What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-05 · 177 added, 111 removed, 385 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except par value data)

September 30,

Current assets

2 unchanged sentences

Trade accounts receivable, net of allowance for doubtful accounts of $1,169 and $751,

as of June 30, 2020 and December 31, 2019, respectively

as of September 30, 2020 and December 31, 2019, respectively

Other current assets

14 unchanged sentences

Operating lease liabilities, long-term

Unrecognized tax benefits

Total liabilities

2 unchanged sentences

Common stock, $0.0001 par value per share, 50,000 shares authorized, 23,307 and

21,483 shares issued and outstanding at June 30, 2020 and December 31, 2019,

21,483 shares issued and outstanding at September 30, 2020 and December 31, 2019,

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

or outstanding at June 30, 2020 and December 31, 2019

or outstanding at September 30, 2020 and December 31, 2019

Additional paid-in capital

7 unchanged sentences

(in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

6 unchanged sentences

Interest and other income, net

Income (loss) before income taxes and equity loss in investee

Provision for (benefit from) income taxes

Income (loss) before equity loss in investee

Income before income taxes, equity loss in investee and impairment loss

Provision for income taxes

Income before equity loss in investee and impairment loss

Equity loss in investee

Impairment loss in equity-method investment

Net income (loss)

5 unchanged sentences

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

1 unchanged sentence

Foreign currency translation gain (loss)

Net unrealized gain on marketable securities, net of tax

Comprehensive income (loss)

Net unrealized gain (loss) on marketable securities, net of tax

Comprehensive income

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

1 unchanged sentence

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(in thousands, except per share data)

Stockholders' Equity

16 unchanged sentences

Balance at June 30, 2020

Equity-based compensation

Exercise of common stock options

Restricted stock awards

Issuance of common stock at an

average of $38.50 per share, net

Issuance of common stock at an

average of $39.24 per share, net

Other comprehensive gain (loss)

Net income (loss)

Balance at September 30, 2020

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

1 unchanged sentence

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(in thousands, except per share data)

Stockholders' Equity

15 unchanged sentences

Balance at June 30, 2019

Equity-based compensation

Exercise of common stock options

Restricted stock awards

Issuance of common stock at an

average of $9.37 per share, net

Other comprehensive gain (loss)

Net income (loss)

Balance at September 30, 2019

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

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flow from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash (used in)

provided by operating activities:

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

Equity-based compensation

3 unchanged sentences

Provision for bad debt

Deferred taxes

Unrecognized tax benefits

Equity loss in investee

Impairment loss in equity method investment

Changes in operating assets and liabilities:

5 unchanged sentences

Operating lease liabilities

Net cash (used in) provided by operating activities

Net cash provided by operating activities

Cash flow from investing activities:

Purchases of fixed assets

Proceeds from disposal of fixed assets

Purchase of marketable securities

Maturities of marketable securities

Proceeds from sale of marketable securities

Purchase of equipment contributed to equity method investee

Investment in equity method investee

Net cash (used in) provided by investing activities

Cash flow from financing activities:

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

Proceeds from exercise of stock options

Payment of public offering costs

Repurchases of capital stock

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

5 unchanged sentences

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

Public offerings proceeds included in other current assets

Public offerings costs included in accounts payable

35 unchanged sentences

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

(i) revenue recognition criteria, (ii) accounts receivable and allowances for doubtful accounts, (iii) the useful lives of fixed assets, (iv) estimates of tax liabilities and (v) equity method investments.

Foreign Currency Translation and Foreign Currency Transactions

3 unchanged sentences

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 other comprehensive income (loss) in the accompanying Condensed Consolidated Statements of Stockholders’ Equity.

Gains and losses from these translations were not significant in the three and six months ended June 30, 2020 and 2019.

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

Gains and losses from these translations were not significant in the three and nine months ended September 30, 2020 and 2019.

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.

Gains from these remeasurements were $26,000 in the three months ended June 30, 2020, and losses from these remeasurements were $59,000 in the six months ended June 30, 2020.

Gain and losses from these remeasurements were not significant in the three and six months ended June 30, 2019.

Loss from these remeasurements were $3,000 and $62,000 in the three and nine months ended September 30, 2020.

Gain and losses from these remeasurements were not significant in the three and nine months ended September 30, 2019.

The Company determines if an arrangement is a lease at inception.

7 unchanged sentences

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

After aggregating customers that are under common control or are affiliates, one customer contributed 45% and 31%, respectively, of the Company’s revenue for the three and six months ended June 30, 2020.

Two customers contributed 32% and 15%, respectively, of the Company’s revenue for the three months ended June 30, 2019, and two customers contributed 27% and 10%, respectively, of the Company’s revenue for the six months ended June 30, 2019.

One customer comprised 49% of total accounts receivable as of June 30, 2020.

After aggregating customers that are under common control or are affiliates, one customer contributed 37% and 35% of the Company’s revenue for the three and nine months ended September 30, 2020, respectively.

One customer contributed 40% and 33% of the Company’s revenue for the three and nine months ended September 30, 2019, respectively.

Two customers comprised 29% and 26%, respectively, of total accounts receivable as of September 30, 2020.

No customer comprised 10% or more of total accounts receivable as of December 31, 2019.

Revenue from the U.S.

government was less than 10% of total revenue for the three and six months ended June 30, 2020 and 2019.

government was less than 10% of total revenue for the three and nine months ended September 30, 2020 and 2019.

Revenue from Contracts with Customers

1 unchanged sentence

The Company classifies its customers into three payor types, Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, Patients who pay directly or Insurance, as the Company believes this best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

The following table summarizes revenue from contracts with customers by payor type for the three and six months ended June 30, 2020 and 2019 .

Three Months Ended June 30,

Six Months Ended June 30,

The following table summarizes revenue from contracts with customers by payor type for the three and nine months ended September 30, 2020 and 2019 .

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Contract Balances

Receivables from contracts with customers —As of June 30, 2020 and December 31, 2019, receivables from contracts with customers were approximately $13.9 million and $6.6 million, respectively, and are included within trade accounts receivable on the Condensed Consolidated Balance Sheets.

Contracts assets and liabilities —As of June 30, 2020 and December 31, 2019, contract assets from contracts with customers were $150,000, associated with contract execution and included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

Receivables from contracts with customers —As of September 30, 2020 and December 31, 2019, receivables from contracts with customers were approximately $90.7 million and $6.6 million, respectively, and are included within trade accounts receivable on the Condensed Consolidated Balance Sheets.

Contracts assets and liabilities —As of September 30, 2020 and December 31, 2019, contract assets from contracts with customers were $1.5 million and $150,000, respectively, associated with contract execution and certain costs to fulfill a contract, and included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

Contract liabilities are recorded when the Company receives payment or bills prior to completing its obligation to transfer goods or services to a customer.

The Company had $622,000 and $365,000 of contract liabilities as of June 30, 2020 and December 31, 2019, respectively.

Revenues of $196,000 and $31,000 for the three months and $246,000 and $32,000 for the six months were recognized for the periods ended June 30, 2020 and 2019, respectively, related to contract liabilities at the beginning of the respective periods were recognized.

The Company had $18.5 million and $365,000 of contract liabilities as of September 30, 2020 and December 31, 2019, respectively.

Revenues of $252,000 and $48,000 for the three months and $254,000 and $37,000 for the nine months were recognized for the periods ended September 30, 2020 and 2019, respectively, related to contract liabilities at the beginning of the respective periods were recognized.

Transaction Price Allocated to Future Performance Obligations

30 unchanged sentences

The Company’s marketable securities consisted of the following:

June 30, 2020

September 30, 2020

(in thousands)

18 unchanged sentences

Total marketable securities

Management determined that the gross unrealized losses of $6,000 on the Company’s marketable securities as of June 30, 2020 were temporary in nature.

There were no gross unrealized losses on the Company’s marketable securities as of September 30, 2020.

Gross unrealized losses on the Company’s marketable securities were $32,000 as of December 31, 2019.

The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be other-than-temporarily impaired as of June 30, 2020.

Fair Value Measurements

9 unchanged sentences

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:

June 30, 2020

September 30, 2020

(in thousands)

14 unchanged sentences

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

As of June 30, 2020, the Company had no investments that were measured using unobservable (Level 3) inputs.

There were no transfers between fair value measurement levels during the three and six months ended June 30, 2020.

Gross unrealized losses for cash equivalents and marketable securities as of June 30, 2020 were not material.

As of June 30, 2020 , there were no unrealized losses for securities in an unrealized loss position for more than 12 months.

During the six months ended June 30, 2020 , the Company did not recognize other-than-temporary impairment losses related to its marketable securities.

As of September 30 , 2020 , the Company had no investments that were measured using unobservable (L evel 3) inputs.

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2020.

There were no g ross unrealized losses for cash equivalents and marketable securities as of September 30, 2020 .

As of September 30, 2020 , there were no unrealized losses for securities in an unrealized loss position for more than 12 months.

During the nine months ended September 30, 2020 , the Company did not recognize other-than-temporary impairment losses related to its marketable securities.

Major classes of fixed assets consisted of the following:

September 30,

(in thousands)

Medical lab equipment

Computer hardware

Computer software

Medical lab equipment

Furniture and fixtures

General equipment

Leasehold improvements

3 unchanged sentences

Property and equipment, net

Depreciation expense on fixed assets totaled $549,000 and $511,000 for the three months and $1.1 million and $1.0 million for the six months ended June 30, 2020 and 2019, respectively.

Depreciation expense on fixed assets totaled $722,000 and $503,000 for the three months and $1.8 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Significant Balance Sheet Accounts

Other current assets consisted of the following:

September 30,

(in thousands)

Prepaid expenses

Reagents and supplies

Prepaid income taxes

Marketable securities interest receivable

Contract assets

Other receivable

Reagents are used for DNA sequencing applications in the Company’s DNA sequencing equipment.

Prepaid expenses

Contract assets

Marketable securities interest receivable

Prepaid income taxes

Reagents and supplies includes reagents used for DNA sequencing applications in the Company’s DNA sequencing equipment and collection kits for COVID-19 tests.

Other receivable primarily consists of proceeds to be received from public offerings of the Company’s common stock.

Reporting Segment and Geographic Information

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

Long-lived assets were primarily located in the United States as of June 30, 2020 and December 31, 2019 with an insignificant amount located in Canada.

Revenue by region during the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Long-lived assets were primarily located in the United States as of September 30, 2020 and December 31, 2019 with an insignificant amount located in Canada.

Revenue by region during the three and nine months ended September 30, 2020 and 2019 were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

FF Gene Biotech

See Note 14 for a description of the Company’s commitments related to its joint venture, FF Gene Biotech (as defined in Note 14).

See Note 14, Equity Method Investments, for a description of the Company’s commitments related to its joint venture, FF Gene Biotech (as defined in Note 14).

Purchase Obligations

As of June 30, 2020, the Company had non-cancelable purchase obligations of $9.0 million for medical lab equipment, reagents and other supplies, of which, $8.8 million is payable within twelve months, and $194,000 is payable within the next twenty-four months.

As of September 30, 2020, the Company had non-cancelable purchase obligations of $13.1 million, which is payable within twelve months, for computer equipment, medical lab equipment, reagents and other supplies.

Contingencies

8 unchanged sentences

Additional offices are located in El Monte, California and Atlanta, Georgia and are used for certain research and development, customer service, report generation and other administrative functions.

The Company adopted new accounting standard Accounting Standards Codification, or ASC, 842, Leases , on January 1, 2019.

During the three months ended September 30, 2020, the Company opened another CLIA-certified laboratory in Houston, Texas to expand its capacity.

The Company adopted new accounting standard Accounting Standard s Codification, or ASC , 842 , Leases , on January 1, 2019.

Upon adoption , the Company recorded ROU assets of $ 3.0 million and short-term and long-term lease liabilities of $ 384,000 and $ 2.6 million , respectively.

The difference between the ROU asset and liability is due to the existing balance of deferred rent at the date of adoption.

The difference between the ROU asset and liability is due to the existing balance of deferred rent at the date of ad option .

There was no impact to retained earnings upon adoption.

The Company entered into three new operating leases, or New Leases, with an existing landlord in the three and six months ended June 30, 2020.

Upon entering into the New Leases, the Company recorded ROU assets of $393,000 and short-term and long-term lease liabilities of $58,000 and $335,000, respectively.

The Company also entered into four short-term leases during the three and six months ended June 30, 2020 and elected short-term lease recognition exemption for such leases.

The Company entered into three operating leases with an existing landlord during the nine months ended September 30, 2020 .

Upon entering into the l eases, the Company recorded ROU assets of $ 393,000 and short-term and long-term lease liabilities of $58,000 and $335,000, respectively.

The Company also entered into nine short-term leases during the three months ended September 30, 2020 and thirteen short-term leases during the n ine months ended September 30 , 2020 and elected short-term lease recognition exemption for such leases .

As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the discount rate used to calculate present value lease payment.

4 unchanged sentences

The following was operating lease expense:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

3 unchanged sentences

Supplemental cash flow information related to leases was the following:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

2 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities

Supplemental i nformation related to leases was the following:

June 30, 2020

Supplemental information related to leases was the following:

September 30, 2020

Weighted average remaining lease term - operating leases

9 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

9 unchanged sentences

Certain significant or unusual items are separately recognized in the quarter during which they occur and can cause the effective tax rate to vary from quarter to quarter.

The Company’s effective tax rates were -21% and -45% for the three and six months ended June 30, 2020, respectively, compared with 1% and -2% for the three and six months ended June 30, 2019, respectively.

The change in effective tax rates for the three and six months ended June 30, 2020, relative to the comparative 2019 periods, was primarily attributable to deferred tax benefit related to the partial release of valuation allowance.

This partial release is related to the projected increase in taxable income attributable to the Company’s new COVID testing capabilities.

As of September 30, 2020, the Company has unrecognized income tax benefits related to federal and state R&D credits totaling $389,000.

If recognized, the unrecognized tax benefits would be recorded as a benefit to income tax expense on the Consolidated Statements of Operations.

The Company does not currently anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

The Company’s effective tax rates were 23% and 21% for the three and nine months ended September 30, 2020, respectively, compared with 4% and 14% for the three and nine months ended September 30, 2019, respectively.

The change in effective tax rates for the three and nine months ended September 30, 2020, relative to the comparative 2019 periods, was primarily attributable to a significant increase in income for the three and nine months ended September 30, 2020, partially offset by a reduction in the valuation allowance on deferred tax assets and increased windfall tax deductions related to stock-based compensation.

Income ( Loss ) per Share

The following table presents the calculation of basic and diluted income (loss) per share for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents the calculation of basic and diluted income (loss) per share for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share data)

5 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

The anti-dilutive shares described above were calculated using the treasury stock method.

During the six months ended June 30, 2019, the Company had outstanding stock options and restricted stock units that were excluded from the weighted-average share calculation due to the Company’s net loss position.

During the nine months ended September 30, 2019, the Company had outstanding stock options and restricted stock units that were excluded from the weighted-average share calculation due to the Company’s net loss position.

Related Parties

Yun Yen, who is a member of the Company’s board of directors and a stockholder, serves as the President and Chairman of the Board for the Sino-American Cancer Foundation, or the Foundation, and served as the President for the Taipei Medical University, or the University, from August 1, 2011 through July 31, 2017 and currently serves as a Chair Professor for the University.

From time to time, the Company performs research testing services, on an arms-length basis, for the Foundation.

The Company recognized zero in revenue during the three and six months ended June 30, 2020 and $2,000 for the three and six months ended June 30, 2019, as consideration for such services.

Additionally, the Company subleased certain space in its facilities to the Foundation prior to April 2019.

The Company recognized $8,000 and $16,000 for the three and six months ended June 30, 2019, as consideration for such sublease.

As of June 30, 2020 and December 31, 2019, an insignificant amount was owed to the Company by the Foundation in connection with these relationships.

From time to time, the Company performs genetic sequencing services, on an arms-length basis, for the University.

The Company recognized $17,000 and $9,000 for the three months ended and $65,000 and $22,000 for the six months ended June 30, 2020 and 2019, respectively, as consideration for such services.

As of June 30, 2020, and December 31, 2019, $62,000 and $39,000, respectively, was owed to the Company by the University in connection with this relationship.

As more fully described in Note 14, in April 2017, the Company, through an affiliated company formed for the purpose of the relationship, entered into a cooperation agreement, or JV Agreement, with Xilong Scientific Co., Ltd., or Xilong Scientific, and Fuzhou Jinqiang Investment Partnership (LP), or FJIP, to form a joint venture under the laws of the People’s Republic of China, or PRC, called Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech.

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 $1.3 million in revenue in the three and nine months ended September 30, 2020.

As of September 30, 2020, $1.2 million was owed to the Company by AHMC in connection with this relationship.

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

In the three months ended September 30, 2020, the Company purchased $200,000 of office furniture and supplies from JEM.

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

As of September 30, 2020, no money was owed to JEM by the Company in connection with this relationship.

As more fully described in Note 14, Equity Method Investments, in April 2017, the Company, through an affiliated company formed for the purpose of the relationship, entered into a cooperation agreement, or JV Agreement, with Xilong Scientific Co., Ltd., or Xilong Scientific, and Fuzhou Jinqiang Investment Partnership (LP), or FJIP, to form a joint venture under the laws of the People’s Republic of China, or PRC, called Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech.

Xilong Scientific is an affiliate of Xi Long USA, Inc., a company which at one point owned greater than 10% of the Company’s common stock.

3 unchanged sentences

Han Lin Gao, the Chief Scientific Officer and a large stockholder of the Company and the owner of approximately 25% of FJIP.

Fulgent Pharma, LLC, or Fulgent Pharma, a former subsidiary of one of the Company's subsidiaries utilizes space in the facility at which the Company’s laboratory and corporate headquarters are located.

Fulgent Pharma reimburses the Company for the portion of the rent the Company pays that is attributable to the space it uses, which amounts are not significant.

As of June 30, 2020, and December 31, 2019, $44,000 and $26,000, respectively, was due from Fulgent Pharma as a result of this arrangement, which is recorded in other receivable in other current assets in the accompanying Condensed Consolidated Balance Sheets.

Equity Method Investments

FF Gene Biotech

In April 2017, the Company, through an affiliated company formed for the purpose of the relationship, entered into the JV Agreement with Xilong Scientific and FJIP to form FF Gene Biotech, a joint venture formed under the laws of the PRC to offer genetic testing services to customers in the PRC.

3 unchanged sentences

The Company’s maximum exposure to fund losses of FF Gene Biotech as a result of its minority ownership of this entity is equal to its contribution obligation under the JV Agreement as described above.

As of June 30, 2020 , 39,300,000 RMB (or approximately $5.6 million U.S.

As of September 30, 2020 , 29,700,000 RMB (or approximately $4.4 million U.S.

dollars) remains to be contributed to the investee under the terms of the JV agreement.

To date, the Company has purchased and contributed equipment with an aggregate fair value of $3.1 million pursuant to its contribution commitment under the JV Agreement.

To date, the Company has purchased and contributed equipment with an aggregate fair value of $4.5 million pursuant to its contribution commitment under the JV Agreement., of which, $1.4 million was contributed in the nine months ended September 30, 2020.

The Company accounted for this contribution in accordance with ASC 845, Nonmonetary Transactions , and recorded an investment based on the fair value of the contributed equipment, which is the same as carryover basis.

3 unchanged sentences

The Company accounts for its 30% interest in FF Gene Biotech using the equity method of accounting.

The Company recorded its proportionate share of the losses of FF Gene Biotech in the three and six months ended June 30, 2020 in the accompanying Condensed Consolidated Statements of Operations, and recorded its contribution to date, net of its proportionate share in the accumulated losses of FF Gene Biotech, in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2020 .

Equity method investments as of June 30, 2020 and December 31, 2019 consisted of the following:

June 30, 2020

The Company recorded its proportionate share of the losses of FF Gene Biotech in the three and nine months ended September 30, 2020 in the accompanying Condensed Consolidated Statements of Operations, and recorded its contribution to date, net of its proportionate share in the accumulated losses of FF Gene Biotech, in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2020 .

Summarize Financial Information

In the nine months ended September 30, 2020, FF Gene did not constitute 20 percent or more of the Company’s consolidated assets, equity or income from continuing operation, thus the results of operations of FF Gene was not significant to the Company.

Summarized financial information for FF Gene Biotech for the nine months ended September 30, 2019 is as follows.

Nine Months Ended September 30,

Consolidated Statements of Operations Data:

(in thousands)

Share of loss from investments accounted for using the equity method

BostonMolecu l es , Inc.

In September 2020, the Company entered into a Series A Preferred Stock Purchase Agreement, or the Series A Purchase Agreement, with BostonMolecules, Inc., or BostonMolecules, a Delaware corporation, pursuant to which the Company purchased 333 shares of Series A Preferred Stock of BostonMolecules, $0.0001 par value per share, or the BostonMolecules Shares, at a purchase price of $7,500 per share and an aggregate purchase price of $2.5 million.

The BostonMolecules Shares represent an approximate 25% ownership interest in BostonMolecules.

In connection with its purchase of the BostonMolecules Shares, the Company was granted the right to designate a member of BostonMolecules board of directors and the Company has designated Ming Hsieh to hold this position.

The Company concluded that it has the ability to exercise significant influence over the operating and financial policies of BostonMolecules and therefore concluded the purchase is an equity-method investment.

Judgment regarding the level of influence over BostonMolecules includes consideration of key factors such as the Company's ownership interest and representation on the board of directors.

The Company initially accounted for its 25% interest in BostonMolecules using the equity method of accounting.

The primary purpose of the investment was to gain access to certain technologies and products BostonMolecules was developing, however, after the investment was made, similar products became available in the market, and the development of BostonMolecules’ products was delayed.

Since the current expected performance of BostonMolecules is significantly worse than anticipated when the investment was initially made and recoverability of the Company's investment is not expected, the Company determined its investment has been fully impaired.

Total investment and direct costs associated with the investment were $2.6 million for the nine months ended September 30, 2020.

The Company recorded the impairment loss using the equity method in the accompanying Condensed Consolidated Statements of Operations.

The Company also entered into a distribution agreement with BostonMolecules in June 2020, or the Distribution Agreement, and upon the closing of the aforementioned investment, the Distribution Agreement was amended and restated, as amended and restated, the Amended Distribution Agreement.

P ursuant to the Amended Distribution Agreement, the Company will purchase, use and distribute COVID-19 test kits from BostonMolecules and offer a testing service using these test kits for its customers within the United States and Canada.

Pursuant to the Amended Distribution Agreement, the Company may purchase the COVID-19 test kits from BostonMolecules at a price that is no less favorable than the lowest price charged by BostonMolecules to any third party in the United States and Canada for these test kits or their substantial equivalent during the same calendar year.

The Company did not purchase any test kits from BostonMolecules in the three and nine months ended September 30, 2020.

Equity method investments as of September 30, 2020 and December 31, 2019 consisted of the following:

September 30, 2020

December 31, 2019

1 unchanged sentence

FF Gene Biotech

BostonMolecules

Total equity method investments

Summary Financial Information

Summary financial information for FF Gene Biotech is as follows:

Six Months Ended June 30

Consolidated Statements of Operations Data:

(in thousands)

Share of loss from investments accounted for using the equity method

Equity Distribution Agreements

In August 2019, the Company entered into an Equity Distribution Agreement, or the Equity Distribution Agreement, with Piper Sandler & Co.

(formerly known as Piper Jaffray & Co.), or Piper, as sales agent, as amended on August 4, 2020, pursuant to which the Company offered and sold, from time to time through Piper, shares of its common stock having an aggregate offering price of $44.9 million.

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

During the three months ended September 30, 2020, the Company sold an aggregate of 1,107,884 shares of its common stock pursuant to the Equity Distribution Agreement at a weighted-average selling price of $38.50 per share, which resulted in $42.7 million of net proceeds to the Company.

Shares sold under the Equity Distribution Agreement were offered and sold pursuant to the Company’s 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 Securities and Exchange Commission on August 30, 2019, May 6, 2020 and August 5, 2020.

In September 2020, the Company entered into an Equity Distribution Agreement, or the 2020 Equity Distribution Agreement, with Piper as sales agent, pursuant to which the Company may offer and s ell , from time to time through Piper, shares of its common stock having an aggregate offering price of up to $125.0 million.

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

During the three months ended September 30, 2020, the Company sold an aggregate of 200,000 shares of its common stock pursuant to the 2020 Equity Distribution Agreement at a weighted-average selling price of $39.24 per share, which resulte d in $7.8 million of net proceeds to the Company.

Shares sold under the 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 prospectus supplement and accompanying base prospectus filed with the Securities and Exchange Commission on September 25, 2020.

Subsequent Event

Subsequent to the period end, on July 23, 2020, the Company entered into an Agreement for Purchase and Sale of Property, or the Purchase Agreement, for the purchase of real property located at 4399-4401 Santa Anita Avenue, El Monte, California, or the Property, from 4401 Santa Anita Corporation, a California corporation, or the Seller, in exchange for the payment of an aggregate cash purchase price of $15.4 million.

The Property consists of approximately 61,612 total square feet of building situated on 2.6 acres of land.

Pursuant to the terms of the Purchase Agreement, Fulgent will have 60 days following execution of the Purchase Agreement to

conduct due diligence on the Property, or the Due Diligence Period.

During the Due Diligence Period, Fulgent may del iver a notice of termination to the Seller should Fulgent determine through its due diligence that the Property is not suitable for purchase by Fulgent.

As set forth in and subject to the conditions of the Purchase Agreement, the closing of the sale will o ccur 30 days after the expiration of the Due Diligence Period.

On October 20, 2020, the Company closed escrow relating to an Agreement for Purchase and Sale of Property, or Purchase Agreement, for the purchase of real property located at 4399-4401 Santa Anita Avenue, El Monte, California, or the Property, from 4401 Santa Anita Corporation, a California corporation, or the Seller.

The Company paid an aggregate of $15.4 million in exchange for the Property which consists of approximately 61,612 total square feet of building situated on 2.6 acres of land.

In connection with the signing of the Purchase Agreement the Company provided a refundable $350,000 deposit to Seller, which was included in other current assets in the accompanying Condensed Consolidated Balance Sheets .

In connection with the closing of escrow, the Company paid the remaining amount owed pursuant to the Purchase Agreement of approximately $15.0 million to Seller.

The $15.0 million paid in connection with the close of escrow was financed using a margin loan with the custodian of the Company’s marketable security investment account.

The marketable securities in the brokerage account were used as collateral for the margin loan.

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 Bank of New York at any time.

The interest was 1% at the time of withdrawal of $15.0 million from the margin account.

The Company did not make any other withdrawals from the margin account.

Subsequent to September 30, 2020, the Company sold an aggregate of 940,018 shares of its common stock pursuant to the 2020 Equity Distribution Agreement at a weighted-average selling price of $43.48 per share, which resulted in $40.9 million of gross proceeds to the Company.

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

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-Q

Item 1. Financial Statements