|1. ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Aspira Women’s Health Inc., formerly known as Vermillion, Inc. (“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 currently markets and sells 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 reflex intended to maintain OVA1’s high sensitivity while improving specificity; (3) OVA1plus, a reflex offering, which uses OVA1 and OVERA as a confirmation for OVA1 intermediate range results and leverages the strengths of OVA1’s Multivariate Index Assay (“MIA”) sensitivity and OVERA’s (MIA2G) specificity and as a result reduces false elevations by over 40%; (4) Aspira GenetiX, a genetic test for hereditary gynecological cancer risk, with a core focus on female cancers, including breast, ovarian, endometrial, uterine and cervical cancers; and (5) Aspira Synergy, the Company’s new decentralized wet-lab testing platform and cloud service technology. Through September 30, 2021, the Company’s product and related services revenue was limited to revenue generated by sales of OVA1, OVA1plus and Aspira GenetiX. The Company sells OVA1 and OVA1plus through Aspira’s wholly-owned Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified clinical laboratory, Aspira Labs, Inc. (“ASPiRA LABS”). In 2021, the Company began to enter into decentralized arrangements with large healthcare networks and large practices for its Aspira Synergy product. The Company has entered into four technology transfer agreements since the launch of Aspira Synergy. Two of the agreements are with two of the nation’s largest and leading independent women’s healthcare groups. The other two agreements are with two independent laboratories providing services across five states.
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 $462,767,000. The Company also expects to incur a net loss and negative cash flows from operations for the remainder of 2021.
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 through the first quarter 2021. We began exceeding pre-COVID-19 levels starting in the first half of the second quarter of 2021 but began trending down in the latter half of the second quarter of 2021 as physician offices had fewer patient visits. In addition, during the third quarter of 2021, the Company experienced additional restrictions to doctor offices in key states such as Michigan, Florida, New York and Kentucky when compared to the second quarter 2021. 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, Key Opinion Leader
presentations, and increased digital sales and marketing. Enrollment for clinical research studies has been slower than originally planned due to the impact of clinic closures and patients not seeking medical care in 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 operations or 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 “DECD 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.
The loan may be prepaid at any time without premium or penalty. An initial disbursement of $2,000,000 was made to the Company on April 15, 2016 under the DECD Loan Agreement. On December 3, 2020, the Company received a disbursement of the remaining $2,000,000 under the DECD Loan Agreement, as the Company had achieved the target employment milestone necessary to receive an additional $1,000,000 under the DECD Loan Agreement and the DECD determined to fund the remaining $1,000,000 under the DECD Loan Agreement after concluding that the required revenue target would likely have been achieved in the first quarter of 2020 in the absence of the impacts of COVID-19.
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 Company’s 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, par value $0.001 per share, for net proceeds of $10,600,000, after deducting expenses related to the private placement.
As discussed in Note 4, on February 8, 2021, the Company completed a public offering (the “2021 Offering”) resulting in net proceeds of approximately $47,900,000, after deducting underwriting discounts and offering expenses.
As discussed in Note 3, in March 2021, the Company applied for forgiveness of the PPP Loan, and, effective May 27, 2021, the SBA confirmed the waiver of the Company’s repayment of the PPP Loan. The Company remains subject to an audit of the PPP loan. The Company recognized a gain on forgiveness of debt of $1,005,767, which is included in other income in the condensed consolidated statements of operations, and reduced long- and short-term indebtedness by the same amount.
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, 2020 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, 2020 included in Aspira’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 31, 2021 (the “2020 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.
Certain prior period amounts have been reclassified to conform to the current period presentation with no material effect on the consolidated financial statements.
Significant Accounting and Reporting Policies
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 period ended September 30, 2021, 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 periods ended September 30, 2021 and 2020.
Genetics 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 in vitro diagnostic (“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, Inc. (“ASPiRA IVD”) trial services in the fourth quarter of 2019. During 2020 and 2021, the Company’s service revenue was limited to the fulfillment of one legacy IVD contract.
Recent Accounting PronouncementsIn June 2016, the Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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 2016-13 is scheduled to be effective in 2023 for smaller reporting companies. The Company is currently assessing the impact of this standard on its consolidated financial statements.