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 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).



		Three Months Ended September 30
Lease Cost	Classification	2020		2019
Operating rent expense
	Cost of revenue	$	19	$	9
	Research and development		13		2
	Sales and marketing		8		9
	General and administrative		18		11
Variable rent expense
	Cost of revenue	$	2	$	13
	Research and development		-		3
	Sales and marketing		12		12
	General and administrative		14		16

		Nine Months Ended September 30
Lease Cost	Classification	2020		2019
Operating rent expense
	Cost of revenue	$	52	$	27
	Research and development		37		9
	Sales and marketing		18		26
	General and administrative		45		33
Variable rent expense
	Cost of revenue	$	6	$	37
	Research and development		1		9
	Sales and marketing		34		32
	General and administrative		41		44

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).


2020	$	9
2021		63
2022		95
2023		106
2024		116
Thereafter		187
Total Operating Lease Payments		576
Less: Interest		(145)
Present Value of Lease Liabilities		431

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



Weighted-average remaining lease term (in years)		5.7
Weighted-average discount rate		9.39%

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.