NOTE 14 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

Fair Value Measurements

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair measurement:

Level 1—Quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2—Other than quoted prices included in Level 1 that are observable for the asset and liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.

Level 3—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any market activity for the asset or liability at the measurement date.

The derivative liabilities for the authorized share deficiencies discussed in Note 6 were classified under Level 3. These liabilities were required to be measured at fair value on a recurring basis from February 17, 2021 until May 26, 2021 for the first deficiency and from May 4, 2022 until June 16, 2022 for the second deficiency. Key valuation assumptions are summarized in Note 6.

The embedded derivative liabilities discussed in Note 5 were classified under Level 3 and were required to be measured at fair value on a recurring basis beginning on April 14, 2021. Fair value was determined based on management’s

assessment of the probability and timing of occurrence for the embedded derivatives using a discounted rate equal to the effective interest rate for the term A loan.

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The following table sets forth a summary of changes in the fair value of embedded derivative liabilities for which fair value was determined by Level 3 inputs for the fiscal years ended June 30, 2022 and 2021 (in thousands):

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Due to the relatively short maturity of the respective instruments, the fair value of cash and cash equivalents, accounts payable and accrued liabilities approximated their carrying values as of June 30, 2022 and 2021. The Company did not have any other assets and liabilities measured at fair value as of June 30, 2022 and 2021. The Company’s policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the fiscal years ended June 30, 2022 and 2021, the Company did not have any transfers of its assets or liabilities between levels of the fair value hierarchy.

Fair Value of Debt

Management believes the interest rate and other provisions of the Company’s term loan approximated the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the term loan was approximated at its fair value as of June 30, 2021.

Significant Concentrations

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains its cash, cash equivalents and restricted cash at high-quality financial institutions. For the fiscal years ended June 30, 2022 and 2021, cash deposits exceeded the amount of federal insurance provided on such deposits. As of June 30, 2022 and 2021, substantially all of the Company’s cash and cash equivalents was invested with a single financial institution. The Company has never experienced any losses related to its investments in cash and cash equivalents.