4. Fair Value Measurements

The guidance regarding fair value measurements prioritizes the inputs used in measuring fair value and establishes a three-tier value hierarchy that distinguishes among the following:

		Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
		Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
		Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The Company estimates the fair values of derivative liabilities utilizing Level 3 inputs. No derivative liabilities have been transferred between the classification levels. Estimating the fair values of derivative liabilities requires the use of significant and subjective inputs that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. The recurring fair value measurements of the Company’s derivative liabilities at June 30, 2018 and December 31, 2017 consisted of the following:



	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable Inputs		Unobservable
	Items (Level 1)		(Level 2)		Inputs (Level 3)		Total
June 30, 2018
Liabilities
June 2016 offering warrant liability	$	-	$	-	$	28,000	$	28,000
November 2016 offering warrant liability		-		-		157,000		157,000
Total liabilities	$	-	$	-	$	185,000	$	185,000

December 31, 2017
Liabilities
June 2016 offering warrant liability	$	-	$	-	$	32,000	$	32,000
November 2016 offering warrant liability		-		-		260,000		260,000
Total liabilities	$	-	$	-	$	292,000	$	292,000

The following table sets forth a summary of changes in the fair value of the Company's derivative liabilities:



	June 2016		November 2016
	Offering		Offering		Total
	Warrant		Warrant		Derivative
	Liability		Liability		Liabilities
Balance, December 31, 2017	$	32,000	$	260,000	$	292,000
Changes in estimated fair value		(4,000)		81,000		77,000
Exercised warrants		-		(184,000)		(184,000)
Balance, June 30, 2018	$	28,000	$	157,000	$	185,000

The Company estimates the fair value of the June 2016 offering warrant liability at each reporting date using the Black-Scholes valuation model. Inputs used in this valuation model include the Company’s stock price volatility, risk-free interest rates and expected term of the warrants.

Historically, the Company estimated the fair value of the November 2016 offering warrant liability at each reporting date using the Monte Carlo valuation model. Inputs used in the Monte Carlo valuation model included the Company’s stock price volatility, risk-free interest rates and expected term of the warrants. Effective March 31, 2018, due primarily to the significant decrease in the number of warrants outstanding, the Company simplified the method used and changed to the Black Scholes valuation model, which approximates the Monte Carlo valuation model.