Earnings Per Share

9 Months Ended

Sep. 30, 2016

Note 5 – Earnings Per Share

The Company is required, in periods in which it has net income, to calculate basic earnings per share (“basic EPS”) using the two-class method. The two-class method is required because the Company’s Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares.

In periods in which the Company has a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The two-class method is not used in periods in which the Company has a net loss because the preferred stock does not participate in losses.

Stock options and other potential common shares are included in the calculation of diluted earnings per share (“diluted EPS”), since they are assumed to be exercised or converted, except when their effect would be anti-dilutive.

The table below shows the calculation of the shares used in computing diluted EPS.

	Three Months Ended September 30,				Nine Months Ended September 30,
Weighted Average Shares Calculation:	2016		2015		2016		2015
Basic weighted average shares outstanding		28,432,648		28,317,648		28,390,221		28,230,169
Treasury stock effect of common stock options and restricted stock awards		—		—		9,538		—
Diluted weighted average common shares outstanding		28,432,648		28,317,648		28,399,759		28,230,169

There were 1.9 million potential common shares not included in the computation of diluted EPS because they would have been anti-dilutive for the nine months ended September 30, 2016. No potential common shares were included for the three months ended September 30, 2016, nor the three and nine months ended September 30, 2015, as the Company generated a net loss. Therefore basic EPS was the same as diluted EPS during those respective periods.