2. Results of Operations

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of vested shares outstanding during the period. Diluted net income (loss) per share is computed by giving effect to all potential dilutive common securities, including options, warrants and common stock subject to repurchase.

Potential dilutive common shares includes the dilutive effect of the common stock underlying in-the-money stock options and was calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option and the average amount of compensation cost, if any, for future service that the Company has not yet recognized when the option is exercised, are assumed to be used to repurchase shares in the current period.

For the nine months ended September 30, 2012 and the three and nine months ended September 30, 2011, diluted net loss per share was identical to basic earnings per share (“EPS”) since potential common shares were excluded from the calculation, as their effect was anti-dilutive.

The computations for basic and diluted net income (loss) per share were as follows (in thousands):

Weighted average anti-dilutive securities

The following common equivalent shares were not included in the computation of diluted net income (loss) per share because their effect was anti-dilutive.

At September 30, 2012, there were 3,158,000 shares subject to options to purchase common stock outstanding and 156,000 shares subject to warrants to purchase common stock outstanding.

Comprehensive Income (Loss)

Comprehensive loss is comprised of net income (loss) and unrealized gains (losses) on available-for-sale securities. Total comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):