Fair Value Measurement
We measure certain financial assets and liabilities at fair value on a recurring basis, such as cash equivalents. The fair values of these financial assets were determined based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. These levels of input are as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Inputs, other than quoted market prices in active markets, that are observable either directly or indirectly.
•Level 3 — Unobservable inputs based on our own assumptions.
The following tables set forth our assets that are measured at fair value on a recurring basis at December 31, 2025 and 2024:
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| | December 31, 2025 |
| (in thousands) | | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
| Cash equivalents | | $ | 17,255 | | | $ | 17,255 | | | $ | — | | | $ | — | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2024 |
| (in thousands) | | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | |
| | | | | | | | |
| Cash equivalents | | $ | 14,447 | | | $ | 14,447 | | | $ | — | | | $ | — | |
| | | | | | | | |
The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of those items.
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.