7 unchanged sentences
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term as defined in Exchange Act Rule 13a-15(f).
−Removed: Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
−Removed: As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework) .
+Added: Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S.
+Added: As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
+Added: Internal Control-Integrated Framework (2013 Framework) .
Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on those criteria.
−Removed: Under guidelines established by the SEC, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company.
−Removed: Accordingly, our assessment of internal controls excluded our acquisition of Cernostics, completed on December 3, 2021.
−Removed: See Note 5 to the consolidated financial statements included in this Annual Report on Form 10-K for additional information on our acquisition of Cernostics.
−Removed: Operations from this acquisition represented approximately 13% of our total assets and 0% of our total revenue as of and for the year ended December 31, 2021.
Our independent registered public accounting firm, KPMG LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2022, as stated in its report contained in Item 15 of this Annual Report on Form 10-K.
11 unchanged sentences
• The information relating to our audit committee and audit committee financial expert is to be included in the section entitled “Information Regarding the Board of Directors and Corporate Governance,” and
−Removed: • If required, the information regarding compliance with Section 16(a) of the Exchange Act is to be included in the section entitled “Delinquent Section 16(a) Reports.”
−Removed: Such information will be included in the Proxy Statement and is incorporated herein by reference.
+Added: • If required, the information regarding delinquent reports under Section 16(a) of the Exchange Act is to be included in the section entitled “Delinquent Section 16(a) Reports.”
+Added: Such information is to be included in the Proxy Statement and is incorporated herein by reference.
We have adopted a written Code of Business Conduct and Ethics (“Ethics Code”) that applies to all officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
The Ethics Code is available on our website at www.CastleBiosciences.com.
−Removed: If we make any substantive amendments to the Ethics Code or grant any waiver from a provision of the Ethics Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website or in a Current Report on Form 8-K.
+Added: If we ever were to amend or waive any provision that applies to our principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations, if any, with respect to any such waiver or amendment by posting such information on our website, rather than by filing a Current Report on Form 8-K.
Executive Compensation.
−Removed: The information required by this item is to be included in our Proxy Statement under the section entitled “Executive Compensation” and is incorporated herein by reference.
+Added: The information required by this item is to be included in the Proxy Statement under the section entitled “Executive Compensation” and is incorporated herein by reference.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
−Removed: The information required by this item with respect to equity compensation plans is to be included in our Proxy Statement under the section entitled “Equity Compensation Plan Information” and the information required by this item with respect to security ownership of certain beneficial owners and management is to be included in our Proxy Statement under the section entitled “Security Ownership of Certain Beneficial Owners and Management” and in each case is incorporated herein by reference.
+Added: The information required by this item with respect to equity compensation plans is to be included in the Proxy Statement under the section entitled “Equity Compensation Plan Information” and the information required by this item with respect to security ownership of certain beneficial owners and management is to be included in the Proxy Statement under the section entitled “Security Ownership of Certain Beneficial Owners and Management” and in each case is incorporated herein by reference.
Certain Relationships and Related Transactions, and Director Independence.
−Removed: The information required by this item is to be included in our Proxy Statement under the sections entitled “Transactions with Related Persons and Indemnifications—Related Person Transactions Policy and Procedures” and is incorporated herein by reference.
+Added: The information required by this item is to be included in the Proxy Statement under the sections entitled “Transactions with Related Persons and Indemnifications—Related Person Transactions Policy and Procedures” and is incorporated herein by reference.
Principal Accountant Fees and Services.
Our independent registered public accounting firm is KPMG LLP , San Diego, CA , Audit Firm ID:
−Removed: The information required by this item is to be included in our Proxy Statement under the section entitled “Proposal 2:
+Added: The information required by this item is to be included in the Proxy Statement under the section entitled “Proposal 2:
Ratification of Selection of Independent Registered Public Accounting Firm” and is incorporated herein by reference.
9 unchanged sentences
Agreement and Plan of Merger, dated October 18, 2021, by and among the Company, Space Merger Sub, Inc., Cernostics, Inc., and Shareholder Representative Services LLC, incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K, as amended, originally filed with the SEC on December 6, 2021.
+Added: Agreement and Plan of Merger, dated April 4, 2022, by and among the Registrant, AltheaDx, Inc., Acorn Merger Sub, Inc.
+Added: and Fortis Advisors LLC, incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on April 4, 2022.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on July 29, 2019.
19 unchanged sentences
2019 Equity Incentive Plan, incorporated by reference to Exhibit 99.3 of the Registrant’s Registration Statement on Form S-8 (File No.
−Removed: 333- 232884 ), originally filed with the SEC on Ju ly 2 9 , 2019.
+Added: 333-232884), originally filed with the SEC on July 29, 2019.
+Added: Exhibit Number Description of document
10.7+ Forms of Stock Option Grant Notice, Option Agreement and Notice of Exercise under the 2019 Equity Incentive Plan, incorporated by reference to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1 (File No.
1 unchanged sentence
10.8+ Forms of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2019 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2020.
−Removed: Exhibit Number Description of document
10.9+ Castle Biosciences, Inc.
3 unchanged sentences
333-232369), as amended, originally filed with the SEC on June 26, 2019.
+Added: 10.11*+ Castle Biosciences, Inc.
+Added: 2022 Inducement Plan.
+Added: 10.12*+ Forms of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the Castle Biosciences, Inc.
+Added: 2022 Inducement Plan.
+Added: 10.13*+ Forms of Stock Option Grant Notice, Option Agreement and Notice of Exercise under the Castle B iosciences, Inc.
+Added: 2022 Inducement Plan.
10.14*+ Non-Employee Director Compensation Policy, as amended effective January 31, 2023.
2 unchanged sentences
333-232369), as amended, originally filed with the SEC on June 26, 2019.
−Removed: 10.13+ Offer Letter Agreement, dated March 2, 2016, by and between the Registrant and Bernhard Spiess, incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1 (File No.
−Removed: 333-232369), as amended, originally filed with the SEC on June 26, 2019.
+Added: 10.16*+ Castle Biosciences, Inc.
+Added: Retirement Policy Approved January 13, 2023
10.17+ Offer Letter Agreement, dated November 9, 2017, by and between the Registrant and Frank Stokes, incorporated by reference to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1 (File No.
333-232369), as amended, originally filed with the SEC on June 26, 2019.
−Removed: 10.15+ Employment Separation Agreement dated December 29, 2021, by and between Castle Biosciences, Inc.
−Removed: and Bernhard E.
−Removed: Spiess, incorporate d by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 5, 2022.
−Removed: 10.16+# Master Services Agreement dated December 29, 2021, by and between Castle Biosciences, Inc.
−Removed: and Bernhard E.
−Removed: Spiess, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on January 5, 2022.
−Removed: 10.17+ Executive Employment Agreement, dated September 15, 2008, as amended, by and between the Registrant and Kristen Oelschlager, incorporated by reference to Exhibit 10.
−Removed: 2 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2021.
−Removed: 10.18+ Executive Employment Agreement, dated October 1, 2008, as amended, by and between the Registrant and Tobin Juvenal, incorporated by reference to Exhibit 10.
−Removed: 3 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2021.
−Removed: 10.19+ Consulting Agreement, dated May 7, 2021, by and among the Registrant and Joseph C.
−Removed: Cook III, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9 , 2021.
−Removed: 10.20+ Separation Agreement dated May 29, 2020, by and between the Registrant and Federico A.
−Removed: Monzon, M.D., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2020.
−Removed: 10.21+ Master Services Agreement dated May 29, 2020, by and between the Registrant and Genomic Path LLC, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2020.
+Added: 10.18+ Executive Employment Agreement, dated September 15, 2008, as amended, by and between the Registrant and Kristen Oelschlager, incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2021.
+Added: 10.19+ Executive Employment Agreement, dated October 1, 2008, as amended, by and between the Registrant and Tobin Juvenal, incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2021.
10.20 Standard Office Lease, dated as of October 5, 2015, by and between the Registrant and Merced Restart Phoenix Investors II, LLC, incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1 (File No.
1 unchanged sentence
10.21 First Amendment to Lease, dated December 4, 2018, by and between the Registrant and Alturas Siete I, LLC, incorporated by reference to Exhibit 10.15 of the Registrant's Annual Report on Form 10-K, filed with the SEC on March 10, 2020.
−Removed: 10.24 Office Building Lease, dated as of March 11, 2015, by and between the Registrant and RMG Leasing (a/k/a Cedarwood Professional Building), as amended, incorporated by reference to Exhibit 10.15 of the Registrant’s Registration Statement on Form S-1 (File No.
−Removed: 333-232369), as amended, originally filed with the SEC on June 26, 2019.
−Removed: 10.25 Standard Office Lease, dated December 16, 2019, by and between the Registrant and Alturas Siete, II, LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2019.
10.22 Second Amendment to Standard Office Lease, dated December 16, 2019, by and between the Registrant and Alturas Siete I, LLC, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2019.
−Removed: 10.27 First Amendment to Standard Office Lease, dated February 16, 2021, by and between the Registrant and Alturas Siete III, LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2021.
+Added: 10.23 Third Amendment to Standard Office Lease, dated November 29, 2021, by and between the Company and Alturas Siete, I, LLC, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 3, 2021.
+Added: 10.24† Fourth Amendment to Standard Office Lease, dated March 11, 2022, by and between the Registrant and Alturas Siete I, LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on March 17, 2022.
+Added: 10.25*† Fifth Amendment to Standard Office Lease, dated October 24, 2022, by and between the Registrant and Alturas Siete I, LLC.
+Added: 10.26 Standard Office Lease, dated December 16, 2019, by and between the Registrant and Alturas Siete, II, LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2019.
+Added: 10.27 First Amendment to Standard Office Lease, dated February 16, 2021, by and between the Registrant and Alturas Siete II , LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2021.
Exhibit Number Description of document
10.28 Second Amendment to Standard Office Lease, dated November 29, 2021, by and between the Company and Alturas Siete, II, LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 3, 2021.
−Removed: 10.29 Third Amendment to Standard Office Lease, dated November 29, 2021, by and between the Company and Alturas Siete, I, LLC, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 3, 2021.
+Added: 10.29* Third Amendment to Standard Office Lease, dated February 9, 2023, by and between the Registrant and Alturas Siete, II, LLC.
10.30 Commercial Lease, dated December 17, 2019, by and between the Registrant and Tannos Land Holding III, LLC, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2019.
10.31 First Amendment to Commercial Lease, dated November 13, 2020, by and between the Registrant and Tannos Land Holdings III, LLC , incorporated by reference to Exhibit 10.23 of the Registrant's Annual Report on Form 10-K filed with the SEC on March 11, 2021.
+Added: 10.32* Second Amendment to Commercial Lease, executed December 15, 2022, by and between the Registrant and Tannos Land Holdings III, LLC.
+Added: 10.33† Lease Agreement, dated April 1, 2022, by and between the Registrant and ACA Concourse East Unit 3 LLC, incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 9, 2022.
10.34# Exclusive License Agreement, dated as of November 14, 2009, by and between the Registrant and The Washington University, incorporated by reference to Exhibit 10.17 of the Registrant’s Registration Statement on Form S-1 (File No.
17 unchanged sentences
+ Indicates management contract or compensatory plan.
−Removed: # Certain portions of this exhibit (indicated by “[***]”) have been omitted as we have determined (i) the omitted information is not material and (ii) the omitted information would likely cause harm to us if publicly disclosed.
−Removed: † Schedules and exhibits to the Agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
−Removed: A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
# Pursuant to Item 601(b)(10) of Regulation S-K, certain portions of this exhibit have been omitted (indicated by “[***]”) because the Company has determined that the information is not material and is the type that the Company treats as private or confidential.
+Added: † Certain schedules or exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
+Added: A copy of any omitted schedule or exhibit will be furnished to the SEC upon request;
+Added: provided, however, that we may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any schedule or exhibit so furnished.
+Added: ^ Pursuant to Item 601(b)(2) of Regulation S-K, certain portions of this exhibit have been omitted (indicated by “[***]”) because the Company has determined that the information is not material and is the type that the Company treats as private or confidential.
Form 10-K Summary.
8 unchanged sentences
Maetzold) ( Principal Executive Officer )
−Removed: /s/ Frank Stokes Chief Financial Officer
−Removed: February 28, 2022
+Added: /s/ Frank Stokes Chief Financial Officer February 28, 2023
(Frank Stokes) ( Principal Financial and Accounting Officer )
/s/ Daniel M.
−Removed: Bradbury Chairman of the Board of Directors
−Removed: February 28, 2022
+Added: Bradbury Chairperson of the Board of Directors February 28, 2023
Aspinall Member of the Board of Directors February 28, 2023
10 unchanged sentences
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Report s of Independent Registered Public Accounting Firm
+Added: Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
−Removed: Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020
+Added: Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
+Added: Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
4 unchanged sentences
Castle Biosciences, Inc.:
−Removed: Opinion on Internal Control Over Financial Reporting
−Removed: We have audited Castle Biosciences, Inc.
−Removed: and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
−Removed: 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 the Committee of Sponsoring Organizations of the Treadway Commission.
−Removed: We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those consolidated financial statements.
−Removed: The Company acquired Cernostics, Inc.
−Removed: during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Cernostics, Inc.’s internal control over financial reporting associated with 13% of total assets and 0% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021.
−Removed: Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Cernostics, Inc.
−Removed: Basis for Opinion
−Removed: 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 the accompanying Management's Report on Internal Control over Financial Reporting.
−Removed: Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
−Removed: 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.
+Added: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
+Added: We have audited the accompanying consolidated balance sheets of Castle Biosciences, Inc.
+Added: and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).
+Added: We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
+Added: In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S.
+Added: generally accepted accounting principles.
+Added: Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
+Added: Basis for Opinions
+Added: The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.
+Added: Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
+Added: We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
−Removed: We conducted our audit in accordance with the standards of the PCAOB.
−Removed: 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.
+Added: We conducted our audits in accordance with the standards of the PCAOB.
+Added: Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
+Added: Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
+Added: Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
+Added: Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
−Removed: Our audit also included performing such other procedures as we considered necessary in the circumstances.
−Removed: We believe that our audit provides a reasonable basis for our opinion.
+Added: Our audits also included performing such other procedures as we considered necessary in the circumstances.
+Added: We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
5 unchanged sentences
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.
−Removed: San Diego, California
−Removed: February 28, 2022
−Removed: Report of Independent Registered Public Accounting Firm
−Removed: To the Stockholders and Board of Directors
−Removed: Castle Biosciences, Inc.:
−Removed: Opinion on the Consolidated Financial Statements
−Removed: We have audited the accompanying consolidated balance sheets of Castle Biosciences, Inc.
−Removed: and subsidiaries (the Company) as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).
−Removed: In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with U.S.
−Removed: generally accepted accounting principles.
−Removed: We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
−Removed: Change in Accounting Principle
−Removed: As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2021 due to the adoption of ASC 842, Leases .
−Removed: Basis for Opinion
−Removed: These consolidated financial statements are the responsibility of the Company’s management.
−Removed: Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
−Removed: 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.
−Removed: federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
−Removed: We conducted our audits in accordance with the standards of the PCAOB.
−Removed: Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
−Removed: Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
−Removed: Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
−Removed: Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
−Removed: We believe that our audits provide a reasonable basis for our opinion.
−Removed: Critical Audit Matter
−Removed: The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:
−Removed: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
−Removed: The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
+Added: Critical Audit Matters
+Added: The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:
+Added: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
+Added: The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Measurement of test revenue
2 unchanged sentences
The measurement of test revenue is determined by contractually established rates as well as historical average collection rates by test type and payor category taking into consideration the range of possible outcomes, the predictive value of the Company’s past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of the Company’s influence, such as the judgment and actions of third parties.
−Removed: The Company reported net revenues of $94,085 thousand for the year ended December 31, 2021, a portion of which related to test revenue.
+Added: The Company reported net revenues of $137.0 million for the year ended December 31, 2022, a portion of which related to test revenue.
We identified the evaluation of the measurement of test revenue as a critical audit matter.
6 unchanged sentences
In addition, we inquired of the individuals who are responsible for monitoring and tracking the status of anticipated collections to understand the progress of these activities and any impact to management’s estimates.
+Added: Valuation of developed technology acquired in business combination
+Added: As discussed in Note 6 to the consolidated financial statements, on April 26, 2022, the Company acquired 100% of the equity interests in AltheaDx, Inc.
+Added: for total consideration transferred of $47.6 million.
+Added: As a result of the acquisition, the Company recorded an intangible asset comprised of developed technology in the amount of $35.0 million, based on the estimated acquisition-date fair value.
+Added: The transaction was accounted for as a business combination.
+Added: We identified the assessment of the acquisition-date fair value of the developed technology intangible asset as a critical audit matter.
+Added: Key assumptions used to estimate the fair value of the developed technology included the projected revenues, projected EBITDA and the discount rate.
+Added: Evaluating the key assumptions involved challenging auditor judgment as they represent subjective determinations of future performance, as well as future market and economic conditions.
+Added: Additionally, the audit effort associated with evaluating the fair value of the developed technology required specialized skills and knowledge.
+Added: The following are the primary procedures we performed to address this critical audit matter.
+Added: We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s determination of the acquisition-date fair value of the developed technology intangible asset, including controls related to the development of the projected revenues, projected EBITDA and discount rate assumptions.
+Added: assessed the reasonableness of the Company’s projected revenues and EBITDA by comparing them to relevant industry data and other third-party information.
+Added: In addition, we involved valuation professionals with specialized skills and knowledge who:
+Added: • assisted in evaluating the discount rate used in the valuation by comparing the inputs to publicly available data for comparable entities
+Added: • tested the estimate of the fair value of the developed technology using the Company’s cash flow forecasts and the discount rate
+Added: • compared the result to the Company’s fair value estimate.
We have served as the Company’s auditor since 2018.
6 unchanged sentences
Cash and cash equivalents $ 122,948 $ 329,633
+Added: Marketable investment securities 135,677 —
Accounts receivable, net 23,476 17,282
5 unchanged sentences
Operating lease assets 12,181 7,383
−Removed: Intangible assets, net 88,922 —
+Added: Goodwill and other intangible assets, net 126,348 88,922
Other assets – long-term 1,110 1,715
4 unchanged sentences
Accrued compensation 24,358 15,483
−Removed: Medicare advance payment — 6,615
Operating lease liabilities 1,777 1,179
1 unchanged sentence
Total current liabilities 36,128 24,886
−Removed: Contingent consideration 18,287 —
+Added: Noncurrent portion of contingent consideration — 18,287
Noncurrent operating lease liabilities 11,533 6,900
−Removed: Noncurrent portion of Medicare advance payment — 1,735
Deferred tax liability 428 635
7 unchanged sentences
Common stock, $ 0.001 par value;
−Removed: 200,000,000 authorized as of December 31, 2021 and 2020, respectively;
+Added: 200,000,000 authorized as of December 31, 2022 and 2021;
26,553,681 and 25,378,520 shares issued and outstanding as of December 31, 2022 and 2021, respectively.
1 unchanged sentence
Accumulated deficit ( 160,905 ) ( 93,767 )
+Added: Accumulated other comprehensive loss ( 381 ) —
Total stockholders’ equity 399,150 411,740
2 unchanged sentences
CASTLE BIOSCIENCES, INC.
−Removed: CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
+Added: CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
6 unchanged sentences
Amortization of acquired intangible assets 8,266 1,958
−Removed: Other operating income — ( 1,882 )
+Added: Change in fair value of contingent consideration ( 18,287 ) —
Total operating expenses, net 209,894 134,164
2 unchanged sentences
Interest expense ( 17 ) ( 1 )
−Removed: Loss on extinguishment of debt — ( 1,397 )
Loss before income taxes ( 68,904 ) ( 40,012 )
−Removed: Income tax (benefit) expense ( 8,720 ) 84
−Removed: Net loss and comprehensive loss $ ( 31,292 ) $ ( 10,284 )
−Removed: Loss per share attributable to common stockholders:
−Removed: Basic $ ( 1.24 ) $ ( 0.54 )
−Removed: Diluted $ ( 1.24 ) $ ( 0.54 )
−Removed: Weighted-average shares outstanding:
−Removed: Basic 25,137 18,929
−Removed: Diluted 25,137 18,929
+Added: Income tax benefit ( 1,766 ) ( 8,720 )
+Added: Net loss $ ( 67,138 ) $ ( 31,292 )
+Added: Loss per share, basic and diluted $ ( 2.58 ) $ ( 1.24 )
+Added: Weighted-average shares outstanding, basic and diluted 26,054 25,137
The accompanying notes are an integral part of these consolidated financial statements.
CASTLE BIOSCIENCES, INC.
+Added: CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
+Added: (in thousands)
+Added: Net loss $ ( 67,138 ) $ ( 31,292 )
+Added: Other comprehensive loss:
+Added: Net unrealized loss on available-for-sale securities ( 381 ) —
+Added: Comprehensive loss $ ( 67,519 ) $ ( 31,292 )
+Added: The accompanying notes are an integral part of these consolidated financial statements.
+Added: CASTLE BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
2 unchanged sentences
Capital Accumulated
−Removed: Deficit Total
+Added: Deficit Accumulated
+Added: Other Comprehensive Loss Total
Stockholders’
1 unchanged sentence
BALANCE, JANUARY 1, 2021
+Added: — $ — 24,812,487 $ 25 $ 478,162 $ ( 62,496 ) $ — $ 415,691
+Added: Adoption of ASC 842 — — — — — 21 — 21
Stock-based compensation expense — — — — 21,740 — — 21,740
Exercise of common stock options — — 416,037 — 4,234 — — 4,234
−Removed: Exercise of common stock warrants — — 241,052 — — — —
−Removed: Public offerings of common stock, net of underwriting discounts, commissions and offering costs — — 6,900,000 7 329,657 — 329,664
+Added: Issuance of common stock from vested restricted stock units and payment of employees’ taxes — — 39,548 — ( 781 ) — — ( 781 )
+Added: Public offerings of common stock, adjustment to offering costs — — — — 39 — — 39
Issuance of common stock under the employee stock purchase plan — — 110,448 — 2,088 — — 2,088
1 unchanged sentence
BALANCE, DECEMBER 31, 2021
−Removed: Adoption of ASU No.
— $ — 25,378,520 $ 25 $ 505,482 $ ( 93,767 ) $ — $ 411,740
2 unchanged sentences
Issuance of common stock from vested restricted stock units and payment of employees’ taxes — — 183,887 — ( 1,688 ) — — ( 1,688 )
−Removed: Public offerings of common stock, adjustment to offering costs — — — — 39 — 39
Issuance of common stock under the employee stock purchase plan — — 78,652 — 2,352 — — 2,352
+Added: Issuance of common stock in acquisition of business — — 763,887 1 17,110 — — 17,111
+Added: Net unrealized loss on marketable investment securities — — — — — — ( 381 ) ( 381 )
Net loss — — — — — ( 67,138 ) — ( 67,138 )
BALANCE, DECEMBER 31, 2022
+Added: — $ — 26,553,681 $ 27 $ 560,409 $ ( 160,905 ) $ ( 381 ) $ 399,150
The accompanying notes are an integral part of these consolidated financial statements.
5 unchanged sentences
Net loss $ ( 67,138 ) $ ( 31,292 )
−Removed: Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
+Added: Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 10,543 3,407
Stock-based compensation expense 36,321 21,740
−Removed: Amortization of debt discounts and issuance costs — 839
+Added: Change in fair value of contingent consideration ( 18,287 ) —
Deferred income taxes ( 1,877 ) ( 8,736 )
−Removed: Loss on extinguishment of debt — 1,397
−Removed: Other — ( 16 )
+Added: Accretion of discounts on marketable investment securities ( 1,368 ) —
Change in operating assets and liabilities:
8 unchanged sentences
Medicare advance payment — ( 8,350 )
−Removed: Other accrued liabilities 2,286 561
+Added: Other accrued and current liabilities ( 963 ) 2,286
Other liabilities — ( 276 )
−Removed: Net cash (used in) provided by operating activities ( 18,983 ) 9,865
+Added: Net cash used in operating activities ( 41,655 ) ( 18,983 )
INVESTING ACTIVITIES
1 unchanged sentence
Asset acquisitions, net of cash and cash equivalents acquired 547 ( 63,184 )
+Added: Acquisition of business, net of cash and cash equivalents acquired ( 26,966 ) —
Proceeds from sale of property and equipment 195 10
+Added: Purchases of marketable investment securities ( 134,689 ) —
Net cash used in investing activities ( 166,545 ) ( 66,657 )
FINANCING ACTIVITIES
−Removed: Proceeds from public offerings of common stock, net of underwriting discounts, commissions and offering costs — 330,041
Payment of common stock offering costs — ( 336 )
−Removed: Repayment of term debt — ( 27,359 )
Proceeds from exercise of common stock options 833 4,234
3 unchanged sentences
Net cash provided by financing activities 1,515 5,421
+Added: The accompanying notes are an integral part of these consolidated financial statements.
CASTLE BIOSCIENCES, INC.
10 unchanged sentences
Accrued purchases of property and equipment $ 1,396 $ 33
+Added: Common stock issued in acquisition of business $ 17,111 $ —
+Added: Operating lease assets obtained in exchange for lease obligations $ 6,075 $ 2,892
+Added: Asset acquisition, liability for contingent consideration $ — $ 18,287
Property and equipment acquired with tenant improvement allowance $ 51 $ 54
Asset acquisition, receivable for purchase price adjustment $ — $ 519
−Removed: Asset acquisition, liability for contingent consideration $ 18,287 $ —
−Removed: Common stock offering costs incurred but not paid $ — $ 377
−Removed: Cashless exercise of common stock warrants $ — $ 250
The accompanying notes are an integral part of these consolidated financial statements.
4 unchanged sentences
(the ‘‘Company”, “we”, “us” or “our”) was incorporated in the state of Delaware on September 12, 2007.
−Removed: We are a commercial-stage diagnostics company focused on providing physicians and their patients with personalized, clinically actionable information to clinicians and their patients to inform treatment decisions and improve health outcomes.
−Removed: We are based in Friendswood, Texas (a suburb of Houston, Texas) and laboratory operations are conducted at our facilities located in Phoenix, Arizona and in Pittsburgh, Pennsylvania.
−Removed: Impact of COVID-19 Pandemic
−Removed: Since the COVID-19 pandemic began in March 2020, we have maintained uninterrupted business operations with normal turnaround times for delivery of test reports, but have experienced declines in test report volume in certain periods, which we believe is linked to delays and/or cancellations in patient visits in response to COVID-19, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma.
−Removed: The extent to which COVID-19 may further impact our business, consolidated results of operations, consolidated financial condition and consolidated cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.
+Added: We are a commercial-stage diagnostics company focused on providing clinicians and their patients with personalized, clinically actionable information to inform treatment decisions and improve health outcomes.
+Added: We are based in Friendswood, Texas (a suburb of Houston, Texas) and our laboratory operations are conducted at our facilities located in Phoenix, Arizona and Pittsburgh, Pennsylvania.
+Added: We have a history of recurring net losses and negative cash flows and as of December 31, 2022, we had an accumulated deficit of $ 160.9 million.
+Added: We believe our marketable investment securities of $ 135.7 million, cash and cash equivalents of $ 122.9 million as of December 31, 2022 and revenue from our test reports will be sufficient to meet our anticipated cash requirements through at least the 12-month period following the date that these consolidated financial statements were issued.
Summary of Significant Accounting Policies
3 unchanged sentences
All intercompany accounts and transactions have been eliminated in consolidation.
−Removed: Reclassification
−Removed: Certain prior year amounts in our consolidated statements of operations and comprehensive loss have been reclassified to conform to the current year presentation.
−Removed: Specifically, we no longer present gross margin on our statements of operations and comprehensive loss and therefore the cost of sales line is now presented within the operating expenses section.
−Removed: This reclassification had no impact on operating loss, loss before income taxes, net loss, comprehensive loss or loss per share.
Use of Estimates
1 unchanged sentence
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
−Removed: Significant items subject to such estimates include revenue recognition, the valuation of stock-based compensation, assessing future tax exposure and the realization of deferred tax assets, the useful lives and recoverability of long-lived assets, the valuation of acquired intangible assets, the valuation of contingent consideration and other contingent liabilities.
+Added: Significant items subject to such estimates include revenue recognition, the valuation of stock-based compensation, assessing future tax exposure and the realization of deferred tax assets, the useful lives and recoverability of long-lived assets, the goodwill impairment test, the valuation of acquired intangible assets, the valuation of contingent consideration and other contingent liabilities.
We base these estimates on historical and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events.
1 unchanged sentence
Actual results could differ from those estimates and assumptions.
−Removed: We have considered the potential impact of the COVID-19 pandemic on our estimates and assumptions.
−Removed: The extent to which the COVID-19 pandemic may impact our estimates in future periods is uncertain and subject to change.
Operating Segments
2 unchanged sentences
All revenues are attributable to U.S.-based operations and all assets are held in the United States.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash and Cash Equivalents including Concentrations of Credit Risk
5 unchanged sentences
We have not experienced any losses on our cash or cash equivalents.
+Added: Marketable Investment Securities
+Added: All debt securities are recognized in accordance with Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Codification (‘‘ASC’’) Topic 320, Investments-Debt Securities (‘‘ASC 320’’).
+Added: Management determines the appropriate classification of securities at the time of purchase and re-evaluates such determination at each balance sheet date.
+Added: All debt securities are classified as available-for-sale and are recorded at fair value in accordance with ASC 320.
+Added: We recognize the unrealized gains and losses related to changes in fair value as a separate component
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: of accumulated other comprehensive loss within total stockholders’ equity, net of related deferred income tax effects on our consolidated balance sheets.
+Added: Premiums or discounts from par value are amortized to interest income over the life of the underlying investment.
+Added: Realized gains and losses on available-for-sale securities are calculated at the individual security level and included in interest income in the consolidated statements of operations.
+Added: Impairments on available-for-sale debt securities, if any, are recorded in consolidated statements of operations.
+Added: See Notes 5 and 11 for further details.
Revenue Recognition
−Removed: Revenue is recognized in accordance with Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Codification (‘‘ASC’’) Topic 606, Revenue from Contracts with Customers (‘‘ASC 606’’).
−Removed: In accordance with ASC 606, we follow a five-step process to recognize revenues:
+Added: In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), we follow a five-step process to recognize revenues:
(1) identify the contract with the customer, (2) identify the performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenues when the performance obligations are satisfied.
We have determined that we have a contract with the patient when the treating clinician orders the test.
−Removed: Our contracts generally contain a single performance obligation, which is the delivery of the test report, and we satisfy our performance obligation at a point in time upon the delivery of the test report to the treating physician, at which point we can bill for the report.
+Added: Our contracts generally contain a single performance obligation, which is the delivery of the test report, and we satisfy our performance obligation at a point in time upon the delivery of the test report to the treating clinician, at which point we can bill for the report.
The amount of revenue recognized reflects the amount of consideration to which we expect to be entitled, or the transaction price, and considers the effects of variable consideration.
1 unchanged sentence
Accounts Receivable and Allowance for Credit Losses
−Removed: We classify accounts receivable balances that are expected to be paid more than one year from the consolidated balance sheet date as non-current assets.
−Removed: The estimated timing of payment utilized as a basis for classification as non-current is determined by analyses of historical payor-specific payment experience, adjusted for known factors that are expected to change the timing of future payments.
+Added: We classify accounts receivable balances that are expected to be paid more than one year from the consolidated balance sheet date as noncurrent assets.
+Added: The estimated timing of payment utilized as a basis for classification as noncurrent is determined by analyses of historical payor-specific payment experience, adjusted for known factors that are expected to change the timing of future payments.
We accrue an allowance for credit losses against our accounts receivable based on management’s current estimate of amounts that will not be collected.
10 unchanged sentences
Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease.
−Removed: Our leasehold improvements primarily relate to our office and laboratory facilities in Friendswood, Texas and Phoenix, Arizona, and are generally being amortized through the end of the lease terms in 2025 and 2033, respectively.
+Added: Our leasehold improvements primarily relate to our office and laboratory facilities in Friendswood, Texas, Phoenix, Arizona and Pittsburgh, Pennsylvania, and are generally being amortized through the end of the lease terms in 2025 and 2033, respectively.
Maintenance and repairs are charged to expense as incurred, and material improvements are capitalized.
−Removed: When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations and comprehensive loss in the period realized.
+Added: When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in the consolidated statements of operations in the period realized.
Intangible Assets
Our intangible assets, which are comprised primarily of acquired developed technology, are considered to be finite-lived and are amortized on a straight-line basis over their estimated useful lives.
+Added: Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination.
+Added: In accordance with ASC Topic 350, Intangibles—Goodwill and Other , our goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that it may be impaired.
+Added: We perform annual impairment reviews of our goodwill balance
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: during the fourth quarter of each year.
+Added: We may perform a qualitative assessment to determine if it is necessary to perform a quantitative impairment test.
+Added: If we determine that a quantitative impairment test is necessary, we apply the guidance in Accounting Standards Update (“ASU”) No.
+Added: 2017-04, Intangibles—Goodwill and Other (Topic 350):
+Added: Simplifying the Test for Goodwill Impairment , by comparing the fair value of the reporting unit to its carrying value, including the goodwill.
+Added: If the carrying value exceeds the fair value, we recognize an impairment loss for the amount by which the carrying value exceeds fair value, up to the total amount of goodwill allocated to the reporting unit.
+Added: We did not incur any goodwill impairment losses in any of the periods presented.
+Added: We have concluded that our business is comprised of a single reporting unit.
+Added: For our annual impairment test for the year ended December 31, 2022, we elected to bypass the qualitative assessment and proceeded directly to the quantitative assessment by comparing our reporting unit’s fair value to its carrying value.
+Added: Since we have a single reporting unit, fair value of the reporting unit was measured at our total market capitalization on the impairment test date based on the closing price of our common stock.
+Added: Our impairment test indicated that the fair value of our reporting unit substantially exceeded its carrying value.
+Added: Factors that could result in an impairment of goodwill in the future include declines in the price of our common stock, increased competition, changes in macroeconomic developments and unfavorable government or regulatory developments.
Long-Lived Assets
1 unchanged sentence
An impairment loss is recognized when the total of estimated future undiscounted cash flows, expected to result from the use of the asset and its eventual disposition, are less than the carrying amount.
−Removed: Impairment, if
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
−Removed: any, would be calculated based on the excess of the carrying amount of the long-lived asset over the long-lived asset’s fair value.
+Added: Impairment, if any, would be calculated based on the excess of the carrying amount of the long-lived asset over the long-lived asset’s fair value.
There were no impairment charges recognized for the years ended December 31, 2022 and 2021.
−Removed: We assess acquisitions under ASC 805, Business Combinations, to determine whether a transaction represents the acquisition of assets or a business combination.
+Added: We assess acquisitions under ASC Topic 805, Business Combinations (“ASC 805”) , to determine whether a transaction represents the acquisition of assets or a business combination.
Under this guidance, we apply a two-step model.
8 unchanged sentences
Contingent Consideration
−Removed: Under the terms of business combinations or asset acquisitions, we may be required to pay additional consideration if specified future events occur or if certain conditions are met.
−Removed: With respect to the additional consideration that may be payable in connection with the Cernostics, Inc.
−Removed: (“Cernostics”) asset acquisition, we account for the contingent consideration as liability in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), under the guidance for obligations that must or may be settled by issuance of a variable number of shares.
−Removed: In accordance with ASC 480, we record the contingent consideration initially and subsequently at fair value with changes in fair value recorded in the statements of operations and comprehensive loss each period.
+Added: Under the terms of business combinations or asset acquisitions, we may be required to pay additional contingent consideration if specified future events occur or if certain conditions are met.
+Added: In a business combination, in accordance with ASC 805, contingent consideration is recorded at fair value as of the acquisition date and classified as liabilities or equity based on applicable U.S.
+Added: For contingent consideration classified as liabilities, we remeasure the contingent consideration at fair value each period with changes in fair value recorded in the statements of operations each period.
+Added: For contingent consideration in transactions that are not business combinations, we apply U.S.
+Added: With respect to additional contingent consideration that must or may be settled by issuance of a variable number of shares, we account for the contingent consideration as a liability in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”).
+Added: In accordance with ASC 480, we record the contingent consideration initially and subsequently at fair value with changes in fair value recorded in the statements of operations each period.
+Added: Contingent consideration is classified as current or noncurrent in our consolidated balance sheets based on the contractual timing of future settlement.
For additional information on the contingent consideration, see Notes 6 and 11.
−Removed: Other Operating Income
−Removed: On April 10, 2020, we received an automatic payment of $ 1.9 million from the U.S.
−Removed: 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.
−Removed: 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.
−Removed: 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, we 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.
−Removed: 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.
−Removed: Due to this change in methodology and uncertainty in its application, we determined that it was no longer reasonably assured of keeping the funds.
−Removed: Therefore, in the three months ended September 30, 2020, we reversed the previously recognized income.
−Removed: However, in the fourth quarter of 2020, a legislative change was enacted affecting the program, under which we concluded it is reasonably assured we will qualify to retain the funds.
−Removed: Accordingly, we recognized the income again in the fourth quarter of 2020.
−Removed: Effective January 1, 2021, we account for leases in accordance with ASC 842, Leases.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: Effective January 1, 2021, we account for leases in accordance with ASC Topic 842, Leases (“ ASC 842”) .
We categorize leases at their commencement as either operating or finance leases based on the criteria in ASC 842.
3 unchanged sentences
We have elected the practical expedient of not separating nonlease components from lease components in all leases.
−Removed: Periods prior to January 1, 2021 have not been restated for the adoption of ASC 842 and continue to reflect the accounting treatment of leases in accordance with the prior lease accounting guidance, ASC 840, Leases.
−Removed: Under ASC 840, landlord/tenant incentives, rent holidays and escalations in the base price of rent payments under operating leases were recognized on a straight-line basis over the lease term.
−Removed: Deferred rent balances were classified as current or non-current in the consolidated balance sheets based upon the period when reversal of the liability was expected to occur.
+Added: Upon adoption of ASC 842, effective January 1, 2021, we recognized operating lease ROU assets of $ 5,405,000 , operating lease liabilities of $ 6,076,000 , reductions to noncurrent liabilities of $ 751,000 , reductions to current assets of $ 59,000 and a credit to accumulated deficit of $ 21,000 .
See Note 10 for details on our leases.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cost of Sales (exclusive of amortization of acquired intangible assets)
1 unchanged sentence
Research and Development
−Removed: Research and development costs are charged to operations as incurred.
−Removed: Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
−Removed: Upfront and milestone payments due to third parties that perform research and development services on behalf of us will be expensed as services are rendered or when the milestone is achieved.
−Removed: Research and development costs include, but are not limited to, payroll and personnel-related expenses, stock-based compensation expense, materials, laboratory supplies, and consulting costs.
+Added: Research and development (“R&D”) costs are charged to operations as incurred.
+Added: Advance payments for goods and services that will be used in future R&D activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
+Added: Upfront and milestone payments due to third parties that perform R&D services on behalf of us will be expensed as services are rendered or when the milestone is achieved.
+Added: R&D costs include, but are not limited to, payroll and personnel-related expenses, stock-based compensation expense, materials, laboratory supplies, and consulting costs.
Selling, General and Administrative Expenses
4 unchanged sentences
We accrue for liabilities under discretionary employee and executive bonus plans.
−Removed: These estimated compensation liabilities are based on progress against corporate objectives approved by our board of directors, compensation levels of eligible individuals, and target bonus percentage levels.
−Removed: The board of directors reviews and evaluates the performance against these objectives and ultimately determines what discretionary payments are made.
+Added: Our estimated compensation liabilities are based on progress against corporate objectives approved by our board of directors, compensation levels of eligible individuals and target bonus percentage levels.
+Added: Our board of directors reviews and evaluates the performance against these objectives and ultimately determines the actual achievement levels attained.
We also accrue for liabilities under employee sales incentive bonus plans with accruals based on performance achieved to date compared to established targets.
5 unchanged sentences
For the years ended December 31, 2022 and 2021, we provided a discretionary matching contribution of $ 3,525,000 and $ 2,036,000 , respectively.
−Removed: The higher amount for the year ended December 31, 2021 reflects both an increase in the number of employees and a higher matching contribution rate compared to the year ended December 31, 2020.
+Added: The higher amount for the year ended December 31, 2022 primarily reflects an increase in the number of employees compared to the year ended December 31, 2021.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
7 unchanged sentences
No material amounts of tax-related interest or penalties were recorded during the years ended December 31, 2022 and 2021.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation
1 unchanged sentence
The fair value of employee stock options and offerings under the 2019 Employee Stock Purchase Plan (the “ESPP”) are estimated on the date of grant using the Black-Scholes option-pricing valuation model.
−Removed: For restricted stock units (“RSUs”), the fair value is equal to the closing price of our common stock on the date of grant.
−Removed: We recognize compensation costs on a straight-line basis for all employee stock-based compensation awards over the requisite service period of the awards.
+Added: For restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”), the fair value is equal to the closing price of our common stock on the date of grant.
+Added: For awards with only service conditions, we recognize compensation costs on a straight-line basis over the requisite service period of the awards.
For options and RSUs, the requisite service period is generally the awards’ vesting period (typically four years ).
For the ESPP, the requisite service period is generally the period of time from the offering date to the purchase date.
+Added: PSUs vest upon the achievement of certain performance conditions and the provision of service with us through a specified period.
+Added: Accruals of compensation cost for PSUs are based on the probable outcome of the performance conditions and are reassessed each reporting period.
+Added: We recognize compensation cost for PSUs separately for each vesting tranche on a ratable basis over the requisite service period.
+Added: The requisite service period for PSUs is based on an analysis of vesting requirements and performance conditions for the particular award.
Forfeitures are accounted for as they occur.
1 unchanged sentence
Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources.
−Removed: Our comprehensive loss was the same as our reported net loss for all periods presented.
+Added: Comprehensive loss is made up of net loss plus other comprehensive loss, if any.
CARES Act Payroll Tax Deferral
−Removed: The CARES Act permits employers to defer the payment of the employer share of social security taxes due for the period beginning March 27, 2020 and ending December 31, 2020.
−Removed: Of the amounts deferred, 50% were required to be paid by December 31, 2021 and the remaining 50% are required to be paid by December 31, 2022.
+Added: The CARES Act permitted employers to defer the payment of the employer share of social security taxes due for the period beginning March 27, 2020 and ending December 31, 2020.
+Added: Of the amounts deferred, 50% were required to be paid by December 31, 2021 and the remaining 50% were required to be paid by December 31, 2022.
We began deferring payment of the employer share of social security taxes in May 2020.
−Removed: Of the $ 551,000 originally deferred, 50% was repaid during the year ended December 31, 2021.
−Removed: As of December 31, 2021, the remaining $ 276,000 of such taxes was classified as a current liability on the consolidated balance sheet.
−Removed: Recently Adopted Accounting Pronouncements
−Removed: We were previously an emerging growth company (“EGC”) within the meaning of the Jumpstart Our Business Startups Act, as amended, (the “JOBS Act”) and elected to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies, as permitted under the JOBS Act.
−Removed: Because the market value of our common stock held by non-affiliates exceeded $700.0 million as of June 30, 2021, we ceased to be an EGC effective December 31, 2021.
−Removed: Accordingly, we are no longer permitted to delay the adoption of new or revised accounting pronouncements and as such we adopted the pronouncements discussed below in the fourth quarter of 2021 effective as of the dates noted.
−Removed: In February 2016, the FASB issued Accounting Standards Update (“ASU”) No.
−Removed: 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes ASC 840, Leases.
−Removed: ASU 2016-02 establishes ASC 842, Leases , and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.
−Removed: 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.
−Removed: This classification determines whether lease expense is recognized based on an effective interest method for finance leases or on a straight-line basis over the term of the lease for operating leases.
−Removed: A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification.
−Removed: Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases.
−Removed: We adopted ASU 2016-02 and ASC 842 using the modified retrospective approach with an effective date of January 1, 2021.
−Removed: Periods prior to January 1, 2021 have not been restated for the adoption of ASC 842 and continue to reflect the accounting treatment of leases in accordance with ASC 840.
−Removed: In connection with the adoption, we elected the package of practical expedients to not reassess prior conclusions about lease identification, lease classification and capitalized indirect costs.
−Removed: We did not elect the use of hindsight practical expedient.
−Removed: Upon adoption, effective January 1, 2021 we recognized operating lease right-of-use assets of $ 5,405,000 , operating lease liabilities of $ 6,076,000 , reductions to noncurrent liabilities of $ 751,000 , reductions to current assets of $ 59,000 and a credit to accumulated deficit of $ 21,000 .
−Removed: See Note 9 for disclosures about our leases.
−Removed: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
−Removed: Measurement of Credit Losses on Financial Instruments , 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.
−Removed: 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.
−Removed: We adopted the standard effective January 1, 2021 using the modified retrospective approach.
−Removed: The adoption of this standard had no impact on our consolidated financial statements.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
−Removed: In December 2019, the FASB issued ASU No.
−Removed: 2019-12, Income Taxes (Topic 740):
−Removed: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the general principles in Topic 740 and simplifies other areas of the existing guidance.
−Removed: The adoption of ASU 2019-12 effective January 1, 2021 had no impact on our consolidated financial statements.
+Added: Of the $ 551,000 originally deferred, 50% was repaid during the year ended December 31, 2021 and the remaining $ 276,000 of such taxes were repaid during the year ended December 31, 2022.
All of our revenues from contracts with customers are associated with the provision of diagnostic and prognostic testing services.
−Removed: Most of our revenues are attributable to DecisionDx®-Melanoma for cutaneous melanoma.
−Removed: We also provide a test for uveal melanoma, DecisionDx®-UM.
−Removed: We launched a test for patients with cutaneous 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.
−Removed: We began offering a test for difficult-to-diagnose melanocytic lesions, myPath Melanoma, following an asset acquisition completed in May 2021 and began offering the TissueCypher® Barrett’s Esophagus Assay for patients with BE following an asset acquisition completed in December 2021.
+Added: Our revenues are primarily attributable to our DecisionDx®-Melanoma test for cutaneous melanoma.
+Added: We also provide a test for patients with cutaneous squamous cell carcinoma, DecisionDx®-SCC, two tests for use in patients with suspicious pigmented lesions, MyPath® Melanoma and DiffDx®-Melanoma, a test for uveal melanoma (“UM”), DecisionDx®-UM, and a test for patients diagnosed with Barrett’s esophagus (“BE”), the TissueCypher® Barrett’s Esophagus Test.
+Added: We also began offering a pharmacogenomics (“PGx”) testing service focused on mental health, IDgenetix®, following a business combination completed in April 2022.
Information on the disaggregation of revenues is included below.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Once we satisfy our performance obligations and bill for the service, the timing of the collection of payments may vary based on the payment practices of the third-party payor and the existence of contractually established reimbursement rates.
−Removed: Most of the payments for our services are made by third-party payors, including Medicare and commercial health insurance carriers.
+Added: The payments for our services are primarily made by third-party payors, including Medicare and commercial health insurance carriers.
Certain contracts contain a contractual commitment of a reimbursement rate that differs from our list prices.
3 unchanged sentences
These situations may result in a delay in the collection of payments.
−Removed: The Medicare claims that are covered by policy under a Local Coverage Determination (‘‘LCD’’) are generally paid at the established rate by our Medicare contractor within 30 days from receipt.
−Removed: Medicare claims that were either submitted to Medicare prior to the LCD coverage commencement date or are not covered by the terms of the LCD but meet the definition of being medically reasonable and necessary pursuant to the controlling Section 1862(a)(1)(A) of the Social Security Act are generally appealed and may ultimately be paid at the first (termed ‘‘redetermination’’), second (termed ‘‘reconsideration’’) or third level of appeal (de novo hearing with an Administrative Law Judge (“ALJ”)).
−Removed: A successful appeal at any of these levels results in payment.
−Removed: In the absence of LCD coverage or contractually established reimbursements rates, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions.
+Added: The Medicare claims that are covered by Medicare are generally paid at a rate established on Medicare’s Clinical Laboratory Fee Schedule or by the respective Medicare contractor within 30 days from receipt.
+Added: Medicare claims that were either submitted to Medicare prior to the local coverage determination (“LCD”) or other coverage commencement date or are not covered but meet the definition of being medically reasonable and necessary pursuant to the controlling Section 1862(a)(1)(A) of the Social Security Act are generally appealed and may ultimately be paid at the first (termed ‘‘redetermination’’), second (termed ‘‘reconsideration’’) or third level of appeal ( de novo hearing with an Administrative Law Judge).
+Added: A successful appeal at any of these levels may result in prompt payment.
+Added: In the absence of Medicare coverage, contractually established reimbursements rates or other coverage, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions.
Variable consideration attributable to these price concessions is measured at the expected value using the ‘‘most likely amount’’ method under ASC 606.
3 unchanged sentences
Accordingly, in such situations revenues are recognized on the basis of actual cash collections.
−Removed: Variable consideration for Medicare claims that are not covered by an LCD, including those claims subject to approval by an ALJ at an appeal hearing, is deemed to be fully constrained due to factors outside our influence (i.e., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.
+Added: Variable consideration for Medicare claims that are not covered by Medicare, including those claims undergoing appeal, is deemed to be fully constrained due to factors outside our influence (e.g., judgment or actions of third parties) and the uncertainty of the amount to be received is not expected to be resolved for a long period of time.
Variable consideration is evaluated each reporting period and adjustments are recorded as increases or decreases in revenues.
−Removed: Included in revenues for the years ended December 31, 2021 and 2020 were $ 3,324,000 and $ 176,000 , respectively, of revenue increases associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.
+Added: Included in revenues for the years ended December 31, 2022 and 2021 were $ 1,987,000 of net negative revenue adjustments and $ 3,324,000 of net positive revenue adjustments, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.
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.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Because our contracts with customers have an expected duration of one year or less, we have elected the practical expedient in ASC 606 to not disclose information about our remaining performance obligations.
Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of our contracts.
−Removed: Contract balances consisted of accounts receivable (both current and noncurrent) as of December 31, 2021 and 2020 and the Medicare advance payment (discussed further below) as of December 31, 2020.
+Added: Contract balances consisted solely of accounts receivable (both current and noncurrent) as of December 31, 2022 and 2021.
Medicare Advance Payment
On April 16, 2020, we 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.
−Removed: CMS began recoupment of the Advance Payment in April 2021 by applying 25% of the Medicare payments otherwise owed to us against the balance of the Advance Payment.
+Added: CMS began recoupment of the Advance Payment in April 2021 by applying 25% of the Medicare payments otherwise owed to us against the
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: balance of the Advance Payment.
Recoupment of the full amount of the Advance Payment was complete by December 31, 2021.
−Removed: DecisionDx-Melanoma Claims Consolidation
−Removed: In June 2017, we 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 disputes adjudicated at an accelerated rate.
−Removed: 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.
−Removed: The consolidation includes 2,698 DecisionDx-Melanoma claims dating from 2013 through spring 2017.
−Removed: Hearings were held in April 2019 with a supplemental hearing in May 2019.
−Removed: On March 12, 2020, OMHA issued a decision denying payment on all claims in the consolidation.
−Removed: We have filed an appeal to the decision, although no ruling on such appeal has been issued to date.
−Removed: In accordance with ASC 606 and consistent with prior periods, we have not recognized (fully constrained the variable consideration) any revenues attributable to these claims in our consolidated financial statements pending the outcome of this matter.
Disaggregation of revenues
5 unchanged sentences
Payor Concentration
−Removed: We rely upon reimbursements from third-party government payors (primarily Medicare) and private-payor insurance companies to collect accounts receivable related to sales of our diagnostic tests.
+Added: We rely upon reimbursements from third-party government payors (primarily Medicare) and private-payor insurance companies to collect accounts receivable related to sales of our diagnostic and prognostic tests.
Our significant third-party payors and their related revenues as a percentage of total revenues and accounts receivable balances are as follows:
3 unchanged sentences
Accounts Receivable
−Removed: (non-current)
Year Ended December 31, As of December 31, As of December 31,
1 unchanged sentence
Medicare 53 % 57 % 28 % 24 % * *
−Removed: Medicare Advantage plans 28 % 29 % 40 % 40 % — % 25 %
−Removed: BlueCross BlueShield plans 7 % 6 % 22 % 26 % 58 % 44 %
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: Payor A 12 % * 14 % 12 % 16 % 15 %
+Added: Payor B * * * 10 % * *
+Added: * Less than 10%
+Added: There were no other third-party payors that individually accounted for more than 10% of the Company’s total revenue or accounts receivable for the periods shown in the table above.
Loss Per Share
Basic loss per share is computed by dividing net loss for the period by the weighted-average number of common shares outstanding during the period.
−Removed: 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”).
+Added: 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, vesting of RSUs and PSUs or purchases under the ESPP.
The treasury stock method is used to calculate the potential dilutive effect of these common stock equivalents.
+Added: Contingently issuable PSU awards are included in the computation of diluted loss per share when the applicable performance criteria would be met and the common shares would be issuable if the end of the reporting period were the end of the contingency period.
However, potentially dilutive shares are excluded from the computation of diluted loss per share when their effect is antidilutive.
−Removed: Due to us reporting a net loss for all periods presented, all potentially dilutive securities are antidilutive and are excluded from the computation of diluted loss per share for such periods.
−Removed: The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in our calculation of diluted loss per share for the years ended December 31, 2021 and 2020 because to do so would be antidilutive (in thousands):
+Added: Because we reported a net loss for all periods presented, all potentially dilutive securities are antidilutive and are excluded from the computation of diluted loss per share for such periods.
+Added: The table below provides the weighted-average number of potential common shares associated with outstanding securities not included in our calculation of diluted loss per share for the years ended December 31, 2022 and 2021
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: because to do so would be antidilutive or, in the case of PSUs, the applicable performance conditions have not yet been met (in thousands):
Years Ended December 31,
−Removed: Stock options and restricted stock units 3,459 2,789
−Removed: Common stock warrants — 35
−Removed: Employee stock purchase plan 62 100
+Added: Stock options 3,521 3,209
+Added: RSUs and PSUs 1,650 250
Total 5,317 3,521
−Removed: In addition, in connection with the acquisition of Cernostics, we may issue shares of our common stock to satisfy the contingent consideration obligation, pending the outcome of certain commercial milestones, as discussed in Note 5.
−Removed: Asset Acquisitions
+Added: In addition, in connection with the acquisition of AltheaDx, Inc.
+Added: (“AltheaDx”), we may be required to issue shares of our common stock to satisfy the contingent consideration obligations, pending the outcome of certain commercial and regulatory milestones, as required by the definitive agreement to acquire AltheaDx.
+Added: For purposes of calculating diluted loss per share, no such shares were assumed to have been issued because none of the applicable conditions have been met to date.
+Added: See Notes 6 and 11 for additional information.
+Added: Marketable Investment Securities
+Added: The following table presents our available-for-sale debt securities (in thousands):
+Added: December 31, 2022
+Added: Amortized Cost Unrealized Estimated Fair Value
+Added: government securities $ 136,058 $ — $ ( 381 ) $ 135,677
+Added: Total $ 136,058 $ — $ ( 381 ) $ 135,677
+Added: We had no available-for-sale debt securities as of December 31, 2021.
+Added: Although available to be sold to meet operating needs or otherwise, securities are generally held through maturity.
+Added: We classify all investments as current assets, as these are readily available for use in current operations.
+Added: The cost of securities sold is determined based on the specific identification method for purposes of recording gains and losses.
+Added: There were no realized gains or losses on sales of investments for the years ended December 31, 2022 and 2021.
+Added: We evaluated our investment portfolio under the available-for-sale debt securities impairment model guidance and determined our investment portfolio is comprised of low-risk, investment grade securities.
+Added: As of December 31, 2022, unrealized losses on available-for-sale investments are not attributed to credit risk.
+Added: We believe that an allowance for credit losses is unnecessary because the unrealized losses on certain of our marketable investment securities are due to market factors.
+Added: No credit-related or noncredit-related impairment losses were recorded for the years ended December 31, 2022 and 2021.
+Added: The allowance for credit losses was zero as of December 31, 2022 and 2021.
+Added: As of December 31, 2022, all of our available-for-sale debt securities had contractual maturities of one year or less.
+Added: Accrued interest receivable is included in prepaid expenses and other current assets in our consolidated balance sheets.
+Added: As of December 31, 2022 and 2021 the accrued interest receivable balance was immaterial and zero, respectively.
+Added: Additional information relating to the fair value of marketable investment securities can be found in Note 11.
Myriad myPath, LLC
1 unchanged sentence
Following the completion of the acquisition, we became the sole provider of the MyPath Melanoma test.
−Removed: Based on the guidance in ASC 805, we concluded that substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset and therefore the transaction represents an asset acquisition.
+Added: Based on the guidance in ASC 805, we concluded that substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset and therefore the transaction represents
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: an asset acquisition.
We incurred $ 684,000 of direct transaction costs that were included in the cost of the acquisition.
2 unchanged sentences
Cernostics, Inc.
−Removed: On December 3, 2021, we completed the acquisition of Cernostics, Inc., which offers the TissueCypher® Barrett’s Esophagus Assay for patients with BE.
+Added: On December 3, 2021, we completed the acquisition of Cernostics, Inc.
+Added: (“Cernostics”), which offers the TissueCypher Barrett’s Esophagus Test for patients with BE.
We acquired Cernostics for an upfront cash purchase price of $ 30,732,000 , including $ 653,000 of direct transaction costs.
−Removed: A portion of the upfront cash consideration is being held in escrow for a specified period following closing to secure post-closing adjustments and indemnification claims, if any.
−Removed: Our consolidated balance sheet at December 31, 2021 reflects a receivable of $ 519,000 for the post-closing purchase price adjustment, representing the difference between actual and estimated cash and working capital at closing, among other things.
−Removed: We have also agreed to pay up to an additional $ 50.0 million in cash or shares of our common stock, at our sole discretion, based on the achievement of certain commercial milestones relating to the year ending December 31, 2022 (“Earnout Payments”).
−Removed: The portion of any Earnout Payments that may be settled in shares of our common stock is subject to certain limitations and the aggregate number of shares that may be issued for the Earnout Payments may not exceed 5,034,653 shares.
−Removed: Any Earnout Payments in shares of our common stock will be based on the volume weighted-average price of our common stock for the 15 trading days ending December 30, 2022.
−Removed: The Earnout Payments represent contingent consideration.
−Removed: ASC 480, Distinguishing Liabilities from Equity, provides guidance on accounting for certain obligations that must or may be settled by issuance of a variable number of shares.
−Removed: In accordance with that guidance, we recognized a liability of $ 18,287,000 , which represents the fair value of the obligation as of the acquisition date.
+Added: A portion of the upfront cash consideration is being held in escrow for a specified period following closing to secure indemnification claims, if any.
+Added: Our consolidated balance sheet at December 31, 2021 reflected a receivable for the post-closing purchase price adjustment, representing the difference between actual and estimated cash and working capital at closing, among other things.
+Added: During the year ended December 31, 2022, we received cash of $ 547,000 in settlement of this receivable.
+Added: We also agreed to pay up to an additional $ 50.0 million in cash or shares of our common stock, at our sole discretion, based on the achievement of certain commercial milestones relating to the year ended December 31, 2022 (“Cernostics Earnout Payments”).
+Added: The portion of any Cernostics Earnout Payments that could have been settled in shares of our common stock was subject to certain limitations and the aggregate number of shares that could have been issued for the Cernostics Earnout Payments may not have exceeded 5,034,653 shares.
+Added: Any Cernostics Earnout Payments in shares of our common stock would have been based on the volume weighted-average price of our common stock for the 15 trading days ending December 30, 2022.
+Added: The Cernostics Earnout Payments represent contingent consideration.
+Added: ASC 480 provides guidance on accounting for certain obligations that must or may be settled by issuance of a variable number of shares.
+Added: In accordance with that guidance, we recognized a liability of $ 18,287,000 , which represented the fair value of the obligation as of the acquisition date.
+Added: Our consolidated balance sheet at December 31, 2022 reflected a liability of zero for the Cernostics Earnout Payments since the applicable commercial milestones were not met.
See Note 11 for additional information on the measurement of the contingent consideration.
Based on the guidance in ASC 805, we concluded that substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset and therefore the transaction represents an asset acquisition.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The cost of the acquisition, which is comprised of the cash consideration, transaction costs and contingent consideration, was allocated to the assets acquired and the liabilities assumed as follows (in thousands):
11 unchanged sentences
Total cost allocated $ 49,019
−Removed: The intangible assets were comprised of developed technology of $ 57,264,000 with an estimated useful life of 15 years and a developed workforce of $ 563,000 , with an estimated useful life of five years , and each is being amortized on a straight-line basis.
+Added: The intangible assets were comprised of developed technology of $ 57,264,000 with an estimated useful life of 15 years and an assembled workforce of $ 563,000 , with an estimated useful life of five years , and each is being amortized on a straight-line basis.
+Added: AltheaDx, Inc.
+Added: On April 26, 2022, we completed the acquisition of 100 % of the equity interests in AltheaDx.
+Added: AltheaDx offers the IDgenetix test, a PGx test focused on mental health.
+Added: We believe this acquisition enabled us to expand upon our
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: existing portfolio of testing solutions in support of our growth strategy.
+Added: We have concluded that the transaction represents a business combination under ASC 805.
+Added: The financial results of AltheaDx have been included in our consolidated financial statements since the date of the acquisition.
+Added: The amount of revenue from AltheaDx included in the consolidated statements of operations from the acquisition date through December 31, 2022 was $ 912,000 .
+Added: The loss attributable to AltheaDx included in the consolidated statements of operations from the acquisition date through December 31, 2022 was approximately $ 12,372,000 .
+Added: This amount does not reflect transaction costs from the acquisition or the effects of the valuation allowance reduction discussed in Note 15.
+Added: Transaction costs associated with the acquisition were $ 1,711,000 for the year ended December 31, 2022 and were recognized as expenses in the consolidated statements of operations.
+Added: We have also agreed to pay up to an additional $ 75.0 million in cash and common stock in connection with the achievement of certain milestones based on 2022, 2023 and 2024 commercial milestones for the IDgenetix test (the “AltheaDx Earnout Payments”).
+Added: Upon any achievement of each relevant milestone event, the associated payment will be paid 50 % in cash and 50 % in shares of our common stock based on a price per share equal to the volume-weighted-average price of our common stock for the 20 trading days as of the applicable milestone determination date.
+Added: In accordance with the terms of the definitive agreement governing the acquisition of AltheaDx, the maximum number of shares of our common stock issuable to former AltheaDx security holders may not exceed 1,271,718 shares.
+Added: Therefore, taking into consideration the number of shares already issued at closing, a maximum of 507,831 additional shares of our common stock remain issuable with respect to the AltheaDx Earnout Payments.
+Added: In the event a number of shares in excess of 507,831 would otherwise be issuable in connection with the AltheaDx Earnout Payments, we will issue shares up to the maximum number permitted and pay cash for the remaining portion of the obligation.
+Added: Contingent consideration liability associated with the AltheaDx Earnout Payments was zero as of the April 26, 2022 date of acquisition.
+Added: Our calculations of the consideration transferred and the purchase price allocation for the acquisition of AltheaDx are finalized as of December 31, 2022.
+Added: During the measurement period, we recorded adjustments to accrued liabilities, income taxes, intangible assets, contingent consideration and the resulting goodwill after finalizing our valuation of these items.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: The following table presents the acquisition-date fair value of the consideration transferred, summarizes the final allocation of the fair values of assets acquired and liabilities assumed in the acquisition of AltheaDx, and includes measurement period adjustments recorded during 2022 (in thousands, except for shares):
+Added: April 26, 2022
+Added: (as initially reported) Measurement Period Adjustments April 26, 2022
+Added: (as adjusted)
+Added: Consideration Transferred
+Added: Cash $ 30,510 $ ( 8 ) $ 30,502
+Added: Common stock ( 763,887 shares)
+Added: 17,111 — 17,111
+Added: Contingent consideration 1,528 ( 1,528 ) —
+Added: Total consideration transferred $ 49,149 $ ( 1,536 ) $ 47,613
+Added: Fair Value Allocation
+Added: Cash and cash equivalents $ 3,536 $ — $ 3,536
+Added: Accounts receivable 302 — 302
+Added: Inventory 279 — 279
+Added: Prepaid expenses and other current assets 262 — 262
+Added: Property and equipment 314 — 314
+Added: Intangible asset 37,000 ( 2,000 ) 35,000
+Added: Other assets – long-term 12 — 12
+Added: Accounts payable ( 231 ) — ( 231 )
+Added: Accrued compensation ( 380 ) — ( 380 )
+Added: Other accrued and current liabilities ( 532 ) 119 ( 413 )
+Added: Deferred tax liabilities ( 1,819 ) 147 ( 1,672 )
+Added: Other liabilities ( 88 ) — ( 88 )
+Added: Net identifiable assets acquired 38,655 ( 1,734 ) 36,921
+Added: Goodwill 10,494 198 10,692
+Added: Total fair value of net assets assumed $ 49,149 $ ( 1,536 ) $ 47,613
+Added: The fair value of the common stock issued was measured using the April 26, 2022 closing price of $ 22.40 per share, as reported by the Nasdaq Global Market.
+Added: A portion of the upfront cash and stock consideration is being held in escrow for a specified period following closing to secure indemnification claims, if any.
+Added: During the fourth quarter of 2022, we reversed losses originally recorded during the second and third quarters of 2022 that were associated with the remeasurement of contingent consideration before finalizing the valuation.
+Added: Also during the fourth quarter of 2022, we recorded an immaterial adjustment to reduce the amortization expense associated with the intangible asset.
+Added: The intangible asset is comprised of developed technology with an estimated useful life of 15 years and is being amortized on a straight-line basis.
+Added: The goodwill, which is not expected to be deductible for income tax purposes, was primarily attributable to potential future growth opportunities and the organized workforce.
+Added: Unaudited Pro Forma Financial Information
+Added: The following unaudited pro forma financial information for the years ended December 31, 2022 and 2021 combines our historical financial results and the results of AltheaDx, assuming that the companies were combined as of January 1, 2021, and includes adjustments for amortization expense from the acquired intangible assets and additional stock-based compensation expense.
+Added: Nonrecurring pro forma adjustments consist of acquisition-related transaction costs of $ 1,711,000 and an income tax benefit of $ 1,626,000 , both assumed to have been recognized during the year ended December 31, 2021 and therefore removed from the year ended December 31, 2022.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: The following unaudited pro forma financial information (in thousands) is for informational purposes only and is not necessarily indicative of (i) the results of operations that would have been achieved if the acquisition had taken place as of January 1, 2021 or (ii) the results of operations that are expected in future periods:
+Added: Pro Forma Data
+Added: Years Ended December 31,
+Added: Net revenues $ 137,591 $ 94,671
+Added: Net loss $ ( 72,819 ) $ ( 41,764 )
+Added: Related Parties
+Added: Maetzold, our President and Chief Executive Officer (“CEO”), and a member of our board of directors, and Daniel M.
+Added: Bradbury, the Chairperson of our board of directors, each served on the board of directors of AltheaDx until the acquisition of AltheaDx was completed, were direct or indirect beneficial owners of AltheaDx securities and received consideration in the transaction.
+Added: Further, Frank Stokes, our Chief Financial Officer;
+Added: Juvenal, our Chief Commercial Officer;
+Added: Kristen Oelschlager, our Chief Operating Officer and certain immediate family members of Mr.
+Added: Maetzold and Ms.
+Added: Oelschlager were direct or indirect beneficial owners of AltheaDx securities and received consideration in the transaction.
+Added: These individuals may receive additional contingent consideration in the form of the AltheaDx Earnout Payments if the relevant commercial and regulatory milestone events occur.
+Added: Our entry into the definitive agreement to acquire AltheaDx was approved by our board of directors based upon the unanimous recommendation of a special transaction committee comprised entirely of independent members of our board of directors without any financial interest in AltheaDx or any conflict of interest with respect to the acquisition of AltheaDx.
Property and Equipment, Net
1 unchanged sentence
As of December 31,
−Removed: Leasehold improvements $ 5,044 $ 1,388
Lab equipment (1)
+Added: $ 9,721 $ 3,727
+Added: Leasehold improvements 5,171 5,044
Computer equipment 4,336 2,457
5 unchanged sentences
Property and equipment, net $ 14,315 $ 9,501
−Removed: (1) Includes lab equipment under a finance lease of $ 237 thousand and accumulated depreciation of $ 8 thousand.
−Removed: Depreciation expense was recorded in the consolidated statements of operations and comprehensive loss as follows (in thousands):
+Added: (1) Includes lab equipment under a finance lease of $ 369 thousand and accumulated depreciation of $ 137 thousand as of December 31, 2022 and $ 237 thousand and accumulated depreciation of $ 8 thousand as of December 31, 2021.
+Added: Depreciation expense was recorded in the consolidated statements of operations as follows (in thousands):
Years Ended December 31,
5 unchanged sentences
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
−Removed: Intangible Assets, Net
−Removed: Our intangible assets, net consist of the following (in thousands) :
+Added: Goodwill and Other Intangible Assets, Net
+Added: Information on the change in carrying value of our goodwill is presented below (in thousands):
+Added: Balance, December 31, 2021
+Added: Acquisition of AltheaDx 10,692
+Added: Balance, December 31, 2022
+Added: There were no accumulated impairments of goodwill as of December 31, 2022 or 2021.
+Added: We had no goodwill as of December 31, 2021.
+Added: Other Intangible Assets, Net
+Added: Our other intangible assets, net consist of the following (in thousands):
December 31, 2022
2 unchanged sentences
Assembled workforce 563 ( 122 ) 441 4.0
−Removed: Total intangible assets, net $ 90,880 $ ( 1,958 ) $ 88,922
−Removed: There were no intangible assets as of December 31, 2020.
+Added: Total other intangible assets, net $ 125,880 $ ( 10,224 ) $ 115,656
+Added: December 31, 2021
+Added: Gross carrying value Accumulated amortization Net Weighted-Average Remaining Life (in years)
+Added: Developed technology $ 90,317 $ ( 1,949 ) $ 88,368 13.2
+Added: Assembled workforce 563 ( 9 ) 554 4.9
+Added: Total other intangible assets, net $ 90,880 $ ( 1,958 ) $ 88,922
The estimated future aggregate amortization expense as of December 31, 2022 is as follows (in thousands):
2 unchanged sentences
Total $ 115,656
−Removed: Amortization expense of intangible assets was $ 2.0 million for the year ended December 31, 2021.
−Removed: No amortization expense was recorded for the year ended December 31, 2020.
+Added: Amortization expense of intangible assets was $ 8.3 million and $ 2.0 million for the years ended December 31, 2022 and 2021, respectively.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Accrued and Current Liabilities
4 unchanged sentences
Employee stock purchase plan contributions 900 760
−Removed: Payroll tax liabilities 695 276
−Removed: Accrued payor refunds 386 —
+Added: Payroll-related liabilities 37 695
Other 378 663
4 unchanged sentences
We lease two facilities in Phoenix, Arizona for laboratory and office space.
−Removed: For both leases, the current term extends until April 2033 with options to renew for two additional five-year terms.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: For both leases, the current terms end in 2033 with options to renew for two additional five-year terms.
+Added: On April 1, 2022, we entered into a lease agreement for commercial office space in Pittsburgh, Pennsylvania, which provides for a term of 10.5 years, a five-year renewal option, an early termination clause and a lease incentive allowance of $ 2.5 million to apply toward leasehold improvements.
+Added: In September 2022, we obtained access to the facilities and initiated leasehold improvement work.
+Added: Lease payments will commence at a future date upon the completion of leasehold improvements, at which point the facilities will be ready for intended use.
+Added: We intend to use the additional space for general office and laboratory facilities.
We have not included the optional renewal periods in the measurement of the lease obligations because it is not reasonably certain that we will exercise these renewal options.
1 unchanged sentence
Finance Lease
−Removed: In connection with the December 2021 acquisition of Cernostics, we assumed a finance lease for laboratory equipment.
+Added: In connection with the acquisitions of AltheaDx in April 2022 and Cernostics in December 2021, we assumed finance leases for laboratory equipment.
Discount Rates
2 unchanged sentences
We primarily consider industry data, our credit rating and the lease term to determine our incremental borrowing rate.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lease Balances and Costs
Lease balances reflected in the consolidated balance sheet were as follows (in thousands):
−Removed: Lease Balance Classification December 31, 2021
+Added: As of December 31,
+Added: Lease Balance Classification 2022 2021
Operating Operating lease assets $ 12,181 $ 7,383
5 unchanged sentences
Finance Other liabilities $ 90 $ 124
−Removed: Costs associated with our leases were included in the consolidated statement of operations and comprehensive loss as follows (in thousands):
−Removed: Lease Cost Year Ended December 31, 2021
+Added: Costs associated with our leases were included in the consolidated statement of operations as follows (in thousands):
+Added: Years Ended December 31,
+Added: Lease Cost 2022 2021
Operating lease cost (1)
+Added: $ 1,997 $ 1,450
Finance lease cost
3 unchanged sentences
Total lease cost $ 2,619 $ 1,488
−Removed: (1) Includes variable lease cost of $ 187 thousand for the year ended December 31, 2021.
+Added: (1) Includes variable lease cost of $ 371 thousand and $ 187 thousand for the years ended December 31, 2022 and 2021, respectively.
CASTLE BIOSCIENCES, INC.
2 unchanged sentences
Supplemental cash flow information on leases is as follows (in thousands):
−Removed: Year Ended December 31, 2021
+Added: Years Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities
2 unchanged sentences
Financing cash flows from finance leases $ 122 $ 8
−Removed: During the year ended December 31, 2021, we recorded $ 2.9 million in lease liabilities arising from obtaining ROU assets.
Information regarding the weighted-average lease term and weighted-average discount rate is presented below:
−Removed: December 31, 2021
+Added: As of December 31,
Weighted-average remaining lease term (years)
14 unchanged sentences
Present value of lease payments $ 13,310 $ 238
−Removed: As of December 31, 2021, we have no material leases that have not yet commenced.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
−Removed: Disclosures Under ASC 840
−Removed: Future non-cancellable commitments under all operating leases were as follows as of December 31, 2020 (in thousands):
−Removed: Years Ending December 31,
−Removed: Thereafter 1,037
−Removed: Rent expense was $ 548,000 for the year ended December 31, 2020.
−Removed: Long-Term Debt
−Removed: We had a Loan and Security Agreement with Oxford Finance LLC (“Oxford”) as collateral agent, and Oxford and Silicon Valley Bank as equal syndicated lenders (the “2018 LSA”).
−Removed: The 2018 LSA consisted of a $ 25.0 million secured term loan credit facility (the “Term Loan”).
−Removed: The Term Loan bore interest at a floating rate equal to the greater of (1) 8.55 % and (2) the 30-day U.S.
−Removed: LIBOR rate as reported in The Wall Street Journal on the last business day of the month that preceded the month in which the interest was to accrue, plus 6.48 %.
−Removed: We were permitted to make interest-only payments on the Term Loan through May 31, 2020.
−Removed: As required, we began to repay the principal in 30 equal monthly installments of $ 833,333 each beginning on June 1, 2020.
−Removed: All unpaid principal and accrued and unpaid interest were to be due at maturity on November 1, 2022.
−Removed: However, o n December 21, 2020, we terminated the 2018 LSA and repaid in full all amounts due, which totaled $ 21.6 million as of such date, including the outstanding principal balance, the final payment amount, early termination and prepayment fees and accrued interest.
−Removed: The termination of the 2018 LSA resulted in the recognition of an extinguishment loss of $ 1.4 million, which was reflected in our statement of operations and comprehensive loss for the year ended December 31, 2020 .
+Added: As of December 31, 2022, we expect $ 0.7 million in undiscounted future lease payments for leases that had not yet commenced.
Fair Value Measurements
4 unchanged sentences
Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions.
3 unchanged sentences
Accordingly, the fair value estimates disclosed, or amounts recorded may not be indicative of the amount that us or holders of the instruments could realize in a current market exchange.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
−Removed: The table below provides information (in thousands), by level within the fair value hierarchy, of our financial assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 2021 and 2020 (in thousands):
+Added: The table below provides information by level within the fair value hierarchy, of our financial assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 2022 and 2021 (in thousands):
As of December 31, 2022
4 unchanged sentences
$ 108,673 $ — $ — $ 108,673
+Added: government securities (2)
+Added: $ 135,677 $ — $ — $ 135,677
Contingent consideration (3)
+Added: $ — $ — $ — $ —
As of December 31, 2021
4 unchanged sentences
$ 327,721 $ — $ — $ 327,721
+Added: government securities (2)
+Added: $ — $ — $ — $ —
+Added: Contingent consideration (3)
+Added: $ — $ — $ 18,287 $ 18,287
(1) Classified as “Cash and cash equivalents” in the consolidated balance sheets.
+Added: (2) Classified as “Marketable investment securities” in the consolidated balance sheets.
+Added: (3) Current portion, if any, classified as “Other accrued and current liabilities” in the consolidated balance sheets.
Contingent Consideration
−Removed: In connection with our acquisition of Cernostics, we have recorded a contingent consideration liability for the Earnout Payments.
−Removed: This liability is classified as a Level 3 fair value measurement due to the use of significant unobservable inputs and a Monte Carlo simulation to determine its fair value.
+Added: In connection with our acquisition of Cernostics, we recorded a contingent consideration liability for the additional contingent consideration of up to $ 50.0 million that could have been payable based on the achievement of certain commercial milestones relating to the year ending December 31, 2022.
+Added: The Cernostics Earnout Payments could have been settled in cash or shares of our common stock, at our sole discretion.
+Added: The portion of any Cernostics Earnout Payments that could have been settled in shares of our common stock were subject to certain limitations and the aggregate number of shares that could have been issued for the Cernostics Earnout Payments could not have exceeded 5,034,653 shares.
+Added: Any Cernostics Earnout Payments in shares of our common stock could have been based on the volume weighted-average price of our common stock for the 15 trading days ending December 30, 2022.
+Added: There were no Cernostics Earnout Payments that became payable because the commercial milestones were not achieved during the earnout period.
+Added: In connection with our acquisition of AltheaDx, we agreed to pay contingent consideration of up to $ 75.0 million based on the achievement of certain commercial milestones relating to the 2022, 2023, and 2024 commercial
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: milestones, as discussed further in Note 6.
+Added: The portion of the AltheaDx Earnout Payments associated with the commercial milestones for the year ended December 31, 2022 will not be paid since the applicable commercial milestones were not met.
+Added: This portion represented $ 35.0 million of the $ 75.0 million total potential payment obligation, exclusive of the catch-up payment in 2023 of $ 17.5 million which will become payable if all 2023 commercial milestones are fully met.
+Added: Therefore, a potential payment obligation of up to $ 57.5 million with respect to the remaining commercial milestones for 2023 and 2024 remains as of December 31, 2022.
+Added: If the settlement of the remaining portion of the Althea Earnout Payments were to occur as of December 31, 2022, no amounts would be due based on the achievement of the commercial milestones to date.
+Added: The contingent consideration was classified as a Level 3 fair value measurement due to the use of significant unobservable inputs and a Monte Carlo simulation to determine its fair value.
The Monte Carlo simulation uses projections of the commercial milestones for the applicable period as well as the corresponding targets and approximate timing of payment based on the terms of the arrangement.
−Removed: The analysis also uses assumptions for expected volatility of the financial metrics and a risk-adjusted discount rate, which were 20.0 % and 16.1 %, respectively, at initial measurement on December 3, 2021.
+Added: The analysis for the Cernostics Earnout Payments used assumptions for expected volatility of the financial metrics and a risk-adjusted discount rate, which were 20.0 % and 16.1 %, respectively, as of December 31, 2021.
+Added: The final valuation for the contingent consideration as of the date of acquisition was assessed to be zero and resulted in a measurement period adjustment.
+Added: See Note 6 for additional information on the measurement period adjustment.
+Added: Since the final valuation, there have been no changes in the fair value of the contingent consideration during the year ended December 31, 2022.
The contingent consideration liability is remeasured at fair value at each reporting period taking into account any updated assumptions or changes in circumstances.
−Removed: Any change in the fair value is recorded as a gain or loss in our consolidated statement of operations and comprehensive loss.
−Removed: There was no change in fair value from the initial recognition on December 3, 2021 through December 31, 2021.
−Removed: The following table discloses the summary of changes in the contingent consideration liability measured at fair value using Level 3 inputs during the year ended December 31, 2021 (in thousands):
−Removed: December 31, 2021
−Removed: Balance at beginning of period $ —
−Removed: Acquisition of Cernostics 18,287
+Added: Any changes in the fair value are recorded as gains or losses in our consolidated statement of operations.
+Added: A measurement period adjustment was recognized in the fourth quarter of 2022 to reverse the preliminary valuation of the contingent consideration and losses recorded during the interim period.
+Added: The following table discloses the summary of changes in the contingent consideration liability measured at fair value using Level 3 inputs for the year ended December 31, 2022 (in thousands):
+Added: Cernostics AltheaDx Total
+Added: Balance, December 31, 2021 $ 18,287 $ — $ 18,287
+Added: Acquisition of AltheaDx — — —
Change in fair value ( 18,287 ) — ( 18,287 )
−Removed: Balance at end of period $ 18,287
+Added: Balance, December 31, 2022 $ — $ — $ —
Commitments and Contingencies
1 unchanged sentence
We believe there is no threatened litigation or litigation pending that could have, individually or in the aggregate, a material adverse effect on our financial position, results of operations or cash flows.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stockholders’ Equity
3 unchanged sentences
No dividends were declared or paid during the years ended December 31, 2022 or 2021.
−Removed: On June 29, 2020, we issued and sold 2,000,000 shares of our common stock in a follow-on public offering at a price of $ 37.00 per share.
−Removed: We received $ 69,079,000 in net proceeds, after deducting underwriting discounts, commissions and offering costs.
−Removed: In connection with the offering, we 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.
−Removed: On July 2, 2020, we 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 an additional net proceeds to us of $ 10,425,000 .
−Removed: On December 18, 2020, we issued and sold 4,600,000 shares of our common stock in a follow-on public offering, including 600,000 shares associated with the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $ 58.00 per share.
−Removed: We received $ 250,201,000 in aggregate net proceeds, after deducting underwriting discounts and commissions and offering costs.
−Removed: Common Stock Warrants
−Removed: The Company issued an aggregate of 209,238 shares and 31,814 shares of common stock December 11, 2020 and December 29, 2020, respectively, pursuant to net exercises by the holders of common stock warrants outstanding.
−Removed: In accordance with the net exercise provisions of the warrants, shares of common stock were withheld to satisfy the cost of these exercises.
−Removed: There were no common stock warrants outstanding as of December 31, 2021 or 2020.
−Removed: The common stock warrants were classified as stockholders’ equity and no adjustments were recorded for changes in fair value.
+Added: During the year ended December 31, 2021, we paid $ 336,000 in common stock offering costs related to a public offering of common stock completed in December 2020.
Stock Incentive Plans and Stock-Based Compensation
3 unchanged sentences
Following the adoption of the 2018 Plan, no additional stock awards were granted under the 2008 Plan and following the adoption of the 2019 Plan, no additional stock awards were granted under the 2018 Plan.
−Removed: Options under the plans may be granted as incentive stock options (“ISOs”) or non-statutory stock options (“NSOs”).
−Removed: ISOs may only be granted our employees (including directors who are also considered employees).
−Removed: NSOs may be granted our employees, directors and consultants.
+Added: On December 22, 2022, our board of directors approved the 2022
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: Inducement Plan (the “Inducement Plan”) to reserve 350,000 shares of our common stock that may be issued pursuant to awards made as an inducement material to the grantee’s entering into employment with us to the extent such grantee was not previously an employee of ours or is entering into employment following a bona fide period of non-employment with us.
+Added: Options under the plans may be granted as incentive stock options (“ISO”) or non-statutory stock options (“NSOs”).
+Added: ISOs may only be granted to our employees (including directors who are also considered employees).
+Added: NSOs may be granted to our employees, directors and consultants.
Options may be granted for terms up to ten years from the date of grant, as determined by the board of directors;
3 unchanged sentences
We issue new shares to satisfy option exercises.
−Removed: As of December 31, 2021, 46,741 shares remained available for grant under the 2019 Plan.
−Removed: On January 1, 2022, an additional 1,268,926 shares became available under the 2019 Plan pursuant to an automatic annual increase.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: As of December 31, 2022, we have granted awards for 1,473,888 shares in excess of the number of shares authorized for issuance under the 2019 Plan.
+Added: The 2019 Plan provides for automatic annual increases to the number of shares authorized for issuance, equal to 5 % of our common shares outstanding as of the immediately preceding year end, through January 1, 2029.
+Added: Under this provision, effective January 1, 2023, an additional 1,327,684 shares became available under the 2019 Plan.
Stock Options
16 unchanged sentences
Exercisable at December 31, 2022 2,032,859 $ 30.09 7.0 $ 11,713
−Removed: 1,332,487 $ 23.31 7.5 $ 28,845
−Removed: (1) Vested and exercisable options.
−Removed: Additionally, outstanding unvested options to purchase an aggregate of 10,255 shares of common stock with a weighted-average exercise price of $ 2.39 per share may be exercised prior to vesting as of December 31, 2021 under early-exercise provisions.
−Removed: In the event of such exercise, the shares obtained upon exercise would be restricted and subject to forfeiture prior to vesting.
−Removed: No such early exercises have occurred as of December 31, 2021.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Stock Units
2 unchanged sentences
We issue new shares to satisfy RSUs upon vesting.
−Removed: The following table summarizes our RSU activity for the years ended December 31, 2021 and December 31, 2020:
+Added: The following table summarizes our RSU activity for the years ended December 31, 2022 and 2021:
Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value
1 unchanged sentence
Granted 958,361 $ 43.05
+Added: ( 56,002 ) $ 61.07
Forfeited/Cancelled ( 13,662 ) $ 62.80
4 unchanged sentences
Balance as of December 31, 2022 3,477,922 $ 27.56
−Removed: (1) The aggregate number of shares withheld upon vesting for employee tax obligations was 16,440 for the year ended December 31, 2021.
+Added: (1) The aggregate number of shares withheld upon vesting for employee tax obligations was 73,821 and 16,640 for the years ended December 31, 2022 and 2021, respectively.
RSU Awards to Related Parties
−Removed: On October 1, 2021, the Audit Committee of our Board of Directors approved, at the recommendation of our Compensation Committee, a one-time award of RSUs to three employees who are the children of our Chief Executive Officer (“CEO”) which we have determined to be outside the ordinary course of business.
−Removed: Under the Internal Revenue Code (“IRC”), those owning more than a specified percentage of a company’s stock are not eligible to receive certain preferential tax benefits that are afforded to qualifying stock compensation arrangements.
−Removed: In determining eligibility under the Code, when calculating the number of shares of common stock owned, an individual must attribute all shares owned by specified family members.
+Added: On October 1, 2021, the Audit Committee of our board of directors approved, at the recommendation of our Compensation Committee, a one-time award of RSUs to three employees who are the children of our CEO which we have determined to be outside the ordinary course of business.
+Added: Under the IRC, those owning more than a specified percentage of a company’s stock are not eligible to receive certain preferential tax benefits that are afforded to qualifying stock compensation arrangements.
+Added: In determining eligibility under the IRC, when calculating the number of shares of common stock owned, an individual must attribute all shares owned by specified family members.
+Added: Because of the stock ownership of our CEO and this attribution requirement, the three children have not been eligible to participate in the ESPP and, at times, have not qualified to receive stock option grants on terms as favorable as those received by other similar employees.
+Added: Our Compensation Committee recommended, and our Audit Committee approved, a one-time grant of RSUs designed to compensate the three children for these differences.
+Added: The aggregate number of shares underlying the RSUs granted to the three children was 17,275 which are included in the table above.
+Added: The awards had an aggregate grant date fair value of $ 1,129,000 , vested immediately upon grant and were recognized as stock-based compensation expense, included in selling, general and administrative expenses, during the year ended December 31, 2021.
CASTLE BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
−Removed: of the stock ownership of our CEO and this attribution requirement, the three children have not been eligible to participate in the ESPP and, at times, have not qualified to receive stock option grants on terms as favorable as those received by other similar employees.
−Removed: Our Compensation Committee recommended, and our Audit Committee approved, a one-time grant of restricted stock units designed to compensate the three children for these differences.
−Removed: The aggregate number of shares underlying the restricted stock units granted to the three children was 17,275 which are included in the table above.
−Removed: The awards had an aggregate grant date fair value of $ 1,129,000 , vested immediately upon grant and was recognized as stock-based compensation expense, included in selling, general and administrative expenses, during the year ended December 31, 2021.
+Added: Performance-Based Restricted Stock Units
+Added: PSUs represent the right to receive shares of our common stock contingent upon the achievement of certain financial performance measures.
+Added: We issue new shares to satisfy PSUs upon vesting.
+Added: The following table summarizes our PSU activity for the year ended December 31, 2022:
+Added: Performance-Based Restricted Stock Units Outstanding Weighted-Average Grant Date Fair Value
+Added: Balance as of December 31, 2021 — $ —
+Added: Granted 196,033 $ 23.23
+Added: Forfeited/Cancelled — $ —
+Added: Balance as of December 31, 2022 196,033 $ 23.23
Employee Stock Purchase Plan
9 unchanged sentences
The ESPP provides for certain automatic increases in the number of shares of common stock reserved for issuance, which resulted in an additional 265,536 shares becoming available under the ESPP effective January 1, 2023.
−Removed: We issue new shares to satisfy ESPP purchases.
+Added: We issue new shares to satisfy the ESPP purchases.
Determining Fair Value - Summary of Assumptions
9 unchanged sentences
• Risk-free interest rate .
−Removed: We base the risk-free interest rate used in the Black-Scholes valuation model on the market yield in effect at the time of option grant and at the offering date for the ESPP, provided from the Federal Reserve Board’s Statistical Releases and historical publications from the Treasury constant maturities rates for the equivalent remaining terms.
+Added: We base the risk-free interest rate used in the Black-Scholes valuation model on the market yield in effect at the time of option grant and at the offering date for the ESPP, provided from the
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: Federal Reserve Board’s Statistical Releases and historical publications from the Treasury constant maturities rates for the equivalent remaining terms.
• Dividend yield .
4 unchanged sentences
Following the IPO, the fair value of our common stock is the closing selling price per share of its common stock as reported on the Nasdaq Global Market on the date of grant or other relevant determination date.
−Removed: CASTLE BIOSCIENCES, INC.
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We use the Black-Scholes option pricing model to estimate the fair value of each option grant on the date of grant or any other measurement date.
18 unchanged sentences
Stock-Based Compensation Expense
−Removed: Stock-based compensation expense is included in the consolidated statements of operations and comprehensive loss as follows (in thousands):
+Added: Stock-based compensation expense is included in the consolidated statements of operations as follows (in thousands):
Years Ended December 31,
7 unchanged sentences
The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021 was $ 3,745,000 and $ 27,191,000 , respectively.
−Removed: The aggregate intrinsic value of shares issued under the ESPP was $ 6,341,000 and $ 1,797,000 during the years ended December 31, 2021 and 2020, respectively.
−Removed: The aggregate fair value of restricted stock units that vested during the year ended December 31, 2021 was $ 2,698,000 .
−Removed: No tax benefits related to stock-based compensation were recorded in the consolidated statements of operations and comprehensive loss during the years ended December 31, 2021 and 2020 due to the valuation allowance on net deferred tax assets.
+Added: The aggregate intrinsic value of shares issued under the ESPP was $ 534,000 and $ 6,341,000 during
CASTLE BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
+Added: the years ended December 31, 2022 and 2021, respectively.
+Added: The aggregate fair value of RSUs that vested during the years ended December 31, 2022 and 2021 was $ 5,863,000 and $ 2,698,000 , respectively.
+Added: No tax benefits related to stock-based compensation were recorded in the consolidated statements of operations during the years ended December 31, 2022 and 2021 due to the valuation allowance on net deferred tax assets.
The components of income tax expense (benefit) are as follows (in thousands):
4 unchanged sentences
Total current 111 16
−Removed: Deferred tax (benefit) expense
+Added: Deferred tax benefit
federal ( 1,626 ) ( 8,726 )
1 unchanged sentence
Total deferred ( 1,877 ) ( 8,736 )
−Removed: Total income tax (benefit) expense $ ( 8,720 ) $ 84
+Added: Total income tax benefit $ ( 1,766 ) $ ( 8,720 )
The differences between income taxes expected at the U.S.
4 unchanged sentences
State income taxes ( 3,751 ) ( 1,764 )
−Removed: Non-deductible meals — 235
−Removed: Research and development (“R&D”) tax credit ( 1,658 ) ( 703 )
+Added: Research and development tax credit ( 1,814 ) ( 1,658 )
Change in valuation allowance 17,075 2,570
1 unchanged sentence
Non-deductible officers’ compensation 1,326 1,571
+Added: Change in fair value of contingent consideration ( 3,840 ) —
+Added: Transaction costs 359 —
Other 26 ( 157 )
−Removed: Total income tax (benefit) expense $ ( 8,720 ) $ 84
+Added: Income tax benefit $ ( 1,766 ) $ ( 8,720 )
CASTLE BIOSCIENCES, INC.
5 unchanged sentences
Accrued liabilities 6,503 4,168
+Added: Capitalized R&D costs 6,738 —
Lease liabilities 3,549 2,114
−Removed: Intangible assets — 46
Stock-based compensation 4,489 2,202
R&D tax credit 5,665 3,670
+Added: Other 445 240
Total deferred tax assets 76,642 36,710
8 unchanged sentences
Total deferred tax liabilities ( 27,117 ) ( 19,571 )
−Removed: Net deferred tax asset (liability) $ ( 635 ) $ —
+Added: Net deferred tax liability $ ( 428 ) $ ( 635 )
At December 31, 2022, we had NOL carryforwards for federal income tax purposes of approximately $ 207,242,000 of which $ 106,093,000 will begin to expire in 2029 if not utilized to offset taxable income, and $ 101,149,000 may be carried forward indefinitely.
Future changes in ownership, as defined by Section 382 of the IRC, could limit the amount of NOL carryforwards used in any one year.
−Removed: Also, as of December 31, 2021, we had state net operating loss carryforwards of approximately $ 67,453,000 , which begin to expire in 2028 if not utilized to offset state taxable income.
+Added: Also, as of December 31, 2022, we had state NOL carryforwards of approximately $ 114,041,000 , which begin to expire in 2028 if not utilized to offset state taxable income.
Our R&D tax credit carryforwards of $ 5,665,000 at December 31, 2022 will begin to expire in 2034 if not utilized to offset federal income tax.
4 unchanged sentences
However, future changes in ownership may further limit the ability of us to utilize our NOL carryforwards and R&D tax credit carryforwards.
−Removed: During the year ended December 31, 2021, in connection with the acquisition of Cernostics, we recorded additional net deferred tax liabilities of $ 9,371,000 , primarily due to book-tax differences related to the acquired intangible assets.
−Removed: As a result of these additional deferred tax liabilities, we determined that $ 8,726,000 of our existing valuation allowance should be reduced, which was reflected in our income tax benefit for the year ended December 31, 2021.
+Added: We have also performed Section 382 analyses with respect to the NOLs we obtained in our acquisitions of Cernostics and AltheaDx.
+Added: Based on changes in ownership that have occurred, $ 36,347,000 of NOLs are expected to expire unused as a result of Section 382 limitations.
+Added: During the years ended December 31, 2022 and 2021, in connection with the acquisitions of AltheaDx and Cernostics, we recorded additional net deferred tax liabilities of $ 1,672,000 and $ 9,371,000 , respectively, primarily due to book-tax differences related to the acquired intangible assets.
+Added: As a result of these additional deferred tax liabilities, we determined that $ 1,626,000 and $ 8,726,000 of our existing valuation allowance should be reduced, which was reflected in our income tax benefit for the years ended December 31, 2022 and 2021, respectively.
At December 31, 2022 and 2021, we placed a valuation allowance of $ 49,953,000 and $ 17,774,000 , respectively, against our net deferred tax asset balances, as we have determined that it is more likely than not that they will not be realized.
+Added: CASTLE BIOSCIENCES, INC.
+Added: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We assessed whether we had any significant uncertain tax positions related to open tax years and concluded there were none.
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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.