NOTE 6: COMMITMENTS, CONTINGENCIES AND DEBT

Loan Agreement

On March 22, 2016, the Company entered into a loan agreement (as amended, the “DECD Loan Agreement”) with the DECD, pursuant to which the Company may borrow up to $4,000,000 from the DECD. The loan bears interest at a fixed rate of 2.0% per annum and requires equal monthly payments of principal and interest until maturity, which would have occurred on April 15, 2026. As security for the loan, the Company has granted the DECD a blanket security interest in the Company’s personal and intellectual property. The DECD’s security interest in the Company’s intellectual property may be subordinated to a qualified institutional lender.

The loan may be prepaid at any time without premium or penalty. An initial disbursement of $2,000,000 (“Loan 1”) was made to the Company on April 15, 2016 under the DECD Loan Agreement. On December 3, 2020, the Company received a disbursement of the remaining $2,000,000 (“Loan 2”) under the DECD Loan Agreement, as the Company had achieved the target employment milestone necessary to receive an additional $1,000,000 under the DECD Loan Agreement and the DECD determined to fund the remaining $1,000,000 under the DECD Loan Agreement after concluding that the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19.

Under the terms of the DECD Loan Agreement, the Company was eligible for forgiveness of up to $1,500,000 of the principal amount of the loan if it was able to achieve certain job creation and retention milestones by December 31, 2022. On June 26, 2023, the Company was notified by the DECD that the Company satisfied all job creation and retention requirements under the loan agreement to receive forgiveness of $1,000,000. During the year ended December 31, 2023, the Company recorded the $1,000,000 as other income in its consolidated statement of operations. If the Company fails to maintain its Connecticut operations through March 22, 2026, the DECD may require early repayment of a portion or all of the loan plus a penalty of 5% of the total funded loan.

On June 6, 2023, the Company was granted a deferral of interest and principal payments on a portion of the remaining outstanding balances through December 1, 2023. On January 30, 2024, the Company was granted an additional deferral of interest and principal payments on a portion of the remaining outstanding balances through June 1, 2024. The Company determined the loan deferrals met the definition of a troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors, as the Company was experiencing financial difficulties, and the lenders granted a concession. The future undiscounted cash flows of the DECD loan after the loan deferrals exceeded the carrying value of the DECD loan prior to the loan deferrals. As such no gain was recognized as a result of the deferrals.

On October 2, 2024, the Company executed an additional deferral agreement (the “October 2 Deferral”), which provided for both the interest and principal payments on Loan 1 to be deferred for August and September 2024. Payments resumed in October 2024. The October 2 Deferral also provides for both the interest and principal payments on Loan 2 to be deferred from August 2024 to May 2027, with payments resuming in June 2027. The Company determined these loan deferrals also met the definition of a troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors, as the Company was experiencing financial difficulties, and the lenders granted a concession. The future undiscounted cash flows of the DECD loan after the loan deferrals exceeded the carrying value of the DECD loan prior to the loan deferrals. As such, no gain was recognized as a result of the deferrals.

Long-term debt consisted of the following:

 SCHEDULE OF LONG-TERM DEBT

As of December 31, 2024, the annual amounts of future minimum principal payments due under the Company’s contractual obligation are shown in the table below. Unamortized debt issuance costs for the DECD loan were $4,000 as of December 31, 2024. Debt related to the insurance promissory note of $614,000, as described below, is not included in the following table due to the insurance promissory note being cancelable.

 SCHEDULE OF ANNUAL AMOUNTS OF FUTURE MINIMUM PRINCIPAL PAYMENTS DUE UNDER CERTAIN CONTRACTUAL OBLIGATIONS

The DECD loan is classified within Level 3 of the fair value hierarchy. The following table presents the carrying value and fair value of the DECD loan. The fair value is estimated based on the discounted cash flows using the prevailing marketing interest rates.

 SCHEDULE OF CARRYING VALUE AND FAIR VALUE OF DECD LOAN

Insurance Notes

During 2024 and 2023, the Company entered into insurance promissory notes for the payment of insurance premiums at an interest rate of 7.52% and 7.79% respectively, with an aggregate principal amount outstanding of approximately $614,000 and $670,000 as of December 31, 2024 and 2023, respectively. The amount outstanding in 2024 could be substantially offset by the cancellation of the related insurance coverage which is classified in prepaid insurance. The 2024 notes are payable in nine monthly installments with a maturity date of August 1, 2025. The 2024 notes are payable in nine monthly installments with a maturity date of August 1, 2025.

The carrying value of the Company’s insurance promissory note approximates fair value at December 31, 2024 and 2023, due to the short-term nature of the insurance note and are classified as Level 2 within the fair value hierarchy.

During the year ended December 31, 2023, the Company received a $250,000 insurance reimbursement check related to research samples lost in a power outage in the Trumbull, Connecticut office in January 2023. The Company recorded the reimbursement as other income in its consolidated statement of operations.

Operating Leases

The Company leases facilities to support its business of discovering, developing and commercializing diagnostic tests in the fields of gynecologic disease. The Company’s principal facility, including the CLIA laboratory used by Aspira Labs, is located in Austin, Texas, and an administrative office is also located in Shelton, Connecticut.

In December 2024, the Company extended the Austin, Texas lease for an additional 54 months. The lease renewal also expands the leased space. The Company’s renewed lease expires on August 31, 2031, with the option to extend the lease for an additional three years. The Company had previously extended the lease by 37 months in July 2023. Prior to the renewal in 2023, the Company’s Texas lease had a term of 12 months, and the Company has elected the policy of not recording leases on the balance sheet when the leases have terms of 12 months or less. Through June 30, 2023, the Company recognized the lease payments in profit and loss on a straight-line basis over the term of the lease, and variable lease payments in the period in which the obligation for the payments was incurred. Variable lease costs represent our share of the landlord’s operating expenses. Beginning in the third quarter of 2023, the Company added the extended Austin, Texas lease to its balance sheet as a right-of-use asset. The Company is not reasonably certain that it will exercise the three year renewal option beginning on September 1, 2031.

In October 2015, the Company entered into a lease agreement for a facility in Trumbull, Connecticut, which was renewed in September 2020. On May 30, 2023, the Company entered into an agreement with the owner of its Trumbull, Connecticut offices to move to a more economical location in Shelton, Connecticut. The new lease in Shelton, Connecticut cancelled and replaced the Trumbull, Connecticut office lease. The new lease term is for five years, and its commencement date was October 1, 2023. Continuation of the lease after the lease term would be on a month-to-month basis.

In January 2023, the Company entered into a new sublease agreement for an administrative facility in Palo Alto, California. The Company’s sublease term commenced in April 2023 and expired on May 31, 2024. The Company did not renew its lease with the sublessor. The sublessor, Invitae, filed for bankruptcy on February 15, 2024. The Company has applied for a refund of its approximately $10,000 security deposit with the bankruptcy court.

The expense associated with these operating leases for the years ended December 31, 2024 and 2023 is shown in the table below (in thousands). Included in the amounts below are $58,000 of short term lease expenses related to rent and variable costs for one lease during 2023 prior to its treatment as a right-of-use asset and $114,000 related to rent and variable costs during 2023.

 SCHEDULE OF EXPENSE ASSOCIATED WITH OPERATING LEASES

Based on the Company’s leases as of December 31, 2024, the table below sets forth the approximate future lease payments related to operating leases with initial terms of one year or more (in thousands).

 SCHEDULE OF FUTURE LEASE PAYMENTS RELATED TO OPERATING LEASES

Supplemental disclosure of cash flow information related to leases for the years ended December 31, 2024 and 2023 is shown in the table below (in thousands). 

 SCHEDULE OF WEIGHTED-AVERAGE LEASE TERM AND DISCOUNT RATE

Non-cancelable Royalty Obligations and Other Commitments

The Company is a party to an amended research collaboration agreement with The Johns Hopkins University School of Medicine under which the Company licenses certain of its intellectual property directed at the discovery and validation of biomarkers in human subjects, including but not limited to clinical application of biomarkers in the understanding, diagnosis and management of human disease. Under the terms of the amended research collaboration agreement, Aspira is required to pay the greater of 4% royalties on net sales of diagnostic tests using the assigned patents or annual minimum royalties of $57,500. Royalty expense for the years ended December 31, 2024 and 2023 totaled $293,000 and $324,000, respectively, and is recorded in cost of revenue in the Company’s consolidated statements of operations.

On December 16, 2024, the Company announced that its former Chief Executive Officer would be leaving the Company. The Company recorded $393,000 on its consolidated statement of operations as severance expense, including $375,000 representing cash severance payments for nine months, which will be paid in equal biweekly installments for a period of nine months and $18,000 representing health and dental insurance payments for nine months. As of December 31, 2024, the Company had approximately $356,000 accrued for severance and $18,000 accrued for health and dental insurance.

Business Agreements

In August 2022, the Company entered into a sponsored research agreement with Harvard’s Dana-Farber Cancer Institute, Brigham & Women’s Hospital, and Medical University of Lodz for the generation of a multi-omic, non-invasive diagnostic aid to identify endometriosis based on circulating miRNAs and proteins. The results of this collaboration will be advanced, co-developed technology to guide medical and clinical management of women presenting with symptoms of endometriosis. This collaboration is expected to accelerate the development and commercialization of future endometriosis products, such as ENDOinform. The contract requires payments to be made upon the achievement of certain milestones. Under the terms of and as further described in the agreement, payments of approximately $1,252,000 have or will become due from the Company to the counterparties upon successful completion of certain deliverables in 2022 and 2023 as follows: 68% was paid in 2022, 15% was paid in 2023, and the remaining 17% will become payable upon completion of certain deliverables estimated to occur in 2025. During the year ended December 31, 2024, no expense was recorded as research and development expense in the Company’s consolidated financial statement of operations for the project. During the year ended December 31, 2023, approximately $215,000, was recorded as research and development expense in the Company’s consolidated financial statement of operations for the project. From the inception of the Dana-Faber, Brigham, Lodz Research Agreement through December 31, 2024, research and development expenses in the cumulative amount of $1,083,000 have been recorded. From the inception of the Dana-Faber, Brigham, Lodz Research Agreement through December 31, 2024, the Company made payments totaling $1,040,000. Additional payments of $212,000 are due to the collaboration partners in 2025 under the terms of the agreement. 

On March 20, 2023, the Company entered into a licensing agreement (“Dana-Faber, Brigham, Lodz License Agreement”) with Harvard’s Dana-Farber Cancer Institute, Brigham & Women’s Hospital, and Medical University of Lodz under which the Company will license certain of its intellectual property to be used in the Company’s OvaSuite product portfolio. Under the Dana-Faber, Brigham, Lodz License Agreement, the Company paid an initial license fee of $75,000, which was recorded as research and development expense on the Company’s consolidated financial statement of operations, and then will pay a license maintenance fee of $50,000 on each anniversary of the date of the Dana-Faber, Brigham, Lodz License Agreement. The Dana-Faber, Brigham, Lodz License Agreement also requires non-refundable royalty payments of up to $1,350,000 based on certain regulatory approvals and commercialization milestones and further royalty payments based on the net sales of the Company’s products included under the Dana-Faber, Brigham, Lodz License Agreement. No milestones have been reached as of December 31, 2024.

Contingent Liabilities  

From time to time, the Company is involved in legal proceedings and regulatory proceedings arising from operations. The Company establishes reserves for specific liabilities in connection with legal actions that management deems to be probable and estimable. The Company is not currently a party to any proceeding, the adverse outcome of which would have a material adverse effect on the Company’s financial position or results of operations.