4. Computation of Basic and Diluted Net Income Per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the period, excluding any unvested restricted stock. Diluted net income per share is computed using the weighted average number of common shares, and if dilutive, potential common shares outstanding, as determined under the treasury stock and if-converted method, during the period. Potential common shares consist of unvested restricted stock, common shares issuable upon the exercise of stock options, common shares issuable upon the exercise of the Warrant described below and common shares issuable upon conversion of the Convertible Note described in Note 6 below.

The following are the share amounts utilized to compute the basic and diluted net income per share for the three and six months ended June 30, 2013 and 2012 (adjusted for the Reverse Stock Split):

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Basic shares:
Weighted average common shares outstanding	8,865,407	9,227,698	8,860,873	9,226,216
Weighted average common shares repurchased	-	(167,218)	-	(86,584)
Basic shares	8,865,407	9,060,480	8,860,873	9,139,632

Diluted Shares:
Basic Shares	8,865,407	9,060,480	8,860,873	9,139,632
Weighted average dilutive securities	267,770	215,414	243,436	247,408
Dilutive Shares	9,133,177	9,275,894	9,104,309	9,387,040

For the three and six months ended June 30, 2013 and June 30, 2012, weighted average dilutive securities included dilutive options.

For both the three and six months ended June 30, 2013, 2.5 million of potentially anti-dilutive shares of common stock have been excluded from the calculation of diluted net income per share, respectively. For both the three and six months ended June 30, 2012, 2.6 million anti-dilutive shares of common stock have been excluded from the calculation of diluted net income per share, respectively.

On February 13, 2012, the Company announced that the Board of Directors had approved a stock repurchase program that authorized the repurchase of up to $1.5 million of Company common stock. The Board of Directors authorized the Company to repurchase an additional $2.0 million of Company common stock on June 7, 2012. Under these repurchase programs, the Company may repurchase common stock from time to time on the open market or in private transactions. This authorization does not require the Company to purchase a specific number of shares, and the Board of Directors may suspend, modify or terminate the programs at any time. The Company will fund repurchases through the use of available cash. The Company began repurchasing its common stock on March 7, 2012. During the three and six months ended June 30, 2012, 333,823 and 379,811 shares were repurchased for an aggregate price of $1.2 million and $1.5 million, respectively.

AUTOBYTEL INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS – (continued)

The average price paid for all shares repurchased during the three and six months ended June 30, 2012 was $3.69 and $3.83, respectively. No shares were repurchased during the three and six months ended June 30, 2013. The shares repurchased in the three and six months ended June 30, 2012 were cancelled by the Company and returned to authorized and unissued shares.

Warrant. On September 17, 2010 ("Acquisition Date"), the Company acquired substantially all of the assets of privately-held Autotropolis, Inc., a Florida corporation, and Cyber Ventures, Inc., a Florida corporation (collectively, "Cyber"). In connection with the acquisition of Cyber, the Company issued to the sellers a warrant to purchase 400,000 shares of Company common stock ("Warrant"). The Warrant was valued at $3.15 per share on the Acquisition Date using an option pricing model with the following key assumptions: risk-free rate of 2.3 %, stock price volatility of 77.5 % and a term of 8.04 years. The Warrant was valued based on long-term volatilities of the Company and comparable public companies as of the Acquisition Date. The exercise price of the Warrant is $4.65 per share (as adjusted for stock splits, stock dividends, combinations and other similar events). The Warrant becomes exercisable on the third anniversary of the issuance date and expires on the eighth anniversary of the issuance date. The right to exercise the Warrant is accelerated in the event of a change in control of the Company.