Computation of Basic and Diluted Net Earnings Per Share

9 Months Ended

Sep. 30, 2014

Computation of Basic and Diluted Net Income Per Share [Abstract]

Computation of Basic and Diluted Net Earnings Per Share

Basic net earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted net earnings 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 methods, during the period. Potential common shares consist of common shares issuable upon the exercise of stock options, common shares issuable upon the exercise of warrants and common shares issuable upon conversion of convertible notes.  The following are the share amounts utilized to compute the basic and diluted net earnings per share for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,				Nine Months Ended  September 30,
	2014		2013		2014		2013
Basic Shares		9,028,733		8,900,574		8,986,146		8,874,252
Weighted average dilutive securities		2,070,375		1,685,638		2,268,894		1,435,481
Dilutive Shares		11,099,108		10,586,212		11,255,040		10,309,733

For the three and nine months ended September 30, 2013 and 2014, weighted average dilutive securities included dilutive options and the warrant and convertible note issued in connection with the acquisition of Autotropolis, Inc. and Cyber Ventures, Inc. (collectively referred to in this Quarterly Report on Form 10-Q as “Cyber”) described below.  

For the three and nine months ended September 30, 2014, 1.3 million and 1.1 million of potentially anti-dilutive shares of common stock have been excluded from the calculation of diluted net earnings per share, respectively.  For the three and nine months ended September 30, 2013, 1.1 million and 1.3 million of potentially anti-dilutive shares of common stock have been excluded from the calculation of diluted net earnings per share.

 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.  On June 7, 2012, the Board of Directors authorized the Company to repurchase an additional $2.0 million of Company common stock.  The Board of Directors approved an additional $1.0 million stock repurchase program on September 16, 2014.  As of September 30, 2014, the Company is authorized to repurchase up to $3.0 million in Company common stock.  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 would fund repurchases through the use of available cash. The Company began repurchasing its common stock on March 7, 2012.   No shares have been repurchased since 2012.  Shares repurchased in 2012 were cancelled by the Company and returned to authorized and unissued shares.

Warrants.  On September 17, 2010 (“Cyber Acquisition Date”), the Company acquired substantially all of the assets of 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 (“Cyber Warrant”). The Cyber Warrant was valued at $3.15 per share on the Cyber 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 Cyber Warrant was valued based on historical stock price volatilities of the Company and comparable public companies as of the Cyber Acquisition Date.  The exercise price of the Cyber Warrant is $4.65 per share (as adjusted for stock splits, stock dividends, combinations and other similar events).  The Cyber Warrant became exercisable on September 16, 2013 and expires on the eighth anniversary of the issuance date.   The Cyber Warrant had not been exercised as of September 30, 2014.

The AutoUSA Warrant issued in connection with the acquisition described in Note 4 was valued at $7.35 per share for a total value of $0.5 million.  The Company used an option pricing model to determine the value of the AutoUSA Warrant.  Key assumptions used in valuing the AutoUSA Warrant are as follows: risk-free rate of 1.6%, stock price volatility of 65.0% and a term of 5.0 years.  The AutoUSA Warrant was valued based on long-term stock price volatilities of the Company.  The exercise price of the AutoUSA Warrant is $14.30 per share (as adjusted for stock splits, stock dividends, combinations and other similar events).  The AutoUSA Warrant becomes exercisable on the third anniversary of the issuance date and expires on the fifth anniversary of the issuance date.  The right to exercise the AutoUSA Warrant is accelerated in the event of a change in control of the Company.