Note 13 – Fair value of Financial Instruments

Cash and cash equivalents, accounts receivable (including R&D tax incentive receivable), prepaid expenses and other current assets, accounts payable, accrued expenses and current liabilities are reflected on the consolidated balance sheets at amounts that approximate fair value because of the short-term nature of these financial assets and liabilities.

ELOC Purchase Agreement

The Company evaluated the ELOC Purchase Agreement to determine whether it should be accounted for considering the guidance in ASC 815-40, “Derivatives and Hedging - Contracts on an Entity’s Own Equity” (“ASC 815-40”) and concluded that it is an equity-linked contract that does not qualify for equity classification, and therefore requires fair value accounting as a derivative.

 The ELOC Purchase Agreement was terminated on March 13, 2025.

ELOC Warrant

Classification of the ELOC Warrant as a liability instrument was based on management’s analysis of the guidance in ASC 815 and in a statement issued by the staff of the SEC regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies.”

Management considered whether the ELOC Warrant displayed the three characteristics of a derivative under ASC 815, and concluded that the ELOC Warrant mets the definition of a derivative. However, the ELOC Warrant failed to meet the equity scope exception in ASC 815-10-15-74(a) and thus is classified as a liability measured at fair value, subject to remeasurement at each reporting period. This is on the basis that the ELOC Warrant included certain cash-settlement features in the event of a tender offer, which is outside the control of the Company, and that the exercise price was denominated in a currency other than the reporting entity’s functional currency, and therefore the instrument is not considered indexed to the reporting entity’s own stock. The Company measures the ELOC Warrant as a liability at fair value as at each reporting period with changes in fair value recognized as other (income) expense, net in the consolidated statements of operations and comprehensive income (loss).

The ELOC Warrant was classified as a level 3 financial instrument in the fair value hierarchy and were valued using the BSOPM. 

The changes in the fair value of the ELOC Warrant liability were a decrease of $0.6 million for the fiscal year ended June 30, 2025.

Convertible Debentures

The Company has accounted for the Debenture as a financing transaction, wherein the net proceeds that were received were allocated to the financial instruments issued. Prior to making the accounting allocation, the Company evaluated the Convertible Debentures under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract.

The Company evaluated that the convertible right met the definition of a derivative under ASC 815-10-15-83. Further the Company evaluated that the convertible right requires bifurcation from the debt host on the basis that it fails to meet the equity scope exception in ASC 815-10-15-74(a) and thus are classified as a liability measured at fair value, subject to remeasurement at each reporting period.

The Company evaluated that the Debenture Warrant was a detachable freestanding instrument. The Debenture Warrant included certain cash-settlement features in the event of a tender offer, which is outside the control of the Company, and that the exercise price was denominated in a currency (USD) other than the reporting entity’s functional currency (AUD), and thus failed to meet the equity scope exception in ASC 815-10-15-74(a). Therefore, the instrument was not considered indexed to the reporting entity’s own stock. As such the Debenture Warrant were classified as a liability and measured at fair value, with changes in fair value each period reported in earnings.

The proceeds from issuing the Debenture were allocated first to the Debenture Warrant based on its fair value. The proceeds allocated to the debt instrument was then further allocated between the debt host contract and the bifurcated derivative based on the fair value of that derivative as prescribed by ASC 815-15-30-2.

The proceeds of the transaction were initially allocated as follows:

Debt discount and the debt issuance costs were capitalized to the carrying amount of the debt. Such costs are presented on the balance sheet as a direct deduction from that debt liability host.

The convertible debt was repaid in full on March 13, 2025, including the outstanding principal, interest, amounts and redemption premiums that was due as of February 28, 2025. The convertible rights are derecognized along with the debt repayment. The Company recognized a $1.0 million loss on extinguishment of the debt host contract and the bifurcated derivative.

The changes in the fair value of the Debenture Warrants liability were a decrease of $0.2 million for the fiscal year ended June 30, 2025.

Series A Warrants

Classification of the Series A Warrants as liability instruments was based on management’s analysis of the guidance in ASC 815 and in a statement issued by the staff of the SEC regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies.”

Management considered whether the Series A Warrants displayed the three characteristics of a derivative under ASC 815 and concluded that the Series A Warrants met the definition of a derivative. However, the Series A Warrants failed to meet the equity scope exception in ASC 815-10-15-74(a) and thus were classified as a liability measured at fair value, subject to remeasurement at each reporting period. This is on the basis that the exercise price of the Series A Warrants was denominated in a currency other than the reporting entity’s functional currency, and therefore the instrument was not considered indexed to the reporting entity’s own stock. The Company measured the Series A Warrants as a liability at fair value as at each reporting period with changes in fair value recognized as other (income) expense, net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Series A Warrants were classified as a level 3 financial instrument in the fair value hierarchy and were valued using the BSOPM.

The changes in the fair value of the Series A Warrant liability were an increase of $22.7 million for the fiscal year ended June 30, 2025.

In May 2025, the Company entered into letter agreements with the holders of the Series A Warrants pursuant to which the Company paid to the holders of Series A Warrants an aggregate of $24.8 million in exchange for the cancellation of all of the outstanding Series A Warrants.