Outlook Therapeutics, Inc. Fair Value Disclosure
4. Fair Value Measurements
The following table presents the Company’s liabilities that are measured at fair value on a recurring basis:
September 30, 2025 | |||||||||
| (Level 1) | | (Level 2) | | (Level 3) | ||||
Liabilities | |||||||||
Unsecured convertible promissory note | $ | — | $ | — | $ | 29,947,000 | |||
— | — | 4,768,438 | |||||||
Total | $ | — | $ | — | $ | 34,715,438 | |||
September 30, 2024 | |||||||||
(Level 1) | | (Level 2) | | (Level 3) | |||||
Liabilities | |||||||||
Unsecured convertible promissory note | $ | — | $ | — | $ | 29,440,000 | |||
— | — | 59,099,013 | |||||||
Total | $ | — | $ | — | $ | 88,539,013 | |||
The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrant liability and the unsecured convertible promissory notes for the years ended September 30, 2025 and 2024:
Unsecured Convertible | ||||||
| Promissory Notes | | Warrants | |||
Balance at October 1, 2023 | $ | 35,551,000 | $ | 6,219 | ||
Issued in connection with sale of common stock | — | 97,730,836 | ||||
Promissory note maturity extension fee added to outstanding balance | 2,681,847 | — | ||||
Principal and accrued interest converted to common stock | (11,250,000) | — | ||||
2,457,153 | (38,638,042) | |||||
Balance at September 30, 2024 | 29,440,000 | 59,099,013 | ||||
Fair value of unsecured convertible promissory note issued | 33,100,000 | — | ||||
Principal and accrued interest converted to common stock | (2,525,000) | — | ||||
6,074,586 | (43,015,831) | |||||
Loss from change in fair value from warrant inducement | — | 1,948,057 | ||||
Reclassification of fair value of common stock warrants exercised to equity | — | (13,262,801) | ||||
Repayment | (36,142,586) | — | ||||
Balance at September 30, 2025 | $ | 29,947,000 | $ | 4,768,438 | ||
Unsecured convertible promissory notes
As further described in Note 8, the Company elected the fair value option to account for the unsecured convertible promissory notes. The fair value of these instruments is estimated using a binomial lattice model, which evaluates the
payouts under hold, convert or call decisions. Significant estimates in the binomial lattice model include the Company’s stock price, volatility, risk-free rate of return, and credit-adjusted discount rate.
The fair values of the unsecured convertible promissory notes as of September 30, 2025 and 2024 were estimated using a binomial lattice model with the following assumptions:
September 30, | ||||||||
2025 | 2024 | |||||||
Term (years) | 0.8 | 0.8 | ||||||
Volatility | 118.0 | % | 91.0 | % | ||||
Risk-free rate | 3.8 | % | 4.2 | % | ||||
Dividend yield | — | % | — | % | ||||
Credit-adjusted discount rate | 18.8 | % | 20.4 | % | ||||
Stock price | $ | 1.06 | $ | 5.34 | ||||
Common stock warrants
The warrants related to the Note and Warrant Purchase Agreement dated December 22, 2017 are classified as liabilities as the warrants include cash settlement features at the option of the holders under certain circumstances. These warrants expired during the fiscal year ended September 30, 2025. The warrants issued in connection with private placements that closed on March 18, 2024 and April 15, 2024 are classified as liabilities as the Company assessed that they are not indexed to the Company’s own stock and must be classified as liabilities. During the year ended September 30, 2025, the Company reclassified the warrant liability balance of $13,262,801 into additional paid in capital upon the exercise of certain of the private placement warrants. Refer to Note 10 for further details on warrants exercised pursuant to the warrant inducement transaction.
The above warrant liabilities are revalued each reporting period with the change in fair values recorded in the accompanying consolidated statements of operations until the warrants are exercised or expire. The fair values of the warrant liabilities are estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
September 30, | ||||||||
2025 | 2024 | |||||||
Risk-free interest rate | 3.64 | % | 3.58 | % | ||||
Remaining contractual term of warrants (years) | 3.5 | 4.5 | ||||||
Expected volatility | 148.6 | % | 125.0 | % | ||||
Annual dividend yield | — | % | — | % | ||||
Stock price | $ | 1.06 | $ | 5.34 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Dec 19, 2025 | Showing above |
| 2020 | Dec 23, 2020 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.