Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ~~YES~~Yes ☒ No ☐ ~~NO ☒~~

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ~~YES~~Yes ☐ NONo ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~Yes ☒ NONo ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~YES~~Yes ☒ NONo ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ~~YES~~Yes ☐ NONo ☒

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates as of June 30, ~~2019~~2021 (computed by reference to the price at which the registrant’s common stock was last sold on such date, the last business day of the registrant’smost recently completed second fiscal quarter, as reported by the Nasdaq Global Market) was approximately ~~$38.8 million.~~$1.6 billion. For purposes of this calculation, it has been assumed that all shares of the registrant’s common stock held by directors, executive officers and persons beneficially owning ~~10%~~5% or more of the registrant’s common stock are held by affiliates; however, the treatment of these persons as affiliates for purposes of this calculation is not, and shall not be considered, a determination as to whether such persons are affiliates of the registrant for any other purpose.

As of ~~March 1, 2020,~~February 15, 2022, there were ~~21,564,971~~30,252,511 outstanding shares of the registrant’s common stock.

Certain portions of the registrant’s definitive proxy statement for its ~~2020~~2022 annual meeting of stockholders are incorporated by reference in Part III of this report.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are statements other than historical facts and relate to future events or circumstances or our future performance, and they are based on our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” “possible,” “likely,” “probable,” and similar expressions that convey uncertainty of future events or outcomes identify forward-looking statements.

The forward-looking statements in this report include statements about, among other things:

These forward-looking statements are subject to a number of risks and uncertainties, including, among others, those described under ~~Item1A.~~Item 1A. “Risk Factors” and elsewhere in this report. Moreover, we operate in a competitive and rapidly evolving industry and new risks emerge from time to time. It is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. In light of these risks and uncertainties, the forward-looking events and circumstances described in this report may not occur, and actual results could differ materially and adversely from those described in or implied by any forward-looking statements we make. Although we have based our forward-looking statements on assumptions and expectations we believe are reasonable, we cannot guarantee future results, levels of activity, performance or achievements or other future events. As a result, forward-looking statements should not be relied on or viewed as predictions of future events, and this report should be read with the understanding that our actual future results, levels of activity, performance and achievements or other future events may be materially different than what we currently expect.

The forward-looking statements in this report speak only as of the date of this document, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

We own registered or unregistered trademark rights to Fulgent^®, Picture Genetics^®and our company name and logo. Any other service marks, trademarks and trade names appearing in this report are the property of their respective owners. We do not use the ® or ™ symbol in each instance in which one of our trademarks appears in this report, but this should not be construed as any indication that we will not assert our rights thereto to the fullest extent under applicable law.

Fulgent Genetics, Inc., together with its subsidiaries and an affiliated professional corporation with which the Company has a management services arrangement, are collectively referred to in this Annual Report on Form 10-K as the “Company,” “Fulgent,” “we,” “us,” and “our.”

~~Fulgent is~~We are a ~~growing~~ technology company offering large-scale COVID-19 testing services, molecular diagnostic testing services and comprehensive genetic testing designed to provide physicians and ~~providing physicians~~patients with clinically actionable diagnostic information ~~they can use~~ to improve the quality of patient care. WeA cornerstone of our business is our ability to provide expansive options and flexibility for all clients’ unique testing needs. To this end, we have developed a proprietary technology platform ~~that allows~~allowing us to offer a broad and flexible test menu and to continually expand and improve our proprietary genetic variant reference library, while maintaining accessible pricing, high accuracy and competitive turnaround times. Combining next generation sequencing, or NGS, with our technology platform, we perform 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.~~ needs. We ~~believe~~have experienced rapid volume growth since our commercial launch in 2013, with approximately 10.0 million billable tests delivered in 2021, compared to 4.4 million billable tests delivered in 2020, and an aggregate of approximately 14.5 million billable tests delivered to over 1,800 customers from inception through December 31, 2021.

Our mission is to offer and develop flexible and affordable genetic testing services designed to improve patient care and quality of life. Founded in 2011, Fulgent began with two simple ideas; flexibility and affordability. Today, we strive to provide the most effective and wide-ranging genetic testing menu on the market.

Our offerings consist of a wide variety of tests and test types, and our customers have a high degree of choice when selecting a test from our menu. A patient or provider may select a single-gene test of any of the genes in our portfolio or they may select one of our pre-established panel tests, which are designed to test particular genes and mutations within these genes that relate to a wide range of specified conditions and diseases. For example, our Focus and Comprehensive oncology panels test 30 genes and 127 genes, respectively, that relate to various cancers and our Beacon carrier screening panels test up to 436 genes covering over 400 inherited conditions. We can perform full-gene sequencing with deletion/duplication analysis in all of these tests. In addition, we continually seek to expand our test menu ~~offers more~~with new genes and panel tests. Our test offerings also include Solid Tumor Molecular Profiling for somatic cancer testing, ~~than~~Rapid Whole Genome testing developed for children in neonatal intensive care units, or NICU, or pediatric intensive care units, or PICU, our ~~competitors~~Newborn Genetic Analysis panel, and a single front-line test designed to comprehensively detect ataxia-related variants and repeat expansions via sequencing. In 2019, we launched Picture Genetics, a patient-initiated genetic testing offering aimed at individual consumers and which we advertise directly to consumers through a variety of methods including social media and other digital avenues.

We also offer certain research service tests, which we refer to as “sequencing as a service” and which are primarily ordered by research institutions and other similar institutional customers. In addition, we offer whole exome and clinical exome panel tests, which test all genes included in ~~today’s market,~~our portfolio and up to 20,096 genes located in the exome, respectively, and produce results that we combine with the individual’s unique clinical presentation and family history to enhance the clinical relevance of the results. Our whole exome and clinical exome tests also include the option for Trio testing, which ~~enables us~~involves sequencing the genes of a patient’s parents and is thought to enhance the utility of the test results. In addition, we offer whole genome testing, which determines and tests the complete DNA sequence of a genome at a single time. We also provide ~~expansive options~~known mutation testing, which can be used to target familial specific or other desired mutations, as well as repeat expansion testing, which tests for ~~test customization and clinically actionable results. After launching our first commercial genetic tests in 2013, we have expanded our test menu to include approximately 18,000~~ ~~single-gene tests and more than 900~~ ~~panels that collectively test for approximately 5,700 genetic conditions, including various cancers, cardiovascular diseases, neurological disorders and pediatric conditions. A cornerstone~~a particular type of mutation known as “copy choice” DNA replication.

Importantly, all of our ~~business is our~~pre-established panels are customizable, offering providers and patients the ability to ~~provide expansive~~add or remove genes at their election. To further increase test option flexibility, as well as to reduce the complexity of ordering tests, we consistently strive to innovate our pricing structure and features for our available tests. We have upgraded many of our pre-set panels with additional genes. In addition, if a variant is reported in a proband for whom duo or trio testing was not originally ordered, the ordering physician is given the option of adding complementary familial known mutation testing, or FKMT, for any variant reported by Fulgent in the proband’s final report, for up to two first-degree relatives. We believe these options represent competitive pricing features that will streamline the test ordering process, give customers more flexibility with added value, and ~~flexibility for all clients’ unique~~reduce barriers to trio and familial testing, which can both increase the clinical utility of genetic testing ~~needs.~~for a single proband.

~~Genetic testing offers the possibility of early identification of a disease or a genetic predisposition to a disease and enhanced disease treatment and prognosis. As a result, we~~We believe widespread genetic testing could enable significant health improvements and healthcare cost reductions by providing patients and clinicians with more advanced knowledge and options for personal health management plans. ~~Due to these~~This expansion of testing availability and accessibility, as well as a growing and aging population; increasing overall incidence of disease; innovations in genomic medicine that enable the selection and implementation of drug treatment programs based on genetic information, or pharmacogenomics; and other ~~potential benefits,~~factors contributed to the growth in the global market for genetic testing ~~has experienced significant growth~~ in recent years. If this growth trend continues, we believe genetic testing will become part of standard medical care and the knowledge of a person’s unique genetic makeup could play a more important role in the practice of medicine.

Since March 2020, we have also offered several tests for the detection of SARS-CoV-2, the virus that causes the novel coronavirus disease, or COVID-19, including NGS and reverse transcription polymerase chain reaction-based tests, or RT-PCR-based tests. We have received an Emergency Use Authorization, or EUA, from the U.S. Food and Drug Administration, or the FDA, that authorizes the use of our RT-PCR-based tests for the detection of SARS-CoV-2 using upper respiratory specimens (nasal, nasopharyngeal, and oropharyngeal swabs) and in conjunction with at-home specimen collection kits that are offered as a service through Picture Genetics. Our at-home testing service for COVID-19 and RT-PCR-based test are authorized for emergency use by the FDA only for the detection of nucleic acid from SARS-CoV-2, not for any other viruses or pathogens. We are currently accepting patient samples directly to our Biosafety Level 2, or BSL-2, certified laboratories where we have the capacity to accept and process thousands of samples per day with a typical turn-around time of 24-48 hours from the time a sample is received and accepted. To date, we have processed orders for our COVID-19 tests from a variety of customers, including governmental bodies, payors, municipalities, and large corporations. In 2020 and 2021, we established and operated COVID-19 testing sites for certain municipalities. We also offer at-home COVID-19 testing services through our Picture Genetics platform.

Currently available diagnostic tests for the detection of SARS-CoV-2 are based on a variety of technologies and formats, including conventional antigen-based tests for detecting viral proteins and nucleic acid amplification tests which include RT-PCR-based tests. While antigen-based diagnostic tests are relatively inexpensive and can be used at the point of care, antigen-based diagnostic tests for the detection of SARS-CoV-2 have been observed to be less sensitive than genetic and RT-PCR-based tests. U.S. Centers for Disease Control, or CDC, guidelines indicate that the “gold standard” for clinical diagnostic detection of SARS-CoV-2 is nucleic acid amplification which includes RT-PCR-based tests. We believe this growth has been tempered in prior years, however, because many tests are prohibitively expensive, are produced through inefficient processes and often do not result in clinically actionable data. Through our technology platform, we have developed an offering that we believe addresses these industry challenges and provides a sustainable competitive advantage, both in today’s genetic testing market and as we seek to implement new diagnostic tools in the future.

Our technology platform, which integrates sophisticated data comparison and suppression algorithms, adaptive learning software, advanced genetic diagnostics tools and integrated laboratory processes, allows us to offer a test menu with expansive genetic coverage. We believe the comprehensive data output and high detection rates of our tests, both made possible by this expansive genetic coverage, provide physicians with information they can readily incorporate into treatment decisions for their patients, which we refer to as clinical actionability. In addition, our technology platform facilitates our ability to ~~perform customized genetic tests using~~provide COVID-19 NGS and RT-PCR-based diagnostic testing services with expedited turn-around times makes us competitive in this new market.

In August 2021, we acquired Cytometry Specialists, Inc., or CSI, to expand our ~~expansive library~~presence and capabilities in somatic molecular diagnostics and cancer testing. We plan to leverage our established technology platform, NGS expertise, lab operations, and sales infrastructure in conjunction with CSI’s extensive cancer testing menu to establish a differentiated foothold in oncologic testing in the United States. Through our acquisition of ~~genes,~~CSI, we have added the following types of testing services to our test menu:

New test offerings in 2021 included a COVID-19 Neutralizing antibody test, a Respiratory Pathogen Panel, that detects viral and ~~we believe this flexibility increases the utility~~bacterial infections of the upper and lower respiratory tracts, including COVID-19, HelioLiver, a revolutionary multi-analyte blood test for early liver cancer detection, and PD Aware, a Picture Genetics product that provides easy at-home sampling to assess genetic data we produce. Further, our technology platform provides us with operating efficiencies that help lower our internal costs, which allows us to offer our tests at accessible price points. As a result, our efforts to build and continually enhance our technology platform allow us to deliver comprehensive, adaptable, clinically actionable and affordable genetic analysis while maintaining a low cost per billable test, enabling us to efficiently meet the needs of our growing base of customers. These features of our offering have resulted in rapid volume growth since our commercial launch, with 58,573 billable tests delivered in 2019, compared to 22,298 billable tests delivered in 2018, and an aggregate of over 117,774 billable tests delivered to approximately 1,100 customers from inception through December 31, 2019.risk for Parkinson's disease.

Genetic testing identifies mutations in genes or chromosomal abnormalities. The results of genetic tests can be used to confirm or rule out a diagnosis of a suspected genetic condition, to predict a person’s likelihood of developing a genetic condition, and to improve the selection and implementation of drug treatment programs targeting specific diseases.

The availability and accessibility of genetic testing has grown significantly in recent years, due in large part to improvements in testing technologies, particularly next generation sequencing. NGS technology, a genetic testing technique that enables millions of DNA fragments to be sequenced in parallel, has dramatically lowered the cost and improved the quality of genetic testing. As technology advances continue to drive costs down and improve testing quality, the availability and accessibility of genetic tests is expected to continue to accelerate. This expansion of testing availability and accessibility, as well as a growing and aging population; increasing overall incidence of disease; innovations in genomic medicine that enable the selection and implementation of drug treatment programs based on genetic information, or pharmacogenomics; and other factors all contribute to expectations of continued growth in the global market for genetic testing.

~~While adoption of genetic testing has increased in recent years, we believe widespread utilization has been~~tempered because of certain challenges and barriers to adoption that exist in today’s market. These industry challenges include: the continued high prices of some genetic tests, in spite of declining prices in recent periods; largely inadequate reimbursement options, due to third-party payors’ restrictions on reimbursement to only a narrow subset of geneticOur tests and certain patients who meet specific criteria; the limited scope of some genetic analysis, which may test only a small portion of the genes in the human genome and thus may fail to diagnose or identify a predisposition to a condition that is linked to mutations in untested genes; inefficient testing processes, which often involve sequential retesting from multiple different laboratories in order to obtain comprehensive results; and the cumbersome and time-consuming nature of test results interpretation, which requires significant expertise and time to review proprietary and publicly available information about individual genetic disorders, genes and variants and understand the implications of genetic mutations thatservices are ~~identified in a genetic test. In addition, the increased competition in~~provided using our industry in recent years, due in large part to the growth of genetic testing, as well as the cost-saving initiatives on the part of government entities and other third-party payors, have resulted in downward pressure on the price for genetic analysis and interpretation, which have posed challenges to genetic testing laboratories as they seek to maintain both competitive pricing and acceptable revenue levels and margins on test sales. We have approached these competitive and operational industry challenges by building and continually advancing a multi-faceted, scalable technology platform that we believe will facilitate our ability to address many of these challenges.

~~Our technology-driven approach to the challenges facing our industry has resulted in our development of an~~ integrated technology platform featuring the following proprietary tools and processes:

Many genetic testing providers use gene probes in the sequencing process to extract and target specific genomic regions. A gene probe is a single strand of DNA or RNA that has a base sequence complementary to the base sequence of a targeted gene and that binds to this complementary base sequence when introduced during the sequencing process, thereby identifying the presence and location of the targeted gene. Many companies obtain these gene probes from third-party suppliers. We have developed technologies to design and formulate our own proprietary gene probes, which, when combined with our proprietary genetic reference library of genetic variants and publicly available genetic databases, support our ability to sequence DNA regions we believe laboratories using commercial probes cannot sequence and improve the detection rate of our test data. In turn, we believe this enables us to produce clinically actionable results physicians can use to improve care for their patients. In addition, our proprietary gene probes are specifically engineered to generate genetic data optimized for our software, which enables us to rapidly incorporate new genes into our test menu, develop new panels of disease-specific tests and customize tests for our customers. Moreover, once we develop a probe for a new gene, we can efficiently reproduce, validate and assure the quality of that probe under applicable guidelines and standards, which allows us to continuously and rapidly expand our library of genetic content while increasing the breadth of our test menu. Additionally, we believe our probes more effectively enrich the targeted genes to improve the quality of the sequenced data we produce.

After DNA is sequenced using all appropriate equipment and tools, the fully sequenced genes are analyzed in a process known as curation, in which every DNA sequence is aligned with a known reference sequence and differences between the DNA sequence and the reference sequence are identified. These differences, which represent potential genomic alterations, are then compared to publicly available genetic databases and proprietary genetic libraries to identify pathogenic alterations associated with disease or disease risk. We have developed proprietary data comparison and data suppression algorithms to improve and simplify this curation process by highlighting identified pathogenic mutations. Our advanced data comparison algorithms measure DNA sequences from patient specimens against genetic data available from the broader scientific community and our own proprietary reference library of genetic variant information, which enables us to rapidly and effectively detect pathogenic mutations. Our advanced data suppression algorithms reduce irrelevant noise in the genetic data we analyze, which improves the efficiency and speed of our data analysis and reduces the reliance upon manual review and comparison in the curation process.

We have developed software that automatically incorporates ~~the data~~a variant database from ~~each completed test~~certain of our non-COVID genetic tests into our expansive genetic reference library of genetic variants, enabling it to continuously evolve with each set of genes we analyze. This adaptive learning software supports the continuous improvement of our proprietary gene probes and leverages the capabilities of these gene probes to improve the speed and effectiveness of curation and reporting. Our adaptive learning software also communicates with our integrated laboratory systems, which leads to ~~increasing~~increased automation processes and other operating efficiencies.

We have developed proprietary laboratory information management systems that are highly integrated with our laboratory processes and adaptive learning software. These systems provide the backbone by which we efficiently manage workflow, monitor quality and ensure the fidelity of information generation and analytics for reporting to our customers. The result is a highly connected platform that allows us to process tests and information in an efficient manner. Our talented team of software engineers continuously iterates with our laboratory and customer-facing personnel to improve the efficiencies of these systems.

We have developed various proprietary technologies that improve our laboratory efficiency and reduce the costs we incur to perform our tests. This technology platform enables us to perform each test and deliver its results at a lower internal cost than many of our competitors, averaging approximately $241 per billable test delivered in 2019. This low cost per billable test allows us to maintain affordable pricing for our customers, averaging approximately $555 per billable test delivered in 2019, which we believe encourages repeat ordering from existing customers and attracts new customers. We believe our low cost per billable test could also facilitate the process for establishing coverage and reimbursement from third-party payors at a level adequate for us to achieve profitability with this payor group.

We currently offer single-gene tests on approximately 18,000 genes, which we believe is thousands more than most of our competitors’ portfolios. Based on the results of a retrospective study of individuals with a personal or family history of cancer, described below, we believe the breadth of genes in our portfolio allows us to provide more comprehensive genetic information and improves our variant detection rate, which can increase the clinical actionability of the data we produce. The breadth of genes in our portfolio also allows us to provide a flexible and customizable test menu for our customers, which can reduce the need for sequential retesting. We offer single-gene tests on all of the genes in our portfolio, as well as deletion/duplication analysis and site-specific tests. If customers desire a broader test, we offer more than 900 pre-established, multi-gene panels that focus on specified genetic conditions. These panels can be adjusted up or down to include more or fewer genes, or customers can design their own panels to their exact specifications. We also offer clinical and full gene exome testing options. We offer our tests at different price points and turnaround times depending on the size and complexity of the test, which increases optionality for our customers. We believe the flexibility of our offering improves the efficiency and utility of the data output by our tests and decreases overall customer costs. We also offer our customers access to our highly qualified genetic counselors and laboratory experts to assist in interpreting the data we provide, which further increases the utility of our test results for ordering physicians.

~~The benefit of including multiple genes on a single panel was discussed in a study published in 2016 by the University of Southern California, or USC, Norris Comprehensive Cancer Center in~~ ~~Cancer Genetics~~. The study retrospectively evaluated 475 individuals with a personal or family history of cancer who had undergone a clinically indicated multi-gene panel test of six to 110 genes from one of the following six commercial laboratories: Myriad Genetics (n=354), Ambry Genetics (n=100), Fulgent (n=17), University of Washington Genetics Laboratory (n=2), City of Hope Molecular Diagnostics (n=1) and Baylor Genetics Laboratory (n=1). The study concluded that multi-gene panel testing increases the yield of mutations detected and adds to the capability of providing individualized cancer risk assessment. More specifically, the study reported that deleterious mutations were identified in 15.6% of patients tested on a variety of multi-gene panels, which included 8.6% of patients who would not have a mutation detected if a targeted gene-by-gene-approach had been used. The study also presented evidence that, as the number of genes on a panel increased, a higher proportion of panels identified a mutation. The Fulgent panels evaluated in the study contained over 100 genes compared to less than 30 genes in the next largest panel. Additionally, approximately 35% of our panels identified a genetic mutation, and in comparison, the test with the next highest percentage of detected mutations identified mutations in approximately 17% of its tests.

Using our proprietary gene probes and testing processes, we are able to capture large amounts of genetic information from each test we perform—oftentimes more than is ordered for the test—without an incremental increase in our costs. Through this data collection process, we have developed a proprietary reference library of expansive genetic information. This reference library is automatically curated by our adaptive learning software and supplemented with manual curation by our team of highly trained professionals, which adds to and improves upon the information available in public genetic databases. As a result, our integrated technology systems allow us to leverage publicly available information from the broader scientific community with our internally developed reference library to develop what we believe is a more reliable catalog of genetic information and to accelerate, standardize and improve our curation and reporting process.

Our offering consists of a wide variety of tests and test types, and our customers have a high degree of choice when selecting a test from our menu. A customer may select a single-gene test of any of the genes in our portfolio or a customer may select one of our pre-established panel tests, which are designed to test particular genes and mutations within these genes that relate to a wide range of specified conditions and diseases. For example, our ~~Focus~~ ~~and~~ ~~Comprehensive~~ ~~oncology panels test 30 genes and 127 genes, respectively, that relate to various cancers and our~~ ~~Beacon~~ carrier screening panels test up to 410 genes covering over 400 inherited conditions. We can perform full-gene sequencing with deletion/duplication analysis in all of these tests. In addition, we continually seek to expand our test menu with new genes and panel tests, including our plans to expand our reproductive testing options, including preimplantation genetic testing, or PGT, and preimplantation genetic diagnosis, or PGD. We also plan to increase the genes available on our expanded Beacon carrier screening panel, which, along with preimplantation genetic testing options and newborn genetic analysis options, will round out our family planning testing options. Our test offerings also included Solid Tumor Molecular Profiling for somatic cancer testing, Rapid Whole Genome testing developed for children in neonatal intensive care units, or NICU, or pediatric intensive care units, or PICU, our Newborn Genetic Analysis panel, and a single front-line test designed to comprehensively detect ataxia-related variants and repeat expansions via sequencing. New test offerings in 2019 included Picture Genetics, a ~~patient-initiated genetic testing offering aimed at individual consumers and which we advertise directly to consumers through a variety of methods including social media and other digital avenues~~.

~~Importantly, all of our pre-established panels are customizable, offering customers the ability to add or remove genes at their election.~~ To further increase test option flexibility, as well as to reduce the complexity of ordering tests, we consistently strive to innovate our pricing structure and features for our available tests. We have upgraded many our pre-set panels with additional genes. In addition, if a variant is reported in a proband for whom duo or trio testing was not originally ordered, the ordering physician is given the option of adding complementary familial known mutation testing, or FKMT, for any variant reported by Fulgent in the proband’s final report, for up to two first-degree relatives. We believe these options represent competitive pricing features that will streamline the test ordering process, give customers more flexibility with added value, and reduce barriers to trio and familial testing, which can both increase the clinical utility of genetic testing for a single proband.

~~Since inception,~~Historically, we have sold our tests to approximately 1,100 total customers. We consider each single billing and paying unit to be an individual customer, even though a unit may represent multiple physicians and healthcare providers ordering tests. Aggregating customers that are under common control or are affiliates, one of our customers contributed 28% of our total revenue in 2019, and one of our customers contributed 13% of our total revenue in 2018.

~~We have~~ primarily sold our tests to hospitals and medical institutions. We have approached the genetic testing market with a focus on these customers in part because they are frequent and high-volume users of genetic tests. We believe this customer base provides a meaningful opportunity for further growth by acquiring additional hospital and medical institution customers and by deepening our relationships with existing customers to drive increased ordering. Additionally, collection of billings from these institutional customers is generally more attainable than from other types of customers in today’s reimbursement ~~environment, as approximately 87% of our test billings that were generated and due in 2019 were paid during that period.~~environment. In addition, we believe hospitals and medical institutions are early adopters of NGS technology and could influence broader clinical acceptance of genetic testing.

~~We are~~Beginning in March 2020, we also ~~seeking to expand~~began processing orders for our ~~customer base to include new customer groups. To this end,~~COVID-19 tests from a variety of customers, including governmental bodies, municipalities, and large corporations. Since inception, we have contracted directly with national health insurance companies to become an in-network provider and enrolled as a supplier with the Medicare program and some state Medicaid programs, in an effort to obtain coverage and reimbursement forsold our tests to ~~make them accessible~~over 1,800 total customers. We consider each single billing and paying unit to ~~more~~be an individual ~~physicians. In addition, we~~customer, even though a unit may represent multiple physicians and healthcare providers ordering tests. Aggregating customers that are building relationships with research institutions and other similar institutional customers, national clinical laboratories, regional medical networks and various other organizations to facilitate access to physicians, practitioners and other new customer groups, including certain U.S. military and other government agencies. Generally, when we establish these new customer relationships, we agree with the applicable payor, laboratory or other customer to provide certainunder common control, one of our ~~tests at negotiated rates, but, subject to limited exceptions, these relationships do not obligate any party to order our tests.~~

~~Much~~customers, the County of Los Angeles, contributed 26% of our ~~business to date has been from non-U.S. customers, with approximately$7.5 million~~total revenue in 2021, and ~~$8.8 million~~two of our ~~revenue coming from non-U.S. sources in 2019~~customers contributed 28% and ~~2018, respectively. These customers are located in a variety of geographic markets, including Canada, where we have historically focused much~~10% of our ~~international efforts, and other regions, such as Australia, Europe and~~total revenue in 2020, respectively.

We currently classify our customers by their payor types: (i) Insurance, including claims covered by the Middle East. In addition, we have worked with one of our large stockholders to establish a joint venture to offer genetic testing to customers in the PRC, which was formed in April 2017 and which we refer to as FF Gene Biotech. We believe FF Gene Biotech could expand our long-term opportunities to address the genetic testing market in Asia.

~~Our customers can generally be divided into three categories based on the party from which we receive payment~~Health Resources & Services Administration, or HRSA, COVID-19 Uninsured Program for ~~our tests:~~uninsured individuals, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, payors, municipalities and ~~other institutions; patients and third-party payors. Hospitals, medical and other institutions are responsible for paying for the vast majority of the tests~~large corporations or (iii) Patients who pay directly. Typically, we ~~have delivered since~~bill our ~~inception. We bill these organizations~~Institutional customers for our tests and they are responsible for paying us directly and ~~either~~ billing their patients separately or obtaining reimbursement from third-party ~~payors in connection with~~payors. In some cases, Institutional customers receive a ~~patient’s diagnosis related group,~~per-visit or ~~DRG.~~per-admission payment that includes our testing, which means that separate reimbursement is not available. A small percentage of our ~~custome~~rscustomers are patients, who elect to pay for tests themselves with out-of-pocket payments after their physicians have ordered our tests.

Third-party payors, which consist of private health insurers ~~the Centers for~~and government health care programs, including Medicare and Medicaid, Services, or CMS, and certain state Medicaid agencies, have been responsible for paying for a small number of the tests we have delivered to date; however, as we seek to expand our customer base to include more individual practitioners, we expect this category of payors would be responsible for many of the tests we deliver to these customers.

~~Third-party payors~~ require us to identify the test for which we are seeking reimbursement using athe Current Procedural Terminology, or CPT, code set maintained by the American Medical Association, or AMA. Where we offer a multi-gene panel, and there is no CPT code for the full panel, but the panel includes a gene for which the AMA has an established CPT code, we identify the test provided under that CPT code when billing a third-party payor for that test. In cases where there is not a specific CPT code, our test may be billed under a miscellaneous code for an unlisted molecular pathology procedure. Because this miscellaneous code does not describe a specific service, the insurance claim must be examined to determine what service was provided, whether the service was appropriate and medically necessary, and whether payment should be rendered, which may require a letter of medical necessity from the ordering physician. Given the changing CPT coding environment and our development of relationships with third-party payors, we expect that our practices regarding billing these payors will evolve in the future.

5We are making efforts to diversify our customer market, including building relationships with research institutions and other similar institutional customers, national clinical laboratories, governmental bodies, municipalities and large corporations in need of regular COVID-19 testing for large populations and various other organizations to facilitate access to physicians, practitioners and other new customer groups, including certain U.S. government agencies. We are also pursuing relationships with third-party payors, some state Medicaid programs and commercial insurers, in an effort to obtain coverage and reimbursement for our genetic tests to make them accessible to more individual physicians.

Our sales and marketing force currently consists of two ~~lean~~ internal teams of sales and marketing ~~experts,~~professionals, respectively, with deep experience in our industry, as well as a network of independent sales representatives who are knowledgeable about our tests. Historically, we have significantly relied on organic growth and word-of-mouth among ~~our customers~~ to generate interest in our tests, which we believe demonstrates the value of our offering. In recent ~~periods,~~years, we have invested significant time and capital to strengthen our sales and marketing efforts, including increasing the size and restructuring the organization of our internal team, re-focusing our initiatives and strategies, and increasing the overall scope of our marketing activities.

~~Our sales and marketing~~This strategy is designed to expand our brand awareness, grow our customer base and further penetrate ~~our relationships with~~ existing ~~customers.~~relationships. We aim to achieve these objectives by providing education about the benefits and full scale of our ~~offering,~~offerings, both to the medical community in general and to our targeted ~~customer and geographic~~ markets. We plan to expand our presence and test volume in international markets through our own direct sales team, which includes sales people dedicated to international markets, a number of independent contractor sales representatives, and, if and as opportunities arise, by engaging distributors or establishing other types of arrangements, such as joint ventures, ~~or other relationships,~~ to manage or assist with sales, logistics, education and customer support in certain territories.

Our marketing activities also include targeted initiatives, including working with medical professional societies to promote awareness of the benefits of our tests and genetic testing in ~~general,~~general; presenting at medical, scientific or industry exhibitions and conferences, such as Late-Breaking Positive Performance Data of HelioLiver™ for Early Liver Cancer Detection Data from the ENCORE study that was presented at The Liver Meeting® 2021, hosted by the American Association for the Study of Liver Diseases; and pursuing or supporting scientific studies of our tests and publication of results in medical or scientific journals, such as the USC Norris Comprehensive Cancer Center study published in 2016 and discussed above and an evaluation of the clinical utility of proactive genetic screening for healthy individuals, which was presented at the 2018 American Society of Human Genetics conference.journals. In addition, we conduct email advertising campaigns and social media awareness campaigns to existing and potential future customers when we want to send a specific message about our company and our brand, including, for instance, when we launch new tests or new test options and when we add new genes to our test menu. In addition, ~~in 2019,~~ we launched more tests including PD Aware that determines genetic risk for Parkinson’s and Pharmacogenetics testing, the use of genetic data to guide drug therapy decisions, or PGx testing, through our Picture Genetics platform, a patient-initiated genetic testing offering aimed at individual consumers and which we advertise directly to consumers through a variety of methods including social media and other digital avenues.

Our sales and marketing strategy is also focused on offering differentiated and highly available customer service resources, which we believe is an important factor in maintaining and deepening our customer relationships. Genetic tests are highly complex by nature and we recognize that our customers may want to discuss with us available testing options, specimen collection requirements, expected turnaround times, the cost of our tests and the clinical reports we produce. As a result, we offer comprehensive customer service designed to enable efficient ordering and increase the accessibility of our clinical reports, including customer access to our licensed and qualified laboratory directors who review and approve each report we produce.

Our sales and marketing ~~teams~~team also ~~explore~~explores strategic collaboration opportunities with various research and medical institutions. New partnerships formed in ~~2019~~2021 include partnering with ~~the Parkinson’s Foundation on a new genetic testing initiative~~governmental bodies, municipalities, and large corporations for individuals living with Parkinson’s Disease. Genetic testing can help determine whether an individual’s genetic makeup indicates a potential genetic cause for Parkinson’s disease. This knowledge can assist patientsproviding COVID-19 services to citizens, employees, and physicians in better understanding each case and can help to identify whether a patient qualifies for enrollment in certain clinical trials. Participants will also be able to better understand their genetic test results through free genetic counseling provided by Indiana University and on-site clinicians. Raw data accumulated through the initiative will be captured for future research by scientists to develop improved treatments and precision medicine options for Parkinson’s Disease.students.

We rely on a limited number of suppliers for certain laboratory substances used in the chemical reactions incorporated into our processes, which we refer to as reagents, as well as for the sequencers, collection kits, and various other equipment and materials we use in our laboratory operations. In particular, we rely on Illumina, Inc. as the sole supplier of the next generation sequencers and associated reagents we use to perform our genetic tests and as the sole provider of maintenance and repair services for these sequencers. In addition, we rely on a limited number of suppliers for COVID-19 test collection kits. Our laboratory operations would be interrupted if we encounter delays or difficulties securing these reagents, collection kits, sequencers, other equipment or materials or maintenance and repair services, which could occur for a variety of reasons, including if we need a replacement or temporary substitute for any of our limited or sole suppliers and are not able to locate and make arrangements with an acceptable replacement or temporary substitute.

Our competitors include dozens of companies focused on molecular genetic testing services, including specialty and reference laboratories that offer traditional single-gene and multi-gene ~~tests.~~tests and other COVID-19 diagnostic test providers. Principal competitors include companies such as Quest Diagnostics Incorporated; Laboratory Corporation of America Holdings; Abbott Laboratories; Perkin Elmer, Inc.; Natera, Inc.; Invitae Corporation; GeneDx, a subsidiary of OPKO Health, Inc.; Myriad Genetics, Inc.; Sema4 Genomics; Ambry Genetics, a subsidiary of Konica Minolta Inc.; ~~Athena Diagnostics, a subsidiary of Quest Diagnostics Incorporated;~~ Baylor Genetics; Blueprint Genetics, Inc.; Centogene AG; Color Genomics, Inc.; Connective Tissue Gene Test LLC; Cooper Surgical, Inc.; Eurofins Scientific; GeneDx, a subsidiary of OPKO Health, Inc.; Laboratory Corporation of America Holdings; MNG Laboratories, LLC; Myriad Genetics, Inc.; Natera, Inc.; Perkin Elmer, Inc.; PreventionGenetics, LLC; Progenity, Inc.; Quest Diagnostics Incorporated; and ~~Sema4 Genomics; as well as~~ other commercial and academic laboratories. In addition, other established and emerging healthcare, information technology and service companies may develop and sell competitive tests, which may include informatics, analysis, integrated genetic tools and services for health and wellness.

Additionally, participants in closely related markets, such as prenatal testing and clinical trial or companion diagnostic testing, could converge on offerings that are competitive with the type of tests we perform. Instances where potential competitors are aligned with key suppliers or are themselves suppliers could provide these potential competitors with significant advantages. Further, hospitals, research institutions and eventually individual physicians and other practitioners may also seek to perform at their own facilities the type of genetic testing we would otherwise perform for them. In this regard, continued development of, and associated decreases in the cost of, equipment, reagents and other materials and databases and genetic data interpretation services may enable broader direct participation in genetic testing and analysis and drive down the use of third-party testing companies such as ours. Additionally, cost decreases and increased direct participation, as well as cost-saving initiatives on the part of government entities and other third-party payors, could intensify the downward pressure on the price for genetic analysis and interpretation generally. Moreover, the biotechnology and genetic testing fields continue to undergo significant consolidation, permitting larger clinical laboratory service providers to increase cost efficiencies and service levels, resulting in more intense competition.

We believe we compare favorably with our competitors on the basis of these factors. However, many of our existing and potential future competitors have longer operating histories, larger customer bases, more expansive brand recognition and deeper market penetration, substantially greater financial, technological and research and development resources and selling and marketing capabilities and considerably more experience dealing with third-party payors. As a result, they may be able to respond more quickly to changes in customer requirements or preferences, develop faster and better advancements for their technologies and tests, create and implement more successful strategies for the promotion and sale of their tests, obtain more favorable results from third-party payors regarding coverage and reimbursement for their offerings, adopt more aggressive pricing policies for their tests, secure supplies from vendors on more favorable terms or devote substantially more resources to infrastructure and systems development. In addition, competitors may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well-financed companies as use of NGS for clinical diagnosis and preventative care increases. Further, companies or governments that effectively control access to genetic testing through umbrella contracts or regional preferences could promote our competitors or prevent us from performing certain tests in certain territories. We may not be able to compete effectively against these organizations.

We have assembled a highly-qualified team with expertise in a number of fields important to our business, such as bioinformatics, genetics, software engineering, laboratory management and sales and marketing. ~~We rely on this~~This team ~~to conduct~~conducts all of our research and development activities, including efforts to develop and curate our expansive library of genetic information and further expand our technology platform.

In May 2021, we entered into a restructuring agreement with Xilong Scientific Co., Ltd., or Xilong Scientific, and Fuzhou Jinqiang Investment Partnership (LP), or FJIP, to form a joint venture under the laws of the People’s Republic of China, or PRC, resulting in the Company indirectly acquiring a controlling financial interest in Fujian Fujun Gene Biotech Co., Ltd., or FF Gene Biotech. FF Gene Biotech was founded to bring our NGS capabilities to the Chinese genetic testing market through entities separate from our U.S. operations, and FF Gene Biotech is pursuing this objective separate from our business elsewhere.

We rely on a combination of registered and unregistered intellectual property rights, including trade secrets, trademarks and customary contractual protections, to protect our core technology and intellectual property.

We rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain and develop the competitive position afforded by many of our laboratory, analytic and business practices. For example, significant elements of our genetic tests and our testing procedures, including aspects of specimen preparation, our bioinformatics algorithms and related processes and our adaptive learning software, are based on unpatented trade secrets and know-how. We try to protect trade secrets and know-how by taking reasonable steps to keep them confidential, including entering into nondisclosure and confidentiality agreements with parties who have access to them, such as our employees and certain third parties, and entering into invention assignment agreements with our employees and consultants that obligate them to assign to us any inventions developed in the course of their work for us.

We own registered and unregistered trademark and service mark rights under applicable U.S. and foreign law to distinguish and/or protect our brand, including our company name and logo.

As a clinical laboratory, we are required to hold certain federal licenses, certifications and permits to conduct our business. ~~In 1988, Congress passed the~~The Clinical Laboratory Improvement Amendments of 1988, or CLIA, ~~which~~ establishes quality standards for all laboratory testing ~~designed~~ to ensure the accuracy, reliability and timeliness of patient test results. Our ~~laboratory is~~laboratories located in California, Texas, Georgia and Florida are CLIA-certified and are accredited by the College of American Pathologists, or CAP, a CMS-approved accrediting organization.

Under CLIA, a laboratory is any facility that performs laboratory testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease or the impairment or assessment of health. CLIA requires that we hold a certificate applicable to the ~~type~~categories of ~~laboratory examinations~~testing that we perform and that we comply with various standards with respect to personnel qualifications, facility administration, proficiency testing, quality control and assurance and inspections. Laboratories must ~~register and list their tests with~~obtain a certificate from the Centers for Medicare & Medicaid Services, or CMS, the agency that oversees CLIA, and CLIA compliance and certification is a prerequisite to be eligible to bill government payors and many private payors for our tests.

We are subject to survey and inspection every two years to assess compliance with CLIA’s program standards, and we may be subject to additional unannounced inspections. ~~Our~~We have CLIA certifications for our laboratories located in Temple City, California, Houston, Texas, Alpharetta, Georgia, and Jupiter, Florida. Each CLIA certification ~~was last renewed October 23, 2019 and~~ is valid for two ~~years.~~years from the date of issuance. If ~~our clinical reference~~either laboratory is found to be out of compliance with CLIA requirements, ~~at any of these inspections,~~ we may be subject to sanctions such as suspension, limitation or revocation of our CLIA certificate, a directed plan of correction, on-site monitoring, civil monetary penalties, civil injunctive suits, criminal penalties, exclusion from the Medicare and Medicaid programs and significant adverse publicity.

In addition, w ewe elect to participate in the accreditation program of CAP. CMS has deemed CAP standards to be equally or more stringent than CLIA regulations and has approved CAP as a recognized accrediting organization. Inspection by CAP is performed in lieu of inspection by CMS for CAP-accredited laboratories. Because we are accredited by the CAP Laboratory Accreditation Program, we are deemed to also comply with CLIA.

Our Temple City, California laboratory is ~~located in Temple City, California. As a result, we are~~ required to maintain a state license ~~to conduct testing in~~issued by the ~~State~~California Department of ~~California.~~Public Health, or CA DPH. California laws establish standards for day-to-day operations of our laboratory, including with respect to the training and skills required of personnel, quality control and proficiency testing requirements. If our clinical reference laboratory is out of compliance with California standards, the ~~State of California Department of Public Health, or~~ CA DPH may suspend, restrict or revoke our license to operate our clinical ~~reference~~ laboratory,

assess substantial civil money penalties or impose specific corrective action plans. Any such actions could materially affect our business. We maintain a current license in good standing with CA DPH. The other three states in which our laboratories are located do not require a state license.

Additionally, several states require the licensure of out-of-state laboratories that accept specimens from those ~~states and/or receive specimens from laboratories in those~~ states. ~~Our~~For example, our Houston, Texas laboratory holds the required ~~out-of-sta~~teout-of-state license to perform testing on specimens from California, and our Temple City, California laboratory holds the required out-of-state laboratory licenses to perform testing on specimens from Maryland, New York, Rhode Island and Pennsylvania. ~~In addition to having a laboratory license in~~For laboratories accepting samples from New York, ~~our laboratory is required to obtain approval on a test-specific basis by~~ the ~~New York State Department~~director of Health, or DOH, before specific testing is performed on specimens from New York. In 2019, we obtained a state laboratory permit for our Temple City laboratory from the New York DOH. The New York state laboratory laws, regulations and rules are equal to or more stringent than the CLIA regulations and establish standards for the operation of a clinical laboratory and performance of test services, including education and experience requirements for laboratory directors and personnel; physical requirements of a laboratory facility; equipment validations; and quality management practices. The laboratory directorthose laboratories must also maintain a Certificate of Qualification issued by New York’s Department of Health, or DOH, in permitted categories. The New York state laboratory laws and regulations are more stringent than CLIA. Among other things, the DOH requires approval on a test-specific basis before testing can be performed on specimens from New York. Our Houston, Texas laboratory does not have a permit issued by the New York DOH, but it received temporary exemption from New York to perform COVID-19 tests on specimens from New York.

Other states may adopt similar licensure requirements in the future, which could require us to modify, delay or discontinue our operations in such jurisdictions. If we identify any other state with such requirements or if we are contacted by any other state advising us of such requirements, we intend to follow instructions from the state regulators as to how to comply with such requirements.

We are also subject to regulation in foreign jurisdictions, which we expect will increase as we seek to expand international utilization of our tests or if jurisdictions in which we pursue operations adopt new or modified licensure requirements. Foreign licensure requirements could require review and modification of our tests in order to offer them in certain jurisdictions or could impose other limitations, such as restrictions on the transport of human blood or other tissue necessary for us to perform our tests that may limit our ability to make our tests available outside of the United States on a broad scale.

Pursuant to its authority under the Federal Food, Drug, and Cosmetic Act, or FDC Act, the U.S. Food and Drug Administration, or FDA, has jurisdiction over medical devices, which are defined to include, among other things, in vitro diagnostic products, or IVDs, used for clinical purposes. The tests that we offer may be considered IVDs and as such, medical devices. The laws and regulations governing the marketing of IVDs are evolving, extremely complex, and in many instances, there are no significant regulatory or judicial interpretations of these laws and regulations. The FDA regulates, among other things, the research, testing, manufacturing, safety, labeling, storage, recordkeeping, premarket clearance or approval, marketing and promotion and sales and distribution of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. In addition, the FDA regulates the import and export of medical devices.

The FDC Act classifies medical devices into one of three categories based on the risks associated with the device and the level of control necessary to provide reasonable assurance of safety and effectiveness. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices or devices deemed not substantially equivalent to a previously 510(k) cleared device, are categorized as Class III. These devices typically require submission and approval of a premarket approval application, or PMA. Devices deemed to pose lower risk are categorized as either Class I or II, which requires the manufacturer to submit to the FDA a 510(k) premarket notification submission requesting clearance of the device for commercial distribution in the United States. Some low-risk devices are exempted from this requirement. When a 510(k) premarket notification submission is required, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the device is “substantially equivalent” to: (i) a device that was legally marketed prior to May 28, 1976, for which PMA approval is not required, (ii) a legally marketed device that has been reclassified from Class III to Class II or Class I, or (iii) another legally marketed, similar device that has been cleared through the 510(k) clearance process.

After the FDA permits a device to enter commercial distribution, numerous regulatory requirements apply. These include: the Quality System Regulation, which requires manufacturers to follow elaborate design, testing, control, documentation an dand other quality assurance procedures during the manufacturing process; labeling regulations; the FDA’s general prohibition against promoting products for unapproved or “off-label” uses; and the Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur. The FDA has broad post-market and regulatory and enforcement powers. Failure to comply with the applicable U.S. medical device regulatory requirements could result in, among other things, warning letters, fines, injunctions, consent decrees, civil penalties, repairs, replacements, refunds, recalls or seizures of products, total or partial suspension of production, the FDA’s refusal to grant future premarket clearances or approvals, withdrawals or suspensions of current product applications, and criminal prosecution.

Although the FDA has statutory authority to assure that medical devices, including IVDs, are safe and effective for their intended uses, the FDA has historically exercised its enforcement discretion and not enforced applicable provisions of the FDC Act

and regulations with respect to laboratory developed tests, or LDTs, which are a subset of IVDs that are intended for clinical use and designed, manufactured and used within a single ~~laboratory~~.laboratory. We believe our tests fall within the definition of an ~~LDT~~.LDT. As a result, we believe our diagnostic tests are not currently subject to the FDA’s enforcement of its medical device regulations and the applicable FDC Act provisions.

Even though we commercialize our tests as LDTs, our tests may in the future become subject to more onerous regulation by the FDA. ~~In October 2014,~~For example, in 2017, the FDA ~~issued~~published a ~~draft Framework Guidance and Notification Guidance for comment following notice~~Discussion Paper on Laboratory Developed Tests to ~~Congress that it would be doing so. The Framework Guidance stated that the FDA~~ ~~intends to modify its policy of enforcement discretion with respect to LDTs~~ in a risk-based manner consistent with the existing classification of medical devices. The draft guidances resulted in a large number of public comments from interested parties. The FDA subsequently announced in November 2016 that it would not issue a final guidance to allow for further public discussion onabout an appropriate LDT oversight approach and to give congressional committees the opportunity to develop a legislative ~~solution. In January 2017,~~solution to the ~~FDA~~competing interests of ensuring the public health and promoting innovation in the clinical testing industry. However, on August 19, 2020, the United States Department of Health and Human Services, or HHS, published a Discussion Paper on Laboratory Developed Tests, which provided a synthesis of the feedback the agency had received and which outlined, as part of the synthesis, a new possible approach to LDT oversight. The Discussion Paper notedpolicy announcement that ~~the synthesis does not represent~~FDA must go through the formal ~~position~~notice-and-comment rulemaking process before requiring premarket review of LDTs rather than making such changes through guidance documents, compliance manuals, or other informal policy statements. HHS’s policy statement did not affect proposed legislation for the ~~FDA, nor~~regulation of LDTs, which is ~~it enforceable.~~ ~~The FDA has not issued any proposed rules, revised proposals, or draft guidance relating to LDTs since January 2017.~~discussed below. In November 2021, the Biden Administration withdrew that HHS policy announcement and ostensibly restored FDA’s regulatory oversight of LDTs.

In December 2018, members of Congress released a discussion draft of a possible bill to regulate in vitro clinical tests including LDTs, ~~which incorporated suggestions from~~and provided opportunities for additional stakeholders to also provide input on the ~~FDA~~proposed reform legislation. On March 5, 2020, U.S. Representatives Diana DeGette (D-CO) and ~~other industry stakeholders.~~ ~~The new bill is~~ Dr. Larry Bucshon (R-IN) formally introduced the long-awaited legislation, called the Verifying Accurate, Leading-edge IVCT Development, ~~(VALID)~~or VALID Act. An identical version of the bill was introduced concurrently in the Senate, demonstrating both bicameral and bipartisan support for the effort to overhaul how the FDA reviews and approves diagnostic tests going forward. The VALID Act ~~and~~ would codify into law the term “in vitro clinical test” ~~(IVCT)~~, or IVCT, to create a new medical product category separate from medical devices ~~and~~ that includes products currently regulated as IVDs as well as LDTs. ~~One especially notable feature in~~The VALID Act would also create a new system for labs and hospitals to use to submit their tests electronically to the ~~discussion draft~~FDA for approval, which is aimed at reducing the amount of time it takes for the agency to approve such tests, and establish a new program to expedite the development of diagnostic tests that can be used to address a current unmet need for patients. A substantively unchanged version of the VALID Act was re-introduced in both houses of Congress on June 24, 2021.

It is a precertification program that would enable a IVCT developer to be certified by FDA (or potentially by an FDA-accredited body) as having sufficient skill at developing IVCTs as to not require premarket review for each individual test developed and for which marketing is sought. This program would significantly streamline IVCT review but likely would take years to establish following congressional enactment ofunclear whether the VALID Act ~~the timing of which is subject to the often-unpredictable political process. Moreover, to date the VALID Act has not been formally introduced in Congress and, even if~~would be passed by Congress ~~it would need to be~~ in its current form or signed into law by the ~~President in order to become law.~~ ~~If and when~~President. Until the FDA finalizes its position on regulation of LDTs through formal ~~guidance,~~notice-and-comment rulemaking, or ~~new~~the VALID Act or other federal legislation is passed reforming the government’s regulation of LDTs, or alternatively, if the FDA disagrees with our assessment that our tests fall within the definition of an LDT, we could for the first time be subject to enforcement of regulatory requirements such as registration and listing requirements, medical device reporting requirements and quality control requirements (although the possible approach outlined in the Discussion Paper – as well as in the draft VALID Act – would exempt certain previously marketed LDTs from many requirements, in other words, “grandfather” many existing LDTs).requirements. Any new legislation or formal FDA ~~enforcement policies~~regulations affecting LDTs may result in increased regulatory burdens on our ability to continue marketing our tests and to develop and introduce new tests in the future. Additionally, if and when the FDA begins to actively enforce its premarket submission regulations with respect to LDTs generally or our tests in particular, whether as a result of new legislative authority or following formal notice-and-comment rulemaking, we may be required to obtain premarket clearance for our tests under Section 510(k) of the FDC Act or approval of a PMA. The process for submitting a 510(k) premarket notification and receiving FDA clearance usually takes from three to 12 months, but it can take significantly longer and clearance is never guaranteed. The process for submitting and obtaining FDA approval of a PMA generally takes from one to three years or even longer and approval is not guaranteed. PMA approval typically ~~require~~srequires extensive clinical data and can be significantly longer, more expensive and more uncertain than the 510(k) clearance process. If premarket review is required for some or all of our tests, the FDA could require that we stop selling our products pending clearance or approval and conduct clinical testing prior to making submissions to FDA to obtain premarket clearance or approval. The FDA could also require that we label our tests as investigational or limit the labeling claims we are permitted to make.

~~Whi~~le there is also the risk that the FDA does not consider our tests to be LDTs, the draft Framework Guidance stated that, in the interest of ensuring continuity in the testing market and avoiding disruption of access to tests marketed as LDTs that do not meet the FDA’s definition of LDTs, the FDA intends to apply the same risk-based framework described in the Framework Guidance to any IVD that is offered as an LDT by a CLIA-certified laboratory. We would expect the FDA to take the same or similar approach in any new program for the regulation of LDTs. If Congress passes legislation regulating LDTs, then the terms of such legislation would control, subject to FDA’s administration of any such new law.

Additionally, the FDA ~~has recently~~previously solicited public input and published two draft guidance documents relating to FDA oversight of NGS-based tests. The two draft guidance documents on NGS-based tests describe the FDA’s current thinking and proposed approach regarding the possible use of FDA-recognized standards to support analytical validity, and public human genetic variant databases to support clinical validity, of these tests. The drafts were published in final form in April 2018. While it appears that the FDA is striving to provide a flexible pathway to device clearance or approval for manufacturers seeking to market NGS-based tests, it is unknown how the FDA may regulate such tests in the future and what testing and data may be required to support such clearance or approval. If premarket review is required for so mesome or all of our tests and the FDA requires more extensive testing such as clinical trials, for example, we could experience significantly increased development costs and ~~delay.~~delays.

The FDA enforces its medical device requirements by various means, including inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from an Untitled Letter or Warning Letter to more severe sanctions,, such as: fines, injunctions and civil penalties; recall or seizure of products; operating restrictions, partial suspension or total shutdown of production; and criminal prosecution.

~~Legislative proposals addressing the FDA’s oversight of LDTs have been introduced by Congress in the past and we expect that new legislative proposals may be introduced from time to time in the future. The likelihood that Congress will pass such legislation and the extent to which such legislation may affect the FDA’s~~ ~~plans to enforce its medical device requirements with respect to certain LDTs is difficult to predict at this time. If the FDA ultimately lifts its policy of enforcement discretion over LDTs and~~ ~~begins to enforce its medical device requirements with respect to LDTs, our tests may be subject to additional regulatory requirements imposed by the FDA, the nature and extent of which would depend upon applicable final guidance or regulation by the FDA or instruction by Congress.~~ Failure to comply with any applicable FDA requirements could trigger a range of enforcement actions by the FDA, including warning letters, civil monetary penalties, injunctions, criminal prosecution, recall

or seizure, operating restrictions, partial suspension or total shutdown of operations and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity.

Whether regulated by FDA as a Class I or Class II device or not directly subject to FDA’s ~~enforcement discretion~~device requirements as an LDT, our advertising for laboratory services and genetic tests is subject to federal truth-in-advertising laws enforced by the Federal Trade Commission, or FTC, as well as comparable state consumer protection laws. Under the Federal Trade Commission Act, (“or the FTC ~~Act”),~~Act, the FTC is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce. The FTC has very broad enforcement authority, and failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result in administrative or judicial penalties, including civil penalties, injunctions affecting the manner in which we would be able to market services or products in the future, or criminal prosecution.

We bill third-party payors, both commercial and government, using Current Procedural Terminology, ~~(CPT)~~or CPT, codes, which are published by the American Medical Association, ~~(AMA).~~or AMA. CPT codes in their current form are not readily applied to many of the genetic tests we conduct. For example, for many of our multi-gene panels, there may not be an appropriate CPT code for ~~any~~one or more of the genes in a panel, in which case our test would be billed under a miscellaneous code for an unlisted molecular pathology procedure. Many third-party payors do not have set reimbursement fee rates for this miscellaneous code. Prior to starting a test, we negotiate the reimbursement rate with the payor if the benefits investigation has determined the test to be medically necessary and the payor has issued prior authorization. When the test results are delivered, after we file the claim, we may also need to resubmit documentation or appeal a denial, which can cause delay in the reimbursement of the claim.

In September 2014, the AMA published new CPT codes for genomic sequencing procedures that are effective for dates of service on or after January 1, 2015. These include genomic sequencing procedure codes for certain multi-gene panel tests. In a final determination under the Medicare Clinical Laboratory Fee Schedule, or CLFS, published in November 2014, CMS set the 2015 payment rate for these codes using the gap-fill process. Under the gap-fill process, local Medicare Administrative Contractors, or MACs, establish rates for the codes that each MAC believes meet the criteria for Medicare coverage, ~~and considering~~taking into consideration laboratory charges and discounts to charges, resources, amounts paid by other third-party payors for the tests and amounts paid by the MAC for similar tests. In 2015, gap-filled payment rates were established for some, but not all, of the published codes for genomic sequencing procedures. For the codes for which local gap-filled rates were established in 2015, a national limitation amount for Medicare was established for 2016. For the codes for which local gap-filled rates were not established in 2015, associated procedures are priced by the local MACs in 2016 if an individual MAC determines that such codes should be covered. Where available, the national limitation amount serves as a cap on the Medicare ~~and Medicaid~~ payment rates for a test procedure, which may not be adequate for all of the procedures covered by the applicable codes, including our tests to the extent we are required to report them under these codes.

In April 2014, Congress passed the Protecting Access to Medicare Act of 2014, or PAMA, which included substantial changes to the way in which clinical laboratory services are priced and paid under ~~Medicare.~~Medicare’s CLFS. On June 23, 2016, CMS published the final rule implementing the reporting and rate-setting requirements. Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the CLFS or the Physician Fee Schedule are required to report ~~to CMS, beginning in 2017 and every three years thereafter (or annually for an advanced diagnostic laboratory test, or ADLT),~~ private payor payment rates and volumes for clinical diagnostic laboratory tests (CDLTs) to CMS every three years (or annually for advanced diagnostic laboratory test, or ~~CDLTs. Laboratories that fail to report the required payment information may be subject to substantial civil monetary penalties.~~ADLT). We do not believe that any of our tests meet the current definition of ADLTs. We therefore must report private payor rates for our tests every three years. Laboratories that fail to report the required payment information may be subject to substantial civil monetary penalties.

As required under PAMA, CMS uses the data reported by laboratories to develop Medicare payment rates for laboratory tests equal to the volume-weighted median of the private payor payment ~~rates~~.rates. For tests furnished on or after January 1, ~~2018,~~2010, Medicare payments for CDLTs are based upon reported private payor rates. For a CDLT that is assigned a new or substantially revised CPT code, the initial payment rate is assigned using the gap-fill methodology, as under prior law.

On December 20, 2019, ~~the~~ President Trump signed the Further Consolidated Appropriations Act, which included the Laboratory Access for Beneficiaries Act, ~~(LAB Act).~~or LAB Act. The LAB Act ~~delays~~delayed by one year the reporting of payment data under PAMA for CDLTs that are not ~~ADLTs. CDLT data~~ADLTs until the first quarter of 2021. The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which was signed into law on March 27, 2020, delayed the reporting period by an additional year, until the first quarter of 2022. Then, on December 10, 2021, Congress passed the Protecting Medicare and American Farmers from Sequester Cuts Act, which included a provision that further delayed the next PAMA reporting period for ~~the collection period of~~CDLTs that are not ADLTs to January 1, ~~2019~~2023 through ~~June 30, 2019, which was supposed~~March 31, 2023. New CLFS rates for CDLTs will be established based on that data beginning in 2024, subject to bephase-in limits. As a result, Medicare payment rates determined by data reported in ~~2020, must now be reported between January 1, 2021 and March~~2017 will continue through December 31, ~~2021. Data reporting will then resume on a three-year cycle, beginning in 2024.~~ 2023.

~~Under~~In addition, under PAMA, as amended, by the ~~LAB Act, any~~payment reduction ~~to a particular payment rate resulting from the new methodology is limited to 10% per test per year in 2020 and to~~cap will be 15% per test per year in each of the years ~~2021~~2023 through ~~2023.~~2025.

Under the Administrative Simplification provisions of the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the federal Health Information Technology for Economic and Clinical Health Act, or HITECH, the U.S. Department of Health and Human Services, or HHS, has issued ~~regulations~~regulations (“HIPAA Regulations”) that establish uniform standards governing the conduct of certain electronic healthcare transactions and requirements for protecting the privacy and security of protected health information, or PHI, used or disclosed by healthcare providers, health plans, and healthcare clearinghouses that conduct certain healthcare transactions electronically, known as covered entities. As a clinical laboratory, we are acting as a covered entity and are subject to HIPAA and HITECH. The following four principal regulations with which we are required to comply have been issued in final form under HIPAA and HITECH: privacy regulations, security regulations, the breach notification rule and standards for electronic transactions, which establish standards for common healthcare transactions.

The privacy regulations of HIPAA and HITECH protect medical records and other PHI by limiting their use and release, giving patients a variety of rights, including the right to access their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose. HIPAA also requires covered entities to enter into business associate agreements to obtain a written assurance of compliance with HIPAA from individuals or organizations who provide services to covered entities involving the use or disclosure of PHI, or also known as business associates. As a general rule, a covered entity or business associate may not use or disclose PHI except as permitted under the privacy regulations of HIPAA and HITECH.

Covered entities must also comply with the security regulations of HIPAA and HITECH, which establish requirements for safeguarding the confidentiality, integrity and availability of electronic PHI. The HIPAA security regulations require the implementation of administrative, physical and technical safeguards and the adoption of written security policies and procedures.

In addition, HITECH established, among other things, certain breach notification requirements with which covered entities must comply. In particular, a covered entity must report breaches of PHI that ~~has~~have not been encrypted or otherwise secured in accordance with guidance from the Secretary of HHS, or the Secretary. Required breach notices must be made as soon as is reasonably practicable, but no later than sixty days following discovery of the breach. Reports must be made to affected individuals, the Secretary, and depending on the size of the breach, the local and national media. Covered entities are also subject to audit under HHS’s HITECH-mandated audit program and may be investigated in connection with a privacy or data ~~security complaint.~~security.

There are significant civil and criminal fines and other penalties that may be imposed for violating HIPAA. A covered entity or business associate is liable for civil monetary penalties for a violation that is based on an act or omission of any of its agents, including a downstream business associate, as determined according to the federal common law of agency. Penalties for failure to comply with a ~~requirement~~requirement of HIPAA and HITECH vary significantly depending on the failure and include civil monetary penalties of up to ~~$1.5~~$1.8 million per violation of the same requirement per calendar ~~year.~~year (as of November 2021, subject to annual inflation adjustments). A single breach incident can violate multiple requirements, resulting in potential penalties in excess of ~~$1.5~~approximately $1.8 million. Additionally, a person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a criminal penalty of up to $50,000 and up to one year of imprisonment. These criminal penalties increase if the wrongful conduct involves false pretenses or the intent to sell, transfer or use identifiable health information for commercial advantage, personal gain or malicious harm. Covered entities are also subject to enforcement by state attorneys general who were given authority to enforce HIPAA under HITECH. Further, to the extent that we submit electronic healthcare claims and payment transactions that do not

comply with the electronic data transmission standards established under HIPAA and HITECH, payments to us may be delayed or denied.

12In addition to our clinical laboratory services, we provide management and technology services to certain companies, institutions, and agencies that are covered entities and have entered into business associate agreements with these entities as business associates. In addition to being directly responsible for compliance with applicable HITECH Act requirements and HIPAA regulations as a business associate, we have contractually agreed to comply with HIPAA, HITECH, and HIPAA Regulations and in some instances have agreed to indemnify our covered entity clients if we breach our obligations with respect to these laws and regulations and/or in the event of a reportable breach of protected health information.

The HIPAA privacy, security, and breach notification regulations establish a uniform federal “floor” but do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing PHI or insofar as such state laws apply to personal information that is broader in scope than PHI as defined under HIPAA. The compliance requirements of these laws, including additional breach reporting requirements, and the penalties for violation vary widely and new privacy and security laws in this area are evolving. For example, several states, such as California, have implemented comprehensive privacy laws and regulations. The California Confidentiality of Medical Information Act, or CMIA, imposes restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. In addition to the ~~California Confidentiality of Medical Information Act,~~CMIA, California recently adopted the California Consumer Privacy Act of 2018, or CCPA, which came into effect on January 1, 2020. The CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. ~~There is uncertainty surrounding the application of~~Although the CCPA does not directly apply to ~~parts~~medical information covered by HIPAA or CMIA, certain other personal information that our business may collect and use does not fall under the CCPA exception. On November 3, 2020, California voters passed the California Privacy Rights Act, or CPRA, which expands the CCPA. The CPRA will be fully effective in January of 2023 and, among other things, establishes the California Privacy Protection Agency, or CPPA, a new regulatory authority charged with administering and enforcing the CRPA and privacy rights in California. The CPPA will have the power to levy fines and bring other enforcement actions. The CPRA could impact our operations or that of our collaborators and business partners and ~~amendments~~impose new regulatory requirements and increase costs of compliance. Other states are considering expanded privacy legislation similar to the ~~law before its effective data may have impact on operations. In addition~~GDPR and CPRA, with Virginia and Colorado enacting their own consumer privacy laws in 2021 similar to CCPA and CPRA. Both the ~~CCPA,~~Virginia and Colorado laws take full effect in 2023. There are also several federal privacy proposals under consideration in Congress and other states ~~are introducing similar~~have already introduced privacy legislation ~~which will impact compliance obligations and increase complexity and cost of compliance.~~for consideration in 2022.

Many states ~~such as Massachusetts,~~ have also implemented genetic testing and privacy laws imposing specific patient consent requirements and requirements for protecting test results. The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and our clients and potentially exposing us to additional expense, adverse publicity, and liability. Further, as regulatory focus on privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify. In addition, the interpretation and application of consumer, health-related, and data protection laws are often uncertain, contradictory, and in flux. The applicability and requirements of these laws and penalties for violations vary widely. Failure to maintain compliance, or changes in state or federal laws regarding privacy or security, could result in civil and/or criminal penalties and could have a material adverse effect on our business.

Numerous other federal, state and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of patient health information. In addition, Congress and some states are considering new laws and regulations that further protect the privacy and security of medical records or medical information. With the recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, all 50 states have passed laws regulating the actions that a business must take if it experiences a data breach, as defined by state law, including prompt disclosure within a specified amount of time to affected ~~individuals~~.individuals. Congress has also been considering similar federal legislation relating to data privacy and data protection. The ~~Federal Trade Commission~~FTC and states’ Attorneys General have also brought enforcement actions and prosecuted some data breach cases as unfair and/or deceptive acts or practices under the FTC Act and comparable state laws. In addition to data breach notification laws, some states have enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information. We intend to continue to comprehensively protect all personal information and to comply with all applicable laws regarding the protection of such information.

We are also subject to foreign privacy laws in the jurisdictions in which we sell our tests. The interpretation, application and interplay of consumer and health-related data protection laws in the United States, Europe and elsewhere are often uncertain, c ~~ontradictory~~contradictory and in flux. For example, the ~~new~~ General Data Protection Regulation, or GDPR, and Cybersecurity Directive have been enacted in the European Union and became effective in May 2018. These texts introduced many changes to privacy and security in the European Union, including stricter rules on consent and security duties for critical industries, including for the health sector. The interpretation of some rules ~~is still unclear,~~continues to evolve in guidance from the main regulatory authority, the European Data Protection Board, and some requirements may be completed by national legislation. This makes it difficult to assess the impact of these new data protection laws on our business at this time. More generally, foreign laws and interpretations governing data privacy and security are constantly evolving and it is possible that laws may be ~~interpreted~~interpreted and applied in a manner that is inconsistent with our current practices, in which case we could be subject to government-imposed fines or orders requiring that we change our practices. These fines can be very high. For instance, the GDPR introduces fines of up to approximately $22 million or 4% of a group’s worldwide annual turnover for certain infringements. In addition, privacy regulations differ widely from country to ~~country.~~countryand are enforced by individual country data protection authorities, which have power to enforce privacy regulations. Various data protection authorities have issued fines in the millions of euros for violations of privacy laws.

In many activities, including the conduct of clinical trials, we are subject to laws and regulations governing data privacy and the protection of health-related and other personal information. These laws and regulations govern our processing of personal data, including the collection, access, use, analysis, modification, storage, transfer, security breach notification, destruction and disposal of personal data. We must comply with laws and regulations associated with the international transfer of personal data based on the location in which the personal data originates and the location in which it is processed.

If we or our vendors fail to comply with applicable data privacy laws, or if the legal mechanisms we or our vendors rely upon to allow for the transfer of personal data from the European Union to the United States (or other countries not considered by the European Commission to provide an adequate level of data protection) are not considered adequate, we could be subject to government enforcement actions and significant penalties against us, and our business could be adversely impacted if our ability to transfer personal data outside of the European Union is restricted, which could adversely impact our operating results. The GDPR has increased our responsibility and potential liability in relation to European Union personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the GDPR. However, our ongoing efforts related to compliance with the GDPR may not be successful and could increase our cost of doing business. In addition, data protection authorities of the different European Union member states may interpret the GDPR differently, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the European Union. In addition to the GDPR, other countries have enacted data protection legislation which increase the complexity of doing international business and transferring sensitive personal information from those countries to the United States.

The privacy and security of personally identifiable information stored, maintained, received or transmitted, including electronically, subject to significant regulation in the United States and abroad. While we strive to comply with all applicable privacy and security laws and regulations, legal standards for privacy continue to evolve and any failure or perceived failure to comply may result in proceedings or actions against us by government entities or others, or could cause reputational harm, which could have a material adverse effect on our business.

In the United States, we must comply with various fraud and abuse laws, and we are subject to regulation by various federal, state and local authorities, including CMS, other divisions of HHS (such as the Office of Inspector General), the U.S. Department of

Justice, individual U.S. Attorney’s Offices within the Department of Justice and state and local governments. We also may be subject to foreign fraud and abuse laws.

In the United States, the federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, ~~paying,~~paying, soliciting or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in order to induce or in return for the referral of an individual for the furnishing of, or the recommending or arranging for the furnishing of, purchasing, leasing, ordering or arranging for or recommending purchasing, leasing or ordering of any good, facility, service or item for which payment may be made in whole or in part by a federal healthcare program. Courts have stated that a financial arrangement may violate the Anti-Kickback Statute if any one purpose of the arrangement is to encourage patient referrals or other federal healthcare program business, regardless of whether there are other legitimate purposes for the arrangement. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, credit arrangements, payments of cash, consulting fees, waivers of co-payments, ownership interests and providing anything at less than its fair market value. The Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the healthcare industry, although it does contain several exceptions. HHS has issued a series of regulatory “safe harbors” setting forth certain provisions that, if met, will immunize the parties to the arrangement from prosecution under the Anti-Kickback Statute. Although full compliance with the statutory exceptions or regulatory safe harbors ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific statutory exception or regulatory safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the Anti-Kickback Statute will be pursued. Furthermore, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Penalties for violations of the Anti-Kickback Statute are severe and include imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. In addition, a violation of the federal Anti-Kickback Statute can serve as a basis of liability under the federal False Claims Act (described below). Many states also have anti-kickback statutes, some of which may apply ~~to items or services reimbursed by any third-party~~regardless of payor ~~including commercial insurers.~~type.

In addition, in October 2018, the Eliminating Kickbacks in Recovery Act of 2018, ~~(EKRA)~~or EKRA, was enacted as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities ~~Act (SUPPORT Act).~~Act. EKRA is an all-payer anti-kickback law that makes it a criminal offense to pay any remuneration to induce referrals to, or in exchange for, patients using the services of a recovery home, a substance use clinical treatment facility, or laboratory. However, unlike the federal Anti-Kickback Statute, EKRA is not limited to services covered by federal or state health care programs but applies more broadly to services covered by “health care benefit programs,” including commercial insurers. Although it appears that EKRA was intended to

reach patient brokering and similar arrangements to induce patronage of substance use recovery and treatment, the language in EKRA is broadly written. Further, certain of EKRA’s exceptions ~~such as the exception applicable to relationships with employees that effectively prohibits incentive compensation,~~ are inconsistent with the federal ~~anti-kickback statute~~Anti-Kickback Statute and ~~regulations, which permit payment of employee incentive compensation, a practice that is common in the industry.~~regulations. Significantly, EKRA permits the U.S. Department of Justice to issue regulations clarifying EKRA’s exceptions or adding additional exceptions, but such regulations have not yet been issued. Laboratory industry stakeholders are reportedly seeking clarification regarding EKRA’s scope and/or amendments to its language. Because EKRA is a new law, there is no agency guidance or court precedent to indicate how and to what extent it will be applied and enforced. We cannot assure you that our relationships with physicians, sales representatives, hospitals, customers, or any other party will not be subject to scrutiny or will survive regulatory challenge under such laws.

There are also U.S. federal laws related to healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government payor programs such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. A violation of this statute is also a felony and may result in fines, imprisonment or exclusion from government payor programs.

Another development affecting the healthcare industry is the increased enforcement of the federal False Claims Act and, in particular, actions brought pursuant to the False Claims Act’s “whistleblower” or “qui tam” provisions. The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government. The qui tam provisions of the False Claims Act allow a private individual to bring an action under the False Claims Act on behalf of the federal government and permit such an individual to share in any amounts paid by the entity to the government in fines or settlement. In addition, ~~the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,~~ ~~which we collectively refer to as the Affordable Care Act, establishes a requirement for~~ providers and suppliers tomust report and return any overpayments received from ~~government payors under~~ the Medicare and Medicaid programs within 60 days of identification. Failure to identify and return such overpayments exposes the provider or supplier to False Claims Act liability. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties ranging from $5,500 to $11,000 for each false claim, as set by statute. However, the civil penalty amounts are adjusted annually for inflation. For civil penalties assessed after ~~January 29, 2018,~~June 19, 2020, whose associated violations occurred after November 2, 2015, the civil penalty amount ranges between ~~$11,181~~$11,665 and ~~$22,363~~$23,331 per claim; as of December 13, 2021, the amounts increased to $11,803 and $23,607 per claim.

In addition, various states have enacted false claim laws analogous to the federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely a government payor program.

The federal Civil Monetary Penalties Law, or the CMP Law, prohibits, among other things, (1) the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies; (2) employing or contracting with an individual or entity that the provider knows or should know is excluded from participation in a federal health care program; (3) billing for services requested by an unlicensed physician or an excluded provider; and (4) billing for medically unnecessary services. The penalties for violating the CMP Law include exclusion, substantial fines, and payment of up to three times the amount billed, depending on the nature of the offense.

The U.S. federal law directed at “self-referrals,” commonly known as the “Stark Law,” prohibits a physician from making referrals for certain designated health services, including laboratory services, that are covered by the Medicare program, to an entity with which the physician or an immediate family member has a direct or indirect financial relationship, unless an exception applies. Violation of the Stark Law results in a denial of payment for any services provided pursuant to a prohibited referral. A physician or entity that engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to ~~$169,153~~$174,172 (which reflects the annual adjustment for inflation effective as of November ~~5, 2019)~~15, 2021) for each such arrangement or scheme. In addition, any person who presents or causes to be presented a claim to the Medicare program in violation of the Stark Law is subject to civil monetary penalties of up to ~~$ 23,372~~$26,125 per service (which reflects the annual inflation adjustment effective as of November ~~5, 2019)~~15, 2021), an assessment of up to three times the amount claimed and possible exclusion from participation in federal healthcare programs. The Stark Law is a strict liability statute, meaning that a physician’s financial relationship with a laboratory must meet an exception under the Stark Law or the referrals are prohibited. Thus, unlike the Anti-Kickback ~~Statute’s~~Statute’s safe harbors, if a laboratory’s financial relationship with a referring physician does not meet the requirements of a Stark Law exception, then the physician is prohibited from making Medicare and Medicaid referrals to the laboratory and any such referrals will result in overpayments to the laboratory and subject the laboratory to the Stark Law’s penalties. A violation of the Stark Law can serve as a basis of liability under the federal False Claims Act.

Many states, including California, have comparable laws that are not limited to Medicare referrals. The Stark Law also prohibits state receipt of federal Medicaid matching funds for services furnished pursuant to a prohibited referral, but this provision of the Stark Law has not been implemented by regulations.

The Physician Payments Sunshine Act imposes reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them (and in some cases their distributors) to physicians, teaching hospitals and certain advanced non-physician health care practitioners, as well as ownership and investment interests held by physicians and their immediate family members. The reporting program (known as the Open Payments program) is administered by CMS. Because we manufacture our own LDTs solely for use by or within our own laboratory, we believe we are exempt from these reporting requirements. We may become subject to such reporting requirementsunder the terms of current CMS regulations, however, if the VALID Act or other legislation renders our tests regulated by FDA or if FDA engages in notice-and-comment rulemaking to exercise authority over LDTs or otherwise requires us to obtain premarket clearance or approval for our tests.

We are subject to U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits companies and their intermediaries from making payments in violation of law to non-U.S. government officials for the purpose of obtaining or retaining business or securing any other improper advantage. The sale of our tests internationally demands a high degree of vigilance in maintaining, implementing and enforcing a policy against participation in corrupt activity. Other U.S. companies in the medical device and pharmaceutical fields have faced substantial monetary fines and criminal penalties under the FCPA for allowing their agents to deviate from appropriate practices in doing business with non-U.S. government officials.

We are also subject to similar anti-bribery laws in the foreign jurisdictions in which we operate. In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties and/or significant fines for individuals and/or companies committing a bribery offence. For instance, in the United Kingdom, under the Bribery Act of 2010,

which became effective in July 2011, a bribery occurs when a person offers, gives or promises to give a financial or other advantage to induce or reward another individual to improperly perform certain functions or activities, including any function of a public or private nature. Bribery of foreign public officials also falls within the scope of the Bribery Act of 2010. An individual found in violation of the Bribery Act of 2010 faces imprisonment of up to 10 years and could be subject to an unlimited fine, as could commercial organizations for failure to prevent bribery.

In March 2010, the Affordable Care Act, or ACA, was enacted in the United States. The ~~Affordable Care Act~~ACA made a number of substantial changes to the way healthcare is financed both by governmental and private payors. Although the ~~Affordable Care Act~~ACA included a medical device tax, the tax never went into effect and was fully repealed by Congress with enactment of the ~~2020~~ 2019 federal spending package signed into law by President Trump on December 20, 2019.

Since the ACA’s enactment, there have been judicial and Congressional challenges to certain aspects of the ~~Affordable Care Act~~ACA, and ~~we expect there will be additional challenges and amendments~~as a result, certain sections of the ACA have not been fully implemented or were effectively repealed. However, following several years of litigation in the federal courts, in June 2021, the United States Supreme Court, or the Supreme Court, upheld the ACA when it dismissed a legal challenge to the ~~Affordable Care Act~~ ~~in the future. The current Presidential administration~~Act’s constitutionality. Further legislative and members of the US Congress have indicated that they may continue to seek to modify, repeal or otherwise invalidate all, or certain provisions of, the ACA. President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ~~Affordable Care Act~~ ~~or otherwise circumvent some of the requirements for health insurance mandated by the~~ ~~Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the~~ ~~Affordable Care Act. While Congress has not passed comprehensive repeal legislation, at least two bills affecting the implementation of certain taxes~~regulatory changes under the ~~Affordable Care Act~~ ~~have~~ACA remain possible, although thenew Democrat-led presidential administration has been ~~signed into law. For example,~~taking steps to strengthen the ~~Tax Cuts~~ACA and ~~Jobs Act of 2017 repealed~~ the ~~tax-based shared responsibility payment imposed by the~~ ~~Affordable Care Act~~ ~~on certain individuals who fail to maintain qualifying health coverage for all or part of a year that~~117^th Congress is ~~commonly referred to as the “individual mandate.” In December 2019, the Fifth Circuit Court of Appeals upheld a district court’s finding that the individual mandate in the~~ ~~Affordable Care Act~~ is unconstitutional following removal of the penalty provision from the law. However, the Fifth Circuit reversed and remanded the case to the district court to determine if other reforms enacted as part of the ~~Affordable Care Act~~ ~~but~~ not ~~specifically related to the individual mandate or health insurance could be severed from the rest of the~~ ~~Affordable Care Act~~ ~~so as not~~expected to have the same interest in repealing the law, ~~declared invalid~~ in ~~its entirety. It is unclear how this decision, subsequent appeals including potentially~~part due to the healthcare economic impacts of the ongoing COVID-19 pandemic on many subsets of the U.S. ~~Supreme Court,~~population. Future changes or additions to the ACA, the Medicare and Medicaid programs, such as changes allowing the federal government to directly negotiate drug prices, and changes stemming from other ~~efforts~~health care reform measures, especially with regard to ~~repeal~~health care access, financing or other legislation in individual states, could have a material adverse effect on the health care industry in the U.S. The uncertainty around the future of the ACA, and ~~replace~~in particular the ~~Affordable Care Act~~impact to reimbursement levels and the number of insured individuals, may lead to delay in the purchasing decisions of our customers.

In addition to the ACA, there will ~~affect the implementation of that law and our business. We~~likely continue to ~~evaluate~~be proposals by legislators at both the ~~potential impact of the~~ ~~Affordable Care Act~~federal and ~~its possible repeal or replacement on our business.~~state levels, regulators and private third-party payors to reduce costs while expanding individual healthcare benefits.

Numerous states have enacted laws prohibiting business corporations, such as us, from practicing medicine and employing or engaging physicians to practice medicine, generally referred to as the prohibition against the corporate practice of medicine. These laws are designed to prevent interference in the medical decision-making process by anyone who is not a licensed physician. For example, California’s Medical Board has indicated that determining the appropriate diagnostic tests for a particular condition and taking responsibility for the ultimate overall care of a patient, including providing treatment options available to the patient, would constitute the unlicensed practice of medicine if performed by an unlicensed person. Violation of these corporate practice of medicine laws may result in civil or criminal fines, as well as sanctions imposed against the business corporation and/or the professional through licensure proceedings. ~~Typically, such laws are only applicable to entities with a physical presence in the applicable state.~~

Our laboratory is subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemicals, biological agents and compounds and blood and other tissue specimens. Typically, we use licensed or otherwise qualified outside vendors to dispose of this waste. However, many of these laws and regulations provide for strict liability, holding a party potentially liable without regard to fault or negligence. As a result, we could be held liable for damages and fines if our, or others’, business operations or other actions result in contamination of the environment or personal injury due to exposure to hazardous materials. Our costs for complying with these laws and regulations cannot be estimated or predicted and depends on a number of factors, including the amount and nature of waste we produce (which depends in part on the number of tests we perform) and the terms we negotiate with our waste disposal vendors.

Our operations are also subject to extensive requirements established by the U.S. Occupational Safety and Health Administration relating to workplace safety for healthcare employees, including requirements to develop and implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle stick or similar penetrating injuries.

We believe growing and retaining a strong team is crucial to our success. As of ~~March~~February 1, ~~2020,~~2022, we had ~~139~~645 full-time employees, engaged in bioinformatics, genetics, COVID-19 and molecular testing, software engineering, laboratory management, sales and marketing and corporate and administrative activities. Consistent with our core belief in the values of diversity and inclusion, as of February 1, 2022, underrepresented minorities (which include women, Asian and Hispanic) made up 50% or more of each major level of our organization, including our board of directors, senior management and rank and file staff. To encourage the professional and personal development of every Fulgent employee, we offer certain reimbursement for qualified educational expenses and successful completion of undergraduate, graduate, post-graduate, professional training, and licensure courses from accredited colleges, universities and professional organizations. We also provide mandatory training courses on a variety of topics, including discrimination, anti-corruption and anti-bribery through third party providers. As we navigate the COVID-19 pandemic and to help limit exposure to COVID-19, we have acted to protect employees in business-critical functions who cannot work from home, including those in research and development, quality, accessioning, curation, distribution, and sales. Personal protective equipment, increased sanitation, social distancing guidance, and facility updates (one-way hallways, cafeteria partitions and extra sinks) are provided to protect our employees. None of our employees are represented by a labor union or covered by collective bargaining agreements, and we believe our relationship with our employees is good.

We were incorporated in Delaware on May 13, 2016. We are the holding company of our subsidiaries, including primarily Fulgent Therapeutics LLC, which was initially formed in June 2011. On September 30, 2016, Fulgent Therapeutics LLC became our wholly owned subsidiary in a transaction we refer to as the Reorganization, in which the holders of all equity interests in Fulgent Therapeutics LLC immediately prior to the Reorganization became all of our stockholders immediately following the Reorganization.

Our initial operations focused on Fulgent Therapeutics LLC’s former pharmaceutical business, or the Pharma Business, and in 2013 we commenced the genetic testing business we are currently pursuing. In October 2015, we recapitalized Fulgent Therapeutics LLC to establish two series of units, with the Class D units having economic rights based on the genetic testing business we are currently pursuing and the Class P units having economic rights based on the Pharma Business. On April 4, 2016, Fulgent Therapeutics LLC separated the Pharma Business from the genetic testing business we are currently ~~pursuing in a transaction we refer to as the Pharma Split-Off.~~pursuing. The operating results of the Pharma Business have been reported as discontinued operations for all periods in our consolidated financial statements included in this report.

Our headquarters and laboratory are located at 4978 Santa Anita Avenue, Temple City, California 91780, and our telephone number is (626) 350-0537. Our website address is www.fulgentgenetics.com. The information contained on or that can be accessed through our website is not part of and is not incorporated into this report by this reference.

We qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are applicable generally to other public companies. We will remain an emerging growth company until December 31, 2021, unless our gross revenue exceeds $1.07 billion in any fiscal year before that date, we issue more than $1.0 billion of non-convertible debt in any three-year period before that date or the market value of our common stock held by non-affiliates exceeds $700.0 million as of the last business day of the second fiscal quarter of any fiscal year before that date.

We file reports with the Securities and Exchange Commission, or the SEC, and make available, free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC on their website located at www.sec.gov.

Investing in our common stock involves a high degree of risk. Before making any investment decision with respect to our common stock, you should carefully consider the risks described below, ~~and~~together with the other risk factors set forth in this Item 1A, all ~~of the~~ other information included in this report, and the other ~~filings we make~~reports and documents filed by us with the SEC. ~~We believe the risks and uncertainties~~The risk factors described below are a summary of the ~~most significant we face;~~principal risk factors associated with an investment in us.

Business and the occurrence of any of these risks could harm our business, financial condition, results of operations, prospects and reputation and could cause the trading price of our common stock to decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business.Strategy Risks

Our results of operations may fluctuate significantly from period to period and can be difficult to predict.

Our results of operations have experienced fluctuations from period to period, which we expect may continue in the future. These fluctuations can occur because of a variety of factors, including, among others, the amount and timing of sales of billable ~~tests;~~tests, the prices we charge for our tests due to changes in product, customer or payor mix, general price degradation for genetic tests or other competitive ~~factors;~~factors, global health crises and pandemics which may generate demand for our tests, such as the ongoing pandemic related to COVID-19 the rate and timing of our billings and ~~collections;~~collections and the timing and amount of our commitments and other payments, as well as the other risk factors discussed in this report. ~~In addition, in certain prior periods, our~~Our results have been, and may in the future be, impacted by events that may not recur regularly, in the same amounts or at all in the future. ~~Moreover,~~In 2020, we developed and began offering a series of COVID-19 tests. The pricing and margins from these tests continue to evolve. We experienced substantial revenue growth in recent years due primarily to the sales of, and growing demand, for these COVID-19 tests. While we believe there will be a continued demand for our ~~limited operating history makes it difficult~~COVID-19 tests in the near term, the future outcome and circumstances of the COVID-19 pandemic continue to ~~determine if fluctuations in~~rapidly evolve and remain uncertain. There can be no assurance our ~~performance reflect seasonality~~COVID-19-related growth or other ~~trends or are the result of~~growth we may experience will continue. This recent growth and other ~~factors or events. These~~ fluctuations in our operating results may render period-to-period comparisons less meaningful, and investors should not rely on the results of any one period as an indicator of future performance. ~~Additionally, these~~These fluctuations in our operating results could cause our performance in any particular period to fall below the expectations of securities analysts or investors or guidance we have provided to the public, which could negatively affect the price of our common stock. Moreover, our limited operating history may make it difficult to determine if fluctuations in our performance reflect seasonality, pandemic-related demand or other trends or if these fluctuations are the result of other factors or events.

The expansion of our COVID-19 testing business has resulted in substantial changes and growth in our business. We will need to invest in and expand our infrastructure and hire additional skilled personnel in order to support our desired growth, and our failure to effectively manage any growth or future growth could jeopardize our business.

In March 2020 we commercially launched several COVID-19 tests for the detection of SARS-CoV-2, the virus that causes COVID-19, including NGS and RT-PCR-based tests. We are currently accepting patient samples directly to our Biosafety Level 2, certified laboratories in Temple City, California and Houston, Texas where we have the capacity to accept and process thousands of samples per day with a typical turn-around time of 24-48 hours from the time the sample is received and accepted. To date, we have processed orders for our COVID-19 tests from a variety of sources, including governmental bodies, municipalities, and large corporations. Due to the significant demand for COVID-19 testing services, our business has expanded rapidly since March 2020. This expansion has necessitated a very significant increase in our total headcount, and the volume of tests we perform on a daily basis has increased by approximately 14,800% since March 2020. To meet the demand for COVID-19 testing, we have increased the number of shifts at our main laboratory in Temple City, California and established the laboratory in Houston, Texas. The continued success of this business will depend upon circumstances related to the ongoing COVID-19 pandemic and our ability to rapidly deliver accurate results, and any failure, or perceived failure, in meeting these objectives could cause our COVID-19 testing business to decline rapidly.

To continue to increase the volume of tests we offer and deliver, we must make substantial additional investments in our infrastructure, including our testing capacity, laboratory capacity, information systems, enterprise software systems, customer service, billing and collections systems and processes and internal quality assurance programs. We will also need to invest in our workforce by hiring additional skilled personnel, including biostatisticians, geneticists, software engineers, laboratory directors and specialists, sales and marketing experts and other scientific, technical and managerial personnel to market, process, interpret and validate the quality of results of our genetic tests and otherwise manage our operations.

The time and resources required to implement new systems, to add and train new skilled personnel and to expand or acquire new laboratory space as needed are uncertain. Any growth or future growth we may experience could create a strain on our organizational, administrative and operational infrastructure, including laboratory operations, quality control, customer service, sales and marketing

and management. Our ability to effectively manage any growth we experience will also require us to continue to improve our laboratory and other operational, financial and management systems and controls and our reporting processes and procedures, which may involve significant time and costs and which we may not be able to do successfully. If we fail to manage these activities effectively, our business, prospects, financial condition and results of operations could be adversely affected.

We have previously and may again in the future acquire businesses or assets, form joint ventures, make investments in other companies or technologies or establish other strategic relationships, any of which could harm our operating results or dilute our stockholders’ ownership.

As part of our business strategy, we have previously and may again in the future pursue acquisitions of complementary businesses or assets (such as our recent acquisition of CSI) investments in other companies (such as our recent investment in Helio Health) technology licensing arrangements, joint ventures or other strategic relationships. As an organization, we have limited experience with respect to acquisitions, investments or the formation of strategic relationships or joint ventures. If we pursue relationships with strategic partners or other strategic relationships, our ability to establish and maintain these relationships could be challenging due to several factors. Factors include competition with other testing companies and internal and external constraints placed on pharmaceutical and other organizations that limit the number and type of relationships they can establish with companies like ours. Moreover, we may not be able to identify or complete any acquisition, investment, technology license, joint venture or other strategic relationship in a timely manner, on a cost-effective basis or at all, and we may not realize the anticipated benefits of any acquisition, investment or joint venture as needed to recoup our costs.

To finance any acquisitions, investments, joint ventures or other strategic relationships, we may seek to raise additional funds through securities offerings, credit facilities, asset sales or collaborations or licensing arrangements. To the extent these financing transactions call for the issuance of shares of our capital stock, our existing stockholder would experience dilution in their relative ownership of shares of our capital stock. Each of these methods of fundraising is subject to a variety of risks, including those discussed above under “—Any inability to obtain additional capital when needed and on acceptable terms may limit our ability to execute our business plans.” Further, additional funds from capital-raising transactions may not be available when needed, on acceptable terms or at all. Any inability to fund any acquisitions, investments or strategic relationships we pursue could cause us to forfeit opportunities we believe are promising or valuable, which could harm our prospects.

We have a history of losses, and we may not be able to achieve or sustain profitability. We anticipate that profits resulting from our COVID-19 testing will eventually decrease as and if the prevalence of COVID-19 eventually decreases.

We have a history of losses. Although we achieved profitability infor the ~~first half of 2017,~~years ended December 31, 2020 and ~~the second and third quarters of~~ ~~2019, we recorded losses in all other periods since our inception. As a result,~~ 2021, we may not be able to maintain profitability in future periods. Further, ~~we have generated limited revenue to date, and~~ our ~~historical~~ revenue levels may not grow at historical rates or at all, and we may not be able to achieve additional profitability or sustain profitability. We may incur additional losses in the ~~future, particularly~~future. While we experienced significant profitability in connection with the launch of our COVID-19 tests, we anticipate that demands for these tests will eventually decrease as and if the prevalence of COVID-19 eventually decreases. In addition, there are a number of competitive entrants to the COVID-19 testing market since we ~~focus on investing~~first launched our COVID-19 testing services in March 2020, and ~~growing~~these competitors may cause price declines or reduced market share for us. There can be no assurance that our ~~business~~increased investments in our COVID-19 testing capacity and ~~operations~~capabilities will result in desirable returns, and ~~experience related increases in expenses. Our prior losses and any~~our profits or operating results may decline as a result of decreased demand for these tests. Any future losses ~~have had and will continue to~~may have an adverse effect on our stockholders’ equity and working capital, which could negatively impact our operations and your investment in ~~our company.~~the Company. Any failure to sustain or grow our revenue levels and ~~achieve or~~to maintain profitability would negatively affect our business, financial condition, results of operations and cash flows, and could cause the market price of our common stock to decline.

~~We are an early-stage company with a limited operating history, which could expose us to enhanced risks and increase the difficulty of evaluating our business and prospects.~~

We began operations in May 2012 and commercially launched our first genetic tests in 2013. As a result, we have only a limited operating history upon which you can evaluate our business and prospects. Our limited operating history makes it difficult to evaluate our current business and hinders our ability to reliably forecast our future operating results, including revenue, cash flows and movement toward sustained profitability. Our revenue levels may not continue to grow at historical rates or at all, and we may not be able to achieve or sustain profitability. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in the life sciences and technology industries, such as risks related to an evolving and unpredictable industry and business model, management of growth and the other uncertainties described in this report. If our assumptions regarding these risks and uncertainties are incorrect or these risks and uncertainties change due to fluctuations in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.

Our industry is subject to rapidly changing technology and new and increasing amounts of scientific data, and if we fail to keep pace with these technological advances, we may be unable to compete effectively and our business and prospects could suffer.

In recent years, there have been numerous advances in the ability to analyze large amounts of genomic information and the role of genetics and gene variants in disease diagnosis and treatment. Our industry has been, and we believe will continue to be, characterized by rapid technological change, increasing amounts of data, frequent introductions of new genetic tests and evolving industry standards, all of which could make our tests obsolete if we are ~~not able~~unable to enhance our ~~technologies~~tests more quickly and ~~tests faster and better~~more effectively than our competitors. We believe our future success will depend in part on our ability to keep pace with the evolving needs of our customers in a timely and cost-effective manner and to pursue new market opportunities that develop as a result of technological and scientific advances. If we are ~~not able~~unable to keep pace with these advances and increased customer expectations that develop as a result of these advances, we may be unable to sustain or grow our business and our future operations and prospects could suffer.

Our mix of customers can fluctuate from period to period and our revenue may be concentrated among only a small number of customers, and the loss of or a reduction in sales to any of our customers could materially harm our business.

The composition and concentration of our customer base can fluctuate from period to period, and in certain prior periods, a small number of customers accounted for a significant portion of our revenue. ~~In particular, when~~When customers who, to our knowledge, are under common control or otherwise affiliated with each other are aggregated, one customer, the County of Los Angeles, contributed ~~28%~~26% of our total revenue induring the year ended December 31, ~~2019, and one customer contributed 13% of our total revenue in the year ended December 31, 2018.~~2021, respectively. For these customers and for customers generally, tests are purchased on a test-by-test basis and not pursuant to any long-term purchasing arrangements. As a result, any or all of our customers, including affiliated customers or customers under common control who purchase large quantities of billable tests, could decide at any time to decrease, delay or discontinue their orders from us which could adversely affect our revenue. ~~Although we~~We believe some of these fluctuations in customer demand may be attributable, in part, to the nature of our ~~business, in which our~~business. Our traditional genetic testing customers can experience significant volatility in their genetic testing demand from period to period in the ordinary course of their operations ~~these~~and demand for our COVID-19 tests may vary widely depending on circumstances surrounding the pandemic, including the emergence or reemergence of viral variants such as the Delta variant and the Omicron variant. These demand fluctuations, particularly for any key customers, can have a significant impact on our period-to-period performance regardless of their cause. In addition, the failure ~~of any one of our customers or their payors~~ to ~~pay~~receive payment on a timely basis would negatively impact our results and cash flows. Our ability to maintain or increase sales to our existing customers depends on a variety of factors, including the other risk factors discussed in this report, many of which are beyond our control. Because of these and other factors, sales to any of our customers, including any key, affiliated or commonly controlled customers, may not continue in the amounts or at the rates as they have in the past, and such sales may never reach or exceed historical levels in any future period. The loss of any of our customers, or a reduction in orders or difficulties collecting payments for tests ordered by any of them, could significantly reduce our revenue and adversely affect our operating results.

If we are ~~not able~~unable to grow and diversify our customer base and increase demand for our tests from existing and new customers, our potential for growth could be limited.

To achieve our desired revenue growth, we must increase test volume by further penetrating our existing hospital and medical institution ~~customers.~~customers, by expanding sales of our COVID-19 tests to additional governmental bodies, municipalities and large corporations in need of regular testing for large populations and by further establishing our presence in the cancer and molecular diagnostic testing markets. In addition, we must grow our customer base beyond hospitals, medical institutions and other laboratories and into additional customer groups, such as individual physicians, other practitioners and research institutions. To this end, we are making efforts to diversify our customer market, including building relationships with research institutions and other similar institutional customers, national clinical laboratories, governmental bodies, municipalities and large corporations in need of regular COVID-19 testing for large populations and various other organizations to facilitate access to physicians, practitioners and other new customer groups, including certain U.S. government agencies. ~~We are also pursuing~~These efforts could fail. Even if we successfully develop relationships with ~~payors, including Medicare, some state Medicaid programs and commercial payors,~~new customers in ~~an effort~~these or any other new customers groups, these relationships may not lead to ~~obtain coverage and reimbursement for~~improve our ~~tests~~ability to ~~make them accessible to more individual physicians.~~achieve or sustain profitability. Generally, when we establish these new customer relationships, we agree with the applicable payor, laboratory or other customer to provide certain of our tests at negotiated rates, but, subject to limited exceptions, ~~none~~most of these relationships do not obligate any party to order our tests at any agreed volume or frequency or at all. Further, any relationships we may develop with any government agencies are subject to unique risks associated with government contracts, including cancellation if adequate appropriations for subsequent performance periods are not made and modification or termination at the government’s convenience and without prior notice. In 2019, we launched Picture Genetics, a patient-initiated genetic testing offering aimed at increasing sales volume from individual consumers. Our efforts to pursue individual consumers, new payor or institutional customers or other new customer markets could fail, and even if we are able to develop relationships with new customers in these or any other new customer groups, these relationships may not lead to meaningful or any increases in our customer base, the number of billable tests we deliver or our revenue, and may not improve our ability to achieve or sustain profitability.

We may fail to obtain the customer growth needed to grow volumes and revenue levels as desired or anticipated or at all, which could occur for a variety of reasons, including, among others:

If we are unable to address these and other risks associated with growing our customer base and deepening our relationships with existing customers, we may not achieve our desired growth in billable tests and revenue, and our results of operations could be adversely impacted.

We rely on a single source provider to market and sell our COVID-19 testing services and any interruptions of operations of this provider could significantly delay or have a material adverse effect on our business.

We rely on PWN Health to provide physician services in order to market and sell COVID testing services through our direct-to-consumer product, Picture Genetics. If PWN is unable or ceases providing these services for any reason, we may be required to seek FDA approval to amend our EUA to permit us to use another physician service provider for these testing services. Until an alternative provider is identified and this FDA approval is obtained, we may be required to suspend the sale and marketing of our COVID-19 testing services through our Picture Genetics platform. It is unclear how long this FDA approval process may take and we may be unable to find an alternative provider for these services. Our business, prospects and results of operations may be materially harmed if we are required to suspend the provision of COVID-19 testing services through our Picture Genetics platform for this or any other reason.

We may incur cost overruns as a result of fixed price contracts which could limit profits or otherwise adversely affect our business results of operations and financial condition.

In particular, certain of our government contracts are multi-award, indefinite-delivery and indefinite-quantity, or IDIQ, task order-based contracts, which generally provide for fixed price schedules for products and services, have no pre-set delivery schedules, have very low minimum purchase requirements, are typically competed among multiple awardees and force us to carry the burden of any cost overruns. Due to their nature, fixed-priced contracts inherently have more risk than cost reimbursable contracts. If we are unable to control costs or if our initial cost estimates are incorrect, we can lose money on these contracts. In addition, some of our contracts may have provisions relating to cost controls and audit rights, and if we fail to meet the terms specified in those contracts, we may not realize their full benefits. Low earnings caused by cost overruns and cost controls would have a negative impact on our results of operations. Since the price competition to win both IDIQ and fixed-priced contracts is intense and costs of further contract performance cannot be predicted with certainty, there can be no assurance as to the profits, if any, that the Company will realize over the term of these contracts.

We face intense competition, which could intensify further in the future, and we may fail to maintain or increase our revenue levels, to maintain the current prices and margins for our billable tests, or ~~achieve or~~to sustain profitability if we cannot compete successfully.

With the development of NGS, the clinical genetic testing market has become increasingly competitive, and ~~we expect this~~as the COVID-19 pandemic continues, competitive COVID-19 tests have entered and may continue to enter the market. This competition tomay intensify ~~further~~ in the future. We face competition from a variety of sources, including, among others, an increasing number of companies seeking to develop and commercialize, or who have developed and commercialized, COVID-19 tests, dozens of companies focused on molecular genetic and cancer testing services, such as specialty and reference laboratories that offer traditional single-gene and multi-gene tests, ~~as well as~~and established and emerging healthcare, information technology and service companies that may develop and sell competitive products or services, which may include informatics, analysis, integrated genetic tools and services for health and wellness.

Additionally, participants in closely related markets ~~such as prenatal testing and clinical trial or companion diagnostic testing,~~ could converge on offerings that are competitive with the type of tests we perform. Instances where potential competitors are aligned with key suppliers or are themselves suppliers could provide these potential competitors with significant advantages. Further, hospitals, research institutions, ~~and eventually~~ individual physicians and other practitioners, governmental bodies, municipalities and corporations may also seek to perform testing, including rapid COVID-19 testing, at their own facilities ~~the type of genetic testing we would otherwise perform for them.~~rather than use our services and some consumers may increasingly rely on rapid COVID-19 tests. In this regard, access to these on site or point-of-care testing solutions and the continued development of, and associated decreases in the cost of, equipment, reagents and other materials and databases and genetic data interpretation services may enable broader direct participation in genetic testing and analysis and drive down the use of third-party testing companies such as ours. Moreover, the biotechnology and ~~genetic~~ testing fields continue to undergo significant consolidation, permitting larger clinical laboratory service providers to increase cost efficiencies and service levels, resulting in more intense competition.

Many of our existing and potential future competitors have longer operating histories, larger customer bases, more expansive brand recognition and deeper market penetration, substantially greater financial, technological and research and development resources and selling and marketing capabilities, and considerably more experience dealing with third-party payors. As a result, they may be able to respond more quickly to changes in customer requirements or preferences, develop faster, better and more expansive advancements for their technologies and tests, create and implement more successful strategies for the promotion and sale of their tests, obtain more favorable results from third-party payors regarding coverage and reimbursement for their offerings, adopt more aggressive pricing and/or price reduction policies for their tests, secure supplies from vendors on more favorable terms or devote substantially more resources to infrastructure and systems development. We may not be able to compete effectively against these organizations.

Additionally, increased competition and cost-saving initiatives on the part of government entities and other third-party payors could result in downward pressure on the price for our testing services and genetic analysis and interpretation generally, which could harm our revenue levels and sales volume and our ability to gain market share. This downward pricing pressure could intensify in future periods, ~~if adoption of genetic testing becomes more widespread,~~ and we may not be able to maintain acceptable margins on our sales if we are forced to reduce prices for our tests to try to remain competitive, especially if we are also experiencing increasing expenses as we make efforts to grow our business or otherwise meet customer demands. The occurrence of these risks could materially harm our ability to achieve or sustain profitability. In addition, competitors may be acquired by, receive investments from, or enter into other commercial

relationships with larger, well-established and well-financed ~~companies if and as use of NGS for clinical diagnosis and preventative care increases.~~companies. Further, companies or governments that effectively control access to ~~genetic~~ testing through umbrella contracts or regional preferences could promote our competitors or prevent us from performing certain tests in certain territories. If we are unable to compete successfully against current and future competitors for these or any other reasons, we may be unable to increase market acceptance and sales volume of our tests, which could prevent us from maintaining or increasing our revenue levels or achieving or sustaining profitability or could otherwise negatively affect our performance.

Our level of commercial success ~~will depend~~depends in part on our ability to generate and grow sales with our sales and marketing team, strategies and partnerships, and we may be unsuccessful in these efforts.

We may not be able to market or sell our existing tests or any tests we may develop in the future in order to drive demand sufficiently to support our desired growth. We currently sell our tests through a small internal sales force and a number of contractors who serve as independent sales representatives. Although we have made efforts to enhance and improve our internal sales department, it remains significantly smaller than many of our competitors’ sales teams. We have historically relied significantly on organic growth and word-of-mouth among our customers to generate interest in our tests, but our ability to rely on this type of interest in future periods is uncertain.

We believe our ability to maintain and grow sales volume in the future will depend in large part on our ability to further develop our sales team and create and implement effective sales and marketing strategies. We have been focused on these objectives and have taken steps to pursue them in recent periods, including hiring new key members and restructuring the organization of our sales and marketing team, re-focusing our sales and marketing initiatives and strategies and increasing the overall scope of our marketing activities. These efforts have required and will continue to involve significant time and expense. Moreover, these efforts may be unsuccessful. For instance, we may not be able to attract and hire the qualified personnel we need to grow or otherwise improve our sales and marketing team as quickly or as successfully as we would like for various reasons, including intense competition in our industry for qualified personnel and our relative lack of experience selling and marketing our tests. Even if we are able to further develop our sales and marketing team and strategy, ~~and~~ we may not be successful in growing our customer base or increasing order volumes from our existing customers. Further, our reliance on independent sales representatives subjects us to risks, as we have very little control over their activities and they are generally free to market and sell other, potentially competing, products. As a result, these independent sales representatives could devote insufficient time or resources to marketing and selling our tests, could market them in an ineffective manner or could otherwise be unsuccessful in selling adequate or expected quantities of our tests.

In addition, our future sales levels will depend in large part on the effectiveness of our sales and marketing strategies, including our ability to expand our brand awareness by providing education about the benefits and full scale of our offering to the medical community in general and to our targeted ~~geographic and customer~~ markets. We ~~also~~ intend to continue to pursue targeted marketing initiatives, including working with medical professional societies to promote awareness of the benefits of our tests and genetic testing in general, pursuing or supporting scientific studies of our tests and publication of results in medical or scientific journals and making presentations at medical, scientific or industry conferences and trade shows. We may not be successful in implementing these initiatives or other marketing strategies we may develop and pursue. If we are ~~not able~~unable to drive sufficient revenue using our sales and marketing strategies to support our planned growth, our business and results of operations would be negatively affected.

Our sales and marketing strategies also include a continued focus on growing our international sales and customer base, which we plan to pursue through our direct sales team, a number of independent contractor sales representatives, and, if opportunities arise, by engaging distributors or establishing other types of arrangements, such as joint ventures or other relationships, to manage or assist with sales, logistics, education or customer support in certain territories. To this end, we ~~have~~ worked with Xi Long USA, Inc.~~, or Xi Long, a large stockholder of our company,~~ to form a

joint venture in the second quarter of 2017 which ~~we refer~~was restructured in 2021, in an effort to ~~as FF Gene Biotech,~~bring our NGS capabilities to ~~offer~~the Chinese genetic testing market through entities separate from our U.S. operations. Although this joint venture has enabled us to ~~customers~~have an operational presence on the ground in China to capitalize on the large and growing genetic testing opportunity in the ~~People’s Republic of China, or PRC. Although~~country and we believe this joint venture could result in expanded long-term opportunities to address the genetic testing market in Asia, these expectations could turn out to be wrong and we may never realize the benefits we ~~anticipate from this joint venture. While it~~anticipate. It may become necessary to identify, qualify and engage other commercial partners or distributors with local industry experience and knowledge in order to effectively market and sell our tests outside the United ~~States, we have not established any such relationships to cover any non-U.S. territories except for this joint venture in the PRC. As a result, we~~States. We may not be successful in finding, attracting and retaining qualified distributors or other commercial partners or we may not be able to enter into arrangements covering desired territories on favorable terms. In addition, sales practices utilized by distributors or other commercial partners that are locally acceptable may not comply with sales practices or standards required under U.S. laws that apply to us, which could subject us to additional compliance risks. If our sales and marketing efforts outside the United States are not successful, we may not achieve significant acceptance for our tests in international markets, which could materially and adversely impact our business operations.

We will need to invest in and expand our infrastructure and hire additional skilled personnel in order to support our desired growth, and our failure to effectively manage any future growth could jeopardize our business.

To increase the volume of tests we offer and deliver, we must invest in our infrastructure, including our testing capacity and information systems, enterprise software systems, customer service, billing and collections systems and processes and internal quality assurance programs. We will also need to invest in our workforce by hiring additional skilled personnel, including biostatisticians, geneticists, software engineers, laboratory directors and specialists, sales and marketing experts and other scientific, technical and managerial personnel to market, process, interpret and validate the quality of results of our genetic tests and otherwise manage our operations. For example, before we deliver a report for any of our genetic tests, the results summarized in the report must be reviewed and approved by a licensed and qualified laboratory director. We currently have only four such laboratory directors with all of the required licenses, including Dr. Han Lin Gao. We may need to hire more licensed laboratory directors in the future to further scale our business. If we fail to hire additional qualified personnel when needed or otherwise develop our infrastructure sufficiently in advance of demand or if we fail to generate demand commensurate with our level of investment in our infrastructure, our business, prospects, financial condition and results of operations could be adversely affected. Additionally, although we do not presently have plans to acquire new or expand our existing laboratory space, we may need to do so in the future if our test volume increases, and any need to obtain an additional facility or replace our existing facility with a larger one could involve significant costs and challenges.

The time and resources required to implement new systems, to add and train new skilled personnel and to expand or acquire new laboratory space as needed are uncertain. Any future growth we may experience could create a strain on our organizational, administrative and operational infrastructure, including laboratory operations, quality control, customer service, sales and marketing and management. We may not be able to maintain the quality of or expected turnaround times for our tests or satisfy customer demand if and when it grows. Our ability to effectively manage any growth we experience will also require us to continue to improve our laboratory and other operational, financial and management systems and controls and our reporting processes and procedures, which may involve significant time and costs and which we may not be able to do successfully.

Our ability to achieve or sustain profitability also depends on our collection of payment for the tests we deliver, which we may not be able to do successfully.

Since starting our genetic testing business, we have historically ~~been~~ focused primarily on providing our tests to hospitals, medical institutions and other ~~laboratories.~~laboratories, our traditional genetic testing customer base. Our ~~current~~ customer base for our COVID-19 tests is principally comprised of ~~hospitals, medical institutions~~governmental bodies, municipalities, and ~~other laboratories. These customers typically~~large corporations who pay us directly or through third-party payors. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was enacted, providing for reimbursement to healthcare providers for COVID-19 tests provided to uninsured individuals, subject to continued available funding. Should reimbursement under the ~~cost of our tests using funds reimbursed in connection with a patient’s diagnosis related group, or DRG. However,~~CARES Act for COVID-19 testing cease to be available for any reason, our ability to collect payment for the tests we deliver to our hospital and medical institution customers, as well as to other types of customers, is subject to a number of risks, many of which are not within our control. These risks include the potential for default or bankruptcy by the party responsible for payment and other risks associated with payment collection generally.would be adversely affected. Further, healthcare policy changes that influence the way healthcare is financed or other changes in the market that impact payment rates by institutional or non-institutional customers could also affect our collection rates. For example, because reimbursement under a DRG is typically provided at a fixed amount intended to cover all services provided to the patient, the cost of our tests may be viewed to limit the profitability of the billing institution. If we are unable to convince hospitals, medical institutions and other laboratories of the value and benefit provided by our tests, ~~or if the amount reimbursed under these DRG codes is decreased,~~ these customers may slow, or stop altogether, their purchases of our tests. Moreover, our ability to collect payment for our tests in a timely manner or at all from our healthcare provider customers may decline to the extent we expand our business into new healthcare provider customer groups, including individual physicians and other practitioners, from which collection rates are often significantly lower than hospitals, medical institutions and other laboratories and which involve substantial additional risks that are discussed in these risk factors below. Our collection risks also include the potential for default or bankruptcy by the party responsible for payment and other risks associated with payment collection generally. Any inability to maintain our past payment collection levels could cause our revenue and ability to achieve profitability to ~~decline.~~decline and adversely affect our business, prospects and financial condition.

If third-party payors do not provide coverage and adequate reimbursement for our tests, our potential for growth could be limited.

Coverage and reimbursement by third-party payors, including managed care organizations, private health insurers and government healthcare programs, such as Medicare and Medicaid, for the types of genetic tests we perform can be limited and uncertain. Although our existing customer base consists primarily of hospitals, medical institutions, municipalities, governmental bodies, large corporations and other laboratories from which we typically receive direct payment for ordered tests, including our COVID-19 tests, we believe our potential for future growth is dependent on our ability to attract new customer groups, including individual physicians and other practitioners. ~~These practitioners~~Our healthcare provider customers, including laboratories may not order our tests unless third-party payors cover and provide adequate reimbursement for a substantial portion of the price of the tests. If we are not able to obtain coverage and an acceptable level of reimbursement for our tests from third-party payors, there would typically be a greater co-insurance, deductible or co-payment requirement from the patient for whom the test is ordered or the patient may be forced to pay the entire cost of the test out-of-pocket, which could dissuade practitioners from ordering our tests and, if ordered, could result in a delay in or decreased likelihood of collecting payment, whether from patients or from third-party payors. We believe our ability to increase the number of tests we sell to our healthcare provider customers and ~~our~~any corresponding revenue will depend in part on our ability to achieve and maintain broad coverage and reimbursement for our tests from third-party payors.

Coverage and reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that a test is appropriate, medically necessary and cost-effective. Each payor makes its own decision as to whether to establish a policy or enter into a contract to cover our tests and the amount it will reimburse for each test, and any determination by a payor regarding coverage and amount of reimbursement for our tests would likely be made on an indication-by-indication basis. Even if a test has been approved for reimbursement for any particular indication or in any particular jurisdiction, there is no guarantee this test will remain approved for reimbursement or that any similar or additional tests will be approved for reimbursement in the future. Moreover, there can be no assurance that any new tests we launch will be reimbursed at all or ~~reimbursed~~ at rates comparable to the rates of any previously reimbursed tests. In addition, the coding procedure used by all third-party payors with respect to establishing payment rates for various procedures, including our tests, is complex, does not currently adapt well to the genetic tests we perform and may not enable coverage and adequate reimbursement rates for our tests. If physicians fail to provide appropriate diagnosis codes for ~~desired~~ tests that they order, we

may not be reimbursed for our tests. Additionally, if we are not able to obtain sufficient clinical information in support of our tests, third-party payors could designate our tests as experimental or investigational and decline to cover and reimburse our tests because of this designation. As a result of these factors, obtaining approvals from third-party payors to cover our tests and establishing adequate reimbursement levels is an unpredictable, challenging, time-consuming and costly process, and we may never be successful.

To date, we have contracted directly with national health insurance companies to become an in-network provider and enrolled as a supplier in the Medicare program and a provider in some state Medicaid programs, and we have also received payment for our tests from other third-party payors as an out-of-network provider. Although becoming an in-network provider or enrolling as a supplier or provider means that we have agreed with these payors to provide certain of our tests at negotiated or set fee schedule rates, it does not obligate any physicians or other practitioners to order our tests or guarantee that we will receive reimbursement for our tests from these or any other payors at adequate levels. As a result, these payor relationships, any other similar relationships we may establish in the future, or any additional payments we may receive from other payors as an out-of-network provider, may not amount to acceptable levels of reimbursement for our tests or meaningful or any increases in our ~~physician~~ customer base or the number of billable tests we ~~sell to physicians.~~sell. We expect to focus on increasing coverage and reimbursement for our current tests and any future tests we may develop, but we cannot predict whether, under what circumstances, or at what payment levels payors will cover and reimburse us for our tests. Further, even if we are successful, we believe it could take several years to achieve coverage and adequate contracted reimbursement with third-party payors. If we fail to establish and maintain broad coverage and reimbursement for our tests, our ability to maintain or grow our test volume, customer base, collectability rates and revenue levels could be limited and our future prospects and our business could suffer.

Failure to comply with government laws and regulations related to submission of claims for our services could result in significant monetary damages and penalties and exclusion from the Medicare and Medicaid programs and corresponding foreign reimbursement programs.

We are subject to laws and regulations governing the submission of claims for payment for our services, such as those relating to: coverage of our services under Medicare, Medicaid and other state, federal and foreign health care programs; the amounts that we may bill for our services; and the party to which we must submit claims. Our failure to comply with applicable laws and regulations could result in our inability to receive payment for our services or in attempts by state and federal ~~healthcare~~health care programs, such as Medicare and Medicaid, to recover payments already made. Submission of claims in violation of these laws and regulations can result in recoupment of payments already received, substantial civil monetary penalties, and exclusion from state and federal health care programs, and can subject us to liability under the federal False Claims Act and similar laws. The failure to report and return an overpayment to the Medicare or Medicaid program within 60 days of identifying its existence can give rise to liability under the False Claims Act. Further, a government agency could attempt to hold us liable for causing the improper submission of claims by another entity for services that we performed if we were found to have knowingly participated in the arrangement at issue.

We may not be successful in developing and marketing new tests, which could negatively impact our performance and prospects.

We believe our future success will depend in part on our ability to continue to expand our test ~~offering~~offerings and develop and sell new ~~tests.~~tests and on our ability to expand our presence in new and existing markets, including our presence in the molecular diagnostic and cancer testing markets. We may not be successful in launching or marketing any new tests we may develop ~~including our recently launched Picture Genetics offering,~~or in expanding into any new or existing markets, and, even if we are successful, the demand for our ~~other~~ tests could decrease or may not continue to increase at historical rates due to resulting sales of ~~the~~any new tests. ~~Our pipeline~~Development of new tests is ~~in various stages of development and will be~~ time-consuming and costly, ~~to fully develop and introduce,~~ as development and marketing of new tests requires us to conduct research and development activities regarding the new tests and to further scale our laboratory processes and infrastructure to be able to analyze increasing amounts of more diverse data. Further, we may be unable to discover or develop and launch new tests for a variety of reasons, including failure of any proposed test to perform as expected, lack of validation or reference data for the test or failure to demonstrate the utility of the test. ~~Further, any~~Any new test we are able to discover and develop may not be launched in a timely manner, meet applicable regulatory standards, successfully compete with other technologies and available tests, avoid infringing the proprietary rights of others, achieve coverage and adequate reimbursement from third-party payors, be capable of performance at commercial levels and at reasonable costs, be successfully marketed or achieve sufficient market acceptance for us to recoup our time and capital investment in the development of the test. Any failure to successfully develop, market and sell new tests could negatively impact our ability to attract and retain customers, ~~and~~ our revenue and prospects.

We are exposed to additional business, regulatory, political, operational, financial and economic risks related to our international operations.

Our existing customer base includes international customers from a variety of geographic markets. ~~In addition, we have established FF Gene Biotech to offer genetic testing to customers in the PRC.~~ As part of our strategy, we aim to increase our volume of direct sales to international customers in a variety of markets by conducting targeted marketing outreach activities and, if opportunities arise, engaging distributors or establishing other types of arrangements, such as additional joint ventures or other relationships. However, we may never be successful in achieving these objectives, and even if we are successful, these strategies may not result in meaningful or any increases in our customer base, test volumes or revenue.

Doing business internationally involves a number of risks, including, among others:

Any of these factors could significantly harm our existing relationships with international customers or derail our international expansion plans, which would cause our revenue and results of operations to suffer.

In addition, we are exposed to a number of additional risks and challenges related to our ~~efforts to access customers~~joint venture in ~~the PRC with the formation of FF Gene Biotech.~~China. These risks include, among others, difficulties predicting the market for genetic testing in Asia; competitive factors in this market, including challenges securing market share; local differences in customer demands and preferences and regulatory requirements; ~~our lack of control over FF Gene Biotech due to our non-majority ownership interest;~~ and many of the other risks of doing business internationally that are discussed above. Further, we could experience declines in our direct sales to, and revenue from, customers in Asia if any of these customers choose to order genetic tests from FF Gene Biotech instead of from us. As a result of these risks, althoughAlthough we believe ~~FF Gene Biotech~~this joint venture could result in expanded long-term opportunities to address the genetic testing market in Asia, this belief could turn out to be wrong and we may never realize these or any other benefits we anticipate from ~~this joint venture. Moreover,~~ FF Gene ~~Biotech or~~Biotech. Moreover, any ~~other~~ joint venture we may seek to establish may never produce sufficient revenue to us to recover our capital and other investments in the joint venture, and we could become subject to liabilities based on our involvement in the joint venture’s operations. The materialization of any of these risks ~~related to FF Gene Biotech~~ could materially harm our performance and prospects.

If we are sued for product or professional liability, we could face substantial liabilities that exceed our resources.

Our business depends on our ability to provide reliable and accurate test results, including tests that incorporate rapidly evolving information about the role of genes and gene variants in disease and clinically relevant outcomes associated with these variants. Hundreds of genes can be implicated in some ~~disorders and overlapping~~disorders. Overlapping networks of genes and symptoms can be implicated in multiple

conditions. As a result, substantial judgment is required in order to interpret the results of each test we perform and produce a report summarizing these results. Errors, such as failures to detect genomic variants with high accuracy, or mistakes, such as failures to completely and correctly identify the significance of gene variants, could subject us to product liability or professional liability claims. Any such claim against us could result in substantial damages and be costly and time-consuming to defend. Although we maintain liability insurance, including for errors and omissions, our insurance may not fully protect us from the financial impact of defending against these types of claims or any judgments, fines or settlement costs arising out of any such claims. Additionally, any liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing adequate insurance coverage in the future. Moreover, any liability lawsuit could damage our reputation or force us to suspend sales of our tests. The occurrence of any of these events could have a material adverse effect on our business, reputation and results of operations.

If our ~~sole~~ laboratory ~~facility becomes~~facilities become inoperable, if we are forced to vacate ~~the~~a facility or if we are unable to obtain additional laboratory space as and when needed, we would be unable to perform our tests and our business would be harmed.

We perform ~~all of~~ our tests at ~~a single laboratory~~our CLIA-certified laboratories in Temple City, ~~California.~~California, Houston, Texas, Alpharetta, Georgia, and Jupiter, Florida. Our laboratories and the equipment we use to perform our tests would be costly to replace and could require substantial lead time to replace and qualify for use. Additionally, any other laboratory ~~facility~~facilities or equipment we may use could be damaged or rendered inoperable by natural disasters (which may be exacerbated by the effects of climate change) or man-made disasters ~~including earthquakes, floods, fires and power outages,~~ which could render it difficult or impossible for us to perform our tests for some period of time. The inability to perform our tests or the backlog that could develop if ~~our~~a laboratory becomes inoperable for even a short time could result in the loss of customers or harm to our reputation. Although we maintain insurance for damage to our property and disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all.

Further, if we need to ~~move~~relocate from one laboratory facility to ~~a different~~another laboratory facility or obtain additional laboratory space, we may have difficulty locating suitable space in a timely manner, on reasonable terms or at ~~all, and even~~all. Even if acceptable space was available, it would be challenging, time-consuming and expensive to obtain or transfer the licensure and accreditation required for a commercial laboratory like ours and the equipment ~~we use~~used to perform our tests. These challenges could be amplified if we or our joint ventures or other commercial partners seek to procure and maintain laboratory space outside the United States as we pursue international expansion. If we are unable to obtain or are delayed in obtaining new laboratory space as needed, we may not be able to provide our existing tests or develop and launch new tests, which could result in harm to our business, reputation, financial condition and results of operations.

We face risks related to the impact of the COVID-19 pandemic and the related protective public health measures.

Despite our recent revenue growth and recent demand for our COVID-19 tests, our business could be materially and adversely affected by the effects of the global pandemic of COVID-19 and the related protective public health measures. Our business depends upon the continuous testing services that we provide at our laboratory facilities, and our business faces the same risks as are currently prevalent in most of the United States, including the risks that employees could contract COVID-19, which could result in a disruption in our ability to continue to provide testing services. Although we take what we believe are reasonable precautions to prevent the spread of COVID-19 within our facilities and among our employees, we cannot provide assurance that we will not suffer from exposure to the SARS-CoV-2 virus that would require a temporary closure of our laboratory facilities, which would materially adversely affect our operations and financial results. Other adverse effects of the pandemic on our business could include disruptions or restrictions on our employees’ ability to travel, as well as temporary closures of the facilities of our suppliers, third party service providers or customers, which could impact our test volume and results of operations.

We rely on a limited number of suppliers and, in some cases, a sole supplier, for certain ~~of our~~ laboratory substances, equipment and other materials, and any delays or difficulties securing these materials could disrupt our laboratory operations and materially harm our business.

We rely on a limited number of suppliers for certain ~~of our~~ laboratory substances, including reagents, as well as for the sequencers and various other equipment and materials ~~we use~~used in our laboratory operations. In particular, we rely on Illumina, Inc. as the sole supplier of the next generation sequencers and associated reagents ~~we use~~used to perform our genetic tests and as the sole provider of maintenance and repair services for these sequencers. We do not have long-term agreements with ~~any~~most of our suppliers and, as a result, they could cease supplying these materials and equipment to us at any time due to an inability to reach agreement with us on supply terms, disruptions in their operations, a determination to pursue other activities or lines of business, or ~~for other reasons, or~~ they could fail to provide us with sufficient quantities of materials that meet our ~~specifications.~~specifications, among other reasons. These suppliers may also be affected by, natural disasters such as extreme weather events, fires or flooding (which may be exacerbated as a result of climate change), and the ongoing COVID-19 pandemic and its related effects on the global supply chain. Transitioning to a new supplier or locating a temporary substitute, if any are available, would be time-consuming and expensive, could result in interruptions in or otherwise affect the performance specifications of our laboratory operations or could require that we revalidate our tests. In addition, the use of equipment or materials provided by a replacement supplier could require us to alter our laboratory operations and procedures. Moreover, we

believe there are currently only a few manufacturers that are capable of supplying and servicing ~~some of the~~certain equipment and other materials necessary for our laboratory operations, including sequencers and various associated reagents. As a result, replacement equipment and materials that meet our quality control and performance requirements may not be available on reasonable terms, in a timely manner or at all. If we encounter delays or difficulties securing, reconfiguring or revalidating the equipment, reagents and other materials ~~we require~~required for our tests, including as a result of the COVID-19 pandemic, our operations could be materially disrupted and our business, financial condition, results of operations and reputation could be adversely affected.

Billing and collections processing for our tests is complex and time-consuming, and any delay in transmitting and collecting claims could have an adverse effect on our revenue.

Billing for our tests is complex, time-consuming and expensive. Depending on the billing arrangement and applicable law, we may bill various different parties for our ~~tests, including~~tests. This includes billing customers directly, as in the case of our hospital and other medical institution customers, as well as billing through Medicare, Medicaid, insurance companies and patients, all of which may have different billing requirements. We may face increased risk in our collection efforts due to the complexities of these billing requirements, including long collection cycles and lower collection rates, which could adversely affect our business, results of operations and financial condition.

We have developed internal systems and procedures to handle these billing and collections functions, but we will need to make significant efforts and expend substantial resources to further develop our systems and procedures to handle these aspects of our business, which could become increasingly important as we focus on increasing test volumes from non-hospital and medical institution customer groups and establishing coverage and reimbursement policies with third-party payors. As a result, these billing complexities, along with the related uncertainty in obtaining payment for our tests, could negatively affect our revenue and cash flow, our ability to achieve or sustain profitability and the consistency and comparability of our results of operations. In addition, if claims for our tests are not submitted to payors on a timely basis, or if we are required to switch to a different provider to handle our processing and collections functions, our revenue and our business could be adversely affected.

Ethical, legal and social concerns related to the use of genetic information could reduce demand for our tests.

Genetic testing has raised ethical, legal and social issues regarding privacy and the appropriate uses of the resulting information. Government authorities could, for social or other purposes, limit or regulate the use of genetic information or genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, these concerns may cause patients to refuse to use, or physicians to be reluctant to order, genetic tests such as ours, even if permissible. These, and other ethical, legal and social concerns may limit market acceptance and adoption of our tests or reduce the potential markets for our tests, any of which could have an adverse effect on our business, financial condition and results of operations. In addition, California has enacted the Genetic Information Privacy Act that imposes privacy requirements on direct-to-consumer genetic testing companies that could change the discussion among patients and physicians related to genetic testing as a whole, and potentially reduce consumer interest in such testing more broadly.

We may be subject to negative publicly. Reputational risk, including as a result of negative publicity, is inherent in our business. Negative publicity can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, corporate governance, litigation, inadequate protection of health information, illegal or unauthorized acts taken by third parties that supply products or services to us and the conduct of our employees or agents. In particular, COVID-19 has been a politically controversial topic and our provision of COVID-19 testing and services may cause third parties to malign our reputation for political reasons. Negative publicity can damage our reputation and business even if these statements about us are untrue. Damage to our reputation could adversely impact our ability to attract new and to maintain existing customers, employees and business relationships.

This damage and these circumstances may have a material adverse effect on our financial condition, prospects and results of operations.

Actual or attempted security breaches, loss of data or other disruptions could compromise sensitive information related to our business or to patients or prevent us from accessing critical information, any of which could expose us to liability and adversely affect our business and our reputation.

In the ordinary course of our business, we generate, collect and store sensitive data, including protected health information, or PHI, personally identifiable information, intellectual property and proprietary and other business-critical information, such as research and development data, commercial data and other business and financial information. We manage and maintain the data we generate, collect and store utilizing a combination of on-site systems and managed data center systems. We also communicate sensitive patient data when we deliver reports summarizing test results to our customers, which we deliver via our online encrypted web portal, encrypted email or fax or overnight courier. We face a number of risks related to protecting this information, including loss of access, unauthorized modification or inappropriate disclosure.

The secure processing, storage, maintenance and transmission of this information ~~are~~is vital to our operations and business strategy, and we devote significant resources to protecting the confidentiality and integrity of this information. Although we have implemented security measures and other controls designed to protect sensitive information from unauthorized access, use or disclosure, our information technology and infrastructure could fail, be inadequate or vulnerable to attacks by hackers or viruses or be breached due to employee error, malfeasance or other disruptions. A breach or interruption could compromise our information systems and the information we store could be accessed by unauthorized parties, manipulated, publicly disclosed, lost, or stolen. Any such unauthorized access, manipulation, disclosure or other loss of information could result in legal claims or proceedings and could result in liability or penalties under federal, state or foreign laws that protect the privacy of personal information, discussed below under “—We are subject to broad legal requirements regarding the information we test and analyze, and any failure to comply with these requirements could result in harsh penalties, damage our reputation and materially harm our business.” Additionally, unauthorized access, manipulation, loss, or dissemination could significantly damage our reputation and disrupt our operations, including our ability to perform our tests, analyze and provide test results, bill customers or other payors, process claims for reimbursement, provide customer service, conduct research and development activities, collect, process, and prepare company financial information, conduct education and outreach activities and manage the administrative aspects of our operations, as described further below under “—We depend on our information technology systems and any failure of these systems, due to hardware or software malfunctions, delays in operation, failures to implement new or enhanced systems or cybersecurity breaches, could harm our business.” The occurrence of any of these risks could materially adversely affect our business.

The loss of any member of our senior management team could adversely affect our business.

Our success depends in large part on the ~~skills,~~skill, experience and performance of our executive management team and others in key leadership positions, especially Ming Hsieh, our founder, Chief Executive Officer and Chairman of our board of directors, ~~and~~Paul Kim, our Chief Financial Officer, Dr. Han Lin Gao, our Chief Scientific Officer and Laboratory ~~Director.~~Director, and Jian Xie, our Chief Operating Officer. The continued efforts of these persons will be critical to us as we continue to develop our technologies and test processes and focus on growing our business. If we lose one or more key executives, we could experience difficulties maintaining our operations, including ~~the~~our ability to ~~deliver reports to customers after review and approval by a licensed and qualified laboratory director, competing~~compete effectively, ~~advancing~~advance our technologies, ~~developing~~develop new tests and ~~implementing~~implement our business strategies. All of our executives and employees, including ~~Mr.~~Messrs. Hsieh, Kim and Xie, and Dr. Gao, are at-will, ~~which means~~meaning either we or the executive ~~or employee~~ may terminate ~~their~~his employment at any time. We do not carry key ~~man~~person insurance for any of our executives or other employees. In addition, we do not have long-term retention agreements in place with any of our executives or key employees.

We rely on highly skilled personnel in a broad array of disciplines, and if we are unable to hire, retain or motivate these individuals, we may not be able to maintain the quality of our tests or grow our business.

Our business, including our research and development programs, laboratory operations and administrative functions, largely ~~depends~~depend on our continued ability to identify, hire, train, motivate and retain highly skilled personnel for all areas of our organization, including biostatisticians, geneticists, software engineers, laboratory directors and specialists, sales and marketing experts and other scientific, technical and managerial personnel. Competition in our industry for qualified executives and other employees is intense, and we may not be able to attract or retain the qualified personnel we need to execute our business plans due to high levels of competition for these personnel among our competitors, other life science businesses, universities and public and private research institutions. In addition, our compensation arrangements may not be successful in attracting new employees and retaining and motivating our existing employees. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that could adversely affect our ability to expand our business and support our clinical laboratory operations and our sales and marketing and research and development efforts, which would negatively affect our prospects for future growth and success.

Any inability to obtain additional capital when needed and on acceptable terms may limit our ability to execute our business ~~plans.~~plans, and our liquidity needs could be materially affected by market fluctuations and general economic conditions.

We expect our capital expenditures and operating expenses to increase over the next several years as we seek to expand our infrastructure, sales and marketing and other commercial operations and research and development activities. As of December 31, 2021, we had cash, cash equivalents and marketable securities of approximately $935.5 million. We maintain our cash, cash equivalents and marketable securities with high quality, accredited financial institutions. However, some of these accounts exceed federally insured limits, and, while we believe the Company is not exposed to significant credit risk due to the financial strength of these depository institutions or investments, the failure or collapse of one or more of these depository institutions or default on these investments could materially adversely affect our ability to recover these assets and/or materially harm our financial condition. We may seek to ~~raise additional capital~~fund future cash needs through securities offerings, credit facilities or other debt financings, asset sales or collaborations or licensing arrangements. Additional funding may not be available to us when needed, on acceptable terms or at all. For example, the COVID-19 pandemic initially caused extreme disruption and volatility in the global capital markets. High volatility in capital markets may reduce our ability to access capital and/or adversely affect the stability of the depository institutions maintaining our assets.

If we raise additional funds by issuing equity securities, our existing stockholders could experience substantial dilution. Additionally, any preferred stock we issue could provide for rights, preferences or privileges senior to those of our common stock, and our issuance of any additional equity securities, or the possibility of such an issuance, could cause the market price of our common stock to decline. The terms of any debt securities we issue or borrowings we incur, if available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt or issue additional equity or other restrictions that could adversely affect our ability to conduct our business, and would result in increased fixed payment obligations. If we seek to sell assets or enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms or relinquish or license to a third party our rights to important or

valuable technologies or tests we may otherwise seek to develop ourselves. Moreover, we may incur substantial costs in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses and other similar costs. If we are ~~not able~~unable to secure funding if and when needed and on reasonable terms, we may be forced to delay, reduce the scope of or eliminate one or more sales and marketing initiatives, research and development programs or other growth plans or strategies. In addition, we may be forced to work with a partner on one or more aspects of our tests or market development programs or initiatives, which could lower the economic value to us of these tests, programs or initiatives. Any such outcome could significantly harm our business, performance and prospects.

~~Our ability to use net operating losses to offset future taxable income may be subject to limitation.~~

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or the 2017 Tax Act, that significantly reforms the Internal Revenue Code of 1986, as amended. The 2017 Tax Act, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, or NOLs, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Many of these changes became effective beginning in 2018, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Treasury Department and the Internal Revenue Service, any of which could lessen or increase certain impacts of the legislation. In addition, it is unclear how these U.S. federal income tax ~~changes will~~reform could adversely affect ~~state and local taxation,~~us.

New legislation or regulation which ~~often uses federal taxable income as~~could affect our tax burden could be enacted by a ~~starting point for computing state and local tax liabilities.~~

~~According to~~governmental authority. We cannot predict the ~~2017 Tax Act, our federal NOLs generated in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility~~timing or extent of such ~~federal NOLs is limited. Our NOL~~tax-related developments which could have a negative impact on our financial results.

Additionally, we use our best judgment in attempting to quantify and reserve for our tax obligations. However, a challenge by a taxing authority, our ability to utilize tax benefits such as carryforwards ~~are also subject~~or tax credits, or a deviation from other tax-related assumptions may cause actual our actual tax obligations to ~~review and possible adjustment by the Internal Revenue Service and state tax authorities.~~exceed previous reserve estimates.

We may ~~acquire~~not be successful in our efforts to integrate any acquired businesses ~~or assets, form joint ventures, make investments in other companies or~~and technologies, ~~or establish other strategic relationships, any of which could harm our operating results, dilute our stockholders’ ownership or cause us to incur debt or significant expense.~~

~~As part of~~and this may adversely affect our business ~~strategy, we~~and results of operations. We may pursue acquisitions of complementary businesses or assets, investments in other companies, technology licensing arrangements, joint ventures or other strategic relationships. As an organization, we have limited experience with respect to acquisitions, investments or the formation of strategic relationships or joint ventures. If we make acquisitions in the future, we may not be able to successfully integrate the acquired businesses or technologies into our existing operations, we could assume unknown or contingentincur unexpected liabilities ~~and we could be forced to record significant write-offs or incur debt~~ as a result of our acquisitions.

Our ability to integrate any organizations or technology that we may acquire, including our recent acquisition of CSI, is subject to a number of risks including the ~~acquisitions,~~following:

Acquisitions are also accompanied by the risk that obligations and liabilities of an acquired business may not be adequately reflected in the historical financial statements of that business and the risk that historical financial statements may be based on assumptions, which are incorrect or inconsistent with our assumptions or approach to accounting policies. The acquisition and integration of businesses may not be managed effectively and any failure to manage the integration process could lead to disruptions in the overall activities of ~~which could harm our operating results.~~the Company, a loss of clients and revenue and increased expenses. Further, integration of an acquired business or technology could involve significant difficulties and could require management and capital resources that otherwise would be available for ongoing development of our existing business or pursuit of other opportunities. IfWe may also acquire contingent liabilities in connection with the acquisitions of business, which maybe material. Any estimates we ~~pursue relationships with pharmaceutical companies or other strategic relationships, our ability to establish~~might make regarding any acquired contingent liabilities and ~~maintain~~the likelihood that these ~~relationships~~liabilities will materialize could ~~be challenging due to several factors, including competition with other genetic testing companies and internal and external constraints placed on pharmaceutical and other organizations that limit~~differ materially from the number and type of relationships they can establish with companies like ours. Moreover, we may not be able to identify or complete any acquisition, investment, technology license, joint venture or other strategic relationship in a timely manner, on a cost-effective basis or at all, and we may not realize the anticipated benefits of any such transaction sufficiently to recoup our costs.

To finance any acquisitions, investments, joint ventures or other strategic relationships, we may seek to raise additional funds through securities offerings, credit facilities, asset sales or collaborations or licensing arrangements. Each of these methods of fundraising is subject to a variety of risks, including those discussed above under “—Any inability to obtain additional capital when needed and on acceptable terms may limit our ability to executeliabilities actually incurred. These circumstances could materially harm our business, plans.” Further, additional funds from capital-raising transactions may not be available when needed, on acceptable terms or at all. Any inability to fund any acquisitions, investments or strategic relationships we pursue could cause us to forfeit opportunities we believe are promising or valuable, which could harm ourresults of operations and prospects.

We depend on our information technology systems and any failure of these systems, due to hardware or software malfunctions, delays in operation, and/or failures to implement new or enhanced systems or cybersecurity breaches, could harm our business.

We depend on information technology and telecommunications systems for significant elements of our operations, such as our laboratory information management systems, including test validation, specimen tracking and quality control; our bioinformatics analytical software systems; our reference library of information relating to genetic variants and their role in disease; personal information storage, maintenance and transmission; our customer-facing web-based software and customer service functions; our report production systems; our billing and reimbursement procedures; our scientific and medical data analysis and other research and development activities and programs; and our general and administrative activities, including disclosure controls, internal control over

financial reporting and other public reporting functions. In addition, our third-party service providers depend on technology and telecommunications systems in order to provide contracted services for us. We expect we will need to continue to expand and strengthen a number of enterprise software systems that affect a broad range of business processes and functions, particularly if and as our operations grow, including, for example, systems handling human resources, financial and other disclosure controls and reporting, customer relationship management, regulatory compliance, security controls and other infrastructure functions.

Information technology and telecommunications systems are vulnerable to disruption and damage from a variety of sources, including power outages and other telecommunications or network failures, natural disasters, and the outbreak of war or acts of terrorism. Breaches resulting in the compromise, disruption, degradation, manipulation, loss, theft, destruction, or unauthorized disclosure of sensitive information can occur in a variety of ways, including but not limited to, negligent or wrongful conduct by employees or former employees or others with permitted access to our information technology systems and information, or wrongful conduct by hackers, competitors, or certain governments. Our third-party vendors and business partners face similar risks. Moreover, despite network security and back-up measures, our servers and other electronic systems are potentially vulnerable to cybersecurity breaches, such as physical or electronic break-ins, computer viruses, ransomware attacks, phishing schemes, and similar disruptive events. Despite the precautionary measures we have taken to detect and prevent or solve problems that could affect our information technology and telecommunications systems, there may be significant downtime or failures of ~~these~~our systems or those used by our third-party service providers. These events could lead to the unauthorized access, disclosure, and unauthorized use of confidential information, including protected health information. Cyber-attacks come in many forms, including the deployment of harmful malware or ransomware, exploitation of vulnerabilities, phishing and other use of social engineering, and other means to compromise the confidentiality, integrity, and availability of our IT systems and confidential information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated or remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. There can be no assurance that we will promptly detect and/or intercept any such disruption or security breach, if at all. Any such downtime or failure could prevent us from conducting tests, preparing and providing reports to customers, billing payors, responding to customer inquiries, conducting research and development activities, maintaining our financial and disclosure controls and other reporting functions and managing the administrative aspects of our business. Moreover, any such downtime or failure could force us to transfer data collection operations to an alternate provider of server-hosting services, which could involve significant costs and result in further delays in our ability to conduct tests, deliver reports to our customers and otherwise manage our operations. Further, although we carry property, ~~and~~ business interruption and cyber liability insurance, the coverage may not be adequate to compensate for all losses that may occur in the event of system downtime or failure. Any such disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could have a material adverse effect on our business and our reputation.

Additionally, if and as our business grows, we will need to continually improve and expand the scope of our technology systems in order to maintain their adequacy for the scale of our operations. Any failure to make such improvements or any significant delay in the planned implementation of new or enhanced systems could render our systems obsolete or inadequate, in which case our service to our customers and our other business activities could suffer and we could be more vulnerable to electronic breaches from outside sources.

If our computer systems are compromised, we could be subject to fines, damages, reputational harm, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which could harm our business, in addition to possibly requiring substantial expenditures of resources to remedy. For example, any such event that leads to unauthorized access, use or disclosure of personal information, including personal information regarding our patients or employees, could harm our reputation, require us to comply with federal and/or state breach notification laws and foreign law equivalents, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. In addition, a cybersecurity breach could adversely affect our reputation and could result in other negative consequences, including disruption of our internal operations, increased cyber security protection costs, lost revenues or litigation. Despite precautionary measures to prevent unanticipated problems that could affect our information systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.

We rely on commercial courier delivery services to transport specimens to our laboratory ~~facility~~facilities in a timely and cost-efficient manner, and if these delivery services are disrupted, our business would be harmed.

Our business depends on our ability to quickly and reliably deliver test results to our customers. We typically receive specimens from customers within days of shipment, or in some cases overnight, for analysis at our ~~Temple City, California laboratory.~~laboratory facilities. Disruptions in delivery service, whether due to labor disruptions, bad weather or natural disasters (including severe weather, fires or other natural events which may be exacerbated by climate change), pandemics or epidemics, terrorist acts or threats or for other reasons, could adversely affect specimen integrity and our ability to process specimens in a timely manner and otherwise service our customers, and ultimately our reputation and our business. In addition, if we are unable to continue to obtain expedited delivery services on commercially reasonable terms, our operating results may be adversely affected.

If we are unable to maintain effective internal control over financial reporting, investors could lose confidence in the accuracy and completeness of our reported financial information and the market price of our common stock could decline.

We are required to maintain internal control over financial reporting and report any material weaknesses in these internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and annually provide a management report on these internal controls. Although we have implemented systems, processes and controls and performed this evaluation as of the end of ~~2018,~~2021, we will need to maintain and enhance ~~them~~these controls if and as we ~~grow and,~~grow. Moreover, we may need to hire additional personnel and devote more resources to our financial reporting function in order to do so.

If ~~we identify~~ one or more material weaknesses is identified during the process of ~~annually~~ evaluating our internal controls or if we ~~may~~do not detect errors on a timely basis, ~~and~~ our financial statements may be materially misstated. In addition, in that event, our management would be unable to conclude that our internal control over financial reporting is effective. ~~Further, when~~In addition, now that we are no longer an emerging growth company, ~~or smaller~~we are required to include an attestation report on internal control over financial reporting ~~company, as described in the risk factors below,~~issued by our independent registered public accounting firm. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our results of operations, cause us to fail to meet our reporting obligations, result in a restatement of our financial statements for prior periods, or adversely affect the results of management evaluations and independent registered public accounting firm ~~will be required to issue an attestation report on the effectiveness~~audits of our internal control over financial ~~reporting. When~~reporting that ~~occurs, our independent registered public accounting firm may conclude that there~~we are ~~material weaknesses~~required to include in our ~~internal controls or~~periodic reports that will be filed with the ~~level at which our internal controls are documented, designed, implemented or reviewed even if our management concludes that our internal control over financial reporting is effective.~~

SEC. If we or our auditors were to conclude that our internal control over financial reporting was not effective because one or more material weaknesses had been identified or if internal control deficiencies result in the restatement of our financial results, investors could lose confidence in the accuracy and completeness of our financial disclosures and the price of our common stock could decline.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting and other requirements of the Exchange ~~Act.~~Act. We have implemented disclosure controls and procedures designed to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. However, any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. As a result, because of these inherent limitations in our control system, misstatements or omissions due to error or fraud may occur and may not be detected, which could result in failures to file required reports in a timely manner and filing reports containing incorrect information. Any of these outcomes could result in SEC enforcement actions, monetary fines or other penalties, damage to our reputation and harm to our financial condition and stock ~~price.~~price

We may elect to comply with reduced public company reporting requirements available to us because we are an emerging growth company and a smaller reporting company, which could make our common stock less attractive to investors.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act, and we will remain an emerging growth company until December 31, 2021, unless, before that date, our gross revenue exceeds $1.07 billion in any fiscal year, we issue more than $1.0 billion of non-convertible debt in any three-year period or the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of the second fiscal quarter of any fiscal year. In addition, beginning in 2018, we are a smaller reporting company, as defined in applicable SEC rules, and we will remain a smaller reporting company until the market value of our common stock held by non-affiliates, or public float, equals or exceeds $250 million. When and if our public float exceeds $250 million, we may still qualify to report as a smaller reporting company provided our public float is less than $700 million and our annual revenues are less than $100 million for the year preceding the date of determination. As an emerging growth company, we are eligible for exemptions from certain reporting requirements applicable to other public companies, including an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial statement and other financial disclosure requirements in registration statements and periodic reports we file, reduced disclosure obligations regarding executive compensation and, so long as we remain an emerging growth company, exemption from the requirements to hold non-binding advisory votes on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved. We have relied on many of these exemptions periodic reports to date, and investors may find our common stock less attractive if we choose to continue to rely on these exemptions, in which case there may be a less active trading market for our common stock and our stock price may be more volatile.32

Under the Securities Act of 1933, as amended, or Securities Act, emerging growth companies can elect to delay adoption of new or revised accounting standards until those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, as a result, we are subject to the same new or revised accounting standards at the same time as other public companies that are not emerging growth companies.

Any changes in laws, regulations or the enforcement discretion of the FDA with respect to the marketing of diagnostic products, or violations of laws or regulations by us, could adversely affect our business, prospects, results of operations or financial condition.

The laws and regulations governing the marketing of diagnostic products are evolving, extremely complex and in many instances, ~~there are~~have no significant regulatory or judicial interpretations of these laws and regulations. Pursuant to its authority under the federal Food, Drug, and Cosmetic Act, or FDC Act, the FDA has jurisdiction over medical devices, including ~~in vitro diagnostics~~IVDs, and, therefore, potentially our clinical laboratory tests. Among other things, pursuant to the FDC Act and its implementing regulations, the FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, premarket clearance or approval, marketing and promotion, and sales and distribution of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. In addition, the FDA regulates the import and export of medical devices.

Although the FDA has statutory authority to assure that medical devices and ~~in vitro diagnostics,~~IVDs, including potentially our tests, are safe and effective for their intended uses, the FDA has historically exercised its enforcement discretion and not enforced applicable provisions of the FDC Act and regulations with respect to laboratory developed tests, or LDTs, which are a particular type of medical device. We believe our tests are LDTs. As a result, we believe our tests are not currently subject to the FDA’s enforcement of its medical device regulations and the applicable FDC Act provisions.

Even though we commercialize our tests as LDTs, our tests may in the future become subject to more onerous regulation by the FDA. For example, the FDA may disagree with our assessment that our tests fall within the definition of an LDT and seek to regulate our tests as medical devices. Moreover, the FDA issued draft guidance and a 2017 Discussion Paper to allow for further public discussion about an appropriate LDT oversight approach and to give congressional committees the opportunity to develop a legislative solution. The FDA also solicited public input and published two final guidance documents in April 2018 relating to FDA oversight of NGS-based tests. These two guidance documents describe the FDA’s thinking and recommendations regarding test developer’s use of FDA-recognized standards to support analytical validity, and public human genetic variant databases to support clinical validity, of these tests.

In ~~December 2018,~~August 2020, the U.S. Department of Health and Human Services, or HHS, published a policy announcement that the FDA must go through the formal notice-and-comment rulemaking process before requiring pre-market review of LDTs rather than making such changes through guidance documents, compliance manuals, or other informal policy statements. HHS’s policy statement did not affect proposed legislation for the regulation of LDTs, which is discussed below. In November 2021, the Biden Administration withdrew that HHS policy announcement and ostensibly restored FDA’s regulatory oversight of LDTs.

Separately, members of Congress ~~released a discussion draft of~~have been working with stakeholders for several years on a possible bill to ~~regulate~~reform the regulation of in vitro clinical tests including LDTs ~~which incorporated suggestions from~~. In March 2020, U.S. Representatives Diana DeGette (D-CO) and Dr. Larry Bucshon (R-IN) formally introduced the ~~FDA and other industry stakeholders. The new bill is~~ long-awaited legislation, called the Verifying Accurate, Leading-edge IVCT Development ~~(VALID)~~ Act, or VALID Act. An identical version of the bill was also introduced in the Senate and is sponsored by U.S. Senators Michael Bennet (D-CO) and Richard Burr (R-NC), demonstrating both bicameral and bipartisan support for the effort to overhaul how the FDA reviews and approves diagnostic tests going forward. The VALID Act would codify into law the term “in vitro clinical test” ~~(IVCT),~~to create a new medical product category separate from medical devices ~~and~~ that includes products currently regulated as IVDs, as well as LDTs. ~~One especially notable feature in~~The VALID Act would also create a new system for labs and hospitals to use to submit their tests electronically to the ~~discussion draft~~FDA for approval, which is aimed at reducing the amount of time it takes for the agency to approve such tests, and establish a new program to expedite the development of diagnostic tests that can be used to address a current unmet need for patients. A substantively unchanged version of the VALID Act was re-introduced in both houses of Congress on June 24, 2021.

If the FDA ~~begins~~creates a new regulation to enforce its medical device requirements for LDTs, or if the FDA disagrees with our assessment that our tests are LDTs, we could, for the first time, be subject to enforcement of a variety of regulatory requirements, including registration and listing, medical device reporting and quality control, and we could be required to obtain premarket clearance or approval for our existing tests and any new tests we may develop, which may force us to cease marketing our tests until we obtain the required clearance or approval. The premarket review process can be lengthy, expensive, time-consuming and unpredictable. Further, obtaining ~~pre-market~~premarket clearance may involve, among other things, successfully completing clinical trials. Clinical trials require significant time and cash resources and are subject to a high degree of risk, including risks of experiencing delays, failing to complete the trial or obtaining unexpected or negative results. If we are required to obtain premarket clearance or approval and/or conduct

premarket clinical trials, our development costs could significantly increase, our introduction of any new tests we may develop may be delayed and sales of our existing tests could be interrupted or stopped. Any of these outcomes could reduce our revenue or increase our costs and materially adversely affect our business, prospects, results of operations or financial condition. Moreover, any cleared or approved labeling claims may not be consistent with our current claims or adequate to support continued adoption of and reimbursement for our tests. For instance, if we are required by the FDA to label our tests as investigational, or if labeling claims the FDA allows us to make are limited, order levels may decline and reimbursement may be adversely affected. As a result, we could experience significantly increased development costs and a delay in generating additional revenue from our existing tests or from tests we may develop.

In addition, while we qualify all materials used in our products in accordance with the regulations and guidelines of ~~the Clinical Laboratory Improvement Amendments of 1988, or~~ CLIA, the FDA could promulgate regulations or guidance documents impacting our ability to purchase materials necessary for the performance of our tests. If any of the reagents we obtain from suppliers and use in our tests are affected by future regulatory actions, our business could be adversely affected, including by increasing the cost of testing or delaying, limiting or prohibiting the purchase of reagents necessary to perform testing with our products.

Failure to comply with any applicable FDA requirements could trigger a range of enforcement actions by the FDA, including warning letters, civil monetary penalties, injunctions, criminal prosecution, recall or seizure, operating restrictions, partial suspension or total shutdown of operations and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity.

If we fail to comply with applicable federal, state, local and foreign laboratory licensing requirements, we could lose the ability to perform our tests or experience disruptions to our business.

We are subject to CLIA, a federal law that establishes quality standards for all laboratory testing and is intended to ensure the accuracy, reliability and timeliness of patient results. CLIA requires that we hold a certificate specific to the categories of laboratory ~~examinations~~testing that we perform and that we comply with various standards with respect to personnel qualifications, facility administration, proficiency testing, quality control, quality assurance and inspections. CLIA certification is required in order for us to be eligible to bill federal and state health care programs, as well as many private third-party payors, for our tests. We have obtained CLIA certification to conduct our tests at our ~~laboratory~~laboratories in Temple City, ~~California. To renew this certification, we are subject to survey~~California, Houston, Texas, Alpharetta, Georgia and ~~inspection every two years and we may be subject to additional unannounced inspections.~~Jupiter, Florida.

In addition to CLIA requirements, we elect to ~~participate in the accreditation program of~~have our laboratories accredited by the College of American Pathologists, or CAP. The Centers for Medicare & Medicaid Services, or CMS, has deemed CAP standards to be equally or more stringent than CLIA regulations and has approved CAP as a recognized accrediting organization. Inspection by CAP is performed in lieu of inspection by CMS for CAP-accredited laboratories. Because we are accredited by ~~the~~ CAP, ~~Laboratory Accreditation Program,~~ we are deemed to also comply with CLIA. ~~While not required to operate a CLIA-certified laboratory, many private payors require CAP accreditation as a condition to contracting with clinical laboratories to cover their tests.~~ In addition, some countries outside the United States require CAP accreditation as a condition to permitting clinical laboratories to test samples taken from their citizens. Failure to maintain CAP accreditation could have a material adverse effect on the sales of ourour tests and the results of our operations.

We are also required to maintain a license to conduct testing in the State of California. California laws establish standards for day-to-day operation of our clinical reference laboratory in Temple City, including with respect to the training and skills required of personnel, quality control and proficiency testing requirements. In addition, because we receive test specimens originating from New York, we have obtained a state laboratory permit for our Temple City laboratory from the New York State Department of Health, or DOH. The New York state laboratory laws ~~regulations~~ and ~~rules~~regulations are equal to or more stringent than CLIA. In addition, the CLIA regulations and establish standards for the operation of a clinical laboratory and performance of test services, including education and experience requirements for laboratory directors and personnel; physical requirements of a laboratory facility; equipment validations; and quality management practices. The laboratory director must maintain a Certificate of Qualification issued by New York’s DOH in permitted categories.

We are subject to on-site routine and complaint-driven inspections under both California and New York state laboratory laws and regulations. If we are found to be out of compliance with either California or New York requirements, the CA Department of Public Health or New York’s DOH may suspend, restrict or revoke our license or laboratory permit, respectively (and, with respect to California, may exclude persons or entities from owning, operating or directing a laboratory for two years following such license revocation), assess civil monetary penalties, or impose specific corrective action plans, among other sanctions. Any such actions could materially and adversely affect our business by prohibiting or limiting our ability to offer testing.

Moreover, certain other states require us to maintain out-of-state laboratory licenses or obtain approval on a test-specific basis to perform testing on specimens from these states. Additional states could adopt similar licensure requirements in the future, which could require us to modify, delay or discontinue our operations in such jurisdictions. We are also subject to regulation in foreign jurisdictions, which we expect will increase as we seek to expand international utilization of our tests or if jurisdictions in which we pursue operations adopt new or modified licensure requirements. Foreign licensure requirements could require review and modification of our tests in order to offer them in certain jurisdictions or could impose other limitations, such as restrictions on the transport of human blood or other tissue necessary for us to perform our tests that may limit our ability to make our tests available

outside the United States. Additionally, complying with licensure requirements in new jurisdictions may be expensive, time-consuming and subject us to significant and unanticipated delays.

Failure to comply with applicable clinical laboratory licensure requirements could result in a range of enforcement actions, including license suspension, limitation or revocation, directed plan of correction, onsite monitoring, civil monetary penalties, civil injunctive suits, criminal sanctions and exclusion from the Medicare and Medicaid programs, as well as significant adverse publicity. Any sanction imposed under CLIA, its implementing regulations or state or foreign laws or regulations governing clinical laboratory licensure, or our failure to renew our CLIA certificate or any other required local, state or foreign license or accreditation, could have a material adverse effect on our business, financial condition and results of operations. In such case, even if we were able to bring our laboratory back into compliance, we could incur significant expenses and lose revenue while doing so.

We are subject to broad legal requirements regarding the information we test and analyze, and any failure to comply with these requirements could result in harsh penalties, damage our reputation and materially harm our business.

Our business is subject to federal and state laws that protect the privacy and security of personal ~~health~~ information, including the ~~federal Health Insurance Portability and Accountability Act of 1986, or~~ HIPAA, ~~the federal Health Information Technology for Economic and Clinical Health Act, or~~ HITECH, and similar state laws, as well as numerous other federal, state and foreign laws, including consumer protection laws and regulations, that govern the collection, dissemination, use, access to, confidentiality and security of patient health information. In addition, new laws and regulations that further protect the privacy and security of medical records or medical information are regularly considered by federal and state governments. Further, with the recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, federal and state governments have passed or are considering laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected customers. The ~~Federal Trade Commission~~FTC and states’ Attorneys General have also brought enforcement actions and prosecuted some data breach cases as unfair and/or deceptive acts or practices under the ~~Federal Trade Commission~~FTC Act and comparable state laws. In addition to data breach notification laws, some states have enacted statutes and rules requiring businesses to reasonably protect certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal information. We intend to continue to comprehensively protect all personal information and to comply with all applicable laws regarding the protection of such information.

Any failure to implement appropriate security measures to protect the confidentiality and integrity of personal information or any breach or other failure of these systems resulting in the unauthorized access, manipulation, disclosure or loss of this information could result in our noncompliance with these laws. Penalties for failure to comply with a requirement of HIPAA and HITECH vary significantly depending on the failure and could include civil monetary or criminal penalties.

The European Union formally adopted the ~~General Data Protection Regulation (“GDPR”)~~GDPR in 2016, which applies to all European Union member states from May 25, 2018 and replaced the European Data Protection Directive. The GDPR ~~also includes~~introduced stringent new data protection and operational requirements in the European Union for companies that receive or process personal data of European residents, as well as ~~significant penalties for non-compliance. The regulation introduces stringent new data protection requirements in the European Union and~~ substantial fines for breaches of the data protection rules. It has increased our responsibility and liability in relation to personal data that we process and we ~~may be~~are required to ~~put in place~~maintain additional mechanisms ensuring compliance with the ~~new European data protection rules.~~GDPR. The GDPR is a complex law and the regulatory guidance is still evolving, including with respect to how the GDPR should be applied in the context of clinical ~~studies.~~studies and the collection, processing, and storage of sensitive personal data, including genetic information and testing. Furthermore, many of the countries within the European Union are still in the process of drafting supplementary data protection legislation in key fields where the GDPR allows for national variation, including the fields of clinical study and other health-related information. These variations in the law may raise our costs of compliance and result in greater legal risks. On July 16, 2020, the highest Court of Justice of the European Union or the CJEU, issued a landmark opinion in the case Maximilian Schrems vs. Facebook (Case C-311/18), or Schrems II. This decision calls into question certain data transfer mechanisms as between the European Union member states and the U.S. The CJEU is the highest court in Europe, and the Schrems II decision heightens the burden on data importers to assess U.S. national security laws on their business and future actions of European Union data protection authorities are difficult to predict at this early date. Consequently, there is some risk of any such data transfers from the European Union being halted by one or more European Union member states. Any contractual arrangements requiring the transfer of personal data from the European Union to us in the United States will require greater scrutiny and assessments as required under Schrems II and may have an adverse impact on cross-border transfers of personal data or increase costs of compliance.

In addition, ~~various~~many states, such as California (where one of our clinical ~~laboratory~~laboratories is located) ~~and Massachusetts,~~, have implemented similar privacy laws and regulations, such as the California Confidentiality of Medical Information Act, that impose restrictive requirements regulating the use and disclosure of patient health information and other ~~personally identifiable~~personal information. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. In addition to the California Confidentiality of Medical Information Act, California also recently enacted the California Consumer Privacy Act of 2018, or CCPA, which became effective on January 1, 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States because it mirrors a number of the key provisions of the ~~EU General Data Protection Regulation.~~GDPR. The CCPA establishes a new privacy framework for covered businesses in the State of California by creating

an expanded definition of personal information, establishing new data privacy rights for ~~consumers~~California residents, imposing special rules on the collection of ~~consumer~~personal data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. On November 3, 2020, California voters passed the California Privacy Rights Act, or CPRA, which expands the CCPA. The CPRA will be fully effective in January of 2023 and, among other things, establishes the California Privacy Protection Agency, or CPPA, a new regulatory authority charged with administering and enforcing the CRPA and privacy rights in California. The CPPA will have the power to levy fines and bring other enforcement actions. The CPRA could impact our operations or that of our collaborators and business partners and impose new regulatory requirements and increase costs of compliance. Other states are considering expanded privacy legislation similar to the GDPR and CPRA, with Virginia and Colorado enacting their own consumer privacy laws similar to CCPA and CPRA. Both the Virginia and Colorado laws take full effect in 2023. There are also several federal privacy proposals under consideration in Congress.

The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and potentially exposing us to additional expense, adverse publicity and liability. Further, as regulatory focus on privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify. Additionally, the interpretation, application and interplay of consumer and health-related data protection laws in the United States, Europe and elsewhere are often uncertain, contradictory and in flux. As a result, it is possible that laws may be interpreted and applied in a manner that is inconsistent with our current practices. Moreover, these laws and their interpretations are constantly evolving and ~~they~~ may become more stringent over time. Complying with these laws or any new laws or interpretations of their application could involve significant time and substantial costs or require us to change our business practices and compliance procedures in a manner potentially adverse to our business. We may not be able to obtain or maintain compliance with the diverse privacy and security requirements in all of the jurisdictions in which we currently or plan to do business, and failure to comply with any of these requirements could result in civil or criminal penalties, harm our reputation and materially adversely affect our business.

We conduct business in a heavily regulated industry. Complying with the numerous statutes and regulations pertaining to our business is expensive and time-consuming, and any failure by us, our consultants or commercial partners to comply could result in substantial penalties.

Our industry and our operations are heavily regulated by various federal, state, local and foreign laws and regulations, and the regulatory environment in which we operate could change significantly and adversely in the future. These laws and regulations currently include, among others:

The genetic testing industry is currently under a high degree of government scrutiny. The Office of Inspector General for the Department of Health and Human Services and a variety of ~~State~~states’ Attorneys General have issued fraud alerts regarding a variety of cancer genetic testing fraud schemes, and the Department of Justice has announced indictments and guilty pleas in such fraud schemes involving a variety of individuals and entities, including genetic testing and other laboratories, physicians who ~~order~~ordered genetic testing for a large volume of patients without treating them, and third parties who arranged for the genetic testing by approaching patients through telemarketing calls, booths at public events, health fairs, and door-to-door visits. These individuals then shared the proceeds received from Medicare, TRICARE, and other third-party ~~payors.~~payors, and these activities allegedly violated the federal Anti-Kickback Statute and other criminal laws. This increased regulatory scrutiny could decrease demand for our testing services or increase our costs of regulatory compliance, either of which could have a material adverse effect on our business.

Any future growth of our business, including, in particular, growth of our international business and continued reliance on consultants, commercial partners and other third parties, may increase the potential for violating these laws. In some cases, our risk of violating these or other laws and regulations is further increased because of the lack of their complete interpretation by applicable regulatory authorities or courts, and their provisions are thus open to a variety of interpretations. Our ~~recently launched~~ Picture Genetics line of at-home genetic test offerings are patient-initiated screening tests, which may receive greater scrutiny from regulatory authorities than our traditional testing services that are offered directly to health care providers.

We have adopted policies and procedures designed to comply with these laws and regulations and, in the ordinary course of our business, we conduct internal reviews of our compliance with these laws. Our compliance is also subject to review by applicable government agencies. It is not always possible to identify and deter misconduct by employees, distributors, consultants and commercial partners and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with applicable laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and harm our reputation. If our operations, including the conduct of our employees, consultants and commercial partners, are found to be in violation of any of these laws and regulations, we may be subject to applicable penalties associated with the violation, including administrative, civil and criminal penalties, damages, fines, individual imprisonment, exclusion from participation in federal healthcare programs, refunding of payments received by us and curtailment or cessation of our operations. Any of these consequences could seriously harm our business and our financial results.

We may be required to modify our business practices, pay fines, incur significant expenses or experience losses due to litigation or governmental investigations.

From time to time and in the ordinary course of our business, we may be subject to litigation or governmental investigation on a variety of matters in the United States or foreign jurisdictions, including, without limitation, regulatory, intellectual property, product liability, antitrust, consumer, false claims, whistleblower, Qui Tam, privacy, anti-kickback, anti-bribery, environmental, commercial, securities and employment litigation and claims and other legal proceedings that may arise from the conduct of our business. Our activities relating to our products and services are subject to extensive regulation in the United States and foreign jurisdictions. Like many companies in our industry, we have in the ordinary course of business received inquiries, subpoenas, civil investigative demand, or CIDs, and other types of information requests from government authorities. We have 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 our customers named in the CID which represent a small portion of our revenues. We are fully cooperating with the U.S. Department of Justice to promptly respond to the requests for information in this CID, and do not presently expect this CID or resulting investigation to have a material adverse impact on our business. However, we cannot predict when the investigation will be resolved, the outcome of the investigation or its potential impact on our business which may ultimately be greater than we expect. In addition, responding to this CID, and any litigation or government investigation generally, diverts the attention of our management team and diverts resources from our core business. As such, the time and attention of our management team in responding to these matters may limit their time available to devote to our business, and we may also incur significant expenses or experience losses in relation to these matters. As a result of these matters, we may also be required to alter the conduct of our operations or pay penalties. Any of these circumstances may adversely affect our business, prospects, reputation and results of operations.

Healthcare policy changes, including recently enacted and proposed new legislation reforming the U.S. healthcare system, could cause significant harm to our business, operations and financial condition.

The ~~Affordable Care Act~~ACA made a number of substantial changes to the way healthcare is financed both by governmental and private payors. The ~~Affordable Care Act~~ACA also introduced mechanisms to reduce the per capita rate of growth in Medicare spending if expenditures exceed certain targets. Any such reductions could affect reimbursement payments for our tests. The ~~Affordable Care Act~~ACA also contains a number of other provisions, including provisions governing enrollment in federal and state healthcare programs, reimbursement matters and fraud and abuse, which we expect will impact our industry and our operations in ways that we cannot currently predict.

In April 2014, Congress passed PAMA, which included substantial changes to the way in which clinical laboratory services ~~will~~are be paid under ~~Medicare.~~Medicare Clinical Laboratory Fee Schedule. Under PAMA, certain clinical laboratories are required to periodically report to CMS private payor payment rates and volumes for their ~~tests. Laboratories~~tests, and laboratories that fail to report the required payment information may be subject to substantial civil monetary penalties. ~~Further, effective January 1, 2018 under PAMA,~~ Medicare reimbursement for clinical laboratory diagnostic tests ~~will be~~is based on the weighted-median of the payments made by private payors for these tests, rendering private payor payment levels even more ~~significant.~~significant than in the past. As a result, future Medicare payments may fluctuate more often and become subject to the willingness of private payors to recognize the value of diagnostic tests generally and any given test individually. The impact of this ~~new~~ payment system on rates for our tests, including any current or future tests we may develop, is uncertain.

We cannot predict whether or when these or other recently enacted healthcare initiatives will be implemented at the federal or state level or how any such legislation or regulation may affect us. For instance, the payment reductions imposed by the ~~Affordable Care Act~~ACA and the changes to reimbursement amounts paid by Medicare for tests such as ours based on the procedure set forth in PAMA, could limit the prices we will be able to charge or the amount of available reimbursement for our tests, which would reduce our revenue. Additionally, these healthcare policy changes could be amended or additional healthcare initiatives could be implemented in the future. For instance, ~~there is uncertainty regarding~~ the ~~continued effect~~new Democrat-led presidential administration has been taking steps to strengthen the ACA and, following several years of the Affordable Care Act in its current form and in light of the policies of the current administration and members of Congress, which have threatened to repeal, replace or change the Affordable Care Act. President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ~~Affordable Care Act~~ ~~or otherwise circumvent some of the requirements for health insurance mandated by the~~ ~~Affordable Care Act. Concurrently, although Congress has not passed comprehensive repeal legislation, at least two bills affecting the implementation of certain taxes under the~~ ~~Affordable Care Act~~ ~~have been signed into law. For example, the Tax Cuts and Jobs Act of 2017 repealed the tax-based shared responsibility payment imposed by the~~ ~~Affordable Care Act~~ on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” In December 2019, the Fifth Circuit Court of Appeals upheld a district court’s finding that the individual mandatelitigation in the ~~Affordable Care Act~~ is unconstitutional following removal of the penalty provision from the law. However, the Fifth Circuit reversed and remanded the case to the district court to determine if other reforms enacted as part of the ~~Affordable Care Act~~ ~~but not specifically related to the individual mandate or health insurance could be severed from the rest of the~~ ~~Affordable Care Act~~ ~~so as not to have the law declared invalid~~federal courts, in ~~its entirety. It is unclear how this decision, subsequent appeals including potentially to~~June 2021, the U.S. Supreme Court upheld the ACA when it dismissed a legal challenge to the ACA’s constitutionality. Legislation related to precision medicine is also being considered in Congress and, ~~other efforts to repeal~~if passed and ~~replace the~~ ~~Affordable Care Act~~ ~~will~~signed into law, such legislation may affect ~~the implementation of that law~~genetic or genomic testing and ~~our business.~~related clinical laboratory offerings.

Further, the impact on our business of the expansion of the federal and state governments’ role in the U.S. healthcare industry generally, including the social, governmental and other pressures to reduce healthcare costs while expanding individual benefits, is uncertain. Any future changes or initiatives could have a materially adverse effect on our business, financial condition, results of operations and cash flows.

Changes in laws and regulations, or in their application, may adversely affect our business, financial condition and results of operations.

The clinical laboratory testing industry is highly regulated, and failure to comply with applicable regulatory, supervisory, accreditation, registration or licensing requirements may adversely affect our business, financial condition and results of operations. In particular, the laws and regulations governing the marketing and research of clinical diagnostic testing are extremely complex and in many instances there are no clear regulatory or judicial interpretations of these laws and regulations, increasing the risk that we may be found to be in violation of these laws.

Furthermore, the genetic testing industry as a whole is a growing industry and regulatory agencies such as ~~the United States Department of Health and Human Services, or~~ HHS or the FDA may apply heightened scrutiny to new developments in the field, or the U.S. Congress may do so. Since 2017, Congress has been working on legislation to create an LDT and IVD regulatory framework that would be separate and distinct from the existing medical device regulatory framework. ~~In August 2018,~~On March 5, 2020, U.S. Representatives Diana DeGette (D-CO) and Dr. Larry Bucshon (R-IN) formally introduced the ~~FDA recommended changes to draft legislation that had been released~~VALID Act in the House and an identical version of the bill was introduced in the U.S. Senate by ~~Congress in 2017.~~Senators Michael Bennet (D-CO) and Richard Burr (R-NC). The agency’s comments addressed the need for a requirement that new tests undergo FDA review to demonstrate analytical and clinical validity and suggested changes to the draft language as it relates to premarket approval, provisional approval, and a precertification program for diagnostics. FDA’s recommendations, if included in enacted law, would give the FDA authority to revoke approval, request raw data, and take corrective action against test developers. In December 2018, legislators released a discussion draft of a bill that incorporated many of FDA’s suggestions. The new bill is called the Verifying Accurate, Leading-edge IVCT Development (VALID)VALID Act ~~and~~ would codify into law the term “in vitro clinical test” ~~(IVCT),~~to create a new medical product category separate from medical devices, and ~~that includes~~bring all such products ~~currently regulated as IVDs as well as LDTs.~~ within the scope of the FDA’s oversight. A substantively unchanged version of the VALID Act was re-introduced in both houses of Congress on June 24, 2021. It is unclear whether the VALID Act would be passed by Congress in its current form or signed into law by ~~the President.~~President Biden.

In addition, there has been a recent trend of increased U.S. federal and state regulation, scrutiny and enforcement relating to payments made to referral sources, which are governed by laws and regulations including the Stark law, the federal Anti-Kickback Statute, the federal False Claims Act, as well as state equivalents of such laws. For example, ~~the Eliminating Kickbacks in Recovery Act of 2018, or~~ EKRA was passed in October 2018 as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities ~~Act (referred to as the SUPPORT Act).~~Act. Similar to the federal Anti-Kickback Statute, EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other health care services) unless a specific exception applies. However, unlike the federal Anti-Kickback Statute, EKRA is not limited to services covered by federal or state health care programs but applies more broadly to services covered by “health care benefit programs,” including commercial insurers. Additionally, because EKRA’s exceptions are not identical to the federal Anti-Kickback Statute’s safe harbors, compliance with a federal Anti-Kickback Statute safe harbor does not guarantee protection under EKRA. As currently drafted, EKRA potentially expands the universe of arrangements that could be subject to government enforcement under federal fraud and abuse laws. Because EKRA is a new law, there is no agency guidance or court precedent to indicate how and to what extent it will be applied and enforced. We cannot assure you that our relationships with physicians, sales representatives, hospitals, customers, or any other party will not be subject to scrutiny or will survive regulatory challenge under such laws. If imposed for any reason, sanctions under the EKRA could have a negative effect on our business.

Marketing of our COVID-19 tests under the EUA from the FDA is subject to certain limitations and we are required to maintain compliance with the terms of the EUA, among other things, and the continuance of our EUA is subject to government discretion.

Since March 2020, we have commercially launched several molecular tests for the detection of SARS-CoV-2, the virus that causes COVID-19, including NGS and RT-PCR-based tests as well as related antibody testing options. In May 2020, we were granted an EUA for our RT-PCR-based test for the detection of SARS-CoV-2 using upper and lower respiratory specimens (nasal, nasopharyngeal, and oropharyngeal swabs). In June 2020, we received an amendment to the EUA to add our at-home testing solution for COVID-19 through Picture Genetics. Since that time, the FDA has granted authorizations to revise the authorized labeling for the RT-PCR test and to allow for the use of an additional at-home specimen collection kit in conjunction with our test. In addition, the FDA has established additional conditions for emergency authorizations of COVID-19 molecular, antigen, and serology tests to account for emerging mutations of the SARS-CoV-2 virus, which revise our previously issued EUA.

Although there are certain regulatory requirements the FDA has waived for the duration of the EUA, we remain subject to specific conditions of the authorizations. As with other FDA-regulated tests, issues could emerge during the course of the marketing and use of our test under an EUA that could impact our ability to continue the sale and distribution of the authorized test or home collection kit. Factors that may be out of the Company’s control, such as the availability of supplies and key personnel, may impact the Company’s ability to maintain testing capacity and test result delivery, and its other responses to the COVID-19 pandemic, and may have an adverse impact on the Company’s operations. Our EUA remains effective only until the HHS declaration is terminated or revoked, and FDA also may revoke an EUA if it determines the criteria for issuance are no longer met or other circumstances make such revocation appropriate to protect the public health or safety. In December 2021, the FDA issued draft guidance documents describing a phased transition process following the end of public health emergency for diagnostics and other medical devices that were developed to respond to the COVID-19 pandemic and received EUA marketing authorization. It is unclear how those proposed policies could impact our test offerings and business in the future.

If the hazardous materials we use in our operations cause contamination or injury, we could be liable for resulting damages.

Our operations require the use of regulated medical waste, hazardous waste and biohazardous waste, including chemicals, biological agents and compounds and blood and other tissue specimens. We are subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of these hazardous materials and other specified waste products. Although we typically use licensed or otherwise qualified outside vendors to dispose of this waste, applicable laws and

regulations could hold us liable for damages and fines if our or others’, business operations or other actions result in contamination to the environment or personal injury due to exposure to hazardous materials. We cannot eliminate the risk of contamination or injury, and any liability imposed on us for any resulting damages or injury could exceed our resources or any applicable insurance coverage. The cost to secure such insurance coverage and to comply with these laws and regulations could become more significant in the future and any failure to comply could result in substantial costs and other business and reputational consequences, any of which could negatively affect our operating results.

36If we were deemed to be an investment company under the Investment Company Act of 1940, as amended, applicable restrictions could make it impractical for us to continue our business as currently conducted and could have a material adverse effect on our business, financial condition and results of operations.

Under the Investment Company Act of 1940, or 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act and we intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as it is currently being conducted and could have a material adverse effect on our business, financial condition and results of operations.

Our joint venture in China is subject to risks and uncertainties relating to the laws and regulations of China and the changes in relations between the United States and China.

Under its current leadership, the government of China has been pursuing economic reform policies, including by encouraging foreign trade and investment. However, there is no assurance that the Chinese government will continue to pursue such policies, that such policies will be successfully implemented, that such policies will not be significantly altered, or that such policies will be beneficial to our partnerships or activities in China. China’s system of laws can be unpredictable, especially with respect to foreign investment and foreign trade. The United States government has called for substantial changes to foreign trade policy with China and has raised, and has proposed to further raise in the future, tariffs on several Chinese goods. China has retaliated with increased tariffs on United States goods. Moreover, China’s legislature has adopted a national security law to substantially change the way Hong Kong has been governed since the territory was handed over by the United Kingdom to China in 1997. This law increases the power of the central government in Beijing over Hong Kong, limits the civil liberties of residents of Hong Kong and could restrict the ability of businesses in Hong Kong to continue to conduct business or to continue to with business as previously conducted. The U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China. The U.S. State Department has recently enacted sanctions related to China’s governing of Hong Kong. Any further changes in United States trade policy could trigger retaliatory actions by affected countries, including China, resulting in trade wars. Any regulatory changes and changes in United States and China relations may have a material adverse effect on our partnerships or activities in China, which could materially harm our business and financial condition.

We could be adversely affected by violations of the FCPA and other anti-bribery laws.

Our international operations are subject to various anti-bribery laws, including the FCPA and similar anti-bribery laws in the non-U.S. jurisdictions in which we operate. The FCPA prohibits companies and their intermediaries from offering, making, or authorizing improper payments to non-U.S. or foreign officials for the purpose of obtaining or retaining business or securing any other improper advantage. These laws are complex and far-reaching in nature, and we may be required in the future to alter one or more of our practices to be in compliance with these laws or any changes to these laws or their interpretation.

We currently engage in significant business outside the United States, and we plan to increase our international operations in the future. These operations could involve dealings with governments, foreign officials and state-owned entities, such as government hospitals, outside the United States. In addition, we may engage distributors, other commercial partners or third-party intermediaries, such as representatives or contractors, or establish joint ventures or other arrangements to manage or assist with promotion and sale of our tests abroad and obtaining necessary permits, licenses and other regulatory approvals. Any such third parties could be deemed to be our agents and we could be held responsible for any corrupt or other illegal activities of our employees or these third parties, even if we do not explicitly authorize or have actual knowledge of such activities. We have instituted policies, procedures, and internal controls reasonably designed to promote compliance with the FCPA and other anti-corruption laws and we exercise a high degree of vigilance in maintaining, implementing and enforcing these policies and controls. However, these policies and controls could be circumvented or ignored, and ~~they~~we cannot guarantee compliance with these laws and regulations. Any violations of these laws or allegations of such violations could disrupt our operations, involve significant management distraction, involve significant costs and

expenses, including legal fees, and harm our reputation. Additionally, ot ~~her~~other U.S. companies in the medical device and pharmaceutical fields have faced substantial fines and criminal penalties in the recent past for violating the FCPA and we could also incur these types of penalties, including criminal and civil penalties, disgorgement, and other remedial measures, if we violate the FCPA or other applicable anti-bribery laws. Any of these outcomes could result in a material adverse effect on our business, prospects, financial condition, or results of operations.

Our services present the potential for embezzlement, identity theft or other similar illegal behavior by our employees, consultants, service providers or commercial partners.

Our operations involve the use and disclosure of personal and business information that could be used to impersonate third parties or otherwise gain access to their data or funds. If any of our employees, consultants, service providers or commercial partners takes, converts or misuses these funds or data, we could be liable for any resulting damages, which could harm our financial condition and damage our business reputation.

We could be adversely affected by alleged violations of the ~~Federal Trade Commission~~FTC Act or other truth-in-advertising and consumer protection laws.

Our advertising for laboratory services and tests is subject to federal truth-in-advertising laws enforced by the ~~Federal Trade Commission (“FTC”),~~FTC, as well as comparable state consumer protection laws. Under the ~~Federal Trade Commission~~FTC Act, ~~(“FTC Act”),~~ the FTC is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce. The FTC has very broad enforcement authority, and failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result in administrative or judicial penalties, including civil penalties, injunctions affecting the manner in which we would be able to market services or products in the future, or criminal prosecution. In conjunction with the ~~recent~~ launch of our Picture Genetics line of at-home genetic test offerings that are initiated by consumers, we plan to increase our advertising activities that would be subject to these federal and state truth-in-advertising laws. Any actual or perceived non-compliance with those laws could lead to an investigation by the FTC or a comparable state agency, or could lead to allegations of misleading advertising by private plaintiffs. Any such action against us would disrupt our business operations, cause damage to our reputation and result in a material adverse ~~effects~~effect on our business.

We ~~currently own no patents or patent applications related to our technology platform and~~primarily rely on trade secret protection, non-disclosure agreements and invention assignment agreements to protect our proprietary information, which may not be effective.

We currently rely on trade secret protection, non-disclosure agreements and invention assignment agreements with our employees, consultants and third-parties to protect our confidential and proprietary information. Although our competitors have utilized and are expected to continue to utilize technologies and methods similar to ours and have aggregated and are expected to continue to aggregate libraries of genetic information similar to ours, we believe our success will depend in part on our ability to develop proprietary methods and libraries and to defend any advantages afforded to us by these methods and libraries relative to our competitors. If we do not protect our intellectual property and other confidential information adequately, competitors may be able to use our proprietary technologies and information and thereby erode any competitive advantages ~~they~~our intellectual property and other confidential information provide us.

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent these rights are effectively maintained as confidential. We expect to rely primarily on trade secret and contractual protections for our confidential and proprietary information and we have taken security measures we believe are appropriate to protect this information. These measures, however, may not provide adequate protection for our trade secrets, know-how or other confidential information. We seek to protect our proprietary information by, among other things, entering into confidentiality agreements with employees, consultants and other third parties. These confidentiality agreements may not sufficiently safeguard our trade secrets and other confidential information and may not provide adequate remedies in the event of unauthorized use or disclosure of this information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or other proprietary information could be difficult, expensive and time-consuming and the outcome could be unpredictable. In addition, trade secrets or other confidential information could otherwise become known or be independently developed by others in a manner that could prevent legal recourse by us. If any of our trade secrets or other confidential or proprietary information were disclosed or misappropriated or if any such information was independently developed by a competitor, our competitive position could be harmed and our business could suffer.

Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests.

We believe our ability to succeed will depend in part on our avoidance of infringement of patents and other proprietary rights owned by third parties, including the intellectual property rights of competitors. There are numerous third-party-owned U.S. and foreign patents, pending patent applications and other intellectual property rights that cover technologies relevant to genetic testing. We may be unaware of patents or other intellectual property rights that a third-party might assert are infringed by our business, and there may be pending patent applications that, if issued, could be asserted against us. As a result, our existing or future operations may be alleged or found to infringe existing or future patents or other intellectual property rights of others. Moreover, as we continue to sell our existing tests and if we launch new tests and enter new markets, competitors may claim that our tests infringe or misappropriate their intellectual property rights as part of strategies designed to impede our existing operations or our entry into new markets.

If a patent infringement or misappropriation of intellectual property lawsuit was brought against us, we could be forced to discontinue or delay our development or sales of any tests or other activities that are the subject of the lawsuit while it is pending, even if it is not ultimately successful. In the event of a successful claim of infringement against us, we could be forced to pay substantial damages, including treble damages and attorneys’ fees if we were found to have willfully infringed patents; obtain one or more licenses, which may not be available ~~when needed,~~ on commercially reasonable terms when needed or at all; pay royalties, which may be substantial; or redesign any infringing tests or other activities, which may be impossible or require substantial time and expense. In addition, third parties making claims against us for infringement or misappropriation of their patents or other intellectual property rights could seek and obtain injunctive or other equitable relief, which, if granted, could prohibit us from performing some or all of our tests. Further, defense against these claims, regardless of their merit or success, could cause us to incur substantial expenses, be a substantial diversion to our management and other employee resources and significantly harm our reputation. Any of these outcomes could delay our introduction of new tests, significantly increase our costs or prevent us from conducting certain of our essential activities, which could materially adversely affect our ability to operate and grow our business.

From time to time, the ~~U.S.~~ Supreme Court, other federal courts, the U.S. Congress or the U.S. Patent and Trademark Office, or USPTO, may change the standards of patentability, and any such changes could have a negative impact on our business.

Three cases involving diagnostic method claims and “gene patents” have been decided by the Supreme Court in recent years. In March 2012, the Supreme Court issued a decision in Mayo Collaborative v. Prometheus Laboratories, or Prometheus, a case involving patent claims directed to optimizing the amount of drug administered to a specific patient, holding that the applicable patents’ claims failed to incorporate sufficient inventive content above and beyond mere underlying natural correlations to allow the claimed processes to qualify as patent-eligible processes that apply natural laws. In June 2013, the Supreme Court decided Association for Molecular Pathology v. Myriad Genetics, or Myriad, a case challenging the validity of patent claims relating to the breast cancer susceptibility genes BRCA1 and BRCA2, holding that isolated genomic DNA that exists in nature, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patentable subject matter, but that cDNA, which is an artificial construct created from RNA transcripts of genes, may be patent eligible. In June 2014, the Supreme Court decided Alice Corporation Pty. Ltd. v. CLS Bank International, or Alice, which affirmed the Prometheus and Myriad decisions and provided additional interpretation.

If we make efforts to seek patent protection for our technologies and tests, these efforts may be negatively impacted by the Prometheus, Myriad and Alice decisions, rulings in other cases or guidance or procedures issued by the USPTO. However, we cannot fully predict the impact of the Prometheus, Myriad and Alice decisions on the ability of genetic testing, biopharmaceutical or other companies to obtain or enforce patents relating to DNA, genes or genomic-related discoveries in the future, as the contours of when claims reciting laws of nature, natural phenomena or abstract ideas may meet patent eligibility requirements are not clear and may take years to develop via interpretation at the USPTO and in the courts. There are many previously issued patents claiming nucleic acids and diagnostic methods based on natural correlations that issued before these recent Supreme Court decisions and, although many of these patents may be invalid under the standards set forth in these decisions, they are presumed valid and enforceable until they are successfully challenged and third parties holding these patents could allege that we infringe or request that we obtain a license under ~~the~~such patents. Whether based on patents issued before or after these Supreme Court decisions, we could be forced to defend against claims of patent infringement or obtain license rights, if available, under these patents. In particular, although the Supreme Court has held in Myriad that isolated genomic DNA is not patent-eligible subject matter, third parties could allege that our activities infringe other classes of gene-related patent claims. There are numerous risks associated with any patent infringement claim that may be brought against us, as discussed above under “—Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation could require us to spend significant time and money and prevent us from selling our tests.”

In addition, the Leahy-Smith America Invents Act, or America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes to the way issued patents are challenged and changes to the way patent applications are disputed during the examination process. These changes may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The USPTO has developed new regulations and procedures to govern the full implementation of the America Invents Act, but the impact of the America Invents Act on the cost of prosecuting any patent applications we may file, our ability to obtain patents based on our discoveries if we pursue them and our ability to enforce or defend any patents that may issue remains uncertain.

These and other substantive changes to U.S. patent law could affect our susceptibility to patent infringement claims and our ability to obtain any patents we may pursue and, if obtained, to enforce or defend them, any of which could have a material adverse effect on our business.

We may not be able to enforce our intellectual property rights outside the United States.

The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant challenges in establishing and enforcing their proprietary rights outside the United States. These challenges can be caused by the absence of rules and methods for the establishment and enforcement of intellectual property rights in certain jurisdictions. In addition, the legal systems of some countries, particularly developing countries, do not favor the enforcement of certain intellectual property protection, especially relating to healthcare. These aspects of many foreign legal systems could make it difficult for us to prevent or stop the misappropriation of our intellectual property rights in these jurisdictions. Moreover, changes in the law and legal decisions by courts in foreign countries could affect our ability to obtain adequate protection for our technologies and enforce our intellectual property rights. As a result, our efforts to protect and enforce our intellectual property rights outside the United States may prove inadequate, in which case our ability to remain competitive and grow our business and revenue could be materially harmed.

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

We employ individuals who were previously employed at universities and biometric solution, genetic testing, diagnostic or other healthcare companies, including our competitors or potential competitors. Further, we may become subject to ownership disputes in the future arising from, for example, conflicting obligations of consultants or others who are involved in developing our and other parties’ technologies and intellectual property rights. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees or consultants have inadvertently or otherwise used or disclosed intellectual property rights, including trade secrets or other proprietary information, of a former employer or other third-party. Litigation may be necessary to defend against these claims, should they arise. If we fail in defending against any such claims, we could be subject to monetary damages and the loss of valuable intellectual property rights or personnel. Even if we are successful in defending against any such claims, litigation could result in substantial costs, distract management and other employees and damage our reputation.

An active, liquid trading market for our common stock may not be sustained, which could make it difficult for stockholders to sell their shares of our common stock.

An active trading market for our common stock may not be sustained. Further, Mr. Hsieh, our founder, Chief Executive Officer and Chairman of our board of directors, beneficially owns ~~just over one third~~approximately 26% of our outstanding voting ~~equity.~~equity as of December 31, 2021. As a result, fewer shares are actively traded in the public market, which reduces the liquidity of our common stock. The lack of an active trading market could impair our stockholders’ ability to sell their shares at the desired time or at a price considered reasonable. Further, an inactive trading market may impair our ability to raise capital by selling shares of our common stock in the future, and may impair our ability to enter into strategic relationships or acquire companies or technologies using shares of our common stock as consideration.

Our common stock is listed on the Nasdaq Global Market, or Nasdaq, under the symbol “FLGT.” If we fail to satisfy the continued listing standards of Nasdaq, however, we could be de-listed, which would negatively impact the price and liquidity of our common stock.

The price of our common stock may be volatile and you could lose all or part of your investment.

The trading price of our common stock has experienced, and may continue to experience, wide fluctuations and significant volatility. This volatility may be exacerbated by the relatively small and illiquid market for our common stock. Other factors that may contribute to this volatility include, among others:

In addition, the stock market in general, and the market for the stock of companies in the life sciences and technology industries in particular, has experienced extreme price and volume fluctuations in recent years that have, at times, been unrelated or disproportionate to the operating performance of specific companies. These broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against ~~the~~such company. This type of litigation, if instituted against us, could result in substantial costs, ~~and~~ a diversion of our management’s attention and ~~resources.~~resources and could damage our reputation.

Our principal stockholders and management own a significant percentage of our capital stock and are able to exert significant control over matters subject to stockholder approval.

Our executive officers, directors, beneficial owners of 5% or more of our outstanding voting equity and their respective affiliates collectively beneficially own ~~the substantial majority~~approximately 41% of our outstanding voting equity as of December 31, 2021, and of this, Mr. Hsieh, our founder, Chief Executive Officer and Chairman of our board of directors, by himself beneficially owns ~~just over one third~~approximately 26% of our outstanding voting ~~equity.~~equity as of December 31, 2021. As a result, these stockholders have the ability to control matters submitted to our stockholders for approval, including elections of directors, amendments to our organizational documents or approval of any merger, sale of assets or other major corporate transaction. This concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers to acquire our common stock that some of our stockholders feel are in their best interests, as the interests of these stockholders may not coincide with the interests of our other stockholders and they may act in a manner that advances their best interests and not necessarily those of all of our stockholders. Further, this concentration of ownership could adversely affect the prevailing market price for our common stock.

Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could cause the price of our common stock to fall.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. Any such sales, or the perception in the market that sales are pending or could occur, could reduce the market price of our common stock. ~~All~~The vast majority of the outstanding shares of our common stock are freely tradable without restriction in the public market, subject to certain volume

and manner of sale limitations applicable to shares held by our affiliates, as that term is defined in the Securities Act. In addition, subject to similar limitations and any other applicable legal and contractual limitations, all of the shares of our common stock subject to outstanding equity-based awards or reserved for issuance pursuant to such awards we may grant in the future are registered under the Securities Act or are otherwise eligible under applicable securities laws for free trading in the public market upon their issuance. Moreover, Xi Long, a large stockholder of our company, has the right, subject to certain conditions, to include its shares in registration statements we may file for ourselves or other stockholders and to require us to file registration statements covering its shares.

Future issuances of our common stock or rights to purchase our common stock, including pursuant to our equity incentive plan, could result in additional dilution to the percentage ownership of our stockholders and could cause the price of our common stock to fall.

To raise capital or for other strategic purposes, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. In ~~particular and~~addition, in ~~August 2019,~~November 2020 we entered into an Equity Distribution Agreement, with Piper Jaffray & Co. as sales agent (“Piper”), pursuant to which we may, from time to time, sell through Piper shares of our common stock with an aggregate purchase price of up to $30.0 million.or the November 2020 Equity Distribution Agreement. During the year ended December 31, ~~2019,~~2021, we sold an aggregate of ~~104,390~~1.1 million shares of our common stock pursuant to the November 2020 Equity Distribution Agreement at a weighted-average net selling price of ~~$9.37~~$64.83 per share. We also may issue common stock or grant other equity awards for compensatory purposes under our equity incentive plan. If we issue common stock, convertible securities or other equity securities, including ~~shares pursuant to the Equity Distribution Agreement or~~ equity awards under our equity incentive plan, our then-existing stockholders could be materially diluted by such issuances and, if we otherwise issue preferred stock, new investors could gain rights, preferences and privileges senior to the holders of our common stock, any of which could cause the price of our common stock to decline.

We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our common stock.

We currently anticipate that we will retain any future earnings to finance the continued development, operation and expansion of our business. As a result, we do not anticipate declaring or paying any cash dividends or other distributions in the foreseeable future. Further, if we were to enter into a credit facility or issue debt securities or preferred stock in the future, we may become contractually restricted from paying dividends. If we do not pay dividends, our common stock may be less valuable because stockholders must rely on sales of their common stock after price appreciation, which may never occur, to realize any gains on their investment.

If securities or industry analysts do not publish research or reports about our business or if they issue an adverse or misleading opinion regarding our common stock, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which could cause the price and trading volume of our common stock to decline. Further, if any of these analysts issues an adverse or misleading opinion regarding us, our business model, our industry or our stock performance or if our operating results fail to meet analyst expectations, the price of our common stock could also decline.

Provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company or changes in our management and depress the market price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that our stockholders may deem advantageous. These provisions, among other things:

In addition, we are subject to Section 203 of the Delaware General Corporation Law, or DGCL, which imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock. Section 203 may have the effect of discouraging, delaying or preventing a change in control of our company.

Holders of our common stock could be adversely affected if we issue preferred stock.

Pursuant to our certificate of incorporation, our board of directors is authorized to issue up to ~~1,000,000~~1.0 million shares of preferred stock without any action by our stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any series of preferred stock that may be issued, among others, including voting rights, dividend rights and preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up. If we issue preferred stock in the future that has preferences over our common stock with respect to payment of dividends or upon a liquidation, dissolution or winding up, or if we issue preferred stock that is convertible into our common stock at greater than a one-to-one ratio, the voting and other rights of the holders of our common stock and the market price of our common stock could be adversely affected.

Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a judicial forum they consider favorable for disputes with us or our directors, officers or other employees.

Our certificate of incorporation ~~provides~~and bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for:

~~Any person~~Securities Act or ~~entity purchasing~~the rules and regulations thereunder, or ~~otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to this provision of our certificate of incorporation. This choice-of-forum provision~~Securities Act Claims. To the extent applicable or enforceable, the Exclusive Forum Provisions may limit a stockholder’s ability to bring a claim in a judicial forum it finds favorable for disputes with us or our directors, officers or other employees, which may discourage these lawsuits. Alternatively, iffor Securities Act Claims, Exchange Act Claims or claims for which a court were to find ~~this provision of our certificate of incorporation~~these Exclusive Forum Provisions inapplicable ~~to,~~ or unenforceable ~~in respect of,~~for one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving these matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

Our corporate headquarters and laboratory operations are located in Temple City, California, where we lease and occupy approximately 12,000 square feet of office and laboratory space under leases that will expire in January ~~2021. The Company has options to renew some of these leases for three years.~~2023. We use these facilities for ~~all of our~~ laboratory testing and management activities and certain research and development, administrative and other functions.

We ~~also~~have CLIA-certified laboratories located in Houston, Texas and Alpharetta, Georgia. In Houston, Texas, we lease and occupy approximately ~~2,200~~12,000 square feet ~~of office space near Atlanta, Georgia~~ under a lease that will expire in November ~~2022~~2023. In Alpharetta, Georgia, we lease and occupy approximately ~~11,600~~65,000 square feet ~~of office space in El Monte, California~~ under a lease that will expire in ~~August 2023, where we conduct~~March 2028. We use these facilities for laboratory testing and certain ~~research and development, customer service, report generation~~administrative and other ~~administrative activities, although no laboratory activities occur~~functions.

We also own a real property located at ~~either~~4399-4401 Santa Anita Avenue, El Monte, California, which consists of ~~these facilities~~.approximately 61,612 total square feet of building situated on 2.6 acres of land. We will build more CLIA-certified laboratories at this location. We

believe our existing facilities are adequate for our current and expected near-term needs and additional space would be available on commercially reasonable terms if required.

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party, and our properties are not presently subject, to any legal proceedings that, in the opinion of management, would have a material effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, among other factors.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

On September 29, 2016, our common stock was listed for trading on ~~the~~ Nasdaq ~~Global Market~~ under the symbol “FLGT.” There was no public market for our common stock prior to September 29, 2016.

As of ~~March~~February 1, ~~2020,~~2022, there were 59 holders of record of our common stock, plus an indeterminate number of additional stockholders whose shares of our common stock are held on their behalf by brokerage firms or other agents.

We currently anticipate that we will retain any future earnings to finance the continued development, operation and expansion of our business. As a result, we do not anticipate declaring or paying any cash dividends or other distributions in the foreseeable future. Any determination to pay dividends would be at the discretion of our board of directors and would depend on our results of operation, financial condition and other factors that our board of directors, in its discretion, considers relevant.

On October 4, 2016, we completed the initial public offering of our common stock, or the IPO, pursuant to an Underwriting Agreement with Credit Suisse Securities (USA) LLC and Piper, ~~Jaffray & Co.,~~ as the representatives of the several underwriters, in which we issued and sold an aggregate of ~~4,830,000~~4.8 million shares of common stock (including 630,000 shares issued and sold on October 7, 2016 pursuant to the underwriters’ exercise in full of their option to purchase additional shares) at a public offering price of $9.00 per share. We received net proceeds of approximately $36.0 million, after deducting underwriting discounts and commissions and offering expenses paid or payable by us of approximately $4.4 million. The shares issued and sold in the IPO were registered under the Securities Act on a registration statement on Form S-1 (File No. 333-213469), as amended, and the final prospectus dated September 28, 2016 included in such registration statement, or the Prospectus.

To date, we have used ~~$7.1~~$28.8 million of the net proceeds from the IPO, of which, ~~$3.1~~$4.5 million was used for contributions to ~~our joint venture,~~ FF Gene Biotech ~~in partial satisfaction of our contribution obligations under~~prior to the ~~joint venture cooperation agreement,~~FF Gene Biotech Acquisition and ~~$4.0~~$24.4 million was used to fund the Company’s operation. All other net proceeds from the IPO are invested in investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit,, commercial paper and guaranteed obligations of the U.S. government. There has been no material change in the planned use of proceeds from the IPO from that described in the Prospectus.

On August 30, 2019, we entered into anthe 2019 Equity Distribution Agreement with Piper ~~Jaffray & Co.~~ as sales agent, ~~pursuant to~~ which ~~we may, from time to time, sell through Piper shares of our common stock with an aggregate purchase price of up to $30.0 million.~~was amended on August 4, 2020. During the year ended December 31, 2019, ~~the Company~~we sold an aggregate of ~~104,390~~104,000 shares of ~~its~~our common stock pursuant to the 2019 Equity Distribution Agreement at a weighted-average net selling price of ~~$12.14~~$9.37 per share, which resulted in $979,000 of net proceeds to the Company. ~~The~~During the year ended December 31, 2020, we sold an aggregate of 1.1 million shares ~~issued~~of our 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 Equity Distribution Agreement were offered and ~~sold in the at-the-market offering were~~ sold pursuant to aour shelf ~~registration statement registered under the Securities Act on a~~ registration statement on Form S-3 (File No. 333-233227)~~, as amended,~~ filed with the SEC on August 12, 2019 and adeclared effective on August 23, 2019, and prospectus ~~supplement~~supplements and accompanying base prospectus filed with the ~~Securities and Exchange Commission~~SEC on August 30, ~~2019.~~2019, May 6, 2020 and August 5, 2020.There has been no material change in the planned use of proceeds as described in the prospectus supplements and accompanying base prospectus.

~~In addition, on~~On November 13, 2019, we entered into a ~~Purchase Agreement~~purchase agreement with Piper, ~~Jaffray & Co.~~ as representative of the several underwriters, pursuant to which we sold ~~2,673,750~~2.7 million shares of our common stock at a price of ~~$10.51875~~$10.52 per share, with a public offering price of $11.25 per share. We received net proceeds of approximately $27.6 million, after deducting underwriting discounts and commissions and offering expenses paid or payable by us of approximately $2.4 ~~million~~.million. The shares issued and sold in the underwritten offering were ~~sold pursuant to a shelf registration statement~~ registered under the Securities Act ~~on a~~and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-233227), ~~as amended,~~ and a prospectus supplement and accompanying base prospectus filed with the ~~Securities and Exchange Commission~~SEC on November 13, 2019.There has been no material change in the planned use of proceeds as described in the prospectus supplement and accompanying base prospectus.

On September 25, 2020, we entered into an Equity Distribution Agreement, or the September 2020 Equity Distribution Agreement, with Piper as sales agent, pursuant to which we sold 2.8 million shares of our common stock pursuant to the September 2020 Equity Distribution Agreement at a weighted-average net selling price of $42.90 per share during the year ended December 31, 2020, which resulted in $122.1 million of net proceeds to the Company. Piper may receive a commission of up to 3% of the gross

proceeds received by the Company for sales pursuant to the September 2020 Equity Distribution Agreement. Shares sold under the September 2020 Equity Distribution Agreement were offered and sold pursuant to our 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.There has been no material change in the planned use of proceeds as described in the prospectus supplement and accompanying base prospectus.

On November 20, 2020, we entered into the November 2020 Equity Distribution Agreement, with Piper, Oppenheimer & Co. Inc., and BTIG LLC, as sales agents, pursuant to which we may offer and sell, from time to time through Piper, shares of our 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 our 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, we sold approximately 1.1 million shares of our 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.There has been no material change in the planned use of proceeds as described in the prospectus supplement and accompanying base prospectus.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this ~~report.~~

~~The following discussion~~ report and ~~analysis~~ contains forward-looking statements within the meaning of Section 27A of the Securities Act ~~of 1933, as amended,~~ and Section 21E of the Securities Exchange ~~Act~~Act. We have omitted discussion of ~~1934, as amended.~~2019 results where it would be redundant to the discussion previously included in Item 7 of our 2020 Annual Report on Form 10-K. Forward-looking statements are statements other than historical facts and relate to future events or circumstances or our future performance, and they are based on our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. The forward-looking statements in this discussion and analysis include statements about, among other things, our future financial and operating performance, our future cash flows and liquidity and our growth strategies, as well as anticipated trends in our business and industry. These forward-looking statements are subject to a number of risks and uncertainties, including, among others, those described under “Item 1A. Risk Factors” in Part I of this report. Moreover, we operate in a competitive and rapidly evolving industry and new risks emerge from time to time. It is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. In light of these risks and uncertainties, the forward-looking events and circumstances described in this discussion and analysis may not occur, and actual results could differ materially and adversely from those described in or implied by any forward-looking statements we make. Although we have based our forward-looking statements on assumptions and expectations we believe are reasonable, we cannot guarantee future results, levels of activity, performance or achievements or other future events. As a result, forward-looking statements should not be relied on or viewed as predictions of future events, and this discussion and analysis should be read with the understanding that actual future results, levels of activity, performance and achievements may be materially different than our current expectations. The forward-looking statements in this discussion and analysis speak only as of the date of this report, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

We are a ~~growing~~ technology company ~~with an initial focus on~~ offering large-scale COVID-19 testing services, molecular diagnostic testing services and comprehensive genetic testing designed to provide physicians and patients with clinically actionable diagnostic information ~~they can use~~ to improve the quality of patient care. WeA cornerstone of our business is our ability to provide expansive options and flexibility for all clients’ unique testing needs. To this end, we have developed a proprietary technology platform ~~that allows~~allowing us to offer a broad and flexible test menu and to continually expand and improve our proprietary genetic reference library, while maintaining accessible pricing, high accuracy and competitive turnaround times. Combining next generation sequencing, or NGS, with our technology platform, we perform 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. We have experienced rapid volume growth since our commercial launch in 2013, with approximately 10.0 million billable tests delivered in 2021, compared to 4.4 million billable tests delivered in 2020, and an aggregate of approximately 14.5 million billable tests delivered to over 1,800 customers from inception through December 31, 2021.

Our technology platform, which integrates sophisticated data comparison and suppression algorithms, adaptive learning software, in comparison to our competitors advanced genetic diagnostics tools and integrated laboratory processes, allows us to offer a test menu with expansive genetic coverage. We believe the comprehensive data output and high detection rates of our ~~test menu offers more~~tests, both made possible by this expansive genetic coverage, provide physicians with information they can readily incorporate into treatment decisions for their patients, which we refer to as clinical actionability. In addition, our technology platform facilitates our ability to perform customized genetic tests using our expansive library of genes, ~~for testing than~~and we believe this flexibility increases the utility of the genetic data we produce. Further, our ~~competitors in today’s market,~~technology platform provides us with operating efficiencies that help lower our internal costs, which ~~enables~~allows us to ~~provide expansive options for test customization~~offer our tests at accessible price points. As a result, our efforts to build and continually enhance our technology platform allow us to deliver comprehensive, adaptable, clinically actionable ~~results.~~

~~Our existing customer base consists primarily of hospitals, medical institutions~~ and ~~other laboratories, which are typically frequent and high-volume users of~~affordable genetic ~~tests and which often pay~~analysis while maintaining a low cost per billable test, enabling us ~~directly for our tests. In addition, in 2019 we launched our first patient-initiated offering, Picture Genetics, but as of yet Picture Genetics does not represent a substantial percentage of~~to efficiently meet the amount of tests we delivered. We believe our relationships with these customers provide a meaningful opportunity for further growth, as we seek to deepen these relationships and drive increased ordering. We also believe our offering could be attractive to other types of customers, including individual physicians and other practitioners, research institutions and other organizations, and we are building relationships in these new customer markets. Although we have devoted fewer overall resources to sales and marketing efforts than manyneeds of our ~~competitors, we made material investments in our sales and marketing team and strategies, the global reach~~growing base of ~~our business and other aspects of our operations.~~customers.

We offer tests at competitive prices, averaging approximately ~~$555~~$100 per billable test delivered in ~~2019,~~2021, and at a ~~lower~~low cost to us, ~~than many of our competitors,~~ averaging approximately ~~$241~~$22 per billable test delivered in ~~2019.~~2021. Our volume has grown rapidly since our commercial launch in 2013, with ~~58,573~~approximately 10.0 million billable tests delivered in ~~2019, 22,298~~2021, 4.4 million billable tests delivered in ~~2018,~~2020, and an aggregate of ~~over 117,774~~approximately 14.5 million billable tests delivered to ~~approximately 1,100~~over 1,800 customers from inception through December 31, ~~2019.~~2021. We have experienced compound quarterly growth of ~~17.1%~~111.0% in the number of billable tests delivered in our last eight completed fiscal quarters. We recorded revenue and ~~loss~~income from operations of ~~$32.5~~$992.6 million and ~~$411,000,~~$507.4 million, respectively, in ~~2019,~~2021, compared to revenue and ~~loss~~income from operations of ~~$21.4~~$421.7 million and ~~$5.6~~$214.3 million, respectively, in ~~2018.~~2020. We achieved profitability in the first ~~three months~~ quarter

of 2017, and in the second and the third quarter of 2019, the second, third and fourth quarters of 2020, and all the quarters of 2021, but we have recorded losses in all other periods since our inception.

~~Partnered with Columbia University Irving Medical Center on Expanded Carrier Screening~~Incremental Investment in Chinese Joint Venture entity, FF Gene Biotech

~~The Company and the Precision Genomics Laboratory, or PGL, in collaboration with the Department of Obstetrics and Gynecology, at Columbia University Irving Medical Center, or CUIMC,~~In May 2021, we entered into a ~~license~~restructuring agreement with Xilong Scientific and ~~commercialization agreement~~FJIP, resulting in the Company indirectly acquiring a controlling financial interest in FF Gene Biotech. FF Gene Biotech was founded as a joint venture to ~~make~~bring our NGS capabilities to the Chinese genetic testing market through entities separate from our U.S. operations, and FF Gene Biotech is pursuing this objective separate from our business elsewhere.

We completed the acquisition of CSI, a leading cancer testing laboratory, to expand our presence in somatic molecular diagnostics and cancer testing. CSI was founded to provide a client- and patient-focused model of cancer diagnostic testing for pathologists, community hospitals, and their patients. CSI offers approximately 400 unique tests with a focus on ~~site performed, expanded carrier screening available~~oncology and capabilities across flow cytometry, cytogenetic analysis, fluorescence in-situ hybridization, or FISH, immunohistochemistry, and molecular genetics. CSI’s philosophy of providing expert diagnostic testing with speed, precision, and care, is highly complementary with our core value proposition of offering a broad menu of actionable diagnostic tests with quality results and rapid turnaround times. CSI is based in Alpharetta, GA and expands our presence in the southeastern United States.

Strategic Partnership with Laboratory for Advanced Medicine, Inc., or Helio Health

We made an investment in and entered into a strategic partnership with Helio Health, an AI-biotechnology company developing blood-based early cancer detection tests, to ~~Columbia patients. This unique collaboration will leverage both parties’ expertise~~commercialize Helio Health’s blood-based early cancer detection tests. In conjunction with the commercial strategic partnership whereby Helio Health has secured exclusive commercial rights for laboratory develop tests, or LDTs, in ~~laboratory management, bioinformatics, clinical genetics~~the U.S. and ~~next-generation sequencing to deliver an expanded carrier screening~~Canada. Under this partnership, we and Helio Health commercialized and co-branded HelioLiver, a cell-free DNA (cfDNA) methylation blood test ~~with many advantages over other currently available tests.~~that incorporates protein markers and demographics for the detection of hepatocellular carcinoma (HCC) – or liver cancer.

The ~~PGL is jointly operated by~~current COVID-19 pandemic has presented a substantial public health and economic challenge around the ~~Institute for Genomic Medicine, or IGM, and the Department of Pathology and Cell Biology~~world and is ~~designed to enhance patient care through genomic diagnostics, research,~~affecting our employees, patients, communities and ~~education at CUIMC.~~

Carrier screening is a genetic test used to identify whether individuals and carrier couples are at risk for passing genetic disorders to their children. These genetic disorders may result in physical disabilities, cognitive impairment, and other severe health problems in newborn babies. Traditionally, carrier screening tests targeted couples of certain ethnic groups that have historically been at higher risk for specific genetic disorders. This approach has presented difficulties for patients who are multiracial, adopted, or are unsure of their ethnic backgrounds. To address this challenge, expanded carrier screening, or ECS, was developed to test for mutations that cause hundreds of different genetic disorders regardless of a patient’s ethnicity. Professional medical associations like the American College of Obstetricians and Gynecologists, or ACOG, and the American College of Medical Genetics and Genomics, or ACMG, have published guidelines on ECS and its importance in reproductive care.

~~Partnered with Parkinson’s Foundation on Launch of Genetic Testing Initiative for People with Parkinson’s Disease~~

In 2019, the Company partnered with the Parkinson’s Foundation on a new genetic testing initiative for individuals living with Parkinson’s Disease. The nation-wide initiative, called PD GENEration: Mapping the Future of Parkinson’s Disease, provides genetic testing for clinically relevant Parkinson’s-related genes for eligible individuals. The initiative is offered through the Parkinson’s Foundation Centers of Excellence network and Parkinson Study Group sites, and it leverages the next generation genetic testing technology of the Company. As part of the collaboration agreement, the Company is compensated for processing, sequencing, and storing each DNA sample for patients participating in the initiative. Also supporting this initiative are Indiana University School of Medicine, providing genetic counseling for tested individuals; University of Florida CTSI Data Coordinating Center, assisting with secure data storage; and University of Rochester’s Clinical Trials Coordination Center. In collaboration with these partners, the Company has leveraged the flexibility of its broad testing catalog to select and develop a targeted list of seven genes relevant to Parkinson’s patients and clinicians: GBA, LRRK2, SNCA, PRKN, PARK7, VPS35, and PINK1. The Company analyzes and generates clinical reports for these target genes, and the findings are made available to the treating physicians and future researchers.

Genetic testing can help determine whether an individual’s genetic makeup indicates a potential genetic cause for Parkinson’s disease. This knowledge can assist patients and physicians in better understanding each case and can help to identify whether a patient qualifies for enrollment in certain clinical trials. Participants will also be able to better understand their genetic test results through free genetic counseling provided by Indiana University and on-site clinicians. Raw data accumulated through the initiative will be captured for future research by scientists to develop improved treatments and precision medicine options for Parkinson’s Disease.

In 2019, the Company launched its first patient-initiated genetic testing offering, a new line of at-home screening tests that combines the Company’s advanced NGS solutions with actionable results and genetic counseling options for patients. Patients order test kits online, complete a sample collection at home and return the kits for processing and analysis by the Company. Patients receive results that have been reviewed by an independent external physician,business operations, as well as the U.S. economy and financial markets. We are closely monitoring the impact of COVID-19 on all aspects of our business, including its impact on our customers, suppliers, third-party service providers, and our employees. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and its variants, the actions taken to contain it or treat it and the economic impact on local, regional, national and international markets and supply chains.

During the year ended December 31, 2021, and for the entirety of the COVID-19 pandemic to such point, we continued to operate as an essential business in response to COVID-19. In years ended December 31, 2020 and December 31, 2021, the COVID-19 pandemic did not have a negative impact on our consolidated operating results. Since the outbreak of the current COVID-19 pandemic there has been strong demand for accurate COVID-19 testing with rapid turn-around times as private businesses, municipalities and healthcare providers began to increasingly rely on diagnostic testing to continue operations and as a tool to aide containment efforts, and as result we have recognized significant revenue growth in connection with sales of our COVID-19 tests. While the duration of the ongoing COVID-19 pandemic and continuing market for COVID-19 diagnostic tests remains subject to a number of uncertainties, including uncertainties regarding the effectiveness of disease containment efforts, speed and effectiveness of global COVID-19 vaccine distributions, newly emerging viral variants, continuing government actions in response to the pandemic and regulatory requirements or preferences that may emerge following the pandemic,a robust market for COVID-19 diagnostic testing persists to present day.However, the responses of the federal, international, state and regional governments to the pandemic, including any shelter in place orders and the allocation of healthcare resources to treating those infected with the virus, previously caused a significant decline in the number of our traditional genetic ~~counseling support~~tests ordered and, if repeated, may again cause the volume of our traditional genetic tests to ~~help them better understand their screening results. The Company~~decline. Even after the COVID-19 outbreak has ~~partnered~~subsided, we may experience materially adverse impacts on our financial condition and results of operations. Our ability to continue to operate as currently planned, including our ability to continue to offer our COVID‑19 tests with ~~PWNHealth, an independent provider network, for physician review~~accurate results and ~~genetic counseling. Picture Genetics offers three distinct at-home test options: Picture Parenting, Picture Newborn,~~competitive turn-around times without any significant negative operational impact from the COVID-19 pandemic will depend in part on our, and ~~Picture Wellness. Picture Parenting is a carrier screening test~~any of our third‑party service providers’ and suppliers’ ability to protect our respective employees and supply chains. We have endeavored to follow the recommended actions of government and health authorities to protect our employees. We intend to continue to adhere to our employee safety measures to ensure that gives prospective parents better insight into their status as carriers of variants in 30 different genes which could affect their children. Picture Newborn and Picture Wellness offer insight into health risks based on genetic markers. All three tests are completed at home without the need for a doctor visit or insurance.any

~~Expanded Reproductive Testing Options Including Preimplantation Genetic Testing (PGT)~~disruptions to our operations remain minimal during the pandemic. However, the uncertainty resulting from the pandemic could result in an unforeseen disruption to our, or our third-party service providers’ and suppliers’, workforce and supply chain.

~~In 2019,~~The COVID-19 pandemic has not negatively impacted the ~~Company expanded~~Company’s liquidity position as of December 31, 2021. We have not incurred any material impairments of our assets or a significant change in the ~~reproductive testing options, including Preimplantation Genetic Testing (PGT). PGT (often called PGS,~~fair value of our assets due to the COVID-19 pandemic as of December 31, 2021.

For additional information on risk factors related to the COVID-19 pandemic or ~~preimplantation genetic screening), is appropriate for anyone undergoing IVF treatment, especially helpful for women who is over 35, who have previously experienced miscarriages, who want~~other risks that could impact our results, please refer to ~~reduce the likelihood~~“Item 1A. Risk Factors” in Part I of having multiples, couples experiencing infertility (male or female), and who have experienced IVF failure. By purposefully selecting chromosomally normal embryos for implantation, it will expand the prospects of a successful IVF treatment and a healthy pregnancy.this Form 10-K.

Genetic testing has experienced significant growth in recent years. If this growth trend continues, we believe genetic testing could become a more accepted part of standard medical care and the knowledge of a person’s unique genetic makeup could begin to play a more important role in the practice of medicine. The advent of ~~next generation sequencing, or~~ NGS technology, a relatively new genetic testing technique that enables millions of DNA fragments to be sequenced in parallel, has dramatically lowered the cost and improved the quality of genetic testing, contributing to increased adoption generally and increased volumes for our tests.

The growth of genetic testing in recent years has caused increased competition in our industry. This increased competition, as well as cost-saving initiatives on the part of government entities and other third-party payors, has resulted in downward pressure on the price for genetic analysis and interpretation, which could intensify in future periods if adoption of genetic testing becomes more widespread. We have reduced the prices for certain of our tests in recent periods to maintain our competitive position, and increased downward pricing pressure could harm our revenue and margins and our ability to achieve and sustain profitability. The impact of this pricing pressure has been and may continue to be intensified if we continue to incur increased expenses in order to meet customer demands and make investments in our business.

While adoption of genetic testing has increased in recent years, we believe widespread utilization has been tempered because of certain challenges and barriers to adoption that exist in today’s market. Among these industry challenges are that genetic testing can be prohibitively expensive, only a limited number of genetic tests are currently reimbursable, certain genetic conditions cannot be diagnosed due to the limited scope of some genetic analysis, genetic testing can be an inefficient process and the interpretation of genetic results can be cumbersome and time-consuming. We have approached these competitive and operational industry challenges by building and continually advancing a multi-faceted technology platform that we believe will facilitate our ability to address many of these challenges.

We have experienced rapid volume growth since our commercial launch in 2013, especially after the launch of our COVID-19 testing services, with approximately 10.0 million billable tests delivered in 2021, compared to 4.4 million billable tests delivered in 2020, and an aggregate of approximately 14.5 million billable tests delivered to over 1,800 customers from inception through December 31, 2021. Most of the recent growth in our testing volume has resulted from COVID-19 tests that we conduct for certain counties, states and municipalities. The expansion of our COVID-19 testing business has resulted in a substantial change in our business that presents important challenges to our ability to manage our rapidly expanding business, and we anticipate that this business will eventually decrease after the development and widespread deployment of an effective vaccine.

Our performance is closely correlated with the number of tests for which we bill our customers, which we refer to as billable tests. The number of billable tests we deliver in any period depends on a number of factors, including the other factors affecting our performance described in this discussion and analysis. We believe the number of billable tests that we deliver is an important indicator of the performance of our business.

In addition, we offer our tests at different price points, and we incur different amounts and types of costs, depending on the nature and level of complexity and customization of the test and the specific terms we have negotiated for the tests, which can vary from customer to customer. As a result, the mix of billable tests delivered in any period, and the customers that order these tests, impacts our financial results for the period.

Through December 31, ~~2019,~~2021, we have sold our tests to ~~approximately 1,100~~over 1,800 total customers. We consider each single billing and paying unit to be an individual customer, even though a unit may represent multiple physicians and healthcare providers ordering tests. The composition and concentration of our customer base can fluctuate from period to period, and in certain prior periods, a small number of customers has accounted for a significant portion of our revenue. Generally, we do not have long-term purchase agreements with any of our customers, including these key customers, and, as result, any or all of them could decide at any time to increase, accelerate, decrease, delay or discontinue their orders from us. Although we believe some of these fluctuations in customer demand may be attributable in part to the nature of our business, in which our customers can experience significant volatility in their ~~genetic~~ testing demand from period to period in the ordinary course of their operations, these demand fluctuations, particularly for our key customers, can have a significant impact on our period-to-period performance regardless of their cause.

~~Our existing customer base consists primarily of~~We currently classify our customers into three payor types: (i) Insurance, including claim reimbursement from HRSA for uninsured individuals, (ii) Institutional, including hospitals, ~~and~~ medical institutions, ~~which~~other laboratories, governmental bodies, municipalities and large corporations or (iii) Patients who pay directly. Typically, we bill our Institutional customers for our tests and they are ~~typically frequent~~responsible for paying us directly and ~~high-volume users of genetic tests. Additionally, collection of billings~~billing their patients separately or obtaining reimbursement from ~~these institutional customers is generally more attainable than from other types of customers~~third-party payors in ~~today’s reimbursement environment, as approximately 87%~~connection with a patient’s diagnosis related group. A small percentage of our ~~test billings that were generated and due in 2019~~ ~~were paid during that period.~~ ~~As a result, we believe~~customers are patients, who elect to pay for tests themselves with out-of-pocket payments after their physicians have ordered our ~~ability to maintain, strengthen and build this customer base could have a meaningful impact on our potential for growth.~~tests.

We are ~~also~~ making efforts to diversify our customer market, including building relationships with research institutions and other similar institutional customers, ~~as well as~~ national clinical laboratories, ~~regional medical networks~~governmental bodies, municipalities and large corporations in need of regular COVID-19 testing for large populations and various other organizations to facilitate access to physicians, practitioners and other new customer groups, including certain U.S. ~~military and other~~ government agencies. ~~In addition, in 2019 we also launched our first patient-initiated testing product, Picture Genetics, and we hope to gain share in the patient-initiated testing market.~~ We are also pursuing relationships with payors, including Medicare, some state Medicaid programs and commercial payors, in an effort to obtain coverage and reimbursement for our tests to make them accessible to more individual physicians. ~~Subject~~Generally, when we establish these new customer relationships, we agree with the applicable payor, laboratory or other customer to provide certain of our tests at negotiated rates, but, subject to limited exceptions, ~~none~~most of these relationships do not obligate any party to order our tests at any agreed volume or frequency or at ~~all,~~all. Further, any relationships we may develop with any government agencies are subject to unique risks associated with government contracts, including cancellation if adequate appropriations for subsequent performance periods are not made and ~~as a result,~~modification or termination at the government’s convenience without prior notice. Our efforts to pursue individual consumers under our Picture Genetics platform, new payor or institutional customers, new COVID-19 testing customers or other new customer markets could fail, and even if we are able to develop relationships with new customers in these or any other new customer groups, these relationships may not lead to meaningful or any increases in our customer base, the number of billable tests we deliver or our ~~revenue. However, we believe~~revenue, and may not improve our ability to ~~establish these relationships with new customer groups is critical to the growth of our business.~~achieve or sustain profitability.

We believe the large number of genes we incorporate into our test menu provides a meaningful competitive advantage. We believe the breadth of genes in our portfolio allows us to provide more comprehensive genetic information and improves our variant detection rate, which can increase the clinical actionability of the data we produce. The breadth of genes in our portfolio also allows us to offer hundreds of pre-established, multi-gene panels that focus on specified genetic conditions, including our Focus and Comprehensive oncology panels and Beacon carrier screening panels and somatic cancer panels. In addition, all of our panel tests can be adjusted up or down to include more or fewer genes, or customers can design their own panels to their exact specifications, resulting in a flexible and customizable test menu. We believe our ability to continue to offer more genes and more ordering flexibility than our competitors could be a key contributor to the long-term growth of our business.

We have developed various proprietary technologies that improve our laboratory efficiency and reduce the costs we incur to perform our tests, including our proprietary gene probes, data algorithms, adaptive learning software and genetic reference library. This technology platform enables us to perform each test and deliver its results at a lower cost to us than many of our competitors, and this low cost per billable test allows us to maintain affordable and competitive pricing for our customers, which we believe encourages repeat ordering from existing customers and attracts new customers. We believe this low internal cost is a key factor in our ability to grow our business and obtain margins on our sales that allow us to drive toward sustained profitability.

We calculate our cost per billable test by dividing the number of billable tests delivered in any given period by our cost of revenue in the same period. Investments in our operational capabilities could increase our cost of revenue, but these investments could also, on a near-term and/or long-term basis, increase our operating efficiencies and lead to cost of revenue decreases. As a result, the amount, timing, nature and success of these investments, as well as other influences on our cost of revenue from period to period, can impact the amount of our cost per billable test. Moreover, changes in our other operating expenses, due to investments in these aspects

of our business or other factors, are not taken into account in the calculation of this measure but impact our overall results, which can limit the utility of cost per billable test as an overall cost measurement tool.

In today’s market, third-party payors generally restrict the reimbursement of genetic testing to only a narrow subset of genetic tests and certain patients who meet specific criteria. The lack of widespread favorable reimbursement policies has presented a challenge for genetic testing companies in building sustainable business models. As part of our business plan for future growth, we intend to pursue coverage and reimbursement from third-party payors at a level adequate for us to achieve profitability with this payor group. However, we cannot predict whether, under what circumstances, or at what payment levels payors will cover and reimburse for our tests, and even if we are successful, we believe it could take several years to achieve coverage and adequate contracted reimbursement with third-party payors. To date, we have contracted directly with national health insurance companies to become an in-network provider and enrolled as a supplier with the Medicare program and some state Medicaid programs,which means that we have agreed with these payors to provide certain of our tests at negotiated rates. Although this does not guarantee that we will receive reimbursement for our tests from these or any other payors at adequate levels, we believe our low cost per billable test could enhance our ability to compete effectively in the third-party payor market and our flexibility in establishing relationships with additional third-party payors in the future. Our level of success in obtaining and maintaining adequate coverage and reimbursement from third-party payors for our testing services will, we believe, be a key factor in the rate and level of growth of our business over the long term.

The majority of our revenue is generated from hospitals, medical institutions and research institutions, with a lesser amount from reimbursement by third-party payors, including managed care organizations, private health insurers and government healthcare programs, such as Medicare and Medicaid. In 2017, 2016 and all other historical periods, we recognized revenue based on a revenue recognition standard that requires the satisfaction of specified criteria, including when the amount of revenue becomes fixed or determinable and when collectability of revenue is reasonably assured, in order to recognize the revenue. Under this standard, if all of the required criteria were not satisfied before payment was received, then we recognized revenue on a cash basis, which means that revenue is recognized only when we receive a cash payment from a customer for the genetic tests it has ordered. As a result, for revenue received from hospitals and medical institutions, in general, we have recognized revenue upon our delivery to a customer of genetic test results from an ordered test, because all criteria to recognize this revenue have been satisfied at that time. For revenue received from third-party payors, in general, we have recognized revenue on a cash basis due to the inability to satisfy the criteria described above before receipt of payment.

Beginning on January 1, 2018, we recognized revenue pursuant to a comprehensive new revenue recognition standard based on several recent accounting pronouncements. Under the new standard, which is designed to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, we expect to recognize revenue from all customers on an accrual basis, which means that revenue will be recognized at the time of delivery to customers of genetic test results from an ordered test based on our expectation of receiving a cash payment for such tests. In general, the new revenue recognition standard will result in our recognition of revenue from hospitals and medical institutions at a similar time as we recognized revenue from these customers under the prior standard, and will result in our recognition of revenue from third-party payors earlier than we recognized revenue from these customers under the prior standard.

Upon adopting the new standard on January 1, 2018, we recorded an adjustment of $327,000 to beginning accumulated deficit and accounts receivable to reflect genetic tests previously delivered to third-party payors for which revenue was not recognized as of such date.

~~Much~~Some of our business to date has been from non-U.S. customers, and we may record increasing revenue levels from non-U.S. sources as we focus on growing our international customer base. These revenue sources expose us to fluctuations in our results associated with changes in foreign currency exchange rates depending on the value of the U.S. dollar compared to the foreign currencies in which we record revenue. During all periods covered by this report, we consider the estimated effect on our revenue of foreign currency exchange rate fluctuations to be immaterial; however, the impact of foreign currency exchange rate fluctuations may increase in future periods as we pursue continued international expansion. For instance, all of our revenue-producing transactions have historically been denominated in U.S. dollars, but we started billing certain of our Canadian hospital customers in their local currency in the second quarter of 2017, and we may expand this practice in the future to other customers in Canada or other international markets. Additionally, all payments we receive from FF Gene Biotech, including royalty revenue under the license agreement and our share of any earnings of the joint venture, are paid to us in RMB and then converted by us to U.S. dollars, and we expect these payments to increase in the future. These or other changes in the currencies in which we receive payments and record revenue could result in an increased impact in future periods of foreign currency translations and exchange rate fluctuations.

Our business and prospects are exposed to numerous risks and uncertainties. For more information, see “Item 1A. Risk Factors” in this report.

We generate revenue from sales of our COVID-19 tests and genetic tests. We recognize revenue upon delivery of a report to the ordering physician or other customer based on the established billing rate, less contractual and other adjustments, to arrive at the amount we expect to collect. ~~We generally bill directly to a hospital, medical or research institution customer, or to a patient, a third-party payor or a combination of a patient and a third-party payor.~~

Cost of revenue reflects the aggregate costs incurred in delivering test results, including ~~sequencing~~“sequencing as a ~~service tests,~~service”, and consists of: costs of laboratory supplies, including collection kits, personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; ~~costs of laboratory supplies;~~ depreciation of laboratory equipment; amortization of leasehold improvements; and allocated overhead expenses, including rent and utilities. Costs associated with performing tests are recorded as tests are processed. We expect cost of revenue to generally increase as we increase the number of billable tests we deliver.

Our operating expenses are classified into three categories: research and development; selling and marketing; and general and administrative. For each category, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and equity-based compensation expenses.

Research and development expenses represent costs incurred to develop our technology and future tests. These costs consist of personnel costs, laboratory supplies, consulting costs and allocated overhead expenses, including rent and utilities. We expense all

research and development costs in the periods in which they are incurred. We expect our research and development expenses will continue to increase in absolute dollars as we expect to continue to invest in research and development activities.

Selling and marketing expenses consist of personnel costs, customer service expenses, direct marketing expenses, educational and promotional expenses, market research and analysis and allocated overhead expenses, including rent and utilities. We expense all selling and marketing costs as incurred. We expect our selling and marketing expenses will continue to increase in absolute dollars, primarily driven by our increased investment in sales and marketing in recent periods, including developing and expanding our sales team, creating and implementing new sales and marketing strategies and increasing the overall scope of our marketing efforts.

General and administrative expenses include executive, finance, accounting, legal and human resources functions. These expenses consist of personnel costs, audit and legal expenses, consulting costs and allocated overhead expenses, including rent and utilities. We expense all general and administrative costs as incurred. We expect our general and administrative expenses will continue to increase in absolute dollars as we seek to continue to scale our operations. We also expect to continue to incur increased general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the ~~Securities and Exchange Commission, or the~~ SEC, and the Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services.

Provision for income taxes consists of U.S. federal and state income taxes.~~We record~~ A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences, operating losses and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, we consider all the available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies, to assess the amount of the valuation allowance. When we determine to establish or reduce the valuation allowance against the deferred tax assets, our provision for income taxes will increase or decrease, respectively, in the period in which the determination is made.

The factors that most significantly impact our effective tax rate include the levels of net earnings and certain deductions, including those related to equity-based compensation, ~~a full valuation allowance,~~ the effect of state income taxes, return to provision adjustments, and foreign tax rate differential. We expect that these factors ~~will continue to~~could cause our consolidated effective tax rate to differ significantly from the U.S. federal income tax rate in future periods.

The table below summarizes the results of our continuing operations for each of the periods presented. Historical results are not indicative of the results to be expected in the current period or any future period.

	Year Ended December 31,						$			%	Year Ended December 31,					$			%
	2019			2018			Change			Change	2021		2020			Change			Change
Statement of Operations Data:	(dollars in thousands, except Other Operating Data)										(dollars and billable tests in thousands, except per billable test data)
Revenue	$	32,528		$	21,351		$	11,177		52%	$	992,584	$	421,712		$	570,872		135%
Cost of revenue		14,107			10,697			3,410		32%		215,533		89,807			125,726		140%
Gross profit		18,421			10,654			7,767		73%		777,051		331,905			445,146		134%
Operating expenses:
Research and development		6,537			5,534			1,003		18%		24,219		11,580			12,639		109%
Selling and marketing		5,898			4,652			1,246		27%		24,439		14,952			9,487		63%
General and administrative		6,414			5,538			876		16%		50,732		15,215			35,517		233%
Amortization of intangible assets												1,708		—			1,708		*
Total operating expenses		18,849			15,724			3,125		20%		101,098		41,747			59,351		142%
Operating loss		(428	)		(5,070	)		4,642		(92)%
Operating income												675,953		290,158			385,795		133%
Interest and other income, net		837			434			403		93%		1,347		1,526			(179	)	(12)%
Income (loss) before income taxes and equity loss in investee		409			(4,636	)		5,045		(109)%
Income before income taxes, equity loss in investee and gain (loss) on equity-method investments												677,300		291,684			385,616		132%
Provision for income taxes		43			36			7		19%		174,795		72,532			102,263		141%
Income (loss) before equity loss in investee		366			(4,672	)		5,038		(108)%
Income before equity loss in investee and gain (loss) on equity-method investments												502,505		219,152			283,353		129%
Equity loss in investee		(777	)		(935	)		158		(17)%		—		(488	)		488		100%
Net loss	$	(411	)	$	(5,607	)	$	5,196		(93)%
Gain (loss) on equity-method investments												3,734		(4,354	)		8,088		186%
Net income from consolidated operations												506,239		214,310			291,929		136%
Net loss attributable to noncontrolling interests												1,125		—			1,125		*
Net income attributable to Fulgent											$	507,364	$	214,310		$	293,054		137%

Other Operating Data:
Billable tests delivered⁽¹⁾		58,573			22,298			36,275		163%		9,962		4,409			5,553		126%
Average price per billable test delivered⁽²⁾	$	555		$	958		$	(403	)	(42)%	$	100	$	96		$	4		4%
Cost per billable test delivered⁽³⁾	$	241		$	480		$	(239	)	(50)%	$	22	$	20		$	2		10%

Revenue increased ~~$11.2~~$570.9 million, or ~~52%~~135%, from ~~$21.4~~$421.7 million in ~~2018~~2020 to ~~$32.5~~$992.6 million in ~~2019.~~2021. The increase in revenue between periods was primarily due to an ~~increased~~increase in the number of COVID-19 billable tests delivered, ~~offset by~~as well as a ~~substantial decline in the~~higher average ~~selling~~ price per billable test.

The average price of the billable tests we delivered ~~decreased $403,~~increased $4, or ~~42%~~4%, from ~~$958~~$96 in ~~2018~~2020 to ~~$555~~$100 in ~~2019. We believe this decrease~~2021. The increase was due to ~~(i) lower price-points for the~~the mix of tests we delivered in ~~2019, (ii)~~ 2021 and the mix of customers ordering tests in ~~this period, which~~these periods, who may order tests at different rates depending on the arrangements we have negotiated with them, and for which we may recognize different amounts of revenue at different times in the delivery and payment process based on the impact of our revenue recognition policy on, and differing collectability rates among, various customer groups, and (iii) our reduction of prices for certain of our tests due to general price degradation for genetic tests and other competitive factors during 2019.them.

Revenue from non-U.S. sources ~~decreased $1.3~~increased $7.2 million, or ~~14%~~113%, from ~~$8.8~~$6.4 million in ~~2018~~2020 to ~~$7.5~~$13.6 million in ~~2019.~~2021. The ~~decrease~~increase in revenue from non-U.S. sources between periods ~~was~~were primarily due to ~~decreased~~increased sales of our traditional genetic testing services to customers in ~~Canada,~~China through FF Gene Biotech which ~~decreased by $1.7~~contributed $6.6 million ~~partially offset by an~~in total revenue in 2021.

The number of billable tests we delivered in 2021 increased approximately 5.6 million, from 4.4 million in 2020 to 10.0 million. The increases were primarily attributable to the expansion of our test menu, including our COVID-19 tests launched in 2020, and increase ~~of $481,000 in revenue from sales to customers in other countries. The decrease~~ in sales to ~~customers in Canada was primarily attributable to decreased sales to a few customers that contributed a significant portion~~certain of our ~~revenue in 2018 but ordered significantly fewer tests~~existing and ~~generated significantly less revenue to us in 2019.~~new customers.

Aggregating customers that are under common control, ~~or are affiliates,~~ one customer, the County of Los Angeles, contributed ~~28%~~26% of our revenue in ~~2019,~~2021, and ~~one customer~~two customers, the County of Los Angeles and San Bernardino County, contributed ~~13%,~~28% and 10% of our revenue in 2020. respectively ~~in 2018~~.

Cost of revenue increased ~~$3.4~~$125.7 million, or ~~32%~~140%, from ~~$10.7~~$89.8 million in ~~2018~~2020 to ~~$14.1~~$215.5 million in ~~2019.~~2021. The increase was primarily due to increases of ~~$2.5~~$43.3 million in reagent and supply expenses related to increased billable tests delivered, ~~$752,000~~$35.9 million in consulting and outside labor expense related to increase of outside labor for production 2021, $18.0 million in personnel costs and ~~$153,000 in stock-based~~equity-based compensation ~~expense~~ related to increased ~~headcount.~~headcount and the market price of the Company’s stock, $11.6 million in shipping and handling costs related to delivery of collection kits for of COVID-19 tests, $6.8 million in software expense related to usage of COVID-19 testing software, $5.8 million in depreciation related to medical lab equipment purchased, and $2.6 million in facilities primarily related to certain modifications made to our mini vans used for our COVID-19 business.

Cost per billable test delivered ~~decreased $239,~~increased $2, or ~~50%~~10% from ~~$480~~$20 in ~~2018~~2020 to ~~$241~~$22 in ~~2019~~2021 as ~~the~~the increase in our cost of revenue was greater than in the number of billable tests we delivered ~~was greater than the increase in our cost of revenue~~primarily due to ~~economies of scale~~increased shipping and handling costs for our at-home COVID-19 testing services and increased outside labor related to the increased number of billable tests for the period. The greater increase in the number of billable tests we delivered was primarily attributable to new customers. Our cost per billable test decreased in part due to our efforts to leverage our technology, such as engineered chemistry and competitive analytics powered by artificial intelligence and machine learning, for the increased number of billable tests during 2019.testing site operations.

Our gross profit increased ~~$7.8~~$445.1 million, or ~~73%~~134%, from ~~$10.7~~$331.9 million in ~~2018~~2020 to ~~$18.4~~$777.1 million in ~~2019.~~2021. The increase in gross profit was primarily due to anthe increase in revenue ~~between periods~~from our COVID-19 tests that exceeded the increase in cost of revenue ~~over the same period.~~described above. Our gross profit as a percentage of revenue, or gross margin, ~~increased~~decreased from ~~49.9%~~78.7% to ~~56.6% between periods~~78.3% due ~~in part~~ to the ~~increase in revenue and decreases in our~~increased cost per billable test ~~and cost of revenue described~~delivered for reasons stated above.

Research and development expenses increased ~~$1.0~~$12.6 million, or ~~18%~~109%, from ~~$5.5~~$11.6 million in ~~2018~~2020 to ~~$6.5~~$24.2 million in ~~2019.~~2021. The increase was primarily due to increases of ~~$879,000~~$8.8 million in personnel costs and ~~$291,000 in stock-based~~equity-based compensation ~~expense~~ related to increased headcount and ~~$141,000 in depreciation costs related to our increased efforts to maintain our technological advantage~~the market price of the Company’s stock and ~~expand our test menu, partially offset by a decrease of $410,000~~$2.0 million in reagent and supply expenses related to ~~additional consumables purchased in the prior period.~~increased reagent usage for COVID-19 research.

Selling and marketing expenses increased ~~$1.2~~$9.5 million, or ~~27%~~63%, from ~~$4.7~~$15.0 million in ~~2018~~2020 to ~~$5.9~~$24.4 million in ~~2019.~~2021. The increase was primarily due to increases of ~~$585,000~~$8.8 million in personnel costs and ~~$385,000 in stock-based~~equity-based compensation ~~expense~~ related to increased commission expense and market price of the Company’s stock ~~award granted to sales representative, $159,000~~, $2.4 million in ~~marketing materials cost related to increased billable tests delivered, and $95,000 in~~ consulting and outside labor ~~expense related to the increase of~~costs for increased outside labor ~~for customer services~~used, partially offset by a decrease of $2.4 million in ~~the current period.~~marketing supplies and related shipping costs.

General and administrative expenses increased ~~$876,000,~~$35.5 million, or ~~16%~~233%, from ~~$5.5~~$15.2 million in ~~2018~~2020 to ~~$6.4~~$50.7 million in ~~2019.~~2021. The increase was primarily due to increases of ~~$401,000~~$13.4 million in ~~legal~~personnel costs and ~~professional fees related to case settlement in the current period, $322,000 in merchant service fees~~equity-based compensation related to increased ~~revenue, $190,000 in personnel costs related to~~bonus accrued for executive officers, increased headcount and ~~$143,000~~the market price of the Company’s stock, $7.8 million additional provision for credit losses, $3.2 million in software and licensing related to ~~new billing software, partially offset by a decrease~~ increased number of ~~$125,000~~billings, $2.9 million in ~~bad debt~~consulting and $2.6 million in legal expenses related to ~~additional reserve for doubtful accounts~~business acquisitions and internal control compliance, $1.5 million in accounting expenses related to financial statement and internal control audit and reviews, $1.1 million in facility repair and maintenance, and $1.0 million in business insurance expenses.

Amortization of intangible assets represents amortization expenses on the ~~prior period.~~intangible assets arose from the business combinations and a patent purchased in 2021.

Interest income, net was ~~$871,000~~$1.3 million and ~~$578,000~~$1.5 million for ~~2019~~2021 and ~~2018,~~2020, respectively. This income mainly related to interest received on various investments in marketable ~~securities.~~securities and holding gain or loss on marketable equity securities.

Other income (expense) was not significant for ~~2019~~2021 or ~~2018.~~2020. The primary ~~component~~components of other income (expense) for ~~2019~~2021 and ~~2018 was~~2020 were rental income net of rental expenses and foreign currency ~~valuation~~exchange gains (losses).

~~We recorded~~Provision for income ~~tax of $43,000~~taxes were $174.8 million and ~~$36,000 for 2019~~$72.5 million in 2021 and ~~2018,~~2020, respectively. ~~Our~~The effective income tax rate was ~~10.5%~~25.8% and ~~0.7%~~24.9% of ~~loss~~income before income taxes for ~~2019~~2021 and ~~2018,~~2020, respectively. The ~~primary factors impacting our effective~~increase in tax ~~rate~~expense for ~~2019 were~~2021 relative to 2020 was primarily attributable to a significant increase in income for the effect of a full valuation allowance, return to provision adjustments, the foreign income tax rate differential, state income taxes, and certain expenses or adjustments related to equity-based compensation. For 2018, the primary factors impacting our effective tax were the effect of a full valuation allowance, state income taxes, changes in foreign tax laws and certain expenses or adjustments related to equity-based compensation.

~~We have evaluated the realizability~~ of our deferred tax assets and have concluded that it is more likely than not that we may not realize the benefit of the deferred tax assets, primarily as a result of operating losses in recent years and, accordingly, we have provided a full valuation allowance of $2.1 million and $1.4 million atyear ended December 31, 2019 and 2018, respectively. As a result, we did not record any federal or state income tax expense or benefit in the statement of operations, other than state minimum taxes. The temporary differences in existence for 2019 and 2018 are primarily from net operating losses, depreciation, research and development credits, equity-based compensation, our foreign joint venture investment, and the lease liability and related right of use asset.2021.

See Note 11, Income Taxes, to our consolidated financial statements included in this report for more information regarding our income taxes.

We recognized a gain of $3.7 million in ~~Investee~~2021 related to our preexisting equity interest at FF Gene Biotech as a result of remeasuring to fair value our 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 utilizing the discounted cash flow method.

~~Equity~~Impairment loss in ~~investee~~equity-method investments was ~~$777,000 and $935,000~~$4.4 million in ~~2019 and 2018, respectively, and relates~~2020 related to our 30% ownership interest in FF Gene ~~Biotech.~~Biotech and 25% ownership interest in BostonMolecules.

Equity loss in investee was $488,000 in 2020 related to our 30% ownership interest in FF Gene Biotech. There was no such loss in 2021.

Net loss attributable to noncontrolling interest represents net loss of FF Gene Biotech attributable to the minority shareholders, Xilong Scientific and FJIP.

We had ~~$12.0~~$935.5 millionand ~~$6.7~~$431.9 million in cash, ~~and~~ cash equivalents and marketable securities as of December 31, ~~2019~~2021 and ~~2018, respectively, and $58.3 million~~ ~~and $30.7 million in~~2020, respectively. Our marketable securities ~~consisting~~primarily consist of equity securities and corporate bonds,municipal bonds, and U.S. government and U.S. agency debt securities as of December 31, ~~2019~~2021 and ~~2018, respectively.~~2020.

~~Since~~Initially after commencing operations in May 2012, our operations ~~have been~~were financed primarily by our founder, Chief Executive Officer and Chairman of our board of directors, Ming Hsieh, and in more recent periods, by cash from our operations and equity financings.

Our primary uses of cash are to fund our operations as we continue to invest in and seek to grow our business. Cash used to fund operating expenses is impacted by the timing of our expense payments, as reflected in the changes in our outstanding accounts payable and accrued expenses. ~~In addition, in April 2017, in connection with the establishment of FF Gene Biotech,~~

On August 30, 2019, we became obligated to contribute to FF Gene Biotech genetic sequencing and other equipment with a total cost of 60,000,000 RMB over a five-year period, previously three-year per original agreement and amended in April 2019. To date, we have purchased and contributed to FF Gene Biotech equipment with an aggregate fair value of $3.1 million pursuant to these contribution obligations, of which $137,000 and $510,000 were contributed in 2019 and 2018, respectively. Depending on the performance of FF Gene Biotech, this joint venture may never produce sufficient revenue to us to recover these capital and other investments and could cause our revenue t o decrease if any of our direct customers in Asia choose to order genetic tests from FF Gene Biotech instead of from us, any of which could negatively affect our liquidity and cash flow. In addition, although we have in the past made cash distributions for tax and other purposes to the equity holders of our predecessor, we do not expect to use our cash make these or any other types of distributions or dividends in the foreseeable future.

~~In August 2019, the Company~~ entered into an Equity Distribution Agreement, or the 2019 Equity Distribution Agreement, with Piper, ~~Jaffray & Co.,~~ as sales agent, ~~(“Piper”), pursuant to~~ which the Company may offer and sell, from time to time through Piper, shares of its common stock having an aggregate offering price of up to $30.0 million. Piper is eligible to receive a commission of up to 3% of gross proceeds received by the Company for sales pursuantwas subsequently amended on August 4, 2020. Pursuant to the 2019 Equity Distribution ~~Agreement. During the year ended December 31, 2019, the Company~~Agreement, we offered and sold an aggregate of ~~104,390~~104,000 shares of ~~its~~our common stock ~~pursuant to the Equity Distribution Agreement~~ at a weighted-average net selling price of ~~$12.14~~$9.37 per share, which resulted in $979,000 of net proceeds to the ~~Company.~~Company during the year ended December 31, 2019, and we sold an aggregate of 1.1 million shares of our common stock at a weighted-average net selling price of $38.50 per share, which resulted in $42.7 million of net proceeds to the Company during the year ended December 31, 2020. Shares sold under the 2019 Equity Distribution Agreement ~~are~~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 a prospectus ~~supplement~~supplements and accompanying base prospectus filed with the ~~Securities and Exchange Commission~~SEC on August 30, ~~2019.~~2019, May 6, 2020 and August 5, 2020.

On November 13, 2019, we entered into a ~~Purchase Agreement~~purchase agreement with Piper, ~~Jaffray & Co.,~~ as representative of the several underwriters, pursuant to which we sold ~~2,673,750~~2.7 million shares of our common stock at a price of ~~$10.51875~~$10.52 per share, with a public offering price of $11.25 per share. We received net proceeds of approximately $27.6 million, after deducting underwriting discounts and commissions and offering expenses paid or payable by us of approximately $2.4 ~~million~~.million. The shares issued and sold in the underwritten offering were sold pursuant to ~~a shelf registration statement registered under~~ the ~~Securities Act on a~~Company’s registration statement on Form S-3 (File No. 333-233227), ~~as amended,~~ and a prospectus supplement and accompanying base prospectus filed with the ~~Securities and Exchange Commission~~SEC on November 13, 2019.

53On September 25, 2020, we entered into the September 2020 Equity Distribution Agreement, with Piper as sales agent, pursuant to which we offered and sold an aggregate of 2.8 million shares of our 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.

We believe our existing cash, cash equivalent, short-term marketable securities, along with cash from ~~our~~ operations and proceeds from our equity financings, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. Much of the losses we have incurred in certain prior periods were attributable to a variety of non-cash charges, including equity-based compensation expenses. As a result, in spite of the losses we recorded during these periods, cash provided by continuing operations has been mostly positive since 2015 and has significantly contributed to our ability to meet our liquidity needs, including paying for capital expenditures. Additionally, if our business ~~grows~~continues to grow and we are able to achieve increased efficiencies and economies of scale in line with this growth, we expect ~~that~~ increased revenue levels would increase our ability to rely on cash from our operations to

support our business in future periods, even if our expenses also increase as a result of the growth of our business. Based on these factors, we anticipate that cash from our operations will continue to play a meaningful role in our ability to meet our liquidity requirements and pursue our business plans and strategies induring the next 12 months and in the longer term.

However, our expectations regarding the cash that may be provided by our operations and our cash needs in future periods could turn out to be wrong, in which case we may require additional financing to support our operations, as we do not presently have any commitments for future capital.For instance, cash provided by our operations has in the past experienced fluctuations from period to period, which we expect may continue in the future. These fluctuations can occur because of a variety of factors, including, among others, factors relating to the ongoing COVID-19 pandemic, the amount and timing of sales of billable tests, the prices we charge for our tests due to changes in product mix, customer mix, general price degradation for ~~genetic~~ tests or other factors, the rate and timing of our billing and collections cycles and the timing and amount of our commitments and other payments. Moreover, even if our liquidity expectations are correct, we may still seek to raise additional capital through securities offerings, credit facilities or other debt financings, asset sales or collaborations or licensing arrangements. ~~Additional funding may not be available to us when needed, on acceptable terms or at all.~~

If we raise funds by issuing equity securities, our existing stockholders could experience substantial dilution. Additionally, any preferred stock we issue could provide for rights, preferences or privileges senior to those of our common stock, and our issuance of any additional equity securities, or the possibility of such an issuance, could cause the market price of our common stock to decline. The terms of any debt securities we issue or borrowings we incur, if available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt or issue additional equity or other restrictions that could adversely affect our ability to conduct our business, and would result in increased fixed payment obligations. If we seek to sell assets or enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms or relinquish or license to a third party our rights to important or valuable technologies or tests we may otherwise seek to develop ourselves. Moreover, we may incur substantial costs in pursuing future capital, including investment banking, legal and accounting fees, printing and distribution expenses and other similar costs. Additional funding may not be available to us when needed, on acceptable terms or at all. For example, the COVID-19 pandemic caused extreme disruption and volatility in the global capital markets, which could reduce our ability to access capital. If we are not able to secure funding if and when needed and on reasonable terms, we may be forced to delay, reduce the scope of or eliminate one or more sales and marketing initiatives, research and development programs or other growth plans or strategies. In addition, we may be forced to work with a partner on one or more aspects of our tests or market development programs or initiatives, which could lower the economic value to us of these tests, programs or initiatives. Any such outcome could significantly harm our business, performance and prospects.

The following table summarizes cash flows from continuing operations for each of the periods presented:

Cash provided by operating activities in ~~2019~~2021 was ~~$5.5~~$538.6 million. The difference between net ~~loss~~income and cash provided by operating activities for the period was primarily due to the effect of ~~$3.2~~$15.9 million in equity-based compensation expenses and ~~$2.1~~$11.0 million in the depreciation and amortization. Cash provided by operating activities decreased between periods primarily due to decreases of $52.5 million in income tax payable due to tax payments made during the current period and $12.2 million in accounts payable partially offset by the negative impact ofa decrease of $42.3 million in accounts receivable mainly due to the timing of collections from customers and an increase of $13.1 million in accrued and other liabilities primary due to increased customer deposits and bonus accrual.

Cash provided by operating activities in 2020 was $140.6 million. The difference between net income and cash provided by operating activities for the period was primarily due to the effect of $8.2 million in equity-based compensation expenses, $4.4 million in impairment loss from equity-method investments and $3.0 million in the depreciation of assets. Cash provided by operating activities decreased between periods primarily due to the negative effect of ~~a $839,000~~ ~~increase in accounts receivable mainly due to the timing~~increases of ~~collections from customers.~~

~~Cash used in operating activities in 2018 was $675,000. The difference between net loss and cash used in operating activities for the period was primarily due to the effect of $2.3~~$178.5 million ~~in equity-based compensation expenses and $2.2 million in the depreciation of assets. Cash used in operating activities decreased between periods primarily due to the negative effect of a $2.0 million~~ ~~increase~~ in accounts receivable mainly due to the timing of collections from customers and $21.1 million in other current assets related to purchases of an increased amount of reagents and supplies, partially offset by ~~the positive effect~~increases of $53.3 million in income tax payable due to a ~~$533,000~~significant increase in income,

$32.7 million in accrued and other liabilities ~~mainly~~ related to ~~payroll~~contract liabilities, and ~~contract liabilities.~~$22.6 million in accounts payable mainly due to timing of payments.

Cash used in investing activities in ~~2019~~2021 was ~~$29.0~~$546.5 million, which primarily related to ~~$52.1~~$710.5 million in purchases of marketable securities, ~~$1.2~~$61.9 million related to business acquisitions, $23.8 million related to purchase of fixed assets consisting mainly medical laboratory equipment and building improvement, and $20.0 million related to purchase of redeemable preferred stock, partially offset by proceeds of $185.7 million related to sales of marketable securities and $83.8 million related to maturities of marketable securities.

Cash used in investing activities in 2020 was $326.4 million, which primarily related to $324.4 million in purchases of marketable securities, $35.1 million in purchases of fixed assets consisting mainly of medical laboratory equipment, real property located in El Monte, California, a 2008 Cessna Citation Sovereign aircraft, computer hardware and ~~leasehold~~building and land improvements, $2.6 million in investment in BostonMolecules and ~~purchased~~direct costs associates with the investment, and purchase equipment with an aggregate fair value of ~~$137,000~~$1.4 million contributed to FF Gene Biotech, partially offset by maturities of ~~$24.4~~$19.9 million of marketable ~~securities.~~

~~Cash provided by investing activities in 2018 was $950,000, which primarily related to maturities~~debt securities and proceeds of ~~$28.0~~$17.1 million from sales of marketable securities, partially offset by $24.2 million in purchases of marketable securities, $2.3 million in purchases of fixed assets consisting mainly of medical laboratory equipment, computer hardware and leasehold improvements, and purchased equipment with an aggregate fair value of $510,000 contributed to FF Gene Biotech.securities.

Cash provided by financing activities in ~~2019~~2021 was ~~$28.8~~$85.4 million, which primarily related to $89.5 million proceeds from the November 2020 Equity Distribution Agreement, partially offset by $4.2 million in common stock withholding for employee tax obligations.

Cash provided by financing activities in 2020 was $261.3 million, which primarily represents net proceeds from sales of shares of our ~~at-the-market offering~~common stock made pursuant to various equity distribution agreements with Piper and $15.0 million borrowed from a margin loan collateralized by marketable debt securities held by the Company, to purchase real property located in ~~August 2019~~El Monte, California.

As of December 31, 2021, we have an outstanding balance of $15.1 million in our ~~underwritten offering~~margin account and $6.1 million in ~~November 2019.~~notes payable which is payable on December 31, 2022.

~~Cash provided by financing activities in 2018 was minimal.~~The following summarizes our contractual obligations as of December 31, 2021:

This discussion and analysis is based on our consolidated financial statements included in this report, which have been prepared in accordance with ~~generally accepted accounting principles in the United States of America,~~U.S. Generally Accepted Accounting Principles, or U.S. GAAP. The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments and assumptions and decisions that affect the reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates. In making these estimates and assumptions and reaching these decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including historical data and experience available at the date of the consolidated financial statements, as well as various other factors management believes to be reasonable under the ~~circumstances.~~circumstances, including but not limited to valuation of intangible assets and goodwill in recent business combinations and 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, our estimates and assumptions may evolve as conditions change. Actual results could differ from our estimates. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in our consolidated financial statements.

While our significant accounting policies are described in more detail in the notes to the consolidated financial statements included in this report, we believe the accounting policies discussed below used in the preparation of our consolidated financial statements require the most significant estimates, judgments, assumptions and decisions.

We generate revenue from sales of our COVID-19, molecular diagnostic and genetic ~~tests.~~testing services. We currently receive payments from: insurance, institutional customers, including hospitals, ~~and~~ medical institutions, ~~with which we have direct-bill relationships; research institutions; individual~~other laboratories, governmental bodies, municipalities and large corporations, and patients ~~and third-party payors.~~who pay directly.

We recognize revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of promised goods or services to our customers. To determine revenue recognition for contracts with customers, the Company performs the following steps: (1) identifies the contract with the customer, (2) identifies the performance obligations in the contract, (3) determines the transaction price, (4) allocates the transaction price to the performance obligations in the contract, and (5) recognizes revenue when (or as) the entity satisfies a performance obligation.

Our test results are primarily delivered ~~electronically, and as such there are no~~electronically. We bill certain customers for shipping and handling fees incurred by us orassociated with COVID-19 tests, and shipping and handling fees billed to ~~customers. Our sales~~customers are included in revenue, and shipping and handling fees incurred are included in cost of revenue in the accompanying Consolidated Statements of Operations.

While the transaction price is typically ~~exempt~~stated within the contract, we may accept payments from ~~state sales taxation due~~third-party payors that are less than the contractually stated price and is therefore variable consideration. Accounting for insurance contracts includes estimation of the transaction price, defined as the amount we expect to be entitled to receive in exchange for providing the services under the contract. Due to our out-of-network status with the majority of insurance payors for COVID-19 tests, estimation of the transaction price represents variable consideration. We estimate that the variable consideration paid by insurance payors will approximate our self-pay rate for COVID-19 tests that is published on our website, which is the rate established by the Center for Medicare & Medicaid Services, as supported by a historical reimbursement trend analysis.

The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates and assumptions. The acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill.

Long-lived assets, including property and equipment and intangible assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected from an asset and its eventual disposition is less than the carrying amount.

We evaluate goodwill annually or more frequently if events or changes in circumstances indicate that goodwill may be impaired. In accordance with guidance related to impairment testing, we have the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment option is not elected, or if the qualitative assessment indicates that it is more likely than not that the fair value is less than its carrying amount, a quantitative analysis is then performed. The quantitative analysis, if performed, compares the fair value of the reporting unit with its respective carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If the fair value is less than the carrying amount, including goodwill, then an impairment adjustment must be recorded up to the ~~nature~~carrying amount of ~~the results delivered. As a result, we do not charge customers state sales tax.~~goodwill.

See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in this report for information about recent accounting pronouncements.

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable to public companies that are not emerging growth companies, including an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to “opt out” of this extended transition period and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable. We will remain an emerging growth company until December 31, 2021, unless our gross revenue exceeds $1.07 billion in any fiscal year before that date, we issue more than $1.0 billion of non-convertible debt in any three-year period before that date or the market value of our common stock held by non-affiliates exceeds $700.0 million as of the last business day of the second fiscal quarter of any fiscal year before that date.

We did not have, ~~during the periods presented,~~ and we do not currently have, any off-balance sheet arrangements during the periods presented, as defined in the rules and regulations of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

The information required by this Item 8 immediately follows the signature page to this report and is incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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, ~~2019.~~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, ~~2019.~~2021.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company, as this term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As required by Rules 13a-15(c) and 15d-15(c) under the Exchange Act, our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019, based on the criteria set forth in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

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

There has been no change in our internal control over financial reporting during the quarter ended December 31, ~~2019,~~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.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021. Management reviewed the results of its assessment with our Audit and Compliance Committee. The effectiveness of our internal control over financial reporting, excluding controls at components, as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K.

As permitted by the Securities and Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition. In August 2021, we acquired CSI. Pursuant to applicable rules, because we have not yet fully incorporated the internal controls and procedures of the acquired entity into our internal control over financial reporting, management excluded certain elements related to the acquired business from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2021. The excluded elements of the CSI business represented 2% of our revenue and 6% of our total assets as of and for the year ended December 31, 2021.

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

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

possible controls and procedures relative to their costs. 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.

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.

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.

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.

The information required by this item is incorporated by reference to the definitive proxy statement for our ~~2020~~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, ~~2019.~~2021.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

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

All financial statement schedules have been omitted, as they are not required, not applicable, or the required information is otherwise included.

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.

Exhibit

Number

Description

Form

File Number

Incorporated by

Reference Exhibit

Filing Date

Filed

Herewith

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

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

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

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

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

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

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

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

001-37894

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

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

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

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

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

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

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

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

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

Form of Option Substitution Award under the 2016 Omnibus Incentive Plan of the registrant.

S-1

333-213469

10.9

9/2/2016

Exhibit

Number

Description

Form

File Number

Incorporated by

Reference Exhibit

Filing Date

Filed

Herewith

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 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

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

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

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

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

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

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

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

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

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

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

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-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-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

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.

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.

We have audited the accompanying consolidated balance sheets of Fulgent Genetics, Inc. and subsidiaries (the "Company") as of December 31, ~~2019~~2021 and ~~2018,~~2020, the related consolidated statements of operations, comprehensive ~~loss,~~income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, ~~2019 and 2018,~~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, ~~2019~~2021 and ~~2018,~~2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2019 and 2018,~~2021, in conformity with accounting principles generally accepted in the United States of ~~America~~.America.

~~Adoption~~We have also audited, in accordance with the standards of ~~New~~the Public Company Accounting ~~Standard~~

~~As discussed~~Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in ~~Note 9 to~~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 ~~statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), and the related amendments.~~reporting.

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 ~~Public Company Accounting Oversight Board (United States) (PCAOB)~~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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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

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

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.

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

	December 31,						December 31,
	2019			2018			2021			2020
Assets
Current assets
Cash and cash equivalents	$	11,965		$	6,736		$	164,894		$	87,426
Marketable securities		16,304			24,298			285,605			211,941
Trade accounts receivable, net of allowance for doubtful accounts of $751 and $590, as of December 31, 2019 and 2018, respectively		6,555			5,948
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		2,255			2,561			22,549			40,392
Total current assets		37,079			39,543			611,960			523,616
Marketable securities, long-term		41,947			6,386			485,047			132,502
Equity method investments		872			1,512
Redeemable preferred stock investment								21,965			—
Fixed assets, net		5,974			6,446			62,287			40,199
Operating lease right-of-use asset		2,633			—
Intangible assets, net								35,914			—
Goodwill								50,897			—
Other long-term assets		251			17			10,650			4,144
Total assets	$	88,756		$	53,904		$	1,278,720		$	700,461
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	1,581		$	1,313		$	20,494		$	26,488
Accrued liabilities		1,333			1,259			17,689			8,446
Income tax payable		24			—			787			53,319
Contract liabilities		365			166			14,570			26,576
Operating lease liabilities, short-term		420			—
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		3,723			2,738			105,310			130,115
Operating lease liabilities, long-term		2,256			—
Unrecognized tax benefits								725			377
Other long-term liabilities		—			14			6,805			582
Total liabilities		5,979			2,752			112,840			131,074
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock, $0.0001 par value per share, 50,000 shares authorized, 21,483 and 18,172 shares issued and outstanding at December 31, 2019 and 2018, respectively		2			2
Preferred stock, $0.0001 par value per share, 1,000 shares authorized, no shares issued or outstanding at December 31, 2019 and 2018		—			—
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, 0 shares issued or outstanding at December 31, 2021 and 2020								—			—
Additional paid-in capital		146,058			114,203			501,908			418,065
Accumulated other comprehensive income (loss)		146			(35	)
Accumulated deficit		(63,429	)		(63,018	)
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		82,777			51,152			1,165,880			569,387
Total liabilities and stockholders’ equity	$	88,756		$	53,904		$	1,278,720		$	700,461

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

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

Year Ended December 31,

2019

2018

Net loss
$
(411
)

$
(5,607
)
Other comprehensive income (loss)

Foreign currency translation loss

(17
)

(44
)
Net unrealized gain on marketable securities, net of tax

198

53

Comprehensive loss
$
(230
)

$
(5,598
)

	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.

	Stockholders' Equity																	Fulgent Stockholders' Equity
	Shares			Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total 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 December 31, 2017		17,847		$	2	$	111,884		$	(44	)	$	(57,664	)	$	54,178
Equity-based compensation		—			—		2,304			—			—			2,304
Exercise of common stock options		40			—		15			—			—			15
Restricted stock awards		285			—		—			—			—			—
Cumulative effect of accounting change		—			—		—			—			327			327
Cumulative tax effect of accounting change		—			—		—			—			(74	)		(74	)
Other comprehensive gain, net		—			—		—			9			—			9
Net income (loss)		—			—		—			—			(5,607	)		(5,607	)
Balance at December 31, 2018		18,172			2		114,203			(35	)		(63,018	)		51,152
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			—			—			3,209			—			3,209
Exercise of common stock options		100			—		38			—			—			38			100			—		38			—			—			38			—			38
Restricted stock awards		434			—		—			—			—			—			434			—		—			—			—			—			—			—
Issuance of common stock at an average of $9.37 per share, net		104			—		979			—			—			979			104			—		979			—			—			979			—			979
Issuance of common stock at an average of $10.34 per share, net		2,674			—		27,650			—			—			27,650			2,674			—		27,650			—			—			27,650			—			27,650
Repurchases of capital stock		(1	)		—		(21	)		—			—			(21	)
Common stock withholding for employee tax obligations																			(1	)		—		(21	)		—			—			(21	)		—			(21	)
Other comprehensive gain, net		—			—		—			181			—			181			—			—		—			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)		—			—		—			—			(411	)		(411	)		—			—		—			—			507,364			507,364			(1,125	)		506,239
Balance at December 31, 2019		21,483		$	2	$	146,058		$	146		$	(63,429	)	$	82,777
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.

	Year Ended December 31,						Year Ended December 31,
	2019			2018			2021			2020			2019
Cash flow from operating activities:
Net loss	$	(411	)	$	(5,607	)
Adjustments to reconcile net loss to net cash provided by (used in) 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		3,209			2,304			15,882			8,157			3,209
Depreciation		2,107			2,163
Depreciation and amortization								11,004			2,962			2,107
Noncash lease expense		413			—			1,154			409			413
Loss on disposal of fixed asset		11			88			850			672			11
Amortization of premium of marketable securities		106			297			7,596			857			106
Provision for bad debt		189			309
Provision for credit losses								8,931			1,170			189
Deferred taxes		(21	)		36			(8,188	)		(1,775	)		(21	)
Unrecognized tax benefits								348			377			—
Net loss on marketable securities								1,186			90			—
Equity loss in investee		777			935			—			488			777
(Gain) loss in equity-method investments								(3,734	)		4,354			—
Other		52			44			(15	)		8			52
Changes in operating assets and liabilities:
Accounts receivable		(839	)		(1,970	)		42,300			(178,480	)		(839	)
Other current and long-term assets		374			91			7,804			(21,149	)		374
Accounts payable		(329	)		102			(12,206	)		22,617			(329	)
Accrued liabilities and other current liabilities		264			533
Accrued liabilities and other liabilities								13,081			32,655			264
Income tax payable		24			—			(52,532	)		53,295			24
Operating lease liabilities		(409	)		—
Net cash provided by (used in) operations		5,517			(675	)
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		(1,182	)		(2,322	)		(23,812	)		(35,130	)		(1,182	)
Purchases of intangible assets								(32	)		—			—
Proceeds from sale of fixed assets								63			8			—
Purchase of marketable securities		(52,077	)		(24,187	)		(710,490	)		(324,359	)		(52,077	)
Purchase of redeemable preferred stock								(20,000	)		—			—
Maturities of marketable securities		24,350			27,969			83,842			19,919			24,350
Purchase of equipment contributed to Equity Method Investee		(137	)		(510	)
Net cash (used in) provided by investing activities		(29,046	)		950
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		28,758			—			89,475			246,190			28,758
Proceeds from noncontrolling interest								10			—			—
Proceeds from exercise of stock options		38			15			86			104			38
Repurchases of capital stock		(21	)		—
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		28,775			15			85,405			261,251			28,775
Effect of exchange rate changes on cash and cash equivalents		(17	)		(44	)		34			20			(17	)
Net increase in cash and cash equivalents		5,229			246			77,468			75,461			5,229
Cash and cash equivalents at beginning of period		6,736			6,490			87,426			11,965			6,736
Cash and cash equivalents at end of period	$	11,965		$	6,736		$	164,894		$	87,426		$	11,965
Supplemental disclosures of cash flow information:
Income taxes paid	$	20		$	1		$	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	$	557		$	85		$	1,075		$	3,402		$	557
Operating lease right-of-use assets obtained in exchange for lease liabilities	$	110		$	—		$	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	$	129		$	—		$	5		$	359		$	129

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

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”).~~GAAP. These financial statements include the assets, liabilities, revenues and expenses of all ~~wholly-owned~~ subsidiaries and entities in which the Company has a controlling financial interest or is deemed to be the primary beneficiary. In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both ~~(1)~~(i) the power to direct the economically significant activities of the entity and ~~(2)~~(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.

Fulgent Genetics, Inc., together with its subsidiaries ~~(collectively~~and an affiliated professional corporation, or PC, collectively referred to as the ~~“Company,”~~Company, unless otherwise noted or the context otherwise ~~requires),~~requires, is a ~~growing~~ technology company ~~with an initial focus on~~ offering large-scale COVID-19 testing services, molecular diagnostic testing services and comprehensive genetic testing designed to provide physicians with clinically actionable diagnostic information ~~they can use~~ to improve the quality of patient ~~care (the “Diagnostics business”). In 2019,~~care. The PC was established in November 2021, with which the Company ~~launched~~has a management services arrangement, and the PC provides professional pathology and related professional services to its ~~first patient-initiated product, Picture Genetics, a new line~~patients. A cornerstone of ~~at-home screening tests combines~~ the Company’s ~~advanced NGS solutions with actionable results~~business is its ability to provide expansive options and ~~genetic counseling options~~flexibility for ~~individuals. The~~all clients’ unique testing needs. To this end, the Company has developed a proprietary technology platform ~~that allows~~allowing it to offer a broad and flexible test menu and to continually expand and improve its proprietary genetic reference ~~library. The Company’s test menu currently includes~~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 and~~tests; pre-established, multi-gene, disease-specific panels; and customized panels that ~~collectively test for many genetic conditions, including various cancers, cardiovascular diseases, neurological disorders and pediatric conditions. The Company’s existing~~can be tailored to meet specific customer ~~base consists primarily of hospitals and medical institutions, which are typically frequent and high-volume users of genetic tests and which often pay the Company directly for its tests.~~needs.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments ~~assumptions~~ and ~~decisions~~assumptions that affect the reported amounts of assets and ~~related disclosures, including~~liabilities at the ~~selection~~date of ~~appropriate accounting policies~~the financial statements, as well as the reported amounts of revenue and expenses during the ~~assumptions on which to base accounting estimates. In making these~~reporting periods. These estimates, judgments and assumptions ~~and reaching these decisions, the Company applies judgment~~are based on ~~its understanding and analysis of the relevant circumstances, including~~ historical data and experience available at the date of the accompanying consolidated financial statements, as well as various other factors management believes to be reasonable under the ~~circumstances.~~circumstances, including but not limited to the potential impacts arising from the recent global pandemic related to COVID-19. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from these estimates.

On an on-going basis, management evaluates its estimates, primarily those related to: (i) revenue recognition criteria, (ii) accounts receivable and allowances for ~~doubtful accounts,~~credit losses, (iii) the useful lives of fixed assets and intangible assets, (iv) estimates of tax liabilities, and (v) ~~the~~ valuation of ~~equity-based awards.~~

The accompanying consolidated financial statements include the accounts of the Company and its ~~wholly-owned subsidiaries.~~ subsidiaries and PC. All intercompany transactions and balances have been eliminated in consolidation.

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.

Accounts receivable are stated at the amount the Company expects to collect. The Company performs credit evaluations of its customers and generally does not require collateral. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information that assists in management’s evaluation. The Company writes off accounts receivable following a review by management and a determination that the receivable is uncollectible.

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

All marketable debt securities, which consist of corporate debt securities, ~~United States Treasury and~~municipal bonds, U.S. government and agency debt securities, and Yankee debt securities issued by foreign governments or entities and denominated in U.S. dollars have been classified

as ~~“available for sale”~~“available-for-sale,” and are carried at fair value. ~~Unrealized~~Net unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive ~~loss~~income (loss) and reported as a separate component of stockholders’ equity until realized. Realized gains and losses ~~and declines in value judged to be other than temporary, if any,~~ on marketable debt securities are included in interest and other income, ~~(expense), net.~~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 ~~income.~~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 regularly evaluates whether declines~~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 ~~fair value~~accompanying Consolidated Statements of ~~its investments below their~~Operations. The cost ~~are other than temporary. The evaluation includes consideration~~ of any marketable equity securities sold is based on the ~~cause of the impairment, including the creditworthiness of the security issuers, the number of~~specific-identification method.

For available-for-sale debt securities, in an unrealized loss, ~~position,~~ the ~~severity~~Company determines whether a credit loss exists. The credit loss is estimated by considering available information relevant to the collectability of the security and ~~duration~~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 ~~losses, whether~~loss. If the Company has ~~the~~an intent to sell, ~~the securities, and whether~~or if it is more likely than not that the Company will be required to sell ~~the securities~~a debt security in an unrealized loss position before ~~the~~ recovery of ~~their~~its amortized cost ~~basis. If~~basis, the Company ~~determines~~will write down the security to its fair value and record the corresponding charge as a component of interest and other income, net.

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 ~~decline~~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:

The redeemable preferred stock investment of $22.0 million as of December 31, 2021 represents the fair value of anredeemable preferred stock of Laboratory for Advanced Medicine, Inc., or Helio Health, that the Company purchased in July 2021. The investment is ~~below its accounting basis~~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 ~~this decline is~~reported in other ~~than temporary,~~comprehensive income (loss) as of December 31, 2021. Since the Company intends on holding the preferred stock, and preferred stock is not redeemable until July 2027, the investment is recorded as a long-term investment.

Fixed assets are recorded at cost, net of accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the shorter of their expected lives or the applicable lease term, including renewal options, if available. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred. See Note 5, Fixed Assets, for useful lives for each major class of fixed assets.

Intangible assets 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.

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 ~~reduce~~use in pricing the ~~carrying~~asset or liability.

Goodwill is not amortized but is subject to impairment tests on an annual basis or more frequently if indicators of potential impairment exist, and goodwill is written down when it is determined to be impaired. The Company typically performs an annual impairment review in the fourth quarter of each fiscal year unless one had been performed previously within the past 12 months and compares the fair value of the ~~security it holds and record a loss for~~reporting unit in which the goodwill resides to its carrying value.

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 0 such ~~decline.~~ impairment losses.

The Company ~~has not recorded any realized losses~~maintains reagents and other consumables primarily used in sample collections and testing which are valued at the lower of cost or ~~declines~~net realizable value. Cost is determined using actual costs on a first-in, first-out basis. The reagents and other consumables were included in ~~value judged to be~~ other ~~than temporary on its investments.~~current assets in the accompanying Consolidated Balance Sheets.

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

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 ~~cash equivalents.~~equity securities. As of December 31, ~~2019,~~2021, substantially all of the Company’s cash and cash equivalents were deposited in accounts at financial institutions,

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

In certain periods, a small number of customers has accounted for a significant portion of the Company’s revenue. Aggregating customers ~~that are~~ under common control, ~~or are affiliates, one~~1 customer comprised 26% of total revenue in the year ended December 31, 2021, 2 customers comprised 28% and 10% of total revenue in the year ended December 31, 2020, and 1 customer comprised 28% of total revenue in the year ended December 31, ~~2019, and one customer comprised 13% of total revenue in the year ended December 31, 2018. No~~2019. NaN customer comprised at least 10% of total accounts receivable as of December 31, ~~2019. One customer comprised 18% of total accounts receivable as of December 31, 2018.~~

~~Revenue from the U.S. government was less than 10% of total revenue in each of the years ended December 31, 2019~~2021 and ~~2018.~~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 ~~encounters~~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.

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.

The Company determines if an arrangement is a lease at ~~inception.~~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 ~~leases~~and finance lease right-of-use assets, or ROU assets, short-term lease liabilities, and long-term lease liabilities are included ~~as operating lease right-of-use (“ROU”)~~in other long-term assets, ~~operating lease~~other current liabilities, ~~short-term,~~ and ~~operating lease~~other long-term liabilities, ~~long-term, on~~respectively, in the ~~Company’s~~accompanying Consolidated Balance Sheets.

Lease ROU ~~lease~~ assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ~~Operating~~Lease ROU ~~lease~~ assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, including options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company uses its incremental borrowing rate based on the information available at the commencement date, including inquiries with its bank, in determining the present value of lease payments since its leases do not provide an implicit rate. ~~The~~Lease ROU assets consist of initial measurement of lease ~~asset includes~~liabilities, any ~~base rent~~lease payments made to lessor on or before the lease commencement date, minus any lease incentive received, and ~~excludes~~any initial direct costs incurred by the Company. Operating lease ~~incentives and variable operating expenses. Lease~~ expense for lease payments is recognized on a straight-line basis over the lease term.

~~Fixed~~ For finance lease, ROU assets are ~~recorded~~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 ~~cost, net~~the acquisition dates as if an acquired lease were a new lease at the date of ~~accumulated depreciation and amortization. Depreciation is recorded~~acquisition using the ~~straight-line method~~Company’s incremental borrowing rate unless the discount rate

is implicit in the lease. The Company elects to not to recognize assets or liabilities as of the acquisition dates for leases that, on the acquisition dates, have a remaining lease term of 12 months or less. The Company also retains the acquirees’ classification of the leases if there are no modifications as part of the business combinations.

The Company leases and subleases out space in buildings it owns or leases to third-party tenants or subtenants under noncancelable operating leases. The Company recognizes lease payments as income over the ~~estimated useful lives~~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 the assets, which is generally between three and five years. Leasehold improvements are capitalized and amortized over the shorter of their expected lives or the applicable lease term, including renewal options, if available. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred.Operations.

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 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~~1 reporting segment.

The Company generates revenue from sales of its COVID-19, molecular diagnostic and genetic ~~tests.~~testing services. The Company currently receives payments ~~from:~~from primarily 3 different customer types: insurance, institutional customers, including hospitals, ~~and~~ medical institutions, ~~with which it has direct-bill relationships; research institutions; individual~~other laboratories, governmental bodies, municipalities and large corporations, and patients ~~and third-party payors.~~who pay directly.

The Company’s test results are delivered electronically, and as such there are no shipping and handling fees incurred by it or billed to customers. The Company’s sales are typically exempt from state sales taxation due to the nature of the results delivered. As a result, the Company currently does not charge customers state sales tax and continues to assess.

~~Effective January 1, 2018, the Company began recognizing revenue in accordance with FASB ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~ (“ASC 606”). The Company adopted ASC 606 utilizing the modified retrospective method, meaning the cumulative effect of applying the standard was recognized to opening retained earnings as of January 1, 2018. To reflect the impact of the adoption, the Company recorded an adjustment of $327,000 to beginning accumulated deficit and accounts receivable and an adjustment of ($74,000) to beginning accumulated deficit and deferred taxes. Under ASC 606, the Company recognizes revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for the transfer of promised goods or services to its customers. To determine revenue recognition for contracts with customers, ~~that are within the scope of ASC 606,~~ the Company performs the following ~~steps:~~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.~~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 shipping 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.

The Company’s ~~clinical~~ institutional contracts ~~included within genetic~~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 ~~we refer~~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, ~~medical or research institutions,~~ the transaction price is stated within the contract and is therefore fixed consideration. For most of the Company’s ~~clinical~~testing volume, wethe Company identified the ~~hospital,~~institutions, including hospitals, medical institutions, other laboratories, governmental bodies, municipalities and large corporations, and patients ~~medical or research institutions~~ as the customer in Step 1 ~~of the model~~ and have determined a contract exists with those customers in Step 1. As these contracts typically have a single performance obligation, no allocation of the transaction price is required in Step ~~4 of the model.~~4. Control over ~~genetic~~ testing services is transferred to the Company’s ordering facility at a point in time. Specifically, wethe Company determined the customer obtains control of the promised service upon delivery of test results.

The Company’s ~~clinical~~ insurance contracts ~~included within genetic~~for testing services typically have a single performance obligation to deliver ~~genetic~~ testing services to the ordering facility or patient. For most of the Company’s ~~clinical~~ insurance volume, wethe Company identified the patient as the customer in Step 1 ~~of the model~~ and ~~have~~ determined a contract exists with the patient in Step 1. In arrangements with insurance patients, the transaction price is typically stated within the contract, however, wethe 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, ~~we utilize~~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 well as known current reimbursement trends not reflected in the historical data.~~patients. As these contracts typically have a single performance obligation, no allocation of the transaction price is required in Step ~~4 of the model.~~4. Control over ~~genetic~~ testing services is transferred to the Company’s ordering physicians at a point in time. Specifically, wethe Company determined the customer obtains control of the promised service upon delivery of the test results.

Certain incremental costs pertaining to both ~~clinical~~ insurance and institutional, such as commissions, are incurred in obtaining ~~clinical~~ contracts. 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. We have elected to utilize the practical expedient to expense incremental costs of obtaining a contract that meet the capitalization criteria, as the amortization period of any contract acquisition asset would be one year or less due to the short-term nature of the customer life.

Accounting for ~~clinical~~ insurance contracts includes estimation of the transaction price, defined as the amount ~~we expect~~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. ~~In order to estimate~~The Company estimates that the variable consideration ~~we utilize~~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 ~~portfolio approach in which payors with similar reimbursement experience are grouped into portfolios. The Company’s estimates of variable consideration are based primarily on~~ historical reimbursement data. Certain assumptions will also be adjusted based on known and anticipated factors not reflected in the historical reimbursement data. We monitor these accrual estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Both the initial accrual estimate and any subsequent revision to the estimate contain uncertainty and require the use of judgment in the estimation of the transaction price and application of the constraint for variable consideration. If actual results in the future vary from the Company’s estimates,trend analysis.

Contract liabilities are recorded when the Company ~~will adjust these estimates, which would affect revenue~~receives payment or bills prior to completing its obligation to transfer goods or services to a customer, and ~~earnings in~~ the ~~period such variances become known.~~

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

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.

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 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 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.

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 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 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.

The Company grants various types of equity-based awards to its employees, consultants and non-employee directors. Equity-based compensation costs are reflected in the accompanying ~~statements~~Consolidated Statements of ~~operations~~Operations based upon each award recipient’s role with the Company. The Company primarily grants to its employees restricted stock unit ~~(RSU)~~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.

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 ~~average~~ 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) ~~as a component~~ in the accompanying Consolidated Statements of Stockholders’ Equity. Gain from these translations were $456,000 in the year ended December 31, 2021. The ~~Company’s~~gain or loss were not significant in the year ended December 31, 2020 or 2019, respectively. The Company and its subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property and nonmonetary assets and liabilities at historical rates. ~~Gains and losses resulting from the remeasurements are included in interest and other income, net in the accompanying Consolidated Statements of Operations. Gains and losses~~Losses from these remeasurements were not significant in ~~the year ended December 31,~~2021, 2020 and 2019.

Comprehensive ~~loss~~income (loss) is comprised of net ~~loss~~income (loss) and other comprehensive income ~~or loss.~~(loss). Other comprehensive income ~~or loss~~(loss) consists of net unrealized gain or loss on ~~marketable~~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 ~~or loss~~(loss) to net loss ~~during~~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 ~~year ended December 31, 2019.~~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.

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

Pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), a company constituting an “emerging growth company” is, among other things, entitled to rely upon certain reduced reporting requirements. The Company is an emerging growth company, but has irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies.

The Company classifies its customers into three payor ~~types, Clinical~~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, ~~or Clinical Insurance,~~ as ~~we believe~~the Company believes this best depicts how the nature, amount, timing, and uncertainty of ~~the Company’s~~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, ~~2019~~2021, 2020 and ~~2018.~~2019.

	Year Ended December 31,				Year Ended December 31,
	2019		2018		2021		2020		2019
	(in thousands)				(in thousands)
Genetic Testing Services by payor
Testing Services by payor
Insurance					$	555,762	$	257,587	$	705
Institutional	$	31,284	$	19,980		435,688		163,083		31,284
Patient		539		547		1,134		1,042		539
Insurance		705		824
Total Revenue	$	32,528	$	21,351	$	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.

Receivables from contracts with customers - ~~As of December 31, 2019 and 2018, receivables~~Receivables from contracts with customers ~~were approximately $6.6 and $5.9 million, respectively, and~~ are included within ~~Trade~~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 - ~~As of December 31, 2019 and 2018, contract~~Contract assets from contracts with customers ~~were $150,000,~~ associated with contract execution and certain costs to fulfill a contract are included in other current assets in the accompanying Consolidated Balance Sheets. Contract liabilities are recorded when the Company receives payment prior to completing its obligation to transfer goods or services to a customer. ~~The Company had $365,000 and $166,000 of contract~~Contract liabilities ~~as of December 31, 2019 and 2018, respectively.~~are included in the Consolidated Balance Sheets. Revenues of ~~$59,000~~$26.4 million, $257,000 and ~~$16,000~~$59,000 for the years ended December 31, ~~2019~~2021, 2020, and ~~2018,~~2019, respectively, related to contract liabilities at the beginning of the respective periods were recognized.

Certain reclassifications have been made to the consolidated financial statements of the prior year in order to conform to the current year presentation. These reclassifications had no impact on shareholder’s equity or net income for the year ended December 31, 2018. In the Consolidated Balance Sheet for the year ended December 31, 2018, the financial statement line item Contract liabilities was reclassified from Accrued Liabilities.

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, ~~2019.~~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

less. The Company does not have material future obligations associated with ~~Genetic Testing Services~~COVID 19, molecular diagnostic or genetic testing services that extend beyond one year.

~~We evaluate~~The Company evaluates all ~~Accounting Standards Updates (ASUs)~~ASUs issued by ~~the Financial Accounting Standards Board (FASB)~~FASB for consideration of their applicability. ASUs not included in the Company’s disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s consolidated financial statements or disclosures.

~~In January 2016, the FASB issued~~ ~~ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement,~~

presentation, and disclosure of financial instruments, including a provision that requires equity investments (except for investments accounted for under the equity method of accounting) to be measured at fair value, with changes in fair value recognized in current earnings. The ASU was effective for the Company in the first quarter of 2018. The adoption of this update did not have a material impact on the Company’s consolidated financial statements or disclosures.

~~In February 2016, the FASB issued~~ ~~ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases~~. The FASB has issued subsequent amendments to improve and clarify the implementation guidance of Topic 842. The new standard requires an entity to recognize leases on the balance sheet and to disclose key information about the entity's leasing arrangements. The Company adopted this standard as of January 1, 2019 using the modified retrospective transition approach, including certain practical expedients, for all leases existing as of January 1, 2019, the effective and initial application date. Prior period financial statements were not recast under the new guidance. The Company elected to apply practical expedients, to not separate non-lease components from lease components, and to not reassess lease classification, treatment of initial direct costs, or whether an existing or expired contract contains a lease. The Company also elected to use the short-term exemption for all class assets. The adoption of the new standard resulted in recognition of operating lease liabilities of approximately $3.0 million with corresponding right-of-use assets of approximately the same amount. There was no impact to retained earnings upon adoption. This standard had a material impact on the Consolidated Balance Sheets and did not have a material impact on the Company’s Consolidated Statements of Operations and Consolidated Statements of Cash Flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments., or ASU ~~No.~~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 ~~will be~~was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those reporting ~~periods. The Company does not expect the adoption of the new guidance under the standard to materially affect its financial position or results of operations.~~

~~In March 2017, the FASB issued~~ ~~ASU No. 2017-08, Receivables–Nonrefundable Fees and Other Costs (Subtopic 310-20).~~ Under the ASU, entities must amortize to the earliest call date the premium on certain purchased callable debt securities. The ASU does not require any accounting change for debt securities held at a discount. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The ASU is effectiveperiods for public business entities ~~for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption~~that meet the definition of ~~this update did not have a material impact on the Company’s consolidated financial statements or disclosures.~~

~~In February 2018, the FASB issued~~ ~~ASU No. 2018-02, Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income~~an SEC filer, excluding entities eligible to ~~retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act enacted~~be smaller reporting companies as defined by the ~~U.S. federal government on December 22, 2017 (the “2017 Tax Act”). Consequently,~~SEC. For all other entities, the ~~amendments eliminate the stranded tax effects resulting from the 2017 Tax Act and will improve the usefulness of information reported to financial statement users. The~~ amendments in this ~~ASU~~update are effective ~~for all entities~~ for fiscal years beginning after December 15, ~~2018, and~~2022, including interim periods within those fiscal years. ~~The adoption~~Early application of ~~this update did not have a material impact on~~ the ~~Company’s consolidated financial statements or disclosures.~~

~~In August 2018, the FASB issued~~ ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which provides new guidance on the accounting for implementation, set-up, and other upfront costs incurred in a hosted cloud computing arrangement. Under the new guidance, entities will apply the same criteria for capitalizing implementation costs as they would for an

~~internal-use software license arrangement. This guidance~~amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This ASU can be adopted prospectively to eligible costs incurred on or after the date of adoption or retrospectively.permitted. The Company ~~does not expect~~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 ~~new guidance under~~accompanying Consolidated Balance Sheets. The cumulative tax effect was $239,000 to retained earnings in the ~~standard~~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 ~~materially affect its financial position or results of operations~~.available-for-sale debt securities.

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 ~~update~~ASU simplifies the accounting for income taxes by removing some exceptions including the incremental approach for intraperiod tax allocation, thethe requirement to recognize a deferred tax liability for equity method investments, the ability not to recognize a deferred tax liability for a foreign subsidiary, and the general methodology for calculating income taxes in an interim period. Other changes include requiring entities to recognize franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, evaluate tax basis step-up in goodwill obtained in a transaction that is not a business combination, and reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, making minor codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method, and specifying that an entity is not required to allocate the consolidated current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. ~~This~~For public business entities, this amendment is effective for ~~public business entities~~fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company ~~has decided not~~adopted ASU 2019-12 in the first quarter of 2021, and the adoption had no material impact to ~~early adopt~~ the ~~amendments. The Company is currently evaluating the amendment and has not yet determined the impact on its~~Company’s consolidated financial statements.

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

	December 31, 2019											December 31, 2021
	Amortized Cost Basis			Unrealized Gains		Unrealized Losses			Aggregate Fair Value			Amortized Cost Basis			Unrealized Gains		Unrealized Losses			Aggregate Fair Value
	(in thousands)											(in thousands)
Marketable securities:
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	$	4,700		$	—	$	—		$	4,700			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		17,962			43		(2	)		18,003			242,421			29		(1,913	)		240,537
Less: Cash equivalents		(6,399	)		—		—			(6,399	)
Total short-term marketable securities		16,263			43		(2	)		16,304
Corporate debt securities		41,861			116		(30	)		41,947
Total long-term marketable securities		41,861			116		(30	)		41,947
Total marketable securities	$	58,124		$	159	$	(32	)	$	58,251
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

	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

~~Management determined that the gross unrealized losses of $32,000 on the Company’s marketable securities as of December 31, 2019 were temporary in nature.~~ Gross unrealized losses on the Company’s ~~marketable~~equity and debt securities were ~~$104,000~~$4.3 million and $298,000 as of December 31, ~~2018.~~2021 and 2020. The Company ~~currently does~~did not ~~intend to sell these~~recognize any credit losses for its available-for-sale debt securities ~~prior to maturity~~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 ~~does not consider these investments to be other-than-temporarily impaired as of December 31, 2019.~~Contingencies, for more information on the margin loan.

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:

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, 2019								December 31, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(in thousands)								(in thousands)
Marketable securities and cash equivalents:
Equity securities, debt securities and cash equivalents:
Corporate debt securities	$	59,950	$	—	$	59,950	$	—	$	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		4,700		4,700		—		—		77,067		77,067		—		—
Total marketable securities and cash equivalents	$	64,650	$	4,700	$	59,950	$	—
Total equity securities, debt securities and cash equivalents									$	869,684	$	210,866	$	636,853	$	21,965

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 ~~United States Treasury,~~ U.S. government and U.S. agency debt securities, municipal bonds, corporate debt securities and ~~corporate~~Yankee debt securities. Level 2 securities are valued based upon observable inputs that include reported trades, broker/dealer quotes, bids and offers. As of December ~~31, 2019 and 2018,~~30, 2021, the Company had ~~no investments~~$22.0 million of redeemable preferred stock of Helio Health that ~~were~~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 no0 transfers between fair value measurement levels ~~during the years ended December 31, 2019~~in 2021, 2020, and ~~2018.~~2019.

Gross unrealized gains or losses for cash equivalents and marketable securities as of December 31, 2019 were not material. As of December 31, 2019, unrealized losses for securities in an unrealized loss position for more than 12 months were zero. During the years ended December 31, 2019 and 2018, the Company did not recognize other-than-temporary impairment losses related to its marketable securities.

		December 31,							December 31,
	Useful Lives	2019			2018			Useful Lives	2021			2020
		(in thousands)							(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	3 Years	$	1,705		$	1,579		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 Years		541			495		3 to 5 Years		1,408			541
Medical lab equipment	5 Years		10,493			8,136
Furniture and fixtures	5 Years		235			233
Leasehold improvements	Shorter of lease term or estimated useful life		876			802
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			114			1,087				6,718			2,055
Total			13,964			12,332				81,917			51,119
Less: Accumulated depreciation			(7,990	)		(5,886	)			(19,630	)		(10,920	)
Property and equipment, net		$	5,974		$	6,446
Fixed assets, net									$	62,287		$	40,199

Depreciation expense on fixed assets totaled ~~$2.1~~$9.3 million, $3.0 million and ~~$2.2~~$2.1 million for the years ended December 31, 2021, 2020 and 2019, ~~and 2018,~~ respectively.

	December 31,				December 31,
	2019		2018		2021		2020
	(in thousands)				(in thousands)
Reagents	$	277	$	314
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		150		150		237		1,379
Prepaid expenses		1,288		556
Prepaid income taxes		46		1,251
Marketable securities interest receivable		478		220
Other receivable		16		70
Total	$	2,255	$	2,561	$	22,549	$	40,392

Reagents ~~are~~and supplies include reagents and consumables used for ~~DNA sequencing applications in~~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 ~~DNA sequencing equipment.~~common stock, which were all collected in 2021.

The Company views its operations and manages its business in ~~one~~1 reporting segment. ~~Long-lived assets were primarily located in the United States as of December 31, 2019 with an insignificant amount located in Canada.~~ All long-lived assets were located in the United States as of December 31, ~~2018.~~2021 and 2020 with an insignificant amount located in China and Canada. Revenue by region for the years ended December 31, ~~2019~~2021, 2020 and ~~2018~~2019 were as follows:

	Year Ended December 31,				Year Ended December 31,
	2019		2018		2021		2020		2019
	(in thousands)				(in thousands)
Revenue:
United States	$	25,014	$	12,579	$	978,978	$	415,334	$	25,014
Foreign:
Canada		2,245		3,984
Other Countries		5,269		4,788
Foreign						13,606		6,378		7,514
Total	$	32,528	$	21,351	$	992,584	$	421,712	$	32,528

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.

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

As of December 31, ~~2019,~~2021, the Company had non-cancelable purchase obligations of ~~$2.9~~$11.6 million, of which, $10.9 millionforreagents and other supplies ~~of which, $1.5 million is~~and $732,000 for medical lab equipment are payable within twelve ~~months, and $1.4 million is payable within the next twenty-four~~ months.

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.

The Company ~~has~~is party as a lessee to various non-cancelable operating leases with varying terms through ~~August 2023~~ March 2028 primarily for laboratory and office ~~space.~~space and equipment. The Company has options to renew some of these leases ~~for three years~~ after their ~~expiration. The~~expirations. On a lease-by-lease basis, the Company considers ~~these~~such options, which may be elected at the Company’s sole discretion, in determining the lease ~~term on a lease-by-lease basis.~~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 ~~finance leases or~~ 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 determination of whether an arrangement contains a lease is made at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset.

~~The~~ Company’s headquarters isare located in Temple City, California, which is comprised of various corporate offices and a laboratory certified under the Clinical Laboratory Improvement Amendments of 1988, ~~(“CLIA”),~~or CLIA, accredited by the College of American Pathologists, ~~(“CAP”)~~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 ~~El Monte, California and~~ Atlanta, Georgia and are used for certain ~~research and development, customer service,~~ report generation ~~and other administrative~~ functions.

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

~~The Company adopted new accounting standard~~ ~~ASC 842, Leases, on January 1, 2019. Upon adoption,~~In February 2021, the Company recorded ROU assets of $3.0 million and short-term and long-term lease liabilities of $384,000 and $2.6 million, respectively. The difference between the ROU asset and liability is due to the existing balance of deferred rent at the date of adoption. There was no impact to retained earnings upon adoption. The Company terminatedextended the lease for its headquarters located in ~~Georgia on August~~Temple City, California, to January 31, ~~2019 and~~2023. In March 2021, the Company entered into a new lease ~~on September 1, 2019. Upon entering the new~~for its 12,000 square foot CLIA-certified laboratory in Houston, Texas, which will expire in November 2023.

The operating and finance lease ~~the Company recorded ROU assets of $110,000 and short term~~right-of-use asset, short-term lease liabilities, and long-term lease liabilities as of ~~$23,000~~December 31, 2021, and ~~$87,000, respectively.~~2020 were as follows:

As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the discount rate used to calculate present value lease payment. The Company determined its incremental borrowing rate based on inquiries with its bank. The Company’s lease agreements do not contain any residual value guarantees, material restrictive covenants, bargain purchase options or asset retirement obligations. Lease expense for the Company’s operating leases is recognized on a straight-line basis over the lease term. The Company’s leases do not contain variable lease payments. The Company does not have any short-term leases and thus has excluded short-term costs from the table below. Other than the new lease in Georgia, the Company did not enter into any new leases during the year ended December 31, 2019.

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

	Operating Leases			Operating Leases			Financing Leases
	(in thousands)			(in thousands)
Year Ending December 31,
2020	$	575
2021		591
2022		597		$	2,037		$	383
2023		567			1,579			383
2024		330			1,154			376
2025					1,048			366
2026					884			366
Thereafter		532			1,080			—
Total lease payments		3,192			7,782			1,874
Less imputed interest		(516	)		(596	)		(144	)
Total	$	2,676		$	7,186		$	1,730

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, ~~2018, prior~~2021, the remaining lease terms left range from11 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 ~~adoption~~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 ~~Topic 842, future minimum~~Operations. Total lease income was as follows:

Future fixed lease payments ~~under non-cancelable~~from tenants for all noncancelable operating leases as of December 31, 2021 are as follows:

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,				Year Ended December 31,
	2019		2018		2021		2020		2019
	(in thousands)				(in thousands)
Cost of revenue	$	676	$	523	$	3,563	$	1,452	$	676
Research and development		1,024		732		6,326		2,693		1,024
Selling and marketing		845		460		2,513		2,092		845
General and administrative		664		589		3,480		1,920		664
Total	$	3,209	$	2,304	$	15,882	$	8,157	$	3,209

The following table summarizes activity for options to acquire shares of the Company’s common stock in the years ended December 31, ~~2019~~2021, 2020 and ~~2018:~~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)		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, 2017		465		$	0.84				8.0	$	1,785
Granted		10		$	3.93	$	2.92
Exercised		(40	)	$	0.38	$	5.80
Canceled		(18	)	$	8.19	$	8.47
Balance at December 31, 2018		417		$	0.64				7.1	$	1,116		417		$	0.64				7.1	$	1,116
Granted		30		$	6.98	$	4.58						30		$	6.98	$	4.58
Exercised		(100	)	$	0.38	$	5.36						(100	)	$	0.38	$	5.36
Canceled		(6	)	$	0.38	$	7.10						(6	)	$	0.38	$	7.10
Balance at December 31, 2019		341		$	1.27				6.4	$	3,960		341		$	1.27				6.4	$	3,960
Exercisable as of December 31, 2019		284		$	0.64				6.0	$	3,482
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

The total fair value of options that vested during the years ended December 31, 2021, 2020 and 2019 was $76,000, $223,000 and ~~2018 was~~ $549,000, ~~and $645,000,~~ respectively. As of December 31, ~~2019,~~2021, the remaining unrecognized compensation expense related to all outstanding option awards was ~~$146,000~~$354,000 and is expected to be recognized over a weighted-average period of ~~0.5 year.~~2.9 years. As of December 31, 2020, the remaining unrecognized compensation expense related to all outstanding option awards was $178,000 and is expected to be recognized over a weighted-average period of 3.0 years.

RSUs are awards that entitle the holder to receive shares of the Company’s common stock upon satisfaction of vesting conditions. Each RSU represents the contingent right to receive one share of the Company’s common stock upon vesting and settlement.

The following table summarizes activity for RSUs relating to shares of the Company’s common stock in the years ended December 31, ~~2019~~2021, 2020, and ~~2018:~~2019:

	Number of Shares (in thousands)			Weighted-Average Grant Date Fair Value		Number of Shares (in thousands)			Weighted-Average Grant Date Fair Value
Balance at December 31, 2017		937		$	7.39
Granted		554		$	4.39
Vested and settled		(285	)	$	7.78
Forfeited		(120	)	$	5.77
Balance at December 31, 2018		1,086		$	5.94		1,086		$	5.94
Granted		982		$	7.00		982		$	7.00
Vested and settled		(434	)	$	6.39		(434	)	$	6.39
Forfeited		(123	)	$	5.38		(123	)	$	5.38
Balance at December 31, 2019		1,511		$	6.54		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, ~~2019~~2021, 2020 and ~~2018~~2019 will result in aggregate equity-based compensation expense of $45.5 million, $34.5 million and $6.9 million, ~~and $2.4 million,~~ respectively, ~~in each case~~ to be recognized over ~~four years~~the vesting periods from the grant date of each award granted in the period. As of December 31, ~~2019,~~2021, the remaining unrecognized compensation expense related to all outstanding RSU awards was ~~$8.7~~$59.1 million and is expected to be recognized over a weighted-average period of ~~2.9~~3.1 years. As of December 31, 2018, the remaining unrecognized compensation expense related to all outstanding RSU awards was $5.6 million and is expected to be recognized over a weighted-average period of 2.9 years.

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:

The table below sets forth the weighted-average assumptions used in the Black-Scholes option-pricing model to estimate the fair value of options to acquire shares of the Company’s common stock granted to employees during the ~~year~~years ended December 31, ~~2019~~2021, 2020 and ~~2018.~~2019.

	Year Ended December 31,						Year Ended December 31,
	2019			2018			2021			2020			2019
Expected term (in years)		6.1			6.1			6.1			6.1			6.1
Risk-free interest rates		1.8	%		2.8	%		1.1	%		0.4	%		1.8	%
Dividend yield		—			—			—			—			—
Expected volatility		73.6	%		87.4	%		94.6	%		87.5	%		73.6	%

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.

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.

As of December 31, 2019 and 2018 the Company has incurred net taxable losses, and accordingly, a current provision for income taxes has only been recorded for nominal federal and state taxes. This amount differs from the amount computed by applying the U.S. federal income tax rate of 21.0% to pretax loss due primarily to the provision of a valuation allowance to the extent of the Company’s net deferred tax asset.

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

	Year Ended December 31,						Year Ended December 31,
	2019			2018			2021			2020			2019
	(in thousands)						(in thousands)
Current:
Federal	$	5		$	—		$	131,907		$	53,794		$	5
State		38			—			51,076			20,513			38
Total Current		43			—			182,983			74,307			43
Deferred:
Federal		(249	)		(987	)		(7,471	)		(248	)		(249	)
State		(280	)		(308	)		(717	)		(14	)		(280	)
Foreign								669			—			—
Change in valuation allowance		529			1,331			(669	)		(1,513	)		529
Total Deferred		—			36			(8,188	)		(1,775	)		—
Total income tax expense (benefit)	$	43		$	36
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,						Year Ended December 31,
	2019			2018			2021			2020			2019
Tax provision at federal statutory rate		21.00	%		21.00	%		21.00	%		21.00	%		21.00	%
State taxes		-46.76	%		4.37	%		5.99	%		5.68	%		-46.76	%
Foreign tax rate differential		13.83	%	—				0.00	%		0.00	%		13.83	%
Uncertain Tax Positions								0.05	%		0.13	%		0.00	%
Stock based compensation		-53.53	%		-4.08	%		-1.96	%		-0.92	%		-53.53	%
Return to provision		-57.11	%		2.31	%		-0.17	%		-0.11	%		-57.11	%
Meals and entertainment		3.87	%		-0.13	%
Other permanent differences								1.09	%		0.02	%		3.87	%
Other		0.01	%		-0.22	%		-0.14	%		-0.41	%		0.01	%
Change in valuation allowance		129.22	%		-23.90	%		-0.10	%		-0.52	%		129.22	%
Tax provision		10.53	%		-0.65	%
Effective tax rate								25.76	%		24.87	%		10.53	%

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,						Year Ended December 31,
	2019			2018			2021			2020			2019
	(in thousands)						(in thousands)
Deferred tax assets
Accrued vacation and other accrued expenses	$	97		$	118		$	1,486		$	166		$	97
Provision for bad debts		180			136
Provision for credit losses								2,755			513			180
Net operating losses		445			699			199			206			445
Stock based compensation		609			579			1,739			1,424			609
Unrealized loss on investments	—				21
State income taxes		8			9			10,991			4,306			8
Foreign		545			343			1,808			1,220			545
Credits		680			261			—			—			680
Lease liability		643			—			1,643			226			643
Equity loss in investment								700			700			—
Other								599			89			—
Gross deferred tax assets		3,207			2,166			21,920			8,850			3,207
Less: Valuation allowance		(2,125	)		(1,448	)		(2,609	)		(2,021	)		(2,125	)
Net deferred tax assets		1,082			718			19,311			6,829			1,082
Deferred tax liabilities
Intangible assets								8,083			—			—
Depreciation		419			644			7,371			4,830			419
Right of use asset		633			—			1,640			224			633
Other		30			74			1,458			147			30
Total deferred tax liabilities		1,082			718			18,552			5,201			1,082
Net deferred tax assets (liabilities)	$	—		$	—
Net deferred tax assets							$	759		$	1,628		$	—

As of December 31, ~~2019,~~2021, the Company has 0 estimated federal ~~and state~~ net operating loss, ~~(“NOL”)~~or NOL, carryforwards and estimated state NOL carryforwards of ~~$1.6 million and $1.9 million for federal and state income tax purposes, respectively. The Company’s federal NOL of $1.6 million does not expire.~~$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 2039. Past ownership changes and other equity transactions may have triggered Section 382 and 383 provisions of the Internal Revenue Code, resulting in certain annual limitations on the utilization of existing federal and state net operating losses and credits. Such provisions may limit the potential future tax benefit to be realized by the Company from its accumulated net operating losses and credits.2026.

~~FASB~~ ASC ~~740~~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 ~~its~~certain deferred tax assets. These deferred tax assets consist primarily ~~as a result~~ of ~~operating~~equity losses in ~~recent years~~joint ventures and foreign net operating loss carryforwards; accordingly, ~~has provided~~ a ~~full~~ valuation allowance of ~~$2.1~~$2.6 million and ~~$1.4~~$2.0 million athas been recorded on these deferred tax assets as of December 31, ~~2019~~2021 and ~~2018, respectively.~~2020. The increase in the valuation allowance of ~~$677,000~~$588,000 for the ~~year~~years ended December 31, ~~2019~~2021 was primarily due to ~~net operating losses, depreciation, research and development credits, equity-based compensation, our~~an increase in foreign ~~joint venture investment, and the lease liability and related right of use asset.~~deferred tax assets that are more likely than not to expire unrealized.

During ~~2019~~2020 and ~~2018~~2019 the Company recorded a deferred tax asset related to its ~~equity method~~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. The~~income; therefore, the Company ~~does not currently have any capital gain income and~~ has ~~therefore~~ 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.

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, ~~2019,~~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, ~~2019,~~2021, the Company remains subject to income tax examinations in the U.S. and various states for tax years ~~2016~~2018 through ~~2019.~~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.

A reconciliation of the Company’s gross unrecognized tax benefits is as follows:

As of December 31, 2021, the Company has $710,000 of gross unrecognized tax benefits, related to research and experimental tax credits. The Company ~~had no accrual~~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 ~~or penalties~~ at December 31, ~~2019~~2021 or ~~2018,~~2020, respectively, and has ~~not~~ recognized interest ~~or penalties during~~expense of $15,000 and $0 for the years ended December 31, ~~2019~~2021 and ~~2018.~~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.

The following is a reconciliation of the basic and diluted ~~loss~~income (loss) per share computations:

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,				Year Ended December 31,
	2019		2018		2021		2020		2019
	(in thousands)				(in thousands)
Options		36		413		5		10		36
RSUs		161		857		182		347		161

The anti-dilutive shares described above were calculated using the treasury stock method. During the years ended December 31, 2019 and 2018, the Company had outstanding options and RSUs that were excluded from the weighted-average share calculation for continuing operations due to the Company’s net loss positions.

The Company offers a 401(k) retirement savings plan, ~~(the “401(k) 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 ~~$237,000~~$697,000,$422,000 and ~~$176,000~~$237,000 in the years ended December 31, ~~2019~~2021, 2020 and ~~2018,~~2019, respectively.

~~Dr. Yun Yen,~~Linda Marsh, who is a member of the Company’s ~~Board~~board of ~~Directors and a stockholder, serves as~~directors, is currently the Senior Executive Vice President ~~and Chairman~~ of ~~the Board for the Sino-American Cancer Foundation (the “Foundation”) and served as the President for the Taipei Medical University (the “University”)~~AHMC Healthcare Inc., ~~from August 1, 2011 through July 31, 2016 and currently serves as a Chair Professor for the University.~~

~~From time to time, the~~or AHMC. The Company performs ~~research~~genetic testing and other testing services, on an arms-length basis, for AHMC, and the ~~Foundation. The~~ Company recognized ~~an insignificant amount~~$3.4 million and zero during the years ended December 31, 2019 and 2018, respectively, as consideration for such services. Additionally, the Company subleases certain of its headquarters facilities to the Foundation. The Company recognized $16,000 and $33,000$3.1 million in revenue in the years ended December 31, ~~2019~~2021 and ~~2018, respectively, as consideration for such sublease.~~2020, respectively. The Company did not recognize any revenue from AHMC in the year ended December 31, 2019. As of December 31, ~~2019~~2021 and ~~2018, an insignificant amount~~2020, $556,000 and ~~zero, respectively,~~$1.8 million was owed to the Company by AHMC, respectively, which is included in trade accounts receivable, net, in the ~~Foundation~~accompanying Consolidated Balance Sheets, in connection with ~~these relationships.~~this relationship.

~~From time to time,~~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 ~~performs genetic sequencing~~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, 0 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, for the University. The Company recognized $53,000 and $66,000 in~~basis. In the years ended December 31, ~~2019~~2021 and ~~2018,~~2020, the Company incurred $142,000 and $343,000, respectively, ~~as consideration~~in expenses for flights between California and Texas to transport employees and supplies. The Company did not incur such ~~services.~~expense in the year ended December 31, 2019. As of December 31, ~~2019~~2021 and ~~2018, $39,000~~2020, $0 and ~~$51,000,~~$94,000, respectively, was owed to PTJ by the Company, bywhich is included in accounts payable in the ~~University~~accompanying Consolidated Balance Sheets, in connection with this relationship.

~~As more fully described in Note 15, in April 2017, the~~The Company ~~through an affiliated company formed for the purpose of the relationship, entered into a cooperation agreement (the “JV Agreement”) with Xilong Scientific Co., Ltd. (“Xilong Scientific”)~~ and Fuzhou Jinqiang Investment Partnership (LP) (“FJIP”) to form a joint venture under the laws of the PRC called Fujian Fujun Gene Biotech Co., Ltd. (“FF Gene Biotech”). Xilong Scientific is an affiliate of Xi Long, which, as of December 31, 2019, owned 9% of the outstanding shares ofFulgent Pharma LLC, the Company’s ~~common stock,~~former subsidiary, are party to shared services arrangements where research and ~~FJIP is owned by key management of FF Gene Biotech, including Dr. Han Lin Gao,~~development and administrative services and office space and equipment are provided between the ~~Chief Scientific Officer and a large stockholder of the Company and the owner of approximately 25% of FJIP.~~

Fulgent Pharma utilizes space in the facility at which the Company’s laboratory and corporate headquarters are located. Since the completion of the Pharma Split-Off, Fulgent Pharma reimburses the Company, companies, on an arms-length basis~~for~~. Ming Hsieh is the ~~portion~~Manager and a member of Fulgent Pharma LLC. In the ~~rent~~years ended December 31, 2021 and 2020, the ~~Company pays that is attributable to the space used~~research development service rendered by Fulgent Pharma ~~which amounts are not significant.~~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 0t significant in the year ended December 31, 2019. As of December 31, ~~2019~~2021 and ~~2018, $26,000~~2020, $679,000 and $~~22,000~~,$409,000, respectively, was owed to ~~the Company by~~ Fulgent Pharma ~~as a result of this arrangement,~~LLC by the Company, which is recorded in ~~Other~~other receivable in ~~Other~~other current assets in the accompanying Consolidated Balance ~~Sheets.~~Sheet, in connection with these relationships.

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.

In April 2017, the Company ~~through an affiliated company~~acquired a 30% equity interest in FF Gene Biotech, a newly formed ~~for the purpose of the relationship, entered into the JV Agreement~~a joint venture with Xilong Scientific and ~~FJIP to form FF Gene Biotech, a~~FJIP. The joint venture was formed under the laws of ~~the PRC~~China to offer genetic testing services to customers in ~~the PRC. Pursuant to the terms of the JV Agreement,~~China.

In May 2021, we entered into a restructuring agreement with Xilong Scientific and FJIP, resulting in the Company ~~has agreed to contribute to~~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 ~~sequencing~~testing market through entities separate from the Company’s U.S. operations, and ~~other equipment~~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 ~~a total cost~~its geographic expansion strategy. It also expects to reduce costs through economies of ~~60,000,000 renminbi (“RMB”) over a five-year~~scale.

The Company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values. As additional information becomes available, such as the finalization of the estimated fair value of tax-related items, the Company may further update the preliminary purchase price allocation during the remainder of the measurement period ~~for a 30% ownership~~(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.

The fair value of the noncontrolling interest, or NCI, in FF Gene Biotech, ~~previously three-year per original agreement~~a private entity, $8.1 million, was estimated by applying the income approach and ~~amended~~market approach. The fair value measurement was based on significant inputs that are not observable in ~~April 2019. Xilong Scientific has agreed~~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 ~~contribute~~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 ~~102,000,000 RMB over a five-year period~~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 ~~a 51% ownership interest~~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 ~~previously three-year per original agreement~~Acquisition consisted of a $5.7 million royalty-free technology with an estimated amortization life of 10 years and ~~amended in April 2019. FJIP has agreed to contribute to~~$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 19,000,000 RMB over a ten-year period for a 19% ownership interest in FF Gene Biotech, previously five-year per original agreement and amended in April 2019. The Company’s maximum exposure to fund losses of FF Gene Biotech as a result of its minority ownership of this entity is equal to its contribution obligation under the JV Agreement as described above. As of December 31, 2019, 39,300,000 RMB (or approximately $5.6 million U.S. dollars) remained to be contributed to FF Gene Biotech by the Company under the terms of the JV Agreement, and the Company has purchased and contributed equipment with an aggregate fair value of $3.1 million pursuant to its contribution commitment under the JV Agreement, of which, $137,000 and $510,000 were contributed in the year ended December 31, 2019 and 2018, respectively. The Company accounted for this contribution in accordance with ASC 845, Nonmonetary Transactions, and recorded an investment based on the fair value of the contributed equipment, which is the same as carryover basis.Acquisition.

The Company concluded FF Gene Biotech is a variable interest entity as FF Gene Biotech lacks sufficient capital to operate independently. The Company concluded that it alone ~~does not have~~ hasthe power to direct the most significant activities of FF Gene Biotech and therefore is ~~not~~ the primary beneficiary of the ~~entity.~~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.

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 ~~accounts~~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:

The CSI Acquisition includes a contingent consideration arrangement that requires additional consideration to be paid by the Company based on CSI’sachievement of a minimum level of earnings, for ~~its 30% interest~~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 0 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 acquisitions, the financial results for FF Gene Biotech ~~using~~and CSI were not significant for pro forma financial information. Post the ~~equity method of accounting. The Company recorded its proportionate share of~~acquisitions, the ~~losses of~~financial results for FF Gene Biotech ~~for~~and CSI are included in the ~~year ended December 31, 2019~~Company’s consolidated financial statements. Revenue and ~~2018~~operating income or loss from both acquisitions since the respective 2021 acquisition dates are included in the accompanying Consolidated Statements of Operations ~~and recorded its contribution during the period, net of its proportionate share~~as follows, in ~~the accumulated losses of FF Gene Biotech, in the accompanying Consolidated Balance Sheet as of December 31, 2019 and 2018.~~

The Company entered into a license agreement with FF Gene Biotech, pursuant to which it granted FF Gene Biotech a license to use certain of the Company’s clinical molecular diagnostic gene detection technology and related software and proprietary reference library of genetic information, along with any improvements on this technology the Company may develop during the term of the license agreement. Under the license agreement, FF Gene Biotech paid to the Company, on a quarterly basis, certain royalties based on the revenues of FF Gene Biotech. The license agreement expired on December 31, 2018. The Company earned an insignificant amount of royalties under the license agreement for the year ended December 31, 2018. In 2019, FF Gene Biotech provided curation services, on an arms-length basis, for the Company, the cost of such services was insignificant for the year ended December 31, 2019.

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

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

	December 31,
	2019					2018
	Carrying Value		Ownership Percentage			Carrying Value		Ownership Percentage
	(in thousands)					(in thousands)					Net Sales		Operating Income (Loss)
FF Gene Biotech	$	872		30	%	$	1,512		30	%	$	6,632	$	(3,894	)
Total equity method investments	$	872		30	%	$	1,512		30	%
CSI												17,390		1,138
Total											$	24,022	$	(2,756	)

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, ~~(“Piper”), pursuant to~~ which the Company may offer and sell, from time to time through Piper, shares of its common stock having an aggregate offering price of up to $30.0 million. Piper is eligible to receive a commission of up to 3% of gross proceeds received by the Company for sales pursuant to the Equity Distribution Agreement.was amended on August 4, 2020. During the year ended December 31, 2019, the Company sold an aggregate of ~~104,390~~104,000 shares of its common stock pursuant to the 2019 Equity Distribution Agreement at a weighted-average net selling price of ~~$12.14~~$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 ~~are~~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 a prospectus ~~supplement~~supplements and accompanying base prospectus filed with the ~~Securities and Exchange Commission~~SEC on August 30, ~~2019.~~2019, May 6, 2020 and August 5, 2020.

~~On November 13, 2019 we~~In September 2020, the Company entered into ~~a Purchase~~an Equity Distribution Agreement, or the September 2020 Equity Distribution Agreement, with Piper ~~Jaffray & Co.~~ as ~~representative of the several underwriters,~~sales agent, pursuant to which wethe Company sold ~~2,673,750~~an aggregate of 2.8 million shares of ~~our~~its common stock at a weighted-average net selling price of ~~$10.51875~~$42.90 per share, ~~with a public offering price~~which resulted in $122.1 million of ~~$11.25 per share. We received~~ net proceeds ~~of approximately $27.6 million, after deducting underwriting discounts~~to the Company. Shares sold under the September 2020 Equity Distribution Agreement were offered and ~~commissions and offering expenses paid or payable by us of approximately $2.4 million. The shares issued and sold in the underwritten offering were~~ sold pursuant to ~~a shelf registration statement registered under~~ the ~~Securities Act on a~~Company’s registration statement on Form S-3 (File No. ~~333-233227),~~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 ~~Securities~~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 ~~Exchange Commission~~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 ~~13, 2019.~~20, 2020.

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

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:

The tables below set forth the Company’s quarterly Consolidated Statements of Operations data for the eight quarters ended December 31, ~~2019.~~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																								Three Months Ended
	Dec. 31, 2019			Sept. 30, 2019			June 30, 2019			Mar. 31, 2019			Dec. 31, 2018			Sept. 30, 2018			June 30, 2018			Mar. 31, 2018			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)																								(dollars in thousands, except per share data)
Statement of Operations Data:
Revenue	$	8,387		$	10,347		$	8,424		$	5,370		$	5,673		$	5,625		$	5,400		$	4,653		$	251,671		$	227,868	$	153,616	$	359,429	$	294,978		$	101,716		$	17,265		$	7,753
Cost of revenue		3,634			3,885			3,620			2,968			2,769			2,612			2,544			2,772			62,134			43,466		35,858		74,075		51,772			26,261			7,717			4,057
Gross profit		4,753			6,462			4,804			2,402			2,904			3,013			2,856			1,881			189,537			184,402		117,758		285,354		243,206			75,455			9,548			3,696
Operating expenses:
Research and development		1,795			1,744			1,574			1,424			1,426			1,438			1,212			1,458			7,464			6,021		5,312		5,422		4,576			3,177			1,849			1,978
Selling and marketing		1,635			1,687			1,304			1,272			1,128			1,115			1,279			1,130			8,200			6,012		5,219		5,008		5,081			5,014			3,260			1,597
General and administrative		1,732			1,522			1,631			1,529			1,379			1,306			1,366			1,487			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		5,162			4,953			4,509			4,225			3,933			3,859			3,857			4,075			38,677			25,129		18,860		18,432		17,297			11,932			6,908			5,610
Operating income (loss)		(409	)		1,509			295			(1,823	)		(1,029	)		(846	)		(1,001	)		(2,194	)		150,860			159,273		98,898		266,922		225,909			63,523			2,640			(1,914	)
Interest and other income, net		249			189			192			207			98			143			98			95
Income (loss) before income taxes and equity loss in investee		(160	)		1,698			487			(1,616	)		(931	)		(703	)		(903	)		(2,099	)
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		(38	)		61			7			13			888			(318	)		(100	)		(434	)		47,148			37,545		23,589		66,513		58,571			14,526			(599	)		34
Income (loss) before equity loss in investee		(122	)		1,637			480			(1,629	)		(1,819	)		(385	)		(803	)		(1,665	)
Equity loss in investee		(174	)		(175	)		(149	)		(279	)		(234	)		(210	)		(246	)		(245	)
Net income (loss)	$	(296	)	$	1,462		$	331		$	(1,908	)	$	(2,053	)	$	(595	)	$	(1,049	)	$	(1,910	)
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:
Net income (loss) per common share attributable to Fulgent:
Basic	$	(0.01	)	$	0.08		$	0.02		$	(0.10	)	$	(0.11	)	$	(0.03	)	$	(0.06	)	$	(0.11	)	$	3.48		$	4.13	$	2.74	$	6.96	$	6.55		$	2.11		$	0.15		$	(0.09	)
Diluted	$	(0.01	)	$	0.08		$	0.02		$	(0.10	)	$	(0.11	)	$	(0.03	)	$	(0.06	)	$	(0.11	)	$	3.34		$	3.93	$	2.59	$	6.52	$	6.16		$	1.98		$	0.14		$	(0.09	)

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.

Delaware	81-2621304
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4978 Santa Anita Avenue ~~Suite 205~~ Temple City, CA	91780
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	FLGT	The Nasdaq Stock Market (Nasdaq Global Market)

			Page
Cautionary Note Regarding Forward-Looking Statements		i
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	4346
Item 2.	Properties	4346
Item 3.	Legal Proceedings	4347
Item 4.	Mine Safety Disclosures	4347
PART II		4448
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	4448
Item 6.	~~Selected Financial Data~~[Reserved]	4449
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4550
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	5663
Item 8.	Financial Statements and Supplementary Data	5764
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	5764
Item 9A.	Controls and Procedures	5764
Item 9B.	Other Information	5766
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	66
PART III		5867
Item 10.	Directors, Executive Officers and Corporate Governance	5867
Item 11.	Executive Compensation	5867
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5867
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5867
Item 14.	Principal Accounting Fees and Services	5867
PART IV		5968
Item 15.	Exhibits, Financial Statement Schedules	5968
Item 16.	Form 10-K Summary	5968

	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Operating lease obligations ⁽¹⁾	$	7,782	$	2,037	$	2,733	$	1,932	$	1,080
Finance lease obligations⁽²⁾		1,874		383		759		732		—
Purchase obligations⁽³⁾		11,584		11,584		—		—		—
Total contractual obligations	$	21,240	$	14,004	$	3,492	$	2,664	$	1,080

Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)		F-2
Consolidated Balance Sheets as of December 31, ~~2019~~2021 and ~~2018~~2020		~~F-3~~F-4
Consolidated Statements of Operations for the Years Ended December 31, ~~2019~~2021, 2020 and ~~2018~~		~~F-4~~
~~Consolidated Statements of Comprehensive Loss for the Years Ended December 31,~~ 2019 ~~and 2018~~		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 ~~2019~~31, 2021, 2020 and ~~2018~~2019		~~F-6~~F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2019~~2021, 2020 and ~~2018~~		~~F-7~~
~~Notes to Consolidated Financial Statements~~2019		F-8
Notes to Consolidated Financial Statements		F-9

Exhibit Number	Description	Form	File Number	Incorporated by Reference Exhibit	Filing Date	Filed Herewith
10.24	Commercial Lease, dated April 1, 2018, 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, 2019, 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	001-37894	10.1	5/21/2018
10.31	Fulgent Genetics, Inc. Amended and Restated 2016 Omnibus Incentive Plan	8-K	001-37894	10.1	9/18/2020
10.32^	Agreement for Purchase and Sale of Property, dated July 23, 2020	8-K	001-37894	2.1	10/21/2020
10.33^	Aircraft Purchase Agreement, dated August 18, 2020, by and between ServiceMaster Acceptance Corporation and the Company	10-Q	001-37894	10.2	11/9/2020
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

	FULGENT GENETICS, INC.

Date: ~~March 12, 2020~~February 28, 2022	By:	/s/ Ming Hsieh
		Ming Hsieh
		President, Chief Executive Officer

Name and Signature	Title	Date

/s/ Ming Hsieh	President, Chief Executive Officer and Chairman of the Board	~~March 12, 2020~~February 28, 2022
Ming Hsieh	(principal executive officer)

/s/ Paul Kim	Chief Financial Officer	~~March 12, 2020~~February 28, 2022
Paul Kim	(principal financial and accounting officer)

/s/John Bolger	Director	~~March 12, 2020~~February 28, 2022
John Bolger

~~/s/ James J. Mulay (Mulé)~~	~~Director~~	~~March 12, 2020~~
~~James J. Mulay (Mulé)~~

/s/ Yun Yen	Director	~~March 12, 2020~~February 28, 2022
Yun Yen

/s/ Linda Marsh	Director	~~March 12, 2020~~February 28, 2022
Linda Marsh

Report of Independent Registered Public Accounting Firm (PCAOB ID: 34)		F-2

Consolidated Balance Sheets as of December 31, ~~2019~~2021 and ~~2018~~		~~F-3~~

~~Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018~~2020		F-4

Consolidated Statements of ~~Comprehensive Loss~~Operations for the Years Ended December 31, ~~2019~~2021, 2020 and ~~2018~~2019		F-5

Consolidated Statements of ~~Stockholders’ Equity~~Comprehensive Income (Loss) for the Years Ended December 31, ~~2019~~2021, 2020 and ~~2018~~2019		F-6

Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity for the Years Ended December 31, ~~2019~~2021, 2020 and ~~2018~~2019		F-7

~~Notes to~~ Consolidated ~~Financial~~ Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019		F-8

Notes to Consolidated Financial Statements		F-9

	December 31, 2018
	Amortized Cost Basis			Unrealized Gains		Unrealized Losses			Aggregate Fair Value
	(in thousands)
Marketable securities:
Short-term
Money market accounts	$	2,692		$	—	$	—		$	2,692
United States Treasury		990			—		—			990
U.S. government agency securities		790			—		—			790
Corporate debt securities		22,613			1		(96	)		22,518
Less: Cash equivalents		(2,692	)		—		—			(2,692	)
Total short-term marketable securities		24,393			1		(96	)		24,298
Corporate debt securities		6,383			11		(8	)		6,386
Total long-term marketable securities		6,383			11		(8	)		6,386
Total marketable securities	$	30,776		$	12	$	(104	)	$	30,684

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 ~~inputs~~ for the asset or liability.


	Year Ended December 31, 2019
	(in thousands)
Operating lease cost	$	587


	Year Ended December 31, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	535
Noncash lease expense	$	413
Right-of-assets obtained in exchange for new operating lease liabilities	$	110

	December 31, ~~2019~~2021
Weighted average remaining lease term - operating leases	~~5.6~~4.96 years
Weighted average discount rate - operating leases		~~6.25~~3.15	%
Weighted average remaining lease term -finance lease	4.94 years
Weighted average discount rate - finance lease		3.21	%

	Lease Payments
	from Tenants
	(in thousands)
Year Ending December 31,
2022	$	355
2023		264
2024		180
2025		120
Total	$	919

	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

		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		$	—