5. Net income (loss) per share

The Company computes net income (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) ASC 260, Earnings per Share (“ASC topic 260”). Under ASC topic 260, securities that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities and should be included in the two-class method of computing earnings per share. The Company’s preferred stockholders are entitled to participate in dividends and earnings when, and if, dividends are declared on the common stock. As such, the Company calculates net income per share using the two-class method. The two-class method is an earnings formula that treats a participating security as having rights to dividends that otherwise would have been available to common and preferred stockholders based on their respective rights to receive dividends. Losses are not allocated to the preferred stockholders for computing net loss per share under the two-class method because the preferred stockholders do not have contractual obligations to share in the losses of the Company.

Basic earnings per share is calculated by dividing net income (loss), adjusted for amounts allocated to participating securities under the two-class method, if applicable, by the weighted average number of common stock outstanding during the period.

Diluted earnings per share is calculated by dividing net income (loss) by the weighted average number of shares of the Company’s common stock outstanding, assuming dilution, during the period. The diluted earnings per share calculation assumes (i) all stock options and warrants which are in the money are exercised at the beginning of the period and (ii) each issue or series of issues of potential common stock are considered in sequence from the most dilutive to the least dilutive. That is, dilutive potential common stock with the lowest “earnings add-back per incremental share” shall be included in dilutive earnings per share before those with higher earnings add back per incremental share. For this purpose potential dilutive common stock include the stock options, warrants and shares of preferred stock.

The following table sets forth the computation of basic and diluted net income (loss) per share:

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
*Numerator:*
Net income (loss)	$	304,691		$	(1,158,622	)	$	676,607		$	(371,475	)
Amounts allocated to participating preferred stockholders under the two-class method	(34,890		)	—			(77,477		)	—
Net income (loss) applicable to common stockholders (basic and diluted)	$	269,801		$	(1,158,622	)	$	599,130		$	(371,475	)
*Denominator:*
Weighted average common stock outstanding (basic)	52,832,451			52,035,014			52,805,938			51,906,425
Common equivalent shares from options and warrants to purchase common stock	1,738,025			—			1,867,034			—
Weighted average common stock outstanding (diluted) (1) (2)	54,570,476			52,035,014			54,672,972			51,906,425
Basic net income (loss) per share applicable to common stockholders	$	0.01		$	(0.02	)	$	0.01		$	(0.01	)
Diluted net income (loss) per share applicable to common stockholders (1) (2)	$	0.00		$	(0.02	)	$	0.01		$	(0.01	)

(1) In accordance with ASC 260-10-45-48 for the three and six months ended June 30, 2013 and 2012, the Company has excluded 915,000 contingently issued restricted shares from diluted weighted average common stock outstanding as the contingent compensation (a) have not been satisfied at the reporting date nor (b) would have been satisfied if the reporting date was at the end of the contingency period.

(2) In accordance with ASC 260-10-45-48 for the three and six months ended June 30, 2013, the Company has excluded 409,794 shares for both the three and six months ended June 30, 2013, which are contingently issued restricted shares from diluted weighted average common stock outstanding as the contingent compensation (a) have not been satisfied at the reporting date nor (b) would have been satisfied if the reporting date was at the end of the contingency period.

The following table sets forth the weighted average securities outstanding that have been excluded from the diluted net income (loss) per share calculation because the effect would have been anti-dilutive:

	Three months ended June 30,		Six months ended June 30,
	2013	2012	2013	2012
Stock options	3,532,291	9,055,113	2,592,282	8,369,738
Warrants	60,000	2,108,575	60,000	2,108,575
Convertible preferred stock(1)	6,851,144	6,851,144	6,851,144	6,851,144
Total anti-dilutive securities	10,443,435	18,014,832	9,503,426	17,329,457

(1) Diluted net income (loss) per share increases when convertible preferred stock is included in the required sequence in the diluted earnings per share computation. As such, convertible preferred stock is excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2013 and 2012.