What changed in this filing

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Item 9A. Controls and Procedures

2022-02-28 compared with 2021-03-08 · 579 added, 405 removed, 700 unchanged (58% of the section changed)

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Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company, as this term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

As required by Rules 13a-15(c) and 15d-15(c) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the criteria set forth in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

This report does not include an attestation report of our independent registered public accounting firm regarding our internal control over financial reporting, in accordance with applicable SEC rules that permit us to provide only management’s report in this report.

Internal Control over Financial Reporting

Changes in Internal Control over Financial Reporting.

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

In August 2021, we completed the acquisition of CSI.

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

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

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

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

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

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

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

Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021.

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

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

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

In August 2021, we acquired CSI.

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

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

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

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

possible controls and procedures relative to their costs.

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

In addition, projections of any evaluation of the effectiveness of disclosure or internal controls to future periods are subject to risks, including, among others, that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on Internal Control over Financial Reporting

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

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

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

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 28, 2022, expressed an unqualified opinion on those financial statements.

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

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

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

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting.

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

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

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

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

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

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

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

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

February 28, 2022

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.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance.

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

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Form 10-K Summary.

We have elected not to provide summary information.

EXHIBIT INDEX

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Reference Exhibit

Form of Notice of Restricted Stock Unit Substitution Award and Restricted Stock Unit Agreement under the 2016 Omnibus Incentive Plan of the registrant Form of Notice of Restricted Stock Unit Substitution Award and Restricted Stock Unit Agreement under the 2016 Omnibus Incentive Plan of the registrant.

Form of Notice of Restricted Stock Unit Substitution Award and Restricted Stock Unit Agreement under the 2016 Omnibus Incentive Plan of the registrant.

Employment Agreement, dated May 25, 2016, by and among Fulgent Therapeutics LLC, the registrant and Ming Hsieh.

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and Fuzhou Jinqiang Investment Partnership (Limited).

Commercial Lease, dated January 31, 2018, by and between E & E Plaza LLC and Fulgent Therapeutics LLC.

Incorporated by

Reference Exhibit

Commercial Lease, dated January 31, 2019, by and between E & E Plaza LLC and Fulgent Therapeutics LLC.

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

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Amended and Restated 2016 Omnibus Incentive Plan

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

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

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

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and Ten-Voss Ltd.

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

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

and Fulgent Genetics, Inc.

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and Jian Xie.

Subsidiaries of the registrant.

Amended and Restated Non-Employee Director Compensation Policy .

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

Incorporated by

Reference Exhibit

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

Subsidiaries of the registrant.

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

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

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

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

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

XBRL document.

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (embedded within the Inline XBRL

This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.

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A complete copy of this exhibit, including the redacted portions, has been separately furnished to the SEC.

Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

The Company hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the SEC.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FULGENT GENETICS, INC.

March 8, 2021

February 28, 2022

/s/ Ming Hsieh

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President, Chief Executive Officer and Chairman of the Board

March 8, 2021

February 28, 2022

(principal executive officer)

Chief Financial Officer

March 8, 2021

February 28, 2022

(principal financial and accounting officer)

/s/ John Bolger

March 8, 2021

February 28, 2022

/s/ Linda Marsh

March 8, 2021

February 28, 2022

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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

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 .

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

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

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

Basis for Opinion

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Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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

Critical Audit Matter

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

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

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

Critical Audit Matter Description

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

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

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

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

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

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

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

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

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

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

March 8, 2021

February 28, 2022

We have served as the Company's auditor since 2016.

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Marketable securities

Trade accounts receivable, net of allowance for doubtful accounts of $1,898 and $751,

as of December 31, 2020 and 2019, respectively

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

Other current assets

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Marketable securities, long-term

Equity method investments

Redeemable preferred stock investment

Fixed assets, net

Operating lease right-of-use asset

Intangible assets, net

Other long-term assets

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Contract liabilities

Customer deposit

Investment margin loan

Operating lease liabilities, short-term

Contingent consideration

Notes payable

Other current liabilities

Total current liabilities

Operating lease liabilities, long-term

Unrecognized tax benefits

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Stockholders’ equity

Common stock, $0.0001 par value per share, 50,000 shares authorized, 28,178 and

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

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

or outstanding at December 31, 2020 and 2019

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

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

Additional paid-in capital

Accumulated other comprehensive income

Retained earnings (accumulated deficit)

Accumulated other comprehensive (loss) income

Retained earnings

Total Fulgent stockholders' equity

Noncontrolling interest

Total stockholders’ equity

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

CONSOLIDATED FINANCIAL STATEMENTS

FULGENT GENETICS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

(in thousands, except per share)

Year Ended December 31,

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General and administrative

Amortization of intangible assets

Total operating expenses

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Interest and other income, net

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

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

Provision for income taxes

Income before equity loss in investee and impairment loss

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

Equity loss in investee

Impairment loss in equity-method investments

Net income (loss)

Net income (loss) per common share:

Gain (loss) on equity-method investments

Net income (loss) from consolidated operations

Net loss attributable to noncontrolling interests

Net income (loss) attributable to Fulgent

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

Weighted-average common shares:

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Year Ended December 31,

Net income (loss)

Net income (loss) from consolidated operations

Other comprehensive income (loss):

Foreign currency translation gain (loss)

Net unrealized gain on marketable debt securities, net of tax

Comprehensive income (loss)

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

Comprehensive income (loss) from consolidated operations

Net loss attributable to noncontrolling interest

Foreign currency translation gain attributable to noncontrolling interest

Comprehensive loss attributable to noncontrolling interest

Comprehensive income (loss) attributable to Fulgent

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

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(in thousands)

Stockholders' Equity

Fulgent Stockholders' Equity

Paid-In Capital

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Retained Earnings (Accumulated

Balance at December 31, 2018

Fulgent Stockholders' Equity

Noncontrolling Interest

Balance at January 1, 2019

Equity-based compensation

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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

Repurchases of capital stock

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

Common stock withholding for employee tax obligations

Other comprehensive gain, net

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Restricted stock awards

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

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

Common stock withholding for employee tax obligations

Other comprehensive gain, net

Balance at December 31, 2020

Equity-based compensation

Exercise of common stock options

Restricted stock awards

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

Common stock withholding for employee tax obligations

Cumulative effect of accounting change

Cumulative tax effect of accounting change

Noncontrolling interest assumed related to acquisitions

Other comprehensive loss, net

Net income (loss)

Balance at December 31, 2021

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

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Cash flow from operating activities:

Net income (loss)

Net income (loss) from consolidated operations

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

Equity-based compensation

Depreciation and amortization

Noncash lease expense

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Amortization of premium of marketable securities

Provision for bad debt

Provision for credit losses

Deferred taxes

Unrecognized tax benefits

Holding loss on equity securities

Net loss on marketable securities

Equity loss in investee

Impairment loss in equity method investments

(Gain) loss in equity-method investments

Changes in operating assets and liabilities:

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Income tax payable

Operating lease liabilities

Net cash provided by operations

Operating and finance lease liabilities

Net cash provided by operating activities

Cash flow from investing activities:

Purchases of fixed assets

Purchases of intangible assets

Proceeds from sale of fixed assets

Purchase of marketable securities

Purchase of redeemable preferred stock

Maturities of marketable securities

Purchase of equipment contributed to equity-method investee

Proceeds from sale of marketable securities

Investment in equity method investee

Acquisition of businesses, net of cash acquired

Investment in equity-method investees

Net cash used in investing activities

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

Proceeds from noncontrolling interest

Proceeds from exercise of stock options

Repurchases of capital stock

Principal paid for finance lease

Common stock withholding for employee tax obligations

Repayment of notes payable

Borrowing under margin account

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Supplemental disclosures of non-cash investing and financing activities:

Contingent consideration for business acquisition included in current liabilities

Purchases of fixed assets in accounts payable

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

Operating lease liabilities removed due to purchasing of underlying assets

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

Public offerings proceeds in other receivable included in other current assets

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

Public offerings costs included in accounts payable

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The 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.

These financial statements include the assets, liabilities, revenues and expenses of all 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 (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.

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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 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.

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

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

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

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

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

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and PC.

All intercompany transactions and balances have been eliminated in consolidation.

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Cash equivalents are stated at fair value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at the amount the Company expects to collect.

The Company performs credit evaluations of its customers and generally does not require collateral.

The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information that assists in management’s evaluation.

The Company writes off accounts receivable following a review by management and a determination that the receivable is uncollectible.

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

(in thousands)

Allowance for doubtful accounts at beginning of year

Bad debt expense

Allowance for doubtful accounts at end of year

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 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.

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

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

dollars have been classified

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

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

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

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

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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.

government securities.

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

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

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

The evaluation includes consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities, and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis.

If the Company determines that the decline in fair value of an investment is below its accounting basis and this decline is other than temporary, the Company would reduce the carrying value of the security it holds and record a loss for the amount of such decline.

The Company has not recorded any realized losses or declines in value judged to be other than temporary on its investments.

For available-for-sale debt securities, in an unrealized loss, the Company determines whether a credit loss exists.

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

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

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

Trade Accounts Receivable and Allowance for Credit Losses

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

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

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

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

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

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 updates 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.

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

(in thousands)

Allowance for credit losses at beginning of year

Impact of ASU 2016-13 adoption

Current period provision

Allowance for credit losses at end of year

Redeemable Preferred Stock Investment

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

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

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

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

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

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.

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

Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred.

See Note 5, Fixed Assets, for useful lives for each major class of fixed assets.

Intangible assets

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

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

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

Business Combinations

The Company uses the acquisition method of accounting and allocates the fair value of purchase consideration to the assets acquired and liabilities assumed from an acquiree based on their respective fair values as of the acquisition date.

The excess of the fair value of purchase consideration over the fair value of these assets acquired and liabilities assumed is recorded as goodwill.

When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth and margins, future changes in technology, expected cost and time to develop in-process research and development, brand awareness and discount rates.

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

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

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

Impairment of Long-Lived Assets

The Company evaluates the carrying amount of its long-lived assets whenever events or changes in circumstances indicate that the assets may not be recoverable.

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

To date, there have been no such impairment losses.

Reagents and Supplies

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

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

The reagents and other consumables were included in other current assets in the accompanying Consolidated Balance Sheets.

Fair Value of Financial Instruments

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.

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

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

Fair value of marketable securities and redeemable preferred stock investment 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 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.

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

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

and amounts may exceed federally insured limits.

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

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

Aggregating customers 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.

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

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

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 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.

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

The Company 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 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.

Operating ROU lease 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 ROU lease 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

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 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.

Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred.

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

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

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

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

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

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

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

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

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

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

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

is implicit in the lease.

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

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

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

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

Software for Internal Use

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These costs include purchased software packages for Company use.

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

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

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

Costs that do not meet that criteria and costs incurred on projects in the preliminary and post-implementation phases are expensed as incurred.

Impairment of Long-Lived Assets

The Company evaluates the carrying amount of its long-lived assets whenever events or changes in circumstances indicate that the assets may not be recoverable.

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

To date, there have been no such impairment losses.

Reporting Segment and Geographic Information

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Revenue Recognition

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

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

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 .

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

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 its customers.

To determine revenue recognition for contracts with customers, the Company performs the following steps described in the Accounting Standards Codification, or ASC 606, Revenue from Contracts with Customers :

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

The Company’s test results are primarily delivered electronically.

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Performance Obligations

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.

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

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

For most of the Company’s testing volume, the Company identified the institutions, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients as the customer in Step 1 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 COVID-19 or genetic testing services is transferred to the

Company’s ordering facility at a point in time.

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

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

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

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.

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

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

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

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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 COVID-19 and genetic testing services is transferred to the Company’s ordering physicians at a point in time.

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

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

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

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

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

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

Significant Judgments and Contract Estimates

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, 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.

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.

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect revenue and earnings in the period such variances become known.

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

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

Contract Liabilities

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.

Customer Deposit

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

Overhead Expenses

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

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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dollars using exchange rates in effect at the end of each period.

Expenses for these subsidiaries are translated using average rates in effect during the period.

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

The Company’s subsidiaries that use the U.S.

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

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

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

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

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

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

Gains and losses resulting from the remeasurements are included in interest and other income, net in the accompanying Consolidated Statements of Operations.

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

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

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.

Other comprehensive income (loss) consists of net unrealized gain or loss on available-for-sale debt securities, net of tax, 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 (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.

Reclassifications from other comprehensive income (loss) to net earnings were not significant in 2021 or 2020.

The Company did not have reclassifications from other comprehensive income (loss) to net loss in 2019.

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

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

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

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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, 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.

As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies.

Diluted 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 and dilutive common share equivalents outstanding during the period.

Disaggregation of Revenue

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.

(i) Insurance, including claim reimbursement from HRSA for uninsured individuals, (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, 2021, 2020 and 2019.

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Total Revenue

The insurance revenue category above includes $ 310.4 million and $ 155.4 million for the years ended December 31, 2021 and 2020, respectively, for services related to claims covered by the HRSA COVID-19 Uninsured Program.

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

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

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

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

Contract Balances

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.

Receivables from contracts with customers - Receivables from contracts with customers are included within trade accounts receivable on the Consolidated Balance Sheets.

Receivable from Insurance and Institutional customers represented 47 % and 53 %, respectively, as of December 31, 2021 and 40 % and 60 %, respectively, as of December 31, 2020.

Contracts assets and liabilities - Contract assets from contracts with customers associated with contract execution and certain costs to fulfill a contract are 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 $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.

Contract liabilities are included in the Consolidated Balance Sheets.

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

Transaction Price Allocated to Future Performance Obligations

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, 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, 2021.

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

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

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

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

Recent Accounting Pronouncements

The Company evaluates all Accounting Standards Updates, or ASUs, issued by FASB for consideration of their applicability.

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

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

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments .

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

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

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

GAAP with a methodology that reflects expected credit losses.

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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 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.

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

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

Early application of the amendments is permitted.

The Company 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.

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 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 Consolidated Statements of Stockholders’ Equity and trade accounts receivable, net, in the accompanying Consolidated Balance Sheets.

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

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

In December 2019, the FASB issued ASU No.

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

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

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

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

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

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

Marketable Securities

The Company’s marketable securities consisted of the following:

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

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

Equity and Debt Securities

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

December 31, 2021

(in thousands)

Marketable securities:

Equity securities:

Exchange traded funds

Total equity securities

Available-for-sale debt securities

Money market accounts

Corporate debt securities

Money market accounts

government debt securities

Municipal bonds

Yankee debt securities

Cash equivalents

Total short-term marketable securities

Total debt securities due within 1 year

After 1 year through 5 years

Corporate debt securities

government agency debt securities

government debt securities

agency debt securities

Municipal bonds

Yankee debt securities

Total long-term marketable securities

Total marketable securities

Total debt securities due after 1 year through 5 years

After 5 years through 10 years

Municipal bonds

Redeemable preferred stock investment

Total debt securities due after 5 years through 10 years

Total available-for-sale debt securities

Total equity and debt securities

December 31, 2020

(in thousands)

Marketable securities:

Equity securities:

Exchange traded funds

Total equity securities

Available-for-sale debt securities

Money market accounts

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Cash equivalents

Total short-term marketable securities

Total debt securities due within 1 year

After 1 year through 5 years

Corporate debt securities

Total long-term marketable securities

Total marketable securities

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 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.

agency debt securities

Yankee debt securities

Total debt securities due after 1 year through 5 years

Total available-for-sale debt securities

Total equity and debt securities

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

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

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

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

Fair Value Measurements

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Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Inputs are unobservable inputs for the asset or liability.

Inputs are unobservable for the asset or liability.

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

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(in thousands)

Marketable securities and cash equivalents:

Exchange traded funds

Equity securities, debt securities and cash equivalents:

Corporate debt securities

government agency debt securities

government debt securities

agency debt securities

Exchange traded funds

Municipal bonds

Yankee debt securities

Redeemable preferred stock investment

Money market accounts

Total marketable securities and cash equivalents

Total equity securities, debt securities and cash equivalents

December 31, 2020

(in thousands)

Marketable securities and cash equivalents:

Equity securities, debt securities and cash equivalents:

Corporate debt securities

Exchange traded funds

Yankee debt securities

agency debt securities

Money market accounts

Total marketable securities and cash equivalents

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

Total equity securities, debt securities, and cash equivalents

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

Level 2 assets consist of U.S.

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

government and U.S.

agency debt securities, municipal bonds, 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 December 31, 2020 and 2019, the Company had no investments that were measured using unobservable (Level 3) inputs.

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

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.

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

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

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

There were no transfers between fair value measurement levels in 2021, 2020, and 2019.

Major classes of fixed assets consisted of the following:

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Medical lab equipment

2 to 12 Years

Computer hardware

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6 months to 39 Years

Computer software

Furniture and fixtures

2 to 10 Years

Computer software

Land improvements

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Accumulated depreciation

Property and equipment, net

Depreciation expense on fixed assets totaled $3.0 million and $2.1 million for the years ended December 31, 2020 and 2019, respectively.

Fixed assets, net

Depreciation expense on fixed assets totaled $ 9.3 million, $ 3.0 million and $ 2.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Other Current Assets

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(in thousands)

Other receivable

Reagents and supplies

Prepaid expenses

Contract assets

Marketable securities interest receivable

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.

Other receivable

Contract assets

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

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

Reporting Segment and Geographic Information

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

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

All long-lived assets were located in the United States as of December 31, 2021 and 2020 with an insignificant amount located in China and Canada.

Revenue by region for the years ended December 31, 2021, 2020 and 2019 were as follows:

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United States

Other Countries

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.

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

The outstanding balance is included in the Consolidated Balance Sheets.

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 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.

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

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

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

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

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

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

Operating Leases

See Note 9, Leases, for further information.

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, 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.

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

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 October 2025 primarily for office space and equipment.

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.

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 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.

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

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

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

The Company is fully cooperating with the U.S.

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

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

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

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

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

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

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

The Company retained CSI’s classification of its leases.

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

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

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

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

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

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.

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

There was no impact to retained earnings upon adoption.

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.

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 following was operating lease expense:

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

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

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

(in thousands)

Operating lease ROU asset, net

Operating lease liabilities, short term

Operating lease liabilities, long term

Finance lease ROU asset, net

Finance lease liabilities, short term

Finance lease liabilities, long term

The following was operating and finance lease expense:

Year Ended December 31,

1 unchanged sentence

Operating lease cost

Finance lease cost:

Amortization of ROU assets

Interest on lease liabilities

Short-term lease cost

Total lease cost

Supplemental cash flow information related to leases was the following:

Year Ended December 31,

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

Noncash lease expense

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

Supplemental information related to leases was the following:

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Weighted average discount rate - operating leases

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

Weighted average remaining lease term -finance lease

Weighted average discount rate - finance lease

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

Operating Leases

Financing Leases

(in thousands)

3 unchanged sentences

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.

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

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

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

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

Total lease income was as follows:

Year Ended December 31,

(in thousands)

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Balance at December 31, 2020

Balance at December 31, 2021

Exercisable as of December 31, 2021

1 unchanged sentence

The total fair value of options that vested during the years ended December 31, 2021, 2020 and 2019 was $ 76,000 , $ 223,000 and $ 549,000 , respectively.

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

As of December 31, 2021, the remaining unrecognized compensation expense related to all outstanding option awards was $ 354,000 and is expected to be recognized over a weighted-average period of 2.9 years.

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

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

8 unchanged sentences

Balance at December 31, 2020

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.

Vested and settled

Balance at December 31, 2021

The RSU awards granted in the years ended December 31, 2021, 2020 and 2019 will result in aggregate equity-based compensation expense of $ 45.5 million, $ 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, 2021, the remaining unrecognized compensation expense related to all outstanding RSU awards was $ 59.1 million and is expected to be recognized over a weighted-average period of 3.1 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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Awards to Employees

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

Year Ended December 31,

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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.

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

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

Year Ended December 31,

(in thousands)

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:

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

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

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

Income tax expense consisted of the following:

Year Ended December 31,

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Change in valuation allowance

Tax provision

Effective tax rate

The following table summarizes the elements of the deferred tax assets (liabilities).

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

Year Ended December 31,

2 unchanged sentences

Accrued vacation and other accrued expenses

Provision for bad debts

Provision for credit losses

Net operating losses

7 unchanged sentences

Deferred tax liabilities

Intangible assets

Right of use asset

2 unchanged sentences

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

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

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

The Company also has foreign NOL carryforwards of $ 13.7 million which are scheduled to expire from 2022 through 2026 .

ASC 740-10-30-5 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 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.

accordingly, a valuation allowance of $ 2.6 million and $ 2.0 million has been recorded on these deferred tax assets as of December 31, 2021 and 2020.

The increase in the valuation allowance of $ 588,000 for the years ended December 31, 2021 was primarily due to an increase in foreign deferred tax assets that are more likely than not to expire unrealized.

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

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

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

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

it is no longer an equity-method investment.

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

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

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and various states for tax years 2018 through 2021 ;

certain other states remain subject to examination for tax years 2017 through 2021.

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.

8 unchanged sentences

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

The Company has 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.

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

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

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(in thousands, except per share data)

Net income (loss)

Net income (loss) attributable to Fulgent

Weighted-average common shares - outstanding, basic

6 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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 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, 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.

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

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

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

Business Combinations

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

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

FF Gene Biotech

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

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

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

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

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

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

It also expects to reduce costs through economies of scale.

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

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

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

(in thousands)

Considerations

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

Recognized amounts of identifiable assets acquired and liabilities assumed

Financial assets

Reagents and supplies

Other tangible assets

Identifiable intangible assets

Other current liabilities

Notes payable

Recognized amounts of identifiable assets acquired and liabilities assumed, net

Noncontrolling interest

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

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

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

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

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

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

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

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

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

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

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

The goodwill recognized is not deductible for tax purposes .

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

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

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

The Company concluded that it alone does not have the power to direct the most significant activities of FF Gene Biotech and therefore is not the primary beneficiary of the entity.

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

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

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, 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

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:

(in thousands)

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Minority interest

Stockholders' equity

Year Ended December 31,

Consolidated Statement of Operations Data:

(in thousands)

Share of loss from investments accounted for using the equity method

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)

CSI Acquisition

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

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

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

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

(in thousands)

Considerations

Contingent consideration

Recognized amounts of identifiable assets acquired and liabilities assumed

Debt-free net working capital

ROU assets - operating

ROU assets - finance

Identifiable intangible assets

Deferred tax liability

Operating lease liabilities

Finance lease liabilities

Other liabilities

Recognized amounts of identifiable assets acquired and liabilities assumed, net

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

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

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

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

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

The goodwill recognized is not deductible for tax purposes.

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

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

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

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

Operating Income (Loss)

FF Gene Biotech

BostonMolecules

Total equity method investments

Equity Distribution Agreements

10 unchanged sentences

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.

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 S EC on November 20, 2020 .

Underwriting Agreement

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 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.

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

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

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

Goodwill and Intangible Assets

Summaries of goodwill and intangible assets balances as of December 31, 2021 and 2020 were as follows:

Weighted-Average Amortization Period

(in thousands)

Royalty-free technology

accumulated amortization

Royalty-free technology, net

Customer relationships

accumulated amortization

Customer relationships, net

accumulated amortization

Trade name, net

Laboratory information system platform

accumulated amortization

Laboratory information system platform, net

Purchased patent

accumulated amortization

Purchased patent, net

Total intangible assets, net

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

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

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

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

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

Based on the carrying value of intangible assets recorded as of December 31, 2021, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for intangible assets is expected to be as follows:

(in thousands)

Selected Quarterly Financial Data (Unaudited)

11 unchanged sentences

General and administrative

Amortization of intangible assets

Total operating expenses

Operating income (loss)

Interest and other income, net

Income (loss) before income taxes,

equity earnings (loss) in investee

and impairment loss

Provision for (benefit from) income

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

Interest and other (expense) income, net

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

Provision for (benefit from) income taxes

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

Equity earnings (loss) in investee

Impairment loss in equity-method investment

Net income (loss)

Net income (loss) per common share:

Gain (loss) on equity-method investments

Net income (loss) from consolidated operations

Net loss attributable to noncontrolling interests

Net income (loss) attributable to Fulgent

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

Subsequent Event

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

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

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