D. Financial Instruments

Fair Value Measurements

We classify the inputs used to measure fair value into the following hierarchy:

 

Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2		Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3		Unobservable inputs for the asset or liability.

The following table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis as follows: (in thousands):

 

						Fair Value Measurements at December 31, 2016 Using
Description		Balance as of December 31, 2016				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Warrant liabilities		$	1,004			$	—			$	—			$	1,004
						Fair Value Measurements at December 31, 2015 Using
Description		Balance as of December 31, 2015				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Warrant liabilities		$	649			$	—			$	—			$	649

We review and reassess the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in a fair value measurement may result in a reclassification between fair value hierarchy levels. There were no reclassifications for all periods presented.

The estimated fair value of warrants accounted for as liabilities, representing a level 3 fair value measure, was determined on the issuance date and subsequently marked to market at each financial reporting date. We use the Black-Scholes valuation model to value the warrant liabilities at fair value. Beginning in 2013, we estimated the fair value using the expected volatility based on our historical volatility for warrants. The warrants below, however, which expire in 2017, were issued prior to 2013, and used the historical volatilities of comparable companies from a representative peer group selected based on industry and market capitalization in estimating fair value. The fair value of these warrants was determined using probability weighted-average assumptions, and the following inputs were used at December 31, 2016:

 

		Expected Volatility				Risk-Free Interest Rate				Expected Life
Warrants with one year or less remaining term			60.81	%			0.51	%			0.2 year

A roll-forward of fair value measurements using significant unobservable inputs (Level 3) for the warrants is as follows (in thousands):

 

		Year ended December 31, 2016
Balance January 1, 2016		$	649
Settlements from exercise			(202	)
Expense for the period			557
Balance December 31, 2016		$	1,004

Financing Arrangements

We lease office and laboratory space under operating leases. The lease for our corporate offices and laboratories began in 2000 and currently expires in March 2018, and we have the option to renew annually through 2019. Our rent is $267,000 per year and our rental rate has not changed since the lease inception in 2000. Also, we lease office and laboratory space for our Belgian subsidiary, which currently expires in July 2017 and includes options to renew annually through July 2022, with annual rent of approximately $172,000, subject to adjustments based on an inflationary index.

Aggregate rent expense was approximately $465,000, $467,000 and $517,000 in 2016, 2015 and 2014, respectively. The future annual minimum lease commitments at December 31, 2016 are approximately $371,000 for 2017, $86,000 for 2018 and $8,000 for 2019 .

In 2012, we entered into an arrangement with the Global Cardiovascular Innovation Center (“GCIC”), and the Cleveland Clinic Foundation in which we were entitled to proceeds of up to $500,000 in the form of a forgivable loan to fund certain preclinical work. Interest on the loan accrued at a fixed rate of 4.25% per annum and was added to the outstanding principal, and the loan carried an expiration date of March 31, 2016. In February 2016, the loan, which had a balance of $190,000, was forgiven according to its terms based on our achievement of certain milestones.

We paid no interest during the three years ended December 31, 2016.