ChronoScale Corp Fair Value Disclosure
4. Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value which are the following:
| • | Level 1—Quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| • | Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| • | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation of Level 3 investments requires the use of significant management judgments or estimation. |
The Company’s fair value hierarchies for its financial assets and liabilities which require fair value measurement on a recurring basis are as follows:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| December 31, 2025 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liabilities | $ | — | $ | — | $ | — | $ | — | ||||||||
| December 31, 2024 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liabilities | $ | 1 | $ | — | $ | — | $ | 1 | ||||||||
During the years ended December 31, 2025 and 2024, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s established practice.
The following table sets forth a summary of the changes in the fair value of Company’s Level 3 financial liabilities during the years ended December 31, 2025 and 2024, which were measured at fair value on a recurring basis:
| Warrant | ||||
| Liability | ||||
| Balance as of December 31, 2023 | $ | 366 | ||
| Gain on revaluation of warrants issued in 2021, June 2020, December 2019, and May 2019 equity financings | (474 | ) | ||
| Loss on modification of warrant | 109 | |||
| Balance as of December 31, 2024 | $ | 1 | ||
| Gain on revaluation of warrants issued in 2021, June 2020, December 2019, and May 2019 equity financings | (1 | ) | ||
| Balance as of December 31, 2025 | — | |||
Refer to Note 2. Summary of Significant Accounting Policies and Estimates – Phantom Performance-based Restricted Stock Valuation for additional information regarding the valuation of Phantom PSUs, and Note 12. Capitalization and Equity Structure – Warrants for additional information regarding the valuation of warrants.
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.