(The first two paragraphs are obsolete, but the rest may be of interest to people who have exercised warrants.)
When we first sold stock, we issued warrants as a sweetener to encourage people to invest hard cash. These allow you to buy additional stock at $.10 a share, provided you do it by April 30, 1986. To exercise (buy the stock) you fill out the form that's attached to the warrant, write a check, and give both to the corporate Secretary (me). The company will issue a stock certificate as soon as possible.
You can, in principle, sell warrants to other people; but the restrictions are as bad as those on selling stock.
The only tax problem associated with warrants, as far as I can tell, is that you want to watch the capital gains rules. From now until 1989 (?) this means that you want to exercise the warrant at least six months before you sell the stock; then you pay income tax on 40% of the difference between the selling price and the $.10 that you paid for the stock. (Does the $.001 that you paid for the warrant come into this? I think so, but it doesn't make much difference.) If you sell for $5.00, this means taxable income of $0.40×(5.00-0.10) = $1.96; this tax will not exceed 50% of the taxable amount, or 20% of the total gain, or $.98, unless they change the rules again.
If your tax bracket is below 50%, you will pay even less than 20% on your capital gains-but it's just possible that you'll get caught by Alternative Minimum Tax (see below) and have to pay 20% anyway.
While you're waiting for the capital gains treatment to ripen on the stock you got for a warrant, you're free to sell stock that you bought before; just be very careful to turn in the right stock certificate and to keep proper records. (Well, actually, if you're an insider, this isn't quite true; but we'll get to 16(b) later.)
Editor: John Walker