What changed in this filing

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Item 9A. Controls and Procedures

2021-03-08 compared with 2020-03-13 · 394 added, 283 removed, 711 unchanged (49% of the section changed)

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Other Information.

On March 8, 2021, we entered into an Executive Employment Agreement and Severance Agreement with our Chief Operations Officer, Jian Xie.

Pursuant to the Employment Agreement, Mr.

Xie will receive an annual base salary of $300,000 which may be adjusted in the sole discretion of the Company and will be eligible to receive cash bonuses and equity awards under our equity incentive plans at any time at the discretion of our board of directors or compensation committee.

The Severance Agreement provides that, subject to Mr.

Xie’s execution and absence of revocation of a release in favor of us, Mr.

Xie is entitled to one year of continuation of his then-current annual base salary following a termination of his employment with us for any reason within one year after a change in control of the Company or Fulgent Therapeutics LLC.

Directors, Executive Officers and Corporate Governance.

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The information required by this item is incorporated by reference to the definitive proxy statement for our 2021 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, 2020.

Cert ain Relationships and Related Transactions, and Director Independence.

Certain Relationships and Related Transactions, and Director Independence.

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

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2019 and 2018

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

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

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and Piper Jaffray & Co.

Amendment No.

1 to Equity Distribution Agreement, dated August 4, 2020, by and between Fulgent Genetics, Inc.

and Piper Sandler & Co.

Equity Distribution Agreement, dated as of September 24, 2020, by and between Fulgent Genetics, Inc.

and Piper Sandler & Co.

Equity Distribution Agreement, dated as of November 20, 2020, by and between Fulgent Genetics, Inc.

and Piper Sandler & Co., BTIG, LLC, and Oppenheimer & Co.

Fulgent Genetics, Inc.

Amended and Restated 2016 Omnibus Incentive Plan

Fulgent Genetics, Inc.

Amended and Restated 2016 Omnibus Incentive Plan

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

Commercial Sublease Agreement, dated July 1 st , 2020, between Medscan Laboratories Inc.

and Fulgent Genetics, Inc.;

Commercial Lease Agreement, dated June 17, 2020, by and between Medscan Laboratories Inc.

and Ten-Voss Ltd.

Commercial Lease, dated January 11, 2021 by and between Ten-Voss Ltd., Medscan Laboratories, Inc.

and Fulgent Genetics, Inc.

Commercial Lease Addendum, dated February 1, 2021, by and between E & E Plaza LLC and Fulgent Genetics, Inc.

Employment Agreement, dated March 8, 2021, by and among Fulgent Therapeutics, LLC, Fulgent Genetics, Inc.

and Jian Xie.

Severance Agreement, dated March 8, 2021, by and among Fulgent Therapeutics LLC, Fulgent Genetics, Inc.

and Jian Xie.

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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XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

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March 8, 2021

March 12, 2020

/s/ Linda Marsh

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

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2019 and 2018

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

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

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Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED 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, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for the years ended December 31, 2019 and 2018, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for the years ended December 31, 2020 and 2019, 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, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America .

Adoption of New Accounting Standard

As discussed in Note 9 to the financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842), and the related amendments.

Basis for Opinion

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Contract liabilities

Investment margin loan

Operating lease liabilities, short-term

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Operating lease liabilities, long-term

Unrecognized tax benefits

Other long-term liabilities

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Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated deficit

Accumulated other comprehensive income

Retained earnings (accumulated deficit)

Total stockholders’ equity

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Total operating expenses

Operating loss

Operating income (loss)

Interest and other income, net

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

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

Provision for income taxes

Income (loss) before equity loss in investee

Income before equity loss in investee and impairment loss

Equity loss in investee

Net loss per common share:

Impairment loss in equity-method investments

Net income (loss)

Net income (loss) per common share:

Weighted-average common shares:

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FULGENT GENETICS, INC.

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Year Ended December 31,

Net income (loss)

Other comprehensive income (loss)

Foreign currency translation loss

Net unrealized gain on marketable securities, net of tax

Comprehensive loss

Foreign currency translation gain (loss)

Net unrealized gain on marketable debt securities, net of tax

Comprehensive income (loss)

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

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Income (Loss)

Retained Earnings (Accumulated

Balance at December 31, 2018

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Restricted stock awards

Cumulative effect of accounting change

Cumulative tax effect of accounting change

Issuance of common stock at an average

of $9.37 per share, net

Issuance of common stock at an average

of $10.34 per share, net

Repurchases of capital stock

Other comprehensive gain, net

Net income (loss)

Balance at December 31, 2019

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Restricted stock awards

Issuance of common stock at an average

of $9.37 per share, net

Issuance of common stock at an average

of $10.34 per share, net

Issuance of common stock at an

average of $38.50 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

Repurchases of capital stock

Other comprehensive gain, net

Net income (loss)

Balance at December 31, 2020

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Cash flow from operating activities:

Adjustments to reconcile net loss to net cash provided by (used in)

operating activities:

Net income (loss)

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

Equity-based compensation

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Deferred taxes

Unrecognized tax benefits

Holding loss on equity securities

Equity loss in investee

Impairment loss in equity method investments

Changes in operating assets and liabilities:

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Accounts payable

Accrued liabilities and other current liabilities

Accrued liabilities and other liabilities

Income tax payable

Operating lease liabilities

Net cash provided by (used in) operations

Net cash provided by operations

Cash flow from investing activities:

Purchases of fixed assets

Proceeds from sale of fixed assets

Purchase of marketable securities

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Purchase of equipment contributed to equity-method investee

Net cash (used in) provided by investing activities

Proceeds from sale of marketable securities

Investment in equity method investee

Net cash used in investing activities

Cash flow from financing activities:

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Repurchases of capital stock

Borrowing under margin account

Net cash provided by financing activities

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

Operating lease liabilities removed due to purchasing of underlying assets

Public offerings proceeds in other receivable included in other current assets

Public offerings costs included in accounts payable

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Overview and Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S.

These financial statements include the assets, liabilities, revenues and expenses of all wholly-owned subsidiaries and entities in which the Company has a controlling financial interest or is deemed to be the primary beneficiary.

In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity.

In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (i) the power to direct the economically significant activities of the entity and (ii) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity.

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.

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Nature of the Business

Fulgent Genetics, Inc., together with its subsidiaries (collectively referred to as the “Company,” unless otherwise noted or the context otherwise requires), is a growing technology company with an initial focus on offering comprehensive genetic testing to provide physicians with clinically actionable diagnostic information they can use to improve the quality of patient care (the “Diagnostics business”).

In 2019, the Company launched its first patient-initiated product, Picture Genetics, a new line of at-home screening tests combines the Company’s advanced NGS solutions with actionable results and genetic counseling options for individuals.

The Company has developed a proprietary technology platform that allows it to offer a broad and flexible test menu and continually expand and improve its proprietary genetic reference library.

The Company’s test menu currently includes single-gene tests and pre-established, multi-gene, disease-specific panels that collectively test for many genetic conditions, including various cancers, cardiovascular diseases, neurological disorders and pediatric conditions.

The Company’s existing customer base consists primarily of hospitals and medical institutions, which are typically frequent and high-volume users of genetic tests and which often pay the Company directly for its tests.

Fulgent Genetics, Inc., together with its subsidiaries, collectively referred to as the Company, unless otherwise noted or the context otherwise requires, is a technology company offering comprehensive genetic testing providing physicians with clinically actionable diagnostic information they can use to improve the quality of patient care.

The Company has developed a proprietary technology platform that allows it to offer a broad and flexible test menu and 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.

In 2019, the Company launched its first patient-initiated product, Picture Genetics, a new line of at-home screening tests that combines the Company’s advanced NGS solutions with actionable results and genetic counseling options for individuals.

Since March 2020, the Company has commercially launched several tests for the detection of SARS-CoV-2, the virus that causes the novel coronavirus, or COVID-19, including NGS and reverse transcription polymerase chain reaction – based, or RT-PCR-based, tests.

The Company has received an Emergency Use Authorization, or EUA, from the U.S.

Food and Drug Administration, or the FDA, for the RT-PCR-based tests for the detection of SARS-CoV-2 using upper respiratory specimens (nasal, nasopharyngeal, and oropharyngeal swabs) and for the at-home testing service through Picture Genetics.

The Company’s at-home testing service for COVID-19 and RT-PCR-based test have been granted an EUA by the FDA only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens.

The Company believes its test menu offers more genes for testing than its competitors in today’s market, which enables it to provide expansive options for test customization and clinically actionable results.

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

Summary of Significant Accounting Policies

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The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make certain estimates, judgments, assumptions and decisions that affect the reported amounts and related disclosures, including the selection of appropriate accounting policies and the assumptions on which to base accounting estimates.

In making these estimates and assumptions and reaching these decisions, the Company applies judgment based on its understanding and analysis of the relevant circumstances, including 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.

Actual results could differ from these estimates.

GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting periods.

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.

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 doubtful accounts, (iii) the useful lives of fixed assets, (iv) estimates of tax liabilities and (v) the valuation of equity-based awards.

Principles of Consolidation

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Marketable Securities

All marketable securities, which consist of debt securities, United States Treasury and U.S.

government agency securities, have been classified as “available for sale” and are carried at fair value.

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

Realized gains and losses and declines in value judged to be other than temporary, if any, on marketable securities are included in other income (expense), net.

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

The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity.

Interest on marketable securities is included in interest income.

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

government 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.

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 and declines in value judged to be other than temporary, if any, on marketable debt securities are included in interest and other income, net, in the accompanying Consolidated Statements of Operations.

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

The amortized cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity.

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.

government securities, and the maximum final maturity from the date of purchase is three years.

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.

The Company regularly evaluates whether declines in the fair value of its investments below their cost are other than temporary.

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Fair Value of Financial Instruments

The Company's financial instruments consist principally of cash and cash equivalents, marketable securities, accounts receivable and accounts payable.

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

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

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

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

Concentrations of Credit Risk, Customers and Suppliers

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

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

As of December 31, 2020, substantially all of the Company’s cash and cash equivalents were deposited in accounts at financial institutions, and amounts may exceed federally insured limits.

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

Aggregating customers that are under common control or are affiliates, one customer comprised 28% of total revenue in the year ended December 31, 2019, and one customer comprised 13% of total revenue in the year ended December 31, 2018.

No customer comprised at least 10% of total accounts receivable as of December 31, 2019.

One customer comprised 18% of total accounts receivable as of December 31, 2018.

Aggregating customers that are under common control or are affiliates, 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, 2020 and 2019.

Revenue from the U.S.

government was less than 10% of total revenue in each of the years ended December 31, 2020 and 2019.

The Company relies on a limited number of suppliers for 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.

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 encounters delays or difficulties securing these 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 sequencers and various associated reagents.

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.

Equity Method Investments

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

Operating leases are included as operating lease right-of-use (“ROU”) assets, operating lease liabilities, short-term, and operating lease liabilities, long-term, on the Company’s Consolidated Balance Sheets.

Operating leases are included as operating lease right-of-use, or ROU, assets, operating lease liabilities, short-term, and operating lease liabilities, long-term, on the Company’s Consolidated Balance Sheets.

ROU lease 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.

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

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

The Company determines whether a lease exists at inception.

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 payment are based

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

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

Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which is generally between three and five years.

Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which is generally between three and thirty-nine years.

Leasehold improvements are capitalized and amortized over the shorter of their expected lives or the applicable lease term, including renewal options, if available.

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Revenue Recognition

The Company generates revenue from sales of its genetic tests.

The Company currently receives payments from:

hospitals and medical institutions with which it has direct-bill relationships;

research institutions;

individual patients and third-party payors.

The Company’s test results are delivered electronically, and as such there are no shipping and handling fees incurred by it or billed to customers.

The Company’s sales are typically exempt from state sales taxation due to the nature of the results delivered.

As a result, the Company currently does not charge customers state sales tax and continues to assess.

Effective January 1, 2018, the Company began recognizing revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The Company adopted ASC 606 utilizing the modified retrospective method, meaning the cumulative effect of applying the standard was recognized to opening retained earnings as of January 1, 2018.

To reflect the impact of the adoption, the Company recorded an adjustment of $327,000 to beginning accumulated deficit and accounts receivable and an adjustment of ($74,000) to beginning accumulated deficit and deferred taxes.

Under ASC 606, the Company recognizes revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for the transfer of promised goods or services to customers.

To determine revenue recognition for contracts with customers that are within the scope of ASC 606, the Company performs the following steps:

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

The Company generates revenue from sales of its COVID-19 and genetic tests.

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

insurance customers, institutional customers, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients who pay directly .

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 .

Performance Obligations

Genetic Testing Services

Clinical – Institutional and Patient Direct Pay

The Company’s clinical institutional contracts included within genetic testing services typically have a single performance obligation to deliver genetic testing services to the ordering facility or patient.

Some arrangements involve the delivery of genetic testing services to research institutions, which we refer to as “sequencing as a service.” In arrangements with hospitals, patients who pay directly, medical or research institutions, the transaction price is stated within the contract and is therefore fixed consideration.

For most of the Company’s clinical volume, we identified the hospital, patients, medical or research institutions as the customer in Step 1 of the model and have determined a contract exists with those customers in Step 1.

COVID-19 and Genetic Testing Services

Institutional and Patient Direct Pay

The Company’s institutional contracts for COVID-19 and genetic testing services typically have a single performance obligation to deliver COVID-19 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 of the model 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 of the model.

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

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

Clinical – Insurance

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

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

In arrangements with insurance patients, the transaction price is stated within the contract, however, we 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, we utilize the expected value method under a portfolio approach.

The Company’s estimate requires significant judgment and is developed using historical reimbursement data from payors and patients, as well as known current reimbursement trends not reflected in the historical data.

Control over COVID-19 or genetic 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 COVID-19 and genetic testing services typically have a single performance obligation to deliver COVID-19 or genetic 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 of the model and have 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 of the model.

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

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

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

Control over COVID-19 and genetic testing services is transferred to the Company’s ordering physicians 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.

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

We have elected to utilize the practical expedient to expense incremental costs of obtaining a contract that meet the capitalization criteria, as the amortization period of any contract acquisition asset would be one year or less due to the short-term nature of the customer life.

Significant Judgments and Contract Estimates

Genetic Testing Services

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

COVID-19 and Genetic Testing Services

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 payors, estimation of the transaction price represents variable consideration.

In order to estimate variable consideration, we utilize a portfolio approach in which payors with similar reimbursement experience are grouped into portfolios.

In order to estimate variable consideration, the Company utilizes a portfolio approach in which payors with similar reimbursement experience are grouped into portfolios.

The Company’s estimates of variable consideration are based primarily on historical reimbursement data.

Certain assumptions will also be adjusted based on known and anticipated factors not reflected in the historical reimbursement data.

We monitor these accrual estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required.

The Company monitors these accrual estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required.

Both the initial accrual estimate and any subsequent revision to the estimate contain uncertainty and require the use of judgment in the estimation of the transaction price and application of the constraint for variable consideration.

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Contract Liabilities

Payments received in advance of services rendered are recorded as contract liabilities and are subsequently recognized as revenue in the period in which the applicable revenue recognition criteria, as described above, are met.

Contract liabilities are recorded when the Company receives payment or bills prior to completing its obligation to transfer goods or services to a customer , and the Company subsequently recognizes contract liabilities as revenue in the period in which the applicable revenue recognition criteria, as described above, are met.

Overhead Expenses

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depreciation of laboratory equipment;

amortization of leasehold improvements and allocated overhead.

amortization of leasehold and building improvements and allocated overhead.

Costs associated with performing tests are recorded as tests are processed.

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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 statements of operations based upon each award recipient’s role with the Company.

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

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

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

The Company measures compensation expense for equity-based awards granted to employees based on the fair value of the award on the grant date of the award.

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Gains and losses from these remeasurements were not significant in the year ended December 31, 2020.

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income or loss.

Other comprehensive income or loss consists of unrealized gain or loss on marketable securities and foreign currency translation adjustments from its subsidiaries not using the U.S.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss).

Other comprehensive income (loss) consists of unrealized gain or loss on marketable debt securities and foreign currency translation adjustments from its subsidiaries not using the U.S.

dollar as their functional currency.

The Company did not have reclassifications from other comprehensive income or loss to net loss during the year ended December 31, 2019.

Basic and Diluted Net Loss per Share

Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period.

Because the Company has reported a net loss attributable to common stockholders for all periods presented, diluted net loss per common share is the same as basic net loss per common share for these periods.

The Company did not have reclassifications from other comprehensive income (loss) to net loss during the year ended December 31, 2020.

The tax effects related to unrealized holding gains on marketable 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

Basic net income or loss per common share is computed by dividing the net income or loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted net income or loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period.

Emerging Growth Company

Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements.

Pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements.

The Company is an emerging growth company, but has irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.

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Disaggregation of Revenue

The Company classifies its customers into three payor types, Clinical Institutional, Patients who pay directly or Clinical Insurance, as we believe this best depicts how the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows are affected by economic factors.

The Company classifies its customers into three payor types:

(i) Insurance, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, or (iii) Patients who pay directly, 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 years ended December 31, 2020 and 2019.

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(in thousands)

Genetic Testing Services by payor

Testing Services by payor

Institutional

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Contract Balances

Receivables from contracts with customers - As of December 31, 2019 and 2018, receivables from contracts with customers were approximately $6.6 and $5.9 million, respectively, and are included within Trade accounts receivable on the Consolidated Balance Sheets.

Contracts assets and liabilities - As of December 31, 2019 and 2018, contract assets from contracts with customers were $150,000, associated with contract execution and included in other current assets in the accompanying Consolidated Balance Sheets.

Receivables from contracts with customers - As of December 31, 2020 and 2019, receivables from contracts with customers were approximately $183.9 million and $6.6 million, respectively, and are included within Trade accounts receivable on the Consolidated Balance Sheets.

Contracts assets and liabilities - As of December 31, 2020 and 2019, contract assets from contracts with customers were $1.4 million and $150,000, respectively, associated with contract execution and certain costs to fulfill a contract, which is included in other current assets in the accompanying Consolidated Balance Sheets.

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

The Company had $365,000 and $166,000 of contract liabilities as of December 31, 2019 and 2018, respectively.

The Company had $26.6 million and $365,000 of contract liabilities as of December 31, 2020 and 2019, respectively.

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

Reclassifications

Certain reclassifications have been made to the consolidated financial statements of the prior year in order to conform to the current year presentation.

These reclassifications had no impact on shareholder’s equity or net income for the year ended December 31, 2018.

In the Consolidated Balance Sheet for the year ended December 31, 2018, the financial statement line item Contract liabilities was reclassified from Accrued Liabilities.

Transaction Price Allocated to Future Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as December 31, 2019.

The Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, issued by the Financial Accounting Standards Board, or FASB, requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as December 31, 2020.

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 less.

The Company does not have material future obligations associated with Genetic Testing Services that extend beyond one year.

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

Recent Accounting Pronouncements

We evaluate all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) for consideration of their applicability.

The Company evaluates all Accounting Standards Updates, or 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.

In January 2016, the FASB issued ASU No.

2016-01, Financial Instruments Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities , which addresses certain aspects of recognition, measurement,

presentation, and disclosure of financial instruments, including a provision that requires equity investments (except for investments accounted for under the equity method of accounting) to be measured at fair value, with changes in f air value recognized in current earnings.

The ASU was effective for the Company in the first quarter of 2018.

The adoption of this update did not have a material impact on the Company’s c onsolidated f inancial s tatements or disclosures .

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842), which supersedes ASC 840, Leases .

The FASB has issued subsequent amendments to improve and clarify the implementation guidance of Topic 842.

The new standard requires an entity to recognize leases on the balance sheet and to disclose key information about the entity's leasing arrangements.

The Company adopted this standard as of January 1, 2019 using the modified retrospective transition approach, including certain practical expedients, for all leases existing as of January 1, 2019, the effective and initial application date.

Prior period financial statements were not recast under the new guidance.

The Company elected to apply practical expedients, to not separate non-lease components from lease components, and to not reassess lease classification, treatment of initial direct costs, or whether an existing or expired contract contains a lease.

The Company also elected to use the short-term exemption for all class assets.

The adoption of the new standard resulted in recognition of operating lease liabilities of approximately $3.0 million with corresponding right-of-use assets of approximately the same amount.

There was no impact to retained earnings upon adoption.

This standard had a material impact on the Consolidated Balance Sheets and did not have a material impact on the Company’s Consolidated Statements of Operations and Consolidated Statements of Cash Flows.

See Note 9, Leases, for further information.

In June 2016, the FASB issued ASU No.

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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 will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those reporting periods.

The Company does not expect the adoption of the new guidance under the standard to materially affect its financial position or results of operations.

In March 2017, the FASB issued ASU No.

2017-08, Receivables–Nonrefundable Fees and Other Costs (Subtopic 310-20).

Under the ASU, entities must amortize to the earliest call date the premium on certain purchased callable debt securities.

The ASU does not require any accounting change for debt securities held at a discount.

The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The adoption of this update did not have a material impact on the Company’s consolidated financial statements or disclosures.

In February 2018, the FASB issued ASU No.

2018-02, Income Statement–Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted by the U.S.

federal government on December 22, 2017 (the “2017 Tax Act”).

Consequently, the amendments eliminate the stranded tax effects resulting from the 2017 Tax Act and will improve the usefulness of information reported to financial statement users.

The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

The adoption of this update did not have a material impact on the Company’s consolidated financial statements or disclosures.

The standard will be 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 does not expect the adoption of the new guidance under the standard to materially affect its financial position or results of operations and plans to adopt during fiscal year 2021.

In August 2018, the FASB issued ASU No.

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Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which provides new guidance on the accounting for implementation, set-up, and other upfront costs incurred in a hosted cloud computing arrangement.

Under the new guidance, entities will apply the same criteria for capitalizing implementation costs as they would for an

internal-use softw are license arrangement.

Under the new guidance, entities will apply the same criteria for capitalizing implementation costs as they would for an internal-use software license arrangement.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

This ASU can be adopted prospectively to eligible costs incurred on or after the date of adoption or ret rospectively.

The Company does not expect the adoption of the new guidance under the standard to materially affect its financial position or results of operations .

This ASU can be adopted prospectively to eligible costs incurred on or after the date of adoption or retrospectively.

The adoption of this update did not have a material impact on the Company’s consolidated financial statements or disclosures.

In December 2019, the FASB issued ASU No.

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This amendment is effective for public business entities beginning after December 15, 2020 with early adoption permitted.

The Company has decided not to early adopt the amendments.

The Company is currently evaluating the amendment and has not yet determined the impact on its consolidated financial statements.

The Company does not expect the adoption of the new guidance under the standard to materially affect its financial position or results of operations and plans to adopt during fiscal year 2021.

Marketable Securities

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Marketable securities:

Equity securities

Exchange traded funds

Available-for-sale debt securities

Money market accounts

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Corporate debt securities

government agency debt securities

Yankee debt securities

Total long-term marketable securities

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Money market accounts

United States Treasury

government agency securities

Corporate debt securities

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Management determined that the gross unrealized losses of $298,000 on the Company’s marketable securities as of December 31, 2020 were temporary in nature.

Gross unrealized losse s on the Company’s marketable securities were $1 0 4,000 as of December 31, 201 8 .

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 December 31 , 201 9 .

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 the debt securities prior to maturity and does not consider these investments to be other-than-temporarily impaired as of December 31, 2020.

The proceeds and gross realized gains from sale of available-for-sale securities for the year ended December 31, 2020 were $8.1 million and $131,000, respectively.

The proceeds and gross realized gains from sale of equity securities for the year ended December 31, 2020 were $9.0 million and $24,000, respectively.

The Company did not sell any marketable securities in 2019.

The net unrealized loss related to equity securities still held at December 31, 2020 was $89,000.

The Company did not hold any equity securities in 2019.

The Company’s available-for-sale debt securities of $221.1 million are used as collateral for an outstanding margin account borrowing.

As of December 31, 2020, the Company had an outstanding borrowing of $15.0 million under its margin account.

Margin account borrowings were used for the purchase of real property located in El Monte, California.

Fair Value Measurements

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Marketable securities and cash equivalents:

Exchange traded funds

Corporate debt securities

government agency debt securities

Yankee debt securities

Money market accounts

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Corporate debt securities

United States Treasury

government agency securities

Money market accounts

Total marketable securities and cash equivalents

The Company’s Level 1 assets include money market instruments and are valued based upon observable market prices.

Level 2 assets consist of United States Treasury, U.S.

government agency securities, and corporate debt securities.

The Company’s Level 1 assets include marketable equity securities and money market instruments and are valued based upon observable market prices.

Level 2 assets consist of U.S.

government agency debt securities, corporate debt securities and Yankee debt securities.

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

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There were no transfers between fair value measurement levels during the years ended December 31, 2020 and 2019.

Gross unrealized gains or losses for cash equivalents and marketable securities as of December 31, 2019 were not material.

As of December 31, 2019, unrealized losses for securities in an unrealized loss position for more than 12 months were zero.

There were no g ross unrealized losses for cash equivalents as of December 31, 2020, and gross unrealized losses for marketable securities as of December 31, 2020 were not material.

There were no unrealized losses for securities in an unrealized loss position for more than 12 months.

During the years ended December 31, 2020 and 2019, the Company did not recognize other-than-temporary impairment losses related to its marketable securities.

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(in thousands)

Computer hardware

Computer software

Medical lab equipment

Furniture and fixtures

Computer hardware

Leasehold improvements

Shorter of lease term or estimated useful life

Building improvements

6 months to 5 Years

Computer software

Furniture and fixtures

Land improvements

5 to 15 Years

General equipment

Assets not yet placed in service

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(in thousands)

Contract assets

Other receivable

Reagents and supplies

Prepaid expenses

Prepaid income taxes

Contract assets

Marketable securities interest receivable

Other receivable

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

Prepaid income taxes

Reagents and supplies include reagents and consumables 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 December 31, 2019 with an insignificant amount located in Canada.

All long-lived assets were located in the United States as of December 31, 2018.

All long-lived assets were located in the United States as of December 31, 2020 and 2019 with an insignificant amount located in Canada.

Revenue by region for the years ended December 31, 2020 and 2019 were as follows:

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Other Countries

Commitments and Contingencies

Debt, Commitments and Contingencies

In 2020, the Company purchased a 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, or the Property Purchase Agreement, 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 Property Purchase Agreement, the Company provided a refundable $350,000 deposit to the Seller.

In connection with the closing of escrow, the Company paid the remaining amount owed pursuant to the Property Purchase Agreement of approximately $15.0 million to the 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 debt 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, and the interest rate at December 31, 2020 was 0.78%.

The Company did not make any other withdrawals from the margin account, and the outstanding balance of $15.0 million is included in the accompanying Consolidated Balance Sheets.

The related interest expenses for the year ended December 31, 2020 was $20,000.

Operating Leases

See Note 9, Leases, for further information.

See Note 15 for a description of the Company’s commitments related to its joint venture, FF Gene Biotech (as defined in Note 15).

See Note 15, Equity Method Investments, for a description of the Company’s commitments related to its joint venture, FF Gene Biotech, as defined in Note 15.

Purchase Obligations

As of December 31, 2019, the Company had non-cancelable purchase obligations of $2.9 million for reagents and other supplies, of which, $1.5 million is payable within twelve months , and $1.4 million is payable within the next twenty-four months.

As of December 31, 2020, the Company had non-cancelable purchase obligations of $27.6 million, of which, $23.6 million for reagents and other supplies and $3.3 million for medical lab equipment are payable within twelve months , and $700,000 for medical lab equipment is payable within the next twenty-four months.

Contingencies

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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 various non-cancelable operating leases with varying terms through August 2023 primarily for office space.

The Company has various non-cancelable operating leases with varying terms through October 2025 primarily for office space and equipment.

The Company has options to renew some of these leases for three years after their expiration.

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The determination of whether an arrangement contains a lease is made 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.

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

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.

Rent expense, including sublease consideration, was approximately $548,000 and $418,000 for the years ended December 31, 2019 and 2018, respectively.

The Company adopted new accounting standard ASC 842, Leases , on January 1, 2019.

The Company’s headquarters is 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 and licensed by the State of California Department of Public Health.

Additional offices are located in El Monte, California, and in 2020, the Company purchased the real property from the landlord.

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

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

During the year ended December 31, 2020, the Company opened another CLIA-certified laboratory in Houston, Texas to expand its capacity.

The Company adopted new accounting standard ASC 842, Leases , on January 1, 2019, including the practical expedient on not separating lease components from nonlease components for all operating leases.

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.

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There was no impact to retained earnings upon adoption.

The Company terminated the lease in Georgia on August 31, 2019 and entered into a new lease on September 1, 2019.

Upon entering the new lease, the Company recorded ROU assets of $110,000 and short term and long-term lease liabilities of $23,000 and $87,000, respectively.

The Company entered into three operating leases with an existing landlord during the year.

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

These three leases along with other leases for the office spaces in El Monte were terminated due to the Company’s purchase of the buildings from the landlord.

The difference between the carrying amount of ROU assets and lease liabilities immediately before the purchase was recorded as an adjustment to the carrying amount of the buildings.

The Company entered an operating lease for a copier during the year.

Upon entering into the lease, the Company recorded ROU assets of $9,000 and short-term and long-term lease liabilities of $1,000 and $8,000, respectively.

The Company also entered into fifteen short-term leases during the year ended December 31, 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.

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The Company’s leases do not contain variable lease payments.

The Company does not have any short-term leases and thus has excluded short-term costs from the table below.

Other than the new lease in Georgia, the Company did not enter into any new leases during the year ended December 31, 2019.

The following was operating lease expense:

December 31, 2019

Year Ended December 31,

(in thousands)

Operating lease cost

Short-term lease cost

Total lease cost

Supplemental cash flow information related to leases was the following:

December 31, 2019

Year Ended December 31,

(in thousands)

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Less imputed interest

Supplemental Information for Comparative Periods

As of December 31, 2018, prior to the adoption of Topic 842, future minimum payments under non-cancelable operating leases are as follows:

Operating Leases

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 determines whether a lease exists at inception.

The remaining terms left after purchasing the buildings are from 2 months to 4 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 $145,000 for 2020, which was included in interest and other income, net, in the accompanying Consolidated Statements of Operations.

There was no lease income in 2019.

Total lease income for 2020 was as follows:

December 31, 2020

(in thousands)

Variable lease income

Total lease income

Future fixed lease payments from tenants for all noncancelable operating leases as of December 31, 2020 are as follows:

Lease Payments

(in thousands)

Year Ending December 31,

Total minimum payments

Equity-Based Compensation

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Exercisable as of December 31, 2020

Aggregate intrinsic value is calculated as the difference between (i) the exercise price of options that, as of the applicable date, have an exercise price in excess of the fair value of the Company’s common stock, and (ii) the fair value of the Company’s common stock as of the applicable date.

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, 2020 and 2019 was $223,000 and $549,000, respectively.

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

The following table summarizes act ivity for RSUs relating to shares of the Company’s common stock in the years ended December 31, 2019 and 2018 :

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

(in thousands)

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Balance at December 31, 2020

The RSU awards granted in the years ended December 31, 2019 and 2018 will result in aggregate equity-based compensation expense of $6.9 million and $2.4 million, respectively, in each case to be recognized over four years from the grant date of each award granted in the period.

As of December 31, 2019, the remaining unrecognized compensation expense related to all outstanding RSU awards was $8.7 million and is expected to be recognized over a weighted-average period of 2.9 years.

The RSU awards granted in the years ended December 31, 2020 and 2019 will result in aggregate equity-based compensation expense of $34.5 million and $6.9 million, respectively, to be recognized over the vesting periods from the grant date of each award granted in the period.

As of December 31, 2020, the remaining unrecognized compensation expense related to all outstanding RSU awards was $33.5 million and is expected to be recognized over a weighted-average period of 3.4 years.

As of December 31, 2019, the remaining unrecognized compensation expense related to all outstanding RSU awards was $8.7 million and was expected to be recognized over a weighted-average period of 2.9 years.

Fair Value Assumptions for Option Awards

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A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

As of December 31, 2019 and 2018 the Company has incurred net taxable losses, and accordingly, a current provision for income taxes has only been recorded for nominal federal and state taxes.

This amount differs from the amount computed by applying the U.S.

federal income tax rate of 21.0% to pretax loss due primarily to the provision of a valuation allowance to the extent of the Company’s net deferred tax asset.

The following table summarizes income (loss) before income taxes and equity loss in investee:

The following table summarizes income (loss) before income taxes, equity loss in investee and impairment loss in equity-method investments:

Year Ended December 31,

(in thousands)

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

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

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

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

Foreign loss before income taxes and equity loss in investee

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

Income tax expense (benefit) consisted of the following:

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Total Deferred

Total income tax expense (benefit)

Total income tax expense

Reconciliation of the difference between the federal statutory income tax rate and the effective income tax rate is as follows:

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Foreign tax rate differential

Uncertain Tax Positions

Stock based compensation

Return to provision

Meals and entertainment

Other permanent differences

Change in valuation allowance

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Stock based compensation

Unrealized loss on investments

State income taxes

Lease liability

Equity loss in investment

Gross deferred tax assets

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Total deferred tax liabilities

Net deferred tax assets (liabilities)

As of December 31, 2019, the Company has estimated federal and state net operating loss (“NOL”) carryforwards of $1.6 million and $1.9 million for federal and state income tax purposes, respectively.

The Company’s federal NOL of $1.6 million does not expire.

Net deferred tax assets

As of December 31, 2020, the Company has no estimated federal net operating loss, or NOL, carryforwards and estimated state NOL carryforwards of $1.9 million.

The Company’s state NOLs are scheduled to expire from 2022 through 2042.

Past ownership changes and other equity transactions may have triggered Section 382 and 383 provisions of the Internal Revenue Code, resulting in certain annual limitations on the utilization of existing federal and state net operating losses and credits.

Such provisions may limit the potential future tax benefit to be realized by the Company from its accumulated net operating losses and credits.

The Company also has foreign NOL carryforwards of $405,000 which are scheduled to expire from 2021 through 2025.

FASB ASC 740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred income tax assets will not be realized.

The Company has evaluated the realizability of its deferred tax assets and has concluded that it is more likely than not that the Company may not realize the benefit of its deferred tax assets, primarily as a result of operating losses in recent years and, accordingly, has provided a full valuation allowance of $2.1 million and $1.4 million at December 31, 2019 and 2018, respectively.

The increase in the valuation allowance of $677,000 for the year ended December 31, 2019 was primarily due to net operating losses, depreciation, research and development credits, equity-based compensation, our foreign joint venture investment, and the lease liability and related right of use asset.

During 2019 and 2018 the Company recorded a deferred tax asset related to its equity method investment in FF Gene Biotech.

The Company has evaluated the realizability of its deferred tax assets and has concluded that it is more likely than not that the Company may not realize the benefit of certain deferred tax assets.

These deferred tax assets consist primarily of equity losses in joint ventures and foreign net operating loss carryforwards;

accordingly, a valuation allowance of $2.0 million has been recorded on these deferred tax assets as of December 31, 2020.

At December 31, 2019, the Company concluded that it was more likely than not that the Company may not realize the benefit of its deferred tax assets, primarily as a result of operating losses in recent years and, accordingly, provided a full valuation allowance of $2.1 million.

The decrease in the valuation allowance of $104,000 for the year ended December 31, 2020 was primarily due to current and expected future operating profits.

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

When realized, the asset will generate a capital loss which may only be used to offset capital gain income.

The Company does not currently have any capital gain income and has therefore recorded a full valuation allowance against this asset.

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

When realized, the asset will generate a capital loss which may only be used to offset capital gain income;

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

The Company is subject to income taxation by the United States government and certain states in which the Company's activities give rise to an income tax filing requirement.

The Company does not have income tax filing requirements in any foreign jurisdiction.

The Company does not have any significant income tax filing requirements in any foreign jurisdiction.

As of December 31, 2020, there were no pending tax audits in any jurisdiction.

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and various states for tax years 2017 through 2020.

The Company had no accrual for interest or penalties at December 31, 2019 or 2018, and has not recognized interest or penalties during the years ended December 31, 2019 and 2018.

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,

(in thousands)

Balance at beginning of year

Increases to prior positions

Increases for current year positions

Balance at end of year

As of December 31, 2020, the Company has $377,000 of gross unrecognized tax benefits, related to research and experimental tax credits.

The Company has $377,000 of unrecognized tax benefits as of December 31, 2020, which, if recognized, would affect the annual effective tax rate.

The Company has no accrual for interest or penalties at December 31, 2020 or 2019, and has not recognized interest or penalties during the years ended December 31, 2020 and 2019.

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.

While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ from the Company's accrued positions.

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

Loss per Share

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

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:

Year Ended December 31,

(in thousands, except per share data)

Net income (loss)

Weighted-average common shares - outstanding, basic

Weighted-average common shares - outstanding, diluted

Net loss per common share, basic

Net loss per common share, 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:

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

During the years ended December 31, 2019 and 2018, the Company had outstanding options and RSUs that were excluded from the weighted-average share calculation for continuing operations due to the Company’s net loss positions.

During the year ended December 31, 2019, the Company had outstanding options and RSUs that were excluded from the weighted-average share calculation for continuing operations due to the Company’s net loss positions.

Retirement Plans

The Company offers a 401(k) retirement savings plan (the “401(k) Plan”) for its employees, including its executive officers, who satisfy certain eligibility requirements.

The Company offers a 401(k) retirement savings plan, or the 401 (k) Plan, for its employees, including its executive officers, who satisfy certain eligibility requirements.

The Internal Revenue Code of 1986, as amended, allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan.

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Related Party

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 (the “Foundation”) and served as the President for the Taipei Medical University (the “University”), from August 1, 2011 through July 31, 2016 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 an insignificant amount and zero during the years ended December 31, 2019 and 2018, respectively, as consideration for such services.

Additionally, the Company subleases certain of its headquarters facilities to the Foundation.

The Company recognized $16,000 and $33,000 in the years ended December 31, 2019 and 2018, respectively, as consideration for such sublease.

As of December 31, 2019 and 2018, an insignificant amount and zero, respectively, 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 $53,000 and $66,000 in the years ended December 31, 2019 and 2018, respectively, as consideration for such services.

As of December 31, 2019 and 2018, $39,000 and $51,000, respectively, was owed to the Company by the University in connection with this relationship.

As more fully described in Note 15, in April 2017, the Company, through an affiliated company formed for the purpose of the relationship, entered into a cooperation agreement (the “JV Agreement”) with Xilong Scientific Co., Ltd.

(“Xilong Scientific”) and Fuzhou Jinqiang Investment Partnership (LP) (“FJIP”) to form a joint venture under the laws of the PRC called Fujian Fujun Gene Biotech Co., Ltd.

(“FF Gene Biotech”).

Xilong Scientific is an affiliate of Xi Long, which, as of December 31, 2019 , owned 9 % of the outstanding shares of the Company’s common stock, a nd FJIP is owned by key management of FF Gene Biotech, including Dr.

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 $3.1 million in revenue in the year ended December 31, 2020.

As of December 31, 2020, $1.8 million was owed to the Company by AHMC, 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 believed $200,000 was a fair market price for the furniture purchased.

As of December 31, 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.

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

In the year ended December 31, 2020, the Company incurred $343,000 in expenses for flights between California and Texas to transport employees and supplies.

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

As more fully described in Note 15, 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 China, 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.

XiLong USA, Inc.

has since reported beneficial ownership of 4.92% of the Company’s common stock in a Schedule 13G filed with the SEC on June 12, 2020.

FJIP is owned by key management of FF Gene Biotech, including Dr.

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

Fulgent Pharma utilizes space in the facility at which the Company’s laboratory and corporate headquarters are located.

Since the completion of the Pharma Split-Off, Fulgent Pharma reimburses the Company, on an arms-length basis, for the portion of the rent the Company pays that is attributable to the space used by Fulgent Pharma, which amounts are not significant.

As of December 31, 2019 and 2018, $26,000 and $ 22,000 , respectively, was owed to the Company by Fulgent Pharma as a result of this arrangement, which is recorded in Other receivable in Other current assets in the accompanying Consolidated Balance Sheets.

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.

During the year ended December 31, 2020, the research development service rendered by Fulgent Pharma LLC was $427,000 and costs allocated to Fulgent Pharma, LLC were $52,000.

Costs allocated to Fulgent Pharma LLC were not significant during the year ended December 31, 2019.

As of December 31, 2020, $409,000 was owed to Fulgent Pharma LLC by the Company, which is included in accrued liabilities in the accompanying Consolidated Balance Sheets, and as of December 31, 2019, $26,000 was owed to the Company by Fulgent Pharma, which is recorded in other receivable in other current assets in the accompanying Consolidated Balance Sheet, in connection with these relationships.

Equity Method Investments

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.

Pursuant to the terms of the JV Agreement, the Company has agreed to contribute to FF Gene Biotech genetic sequencing and other equipment with a total cost of 60,000,000 renminbi (“RMB”) over a five-year period for a 30% ownership interest in FF Gene Biotech, previously three-year per original agreement and amended in April 2019.

Xilong Scientific has agreed to contribute to FF Gene Biotech 102,000,000 RMB over a five-year period for a 51% ownership interest in the FF Gene Biotech, previously three-year per original agreement and amended in April 2019.

FJIP has agreed to contribute to FF Gene Biotech 19,000,000 RMB over a ten-year period for a 19% ownership interest in FF Gene Biotech, previously five-year per original agreement and amended in April 2019.

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 China to offer genetic testing services to customers in China.

Pursuant to the terms of the JV Agreement, the Company has agreed to contribute to FF Gene Biotech genetic sequencing and other equipment with a total cost of 60.0 million renminbi, or RMB, over a five-year period for a 30% ownership interest in FF Gene Biotech, previously three-year per original agreement and amended in April 2019.

Xilong Scientific has agreed to contribute to FF Gene Biotech 102.0 million RMB over a five-year period for a 51% ownership interest in the FF Gene Biotech, previously three-year per original agreement and amended in April 2019.

FJIP has agreed to contribute to FF Gene Biotech 19.0 million RMB over a ten-year period for a 19% ownership interest in FF Gene Biotech, previously five-year per original agreement and amended in April 2019.

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 December 31, 2019, 39,300,000 RMB (or approximately $5.6 million U.S.

dollars) remained to be contributed to FF Gene Biotech by the Company under the terms of the JV Agreement, and 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, of which, $137,000 and $510,000 were contributed in the year ended December 31, 2019 and 2018, respectively.

As of December 31, 2020, 29.7 million RMB (or approximately $4.5 million U.S.

dollars) remained to be contributed to FF Gene Biotech by the

Company under the terms of the JV Agreement, and 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 and $ 137 ,000 were contributed in the year ended December 31, 2020 and 2019 , respectively.

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.

In the year ended December 31, 2020, the Company recorded an impairment loss of $ 1.8 million from the investment on FF Gene Biotech as the decline in the fair value of the investment compared to the pro forma carrying value is more than the current carrying value, and the Company believes the decline is other-than-temporary.

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

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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 for the year ended December 31, 2019 and 2018 in the accompanying Consolidated Statements of Operations, and recorded its contribution during the period, net of its proportionate share in the accumulated losses of FF Gene Biotech, in the accompanying Consolidated Balance Sheet as of December 31, 2019 and 2018.

The Company entered into a license agreement with FF Gene Biotech, pursuant to which it granted FF Gene Biotech a license to use certain of the Company’s clinical molecular diagnostic gene detection technology and related software and proprietary reference library of genetic information, along with any improvements on this technology the Company may develop during the term of the license agreement.

Under the license agreement, FF Gene Biotech paid to the Company, on a quarterly basis, certain royalties based on the revenues of FF Gene Biotech.

The license agreement expired on December 31, 2018.

The Company earned an insignificant amount of royalties under the license agreement for the year ended December 31, 2018.

In 2019, FF Gene Biotech provided curation services, on an arms-length basis, for the Company, the cost of such services was insignificant for the year ended December 31, 2019.

The financial information of the subsidiary is consolidated in the summarized financial information for FF Gene Biotech disclosed below.

Equity method investments as of December 31, 2019 and 2018 consisted of the following:

(in thousands)

FF Gene Biotech

Total equity method investments

The Company recorded its proportionate share of the losses of FF Gene Biotech for the year ended December 31, 2020 and 2019 in the accompanying Consolidated Statements of Operations, and recorded its contribution during the period, net of its proportionate share in the accumulated losses and impairment loss of FF Gene Biotech, in the accompanying Consolidated Balance Sheet as of December 31, 2020 and 2019.

FF Gene Biotech provided curation services, on an arms-length basis, for the Company, the cost of such services was insignificant for the year ended December 31, 2020 and 2019.

Summary Financial Information

Summary financial information for FF Gene Biotech is as follows:

In the year ended December 31, 2020, FF Gene did not constitute 10 percent or more of the Company’s consolidated assets, equity or income from continuing operation, thus the results of operations of FF Gene were not significant to the Company.

Summarized financial information for FF Gene Biotech for 2019 is as follows.

Consolidated Balance Sheet Data:

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Share of loss from investments accounted for using the equity method

Equity Distribution Agreement

In August 2019, the Company entered into an Equity Distribution Agreement with Piper Jaffray & Co., as sales agent (“Piper”), 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 $30.0 million.

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

During the year ended December 31, 2019, the Company sold an aggregate of 104,390 shares of its common stock pursuant to the Equity Distribution Agreement at a weighted-average selling price of $12.14 per share, which resulted in $979,000 of net proceeds to the Company.

Shares sold under the Equity Distribution Agreement are 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 a prospectus supplement and accompanying base prospectus filed with the Securities and Exchange Commission on August 30, 2019.

BostonMolecules, 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 year ended December 31, 2020 .

The Company recorded the impairment loss using the equity method in the accompanying 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 year ended December 31, 2020 .

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

(in thousands)

FF Gene Biotech

BostonMolecules

Total equity method investments

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.

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.

Underwriting Agreement

On November 13, 2019 we entered into a Purchase Agreement with Piper Jaffray & Co.

as representative of the several underwriters, pursuant to which we sold 2,673,750 shares of our common stock at a price of $10.51875 per share, with a public offering price of $11.25 per share.

We received net proceeds of approximately $27.6 million, after deducting underwriting discounts and commissions and offering expenses paid or payable by us of approximately $2.4 million.

On November 13, 2019, the Company entered into a purchase agreement with Piper as representative of the several underwriters, pursuant to which the Company sold 2,673,750 shares of its common stock at a price of $10.51875 per share, with a public offering price of $11.25 per share.

The Company received net proceeds of approximately $27.6 million, after deducting underwriting discounts and commissions and offering expenses paid or payable by us of approximately $2.4 million.

The shares issued and sold in the underwritten offering were sold pursuant to a shelf registration statement registered under the Securities Act on a registration statement on Form S-3 (File No.

333-233227), as amended, and a prospectus supplement and accompanying base prospectus filed with the Securities and Exchange Commission on November 13, 2019.

333-233227), as amended, and a prospectus supplement and accompanying base prospectus filed with the SEC on November 13, 2019.

Subsequent Event

Subsequent to December 31, 2020, the Company sold an aggregate of 582,650 shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average selling price of $53.15 per share, which resulted in approximately $31.0 million of gross 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.

Selected Quarterly Financial Data (Unaudited)

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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 e xtraordinary, 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 .

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Interest and other income, net

Income (loss) before income taxes and

equity loss in investee

Income (loss) before income taxes,

equity earnings (loss) in investee

and impairment loss

Provision for (benefit from) income

Income (loss) before equity loss in

Equity loss in investee

Income (loss) before equity earnings (loss) in investee and impairment loss

Equity earnings (loss) in investee

Impairment loss in equity-method investment

Net income (loss)

1 unchanged sentence

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