7. Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the common shares issuable upon the exercise of stock options and warrants. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. Diluted income per share includes the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” method as applicable. At September 30, 2014, there were options and warrants to purchase 14,030,001 and 25,572,059 shares of common stock, respectively, outstanding which could potentially dilute future net income (loss) per share. At September 30, 2014 the Company also has outstanding convertible debt which is initially convertible into 15,982,800 shares of common stock that could potentially dilute future net income (loss) per share. The number of shares the convertible debt could be converted into could potentially increase under certain circumstances related to the market price of the Company’s common stock at the time of conversion. At September 30, 2013, there were options and warrants to purchase 10,320,001 and 6,119,864 shares of common stock, respectively, outstanding which could potentially dilute future net income (loss) per share. At September 30, 2013 the Company also had outstanding convertible debt which was initially convertible into 4,818,605 shares of common stock, which could potentially dilute future net income (loss) per share.

The numerator in dilutive income per share calculation for the three months ended September 30, 2014 gives effect to (i) add back of $242,789 of contractual interest expense under the Company’s convertible notes and the accretion of discount under the convertible notes (recorded as interest expense) and (ii) the elimination of the $312,036 net gain related to the change in the fair value of the derivative liability associated with the conversion option embedded in our convertible notes. The number of shares included in the presentation of diluted income per share for the three months ended September 30, 2014 includes (i) 1,028,430 prorated for the weighted average number of stock options with exercise prices that are less than the average share price of $0.19 per share for the three months ended September 30, 2014 and (ii) 15,982,000 for the number of common shares underlying the conversion option embedded in the Company’s convertible notes. There were no common stock purchase warrants with exercise prices less than the average share price of $0.19 for the three months ended September 30, 2014. As such, common stock purchase warrants were excluded from the computation of diluted income per share.

The adjustment for stock options was calculated using the treasury stock method and the adjustment for the conversion option embedded in the Company’s notes was calculated using the “if converted” method.

Basic and diluted net income (loss) per share was calculated as follows:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2014		2013			2014			2013
Net income (loss)	$	920,452	$	(466,021	)	$	(1,728,357	)	$	(1,656,987	)

Weighted average shares outstanding - basic		42,773,093		42,198,093			42,767,049			42,198,093
Dilutive effect of stock options and warrants		17,011,230		-			-			-
Weighted average shares outstanding - diluted		59,784,323		42,198,093			42,767,049			42,198,093

Net income (loss) per share - basic	$	0.02	$	(0.01	)	$	(0.04	)	$	(0.04	)
Net income (loss) per share - diluted	$	0.01	$	(0.01	)	$	(0.04	)	$	(0.04	)