##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-34197
 
 LOCAL.COM CORPORATION
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    33-0849123
(I.R.S. Employer
Identification Number)
 One Technology Drive, Building G
Irvine, CA 92618
 (949) 784-0800
 
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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##### 



LOCAL.COM CORPORATION
  
 Table of Contents
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets
As of June 30, 2010 (Unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2010 and 2009 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2010 and 2009 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4T.
    
    Controls and Procedures
    
    
    25PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Removed and Reserved
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    27Signatures
    
    
    29Index to Exhibits
    
    
    30EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 LOCAL.COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash
equivalents
    
    $
    15,049
    
    
    $
    10,080Restricted cash
    
    
    35
    
    
    
    35Accounts receivable, net of allowances of $263 and $205, respectively
    
    
    15,776
    
    
    
    8,792Prepaid expenses and other current assets
    
    
    571
    
    
    
    439Total current assets
    
    
    31,431
    
    
    
    19,346Property and equipment, net
    
    
    3,480
    
    
    
    2,270Goodwill
    
    
    13,231
    
    
    
    13,231Intangible assets, net
    
    
    7,609
    
    
    
    6,406Deposits
    
    
    46
    
    
    
    Total assets
    
    $
    55,797
    
    
    $
    41,253LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,455
    
    
    $
    8,891Accrued compensation
    
    
    1,921
    
    
    
    1,112Deferred rent
    
    
    
    
    
    
    69Warrant liability
    
    
    3,664
    
    
    
    3,727Other accrued liabilities
    
    
    753
    
    
    
    876Revolving line of credit
    
    
    3,000
    
    
    
    3,000Deferred revenue
    
    
    663
    
    
    
    633Total liabilities, all current
    
    
    21,456
    
    
    
    18,308Commitments and contingenciesStockholders equity:Convertible preferred stock, $0.00001 par value; 10,000 shares authorized;
none issued and outstanding for all periods presented
    
    
    
    
    
    
    Common stock, $0.00001 par value; 65,000 shares authorized; issued and
outstanding 16,562 and 14,523, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    92,000
    
    
    
    81,968Accumulated deficit
    
    
    (57,659
    )
    
    
    (59,023
    )Stockholders equity
    
    
    34,341
    
    
    
    22,945Total liabilities and stockholders equity
    
    $
    55,797
    
    
    $
    41,253
  3




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##### Table of Contents



LOCAL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    
    
    
    
    20092010
    
    
    (As restated)
    
    
    2010
    
    
    (As restated)Revenue
    
    $
    23,004
    
    
    $
    13,726
    
    
    $
    41,635
    
    
    $
    24,790Operating Expenses:Cost of revenues
    
    
    13,176
    
    
    
    7,734
    
    
    
    23,978
    
    
    
    15,258Sales and marketing
    
    
    3,945
    
    
    
    2,996
    
    
    
    7,043
    
    
    
    6,076General and administrative
    
    
    2,209
    
    
    
    1,871
    
    
    
    4,123
    
    
    
    3,978Research and development
    
    
    1,142
    
    
    
    735
    
    
    
    2,254
    
    
    
    1,591Amortization of intangibles
    
    
    1,454
    
    
    
    724
    
    
    
    2,684
    
    
    
    1,079Total operating expenses
    
    
    21,926
    
    
    
    14,060
    
    
    
    40,082
    
    
    
    27,982Operating income (loss)
    
    
    1,078
    
    
    
    (334
    )
    
    
    1,553
    
    
    
    (3,192
    )Interest and other income (expense), net
    
    
    (61
    )
    
    
    1
    
    
    
    (117
    )
    
    
    4Change in fair value of warrant liability
    
    
    335
    
    
    
    (723
    )
    
    
    63
    
    
    
    (1,233
    )Income (loss) before income taxes
    
    
    1,352
    
    
    
    (1,056
    )
    
    
    1,499
    
    
    
    (4,421
    )Provision for income taxes
    
    
    122
    
    
    
    
    
    
    
    135
    
    
    
    1Net income (loss)
    
    $
    1,230
    
    
    $
    (1,056
    )
    
    $
    1,364
    
    
    $
    (4,422
    )Per share data:Basic net income (loss) per share
    
    $
    0.08
    
    
    $
    (0.07
    )
    
    $
    0.09
    
    
    $
    (0.31
    )Diluted net income (loss) per share
    
    $
    0.07
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    (0.31
    )Basic weighted average shares outstanding
    
    
    15,989
    
    
    
    14,332
    
    
    
    15,301
    
    
    
    14,382Diluted weighted average shares outstanding
    
    
    17,342
    
    
    
    14,332
    
    
    
    16,498
    
    
    
    14,382
  4




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##### Table of Contents



LOCAL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months Ended June 30,20092010
    
    
    (As restated)Cash flows from operating activities:Net income (loss)
    
    $
    1,364
    
    
    $
    (4,422
    )Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:Depreciation and amortization
    
    
    3,189
    
    
    
    1,391Provision for doubtful accounts
    
    
    85
    
    
    
    175Stock-based compensation expense
    
    
    1,284
    
    
    
    1,035Change in fair value of warrant liability
    
    
    (63
    )
    
    
    1,233Changes in operating assets and liabilities:Accounts receivable
    
    
    (7,069
    )
    
    
    (2,462
    )Prepaid expenses and other
    
    
    (132
    )
    
    
    136Other non-current assets
    
    
    (46
    )
    
    
    Accounts payable and accrued liabilities
    
    
    3,181
    
    
    
    2,559Deferred revenue
    
    
    30
    
    
    
    153Net cash provided by (used in) operating activities
    
    
    1,823
    
    
    
    (202
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,715
    )
    
    
    (616
    )Increase in restricted cash
    
    
    
    
    
    
    (50
    )Purchases of intangible assets
    
    
    (3,887
    )
    
    
    (4,252
    )Net cash used in investing activities
    
    
    (5,602
    )
    
    
    (4,918
    )Cash flows from financing activities:Proceeds from issuance of common stock:Exercise of warrants
    
    
    6,974
    
    
    
    Exercise of options
    
    
    1,784
    
    
    
    40Repurchases of common stock
    
    
    
    
    
    
    (336
    )Payment of expiring revolving credit facility
    
    
    (3,000
    )
    
    
    Proceeds from new revolving credit facility
    
    
    3,000
    
    
    
    Payment of financing related costs
    
    
    (10
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    8,748
    
    
    
    (296
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,969
    
    
    
    (5,416
    )Cash and cash equivalents, beginning of year
    
    
    10,080
    
    
    
    12,142Cash and cash equivalents, end of year
    
    $
    15,049
    
    
    $
    6,726Supplemental cash flow information:Interest paid
    
    $
    381
    
    
    $
    2Income taxes paid
    
    $
    206
    
    
    $
    1
  5




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##### Table of Contents



LOCAL.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. The Company and Summary of Significant Accounting Policies
 Nature of operations
  Principles of consolidation and basis of presentation
     Use of estimates
  Fair Value of Financial Instruments
  6




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2. Purchases of customer-related intangible assets
    3. Intangible assets
  June 30, 2010
    
    
    December 31, 2009Gross
    
    
    
    
    
    
    Net
    
    
    Weighted
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    WeightedCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Average
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AverageAmount
    
    
    Amortization
    
    
    Amount
    
    
    Useful Life
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Useful Life(years)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (years)Developed technology
    
    $
    2,233
    
    
    $
    (2,233
    )
    
    $
    
    
    
    
    5
    
    
    $
    2,233
    
    
    $
    (2,159
    )
    
    $
    74
    
    
    
    5Customer-related
    
    
    11,678
    
    
    
    (4,770
    )
    
    
    6,908
    
    
    
    5
    
    
    
    7,792
    
    
    
    (2,226
    )
    
    
    5,566
    
    
    
    5Patents
    
    
    431
    
    
    
    (431
    )
    
    
    
    
    
    
    3
    
    
    
    431
    
    
    
    (366
    )
    
    
    65
    
    
    
    3Domain name  indefinite life
    
    
    701
    
    
    
    
    
    
    
    701
    
    
    
    
    
    
    
    701
    
    
    
    
    
    
    
    701$
    15,043
    
    
    $
    (7,434
    )
    
    $
    7,609
    
    
    
    
    
    
    $
    11,157
    
    
    $
    (4,751
    )
    
    $
    6,406
 4. Goodwill and Other Intangible Assets
  7




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5. Website development costs and computer software developed for internal use
   Three Months Ended June 30,
    
    Six Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Additional capitalized website development costs
    
    $
    737
    
    
    $
    413
    
    
    $
    949
    
    
    $
    540Amortization of capitalized website development costs
    
    $
    (115
    )
    
    $
    (88
    )
    
    $
    (229
    )
    
    $
    (148
    )
 6. Net income (loss) per share
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    
    
    
    
    20092010
    
    
    (As restated)
    
    
    2010
    
    
    (As restated)Numerator:Net income (loss)
    
    $
    1,230
    
    
    $
    (1,056
    )
    
    $
    1,364
    
    
    $
    (4,422
    )Denominator:Denominator for historical basic calculation weighted average shares
    
    
    15,989
    
    
    
    14,332
    
    
    
    15,301
    
    
    
    14,382Dilutive common stock equivalents:*Options
    
    
    1,263
    
    
    
    
    
    
    
    1,128
    
    
    
    Warrants
    
    
    90
    
    
    
    
    
    
    
    69
    
    
    
    Denominator for historical diluted calculation weighted average shares
    
    
    17,342
    
    
    
    14,332
    
    
    
    16,498
    
    
    
    14,382Net income (loss) per share:Historical basic net income (loss) per share
    
    $
    0.08
    
    
    $
    (0.07
    )
    
    $
    0.09
    
    
    $
    (0.31
    )Historical diluted net income (loss) per share
    
    $
    0.07
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    (0.31
    )
 
 *
    
    For the three and six months ended June 30, 2009, potentially dilutive securities,
which consist of options to purchase 3,693,992 shares of common stock at prices ranging from
$1.28 to $16.59 per share and warrants to purchase 3,339,745 shares of common stock at
prices ranging from $2.31 to $25.53 per share were not included in the computation of
diluted net income per share because such inclusion would be antidilutive. 8




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##### Table of Contents



7. Composition of certain balance sheet and statement of operations captions
  June 30,
    
    
    December 31,2010
    
    
    2009Furniture and fixtures
    
    $
    422
    
    
    $
    228Office equipment
    
    
    143
    
    
    
    139Computer equipment
    
    
    2,153
    
    
    
    2,026Computer software
    
    
    4,342
    
    
    
    3,023Leasehold improvements
    
    
    655
    
    
    
    5857,715
    
    
    
    6,001Less accumulated depreciation and amortization
    
    
    (4,235
    )
    
    
    (3,731
    )Property and equipment, net
    
    $
    3,480
    
    
    $
    2,270
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest income
    
    $
    6
    
    
    $
    3
    
    
    $
    12
    
    
    $
    8Interest expense
    
    
    (67
    )
    
    
    (2
    )
    
    
    (129
    )
    
    
    (4
    )Interest and other income (expense), net
    
    $
    (61
    )
    
    $
    1
    
    
    $
    (117
    )
    
    $
    4
 8. Credit facilities
      9




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##### Table of Contents



9. Operating information
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue by geographic region:United States
    
    $
    23,004
    
    
    $
    13,725
    
    
    $
    41,635
    
    
    $
    24,658Europe
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    132Total revenue
    
    $
    23,004
    
    
    $
    13,726
    
    
    $
    41,635
    
    
    $
    24,790Revenue by product:Pay-Per-Click (PPC)
    
    $
    17,601
    
    
    $
    10,753
    
    
    $
    32,398
    
    
    $
    20,014Local Promote and Website Hosting (Subscription)
    
    
    3,954
    
    
    
    2,323
    
    
    
    6,680
    
    
    
    3,616Banner Advertisement
    
    
    1,442
    
    
    
    634
    
    
    
    2,537
    
    
    
    1,122Local Connect (License)
    
    
    7
    
    
    
    16
    
    
    
    20
    
    
    
    38Total revenue
    
    $
    23,004
    
    
    $
    13,726
    
    
    $
    41,635
    
    
    $
    24,790
 10. Stock-based compensation
  Weighted
    
    
    AggregateAverage
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    (in thousands)Outstanding at December 31, 2009
    
    
    3,998,790
    
    
    $
    4.33Granted
    
    
    264,250
    
    
    
    7.51Exercised
    
    
    (560,428
    )
    
    
    3.50Cancelled
    
    
    (207,557
    )
    
    
    5.50Outstanding at June 30, 2010
    
    
    3,495,055
    
    
    $
    4.64
    
    
    $
    8,936Exercisable at June 30, 2010
    
    
    1,640,588
    
    
    $
    5.25
    
    
    $
    3,624
   10




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##### Table of Contents



Options OutstandingWeighted
    
    
    
    
    
    
    Options ExercisableAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.00 - $2.00
    
    
    622,473
    
    
    8.5 years
    
    $
    1.58
    
    
    
    195,222
    
    
    $
    1.55$2.01 - $3.00
    
    
    123,846
    
    
    8.3 years
    
    
    2.30
    
    
    
    30,709
    
    
    
    2.31$3.01 - $4.00
    
    
    657,686
    
    
    6.3 years
    
    
    3.66
    
    
    
    385,815
    
    
    
    3.78$4.01 - $5.00
    
    
    1,147,475
    
    
    7.1 years
    
    
    4.57
    
    
    
    525,025
    
    
    
    4.64$5.01 - $6.00
    
    
    278,333
    
    
    8.1 years
    
    
    5.56
    
    
    
    89,579
    
    
    
    5.80$6.01 - $7.00
    
    
    154,204
    
    
    7.6 years
    
    
    6.52
    
    
    
    71,452
    
    
    
    6.50$7.01 - $8.00
    
    
    221,862
    
    
    5.9 years
    
    
    7.49
    
    
    
    189,610
    
    
    
    7.51$8.01 - $9.00
    
    
    191,000
    
    
    8.4 years
    
    
    8.51
    
    
    
    55,000
    
    
    
    8.98$9.01 - $10.00
    
    
    15,000
    
    
    4.9 years
    
    
    9.90
    
    
    
    15,000
    
    
    
    9.90$10.01 - $16.59
    
    
    83,176
    
    
    3.9 years
    
    
    15.62
    
    
    
    83,176
    
    
    
    15.623,495,055
    
    
    7.3 years
    
    $
    4.64
    
    
    
    1,640,588
    
    
    $
    5.25
  Three Months Ended June 30,
    
    Six Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Risk-free interest rate
    
    
    2.43
    %
    
    
    2.42
    %
    
    
    2.69
    %
    
    
    2.25
    %Expected lives (in years)
    
    5.4 years
    
    7.0 years
    
    5.9 years
    
    7.0 yearsExpected dividend yield
    
    None
    
    None
    
    None
    
    NoneExpected volatility
    
    
    92.63
    %
    
    
    100.00
    %
    
    
    94.88
    %
    
    
    100.00
    %
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenues
    
    $
    65
    
    
    $
    4
    
    
    $
    85
    
    
    $
    8Sales and marketing
    
    
    161
    
    
    
    181
    
    
    
    318
    
    
    
    360General and administrative
    
    
    285
    
    
    
    296
    
    
    
    585
    
    
    
    532Research and development
    
    
    149
    
    
    
    68
    
    
    
    296
    
    
    
    135Total stock-based compensation expense
    
    $
    660
    
    
    $
    549
    
    
    $
    1,284
    
    
    $
    1,035Basic and diluted net stock-based compensation expense per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.07
 11. Stock repurchase program
  11




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12. Warrants
  WeightedAverageShares
    
    
    Exercise PriceOutstanding at December 31, 2009
    
    
    2,859,595
    
    
    $
    6.16Issued
    
    
    
    
    
    
    Exercised
    
    
    (1,525,573
    )
    
    
    4.65Expired
    
    
    
    
    
    
    Outstanding at June 30, 2010
    
    
    1,334,022
    
    
    $
    7.88Exercisable at June 30, 2010
    
    
    1,334,022
    
    
    $
    7.88
  Warrants Outstanding and ExercisableAverageRemaining
    
    
    WeightedContractual
    
    
    AverageRange of Exercise Price
    
    Shares
    
    
    Life
    
    
    Exercise Price$4.00 - $4.99
    
    
    129,638
    
    
    1.7 years
    
    $
    4.60$5.00 - $5.99
    
    
    129,638
    
    
    1.7 years
    
    
    5.41$7.00 - $7.99
    
    
    537,373
    
    
    2.6 years
    
    
    7.89$9.00 - $9.99
    
    
    537,373
    
    
    3.6 years
    
    
    9.261,334,022
    
    
    2.8 years
    
    $
    7.88
 13. Fair Value Measurement of Assets and Liabilities
  Quoted Prices inAs of
    
    
    Active Markets
    
    
    SignificantJune 30,
    
    
    for Identical
    
    
    UnobservableDescription
    
    2010
    
    
    Assets (Level 1)
    
    
    Inputs (Level 3)Assets:Cash and cash equivalents:Bank deposits and money market funds
    
    $
    15,049
    
    
    $
    15,049
    
    
    $
    Restricted cash
    
    
    35
    
    
    
    35
    
    
    
    Total financial assets
    
    $
    15,084
    
    
    $
    15,084
    
    
    $
    Liabilities:Warrant liability
    
    $
    3,664
    
    
    $
    
    
    
    $
    3,664
 12




---



##### Table of Contents



Quoted Prices inAs of
    
    
    Active Markets
    
    
    SignificantDecember 31,
    
    
    for Identical
    
    
    UnobservableDescription
    
    2009
    
    
    Assets (Level 1)
    
    
    Inputs (Level 3)Assets:Cash and cash equivalents:Bank deposits and money market funds
    
    $
    10,080
    
    
    $
    10,080
    
    
    $
    Restricted cash
    
    
    35
    
    
    
    35
    
    
    
    Total financial assets
    
    $
    10,115
    
    
    $
    10,115
    
    
    $
    Liabilities:Warrant liability
    
    $
    3,727
    
    
    $
    
    
    
    $
    3,727
   Exercise Price of Related Warrants$9.26
    
    $7.89Risk-free interest rate
    
    
    1.40
    %
    
    
    0.81
    %Expected lives (in years)
    
    3.6 years
    
    2.6 yearsExpected dividend yield
    
    None
    
    NoneExpected volatility
    
    
    91.20
    %
    
    
    77.67
    %
  Level 3Balance at December 31, 2009
    
    $
    3,727Change in fair value of warrant liability
    
    
    (63
    )Balance at June 30, 2010
    
    $
    3,664
  14. Restatement
  13




---



##### Table of Contents



15. Subsequent Events
 Simply Static, LLC Asset Purchase
   
    
    targeting and registration of geo-category based local website domains;
    
    small business and geo-category website creation, hosting and management;
    
    an ad exchange to manage the selection and deployment of ad inventory across all
Octane-controlled domains and websites; and
    
    a content marketplace to allow for the management of geo-category content written for
advertising customers or our directly owned portfolio properties.
      Stock Repurchase Program
  14




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Quarterly Report on Form 10-Q or certain information included or incorporated by reference in
this report, contains or may contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact,
are statements that could be deemed forward-looking statements within the meaning of the federal
securities laws. These statements relate to our future operations, prospects, potential products,
services, developments and business strategies. These statements can, in some cases, be identified
by the use of terms such as may, will, should, could, would, expect, plan,
anticipate, believe, estimate, predict, project, and potential or the negative of such
terms or other comparable terminology. In addition, important factors to consider in evaluating
such forward-looking statements include changes or developments in social, economic, market, legal
or regulatory circumstances, changes in our business or growth strategy or an inability to execute
our strategy due to changes in our industry or the economy generally, the emergence of new or
growing competitors, the actions or omissions of third parties, including customers, competitors
and governmental authorities, and various other factors, including those described or referred to
in Item 1A of Part II of this Quarterly Report. Should any one or more of these risks or
uncertainties materialize, or the underlying estimates or assumptions prove incorrect, our actual
results could differ materially from those expressed in the forward-looking statements and there
can be no assurance that the forward-looking statements contained in this report will in fact
occur.
 The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the attached condensed consolidated financial statements and related
notes thereto, and with the audited consolidated financial statements and related notes thereto as
of December 31, 2009 and for the year ended December 31, 2009 included in our Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 16, 2010.
 Overview
       15




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##### Table of Contents



Recent Developments
        Outlook for Our Business
   16




---



##### Table of Contents



Sources of Revenue
  
    
    click-throughs on sponsored listings;
    
    calls to cost-per-call advertiser listings;
    
    lead generation;
    
    banner ads;
    
    subscription advertiser listings; and
    
    subscription web hosting services.
 Operating Expenses
 Cost of Revenues
  Sales and Marketing
  General and Administrative
  Research and Development
  17




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##### Table of Contents



Critical Accounting Policies
  Revenue Recognition
   Allowance for Doubtful Accounts
   Stock Based Compensation
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenues
    
    $
    65
    
    
    $
    4
    
    
    $
    85
    
    
    $
    8Sales and marketing
    
    
    161
    
    
    
    181
    
    
    
    318
    
    
    
    360General and administrative
    
    
    285
    
    
    
    296
    
    
    
    585
    
    
    
    532Research and development
    
    
    149
    
    
    
    68
    
    
    
    296
    
    
    
    135Total stock-based compensation expense
    
    $
    660
    
    
    $
    549
    
    
    $
    1,284
    
    
    $
    1,035Basic and diluted net stock-based compensation expense per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.07
 18




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##### Table of Contents



Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    
    
    
    
    20092010
    
    (As restated)
    
    2010
    
    (As restated)Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Cost of revenues
    
    
    57.3
    
    
    
    56.3
    
    
    
    57.6
    
    
    
    61.5Sales and marketing
    
    
    17.1
    
    
    
    21.8
    
    
    
    16.9
    
    
    
    24.5General and administrative
    
    
    9.6
    
    
    
    13.6
    
    
    
    9.9
    
    
    
    16.0Research and development
    
    
    5.0
    
    
    
    5.4
    
    
    
    5.4
    
    
    
    6.4Amortization of intangibles
    
    
    6.3
    
    
    
    5.3
    
    
    
    6.4
    
    
    
    4.4Total operating expenses
    
    
    95.3
    
    
    
    102.4
    
    
    
    96.3
    
    
    
    112.9Operating income (loss)
    
    
    4.7
    
    
    
    (2.4
    )
    
    
    3.7
    
    
    
    (12.9
    )Interest and other income (expense), net
    
    
    (0.3
    )
    
    
    0.0
    
    
    
    (0.3
    )
    
    
    0.0Change in fair value of warrant liability
    
    
    1.5
    
    
    
    (5.3
    )
    
    
    0.2
    
    
    
    (5.0
    )Income (loss) before income taxes
    
    
    5.9
    
    
    
    (7.7
    )
    
    
    3.6
    
    
    
    (17.8
    )Provision for income taxes
    
    
    0.5
    
    
    
    
    
    
    
    0.3
    
    
    
    0.0Net income (loss)
    
    
    5.3
    %
    
    
    (7.7)
    %
    
    
    3.3
    %
    
    
    (17.8)
    %
 Three and six months ended June 30, 2010 and 2009
 Revenue (dollars in thousands:
 Three Months Ended June 30,
    
    
    Percent
    
    
    Six Months Ended June 30,
    
    
    Percent2010
    
    
    (*)
    
    
    2009
    
    
    (*)
    
    
    change
    
    
    2010
    
    
    (*)
    
    
    2009
    
    
    (*)
    
    
    changeOwned and operated
    
    $
    12,072
    
    
    
    52.5
    %
    
    $
    9,116
    
    
    
    66.4
    %
    
    
    32.4
    %
    
    $
    22,788
    
    
    
    54.7
    %
    
    $
    17,331
    
    
    
    69.9
    %
    
    
    31.5
    %Network
    
    
    6,980
    
    
    
    30.3
    %
    
    
    2,293
    
    
    
    16.7
    %
    
    
    204.4
    %
    
    
    12,169
    
    
    
    29.2
    %
    
    
    3,859
    
    
    
    15.6
    %
    
    
    215.3
    %Sales and advertiser services
    
    
    3,952
    
    
    
    17.2
    %
    
    
    2,317
    
    
    
    16.9
    %
    
    
    70.6
    %
    
    
    6,678
    
    
    
    16.0
    %
    
    
    3,600
    
    
    
    14.5
    %
    
    
    85.5
    %Total revenue
    
    $
    23,004
    
    
    
    100.0
    %
    
    $
    13,726
    
    
    
    100.0
    %
    
    
    67.6
    %
    
    $
    41,635
    
    
    
    100.0
    %
    
    $
    24,790
    
    
    
    100.0
    %
    
    
    68.0
    %
 
 (*) 
    
    Percent of total revenue     19




---



##### Table of Contents



Percentage of Total Revenue
    
    Percentage of Total RevenueThree Months Ended June 30,
    
    Six Months Ended June 30,Customer
    
    2010
    
    2009
    
    2010
    
    2009Yahoo! Inc.
    
    
    51.2
    %
    
    
    42.9
    %
    
    
    50.4
    %
    
    
    46.7
    %SuperMedia Inc.
    
    
    18.1
    %
    
    
    23.7
    %
    
    
    19.2
    %
    
    
    21.4
    %
 Operating expenses:
  Three Months Ended June 30,
    
    
    
    
    
    
    Six Months Ended June 30,Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    Total
    
    
    Percent
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    Percent2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    Change
    
    
    2010
    
    
    Revenue
    
    
    2009
    
    
    Revenue
    
    
    ChangeCost of revenues
    
    $
    13,176
    
    
    
    57.3
    %
    
    $
    7,734
    
    
    
    56.3
    %
    
    
    70.4
    %
    
    $
    23,978
    
    
    
    57.6
    %
    
    $
    15,258
    
    
    
    61.5
    %
    
    
    57.2
    %Sales and marketing
    
    
    3,945
    
    
    
    17.1
    %
    
    
    2,996
    
    
    
    21.8
    %
    
    
    31.7
    %
    
    
    7,043
    
    
    
    16.9
    %
    
    
    6,076
    
    
    
    24.5
    %
    
    
    15.9
    %General and administrative
    
    
    2,209
    
    
    
    9.6
    %
    
    
    1,871
    
    
    
    13.6
    %
    
    
    18.1
    %
    
    
    4,123
    
    
    
    9.9
    %
    
    
    3,978
    
    
    
    16.0
    %
    
    
    3.6
    %Research and development
    
    
    1,142
    
    
    
    5.0
    %
    
    
    735
    
    
    
    5.4
    %
    
    
    55.4
    %
    
    
    2,254
    
    
    
    5.4
    %
    
    
    1,591
    
    
    
    6.4
    %
    
    
    41.7
    %Amortization of intangibles
    
    
    1,454
    
    
    
    6.3
    %
    
    
    724
    
    
    
    5.3
    %
    
    
    100.8
    %
    
    
    2,684
    
    
    
    6.4
    %
    
    
    1,079
    
    
    
    4.4
    %
    
    
    148.7
    %Total operating expenses
    
    $
    21,926
    
    
    
    95.3
    %
    
    $
    14,060
    
    
    
    102.4
    %
    
    
    55.9
    %
    
    $
    40,082
    
    
    
    96.3
    %
    
    $
    27,982
    
    
    
    112.9
    %
    
    
    43.2
    %
 Cost of revenues
  Sales and marketing
  General and administrative
  Research and development
   Three Months Ended June 30,
    
    Six Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Research and development expense
    
    $
    1,142
    
    
    $
    735
    
    
    $
    2,254
    
    
    $
    1,591Capitalized website development costs
    
    $
    737
    
    
    $
    413
    
    
    $
    949
    
    
    $
    540Amortization of capitalized website development costs
    
    $
    (115
    )
    
    $
    (88
    )
    
    $
    (229
    )
    
    $
    (148
    )
 20




---



##### Table of Contents



Amortization of intangibles
  Interest and other income (expense), net
  Provision for income taxes
  Liquidity and Capital Resources
  June 30,
    
    
    December 31,2010
    
    
    2009Cash and cash equivalents
    
    $
    15,049
    
    
    $
    10,080Working capital
    
    $
    13,639
    
    
    $
    4,765
  Six Months Ended June 30,2010
    
    2009Net cash provided (used in) by operating activities
    
    $
    1,823
    
    
    $
    (202
    )Net cash used in investing activities
    
    
    (5,602
    )
    
    
    (4,918
    )Net cash provided by (used in) financing activities
    
    
    8,748
    
    
    
    (296
    )
     21




---



##### Table of Contents



Six Months Ended June 30,20092010
    
    
    (As restated)
    
    
    ChangeNet income (loss)
    
    $
    1,364
    
    
    $
    (4,422
    )
    
    $
    5,786Non-cash (1)
    
    
    4,495
    
    
    
    3,834
    
    
    
    661Subtotal
    
    
    5,859
    
    
    
    (588
    )
    
    
    6,447AR, AP and Other
    
    
    (4,036
    )
    
    
    386
    
    
    
    (4,422
    )Net cash provided by operations
    
    $
    1,823
    
    
    $
    (202
    )
    
    $
    2,025
 
 (1)
    
    Includes depreciation, amortization, change in fair value of warrant liability, non-cash
expense related to stock-based compensation and provision for doubtful accounts.    Credit facility
      22




---



##### Table of Contents



Shelf Registration Statement
  Stock repurchase program
  Subsequent events
 Simply Static, LLC Asset Purchase
   
    
    targeting and registration of geo-category based local website domains;
    
    small business and geo-category website creation, hosting and management;
    
    an ad exchange to manage the selection and deployment of ad inventory across all
Octane-controlled domains and websites; and
    
    a content marketplace to allow for the management of geo-category content written for
advertising customers or our directly owned portfolio properties.
  23




---



##### Table of Contents



Stock Repurchase Program
  Off-Balance Sheet Arrangements
  24




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
        Managements Report on Internal Control over Financial Reporting
  Internal
Control-Integrated Framework
 25




---



##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 GEOTAG Litigation
 www.local.com
 Other Litigation
  
 Item 1A. Risk Factors
  A patent infringement lawsuit has been filed against the company.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Removed and Reserved
 
 Item 5. Other Information
  26




---



##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description3.1 (1)
    
    Amended and Restated Certificate of Incorporation of the Registrant3.2 (2)
    
    Amendment to Restated Certificate of Incorporation of the Registrant3.2 (3)
    
    Amended and Restated Bylaws of the Registrant3.3 (4)
    
    Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into
Interchange Corporation3.4 (5)
    
    Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Local.com Corporation.4.1 (5)
    
    Preferred Stock Rights Agreement, dated as of October 15, 2008, by and between Local.com
Corporation and Computershare Trust Company, N.A., as Rights Agent (which includes the
form of Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Local.com Corporation as Exhibit A thereto, the form of
Rights Certificate as Exhibit B thereto, and the Stockholder Rights Plan, Summary of
Rights as Exhibit C thereto).10.1 (6)#
    
    Description of the Material Terms of the Companys Bonus Program as of January 27, 2010.10.2 (7)
    
    Second Amendment dated February 5, 2010 to Loan and Security Agreement dated June 26,
2009, by and among Registrant, Local.com PG Acquisition Corporation, and Square 1 Bank.10.3 (8)
    
    Asset Purchase Agreement by and among the Registrant and LaRoss Partners, LLC dated
February 12, 2010.10.4 (9)
    
    SuperMedia Superpages Advertising Distribution Agreement effective April 1, 2010 by and
among the Registrant and SuperMedia LLC.10.5 (10)
    
    Asset Purchase Agreement by and among the Registrant and Turner Consulting Group, LLC
dated April 20, 2010.10.6 (11)
    
    First Amendment to Lease by and among the Registrant and The Irvine Company LLC dated
April 21, 2010.10.7 (11)
    
    Second Amendment to Lease by and among the Registrant and The Irvine Company LLC dated
April 21, 2010.10.8 (11)#
    
    Description of the Material Terms of the Registrants Bonus Program as of April 23, 2010.10.9 (11)#
    
    Second Amended and Restated Employment Agreement by and between the Registrant and Heath
Clarke dated April 26, 2010.10.10 (11)#
    
    Second Amended and Restated Employment Agreement by and between the Registrant and
Stanley B. Crair dated April 26, 2010.10.11 (11)#
    
    Amended and Restated Employment Agreement by and between the Registrant and Brenda Agius
dated April 26, 2010.10.12 (11)#
    
    Amended and Restated Employment Agreement by and between the Registrant and Michael
Plonski dated April 26, 2010.10.13 (12)
    
    Asset Purchase Agreement by and among the Registrant and LaRoss Partners, LLC dated May
28, 2010.10.14 (13)
    
    Third Amendment dated June 9, 2010 to Loan and Security Agreement dated June 26, 2009,
by and among Registrant and Square 1 Bank.10.15 (14)
    
    Amendment No. 7 to Yahoo! Publisher Network Agreement dated June 8, 2010 by and among
the Registrant and Yahoo! Inc.10.16 (15)
    
    Loan and Security Agreement dated June 28, 2010, by and between Registrant and Silicon
Valley Bank.31.1*
    
    Certification of Principal Executive Officer Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Principal Financial Officer Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed herewith.#
    
    Indicates management contract or compensatory plan.(1)
    
    Incorporated by reference from the Registrants Statement on Form SB-2, Amendment No. 2,
filed with the Securities and Exchange Commission on September 16, 2004.(2)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on August 17, 2009 27




---



##### Table of Contents



(3)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on November 2, 2007.(4)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K/A, filed with the
Securities and Exchange Commission on November 2, 2006.(5)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on October 15, 2008.(6)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 1, 2010.(7)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 9, 2010.(8)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 16, 2010.(9)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 2, 2010.(10)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 22, 2010.(11)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 27, 2010.(12)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 1, 2010.(13)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 11, 2010.(14)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 11, 2010.(15)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on July 1, 2010. 28




---



##### Table of Contents



SIGNATURES
  LOCAL.COM CORPORATIONAugust 10, 2010
    /s/ Heath B. ClarkeDate
    Heath B. ClarkeChief Executive Officer
(principal executive officer) and ChairmanAugust 10, 2010
    /s/ Brenda AgiusDate
    Brenda AgiusChief Financial Officer (principal financial
and accounting officer) and Secretary 29




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1 (1)
    
    Amended and Restated Certificate of Incorporation of the Registrant3.2 (2)
    
    Amendment to Restated Certificate of Incorporation of the Registrant3.2 (3)
    
    Amended and Restated Bylaws of the Registrant3.3 (4)
    
    Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into
Interchange Corporation3.4 (5)
    
    Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Local.com Corporation.4.1 (5)
    
    Preferred Stock Rights Agreement, dated as of October 15, 2008, by and between Local.com
Corporation and Computershare Trust Company, N.A., as Rights Agent (which includes the
form of Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Local.com Corporation as Exhibit A thereto, the form of
Rights Certificate as Exhibit B thereto, and the Stockholder Rights Plan, Summary of
Rights as Exhibit C thereto).10.1 (6)#
    
    Description of the Material Terms of the Companys Bonus Program as of January 27, 2010.10.2 (7)
    
    Second Amendment dated February 5, 2010 to Loan and Security Agreement dated June 26,
2009, by and among Registrant, Local.com PG Acquisition Corporation, and Square 1 Bank.10.3 (8)
    
    Asset Purchase Agreement by and among the Registrant and LaRoss Partners, LLC dated
February 12, 2010.10.4 (9)
    
    SuperMedia Superpages Advertising Distribution Agreement effective April 1, 2010 by and
among the Registrant and SuperMedia LLC.10.5 (10)
    
    Asset Purchase Agreement by and among the Registrant and Turner Consulting Group, LLC
dated April 20, 2010.10.6 (11)
    
    First Amendment to Lease by and among the Registrant and The Irvine Company LLC dated
April 21, 2010.10.7 (11)
    
    Second Amendment to Lease by and among the Registrant and The Irvine Company LLC dated
April 21, 2010.10.8 (11)#
    
    Description of the Material Terms of the Registrants Bonus Program as of April 23, 2010.10.9 (11)#
    
    Second Amended and Restated Employment Agreement by and between the Registrant and Heath
Clarke dated April 26, 2010.10.10 (11)#
    
    Second Amended and Restated Employment Agreement by and between the Registrant and
Stanley B. Crair dated April 26, 2010.10.11 (11)#
    
    Amended and Restated Employment Agreement by and between the Registrant and Brenda Agius
dated April 26, 2010.10.12 (11)#
    
    Amended and Restated Employment Agreement by and between the Registrant and Michael
Plonski dated April 26, 2010.10.13 (12)
    
    Asset Purchase Agreement by and among the Registrant and LaRoss Partners, LLC dated May
28, 2010.10.14 (13)
    
    Third Amendment dated June 9, 2010 to Loan and Security Agreement dated June 26, 2009,
by and among Registrant and Square 1 Bank.10.15 (14)
    
    Amendment No. 7 to Yahoo! Publisher Network Agreement dated June 8, 2010 by and among
the Registrant and Yahoo! Inc.10.16 (15)
    
    Loan and Security Agreement dated June 28, 2010, by and between Registrant and Silicon
Valley Bank.31.1*
    
    Certification of Principal Executive Officer Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Principal Financial Officer Required by Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed herewith.#
    
    Indicates management contract or compensatory plan.(1)
    
    Incorporated by reference from the Registrants Statement on Form SB-2, Amendment No. 2,
filed with the Securities and Exchange Commission on September 16, 2004.(2)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on August 17, 2009 30




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(3)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on November 2, 2007.(4)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K/A, filed with the
Securities and Exchange Commission on November 2, 2006.(5)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on October 15, 2008.(6)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 1, 2010.(7)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 9, 2010.(8)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 16, 2010.(9)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 2, 2010.(10)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 22, 2010.(11)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 27, 2010.(12)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 1, 2010.(13)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 11, 2010.(14)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 11, 2010.(15)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on July 1, 2010. 31