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:

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 our Quarterly Report on Form 10-Q 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 or Overa 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 Food and Drug Administration (“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 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 State of Connecticut Department of Economic Development 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 hereditary breast and ovarian cancer syndrome (“HBOC”) and carriers of the gene. 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 June 30, 2020, our product revenue, which includes revenue from related services has been limited to revenue generated by sales of OVA1, and ASPiRA GenetiX.

We are developing three additional products and related services, including two diagnostic algorithms as part of an LDT product series, OVANex™ and EndoCheck™ and a high-risk screening algorithm, OVAInherit™, for patients who are genetically predisposed to ovarian cancer.

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 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 hereditary genetic testing. The product is a fully validated next-generation sequencing assay which can be internalized rapidly as a 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 processes 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 process OVA1 on a national basis. The Centers for Medicare and Medicaid Services (“CMS”) issued a provider number to ASPiRA LABS in March 2015.



Recent Developments

On April 1, 2020, we commenced submission of claims under our preferred in-network contract with Cigna and are now receiving reimbursement of our OVA1, Overa and ASPiRA GenetiX tests at the contracted rate.

On April 3, 2020, we entered into the Second Amendment to Assistance Agreement (the “Amendment”) with the State of Connecticut Department of Economic and Community Development (the “DECD”). The Amendment amends the loan agreement, dated as of March 22, 2016 (as amended on March 7, 2018 and April 3, 2020, the “Loan Agreement”), pursuant to which 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. The primary purpose of the Amendment was to amend the conditions of the loan, including the criteria for receiving additional disbursements and the criteria for loan forgiveness. During the second quarter of 2020, we achieved the target employment milestone necessary to receive an additional $1,000,000 under the loan.  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 are awaiting final approval for the funding. 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 April 14, 2020, we announced that we are credentialed with Florida’s State Medicaid program for an estimated additional 3.6 million credentialed Medicaid lives.  As of July 1, 2020, we have approximately 170 million covered  lives in the U.S.

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 June 9, 2020, we announced that our common stock joined the broad-market Russell 3000® Index by FTSE Russell, effective after the U.S. stock market opening on June 29, 2020.

On June 11, 2020, we announced that we changed our name from Vermillion, Inc. to Aspira Women’s Health Inc., and our common stock would be listed on the Nasdaq Capital Market under the symbol “AWH.”

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.  Gross proceeds of the private placement were approximately $11 million, before transaction costs.



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 may be 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 are working remotely. 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 at least 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 are taking several measures to reduce the impact of the current closures and quarantines. For example, because our salespeople are experiencing 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. Our sales team will recommence in-person calls to customers as determined on a state by state basis, in accordance with local guidelines. 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

In mid-March and the full month of April 2020 we experienced a significant decrease in our test volumes, and resulting revenue, as compared to the preceding six weeks pre-COVID-19.  The decrease was primarily the result of fewer patients visiting their physicians and the postponement of elective surgeries.  We have since experienced a relative recovery in our test volume to nearly 80% 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 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 continue to evaluate the implications of the CARES Act, and, aside from the below, its future impact on our business, financial condition and results of operations has not yet been determined.

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”). 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 eight-week period following our receipt of the proceeds of the PPP Loan, the Company uses those proceeds for payroll costs, rent, utility costs or the maintenance of employee and compensation levels. We believe we used the proceeds of 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. 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 on December 1, 2020.

In the second quarter of 2020, we began running COVID-19 antibody tests and began preparations for offering COVID-19 antigen tests. Each test is or will be, as applicable, a part of our pre-surgical risk test offering, which includes testing for proteins and genetics.





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.

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 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 June and August 2019, we published two papers on the ethnic disparity in clinical performance between OVA1 and its competitors. “Multivariate Index Assay is Superior to CA125 and HE4 Testing in Detection of Ovarian Malignancy in African American Women” was published by Biomarkers in Cancer, an international peer-reviewed journal. “Ethnic disparity in clinical performance between multivariate index assay and CA125 in detection of ovarian malignancy” was published in Future Oncology. Collectively, these studies indicated that in a

comparison of Overa against Risk of Malignancy Algorithm (“ROMA”) (HE4 + CA125) and CA125, Overa, had the highest sensitivity in detecting malignancy in African American women. The research was initiated after the publication of four independent articles showing that African American and non-Caucasian women demonstrated to have lower CA125 levels than Caucasian women. In African American women, CA125 detected 33.3%, ROMA detected 54.5%, and OVA1 detected 79.1% of ovarian cancers. OVA1 was superior in Caucasian women as well, as it detected 93.2% of ovarian cancers compared with the 82.9% detected by ROMA. These were the first peer reviewed papers on this topic. Our goal is to offer an ethnicity specific pelvic mass risk assessment starting with African American women.

In July 2019, a study was published in the journal Advanced Therapeutics, titled “Clinical Performance Comparison of Two In-Vitro Diagnostic Multivariate Index Assays (IVDMIAs) for Presurgical Assessment for Ovarian Cancer Risk”. A total of 993 patients were studied. The results of the study show that ASPIRA’s second-generation multivariate index assay, Overa (MIA2G), has superior sensitivity to the current standards of care, ROMA and CA125, in detecting ovarian cancer, and the lowest false-negative rate in correctly characterizing ovarian malignancy risk.

In August 2019, a study was published in Journal of Surgical Oncology, titled “Combining A Second-Generation Multivariate Index Assay with Ovarian Imaging Improves the Preoperative Assessment of An Adnexal Mass”. The key conclusion of the study is that Overa (MIA2G) and pelvic imaging are complementary tests and interpreting them together can provide important information about the malignant risk of an ovarian tumor. For physicians making decisions about a referral to a specialist, the combination of MIA2G with ultrasound has a significantly higher sensitivity when compared with imaging alone.

In December 2019, we initiated a study with Einstein Medical Center to review the disparity in ovarian cancer detection in African-American women, as well as other ethnicities.  We intend to raise public awareness regarding the diagnostic superiority of OVA1 as compared to cancer antigen 125 (also known as CA-125) for African-American women with adnexal masses.

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 canceled due to the COVID-19 pandemic, the abstract was made available on the SGO Meeting’s website.



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 test based on estimates of amounts that will ultimately be realized. In determining the amount to accrue 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 current developments or changes that could impact reimbursement. These estimates require significant judgment by management. 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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Product Revenue.  Product revenue was $743,000 for the three months ended June 30, 2020 compared to $1,100,000 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 32% product revenue decrease is primarily due to a decrease in the number of our tests performed. We expect revenue to modestly improve in the third quarter due to a modest increase in test volume as a result of the COVID-19 pandemic and related re-openings. The duration of the pandemic and efforts to contain it is uncertain.

The number of OVA1plus tests performed decreased 21% to approximately 2,458 OVA1plus tests during the three months ended June 30, 2020 compared to approximately 3,129 OVA1plus tests for the same period in 2019. The volume decrease was primarily due to the elimination of elective surgeries in most hospitals and the deferral of annual visits

The revenue per OVA1plus test performed decreased to approximately $295 compared to $352 for the same period in 2019. This decrease was primarily driven by an increase in our mix of patient pay revenue as well as a decrease in our mix of client and Medicare pay revenue in certain sales territories. 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 third quarter.

Service Revenue.  Service revenue was $3,000 for the three months ended June 30, 2020 compared to $42,000 for the same period in 2019. Substantially all projects with ASPiRA IVD were finalized during 2019 and the subsidiary’s operations were largely completed. Some final project closure costs were recognized in the second quarter of 2020, as well as charges to customers for billable project closure support. Revenue for ASPiRA IVD was recognized once certain revenue recognition criteria had been met. In the second quarter of 2020, the Company took on fulfillment of one legacy IVD contract. However, we do not expect to have any significant service revenue in

2020 as the IVD trial services 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 $589,000 for the three months ended June 30, 2020 compared to $698,000 for the same period in 2019, representing a decrease of 16% due primarily to the impact of the decrease in tests performed. We expect the cost of product revenue to increase proportionate to the expected increase in test volume in the third 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 June 30, 2020 compared to $210,000 for the same period in 2019. The 98% decrease was due to the wind down of our ASPiRA IVD subsidiary in 2019, 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 June 30, 2020 increased by $155,000, or 69%, 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 third 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 June 30, 2020 decreased $1,047,000, or 38%, 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 remain roughly flat in the third quarter of 2020, due to the COVID-19 pandemic.

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 June 30, 2020 increased by $332,000, or 22%, 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 third quarter. 



Product Revenue.  Product revenue was $1,953,000 for the six months ended June 30, 2020 compared to $1,879,000 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 4% product revenue increase is primarily due to an increase in the number of our tests performed. We expect revenue to modestly improve in the third quarter due to a modest increase in test volume as a result of the COVID-19 pandemic and related re-openings. The duration of the pandemic and efforts to contain it is uncertain.

The number of OVA1plus tests performed increased 12% to approximately 6,112 OVA1plus tests during the six months ended June 30, 2020 compared to approximately 5,442 OVA1plus tests for the same period in 2019. Notably, prior to the March 2020 impact of the COVID-19 pandemic, there was an 80% increase in the combined January and February 2020 test volume, when compared to the same period in 2019. We expect the test volume to modestly increase in the third quarter due to the COVID-19 pandemic and related re-openings.

The revenue per OVA1plus test performed decreased to approximately $313 compared to $345 for the same period in 2019. This decrease was primarily driven by an increase in our mix of patient pay revenue in certain sales territories. 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 affect our revenue per OVA1plus test in the third quarter.

Service Revenue.  Service revenue was $13,000 for the six months ended June 30, 2020 compared to $66,000 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 $1,384,000 for the six months ended June 30, 2020 compared to $1,214,000 for the same period in 2019, representing an increase of 14% due primarily to the increase in volume. The OVA1plus gross margin percentages increased from 40% to 41%, year over year. We expect the cost of product revenue to increase proportionate to the expected increase in test volume in the third 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 $9,000 for the six months ended June 30, 2020 compared to $388,000 for the same period in 2019. The 98% decrease was due to the wind down of our ASPiRA IVD subsidiary in 2019, 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 six months ended June 30, 2020 increased by $341,000, or 79%, 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 third 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 six months ended June 30, 2020 decreased $1,296,000, or 25%, 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 remain roughly flat in the third quarter of 2020, due to the continued travel restrictions resulting from the COVID-19 pandemic.

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 six months ended June 30, 2020 increased by $787,000, or 28%, 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 third quarter. 

Other Income.  Other income for the six months ended June 30, 2020 increased by $91,000, 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.

We have incurred significant net losses and negative cash flows from operations since inception. At June 30, 2020 we had an accumulated deficit of $429,698,000 and stockholders’ equity of $7,267,000. As of June 30, 2020, we had $10,935,000 of cash and cash equivalents and $4,199,000 of current liabilities. The Company expects to incur a net loss in 2020 as well. Working capital was $8,491,000 and $9,432,000 at June 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.  Gross proceeds of the private placement were approximately $11 million before transaction costs.

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 uses 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 on December 1, 2020.  The Company plans to apply for forgiveness of the PPP Loan in the third quarter 2020.  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 the Loan Agreement pursuant to which we may borrow up to $4,000,000 from the DECD. Proceeds from the loan were utilized primarily to fund the build-out, information technology infrastructure and other costs related to our Trumbull, Connecticut facility and operations. 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. The remaining $2,000,000 will be advanced if and when the Company achieves certain other future milestones. During the second quarter of 2020, we achieved the target employment milestone necessary to receive an additional $1,000,000 under the loan.  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 are awaiting final approval for the funding. The loan may be prepaid at any time without premium or penalty. On each of March 7, 2018 and April 3, 2020, we amended the Loan Agreement to adjust the future milestones which would allow us to be eligible to borrow the remaining $2,000,000. Under the terms of the agreement, as amended, 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 the Loan Agreement Date, 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.

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 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 the exercise of common stock warrants, 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 $6,911,000 for the six months ended June 30, 2020, resulting primarily from the net loss reported of $7,537,000, changes in prepaid expenses of $99,000 and changes in accounts payable, accrued and other liabilities of $165,000, partially offset by stock compensation expense of $710,000 and changes in depreciation and amortization of $114,000 and accounts receivable of $105,000.

Net cash used in operating activities was $6,652,000 for the six months ended June 30, 2019, resulting primarily from the net loss reported of $8,030,000 and changes in prepaid expenses of $66,000, partially offset by stock compensation expense of $597,000 and changes in accounts payable, accrued and other liabilities of $509,000, and depreciation and amortization of $215,000.

Net cash used in investing activities was $123,000 and $82,000 for the six months ended June 30, 2020 and 2019, respectively, which consisted primarily of property and equipment purchases.

Net cash provided by financing activities was $6.3 million and $13.6 million for the six months ended June 30, 2020 and 2019, respectively, which resulted primarily from the exercise of the warrants from the 2020 Exercise of Warrants of 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 $13.6 million 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 June 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, 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.

Legislation commonly referred to as the Tax Cuts and Jobs Act (H.R. 1) 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 of the Internal Revenue Code of 1986, as amended (“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 June 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 June 30, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2020, our disclosure controls and procedures were effective.



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.