What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-09 · 252 added, 263 removed, 299 unchanged (63% of the section changed)

3 unchanged sentences

(in thousands, except par value data)

September 30,

Current assets

1 unchanged sentence

Marketable securities

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

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

Trade accounts receivable, net of allowance for credit losses of $3,850 and

$1,898 as of March 31, 2021 and December 31, 2020, respectively

Other current assets

1 unchanged sentence

Marketable securities, long-term

Equity method investments

Fixed assets, net

Operating lease right-of-use asset

Other long-term assets

2 unchanged sentences

Accounts payable

Accrued liabilities

Income tax payable

Contract liabilities

Operating lease liabilities, short-term

Customer deposit

Investment margin loan

Other current liabilities

Total current liabilities

Operating lease liabilities, long-term

Unrecognized tax benefits

Other long-term liabilities

Total liabilities

2 unchanged sentences

Common stock, $0.0001 par value per share, 50,000 shares authorized, 28,989 and

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

28,178 shares issued and outstanding at March 31, 2021 and December 31, 2020,

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

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

or outstanding at March 31, 2021 and December 31, 2020

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Accumulated other comprehensive income (loss)

Retained earnings

Total stockholders’ equity

4 unchanged sentences

(in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of revenue

6 unchanged sentences

Interest and other income, net

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

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

Provision for income taxes

Income before equity loss in investee and impairment loss

Income (loss) before equity loss in investee

Equity loss in investee

Impairment loss in equity-method investment

Net income (loss)

5 unchanged sentences

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation gain (loss)

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

Comprehensive income

Other comprehensive loss:

Foreign currency translation loss

Net unrealized loss on marketable securities, net of tax

Comprehensive income (loss)

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

1 unchanged sentence

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except per share data)

(in thousands)

Stockholders' Equity

2 unchanged sentences

Income (Loss)

Retained Earnings

Balance at December 31, 2020

2 unchanged sentences

Restricted stock awards

Repurchases of capital stock

Other comprehensive gain (loss)

Net income (loss)

Balance at March 31, 2020

Equity-based compensation

Exercise of common stock options

Restricted stock awards

Other comprehensive gain (loss)

Net income (loss)

Balance at June 30, 2020

Equity-based compensation

Exercise of common stock options

Restricted stock awards

Issuance of common stock at an

average of $38.50 per share, net

Common stock withholding for

employee tax obligations

Issuance of common stock at an

1 unchanged sentence

Other comprehensive gain (loss)

Net income (loss)

Balance at September 30, 2020

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

FULGENT GENETICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except per share data)

Cumulative effect of accounting

Cumulative tax effect of accounting

Balance at March 31, 2021

Stockholders' Equity

6 unchanged sentences

Restricted stock awards

Repurchases of capital stock

Other comprehensive gain (loss)

Net income (loss)

Balance at March 31, 2020

Equity-based compensation

Exercise of common stock options

Restricted stock awards

Other comprehensive gain (loss)

Net income (loss)

Balance at June 30, 2019

Equity-based compensation

Exercise of common stock options

Restricted stock awards

Issuance of common stock at an

average of $9.37 per share, net

Other comprehensive gain (loss)

Net income (loss)

Balance at September 30, 2019

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

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flow from operating activities:

Net income (loss)

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

Adjustments to reconcile net income (loss) to net cash

provided by operating activities:

Equity-based compensation

2 unchanged sentences

Amortization of premium of marketable securities

Provision for bad debt

Provision for credit losses

Deferred taxes

Unrecognized tax benefits

Holding loss on equity securities

Equity loss in investee

Impairment loss in equity method investment

Changes in operating assets and liabilities:

Accounts receivable

Trade accounts receivable

Other current and long-term assets

Accounts payable

Accrued liabilities and other liabilities

Income tax payable

Other current liabilities

Contract liabilities

Customer deposit

Operating lease liabilities

2 unchanged sentences

Purchases of fixed assets

Proceeds from disposal of fixed assets

Proceeds from sale of fixed assets

Purchase of marketable securities

Maturities of marketable securities

Proceeds from sale of marketable securities

Purchase of equipment contributed to equity method investee

Investment in equity method investee

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flow from financing activities:

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

Proceeds from (payment for) public offerings of common stock, net of issuance costs

Proceeds from exercise of stock options

Repurchases of capital stock

Net cash provided by financing activities

Borrowing under margin account

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

5 unchanged sentences

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

Public offerings proceeds included in other current assets

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

Purchase of marketable securities in other current liabilities

Public offerings costs included in accounts payable

16 unchanged sentences

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 Emergency Use Authorizations, or EUAs, from the U.S.

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 EUAs by the FDA only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens.

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.

1 unchanged sentence

Unaudited Interim Financial Information

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2019, which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 13, 2020, or the 2019 Annual Report, and, in the opinion of management, include all adjustments, which are normal and recurring in nature , necessary for a fair presentation of the Company’s financial position and results of operations.

The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2020, which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 8, 2021, or 2020 Annual Report, and, in the opinion of management, include all adjustments, which are normal and recurring in nature , necessary for a fair presentation of the Company’s financial position and results of operations.

Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or any other period.

5 unchanged sentences

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

GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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 condensed 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.

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 condensed 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.

1 unchanged sentence

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) valuation of equity method investments.

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

Foreign Currency Translation and Foreign Currency Transactions

4 unchanged sentences

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

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

Gains and losses from these translations were not significant in the first quarters of 2021 and 2020.

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

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

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

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

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

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 Condensed Consolidated Balance Sheets.

Losses from these remeasurements were not significant for the first quarter of 2021.

Losses from these remeasurements were $85,000 in the first quarter of 2020.

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

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

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

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

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

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

The lease ROU asset includes any base rent payments made and excludes lease incentives and variable operating expenses.

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 occur.

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

Concentration of Customers

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

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

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

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

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

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

In the first quarter of 2021 , after aggregating customers that are under common control or are affiliates, one customer contributed 25% of the Company’s revenue.

In the first quarter of 2020 , after aggregating customers that are under common control or are affiliates, no customer contributed 10% or more of the Company’s revenue.

No customer comprised 10% or more of total trade accounts receivable as of March 31, 2021 and December 31, 2020.

Revenue from the U.S.

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

government was less than 10% of total revenue in the first quarters of 2021 and 2020.

Revenue from Contracts with Customers

Disaggregation of Revenue

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

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 first quarters of 2021 and 2020 .

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

Contract Balances

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

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

Receivables from contracts with customers - As of March 31, 2021 and December 31, 2020, receivables from contracts with customers were approximately $216.5 million and $183.9 million, respectively, and are included within trade accounts receivable on the Condensed Consolidated Balance Sheets.

Contracts assets and liabilities - As of March 31, 2021 and December 31, 2020, contract assets from contracts with customers were $506,000 and $1.4 million, respectively, associated with contract execution and certain costs to fulfill a contract, which is included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

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

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

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

The Company had $14.0 million and $26.6 million of contract liabilities as of March 31, 2021 and December 31, 2020, respectively.

Revenues of $18.8 million and $242,000 for the first quarters of 2021 and 2020, respectively, related to contract liabilities at the beginning of the respective periods were recognized.

Transaction Price Allocated to Future Performance Obligations

The Company does not have material future obligations associated with testing services that extend beyond one year.

Recent Accounting Pronouncements

The Company evaluates all Accounting Standards Updates, or ASUs, issued by the Financial Accounting Standards Board, or 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 condensed consolidated financial statements.

Reagents and Supplies

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

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

The reagents and supplies was $25.7 million and $16.5 million as of March 31, 2021 and December 31, 2020, respectively, and was included in other current assets in the accompanying Condensed Consolidated Balance Sheets.

While the Company has not experienced significant disruption in its supply chain and the Company does not yet know the full impact COVID-19 will have on its supply chain, the Company has increased its reagents and supplies on hand to respond to potential future disruptions that may occur.

Customer Deposit

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

Trade Accounts Receivable and Allowance for Credit Losses

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

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

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

In determining the amount of the allowance for credit losses, the Company uses a probability-of-default and loss given default model, which allows the ability to define a point of default and measure credit losses for receivables that have reached the point of default for purposes of calculating the allowance for credit losses.

Loss given default represents the likelihood that a receivable that has reached the point of default will not be collected in full.

The Company will update its probability-of-default and loss given default factors annually to incorporate the most recent historical data and adjusts the quantitative portion of the reserve through its qualitative reserve overlay.

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

During the first quarter of 2021, the Company recorded $1.1 million provision for credit losses for trade accounts receivable.

Marketable Securities

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

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

The Company will recognize an allowance for credit losses on available-for-sale debt securities on an individual basis, and no longer consider other-than-temporary impairment or immediately reduce the cost basis of the investment provided that it is more likely than not that the security will be held to recovery or maturity.

Further, the Company will recognize any improvements in estimated credit losses on available-for-sale debt securities immediately in earnings and reduce the existing allowance for credit losses.

Previously, a recovery of an impairment loss on an available-for-sale debt security was recognized prospectively as interest income.

The Company will disaggregate its available-for-sale debt securities into the following categories:

corporate debt, government and agency securities and money market funds.

The Company’s corporate bonds are comprised of predominantly high-grade corporate bonds while its government and agency securities are U.S.

treasury bonds, and U.S.

agency bonds.

The Company has analyzed both corporate bonds and government and agency securities and identified that both types of securities have similar risk characteristics in that they are traded infrequently and have contractual interest rates and maturity dates.

Money market funds are actively traded and short-term, and as such, the risk for these securities is not as high as for the other two security types.

In determining the impairment, the Company reviews and assesses its available-for-sale debt securities.

Management reviews credit rating changes, securities trends, interest rate movements and unrealized loss at the security level.

If any of these give rise to a potential credit concern, the Company performs a discounted cash flow analysis to determine the credit portion of the impairment.

The discounted cash flow analysis will be performed either internally or through the assistance of a third party.

Once the credit component of the impairment is determined, the Company will record the impaired amount as an allowance to the available-for-sale debt securities balance and as a charge to interest and other income, net, in the accompanying Condensed Consolidated Statements of Operations, not to exceed the amount of the unrealized loss.

The Company assesses expected credit losses at the end of each reporting period and adjusts the allowance through interest and other income, net.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments .

Measurement of Credit Losses on Financial Instruments, or ASU No.

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

5 unchanged sentences

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 the fiscal year 2023.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

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 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 retrospectively.

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

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

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

The cumulative tax effective was $239,000 to retained earnings and deferred tax assets included in other long-term assets in the accompanying Condensed Consolidated Balance Sheets.

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

In December 2019, the FASB issued ASU No.

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

The Company has decided not to early adopt the amendments.

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

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

Marketable Securities

The Company’s marketable securities consisted of the following:

September 30, 2020

March 31, 2021

(in thousands)

Marketable securities:

Equity securities

Exchange traded funds

Available-for-sale debt securities

Money market accounts

3 unchanged sentences

Corporate debt securities

government agency securities

Yankee debt securities

Total long-term marketable securities

3 unchanged sentences

Marketable securities:

Equity securities

Exchange traded funds

Available-for-sale debt securities

Money market accounts

3 unchanged sentences

Corporate debt securities

government agency debt securities

Yankee debt securities

Total long-term marketable securities

Total marketable securities

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

Gross unrealized losses on the Company’s marketable securities were $1.3 million as of March 31, 2021.

Gross unrealized losses on the Company’s marketable securities were $298,000 as of December 31, 2020.

The Company currently does not intend to sell these securities prior to maturity.

During the first quarter of 2021, the Company did not recognize credit losses.

The Company’s securities of $420.2 million are used as collateral for an outstanding margin account borrowing.

As of March 31, 2021, 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 in 2020.

Fair Value Measurements

9 unchanged sentences

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

September 30, 2020

March 31, 2021

(in thousands)

Marketable securities and cash equivalents:

Exchange traded funds

Corporate debt securities

government agency securities

Yankee debt securities

Money market accounts

3 unchanged sentences

Marketable securities and cash equivalents:

Exchange traded funds

Corporate debt securities

government agency debt securities

Yankee debt 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.

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 securities and corporate debt securities.

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.

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

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

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

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

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

As of March 31, 2021, the Company had no investments that were measured using unobservable (Level 3) inputs.

There were no transfers between fair value measurement levels during the first quarter of 2021.

Major classes of fixed assets consisted of the following:

September 30,

(in thousands)

1 unchanged sentence

Computer hardware

Computer software

Furniture and fixtures

General equipment

Leasehold improvements

Shorter of lease term or estimated useful life

Furniture and fixtures

Building improvements

6 months to 5 Years

Computer software

Land improvements

5 to 15 Years

General equipment

Assets not yet placed in service

1 unchanged sentence

Property and equipment, net

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

Significant Balance Sheet Accounts

Depreciation expense on fixed assets totaled $1.9 million and $569,000 for the first quarters of 2021 and 2020, respectively.

Other Current Assets

Other current assets consisted of the following:

September 30,

(in thousands)

Reagents and supplies

Other receivable

Prepaid expenses

Contract assets

Marketable securities interest receivable

Contract assets

Prepaid income taxes

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

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

Other receivable

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

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

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 September 30, 2020 and December 31, 2019 with an insignificant amount located in Canada.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Long-lived assets were primarily located in the United States, or U.S., as of March 31, 2021 and December 31, 2020 with an insignificant amount located in Canada .

Revenue by region was as follows:

Three Months Ended March 31,

(in thousands)

United States

Other Countries

Commitments and Contingencies

Debt, Commitments and Contingencies

As of March 31, 2021, the Company had an outstanding borrowing of $15.0 million under its margin account with the custodian of the Company’s marketable debt security investment account, Pershing Advisor Solutions, LLC, a BNY Mellon Company .

Margin account borrowings were used for the purchase of real property located in El Monte, California in 2020.

The 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 March 31, 2021 was less than 1%.

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 Condensed Consolidated Balance Sheets.

The related interest expenses for the first quarter of 2021 were $29,000.

Operating Leases

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FF Gene Biotech

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

See Note 14, Equity Method Investments, for a description of the Company’s commitments related to its joint venture, FF Gene Biotech, as defined in Note 13, Related Parties.

Purchase Obligations

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

As of March 31, 2021, the Company had non-cancelable purchase obligations of $25.4 million, of which, $22.8 million for reagents and other supplies and $1.4 million for medical lab equipment are payable within twelve months, and $1.2 million for reagents is payable within the next twenty-four months.

Contingencies

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

In the opinion of management, the outcome of these matters would not 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 options to renew some of these leases for three years after their expiration.

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

In the opinion of management, the outcome of these matters would not have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

The Company is party as a lessee to various non-cancelable operating leases with varying terms through October 2025 primarily for office space and equipment.

The Company has an option to renew one of these leases for one year after its expiration.

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

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

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, or CLIA, accredited by the College of American Pathologists, or 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.

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

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

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

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

There was no impact to retained earnings upon adoption.

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

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

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

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

The Company determined its incremental borrowing rate based on inquiries with its bank.

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

Lease expense for the Company’s operating leases is recognized on a straight-line basis over the lease term.

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

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

A nother CLIA-certified laboratory is located in Houston, Texas.

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

During the first quarter of 2021, the Company entered into one long-term operating lease.

Upon entering into this lease, the Company recorded lease ROU assets of $368,000 and short-term and long-term lease liabilities of $125,000 and $243,000, respectively.

The Company extended the lease for its headquarters for another two years to January 31, 2023.

The Company also entered into various short-term operating leases for additional office, laboratory, parking and storage space during the first quarter of 2021 and elected short-term lease recognition exemption for these leases.

The operating lease right-of-use asset, short-term lease liabilities, and long-term lease liabilities as of March 31, 2021 and December 31, 2020 were as follows:

(in thousands)

Operating lease right-of-use asset

Operating lease liabilities, short term

Operating lease liabilities, long term

The following was operating lease expense:

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands)

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Total lease cost

Supplemental cash flow information related to leases was the following:

Three months ended September 30,

Nine months ended September 30,

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

Noncash lease expense

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

Supplemental information related to leases was the following:

September 30, 2020

March 31, 2021

Weighted average remaining lease term - operating leases

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Less imputed interest

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

As of March 31, 2021, the remaining lease terms left range from 1 month to 3 years and 9 months 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 $157,000 for the three months ended March 31, 2021, which was included in interest and other income, net, in the accompanying Condensed Consolidated Statements of Operations.

Total lease income was as follows:

Three months ended March 31,

(in thousands)

Variable lease income

Total lease income

Future fixed lease payments from tenants for all noncancelable operating leases as of March 31, 2021 are as follows:

Lease Payments

(in thousands)

Year Ending December 31,

2021 (remaining 9 months)

Equity-Based Compensation

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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General and administrative

Provision for income taxes consists of U.S.

federal and state income taxes.

A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences, operating losses and tax credit carryforwards.

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.

In order to determine the Company’s quarterly provision for income taxes, the Company used an estimated annual effective tax rate for the full fiscal year ending December 31, 2020, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, adjusted for discrete items recognized during the period.

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

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

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

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

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

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

Provision for Income Taxes

The effective tax rate used for interim periods is the estimated annual effective consolidated tax rate, based on the current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur.

The annual effective tax rate is based upon several significant estimates and judgments, including the estimated annual pre-tax income of the Company in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year.

In addition, the Company’s tax expense can be impacted by changes in tax rates or laws and other factors that cannot be predicted with certainty.

As such, there can be significant volatility in interim tax provisions.

The Company recorded consolidated provision for income taxes of $66.5 million and $34,000 during the first quarters of 2021 and 2020, respectively, or 25% of earnings before income taxes for the first quarter of 2021, compared to -2% of loss before income taxes and equity loss in investee for the first quarter of 2020.

The change in effective tax rate for the first quarter of 2021, relative to 2020, was primarily attributable to a significant increase in income for the first quarter of 2021, partially offset by increased windfall tax deductions related to stock-based compensation.

The Company is not currently under examination by any major income tax jurisdiction.

During 2021, the statutes of limitations will lapse on the Company's 2017 Federal tax year and certain 2016 and 2017 state tax years.

The Company does not believe the Federal or state statute lapses or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months.

The net balance of unrecognized tax benefits was not material to the interim financial statements for the three months ended March 31, 2021 and 2020.

Income (Loss) per Share

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

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents the calculation of basic and diluted income (loss) per share for the first quarters of 2021 and 2020:

Three Months Ended March 31,

(in thousands, except per share data)

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

1 unchanged sentence

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

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

Due to the Company’s net loss position during the first quarter of 2020, all outstanding stock options and restricted stock units were excluded from the weighted-average share calculation.

Related Parties

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

The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $1.3 million in revenue in the three and nine months ended September 30, 2020.

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

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

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

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

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

The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $1.1 million in revenue in the first quarter of 2021.

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

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

2 unchanged sentences

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.

FJIP was 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.

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 first quarter of 2021, the cost of research development services rendered by Fulgent Pharma LLC for the Company was $108,000.

Amounts for services performed by the Company for Fulgent Pharma LLC were not significant during the first quarters of 2021 and 2020.

As of March 31, 2021, and December 31, 2020, $494,000 and $409,000, respectively, were owed to Fulgent Pharma LLC by the Company, which are included in accrued liabilities in the accompanying Condensed Consolidated Balance Sheets, in connection with these relationships.

Equity Method Investments

FF Gene Biotech

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

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, 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 102,000,000 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).

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

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

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

As of March 31, 2021, 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.

To date, the Company has purchased and contributed equipment with an aggregate fair value of $4.5 million pursuant to its contribution commitment under the JV Agreement.

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

3 unchanged sentences

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

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

Summarize Financial Information

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

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

Nine Months Ended September 30,

Consolidated Statements of Operations Data:

(in thousands)

Share of loss from investments accounted for using the equity method

BostonMolecu l es , Inc.

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

The Company recorded an impairment loss to bring down the carrying value to zero in 2020 as the decline in the fair value of the investment compared to the pro forma carrying value is more than the carrying value as of December 31, 2020, and the Company believes the decline is other-than-temporary.

BostonMolecules, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

September 30, 2020

December 31, 2019

(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 Equity Distribution Agreement, with Piper Sandler & Co.

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

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

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

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

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

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

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

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

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

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

Subsequent Event

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

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

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

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

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

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

The custodian can issue a margin call at any time.

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

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

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

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

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

The Company initially accounted for its 25% interest in BostonMolecules using the equity method of accounting and subsequently recorded an impairment loss to bring down the carrying value to zero in 2020.

Equity method investments as of March 31, 2021 and December 31, 2020, consisted of 30% ownership interest in FF Gene Biotech and 25% ownership interest in BostonMolecules, and the carrying value of both investments was zero due to impairment losses recorded in 2020.

Equity Distribution Agreement

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

(f/k/a Piper Jaffray & Co.), 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 first quarter of 2021, the Company sold approximately 583,000 shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $52.00.

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

What changed 10-Q

Item 1. Financial Statements