DERIVATIVE WARRANT LIABILITY

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

DERIVATIVE WARRANT LIABILITY

In August 2012, the Company and Platinum-Montaur Life Sciences, LLC (PM) entered into a Loan Agreement whereby PM agreed to provide a credit facility (CF) to the Company of up to $20,000,000 dependent on the achievement of certain clinical and regulatory milestones set forth in the Loan Agreement, with an initial available principal amount of $5,000,000 (the “Maximum Draw Amount”). The draws under the agreement bore interest at 10% per annum. In connection with the CF, the Company issued PM a warrant to purchase 400,000 shares of its Common Stock, with a term of five years and an exercise price of $20.00 per share (the “Commitment Warrant” or “CW”). The CW was valued at $4,840,000 and recorded as a deferred financing asset and a derivative warrant liability. The Loan Agreement called for each $1,000,000 of funds borrowed pursuant to the Credit Facility, the Company will would issue PM a warrant to purchase 100,000 shares of Common Stock, with a term of five years and an exercise price equal to 150% of the market price of the Common Stock at the time of the draw, but in no event less than $20.00 or more than $40.00 per share (together with the Commitment Warrant, the “Warrants”). All of the Warrants were immediately exercisable and had a term of five years from the issue date. Obligations under the CF were guaranteed by the Company’s subsidiary, Sontra Medical, Inc. The deferred financing cost was then amortized over the life of the CF. Over a three month period beginning in September 2012, three separate draws totaling $3,000,000 were taken under the CF and five year warrants to purchase 300,000 shares of Common Stock were issued at prices ranging from $21.10 to $22.70. The warrants were valued at $3,455,000, and accreted to interest expense over the life of the draws. The CF was terminated on October 30, 2014. $3,549,325 was charged to interest expense in 2014.

On February 12, 2015, the Company agreed to re-price the warrants to $7.50 per share in connection with the Reimbursement Agreement (see Note 8). The Company recorded a non-cash charge to legal expense for $328,000 representing the cost of re-pricing the Derivative Warrants.  As a result of having warrants to purchase 700,000 shares of our Common Stock at $7.50 outstanding, issued in connection with a 2012 Credit Facility (which was terminated in October 2014), we are required to record the changes in the value of these derivative warrants through their expirations in November 2017. The table below presents the changes in the derivative warrant liability, which is measured at fair value on a recurring basis and classified as Level 3 in fair value hierarchy:

	2015			2014
Derivative warrant liability as of January 1	$	208,155		$	1,119,155
Gain on revaluation		(81,155	)		(911,000	)
Derivative warrant liability as of September 30	$	127,000		$	208,155

None of the derivative warrants were exercised in 2015 or 2014 pursuant to cashless exercise provisions.