID-19.

As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change.

The Company’s estimates and assumptions may evolve as conditions change.

Actual results could differ significantly from these estimates.

On an on-going basis, management evaluates its estimates, primarily those related to:

(i) revenue recognition criteria, (ii) accounts receivable and allowances for credit losses, (iii) the useful lives of fixed assets and intangible assets, (iv) estimates of tax liabilities, and (v) valuation of intangible assets and goodwill.

(i) revenue recognition criteria, (ii) accounts receivable and allowances for credit losses, (iii) the useful lives of fixed assets and intangible assets, (iv) estimates of tax liabilities, (v) valuation of intangible assets and goodwill at time of acquisition and on a recurring basis, and (vi) valuation of investments.

Principles of Consolidation

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Cash equivalents are stated at fair value.

Cash and cash equivalent as of December 31, 2022 includes $ 5.0 million restricted cash related to a share transfer agreement entered by Fulgent Pharma Holdings, Inc., or Fulgent Pharma, pre-acquisition, see Note 15, Business Combinations .

Marketable Securities

All marketable debt securities, which consist of corporate debt securities, municipal bonds, U.S.

government and agency debt securities, and Yankee debt securities issued by foreign governments or entities and denominated in U.S.

dollars have been classified

as “available-for-sale , ” and are carried at fair value.

Net u nrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive income (loss) and reported as a separate component of stockholders’ equity until realized.

Realized gains and losses on marketable debt securities are included in interest and other income, net, in the accompanying Consolidated Statements of Operations.

government and agency debt securities, U.S.

treasury bills, and Yankee debt securities issued by foreign governments or entities and denominated in U.S.

dollars have been classified as “available-for-sale,”

and are carried at fair value.

Net unrealized gains and losses, net of any related tax effects,

are excluded from earnings and are included in other comprehensive income (loss) and reported as a separate component of stockholders’

equity until realized.

Realized gains and losses on marketable debt securities are included in interest and other income, net, in the accompanying Consolidated Statements of Income.

The cost of any marketable debt securities sold is based on the specific-identification method.

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Interest on marketable debt securities is included in interest and other income, net.

In accordance with the Company’s investment policy, management invests to diversify credit risk and only invests in securities with high credit quality, including U.S.

government securities.

The Company’s investments in marketable equity securities are measured at fair value with the related gains and losses, realized and unrealized, recognized in interest and other income, net, in the accompanying Consolidated Statements of Operations.

The cost of any marketable equity securities sold is based on the specific-identification method.

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The credit loss is estimated by considering available information relevant to the collectability of the security and information about past events, current conditions, and reasonable and supportable forecasts.

Any credit loss is recorded as a charge to interest and other income, net, not to exceed the amount of the unrealized loss.

The Company compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

If the present value of cash flows to be collected is less than the amortized basis of the security, a credit loss exists, and an allowance for credit losses is recorded for the credit loss, limited by the amount of unrealized loss.

Changes in the allowance are recorded in the period of changes as credit loss expense.

If the Company has an intent to sell, or if it is more likely than not that the Company will be required to sell a debt security in an unrealized loss position before recovery of its amortized cost basis, the Company will write down the security to its fair value and record the corresponding charge as a component of interest and other income, net.

Trade Accounts Receivable and Allowance for Credit Losses

The Company adopted Accounting Standards Update, or ASU 2016-13 , Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments , using the modified retrospective approach as of January 1, 2021.

Trade accounts receivable are stated at the amount the Company expects to collect.

The Company maintains an allowance for credit losses for expected uncollectible trade accounts receivable, which is recorded as an offset to trade accounts receivable, and changes in allowance for credit losses are classified as a general and administrative expense in the accompanying Consolidated Statements of Operations.

The Company assesses collectability by reviewing trade accounts receivable on a collective basis where similar risk characteristics exist and on an individual basis when it identifies specific customers that have deterioration in credit quality such that they may no longer share similar risk characteristics with the other receivables.

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The Company looks at qualitative factors such as general economic conditions in determining expected credit losses.

A roll-forward of the activity in the Company’s allowance for credit losses is as follows:

(in thousands)

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Redeemable Preferred Stock Investment

The redeemable preferred stock investment of $ 22.0 million as of December 31, 2021 represents the fair value of redeemable preferred stock of Laboratory for Advanced Medicine, Inc., or Helio Health, that the Company purchased in July 2021.

The redeemable preferred stock investment of $ 12.4 million of December 31, 2022 represents the fair value of redeemable preferred stock of a private company that the Company purchased in July 2021.

The investment is classified as available-for-sale debt securities.

The fair value of available-for-sale debt security is included in the Consolidated Statement of Balance Sheets.

Unrealized holding gains of $ 2.0 million are excluded from earnings and reported in other comprehensive income (loss) as of December 31, 2021.

Since the Company intends on holding the preferred stock, and preferred stock is not redeemable until July 2027 , the investment is recorded as a long-term investment.

Unrealized losses of $ 9.6 million were excluded from earnings and reported in other comprehensive income (loss) for the year ended December 31, 2022.

Unrealized gains of $ 2.0 million are excluded from earnings and reported in other comprehensive income (loss) for the year ended December 31, 2021.

Since the Company intends on holding the preferred stock, and the preferred stock is not redeemable until July 2027 , the investment is recorded as a long-term investment.

Fixed assets are recorded at cost, net of accumulated depreciation and amortization.

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Intangible assets

Intangible assets with definite lives are amortized over their estimated useful lives.

The Company amortizes intangible assets on a straight-line basis with definite lives generally over periods ranging from five to twelve years .

Intangible assets, unless determined to be indefinite-lived, are amortized over their estimated useful lives.

The Company amortizes intangible assets on a straight-line basis with definite lives generally over periods ranging from five to fourteen years .

In-process research and development costs, or IPR&D, are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts.

If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time.

During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.

See Note 17, Goodwill and Intangible Assets , for details of intangible assets.

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Fair value estimates are based on the assumptions that management believes a market participant would use in pricing the asset or liability.

Goodwill is not amortized but is subject to impairment tests on an annual basis or more frequently if indicators of potential impairment exist, and goodwill is written down when it is determined to be impaired.

The Company typically performs an annual impairment review in the fourth quarter of each fiscal year unless one had been performed previously within the past 12 months and compares the fair value of the reporting unit in which the goodwill resides to its carrying value.

Goodwill is not amortized but is subject to impairment tests on an annual basis or more frequently if indicators of potential impairment exist, and compares the fair value of the reporting unit in which the goodwill resides to its carrying value.

Goodwill is written down when it is determined to be impaired.

Impairment of Long-Lived Assets

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An impairment loss would be recognized when estimated future cash flows expected to result from the use of an asset and its eventual disposition is less than the carrying amount of the asset.

To date, there have been no such impairment losses.

Reagents and Supplies

The Company maintains reagents and other consumables primarily used in sample collections and testing which are valued at the lower of cost or net realizable value.

The Company maintains reagents and other consumables primarily used in testing which are valued at the lower of cost or net realizable value.

Cost is determined using actual costs on a first-in, first-out basis.

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Fair Value of Financial Instruments

The Company's financial instruments consist principally of cash and cash equivalents, marketable securities, trade accounts receivable, redeemable preferred stock investment, accounts payable and investment margin loan.

The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, investment margin loan, contingent consideration, and notes payable approximate fair value due to their short maturities.

The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, investment margin loan, and contingent consideration approximate fair value due to their short maturities.

Fair value of marketable securities and redeemable preferred stock investment is disclosed in Note 4, Fair Value Measurements, to the accompanying consolidated financial statements.

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Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, trade accounts receivable and marketable securities, which consist of debt securities and equity securities.

As of December 31, 2021, substantially all of the Company’s cash and cash equivalents were deposited in accounts at financial institutions,

and amounts may exceed federally insured limits.

As of December 31, 2022, substantially all of the Company’s cash and cash equivalents were deposited in accounts at financial institutions, and amounts may exceed federally insured limits.

Management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which its cash and cash equivalents are held.

In certain periods, a small number of customers has accounted for a significant portion of the Company’s revenue.

Aggregating customers under common control, one customer comprised 26 % of total revenue in the year ended December 31, 2021, two customers comprised 28 % and 10 % of total revenue in the year ended December 31, 2020, and one customer comprised 28 % of total revenue in the year ended December 31, 2019.

No customer comprised at least 10 % of total accounts receivable as of December 31, 2021 and 2020.

In certain periods, a small number of customers has accounted for a significant portion of the Company’s revenue.

Aggregating customers under common control, one customer comprised 19 % and 26 % of total revenue in the years ended December 31, 2022 and 2021, respectively, and two customers comprised 28 % and 10 % of total revenue in the year ended December 31, 2020.

One customer comprised 17 % of total accounts receivable, net, as of December 31, 2022, and no customer comprised at least 10 % of total accounts receivable, net, as of December 31, 2021.

The Company relies on a limited number of suppliers for its test collection kits and certain laboratory substances used in the chemical reactions incorporated into its processes, referred to as reagents, as well as for the sequencers and various other equipment and materials it uses in its laboratory operations.

In particular, the Company relies on a sole supplier for the next generation sequencers and associated reagents it uses to perform its genetic tests and as the sole provider of maintenance and repair services for these sequencers.

The Company’s laboratory operations would be interrupted if it encountered delays or difficulties securing these test collection kits, reagents, sequencers, other equipment or materials or maintenance and repair services, which could occur for a variety of reasons, including if the Company needs a replacement or temporary substitute for any of its limited or sole suppliers and is not able to locate and make arrangements with an acceptable replacement or temporary substitute.

The Company believes there are currently only a few other manufacturers that are capable of supplying and servicing some of the equipment and other materials necessary for its laboratory operations, including collection kits, sequencers and various associated reagents.

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The Company uses the equity method to account for investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies.

The Company's proportionate share of the net income or loss of these companies is included in consolidated net earnings.

The Company’s 25 % interest in BostonMolecules was accounted for using the equity method, and the carrying value was zero as of December 31, 2022 and 2021 due to the impairment loss recorded in 2020.

The Company's proportionate share of the net income or loss of these companies were included in consolidated net earnings.

Judgments regarding the level of influence over each equity method investment include consideration of key factors such as the Company's ownership interest, representation on the board of directors or other management body and participation in policy-making decisions.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that a decline in value has occurred that is other than temporary.

Evidence considered in this evaluation includes, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and the Company’s strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value.

If the investments is determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value.

The Company’s 25 % interest in BostonMolecules was accounted for using the equity method, and the carrying value was $ 0 as of December 31, 2021 and 2020 due to the impairment loss recorded in 2020.

The Company evaluates any equity method investments for impairment whenever events or changes in circumstances would indicate that a decline in value has occurred that is other than temporary.

Evidence considered in this evaluation would include, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and the Company’s strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value.

If the investments were determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value.

The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset.

Operating and finance lease right-of-use assets, or ROU assets, short-term lease liabilities, and long-term lease liabilities are included in other long-term assets, other current liabilities, and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets.

Lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating and finance lease right-of-use assets, or ROU assets, short-term lease liabilities, and long-term lease liabilities are included in other long-term assets, accrued liabilities, and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets.

Lease ROU assets represent the Company’s right to use an underlying asset for the lease term.

Lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, including options to extend the lease when it is reasonably certain that the Company will exercise that option.

The Company uses its incremental borrowing rate based on the information available at the commencement date, including inquiries with its bank, in determining the present value of lease payments since its leases do not provide an implicit rate.

Lease ROU assets consist of initial measurement of lease liabilities, any lease payments made to lessor on or before the lease commencement date, minus any lease incentive received, and any initial direct costs incurred by the Company.

costs incurred by the Company.

Operating lease expense for lease payments is recognized on a straight-line basis over the lease term.

For finance lease, ROU assets are amortized on a straight-line basis from the commencement date to the earlier of the end of useful life of the ROU assets or the end of the lease term.

Amortization of ROU assets and interest on the lease liability for finance leases are included as charges to the accompanying Consolidated Statements of Operations.

Lease ROU assets and liabilities arising from business combinations are recognized and measured at the acquisition dates as if an acquired lease were a new lease at the date of acquisition using the Company’s incremental borrowing rate unless the discount rate

is implicit in the lease.

Amortization of ROU assets and interest on the lease liability for finance leases are included as charges to the accompanying Consolidated Statements of Income.

The Company elects to not to recognize assets or liabilities as of the acquisition dates for leases that, on the acquisition dates, have a remaining lease term of 12 months or less.

The Company also retains the acquirees’ classification of the leases if there are no modifications as part of the business combinations.

The Company leases and subleases out space in buildings it owns or leases to third-party tenants or subtenants under noncancelable operating leases.

The Company also retains the acquirees’

classification of the leases if there are no modifications as part of the business combinations.

The Company leases out space in buildings it owns to third-party tenants or subtenants under noncancelable operating leases.

The Company recognizes lease payments as income over the lease terms on a straight-line basis and recognizes variable lease payments as income in the period in which the changes in facts and circumstances on which the variable lease payments are based occur.

The net rental income is included in the interest and other income, net, in the accompanying Consolidated Statement of Operations.

The net rental income is included in the interest and other income, net, in the accompanying Consolidated Statements of Income.

Software for Internal Use

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These costs include purchased software packages for Company use.

Capitalized computer software costs are amortized over the estimated useful life of the computer software, which is generally three to five years .

Capitalized computer software costs are amortized over the estimated useful life of the computer software, which is generally one to five years .

Internally developed software costs are capitalized after management has committed to funding the project, it is probable that the project will be completed and the software will be used for its intended function.

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Reporting segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.

The Company’s chief operating decision maker is its Chief Executive Officer.

The Company views its operations and manages its business in one reporting segment.

Revenue Recognition

The Company generates revenue from sales of its COVID-19, molecular diagnostic and genetic testing services.

The Company generates revenue from sales of its testing services.

The Company currently receives payments from primarily three different customer types:

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(1) identifies the contract with the customer, or Step 1, (2) identifies the performance obligations in the contract, or Step 2, (3) determines the transaction price, or Step 3, (4) allocates the transaction price to the performance obligations in the contract, or Step 4, and (5) recognizes revenue when (or as) the entity satisfies a performance obligation, or Step 5.

The Company’s test results are primarily delivered electronically.

The Company bills certain customers for shipping and handling fees incurred by the Company associated with COVID-19 tests, and s hipping and handlings fees billed to customers are included in revenue, and shipping and handling fees incurred are included in cost of revenue in the accompanying Consolidated Statements of Operations .

The Company’s test results are primarily delivered electronically.

The Company bills certain customers for shipping and handling fees incurred by the Company, and shipping and handling fees billed to customers are included in revenue, and shipping and handling fees incurred are included in cost of revenue in the accompanying Consolidated Statements of Income.

Performance Obligations

Institutional and Patient Direct Pay

The Company’s institutional contracts for its testing services typically have a single performance obligation to deliver COVID-19, molecular diagnostic or genetic testing services to the ordering facility or patient.

Some arrangements involve the delivery of genetic testing services to research institutions, which the Company refers to as “sequencing as a service.” In arrangements with institutions, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients who pay directly, the transaction price is stated within the contract and is therefore fixed consideration.

For most of the Company’s testing volume, the Company identified the institutions, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients as the customer in Step 1 and have determined a contract exists with those customers in Step 1.

As these contracts typically have a single performance obligation, no allocation of the transaction price is required in Step 4.

Control over testing services is transferred to the Company’s ordering facility at a point in time.

The Company’s institutional contracts for its testing services typically have a single performance obligation to deliver testing services to the ordering facility or patient.

Some arrangements involve the delivery of genetic testing services to research institutions, which the Company refers to as “sequencing as a service.”

In arrangements with institutions, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients who pay directly, the transaction price is stated within the contract and is therefore fixed consideration.

As these contracts

typically have a single performance obligation, no allocation of the transaction price is required in Step 4.

Control over testing services is transferred to the Company’s ordering facility at a point in time.

Specifically, the Company determined the customer obtains control of the promised service upon delivery of test results.

The Company’s insurance contracts for testing services typically have a single performance obligation to deliver testing services to the ordering facility or patient.

For most of the Company’s insurance volume, the Company identified the patient as the customer in Step 1 and determined a contract exists with the patient in Step 1.

The Company’s insurance contracts for testing services typically have a single performance obligation to deliver testing services to the ordering facility or patient.

For most of the Company’s insurance volume, the Company identified the patient as the customer in Step 1 and determined a contract exists with the patient in Step 1.

In arrangements with insurance patients, the transaction price is typically stated within the contract, however, the Company may accept payments from third-party payors that are less than the contractually stated price and is therefore variable consideration.

In developing the estimate of variable consideration, the Company utilizes the expected value method under a portfolio approach.

The Company’s estimate requires significant judgment and is developed using known reimbursement rates and historical reimbursement data from payors and patients.

As these contracts typically have a single performance obligation, no allocation of the transaction price is required in Step 4.

Control over testing services is transferred to the Company’s ordering physicians at a point in time.

Control over testing services is transferred to the Company’s ordering parties at a point in time.

Specifically, the Company determined the customer obtains control of the promised service upon delivery of the test results.

Certain incremental costs pertaining to both insurance and institutional, such as commissions, are incurred in obtaining contracts.

Contract costs are capitalized if the Company expects to recover them, and amortization of contract costs is classified in the general and administrative expense in the Consolidated Statements of Operations.

Historically contract costs have not been significant to the financial statements.

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Accounting for insurance contracts includes estimation of the transaction price, defined as the amount the Company expects to be entitled to receive in exchange for providing the services under the contract.

Due to the Company’s out-of-network status with the majority of insurance payors for COVID-19 tests, estimation of the transaction price represents variable consideration.

The Company estimates that the variable consideration paid by insurance payors will approximate the Company's self-pay rate for COVID-19 tests that is published on its website, which is the rate established by the Center for Medicare & Medicaid Services, as supported by a historical reimbursement trend analysis.

Due to the Company’s out-of-network status with the majority of insurance payors for COVID-19 tests, estimation of the transaction price represents variable consideration.

Contract Liabilities

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Customer Deposit

Customer deposit in the accompanying Consolidated Balance Sheets consists primarily of payments received from customers in excess of their outstanding trade accounts receivable balances, and the excess payments will be refunded to the customers or offset against future testing receivables.

Customer deposit in the accompanying Consolidated Balance Sheets consists of payments received from customers in excess of their outstanding trade accounts receivable balances.

These deposits will be offset against future testing receivables or refunded to the customers.

Overhead Expenses

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Research and Development Expenses

Research and development expenses represent costs incurred to develop the Company’s technology and future tests.

These costs consist of:

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The Company expenses all general and administrative expenses as incurred.

Restructuring Costs

Restructuring costs represent one-time employee termination benefits provided to employees associated with a newly acquired entity that were involuntarily terminated.

A plan of termination was approved and authorized by management in the second quarter of 2022.

The plan identified specific employees to be terminated and established terms of benefits those employees would receive upon termination.

No additional costs are expected to be incurred under the plan of termination post 2022, and the payable balance is expected to be paid off by August 2023 .

Income taxes are accounted for under the asset and liability method.

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The Company grants various types of equity-based awards to its employees, consultants and non-employee directors.

Equity-based compensation costs are reflected in the accompanying Consolidated Statements of Operations based upon each award recipient’s role with the Company.

Equity-based compensation costs are reflected in the accompanying Consolidated Statements of Income based upon each award recipient’s role with the Company.

The Company primarily grants to its employees restricted stock unit awards, or RSU awards, that generally vest over a specified period of time upon the satisfaction of service-based conditions.

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Expenses for these subsidiaries are translated using rates that approximate those in effect during the period.

Gains and losses from these translations are recognized in foreign currency translation included in accumulated other comprehensive income (loss) in the accompanying Consolidated Statements of Stockholders’ Equity.

Gain from these translations were $ 456,000 in the year ended December 31, 2021.

The gain or loss were not significant in the year ended December 31, 2020 or 2019, respectively.

Gains and losses from these translations are recognized in foreign currency translation gain (loss) included in the accompanying Consolidated Statements of Comprehensive Income.

The Company and its subsidiaries that use the U.S.

dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates.

Losses from these remeasurements were not significant in 2021, 2020 and 2019.

Gains and losses from these measurements are included in interest and other income, net, in the accompanying Consolidated Statements of Income.

Losses from foreign currency exchange were not significant in 2022, 2021 and 2020.

Comprehensive Income (Loss)

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The Company did not have reclassifications from other comprehensive income (loss) to net loss in 2020.

The tax effects related to net unrealized loss on available-for-sale debt securities were $ 437,000 in 2021.

The tax effects related to net unrealized loss on available-for-sale debt securities were $ 7.2 million and $ 437,000 in 2022 and 2021, respectively.

The tax effects related to net unrealized gain on the available-for-sale debt securities were $ 147,000 in 2020.

The tax effects related to unrealized gain was insignificant in 2019 due to valuation allowance.

Basic and Diluted Net Income or Loss per Share

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There was no material variable consideration recognized in the current period that relates to performance obligations that were completed in the prior period.

Collection of the Company’s net revenues from insurers is normally a function of providing complete and correct billing information within the various filing deadlines.

Provided the Company has billed insurers accurately with complete information prior to the established filing deadline, there has historically been little to no credit risk.

Collection of the Company’s net revenues from insurers is normally a function of providing complete and correct billing information within the various filing deadlines.

Provided the Company has billed insurers accurately with complete information prior to the established filing deadline.

If there has been a delay in billing, the Company determines if the amounts in question will likely go past the filing deadline, and if so, the Company will reserve accordingly for the billing.

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Contract liabilities are included in the Consolidated Balance Sheets.

Revenues of $ 26.4 million, $ 257,000 and $ 59,000 for the years ended December 31, 2021, 2020, and 2019, respectively, related to contract liabilities at the beginning of the respective periods were recognized.

Revenues of $ 14.4 million , $ 26.4 million and $ 257,000 for the years ended December 31, 2022, 2021, and 2020, respectively, related to contract liabilities at the beginning of the respective periods were recognized.

Transaction Price Allocated to Future Performance Obligations

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ASC 606 provides certain practical expedients that limit the requirement to disclose the aggregate amount of transaction price allocated to unsatisfied performance obligations.

The Company applied the practical expedient to not disclose the amount of transaction price allocated to unsatisfied performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or

The Company does not have material future obligations associated with COVID 19 , molecular diagnostic or g enetic t esting s ervices that extend beyond one year.

The Company applied the practical expedient to no t disclose the amount of transaction price allocated to unsatisfied performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or less.

The Company does not have material future obligations associated with COVID 19, molecular diagnostic or genetic testing services that extend beyond one year.

Recent Accounting Pronouncements

The Company evaluates all ASUs issued by FASB for consideration of their applicability.

ASUs not included in the Company’s disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements or disclosures.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments , or ASU 2016-13.

ASU 2016-13 replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses.

The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

The standard was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those reporting periods for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC.

For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early application of the amendments is permitted.

The Company adopted ASU 2016-13 using the modified retrospective approach as of January 1, 2021.

The cumulative effect upon adoption was $ 887,000 to the retained earnings in the accompanying Consolidated Statements of Stockholders’ Equity and trade accounts receivable, net, in the accompanying Consolidated Balance Sheets.

The cumulative tax effect was $ 239,000 to retained earnings in the accompanying Consolidated Statements of Stockholders’ Equity and deferred tax assets included in other long-term liabilities in the accompanying Consolidated Balance Sheets.

There was no impact related to available-for-sale debt securities.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (Topic 740) , or ASU 2019-12, which is intended to reduce the complexity of accounting standards while maintaining or enhancing the helpfulness of information provided to financial statement users.

The amendment in this ASU simplifies the accounting for income taxes by removing some exceptions including the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for equity method investments, the ability not to recognize a deferred tax liability for a foreign subsidiary, and the general methodology for calculating income taxes in an interim period.

Other changes include requiring entities to recognize franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, evaluate tax basis step-up in goodwill obtained in a transaction that is not a business combination, and reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, making minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method, and specifying that an entity is not required to allocate the consolidated current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements.

For public business entities, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted.

The Company adopted ASU 2019-12 in the first quarter of 2021, and the adoption had no material impact to the Company’s consolidated financial statements.

Equity and Debt Securities

The Company’s equity and debt securities consisted of the following:

December 31, 2022

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Equity securities:

Exchange traded funds

Preferred stock of privately held company

Total equity securities

Available-for-sale debt securities

government debt securities

Corporate debt securities

treasury bills

agency debt securities

Money market accounts

government debt securities

Municipal bonds

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After 1 year through 5 years

Corporate debt securities

government debt securities

agency debt securities

Corporate debt securities

Municipal bonds

Yankee debt securities

Redeemable preferred stock investment

Total debt securities due after 1 year through 5 years

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Municipal bonds

Redeemable preferred stock investment

Total debt securities due after 5 years through 10 years

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Available-for-sale debt securities

Money market accounts

Corporate debt securities

Money market accounts

government debt securities

Municipal bonds

Yankee debt securities

Cash equivalents

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Corporate debt securities

government debt securities

agency debt securities

Municipal bonds

Yankee debt securities

Total debt securities due after 1 year through 5 years

After 5 years through 10 years

Municipal bonds

Redeemable preferred stock investment

Total debt securities due after 5 years through 10 years

Total available-for-sale debt securities

Total equity and debt securities

Gross unrealized losses on the Company’s equity and debt securities were $ 4.3 million and $ 298,000 as of December 31, 2021 and 2020.

The Company did not recognize any credit losses for its available-for-sale debt securities in 2021.

The Company’s marketable securities of $ 499.4 million are used as collateral for an outstanding margin account borrowing.

Gross unrealized losses on the Company’s equity and debt securities were $ 28.8 million and $ 4.3 million as of December 31, 2022 and 2021, respectively.

The Company did not recognize any credit losses for its available-for-sale debt securities in 2022 and 2021.

The Company’s marketable securities of $ 472.8 million, managed by the custodian of the Company’s marketable debt security investment account, of which the Company has an outstanding margin loan, is used as collateral for the margin account borrowing.

See Note 8, Debt, Commitments and Contingencies , for more information on the margin loan.

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Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability and are developed based on the best information available in the circumstances.

The hierarchy consists of the following three levels:

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Inputs are unobservable for the asset or liability.

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis, based on the three-tier fair value hierarchy:

December 31, 2022

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Equity securities, debt securities and cash equivalents:

Corporate debt securities

government debt securities

Corporate debt securities

agency debt securities

Exchange traded funds

treasury bills

Money market accounts

Municipal bonds

Yankee debt securities

Preferred stock of privately held company

Redeemable preferred stock investment

Money market accounts

Yankee debt securities

Total equity securities, debt securities and cash equivalents

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Corporate debt securities

government debt securities

agency debt securities

Exchange traded funds

Municipal bonds

Yankee debt securities

agency debt securities

Redeemable preferred stock investment

Money market accounts

Total equity securities, debt securities and cash equivalents

The Company’s Level 1 assets include bond funds, exchange traded funds, and money market instruments and are valued based upon observable market prices.

The Company’s Level 1 assets include U.S.

treasury bills, money market instruments, bond funds, and exchange traded funds and are valued based upon observable market prices.

Level 2 assets consist of U.S.

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Level 2 securities are valued based upon observable inputs that include reported trades, broker/dealer quotes, bids and offers.

As of December 30, 2021, the Company had $ 22.0 million of redeemable preferred stock of Helio Health that was measured using unobservable (Level 3) inputs.

The fair value is based on the most recent valuation as of December 31, 2021 performed by a third-party valuation company utilizing the guideline public company method under market approach and the discounted cash flow method under income approach.

The asset approach was not used in determining the fair value of Helio Health as the asset approach is not representative.

As of December 31, 2022, the Company had preferred stock of a privately held company, which was included in other long-term assets in the accompanying Consolidated Balance Sheets, and

redeemable preferred stock of a private company that were measured using unobservable (Level 3) inputs.

The fair value of redeemable preferred stock as of December 31, 2022 and 2021 was based on valuation performed by a third-party valuation company utilizing the guideline public company method under market approach and the discounted cash flow method under income approach.

For the value of the investment in private equity securities, the Company elected to measure it at cost minus impairment, as the preferred stock of the privately held company did not have a readily determinable fair value, and no impairment loss was recorded as of December 31, 2022.

There were no transfers between fair value measurement levels in 2022, 2021, and 2020.

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Medical lab equipment

2 to 12 Years

Computer hardware

5 months to 12 Years

Leasehold improvements

Shorter of lease term or estimated useful life

Computer software

Computer hardware

Building improvements

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Furniture and fixtures

2 to 10 Years

Computer software

Land improvements

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Depreciation expense on fixed assets totaled $ 25.5 million , $ 9.3 million and $ 3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Other Current Assets

Other Significant Balance Sheet Accounts

Other current assets consisted of the following:

(in thousands)

Reagents and supplies

Other receivable

Prepaid income taxes

Prepaid expenses

Reagents and supplies

Marketable securities interest receivable

Prepaid income taxes

Other receivable

Contract assets

Reagents and supplies include reagents and consumables used for COVID-19 testing and genetics testing and collection kits for COVID-19 testing.

Other receivable as of December 31, 2020 primarily consists of proceeds to be received from public offerings of the Company’s common stock, which were all collected in 2021.

Other receivable as of December 31, 2022 includes $ 19.1 million of maturities of marketable securities that did not settle until after period-end.

Other current liabilities primarily includes $ 5.0 million payable pursuant to a share transfer agreement, see Note 15, Business Combinations.

Other long-term liabilities primarily includes operating and finance lease liabilities, long-term, see Note 9, Leases , and notes payable, long-term, See Note 8, Debt, Commitments and Contingencies .

Reporting Segment and Geographic Information

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Debt, Commitments and Contingencies

As of December 31, 2021, the Company had an outstanding borrowing of $ 15.1 million under its margin account with the custodian of the Company’s marketable debt security investment account, Pershing Advisor Solutions, LLC, a BNY Mellon Company, or BNY Mellon.

As of December 31, 2022, the Company had an outstanding borrowing of $ 15.0 million under its margin account with the custodian of the Company’s marketable debt security investment account, Pershing Advisor Solutions, LLC, a BNY Mellon Company.

The outstanding balance is included in the Consolidated Balance Sheets.

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The custodian can issue a margin call at any time.

The interest rate on the margin loan was the effective federal funds rate, or EFFR, plus a spread, and the EFFR and/or the spread can be changed by BNY Mellon at any time.

The interest was 1 % at the time of withdrawal of $ 15.0 million from the margin account, and the interest rate at December 31, 2021 was less than 1 %.

The interest rate on the margin loan was the effective federal funds rate, or EFFR, plus a spread.

EFFR and/or the spread can be changed by BNY Mellon at any time.

The interest was 1 % at the time of withdrawal of $ 15.0 million from the margin account, and the interest rate at December 31, 2022 was 4.59 % .

The related interest expenses in 2022, 2021 and 2020 were $ 346,000 , $ 117,000 and $ 20,000 , respectively.

Notes payable as of December 31, 2021 consisted of $ 6.1 million of notes payable to Xilong Scientific, by FF Gene Biotech.

The loan is payable on December 31, 2022, and interest rate on the loan is 4.97 %.

The related interest expenses in 2021 were $ 177,000 .

Operating Leases

Notes payable as of December 31, 2022, consisted of $ 3.8 million of notes payable related to an installment sale contract the Company entered in February 2022 for a building and $ 5.2 million of notes payable to Xilong Scientific Co., or Xilong Scientific, by Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech.

The notes payable related to the installment sale are due in February 2030, and the interest rate is 1.08 %.

The current portion and noncurrent portion are $ 461,000 and $ 3.4 million , respectively, and the noncurrent portion is included in the other long-term liabilities in the accompanying Consolidated Balance Sheets.

The notes payable to Xilong Scientific is due on March 31, 2023, and the interest rate on the loan is 4.97 %.

The related interest expenses in 2022 and 2021 were $ 304,000 and $ 177,000 , respectively.

The Company did no t have the installment sale contract in 2021.

Operating and Finance Leases

See Note 9, Leases , for further information.

Purchase Obligations

As of December 31, 2021, the Company had non-cancelable purchase obligations of $ 11.6 million, of which, $ 10.9 million for reagents and other supplies and $ 732,000 for medical lab equipment are payable within twelve months.

As of December 31, 2022, the Company had non-cancelable purchase obligations of $ 10.1 million , of which, $ 3.2 million for computer software and hardware, $ 2.5 million for reagents and other supplies, $ 1.1 million for services and $ 746,000 for medical lab equipment are payable within twelve months.

$ 2.2 million for computer software and $ 381,000 for services are payable within the next thirty-six months.

Contingencies

From time to time, the Company may be subject to legal proceedings and claims arising in the ordinary course of business.

Management does not believe that the outcome of any of these matters will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

The Company has received a CID issued by the U.S.

Department of Justice pursuant to the False Claims Act related to its investigation of allegations of medically unnecessary laboratory testing, improper billing for laboratory testing, and remuneration received or provided in violation of the Anti-Kickback Statute and the Stark Law.

This CID requests information and records relating to certain of the Company’s customers named in the CID, which represent a small portion of the Company’s revenues.

The Company is fully cooperating with the U.S.

Department of Justice to promptly respond to the requests for information in this CID, and does not presently expect this CID or resulting investigation to have a material adverse impact.

However, the Company cannot predict when the investigation will be resolved, the outcome of the investigation or its potential impact, which may ultimately be greater than the Company currently expects.

The contingent consideration of $ 10.0 million as of December 31, 2021 was related to the acquisition of CSI (see Note 15, Business Acquisitions), which is included in the Consolidated Balance Sheets.

However, the Company cannot predict when the

investigation will be resolved, the outcome of the investigation or its potential impact, which may ultimately be greater than the Company currently expects.

The Company is party as a lessee to various non-cancelable operating leases with varying terms through March 2028 primarily for laboratory and office space and equipment.

The Company has options to renew some of these leases after their expirations.

On a lease-by-lease basis, the Company considers such options, which may be elected at the Company’s sole discretion, in determining the lease term.

The Company also has two finance leases for lab equipment through December 2026, one of which was acquired in the acquisition of CSI.

The Company retained CSI’s classification of its leases.

On a lease-by-lease basis, the Company considers such options, which may be elected at the Company’s sole discretion, in determining the lease term.

The Company also has various finance leases for lab equipment with varying terms through December 2026 , of which, some were acquired in business combinations.

The Company does not have any leases with variable lease payments.

The Company’s operating lease agreements do not contain any residual value guarantees, material restrictive covenants, bargain purchase options or asset retirement obligations.

The Company’s headquarters are located in Temple City, California, which is comprised of various corporate offices and a laboratory certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, accredited by the College of American Pathologists, or CAP, and licensed by the State of California Department of Public Health.

Other CLIA-certified laboratories are located in Houston, Texas and Alpharetta, Georgia.

Additional offices are located in Atlanta, Georgia and are used for certain report generation functions.

In February 2021, the Company extended the lease for its headquarters located in Temple City, California, to January 31, 2023 .

In March 2021, the Company entered into a new lease for its 12,000 square foot CLIA-certified laboratory in Houston, Texas, which will expire in November 2023 .

The Company’s operating lease agreements do not contain any residual value guarantees, material restrictive covenants, bargain purchase options or asset retirement obligations.

Other CLIA-certified laboratories are located in El Monte, California;

Houston and Irving, Texas;

Needham, Massachusetts;

Phoenix, Arizona;

Alpharetta, Georgia;

and New York, New York.

The operating and finance lease right-of-use asset, short-term lease liabilities, and long-term lease liabilities as of December 31, 2022, and 2021 were as follows:

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Weighted average discount rate - operating leases

Weighted average remaining lease term -finance lease

Weighted average discount rate - finance lease

Weighted average remaining lease term -finance leases

Weighted average discount rate - finance leases

The following is a maturity analysis of operating and finance lease liabilities using undiscounted cash flows on an annual basis with renewal periods included:

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Less imputed interest

The Company leases out space in buildings it owns to third-party tenants under noncancelable operating leases and has leased out such space since the Company purchased such buildings in October 2020.

The Company also subleases out some space in a lease acquired as part of the acquisition of CSI.

As of December 31, 2021, the remaining lease terms left range from 11 months to 44 months including renewal options and may include rent escalation clauses.

The Company leases out space in buildings it owns to third-party tenants under noncancelable operating leases.

As of December 31, 2022, the remaining lease terms left range from 1 year to 2 years, including renewal options and may include rent escalation clauses.

Lease income primarily represents fixed lease payments from tenants recognized on a straight-line basis over the application lease term.

Variable lease income represents tenant payments for real estate taxes, insurance and maintenance.

The lease income was included in interest and other income, net, in the accompanying Consolidated Statements of Operations.

The lease income was included in interest and other income, net, in the accompanying Consolidated Statements of Income.

Total lease income was as follows:

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Equity-Based Compensation

The Company has included equity-based compensation expense as part of cost of revenue and operating expenses in the accompanying Consolidated Statements of Operations as follows:

The Company has included equity-based compensation expense as part of cost of revenue and operating expenses in the accompanying Consolidated Statements of Income as follows:

Year Ended December 31,

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General and administrative

The actual tax benefit realized from windfall tax deductions related to awards vested or exercised were $ 2.1 million , $ 13.3 million, and $ 2.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Award Activity

Option Awards

The following table summarizes activity for options to acquire shares of the Company’s common stock in the years ended December 31, 2021, 2020 and 2019:

The following table summarizes activity for options to acquire shares of the Company’s common stock in the years ended December 31, 2022, 2021 and 2020:

(in thousands)

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Exercisable as of December 31, 2022

Aggregate intrinsic value is calculated as the difference between (i) the exercise price of options and (ii) the market value of the Company’s common stock as of the applicable date.

(1) Aggregate intrinsic value is calculated as the difference between (i) the exercise price of options and (ii) the market value of the Company’s common stock as of the applicable date.

The total fair value of options that vested during the years ended December 31, 2022, 2021 and 2020 was $ 126,000 , $ 76,000 and $ 223,000 , respectively.

As of December 31, 2022, the remaining unrecognized compensation expense related to all outstanding option awards was $ 433,000 and is expected to be recognized over a weighted-average period of 3.4 years.

As of December 31, 2020, the remaining unrecognized compensation expense related to all outstanding option awards was $ 178,000 and is expected to be recognized over a weighted-average period of 3.0 years.

RSUs are awards that entitle the holder to receive shares of the Company’s common stock upon satisfaction of vesting conditions.

Each RSU represents the contingent right to receive one share of the Company’s common stock upon vesting and settlement.

The following table summarizes activity for RSUs relating to shares of the Company’s common stock in the years ended December 31, 2021, 2020, and 2019:

RSUs are awards that entitle the holder to receive shares of the Company’s common stock upon satisfaction of vesting conditions.

Each RSU represents the contingent right to receive one share of the Company’s common stock upon vesting and settlement.

The following table summarizes activity for RSUs relating to shares of the Company’s common stock in the years ended December 31, 2022, 2021, and 2020:

(in thousands)

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The RSU awards granted in the years ended December 31, 2022, 2021 and 2020 will result in aggregate equity-based compensation expense of $ 94.8 million , $ 45.5 million and $ 34.5 million, respectively, to be recognized over the vesting periods from the grant date of each award granted in the period.

The RSU awards granted in the year ended December 31, 2022 included 663,013 shares of RSU awards assumed as part of the Fulgent Pharma acquisition, see more details in Note 14, Related Party, and Note 15, Business Combinations .

As of December 31, 2022, the remaining unrecognized compensation expense related to all outstanding RSU awards was $ 110.6 million and is expected to be recognized over a weighted-average period of 3.0 years.

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Expected Term.

The expected term represents the period that the Company’s equity-based awards are expected to be outstanding.

The Company determines the expected term assumption based on the vesting terms, exercise terms and contractual terms of the options.

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Dividend Yield.

The assumed dividend yield is based on the Company’s expectation that it will not pay dividends in the foreseeable future, which is consistent with its history of not paying dividends.

Expected Volatility.

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Awards to Employees

The table below sets forth the weighted-average assumptions used in the Black-Scholes option-pricing model to estimate the fair value of options to acquire shares of the Company’s common stock granted to employees during the years ended December 31, 2021, 2020 and 2019.

Year Ended December 31,

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Determination of Fair Value on Grant Dates

The fair value of the shares of the Company’s common stock underlying option and RSU awards is determined by the Company’s board of directors or the compensation committee thereof based on the closing sales price of the Company’s common stock on the date of grant as reported by the Nasdaq Global Market.

Provision for income taxes consists of U.S.

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Tax provision at federal statutory rate

Foreign tax rate differential

Uncertain tax positions

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Other permanent differences

Research & development credit

Change in valuation allowance

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Net deferred tax assets are included in other long-term assets in the Consolidated Balance Sheets.

Year Ended December 31,

As of December 31,

(in thousands)

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State income taxes

Excess tax basis in FF Gene Biotech net assets

Lease liability

Unrealized gain/loss on available-for-sale debt securities

Section 174 research & experimental expenditures

Equity loss in investment

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Net deferred tax assets

As of December 31, 2021, the Company has no estimated federal net operating loss, or NOL, carryforwards and estimated state NOL carryforwards of $ 1.8 million.

The Company’s state NOLs are scheduled to begin expiring in 2037 .

As of December 31, 2022, the Company has $ 58.8 million estimated federal net operating loss, or NOL, carryforwards and estimated state NOL carryforwards of $ 66.0 million .

The Company’s state NOLs are scheduled to begin expiring in 2037 .

The Company also has foreign NOL carryforwards of $ 13.8 million which are scheduled to expire from 2023 through 2027 .

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The increase in the valuation allowance of $ 224,000 for the years ended December 31, 2022 was primarily due to an increase in foreign deferred tax assets that are more likely than not to expire unrealized.

During 2020 and 2019 the Company recorded a deferred tax asset related to its equity-method investment in FF Gene Biotech.

When realized, the excess tax basis would have generated a capital loss which only would have been available to offset capital gain income.

As a result, the Company recorded a full valuation allowance against this asset in 2020 and 2021.

However, due to an incremental investment in FF Gene Biotech in 2021, the Company now includes the subsidiary in its consolidated balance sheet;

it is no longer an equity-method investment.

Therefore, the previously recorded deferred tax asset was reversed as part of the related acquisition accounting.

During 2020, the Company recorded a deferred tax asset related to the impairment of its investment in BostonMolecules, Inc.

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therefore, the Company has recorded a full valuation allowance against this asset.

The net deferred assets are included in other long-term assets in the accompanying Consolidated Balance Sheets.

Uncertain Tax Positions

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certain other states remain subject to examination for tax years 2018 through 2022.

However, due to the Company’s NOL carryforwards in various jurisdictions, tax authorities have the ability to adjust carryforwards related to closed years until the statute expires on the year(s) in which the NOL carryforwards are utilized.

A reconciliation of the Company’s gross unrecognized tax benefits is as follows:

Year Ended December 31,

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Balance at beginning of year

Increases to prior positions

Increases to prior year positions

Increases for current year positions

Balance at end of year

As of December 31, 2021, the Company has $ 710,000 of gross unrecognized tax benefits, related to research and experimental tax credits.

The Company has $ 710,000 of unrecognized tax benefits as of December 31, 2021, which, if recognized, would affect the annual effective tax rate.

The Company has accrued $ 15,000 and $ 0 for interest at December 31, 2021 or 2020, respectively, and has recognized interest expense of $ 15,000 and $ 0 for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2022, the Company has $ 9.7 million of gross unrecognized tax benefits, of which, $ 2.3 million of unrecognized tax benefits would affect the effective tax rate if recognized.

The Company has accrued $ 94,000 and $ 15,000 for interest at December 31, 2022 and 2021, respectively, and has recognized interest expense of $ 94,000 and $ 15,000 for the years ended December 31, 2022 and 2021, respectively.

Although it is possible that the amount of unrecognized benefits with respect to our uncertain tax positions will increase or decrease in the next twelve months, the Company does not expect material changes.

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Accordingly, additional provisions on federal, state and foreign tax-related matters could be recorded in future periods as revised estimates are settled or otherwise resolved.

Income (Loss) per Share

The following is a reconciliation of the basic and diluted income (loss) per share computations:

Income per Share

The following is a reconciliation of the basic and diluted income per share computations:

Year Ended December 31,

(in thousands, except per share data)

Net income (loss) attributable to Fulgent

Net income attributable to Fulgent

Weighted-average common shares - outstanding, basic

Weighted-average common shares - outstanding, diluted

Net income (loss) per common share, basic

Net income (loss) per common share, diluted

The following securities have been excluded from the calculation of diluted loss per share for all periods presented because their effect would have been anti-dilutive:

Net income per common share, basic

Net income per common share, diluted

The following securities have been excluded from the calculation of diluted income per share because their effect would have been anti-dilutive:

Year Ended December 31,

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The Company matches contributions to the 401(k) Plan based on the amount of salary deferral contributions the participant makes to the 401(k) Plan.

The Company will match up to 3 % of an employee’s compensation that the employee contributes to his or her 401(k) Plan account.

Total Company matching contributions to the 401(k) Plan were $ 697,000 , $ 422,000 and $ 237,000 in the years ended December 31, 2021, 2020 and 2019, respectively.

The Company will match up to 3 % of an employee’s compensation that the employee contributes to his or her 401(k) Plan account.

Total Company matching contributions to the 401(k) Plan were $ 2.5 million , $ 697,000 and $ 422,000 in the years ended December 31, 2022, 2021 and 2020, respectively.

Related Party

Linda Marsh, who is a member of the Company’s board of directors, is currently the Senior Executive Vice President of AHMC Healthcare Inc.

The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $ 3.4 million and $ 3.1 million in revenue in the years ended December 31, 2021 and 2020, respectively.

The Company did not recognize any revenue from AHMC in the year ended December 31, 2019.

As of December 31, 2021 and 2020, $ 556,000 and $ 1.8 million was owed to the Company by AHMC, respectively, which is included in trade accounts receivable, net, in the accompanying Consolidated Balance Sheets, in connection with this relationship.

The Spouse of the Company’s founder, Chief Executive Officer and Chairman of the Company’s board of directors, Ming Hsieh, is the owner of JEM Enterprise, or JEM.

In the year ended December 31, 2020 , the Company purchased $ 200,000 of office furniture and supplies from JEM.

The Company believes $ 200,000 was a fair market price for the furniture purchased.

As of December 31, 2021 and 2020 , zero was owed to JEM by the Company in connection with this relationship.

The Chief Executive Officer and Chairman of the Company’s board of directors, Ming Hsieh, is the owner of PTJ Associates Inc., or PTJ.

Linda Marsh, who is a member of the Company’s board of directors, is currently the Senior Executive Vice President of AHMC Healthcare Inc., or AHMC.

The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $ 1.5 million , $ 3.4 million and $ 3.1 million in revenue in the years ended December 31, 2022, 2021 and

As of December 31, 2022 and 2021, $ 93,000 and $ 556,000 was owed to the Company by AHMC, respectively, which is included in trade accounts receivable, net, in the accompanying Consolidated Balance Sheets, in connection with this relationship.

On November 7, 2022, the Company acquired Fulgent Pharma.

See Note 15, Business Combinations .

Prior to the acquisition, the Company and Fulgent Pharma LLC were parties to shared services arrangements where research and development, administrative services and office space and equipment are provided between the companies, on an arms-length basis.

Until April 2022, Ming Hsieh was the manager and a member of Fulgent Pharma LLC.

In April 2022, Fulgent Pharma LLC became a wholly-owned subsidiary of Fulgent Pharma which was 100 % owned by Ming Hsieh, the Chief Executive Officer and Chairman of the Company’s board of directors, and the Hsieh Family Dynasty Trust, dated January 27, 2010, or the Hsieh Trust, of which Mr.

Hsieh is the grantor.

Hsieh and Paul Kim, the Chief Financial Officer and Treasurer of Fulgent, also served as executive officers of Fulgent Pharma as its (i) President and Chief Executive Officer and (ii) Treasurer and Secretary, respectively.

The cost of research and development services rendered by Fulgent Pharma LLC for the Company was no t significant in 2022 prior to the acquisition.

In the years ended December 31, 2021 and 2020, the research development service rendered by Fulgent Pharma LLC was $ 330,000 and $ 427,000 , respectively.

Costs allocated to Fulgent Pharma LLC were no t significant in 2022 prior to the acquisition, 2021 and 2020.

As of December 31, 2021, $ 679,000 was owed to Fulgent Pharma LLC by the Company, which is recorded in other current liabilities in the accompanying Consolidated Balance Sheet, in connection with these relationships.

As part of the acquisition, RSUs to acquire shares of common stock of Fulgent Pharma held by Paul Kim, the Company’s Chief Financial Officer, Jian Xie, the Company’s President and Chief Operating Officer, Hanlin Gao, the Company’s Chief Scientific Officer and other employees of the Company and consultants of Fulgent Pharma LLC were assumed by the Company and became RSUs to acquire 77,585 , 129,309 , 51,723 , 117,398 , and 286,998 shares of common stock of the Company, respectively.

Ming Hsieh, is the owner of PTJ Associates Inc., or PTJ.

PTJ provides flight services to the Company on an arms-length basis.

In the years ended December 31, 2022, 2021 and 2020, the Company incurred $ 235,000 , $ 142,000 and $ 343,000 , respectively, in expenses for flights between California and Texas to transport employees and supplies.

The Company did not incur such expense in the year ended December 31, 2019.

As of December 31, 2021 and 2020, $ 0 and $ 94,000 , respectively, was owed to PTJ by the Company, which is included in accounts payable in the accompanying Consolidated Balance Sheets, in connection with this relationship.

The Company and Fulgent Pharma LLC, the Company’s former subsidiary, are party to shared services arrangements where research and development and administrative services and office space and equipment are provided between the companies, on an arms-length basis .

Ming Hsieh is the Manager and a member of Fulgent Pharma LLC.

In the years ended December 31, 2021 and 2020, the research development service rendered by Fulgent Pharma LLC was $ 330,000 and $ 427,000 , respectively, and costs allocated to Fulgent Pharma, LLC were $ 27,000 and $ 52,000 , respectively.

Costs allocated to Fulgent Pharma LLC were no t significant in the year ended December 31, 2019.

As of December 31, 2021 and 2020, $ 679,000 and $ 409,000 , respectively, was owed to Fulgent Pharma LLC by the Company, which is recorded in other receivable in other current assets in the accompanying Consolidated Balance Sheet, in connection with these relationships.

As of December 31, 2022 and 2021, no amount was owed to PTJ by the Company.

Ming Hsieh is also on the board of directors and a 20 % owner of ANP Technologies, Inc., or ANP, from which the Company purchased COVID-19 antigen rapid test kits and entered into certain drug-related licensing and development service agreements.

The President and Chief Scientific Officer of Fulgent Pharma, Ray Yin, is the Founder, President, and Chief Technology Officer of ANP.

In the year ended December 31, 2022, the Company incurred $ 1.2 million related to the purchase of COVID-19 antigen rapid tests kits and licensing and development services.

No costs were incurred in the years ended December 31, 2021 and 2020.

As of December 31, 2022, $ 607,000 was owed to ANP by the Company in connection with these relationships, and no amount was owed to ANP as of December 31, 2021.

Business Combinations

The Company believes that the acquisitions of businesses enhance its existing businesses by either expanding its geographic range and customer base or expanding its existing product lines.

The Company incurred $ 2.8 million in acquisition related costs for the year ended December 31, 2021, respectively, which was included in general and administrative expenses in the accompanying Consolidated Statements of Operations .

FF Gene Biotech

In April 2017, the Company acquired a 30 % equity interest in FF Gene Biotech , a newly formed a joint venture with Xilong Scientific and FJIP.

The joint venture was formed under the laws of China to offer genetic testing services to customers in China .

In May 2021, we entered into a restructuring agreement with Xilong Scientific and FJIP, resulting in the Company indirectly acquiring a controlling financial interest of 72 % in FF Gene Biotech.

FF Gene Biotech was founded to bring the Company’s next generation sequencing, or NGS , capabilities to the Chinese genetic testing market through entities separate from the Company’s U.S.

operations, and FF Gene Biotech is pursuing this separate from the Company’s business elsewhere.

As a result of the acquisition of FF Gene Biotech, or the FF Gene Biotech Acquisition , the Company seeks to be more strategically aligned with its geographic expansion strategy.

It also expects to reduce costs through economies of scale.

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values.

As additional information becomes available, such as the finalization of the estimated fair value of tax-related items, the Company may further update the preliminary purchase price allocation during the remainder of the measurement period (up to one year from the FF Gene Biotech Acquisition date).

The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the FF Gene Biotech Acquisition date, as well as the fair value of the noncontrolling interest at the FF Gene Biotech Acquisition date .

Inform Diagnostics

On April 26, 2022, the Company completed the acquisition of 100 % of the outstanding equity of Symphony Buyer, Inc., or Inform Diagnostics, a leading national independent pathology laboratory based in Irving, Texas.

Under the terms of the Agreement and Plan of Merger, dated April 16, 2022, or the Inform Merger Agreement, the total purchase price payable to the securityholders of Symphony Buyer, Inc.

was approximately $ 170 million, as adjusted for closing cash, closing indebtedness, closing working capital, closing transaction expenses and other transaction matters.

With the addition of Inform Diagnostics, the Company will further expand the Company’s genomic testing footprint and extend its test menu into breast pathology, gastrointestinal pathology, dermatopathology, urologic pathology, neuropathology, and hematopathology.

The financial results of Inform Diagnostics are included in the consolidated financial statements from the date of acquisition.

The Company all ocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values.

The following tables summarizes the consideration paid and the updated amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

(in thousands)

Considerations

Fair value of the Company’s 30% equity interest held before the business combination

Consideration

Cash, net of cash received

Recognized amounts of identifiable assets acquired and liabilities assumed

Financial assets

Reagents and supplies

Other tangible assets

Net working capital

ROU assets - operating

ROU assets - finance

Deferred tax assets

Other long-term assets

Identifiable intangible assets

Other current liabilities

Notes payable

Operating lease liabilities

Finance lease liabilities

Income tax payable

Other long-term liabilities

Recognized amounts of identifiable assets acquired and liabilities assumed, net

Noncontrolling interest

The fair value of the noncontrolling interest, or NCI, in FF Gene Biotech, a private entity, $ 8.1 million, was estimated by applying the income approach and market approach.

The fair value measurement was based on significant inputs that are not observable in the market and thus represents a fair value categorized within Level 3 of the three-tier fair value hierarchy .

The NCI represents a minority interest of 28 % in the post-restructuring FF Gene Biotech.

Since the NCI is the result of the restructuring, the implied value was utilized to value the NCI based on the 42 % effective investment.

After determining the implied value, a discount for lack of marketability was applied to the 28 % interest representing lack of marketability related to the holding period to monetize the NCI in a future initial public offering, or IPO, or sale, and marketability related to market participant acquisition premiums implied in the value of the $ 19.0 million purchase price for a 42 % interest.

The resultant total discount applied was 35 %, which is supported both by the put option analyses related to the potential holding period, and a 10 % discount owed to a market participant acquisition premium .

The Company recognized a gain of $ 3.7 million as a result of remeasuring to fair value its 30 % equity interest held before the FF Gene Biotech Acquisition .

The fair value of the preexisting equity interest was determined based on the characteristics before consummating the FF Gene Biotech Acquisition and estimated by applying income approach and utilized the discounted cash flow method.

The Company did not apply the market approach based on its characteristics before consummating the restructuring.

The gain on the equity-method investment is included in the Company’s Consolidated Statements of Operations for the year ended December 31, 2021 .

The goodwill of $ 23.1 million arising from the FF Gene Biotech Acquisition is attributed to the expected synergies and other benefits that will be potentially generated from the combination of the Company and FF Gene Biotech.

The goodwill of $ 71.8 million arising from the acquisition is attributed to the expected synergies, assembled workforce, other benefits that will be potentially generated from the combination and deferred tax.

The goodwill recognized is not deductible for tax purposes.

The identified intangible assets acquired in the FF Gene Biotech Acquisition consisted of a $ 5.7 million royalty-free technology with an estimated amortization life of 10 years and $ 1.2 million customer relationships with an estimated amortization life of 5 years.

The value of these assets was based upon the preliminary fair values as of the closing date of the FF Gene Biotech Acquisition .

The Company concluded FF Gene Biotech is a variable interest entity as FF Gene Biotech lacks sufficient capital to operate independently.

The Company concluded that it alone has the power to direct the most significant activities of FF Gene Biotech and therefore is the primary beneficiary of the entity post the FF Gene Biotech Acquisition.

Judgment regarding the level of influence over FF Gene Biotech includes consideration of key factors such as the Company's ownership interest, representation on the board of directors or other management body and participation in policy-making decisions.

CSI Acquisition

In August 2021, the Company acquired 100 % of the outstanding equity of CSI, a multi-site reference laboratory business in the United States.

This acquisition of CSI, or the CSI Acquisition, expands the Company’s national reference laboratory presence in the United States.

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values.

The following tables summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the CSI Acquisition date:

The identified intangible assets acquired consisted of $ 54.0 million customer relationships with an estimated amortization life of 14 years, $ 2.7 million trade name with an estimated amortization life of 7 years, and $ 360,000 in-place lease intangible asset to be amortized over the remaining lease term of 5 years.

The fair value of the customer relationship was estimated using the Multiperiod Excess Earnings Method, or MPEEM, of the income approach.

Under the MPEEM, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible asset after deducting contributory asset charges.

The incremental after-tax cash flows attributable to the customer relationships are then discounted to their present value at a risk-adjusted rate of return.

The fair value of the trade name was estimated using the relief from royalty, or RFR, method.

The RFR method estimates the portion of the Company's earnings attributable to an intangible asset based on the royalty rate the Company would have paid for the use of the asset if it did not own it.

The fair value of in-place lease intangible asset was estimated using the discounted cash flow under the income approach.

The useful lives of the intangible assets for amortization purposes were determined by considering the period of expected cash flows used to measure the fair values of the intangible assets adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic and other factors that may limit the useful life.

The customer relationships and trade name are amortized on a straight-line basis over their estimated useful lives.

Revenue and operating loss from the Inform Diagnostics acquisition since the acquisition date are $ 83.6 million and $ 17.0 million, respectively, which are included in the accompanying Consolidated Statements of Income.

The transaction costs associated with the acquisition of Inform Diagnostics consisted primarily of legal, regulatory and financial advisory fees of approximately $ 6.6 million for the year ended December 31, 2022, respectively.

These transaction costs were expensed as incurred as general and administrative expense in the respective period.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information summarizes the combined results of operations of Fulgent and Inform Diagnostics as if the companies had been combined as of the beginning of 2021.

The pro forma financial information has been adjusted for the following:

Acquisition-related costs - Acquisition-related costs incurred by both Fulgent and Inform Diagnostics were excluded from the net income attributable to Fulgent, and total costs were $ 9.6 million for the year ended December 31, 2022.

Other adjustments to the net income attributable to Fulgent were $ 772,000 and $ 2.3 million for the year ended December 31, 2022 and 2021, respectively.

Other adjustments to revenue were $ 962,000 and $ 3.9 million for or the year ended December 31, 2022 and 2021, respectively.

Year Ended December 31,

(in thousands)

Net income attributable to Fulgent

Basic earnings per common share attributable to Fulgent

Diluted earnings per common share attributable to Fulgent

Fulgent Pharma Holdings, Inc

On November 7, 2022, the Company completed the acquisition of 100 % of the outstanding equity of Fulgent Pharma, a clinical-stage, therapeutics development company focused on perfecting drug candidates for treating a broad range of cancers.

Under the terms of the Agreement and Plan of Merger, dated November 7, 2022, or the Pharma Merger Agreement, the total merger consideration was paid in a combination of cash, the Company's common stock, or the Stock Consideration, and assumed restricted stock units, or RSUs, subject to customary adjustments for closing cash, closing indebtedness, transaction expenses and other transaction matters.

A portion of the Stock Consideration was held back for a duration of time after the closing of the transaction to satisfy certain indemnification obligations of the Pharma Stockholders as described in the Pharma Merger Agreement.

The RSUs are subject to vesting over the four-year period immediately following the date of their original grant, subject to the holder’s continuing service.

The integrated companies plan to offer a vertically integrated solution to combat cancer with the potential to unlock significant long-term upsides for both the therapeutic and diagnostic businesses, while effectively managing risk.

The financial results of Pharma are included in the consolidated financial statements from the date of acquisition.

The Company all ocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values.

The following tables summarizes the consideration paid and the updated amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

(in thousands)

Considerations

Contingent consideration

Cash, net of cash received

Total considerations

Recognized amounts of identifiable assets acquired and liabilities assumed

Debt-free net working capital

ROU assets - operating

ROU assets - finance

Restricted cash

Identifiable intangible assets

Deferred tax liability

Operating lease liabilities

Finance lease liabilities

Other liabilities

Deferred tax liabilities

Long-term or non-operating liabilities

Recognized amounts of identifiable assets acquired and liabilities assumed, net

The CSI Acquisition includes a contingent consideration arrangement that requires additional consideration to be paid by the Company based on CSI’s achievement of a minimum level of earnings, for the year ending December 31, 2021, as described in the acquisition agreement.

The range of undiscounted amounts the Company may be required to pay under the contingent consideration agreement is between zero and $ 10.0 million.

The fair value of the contingent consideration recognized on the CSI Acquisition date of $ 10.0 million was estimated by applying the income approach using discounted cash flows.

Given the short-term nature of the contingent consideration, the most significant assumption is the probability weighted cash flow.

The goodwill of $ 27.5 million arising from the CSI Acquisition is attributed to the expected synergies, assembled workforce, other benefits that will be potentially generated from the combination and deferred tax.

The goodwill of $ 22.1 million arising from the acquisition is attributed to Fulgent Pharma's rights to intellectual property, expected synergies, assembled workforce, and other benefits that will potentially be generated from the combination and deferred tax.

The goodwill recognized is not deductible for tax purposes.

The identified intangible assets acquired in the CSI Acquisition consisted of $ 27.6 million customer relationships with an estimated amortization life of 12 years, $ 1.9 million laboratory information system platform with an estimated amortization life of 5 years, and $ 1.1 million trade name with an estimated amortization life of 10 years .

Prior to the a cquisitions , the financial results for FF Gene Biotech and CSI were not significant for pro forma financial information.

Post the acquisitions , the financial results for FF Gene Biotech and CSI are included in the Company’s consolidated financial statements.

Revenue and operating income or loss from both acquisitions since the respective 2021 acquisition dates are included in the accompanying Consolidated Statements of Operations as follows, in thousands:

Operating Income (Loss)

FF Gene Biotech

Equity Distribution Agreements

In August 2019, the Company entered into an Equity Distribution Agreement, or the 2019 Equity Distribution Agreement, with Piper Jaffray & Co., or Piper, as sales agent, which was amended on August 4, 2020.

During the year ended December 31, 2019, the Company sold an aggregate of 104,000 shares of its common stock pursuant to the 2019 Equity Distribution Agreement at a weighted-average net selling price of $ 9.37 per share, which resulted in $ 979,000 of net proceeds to the Company.

During the year ended December 31, 2020, the Company sold an aggregate of 1.1 million shares of its common stock pursuant to the 2019 Equity Distribution Agreement at a weighted-average net selling price of $ 38.50 per share, which resulted in $ 42.7 million of net proceeds to the Company.

Shares sold under the 2019 Equity Distribution Agreement were offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No.

333-233227) filed with the SEC on August 12, 2019 and declared effective on August 23, 2019, and prospectus supplements and accompanying base prospectus filed with the SEC on August 30, 2019, May 6, 2020 and August 5, 2020.

In September 2020, the Company entered into an Equity Distribution Agreement, or the September 2020 Equity Distribution Agreement, with Piper as sales agent, pursuant to which the Company sold an aggregate of 2.8 million shares of its common stock at a weighted-average net selling price of $ 42.90 per share, which resulted in $ 122.1 million of net proceeds to the Company.

Shares sold under the September 2020 Equity Distribution Agreement were offered and sold pursuant to the Company’s registration statement on Form S-3 (File No.

333-239964) filed with the SEC on July 21, 2020, as amended on August 5, 2020, and declared effective on August 12, 2020, and a prospectus supplement and accompanying base prospectus filed with the SEC on September 25, 2020.

In November 2020, the Company entered into an Equity Distribution Agreement, or the November 2020 Equity Distribution Agreement, with Piper, Oppenheimer & Co.

Inc., and BTIG LLC, as sales agents, pursuant to which the Company may offer and sell, from time to time through Piper, shares of its common stock having an aggregate offering price of up to $ 175.0 million.

Piper may receive a commission of up to 3 % of the gross proceeds received by the Company for sales pursuant to the November 2020 Equity Distribution Agreement.

During the year ended December 31, 2020, the Company sold an aggregate of 2.0 million shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $ 48.70 per share, which resulted in $ 99.1 million of net proceeds to the Company.

During the year ended December 31, 2021, the Company sold an aggregate of 1.1 million shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $ 64.83 per share, which resulted in $ 72.0 million of net proceeds to the Company.

Shares sold under the November 2020 Equity Distribution Agreement were offered and sold pursuant to the Company’s registration statement on Form S-3 (File No.

The identified intangible assets acquired consisted of $ 64.6 million in IPR&D.

Fulgent Pharma has developed a novel nanoencapsulation and targeted therapy platform, which is designed to improve the therapeutic window and pharmacokinetic profile of new and existing cancer drugs.

The lead drug candidate, FID-007, has achieved proof-of-concept in preliminary human clinical trials for the treatment of various cancer types, including head and neck, ampullary, pancreatic, non-small cell lung cancer , and breast.

The fair value of the IPR&D was estimated using MPEEM.

The method involves forecasting after-tax operating income from existing clients, subtracting the portions attributable to a contributory asset, and discounting the remaining earnings to present value.

The useful life of IPR&D is indefinite.

Revenue and operating loss from the Fulgent Pharma acquisition since the acquisition date are zero and $ 816,000 , respectively, which are included in the accompanying Consolidated Statements of Income.

The transaction costs associated with the acquisition of Pharma consisted primarily of legal, regulatory and financial advisory fees of approximately $ 1.4 million for the year ended December 31, 2022.

These transaction costs were expensed as incurred as general and administrative expense in the respective period.

The $ 5.0 million restricted cash received represents cash consideration payable pursuant to the share transfer agreement Fulgent Pharma entered prior to Fulgent Pharma acquisition date.

The cash consideration was not paid as of Fulgent Pharma acquisition date and was included in noncurrent or non-operating liabilities in above table.

Stock Repurchase Program

In March 2022, the Company's Board authorized a $ 250.0 million stock repurchase program.

Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions.

The stock repurchase program has no expiration from the date of authorization.

During the year ended December 31, 2022, the Company repurchased 1.8 million shares of its common stock at an aggregate cost of $ 74.3 million under the stock repurchase program.

As of December 31, 2022, a total of approximately $ 175.7 million remained available for future repurchases of its common stock under the stock repurchase program.

Goodwill and Intangible Assets

2 unchanged sentences

(in thousands)

In-process research & development

Royalty-free technology

6 unchanged sentences

Trade name, net

In-place lease intangible assets

accumulated amortization

In-place lease intangible assets, net

Laboratory information system platform

5 unchanged sentences

Total intangible assets, net

During the year ended December 31, 2021, the Company recorded $ 23.1 million of goodwill and $ 7.0 million of intangible assets attributable to the FF Gene Biotech Acquisition.

See Note 15, Business Combinations, to the Company's consolidated financial statements.

During the year ended December 31, 2021, the Company recorded $ 27.5 million of goodwill and $ 30.5 million of intangible assets attributable to the CSI Acquisition.

See Note 15, Business Combinations, to the Company's consolidated financial statements.

During the year ended December 31, 2021, the Company purchased a 10 -year patent of $ 31,000 for a novel mutation causative gene in Gitelman syndrome and its encoded protein and application.

Acquisition-related intangibles included in the above tables are generally finite-lived and are carried at cost less accumulated amortization, except for IPR&D, which is related to our 2022 acquisition of Fulgent Pharma and has an indefinite life until research

and development efforts are completed or abandoned.

All other finite-lived acquisition-related intangibles related to the business combinations in 2022 and 2021 are amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized.

Changes in the carrying amount of goodwill for the year ended December 31, 2022 and 2021 are as follows:

(in thousands)

Balance as of January 1,

Accumulated impairment losses

Goodwill acquired during year

Inform Diagnostics

Fulgent Pharma

FF Gene Biotech

Net exchange differences

FF Gene Biotech

Balance as of December 31,

Accumulated impairment losses

Based on the carrying value of intangible assets recorded as of December 31, 2022, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for intangible assets is expected to be as follows:

1 unchanged sentence

Selected Quarterly Financial Data (Unaudited)

The tables below set forth the Company’s quarterly Consolidated Statements of Operations data for the eight quarters ended December 31, 2021.

The tables below set forth the Company’s quarterly Consolidated Statements of Income data for the eight quarters ended December 31, 2022.

In the opinion of management, this quarterly data has been prepared on the same basis as the accompanying consolidated financial statements and includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the periods presented.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the report in which these consolidated financial statements are included for descriptions of the effects of any extraordinary, unusual or infrequently occurring items recognized in any of the periods covered by this data.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

in the report in which these consolidated financial statements are included for descriptions of the effects of any extraordinary, unusual or infrequently occurring items recognized in any of the periods covered by this data.

The results for any one quarter are not indicative of the results to be expected in the current period or any future period.

8 unchanged sentences

Amortization of intangible assets

Restructuring costs

Total operating expenses

Operating income (loss)

Interest and other (expense) income, net

Income (loss) before income taxes, equity earnings (loss) in investee and gain (loss) on equity-method investments

Provision for (benefit from) income taxes

Income (loss) before equity earnings (loss) in investee and gain (loss) on equity-method investments

Equity earnings (loss) in investee

Gain (loss) on equity-method investments

Net income (loss) from consolidated operations

Operating (loss) income

Interest and other income (expense), net

(Loss) income before income taxes and gain on equity method investment

(Benefit from) provision for income taxes

(Loss) income before gain on equity method investment

Gain on equity method investment

Net (loss) income from consolidated operations

Net loss attributable to noncontrolling interests

Net income (loss) attributable to Fulgent

Net income (loss) per common share attributable to Fulgent:

Net (loss) income attributable to Fulgent

Net (loss) income per common share attributable to Fulgent:

Subsequent Event

In February 2022, the Company entered into a stock purchase agreement with Spatial Genomics, Inc., or Spatial Genomics, a Delaware corporation, to invest up to $ 40.0 million in Series A Preferred Stock of Spatial Genomics.

The strategic investment and partnership will bring Spatial Genomics’ sequential fluorescence in situ hybridization technology to the Company’s comprehensive genomic testing platform .

As of February 27, 2023, no subsequent events are being reported.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures