4. COMMITMENTS AND CONTINGENCIES, AND DEBT

Convertible Notes

On March 5, 2025, the Company entered into a securities purchase agreement with certain existing accredited shareholders (the “Purchasers”) for the issuance and sale in a private placement (the “March 2025 Private Placement”) of an aggregate gross principal amount of $1,365,500 in the form of Convertible Notes. The Company incurred third-party issuance costs of $50,000 in connection with the March 2025 Private Placement which were expensed within general and administrative expenses on its unaudited condensed consolidated statement of operations for the six months ended June 30, 2025. The Convertible Notes were convertible into Units at a conversion price of $0.25 per Unit (the “Conversion Price”), with each Unit consisting of one share of common stock and 2.25 warrants to purchase shares of common stock.

The Company elected to measure the Convertible Notes using the fair value option under ASC 825 because the warrants issuable upon conversion of the Convertible Notes are not indexed to the Company’s stock. They include a variable exercise price that violates the fixed-for-fixed concept under ASC 815. Further, as the Convertible Notes were issued at par (gross cash proceeds equaled the principal of the Convertible Notes), the Convertible Notes were not issued at a substantial premium and are eligible for the fair value option under ASC 825.

As the Company required the proceeds from the Convertible Notes to sustain its operations, the terms were not favorable to the Company and the Convertible Notes were issued as a discount. This resulted in the fair value of the Convertible Notes upon issuance exceeding the proceeds received; and as such, the Company recognized the excess of approximately $1,198,000 in loss upon issuance of Convertible Notes carried at fair value on its unaudited condensed consolidated statement of operations during the six months ended June 30, 2025. See Note 2, Fair Value Measurements, for the fair value disclosures related to the Convertible Notes.

The Purchasers of the Convertible Notes are entitled to three representatives on the Company’s board of directors.

In addition, the Company granted the Purchasers of the Convertible Notes certain customary registration rights with respect to the shares of common stock and shares of common stock underlying the March 2025 Warrants.

Pursuant to the terms of the agreement, the Company exercised its option to convert the Convertible Notes into units at the Conversion Price when the sum of the net proceeds from the sale of the Convertible Notes and the net proceeds from the sale of any shares of common stock and warrants by the Company subsequent to the March 2025 Private Placement exceeded $4 million. On March 11, 2025, the Company sold 9,476,837 shares of common stock under an at the market offering agreement for net proceeds of $2,703,000, which settled on March 12, 2025 and which combined with the $1,316,000 net proceeds from the March 2025 Private Placement exceeded the $4 million requirement. As such, the Convertible Notes, including interest accrued, for a total of $1,366,458 were converted into Units on March 12, 2025. A gain on the conversion of the Convertible Notes of $170,000 was recorded as a change in fair value of Convertible Notes in the Company’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2025. See Note 6, Stockholders’ Deficit, for further discussion on the warrants.

Loan Agreement

On March 22, 2016, the Company entered into a loan agreement (as amended, the “DECD Loan Agreement”) with the State of Connecticut Department of Economic and Community Development (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 occurs on January 1, 2032. 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 the 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 remaining amount 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 provides 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, as adjusted for the October 2 Deferral, consisted of the following:

 SCHEDULE OF LONG-TERM DEBT

As of June 30, 2025, 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 $3,000 and $4,000 as of June 30, 2025 and December 31, 2024, respectively.

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

Insurance Notes

During 2023, the Company entered into an insurance promissory note for the payment of insurance premiums at an interest rate of 7.79%, with an aggregate principal amount outstanding of approximately $230,000 and $614,000 as of June 30, 2025 and December 31, 2024, respectively. Interest paid for the promissory note was $6,000 and $11,000 for the three and six months ended June 30, 2025. Interest paid for the promissory note was $6,000 and $12,000 for the three and six months ended June 30, 2024. The amount outstanding in 2025 could be substantially offset by the cancellation of the related insurance coverage which is classified in prepaid insurance. This note was payable in nine monthly installments with a maturity date of August 1, 2025 and had no financial or operational covenants.

Operating Leases

The Company leases facilities to support its business. The Company’s principal facility, including the Clinical Laboratory Improvements Amendments of 1988 (“CLIA”) laboratory used by Aspira Labs, Inc., is located in Austin, Texas, and an administrative office is also located in Shelton, Connecticut. The Company also had an administrative office in Palo Alto, California through May 31, 2024.

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. Variable lease costs represent our share of the landlord’s operating expenses. 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.

Effective October 31, 2023, the Company entered into a new lease agreement for freezer storage for its samples. The lease term is for 36 months with a twelve-month automatic renewal provision. The company leases 5 freezers at a total of $4,300 per month.

The expense associated with these operating leases for the three months ended June 30, 2025 and 2024 is shown in the table below (in thousands).

SCHEDULE OF EXPENSE ASSOCIATED WITH OPERATING LEASES 

The expense associated with these operating leases for the six months ended June 30, 2025 and 2024 is shown in the table below (in thousands).

Based on the Company’s leases as of June 30, 2025, 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

Weighted-average lease term and discount rate were as follows.

 SCHEDULE OF WEIGHTED-AVERAGE LEASE TERM AND DISCOUNT RATE

Non-cancellable Royalty Obligations

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 three months ended June 30, 2025 and 2024 totaled $75,000 and $79,000, respectively, and are recorded in cost of revenue in the unaudited condensed consolidated statements of operations. Royalty expense for the six months ended June 30, 2025 and 2024 totaled $146,000 and $151,000, respectively.

Business Agreements

On August 8, 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 (the “Dana-Farber, Brigham, Lodz Research Agreement”), for the generation of a multi-omic, non-invasive diagnostic aid to identify endometriosis based on circulating microRNAs and proteins. The Dana-Farber, Brigham, Lodz Research Agreement requires payments to be made upon the achievement of certain milestones. Under the terms of and as further described in the Dana-Farber, Brigham, Lodz Research Agreement, payments of approximately $1,252,000 have or will become due from the Company to the counterparties upon successful completion of certain deliverables as follows: 68% was paid in 2022, 15% was paid in 2023, and the remaining 17% is payable as of June 30, 2025. During the three and six months ended June 30, 2025, approximately $0 and $50,000 was recorded, respectively, as research and development expense in the unaudited condensed consolidated financial statement of operations for the project. During the three and six months ended June 30, 2024, approximately $17,000 and $51,000 was recorded, respectively, as research and development expense in the unaudited condensed consolidated financial statement of operations for the project. From the inception of the Dana-Farber, Brigham, Lodz Research Agreement through June 30, 2025, research and development expenses in the cumulative amount of $1,252,000 have been recorded.

On March 20, 2023, the Company entered into a licensing agreement (“Dana-Farber, 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-Farber, Brigham, Lodz License Agreement, the Company paid an initial license fee of $75,000 and pays an annual license maintenance fee of $50,000 on each anniversary of the date of the Dana-Farber, Brigham, Lodz License Agreement. The Company recorded $50,000 in annual license maintenance fees over the twelve-month period ended March 20, 2025. The Dana-Farber, 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-Farber, Brigham, Lodz License Agreement. No milestones have been reached as of June 30, 2025.

Government Assistance

On October 23, 2024, the Advanced Research Projects Agency for Health (“ARPA-H”) announced that it had selected the Company as an awardee of the Sprint for Women’s Health. As an awardee, the Company would have received $10,000,000 in funding over two years through the Sprint for Women’s Health launchpad track for later-stage health solutions. The Company was entitled to payments based on the completion of certain agreed-upon milestones. The award also provided for access to advisors to support the successful completion and commercial launch of the test before the end of the two-year contract term.

The Company met the first milestone for payment in the fourth quarter of 2024 and received a payment of $2,000,000. The second milestone was met during the first quarter of 2025 and the Company received a payment of $1,500,000, which is recorded as other income (expense), net in the unaudited condensed consolidated statement of operations for the three months ended March 31, 2025.

On June 9, 2025, Aspira received notice from ARPA-H that ARPA-H and the assigned managing contractor, VentureWell, have determined that Aspira had not met the specifications of Milestone 3, and have therefore elected to terminate the contract award. The Company will continue to work on the design, development and commercial launch of this test.

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.