Fulgent Genetics, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2021. 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. 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 64 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. 65 /s/ DELOITTE & TOUCHE LLP Los Angeles, California February 28, 2022 Item 9B. Other Information. None Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None 66 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 annual meeting of stockholders or an amendment to this report, in either case to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021. Item 11. Executive Compensation. The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 annual meeting of stockholders or an amendment to this report, in either case to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 annual meeting of stockholders or an amendment to this report, in either case to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 annual meeting of stockholders or an amendment to this report, in either case to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021. Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference to the definitive proxy statement for our 2022 annual meeting of stockholders or an amendment to this report, in either case to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021. 67 PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Consolidated Financial Statements. The following financial statements are included immediately following the signature page hereof and are filed as part of this report: Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019 F-5 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019 F-6 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 F-8 Notes to Consolidated Financial Statements F-9 (a)(2) Financial Statement Schedules. All financial statement schedules have been omitted, as they are not required, not applicable, or the required information is otherwise included. (a)(3) Exhibits. The information required by this Item 15(a)(3) is set forth on the Exhibit Index immediately preceding the signature page of this report and is incorporated herein by reference. Item 16. Form 10-K Summary. None. 68 EXHIBIT INDEX Exhibit Number Description Form File Number Incorporated by Reference Exhibit Filing Date Filed Herewith 2.1 Agreement and Plan of Merger, dated September 16, 2016, by and among the registrant, Fulgent MergerSub, LLC and Fulgent Therapeutics LLC. S-1/A 333-213469 2.1 9/19/2016 3.1 Certificate of Incorporation of the registrant, dated May 13, 2016. 10-Q 001-37894 3.1 8/14/2017 3.1.1 Certificate of Amendment to Certificate of Incorporation of the registrant, dated August 2, 2016 . 10-Q 001-37894 3.1.1 8/14/2017 3.1.2 Certificate of Amendment to Certificate of Incorporation of the registrant, dated May 17, 2017 . 10-Q 001-37894 3.1.2 8/14/2017 3.2 Bylaws of the registrant. S-1/A 333-213469 3.2 9/26/2016 4.1 Form of Certificate of Common Stock of the registrant . S-1/A 333-213469 4.1 9/19/2016 4.2 Investor’s Rights Agreement, dated May 17, 2016, by and between Fulgent Therapeutics LLC and Xi Long USA, Inc. S-1 333-213469 4.2 9/2/2016 4.3 Description of the registrant’s securities. 10-K 0 01-37894 4.3 3 /13/2020 10.1# Form of Indemnification Agreement between the registrant and each of its officers and directors. S-1 333-213469 10.1 9/2/2016 10.2# Amended and Restated 2015 Equity Incentive Plan of Fulgent Therapeutics LLC. S-1 333-213469 10.2 9/2/2016 10.3# Form of Notice of Option Grant and Option Agreement under the Amended and Restated 2015 Equity Incentive Plan of Fulgent Therapeutics LLC. S-1 333-213469 10.3 9/2/2016 10.4# Form of Notice of Profits Interest Grant and Profits Interest Agreement under the Amended and Restated 2015 Equity Incentive Plan of Fulgent Therapeutics LLC. S-1 333-213469 10.4 9/2/2016 10.5# Form of Notice of Restricted Share Unit Grant and Restricted Share Unit Agreement under the Amended and Restated 2015 Equity Incentive Plan of Fulgent Therapeutics LLC. S-1 333-213469 10.5 9/2/2016 10.6# 2016 Omnibus Incentive Plan of the registrant. S-1/A 333-213469 10.6 9/26/2016 10.7# Form of Notice of Stock Option Award and Stock Option Award Agreement under the 2016 Omnibus Incentive Plan of the registrant. S-1 333-213469 10.7 9/2/2016 10.8# Form of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under the 2016 Omnibus Incentive Plan of the registrant. 10-K 001-37894 10.8 3/17/2017 10.9# Form of Option Substitution Award under the 2016 Omnibus Incentive Plan of the registrant. S-1 333-213469 10.9 9/2/2016 69 Exhibit Number Description Form File Number Incorporated by Reference Exhibit Filing Date Filed Herewith 10.10# Form of Notice of Restricted Stock Unit Substitution Award and Restricted Stock Unit Agreement under the 2016 Omnibus Incentive Plan of the registrant. S-1 333-213469 10.10 9/2/2016 10.11# Employment Agreement, dated May 25, 2016, by and among Fulgent Therapeutics LLC, the registrant and Ming Hsieh. S-1 333-213469 10.11 9/2/2016 10.12# Employment Agreement, dated May 25, 2016, by and among Fulgent Therapeutics LLC, the registrant and Paul Kim. S-1 333-213469 10.12 9/2/2016 10.13# Amended and Restated Employment Agreement, dated May 25, 2016, by and among Fulgent Therapeutics LLC, the registrant and Han Lin Gao. S-1 333-213469 10.13 9/2/2016 10.14# Severance Agreement, dated July 7, 2016, by and among Fulgent Therapeutics LLC, the registrant and Ming Hsieh. S-1 333-213469 10.14 9/2/2016 10.15# Severance Agreement, dated July 7, 2016, by and among Fulgent Therapeutics LLC, the registrant and Paul Kim. S-1 333-213469 10.15 9/2/2016 10.16# Severance Agreement, dated July 7, 2016, by and among Fulgent Therapeutics LLC, the registrant and Han Lin Gao. S-1 333-213469 10.16 9/2/2016 10.17 Contribution and Allocation Agreement, dated May 19, 2016, by and among Fulgent Therapeutics LLC, Fulgent Pharma LLC and Ming Hsieh. S-1 333-213469 10.17 9/2/2016 10.18 Form of Fourth Amended and Restated Operating Agreement of Fulgent Therapeutics LLC, to be in effect upon completion of the Reorganization. S-1/A 333-213469 2.1 9/19/2016 10.19 Commercial Leases, dated April 14, 2015, April 28, 2016, March 24, 2016 and August 1, 2016, by and between E & E Plaza LLC and Fulgent Therapeutics LLC. S-1 333-213469 10.19 9/2/2016 10.20 Director Compensation Program of the registrant, effective as of September 28, 2016 and amended November 2, 2017. 10-K 001-37894 10.20 3/20/2018 10.21§ Cooperation Agreement on the Establishment of Fujian Fujun Gene Biotech Co., Ltd., dated April 25, 2017, by and among Shenzhen Fujin Gene Science & Technology Co., Ltd., Xilong Scientific Co., Ltd. and Fuzhou Jinqiang Investment Partnership (LP). 10-Q 001-37894 10.1 8/14/2017 10.22§ Supplemental Agreement to Cooperation Agreement, dated April 10, 2019, by and among Fulgent Genetics, Inc., Shenzhen Fujin Gene Technology Co., Ltd., Xilong Science Co., Ltd. and Fuzhou Jinqiang Investment Partnership (Limited). 10-Q 001-37894 10.1 8/12/2019 10.23 Commercial Lease, dated January 31, 2018, by and between E & E Plaza LLC and Fulgent Therapeutics LLC. 10-K 001-37894 10.23 3/22/2019 70 Exhibit Number Description Form File Number Incorporated by Reference Exhibit Filing Date Filed Herewith 10.24 Commercial Lease, dated April 1, 201 8 , by and between 4401 Santa Anita Corporation and Fulgent Genetics, Inc. 10-K 001-37894 10.24 3/22/2019 10.25 Equity Distribution Agreement, dated August 30, 201 9 , by and between Fulgent Genetics, Inc. and Piper Jaffray & Co. 8-K 001-37894 1.1 8/30/2019 10.26 Purchase Agreement, dated as of November 13, 2019, by and between Fulgent Genetics, Inc. and Piper Jaffray & Co. 8-K 001-37894 1.1 11/14/2019 10.27 Amendment No. 1 to Equity Distribution Agreement, dated August 4, 2020, by and between Fulgent Genetics, Inc. and Piper Sandler & Co. 8-K 001-37894 1.1 8/5/2020 10.28 Equity Distribution Agreement, dated as of September 24, 2020, by and between Fulgent Genetics, Inc. and Piper Sandler & Co. 8-K 001-37894 1.1 9/25/2020 10.29 Equity Distribution Agreement, dated as of November 20, 2020, by and between Fulgent Genetics, Inc. and Piper Sandler & Co., BTIG, LLC, and Oppenheimer & Co. Inc. 8-K 001-37894 1.1 11/20/2020 10.30 Fulgent Genetics, Inc. Amended and Restated 2016 Omnibus Incentive Plan 8-K 0 01-37894 1 0.1 5 /21/2018 10.31 Fulgent Genetics, Inc. Amended and Restated 2016 Omnibus Incentive Plan 8-K 0 01-37894 1 0.1 9/18/2020 10.32^ Agr eement for Purchase and Sale of Property, dated July 23, 2020 8-K 0 01-37894 2.1 1 0/21/2020 10.33^ Aircraft Purchase Agreement, dated August 18, 2020, by and between ServiceMaster Acceptance Corporation and the Company 10-Q 0 01-37894 10.2 1 1/9/2020 10.34 Commercial Sublease Agreement, dated July 1 st , 2020, between Medscan Laboratories Inc. and Fulgent Genetics, Inc.; Commercial Lease Agreement, dated June 17, 2020, by and between Medscan Laboratories Inc. and Ten-Voss Ltd. 10-K 001-37894 10.34 3/8/2021 10.35 Commercial Lease Assignment & Assumption , dated January 11, 2021 by and between Ten-Voss Ltd., Medscan Laboratories, Inc. and Fulgent Genetics, Inc. 10-K 001-37894 10.35 3/8/2021 10.36 Commercial Lease Addendum, dated February 1, 2021, by and between E & E Plaza LLC and Fulgent Genetics, Inc. 10-K 001-37894 10.36 3/8/2021 10.37# Employment Agreement, dated March 8, 2021, by and among Fulgent Therapeutics, LLC, Fulgent Genetics, Inc. and Jian Xie. 10-K 001-37894 10.37 3/8/2021 10.38# Severance Agreement, dated March 8, 2021, by and among Fulgent Therapeutics LLC, Fulgent Genetics, Inc. and Jian Xie. 10-K 001-37894 10.38 3/8/2021 10.39 # ^ Amended and Restated Non-Employee Director Compensation Policy . 10-Q 001-37894 10.1 5/7/2021 10.40§ Restructuring Agreement of Fujian Fujun Gene Biotech Co., Ltd. 10-Q 001-37894 10.1 8/10/2021 71 Exhibit Number Description Form File Number Incorporated by Reference Exhibit Filing Date Filed Herewith 10.41 ^ Amended and Restated Commercial Lease Agreement, dated May 6, 2016, by and between Store Master Funding IX, LLC and Cytometry Specialists, Inc. X 21.1 Subsidiaries of the registrant. X 23.1 Consent of Deloitte & Touche LLP, independent registered public accounting firm, relating to the financial statements of the registrant. X 24.1 Power of Attorney (included on the signature page hereto) X 31.1 Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1* Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS 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. X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) X * This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing. # Management contract or compensatory plan, contract or arrangement. § Confidential treatment has been granted with respect to portions of this exhibit pursuant to Rule 24b-2 under the Exchange Act, and these confidential portions have been redacted from the version of this agreement that is incorporated by reference in this report. 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. 72 SIGNATURES 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. Date: February 28, 2022 By: /s/ Ming Hsieh Ming Hsieh President, Chief Executive Officer POWER OF ATTORNEY IN WITNESS WHEREOF, each person whose signature appears below constitutes and appoints Ming Hsieh and Paul Kim as his true and lawful agent, proxy and attorney-in-fact, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to (i) act on and sign any amendments to this report, with exhibits thereto and other documents in connection therewith, (ii) act on and sign such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, and in each case file the same with the SEC, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Name and Signature Title Date /s/ Ming Hsieh President, Chief Executive Officer and Chairman of the Board February 28, 2022 Ming Hsieh (principal executive officer) /s/ Paul Kim Chief Financial Officer February 28, 2022 Paul Kim (principal financial and accounting officer) /s/ John Bolger Director February 28, 2022 John Bolger /s/ Yun Yen Director February 28, 2022 Yun Yen /s/ Linda Marsh Director February 28, 2022 Linda Marsh 73 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 34) F-2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019 F-5 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019 F-6 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 F-8 Notes to Consolidated Financial Statements F-9 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Fulgent Genetics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Fulgent Genetics, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). 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 These financial statements are the responsibility of the Company's management. 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 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 audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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: F-2 • 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: o Testing the source information underlying the determination of the valuation assumptions and testing the mathematical accuracy of the calculations. o 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 February 28, 2022 We have served as the Company's auditor since 2016. F-3 CONSOLIDATED FINANCIAL STATEMENTS FULGENT GENETICS, INC. Consolidated Balance Sheets (in thousands, except par value data) December 31, 2021 2020 Assets Current assets Cash and cash equivalents $ 164,894 $ 87,426 Marketable securities 285,605 211,941 Trade accounts receivable, net of allowance for credit losses of $ 11,217 and $ 1,898 as of December 31, 2021 and 2020, respectively 138,912 183,857 Other current assets 22,549 40,392 Total current assets 611,960 523,616 Marketable securities, long-term 485,047 132,502 Redeemable preferred stock investment 21,965 — Fixed assets, net 62,287 40,199 Intangible assets, net 35,914 — Goodwill 50,897 — Other long-term assets 10,650 4,144 Total assets $ 1,278,720 $ 700,461 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 20,494 $ 26,488 Accrued liabilities 17,689 8,446 Income tax payable 787 53,319 Contract liabilities 14,570 26,576 Customer deposit 19,806 185 Investment margin loan 15,137 15,019 Contingent consideration 10,000 — Notes payable 6,147 — Other current liabilities 680 82 Total current liabilities 105,310 130,115 Unrecognized tax benefits 725 377 Other long-term liabilities 6,805 582 Total liabilities 112,840 131,074 Commitments and contingencies (Note 8) Stockholders’ equity Common stock, $ 0.0001 par value per share, 50,000 shares authorized, 30,160 and 28,178 shares issued and outstanding at December 31, 2021 and 2020, respectively 3 3 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 501,908 418,065 Accumulated other comprehensive (loss) income ( 759 ) 438 Retained earnings 657,597 150,881 Total Fulgent stockholders' equity 1,158,749 569,387 Noncontrolling interest 7,131 — Total stockholders’ equity 1,165,880 569,387 Total liabilities and stockholders’ equity $ 1,278,720 $ 700,461 The accompanying notes are an integral part of these consolidated financial statements. F-4 CONSOLIDATED FINANCIAL STATEMENTS FULGENT GENETICS, INC. Consolidated Statements of Operations (in thousands, except per share) Year Ended December 31, 2021 2020 2019 Revenue $ 992,584 $ 421,712 $ 32,528 Cost of revenue 215,533 89,807 14,107 Gross profit 777,051 331,905 18,421 Operating expenses: Research and development 24,219 11,580 6,537 Selling and marketing 24,439 14,952 5,898 General and administrative 50,732 15,215 6,414 Amortization of intangible assets 1,708 — — Total operating expenses 101,098 41,747 18,849 Operating income (loss) 675,953 290,158 ( 428 ) Interest and other income, net 1,347 1,526 837 Income before income taxes, equity loss in investee and gain (loss) on equity-method investments 677,300 291,684 409 Provision for income taxes 174,795 72,532 43 Income before equity loss in investee and gain (loss) on equity-method investments 502,505 219,152 366 Equity loss in investee — ( 488 ) ( 777 ) Gain (loss) on equity-method investments 3,734 ( 4,354 ) — Net income (loss) from consolidated operations 506,239 214,310 ( 411 ) Net loss attributable to noncontrolling interests 1,125 — — Net income (loss) attributable to Fulgent $ 507,364 $ 214,310 $ ( 411 ) Net income (loss) per common share attributable to Fulgent: Basic $ 17.25 $ 9.44 $ ( 0.02 ) Diluted $ 16.38 $ 8.91 $ ( 0.02 ) Weighted-average common shares: Basic 29,408 22,694 18,709 Diluted 30,976 24,056 18,709 The accompanying notes are an integral part of these consolidated financial statements. F-5 FULGENT GENETICS, INC. Consolidated Statements of Comprehensive Income (Loss) (in thousands) Year Ended December 31, 2021 2020 2019 Net income (loss) from consolidated operations $ 506,239 $ 214,310 $ ( 411 ) Other comprehensive income (loss): Foreign currency translation gain (loss) 456 20 ( 17 ) Net unrealized (loss) gain on available-for-sale debt securities, net of tax ( 1,548 ) 272 198 Comprehensive income (loss) from consolidated operations 505,147 214,602 ( 230 ) Net loss attributable to noncontrolling interest 1,125 — — Foreign currency translation gain attributable to noncontrolling interest ( 105 ) — — Comprehensive loss attributable to noncontrolling interest 1,020 — — Comprehensive income (loss) attributable to Fulgent $ 506,167 $ 214,602 $ ( 230 ) The accompanying notes are an integral part of these consolidated financial statements. F-6 FULGENT GENETICS, INC. Consolidated Statements of Stockholders’ Equity (in thousands) Fulgent Stockholders' Equity Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Fulgent Stockholders' Equity Noncontrolling Interest Total Equity Balance at January 1, 2019 18,172 $ 2 $ 114,203 $ ( 35 ) $ ( 63,018 ) $ 51,152 $ — $ 51,152 Equity-based compensation — — 3,209 — — 3,209 — 3,209 Exercise of common stock options 100 — 38 — — 38 — 38 Restricted stock awards 434 — — — — — — — Issuance of common stock at an average of $ 9.37 per share, net 104 — 979 — — 979 — 979 Issuance of common stock at an average of $ 10.34 per share, net 2,674 — 27,650 — — 27,650 — 27,650 Common stock withholding for employee tax obligations ( 1 ) — ( 21 ) — — ( 21 ) — ( 21 ) Other comprehensive gain, net — — — 181 — 181 — 181 Net loss — — — — ( 411 ) ( 411 ) — ( 411 ) Balance at December 31, 2019 21,483 2 146,058 146 ( 63,429 ) 82,777 — 82,777 Equity-based compensation — — 8,157 — — 8,157 — 8,157 Exercise of common stock options 56 — 104 — — 104 — 104 Restricted stock awards 655 — — — — — — — Issuance of common stock at an average of $ 38.50 per share, net 1,108 — 42,655 — — 42,655 — 42,655 Issuance of common stock at an average of $ 42.90 per share, net 2,846 1 122,102 — — 122,103 — 122,103 Issuance of common stock at an average of $ 48.70 per share, net 2,034 — 99,051 — — 99,051 — 99,051 Common stock withholding for employee tax obligations ( 4 ) — ( 62 ) — — ( 62 ) — ( 62 ) Other comprehensive gain, net — — — 292 — 292 — 292 Net income — — — — 214,310 214,310 — 214,310 Balance at December 31, 2020 28,178 3 418,065 438 150,881 569,387 — 569,387 Equity-based compensation — — 15,882 — — 15,882 — 15,882 Exercise of common stock options 76 — 86 — — 86 — 86 Restricted stock awards 836 — — — — — — — Issuance of common stock at an average of $ 64.83 per share, net 1,111 — 72,030 — — 72,030 — 72,030 Common stock withholding for employee tax obligations ( 41 ) — ( 4,155 ) — — ( 4,155 ) — ( 4,155 ) Cumulative effect of accounting change — — — — ( 887 ) ( 887 ) — ( 887 ) Cumulative tax effect of accounting change — — — — 239 239 — 239 Noncontrolling interest assumed related to acquisitions — — — — — — 8,151 8,151 Other comprehensive loss, net — — — ( 1,197 ) — ( 1,197 ) 105 ( 1,092 ) Net income (loss) — — — — 507,364 507,364 ( 1,125 ) 506,239 Balance at December 31, 2021 30,160 $ 3 $ 501,908 $ ( 759 ) $ 657,597 $ 1,158,749 $ 7,131 $ 1,165,880 The accompanying notes are an integral part of these consolidated financial statements. F-7 FULGENT GENETICS, INC. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2021 2020 2019 Cash flow from operating activities: Net income (loss) from consolidated operations $ 506,239 $ 214,310 $ ( 411 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity-based compensation 15,882 8,157 3,209 Depreciation and amortization 11,004 2,962 2,107 Noncash lease expense 1,154 409 413 Loss on disposal of fixed asset 850 672 11 Amortization of premium of marketable securities 7,596 857 106 Provision for credit losses 8,931 1,170 189 Deferred taxes ( 8,188 ) ( 1,775 ) ( 21 ) Unrecognized tax benefits 348 377 — Net loss on marketable securities 1,186 90 — Equity loss in investee — 488 777 (Gain) loss in equity-method investments ( 3,734 ) 4,354 — Other ( 15 ) 8 52 Changes in operating assets and liabilities: Accounts receivable 42,300 ( 178,480 ) ( 839 ) Other current and long-term assets 7,804 ( 21,149 ) 374 Accounts payable ( 12,206 ) 22,617 ( 329 ) Accrued liabilities and other liabilities 13,081 32,655 264 Income tax payable ( 52,532 ) 53,295 24 Operating and finance lease liabilities ( 1,123 ) ( 389 ) ( 409 ) Net cash provided by operating activities 538,577 140,628 5,517 Cash flow from investing activities: Purchases of fixed assets ( 23,812 ) ( 35,130 ) ( 1,182 ) Purchases of intangible assets ( 32 ) — — Proceeds from sale of fixed assets 63 8 — Purchase of marketable securities ( 710,490 ) ( 324,359 ) ( 52,077 ) Purchase of redeemable preferred stock ( 20,000 ) — — Maturities of marketable securities 83,842 19,919 24,350 Proceeds from sale of marketable securities 185,749 17,095 — Acquisition of businesses, net of cash acquired ( 61,868 ) — — Investment in equity-method investees — ( 3,971 ) ( 137 ) Net cash used in investing activities ( 546,548 ) ( 326,438 ) ( 29,046 ) Cash flow from financing activities: Proceeds from public offerings of common stock, net of issuance costs 89,475 246,190 28,758 Proceeds from noncontrolling interest 10 — — Proceeds from exercise of stock options 86 104 38 Principal paid for finance lease ( 7 ) — — Common stock withholding for employee tax obligations ( 4,155 ) ( 62 ) ( 21 ) Repayment of notes payable ( 4 ) — — Borrowing under margin account — 15,019 — Net cash provided by financing activities 85,405 261,251 28,775 Effect of exchange rate changes on cash and cash equivalents 34 20 ( 17 ) Net increase in cash and cash equivalents 77,468 75,461 5,229 Cash and cash equivalents at beginning of period 87,426 11,965 6,736 Cash and cash equivalents at end of period $ 164,894 $ 87,426 $ 11,965 Supplemental disclosures of cash flow information: Income taxes paid $ 237,069 $ 20,612 $ 20 Supplemental disclosures of non-cash investing and financing activities: Contingent consideration for business acquisition included in current liabilities $ 10,000 $ — $ — Purchases of fixed assets in accounts payable $ 1,075 $ 3,402 $ 557 Operating lease right-of-use assets obtained in exchange for lease liabilities $ 1,797 $ 402 $ 110 Operating lease right-of-use assets reduced due to lease modification or termination $ 399 $ 1,853 $ — Public offerings proceeds in other receivable included in other current assets $ — $ 17,799 $ — Finance lease right-of-use assets obtained in exchange for lease liabilities $ 1,693 $ — $ — Public offerings costs included in accounts payable $ 5 $ 359 $ 129 The accompanying notes are an integral part of these consolidated financial statements. F-8 FULGENT GENETICS, INC. Notes to Consolidated Financial Statements Note 1. Overview and Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. 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. The Company uses the equity method to account for its investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies. All significant intercompany accounts and transactions are eliminated from the accompanying consolidated financial statements. Nature of the Business Fulgent Genetics, Inc., together with its subsidiaries and an affiliated professional corporation, or PC, collectively referred to as the Company, unless otherwise noted or the context otherwise requires, is a technology company offering large-scale COVID-19 testing services, molecular diagnostic testing services and comprehensive genetic testing designed to provide physicians with clinically actionable diagnostic information to improve the quality of patient care. The PC was established in November 2021, with which the Company has a management services arrangement, and the PC provides professional pathology and related professional services to its patients. A cornerstone of the Company’s business is its ability to provide expansive options and flexibility for all clients’ unique testing needs. To this end, the Company has developed a proprietary technology platform allowing it to offer a broad and flexible test menu and to continually expand and improve its proprietary genetic reference library, while maintaining accessible pricing, high accuracy and competitive turnaround times. Combining next generation sequencing, or NGS, with its technology platform, the Company performs full-gene sequencing with deletion/duplication analysis in single-gene tests; pre-established, multi-gene, disease-specific panels; and customized panels that can be tailored to meet specific customer needs . Note 2. Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. These estimates, judgments and assumptions are based on historical data and experience available at the date of the accompanying consolidated financial statements, as well as various other factors management believes to be reasonable under the circumstances, including but not limited to the potential impacts arising from the recent global pandemic related to COVID-19. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from these estimates. On an on-going basis, management evaluates its estimates, primarily those related to: (i) revenue recognition criteria, (ii) accounts receivable and allowances for 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 subsidiaries and PC. All intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks and money market accounts. Cash equivalents are stated at fair value. Marketable Securities All marketable debt securities, which consist of corporate debt securities, municipal bonds, U.S. government and agency debt securities, and Yankee debt securities issued by foreign governments or entities and denominated in U.S. dollars have been classified F-9 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. The amortized cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Interest on marketable debt securities is included in interest and other income, net. In accordance with the Company’s investment policy, management invests to diversify credit risk and only invests in securities with high credit quality, including U.S. government securities. 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. 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: December 31, 2021 2020 2019 (in thousands) Allowance for credit losses at beginning of year $ 1,898 $ 751 $ 590 Impact of ASU 2016-13 adoption 887 — — Current period provision 8,931 1,170 189 Write-downs ( 499 ) ( 23 ) ( 28 ) Allowance for credit losses at end of year $ 11,217 $ 1,898 $ 751 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. F-10 Fixed Assets 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 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, 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, 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, F-11 and amounts may exceed federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which its cash and cash equivalents are held. In certain periods, a small number of customers has accounted for a significant portion of the Company’s revenue. Aggregating customers under common control, one customer comprised 26 % of total revenue in the year ended December 31, 2021, two customers comprised 28 % and 10 % of total revenue in the year ended December 31, 2020, and one customer comprised 28 % of total revenue in the year ended December 31, 2019. No customer comprised at least 10 % of total accounts receivable as of December 31, 2021 and 2020. The Company relies on a limited number of suppliers for its test collection kits and certain laboratory substances used in the chemical reactions incorporated into its processes, referred to as reagents, as well as for the sequencers and various other equipment and materials it uses in its laboratory operations. In particular, the Company relies on a sole supplier for the next generation sequencers and associated reagents it uses to perform its genetic tests and as the sole provider of maintenance and repair services for these sequencers. The Company’s laboratory operations would be interrupted if it encountered delays or difficulties securing these test collection kits, reagents, sequencers, other equipment or materials or maintenance and repair services, which could occur for a variety of reasons, including if the Company needs a replacement or temporary substitute for any of its limited or sole suppliers and is not able to locate and make arrangements with an acceptable replacement or temporary substitute. The Company believes there are currently only a few other manufacturers that are capable of supplying and servicing some of the equipment and other materials necessary for its laboratory operations, including collection kits, sequencers and various associated reagents. Equity Method Investments The Company uses the equity method to account for investments in entities that it does not control, but in which it has the ability to exercise significant influence over operating and financial policies. The Company's proportionate share of the net income or loss of these companies is included in consolidated net earnings. Judgments regarding the level of influence over each equity method investment include consideration of key factors such as the Company's ownership interest, representation on the board of directors or other management body and participation in policy-making decisions. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that a decline in value has occurred that is other than temporary. Evidence considered in this evaluation includes, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and the Company’s strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value. If the investments is determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value. The Company’s 25 % interest in BostonMolecules was accounted for using the equity method, and the carrying value was $ 0 as of December 31, 2021 and 2020 due to the impairment loss recorded in 2020. Leases 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 F-12 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 Company recognizes lease payments as income over the lease terms on a straight-line basis and recognizes variable lease payments as income in the period in which the changes in facts and circumstances on which the variable lease payments are based occur. The net rental income is included in the interest and other income, net, in the accompanying Consolidated Statement of Operations. Software for Internal Use The Company capitalizes certain costs incurred to purchase computer software for internal use. These costs include purchased software packages for Company use. Capitalized computer software costs are amortized over the estimated useful life of the computer software, which is generally three to five years . 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. Reporting Segment and Geographic Information Reporting segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company views its operations and manages its business in one reporting segment. Revenue Recognition The Company generates revenue from sales of its COVID-19, molecular diagnostic and genetic testing services. The Company currently receives payments from primarily three different customer types: 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. The Company bills certain customers for shipping and handling fees incurred by the Company associated with COVID-19 tests, and s hipping and handlings fees billed to customers are included in revenue, and shipping and handling fees incurred are included in cost of revenue in the accompanying Consolidated Statements of Operations . Performance Obligations Institutional and Patient Direct Pay The Company’s institutional contracts for its testing services typically have a single performance obligation to deliver COVID-19, molecular diagnostic or genetic testing services to the ordering facility or patient. Some arrangements involve the delivery of genetic testing services to research institutions, which the Company refers to as “sequencing as a service.” In arrangements with institutions, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients who pay directly, the transaction price is stated within the contract and is therefore fixed consideration. For most of the Company’s testing volume, the Company identified the institutions, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients as the customer in Step 1 and have determined a contract exists with those customers in Step 1. As these contracts typically have a single performance obligation, no allocation of the transaction price is required in Step 4. Control over testing services is transferred to the Company’s ordering facility at a point in time. Specifically, the Company determined the customer obtains control of the promised service upon delivery of test results. F-13 Insurance The Company’s insurance contracts for testing services typically have a single performance obligation to deliver testing services to the ordering facility or patient. For most of the Company’s insurance volume, the Company identified the patient as the customer in Step 1 and determined a contract exists with the patient in Step 1. In arrangements with insurance patients, the transaction price is typically stated within the contract, however, the Company may accept payments from third-party payors that are less than the contractually stated price and is therefore variable consideration. In developing the estimate of variable consideration, the Company utilizes the expected value method under a portfolio approach. The Company’s estimate requires significant judgment and is developed using known reimbursement rates and historical reimbursement data from payors and patients. As these contracts typically have a single performance obligation, no allocation of the transaction price is required in Step 4. Control over testing services is transferred to the Company’s ordering physicians at a point in time. 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 Accounting for insurance contracts includes estimation of the transaction price, defined as the amount the Company expects to be entitled to receive in exchange for providing the services under the contract. Due to the Company’s out-of-network status with the majority of insurance payors for COVID-19 tests, estimation of the transaction price represents variable consideration. The Company estimates that the variable consideration paid by insurance payors will approximate the Company's self-pay rate for COVID-19 tests that is published on its website, which is the rate established by the Center for Medicare & Medicaid Services, as supported by a historical reimbursement trend analysis. 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 The Company allocates overhead expenses, such as rent and utilities, to cost of revenue and operating expense categories based on headcount. As a result, an overhead expense allocation is reflected in cost of revenue and each operating expense category. Cost of Revenue Cost of revenue reflects the aggregate costs incurred in delivering test results and consists of: personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; costs of laboratory supplies; depreciation of laboratory equipment; amortization of leasehold and building improvements and allocated overhead. Costs associated with performing tests are recorded as tests are processed. Research and Development Expenses Research and development expenses represent costs incurred to develop the Company’s technology and future tests. These costs consist of: personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; laboratory supplies; consulting costs and allocated overhead. The Company expenses all research and development costs in the periods in which they are incurred. F-14 Selling and Marketing Expenses Selling and marketing expenses consist of: personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; customer service expenses; direct marketing expenses; educational and promotional expenses; market research and analysis and allocated overhead. The Company expenses all selling and marketing costs as incurred. General and Administrative Expenses General and administrative expenses include executive, finance and accounting, legal and human resources functions. These expenses consist of: personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; audit and legal expenses; consulting costs and allocated overhead. The Company expenses all general and administrative expenses as incurred. Income Taxes Income taxes are accounted for under the asset and liability method. The Company provides for federal, state and foreign income taxes currently payable, as well as for taxes deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount with a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. For income tax positions where it is not more likely than not that a tax benefit will be sustained, the Company does not recognize a tax benefit in its consolidated financial statements. The Company records interest and penalties related to uncertain tax positions, if applicable, as a component of income tax expense. Equity-Based Compensation The Company grants various types of equity-based awards to its employees, consultants and non-employee directors. Equity-based compensation costs are reflected in the accompanying Consolidated Statements of Operations based upon each award recipient’s role with the Company. 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. Compensation expense for employee RSU awards with a service-based vesting condition is recognized ratably over the vesting period of the award. Foreign Currency Translation and Foreign Currency Transactions The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. 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. 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 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. 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. F-15 Basic and Diluted Net Income or Loss per Share Basic net income or loss per common share is computed by dividing the net income or loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income or loss per common share is computed by dividing the net 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, 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. Year Ended December 31, 2021 2020 2019 (in thousands) Testing Services by payor Insurance $ 555,762 $ 257,587 $ 705 Institutional 435,688 163,083 31,284 Patient 1,134 1,042 539 Total Revenue $ 992,584 $ 421,712 $ 32,528 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 - 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. 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 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 F-16 less. 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 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 ASU 2016-13 In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments , or ASU 2016-13. ASU 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The standard was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those reporting periods for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application of the amendments is permitted. The Company adopted ASU 2016-13 using the modified retrospective approach as of January 1, 2021. The cumulative effect upon adoption was $ 887,000 to the retained earnings in the accompanying Consolidated Statements of Stockholders’ Equity and trade accounts receivable, net, in the accompanying Consolidated Balance Sheets. The cumulative tax effect was $ 239,000 to retained earnings in the accompanying Consolidated Statements of Stockholders’ Equity and deferred tax assets included in other long-term liabilities in the accompanying Consolidated Balance Sheets. There was no impact related to available-for-sale debt securities. ASU 2019-12 In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) , or ASU 2019-12, which is intended to reduce the complexity of accounting standards while maintaining or enhancing the helpfulness of information provided to financial statement users. The amendment in this ASU simplifies the accounting for income taxes by removing some exceptions including the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for equity method investments, the ability not to recognize a deferred tax liability for a foreign subsidiary, and the general methodology for calculating income taxes in an interim period. Other changes include requiring entities to recognize franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, evaluate tax basis step-up in goodwill obtained in a transaction that is not a business combination, and reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, making minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method, and specifying that an entity is not required to allocate the consolidated current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. For public business entities, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted ASU 2019-12 in the first quarter of 2021, and the adoption had no material impact to the Company’s consolidated financial statements. F-17 Note 3. Equity and Debt Securities The Company’s equity and debt securities consisted of the following: December 31, 2021 Amortized Cost Basis Unrealized Gains Unrealized Losses Aggregate Fair Value (in thousands) Equity securities: Short-term Bond funds $ 99,314 $ — $ ( 515 ) $ 98,799 Exchange traded funds 35,174 — ( 174 ) 35,000 Total equity securities 134,488 — ( 689 ) 133,799 Available-for-sale debt securities Short-term Corporate debt securities 92,116 24 ( 148 ) 91,992 Money market accounts 77,067 — — 77,067 U.S. government debt securities 51,318 — ( 81 ) 51,237 Municipal bonds 4,980 — ( 12 ) 4,968 Yankee debt securities 3,615 — ( 6 ) 3,609 Less: Cash equivalents ( 77,067 ) — — ( 77,067 ) Total debt securities due within 1 year 152,029 24 ( 247 ) 151,806 After 1 year through 5 years Corporate debt securities 242,421 29 ( 1,913 ) 240,537 U.S. government debt securities 147,699 7 ( 786 ) 146,920 U.S. agency debt securities 70,069 — ( 535 ) 69,534 Municipal bonds 11,920 13 ( 11 ) 11,922 Yankee debt securities 8,633 — ( 89 ) 8,544 Total debt securities due after 1 year through 5 years 480,742 49 ( 3,334 ) 477,457 After 5 years through 10 years Municipal bonds 7,633 — ( 43 ) 7,590 Redeemable preferred stock investment 20,000 1,965 — 21,965 Total debt securities due after 5 years through 10 years 27,633 1,965 ( 43 ) 29,555 Total available-for-sale debt securities 660,404 2,038 ( 3,624 ) 658,818 Total equity and debt securities $ 794,892 $ 2,038 $ ( 4,313 ) $ 792,617 F-18 December 31, 2020 Amortized Cost Basis Unrealized Gains Unrealized Losses Aggregate Fair Value (in thousands) Equity securities: Short-term Bond funds $ 153,269 $ 67 $ ( 151 ) $ 153,185 Exchange traded funds 17,614 — ( 5 ) 17,609 Total equity securities 170,883 67 ( 156 ) 170,794 Available-for-sale debt securities Short-term Money market accounts 47,461 — — 47,461 Corporate debt securities 41,061 101 ( 15 ) 41,147 Less: Cash equivalents ( 47,461 ) — — ( 47,461 ) Total debt securities due within 1 year 41,061 101 ( 15 ) 41,147 After 1 year through 5 years Corporate debt securities 124,989 580 ( 117 ) 125,452 U.S. agency debt securities 1,000 2 — 1,002 Yankee debt securities 6,054 4 ( 10 ) 6,048 Total debt securities due after 1 year through 5 years 132,043 586 ( 127 ) 132,502 Total available-for-sale debt securities 173,104 687 ( 142 ) 173,649 Total equity and debt securities $ 343,987 $ 754 $ ( 298 ) $ 344,443 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. Note 4. Fair Value Measurements The authoritative guidance on fair value measurements establishes a framework with respect to measuring assets and liabilities at fair value on a recurring basis and non-recurring basis. Under the framework, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The framework also establishes a three-tier hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability and are developed based on the best information available in the circumstances. The hierarchy consists of the following three levels: Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Inputs are unobservable for the asset or liability. F-19 The following tables present information about the Company’s financial assets measured at fair value on a recurring basis, based on the three-tier fair value hierarchy: December 31, 2021 Total Level 1 Level 2 Level 3 (in thousands) Equity securities, debt securities and cash equivalents: Corporate debt securities $ 332,529 $ — $ 332,529 $ — U.S. government debt securities 198,157 — 198,157 — Bond funds 98,799 98,799 — — U.S. agency debt securities 69,534 — 69,534 — Exchange traded funds 35,000 35,000 — — Municipal bonds 24,480 — 24,480 — Yankee debt securities 12,153 — 12,153 — Redeemable preferred stock investment 21,965 — — 21,965 Money market accounts 77,067 77,067 — — Total equity securities, debt securities and cash equivalents $ 869,684 $ 210,866 $ 636,853 $ 21,965 December 31, 2020 Total Level 1 Level 2 Level 3 (in thousands) Equity securities, debt securities and cash equivalents: Corporate debt securities $ 166,599 $ — $ 166,599 $ — Bond funds 153,185 153,185 — — Exchange traded funds 17,609 17,609 — — Yankee debt securities 6,048 — 6,048 — U.S. agency debt securities 1,002 — 1,002 — Money market accounts 47,461 47,461 — — Total equity securities, debt securities, and cash equivalents $ 391,904 $ 218,255 $ 173,649 $ — 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 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 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. F-20 Note 5. Fixed Assets Major classes of fixed assets consisted of the following: December 31, Useful Lives 2021 2020 (in thousands) Medical lab equipment 2 to 12 Years $ 35,930 $ 20,849 Building 39 Years 6,731 6,731 Aircraft 7 Years 6,503 6,503 Computer hardware 1 to 5 Years 5,661 3,699 Leasehold improvements Shorter of lease term or estimated useful life 4,003 1,580 Building improvements 6 months to 39 Years 3,936 707 Furniture and fixtures 2 to 10 Years 2,255 454 Computer software 3 to 5 Years 1,408 541 Automobile 2 to 7 Years 825 53 Land improvements 5 to 15 Years 403 403 General equipment 3 to 5 Years 44 44 Land 7,500 7,500 Assets not yet placed in service 6,718 2,055 Total 81,917 51,119 Less: Accumulated depreciation ( 19,630 ) ( 10,920 ) Fixed assets, net $ 62,287 $ 40,199 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. Note 6. Other Current Assets Other current assets consisted of the following: December 31, 2021 2020 (in thousands) Reagents and supplies $ 12,206 $ 16,491 Prepaid expenses 4,244 3,682 Marketable securities interest receivable 2,743 1,016 Prepaid income taxes 1,716 14 Other receivable 1,403 17,810 Contract assets 237 1,379 Total $ 22,549 $ 40,392 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. F-21 Note 7. 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, 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: Year Ended December 31, 2021 2020 2019 (in thousands) Revenue: United States $ 978,978 $ 415,334 $ 25,014 Foreign 13,606 6,378 7,514 Total $ 992,584 $ 421,712 $ 32,528 Note 8. Debt, Commitments and Contingencies Debt 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 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. Purchase Obligations As of December 31, 2021, the Company had non-cancelable purchase obligations of $ 11.6 million, of which, $ 10.9 million for reagents and other supplies and $ 732,000 for medical lab equipment are payable within twelve months. Contingencies From time to time, the Company may be subject to legal proceedings and claims arising in the ordinary course of business. Management does not believe that the outcome of any of these matters will have a material effect on the Company’s consolidated financial position, results of operations or cash flows. The Company has received a CID issued by the U.S. Department of Justice pursuant to the False Claims Act related to its investigation of allegations of medically unnecessary laboratory testing, improper billing for laboratory testing, and remuneration received or provided in violation of the Anti-Kickback Statute and the Stark Law. This CID requests information and records relating to certain of the Company’s customers named in the CID, which represent a small portion of the Company’s revenues. The Company is fully cooperating with the U.S. Department of Justice to promptly respond to the requests for information in this CID, and does not presently expect this CID or resulting investigation to have a material adverse impact. However, the Company cannot predict when the investigation will be resolved, the outcome of the investigation or its potential impact, which may ultimately be greater than the Company currently expects. The contingent consideration of $ 10.0 million as of December 31, 2021 was related to the acquisition of CSI (see Note 15, Business Acquisitions), which is included in the Consolidated Balance Sheets. F-22 Note 9. Leases Lessee 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. 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: December 31, 2021 2020 (in thousands) Operating lease ROU asset, net $ 7,141 $ 828 Operating lease liabilities, short term $ 1,842 $ 267 Operating lease liabilities, long term $ 5,344 $ 568 Finance lease ROU asset, net $ 1,735 $ — Finance lease liabilities, short term $ 332 $ — Finance lease liabilities, long term $ 1,398 $ — The following was operating and finance lease expense: Year Ended December 31, 2021 2020 2019 (in thousands) Operating lease cost $ 1,262 $ 566 $ 587 Finance lease cost: Amortization of ROU assets 7 — — Interest on lease liabilities 1 — — Short-term lease cost 296 142 — Total lease cost $ 1,566 $ 708 $ 587 Supplemental information related to leases was the following: December 31, 2021 Weighted average remaining lease term - operating leases 4.96 years Weighted average discount rate - operating leases 3.15 % Weighted average remaining lease term -finance lease 4.94 years Weighted average discount rate - finance lease 3.21 % F-23 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) Year Ending December 31, 2022 $ 2,037 $ 383 2023 1,579 383 2024 1,154 376 2025 1,048 366 2026 884 366 Thereafter 1,080 — Total lease payments 7,782 1,874 Less imputed interest ( 596 ) ( 144 ) Total $ 7,186 $ 1,730 Lessor The Company leases out space in buildings it owns to third-party tenants under noncancelable operating leases and has leased out such space since the Company purchased such buildings in October 2020. The Company also subleases out some space in a lease acquired as part of the acquisition of CSI. As of December 31, 2021, the remaining lease terms left range from 11 months to 44 months including renewal options and may include rent escalation clauses. Lease income primarily represents fixed lease payments from tenants recognized on a straight-line basis over the application lease term. Variable lease income represents tenant payments for real estate taxes, insurance and maintenance. The lease income was included in interest and other income, net, in the accompanying Consolidated Statements of Operations. Total lease income was as follows: Year Ended December 31, 2021 2020 2019 (in thousands) Lease income $ 413 $ 144 $ — Variable lease income 7 1 — Total lease income $ 420 $ 145 $ — Future fixed lease payments from tenants for all noncancelable operating leases as of December 31, 2021 are as follows: Lease Payments from Tenants (in thousands) Year Ending December 31, 2022 $ 355 2023 264 2024 180 2025 120 Total $ 919 F-24 Note 10. Equity-Based Compensation The Company has included equity-based compensation expense as part of cost of revenue and operating expenses in the accompanying Consolidated Statements of Operations as follows: Year Ended December 31, 2021 2020 2019 (in thousands) Cost of revenue $ 3,563 $ 1,452 $ 676 Research and development 6,326 2,693 1,024 Selling and marketing 2,513 2,092 845 General and administrative 3,480 1,920 664 Total $ 15,882 $ 8,157 $ 3,209 Award Activity Option Awards The following table summarizes activity for options to acquire shares of the Company’s common stock in the years ended December 31, 2021, 2020 and 2019: Number of Shares Subject to Options (in thousands) Weighted- Average Exercise Price Weighted- Average Grant Date Fair Value Weighted- Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) (1) Balance at December 31, 2018 417 $ 0.64 7.1 $ 1,116 Granted 30 $ 6.98 $ 4.58 Exercised ( 100 ) $ 0.38 $ 5.36 Canceled ( 6 ) $ 0.38 $ 7.10 Balance at December 31, 2019 341 $ 1.27 6.4 $ 3,960 Granted 10 $ 15.82 $ 11.45 Exercised ( 56 ) $ 1.86 $ 5.04 Canceled ( 8 ) $ 4.18 $ 4.68 Balance at December 31, 2020 287 $ 1.59 5.5 $ 14,484 Granted 5 $ 73.64 $ 56.34 Exercised ( 76 ) $ 1.13 $ 8.40 Canceled — $ — $ — Balance at December 31, 2021 216 $ 3.42 4.6 $ 20,965 Exercisable as of December 31, 2021 193 $ 0.99 4.2 $ 19,249 (1) Aggregate intrinsic value is calculated as the difference between (i) the exercise price of options and (ii) the market value of the Company’s common stock as of the applicable date. The total fair value of options that vested during the years ended December 31, 2021, 2020 and 2019 was $ 76,000 , $ 223,000 and $ 549,000 , respectively. 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. RSU Awards RSUs are awards that entitle the holder to receive shares of the Company’s common stock upon satisfaction of vesting conditions. Each RSU represents the contingent right to receive one share of the Company’s common stock upon vesting and settlement. F-25 The following table summarizes activity for RSUs relating to shares of the Company’s common stock in the years ended December 31, 2021, 2020, and 2019: Number of Shares (in thousands) Weighted-Average Grant Date Fair Value Balance at December 31, 2018 1,086 $ 5.94 Granted 982 $ 7.00 Vested and settled ( 434 ) $ 6.39 Forfeited ( 123 ) $ 5.38 Balance at December 31, 2019 1,511 $ 6.54 Granted 1,389 $ 24.86 Vested and settled ( 655 ) $ 7.97 Forfeited ( 160 ) $ 11.17 Balance at December 31, 2020 2,085 $ 17.93 Granted 477 $ 95.33 Vested and settled ( 836 ) $ 15.43 Forfeited ( 107 ) $ 37.83 Balance at December 31, 2021 1,619 $ 40.74 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. Fair Value Assumptions for Option Awards The Company uses the Black-Scholes option-pricing model to measure the fair value of option awards. The Black-Scholes option-pricing model requires the input of various assumptions, each of which is subjective and requires significant judgment. These assumptions include the following: • Expected Term. The expected term represents the period that the Company’s equity-based awards are expected to be outstanding. The Company determines the expected term assumption based on the vesting terms, exercise terms and contractual terms of the options. • Risk-Free Interest Rate. The Company determines the risk-free interest rate by using the equivalent to the expected term based on the U.S. Treasury yield curve in effect as of the date of grant. • Dividend Yield. The assumed dividend yield is based on the Company’s expectation that it will not pay dividends in the foreseeable future, which is consistent with its history of not paying dividends. • Expected Volatility. The Company calculates expected volatility based on historical volatility data of its stock that is publicly traded. • Forfeiture Rate. The Company accounts for forfeitures as they occur. Awards to Employees The table below sets forth the weighted-average assumptions used in the Black-Scholes option-pricing model to estimate the fair value of options to acquire shares of the Company’s common stock granted to employees during the years ended December 31, 2021, 2020 and 2019. Year Ended December 31, 2021 2020 2019 Expected term (in years) 6.1 6.1 6.1 Risk-free interest rates 1.1 % 0.4 % 1.8 % Dividend yield — — — Expected volatility 94.6 % 87.5 % 73.6 % F-26 Determination of Fair Value on Grant Dates The fair value of the shares of the Company’s common stock underlying option and RSU awards is determined by the Company’s board of directors or the compensation committee thereof based on the closing sales price of the Company’s common stock on the date of grant as reported by the Nasdaq Global Market. Note 11. Income Taxes Provision for income taxes consists of U.S. federal and state income taxes. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences, operating losses and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The following table summarizes income (loss) before income taxes, equity loss in investee and gain (loss) on equity-method investments: Year Ended December 31, 2021 2020 2019 (in thousands) U.S. income before income taxes, equity loss in investee and gain (loss) on equity-method investments $ 681,403 $ 291,739 $ 679 Foreign loss before income taxes, equity loss in investee and gain (loss) on equity-method investments ( 4,103 ) ( 55 ) ( 270 ) Income before income taxes, equity loss in investee and gain (loss) on equity-method investments $ 677,300 $ 291,684 $ 409 Income tax expense consisted of the following: Year Ended December 31, 2021 2020 2019 (in thousands) Current: Federal $ 131,907 $ 53,794 $ 5 State 51,076 20,513 38 Total Current 182,983 74,307 43 Deferred: Federal ( 7,471 ) ( 248 ) ( 249 ) State ( 717 ) ( 14 ) ( 280 ) Foreign 669 — — Change in valuation allowance ( 669 ) ( 1,513 ) 529 Total Deferred ( 8,188 ) ( 1,775 ) — Total income tax expense $ 174,795 $ 72,532 $ 43 Reconciliation of the difference between the federal statutory income tax rate and the effective income tax rate is as follows: Year Ended December 31, 2021 2020 2019 Tax provision at federal statutory rate 21.00 % 21.00 % 21.00 % State taxes 5.99 % 5.68 % - 46.76 % Foreign tax rate differential 0.00 % 0.00 % 13.83 % Uncertain Tax Positions 0.05 % 0.13 % 0.00 % Stock based compensation - 1.96 % - 0.92 % - 53.53 % Return to provision - 0.17 % - 0.11 % - 57.11 % Other permanent differences 1.09 % 0.02 % 3.87 % Other - 0.14 % - 0.41 % 0.01 % Change in valuation allowance - 0.10 % - 0.52 % 129.22 % Effective tax rate 25.76 % 24.87 % 10.53 % F-27 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, 2021 2020 2019 (in thousands) Deferred tax assets Accrued vacation and other accrued expenses $ 1,486 $ 166 $ 97 Provision for credit losses 2,755 513 180 Net operating losses 199 206 445 Stock based compensation 1,739 1,424 609 State income taxes 10,991 4,306 8 Foreign 1,808 1,220 545 Credits — — 680 Lease liability 1,643 226 643 Equity loss in investment 700 700 — Other 599 89 — Gross deferred tax assets 21,920 8,850 3,207 Less: Valuation allowance ( 2,609 ) ( 2,021 ) ( 2,125 ) Net deferred tax assets 19,311 6,829 1,082 Deferred tax liabilities Intangible assets 8,083 — — Depreciation 7,371 4,830 419 Right of use asset 1,640 224 633 Other 1,458 147 30 Total deferred tax liabilities 18,552 5,201 1,082 Net deferred tax assets $ 759 $ 1,628 $ — As of December 31, 2021, the Company has no estimated federal net operating loss, or NOL, carryforwards and estimated state NOL carryforwards of $ 1.8 million. The Company’s state NOLs are scheduled to begin expiring in 2037 . 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 $ 2.6 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. When realized, the asset will generate a capital loss which may only be used to offset capital gain income; therefore, the Company has recorded a full valuation allowance against this asset. The net deferred assets are included in other long-term assets in the accompanying Consolidated Balance Sheets. Uncertain Tax Positions The Company is subject to income taxation by the United States government and certain states in which the Company's activities give rise to an income tax filing requirement. The Company does not have any significant income tax filing requirements in any foreign jurisdiction. As of December 31, 2021, there were no pending tax audits in any jurisdiction. The tax returns are subject to statutes of limitations that vary by jurisdiction. At December 31, 2021, the Company remains subject to income tax examinations in the U.S. 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. F-28 A reconciliation of the Company’s gross unrecognized tax benefits is as follows: Year Ended December 31, 2021 2020 2019 (in thousands) Balance at beginning of year $ 377 $ — $ — Increases to prior positions — 141 — Increases for current year positions 333 236 — Balance at end of year $ 710 $ 377 $ — As of December 31, 2021, the Company has $ 710,000 of gross unrecognized tax benefits, related to research and experimental tax credits. The Company has $ 710,000 of unrecognized tax benefits as of December 31, 2021, which, if recognized, would affect the annual effective tax rate. The Company has accrued $ 15,000 and $ 0 for interest at December 31, 2021 or 2020, respectively, and has recognized interest expense of $ 15,000 and $ 0 for the years ended December 31, 2021 and 2020, respectively. Although it is possible that the amount of unrecognized benefits with respect to our uncertain tax positions will increase or decrease in the next twelve months, the Company does not expect material changes. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could differ from the Company's accrued positions. Accordingly, additional provisions on federal, state and foreign tax-related matters could be recorded in future periods as revised estimates are settled or otherwise resolved. Note 12. Income (Loss) per Share The following is a reconciliation of the basic and diluted income (loss) per share computations: Year Ended December 31, 2021 2020 2019 (in thousands, except per share data) Net income (loss) attributable to Fulgent $ 507,364 $ 214,310 $ ( 411 ) Weighted-average common shares - outstanding, basic 29,408 22,694 18,709 Weighted-average common shares - outstanding, diluted 30,976 24,056 18,709 Net income (loss) per common share, basic $ 17.25 $ 9.44 $ ( 0.02 ) Net income (loss) per common share, diluted $ 16.38 $ 8.91 $ ( 0.02 ) The following securities have been excluded from the calculation of diluted loss per share for all periods presented because their effect would have been anti-dilutive: Year Ended December 31, 2021 2020 2019 (in thousands) Options 5 10 36 RSUs 182 347 161 The anti-dilutive shares described above were calculated using the treasury stock method. F-29 Note 13. Retirement Plans The Company offers a 401(k) retirement savings plan, or the 401 (k) Plan, for its employees, including its executive officers, who satisfy certain eligibility requirements. The Internal Revenue Code of 1986, as amended, allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan. The Company matches contributions to the 401(k) Plan based on the amount of salary deferral contributions the participant makes to the 401(k) Plan. The Company will match up to 3 % of an employee’s compensation that the employee contributes to his or her 401(k) Plan account. Total Company matching contributions to the 401(k) Plan were $ 697,000 , $ 422,000 and $ 237,000 in the years ended December 31, 2021, 2020 and 2019, respectively. Note 14. Related Party Linda Marsh, who is a member of the Company’s board of directors, is currently the Senior Executive Vice President of AHMC Healthcare Inc. , or AHMC. The Company performs genetic testing and other testing services, on an arms-length basis, for AHMC, and the Company recognized $ 3.4 million and $ 3.1 million in revenue in the years ended December 31, 2021 and 2020, respectively. The Company did not recognize any revenue from AHMC in the year ended December 31, 2019. As of December 31, 2021 and 2020, $ 556,000 and $ 1.8 million was owed to the Company by AHMC, respectively, which is included in trade accounts receivable, net, in the accompanying Consolidated Balance Sheets, in connection with this relationship. The Spouse of the Company’s founder, Chief Executive Officer and Chairman of the Company’s board of directors, Ming Hsieh, is the owner of JEM Enterprise, or JEM. In the year ended December 31, 2020 , the Company purchased $ 200,000 of office furniture and supplies from JEM. The Company believes $ 200,000 was a fair market price for the furniture purchased. As of December 31, 2021 and 2020 , zero was owed to JEM by the Company in connection with this relationship. The Chief Executive Officer and Chairman of the Company’s board of directors, Ming Hsieh, is the owner of PTJ Associates Inc., or PTJ. PTJ provides flight services to the Company on an arms-length basis. 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. 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. Note 15. 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. F-30 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 . Amounts (in thousands) Considerations Cash $ 18,974 Fair value of the Company’s 30% equity interest held before the business combination 3,734 $ 22,708 Recognized amounts of identifiable assets acquired and liabilities assumed Financial assets $ 3,181 Reagents and supplies 1,288 Fixed assets 3,874 Other tangible assets 944 Identifiable intangible assets 6,958 Other current liabilities ( 2,585 ) Notes payable ( 5,893 ) Recognized amounts of identifiable assets acquired and liabilities assumed, net 7,767 Noncontrolling interest ( 8,141 ) Goodwill 23,082 Total $ 22,708 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 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. F-31 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. 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 CSI Acquisition date). The following tables summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the CSI Acquisition date: Amounts (in thousands) Considerations Cash $ 43,359 Contingent consideration 10,000 $ 53,359 Recognized amounts of identifiable assets acquired and liabilities assumed Debt-free net working capital $ 4,270 Fixed assets 6,855 ROU assets - operating 4,988 ROU assets - finance 49 Other assets 160 Identifiable intangible assets 30,540 Deferred tax liability ( 9,881 ) Operating lease liabilities ( 4,988 ) Finance lease liabilities ( 49 ) Other liabilities ( 6,069 ) Recognized amounts of identifiable assets acquired and liabilities assumed, net 25,875 Goodwill 27,484 Total $ 53,359 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: Net Sales Operating Income (Loss) FF Gene Biotech $ 6,632 $ ( 3,894 ) CSI 17,390 1,138 Total $ 24,022 $ ( 2,756 ) F-32 Note 16. Equity Distribution Agreements In August 2019, the Company entered into an Equity Distribution Agreement, or the 2019 Equity Distribution Agreement, with Piper Jaffray & Co., or Piper, as sales agent, which was amended on August 4, 2020. During the year ended December 31, 2019, the Company sold an aggregate of 104,000 shares of its common stock pursuant to the 2019 Equity Distribution Agreement at a weighted-average net selling price of $ 9.37 per share, which resulted in $ 979,000 of net proceeds to the Company. During the year ended December 31, 2020, the Company sold an aggregate of 1.1 million shares of its common stock pursuant to the 2019 Equity Distribution Agreement at a weighted-average net selling price of $ 38.50 per share, which resulted in $ 42.7 million of net proceeds to the Company. Shares sold under the 2019 Equity Distribution Agreement were offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-233227) filed with the SEC on August 12, 2019 and declared effective on August 23, 2019, and prospectus supplements and accompanying base prospectus filed with the SEC on August 30, 2019, May 6, 2020 and August 5, 2020. In September 2020, the Company entered into an Equity Distribution Agreement, or the September 2020 Equity Distribution Agreement, with Piper as sales agent, pursuant to which the Company sold an aggregate of 2.8 million shares of its common stock at a weighted-average net selling price of $ 42.90 per share, which resulted in $ 122.1 million of net proceeds to the Company. Shares sold under the September 2020 Equity Distribution Agreement were offered and sold pursuant to the Company’s registration statement on Form S-3 (File No. 333-239964) filed with the SEC on July 21, 2020, as amended on August 5, 2020, and declared effective on August 12, 2020, and a prospectus supplement and accompanying base prospectus filed with the SEC on September 25, 2020. In November 2020, the Company entered into an Equity Distribution Agreement, or the November 2020 Equity Distribution Agreement, with Piper, Oppenheimer & Co. Inc., and BTIG LLC, as sales agents, pursuant to which the Company may offer and sell, from time to time through Piper, shares of its common stock having an aggregate offering price of up to $ 175.0 million. Piper may receive a commission of up to 3 % of the gross proceeds received by the Company for sales pursuant to the November 2020 Equity Distribution Agreement. During the year ended December 31, 2020, the Company sold an aggregate of 2.0 million shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $ 48.70 per share, which resulted in $ 99.1 million of net proceeds to the Company. During the year ended December 31, 2021, the Company sold an aggregate of 1.1 million shares of its common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of $ 64.83 per share, which resulted in $ 72.0 million of net proceeds to the Company. Shares sold under the November 2020 Equity Distribution Agreement were offered and sold pursuant to the Company’s registration statement on Form S-3 (File No. 333-239964) filed with the SEC on July 21, 2020, as amended on August 5, 2020, and declared effective on August 12, 2020, and a prospectus supplement and accompanying base prospectus filed with the SEC on November 20, 2020. F-33 Note 17. Goodwill and Intangible Assets Summaries of goodwill and intangible assets balances as of December 31, 2021 and 2020 were as follows: December 31, Weighted-Average Amortization Period 2021 2020 (in thousands) Goodwill $ 50,897 $ — Royalty-free technology 10 Years $ 5,803 $ — Less: accumulated amortization ( 387 ) — Royalty-free technology, net 5,416 — Customer relationships 12 Years 28,845 — Less: accumulated amortization ( 1,125 ) — Customer relationships, net 27,720 — Trade name 10 Years 1,090 — Less: accumulated amortization ( 45 ) — Trade name, net 1,045 — Laboratory information system platform 5 Years 1,860 — Less: accumulated amortization ( 155 ) — Laboratory information system platform, net 1,705 — Purchased patent 10 Years 31 — Less: accumulated amortization ( 3 ) — Purchased patent, net 28 — Total intangible assets, net $ 35,914 $ — 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: Amounts (in thousands) 2022 $ 3,615 2023 3,615 2024 3,615 2025 3,615 2026 3,292 Thereafter 18,162 Total $ 35,914 F-34 Note 18. Selected Quarterly Financial Data (Unaudited) The tables below set forth the Company’s quarterly Consolidated Statements of Operations data for the eight quarters ended December 31, 2021. In the opinion of management, this quarterly data has been prepared on the same basis as the accompanying consolidated financial statements and includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the periods presented. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the report in which these consolidated financial statements are included for descriptions of the effects of any extraordinary, unusual or infrequently occurring items recognized in any of the periods covered by this data. The results for any one quarter are not indicative of the results to be expected in the current period or any future period . Three Months Ended Dec. 31, 2021 Sept. 30, 2021 June 30, 2021 Mar. 31, 2021 Dec. 31, 2020 Sept. 30, 2020 June 30, 2020 Mar. 31, 2020 (dollars in thousands, except per share data) Statement of Operations Data: Revenue $ 251,671 $ 227,868 $ 153,616 $ 359,429 $ 294,978 $ 101,716 $ 17,265 $ 7,753 Cost of revenue 62,134 43,466 35,858 74,075 51,772 26,261 7,717 4,057 Gross profit 189,537 184,402 117,758 285,354 243,206 75,455 9,548 3,696 Operating expenses: Research and development 7,464 6,021 5,312 5,422 4,576 3,177 1,849 1,978 Selling and marketing 8,200 6,012 5,219 5,008 5,081 5,014 3,260 1,597 General and administrative 22,102 12,299 8,329 8,002 7,640 3,741 1,799 2,035 Amortization of intangible assets 911 797 — — — — — — Total operating expenses 38,677 25,129 18,860 18,432 17,297 11,932 6,908 5,610 Operating income (loss) 150,860 159,273 98,898 266,922 225,909 63,523 2,640 ( 1,914 ) Interest and other (expense) income, net ( 35 ) 496 604 282 589 421 275 241 Income (loss) before income taxes, equity earnings (loss) in investee and gain (loss) on equity-method investments 150,825 159,769 99,502 267,204 226,498 63,944 2,915 ( 1,673 ) Provision for (benefit from) income taxes 47,148 37,545 23,589 66,513 58,571 14,526 ( 599 ) 34 Income (loss) before equity earnings (loss) in investee and gain (loss) on equity-method investments 103,677 122,224 75,913 200,691 167,927 49,418 3,514 ( 1,707 ) Equity earnings (loss) in investee — — — — 143 ( 189 ) ( 193 ) ( 249 ) Gain (loss) on equity-method investments — — 3,734 — ( 1,763 ) ( 2,591 ) — — Net income (loss) from consolidated operations 103,677 122,224 79,647 200,691 166,307 46,638 3,321 ( 1,956 ) Net loss attributable to noncontrolling interests 662 298 165 — — — — — Net income (loss) attributable to Fulgent $ 104,339 $ 122,522 $ 79,812 $ 200,691 $ 166,307 $ 46,638 $ 3,321 $ ( 1,956 ) Net income (loss) per common share attributable to Fulgent: Basic $ 3.48 $ 4.13 $ 2.74 $ 6.96 $ 6.55 $ 2.11 $ 0.15 $ ( 0.09 ) Diluted $ 3.34 $ 3.93 $ 2.59 $ 6.52 $ 6.16 $ 1.98 $ 0.14 $ ( 0.09 ) Note 19. 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 . F-35