Note 7 - Recapitalization

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note 7 – Recapitalization

During the second and third quarters of 2016, the Company executed a series of Exchange Agreements with the holders of a majority of its outstanding shares of preferred stock. Under the terms of the agreements and the redemption described below, each series of preferred stock was exchanged or redeemed for a combination of cash and shares of common stock, for the amounts set forth in the table below:

Series of Preferred Stock	Amount of Cash per Share		Number of Shares of Common Stock Per Share
Convertible Preferred Shares	$	0.165		1.95
Series B Shares	$	0.0825		2.43
Series C Shares	$	2.708		31.27
Series D Shares	$	0.36232		5.072464

The Company entered into a separate exchange agreement (the “SBA Exchange Agreement”) with the United States Small Business Administration (“SBA”), pursuant to which it agreed to pay $250,000 to the SBA in exchange for all shares of preferred stock, all 2,084,167 shares of common stock then owned by the SBA, and the 1,658,540 shares of common stock which would have been issuable to the SBA if it had participated in the Exchange Agreements on the same terms as the other holders of the Company’s preferred stock. In June 2016, the Company conducted closings under the Exchange Agreements and the SBA Exchange Agreement, pursuant to which it issued an aggregate of 4,427,498 shares of common stock and made aggregate cash payments of $509,664. During the three months ended September 30, 2016, the Company issued an aggregate of 400,041 shares of common stock and made aggregate cash payments of $13,582 in order to redeem 164,626 shares of Series B Preferred Stock. The Company anticipates that the redemption of the 44,345 remaining issued and outstanding Series B Preferred Shares and the 46,092 remaining issued and outstanding Series D Preferred Shares will be completed prior to the end of the Company’s current fiscal year.

The Company determined the difference between the fair value of the Company’s common stock and the cash paid to the holders of the preferred stock and the carrying amount of the preferred stock (net of issuance costs of $58,285) which amounted to $1,106,872 and added this amount to net income in the calculation of earnings per share (see Note 4 above). In addition, the discount upon exchange of the preferred stock (net of the related fees) was recorded in retained earnings since it represents a return from the preferred shareholders. The Company accounted for the purchase and subsequent retirement of the common stock from the SBA as the purchase of treasury stock and this was recorded based on the amount paid to repurchase its shares.

As a result of the approval of the recapitalization transactions and redemption, the Company has recorded the discount upon exchange of the preferred stock as of September 30, 2016 At September 30, 2016, the Company has recorded an extinguishment liability of $20,359 which represents the cash to be paid upon redemption of the remaining preferred stock.