##### 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 September 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-50989
 LOCAL.COM CORPORATION
  Delaware
    
    33-0849123(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 One Technology Drive, Building G
Irvine, CA 92618
 (949) 784-0800
 Not Applicable
 þ o
  Large accelerated filer o
    Accelerated filer o
    Non-accelerated filer þ
 o þ
 Number of shares outstanding at October 31, 2007:
    
    Common: 14,202,777Preferred:          0




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##### 



LOCAL.COM CORPORATION
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1.Financial Statements.Condensed Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended September
30, 2007 and 2006 (Unaudited)
    
    
    4Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months
ended
September 30, 2007 and 2006 (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007
and 2006 (Unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    16Item 3.Quantitative and Qualitative Disclosures About Market Risk.
    
    
    23Item 4T.Controls and Procedures.
    
    
    23PART II  OTHER INFORMATIONItem 1.Legal Proceedings.
    
    
    24Item 1A.Risk Factors.
    
    
    24Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    24Item 3.Defaults Upon Senior Securities.
    
    
    24Item 4.Submission of Matters to a Vote of Security Holders.
    
    
    24Item 5.Other Information.
    
    
    25Item 6.Exhibits
    
    
    26EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 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
  September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,114
    
    
    $
    3,264Restricted cash
    
    
    59
    
    
    
    41Marketable securities
    
    
    1,994
    
    
    
    1,972Accounts receivable, net of allowances of $10 and $9, respectively
    
    
    3,369
    
    
    
    2,091Prepaid expenses and other current assets
    
    
    220
    
    
    
    302Total current assets
    
    
    21,756
    
    
    
    7,670Property and equipment, net
    
    
    1,701
    
    
    
    2,028Intangible assets, net
    
    
    3,482
    
    
    
    2,813Goodwill
    
    
    13,224
    
    
    
    12,213Long-term restricted cash
    
    
    66
    
    
    
    125Deposits
    
    
    12
    
    
    
    42Total assets
    
    $
    40,241
    
    
    $
    24,891LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,926
    
    
    $
    2,851Accrued compensation
    
    
    427
    
    
    
    328Deferred rent
    
    
    343
    
    
    
    432Other accrued liabilities
    
    
    332
    
    
    
    374Notes payable
    
    
    
    
    
    
    63Deferred revenue
    
    
    206
    
    
    
    245Total liabilities, all current
    
    
    5,234
    
    
    
    4,293Commitments and contingenciesStockholders equity:Convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized;
none issued and outstanding for all periods presented
    
    
    
    
    
    
    Common stock, $0.00001 par value; 30,000,000 shares authorized;
14,181,805 and 9,297,502 issued and outstanding, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    81,578
    
    
    
    51,657Accumulated comprehensive loss
    
    
    (5
    )
    
    
    (27
    )Accumulated deficit
    
    
    (46,566
    )
    
    
    (31,032
    )Stockholders equity
    
    
    35,007
    
    
    
    20,598Total liabilities and stockholders equity
    
    $
    40,241
    
    
    $
    24,891
  3




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##### Table of Contents



LOCAL.COM CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    5,614
    
    
    $
    4,059
    
    
    $
    15,593
    
    
    $
    10,584Operating expenses:Search serving
    
    
    1,116
    
    
    
    1,126
    
    
    
    2,884
    
    
    
    4,087Sales and marketing
    
    
    5,298
    
    
    
    3,645
    
    
    
    14,698
    
    
    
    9,258General and administrative
    
    
    1,143
    
    
    
    1,295
    
    
    
    3,654
    
    
    
    4,647Research and development
    
    
    621
    
    
    
    643
    
    
    
    1,871
    
    
    
    2,212Amortization of intangibles
    
    
    315
    
    
    
    236
    
    
    
    796
    
    
    
    710Total operating expenses
    
    
    8,493
    
    
    
    6,945
    
    
    
    23,903
    
    
    
    20,914Operating loss
    
    
    (2,879
    )
    
    
    (2,886
    )
    
    
    (8,310
    )
    
    
    (10,330
    )Interest and other income (expense), net
    
    
    (6,418
    )
    
    
    54
    
    
    
    (7,224
    )
    
    
    242Loss before income taxes
    
    
    (9,297
    )
    
    
    (2,832
    )
    
    
    (15,534
    )
    
    
    (10,088
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2Net loss
    
    $
    (9,297
    )
    
    $
    (2,832
    )
    
    $
    (15,535
    )
    
    $
    (10,090
    )Per share data:Basic net loss per share
    
    $
    (0.71
    )
    
    $
    (0.31
    )
    
    $
    (1.47
    )
    
    $
    (1.09
    )Diluted net loss per share
    
    $
    (0.71
    )
    
    $
    (0.31
    )
    
    $
    (1.47
    )
    
    $
    (1.09
    )Basic weighted average shares outstanding
    
    
    13,106,117
    
    
    
    9,257,201
    
    
    
    10,590,686
    
    
    
    9,234,118Diluted weighted average shares outstanding
    
    
    13,106,117
    
    
    
    9,257,201
    
    
    
    10,590,686
    
    
    
    9,234,118
  4




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##### Table of Contents



LOCAL.COM CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
   Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (9,297
    )
    
    $
    (2,832
    )
    
    $
    (15,535
    )
    
    $
    (10,090
    )Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (5
    )Net unrealized gain (loss) on marketable securities
    
    
    11
    
    
    
    58
    
    
    
    22
    
    
    
    97Total comprehensive loss
    
    $
    (9,286
    )
    
    $
    (2,790
    )
    
    $
    (15,513
    )
    
    $
    (9,998
    )Supplemental comprehensive income (loss) information:Foreign currency translation adjustments arising during
period
    
    $
    
    
    
    $
    (15
    )
    
    $
    
    
    
    $
    (4
    )Reclassification adjustment for losses included in net loss
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Foreign currency translation adjustments
    
    $
    
    
    
    $
    (16
    )
    
    $
    
    
    
    $
    (5
    )Unrealized holding gains (losses) arising during period
    
    $
    11
    
    
    $
    73
    
    
    $
    22
    
    
    $
    133Reclassification adjustment for losses included in net loss
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (36
    )Net unrealized gain (loss) on marketable securities
    
    $
    11
    
    
    $
    58
    
    
    $
    22
    
    
    $
    97
  5




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##### Table of Contents



LOCAL.COM CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine months endedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (15,535
    )
    
    $
    (10,090
    )Adjustments to reconcile net loss to cash used in operating activities:Depreciation and amortization
    
    
    1,617
    
    
    
    1,649Provision for doubtful accounts
    
    
    9
    
    
    
    Non-cash stock based compensation
    
    
    1,207
    
    
    
    1,982Non-cash interest income
    
    
    
    
    
    
    (7
    )Non-cash interest expense
    
    
    6,679
    
    
    
    Realized loss on marketable securities
    
    
    
    
    
    
    36Realized loss on foreign exchange translation
    
    
    
    
    
    
    1Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,160
    )
    
    
    (1,773
    )Prepaid expenses and other
    
    
    112
    
    
    
    137Accounts payable and accrued liabilities
    
    
    906
    
    
    
    807Deferred revenue
    
    
    (39
    )
    
    
    (24
    )Net cash used in operating activities
    
    
    (6,204
    )
    
    
    (7,282
    )Cash flows from investing activities:Capital expenditures
    
    
    (495
    )
    
    
    (346
    )Proceeds from sales of marketable securities
    
    
    
    
    
    
    7,361Increase in restricted cash
    
    
    41
    
    
    
    10Proceeds from sale of property and equipment
    
    
    
    
    
    
    6Acquisition, net of cash returned
    
    
    (2,034
    )
    
    
    232Net cash (used in) provided by investing activities
    
    
    (2,488
    )
    
    
    7,263Cash flows from financing activities:Proceeds from issuance of senior secured convertible notes
    
    
    8,000
    
    
    
    Proceeds from issuance of common stock in a private placement
    
    
    12,963
    
    
    
    Proceeds from issuance of common stock from exercise of options
    
    
    324
    
    
    
    341Proceeds from issuance of common stock from exercise of warrants
    
    
    1,341
    
    
    
    77Proceeds from swing-sale profits
    
    
    5
    
    
    
    1Payment of financing related costs
    
    
    (1,028
    )
    
    
    (84
    )Payment of notes payable
    
    
    (63
    )
    
    
    (3
    )Net cash provided by financing activities
    
    
    21,542
    
    
    
    332Effect of currency changes on cash
    
    
    
    
    
    
    (5
    )Net increase in cash and cash equivalents
    
    
    12,850
    
    
    
    308Cash and cash equivalents, beginning of period
    
    
    3,264
    
    
    
    1,075Cash and cash equivalents, end of period
    
    $
    16,114
    
    
    $
    1,383Supplemental cash flow information:Interest paid
    
    $
    279
    
    
    $
    3Income taxes paid
    
    $
    1
    
    
    $
    2Non-cash investing and financing transactions:Debt discount related to issuance of senior secured convertible notes
    
    $
    6,221Conversion of senior secured convertible notes into common stock
    
    $
    8,000Warrants issued for financing costs
    
    $
    458Common stock issued for asset purchase
    
    $
    431
  6




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##### Table of Contents



LOCAL.COM CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1. Basis of presentation
   2. Significant accounting policies
 Principles of consolidation
  Intangible assets
      Goodwill
 Goodwill and Other Intangible Assets
 7




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Web site development costs and computer software developed for internal use
 Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use Accounting for Web Site Development Costs
 Stock-based compensation
 Share-Based Payment Accounting for Stock-Based Compensation
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Sales and marketing
    
    $
    151
    
    
    $
    96
    
    
    $
    364
    
    
    $
    467General and administrative
    
    
    168
    
    
    
    262
    
    
    
    661
    
    
    
    1,324Research and development
    
    
    51
    
    
    
    42
    
    
    
    183
    
    
    
    191Total stock-based compensation expense
    
    $
    370
    
    
    $
    400
    
    
    $
    1,208
    
    
    $
    1,982Basic and diluted net compensation
expense per share
    
    $
    0.03
    
    
    $
    0.04
    
    
    $
    0.11
    
    
    $
    0.21
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Risk-free interest rate
    
    
    4.77
    %
    
    
    4.85
    %
    
    
    4.77
    %
    
    
    4.72
    %Expected lives (in years)
    
    
    7.0
    
    
    
    7.0
    
    
    
    7.0
    
    
    
    6.1Expected dividend yield
    
    None
    
    None
    
    None
    
    NoneExpected volatility
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    122.62
    %
 Net income (loss) per share
 Earnings per Share
  8




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net loss
    
    $
    (9,297
    )
    
    $
    (2,832
    )
    
    $
    (15,535
    )
    
    $
    (10,090
    )Denominator:Denominator for basic
calculation weighted average
shares
    
    
    13,106
    
    
    
    9,257
    
    
    
    10,591
    
    
    
    9,234Dilutive common stock equivalents:Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted
calculation weighted average
shares
    
    
    13,106
    
    
    
    9,257
    
    
    
    10,591
    
    
    
    9,234Net loss per share:Basic net loss per share
    
    $
    (0.71
    )
    
    $
    (0.31
    )
    
    $
    (1.47
    )
    
    $
    (1.09
    )Diluted net loss per share
    
    $
    (0.71
    )
    
    $
    (0.31
    )
    
    $
    (1.47
    )
    
    $
    (1.09
    )
 New accounting pronouncements
 The Fair
Value Option for Financial Assets and Financial Liabilities
 9




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##### Table of Contents



3. Composition of certain balance sheet and statement of operations captions
  September 30,
    
    
    December 31,2007
    
    
    2006Furniture and fixtures
    
    $
    202
    
    
    $
    201Office equipment
    
    
    119
    
    
    
    91Computer equipment
    
    
    1,868
    
    
    
    1,750Computer software
    
    
    1,822
    
    
    
    1,473Leasehold improvements
    
    
    583
    
    
    
    5834,594
    
    
    
    4,098Less accumulated depreciation and amortization
    
    
    (2,893
    )
    
    
    (2,070
    )Property and equipment, net
    
    $
    1,701
    
    
    $
    2,028
  September 30,
    
    
    December 31,2007
    
    
    2006Developed technology
    
    $
    2,233
    
    
    
    2,233Non-compete agreements
    
    
    274
    
    
    
    261Purchased technology
    
    
    1,239
    
    
    
    1,239Patents
    
    
    431
    
    
    
    Customer-related
    
    
    1,020
    
    
    
    Domain name
    
    
    701
    
    
    
    7015,898
    
    
    
    4,434Less accumulated amortization
    
    
    (2,416
    )
    
    
    (1,621
    )Intangible assets, net
    
    $
    3,482
    
    
    $
    2,813
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest income
    
    $
    175
    
    
    $
    72
    
    
    $
    342
    
    
    $
    269Interest expense
    
    
    (526
    )
    
    
    (3
    )
    
    
    (887
    )
    
    
    (6
    )Interest expense  non-cash
    
    
    (6,067
    )
    
    
    
    
    
    
    (6,679
    )
    
    
    Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Realized loss on sale of marketable
securities
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (36
    )Interest and other income (expense), net
    
    $
    (6,418
    )
    
    $
    54
    
    
    $
    (7,224
    )
    
    $
    242
 10




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##### Table of Contents



4. Operating segment information
 Disclosures about Segments of an Enterprise and Related Information
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue by geographic region:United States
    
    $
    5,426
    
    
    $
    4,045
    
    
    $
    15,280
    
    
    $
    10,437Europe
    
    
    188
    
    
    
    14
    
    
    
    313
    
    
    
    147Total revenue
    
    $
    5,614
    
    
    $
    4,059
    
    
    $
    15,593
    
    
    $
    10,584
 5. Stock option plans
 1999 Plan
  2000 Plan
  2004 Plan
  11




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##### Table of Contents



2005 Plan
  2007 Plan
   Weighted
    
    
    AggregateAverage
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    (in thousands)Outstanding at December 31, 2007
    
    
    1,933,363
    
    
    $
    5.10Granted
    
    
    221,500
    
    
    
    5.35Exercised
    
    
    (81,711
    )
    
    
    3.95Cancelled
    
    
    (134,634
    )
    
    
    5.53Outstanding at September 30, 2007
    
    
    1,938,518
    
    
    $
    5.14
    
    
    $
    9,970Exercisable at September 30, 2007
    
    
    1,171,616
    
    
    $
    5.44
    
    
    $
    6,379
   12




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.40 - $1.00
    
    
    18,625
    
    
    
    0.3
    
    
    $
    0.40
    
    
    
    18,625
    
    
    $
    0.40$1.01 - $2.00
    
    
    165,000
    
    
    
    1.9
    
    
    $
    2.00
    
    
    
    165,000
    
    
    $
    2.00$2.01 - $3.00
    
    
    142,584
    
    
    
    4.6
    
    
    $
    2.25
    
    
    
    142,584
    
    
    $
    2.25$3.01 - $4.00
    
    
    775,398
    
    
    
    7.5
    
    
    $
    3.69
    
    
    
    334,376
    
    
    $
    3.81$4.01 - $5.00
    
    
    164,834
    
    
    
    8.4
    
    
    $
    4.28
    
    
    
    30,664
    
    
    $
    4.23$5.01 - $6.00
    
    
    133,459
    
    
    
    8.4
    
    
    $
    5.69
    
    
    
    89,843
    
    
    $
    5.72$6.01 - $7.00
    
    
    114,773
    
    
    
    8.1
    
    
    $
    6.38
    
    
    
    90,301
    
    
    $
    6.38$7.01 - $8.00
    
    
    190,112
    
    
    
    7.9
    
    
    $
    7.51
    
    
    
    126,955
    
    
    $
    7.54$8.01 - $10.00
    
    
    120,000
    
    
    
    8.6
    
    
    $
    8.76
    
    
    
    67,500
    
    
    $
    9.19$10.01 - $16.59
    
    
    113,733
    
    
    
    6.8
    
    
    $
    15.60
    
    
    
    105,768
    
    
    $
    15.591,938,518
    
    
    
    7.0
    
    
    $
    5.14
    
    
    
    1,171,616
    
    
    $
    5.44
 6. Warrants
  Weight AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2006
    
    
    1,043,664
    
    
    $
    9.11Issued
    
    
    2,810,070
    
    
    
    6.22Exercised
    
    
    (351,331
    )
    
    
    3.82Expired
    
    
    (3,125
    )
    
    
    4.00Outstanding at September 30, 2007
    
    
    3,499,278
    
    
    $
    7.33Exercisable at September 30, 2007
    
    
    2,424,532
    
    
    $
    6.77
  Warrants Outstanding
    
    
    Warrants ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$3.00 - $3.99
    
    
    185,250
    
    
    
    0.9
    
    
    $
    3.47
    
    
    
    185,250
    
    
    $
    3.47$4.00 - $4.99
    
    
    876,470
    
    
    
    4.4
    
    
    $
    4.36
    
    
    
    876,470
    
    
    $
    4.36$5.00 - $5.99
    
    
    867,662
    
    
    
    4.4
    
    
    $
    5.17
    
    
    
    867,662
    
    
    $
    5.17$7.00 - $7.99
    
    
    537,373
    
    
    
    4.8
    
    
    $
    7.89
    
    
    
    
    
    
    $
    $8.00 - $8.99
    
    
    15,000
    
    
    
    0.0
    
    
    $
    8.00
    
    
    
    15,000
    
    
    $
    8.00$9.00 - $9.99
    
    
    537,373
    
    
    
    4.8
    
    
    $
    9.26
    
    
    
    
    
    
    $
    $10.00 - $19.99
    
    
    315,750
    
    
    
    2.1
    
    
    $
    10.00
    
    
    
    315,750
    
    
    $
    10.00$20.00 - $25.53
    
    
    164,400
    
    
    
    2.3
    
    
    $
    25.53
    
    
    
    164,400
    
    
    $
    25.533,499,278
    
    
    
    4.0
    
    
    $
    6.69
    
    
    
    2,424,532
    
    
    $
    6.77
 13




---



##### Table of Contents



7. Senior secured convertible notes
    8. PremierGuide, Inc. acquisition
  Current assets
    
    $
    192Customer-related intangibles
    
    
    1,020Non-compete agreement
    
    
    13Goodwill
    
    
    1,011Liabilities assumed
    
    
    (139
    )Total purchase price
    
    $
    2,097
 Goodwill and Other Intangible Assets
 9. Private placement
  14




---



##### Table of Contents



15




---



##### 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 that involve risks, uncertainties
and assumptions. 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. 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, 2006 and for the year ended December 31, 2006 included in our Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 16, 2007.
 Overview
    16




---



##### Table of Contents



Results of Operations
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Search serving
    
    
    19.9
    
    
    
    27.8
    
    
    
    18.5
    
    
    
    38.6Sales and marketing
    
    
    94.4
    
    
    
    89.8
    
    
    
    94.3
    
    
    
    87.5General and administrative
    
    
    20.3
    
    
    
    31.9
    
    
    
    23.4
    
    
    
    43.9Research and development
    
    
    11.1
    
    
    
    15.8
    
    
    
    12.0
    
    
    
    20.9Amortization of intangibles
    
    
    5.6
    
    
    
    5.8
    
    
    
    5.1
    
    
    
    6.7Total operating expenses
    
    
    151.3
    
    
    
    171.1
    
    
    
    153.3
    
    
    
    197.6Operating loss
    
    
    (51.3
    )
    
    
    (71.1
    )
    
    
    (53.3
    )
    
    
    (97.6
    )Interest and other income
(expense), net
    
    
    (114.3
    )
    
    
    1.3
    
    
    
    (46.3
    )
    
    
    2.3Loss before income taxes
    
    
    (165.6
    )
    
    
    (69.8
    )
    
    
    (99.6
    )
    
    
    (95.3
    )Provision (benefit) for income taxes
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Net loss
    
    
    (165.6
    )%
    
    
    (69.8
    )%
    
    
    (99.6
    )%
    
    
    (95.3
    )%
 Revenue
  Three months ended September 30,
    
    
    Percent
    
    
    Nine months ended September 30,
    
    
    Percent2007
    
    
    (*)
    
    
    2006
    
    
    (*)
    
    
    change
    
    
    2007
    
    
    (*)
    
    
    2006
    
    
    (*)
    
    
    changeLocal domestic
    
    $
    4,804
    
    
    
    85.6
    %
    
    $
    2,743
    
    
    
    67.6
    %
    
    
    75.1
    %
    
    $
    12,900
    
    
    
    82.7
    %
    
    $
    5,428
    
    
    
    51.3
    %
    
    
    137.7
    %Local international
    
    
    188
    
    
    
    3.3
    %
    
    
    14
    
    
    
    0.3
    %
    
    
    1,242.9
    %
    
    
    313
    
    
    
    2.0
    %
    
    
    147
    
    
    
    1.4
    %
    
    
    1,129.3
    %Total local
    
    
    4,992
    
    
    
    88.9
    %
    
    
    2,757
    
    
    
    67.9
    %
    
    
    81.1
    %
    
    
    13,213
    
    
    
    84.7
    %
    
    
    5,575
    
    
    
    52.7
    %
    
    
    119.1
    %National
    
    
    622
    
    
    
    11.1
    %
    
    
    1,302
    
    
    
    32.1
    %
    
    
    (52.2
    )%
    
    
    2,380
    
    
    
    15.3
    %
    
    
    5,009
    
    
    
    47.3
    %
    
    
    (52.5
    )%Total revenue
    
    $
    5,614
    
    
    
    100.0
    %
    
    $
    4,059
    
    
    
    100.0
    %
    
    
    38.3
    %
    
    $
    15,593
    
    
    
    100.0
    %
    
    $
    10,584
    
    
    
    100.0
    %
    
    
    47.3
    %
 
 (*)
    
     Percent of total revenue.   17




---



##### Table of Contents



Percentage of total revenueThree months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,Customer
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Local Advertising Partner:Yahoo! Inc.
    
    
    45.6
    %
    
    
    45.6
    %
    
    
    47.4
    %
    
    
    37.5
    %Idearc Media Corp.
    
    
    15.0
    %
    
    
    4.3
    %
    
    
    14.2
    %
    
    
    3.3
    %National Advertising Partner:LookSmart, Ltd.
    
    
    0.8
    %
    
    
    12.9
    %
    
    
    1.5
    %
    
    
    17.1
    %
 Operating expenses :
  Three months ended September 30,
    
    
    Percent
    
    
    Nine months ended September 30,
    
    
    Percent2007
    
    
    (*)
    
    
    2006
    
    
    (*)
    
    
    change
    
    
    2007
    
    
    (*)
    
    
    2006
    
    
    (*)
    
    
    changeSearch serving
    
    $
    1,116
    
    
    
    19.9
    %
    
    $
    1,126
    
    
    
    27.8
    %
    
    
    (0.9
    )%
    
    $
    2,884
    
    
    
    18.5
    %
    
    $
    4,087
    
    
    
    38.6
    %
    
    
    (29.4
    )%Sales and marketing
    
    
    5,298
    
    
    
    94.4
    %
    
    
    3,645
    
    
    
    89.8
    %
    
    
    45.3
    %
    
    
    14,698
    
    
    
    94.3
    %
    
    
    9,258
    
    
    
    87.5
    %
    
    
    58.8
    %General and administrative
    
    
    1,143
    
    
    
    20.3
    %
    
    
    1,295
    
    
    
    31.9
    %
    
    
    (11.7
    )%
    
    
    3,654
    
    
    
    23.4
    %
    
    
    4,647
    
    
    
    43.9
    %
    
    
    (21.4
    )%Research and development
    
    
    621
    
    
    
    11.1
    %
    
    
    643
    
    
    
    15.8
    %
    
    
    (3.4
    )%
    
    
    1,871
    
    
    
    12.0
    %
    
    
    2,212
    
    
    
    20.9
    %
    
    
    (15.4
    )%Amortization of intangibles
    
    
    315
    
    
    
    5.6
    %
    
    
    236
    
    
    
    5.8
    %
    
    
    33.5
    %
    
    
    796
    
    
    
    5.1
    %
    
    
    710
    
    
    
    6.7
    %
    
    
    12.1
    %Total operating expenses
    
    $
    8,493
    
    
    
    151.3
    %
    
    $
    6,945
    
    
    
    171.1
    %
    
    
    22.3
    %
    
    $
    23,903
    
    
    
    153.3
    %
    
    $
    20,914
    
    
    
    197.6
    %
    
    
    14.3
    %
 
 (*)
    
     Percent of total revenue. Share-Based Payment, Accounting for Stock-Based Compensation
 18




---



##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Sales and marketing
    
    $
    151
    
    
    $
    96
    
    
    $
    364
    
    
    $
    467General and administrative
    
    
    168
    
    
    
    262
    
    
    
    661
    
    
    
    1,324Research and development
    
    
    51
    
    
    
    42
    
    
    
    183
    
    
    
    191Total stock-based compensation expense
    
    $
    370
    
    
    $
    400
    
    
    $
    1,208
    
    
    $
    1,982Basic and diluted net compensation
expense per share
    
    $
    0.03
    
    
    $
    0.04
    
    
    $
    0.11
    
    
    $
    0.21
 Search serving
   Sales and marketing
   General and administrative
   Research and development
  19




---



##### Table of Contents



Amortization of intangibles
  Interest and other income (expense), net
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest income
    
    $
    175
    
    
    $
    72
    
    
    $
    342
    
    
    $
    269Interest expense
    
    
    (526
    )
    
    
    (3
    )
    
    
    (887
    )
    
    
    (6
    )Interest expense  non-cash
    
    
    (6,067
    )
    
    
    
    
    
    
    (6,679
    )
    
    
    Gain on sale of fixed assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Realized loss on sale of marketable
securities
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (36
    )Interest and other income (expense), net
    
    $
    (6,418
    )
    
    $
    54
    
    
    $
    (7,224
    )
    
    $
    242
  Provision for income taxes
  20




---



##### Table of Contents



Liquidity and Capital Resources
  September 30,
    
    
    December 31,2007
    
    
    2006Cash and cash equivalents
    
    $
    16,114
    
    
    $
    3,264Marketable securities
    
    
    1,994
    
    
    
    1,972Total cash, cash equivalents and
marketable securities
    
    $
    18,108
    
    
    $
    5,236Working capital
    
    $
    16,585
    
    
    $
    3,377
  Nine months endedSeptember 30,2007
    
    2006Net cash used in operating activities
    
    $
    (6,204
    )
    
    $
    (7,282
    )Net cash (used in) provided by investing activities
    
    $
    (2,488
    )
    
    $
    7,263Net cash provided by financing activities
    
    $
    21,542
    
    
    $
    332
      21




---



##### Table of Contents



PremierGuide Acquisition
  Current assets
    
    $
    192Customer-related intangibles
    
    
    1,020Non-compete agreement
    
    
    13Goodwill
    
    
    1,011Liabilities assumed
    
    
    (139
    )Total purchase price
    
    $
    2,097
 Goodwill and Other Intangible Assets
 Senior secured convertible notes
    Private placement
   22




---



##### Table of Contents



Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  Interest Rate Risk
   
 Item 4T. Controls and Procedures
 Evaluation of Controls and Procedures
    Changes in Internal Control Over Financial Reporting
  23




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Election of Director
 FOR

    
    AGAINST

    
    ABSTAINHeath B. Clarke
    
    
    7,590,241
    
    
    
    0
    
    
    
    232,754
  Ratification of the appointment of Haskell & White, LLP as our independent registered accounting
firm for the fiscal year ending December 31, 2007
 FOR
    
    AGAINST
    
    ABSTAIN7,713,098
    
    90,536
    
    19,361
  24




---



##### Table of Contents



Approval of the 2007 Equity Incentive Plan
 FOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTES984,339
    
    405,932
    
    52,756
    
    6,379,968
  
 Item 5. Other Information.
  25




---



##### Table of Contents



Item 6. Exhibits.
 ExhibitNumber
    
    Description2.1 (1)
    
    Agreement and Plan of Merger by and among Local.com Corporation,
Local.com PG Acquisition Corporation, PremierGuide, Inc. and
Malcolm Lewis dated July 18, 2007.4.1 (2)
    
    Securities Purchase Agreement dated July 31, 2007 by and among
the Registrant and the investors listed on the Schedule of
Buyers attached to the Securities Purchase Agreement.4.2 (2)
    
    Registration Rights Agreement dated July 31, 2007 by and among
the Registrant and the investors listed on the Schedule of
Buyers attached to the Securities Purchase Agreement filed as
Exhibit 4.1 hereto.4.3 (2)
    
    Form of Series [A] [B] Warrant.4.4 (3)
    
    Purchase Agreement dated February 22, 2007 by and among the
Registrant, Hearst Communication Inc., SRB Greenway Capital,
L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway Offshore
Operating Fund, L.P.4.5 (4)
    
    Amendment No. 1 to Purchase Agreement dated March 29, 2007 by
and among Registrant, Hearst Communication Inc., SRB Greenway
Capital, L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway
Offshore Operating Fund, L.P.4.6 (2)
    
    Consent to Equity Sales dated July 31, 2007 made and delivered
by SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P.,
SRB Greenway Offshore Operating Fund, L.P. to and for the
benefit of the Registrant.4.7 (2)
    
    Consent to Equity Sales dated July 31, 2007 made and delivered
by Hearst Communications, Inc. to and for the benefit of the
Registrant.4.8 (5)#
    
    2007 Equity Incentive Plan.10.1 (6)+
    
    Amendment No. 3 to Yahoo! Publisher Network Agreement dated
August 28, 2007 by and among the Registrant and Overture
Services, Inc.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
200231.2*
    
    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
200232.1*
    
    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.+
    
    Application has been made with the Securities and Exchange Commission
to seek confidential treatment of certain provisions. Omitted material
for which confidential treatment has been requested has been filed
separately with the Securities and Exchange Commission.(1)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on July 20, 2007.(2)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on August 1, 2007.(3)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 26, 2007.(4)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 4, 2007.(5)
    
    Incorporated by reference from the Registrants definitive proxy statement on Schedule 14A
filed with the Securities and Exchange Commission on July 3, 2007.(6)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 1, 2007. 
 26




---



##### Table of Contents



LOCAL.COM CORPORATIONNovember 5, 2007
    /s/ Heath B. ClarkeDate
    Heath B. ClarkeChief Executive Officer (principal executive
officer) and Chairman/s/ Douglas S. NormanDouglas S. NormanChief Financial Officer (principal financial
accounting officer) and Secretary 27




---



##### Table of Contents



EXHIBITS ATTACHED TO THIS REPORT
 ExhibitNumber
    
    Description2.1 (1)
    
    Agreement and Plan of Merger by and among Local.com Corporation,
Local.com PG Acquisition Corporation, PremierGuide, Inc. and
Malcolm Lewis dated July 18, 2007.4.1 (2)
    
    Securities Purchase Agreement dated July 31, 2007 by and among
the Registrant and the investors listed on the Schedule of
Buyers attached to the Securities Purchase Agreement.4.2 (2)
    
    Registration Rights Agreement dated July 31, 2007 by and among
the Registrant and the investors listed on the Schedule of
Buyers attached to the Securities Purchase Agreement filed as
Exhibit 4.1 hereto.4.3 (2)
    
    Form of Series [A] [B] Warrant.4.4 (3)
    
    Purchase Agreement dated February 22, 2007 by and among the
Registrant, Hearst Communication Inc., SRB Greenway Capital,
L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway Offshore
Operating Fund, L.P.4.5 (4)
    
    Amendment No. 1 to Purchase Agreement dated March 29, 2007 by
and among Registrant, Hearst Communication Inc., SRB Greenway
Capital, L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway
Offshore Operating Fund, L.P.4.6 (2)
    
    Consent to Equity Sales dated July 31, 2007 made and delivered
by SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P.,
SRB Greenway Offshore Operating Fund, L.P. to and for the
benefit of the Registrant.4.7 (2)
    
    Consent to Equity Sales dated July 31, 2007 made and delivered
by Hearst Communications, Inc. to and for the benefit of the
Registrant.4.8 (5)#
    
    2007 Equity Incentive Plan.10.1 (6)+
    
    Amendment No. 3 to Yahoo! Publisher Network Agreement dated
August 28, 2007 by and among the Registrant and Overture
Services, Inc.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
200231.2*
    
    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
200232.1*
    
    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.+
    
    Application has been made with the Securities and Exchange Commission
to seek confidential treatment of certain provisions. Omitted material
for which confidential treatment has been requested has been filed
separately with the Securities and Exchange Commission.(1)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on July 20, 2007.(2)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on August 1, 2007.(3)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 26, 2007.(4)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 4, 2007.(5)
    
    Incorporated by reference from the Registrants definitive proxy statement on Schedule 14A
filed with the Securities and Exchange Commission on July 3, 2007.(6)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 1, 2007. 28