Quarterly report pursuant to Section 13 or 15(d)

Common stock warrants

v3.4.0.3
Common stock warrants
3 Months Ended
Mar. 31, 2016
Common stock warrants:  
Common stock warrants

Note 9 - Common stock warrants

 

The Company's Plan of Reorganization, which was approved by the United States Bankruptcy Court for the Northern District of California on January 11, 2000, provided for the creditors and claimants to receive new warrants in settlement of their claims. The warrants expire May 11, 2038.

 

Each warrant is callable by the Company if the share price exceeds the exercise price by the lesser of $1 or 100%. The warrant holders have a minimum of 30 calendar days during which to exercise their warrants once they are called. The Company may lower the exercise price of all or part of a warrant series at any time. Similarly, the Company could, but does not anticipate, reverse splitting the stock to raise the stock price above the warrant exercise price. The warrants are specifically not affected and do not split with the shares in the event of a reverse split. If the called warrants are not exercised, the Company has the right to designate the warrants to a new holder in return for a $0.10 per share redemption fee payable to the original warrant holders as discussed further in Note 10.All such changes in the exercise price of Series A, B, C and D warrants were provided for by the court in the Plan of Reorganization in order to provide a mechanism for all debtors to receive value even if they could not or did not exercise their warrant. Therefore, Management believes that the act of lowering the exercise price is not a change from the original warrant grants and the Company has not recorded an accounting impact as the result of such change in exercise prices.

 

All Series A and Series C warrants were exercised by December 31, 2014.Exercise prices in effect at January 1, 2015 and through March 31, 2016 for Series B and Series D warrants are as follow:

 

Series B

Series D

January 1, 2015

 

$ 0.11

 

$ 1.60

 

At November 8, 2009, the Company entered into an Investment Banking agreement with Network One Securities, LLC and a related Strategic Advisory Agreement with Lenox Hill Partners, LP with regard to a potential merger with a cancer development company. In conjunction with those related agreements, the Company issued 81,699 Series E ($1) Warrants, 369,037 Series F ($3) Warrants, 85,579 Series G ($0.65) Warrants and 689,159 Series H ($7) Warrants, all with a 30 year life. The warrants are subject to cashless exercise based upon the ten day trailing closing bid price preceding the exercise as interpreted by the Company. The fair value of the warrants issued under the agreements was estimated on the date of the issuance using the Black-Scholes option pricing model. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of the Company’s stock price. The average expected life is based on the contractual term of the warrant and expected exercise behavior. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The Series E, Series F and Series G warrants were exercised during 2014.

 

The following table provides the assumptions used to value the options granted and warrants issued using the Black-Scholes option pricing model:

 

Series E

Series F

and G

and H

Stock price volatility

111.60%

111.60%

Risk-free rate of return

4.26%

4.26%

Annual dividend yield

0.00%

0.00%

Expected life (in years)

0.5

3.0

 

As of March 31, 2016 and December 31, 2015 the weighted average contractual life for all Mentor warrants was 22.2 years and 22.4 years, respectively, and the weighted average outstanding warrant exercise price was $1.89 and $1.88 per share, respectively.

 

During the three months ended March 31, 2016 and 2015, a total of 395,000 and 1,187,847 warrants were exercised, respectively. There were no warrants issued during the periods ended March 31, 2016 and 2015.The intrinsic value of outstanding warrants at March 331, 2016 and 2015 was $1,710 and $2,835, respectively.

 

The following table summarizes Series B and Series D common stock warrants as of each period:

 

 

 

Series B

 

Series D

 

B, D

Total

Warrants

Outstanding at December 31, 2014

 

4,500

 

14,504,766

 

14,509,266

  Issued

 

-

 

-

 

-

  Exercised

 

-

 

(1,795,030)

 

(1,795,030)

Outstanding at December 31, 2015

 

4,500

 

12,709,736

 

12,714,236

  Issued

 

-

 

-

 

-

  Exercised

 

-

 

(395,000)

 

(395,000)

Outstanding at March 31, 2016

 

4,500

 

12,314,736

 

12,319,236

 

Series E, F, G and H warrants were issued for investment banking and advisory services during 2009.Series E, F and G warrants were exercised in 2014.The following table summarizes H warrants as of each period:

 

 

 

Series H

$7.00

exercise price

Outstanding at December 31, 2014

 

689,159

  Issued

 

-

  Exercised

 

-

Outstanding at December 31, 2015

 

689,159

  Issued

 

-

  Exercised

 

-

Outstanding at March 31, 2016

 

689,159

 

On February 9, 2015, in accordance with the authorizing section 1145 reorganization court order, the Company announced a minimum 30 day partial redemption of up to 1% (approximately 140,000) of the already outstanding series D warrants to provide for the court specified redemption mechanism for warrants not exercised timely by the original holder or their estates. Company designees that apply during the 30 days must pay 10 cents to redeem the warrant and then exercise the series D warrant to purchase a share at the court specified formula of one-half of the closing bid price on the day preceding the 30 day exercise period, plus the 10 cent fee. In successive months, the 1% partial redemption authorization has been recalculated and repeated according to the court formula at an average exercise price of $0.262 thru March 31, 2016.The partial redemptions will continue to be recalculated and repeated until such unexercised warrants are exhausted or the partial redemption is otherwise truncated by the Company.