3. COMMITMENTS AND CONTINGENCIES

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

On March 27, 2020, the U.S federal government enacted the CARES Act. The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak. The Company continues to evaluate the impact of the CARES Act on its business, future financial condition and results of operations but, with the exception of the PPP Loan described below, did not note a material impact of the CARES Act for the three or six months ended June 30, 2020.

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.

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. Proceeds from the loan were utilized primarily to fund the build-out, information technology infrastructure and other costs related to the Company’s 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, 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. The remaining $2,000,000 will be advanced if and when the Company achieves certain other future milestones. The loan may be prepaid at any time without premium or penalty. On each of March 7, 2018 and April 3, 2020, the Company amended the Loan Agreement to adjust the future milestones which would allow the Company to continue to be eligible to borrow the remaining $2,000,000. The April 2020 amendment changes the criteria for receiving the next $1,000,000 available under the Loan Agreement by reducing from 40 to 25 the number of full-time employees that the Company is required to hire, by changing the date on or before which the Company must meet this requirement from March 1, 2021 to December 31, 2020, and by increasing the required capital investment of the Company from $18,000,000 to $18,800,000. Although the criteria for receiving the final $1,000,000 available under the loan were not changed as part of the April 2020 amendment, such disbursement is also conditioned on the Company meeting the requirements described above.

Under the terms of the Loan Agreement, as amended, 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, 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.

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. The Austin, Texas lease expires on January 31, 2021 with no automatic renewal or renewal option. The Company is considering renewing the existing lease for two years, dependent on pricing.

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. The Company has the right to renew the lease for up to two five-year terms at a rate equal to 90% of the then current fair market rate. The Company’s Trumbull, Connecticut lease expires on June 8, 2021. The Company is assessing the potential exercise of the renewal option for its Trumbull, Connecticut lease dependent on pricing.

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

The expense associated with these operating leases for the three and six months ended June 30, 2020 and 2019 is shown in the table below (in thousands).
		Three Months Ended June 30
Lease Cost	Classification	2020		2019
Operating rent expense
	Cost of revenue	$	18	$	9
	Research and development		13		3
	Sales and marketing		4		9
	General and administrative		13		11
Variable rent expense
	Cost of revenue	$	1	$	12
	Research and development		-		3
	Sales and marketing		11		10
	General and administrative		13		14
		Six Months Ended June 30
Lease Cost	Classification	2020		2019
Operating rent expense
	Cost of revenue	$	33	$	18
	Research and development		24		7
	Sales and marketing		10		17
	General and administrative		27		22
Variable rent expense
	Cost of revenue	$	4	$	24
	Research and development		1		6
	Sales and marketing		22		20
	General and administrative		27		28

Based on the Company’s leases as of June 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).


2020	$	18
2021		18
2022		4
2023		4
2024		4
2025		1
Total Operating Lease Payments		49
Less: Interest		(9)
Present Value of Lease Liabilities		40

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



Weighted-average remaining lease term (in years)		2.1
Weighted-average discount rate		8.63%

Non-cancelable Royalty Obligations

The Company is a party to an amended research collaboration agreement with The Johns Hopkins University School of Medicine under which the Company licenses certain of its intellectual property directed at the discovery and validation of biomarkers in human subjects, including but not limited to clinical application of biomarkers in the understanding, diagnosis and management of human disease. Under the terms of the amended research collaboration agreement, ASPIRA is required to pay the greater of 4% royalties on net sales of diagnostic tests using the assigned patents or annual minimum royalties of $57,500. Royalty expense for the six months ended June 30, 2020 and 2019 totalled $76,000 and $75,000, respectively.