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Equity Method Investments
12 Months Ended
Dec. 31, 2019
Equity Method Investments And Joint Ventures [Abstract]  
Equity Method Investments

Note 15. Equity Method Investments

In April 2017, the Company, through an affiliated company formed for the purpose of the relationship, entered into the JV Agreement with Xilong Scientific and FJIP to form FF Gene Biotech, a joint venture formed under the laws of the PRC to offer genetic testing services to customers in the PRC. Pursuant to the terms of the JV Agreement, the Company has agreed to contribute to FF Gene Biotech genetic sequencing and other equipment with a total cost of 60,000,000 renminbi (“RMB”) over a five-year period for a 30% ownership interest in FF Gene Biotech, previously three-year per original agreement and amended in April 2019. Xilong Scientific has agreed to contribute to FF Gene Biotech 102,000,000 RMB over a five-year period for a 51% ownership interest in the FF Gene Biotech, previously three-year per original agreement and amended in April 2019. FJIP has agreed to contribute to FF Gene Biotech 19,000,000 RMB over a ten-year period for a 19% ownership interest in FF Gene Biotech, previously five-year per original agreement and amended in April 2019. 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.

The Company concluded FF Gene Biotech is a variable interest entity as FF Gene Biotech lacks sufficient capital to operate independently. The Company concluded that it alone does not have the power to direct the most significant activities of FF Gene Biotech and therefore is not the primary beneficiary of the entity. Judgment regarding the level of influence over FF Gene Biotech includes consideration of key factors such as the Company's ownership interest, representation on the board of directors or other management body and participation in policy-making decisions.

The Company accounts for its 30% interest in FF Gene Biotech using the equity method of accounting. The Company recorded its proportionate share of the losses of FF Gene Biotech for the year ended December 31, 2019 and 2018 in the accompanying Consolidated Statements of Operations, and recorded its contribution during the period, net of its proportionate share in the accumulated losses of FF Gene Biotech, in the accompanying Consolidated Balance Sheet as of December 31, 2019 and 2018.

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

 

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

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

 

 

December 31,

 

 

2019

 

 

2018

 

 

Carrying

Value

 

 

Ownership

Percentage

 

 

Carrying

Value

 

 

Ownership

Percentage

 

 

(in thousands)

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

FF Gene Biotech

$

872

 

 

 

30

%

 

$

1,512

 

 

 

30

%

Total equity method investments

$

872

 

 

 

30

%

 

$

1,512

 

 

 

30

%

 

Summary Financial Information

Summary financial information for FF Gene Biotech is as follows:

 

 

December 31,

 

 

2019

 

 

2018

 

Consolidated Balance Sheet Data:

(in thousands)

 

Current assets

$

3,007

 

 

$

1,916

 

Non-current assets

$

4,457

 

 

$

4,068

 

Current liabilities

$

3,748

 

 

$

2,415

 

Non-current liabilities

$

889

 

 

$

 

Minority interest

$

(426

)

 

$

 

Stockholders' equity

$

3,253

 

 

$

3,569

 

 

 

Year Ended December 31,

 

 

2019

 

 

2018

 

Consolidated Statement of Operations Data:

(in thousands)

 

Net sales

$

4,055

 

 

$

1,254

 

Gross profit

$

1,354

 

 

$

67

 

Net loss

$

(3,009

)

 

$

(3,101

)

 

 

 

 

 

 

 

 

Share of loss from investments accounted for using the equity method

$

(777

)

 

$

(935

)