3. Fair Value Measurements

The Company measures the following liabilities at fair value on a recurring basis:


	Quoted
	Prices in
	Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	Level 1		Level 2		Level 3		Total
Financial liabilities:
Series A warrant to purchase common stock	$	—	$	—	$	35,150	$	35,150
Series B warrant to purchase common stock		—		—		11,070		11,070
Series C warrant to purchase common stock		—		—		7,710		7,710
Total financial liabilities	$	—	$	—	$	53,930	$	53,930

The fair value of the common stock warrant liabilities, which are described in more detail in Note 8, are calculated utilizing a Black-Scholes option pricing model for the Series A warrants and a Monte Carlo simulation model for the Series B warrants and the Series C warrants. The Black-Scholes option pricing model and the Monte Carlo simulation model both require the use of assumptions, certain of which are not observable in the market, which represent Level 3 measurements within the fair value hierarchy. The Black-Scholes pricing model and the Monte Carlo simulation model assumptions include the warrant exercise price, the expected life of the warrant, the current price of the Company’s common stock, expected volatility, the risk-free interest rate for the expected life of the warrant and expected dividend yield. The Monte Carlo simulation assumptions also include the potential impacts of the warrant strike price reset features.

The inputs used in the fair market value of the Company’s common stock warrants liabilities as of the issuance date and September 30, 2025 were the following:


	June 5, 2025				September 30,
	(issuance date)				2025
Closing price of common stock	$		0.68		$		0.84
Warrant exercise price	$		0.75		$		0.75
Expected volatility			70	%			70	%
Risk free interest rate			3.91	%			3.67	%
Expected dividend yield			—				—
Expected term (in years)		0.57 - 5.00				0.17 - 4.68

The following table summarizes the changes in the fair market value of the Company’s common stock warrant liabilities, which are classified within the Level 3 fair value hierarchy:



							Total level 3
							financial
	Series A		Series B		Series C		liabilities
Balance at December 31, 2024	$	—	$	—	$	—	$	—
Initial fair value of common stock warrant liabilities		26,840		6,600		5,060		38,500
Change in fair value of common stock warrant liabilities		8,310		4,470		2,650		15,430
Balance at September 30, 2025	$	35,150	$	11,070	$	7,710	$	53,930

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 820
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+ Details

Xilio Therapeutics, Inc. 10-Q