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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For The Quarterly Period Ended March 31, 2010

OR



| ̈ | 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:
000-51032





Market Leader, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Washington                                                     |  | 91-1982679                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)
|                                                               | 
|11332 NE
122ndWay, Suite 200
Kirkland, WA                      |  | 98034                            
|(Address of principal executive offices)                       |  | (Zip Code)                       

(425)
952-5500

(Registrants telephone number, including area code)







(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                   |  |                           |  |  
|----------------------- |  | ------------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                 |  | Accelerated filer         |  |  ̈
|                        |  |                                                   | 
|Non-accelerated filer   |  |  ̈   (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

As of April 30, 2010, there were outstanding 24,596,508 shares of the registrants common stock, $0.001 par value, which is the
only class of common stock of the registrant.









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Market Leader, Inc.

FORM 10-Q

Index



|                                                                                                   |  |     
|-------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                   |  | Page
|PART I. FINANCIAL INFORMATION                                                                      |  |     
|Item 1. Condensed Consolidated Financial Statements (unaudited)                                    |  |     
|Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and
2009 |  | 3   
|Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009                   |  | 4   
|Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and
2009 |  | 5   
|Notes to Condensed Consolidated Financial Statements                                               |  | 6   
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations      |  | 11  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                 |  | 16  
|Item 4. Controls and Procedures                                                                    |  | 16  
|PART II. OTHER INFORMATION                                                                         |  |     
|Item 1. Legal Proceedings                                                                          |  | 17  
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                |  | 17  
|Item 6. Exhibits                                                                                   |  | 17  
|SIGNATURES                                                                                         |  | 18  



2



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PART I  FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

Market Leader, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)



|                                                                                                      |  |                             |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                      |  | Three months endedMarch 31, |       
|                                                                                                      |  | 2010                        |        |   | 2009 |  
|Revenues                                                                                              |  | $                           | 5,796  |   |      | $ | 6,529  |  
|Expenses:                                                                                             |  |                             |        |   |      |   |        |  
|Sales and marketing (1)                                                                               |  |                             | 4,922  |   |      |   | 4,742  |  
|Technology and product development (1)                                                                |  |                             | 1,365  |   |      |   | 1,407  |  
|General and administrative (1)                                                                        |  |                             | 1,713  |   |      |   | 1,969  |  
|Depreciation and amortization of property and equipment (2)                                           |  |                             | 664    |   |      |   | 803    |  
|Amortization of acquired intangible assets                                                            |  |                             | 479    |   |      |   | 482    |  
|                                                                                                      |  |                             |        |   |      |   |        |  
|Total expenses                                                                                        |  |                             | 9,143  |   |      |   | 9,403  |  
|                                                                                                      |  |                             |        |   |      |   |        |  
|Loss from operations                                                                                  |  |                             | (3,347 | ) |      |   | (2,874 | )
|Equity in loss of unconsolidated subsidiary                                                           |  |                             | (136   | ) |      |   | (94    | )
|Interest income and expense, net                                                                      |  |                             | 37     |   |      |   | 95     |  
|                                                                                                      |  |                             |        |   |      |   |        |  
|Loss before income tax expense                                                                        |  |                             | (3,446 | ) |      |   | (2,873 | )
|Income tax expense                                                                                    |  |                             | 3      |   |      |   | 2      |  
|                                                                                                      |  |                             |        |   |      |   |        |  
|Net loss                                                                                              |  | $                           | (3,449 | ) |      | $ | (2,875 | )
|                                                                                                      |  |                             |        |   |      |   |        |  
|Net loss per share  basic and diluted                                                                |  | $                           | (0.14  | ) |      | $ | (0.12  | )
|                                                                                                      |  |                             |        |   |      |   |        |  
|(1)    Stock-based compensation is included in the expense line items above in the following
amounts: |  |                             |        |   |      |   |        |  
|                                                                                                      |  |                            
|                                                                                                      |  | 2010                        |        |   | 2009 |  
|Sales and marketing                                                                                   |  | $                           | 132    |   |      | $ | 204    |  
|Technology and product development                                                                    |  |                             | 54     |   |      |   | 83     |  
|General and administrative                                                                            |  |                             | 310    |   |      |   | 424    |  
|                                                                                                      |  |                             |        |   |      |   |        |  
|                                                                                                      |  | $                           | 496    |   |      | $ | 711    |  
|                                                                                                      |  |                             |        |   |      |   |        |  
|(2)    Depreciation and amortization of property and equipment is allocated as
follows:               |  |                             |        |   |      |   |        |  
|                                                                                                      |  |                            
|                                                                                                      |  | 2010                        |        |   | 2009 |  
|Technology and product development                                                                    |  | $                           | 572    |   |      | $ | 615    |  
|General and administrative                                                                            |  |                             | 92     |   |      |   | 188    |  
|                                                                                                      |  |                             |        |   |      |   |        |  
|                                                                                                      |  | $                           | 664    |   |      | $ | 803    |  
|                                                                                                      |  |                             |        |   |      |   |        |  

See accompanying notes to condensed consolidated financial statements.



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Market Leader, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(unaudited)



|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                                  |  | March 31,2010 |         |   | December 31,2009 |  
|Assets                                                                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                                                                                   |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                         |  | $             | 24,877  |   |                  | $ | 25,434  |  
|Short-term investments                                                                                                                                                                                            |  |               | 24,108  |   |                  |   | 25,999  |  
|Trade accounts receivable, net of allowance of $20 and $29, respectively                                                                                                                                          |  |               | 31      |   |                  |   | 39      |  
|Prepaid expenses and other current assets                                                                                                                                                                         |  |               | 799     |   |                  |   | 918     |  
|Income tax receivable                                                                                                                                                                                             |  |               | 4,925   |   |                  |   | 4,920   |  
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                                                                              |  |               | 54,740  |   |                  |   | 57,310  |  
|Property and equipment, net of accumulated depreciation of $15,097 and $14,433, respectively                                                                                                                      |  |               | 4,431   |   |                  |   | 4,472   |  
|Acquired intangible assets, net of accumulated amortization of $6,906 and $6,427, respectively                                                                                                                    |  |               | 1,786   |   |                  |   | 2,265   |  
|Investment in unconsolidated subsidiary                                                                                                                                                                           |  |               | 204     |   |                  |   | 340     |  
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                      |  | $             | 61,161  |   |                  | $ | 64,387  |  
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|                                                                                                                                                                                                                  |  |              
|Liabilities and Shareholders Equity                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                                                                  |  | $             | 1,085   |   |                  | $ | 916     |  
|Accrued compensation and benefits                                                                                                                                                                                 |  |               | 1,400   |   |                  |   | 1,494   |  
|Accrued expenses and other current liabilities                                                                                                                                                                    |  |               | 673     |   |                  |   | 812     |  
|Deferred rent, current portion                                                                                                                                                                                    |  |               | 214     |   |                  |   | 214     |  
|Deferred revenue                                                                                                                                                                                                  |  |               | 387     |   |                  |   | 405     |  
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                                                         |  |               | 3,759   |   |                  |   | 3,841   |  
|Deferred rent, less current portion                                                                                                                                                                               |  |               | 709     |   |                  |   | 753     |  
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                                 |  |               | 4,468   |   |                  |   | 4,594   |  
|Shareholders equity:                                                                                                                                                                                             |  |               |         |   |                  |   |         |  
|Preferred stock, par value $0.001 per share, authorized 30,000,000 shares; none issued and outstanding at March 31, 2010 and
December 31, 2009, respectively                                                      |  |               |        |   |                  |   |        |  
|Common stock, par value $0.001 per share, stated at amounts paid in; authorized 120,000,000 shares; issued and outstanding
24,596,508 and 24,409,431 shares at March 31, 2010 and December 31, 2009, respectively |  |               | 70,569  |   |                  |   | 70,220  |  
|Accumulated deficit                                                                                                                                                                                               |  |               | (13,876 | ) |                  |   | (10,427 | )
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total shareholders equity                                                                                                                                                                                        |  |               | 56,693  |   |                  |   | 59,793  |  
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                        |  | $             | 61,161  |   |                  | $ | 64,387  |  
|                                                                                                                                                                                                                  |  |               |         |   |                  |   |         |  

See accompanying notes to condensed consolidated financial statements.



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Market Leader, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)



|                                                                            |  |                             |        |   |      |   |         |  
|--------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                            |  | Three months endedMarch 31, |       
|                                                                            |  | 2010                        |        |   | 2009 |  
|Cash flows from operating activities:                                       |  |                             |        |   |      |   |         |  
|Net loss                                                                    |  | $                           | (3,449 | ) |      | $ | (2,875  | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |        |   |      |   |         |  
|Depreciation and amortization of property and equipment                     |  |                             | 664    |   |      |   | 803     |  
|Amortization of acquired intangible assets                                  |  |                             | 479    |   |      |   | 482     |  
|Stock-based compensation                                                    |  |                             | 496    |   |      |   | 711     |  
|Equity in loss of unconsolidated subsidiary                                 |  |                             | 136    |   |      |   | 94      |  
|Changes in certain assets and liabilities, net of acquisitions:             |  |                             |        |   |      |   |         |  
|Accounts receivable                                                         |  |                             | 8      |   |      |   | 30      |  
|Prepaid expenses and other assets                                           |  |                             | 144    |   |      |   | 610     |  
|Accounts payable                                                            |  |                             | 128    |   |      |   | (49     | )
|Accrued compensation and benefits                                           |  |                             | (94    | ) |      |   | (636    | )
|Accrued expenses and other current liabilities                              |  |                             | (5     | ) |      |   | (136    | )
|Deferred rent                                                               |  |                             | (44    | ) |      |   | 40      |  
|Deferred revenue                                                            |  |                             | (18    | ) |      |   | 96      |  
|                                                                            |  |                             |        |   |      |   |         |  
|Net cash used in operating activities                                       |  |                             | (1,555 | ) |      |   | (830    | )
|                                                                            |  |                             |        |   |      |   |         |  
|                                                                            |  |                            
|Cash flows from investing activities:                                       |  |                             |        |   |      |   |         |  
|Purchases of short-term investments                                         |  |                             | (7,897 | ) |      |   | (14,987 | )
|Sales of short-term investments                                             |  |                             | 9,800  |   |      |   |        |  
|Purchases of property and equipment                                         |  |                             | (731   | ) |      |   | (529    | )
|Payments related to the Realty Generator acquisition                        |  |                             |       |   |      |   | (155    | )
|                                                                            |  |                             |        |   |      |   |         |  
|Net cash provided by (used in) investing activities                         |  |                             | 1,172  |   |      |   | (15,671 | )
|                                                                            |  |                             |        |   |      |   |         |  
|                                                                            |  |                            
|Cash flows from financing activities:                                       |  |                             |        |   |      |   |         |  
|Payment of taxes due upon vesting of restricted stock                       |  |                             | (174   | ) |      |   | (41     | )
|                                                                            |  |                             |        |   |      |   |         |  
|Net cash used in financing activities                                       |  |                             | (174   | ) |      |   | (41     | )
|                                                                            |  |                             |        |   |      |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                             | (557   | ) |      |   | (16,542 | )
|Cash and cash equivalents at beginning of period                            |  |                             | 25,434 |   |      |   | 47,668  |  
|                                                                            |  |                             |        |   |      |   |         |  
|Cash and cash equivalents at end of period                                  |  | $                           | 24,877 |   |      | $ | 31,126  |  
|                                                                            |  |                             |        |   |      |   |         |  

See accompanying notes to condensed consolidated financial statements.



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Market Leader, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)

(unaudited)

Note 1:
Summary of Significant Accounting Policies

Nature of Operations

Market Leader, Inc. provides real estate professionals with innovative marketing and technology solutions that enable them to grow and
manage their real estate businesses. We have been an innovator of internet-based marketing services for real estate professionals since the Companys inception in 1999.

Our traditional HouseValues and JustListed lead generation products deliver home seller or buyer leads to customers via an online
software tool that is bundled with the offerings. In 2008 we began to shift our business model from our original lead generation model toward offerings that combine lead generation services with a software-as-a-service based lead management and CRM
tool to provide a complete marketing and business development system for agents, agent teams, and real estate brokerage companies. This new business model, represented by our Vision product offerings, delivered the majority of our revenue in the
first quarter of 2010.

In November 2008 we introduced Growth Leader, our Vision based product for real estate agents as well
as Team Leader, a related product designed agent teams. Together with RealtyGenerator, our turnkey lead generation and lead management system for real estate brokerage companies that we acquired in 2007, these offerings constitute our family of new
Vision products that support the shift in our business model. These products feature Vision, a personalized website optimized to generate consumer response, a proprietary customer relationship management (CRM) tool for real estate agents that is
integrated with the website, and industry-leading advertising buying and lead generation services to help real estate professionals attract new clients and promote themselves throughout their community.

Additionally, Market Leader provides consumers with free access to the information and tools they need throughout the home buying and
selling process. Our nationwide consumer web sites include: JustListed.com, a service that notifies home buyers as soon as new homes hit the market; HouseValues.com, a service that provides home sellers with market valuations of their current homes;
and HomePages.com, a real estate portal that enables consumers to see all the home listings in their area, view detailed neighborhood and school data, compare recent home sales, find local real estate agents, and find the value of their own homes.
Our Vision-based products also provide consumers with free access to similar information through thousands of localized web sites that we operate on behalf of our real estate professional customers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2009. All adjustments that are, in the opinion of management, necessary for the fair presentation of our results of operations, financial position and cash flows have
been included and are of a normal, recurring nature. Operating results for the three months ended March 31, 2010 are not necessarily indicative of results to be expected for the full year.

Consolidation  The consolidated financial statements include the financial statements of Market Leader and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Our equity
investment in an entity over which we have significant influence but hold less than a controlling interest is not consolidated. We apply the equity method and record our investment at cost plus our equity in the investees undistributed net
income or loss adjusted for the difference between our cost and the underlying equity in the net assets of the investee at the date of the investment. This investment is evaluated for impairment when a decline in the value of the investment to less
than its carrying value is determined to be other-than-temporary.

Business segments  We operate a single
business segment, representing marketing services provided to real estate professionals. The vast majority of our business comes from customers and operations located within the United States and Canada, and we do not have any assets located in
foreign countries.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.



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Market Leader, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except share data)

(unaudited)



On an ongoing basis, we evaluate our estimates, including those related to the fair
value of acquired intangible assets, the useful lives and potential impairment of intangible assets and property and equipment, the carrying value of our equity investment in an unconsolidated subsidiary, the value of common stock options for the
purpose of determining stock-based compensation, liabilities and valuation allowances, and certain tax liabilities among others. We base our estimates on historical experience and other factors, including the current economic environment, which we
believe to be appropriate under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Economic conditions, including illiquid credit markets, volatile equity, and declines in consumer spending have
combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates
resulting from changes in the economic environment will be reflected in the financial statements in future periods.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market
participants at the measurement date. We use a fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:



| |  |  | Level 1  Valuation is based upon quoted prices for identical instruments traded in active markets.
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Level 2  Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These
unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Assets and liabilities are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. We had $23,733 and $49,478 in Money Market Funds as of March 31, 2010 and March 31, 2009, respectively, that were classified within the fair value hierarchy as Level 1 assets and accounted for at
fair value.

The carrying amounts of accounts receivable, accounts payable and other current liabilities approximate fair
value because of their short-term maturities.

Accounting Pronouncements Issued Not Yet Adopted

In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue
Arrangements(ASU 2009-13). ASU 2009-13 establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities, and provides amendments to the criteria for separating deliverables, and
measuring and allocating arrangement consideration to one or more units of accounting. The amendments of ASU 2009-13 also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are
also required to provide information about a vendors multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require
providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in ASU 2009-13 are
effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (Fiscal Year 2011). We are still evaluating whether ASU 2009-13 will have any impact on our future
consolidated financial statements.

Note 2: Loss per Share

Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share uses
the weighted average common shares outstanding plus dilutive stock options. Because we have reported losses for the periods presented, none of our stock options are included in the diluted per share calculations.

Restricted stock units are considered outstanding common shares and included in the computation of basic earnings per share as of the
date that all necessary conditions of vesting are satisfied. Restricted stock units are excluded from the dilutive earnings per share calculation when their impact is antidilutive. Prior to satisfaction of all conditions of vesting, unvested
restricted stock units are considered contingently issuable and are excluded from weighted average common shares outstanding.



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Market Leader, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except share data)

(unaudited)



The following table sets forth the computation of basic and diluted loss per share:



|                                           |      |                             |        |      |  |   |        |  
|------------------------------------------ | ---- | --------------------------- | ------ | ---- |  | - | ------ | -
|Shares in thousands                        |      | Three months endedMarch 31, |       
|                                           | 2010 |                             |        | 2009 | 
|Net loss                                   |      | $                           | (3,449 | )    |  | $ | (2,875 | )
|                                           |      |                             |        |      |  |   |        |  
|Weighted average common shares outstanding |      |                             | 24,540 |      |  |   | 24,057 |  
|Dilutive effect of equity-based awards     |      |                             |       |      |  |   |       |  
|                                           |      |                             |        |      |  |   |        |  
|Diluted Shares                             |      |                             | 24,540 |      |  |   | 24,057 |  
|                                           |      |                             |        |      |  |   |        |  
|Net loss per share  basic and diluted     |      | $                           | (0.14  | )    |  | $ | (0.12  | )
|                                           |      |                             |        |      |  |   |        |  
|Antidilutive stock options                 |      |                             | 3,731  |      |  |   | 3,384  |  
|                                           |      |                             |        |      |  |   |        |  
|Unvested restricted stock units            |      |                             | 892    |      |  |   | 1,383  |  
|                                           |      |                             |        |      |  |   |        |  

Note 3: Cash, Cash Equivalents and Short-Term Investments

At March 31, 2010, cash, cash equivalents, and short-term investments consisted of the following:



|                          |  |               |        |                      |   |                    |  |   |       
|------------------------- |  | ------------- | ------ | -------------------- | - | ------------------ |  | - | ------
|                          |  | AmortizedCost |        | GrossUnrealizedGains |   | EstimatedFairValue
|Cash                      |  | $             | 1,144  |                      | $ |                   |  | $ | 1,144 
|Money market account      |  |               | 23,733 |                      |   |                   |  |   | 23,733
|                          |  |               |        |                      |   |                    |  |   |       
|Cash and cash equivalents |  | $             | 24,877 |                      | $ |                   |  | $ | 24,877
|                          |  |               |        |                      |   |                    |  |   |       
|                          |  |               |       
|                          |  | AmortizedCost |        | GrossUnrealizedGains |   | EstimatedFairValue
|                          |  |               |        |                      |   |                    |  |   |       
|U.S. Treasury bills       |  | $             | 14,983 |                      | $ | 3                  |  | $ | 14,986
|Certificate of Deposit    |  |               | 9,125  |                      |   |                   |  |   | 9,125 
|                          |  |               |        |                      |   |                    |  |   |       
|Short-Term investments    |  | $             | 24,108 |                      | $ | 3                  |  | $ | 24,111
|                          |  |               |        |                      |   |                    |  |   |       

As of March 31, 2010, the U.S. Treasury bills and
certificates of deposit are classified as held-to-maturity and are carried at amortized cost. The estimated fair value of the U.S. Treasury bills is based on quoted market prices for identical investments. The estimated fair value of the certificate
of deposit is based on a CD pricing model. All of our investments have a contractual maturity of one year or less.

At
December 31, 2009, cash, cash equivalents, and short-term investments consisted of the following:



|                          |  |               |        |                                |   |    |                    |  |   |       
|------------------------- |  | ------------- | ------ | ------------------------------ | - | -- | ------------------ |  | - | ------
|                          |  | AmortizedCost |        | GrossUnrealizedGains           |   |    | EstimatedFairValue
|Cash                      |  | $             | 794    |                                | $ |   |                    |  | $ | 794   
|Money market account      |  |               | 24,640 |                                |   |   |                    |  |   | 24,640
|                          |  |               |        |                                |   |    |                    |  |   |       
|Cash and cash equivalents |  | $             | 25,434 |                                | $ |   |                    |  | $ | 25,434
|                          |  |               |        |                                |   |    |                    |  |   |       
|                          |  |               |       
|                          |  | AmortizedCost |        | GrossUnrealizedGains /(Losses) |   |    | EstimatedFairValue
|U.S. Treasury bills       |  | $             | 19,971 |                                | $ | (4 | )                  |  | $ | 19,967
|Certificate of Deposit    |  |               | 6,028  |                                |   | 12 |                    |  |   | 6,040 
|                          |  |               |        |                                |   |    |                    |  |   |       
|Short-Term investments    |  | $             | 25,999 |                                | $ | 8  |                    |  | $ | 26,007
|                          |  |               |        |                                |   |    |                    |  |   |       

As of December 31, 2009, the U.S. Treasury bills
and certificates of deposit are classified as held-to-maturity and are carried at amortized cost. The estimated fair value of the U.S. Treasury bills is based on quoted market prices for identical investments. The estimated fair value of the
certificate of deposit is based on a CD pricing model. All of our investments have a contractual maturity of one year or less.



8



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##### Table of Contents

Market Leader, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except share data)

(unaudited)



We have not realized any gains or losses on our short-term investments in the periods
presented.

Note 4: Stock-based Compensation Plans

Stock-based compensation cost is measured at grant date, based on the fair value of the award, and recognized as expense over the
requisite service period.

Determining Fair Value  Assumptions

The value of each employee option granted during the three-month periods ended March 31, 2010 and 2009 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



|                                         |  |                             |      |   |      |   |      |  
|---------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                         |  | Three months endedMarch 31, |     
|                                         |  | 2010                        |      |   | 2009 |  
|Expected life (in years)                 |  |                             | 3.5  |   |      |   | 3.5  |  
|Weighted average expected volatility     |  |                             | 59   | % |      |   | 59   | %
|Weighted average risk-free interest rate |  |                             | 1.60 | % |      |   | 1.15 | %
|Expected dividend yield                  |  |                             | 0    | % |      |   | 0    | %
|Weighted average fair value              |  | $                           | 0.90 |   |      | $ | 0.65 |  

Stock Option
Activity

Options granted, exercised, forfeited and expired under all of our stock option plans for the three-month
period ended March 31, 2010 are summarized as follows:



|                                 |  |           |   |  |                              |      |                                         |           |                         |   |    
|-------------------------------- |  | --------- | - |  | ---------------------------- | ---- | --------------------------------------- | --------- | ----------------------- | - | ---
|                                 |  | Options   |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualLife |           | AggregateIntrinsicValue
|Outstanding at December 31, 2009 |  | 3,708,303 |   |  | $                            | 3.86 |                                         |           |                         |   |    
|Options granted                  |  | 40,000    |   |  |                              | 2.06 |                                         |           |                         |   |    
|Options exercised                |  |          |   |  |                              |     |                                         |           |                         |   |    
|Options forfeited                |  | (10,754   | ) |  |                              | 3.63 |                                         |           |                         |   |    
|Options expired                  |  | (6,481    | ) |  |                              | 6.30 |                                         |           |                         |   |    
|                                 |  |           |   |  |                              |      |                                         |           |                         |   |    
|Outstanding at March 31, 2010    |  | 3,731,068 |   |  | $                            | 3.84 |                                         | 6.7 years |                         | $ | 159
|                                 |  |           |   |  |                              |      |                                         |           |                         |   |    
|Exercisable at March 31, 2010    |  | 2,223,870 |   |  | $                            | 4.87 |                                         | 5.3 years |                         | $ | 49 
|                                 |  |           |   |  |                              |      |                                         |           |                         |   |    

The total intrinsic value of options exercised and the
total grant date fair value of options that vested and were forfeited are included in the following table:



|                                           |  |                             |     |      |   |    
|------------------------------------------ |  | --------------------------- | --- | ---- | - | ---
|                                           |  | Three months endedMarch 31,
|                                           |  | 2010                        |     | 2009
|Intrinsic value of options exercised       |  | $                           |    |      | $ |   
|Grant date fair value of options vested    |  | $                           | 207 |      | $ | 345
|Grant date fair value of options forfeited |  | $                           | 21  |      | $ | 40 



9



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##### Table of Contents

Market Leader, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except share data)

(unaudited)



Restricted Stock Units

During the three months ended March 31, 2010, the following activity occurred related to our restricted stock units:



|                                                   |  |             |   |  |                                     |     
|-------------------------------------------------- |  | ----------- | - |  | ----------------------------------- | ----
|                                                   |  | StockAwards |   |  | WeightedAverageGrant DateFair Value
|Nonvested stock units balance at December 31, 2009 |  | 1,195,500   |   |  | $                                   | 2.61
|Restricted stock units granted                     |  |            |   |  |                                     |    
|Restricted stock units vested                      |  | (277,500    | ) |  |                                     | 2.85
|Restricted stock units forfeited                   |  | (26,500     | ) |  |                                     | 2.39
|                                                   |  |             |   |  |                                     |     
|Nonvested stock units balance at March 31, 2010    |  | 891,500     |   |  | $                                   | 2.54
|                                                   |  |             |   |  |                                     |     

Stock-based Compensation under FAS 123R

The following table summarizes stock-based compensation expense related to stock-based awards:



|                                                                      |  |                             |     |   |      |   |     |  
|--------------------------------------------------------------------- |  | --------------------------- | --- | - | ---- | - | --- | -
|                                                                      |  | Three months endedMarch 31, |    
|                                                                      |  | 2010                        |     |   | 2009 |  
|Total cost of share-based payment plans                               |  | $                           | 523 |   |      | $ | 765 |  
|Amounts capitalized in internally developed software                  |  |                             | (27 | ) |      |   | (54 | )
|                                                                      |  |                             |     |   |      |   |     |  
|Amounts charged against income, before income tax benefit             |  | $                           | 496 |   |      | $ | 711 |  
|                                                                      |  |                             |     |   |      |   |     |  
|Amounts recognized for amounts previously capitalized in fixed assets |  | $                           | 33  |   |      | $ | 27  |  
|                                                                      |  |                             |     |   |      |   |     |  

In 2010 and 2009, we recognized a full valuation allowance against the income tax benefit resulting from our
stock-based compensation, reducing the net benefit on the income statement to zero.

As of March 31, 2010, we had $3,093
of unrecognized gross compensation cost related to non-vested stock-based awards granted under all equity compensation plans. We expect to recognize this cost over a weighted average period of 1.4 years.

Note 5: Supplemental Disclosure of Cash Flow Information



|                                                |  |                             |   |      |   |   
|----------------------------------------------- |  | --------------------------- | - | ---- | - | --
|                                                |  | Three months endedMarch 31,
|                                                |  | 2010                        |   | 2009
|Cash paid during the period for income taxes    |  | $                           | 7 |      | $ | 8 
|Non-cash investing and financing activities:    |  |                             |   |      |   |   
|Increase in payables for property and equipment |  | $                           |  |      | $ | 10



10



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

You should read the following discussion and analysis by our management of our financial condition and results of operations in
conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward
looking statements relating to our anticipated plans, products, services, and financial performance. The words believe, expect, anticipate, intend and similar expressions identify forward-looking
statements, but their absence does not mean the statement is not forward looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that could cause actual results to
differ materially from those anticipated in the forward-looking statements. Factors that could affect our actual results include, but are not limited to, those discussed under the heading Item 1A, Risk Factors in our Annual Report
on Form 10-K for the year ended December 31, 2009 and in our other Securities and Exchange Commission filings. Given these risks and uncertainties, you should not place undue reliance on our forward looking statements. The forward-looking
statements are made as of the date of this report, and we assume no obligation to update any such statements to reflect events or circumstances after the date hereof.

Overview

Our
Business

Market Leader, Inc. provides real estate professionals with innovative marketing and technology solutions
that enable them to grow and manage their real estate businesses. We have been an innovator of internet-based marketing services for real estate professionals since the Companys inception in 1999.

Our traditional HouseValues and JustListed lead generation products deliver home seller or buyer leads to customers via an online
software tool that is bundled with the offerings. In 2008 we began to shift our business model from our original lead generation model toward offerings that combine lead generation services with a software-as-a-service based lead management and CRM
tool to provide a complete marketing and business development system for agents, agent teams, and real estate brokerage companies. This new business model, represented by our Vision product offerings, delivered the majority of our revenue in the
first quarter of 2010.

In November 2008 we introduced Growth Leader, our Vision based product for real estate agents as well
as Team Leader, a related product designed agent teams. Together with RealtyGenerator, our turnkey lead generation and lead management system for real estate brokerage companies that we acquired in 2007, these offerings constitute our family of new
Vision products that support the shift in our business model. These products feature Vision, a personalized website optimized to generate consumer response, a proprietary customer relationship management (CRM) tool for real estate agents that is
integrated with the website, and industry-leading advertising buying and lead generation services to help real estate professionals attract new clients and promote themselves throughout their community.

Additionally, Market Leader provides consumers with free access to the information and tools they need throughout the home buying and
selling process. Our nationwide consumer web sites include: JustListed.com, a service that notifies home buyers as soon as new homes hit the market; HouseValues.com, a service that provides home sellers with market valuations of their current homes;
and HomePages.com, a real estate portal that enables consumers to see all the home listings in their area, view detailed neighborhood and school data, compare recent home sales, find local real estate agents, and find the value of their own homes.
Our Vision-based products also provide consumers with free access to similar information through thousands of localized web sites that we operate on behalf of our real estate professional customers.

Review of First Quarter 2010

Revenue for the first quarter was $5.8 million, down 11% from the same period in 2009, due primarily to a decline in our customer base,
offset in part by an increase in average revenue per customer.

We believe our revenue trend has reflected broader real estate
market conditions. While existing home sales improved during first quarter as reported by the National Association of Realtors, industry-wide real estate commissions declined according to research from REAL Trends, Inc., indicating that market
conditions have not yet stabilized. Even when market conditions and real estate commissions stabilize and begin to improve, we expect real estate professionals to continue to remain cautious regarding new marketing expenditures for at least a couple
of quarters as they recover from what has been a prolonged and significant downturn.

Despite difficult market conditions,
during 2009 our sequential quarterly revenue declines moderated, and for the first time since early 2006, our first quarter revenue of $5.8 million grew from the fourth quarter level of $5.6 million. The improvement was due to growth in our Vision
product revenue as we continued to make progress on our business model shift toward our software as a service



11



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##### Table of Contents

based Vision products. Revenue from our Vision products which grew to $3.2 million in the first quarter from $2.9 million in the fourth quarter of last year, now represents the majority of our
revenue. We anticipate that revenues from our Vision products will continue to drive a majority of 2010 revenue.

In 2008, we
began the shift in our business model from our traditional lead generation products to offerings that combine software-as-a-service with access to advertising buying and lead generation services. Our original model is represented by our HouseValues
and JustListed products that deliver home seller or buyer leads to customers via an online software tool that is bundled with additional services. Our new business model is represented by our Vision products, including Growth Leader, Team Leader and
Realty Generator. Our acquisition of Realty Generator, LLC and a related entity in November 2007 enabled us to leverage the technology and business model acquired to develop our Vision products. We believe the Vision product offerings are helping us
to achieve better customer retention rates and will drive improved operating results over time.

Our longer term goal is to
return the company to profitable growth, and we believe that to do so requires improvements in customer acquisition. Towards that goal, we have made incremental investments in customer acquisition, including increasing the size of our sales force,
which we believe will drive further revenue growth later this year.

Results of Operations

Revenues



|                        |  |                             |       |      |   |      
|----------------------- |  | --------------------------- | ----- | ---- | - | -----
|                        |  | Three months endedMarch 31,
|                        |  | 2010                        |       | 2009
|Revenues (in thousands) |  | $                           | 5,796 |      | $ | 6,529

Revenues decreased
11% for the quarterly period ended March 31, 2010 compared to the same period in 2009, due to a 22% decline in our average customer base partially offset by a 14% increase in average revenue per customer over the past twelve months. We believe
the cyclical downturn in the real estate industry has negatively impacted the ability of real estate professionals to pay for marketing services and other lead generation costs, which is reflected in our decreased customer base.

Revenue in the first quarter of 2010 increased 3% from the fourth quarter of 2009. See Quarterly Consolidated Statements of Income
and Operational Data. On a sequential quarterly basis, we experienced a 5% increase in average revenue per customer partially offset by a 2% decrease in average real estate customer count. More information about the sequential change in
revenue and customers is included under the heading Key Operational Metrics.

We believe that the incremental
investments we are making in sales and marketing resources will yield further revenue improvement in the second half of 2010.

Sales and Marketing



|                                                    |  |                             |       |   |      |   |       |  
|--------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                    |  | Three months endedMarch 31, |      
|                                                    |  | 2010                        |       |   | 2009 |  
|Total sales and marketing expense (in thousands)    |  | $                           | 4,922 |   |      | $ | 4,742 |  
|                                                    |  |                             |       |   |      |   |       |  
|Total sales and marketing expense as a % of revenue |  |                             | 85    | % |      |   | 73    | %
|                                                    |  |                             |       |   |      |   |       |  

Sales and marketing expense increased for the three month period ended March 31, 2010 compared to the
same period in 2009, primarily due to increased advertising costs and increased consulting and marketing expenses. The increase in advertising costs was consistent with expectations based on the shift in revenue mix to our Vision-based products.
Advertising is a higher percentage of revenue for our Vision products. However, we believe the Vision product offerings are helping us to achieve better customer retention rates and will drive improved operating results over time.

Sales and marketing expense decreased 3% in the first quarter of 2010 compared to the fourth quarter of 2009. The decline was primarily
due to reduced advertising costs that were partially seasonal in nature. Those cost savings more than offset the incremental investments we made in sales and marketing resources during the first quarter.

For the second quarter of 2010, we expect sales and marketing costs to increase modestly as we support sales initiatives for our
Vision-based products.



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##### Table of Contents

Technology and Product Development



|                                                                   |  |                             |       |   |      |   |       |  
|------------------------------------------------------------------ |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                                   |  | Three months endedMarch 31, |      
|                                                                   |  | 2010                        |       |   | 2009 |  
|Total technology and product development expense (in thousands)    |  | $                           | 1,365 |   |      | $ | 1,407 |  
|                                                                   |  |                             |       |   |      |   |       |  
|Total technology and product development expense as a % of revenue |  |                             | 24    | % |      |   | 22    | %
|                                                                   |  |                             |       |   |      |   |       |  

Technology and product development expense decreased slightly for the three month period ended
March 31, 2010 compared to the same period in 2009.

Technology and product development expense increased slightly in the
first quarter of 2010 when compared to the fourth quarter of 2009.

For the remainder of 2010, we expect the level of
technology and product development expenses to remain fairly consistent as we continue to enhance our Vision-based products, but to decrease as a percentage of revenue as revenue increases.

General and Administrative



|                                                           |  |                             |       |   |      |   |       |  
|---------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                                                           |  | Three months endedMarch 31, |      
|                                                           |  | 2010                        |       |   | 2009 |  
|Total general and administrative expense (in thousands)    |  | $                           | 1,713 |   |      | $ | 1,969 |  
|                                                           |  |                             |       |   |      |   |       |  
|Total general and administrative expense as a % of revenue |  |                             | 30    | % |      |   | 30    | %
|                                                           |  |                             |       |   |      |   |       |  

General and administrative expense decreased primarily due to reduced payroll related expenses associated
with lower staffing levels, reduced occupancy expenses, and lower professional fees. These decreases were offset, in part, by an increase in recruiting fees in the first quarter of 2010. General and administrative expenses remained consistent as a
percentage of revenues for the three month period ended March 31, 2010 compared to the same period last year on our lower revenue base.

General and administrative expenses increased 10% in the first quarter of 2010 compared to the fourth quarter of 2009 primarily due to
incremental hiring expenses related to our efforts to increase the size of our sales teams.

We expect quarterly general and
administrative expenses to decrease slightly for the remainder of 2010, and to decrease as a percentage of revenue.

Depreciation and Amortization of Property and Equipment

Depreciation and amortization of property and equipment decreased for the three months ended March 31, 2010 compared to the same
period in 2009 because a number of assets became fully depreciated during 2009.

Interest Income and expense, net

Interest income decreased for the three month period ended March 31, 2010 compared with the same period in 2009
primarily due to decreased rates of return on investments as well as a lower investment balance.

Critical Accounting Policies and
Estimates

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and
on other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We include a discussion of our critical accounting policies and estimates in our Annual Report on Form 10-K for the year
ended December 31, 2009.



13



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##### Table of Contents

Quarterly Consolidated Statements of Income and Operational Data

The following table presents unaudited operational data pertaining to our operations for the five quarters ended March 31, 2010. This
quarterly information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of our management, reflects all adjustments necessary for a fair representation of the information for the periods
presented. This data should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2009. Operating results for any quarter apply
to that quarter only and are not necessarily indicative of results for any future period.



|                                                        |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  
|------------------------------------------------------- |  | -------------- | ------ | - | ------------ | - | ------ | ------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------ | -
|                                                        |  | Mar. 31,2010   |        |   | Dec. 31,2009 |   |        | Sept. 30,2009 |  |   | June 30,2009 |   |  | Mar. 31,2009 |       
|                                                        |  | (in thousands) |       
|Operations Data:                                        |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  
|Revenues                                                |  | $              | 5,796  |   |              | $ | 5,643  |               |  | $ | 5,816        |   |  | $            | 5,947  |   |  | $ | 6,529  |  
|Expenses:                                               |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  
|Sales and marketing                                     |  |                | 4,922  |   |              |   | 5,084  |               |  |   | 4,795        |   |  |              | 4,676  |   |  |   | 4,742  |  
|Technology and product development                      |  |                | 1,365  |   |              |   | 1,255  |               |  |   | 1,174        |   |  |              | 1,278  |   |  |   | 1,407  |  
|General and administrative                              |  |                | 1,713  |   |              |   | 1,564  |               |  |   | 1,638        |   |  |              | 1,744  |   |  |   | 1,969  |  
|Depreciation and amortization of property and equipment |  |                | 664    |   |              |   | 661    |               |  |   | 593          |   |  |              | 780    |   |  |   | 803    |  
|Amortization of acquired intangible assets              |  |                | 479    |   |              |   | 479    |               |  |   | 481          |   |  |              | 480    |   |  |   | 482    |  
|                                                        |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  
|Total expenses                                          |  |                | 9,143  |   |              |   | 9,043  |               |  |   | 8,681        |   |  |              | 8,958  |   |  |   | 9,403  |  
|                                                        |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  
|Loss from operations                                    |  |                | (3,347 | ) |              |   | (3,400 | )             |  |   | (2,865       | ) |  |              | (3,011 | ) |  |   | (2,874 | )
|Equity in loss of unconsolidated subsidiary             |  |                | (136   | ) |              |   | 8      |               |  |   | (97          | ) |  |              | (61    | ) |  |   | (94    | )
|Interest income and expense, net                        |  |                | 37     |   |              |   | 42     |               |  |   | 45           |   |  |              | 59     |   |  |   | 95     |  
|                                                        |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  
|Loss before income tax                                  |  |                | (3,446 | ) |              |   | (3,350 | )             |  |   | (2,917       | ) |  |              | (3,013 | ) |  |   | (2,873 | )
|Income tax expense (benefit)                            |  |                | 3      |   |              |   | (4,788 | )             |  |   | 2            |   |  |              | 2      |   |  |   | 2      |  
|                                                        |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  
|Net income (loss)                                       |  | $              | (3,449 | ) |              | $ | 1,438  |               |  | $ | (2,919       | ) |  | $            | (3,015 | ) |  | $ | (2,875 | )
|                                                        |  |                |        |   |              |   |        |               |  |   |              |   |  |              |        |   |  |   |        |  

Key Operational Metrics

The following table presents key operational data and metrics for the five quarters ended March 31, 2010.



|                                                              |  |              |       |   |              |   |       |               |  |   |              |   |  |              |       |   |  |   |       |  
|------------------------------------------------------------- |  | ------------ | ----- | - | ------------ | - | ----- | ------------- |  | - | ------------ | - |  | ------------ | ----- | - |  | - | ----- | -
|                                                              |  | Mar. 31,2010 |       |   | Dec. 31,2009 |   |       | Sept. 30,2009 |  |   | June 30,2009 |   |  | Mar. 31,2009 |      
|Operational Data:                                             |  |              |       |   |              |   |       |               |  |   |              |   |  |              |       |   |  |   |       |  
|Components of revenue (in thousands):                         |  |              |       |   |              |   |       |               |  |   |              |   |  |              |       |   |  |   |       |  
|Real estate professional revenues (1)                         |  | $            | 5,784 |   |              | $ | 5,622 |               |  | $ | 5,789        |   |  | $            | 5,909 |   |  | $ | 6,481 |  
|Other revenues (2)                                            |  |              | 12    |   |              |   | 21    |               |  |   | 27           |   |  |              | 38    |   |  |   | 48    |  
|                                                              |  |              |       |   |              |   |       |               |  |   |              |   |  |              |       |   |  |   |       |  
|Total revenues                                                |  | $            | 5,796 |   |              | $ | 5,643 |               |  | $ | 5,816        |   |  | $            | 5,947 |   |  | $ | 6,529 |  
|Real estate professional customers, end of period (3)         |  |              | 5,316 |   |              |   | 5,360 |               |  |   | 5,551        |   |  |              | 5,842 |   |  |   | 6,361 |  
|Average monthly retention rate (4)                            |  |              | 94.9  | % |              |   | 94.5  | %             |  |   | 93.7         | % |  |              | 94.2  | % |  |   | 92.8  | %
|Average real estate professional customers in the quarter (5) |  |              | 5,338 |   |              |   | 5,456 |               |  |   | 5,697        |   |  |              | 6,102 |   |  |   | 6,803 |  
|Average monthly revenue per customer (6)                      |  | $            | 361   |   |              | $ | 344   |               |  | $ | 339          |   |  | $            | 323   |   |  | $ | 318   |  



|(1) | Real estate professional revenues consist of all revenue generated from our real estate professional customers, primarily for our RealtyGenerator, Team Leader, Growth
Leader, HouseValues, JustListed, and Market Leader CRM products.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Other revenues consist primarily of miscellaneous revenue streams that are not core to our product offerings.
|--- | -------------------------------------------------------------------------------------------------------------

|(3) | Real estate professional customers consist of real estate agents subscribing to our HouseValues, JustListed, Growth Leader, Team Leader, and Market Leader CRM products
and real estate brokers subscribing to our RealtyGenerator product. Customers are included in our key operating metrics when their service is active and are paying monthly service or advertising fees.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | One minus our average monthly churn rate equates to our average monthly retention rate. Average monthly customer churn is calculated by dividing the number of customers
who canceled during the quarter by the average customers in the quarter, divided by the number of months in the quarter. Other companies may calculate churn and retention differently, and their churn and retention data may not be directly comparable
to ours.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Average real estate professional customers in the quarter are calculated as the average of customers at the beginning and at the end of the quarter.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Average monthly revenue per customer is calculated as real estate professional revenue for the quarter divided by the average number of customers in the quarter,
divided by the number of months in the quarter.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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At the end of the first quarter of 2010, we had 5,316 customers. On a sequential quarter
basis, our customer count decreased by 44 customers during the first quarter of 2010, compared to a decrease of 191 customers in the fourth quarter of 2009.

Our average monthly customer retention rate improved again to 94.9% for the first quarter of 2010 from 94.5% in the fourth quarter of
2009. We believe that the continued strong trend can be attributed to a combination of factors  (1) the portion of revenue from our Vision products, which have demonstrated better retention, has increased and (2) the majority of our
customers are now at least two-year tenured customers, which also demonstrates better retention. However, due to the continued volatility of the real estate market and broader economic concerns, we expect to experience fluctuations in our customer
retention rate from quarter to quarter.

Average monthly revenue per customer for the first quarter of 2010 increased compared
to the fourth quarter of 2009, and was the highest rate in two years, primarily driven by Vision revenue growth. Average revenue per customer will fluctuate from quarter to quarter based on the mix of sales for products priced differently across
lower and higher priced geographies, pricing adjustments we may make in response to the market conditions, the demand for existing services and the acceptance of new product offerings.

Liquidity and Capital Resources

Currently, our principal source of liquidity is our cash, cash equivalents and short-term investments as well as the cash flow that we may
generate from our operations. At March 31, 2010, our cash, cash equivalents and short-term investments totaled $49.0 million as compared to $51.4 million at December 31, 2009.

Liquidity and security of principal continue to be core to our investment strategy, which has resulted in significantly lower rates of
return. As of March 31, 2010, we have invested in cash equivalents consisting of money market funds that hold U.S. Treasury securities with short-term weighted average duration. Short-term investments are comprised of U.S. Treasury bills and
notes and FDIC-insured certificates of deposit with terms of one year or less.

The following table presents summary cash flow
data:



|                                         |  |                             |        |   |      |   |         |  
|---------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                         |  | Three monthsEnded March 31, |       
|                                         |  | 2010                        |        |   | 2009 |  
|                                         |  | (dollars in thousands)      |       
|Cash used in operating activities        |  | $                           | (1,555 | ) |      | $ | (830    | )
|Cash from (used in) investing activities |  |                             | 1,172  |   |      |   | (15,671 | )
|Cash used in financing activities        |  |                             | (174   | ) |      |   | (41     | )

Operating Activities

Net cash used in operating activities consists of our net loss adjusted for certain non-cash items, including
depreciation, amortization, stock-based compensation, equity in losses of our unconsolidated subsidiary and the effects of changes in working capital. We used cash in operations of $1.6 million in the first three months of 2010, an increase of $0.7
million compared to the same period in 2009. The increase was primarily due to an increase in our net loss after non-cash items.

Investing Activities

Cash provided by investing activities for the first quarter of 2010 was $1.2 million compared to the cash used in investing activities for
the first quarter of 2009 of $15.7 million. During the first quarter of 2010, we made net sales of short-term investments of $1.9 million compared to investment purchases of $15.0 million in the same period in 2009.

Financing Activities

Cash used in financing activities consisted solely of cash paid for employment taxes upon vesting of restricted stock. The increase of
$0.1 million in the first quarter of 2010 compared to the same period in the prior year was due to the increased number of shares vested.

Purchase and Retirement of Common Stock

In October 2006, our Board of Directors authorized a share repurchase program to purchase and retire up to 2 million shares of our
common stock. We did not make any purchases pursuant to the share repurchase program in the first quarter of 2010. At March 31, 2010, 0.9 million shares remain available for purchase under the share repurchase program.



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Accounting Pronouncements Issued Not Yet Adopted

In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue
Arrangements(ASU 2009-13). ASU 2009-13 establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities, and provides amendments to the criteria for separating deliverables, and
measuring and allocating arrangement consideration to one or more units of accounting. The amendments of ASU 2009-13 also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are
also required to provide information about a vendors multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require
providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in ASU 2009-13 are
effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 (Fiscal Year 2011). We are still evaluating whether ASU 2009-13 will have any impact on our future
consolidated financial statements.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

The primary objective of our investment activities is to preserve principal and liquidity without incurring significant risk. Because of
ongoing market uncertainties, we continue to evaluate the security of our investments and the institutions where we hold our investments. As of March 31, 2010, we invested in U.S. Treasury securities money market funds with short-term weighted
average duration, directly in U.S. Treasury securities and in FDIC-insured certificates of deposit with terms of one year or less.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of disclosure controls and procedures. With the participation of our Chief Executive Officer and Chief Financial
Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of
March 31, 2010. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2010.

(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting
during the first fiscal quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We intend to continue to refine our internal control over financial reporting on an
ongoing basis as we deem appropriate with a view towards continuous improvement.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

From
time to time, we may become involved in litigation relating to claims arising from the ordinary course of our business, including actions relating to employment issues. We believe that there are no claims or actions pending or threatened against us,
the ultimate disposition of which would have a material adverse effect on us.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

(b) On December 9, 2004, the Securities and Exchange Commission declared effective our registration statement on Form S-1 (SEC File
No. 333-118740) in connection with our initial public offering of common stock, which resulted in net proceeds to the company of $56.1 million. Through March 31, 2010, we have used approximately $45.2 million of the net proceeds from our
initial public offering to purchase property and equipment, intangible assets, and to complete acquisitions, including related earn-out payments. The remaining proceeds have been invested in U.S. Treasury securities money market funds with
short-term weighted average duration, directly in U.S. Treasury securities and in FDIC-insured certificates of deposit with terms of one year or less. Our current and planned use of the proceeds does not represent a material change from the use of
proceeds described in the prospectus relating to the Registration Statement.



|Item 6. | Exhibits
|------- | --------



|               |  |                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------
|Exhibit
Number |  | Description of Document                                                           
|               | 
|31.1+          |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer                 
|               | 
|31.2+          |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer                 
|               | 
|32.1+          |  | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.



|+ | Filed herewith.
|- | ---------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.



MARKET LEADER, INC.By:

/S/    JACQUELINE
DAVIDSONJacqueline DavidsonChief Financial OfficerAuthorized Officer and Principal Financial
Officer and Principal Accounting Officer


Date: May 11, 2010



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