9.  Shareholders’ equity

 

Common stock

 

In 2015, 23,300 shares were issued out of treasury as a result of the exercise of stock options and no warrants were exercised.  In 2014, 26,100 and 30,000 shares were issued as a result of the exercise of stock options and warrants, respectively (see below). 

 

No dividends were declared or paid in 2015 or 2014.  

 

Warrants

 

In connection with the subordinated promissory notes issued in December 2013 (see Note 5), the Company issued warrants to purchase 100,000 shares of the Company’s common stock. The warrants are exercisable during the period commencing six months after issuance and for three years from issuance, at an exercise price equal to $3.51 per share, namely, the closing market price of the Company’s common stock on the day prior to the closing date of the offering. The warrants expire in December 2016. During 2015, there were no warrants exercised.  During 2014, the Company received proceeds of $105,300 from the exercise of 30,000 warrants.

 

As of December 31, 2015, 70,000 warrants remain unexercised.

 

Stock options and Share-Based Incentive Plan

 

In March 2010, the Company's Board of Directors adopted the Arrhythmia Research Technology, Inc. 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan authorizes the issuance of an aggregate of 500,000 shares. The Company's 2001 Stock Option Plan (the "2001 Plan"), which expired in 2011, will continue to govern outstanding options but no further options will be granted under the 2001 Plan. The Company now has one plan providing the Company flexibility to award a mix of stock options, equity incentive grants, performance awards and other types of stock-based compensation to certain eligible employees, non-employee directors, or consultants and under which an aggregate of 500,000 shares have been reserved for such grants. The options granted have either six or ten year contractual terms that vest annually over a five-year term.

 

At December 31, 2015, there were options to acquire an aggregate of 184,500 shares outstanding; 15,000 from the 2001 Plan and 169,500 from the 2010 Plan. At December 31, 2015, there were 318,000 shares available for future grants under the 2010 Plan, after giving effect to shares which became available for reissuance due to expired or forfeited options.

 

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Common Stock using historical periods consistent with the expected term of the options. The expected term of options granted under the Company’s equity incentive plan, all of which qualify as “plain vanilla,” is based on the average of the contractual term and the vesting period as permitted under SEC Staff Accounting Bulletin Nos. 107 and 110. The risk-free rate is based on the yield of a U.S. Treasury security with a term consistent with the option.

 

During 2015 and 2014 there were 62,500 and 7,500 new option grants, respectively. The assumptions used to measure the fair value of option grants in 2015 and 2014 were as follows:

 

 

 

The following table sets forth the stock option transactions for the year ended December 31, 2015:

 

 

 

The total intrinsic value of options exercised during 2015 and 2014 were $60,197 and $80,800, respectively. For the years ended December 31, 2015 and 2014, share-based compensation expense related to stock options and the non-cash issuance of common stock amounted to $29,178 and $33,390, respectively, and is included in general and administrative expenses. As of December 31, 2015 and 2014, there was $134,160 and $86,896 of unrecognized compensation costs, respectively, related to non-vested share-based compensation arrangements granted under the stock option plan.  This cost is expected to be recognized over a weighted average period of 3.2 years. The weighted average grant date fair value of options issued in 2015 was $1.66.