What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 248 added, 143 removed, 461 unchanged (46% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

ASSETS (unaudited)

23 unchanged sentences

Preferred stock, $ 0.001 par value;

10,000,000 shares authorized as of June 30, 2020 and December 31, 2019;

no shares issued and outstanding as of June 30, 2020 and December 31, 2019.

10,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

no shares issued and outstanding as of September 30, 2020 and December 31, 2019.

Common stock, $ 0.001 par value;

200,000,000 shares authorized as of June 30, 2020 and December 31, 2019;

19,373,869 and 17,130,907 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively.

200,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

19,844,426 and 17,130,907 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.

Additional paid-in capital 224,146 137,308

4 unchanged sentences

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except per share data)

Three Months Ended June 30, Six Months Ended

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

2 unchanged sentences

Gross margin 12,742 13,066 38,338 28,931

OPERATING EXPENSES AND OTHER OPERATING INCOME

OPERATING EXPENSES AND OTHER OPERATING LOSS

Research and development 3,058 1,515 8,675 4,226

Selling, general and administrative 11,703 7,122 33,173 19,990

Other operating income ( 1,882 ) — ( 1,882 ) —

Total operating expenses, net 11,214 8,138 25,205 15,579

Operating income (loss) ( 645 ) 608 391 286

Other operating loss 1,882 — — —

Total operating expenses 16,643 8,637 41,848 24,216

Operating (loss) income ( 3,901 ) 4,429 ( 3,510 ) 4,715

Interest income 18 6 354 32

Interest expense ( 706 ) ( 1,088 ) ( 2,239 ) ( 3,805 )

Gain on extinguishment of debt (Note 6) — 5,213 — 5,213

Other expense, net — ( 2,711 ) — ( 2,933 )

Loss before income taxes ( 1,376 ) ( 1,269 ) ( 806 ) ( 2,627 )

(Loss) income before income taxes ( 4,589 ) 5,849 ( 5,395 ) 3,222

Income tax expense — — — —

Net loss and comprehensive loss ( 1,376 ) ( 1,269 ) ( 806 ) ( 2,627 )

Net (loss) income and comprehensive (loss) income ( 4,589 ) 5,849 ( 5,395 ) 3,222

Convertible preferred stock cumulative dividends — 289 — 2,156

Accretion of redeemable convertible preferred stock to redemption value

Net loss and comprehensive loss attributable to common stockholders $ ( 1,376 ) $ ( 2,265 ) $ ( 806 ) $ ( 4,607 )

Loss per share attributable to common stockholders:

Net (loss) income and comprehensive (loss) income attributable to common stockholders $ ( 4,589 ) $ 5,543 $ ( 5,395 ) $ 936

(Loss) earnings per share attributable to common stockholders:

$ ( 0.23 ) $ 0.43 $ ( 0.29 ) $ 0.17

17 unchanged sentences

Shares Amount Shares Amount Shares Amount Shares Amount

BALANCE, APRIL 1, 2019 503,056 $ 1,501 9,456,775 $ 45,051 — $ — 1,916,701 $ 2 $ 9,412 $ ( 58,847 ) $ ( 49,433 )

BALANCE, JULY 1, 2019 503,056 $ 1,501 9,456,775 $ 45,108 — $ — 2,192,461 $ 2 $ 9,910 $ ( 60,116 ) $ ( 50,204 )

Stock compensation expense — — — — — — — — 229 — 229

2 unchanged sentences

Series E-3 — — — 1 — — — — ( 1 ) — ( 1 )

Series F — — — 16 — — — — ( 16 ) — ( 16 )

Exercise of redeemable convertible preferred stock warrants:

Series E-1 — — 12,999 107 — — — — — — —

Series F — — 1,054 10 — — — — — — —

Net loss — — — — — — — — — ( 1,269 ) ( 1,269 )

BALANCE, JUNE 30, 2019 503,056 $ 1,501 9,456,775 $ 45,108 — $ — 2,192,461 $ 2 $ 9,910 $ ( 60,116 ) $ ( 50,204 )

BALANCE, APRIL 1, 2020 — $ — — $ — — $ — 17,203,496 $ 17 $ 139,559 $ ( 51,642 ) $ 87,934

Extinguishment of beneficial conversion feature on convertible promissory notes — — — — — — — — ( 15,265 ) — ( 15,265 )

Public offering of common stock, net of underwriting discounts, commissions and offering costs — — — — — — 4,600,000 5 65,926 — 65,931

Conversion of convertible promissory notes — — — — — — 1,661,106 2 26,576 — 26,578

Conversion of convertible preferred stock ( 503,056 ) ( 1,501 ) ( 9,470,828 ) ( 45,242 ) — — 8,181,992 8 46,735 — 46,743

Reclassification of preferred stock warrant liability and net exercise of certain warrants for common stock in connection with initial public offering — — — — — — 27,207 — 1,745 — 1,745

Net income — — — — — — — — — 5,849 5,849

BALANCE, SEPTEMBER 30, 2019 — $ — — $ — — $ — 17,074,049 $ 17 $ 136,586 $ ( 54,267 ) $ 82,336

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)

(in thousands, except share data)

Stock Series C

Preferred Stock

Series A, B, D, E-1,

E-2, E-2A, E-3 and F

Preferred Stock Common Stock Additional

Capital Accumulated

Deficit Total

Stockholders’

Equity (Deficit)

Shares Amount Shares Amount Shares Amount Shares Amount

BALANCE, JULY 1, 2020 — $ — — $ — — $ — 19,373,869 $ 19 $ 210,621 $ ( 53,018 ) $ 157,622

Stock compensation expense — — — — — — — — 2,118 — 2,118

Exercise of common stock options — — — — — — 129,090 1 291 — 292

Issuance of common stock under the employee stock purchase plan

— — — — — — 41,467 — 693 — 693

Public offering of common stock, net of underwriting discounts, commissions and offering costs

1 unchanged sentence

Net loss — — — — — — — — — ( 4,589 ) ( 4,589 )

BALANCE, JUNE 30, 2020 — $ — — $ — — $ — 19,373,869 $ 19 $ 210,621 $ ( 53,018 ) $ 157,622

BALANCE, SEPTEMBER 30, 2020 — $ — — $ — — $ — 19,844,426 $ 20 $ 224,146 $ ( 57,607 ) $ 166,559

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

19 unchanged sentences

Series F — — — 121 — — — — ( 121 ) — ( 121 )

Exercise of redeemable convertible preferred stock warrants:

Series E-1 — — 12,999 107 — — — — — — —

Series F — — 1,054 10 — — — — — — —

Recognition of beneficial conversion feature on convertible promissory notes

— — — — — — — — 8,378 — 8,378

Net loss — — — — — — — — — ( 2,627 ) ( 2,627 )

BALANCE, JUNE 30, 2019 503,056 $ 1,501 9,456,775 $ 45,108 — $ — 2,192,461 $ 2 $ 9,910 $ ( 60,116 ) $ ( 50,204 )

Extinguishment of beneficial conversion feature on convertible promissory notes — — — — — — — — ( 15,265 ) — ( 15,265 )

Public offering of common stock, net of underwriting discounts, commissions and offering costs — — — — — — 4,600,000 5 65,926 — 65,931

Conversion of convertible promissory notes — — — — — — 1,661,106 2 26,576 — 26,578

Conversion of convertible preferred stock ( 503,056 ) ( 1,501 ) ( 9,470,828 ) ( 45,242 ) — — 8,181,992 8 46,735 — 46,743

Reclassification of preferred stock warrant liability and net exercise of certain warrants in connection with initial public offering — — — — — — 27,207 — 1,745 — 1,745

Net income — — — — — — — — — 3,222 3,222

BALANCE, SEPTEMBER 30, 2019 — $ — — $ — — $ — 17,074,049 $ 17 $ 136,586 $ ( 54,267 ) $ 82,336

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)

(in thousands, except share data)

Stock Series C

Preferred Stock

Series A, B, D, E-1,

E-2, E-2A, E-3 and F

Preferred Stock Common Stock Additional

Capital Accumulated

Deficit Total

Stockholders’

Equity (Deficit)

Shares Amount Shares Amount Shares Amount Shares Amount

BALANCE, JANUARY 1, 2020 — $ — — $ — — $ — 17,130,907 $ 17 $ 137,308 $ ( 52,212 ) $ 85,113

6 unchanged sentences

Net loss — — — — — — — — — ( 5,395 ) ( 5,395 )

BALANCE, JUNE 30, 2020 — $ — — $ — — $ — 19,373,869 $ 19 $ 210,621 $ ( 53,018 ) $ 157,622

BALANCE, SEPTEMBER 30, 2020 — $ — — $ — — $ — 19,844,426 $ 20 $ 224,146 $ ( 57,607 ) $ 166,559

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

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended

September 30,

OPERATING ACTIVITIES

Net loss $ ( 806 ) $ ( 2,627 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Net (loss) income $ ( 5,395 ) $ 3,222

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

Depreciation 312 254

2 unchanged sentences

Amortization of debt discounts and issuance costs 666 1,691

Other non-cash interest — 442

Gain on extinguishment of debt — ( 5,213 )

Change in fair value of preferred stock warrant liability — 619

Change in fair value of embedded derivative — 237

Change in fair value of convertible promissory note accounted for under the fair value option — 2,077

Change in operating assets and liabilities:

11 unchanged sentences

Purchases of property and equipment ( 4,162 ) ( 590 )

Proceeds from sale of property and equipment 2 —

Net cash used in investing activities ( 4,160 ) ( 590 )

FINANCING ACTIVITIES

Proceeds from public offering of common stock, net of underwriting discounts, commissions and offering costs

Proceeds from issuance of convertible promissory notes (including $ 4,756 from related parties for the six months ended June 30, 2019), net of issuance costs

Proceeds from public offerings of common stock, net of underwriting discounts, commissions and offering costs 79,504 65,935

Proceeds from issuance of preferred stock and preferred stock warrants (including exercised warrants) — 49

Proceeds from issuance of convertible promissory notes (including $ 4,756 from related parties for the nine months ended September 30, 2019), net of issuance costs

Proceeds from issuance of convertible promissory note and common stock warrant, net of issuance costs — 9,236

Proceeds from issuance of term debt, net of issuance costs — 1,776

Repayments on term debt ( 3,333 ) —

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

Nine Months Ended

September 30,

Repayments on line of credit — ( 1,791 )

Payments of deferred offering costs — ( 454 )

Proceeds from exercise of common stock options 692 1,164

4 unchanged sentences

End of period $ 183,050 $ 94,475

CASTLE BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

Six Months Ended June 30,

DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

2 unchanged sentences

Common stock and debt issuance costs incurred but not paid $ — $ 4

Issuance of common stock upon conversion of convertible preferred stock

Conversion of preferred stock warrants to common stock warrants $ — $ 1,745

Issuance of common stock upon conversion of convertible promissory notes $ — $ 26,578

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

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The Company has implemented adjustments to its operations designed to keep employees safe and comply with federal, state and local guidelines, including those regarding social distancing.

The Company experienced a decline in test report volume in the second quarter of 2020, which it believes is linked to delays and/or cancellations in patient visits, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma in response to COVID-19.

T he extent to which COVID-19 may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

The Company experienced a decline in total test report volume in the second quarter of 2020 compared to the second quarter of 2019, which it believes was linked to delays and/or cancellations in patient visits, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma in response to COVID-19.

While the Company experienced improvements in total test report volume in the third quarter of 2020 compared to the third quarter of 2019, the extent to which COVID-19 may further impact the Company’s business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

In response to COVID-19, the United States government has passed legislation and taken other actions to provide financial relief to companies and other organizations affected by the pandemic.

Refer to Note 2 for information on certain payments received by the Company in April 2020 as a result of these actions.

The Company intends to fund planned operations for the next 12 months using a portion of its cash and cash equivalents on hand, which totaled $ 179.8 million at June 30, 2020, and collections from test report sales.

The Company intends to fund planned operations for the next 12 months using a portion of its cash and cash equivalents on hand, which totaled $ 183.1 million at September 30, 2020, and collections from test report sales.

Summary of Significant Accounting Policies

3 unchanged sentences

Unaudited Interim Financial Information

The accompanying condensed balance sheet as of June 30, 2020;

the condensed statements of operations and comprehensive loss, the condensed statements of convertible preferred stock and stockholders’ equity (deficit) for the three and six months ended June 30, 2020 and 2019;

and the condensed statements of cash flows for the six months ended June 30, 2020 and 2019 are unaudited.

The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2020 and the results of its operations and its cash flows for the three and six months ended June 30, 2020 and 2019.

The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2020 and 2019 are also unaudited.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

The accompanying condensed balance sheet as of September 30, 2020;

the condensed statements of operations and comprehensive (loss) income, the condensed statements of convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2020 and 2019;

and the condensed statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited.

The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020 and the results of its operations and its cash flows for the three and nine months ended September 30, 2020 and 2019.

The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are also unaudited.

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

The balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date.

10 unchanged sentences

Actual results could differ from those estimates and assumptions.

The Company has considered the potential impact of the COVID-19 pandemic on its estimates and assumptions and while there was not a material impact to the Company’s condensed financial statements as of and for the three and six months ended June 30, 2020, the extent to which the COVID-19 pandemic may impact the Company’s estimates is uncertain and subject to change.

The Company has considered the potential impact of the COVID-19 pandemic on its estimates and assumptions.

The extent to which the COVID-19 pandemic may impact the Company’s estimates in future periods is uncertain and subject to change.

Operating Segments

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The Company also provides a test for uveal melanoma, DecisionDx®-UM.

The Company launched a test for patients with squamous cell carcinoma, DecisionDx®-SCC in August 2020 and launched a test for use in patients with suspicious pigmented lesions, DecisionDx® DiffDx™-Melanoma in November 2020.

Information on the disaggregation of revenues by the Company’s significant third-party payors is included under Payor Concentration below.

7 unchanged sentences

In addition, patients do not enter into direct agreements with the Company that commit them to pay any portion of the cost of the tests in the event that their insurance provider declines to reimburse the Company.

The Company may pursue, on a case-by-case basis, reimbursement from such patients in the form of co-payments and co-insurance, in accordance with the contractual obligations

The Company may pursue, on a case-by-case basis,

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

that the Company has with the insurance carrier or health plan.

reimbursement from such patients in the form of co-payments and co-insurance, in accordance with the contractual obligations that the Company has with the insurance carrier or health plan.

These situations may result in a delay in the collection of payments.

9 unchanged sentences

Variable consideration is evaluated each reporting period and adjustments are recorded as increases or decreases in revenues.

Included in revenues for the three months ended June 30, 2020 and 2019 were $ 2,291,000 and $ 3,257,000 , respectively, of revenue increases associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

Such amounts of variable consideration for the six months ended June 30, 2020 and 2019 were revenue increases of $ 1,048,000 and $ 2,794,000 , respectively.

Included in revenues for the three months ended September 30, 2020 and 2019 were $ 1,450,000 and $ 3,203,000 , respectively, of revenue increases associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

Such amounts of variable consideration for the nine months ended September 30, 2020 and 2019 were revenue increases of $ 223,000 and $ 2,394,000 , respectively.

These amounts include (i) adjustments for actual collections versus estimated amounts and (ii) cash collections and the related recognition of revenue in current period for tests delivered in prior periods due to the release of the constraint on variable consideration.

1 unchanged sentence

Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of the Company’s contracts.

Contract balances consisted of accounts receivable (both current and noncurrent) and the Medicare advance payment (discussed further below) as of June 30, 2020 and consisted solely of accounts receivable (both current and noncurrent) as of December 31, 2019.

Contract balances consisted of accounts receivable (both current and noncurrent) and the Medicare advance payment (discussed further below) as of September 30, 2020.

Contract balances consisted solely of accounts receivable (both current and noncurrent) as of December 31, 2019.

Medicare Advance Payment

On April 16, 2020, the Company received an advance payment of $ 8.3 million (the “Advance Payment”) from the Centers for Medicare & Medicaid Services (“CMS”) under its Accelerated and Advance Payment Program, which was recently expanded to provide increased cash flow to service providers during the COVID-19 pandemic.

Starting on August 14, 2020 ( 120 days after the issuance of the Advance Payment), the recoupment process will begin, and all claims the Company submits for reimbursement to Medicare will be applied against the balance of the Advance Payment.

If the Advance Payment is not fully recovered by CMS by November 12, 2020 ( 210 days from the issuance of the Advance Payment), the Company will make arrangements with its Medicare Administrative Contractor for CMS to recoup the remaining balance.

The Company has recorded the receipt of the Advance Payment as a current liability on its balance sheet in the second quarter of 2020.

The Company will reduce the balance as it is applied to new claims or is otherwise recouped by CMS.

As of June 30, 2020, no revenue has been recognized related to any portion of the Advance Payment.

DecisionDx-Melanoma Claims Consolidation

In June 2017, the Company submitted to the Office of Medicare Hearings and Appeals (‘‘OMHA’’) a formal request to participate in a program that OMHA developed with the intent of providing appellants a means to have large volumes of claim

On April 16, 2020, the Company received an advance payment of $ 8.3 million (the “Advance Payment”) from the Centers for Medicare & Medicaid Services (“CMS”) under its Accelerated and Advance Payment Program, which was expanded to provide increased cash flow to service providers during the COVID-19 pandemic.

The Company has recorded the Advance Payment as a current liability on its balance sheet as of September 30, 2020.

The Company will reduce the balance of the Advance Payment as it is applied to claims or is otherwise recouped by CMS.

Originally, CMS was to recoup the Advance Payment from August 2020 through November 2020.

However, the enactment on October 1, 2020 of the Continuing Appropriations Act, 2021 and Other Extensions Act (the “Appropriations Act”) modified the repayment terms such that recoupment will now commence in April 2021.

For the first eleven months of recoupment, CMS will apply 25% of the Medicare payments otherwise owed to the Company against the balance of the Advance Payment.

After that eleven-month period, CMS will recoup at a rate of 50% of the Medicare payments otherwise owed to the Company for an additional six months.

If the Advance Payment is not fully recovered by CMS after this recoupment period, the Company will be required to repay any remaining balance.

The classification of the Advance Payment on the Company’s balance sheet at September 30, 2020 does not consider the effect of

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

disputes adjudicated at an accelerated rate.

the Appropriations Act.

As of September 30, 2020, no revenue has been recognized related to any portion of the Advance Payment.

DecisionDx-Melanoma Claims Consolidation

The program consolidates outstanding claims at the ALJ level and uses a statistical-sampling approach where five ALJs will determine reimbursement results for a sample of claims which are then extrapolated to the universe of claims.

8 unchanged sentences

Percentage of Revenues

Six Months Ended

June 30, Percentage of

Nine Months Ended

September 30, Percentage of

Accounts Receivable

2 unchanged sentences

(non-current)

2020 2019 June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019

2020 2019 September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

Medicare 54 % 47 % 11 % 7 % — % — %

2 unchanged sentences

BlueCross BlueShield plans 8 % 6 % 27 % 25 % 47 % 46 %

* Less than 1%

Accounts Receivable and Allowance for Doubtful Accounts

5 unchanged sentences

Historically, the Company’s bad debt expense has not been significant.

The allowance for doubtful accounts was zero as of June 30, 2020 and December 31, 2019.

The allowance for doubtful accounts was zero as of September 30, 2020 and December 31, 2019.

Adjustments for implicit price concessions attributable to variable consideration, as discussed above, are incorporated into the measurement of the accounts receivable balances and are not part of the allowance for doubtful accounts.

Other Operating Income

Other operating income consists of an automatic payment of $ 1.9 million that the Company received on April 10, 2020 from the U.S.

Other Operating Loss

On April 10, 2020, the Company recei ved an automatic payment of $ 1.9 million from the U.S.

Department of Health and Human Services (“HHS”) pursuant to the Coronavirus Aid, Relief and Economic Security Act enacted on March 27, 2020, also known as the CARES Act, out of relief funds allocated by HHS to healthcare providers to reimburse healthcare related expenses or lost revenues attributable to COVID-19.

This automatic payment was calculated by HHS in proportion to the providers’ share of Medicare fee-for-service reimbursements in 2019 and was applicable to all facilities and providers that received Medicare fee-for-service reimbursements in 2019.

As determined by HHS, the funds will not need to be repaid.

This automatic payment was calculated by HHS in proportion to the

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

providers’ share of Medicare fee-for-service reimbursements in 2019 and was applicable to all facilities and providers that received Medicare fee-for-service reimbursements in 2019.

In the second quarter of 2020, based on guidance issued by HHS at the time that stated any reasonable method could be used to calculate lost revenues attributable to COVID-19, the Company concluded it would qualify to retain the relief funds and recognized the funds received as other operating income during the three months ended June 30, 2020.

On September 19, 2020, HHS issued a notice of reporting requirements that changed the methodology for determining lost revenues to be based on a patient care operating income metric, as defined by HHS.

Due to this change in methodology and uncertainty in its application, the Company determined that it was no longer reasonably assured of keeping the funds.

Therefore, in the three months ended September 30, 2020, the Company reversed the previously recognized income.

As of September 30, 2020, the provider relief funds are reflected on the balance sheet as other accrued liabilities.

On October 22, 2020, HHS again revised the methodology for calculating lost revenues, which is now calculated as a negative change, if any, in calendar year 2020 revenues compared to calendar year 2019 revenues.

Fair Value of Financial Instruments

6 unchanged sentences

The Company also accrues for liabilities under employee sales incentive bonus plans with accruals based on performance achieved to date compared to established targets.

As of June 30, 2020 and December 31, 2019, the Company accrued $ 3,060,000 and $ 4,785,000 , respectively, for liabilities associated with these bonus plans.

As of September 30, 2020 and December 31, 2019, the Company accrued $ 4,611,000 and $ 4,785,000 , respectively, for liabilities associated with these bonus plans.

These amounts are classified as current or noncurrent accrued liabilities in the balance sheets based on the expected timing of payment.

3 unchanged sentences

The Company began deferring payment of the employer share of social security taxes in May 2020.

As of June 30, 2020, the Company had deferred payment of $ 176,000 of such taxes, which are classified as noncurrent liabilities in the balance sheet.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources.

The Company’s comprehensive loss was the same as its reported net loss for all periods presented.

As of September 30, 2020, the Company had deferred payment of $ 378,000 of such taxes, which are classified as noncurrent liabilities in the balance sheet.

Comprehensive (Loss) Income

Comprehensive (loss) income is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources.

The Company’s comprehensive (loss) income was the same as its reported net (loss) income for all periods presented.

Accounting Pronouncements Yet to be Adopted

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes FASB ASC Topic 840, Leases (Topic 840), and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes FASB ASC Topic 840, Leases, and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

6 unchanged sentences

2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842):

Effective Dates (“ASU 2019-10”), which included a one-year deferral of the effective date of ASU 2016-02 for certain entities.

Effective Dates (“ASU 2019-10”), which included a one-year deferral of the effective date of ASU

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

2016-02 for certain entities.

In June 2020, the FASB issued ASU No.

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The Company expects to adopt the new standard in the fourth quarter of 2022 using the modified retrospective method, under which the Company will apply Topic 842 to existing and new leases as of January 1, 2022, but prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during those periods.

The Company anticipates that the adoption will not have a material impact on its statements of operations and comprehensive loss or its statements of cash flows but expects to recognize right-of-use assets and liabilities for lease obligations associated with its operating leases.

The Company anticipates that the adoption will not have a material impact on its statements of operations and comprehensive (loss) income or its statements of cash flows but expects to recognize right-of-use assets and liabilities for lease obligations associated with its operating leases.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), which requires the measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting date based on historical experience, current conditions and reasonable forecasts.

The main objective of this ASU is

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

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.

The main objective of this ASU is 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.

In November 2018, the FASB issued ASU No.

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The Company is currently evaluating the impact of ASU 2019-12 on its financial statements.

Loss Per Share

Loss per share is computed by dividing net loss attributable to common stockholders for the period by the weighted-average number of common shares outstanding during the period.

The weighted-average number of common shares outstanding includes shares associated with an outstanding warrant, issued in July 2019, to purchase 209,243 shares of common stock, which are deemed to have been issued for purposes of calculating basic and diluted loss per share, due to the nominal exercise price.

(Loss) Earnings Per Share

Basic (loss) earnings per share is computed by dividing net (loss) income attributable to common stockholders for the period by the weighted-average number of common shares outstanding during the period.

On July 29, 2019, the Company completed the initial public offering of its common stock (the “IPO”), in which it issued and sold 4,600,000 shares of common stock.

Also on that date, all of the Company’s outstanding convertible preferred stock and convertible promissory notes automatically converted into 8,181,992 and 1,661,106 shares, respectively, of common stock and certain outstanding warrants to purchase Series F convertible redeemable preferred stock were net exercised for an aggregate of 27,207 shares of common stock.

On June 29, 2020, the Company completed a follow-on public offering in which it issued and sold 2,000,000 shares of common stock, as discussed further in Note 10.

On June 29, 2020 and July 2, 2020, the Company issued and sold 2,000,000 and 300,000 shares, respectively, of common stock in a follow-on public offering, as discussed further in Note 10.

The foregoing shares are included in the Company’s weighted-average number of common shares outstanding starting on the respective issuance/conversion dates.

Diluted loss per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or purchases under the 2019 Employee Stock Purchase Plan (“ESPP”), as well as from the possible conversion of the Company’s convertible preferred stock, convertible promissory notes and exercise of outstanding warrants.

Diluted (loss) earnings per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options or purchases under the 2019 Employee Stock Purchase Plan (“ESPP”), as well as from the possible conversion of the Company’s convertible preferred stock, convertible promissory notes and exercise of outstanding warrants.

The treasury stock and if-converted methods are used to calculate the potential dilutive effect of these common stock equivalents.

However, potentially dilutive shares are excluded from the computation of diluted loss per share when their effect is antidilutive.

However, potentially dilutive shares are excluded from the computation of diluted (loss) earnings per share when their effect is antidilutive.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Due to the Company reporting a net loss attributable to common stockholders for all periods presented, all potentially dilutive securities are antidilutive and are excluded from the computations of diluted loss per share for all such periods.

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in the Company’s calculation of diluted loss per share for the three and six months ended June 30, 2020 and 2019 because to do so would be antidilutive (in thousands):

The following table shows the computation of basic and diluted (loss) earnings per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net (loss) income attributable to common stockholders $ ( 4,589 ) $ 5,543 $ ( 5,395 ) $ 936

Assumed conversion of convertible promissory notes (1) :

Extinguishment gain — ( 5,213 ) — ( 5,213 )

Interest expense and change in fair value of embedded derivative — 420 — 420

Numerator for diluted (loss) earnings per share $ ( 4,589 ) $ 750 $ ( 5,395 ) $ ( 3,857 )

Weighted-average common shares outstanding, basic 19,936 12,758 18,290 5,649

Assumed conversion of convertible promissory notes (1)

Assumed exercise of common stock warrants — 67 — —

Assumed exercise of stock options — 1,187 — —

Weighted-average common shares outstanding, diluted 19,936 14,302 18,290 5,747

(Loss) earnings per share attributable to common stockholders:

Basic $ ( 0.23 ) $ 0.43 $ ( 0.29 ) $ 0.17

Diluted $ ( 0.23 ) $ 0.05 $ ( 0.29 ) $ ( 0.67 )

(1) For both the three and nine months ended September 30, 2019, these figures reflect the assumed conversion of the Q1 2019 Notes (as defined in Note 6) into shares of common stock beginning July 1, 2019, in accordance with the requirements in ASC Topic 260, Earnings per Share , for contingently issuable shares due to the contingency not being met until the third quarter of 2019.

Accordingly, the associated numerator adjustments for the nine months ended September 30, 2019 exclude activity from the first two quarters of 2019.

The July 2019 Note (as defined in Note 6), was excluded from the computation of diluted (loss) earnings per share prior to its conversion on July 29, 2019 in connection with the IPO, as disclosed below.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Due to the Company reporting a net loss attributable to common stockholders for the three and nine months ended September 30, 2020, all potentially dilutive securities are antidilutive and are excluded from the computations of diluted loss per share for such periods.

The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in the Company’s calculation of diluted (loss) earnings per share for the three and nine months ended September 30, 2020 and 2019 because to do so would be antidilutive (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Convertible preferred stock — 2,489 — 6,256

Convertible promissory notes (1)

Convertible promissory note (1)

Stock options 2,767 139 2,732 1,778

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Total 2,903 2,799 2,871 8,215

(1) Based on conversion of the aggregate principal amount, plus accrued interest thereon, of the convertible promissory notes into shares of common stock based on the IPO price of $ 16.00 per share and assuming the occurrence of such conversion as of the beginning of 2019 or the date of issuance, if later.

(1) Associated with the July 2019 Note.

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Lab equipment $ 1,977 $ 1,563

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Property and equipment, net $ 6,646 $ 2,060

Depreciation expense was recorded in the statements of operations and comprehensive loss as follows (in thousands):

Depreciation expense was recorded in the statements of operations and comprehensive (loss) income as follows (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Other accrued liabilities consisted of the following (in thousands) :

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Provider relief funds $ 1,882 $ —

Accrued service fees 1,201 1,162

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Convertible Promissory Notes

Q1 2019 Notes

In January and February 2019, the Company issued $ 11,770,000 principal amount of unsecured convertible promissory notes (the “Q1 2019 Notes”), of which $ 4,756,000 was with related parties (executive officers, members of the Company’s board of directors or entities affiliated with them).

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The entire amount of the outstanding principal amount plus accrued interest on the Q1 2019 Notes converted into 954,074 shares of common stock in connection with the IPO on July 29, 2019.

The Company determined that certain features of the Q1 2019 Notes were subject to bifurcation and separate accounting under ASC 815-15, Embedded Derivatives .

The embedded derivative was recorded at fair value each reporting period, with changes in fair value recorded as “other expense, net” in the statements of operations and comprehensive loss.

The Company determined that certain features of the Q1 2019 Notes were subject to bifurcation and separate accounting under ASC Subtopic 815-15, Embedded Derivatives .

The embedded derivative was recorded at fair value each reporting period, with changes in fair value recorded as “other expense, net” in the statements of operations and comprehensive (loss) income.

No hedge accounting treatment was applied.

The Company also determined the Q1 2019 Notes contained a beneficial conversion feature under ASC 470-20, Debt with Conversion and Other Options, related to the optional conversion of the Q1 2019 Notes into Series F redeemable convertible preferred stock at maturity.

The Company also determined the Q1 2019 Notes contained a beneficial conversion feature under ASC Subtopic 470-20, Debt with Conversion and Other Options, related to the optional conversion of the Q1 2019 Notes into Series F redeemable convertible preferred stock at maturity.

The debt discounts created from the initial recognition of the embedded derivative and the beneficial conversion feature were being amortized to interest expense over the life of the debt using the effective interest method.

Amortization of discounts and issuance costs on the Q1 2019 Notes totaled $ 767,000 for the three months ended June 30, 2019 and $ 971,000 for the six months ended June 30, 2019 and were included in interest expense.

The amounts recognized in net loss for three and six months ended June 30, 2019 for the embedded derivative liability are as follows (in thousands) :

Gain (Loss) Recognized in Net Loss

Statement of Operations and Comprehensive Loss Location Three Months Ended

June 30, 2019 Six Months Ended

June 30, 2019

Amortization of discounts and issuance costs on the Q1 2019 Notes totaled $ 245,000 for the three months ended September 30, 2019 and $ 1,216,000 for the nine months ended September 30, 2019 and were included in interest expense.

The conversion of the Q1 2019 Notes was considered an extinguishment for accounting purposes.

The Company recognized an extinguishment gain of $ 5,213,000 during the three and nine months ended September 30, 2019.

The amounts recognized in net income for three and nine months ended September 30, 2019 for the embedded derivative liability are as follows (in thousands) :

(Loss) Recognized in Net Income

Statement of Operations and Comprehensive (Loss) Income Location Three Months Ended

September 30, 2019 Nine Months Ended

September 30, 2019

Derivatives Not Classified as Hedging Instruments

Embedded derivative in convertible promissory notes Other expense, net $ ( 101 ) $ ( 237 )

July 2019 Note

On July 12, 2019, the Company issued an unsecured convertible promissory note having a principal amount of $ 10,000,000 (the ‘‘July 2019 Note’’) to an investor.

The July 2019 Note bore simple interest at a rate of 8 % per annum and had an original maturity date of June 30, 2020.

The IPO triggered an automatic conversion feature of the July 2019 Note under which the

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

outstanding principal amount plus accrued interest converted into 707,032 shares of common stock in connection with the closing of the IPO on July 29, 2019, based on a price derived from a valuation calculated pursuant to the terms of the July 2019 Note.

In connection with the July 2019 Note issuance, the Company issued the purchaser of the July 2019 Note a warrant to purchase up to 209,243 shares of common stock at an exercise price of approximately $ 0.001 per share.

The Company elected to account for the July 2019 Note under the fair value option in accordance with ASC Topic 825, Financial Instruments .

Under the fair value option, changes in fair value were recorded in the condensed statements of operations and comprehensive (loss) income each period as “other expense, net.” For the three and nine months ended September 30, 2019, the company recorded $ 2,077,000 of negative fair value adjustments through the settlement date in the statements of operations and comprehensive (loss) income.

Long-Term Debt

The Company’s long-term debt balances are presented in the table below (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Term debt $ 23,354 $ 26,688

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In February 2020, the Company entered into a second amendment of the 2018 LSA (the “Second Amendment”) that, among other things, changed the covenant from being tested monthly to quarterly testing.

In March 2020, the Company entered into a third amendment of the 2018 LSA (the “Third Amendment”) with the Lenders to establish revenue targets for the year ending December 31, 2020, which were calculated a percentage of the Company’s previously approved quarterly revenue projections.

In March 2020, the Company entered into a third amendment of the 2018 LSA with the Lenders to establish revenue targets for the year ending December 31, 2020, which were calculated a percentage of the Company’s previously approved quarterly revenue projections.

For quarterly periods ending after December 31, 2020, the trailing three-month revenue requirements will be determined by the Lenders upon receipt and review of the Company’s quarterly financial projections for the year, subject to certain specified criteria regarding minimum requirements.

Revenues, if any, that the Company recognizes as a result of an ALJ appeal process from consolidated claims initiatives for DecisionDx-Melanoma do not count toward the minimum revenue requirements.

On May 10, 2020, the Company entered into a fourth amendment of the 2018 LSA (the “Fourth Amendment”) to modify the covenant structure such that the Company is required to comply with either (i) the trailing three-month revenue target or (ii) a liquidity ratio, in both cases measured quarterly.

On May 10, 2020, the Company entered into a fourth amendment of the 2018 LSA to modify the covenant structure such that the Company is required to comply with either (i) the trailing three-month revenue target or (ii) a liquidity ratio, in both cases measured quarterly.

The liquidity ratio covenant requires that the ratio of (i) unrestricted cash and cash equivalents (as defined in the 2018 LSA) held at SVB or its affiliates to (ii) the outstanding obligations under the 2018 LSA be at least 2.00 to 1.00.

As of June 30, 2020, the Company was in compliance with this covenant by satisfying the liquidity ratio test, with a liquidity ratio of 6.89 to 1.00 as of June 30, 2020.

As of September 30, 2020, the Company was in compliance with the covenant.

The Company’s liquidity ratio was 7.76 to 1.00 as of September 30, 2020.

In addition, the 2018 LSA contains customary conditions of borrowing, events of default and covenants, including covenants that restrict the Company’s ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of the Company’s capital stock.

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The Second Amendment included a waiver, by the Lenders, of an event of default of the Company attributable to maintaining a balance in a certain third-party deposit account, beyond the maximum level permitted, without obtaining a control agreement for such deposit account in favor of the collateral agent, Oxford.

In addition to the waiver, the Second Amendment also provided a modification to increase the maximum balance permitted for this deposit account.

In addition to the waiver, the Second Amendment also provided a

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

modification to increase the maximum balance permitted for this deposit account.

The Company is currently in compliance with this provision of the 2018 LSA.

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LIBOR rate as reported in the Wall Street Journal on the last business day of the month that precedes the month in which the interest will accrue, plus 6.48 %.

The applicable interest rate on the Term Loan was 8.55 % as of June 30, 2020 and December 31, 2019.

The applicable interest rate on the Term Loan was 8.55 % as of September 30, 2020 and December 31, 2019.

Interest on the Term Loan is payable monthly in arrears.

The Company is permitted to make interest-only payments on the Term Loan through

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

May 31, 2020.

The Company was permitted to make interest-only payments on the Term Loan through May 31, 2020.

As required, the Company began to repay the principal in 30 equal monthly installments of $ 833,333 each beginning on June 1, 2020.

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Accordingly, the fair value estimates disclosed, or amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange.

The table below provides information, by level within the fair value hierarchy, of the Company’s financial assets and financial liabilities that are accounted for at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 (in thousands):

As of June 30, 2020

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

The table below provides information, by level within the fair value hierarchy, of the Company’s financial assets and financial liabilities that are accounted for at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 (in thousands):

As of September 30, 2020

Quoted Prices in Active Markets for Identical Items (Level 1) Significant Other Observable Inputs

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The Company believes there is no threatened litigation or litigation pending that could have, individually or in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Stockholders’ Equity

Common Stock Offering

On June 29, 2020, the Company issued and sold 2,000,000 shares of its common stock in a follow-on public offering at a price of $ 37.00 per share.

The Company received approximately $ 69.1 million in net proceeds, after deducting underwriting discounts and commissions and offering costs (including $ 0.5 million in offering costs that were incurred but not paid as of June 30, 2020).

In connection with the offering, the Company granted the underwriters a 30 -day option to purchase up to 300,000 additional shares of common stock at the public offering price, less underwriting discounts and commissions.

On July 2, 2020, the Company issued and sold an additional 300,000 shares of common stock pursuant to the underwriters’ exercise in full of their option to purchase additional shares, which resulted in additional net proceeds to the Company of $ 10.4 million.

On June 29, 2020 and July 2, 2020, the Company issued and sold 2,000,000 and 300,000 shares, respectively, of its common stock in a follow-on public offering at a price of $ 37.00 per share.

The Company received $ 79.5 million in aggregate net proceeds, after deducting underwriting discounts and commissions and offering costs.

The shares issued and sold on July 2, 2020 reflect the underwriters’ exercise in full of their 30 -day option to purchase additional shares at the public offering price, less underwriting discounts and commissions.

Common Stock Warrants

Information about common stock warrants outstanding as of June 30, 2020 and December 31, 2019 are presented in the table below:

Information about common stock warrants outstanding as of September 30, 2020 and December 31, 2019 are presented in the table below:

Expiration date Number of shares Exercise price

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The common stock warrants are classified as stockholders’ equity and no adjustments are recorded for changes in fair value.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

Stock Incentive Plans and Stock-Based Compensation

Stock Incentive Plans

Activity under the Company’s stock plans for the six months ended June 30, 2020 is set forth below:

Activity under the Company’s stock plans for the nine months ended September 30, 2020 is set forth below:

Weighted-Average

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Forfeited/Canceled 84,322 ( 84,322 ) $ 27.02

Balance as of June 30, 2020 1,454,402 2,700,261 $ 16.15 8.62 $ 58,172

Exercisable at June 30, 2020 (1)

Balance as of September 30, 2020 1,226,874 2,798,699 $ 19.50 8.57 $ 89,406

Exercisable at September 30, 2020 (1)

635,351 $ 4.11 7.08 $ 30,076

(1) Vested and exercisable options.

Additionally, outstanding unvested options to purchase an aggregate of 97,097 shares of common stock with a weighted-average exercise price of $ 2.39 per share may be exercised prior to vesting as of June 30, 2020 under early-exercise provisions.

Additionally, outstanding unvested options to purchase an aggregate of 82,624 shares of common stock with a weighted-average exercise price of $ 2.39 per share may be exercised prior to vesting as of September 30, 2020 under early-exercise provisions.

In the event of such exercise, the shares obtained upon exercise would be restricted and subject to forfeiture prior to vesting.

No such early exercises have occurred as of June 30, 2020.

No such early exercises have occurred as of September 30, 2020.

Employee Stock Purchase Plan

The ESPP provides for certain automatic increases in the number of shares of common stock reserved for issuance, which resulted in an additional 171,309 shares becoming available under the ESPP effective January 1, 2020.

On February 28, 2020, the Company issued 39,987 shares of its common stock under a scheduled purchase under the ESPP.

As of June 30, 2020, 543,257 shares remained available for issuance under the ESPP.

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

On February 28, 2020 and August 31, 2020 the Company issued 39,987 and 41,467 shares, respectively, of its common stock pursuant to scheduled purchases under the ESPP.

As of September 30, 2020, 501,790 shares remained available for issuance under the ESPP.

Determining Fair Value - Summary of Assumptions

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The following table sets forth the assumptions used to determine the fair value of stock options:

Six Months Ended

Nine Months Ended

September 30,

Average expected term (years) 6 6

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The following table sets forth assumptions used to determine the fair value of the purchase rights issued under the ESPP:

Six Months Ended

Nine Months Ended

September 30,

Average expected term (years) 1.2 Not applicable

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Dividend yield — % Not applicable

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

The fair value of the Company’s common stock is also an assumption used to determine the fair value of stock options and purchase rights under the ESPP.

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Stock-Based Compensation Expense

Stock-based compensation expense related to stock options and the ESPP is included in the statements of operations and comprehensive loss as follows (in thousands):

Three Months Ended June 30, Six Months Ended

Stock-based compensation expense related to stock options and the ESPP is included in the statements of operations and comprehensive (loss) income as follows (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Total stock-based compensation expense $ 2,118 $ 229 $ 5,348 $ 536

For the six months ended June 30, 2020 and 2019, the weighted-average grant date fair value of options granted was $ 18.69 and $ 1.95 per option, respectively, and the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 12.70 and nil per share, respectively.

As of June 30, 2020, the total unrecognized compensation cost related to stock options and the ESPP was $ 20,533,000 and $ 867,000 , respectively, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.0 years and 1.3 years, respectively.

For the nine months ended September 30, 2020 and 2019, the weighted-average grant date fair value of options granted was $ 22.07 and $ 3.77 per option, respectively, and the weighted-average grant date fair value of the purchase rights granted under the ESPP was $ 17.43 and nil per share, respectively.

As of September 30, 2020, the total unrecognized compensation cost related to stock options and the ESPP was $ 25,118,000 and $ 965,000 , respectively, which is expected to be recognized on a straight-line basis over a weighted-average period of 2.9 years and 1.2 years, respectively.

The total unrecognized compensation costs will be adjusted for forfeitures in future periods as they occur.

Subsequent Events

As discussed in Note 10, the underwriters in the Company’s June 2020 follow-on public offering of common stock had a 30 -day option to purchase up to 300,000 additional shares of common stock at the public offering price of $ 37.00 per share, less underwriting discounts and commissions.

On July 2, 2020, the Company issued and sold 300,000 shares of common stock

CASTLE BIOSCIENCES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

pursuant to the underwriters’ exercise in full of their option to purchase additional shares, which resulted in additional net proceeds to the Company of $ 10.4 million.

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

What changed 10-Q

Item 1. Financial Statements