Quarterly report pursuant to Section 13 or 15(d)

FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

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FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS
9 Months Ended
Mar. 31, 2024
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS  
FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS

NOTE 13 — 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 value 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 following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the fair value hierarchy classification as of March 31, 2024 and June 30, 2023 (in thousands):

Fair Value Measurement of Assets as of March 31, 2024

Total

Level 1

Level 2

Level 3

Cash and cash equivalents:

Money market funds

$

3,451

$

3,451

$

$

Marketable debt securities:

Corporate commercial paper

22,565

22,565

U.S. Government agencies

11,313

11,313

U.S. Government treasuries

995

995

Corporate notes and bonds

38,439

38,439

Asset-backed securities

2,353

2,353

Total

$

79,116

$

3,451

$

75,665

$

Fair Value Measurement of Assets as of June 30, 2023

Total

Level 1

Level 2

Level 3

Cash and cash equivalents:

Money market funds

$

5,464

$

5,464

$

$

Corporate commercial paper

4,481

4,481

Marketable debt securities:

Corporate commercial paper

41,597

41,597

U.S. Government agencies

26,394

26,394

U.S. Government treasuries

10,404

10,404

Corporate notes and bonds

19,240

19,240

Asset-backed securities

4,694

4,694

Total

$

112,274

$

20,349

$

91,925

$

-

Marketable debt securities classified as Level 2 within the valuation hierarchy generally consist of U.S. government agency securities, corporate bonds, and commercial paper. The Company determines the fair value of marketable debt securities based upon valuations obtained from third-party pricing sources.  Except for the amounts shown in the table above, the Company did not have any other assets measured at fair value on a recurring basis as of March 31, 2024 and June 30, 2023.

The Company’s liabilities that are required to be measured and recorded fair value on a recurring basis consist of the embedded derivative liability discussed in Note 6 and the warrant derivative liability discussed in Note 7.   The warrant derivative liability is classified under Level 2 of the fair value hierarchy and the embedded derivative liability is classified under Level 3 of the fair value hierarchy. Fair value of the warrant liability is predominantly based on the market price of the Company’s shares of common stock. Fair value of the embedded derivative liability is determined based on management’s assessment of the probability and timing of occurrence for the Exit Events discussed in Note 6 using a discount rate equal to the effective interest rate under the Loan Agreement prior to termination. On the issuance date and as of March 31, 2024, the fair value of the Exchange PFWs was computed using the  BSM option-pricing model. Key inputs to this valuation model as of March 31, 2024 included the exercise price of $0.001 per share, the market price of the Company’s common stock of $2.55 per share, the risk-free interest rate of 4.1%, an expected term of 1-day, and historical volatility of 100%.  Key

inputs to this valuation model as of March 8, 2024 included the exercise price of $0.001 per share, the market price of the Company’s common stock of $1.90 per share, the risk-free interest rate of 4.1%, an expected term of 1-day, and historical volatility of 100%.

The following table sets forth changes in the fair value of the Company’s liabilities measured at fair value liability for the nine months ended March 31, 2024 and 2023 (in thousands):

Nine Months Ended

Nine Months Ended

March 31, 2024

March 31,  2023

Warrant

Embedded

 

Warrant

Embedded

Fair value, beginning of period

$

$

412

$

$

407

Warrant liability incurred on March 8, 2024

5,697

Changes in fair value

1,950

41

40

Fair value, end of period

$

7,647

$

453

$

$

447

Except for the embedded derivative liability and warrant derivative liability, the Company did not have any other liabilities measured at fair value on a recurring basis as of March 31, 2024 and June 30, 2023.

Due to the relatively short maturity of the respective instruments, the fair value of cash, accounts payable, and accrued liabilities approximated their carrying values as of March 31, 2024 and June 30, 2023.

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 three and nine months ended March 31, 2024 and 2023, the Company did not have any transfers of its assets or liabilities between levels of the fair value hierarchy.

Significant Concentrations

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and investments in marketable debt securities. The Company maintains cash in demand deposit accounts at a high-quality financial institution. As of and for the nine months ended March 31, 2024 and 2023, cash deposits have exceeded the amount of insurance provided on such deposits by the Federal Deposit Insurance Corporation.

As of March 31, 2024, the Company has an aggregate of $27.6 million invested in the debt securities of issuers in the banking and financial services industries, and an aggregate of $11.3 million invested in the debt securities of a single agency of the U.S. government.  While the Company’s investment policy requires investments in highly rated securities, a wide variety of broad economic factors and issuer-specific factors could result in credit agency downgrades below the Company’s minimum credit rating requirements that could result in losses regardless of whether the Company elects to sell the securities or hold them until maturity. To date, the Company has not experienced any credit losses or impairments of marketable debt securities due to credit rating agency downgrades.