7. Commitments and Contingencies

Operating Leases

We lease one building, at 2091 Stierlin Court, or the 2091 Building, in Mountain View, California, which we began to occupy in 2007. We recognize rental expense on the 2091 Building on a straight line basis over the initial term of the lease. Differences between the straight line rent expense and actual rent payments are classified as deferred rent liability on the balance sheet. The lease for the 2091 Building expires on March 31, 2018, and we have two options to extend the lease for five years each.

The 2091 Building lease, as amended, includes tenant improvement reimbursements from the landlord. We have recorded all tenant improvements as additions to property and equipment and are amortizing the improvements over the shorter of the estimated useful life of the improvement or the remaining life of the lease. The reimbursements received from the landlord are included in deferred rent liability and amortized over the life of the lease as a contra-expense.

Future minimum lease payments under non-cancelable operating leases, at December 31, 2015 were as follows (in thousands):

	Lease
	Payments
2016	$	3,305
2017		3,386
2018		853
2019		—
2020		—
Thereafter		—
Total minimum payments	$	7,544

Rental expense for the fiscal years ended December 31, 2015, 2014, and 2013 was $1,828,000, $1,953,000, $2,286,000, respectively. We had no rental income from the sublease agreements during the fiscal years ended December 31, 2015, 2014, or 2013.

Manufacturing and Supply Agreement

In November 2007, we entered into a manufacturing and supply agreement, or the Manufacture Agreement, with Autoliv , relating to the commercial supply of chemical heat packages that can be incorporated into our Staccato device, or the Chemical Heat Packages. Autoliv had developed these Chemical Heat Packages for us pursuant to a development agreement between Autoliv and us.

Subject to certain exceptions, Autoliv has agreed to manufacture, assemble and test the Chemical Heat Packages solely for us in conformance with our specifications. We pay Autoliv a specified purchase price, which varies based on annual quantities we order, per Chemical Heat Package delivered. Upon termination of the Manufacture Agreement, we were to retain full ownership of the production equipment for commercial manufacture of the Chemical Heat Packages developed for us by Autoliv, and Autoliv’s obligations under the Manufacture Agreement will terminate in full. In December 2014, we amended the Manufacture Agreement with Autoliv, or the 2014 Amendment through which we and Autoliv are extending the Manufacturing Agreement through 2018. In addition, we have the right to engage a second source supplier and implement a manufacturing line transfer from Autoliv to manufacture and supply the Chemical Heat Packages to us or our licensees.

We have contracted with Autoliv, through a third-party supplier, to build one additional manufacturing cell to manufacture chemical heat packages at a cost of approximately $2,350,000, or the New Cell. The New Cell was expected to be installed at Autoliv with the cell currently being utilized by Autoliv, or the Original Cell, to be installed at a second source supplier.

During the fiscal year ended December 31, 2015, we concluded that due to (i) the suspension of the ADASUVE commercial production operations during the third quarter of 2015, (ii) our continued operating losses and poor cash flows, (iii) the uncertainty of when we will resume commercial production, (iv) the limited ability to sell the capitalized equipment, and (v) our basic ability to continue as a going concern, the carrying amounts of our long-lived assets including the first and second manufacturing cells from Autoliv, exceeded their fair values based on a Level 3 fair value measurement. Accordingly, we recognized non-cash impairment charges of approximately $8,591,000 on our long-lived assets, $1,229,000 of related inventory with fixed expiration dates, and $1,024,000 on prepayments made to the supplier of our lower housing assembly for fiscal year 2015.

We did not recognize any impairment charges during the fiscal year ended 2014.

Contingencies

From time to time, we are involved in lawsuits, arbitrations, claims, investigations and proceedings that arise in the ordinary course of business. We make provisions for liabilities when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No such provisions have been made for the periods presented herein. Litigation and related matters are inherently unpredictable. If any unfavorable ruling were to occur in any specific period, there exists the possibility of a material adverse impact on the results of operations of that period or on our cash flows and liquidity.