NOTE 6 — EMBEDDED DERIVATIVE LIABILITY

On April 14, 2021, the Company entered into a $30.0 million Loan and Security Agreement (the “Loan Agreement”) with SLR Investment Corp. (“SLR”) and certain other lenders (collectively, the “Lenders”). The Lenders agreed to loan up to $30.0 million but the actual amount borrowed by the Company amounted to $15.0 million. The maturity date of the outstanding borrowings was April 1, 2026 (the “Maturity Date”), but the Company elected to repay the entire amount and terminated the Loan Agreement on June 30, 2022. Accordingly, the Company paid a total of $16.0 million consisting of the outstanding principal of $15.0 million, the Final Fee of $0.7 million and the prepayment fee of $0.3 million. As of June 30, 2022, a loss on extinguishment of the Loan Agreement of $1.8 million was recognized for the unaccreted discount of $1.5 million and the 2.00% prepayment penalty of $0.3 million.

Concurrently with the execution of the Loan Agreement, the Company entered into an exit fee agreement (the “Exit Fee Agreement”) that provides for a fee of 4.00% of the funded principal balance for a total of $0.6 million in the event certain transactions (defined as “Exit Events”) occur prior to April 13, 2031. The Exit Fee was not impacted by termination of the Loan Agreement discussed above. The Company is accounting for the Exit Fee Agreement as an embedded derivative liability with an estimated fair value of $0.4 million as of June 30, 2023 and 2022. Exit Events include, but are not limited to, sales of substantially all assets, certain mergers, change of control transactions, and issuances of common stock that result in new investors owning more than 35% of the Company’s shares. Fair value of embedded derivatives is assessed at the end of each reporting period with changes in fair value recognized as a nonoperating gain or loss.

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