UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

                                      

FORM 10-Q

                                      

(Mark One)

☑     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended September 30, 2020



OR



☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ______ to ______



Commission File Number:  001-34810

                                            



                                            

Registrant’s telephone number, including area code: (512)  519-0400

Securities registered pursuant to Section 12(b) of the Act:





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☑

As of October 31, 2020, the registrant had 104,085,827 shares of common stock, par value $0.001 per share, outstanding.

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ASPIRA WOMEN’S HEALTH INC.



FORM 10-Q

For the Quarter Ended September 30, 2020

Table of Contents







The following are registered or pending trademarks of Aspira Women’s HealthTM Inc.: Vermillion® Inc., Aspira Women’s Health ™ Inc., OVA1®, OVERA®, ASPiRA GenetiXSM , OVA1plus SM, OVANex™ , EndoCheck™, and OVAInherit™.

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PART I - FINANCIAL INFORMATION



ITEM 1.FINANCIAL STATEMENTS



Aspira Women’s Health Inc.

Condensed Consolidated Balance Sheets

(Amounts in Thousands, Except Share and Par Value Amounts)

(Unaudited)







See accompanying notes to the unaudited condensed consolidated financial statements.

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Aspira Women’s Health Inc.

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Share and Per Share Amounts)

(Unaudited)







See accompanying notes to the unaudited condensed consolidated financial statements.

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Aspira Women’s Health Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Amounts in Thousands, Except Share Amounts)

(Unaudited)





 

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Aspira Women’s Health Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Amounts in Thousands, Except Share Amounts)

(Unaudited)







See accompanying notes to the unaudited condensed consolidated financial statements.



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Aspira Women’s Health Inc.

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)







See accompanying notes to the unaudited condensed consolidated financial statements.

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Aspira Women’s Health Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)





1.   ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

Organization

Aspira Women’s Health Inc., formerly known as Vermillion, Inc.  (“ASPIRA”; ASPIRA and its wholly-owned subsidiaries are collectively referred to as the “Company”) is incorporated in the state of Delaware, and is engaged in the business of developing and commercializing diagnostic tests for gynecologic disease. The Company sells OVA1®,OVERA® and OVA1plusSM a reflex test using OVA1® and OVERA®, a blood test for the assessment of risk for ovarian cancer (“OVA1,” “Overa,” and “OVA1plus,” respectively) through ASPIRA’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, ASPiRA LABS, Inc. (“ASPiRA LABS”). The Company also sells a product for genetic testing for specific women’s health diseases, called ASPiRA GenetiXSM (“ASPiRA GenetiX”), with a core focus on gynecologic cancer.

The Company has historically also offered in-vitro diagnostic (“IVD”) trial services to third-party customers through its wholly-owned subsidiary, ASPiRA IVD, Inc. (“ASPiRA IVD”), which commenced operations in June 2016. ASPiRA IVD was a specialized, CLIA certified, laboratory provider dedicated to meeting the unique testing needs of IVD manufacturers seeking to commercialize high-complexity assays. The Company has discontinued pursuing contracts for ASPiRA IVD and its contractual commitments were largely concluded in the fourth quarter of 2019.

Liquidity

The Company has incurred significant net losses and negative cash flows from operations since inception, and as a result has an accumulated deficit of approximately $433,985,000 and limited liquidity at September 30, 2020. The Company also expects to incur a net loss and negative cash flows from operations for 2020. 

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus has since spread to over 100 countries, including every state in the United States. In March 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. In addition, many conventions and industry conferences have been canceled.

As a result of the COVID-19 pandemic and actions taken to contain it, the Company’s test volume, and resulting revenue, decreased significantly in late March and the full month of April 2020 as fewer patients visited their physicians and elective surgeries were postponed as a result of closures. The Company saw some increases in its test volume towards the latter half of the second quarter and in the third quarter of 2020, and test volume trended back to pre-COVID-19 levels during the late third quarter 2020.  In order to reduce the impact of limitations on visiting physician offices due to closures and quarantines, the Company implemented other mechanisms for reaching physicians such as virtual sales representative meetings and increased digital sales and marketing. Enrollment for future studies has been slower than originally planned due to the impact of current closures for some states. The full impact of the COVID-19 pandemic continues to evolve as of the date of this filing. As a result, the Company is unable to estimate the extent of the impact of the COVID-19 pandemic on its liquidity.



As discussed in Note 3, in March 2016, the Company entered into a loan agreement (as amended on March 7, 2018 and April 3, 2020, the “Loan Agreement”), with the State of Connecticut Department of Economic and Community Development (the “DECD”), pursuant to which it may borrow up to $4,000,000 from the DECD. An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the Loan

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Agreement. The Company has received communication from the DECD that the Company has met the  milestones to receive the remaining  $2,000,000, as the Company has achieved the target employment milestone and the DECD has indicated that it considers the Company to have met the required revenue threshold for purposes of the Loan Agreement.  The loan may be prepaid at any time without premium or penalty.



As discussed in Note 4, on June 28, 2019, the Company completed a public offering (the “Offering”), pursuant to which certain investors purchased ASPIRA common stock for net proceeds of approximately $13,521,000 after deducting underwriting discounts, commissions and other expenses related to the Offering. On July 2, 2019, William Blair & Company, L.L.C., the sole underwriter of the Offering, exercised its option to purchase additional shares of ASPIRA common stock for net proceeds of $2,092,000, after deducting underwriting discounts, commissions and other expenses related to the Offering.



On April 10, 2020, the Company received a stimulus check of approximately $89,000 from the U.S. Department of Health and Human Services pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).



As discussed in Note 3, on May 1, 2020, the Company obtained a loan (the “PPP Loan”) from BBVA USA in the aggregate amount of $1,005,767, pursuant to the Paycheck Protection Program (the “PPP”), which was established under the CARES Act, as administered by the U.S. Small Business Administration (the “SBA”).



As discussed in Note 4, during June 2020, all of the warrants from the 2017 private placement were exercised.  The Company received $5,058,608 in aggregate proceeds from the exercise of the warrants.



As discussed in Note 4, on July 20, 2020, the Company completed a private placement of ASPIRA common stock for net proceeds of $10.6 million, after deducting expenses related to the private placement. 



Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. The condensed consolidated balance sheet at December 31, 2019 included in this report has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by GAAP. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in ASPIRA’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 7, 2020 (the “2019 Annual Report”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated results.

In August 2018, the Financial Accounting Standards Board (the “FASB”) issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-15 effective on January 1, 2020, using the prospective

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transition approach, which allows the Company to change the accounting method without restating prior periods or booking cumulative adjustments. The adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial statements.



Significant Accounting and Reporting Policies

Revenue Recognition

Product Revenue – OVA1, Overa and OVA1plus:  The Company recognizes product revenue in accordance with the provisions of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Product revenue is recognized upon completion of the OVA1, Overa or OVA1plus test and delivery of results to the physician based on estimates of amounts that will ultimately be realized. In determining the amount of revenue to be recognized for a delivered test result, the Company considers factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between the payer and the Company, and any developments or changes that could impact reimbursement. These estimates require significant judgment by management as the collection cycle on some accounts can be as long as one year.   

The Company also reviews its patient account population and determines an appropriate distribution of patient accounts by payer (i.e., Medicare, patient pay, other third-party payer, etc.) into portfolios with similar collection experience. The Company has elected this practical expedient that, when evaluated for collectability, results in a materially consistent revenue amount for such portfolios as if each patient account were evaluated on an individual contract basis. During the quarter ended September 30, 2020, there were no adjustments to estimates of variable consideration to derecognize revenue for services provided in a prior period. There were no impairment losses on accounts receivable recorded during the quarters ended September 30, 2020 and 2019.

Product Revenue – ASPiRA GenetiX: Under ASC 606, the Company’s genetics revenue is recognized upon completion of the ASPiRA GenetiX test and delivery of results to the physician based on estimates of amounts that will ultimately be realized. In determining the amount of revenue to be recognized for a delivered test result, the Company considers factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between the payer and the Company, and any developments or changes that could impact reimbursement. These estimates require significant judgment by management as the Company has limited experience with such factors relating to ASPiRA GenetiX.  

Service Revenue: The Company’s service revenue was generated by performing IVD trial services for third-party customers. Measurement of progress on contracts with customers was generally based on the input measurement of cost incurred relative to the total expected costs to satisfy the performance obligation. The Company does not expect to have any significant service revenue going forward, as it largely wound down performing the ASPiRA IVD trial services in the fourth quarter of 2019.  For the second quarter 2020, the Company’s service revenue was limited to the fulfillment of one legacy IVD contract. There was no service revenue in the third quarter 2020.



Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update changes the impairment model from the currently used incurred loss methodology to an expected loss methodology, which will result in the more timely recognition of losses. The ASU is scheduled to be effective in 2023 for smaller reporting companies. The Company is currently assessing the impact of this ASU on its consolidated financial statements.



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2.   AGREEMENTS WITH QUEST DIAGNOSTICS INCORPORATED



In March 2015, the Company entered into a commercial agreement with Quest Diagnostics, Incorporated (“Quest Diagnostics”). Pursuant to this agreement, all OVA1 U.S. testing services for Quest Diagnostics customers were transferred to ASPIRA’s wholly-owned subsidiary, ASPiRA LABS, as of August 2015. Pursuant to this agreement, as amended as of April 10, 2015, March 11, 2017, March 1, 2018 and March 11, 2020, Quest Diagnostics has continued to provide blood draw and logistics support by transporting specimens from its clients to ASPiRA LABS for testing in exchange for a market value fee.

 

3.   COMMITMENTS AND CONTINGENCIES



Coronavirus Aid, Relief, and Economic Security (CARES) Act and Paycheck Protection Program Loan



On May 1, 2020, the Company obtained the PPP Loan from BBVA USA in the aggregate amount of $1,005,767. The application for these funds required the Company to, in good faith, certify that the described economic uncertainty at the time made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that was not significantly detrimental to the business. Under the terms of the CARES Act and the PPP, all or a portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following the Company’s receipt of the proceeds of the PPP Loan, the Company used those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan, which was granted pursuant to a promissory note, matures on May 1, 2022. Any unforgiven portion of the PPP Loan bears interest at a rate of 1.000% per annum, payable monthly in equal installments commencing in  May 2021.       The PPP Loan is subject to any new guidance and new requirements released by the Department of the Treasury.

Development Loan

On March 22, 2016, the Company entered into the 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 occurs 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. 

An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the Loan Agreement. Proceeds from the initial disbursement were utilized primarily to fund the build-out, information technology infrastructure and other costs related to the Company’s Trumbull, Connecticut facility and operations. During the second quarter of 2020, we achieved the target employment milestone necessary to receive an additional $1,000,000 under the Loan Agreement. In addition, the DECD has indicated that it will fund the remaining $1,000,000 loan as the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19. We filed the required application for the $2,000,000 disbursement and received final approval from the DECD for the funding.  The loan may be prepaid at any time without premium or penalty. 

Under the terms of the Loan Agreement, the Company may be eligible for forgiveness of up to $1,500,000 of the principal amount of the loan if the Company achieves certain job creation and retention milestones by December 31, 2022. Conversely, if the Company is either unable to meet these job creation and retention milestones, namely, hiring 25 full-time employees with a specified average annual salary on or before December 31, 2020 or retaining such employees for a consecutive two-year period or does not maintain the Company’s Connecticut operations for a period of 10 years after March 22, 2016, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount plus a penalty of 5% of the total funded loan.    The Company has received communication from the State of Connecticut Department of

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Economic and Community Development that the Company has met the remaining milestones to receive the $2,000,000.

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 the CLIA laboratory used for ASPiRA IVD services is located in Trumbull, Connecticut.  In October 2020, the Company renewed the Austin, Texas lease for one additional year.  The Company’s renewed lease expires on January 31, 2022, with no automatic renewal or renewal option.

In October 2015, the Company entered into a lease agreement for a facility in Trumbull, Connecticut. The lease required initial payments for the buildout of leasehold improvements to the office space, which were approximately $596,000.  In September 2020, the Company exercised the renewal option for its Trumbull, Connecticut lease. The Company’s renewed lease expires on June 30, 2026, with a five year renewal option.  The Company is not reasonably certain that it will exercise the five year renewal option beginning on July 1, 2026.



The expense associated with these operating leases for the three and nine months ended September 30, 2020 and 2019 is shown in the table below (in thousands).





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Based on the Company’s leases as of September 30, 2020, the table below sets forth the approximate future lease payments related to operating leases with initial terms of one year or more (in thousands).





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



Non-cancelable Royalty Obligations

ASPIRA 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 nine months ended September 30, 2020 and 2019 totalled $124,000 and $125,000, respectively.

  

4.   STOCKHOLDERS’ EQUITY



2019 Offering

On June 26, 2019, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with William Blair & Company, L.L.C., as the sole underwriter (the “Underwriter”), in connection with an underwritten public offering of 18,750,000 shares of the Company’s common stock, par value $0.001 per share.

Pursuant to the Underwriting Agreement, the Company agreed to issue and sell an aggregate of 18,750,000 shares of ASPIRA common stock offered by the Underwriter in a public offering at a price of $0.80 per share. The Offering closed on June 28, 2019 and resulted in net proceeds to the Company, of approximately $13,521,000 after deducting underwriting discounts, commissions and other expenses related to the Offering of approximately $1,500,000.  

Under the Underwriting Agreement, the Company granted the Underwriter an option to purchase up to an additional 2,812,500 shares of ASPIRA common stock at the public offering price, less underwriting discounts and commissions. On July 2, 2019, the Underwriter exercised its option to purchase 2,812,500 shares of ASPIRA common stock at a price of $0.80 per share and resulted in net proceeds to the Company of $2,092,000, after deducting underwriting discounts, commissions and other expenses related to the Offering.



2020 Exercise of Warrants

On February 17, 2017, the Company issued certain warrants to purchase up to an aggregate of 2,810,338 shares of ASPIRA common stock at an exercise price of $1.80 per share in connection with a February 2017

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private placement of ASPIRA common stock. The warrants were initially sold at a price of $0.125 per share of common stock underlying the warrants. 

On June 1, 2020, following the 20th consecutive trading day for which the closing price per share of ASPIRA common stock, as reported on the Nasdaq stock market, exceeded the exercise price, the Company sent notice to the investors holding such warrants accelerating the expiration date of the warrants, in accordance with the terms thereof.  Pursuant to the terms of the warrants, any portion of the warrants not exercised prior to such accelerated expiration date would become void and of no value.

As of June 9, 2020, all of the warrants were exercised.  The Company issued 2,810,338 shares of common stock and received $5,058,608 in aggregate proceeds from the exercise of the warrants.  As of the date of the issuance of these financial statements, there are no outstanding warrants for the purchase of ASPIRA common stock.



2020 Private Placement

On July 20, 2020, the Company completed a private placement pursuant to which certain investors purchased 3,150,000 shares of ASPIRA common stock at a price of $3.50 per share.  Net proceeds of the private placement were $10.6 million, after deducting expenses related to the private placement. 

The sale of common stock qualified for equity treatment under GAAP.  The value of the common stock was calculated based on proceeds received.



2010 Stock Incentive Plan

The Company’s employees, directors, and consultants were eligible to receive awards under the Vermillion, Inc. Second Amended and Restated 2010 Stock Incentive Plan, which was replaced by the 2019 Plan (as defined below) with respect to future equity grants. As of September 30, 2020, a total of 5,225,586 shares of ASPIRA common stock were reserved with respect to outstanding stock options and unvested restricted stock awards. 



2019 Stock Incentive Plan

At the Company’s 2019 annual meeting of stockholders, the Company’s stockholders approved the Vermillion, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). The purposes of the 2019 Plan are (i) to align the interests of the Company’s stockholders and recipients of awards under the 2019 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) to advance the interests of the Company by attracting and retaining non-employee directors, officers, other employees, consultants, independent contractors and agents; and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders.  The 2019 Plan allows the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards to participants.

Subject to the terms and conditions of the 2019 Plan, the initial number of shares authorized for grants under the 2019 Plan is 10,492,283. To the extent an equity award granted under the 2019 Plan expires or otherwise terminates without having been exercised or paid in full, or is settled in cash, the shares of common stock subject to such award will become available for future grant under the 2019 Plan. As of September 30, 2020, a total of 10,492,283 shares of ASPIRA common stock had been reserved for issuance under the 2019 Plan, of which 3,226,202 shares of ASPIRA common stock are subject to outstanding stock options and unvested restricted stock awards.

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Stock-Based Compensation

During the three months ended March 31, 2020, the Company granted the following awards under the 2019 Plan:



During the three months ended June 30, 2020, the Company granted the following awards under the 2019 Plan:





During the three months ended September 30, 2020, the Company granted the following awards under the 2019 Plan:







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The allocation of employee stock-based compensation expense by functional area for the three and nine months ended September 30, 2020 and 2019 was as follows:

 









5.   LOSS PER SHARE

The Company calculates basic loss per share using the weighted average number of shares of ASPIRA common stock outstanding during the period. Because the Company is in a net loss position, diluted loss per share is calculated using the weighted average number of shares of ASPIRA common stock outstanding and excludes the effects of 8,451,788 and 9,795,345 potential shares of ASPIRA common stock as of September 30, 2020 and 2019, respectively, that are anti-dilutive. Potential shares of ASPIRA common stock include incremental shares of ASPIRA common stock issuable upon the exercise of outstanding warrants, stock options and unvested restricted stock units.





ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.

These statements involve a number of risks and uncertainties. Words such as “may,” “expects,” “intends,” “anticipates,” “believes,” “estimates,” “plans,” “seeks,” “could,” “should,” “continue,” “will,” “potential,” “projects” and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward-looking statements speak only as of the date on which this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission (the “SEC”), and, except as required by law, Aspira Women’s Health Inc. (“ASPIRA” and, together with its subsidiaries, the “Company,” “we,” “our,” or “us”) does not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after such date.



Examples of forward-looking statements regarding our business include the following:

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Forward-looking statements are subject to significant risks and uncertainties, including those discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Annual Report”) as supplemented by the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and for the quarter ended March 31, 2020, that could cause actual results to differ materially from those projected in such forward-looking statements due to various factors, including our ability to continue as a going concern; our ability to increase the volume of our product sales; failures by third-party payers to reimburse OVA1, Overa,  OVA1plus or ASPiRA GenetiX or changes or variances in reimbursement rates; our ability to secure additional capital on acceptable terms to execute our business plan; our ability to comply with Nasdaq’s continued listing requirements to remain publicly traded; in the event that we succeed in commercializing OVA1, Overa, OVA1plus and ASPiRA GenetiX outside the United States, the political, economic and other conditions affecting other countries; our ability to continue developing existing technologies; our ability to develop and commercialize additional diagnostic products and achieve market acceptance with respect to these products; our ability to compete successfully; our ability to obtain any regulatory approval required for our future diagnostic products; our or our suppliers’ ability to comply with the FDA requirements for production, marketing and post-market monitoring of our products; additional costs that may be required to make further improvements to our manufacturing operations; our ability to maintain sufficient or acceptable supplies of immunoassay kits from our suppliers; our ability to continue to develop, protect and promote our proprietary technologies; our ability to use intellectual property directed to diagnose biomarkers; our ability to successfully defend our proprietary technology against third parties; future litigation against us, including infringement of intellectual property and product liability exposure; our ability to retain key employees; business interruptions; changes in healthcare policy; our ability to

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comply with environmental laws; our ability to comply with the additional laws and regulations that apply to us in connection with the operation of ASPiRA LABS; our ability to comply with FDA regulations that relate to our products and to obtain any FDA clearance or approval required to develop and perform LDTs; our ability to integrate and achieve anticipated results from any acquisitions or strategic alliances; our ability to use our net operating loss carryforwards; the liquidity and trading volume of our common stock; the concentration of ownership of our common stock; impacts resulting from or relating to the COVID-19 pandemic and actions taken to contain it; expected timing and receipt of proceeds from the DECD loan; expectations regarding the forgiveness of the PPP loan, anticipated use of capital and its effects; and plans to begin offering COVID-19 antigen testing.   



Overview

Our core mission is to transform the state of women’s health, globally, starting with ovarian cancer. We aim to ensure that women of all ages, stages and ethnicities have the best solutions available to assess their personalized risk of cancer at the earliest stage when it matters most. Our end goal is to serve a large global pelvic mass population and overall women’s health sector with a platform coupled with proprietary science and data tools which will drive better health and wellbeing for each patient we serve.

We currently market and sell the following products and related services: (1) OVA1, a blood test designed to, in addition to a physician’s clinical assessment of a woman with a pelvic mass, identify women who are at high risk of having a malignant ovarian tumor prior to planned surgery; (2) Overa, a second-generation biomarker panel intended to maintain our product’s high sensitivity while improving specificity; (3) OVA1plus, a service offering combining our OVA1 and Overa products, designed to improve accuracy and reduce false elevations in the intermediate risk area by nearly 40% by leveraging the strengths of OVA1’s (MIA) sensitivity and Overa’s (MIA2G) specificity; and (4) ASPiRA GenetiX, a genetic test for specific women’s health diseases, initially focused on detecting the risk of hereditary breast and ovarian cancer syndrome (“HBOC”) and carriers of variants of genes associated with cancer. OVA1 received FDA clearance in September 2009, and Overa received FDA clearance in March 2016. OVA1 and Overa each use the Roche cobas 4000, 6000 and 8000 platforms. Through September 30, 2020, our product revenue, which includes revenue from related services has been limited to revenue generated by sales of OVA1, OVA1plus and ASPiRA GenetiX.

We are developing three additional products and related services, including two diagnostic algorithms, OVANex™ and EndoCheck™ and a high-risk screening algorithm, OVAInherit™, for patients who are genetically predisposed to ovarian cancer. These products may be launched as LDTs or FDA cleared tests.

We ultimately plan to commercialize each of our products on a global level. We currently hold CE marks for OVA1 and Overa. In addition, each of OVA1 and Overa are already offered on a global testing platform, which allows both tests to be deployed worldwide.

One of our goals is to deliver a cloud-based technology solution for delivering FDA- and LDT-validated algorithms. In 2020 or 2021, we plan to launch a new decentralized platform and cloud service product, ASPiRA GenetiX Technology Transfer (“AGTT”).  AGTT is an en-suite, cloud-based technology transfer solution that provides an end-to-end platform (sample collection to customized report) for clinical laboratories to internalize

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hereditary genetic testing and assess for risk of being a carrier of carrier screening. The product is a fully validated next-generation sequencing assay which can be internalized rapidly as an LDT. AGTT is comprised of a custom-built technology which leverages a novel artificial intelligence-based bioinformatics pipeline that has been customized specifically for the proprietary ASPIRA chemistry, resulting in reduced workflows and redundancies typically associated with internalizing genetics. AGTT is fully automated, providing limited wet lab and sample analysis time, allowing clients to implement and run genetic testing at scale and with minimal cost, time and labor at accelerated turnaround times

We also own and operate ASPiRA LABS, a Clinical Laboratory Improvements Amendments of 1988 (“CLIA”) certified national laboratory based in Austin, Texas, which specializes in applying biomarker-based technologies to address critical needs in the management of gynecologic cancers and disease. ASPiRA LABS provides expert diagnostic services using a state-of-the-art biomarker-based diagnostic algorithm to aid in clinical decision making and advance personalized treatment plans. The lab currently performs our OVA1 and Overa tests, and we plan to expand the testing to other gynecologic conditions with high unmet need. We also plan to develop and perform LDTs at ASPiRA LABS. ASPiRA LABS holds a CLIA Certificate of Registration and a state laboratory license in California, Florida, Maryland, New York, Pennsylvania and Rhode Island. This allows the lab to perform OVA1 and Overa testing on a national basis. The Centers for Medicare and Medicaid Services (“CMS”) issued a provider number to ASPiRA LABS in March 2015.



Recent Developments

Under our loan agreement, dated as of March 22, 2016 (as amended on March 7, 2018 and April 3, 2020, the “Loan Agreement”), with the DECD, we may borrow up to $4,000,000 from the DECD. An initial disbursement of $2,000,000 was made to ASPIRA on April 15, 2016 under the Loan Agreement. During the second quarter of 2020, we achieved the target employment milestone necessary to receive an additional $1,000,000 under the Loan Agreement.  After the DECD indicated that it will fund the remaining $1,000,000 loan as the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19, we filed the required application for the $2,000,000 disbursement and received final approval from the DECD for the funding. The funds are anticipated to be received in the fourth quarter of 2020.  For additional information, see Note 3, “Commitments and Contingencies”, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

On July 20, 2020, we completed a private placement pursuant to which certain investors purchased 3,150,000 shares of ASPIRA common stock at a price of $3.50 per share.  Net proceeds of the private placement were approximately $10.6 million, after deducting expenses related to the private placement.

On September 18, 2020, AbbVie Inc. provided the Company with certain serum samples collected and tested as part of AbbVie Inc.’s clinical trials. The Company plans to use the samples in its upcoming EndoCheck™ product validation trial. EndoCheck will be designed as a simple blood test to aid in the detection of endometriosis and, as such, will be less invasive than current detection methods, which require a surgical biopsy. On September 18, 2020, AbbVie Inc. also provided the Company with additional data metrics, including patient demographics, endometriosis surgical pathology diagnoses, and other clinical metrics.

In the fourth quarter of 2020, we launched a digital and media campaign to strengthen our brand identity, as well as increase awareness of the advantages of our OVA1 test, including early detection and racial disparity when compared with CA125.

On October 14, 2020, we announced that we are  a participating provider with Anthem BlueCross BlueShield of Georgia, which has an estimated additional 3.3 million members across the state. As of November 1, 2020, we have approximately 173 million covered lives in the U.S.

Effective November 9, 2020, the Company appointed Dr. Sandra Brooks to its board of directors.

On November 10, 2020, we announced the appointment of the following five new members to our executive leadership team: Dr. Elena Ratner, Global Chief Medical Advisor, Clinical and Translational Medicine; Kaile Zagger, Chief Operating Officer; Dr. Lesley Northrop, Chief Scientific Officer; Dr. Gary Altwerger, Global Deputy Chief Medical Advisor, Clinical and Translational Medicine; and Dr. Diane Powis will join us a Chief Spokeswoman.

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COVID-19 Pandemic

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. The novel coronavirus has since spread to over 100 countries, including every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. Patient enrollment for our planned research studies has been lower due to the impact of closures and restricted travel, which could lead to delays in the completion of such studies. Our commercial efforts to enter into decentralized arrangements with large healthcare networks and supergroups have continued to move forward. However, finalization of such deals have been slowed by the pandemic. In addition, many conventions and industry conferences have been canceled.

As a result of the COVID-19 pandemic and actions taken to contain it, the majority of our non-lab employees have been working remotely, and we expect that they will continue to do so until the number of daily COVID-19 cases in the areas surrounding our offices consistently level off or declines.  In terms of business continuity, our lab operations require on site essential employees. As previously disclosed, we have put in place staffing and reagent contingency plans to ensure there is no down time at our lab.  We believe the lab could continue to operate in the event any isolated infection were to impact a portion of the workforce. In addition, as of the date of the filing of this Form 10-Q, we have approximately four months of reagents, one of our key testing supplies, in stock, depending on volume of tests performed, and we are working with the manufacturer to ensure a consistent supply over the next 6 months. 

We are committed to following recommended physical and social distancing guidelines in order to reduce the risk of infection for our employees. We have also decreased our travel and convention-related expenses. We have taken several measures to reduce the impact of the COVID-19 related closures and quarantines. For example, because our salespeople have experienced limitations on their ability to physically visit physician offices, we have implemented other means of coverage such as virtual sales representative meetings and increased digital sales and marketing. In March, our sales team began making in-person calls to customers as determined on a state by state basis, in accordance with local guidelines. We do not know if such activity can continue if COVID-19 infection rates rise.  We have developed protocols and training for our team where physical visits are allowed to help ensure employee, customer and patient safety. We also hope to leverage avenues in telehealth, and are developing a process for patients to access our ASPiRA GenetiX testing without requiring a visit to a physician.  We plan to launch this telehealth offering in the first quarter of 2021.

In the third quarter 2020, we experienced a recovery in our test volume, such that when comparing the average number of tests per business ordering day in February 2020, the last full calendar month before COVID-19 significantly impacted the United States, to the average number of tests per business ordering day in September 2020, our test volume is back to approximately 95% of pre-COVID-19 levels.  Based on the recent surges of COVID-19 cases, the potential for future resurgences of COVID-19 cases and the variety of federal and state actions taken to contain them, we are unable to estimate the potential future impact of the COVID-19 pandemic on our operations or cash flows as of the date of this filing.

On March 27, 2020, the U.S federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, provides loans, guarantees and subsidies to qualifying businesses and contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. We do not expect these tax provisions to have a material impact on our financial statements.

On April 10, 2020, we received a stimulus check of approximately $89,000 from the U.S. Department of Health and Human Services pursuant to the CARES Act.

On May 1, 2020, we were granted a loan (the “PPP Loan”) from BBVA USA in the aggregate amount of $1,005,767, pursuant to the Paycheck Protection Program (the “PPP”), which was established under the CARES Act as administered by the U.S. Small Business Administration (the “SBA”). We believe we used the proceeds of

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the PPP Loan in a manner that qualifies for complete forgiveness of the PPP Loan but caution that there can be no assurance that all or any portion of the PPP Loan will be forgiven. See “Liquidity and Capital Resources” for more information. 

In the second quarter of 2020, we began running COVID-19 antibody tests and began preparations for offering COVID-19 antigen tests. The goal of offering COVID-19 antibody testing is to offer providers  a one blood draw per patient test that combines the OVA1plus test with the COVID-19 antigen test, as part of our pre-surgical risk test offering.  Volume of antibody tests has been minimal due to providers receiving COVID-19 testing prior to presurgical blood draw at the local level.  Our planned COVID-19 antigen testing has been postponed due to manufacturer delays. We are currently assessing demand for both  antibody and antigen testing.



Strategy

We are focused on the execution of five core strategic business drivers in ovarian cancer diagnostics and specialized laboratory services to build long-term value for our investors:



We believe that these business drivers will contribute significantly to addressing unmet medical needs for women faced with gynecologic disease and other conditions and the continued development of our business.

We have active international distribution agreements for Overa with Pro-Genetics LTD in Israel and MacroHealth, Inc. in the Philippines. The MacroHealth, Inc. agreement was our first agreement regarding decentralized technology transfer for Overa specimen testing.

In the United States, revenue for diagnostic tests comes from several sources, including third-party payers such as insurance companies, government healthcare programs, such as Medicare and Medicaid, client bill accounts and patients. Novitas Solutions, a Medicare contractor, covers and reimburses for OVA1 tests performed in certain states, including Texas. Due to OVA1 tests being performed exclusively at ASPiRA LABS in Texas, the local coverage determination from Novitas Solutions essentially provides national coverage for patients enrolled in Medicare as well as Medicare Advantage health plans. ASPiRA LABS also bills third-party commercial and other government payers as well as client bill accounts and patients for OVA1.

In November 2016, the ACOG issued Practice Bulletin Number 174 which included OVA1 as a “Multivariate Index Assay”, outlining ACOG’s clinical management guidelines for adnexal mass management. Practice Bulletin Number 174 recommends that obstetricians and gynecologists evaluating women with adnexal masses who do not meet Level A criteria of a low risk transvaginal ultrasound should proceed with Level B clinical guidelines. Level B guidelines state that the physician may use risk assessment tools such as existing CA125 technology or OVA1 (“Multivariate Index Assay”) as listed in the bulletin. Based on this, OVA1 achieved parity with CA125 as a Level B clinical recommendation for the management of adnexal masses.

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Practice Bulletins summarize current information on techniques and clinical management issues for the practice of obstetrics and gynecology. Practice Bulletins are evidence-based documents, and recommendations are based on the evidence. This is also the only clinical management tool used for adnexal masses. Although there are Practice Bulletins, guidelines do not exist for adnexal masses. ACOG guidelines do exist, however, for ovarian cancer management.  

In October 2018, ASPiRA LABS launched OVA1plus, a clinical pathway which combines the strengths of OVA1 and Overa. This offering helps drive earlier ovarian cancer risk detection, which in turn lowers overall healthcare costs and reduces inefficiencies in the care pathway.



Recent Publications

In parallel to building our OVA platform offering and our commercial deployment, we have been working on several key publications and product extensions.

In March 2020, the results of an OVA1plus study were scheduled to be presented as a poster at the Society of Gynecologic Oncology’s 2020 Annual Meeting on Women’s Cancer (the “SGO Meeting”). The objective of the study was to determine whether using Overa to perform reflex testing on test results with a high OVA1 score can improve specificity in detection of malignancy in women with adnexal masses, a testing process we refer to as our OVA1plus test. These results indicate that the OVA1plus test did improve specificity in detection of ovarian cancers. Although the SGO Meeting was cancelled due to the COVID-19 pandemic, the abstract was made available on the SGO Meeting’s website.

In October 2020, we published a paper in Current Medical Research and Opinion, titled “Low-risk Multivariate Index Assay Scores, Physician Referral and Surgical Choices in Women with Adnexal Masses”.  A total of 282 independent patient charts were reviewed of which 146 were Low Risk results. Surgery was performed on 56% patients with low risk scores. The other 44% had no surgery and were followed clinically.  There were no invasive cancers in the patients who had surgery. Clinicians were comfortable with expectant management of pelvic masses when OVA1 is low risk. These results demonstrated to us that there is an immediate need to assessing the status of a pelvic mass even though surgery is not performed.



Critical Accounting Policies and Estimates

Our product revenue is generated by performing diagnostic services using our OVA1, Overa, OVA1plus or ASPiRA GenetiX tests, and the service is completed upon the delivery of the test result to the prescribing physician. The entire transaction price is allocated to the single performance obligation contained in a contract with a patient. Under ASC Topic 606, Revenue from Contracts with Customers, all revenue is recognized upon completion of the OVA1, Overa, OVA1plus or ASPiRA GenetiX test and delivery of test results to the physician based on estimates of amounts that will ultimately be realized. In determining the amount of revenue to be recognized for a delivered test result, we consider factors such as payment history and amount, payer coverage, whether there is a reimbursement contract between the payer and us, and any developments or changes that could impact reimbursement. These estimates require significant judgment by management. For OVA1, Overa and OVA1plus tests, we also review our patient account population and determine an appropriate distribution of patient accounts by payer (i.e., Medicare, patient pay, other third-party payer, etc.) into portfolios with similar collection experience. When evaluated for collectability, this results in a materially consistent revenue amount for such portfolios as if each patient account were evaluated on an individual contract basis.



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Results of Operations - Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019



The selected summary financial and operating data of the Company for the three months ended September 30, 2020 and 2019 were as follows:





Product Revenue.  Product revenue was $1,239,000 for the three months ended September 30, 2020 compared to $1,241,000 for the same period in 2019. Revenue for ASPiRA LABS is recognized when the OVA1, Overa, OVA1plus or ASPiRA Genetix test is completed based on estimates of what we expect to ultimately realize. Our revenue was relatively flat for the third quarter compared to the same period in 2019, due to the impact of COVID-19 and actions taken to contain it in 2020. We expect revenue to improve in the fourth quarter due to test volumes returning to and potentially growing higher than, pre COVID-19 levels, provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures. The duration of the pandemic and efforts to contain it remains uncertain.

The number of OVA1plus tests performed remained relatively flat at approximately 3,596 OVA1plus tests during the three months ended September 30, 2020 compared to approximately 3,602 OVA1plus tests for the same period in 2019, due to the impact of COVID-19 and actions taken to contain it in 2020.  

The revenue per OVA1plus test performed decreased to approximately $338 compared to $345 for the same period in 2019. This decrease was primarily driven by a third quarter 2019 one-time favorable adjustment related to additional collections.    Through new contracts and insourcing our billing function, we expect to increase the percentage of revenue we receive from third-party payers as compared with revenue we receive from patient payers, as well as improve collections from patient payers. We expect that the broader economic impacts of the COVID-19 pandemic will have an effect on our collections from patient payers, which may continue to adversely affect our revenue per OVA1plus test in the fourth quarter.

Service Revenue.  Service revenue was $0 for the three months ended September 30, 2020 compared to $44,000 for the same period in 2019. Substantially all projects with ASPiRA IVD were finalized during 2019 and the subsidiary’s operations were largely completed. Revenue for ASPiRA IVD was recognized once certain

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revenue recognition criteria had been met. We do not expect to have any significant service revenue in 2020 as the IVD trial services were largely wound down in 2019. The Company may continue to have future legacy IVD contracts in 2020.  However, we do not expect any to be significant.

Cost of Revenue - Product.  Cost of product revenue was $803,000 for the three months ended September 30, 2020 compared to $736,000 for the same period in 2019, representing an increase of 9% due primarily to increased kits and software license costs. We expect the cost of product revenue to increase proportionate to the expected increase in test volume in the fourth quarter of 2020. We expect to experience higher gross margin percentages as the volume of tests performed increases as fixed costs are spread across higher volumes.

Cost of Revenue - Service.  Cost of service revenue was $4,000 for the three months ended September 30, 2020 compared to $213,000 for the same period in 2019. The 98% decrease was due to the wind down of our ASPiRA IVD subsidiary in 2019, partially offset by costs related to project closure support.

Research and Development Expenses.  Research and development expenses represent costs incurred to develop our technology and carry out clinical studies, and include personnel-related expenses, regulatory costs, reagents and supplies used in research and development laboratory work, infrastructure expenses, contract services and other outside costs. Research and development expenses for the three months ended September 30, 2020 increased by $255,000, or 75%, compared to the same period in 2019. This increase was primarily due to clinical utility and product development costs related to OVANex™, our third-generation serial monitoring product, in 2020 as well as investments in bioinformatics and AGTT.  We expect research and development expenses to increase in the fourth quarter of 2020, as a result of increased projects, partially offset by a delay in patient recruitment for studies as a result of the COVID-19 pandemic.

Sales and Marketing Expenses.  Our sales and marketing expenses consist primarily of personnel-related expenses, education and promotional expenses, and infrastructure expenses. These expenses include the costs of educating physicians and other healthcare professionals regarding OVA1, Overa, OVA1plus and ASPiRA GenetiX. Sales and marketing expenses also include the costs of sponsoring continuing medical education, medical meeting participation, and dissemination of scientific and health economic publications. Sales and marketing expenses for the three months ended September 30, 2020 decreased $273,000, or 11%, compared to the same period in 2019. This decrease was primarily due to lower travel due to the COVID-19 pandemic. We expect sales and marketing expenses to increase slightly in the fourth quarter of 2020, due to the COVID-19 pandemic and related re-openings,  provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures.

General and Administrative Expenses.  General and administrative expenses consist primarily of personnel-related expenses, professional fees and other costs, including legal, finance and accounting expenses and other infrastructure expenses. General and administrative expenses for the three months ended September 30, 2020 increased by $545,000, or 38%, compared to the same period in 2019. This increase is primarily due to an increase in headcount and personnel related expenses as well as legal expenses. We expect general and administrative expenses to remain roughly flat in the fourth quarter. 

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Results of Operations - Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019



The selected summary financial and operating data of the Company for the nine months ended September 30, 2020 and 2019 were as follows: 





Product Revenue.  Product revenue was $3,192,000 for the nine months ended September 30, 2020 compared to $3,120,000 for the same period in 2019. Revenue for ASPiRA LABS is recognized when the OVA1, Overa, OVA1plus or ASPiRA Genetix test is completed based on estimates of what we expect to ultimately realize. The 2% product revenue increase is primarily due to an increase in OVA1 test volume and the number of our genetics tests performed,  partially offset by a lower revenue per test. We expect revenue to improve in the fourth quarter due to test volumes returning to pre COVID-19 levels, provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures. The duration of the pandemic and efforts to contain it remains uncertain.

The number of OVA1plus tests performed increased 7% to approximately 9,708 OVA1plus tests during the nine months ended September 30, 2020 compared to approximately 9,044 OVA1plus tests for the same period in 2019. Notably, we experienced a recovery in our test volume, such that when comparing the average number of tests per business ordering day in February 2020, the last full calendar month before COVID-19 significantly impacted the United States, to the average number of tests per business ordering day in September 2020, our test volume was approximately 95% of pre-COVID-19 levels. .  We expect the test volume to increase in the fourth quarter due to state re-openings, however, the duration of the pandemic and efforts to contain it remains uncertain.

The revenue per OVA1plus test performed decreased to approximately $322 compared to $345 for the same period in 2019. This decrease was primarily driven by a  third quarter 2019 one-time favorable adjustment related to additional collections. Through new contracts and insourcing our billing function, we expect to increase the percentage of revenue we receive from third-party payers as compared with revenue we receive from patient payers, as well as improve collections from patient payers. We expect that the broader economic impacts of the

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COVID-19 pandemic will have an effect on our collections from patient payers, which may continue to affect our revenue per OVA1plus test in the fourth quarter.

Service Revenue.  Service revenue was $13,000 for the nine months ended September 30, 2020 compared to $110,000 for the same period in 2019. All projects with ASPiRA IVD were finalized during 2019 and the subsidiary’s operations were largely completed. Some final project closure costs were recognized in 2020, as well as charges to customers for billable project closure support. Revenue for ASPiRA IVD is recognized once certain revenue recognition criteria had been met. In the second quarter of 2020, the Company had service revenue from the fulfillment of one legacy IVD contract. The Company may continue to have future legacy IVD contracts in 2020. However, we do not expect any to be significant.

Cost of Revenue - Product.  Cost of product revenue was $2,187,000 for the nine months ended September 30, 2020 compared to $1,950,000 for the same period in 2019, representing an increase of 12% due primarily to the additional costs of our new genetics testing offering, ASPiRA GenetiX. We expect the cost of product revenue to increase proportionate to the expected increase in test volume in the fourth quarter of 2020. We expect to experience higher gross margin percentages as the volume of tests performed increases as fixed costs are spread across higher volumes.

Cost of Revenue - Service.  Cost of service revenue was $13,000 for the nine months ended September 30, 2020 compared to $601,000 for the same period in 2019. The 98% decrease was due to the wind down of our ASPiRA IVD subsidiary in 2019, partially offset by costs related to project closure support.

Research and Development Expenses.  Research and development expenses represent costs incurred to develop our technology and carry out clinical studies, and include personnel-related expenses, regulatory costs, reagents and supplies used in research and development laboratory work, infrastructure expenses, contract services and other outside costs. Research and development expenses for the nine months ended September 30, 2020 increased by $596,000, or 77%, compared to the same period in 2019. This increase was primarily due to clinical utility and product development costs related to OVANex™, our third-generation serial monitoring product, in 2020 as well as investments in bioinformatics and AGTT. We expect research and development expenses to increase slightly in the fourth quarter of 2020, as a result of increased projects, partially offset by a delay in patient recruitment for studies as a result of the COVID-19 pandemic.

Sales and Marketing Expenses.  Our sales and marketing expenses consist primarily of personnel-related expenses, education and promotional expenses, and infrastructure expenses. These expenses include the costs of educating physicians and other healthcare professionals regarding OVA1, Overa, OVA1plus and ASPiRA GenetiX. Sales and marketing expenses also include the costs of sponsoring continuing medical education, medical meeting participation, and dissemination of scientific and health economic publications. Sales and marketing expenses for the nine months ended September 30, 2020 decreased $1,569,000, or 21%, compared to the same period in 2019. This decrease was primarily due to lower commission payments and personnel related costs, as well as reductions in consulting and travel due to the COVID-19 pandemic. We expect sales and marketing expenses to increase slightly in the fourth quarter of 2020, due to the continued re-openings relating to the COVID-19 pandemic,  provided that the COVID-19 pandemic does not further escalate and result in new quarantines and state closures.

General and Administrative Expenses.  General and administrative expenses consist primarily of personnel-related expenses, professional fees and other costs, including legal, finance and accounting expenses and other infrastructure expenses. General and administrative expenses for the nine months ended September 30, 2020 increased by $1,332,000, or 32%, compared to the same period in 2019. This increase is primarily due to an increase in headcount and personnel related expenses as well as legal expenses. We expect general and administrative expenses to remain roughly flat in the fourth quarter. 

Other Income.  Other income for the nine months ended September 30, 2020 increased by $84,000, compared to the same period in 2019.  Other income consists primarily of the stimulus check received from the U.S. Department of Health and Human Services of approximately $89,000.





Liquidity and Capital Resources

We plan to continue to expend resources selling and marketing OVA1, Overa, OVA1plus and ASPiRA GenetiX and developing additional diagnostic tests and service capabilities.

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We have incurred significant net losses and negative cash flows from operations since inception. At September 30, 2020 we had an accumulated deficit of $433,985,000 and stockholders’ equity of $14,550,000. As of September 30, 2020, we had $18,836,000 of cash and cash equivalents and $4,615,000 of current liabilities. The Company expects to incur a net loss for the remainder of 2020 as well. Working capital was $15,636,000 and $9,432,000 at September 30, 2020 and December 31, 2019, respectively. 

On July 20, 2020, the Company completed a private placement pursuant to which certain investors purchased 3,150,000 shares of ASPIRA common stock at a per share price of $3.50.  Net proceeds of the private placement were approximately $10.6 million, after deducting expenses related to the private placement.

In early June 2020, we issued 2,810,338 shares of our common stock upon the exercise of all of our outstanding warrants and received approximately $5.1 million in aggregate proceeds therefrom.

On May 1, 2020, the Company obtained the PPP Loan from BBVA USA in the aggregate amount of $1,005,767, pursuant to the PPP, which was established under the CARES Act, as administered by the SBA. The application for these funds required the Company to, in good faith, certify that the described economic uncertainty at the time made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that was not significantly detrimental to the business. Under the terms of the CARES Act and the PPP, all or a portion of the principal amount of the PPP Loan is subject to forgiveness so long as, over the 24-week period following the Company’s receipt of the proceeds of the PPP Loan, the Company used those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. The PPP Loan, which was granted pursuant to a promissory note, matures on May 1, 2022. Any unforgiven portion of the PPP Loan bears interest at a rate of 1.000% per annum, payable monthly in equal installments commencing in  May 2021.  The Company plans to apply for forgiveness of the PPP Loan in the fourth quarter 2020,  but there is no assurance that all or a portion of the PPP Loan will be forgiven.  The PPP Loan is subject to any new guidance and new requirements released by the Department of the Treasury.

On June 28, 2019, the Company completed a public offering (the “Offering”) pursuant to which certain investors purchased ASPIRA common stock for net proceeds of approximately $13,521,000 after deducting underwriting discounts, commissions and other expenses related to the Offering. On July 2, 2019, William Blair & Company, L.L.C., the sole underwriter of the Offering, exercised its option to purchase additional shares of ASPIRA common stock for net proceeds of $2,092,000, after deducting underwriting discounts, commissions and other expenses related to the Offering.

On March 22, 2016, we entered into a loan agreement (as amended on March 7, 2018 and April 3, 2020, the “Loan Agreement”) with the DECD, pursuant to which we 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 April 15, 2026. As security for the loan, we have granted the DECD a blanket security interest in our personal and intellectual property. The DECD’s security interest in our intellectual property may be subordinated to a qualified institutional lender. An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the Loan Agreement. Proceeds from the initial disbursement were utilized primarily to fund the build-out, information technology infrastructure and other costs related to our Trumbull, Connecticut facility and operations.  During the second quarter of 2020, we achieved the target employment milestone necessary to receive an additional $1,000,000 under the Loan Agreement.  In addition, the DECD has indicated that it will fund the remaining $1,000,000 loan as the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19. We filed the required application for the $2,000,000 disbursement and have received final approval from the DECD for the funding. The funds are anticipated to be received in the fourth quarter of 2020. The loan may be prepaid at any time without premium or penalty. Under the terms of the Loan Agreement, we may be eligible for forgiveness of up to $1,500,000 of the principal amount of the loan if we achieve certain job creation and retention milestones on or before December 31, 2022. Conversely, if we are either unable to meet these job creation and retention milestones, namely, hiring 25 full-time employees with a specified average annual salary on or before December 31, 2020 or retaining such employees for a consecutive two-year period on or before December 31, 2022, or do not maintain our Connecticut operations for a period of 10 years after March 22, 2016, the DECD may require early repayment of a portion or all of the loan depending on job attainment as compared to the required amount plus a penalty of 5% of the total funded loan. For additional information, see Note 3, “Commitments and Contingencies”, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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We expect to incur a net loss and negative cash flows from operations in 2020. The impact of the COVID-19 pandemic and actions taken to contain it on our liquidity for 2020 and 2021 cannot be estimated as of the date of this filing. However, we expect to generate less cash from operations due to lower sales volume and collections.

Our management believes that successful achievement of our business objectives will require additional capital. The Company expects to raise capital through a variety of sources, which may include equity offerings, debt financing, collaborations, licensing arrangements, grants and government funding and strategic alliances. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may not be able to continue sales and marketing, research and development, or other operations on the scope or scale of current activity and that could have a material adverse effect on the Company’s business, results of operations and financial condition.

Net cash used in operating activities was $9,977,000 for the nine months ended September 30, 2020, resulting primarily from the net loss reported of $11,824,000, partially offset by changes in prepaid expenses of $249,000 and changes in accounts payable, accrued and other liabilities of $230,000, as well as stock compensation expense of $1,121,000 and changes in depreciation and amortization of $178,000 and accounts receivable of $76,000.

Net cash used in operating activities was $10,094,000 for the nine months ended September 30, 2019, resulting primarily from the net loss reported of $11,850,000, partially offset by changes in stock compensation expense of $893,000, changes in accounts payable, accrued and other liabilities of $507,000, and depreciation and amortization of $276,000, and changes in prepaid expenses of $173,000.

Net cash used in investing activities was $267,000 and $121,000 for the nine months ended September 30, 2020 and 2019, respectively, which consisted primarily of property and equipment purchases.

Net cash provided by financing activities was $17.4 million and $15.5 million for the nine months ended September 30, 2020 and 2019, respectively, which resulted primarily from the July 2020 private placement of $10.6 million,  after deducting expenses related to the private placement,  the June 2020 exercise of warrants generating approximately $5.1 million and the PPP Loan of $1.0 million in 2020 and from the proceeds from the June 2019 public offering of $13.5  million, net of issuance costs, in 2019.



Our future liquidity and capital requirements will depend upon many factors, including, among others:   



We have significant net operating loss (“NOL”) carryforwards as of September 30, 2020 for which a full valuation allowance has been provided due to our history of operating losses. Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), as well as similar state provisions may restrict our ability to use our NOL credit carryforwards due to ownership change limitations occurring in the past or that could occur in the future. These ownership changes may also limit the amount of NOL credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

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Legislation commonly referred to as the Tax Cuts and Jobs Act was enacted in December 2017. As a result of the Tax Cuts and Jobs Act, NOLs arising before January 1, 2018 and NOLs arising after January 1, 2018 are subject to different rules. The Company’s pre-2018 NOLs will expire in varying amounts from 2023 through 2037, if not utilized, and can offset 100% of future taxable income for regular tax purposes. Any NOLs arising after January 1, 2018 can generally be carried forward indefinitely and can offset up to 80% of future taxable income. The Company’s ability to use its NOLs during this period will be dependent on its ability to generate taxable income, and the NOLs could expire before the Company generates sufficient taxable income. The Company’s ability to use NOL carryforwards may be restricted due to ownership change limitations occurring in the past or that could occur in the future, as required by Section 382, as well as similar state specific provisions. These ownership changes may also limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. 

The Company’s management believes that Section 382 ownership changes occurred as a result of the Company’s follow-on public offerings in 2011, 2013 and 2015. Any limitation may result in the expiration of a portion of the NOL carryforwards before utilization and any NOL carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the Company’s valuation allowance. Due to the existence of a valuation allowance, it is not expected that such limitations, if any, will have an impact on the Company’s results of operations or financial position. 



Off-Balance Sheet Arrangements



As of September 30, 2020, we had no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our condensed consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.





Per Item 305(e) of Regulation S-K, the information called for by this Item 3 is not required.



Evaluation of disclosure controls and procedures.



Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2020, our disclosure controls and procedures were effective.



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Changes in internal controls over financial reporting.

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II - OTHER INFORMATION



In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially and adversely affect our results of operations, cash flows and financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management resources and other factors. While the outcome of these proceedings and claims cannot be predicted with certainty, there are no matters, as of September 30, 2020, that, in the opinion of management, will have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS



Except as set forth below, there have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of our 2019 Annual Report, as supplemented by the risk factor disclosed under “Risk Factors” in Part II, Item A of our quarterly report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 14, 2020. The risks and uncertainties described below and in our 2019 Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition or results of operations.

The novel coronavirus outbreak and the COVID-19 pandemic have adversely impacted, and are expected to further adversely impact, our business, results of operations and financial condition, and such future adverse impact may be material. In addition, other health epidemics, outbreaks or pandemics may adversely affect our business, results of operations and financial condition.

We face risks related to health epidemics and other outbreaks, including the global outbreak of the novel coronavirus and the disease caused by it, COVID-19. Beginning in March 2020, the COVID-19 pandemic and actions taken to contain it have led to travel restrictions, stay-at-home mandates and limitations on access to hospitals and other medical facilities. As a result, our test volumes have decreased, as fewer new patients were tested particularly from March to August 2020 and existing patients extended planned testing schedules. In addition, travel restrictions and stay-at-home mandates have limited recruitment of individuals to participate in our research studies, which has caused delays in our product development timelines. Our salespeople have been limited in their ability to make in-person sales calls. Although we have adjusted our commercialization efforts to incorporate virtual sales meetings and increased digital sales and marketing, those efforts may be less effective than in-person meetings to promote use of our products. In addition, although we plan to launch our telehealth-based process for patients to access our ASPiRA GenetiX testing without requiring a visit to a physician in the first quarter 2021, there is no assurance that such process will be successful. Our commercial efforts to enter into decentralized arrangements with large healthcare networks and supergroups have continued to move forward. However, finalization of such deals has been and may continue to be slowed by the pandemic. Moreover, as the COVID-19 pandemic has caused unemployment, pay reductions and other economic strain, we have experienced and may continue to experience increased difficulty in collecting payment from patient payers. Although we have made efforts to increase the percentage of revenue we receive from third-party payers rather than patient payers, there is no assurance that such efforts will be successful.

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Although the spread of COVID-19 and actions taken to contain it lessened in the third quarter of 2020, infection rates have risen in the U.S. during the fourth quarter of 2020. If they continue to rise and significant action is taken to contain the pandemic, we will likely experience test volume decreases and challenges for our sales force and efforts to recruit participants in studies, and our business, results of operations and financial condition are likely to be adversely affected. To the extent our testing volumes decrease and/or we are unable to collect from patient payers, our revenues, cash flows from operations and liquidity will be adversely impacted. There is no assurance that sales or collections will return to normal levels during the remainder of 2020 or at any time thereafter. As of the date of the filing of this quarterly report on Form 10-Q, management is evaluating all options to conserve cash, and we have obtained stimulus funding and a loan (the “PPP Loan”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act.  The Company plans to apply for forgiveness of the PPP Loan in the fourth quarter 2020, but there is no assurance that all or a portion of the PPP Loan will be forgiven.   

Although we had planned to offer COVID-19 antigen testing, this has been postponed due to manufacturer delays, and there is no assurance that we will offer such testing in the future. Volume of COVID-19 antibody tests has been minimal due to providers receiving COVID-19 testing prior to presurgical blood draw at the local level.  We are currently assessing demand for both antibody and antigen testing.

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ITEM 6.   EXHIBITS   The following exhibits are filed or incorporated by reference with this report as indicated below:



























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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.









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