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 liabilities at June 30, 2019 and December 31, 2018 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, 2019
Assets
Money market funds	$	3,166,000	$	—	$	—	$	3,166,000
Total assets	$	3,166,000	$	—	$	—	$	3,166,000

December 31, 2018
Assets
Money market funds	$	9,430,000	$	—	$	—	$	9,430,000
Total assets	$	9,430,000	$	—	$	—	$	9,430,000

Liabilities
Asset acquisition derivative liability	$	—	$	—	$	1,117,000	$	1,117,000
Total liabilities	$	—	$	—	$	1,117,000	$	1,117,000

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


	Asset
	Acquisition
	Derivative
	Liability
Balance, December 31, 2018	$	1,117,000
Changes in estimated fair value		(1,117,000)
Balance, June 30, 2019	$	—

We estimated the fair value of this derivative by forecasting the timing and likelihood of the events occurring and discounting the probability adjusted payments using an appropriate discount based on market interest rates and our own non-performance risk as required by ASC 820 – Fair Value Measurement. There is no longer a potential payment requirement associated with the derivative liability subsequent to the Merger. Accordingly, the fair value of the derivative liability was reduced to zero with the associated change recorded in other income.