Local 10K 2007 Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2007
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number:000-50989

LOCAL.COM CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		33-0849123
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Technology Drive, Building G

Irvine, CA 92618

(Address of principal executive offices)(Zip Code)

(949) 784-0800

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, par value $0.00001		Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.00001

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. o

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. (Check one):


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

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

The aggregate market value of voting and non-voting common equity held by non-affiliates of the issuer was approximately $95,291,908.44 based on the last reported sale price of registrant’s common stock on June 30, 2007 as reported by Nasdaq Capital Market.

As of February 29, 2008, the number of shares of the registrant’s common stock outstanding: 14,204,110

Documents incorporated by reference:

None

LOCAL.COM CORPORATION

TABLE OF CONTENTS


			Page

PART I

	Item 1.	Business		2
	Item 1A.	Risk Factors		7
	Item 1B.	Unresolved Staff Comments		14
	Item 2.	Properties		15
	Item 3.	Legal Proceedings		15
	Item 4.	Submission of Matters to a Vote of Security Holders		15

PART II
	Item 5.	Market the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
	Item 6.	Selected Financial Data		18
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Result of Operations		19
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		30
	Item 8.	Financial Statements and Supplemental Data		31
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		31
	Item 9A(T).	Controls and Procedures		31
	Item 9B.	Other Information		32

PART III
	Item 10.	Directors, Executive Officers, and Corporate Governance		32
	Item 11.	Executive Compensation		37
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		47
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		49
	Item 14.	Principal Accountant Fees and Services		49

PART IV
	Item 15.	Exhibits, Financial Statement Schedules		50
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I


Item 1.	*Business*

Overview

We provide paid-search advertising services to local and national businesses on the Internet. Our services enable businesses to list their products and services in our distributed Internet search results. By providing listings of products and services to consumers in a targeted search context, we offer businesses an effective method of advertising to consumers during the purchasing process.

Our sponsored listings are derived from our Advertiser Network, which includes our direct advertisers as well as indirect advertisers from other paid-search and directory companies. We supply these aggregated sponsored listings to our own Local.com web site and our Distribution Network, which is a network of web sites and search engines that integrate our search results into their web sites, in response to targeted keyword searches performed by Internet users on those web sites.

We generate revenue each time an Internet user initiates a search on our own Local.com web site or on our Distribution Network and clicks-through on a sponsored listing from our Advertiser Network. We generally compile these sponsored listings according to bid price, which is the amount an advertiser is willing to pay for each click-through. Advertisers pay only when an Internet user clicks-through on the advertiser’s sponsored listing. We also generate revenue from monthly fee arrangements and display advertising (banners).

Prior to 2005, we provided search services that benefited national advertisers. During 2005, we began to transition away from national search services and to focus on local search services.

In August 2005, we launched Local.com, a consumer facing destination web site specializing in local search. Local.com uses a combination of our proprietary Keyword DNA^tm and geographic web indexing technologies to provide relevant search results for local business, products and services and sponsored listings.

Industry Overview

We believe that searches for products, services and businesses within a geographic region, or local search, will be an increasingly significant segment of the online advertising industry. Although paid-search advertising has been used primarily by businesses that serve the national market, local businesses are increasingly using online advertising to attract local customers. Local search allows consumers to search for local businesses’ products or services by including geographic area, zip code, city and other geographically targeted search parameters in their search requests. Local search is relatively new, and as a result it is difficult to determine our current market share or predict our future market share; however, Borrell Associates, Inc. estimates that the local search market in the United States will grow to $13.8 billion by 2012.

Our Solution

Prior to 2005, we provided search services that benefited national advertisers. During 2005, we began to transition our resources away from national search services in order to focus on local search. In August 2005, we launched Local.com, a consumer facing destination web site specializing in local search. We believe our Local.com web site provides the following benefits to local advertisers and consumers:


	•	Targeted Advertising. By bidding on relevant keywords, businesses can target consumers at the exact time a consumer has demonstrated an interest, through search, in what the business has to offer. We believe that paid-search advertising delivers a more relevant list of commercial sites for Internet users because advertisers generally only bid on keywords that are related to the products and services they offer.

	•	Large Number of Local Advertisers and Business Listing. When Internet users perform a search on Local.com, they are able to find sponsored listings from a large number of advertisers from other paid-search and Internet yellow pages companies. In addition, we also display relevant listings from approximately 15 million businesses in the United States from our indexed listings. The breadth of advertisers within our Advertiser Network increases the likelihood that we can provide relevant sponsored listings to consumers.


		We believe that this increases the possibility that consumers will click-through on one of our sponsored listings, thereby generating revenue for us as well as our Advertiser Network partner.

Our Strategy

Our objective is to be a leader in local search by increasing the number of advertisers and consumers on Local.com, by enhancing the services we currently provide and by developing new products and services. The key elements of our strategy are to:


	•	Increase the Number of Advertisers on Local.com. We intend to increase the number of advertisers on Local.com by selling advertising products directly to local businesses, establishing new relationships with other paid-search companies, participating in trade shows, and strengthening our brand through other marketing activities. We also intend to pursue expansion of our business into international markets where consumers, advertisers and search providers are seeking local search technologies.

	•	Increase the Number of Consumers on Local.com. We intend to drive more consumers to Local.com through our marketing efforts and new business initiatives. The more searches we receive and respond to with sponsored listings, the more opportunities we have to display banner advertisements and to receive click-throughs on those sponsored listings, and therefore, to generate revenue.

	•	Develop New and Enhance Existing Local Search Services. We believe that the demand for search results targeted to a specific geographic region is increasing as more people have begun to rely on the Internet as their primary reference source. We further believe our local search technology will enable increasing numbers of local businesses to connect with consumers via paid-search. In 2004, we launched our local search and advertising platform, now named LocalConnect. We primarily market LocalConnect to directory web sites, newspaper publishers and city guides that generally have existing relationships with local businesses. It is our objective to continue to offer directory web sites, newspaper publishers and city guides serving local markets a growing range of advertising services that are integrated into our LocalConnect platform, which they can select to offer to their own advertisers. In March 2005, we acquired the Local.com domain name and in August 2005, we launched our Local.com web site, a consumer facing destination web site specializing in local search. We intend to commit additional resources, mainly research and development personnel to enhance and develop new features for our Local.com web site.

	•	International Expansion. We intend to market our local search services in foreign markets. We believe that our services, specifically Local.com, can be deployed in foreign markets. When we establish foreign operations, we may need to make capital expenditures for data centers and hire staff in various countries.

	•	Acquisition of Strategic Technologies and Businesses. We may acquire technologies and other businesses that enhance our ability to serve consumers, advertisers and our platform clients with our national and local search services.

Our Services

Prior to 2005, we provided search services that benefited national advertisers. During 2005, we began to transition away from national search services and to focus on local search. In August 2005, we launched Local.com, a consumer facing destination web site specializing in local search.

Local Search

Local.com is a consumer facing destination web site specializing in local search. Local.com uses a combination of our proprietary Keyword DNA^tm and geographic web indexing technologies to provide relevant search results for local business, products and services and sponsored listings. We generate revenue each time an Internet user initiates a search on our own Local.com web site and clicks-through on a sponsored listing from our Advertiser Network. We also generate revenue from monthly fee arrangements and display advertising (banners).

Pay-Per-Click (PPC)

Pay-Per-Click (PPC) allows advertisers to bid on keywords in specific location to have their ads or business listings delivered throughout the Local.com search results and our Local.com ad network. Advertisers pay us when a consumer click-throughs on an advertiser’s listing that was displayed in search results.

Banner Advertisements

Banner advertisements are graphical advertisements that are displayed on the search results page in response to searches performed on our Local.com web site and our Local.com ad network. Advertisers pay us each time their banner ad appears on a search results page.

Local Promote

Local Promote is a subscription advertising product for local businesses. Local Promote provides local businesses with premium placement at the top of targeted search results in specific categories and geographic regions. It offers businesses the ability to build their own branded web pages, where businesses can post company logos, photos, company taglines, and special offer links, in addition to the standard profile page contact information. Local Promote also automatically submits businesses’ listings to the major search engines and offers advanced call tracking capabilities that allow local businesses to further measure the success of their online advertising campaigns by linking their online ad to phone calls received.

Local Connect

Local Connect is a search and advertising platform that we license to directory web sites and newspaper publishers. This platform enables our customers to offer local search functionality on their own web site. Local Connect enables our partners to generate revenue from local advertisers by offering local advertiser sponsored listings on the directories’ or publishers’ web sites.

National Search

Our national paid-search services enable businesses to advertise their products and services with sponsored listings that we make available in response to relevant search requests by Internet users. Our distribution model is designed to concurrently source sponsored listings from both our direct advertisers as well as advertisers of other paid-search engines, and then distribute those listings throughout our Distribution Network of web sites and search engines in response to specific keyword searches by consumers on those sites. Advertisers pay only when an Internet user clicks-through on their sponsored listing. When an Internet user clicks-through on a sponsored listing from our Advertiser Network, we generate revenue that we then share with the applicable Distribution Network partner.

Technology, Research and Development

We make our services available to advertisers and consumers through a combination of our own proprietary technology and commercially available technology from industry leading providers.

We believe that it is important that our technologies be compatible with the systems used by our Advertiser Network partners. Our core technology platform operates on universally accepted standards such as XML and SOAP for business-to-business computing and we believe that these standards provide for platform independence and simplified integration with other systems. We rely upon third parties to provide hosting services, including hardware support and service and network coordination.

Our research and development efforts are focused on developing new services and enhancing our existing services to provide additional features and functionality that we believe will appeal to our advertisers and consumers. Our research and development efforts also include the development and implementation of business continuity and disaster recovery systems, improvement of data retention, backup and recovery processes. As of December 31, 2007, we had nineteen employees in product and technical development.

Our research and development expenses were $2.6 million, $2.8 million and $3.0 million for the years ended December 31, 2007, 2006 and 2005, respectively.

Keyword DNA Technology

Our patented Keyword DNA technology is our proprietary method for indexing large amounts of data, and is critical to Local.com. Keyword DNA technology enables consumers to enter into a search engine the particular product or service they are seeking and a given geographic area. Our Keyword DNA technology then attempts to locate the appropriate business listing, searching as many different data sources as directed, to find the results. Unlike other search engine technologies, Keyword DNA is designed to return only the businesses that supply, or are likely to supply, the appropriate product or service in a given geographic area. Keyword DNA does not return results based upon information that may appear on a web site. We believe that our methodology increases the relevancy of geographically targeted search results.

Competition

The online paid-search market is intensely competitive. Our primary current competitors include Yahoo!, Google and online directories, such as Switchboard.com, Superpages.com and Yellowpages.com. Non-paid-search engines are beginning to offer paid-search services, and we believe that additional companies will enter into the paid-search advertising market. Although we currently pursue a strategy that allows us to partner with a broad range of web sites and search engines, our current and future partners may view us as a threat to their own internal paid-search services. We believe that the principal competitive factors in our market are network size, revenue sharing arrangements, services, convenience, accessibility, customer service, quality of search tools, quality of editorial review and reliability and speed of fulfillment of paid-search listings across the Internet infrastructure.

We also compete with other online advertising services as well as traditional offline media such as television, radio and print, for a share of businesses’ total advertising budgets. Nearly all of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may secure more favorable revenue sharing arrangements with network distributors, devote greater resources to marketing and promotional campaigns, adopt more aggressive growth strategies and devote substantially more resources to web site and systems development than we do.

The search industry has experienced consolidation, including the acquisitions of companies offering paid-search services. Industry consolidation may result in larger, more established and well-financed competitors with a greater focus on paid-search services. If this trend continues, we may not be able to compete in the paid-search market and our financial results may suffer.

Additionally, larger companies such as Google and Microsoft may implement technologies into their search engines or software that make it less likely that consumers will reach, or execute searches on, Local.com and less likely to click-through on our Advertiser Network partners’ sponsored listings. If we are unable to successfully compete against current and future competitors or if our current Advertising Network partners choose to rely more heavily on their own distribution networks in the future, our operating results will be adversely affected.

Major Customers

We have three customers that represent more than 10% of our total revenue. Our local Advertiser Network partner, Yahoo! Inc., represented 49%, 40%, and 2% of our total revenue for the years ended December 31, 2007, 2006 and 2005, respectively. Our local Advertiser Network partner, Idearc Meadia Corp., represented 15%, 3%, and 0% of our total revenue for the years ended December 31, 2007, 2006 and 2005, respectively. Our national Advertiser Network partner, LookSmart, Ltd., represented 1%, 15% and 30% of our consolidated revenue for the years ended December 31, 2007, 2006 and 2005, respectively.

Traffic Acquisition

month period ending December 31, 2007, approximately 90% of the traffic on our Local.com web site was acquired from other search engine web sites. During the year ended December 31, 2007, traffic acquisition costs (TAC) were $13.7 million of which $10.9 million was paid to Google, Inc.

Intellectual Property

Our success and ability to compete are substantially dependent upon our internally developed technology and data resources. We seek to protect our intellectual property through existing laws and regulations, as well as through contractual restrictions. We rely on trademark, patent and copyright law, trade secret protection and confidentiality and license agreements with our employees, customers, partners and others to protect our intellectual property.

We own the registered trademarks for “ePilot,” “Keyword DNA” and “Pay Per Connect,” in the United States. We may claim trademark rights in, and apply for registrations in the United States for a number of other marks.

We have been issued three patents by the United States Patent and Trademark Office: Methods and Systems for a Dynamic Networked Commerce Architecture; Methods and Systems for Enhanced Directory Assistance Using Wireless Messaging Protocols; and Methods and Apparatus of Indexing Web Pages of a Web Site for Geographical Searchine Based on User Location. We have patent applications pending related to a variety of business and transactional processes associated with paid-search and othercost-per-event advertising models in different environments. We may consolidate some of our current applications and expect to continue to expand our patent portfolio in the future. We cannot assure you, however, that any of these patent applications will be issued as patents, that any issued patents will provide us with adequate protection against competitors with similar technology, that any issued patents will afford us a competitive advantage, that any issued patents will not be challenged by third parties, that any issued patents will not be infringed upon or designed around by others, or that the patents of others will not have a material adverse effect on our ability to do business. Furthermore, our industry has been subject to frequent patent-related litigation by the companies and individuals that compete in it. The outcome of ongoing litigation or any future claims in our industry could adversely affect our business or financial prospects.

Government Regulation

Like many companies, we are subject to existing and potential government regulation. There are, however, comparatively few laws or regulations specifically applicable to Internet businesses. Accordingly, the application of existing laws to Internet businesses, including ours, is unclear in many instances. There remains significant legal uncertainty in a variety of areas, including, but not limited to: user privacy, the positioning of sponsored listings on search results pages, defamation, taxation, the provision of paid-search advertising to online gaming sites, the legality of sweepstakes, promotions and gaming sites generally, and the regulation of content in various jurisdictions.

Compliance with federal laws relating to the Internet and Internet businesses may impose upon us significant costs and risks, or may subject us to liability if we do not successfully comply with their requirements, whether intentionally or unintentionally. For example, the Digital Millennium Copyright Act, which is in part intended to reduce the liability of online service providers for listing or linking to third party web sites that include materials that infringe the rights of others, was adopted by Congress in 1998. If we violate the Digital Millennium Copyright Act we could be exposed to costly and time-consuming copyright litigation.

There are a growing number of legislative proposals before Congress and various state legislatures regarding privacy issues related to the Internet generally, and some of these proposals apply specifically to paid-search businesses. We are unable to determine if and when such legislation may be adopted. If certain proposals were to be adopted, our business could be harmed by increased expenses or lost revenue opportunities, and other unforeseen ways. We anticipate that new laws and regulations affecting us will be implemented in the future. Those new laws, in addition to new applications of existing laws, could expose us to substantial liabilities and compliance costs.

Employees

As of December 31, 2007 we had sixty-eight employees, all of which were full-time, nineteen of which were engaged in research and development, thirty-six in sales and marketing and thirteen in general and administration.

None of our employees are represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.

Corporation Information

We were incorporated in Delaware in March 1999 as eWorld Commerce Corporation. In August 1999, we changed our name to eLiberation.com Corporation. In February 2003, we changed our name to Interchange Corporation. On November 2, 2006, we changed our name to Local.com Corporation.


Item 1A.	*Risk Factors*

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this Report before making an investment decision. If any of the possible adverse events described below actually occur, our business, results of operations or financial condition would likely suffer. In such an event, the market price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, results of operations or financial condition.

If we are not successful with our Local.com initiative, our future financial performance may be affected.

In March 2005, we purchased the Local.com domain name. On August 9, 2005, we launched Local.com, a consumer facing destination web site specializing in local search. This site is our first consumer facing business and we intend to invest significant amounts of time and resources on Local.com We cannot assure you that we will be successful in growing revenue from local search, in attracting consumers or advertisers to Local.com, or in achieving a positive impact on our operational and financial performance with Local.com. If we are unable to attract consumersand/or advertisers to Local.com, our financial performance may be adversely affected.

We have historically incurred losses and expect to incur losses in the future, which may impact our ability to implement our business strategy and adversely affect our financial condition.

We have a history of losses. We had a net loss of $18.2 million for the year ended December 31, 2007 and $13.3 million for the year ended December 31, 2006. We also had an accumulated deficit of $49.2 million at December 31, 2007 and expect to have a net loss for at least the next quarter. We have significantly increased our operating expenses by expanding our operations in order to grow our business and further develop and maintain our services. Such increases in operating expense levels may adversely affect our operating results if we are unable to immediately realize benefits from such expenditures. We cannot assure you that we will be profitable or generate sufficient profits from operations in the future. If our revenue does not grow, we may experience a loss in one or more future periods. We may not be able to reduce or maintain our expenses in response to any decrease in our revenue, which may impact our ability to implement our business strategy and adversely affect our financial condition.

We face intense competition from larger, more established companies, as well as our own Advertiser Network partners, and we may not be able to compete effectively, which could reduce demand for our services.

The online paid-search market is intensely competitive. Our primary current competitors include Yahoo! Inc., Google Inc. and online directories, such as Switchboard. Although we currently pursue a strategy that allows us to partner with a broad range of web sites and search engines, our current and future partners may view us as a threat to their own internal paid-search services. Nearly all of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our competitors may secure more favorable revenue sharing arrangements with network distributors, devote greater resources to marketing and promotional campaigns, adopt more aggressive growth strategies and devote substantially more resources to web site and systems development than we do. In addition, the search industry has experienced consolidation, including the acquisitions of companies offering paid-search services. Industry

consolidation has resulted in larger, more established and well-financed competitors with a greater focus on paid-search services. If these industry trends continue, or if we are unable to compete in the paid-search market, our financial results may suffer.

Additionally, larger companies such as Google and Microsoft Corporation may implement technologies into their search engines or software that make it less likely that consumers can reach, or execute searches on, Local.com and less likely to click-through on our Advertiser Network partners’ sponsored listings. The implementation of such technologies could result in a decline in click-throughs to our advertisers’ sponsored listings, which would decrease our revenues. If we are unable to successfully compete against current and future competitors or if our current Advertising Network partners choose to rely more heavily on their own distribution networks in the future, our operating results will be adversely affected.

We rely on our Advertiser Network partners to provide us access to their advertisers, and if they do not, it could have an adverse impact on our business.

We rely on our Advertiser Network partners to provide us with advertiser listings so that we can distribute these listings to Local.com or our Distribution Network partners in order to generate revenue when a consumer click-through occurs on our Advertiser Network partners’ sponsored listings. For the year ended December 31, 2007, 87% of our revenue was derived from our Advertiser Network partners. In addition, 97% of our revenues from Local.com are derived from our Advertiser Network partners. Most of our agreements with our Advertiser Network partners are short-term, and, as a result, they may discontinue their relationship with us or negotiate new terms that are less favorable to us, at any time, with little or no notice. Our success depends, in part, on the maintenance and growth of our Advertiser Network partners. If we are unable to develop or maintain relationships with these partners, our operating results and financial condition will suffer.

Our executive officers and certain key personnel are critical to our success, and the loss of these officers and key personnel could harm our business.

Our performance is substantially dependent on the continued services and performance of our executive officers and other key personnel. We only have employment agreements with our three executive officers: Heath B. Clarke (Chief Executive Officer and Chairman of the Board), Stanley B. Crair (President and Chief Operating Officer) and Douglas S. Norman (Chief Financial Officer and Secretary). Each of Messrs. Clarke, Crair and Norman’s employment agreements may be terminated with 30 days notice by either the executive or us. No key man life insurance has been purchased on any of Messrs. Clarke, Crair or Norman. Our performance also depends on our ability to retain and motivate our officers and key employees. The loss of the services of any of our officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. The failure to attract and retain our officers or the necessary technical, managerial and marketing personnel could have a material adverse effect on our business, prospects, financial condition and results of operations.

The market for Internet and local search advertising services is in the early stages of development, and if the market for our services decreases it will have a material adverse effect on our business, prospects, financial condition and results of operations.

Internet marketing and advertising, in general, and paid-search, in particular, are in the early stages of development. Our future revenue and profits are substantially dependent upon the continued widespread acceptance, growth, and use of the Internet and other online services as effective advertising mediums. Many of the largest advertisers have generally relied upon more traditional forms of media advertising and have only limited experience advertising on the Internet. Local search, in particular, is still in an early stage of development and may not be accepted by consumers for many reasons including, among others, that consumers may conclude that local search results are less relevant and reliable than non-paid-search results, and may view paid-search results less favorably than search results generated by non-paid-search engines. If consumers reject our paid-search services, or

commercial use of the Internet generally, and the number of click-throughs on our sponsored listings decreases, the commercial utility of our search services could be adversely affected.

We expect that our anticipated future growth, including through potential acquisitions, may strain our management, administrative, operational and financial infrastructure, which could adversely affect our business.

We anticipate that significant expansion of our present operations will be required to capitalize on potential growth in market opportunities. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. We expect to add a significant number of additional key personnel in the future, including key managerial and technical employees who will have to be fully integrated into our operations. In order to manage our growth, we will be required to continue to implement and improve our operational and financial systems, to expand existing operations, to attract and retain superior management, and to train, manage and expand our employee base. We cannot assure you that we will be able to effectively manage the expansion of our operations, that our systems, procedures or controls will be adequate to support our operations or that our management will be able to successfully implement our business plan. If we are unable to manage growth effectively, our business, financial condition and results of operations could be materially adversely affected.

We may incur impairment losses related to goodwill and other intangible assets which could have a material and adverse effect on our financial results.

As a result of our acquisition of Inspire Infrastructure 2i AB, the purchase of Local.com domain name, the Atlocal asset purchase and the acquisition of PremierGuide, Inc., we have recorded substantial goodwill and intangible assets in our consolidated financial statements. During the year ended December 31, 2005, due to the deterioration of revenues in Europe since the acquisition of Inspire in February 2005, we believed that the carrying amount for customer contracts and relationships was impaired. The carrying amount of customer contracts and relationships exceeded the sum of the undiscounted cash flows expected and as a result, we wrote-down the remaining unamortized balance of $337,000. We are required to perform impairment reviews of our goodwill and other intangible assets, which are determined to have an indefinite life and are not amortized. Such reviews are performed annually or earlier if indicators of potential impairment exist. We performed our annual impairment analysis as of December 31, 2007 and determined that no impairment existed. Future impairment reviews may result in charges against earnings to write-down the value of intangible assets.

We may be subject to intellectual property claims that create uncertainty about ownership of technology essential to our business and divert our managerial and other resources.

There has been a substantial amount of litigation in the technology industry regarding intellectual property rights. We cannot assure you that third parties will not, in the future, claim infringement by us with respect to our current or future services, trademarks or other proprietary rights. Our success depends, in part, on our ability to protect our intellectual property and to operate without infringing on the intellectual property rights of others in the process. There can be no guarantee that any of our intellectual property will be adequately safeguarded, or that it will not be challenged by third parties. We may be subject to patent infringement claims or other intellectual property infringement claims that would be costly to defend and could limit our ability to use certain critical technologies.

We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings is costly and may divert our technical and management personnel from their normal responsibilities. We may not prevail in any of these suits. An adverse determination of any litigation or defense proceedings could cause us to pay substantial damages, including treble damages if we willfully infringe, and, also, could put our patent applications at risk of not being issued.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this

type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. If investors perceive these results to be negative, it could have an adverse effect on the trading price of our common stock.

Any patent litigation could negatively impact our business by diverting resources and management attention away from other aspects of our business and adding uncertainty as to the ownership of technology and services that we view as proprietary and essential to our business. In addition, a successful claim of patent infringement against us and our failure or inability to obtain a license for the infringed or similar technology on reasonable terms, or at all, could have a material adverse effect on our business.

We may be subject to lawsuits for information displayed on our web sites and the web sites of our advertisers, which may affect our business.

Laws relating to the liability of providers of online services for activities of their advertisers and for the content of their advertisers’ listings are currently unsettled. It is unclear whether we could be subjected to claims for defamation, negligence, copyright or trademark infringement or claims based on other theories relating to the information we publish on our web sites or the information that is published across our Distribution Network. These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past. We may not successfully avoid civil or criminal liability for unlawful activities carried out by our advertisers. Our potential liability for unlawful activities of our advertisers or for the content of our advertisers’ listings could require us to implement measures to reduce our exposure to such liability, which may require us, among other things, to spend substantial resources or to discontinue certain service offerings. Our insurance may not adequately protect us against these types of claims and the defense of such claims may divert the attention of our management from our operations. If we are subjected to such lawsuits, it may adversely affect our business.

Government and legal regulations may damage our business.

We are not currently subject to direct regulation by any government agency, other than regulations generally applicable to Internet businesses, and there are currently few significant laws or regulations directly applicable to access to or commerce on the Internet. It is possible, however, that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as the positioning of sponsored listings on search results pages. For example, the Federal Trade Commission, or FTC, has recently reviewed the way in which search engines disclose paid-search practices to Internet users. In 2002, the FTC issued guidance recommending that all search engine companies ensure that all paid-search results are clearly distinguished from non-paid results, that the use of paid-search is clearly and conspicuously explained and disclosed and that other disclosures are made to avoid misleading users about the possible effects of paid-search listings on search results. The adoption of laws or regulations relating to placement of paid search advertisements or user privacy, defamation or taxation may inhibit the growth in use of the Internet, which in turn, could decrease the demand for our services and increase our cost of doing business or otherwise have a material adverse effect on our business, prospects, financial condition and results of operations. Any new legislation or regulation, or the application of existing laws and regulations to the Internet or other online services, could have a material adverse effect on our business, prospects, financial condition and results of operations.

If we do not deliver traffic that converts into revenue for advertisers, then the advertisers may pay us less for their listing or discontinue listings with us.

For our services to be successful, we need to deliver consumers to advertisers’ web sites that convert into sales for the advertiser. If we do not meet advertisers’ expectations by delivering quality traffic, then they may reduce their bid prices or cease doing business with us, which may adversely affect our business and financial results.

If we fail to detect click-through fraud, we could lose the confidence of our advertisers, thereby causing our business to suffer.

We are exposed to the risk of fraudulent or illegitimate clicks on our sponsored listings. If fraudulent clicks are not detected, the affected advertisers may experience a reduced return on their investment in our advertising programs because the fraudulent clicks will not lead to revenue for the advertisers. As a result, our advertisers may become dissatisfied with our advertising programs, which could lead to loss of advertisers and revenue.

Failure to adequately protect our intellectual property and proprietary rights could harm our competitive position.

Our success is substantially dependent upon our proprietary technology, which relates to a variety of business and transactional processes associated with our paid-search advertising model, our Keyword DNA technology and our Local Connect search and advertising platform. We rely on a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality agreements and technical measures, to protect our proprietary rights. We have been issued three patents and although we have filed additional patent applications on certain parts of our technology, much of our proprietary information may not be patentable. We cannot assure you that we will develop proprietary technologies that are patentable or that any pending patent applications will be issued or that their scope is broad enough to provide us with meaningful protection. We own the trademarks for ePilot, Pay Per Connect and Keyword DNA in the United States and may claim trademark rights in, and apply for trademark registrations in the United States for a number of other marks. We cannot assure you that we will be able to secure significant protection for these marks. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our services or to obtain and use information that we regard as proprietary. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology or duplicate our services or design around patents issued to us or our other intellectual property rights. If we are unable to adequately protect our intellectual property and proprietary rights, our business and our operations could be adversely affected.

We may experience downward pressure on our bid prices if advertisers do not obtain a competitive return on investment, which could have a material and adverse effect on our financial results.

We may experience downward pressure on our bid prices if advertisers do not obtain a favorable return on investment from our paid-search services in comparison to our competitors’ services or other advertising methods. We compete with other web search services, online publishers and high-traffic web sites, as well as traditional media such as television, radio and print, for a share of our advertisers’ total advertising expenditures. Many potential advertisers and advertising agencies have only limited experience advertising on the Internet and have not devoted a significant portion of their advertising expenditures to paid-search. Acceptance of paid-search marketing among advertisers will depend, to a large extent, on its perceived effectiveness and the continued growth of commercial usage of the Internet. If we experience downward pricing pressure for our services in the future, our financial results may suffer.

Two of our Advertiser Network partners have provided a substantial portion of our revenue; the loss of either of these partners may have a material adverse effect on our operating results.

Our Advertiser Network partner, Yahoo! Inc., represented 48% of our total revenue for the year ended December 31, 2007 and our Advertiser Network partner, Idearc Media Corp, represented 15% of our total revenue for the year ended December 31, 2007. It is difficult to predict whether Yahoo and Idearc will continue to represent such a significant portion of our revenue in the future. Either partner may choose not to renew our agreement in the future or may choose to reduce the use of our paid-search services, in which case our business and financial results may be harmed.

Two customers account for a significant portion of our accounts receivable, and the failure to collect from those customers would harm our financial condition and results of operations.

While most of our customers pay for our services in advance, some do not. Two of our customers that do not pay in advance, Yahoo!, Inc. and Idearc Media Corp., have and will likely continue for the foreseeable future to account for a significant portion of our accounts receivable. At December 31, 2007, Yahoo represented 62% and Idearc represented 12% of our total accounts receivable. Yahoo’s and Idearc’s accounts have been, and will likely continue to be, unsecured and any failure to collect on those accounts would harm our financial condition and results of operations.

A significant portion of the traffic to our local.com web site is acquired from other search engines, mainly google.com, the loss of the ability to acquire traffic could have a material and adverse effect on our financial results.

We advertise on other search engine web sites, primarily google.com, but also yahoo.com, msn.com and ask.com, by bidding on certain keywords we believe will drive traffic to our Local.com website. During the three month period ending December 31, 2007, approximately 90% of the traffic on our Local.com website was acquired from other search engine websites. During the year ended December 31, 2007, traffic acquisition costs (TAC) were $13.7 million of which $10.9 million was paid to Google, Inc. If we are unable to advertise on these web sites, or the cost to advertise on these web sites increases, our financial results may suffer.

Problems with our computer and communication systems may harm our business.

A key element of our strategy is to generate a high volume of traffic across our network infrastructure to and from our Advertiser and Distribution Network partners. Accordingly, the satisfactory performance, reliability and availability of our software systems, transaction-processing systems and network infrastructure are critical to our reputation and our ability to attract and retain advertising customers, as well as maintain adequate customer service levels. We may experience periodic systems interruptions. Any substantial increase in the volume of traffic on our software systems or network infrastructure will require us to expand and upgrade our technology, transaction-processing systems and network infrastructure. We cannot assure you that we will be able to accurately project the rate or timing of increases, if any, in the use of our network infrastructure or timely expand and upgrade our systems and infrastructure to accommodate such increases.

We rely on third party technology, server and hardware providers, and a failure of service by these providers could adversely affect our business and reputation.

We rely upon third party data center providers to host our main servers and expect to continue to do so. In the event that these providers experience any interruption in operations or cease operations for any reason or if we are unable to agree on satisfactory terms for continued hosting relationships, we would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. We may also be limited in our remedies against these providers in the event of a failure of service. In the past, we have experienced short-term outages in the service maintained by one of our current co-location providers. We also rely on third party providers for components of our technology platform, such as hardware and software providers, credit card processors and domain name registrars. A failure or limitation of service or available capacity by any of these third party providers could adversely affect our business and reputation.

State and local governments may be able to levy additional taxes on Internet access and electronic commerce transactions, which could result in a decrease in the level of usage of our services.

Beginning in 1998, the federal government imposed a moratorium on state and local governments’ imposition of new taxes on Internet access and eCommerce transactions, which has now expired. State and local governments may be able to levy additional taxes on Internet access and eCommerce transactions unless the moratorium is

reinstituted. Any increase in applicable taxes may make eCommerce transactions less attractive for businesses and consumers, which could result in a decrease in eCommerce activities and the level of usage of our services.

The market price of our common stock has been and is likely to continue to be highly volatile, which could cause investment losses for our stockholders and result in stockholder litigation with substantial costs, economic loss and diversion of our resources.

Prior to our initial public offering, which was completed on October 22, 2004, there was no public trading market for our common stock. We cannot predict the extent to which investor interest will support an active and liquid trading market for our common stock.

In addition, the trading price of our common stock has been and is likely to continue to be highly volatile and could be subject to wide fluctuations as a result of various factors, many of which are beyond our control, including:


	•	developments concerning proprietary rights, including patents, by us or a competitor;

	•	market acceptance of our new and existing services and technologies;

	•	announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments;

	•	actual or anticipated fluctuations in our operating results;

	•	continued growth in the Internet and the infrastructure for providing Internet access and carrying Internet traffic;

	•	introductions of new services by us or our competitors;

	•	enactment of new government regulations affecting our industry;

	•	changes in the number of our Advertising and Distribution Network partners;

	•	seasonal fluctuations in the level of Internet usage;

	•	loss of key employees;

	•	institution of intellectual property litigation by or against us;

	•	success of our international expansion;

	•	changes in the market valuations of similar companies; and

	•	changes in our industry and the overall economic environment.

Due to the short-term nature of our Advertiser Network and Distribution Network partner agreements and the emerging nature of the paid-search market, we may not be able to accurately predict our operating results on a quarterly basis, if at all, which may lead to volatility in the trading price of our common stock. In addition, the stock market in general, and the Nasdaq Capital Market and the market for online commerce companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the listed companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market, securities class action litigation has often been instituted against these companies. Litigation against us, whether or not a judgment is entered against us, could result in substantial costs, and potentially, economic loss, and a diversion of our management’s attention and resources. As a result of these and other factors, you may not be able to resell your shares above the price you paid and may suffer a loss on your investment.

Future sales of shares of our common stock that are eligible for sale by our stockholders may decrease the price of our common stock.

We had 14,204,110 shares of common stock outstanding on December 31, 2007. Of these shares, 131,516 are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144

under the Securities Act. In addition, there were outstanding options to purchase 2,703,850 shares of our common stock and warrants to purchase 3,470,278 shares of our common stock. Actual sales, or the prospect of sales by our present stockholders or by future stockholders, may have a negative effect on the market price of our common stock.

Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.

Our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock. The following are examples of such provisions in our amended and restated certificate of incorporation and in our amended and restated bylaws:


	•	special meetings of our stockholders may be called only by our Chief Executive Officer, by a majority of the members of our board of directors or by the holders of shares entitled to cast not less than 10% of the votes at the meeting;

	•	stockholder proposals to be brought before any meeting of our stockholders must comply with advance notice procedures;

	•	our board of directors is classified into three classes, as nearly equal in number as possible;

	•	newly-created directorships and vacancies on our board of directors may only be filled by a majority of remaining directors, and not by our stockholders;

	•	a director may be removed from office only for cause by the holders of at least 75% of the voting power entitled to vote at an election of directors;

	•	our amended and restated bylaws may be further amended by our stockholders only upon a vote of at least 75% of the votes entitled to be cast by the holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class; and

	•	our board of directors is authorized to issue, without further action by our stockholders, up to 10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors.

We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our voting stock, the person is an “interested stockholder” and may not engage in “business combinations” with us for a period of three years from the time the person acquired 15% or more of our voting stock.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes against its post-change income may be limited. We believe that with our initial public offering, our recent private placements and other transactions that have occurred over the past three years, we have triggered an “ownership change” limitation. We have performed an analysis to determine to what extent our ability to utilize our net operating loss carryforwards is limited. We determined that our Section 382 limitation is $3.7 million a year. We may also experience ownership change in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2007 we have net operating loss carryforwards of approximately $47.2 million and $40.6 million for federal and state income tax purposes, respectively.


Item 1B.	*Unresolved Staff Comments*

None


Item 2.	*Properties*

Our executive and administrative offices are located at One Technology Drive, Building G, Irvine, California, where we lease approximately 23,352 square feet of space in a two-story office building. Our current monthly rent is $29,891, subject to annual increases. Our lease for this space ends in June 2010.


Item 3.	*Legal Proceedings*

We are not currently a party to any material legal proceedings. From time to time, however, we may be subject to a variety of legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of intellectual property rights and claims arising in connection with our services.


Item 4.	*Submission of Matters to a Vote of Securities Holders*

None

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Market information

Our common stock commenced trading on the Nasdaq Capital Market on October 19, 2004 under the symbol “INCX.” On November 2, 2006, in connection with our company name change, the ticker symbol of our common stock changed to “LOCM.” The following table sets forth the range of reported high and low bid quotations for our common stock as reported on the Nasdaq Capital Market. These prices reflect inter-dealer prices without retail markup, markdown or commissions and may not represent actual transactions.


	High		Low

Year ended December 31, 2006:
First quarter	$	6.33	$	3.23
Second quarter	$	5.28	$	3.05
Third quarter	$	6.60	$	4.17
Fourth quarter	$	6.25	$	3.40
Year ended December 31, 2007
First quarter	$	5.28	$	3.05
Second quarter	$	6.95	$	3.71
Third quarter	$	13.74	$	4.64
Fourth quarter	$	8.18	$	3.35

Holders

On December 31, 2007, the closing price of our common stock, as reported by the Nasdaq Capital Market, was $4.81 per share and the number of stockholders of record of our common stock was 65.

Dividends

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to finance the growth and development of our business and therefore do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, and such other factors as our board of directors deems relevant.

Performance graph

The following graph compares the cumulative38-month total return to shareholders on Local.com Corporation’s common stock relative to the cumulative total returns of the NASDAQ Composite index and the RDG Internet Composite index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in the company’s common stock on10/19/04 and its relative performance is tracked through12/31/2007.

COMPARISON OF 38 MONTH CUMULATIVE TOTAL RETURN*
Among Local.com Corporation, The NASDAQ Composite Index
And The RDG Internet Composite Index


*	$100 invested on 10/19/04 in stock or on 9/30/04 in index-including reinvestment of dividends. Fiscal year ending December 31.


	10/04		12/04		12/05		12/06		12/07
Local.com Corporation		100.00		237.12		72.29		52.94		62.88
NASDAQ Composite		100.00		114.12		116.87		130.20		142.26
RDG Internet Composite		100.00		113.64		111.15		125.77		146.11

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Recent sales of unregistered securities

None


Item 6.	*Selected Financial Data*

Consolidated Statement of Operations Data (in thousands, except per share amounts):


	Years Ended December 31,
	2007			2006(1)			2005			2004		2003

Revenue	$	21,525		$	14,213		$	18,139		$	19,072	$	8,784
Operating income (loss)	$	(11,171	)	$	(13,573	)	$	(6,684	)	$	1,671	$	713
Net income (loss)	$	(18,202	)	$	(13,286	)	$	(6,502	)	$	1,536	$	60
Basic net income (loss) per share	$	(1.58	)	$	(1.44	)	$	(0.75	)	$	0.53	$	0.03
Diluted net income (loss) per share	$	(1.58	)	$	(1.44	)	$	(0.75	)	$	0.29	$	0.02
Basic weighted average shares outstanding		11,500			9,250			8,658			2,886		1,813
Diluted weighted average shares outstanding		11,500			9,250			8.658			5,370		3,051

Consolidated Balance Sheet Data (in thousands):


	December 31,
	2007(3)		2006		2005		2004(2)		2003

Cash and cash equivalents	$	14,258	$	3,264	$	1,075	$	24,617	$	699
Marketable securities	$	1,999	$	1,972	$	13,244	$	10,388	$	—
Working capital (deficit)	$	15,002	$	3,377	$	11,618	$	33,489	$	(6,226	)
Total assets	$	38,114	$	24,891	$	35,034	$	38,148	$	2,421
Convertible secured notes payable	$	—	$	—	$	—	$	—	$	1,300
Convertible debentures	$	—	$	—	$	—	$	—	$	2,329
Stockholders’ equity (deficit)	$	32,942	$	20,598	$	30,809	$	34,217	$	(5,896	)


(1)		We adopted Statement of Financial Accounting Standards (SFAS) No. 123R,Share-Based Payment, in January 2006. Our operating loss and net loss for the year ended December 31, 2006 was higher by $2.5 million than if we had continued to account for stock-based employee compensation under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25,Accounting for Stock Issued to Employees. Basic and diluted net loss per share for the year ended December 31, 2006 was $0.27 higher as a result of the adoption of SFAS No. 123R.

(2)		We completed our initial public offering in October 2004 in which we sold 3.2 million shares of our common stock that resulted in net proceeds of $21.7 million. In December 2004, we completed a private placement in which we sold 822,000 shares of our common stock that resulted in net proceeds of $14.0 million.

(3)		We issued $8.0 million of senior secured convertible notes in February 2007. During July 2007, the holders converted all of their notes into 1,990,050 shares of our common stock. In August 2007, we completed a private placement in which we sold 2,356,900 shares of our common stock that result in net proceeds of $12.1 million.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operation*

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this Report.

Overview

We provide paid-search services that enable businesses to reach consumers through targeted online advertising. Our services enable businesses to advertise their products and services by listing them in our search results. We supply these sponsored listings on our web site, Local.com, in response to targeted keyword searches performed by Internet users.

We generate revenue each time an Internet user initiates a search on our Local.com web site and clicks-through on a sponsored listing. We also generate revenue each time we display a banner advertisement on our Local.com web site and through the fulfillment of subscription advertisement listings.

Prior to 2005, we provided services that benefited national advertisers. During 2005, we began to transition away from national search services and to focus on local search.

On November 2, 2006, we changed our name from Interchange Corporation to Local.com Corporation. We amended our Amended and Restated Certificate of Incorporation in connection with a merger of our wholly-owned subsidiary with and into us in accordance with Section 253 of the Delaware General Corporation Law.

Outlook for Our Business

We believe the market for Internet advertising and specifically paid-search services will continue to grow. Borrell Associated, Inc. estimates that the local search market in the United States will grow to $13.8 billion by 2012. We believe that local businesses, those that principally serve consumers within a fifty mile radius of their location, many of which are small and medium sized enterprises, have not been adequately served by the paid-search industry. Our Local.com web site is designed to address this market, which we believe will provide an opportunity for increased revenue from click-throughs on the sponsored listings of local businesses.

Although we have provided services for both local and national advertisers, our focus is transitioning away from the national market and towards the local search market. Our resources are currently being utilized almost entirely on developing our products and services to address the needs of the local search market.

We have increased our operating expenses, mainly sales and marketing and research and development, to support the development and launch of our Local.com web site. We will also continue to increase our sales and marketing expenses to promote our Local.com web site.

Our revenue, profitability and future growth depend not only on our ability to execute our business plan, but also, among other things, on customer acceptance of our services, the growth of the paid-search market and

competition from other providers of paid-search technologies and services. See “Risk Factors” for a more detailed discussion of these and other risks.

Sources of Revenue

We generate revenue primarily from click-throughs on the sponsored listings provided by our Advertiser Network. We also generate revenue from the display of a banner advertisement and the fulfillment of a subscription listing obligation. We enter into a contractual arrangement to distribute sponsored listings and banners from an advertiser or an Advertiser Network partner. The advertisers provide sponsored listings along with bid prices (what the advertisers are willing to pay for each click-through on those listings) to us. These sponsored listings and banners are then included as search results that we distribute in response to keyword searches performed by consumers on our web site.

Advertiser Network Partners

We have contracts with other paid-search and Internet yellow pages companies, our Advertiser Network partners, to provide these partners with consumer search traffic. These partners have their own advertisers who have paid-search campaigns and who have agreed to pay these partners for each click-through on a sponsored listing. Our Advertiser Network partners have agreed to pay us a portion of the revenue that they earn as a result of the click-throughs that we provide to their advertisers from our own destination web site, Local.com. We recognize our portion of the bid price as revenue at the time of a click-through. Our Advertiser Network partners generally have credit terms with us of net 30 days.

Operating Expenses

Search Serving

Search serving expenses consist primarily of revenue-sharing payments that we make to our Distribution Network partners, and to a lesser extent, royalties, Internet connectivity costs, data center costs, amortization of certain software license fees and maintenance and depreciation of computer equipment used in providing our paid-search services. We expect our search serving costs to continue at the same level for the next year.

Sales and Marketing

Sales and marketing expenses largely consist of traffic acquisition, sales commissions, salaries and other costs of employment for our sales force, customer service staff and marketing personnel, advertising and promotional expenses. When an advertiser makes a deposit into its account with us, our applicable salesperson earns a commission. We record sales commission expense in the period the deposit is received. We expect our sales and marketing expenses will continue to increase in absolute dollars as we continue to increase the advertising and traffic acquisition for our Local.com web site.

General and Administrative

General and administrative expenses consist of salaries and other costs of employment of our executive, finance and information technology staff, along with legal, tax and accounting, and professional service fees. We expect our general and administrative costs to continue at the same level for the next year.

Research and Development

Research and development expenses consist of salaries and other costs of employment of our development staff, outside contractor costs and amortization of capitalized web site development costs. We expect research and development expenses to continue at the same level for the next year.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported

amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the result of which forms the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenue and expenses. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies described in more detail in Note 1 to our consolidated financial statements included in this Report, involve judgments and estimates that are significant to the presentation of our consolidated financial statements.

Revenue Recognition

We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is probable.

We generate revenue when it is realizable and earned, as evidenced by click-throughs occurring on advertisers’ sponsored listings, the display of a banner advertisement or the fulfillment of subscription listing obligations. We enter into a contractual arrangement to distribute sponsored listings and banners from an advertiser or an Advertiser Network partner. The advertisers provide sponsored listings along with bid prices (what the advertisers are willing to pay for each click-through on those listings) to us. These sponsored listings and banners are then included as search results that we distribute in response to keyword searches performed by consumers on our web site. Depending on the source of the advertiser, we recognize an applicable portion of the bid price for each click-through we deliver on advertisers’ sponsored listings. Revenue is recognized when earned based on click-through activity to the extent that collection is reasonably assured from credit worthy direct advertisers and Advertiser Network partners.

Allowance for Doubtful Accounts

Our management estimates the uncollectability of our accounts receivable for losses that may result from the inability of our customers to make required payments. Management specifically analyzes accounts receivable and historical bad debt, customer concentration, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If we believe that our customers’ financial condition has deteriorated such that it impairs their ability to make payments to us, additional allowances may be required. We review past due accounts on a monthly basis and record an allowance for doubtful accounts generally equal to any accounts receivable that are over 90 days past due.

As of December 31, 2007, one customer represented 62% and another customer represented 12% of our total accounts receivable. These customers have historically paid within the payment period provided for under the contract and management believes these customers will continue to do so.

Stock Based Compensation

In December 2004, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R,Share-Based Payment, which addresses the accounting for employee stock options. SFAS No. 123R requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the financial statements based on the estimated fair value of the awards. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award — the requisite service period (usually the vesting period).

We adopted SFAS No. 123R on January 1, 2006, the beginning of our first quarter of fiscal 2006, using the modified-prospective transition method. Under the modified-prospective transition method prior periods of our financial statements are not restated for comparison purposes. In addition, the measurement, recognition and attribution provisions of SFAS No. 123R apply to new grants and grants outstanding on the adoption date. Estimated compensation expense for outstanding grants at the adoption date will be recognized over the remaining vesting

period using the compensation expense calculated for the pro forma disclosure purposes under SFAS No. 123,Accounting for Stock-Based Compensation.

Total stock-based compensation expense recognized for the years ended December 31, 2007 and 2006 is as follows (in thousands, except per share amount):


	Year Ended December 31,
	2007		2006

Sales and marketing	$	544	$	601
General and administrative		968		1,674
Research and development		236		256

Total stock-based compensation expense	$	1,748	$	2,531

Basic and diluted net stock-based compensation expense per share	$	0.15	$	0.27

Results of Operations

The following table sets forth our historical operating results as a percentage of revenue for the years ended December 31, 2007, 2006 and 2005:


	Year Ended December 31,
	2007			2006			2005

Revenue		100.0	%		100.0	%		100.0	%

Operating expenses:
Search serving		17.9			34.9			59.0
Sales and marketing		94.2			92.7			33.2
General and administrative		22.7			41.4			22.2
Research and development		11.9			19.9			16.5
Amortization and write-down of intangibles		5.2			6.6			5.9

Total operating expenses		151.9			195.5			136.8

Operating income (loss)		(51.9	)		(95.5	)		(36.8	)
Interest and other income (expense)		(32.7	)		2.0			3.7

Income (loss) before income taxes		(84.6	)		(93.5	)		(33.1	)
Provision (benefit) for income taxes		0.0			0.0			2.7

Net income (loss)		(84.6	)%		(93.5	)%		(35.8	)%

Years ended December 31, 2007 and 2006

Revenue


	Year Ended December 31,										Percent
	2007		*()**			2006		*()**			Change

Local domestic	$	18,202		84.6	%	$	8,100		57.0	%		124.7	%
Local international		409		1.9	%		144		1.0	%		184.0	%

Total local		18,611		86.5	%		8,244		58.0	%		125.8	%
National		2,914		13.5	%		5,969		42.0	%		(51.2	)%

Total revenue	$	21,525		100.0	%	$	14,213		100.0	%		51.4	%


(*)		— Percent of total revenue.

Local domestic revenue for the year ended December 31, 2007 increased $10.1 million, or 124.7%, compared to the same period in 2006. The increase in revenue is primarily due to increased monetization as our revenue per thousand visitors (RKV) increased to $169 for the year ended December 31, 2007 from $71 for the year ended December 31, 2006. The increase in RKV was a result of additional ad units per page, optimization of search result to improve page yields, greater revenue share received from our advertising partners and improved search engine marketing.

Local international revenue for the year ended December 31, 2007 increased $265,000, or 184.0%, compared to the same period in 2006. The increase in revenue is primarily due to the launch of our uk.local.com web site and the increase in revenue-generating click-throughs from an increase in traffic to that site.

National revenue for the year ended December 31, 2007 decreased $3.1 million, or 51.2%, compared to the same period in 2006. The decrease in revenue is primarily due to a decrease in revenue-generating click-throughs as we have transitioned away from national search to focus on local search.

Total revenue for the year ended December 31, 2007 increased $7.3 million, or 51.4%, compared to the same period in 2006.

The following table identified our major customers that represented greater than 10% of our total revenue in any of the period presented:


	Percentage of Total Revenue
	Year Ended December 31,
Customer	2007			2006

Local Advertising Partner:
Yahoo! Inc.		48.8	%		39.5	%
Idearc Media Corp.		14.5	%		2.8	%
National Advertising Partner:
LookSmart, Ltd.		1.0	%		15.1	%

Operating expenses:

Operating expenses were as follows (dollars in thousands):


	Year Ended December 31,										Percent
	2007		*()**			2006		*()**			Change

Search serving	$	3,862		17.9	%	$	4,960		34.9	%		(22.1	)%
Sales and marketing		20,268		94.2	%		13,169		92.7	%		53.9	%
General and administrative		4,890		22.7	%		5,881		41.4	%		(16.9	)%
Research and development		2,555		11.9	%		2,829		19.9	%		(9.7	)%
Amortization and write-down of intangibles		1,121		5.2	%		947		6.6	%		18.4	%

Total operating expenses	$	32,696		151.9	%	$	27,786		195.5	%		17.7	%


(*)		— Percent of total revenue.

Search serving

Search serving expenses for the year ended December 31, 2007 decreased by $1.1 million, or 22.1%, compared to the same period in 2006. The decrease was primarily due to decreased payments to our distribution network partners associated with our lower national business revenue partially offset by increased expenses incurred to provide additional content to our local business web sites. We expect search serving expense to continue at the same level.

Search serving expenses were 17.9% and 34.9% of total revenue for the years ended December 31, 2007 and 2006, respectively. The decrease in percentage was due to a greater portion of our revenue being generated from our local search business which has minimal search serving expenses associated with it.

Sales and marketing

Sales and marketing expenses for the year ended December 31, 2007 increased by $7.1 million, or 53.9%, compared to the same period in 2006. The increase was primarily due to an increase in advertising and traffic acquisition costs (TAC) for our Local.com web site. We expect sales and marketing expenses to increase as we increase our TAC for our Local.com web site.

Sales and marketing expenses were 94.2% and 92.7% of total revenue for the years ended December 31, 2007 and 2006, respectively.

General and administrative

General and administrative expenses for the year ended December 31, 2007 decreased by $1.0 million, or 16.9%, compared to the same period in 2006. The decrease was primarily due to lower non-cash stock based compensation expense. We expect general and administrative expenses to continue at the same level.

General and administrative expenses were 22.7% and 41.4% of total revenue for the years ended December 31, 2007 and 2006 respectively. The decrease in percentage is a result of higher revenue without a corresponding increase in general and administrative expenses.

Research and development

Research and development expenses for the year ended December 31, 2007 decreased by $274,000, or 9.7%, compared to the same period in 2006. The decrease was primarily due to a decrease in consulting fees. We capitalized an additional $330,000 of research and development expenses for web site development and amortized $187,000 during the year ended December 31, 2007. We capitalized an additional $392,000 of research and development expenses for website development and amortized $174,000 during the year ended December 31, 2006. We expect research and development expenses to continue at the same level.

Research and development expenses were 11.9% and 19.9% of total revenue for the year ended December 31, 2007 and 2006, respectively. The decrease in percentage is a result of higher revenue without a corresponding increase in research and development expenses.

Amortization and write-down of intangibles

Amortization of intangibles expense was $1.1 million and $947,000 for the years ended December 31, 2007 and 2006, respectively. This includes amortization of developed technology and non-compete agreements associated with the Inspire acquisition, the amortization of purchased technology and patent associated with the Atlocal asset purchase and the amortization of the non-compete agreement and customer-related intangibles association with the PremierGuide acquisition.

Interest and other income (expense), net

Interest and other income (expense), net consisted of the following (in thousands):


	Year Ended December 31,
	2007			2006

Interest income	$	536		$	328
Interest expense		(887	)		(5	)
Interest expense — non-cash		(6,679	)		—
Net gain on sale of fixed assets		—			7
Realized loss on sale of marketable securities		—			(42	)

Interest and other income (expense), net	$	(7,030	)	$	288

Interest and other income (expense) was $(7.0 million) and $288,000 for the years ended December 31, 2007 and 2006, respectively, representing a decrease of $7.3 million. During the year ended December 31, 2007, holders of our senior secured convertible notes converted all of their notes into shares or our common stock. As a result, we fully amortized the outstanding balance of debt discount, recorded as interest expense — non-cash, of $6.1 million and prepaid financing costs, recorded as interest expense, of $526,000 during the year ended December 31, 2007. We expect interest and other income (expense) to increase significantly as a result of interest income from our cash and the elimination of interest expense related to the senior secured convertible notes.

Provision for income taxes

Provision for income taxes was $1,000 for the years ended December 31, 2007 and 2006 respectively. These amounts represent the minimum amounts required for state and foreign income taxes.

Years ended December 31, 2006 and 2005

Revenue


	Year Ended December 31,										Percent
	2006		*()**			2005		*()**			Change

Local domestic	$	8,100		57.0	%	$	856		4.7	%		846.3	%
Local international		144		1.0	%		476		2.6	%		(69.7	)%

Total local		8,244		58.0	%		1,332		7.3	%		518.9	%
National		5,969		42.0	%		16,807		92.7	%		(66.1	)%

Total revenue	$	14,213		100.0	%	$	18,139		100.0	%		(21.6	)%


(*)		— Percent of total revenue.

Revenue was $14.2 million and $18.1 million for 2006 and 2005, respectively, representing a decrease of $3.9 million or 21.6%. The decrease in our total revenue was primarily due to a decreased number of revenue-generating click-throughs from our national business as a result of national advertisers reducing overall spending with us. The decrease was partially offset by an increase in click-throughs from our local business as a result of our launch of Local.com in August 2005.

Revenue from our local business was $8.1 million or 57.0% of our total revenue, revenue from our local international business was $144,000 or 1.0% of our total revenue and revenue from our national business was $6.0 million or 42.0% of our total revenue for the year ended December 31, 2006. Revenue from our local business was $856,000 or 4.7% of our total revenue, revenue from our local international business was $476,000 or 2.6% of our total revenue and revenue from out national business was $16.8 million or 92.7% of our total revenue for the year ended December 31, 2005.

We derived 26.7% of our revenue from direct advertisers and 73.3% of our revenue from our Advertiser Network partners during 2006 as compared to 56.7% of our revenue from direct advertisers and 43.3% of our revenue from our Advertiser Network partners during 2005.

The following table identified our major customers that represented greater than 10% of our total revenue in any of the period presented:


	Percentage of Total Revenue
	Year Ended December 31,
Customer	2006			2005

Local Advertising Partner:
Yahoo! Inc.		39.5	%		2.4	%
National Advertising Partner:
LookSmart, Ltd.		15.1	%		29.6	%

Operating expenses:

Operating expenses were as follows (dollars in thousands):


	Year Ended December 31,										Percent
	2006		*()**			2005		*()**			Change

Search serving	$	4,960		34.9	%	$	10,707		59.0	%		(53.7	)%
Sales and marketing		13,169		92.7	%		6,025		33.2	%		118.6	%
General and administrative		5,881		41.4	%		4,025		22.2	%		46.1	%
Research and development		2,829		19.9	%		2,988		16.5	%		(5.3	)%
Amortization and write-down of intangibles		947		6.6	%		1,078		5.9	%		(12.2	)%

Total operating expenses	$	27,786		195.5	%	$	24,823		136.8	%		11.9	%


(*)		— Percent of total revenue.

Search serving

Search serving expenses were $5.0 million and $10.7 million for 2006 and 2005, respectively, representing a decrease of $5.7 million or 53.7%. As a percentage of revenue, search serving expenses were 34.9% and 59.0% for 2006 and 2005, respectively. The decrease in absolute dollars was due to decreased payments to our Distribution Network partners associated with our lower national business revenue in the current period. The decrease in percentage was due to a greater portion of our revenue being generating from our local search business which has minimal search serving expense associated with it.

Sales and marketing

Sales and marketing expenses were $13.1 million and $6.0 million for 2006 and 2005, respectively, representing an increase of $7.1 million or 118.6%. As a percentage of revenue, sales and marketing expenses were 92.7% and 33.2% for 2006 and 2005, respectively. The increase in absolute dollars was primarily due to an increase in advertising expenses and traffic acquisition costs (TAC) for our Local.com web site, along with the non-cash stock based compensation expense as a result of the adoption of SFAS No. 123R.

General and administrative

General and administrative expenses were $5.9 million and $4.0 million for 2006 and 2005, respectively, representing an increase of $1.9 million or 46.1%. As a percentage of revenue, general and administrative expenses were 41.4% and 21.7% for 2006 and 2005, respectively. The increase in absolute dollars was primarily due to the non-cash stock based compensation expense as a result of the adoption of SFAS No. 123R.

Research and development

Research and development expenses were $2.8 million and $3.0 million for 2006 and 2005, respectively, representing a decrease of $152,000 or 5.1%. As a percentage of revenue, research and development expenses were 20.0% and 16.5% for 2006 and 2005, respectively. The decrease in absolute dollars was primarily due to the capitalization of website development costs partially offset by an increase in salaries and related personnel costs as a result of an increase in research and development headcount to develop our local search services along with thenon-cash stock based compensation expense as a result of the adoption of SFAS No. 123R. We capitalized an additional $392,000 of research and development expenses for website development and amortized $174,000 during the year ended December 31, 2006. We capitalized $244,000 of research and development expenses for website development and amortized $34,000 during the year ended December 31, 2005.

Amortization and write-down of intangibles

Amortization and write-down of intangibles expense was $947,000 and $1.1 million for 2006 and 2005, respectively. This includes the amortization of developed technology, customer contracts and relationships, and non-compete agreements associated with the Inspire acquisition, along with the amortization of purchase technology and non-compete agreement associated with the Atlocal asset purchase. Also, during the fourth quarter of 2005, we determined that the remaining carrying value of customer contracts and relationships of $337,000 was not supported by the expected present value of discounted cash flows and as a result recorded a write-down of $337,000.

Interest and other income (expense)

Interest and other income (expense) was $288,000 and $680,000 for 2006 and 2005, respectively, representing a decrease in net interest and other income of $392,000. This decrease was due to lower interest income as a result of less cash available to invest.

Provision for income taxes

Provision (benefit) for income taxes was $1,000 and $498,000 for 2006 and 2005 respectively. During the quarter ended September 30, 2005, we revised our allowance to provide a full valuation allowance against our deferred income tax assets. Based on available evidence, both positive and negative, we feel it is “more likely than not” that all of our deferred tax assets will not be realized. We evaluate, at least quarterly, the realizability of our deferred income tax assets and assess the need for a valuation allowance. Examples of evidence considered in our periodic assessments include, but are not limited to, our historical operating performance, future earnings projections and possible tax-planning strategies. If sufficient positive evidence becomes apparent, we may be required to reduce our valuation allowance, in whole or in part, resulting in income tax benefits reflected in our statement of operations.

Liquidity and Capital Resources

Liquidity and capital resources highlights (in thousands):


	December 31,		December 31,
	2007		2006

Cash and cash equivalents	$	14,258	$	3,264
Marketable securities		1,999		1,972

Total cash, cash equivalents and marketable securities	$	16,257	$	5,236

Working capital	$	15,002	$	3,377

Cash flow highlights (in thousands):


	Year Ended December 31,
	2007			2006

Net cash used in operating activities	$	(8,101	)	$	(9,240	)
Net cash (used in) provided by investing activities	$	(2,503	)	$	11,116
Net cash provided by financing activities	$	21,598		$	310

We have funded our business, to date, primarily from issuances of equity and debt securities. Cash, cash equivalents and marketable securities were $16.3 million and $5.2 million as of December 31, 2007 and 2006, respectively. We had working capital of $15.0 million and $3.4 million as of December 31, 2007 and 2006, respectively.

Net cash used in operations was $8.1 million and $9.2 million for the year ended December 31, 2007 and 2006, respectively. The decrease in cash used in operations was due to a lower operating loss.

Net cash (used in) provided by investing activities was $(2.5 million) and $11.1 million for the year ended December 31, 2007 and 2006, respectively. Investing activity for the year ended December 31, 2007 consisted of capital expenditures, including $330,000 of capitalized web site development costs, and $2.0 million related to the acquisition of PremierGuide. We expect capital expenditures to decrease over the next year. Investing activity for the year ended December 31, 2006 included proceeds from the sale of marketable securities of $11.4 million.

Net cash provided by financing activities was $21.6 million and $310,000 for the year ended December 31, 2007 and 2006, respectively. During the year ended December 31, 2007, we raised gross proceeds of $8.0 million from the issuance of senior secured convertible notes, $13.0 million from the issuance of common stock in a private placement, $343,000 from the exercise of stock options, $1.4 million from the exercise of warrants and $5,000 from swing-sale profits.

Management believes, based upon projected operating needs, that our working capital is sufficient to fund our operations for at least the next 12 months.

Senior secured convertible notes

On February 22, 2007, we issued $8.0 million of senior secured convertible notes (Notes) to two investors (Investors) for gross proceeds of $8.0 million. The Notes bore interest at a rate of 9% per annum for a term of two years and were convertible into 1,990,050 shares of our common stock at a conversion price of $4.02 per share. In connection with the sale of the Notes, we also issued to the Investors warrants to purchase up to 796,020 shares of our common stock at an exercise price of $4.82 per share (Series A Warrants) and warrants to purchase up to 796,020 shares of our common stock at an exercise price of $5.63 per share (Series B Warrants).

During July 2007, the Investors converted all of the $8.0 million in aggregate principal amount of the Notes into an aggregate of 1,990,050 shares of our common stock.

On July 31, 2007, we entered into a Consent to Equity Sales agreements with the Investors whereby the Investors waived the application of Section 7.9 of the Convertible Note Agreement which prohibited us from selling securities under certain circumstances and the Strategic Investor waived their Right of First Refusal pursuant to Section 7.12 of the Convertible Note Agreement with respect to any equity transaction that occurs during the 90 day period following July 9, 2007. In addition, we agreed to amend the warrants issued to the Investors so that the exercise price of the Series A Warrant is decreased to $4.32 per share and the exercise price per share of the Series B Warrant is decreased to $5.13 per share. The difference of the fair value of the repriced warrants and the original warrants on the date of the repricing using the Black-Scholes model was $133,000 and was recorded as a private placement cost. The assumptions used in the Black-Scholes model were as follows: no dividend yield; 4.6% interest rate; 4.58 years contractual life; and volatility of 100%.

PremierGuide Acquisition

On July 18, 2007, we completed the acquisition, through a wholly owned subsidiary, of all of the outstanding capital stock of PremierGuide, Inc. (PremierGuide), a Delaware Corporation and provider of online business directories for an aggregate purchase price of $2.0 million in cash and cash acquisition costs of $81,000. The purchase price of $2.1 million was allocated as follows (in thousands):


Current assets	$	192
Customer-related intangibles		1,020
Non-compete agreement		13
Goodwill		1,020
Liabilities assumed		(139	)

Total purchase price	$	2,106

PremierGuide’s operating results have been included in our consolidated financial statements from the date of acquisition. Customer-related intangibles are being amortized on a straight-line basis over five years. Non-compete agreement is being amortized on a straight-line basis over two years. Goodwill, which is determined to have an indefinite life, is not amortized in accordance with SFAS No. 142,Goodwill and Other Intangible Assets.

Private placement

On August 1, 2007, we issued 2,356,900 shares of our common stock, par value $0.00001 per share, for an aggregate purchase price of $12,962,950 to five institutional investors in a private placement transaction pursuant to a Securities Purchase Agreement, dated as of July 31, 2007 (Securities Purchase Agreement). In connection with the sale of the common stock, we also issued the investors warrants to purchase up to 471,380 shares of our common stock at an exercise price of $7.89 per share exercisable beginning February 1, 2008 and for a period of five years thereafter; and warrants to purchase up to 471,380 shares of our common stock at an exercise price of $9.26 per share exercisable beginning February 1, 2008 and for a period of six years thereafter. In connection with the transaction described herein, we also entered into a Registration Rights Agreement which obligated us to register the resale of the shares of common stock sold in the private placement and the shares of common stock issuable upon exercise of the warrants under the Securities Act of 1933, as amended. These shares were registered on aForm S-3 (RegistrationNo. 333-145580) declared effective by the Securities and Exchange Commission on August 28, 2007.

In connection with the transaction, GunnAllen Financial Inc. (GunnAllen) acted as our placement agent. For payment for these services, we paid GunnAllen fees of $827,777 in cash, of which $250,000 was paid to Norman K. Farra Jr., a director of ours and an employee of GunnAllen. In addition, we issued GunnAllen warrants to purchase up to 46,063 shares of our common stock at $7.89 per share and warrants to purchase up to 46,063 shares of our common stock at $9.26 per share. In addition, we issued Norman K. Farra Jr. warrants to purchase 19,930 shares of our common stock at $7.89 per share and warrants to purchase 19,930 shares of our common stock at $9.26 per share.

The fair value of all the warrants issued, using the Black-Scholes model at the date of grant, was $4,648,108 and was recorded as a private placement cost. The assumptions used in the Black-Scholes model were as follows: no dividend yield; 4.6% interest rate; five years contractual life; and volatility of 100%.

Inspire Infrastructure 2i AB Acquisition

On February 28, 2005, we completed the acquisition, through a wholly owned subsidiary, of all of the outstanding capital stock of Inspire Infrastructure 2i AB (Inspire), a Swedish Internet and wireless local-search technology company. Under the terms of the acquisition, Inspire shareholders received $15.0 million in cash and cash acquisition costs of $409,000. Under the terms of the acquisition, Inspire shareholders could have received additional consideration consisting of up to 447,067 shares of our common stock, valued at $7.5 million based upon a30-day moving average at the date of acquisition, which was payable upon the achievement of certain future business performance criteria.

On May 15, 2006, we entered into a Share Purchase Termination Agreement with Interchange Europe Holding Corporation, our wholly owned subsidiary, and the five former shareholders of Inspire Infrastructure 2i AB (Sellers) to terminate all provisions of the Share Purchase Agreement dated February 2, 2005, except for Provision 10 — Non-Compete and Section 11.7 — Confidentiality. As a result of this termination, $232,000 of the cash escrow was returned to us which reduced goodwill. In addition, the Sellers will not earn or receive the additional consideration of 447,067 shares of our common stock.

On December 20, 2006, we entered into a Share Purchase Agreement with Starboard Finans AB to sell all of the outstanding capital stock of Interchange Europe AB (formerly Inspire Infrastructure 2i AB) we owned (1,000 shares) for $140 (SEK 1,000).

Contractual Obligations

The following table sets forth certain payments due under contractual obligations with minimum firm commitments as of December 31, 2007 (in thousands):


	Payments Due by Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years

Operating lease obligations(1)	$	964	$	375	$	588	$	—	$	—


(1)		Represents a non-cancelable operating lease agreements for our office and office equipment that expire in June 2010.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

New Accounting Pronouncements

In December 2007, FASB issued SFAS No. 141R,Business Combinations(SFAS 141R), which retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141R changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. The provision of SFAS 141R are effective for fiscal years beginning after December 15, 2008 with earlier adoption prohibited. We are currently analyzing the effect of adopting SFAS 141R.

In December 2007, FASB issued SFAS No. 160,Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51(SFAS 160), which requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain aspects of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141R. This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The provisions of SFAS 160 are effective for fiscal years beginning after December 15, 2008 with earlier adoption prohibited. We are currently analyzing the effect of adopting SFAS 160.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

We are exposed to market risk relating to interest rate changes.

Interest Rate Risk

Our exposure to interest rate changes relates to our marketable securities. We invest our excess cash in debt instruments of the United States government.

Investments in fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. A hypothetical 1.00%(100 basis-point) increase in interest rates would have resulted in a decrease in the fair values of our marketable securities of approximately $416,000 and $405,000 at December 31, 2007 and 2006, respectively.


Item 8.	*Financial Statements and Supplemental Data*

Our consolidated financial statements, including the report of our independent registered public accounting firm, are included beginning atpage F-1 immediately following the signature page of this Report.


Item 9.	*Changes In and Disagreements With Accountants on Accounting Issues and Financial Disclosure*

None


Item 9A(T).	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and that our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework. Based upon its assessment, management concluded that, as of December 31, 2007, our internal control over financial reporting was effective.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public

accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	*Other Information*

None

PART III


Item 10.	*Directors, Executive Officers and Corporate Governance*

Directors, Executive Officers and Key Employees

The following table sets forth, as of February 29, 2008, certain information concerning our executive officers, other key employees and directors:


Name	Age		Position

Heath B. Clarke(1)		39	Chief Executive Officer and Chairman of the Board
Stanley B. Crair(1)		52	President and Chief Operating Officer
Douglas S. Norman(1)		44	Chief Financial Officer and Secretary
Jennifer R. Black		37	Vice President of Marketing
Heather A. Dilley		39	Vice President of Human Resources
Peter S. Hutto		49	Vice President of Business Development and Sales
Ralph N. Kravitz		43	Vice President of Operations
Kimber L. LaFleur		38	Vice President of Product Marketing
Malcolm D. Lewis		42	Vice President and General Manager, Private Label
John L. Siegfried		54	Vice President of Engineering
Norman K. Farra Jr.		39	Director
Philip K. Fricke		62	Director
Theodore E. Lavoie		53	Director
John E. Rehfeld		67	Lead Director


(1)		Executive officer.

Heath B. Clarkehas served as our Chairman of the Board since March 1999, as our President from March 1999 to December 2000 and as our Chief Executive Officer since January 2001. From 1998 to February 1999, Mr. Clarke was the Vice President of eCommerce for LanguageForce, Inc., a language translation software company. Prior to that time, he was a Marketing Manager for Starnet International (Canada), an Internet company. From 1995 to 1998 he held managerial positions with the Berg Group of Companies (Australia), and from 1988 to 1995 he was founder and Chief Executive Officer of Australian Fibre Packaging.

Stanley B. Crairhas served as our Chief Operating Officer since July 2005 and as our President since April 2006. From 2003 to April 2005 Mr. Crair was the COO of ZeroDegrees, Inc., an internet company that provided online social networking services to business professionals, which he co-founded. The company was purchased by IAC/InterActiveCorp in 2004 and Crair remained active in the company until April 2005. From 2001 to 2003, Mr. Crair was the principal of Technology Transformation, a consulting company he founded providing strategic consulting and interim CEO/COO services. Mr. Crair received a Masters of Business Administration degree in Corporate Strategy and International Business from the University of California, Berkeley and a Bachelor of Science degree in Physics from the United States Naval Academy.

Douglas S. Normanhas served as our Chief Financial Officer since February 2003 and as our Secretary since July 2003. From February 2000 through December 2002, Mr. Norman was Chief Financial Officer at Starbase Corporation, a software company that he co-founded. Mr. Norman received a Masters of Business Administration degree from Loyola Marymount University and a Bachelor of Science degree in Business Administration from California State University, Long Beach.

Jennifer R. Blackhas served as our Vice President of Marketing since April 2006. From May 2005 to April 2006, Ms. Black was the Director of Online Marketing at Autobytel, Inc., an Internet company that connects buyers and sellers of autos through a content and pricing lead system. From May 2004 to May 2005, Ms. Black was eCommerce Director at Teleflora, LLC, a provider of florist products and services. From December 1999 to March 2004, Ms. Black was Director of Online Marketing at FranklinCovey Corporation, an organizational improvement company. Ms. Black received a Bachelors of Arts degree in Business Management from the University of Utah.

Heather A. Dilleyhas served as our Vice President of Human Resources since January 2007. From October 2005 to January 2007, Ms. Dilley served as our Director of Human Resources. From June 2004 to October 2005, Ms. Dilley was the Manager of Human Resources for Paciolan, Inc. an online ticketing software company. From December 2002 to June 2004, Ms. Dilley was the Senior Human Resources Generalist for Rainbow Technologies. From June 2002 to November 2002, Ms. Dilley was the Regional Human Resources Manager for New Horizons Computer Learning Center. From May 2001 to February 2002, Ms. Dilley was a Recruiting Consultant for Washington Mutual Bank. Ms. Dilley received a Master’s of Science degree in Human Resource Management and a Bachelor of Arts degree in Sociology from Chapman University.

Peter S. Huttohas served as our Vice President of Business Development and Sales since October 2005. From July 2005 to October 2005, Mr. Hutto was an independent contractor acting as Vice President of Development for us. From January 2003 to July 2005, Mr. Hutto was co-founder and Vice President of Business Development and Marketing for Zero Degrees, Inc., an operating unit of IAC/Interactive Corporation. From June 2002 to December 2002, Mr. Hutto was Vice President of Sales and Business Development of Celcorp Inc. Mr. Hutto received a Bachelor of Arts degree in Political Science from the University of North Carolina, Chapel Hill.

Ralph N. Kravitzhas served as our Vice President of Operations since April 2004. From December 2001 to April 2004, Mr. Kravitz served as our Director of Operations and from January 2001 to December 2001 he served as our Technical Operations Manager. Mr. Kravitz received a Bachelor of Arts degree in Business Management from California State University, Fullerton.

Kimber L. LaFleurhas served as our Vice President of Product Management since May 2007. From January 2005 to April 2007, Ms. LaFleur was Senior Director of Product Management for GlobalTech, Inc. a wholly-owned subsidiary of Digital River, Inc., a provider of globale-commerce solutions for software and consumer electronics. From September 200 to January 2005, Ms. LaFleur held various management positions in product management at Commerce5, Inc., which was acquired by Digital River Inc. in December 2005. Ms. LaFleur received a Bachelor of Science degree in Computer Design from Loma Linda University.

Malcolm D. Lewishas served as our Vice President and General Manager, Private Label, since July 2007. From January 2003 to July 2007, Mr. Lewis was Chief Executive Officer of PremierGuide, Inc., a provider of private-label local search solutions. From March 2002 to October 2002, Mr. Lewis was Vice President of Marketing for Vayusphere, Inc., a provider of instant messaging products and solutions. From March 1998 to March 2002, Mr. Lewis was Vice President of Industry Communications for Vitria Technology, Inc., a provider of business process integration products and solutions. Mr. Lewis received a Master of Science degree in Computer Science from Sheffield University, England.

John L. Siegfriedhas served as our Vice President of Engineering since April 2006. From July 2004 to April 2006, Mr. Siegfried was COO/CIO of Future Trade Corporation, a web-based electronic stock brokerage firm. From July 2001 to July 2004, Mr. Siegfried was Vice President of eCommerce and Business Development at DHL Corporation, an international shipping and logistics company. Mr. Siegfried received a Business Administration degree in Computer MIS from California State University, Hayward.

Norman K. Farra Jr. has served as a director since August 2005. Mr. Farra is currently an independent financial consultant. From August 2006 to September 2007 Mr. Farra was a Managing Director of Investment Banking for

GunnAllen Financial Inc. From 2003 to 2006 Mr. Farra was an independent investment banking contractor. Mr. Farra received a Bachelor of Science degree in Accounting from Widener University.

Philip K. Frickehas served as a director since October 2003. Mr. Fricke is currently President of PKF Financial Consultants, Inc., a private company he founded in March 2001, which provides financial communications services and advisory services to public and private companies. Mr. Fricke also serves as director of MI Developments Inc. Mr. Fricke received a Bachelor of Arts degree and a Master of Arts degree in Psychology, as well as a Master of Business Administration degree in Finance and Economics, from Fairleigh Dickinson University.

Theodore E. Lavoiehas served as a director since April 1999. Mr. Lavoie is currently Vice President of Strategic Development of Greenline Industries, a biodiesel production equipment manufacturer. From May 2006 to June 2007, Mr. Lavoie served as Chief Executive Officer of Greenline Industries. From January 2005 to May 2006, Mr. Lavoie was an independent financial consultant. From October 2003, to January 2004, Mr. Lavoie served as Vice President of Marsh Inc., a global risk and insurance services firm. From October 2002 to September 2003, Mr. Lavoie served as an independent financial consultant with Montgomery Financial Services, a financial services company. From August 1999 to May 2002, Mr. Lavoie served as Chief Financial Officer of eBuilt Inc., a software company. Mr. Lavoie also serves as a director of Financial Executives International, San Francisco. Mr. Lavoie received a Masters of Business Administration degree and a Bachelor of Science degree in Business Administration from Loyola Marymount University.

John E. Rehfeldhas served as a director since August 2005 and our lead director since December 2005. Mr. Rehfeld is currently the adjunct professor of marketing for the Executive MBA Program at Pepperdine University. Mr. Rehfeld also serves as director of ADC Telecommunication, Inc., and Primal Solutions, Inc. Rehfeld received a Masters of Business Administration degree from Harvard University and a Bachelor of Science degree in Chemical Engineering from the University of Minnesota.

Board of Directors

Our board of directors currently consists of the following five members: Heath B. Clarke (Chairman), Norman K. Farra Jr., Philip K. Fricke, Theodore E. Lavoie and John E. Rehfeld. There are no family relationships among any of our current directors and executive officers.

The number of authorized members of our board of directors is determined by resolution of our board of directors. In accordance with the terms of our amended and restated certificate of incorporation, our board of directors is divided into three classes, with each class serving staggered three-year terms. The membership of each of the three classes is as follows:


	•	the class I directors are Messrs. Fricke and Farra, and their term will expire at the annual meeting of stockholders to be held in 2008;

	•	the class II directors are Messrs. Lavoie and Rehfeld, and their term will expire at the annual meeting of stockholders to be held in 2009; and

	•	the class III director is Mr. Clarke, and his term will expire at the annual meeting of stockholders to be held in 2010.

Our amended and restated bylaws provide that the authorized number of directors may be changed only by resolution of our board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed between the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control or management of our company.

Our board of directors has designated an audit committee and a nominating, compensation and governance committee, and may establish other committees as it deems necessary or appropriate.

Audit Committee

Our audit committee consists of Messrs. Lavoie, Fricke and Farra. Messrs. Lavoie, Fricke and Farra all qualify as independent and meet the financial literacy requirements under applicable Nasdaq rules and are audit committee financial experts. Our independent auditors and our internal financial personnel regularly meet privately with and have unrestricted access to our audit committee. Our audit committee operates pursuant to a written charter that satisfies applicable SEC and Nasdaq rules. Our audit committee charter is available on our web site, www.local.com.

Our audit committee oversees our corporate accounting and financial reporting processes. The functions and responsibilities of our audit committee are to, among other things:


	•	evaluate our independent auditors’ qualifications, independence and performance;

	•	determine the engagement of our independent auditors;

	•	approve the retention of our independent auditors to perform any proposed, permissible non-audit services;

	•	monitor the rotation of partners of the independent auditors on our engagement team as required;

	•	review our financial statements;

	•	review our critical accounting policies and estimates; and

	•	discuss with our management and our independent auditors the results of our annual audit and the review of our quarterly financial statements.

REPORT OF THE AUDIT COMMITTEE

The following Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this Report by reference therein.

The Audit Committee of the Board of Directors operates pursuant to a written charter. The Committee met five times and acted twice by unanimous written consent during fiscal 2007 to fulfill its responsibilities. To ensure independence, the Audit Committee also meets separately with the Company’s independent registered public accounting firm and members of management. All members of the Audit Committee are non-employee directors and satisfy the current Nasdaq Stock Market listing standards and SEC requirements with respect to independence, financial sophistication and experience.

The role of the Audit Committee is to oversee the Company’s financial reporting process on behalf of the Board of Directors. Management of the Company has the primary responsibility for the Company’s consolidated financial statements as well as the Company’s financial reporting process, principles and internal controls. The independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements and expressing an opinion as to the conformity of such consolidated financial statements with generally accepted accounting principles.

In this context, the Audit Committee has reviewed and discussed the audited financial statements of the Company as of and for the year ended December 31, 2007, with management and the independent registered public accounting firm (Auditors). These reviews included discussion with the outside Auditors of matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication with Audit Committees). In addition, the Audit Committee has received the written disclosures and the letter from the independent Auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect, and it has discussed with the Auditors their independence from the Company.

Based on the reports and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2007, for filing with the Securities and Exchange Commission.

Theodore E. Lavoie, Chairman
Norman K. Farra Jr.
Philip K. Fricke

March 7, 2008

Nominating, Compensation and Governance Committee

Our nominating, compensation and governance committee consists of Messrs. Rehfeld, Lavoie and Fricke. Our nominating, compensation and governance committee charter is available on our web site, www.local.com.

The purpose of our nominating, compensation and governance committee is to assist our board of directors in discharging the board’s responsibilities regarding, among other things:


	•	the identification of qualified candidates to become board members;

	•	the selection of nominees for election as directors at the next annual meeting of stockholders (or special meeting of stockholders at which directors are to be elected);

	•	the selection of candidates to fill any vacancies on the board;

	•	the compensation of our executives, including by designing (in consultation with management or the board), recommending to the board for approval, and evaluating our compensation plans, policies and programs;

	•	producing an annual report on executive compensation for inclusion in our proxy materials in accordance with applicable rules and regulations;

	•	the development and recommendation to the board of a set of corporate governance guidelines and principles applicable to us; and

	•	oversight of the evaluation of the board.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to our officers, directors and employees. Our code of business conduct and ethics, as applied to our Chief Executive Officer, senior executive officers, principal accounting officer, controller and other senior financial officers complies with the requirements of Section 406 of the Sarbanes-Oxley Act. Our code of business conduct and ethics is available on our web site at www.local.com. In addition, a copy of the code of business conduct and ethics will be provided without charge upon request to Douglas S. Norman, Local.com Corporation, One Technology Drive, Building G, Irvine, CA 92618. We intend to timely disclose any amendments to or waivers of certain provisions of our code of business conduct and ethics that apply to our Chief Executive Officer, senior executive officers, principal accounting officer, controller and other senior financial officers on our web site within five business days of such amendment or waiver or as otherwise required by the SEC or Nasdaq.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of equity securities of our common stock. Theses people are required by SEC regulations to furnish us with copies of all such reports they file. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations from certain insiders that no other reports were required, all Section 16(a) filing requirements applicable to our insiders were complied with, except that Norman K. Farra Jr. filed a late Form 4 relating to the acquisition of warrants.


Item 11.	*Executive Compensation*

Compensation Discussion and Analysis

Philosophy and Review

Our compensation philosophy for executive officers is intended to:


	•	Provide compensation that will attract, retain and motivate a superior executive team;

	•	Motivate our executives to achieve important performance goals; and

	•	Align the interests of our executive officers with those of our stockholders.

When determining compensation levels, our Nominating, Compensation and Governance Committee (Committee) considers compensation levels of executives at comparably-sized public high-tech companies in California along with our financial position and our performance. The Committee has retained independent consultants to advise the Committee on compensation matters. Executive compensation consists primarily of base salary, bonus and stock option grants.

Elements of Executive Officer Compensation

Base Salary

The Committee annually reviews the base salary for all executive officers, including the Chief Executive Officer. Base salary levels for our executives are targeted to be approximately the median of base salaries paid to comparably-sized public high-tech companies located in California. The Committee believes that this strategy is representative of companies similar to our company. The base salaries for the “named executive officers” for 2007 were maintained at the 2006 levels.

Bonus

The Committee annually establishes an annual target bonus for all executive officers, including the Chief Executive Officer. Bonus levels for our executives are targeted to be approximately the median of bonuses paid to comparably-sized public high-tech companies located in California. Twenty-five percent of the annual bonus is earned and paid each quarter based on targets approved by the full Board of Directors. The Committee meets quarterly to approve the pay-out of bonuses. The target bonuses for the Named Executive Officers for 2007 were maintained at the 2006 levels.

Stock Option Grants

Awards under the our stock option plans are designed to encourage long-term investment in our company, more closely align executive and stockholder interests and reward executives for enhancing stockholder value. The Committee believes stock ownership by management has been demonstrated to be beneficial to stockholders.

Under our stock option plans, the Committee may grant stock options to executives. The Committee generally grants incentive stock options within the meaning of the Internal Revenue Code. Under the terms and conditions of the plan, the Committee may, however, grant nonqualified options with an exercise price above or at the market price on the date of grant. Generally, thirty-three percent of the options granted are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably each quarter over the next eight quarters. The grants are generally for a term of ten years from the date of grant. The Committee typically grants the annual stock option for executives at their meeting in December. The exercise price of the stock options granted is set at the closing price of our common stock on the date of grant. In December 2007, the Committee issued the equivalent of three years worth of stock options to the executives. The purpose of this multiple year grant was to provide additional retention incentive for executives and additional incentive for executives to execute the Company’s strategic plan over the next five years. The Committee does not expect to issue additional option grants to executives in the next two years.

Stock options grants for our executives are targeted at an average of the median of stock options grants to executives of (1) comparably-sized public high-tech companies located in California; 2) comparable search industry companies; and 3) comparably-sized companies in compensation surveys.

Section 162(m) Policy

Section 162(m) of the Internal Revenue Code limits the tax deductibility by a corporation of compensation in excess of $1 million paid to its Chief Executive Officer and any other of its four most highly compensated executive officers. However, compensation which qualifies as “performance-based” is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals under a plan approved by the corporation’s stockholders.

It is our policy to qualify, to the extent reasonable, our executive officers’ compensation for deductibility under applicable tax law. However, we intend to retain the flexibility necessary to provide total cash compensation in line with competitive practice, our compensation philosophy, and our best interests. It therefore may from time to time pay compensation to our executive officers that may not be deductible.

Summary Compensation

The following table provides information regarding the compensation earned during the fiscal years ended December 31, 2007, 2006 and 2005 by our Chief Executive Officer and our two other executive officers. We refer to our Chief Executive Officer and these other executive officers as the named executive officers in this Report.

2007 Summary Compensation Table


							Option		All Other
			Salary		Bonus		Awards		Compensation		Total
Name and Principal Position	Year		($)		($)		($)(1)		($)		($)

Heath B. Clarke		2007		240,000		97,091		740,806		—		1,077,897
Chief Executive Officer and		2006		240,000		97,808		349,194		—		687,002
Chairman of the Board		2005		240,000		87,500		—		—		327,500
Stanley B. Crair(2)		2007		200,000		72,484		334,403		—		606,887
President and Chief		2006		200,000		69,062		493,315		—		762,377
Operating Officer		2005		97,820		12,500		—		32,737		143,057
Douglas S. Norman		2007		190,000		40,912		267,779		—		498,691
Chief Financial Officer and		2006		190,000		38,353		213,402		—		441,755
Secretary		2005		190,000		34,375		—		—		224,375


(1)		The value of option awards granted to our named executive officers in 2007 has been estimated pursuant to SFAS 123R using the Black-Scholes option pricing model with the following weighted average assumptions: expected life: 7.0 years; volatility: 100.00%; risk free interest rate: 3.80%; and dividend yield: none. The value of option awards granted to our named executive officers in 2006 has been estimated pursuant to SFAS 123R using the Black-Scholes option pricing model with the following weighted average assumptions: expected life: 7.5 years; volatility: 102.74%; risk free interest rate: 4.39%; and dividend yield: none.

(2)		Mr. Crair joined us on July 6, 2005 and we paid him his salary from that date. During 2005, Mr. Crair received other compensation of $2,350 for car allowance and $30,387 for relocation.

Employment Agreements and Change in Control Arrangements

Employment Agreement with Heath B. Clarke

We entered into an employment agreement with Heath B. Clarke, our Chairman and Chief Executive Officer, on January 2, 2003. The employment agreement has a term of two years and automatically renews for additional one year terms unless either party terminates it with at least 30 days notice to the other party.

If we terminate Mr. Clarke’s employment agreement without cause, or if Mr. Clarke terminates the agreement with good reason, each as defined in the agreement, we are obligated to pay Mr. Clarke: (i) his annual salary and other benefits earned prior to termination, (ii) the greater of his annual salary for the remaining term of the agreement or his annual salary payable over one year, (iii) an amount equal to 30% of his then current annual salary, payable in accordance with our standard bonus payment practices or immediately if and to the extent such bonus will be used by Mr. Clarke to exercise his stock options, (iv) benefits for 12 months following the date of termination, and (v) the right for 12 months from the date of termination to exercise all vested options granted to him prior to that time; provided that in the event the termination occurs within 120 days of the execution of an agreement which results in a change of control, as described below, vesting of all options will be accelerated and in the event the termination occurs outside of such 120 day period, all unvested options that would have vested had Mr. Clarke’s employment agreement remained in force through the end of the initial term will be fully vested immediately prior to such termination.

Employment Agreement with Stanley B. Crair

We entered into an employment agreement with Stanley B. Crair, our President and Chief Operating Officer, on July 6, 2005. The employment agreement has a term of one year and automatically renews for additional one year terms unless either party terminates it with at least 30 days notice to the other party.

If we terminate Mr. Crair’s employment agreement without cause, or if Mr. Crair terminates the agreement with good reason, each as defined in the agreement, we are obligated to pay Mr. Crair: (i) his annual salary and other benefits earned prior to termination, (ii) the greater of his annual salary for the remaining term of the agreement or his annual salary payable over one year, (iii) the average of all bonuses earned by Mr. Crair during the term of the agreement, payable in accordance with our standard bonus payment practices or immediately if and to the extent such bonus will be used by Mr. Crair to exercise his stock options, (iv) benefits for 12 months following the date of termination, and (v) the right for 12 months from the date of termination to exercise all vested options granted to him prior to that time; provided that in the event the termination occurs within 120 days of the execution of an agreement which results in a change of control, as described below, vesting of all options will be accelerated and in the event the termination occurs outside of such 120 day period, all unvested options that would have vested had Mr. Crair’s employment agreement remained in force through the end of the initial term will be fully vested immediately prior to such termination.

Employment Agreement with Douglas S. Norman

We entered into an employment agreement with Douglas S. Norman, our Chief Financial Officer and Secretary, on February 3, 2003. The employment agreement has a term of two years and automatically renews for additional one year terms unless either party terminates it with at least 30 days notice to the other party.

If we terminate Mr. Norman’s employment agreement without cause, or if Mr. Norman terminates the agreement with good reason, each as defined in the agreement, we are obligated to pay Mr. Norman: (i) his annual salary and other benefits earned prior to termination, (ii) the greater of his annual salary for the remaining term of the agreement or his annual salary payable over one year, (iii) an amount equal to 30% of his then current annual salary, payable in accordance with our standard bonus payment practices or immediately if and to the extent such bonus will be used by Mr. Norman to exercise his stock options, (iv) benefits for 12 months following the date of termination, and (v) the right for 12 months from the date of termination to exercise all vested options granted to him prior to that time; provided that in the event the termination occurs within 120 days of the execution of an agreement which results in a change of control, as described below, vesting of all options will be accelerated and in the event the termination occurs outside of such 120 day period, all unvested options that would have vested had Mr. Norman’s employment agreement remained in force through the end of the initial term will be fully vested immediately prior to such termination.

Each of the employment agreements discussed above provide for the immediate vesting of stock options granted pursuant thereto upon (i) a change in control of us or (ii) a termination of the executive’s employment without cause or for good reason within 120 days prior to the execution and delivery of an agreement which results in a change in control. Additionally, a change in control constitutes “good reason” under the terms of each of the agreements, thus permitting each of Messrs. Clarke, Crair and Norman to terminate his respective employment and receive the severance benefits discussed above. Under the terms of each employment agreement, a change in control is deemed to have occurred if, as a result of a tender offer, other acquisition, merger, consolidation or sale or transfer of assets, any person(s) (as used in Sections 13(d) or 14(d) of the Securities Exchange Act of 1934) becomes the beneficial owner (as defined in regulations promulgated under the Exchange Act) of a total of fifty percent (50%) or more of either our outstanding common stock or our assets; provided, however, that a change of control is not deemed to have occurred if a person who beneficially owned fifty percent (50%) or more of our common stock as of the effective date of the respective employment agreement continued to do so during the term the employment agreement.

The employment agreements with Messrs. Clarke, Crair and Norman also contain standard confidentiality provisions that apply indefinitely and non-solicitation provisions that will apply during the term of the employment agreements and for a12-month period thereafter.

Grants of Plan-Based Awards

The following table provides information regarding grants of plan-based awards that we granted to the named executive officers during the fiscal year ended December 31, 2007. All options were granted at the fair market value of our common stock on the date of grant, as determined by our board of directors. Each option represents the right to purchase one share of our common stock. Generally, none of the shares subject to options are vested at the time of grant and 33.33% of the shares subject to such option grants vest on the date which is one year from the date of grant. The remainder of the shares vests in equal quarterly installments over the eight quarters thereafter.

2007 Grants of Plan-Based Awards


			All Other Option
			Awards:
			Number of		Exercise or		Closing		Grant Date
			Securities		Base Price of		Price on		Fair Value of
			Underlying		Price of		Grant		Stock and Option
	Grant		Options		Option Awards		Date		Awards
Name	Date		(#)		($/Sh)		($/Sh)		($)

Heath B. Clarke		12/13/2007		67,500		4.74		4.74		268,049
		12/13/2007		67,500		4.74		4.74		268,049
Stanley B. Crair		12/13/2007		48,750		4.74		4.74		193,591
		12/13/2007		48,750		4.74		4.74		193,591
Douglas S. Norman		12/13/2007		30,000		4.74		4.74		119,133
		12/13/2007		30,000		4.74		4.74		119,133

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the number of shares of common stock subject to exercisable and unexercisable stock options held as of December 31, 2007 by each of the named executive officers.

2007 Outstanding Equity Awards at Fiscal Year-End


	Option Awards
	Number of		Number of
	Securities		Securities
	Underlying		Underlying			Option
	Unexercised		Unexercised			Exercise		Option
	Options (#)		Options (#)			Price		Expiration
Name	Exercisable		Unexercisable			($)		Date

Heath B. Clarke		22,131		—			4.00		12/15/2010
		114,118		—			4.00		12/31/2011
		112,500		—			2.00		1/3/2013
		46,236		—			2.25		1/28/2009
		30,264		—			2.25		1/28/2014
		29,676		—			16.59		1/14/2015
		8,421		803	(1)		16.59		1/14/2010
		10,331		—			5.53		5/18/2015
		2		1,667	(1)		5.53		5/18/2010
		15,000		—			9.90		6/3/2015
		26,512		—			6.79		11/15/2015
		—		758	(1)		6.79		11/15/2010
		29,243		399	(2)		4.21		3/9/2016
		2,840		22,518	(2)		4.21		3/9/2011
		18,162		17,259	(2)		3.84		12/14/2016
		171		19,408	(2)		3.84		12/14/2011
		—		67,500	(2)		4.74		12/13/2017
		—		67,500	(3)		4.74		12/13/2017
Stanley B. Crair		80,053		22,947	(1)		7.75		7/6/2015
		12,055		3,445	(1)		6.29		8/12/2015
		23,333		16,667	(2)		3.83		3/9/2016
		14,833		29,667	(2)		3.49		12/14/2016
		—		48,750	(2)		4.74		12/13/2017
		—		48,750	(3)		4.74		12/13/2017
Douglas S. Norman		47,500		—			2.00		2/3/2013
		35,500		—			2.25		1/28/2014
		15,312		438	(1)		15.08		1/14/2015
		8,611		1,389	(1)		5.03		5/15/2015
		28,923		827	(1)		6.17		11/15/2015
		17,499		12,501	(2)		3.83		3/9/2016
		9,999		20,001	(2)		3.49		12/14/2016
		—		30,000	(2)		4.74		12/13/2017
				30,000	(3)		4.74		12/13/2017


(1)		1/36^th of total grant vests each month.

(2)		33.33% of total grant vests one year from the date of grant and the remainder vests quarterly over the next eight quarters.

(3)		33.33% of total grant vests two years from the date of grant and the remainder vests quarterly over the next eight quarters.

Equity Incentive Plans

Our board of directors administers our 1999 Equity Incentive Plan, 2000 Equity Incentive Plan, 2004 Equity Incentive Plan, as amended, 2005 Equity Incentive Plan and 2007 Equity Incentive Plan. The board may elect to appoint a committee to administer any or all of such incentive plans. Each of these plans provide for the grant of incentive stock options to employees and non-qualified stock options to our employees, directors and consultants. These plans are provided to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentive for employees, directors and consultants to promote our business. Stock purchase rights may also be granted under the plans.

No awards may be issued under the plans after the 10th anniversary of the earlier of (i) the date upon which the applicable plan was adopted by the board, or (ii) the date the applicable plan was approved by our stockholders.

The plans provide that the plan administrator has the authority to designate recipients of awards and to determine the terms and provisions of awards, including the exercise or purchase price, expiration date, vesting schedule and terms of exercise. The plans provide that the maximum number of shares which may be subject to awards granted to any individual in any calendar year will not exceed 300,000 shares in the case of our 1999 and 2000 Equity Incentive Plans and 600,000 shares in the case of our 2004 Equity Incentive Plan, as amended, 2005 Equity Incentive Plan and 2007 Equity Incentive Plan. However, this limit will not apply until the earliest of (i) the first material modification of the applicable plan, (ii) the issuance of all of the shares reserved for issuance under the applicable plan, (iii) the expiration of the applicable plan, (iv) the first meeting of our stockholders at which directors are to be elected that occurs more than three years after the completion of the offering, or (v) such other date required by Section 162(m) of the Internal Revenue Code and the rules and regulations promulgated thereunder.

The exercise price of nonqualified stock options and incentive stock options granted under the plans must be at least 85% and 100%, respectively, of the fair market value of our common stock on the date of grant. Nonqualified stock options and incentive stock options granted to optionees who own more than 10% of our outstanding common stock on the date of grant must have an exercise price that is at least 110% of the fair market value of our common stock on the grant date. Stock options granted under the plans will expire no later than ten years after the date of grant, or five years after the date of grant with respect to incentive stock options granted to individuals who own more than 10% of our outstanding common stock on the grant date. The purchase price, if any, of stock purchase rights will be determined by the plan administrator.

Our board has the discretion to grant options to our independent directors under each of our 1999 Equity Incentive Plan and 2000 Equity Incentive Plan. The board has the discretion as to the number of options granted, the number of shares subject to such options, and the terms and provisions of such options. Our 1999 Equity Incentive Plan and 2000 Equity Incentive Plan provide that the exercise price of each option granted to an independent director must be at least 100% of the fair market value of our common stock on the date of grant. Such options will be exercisable in cumulative monthly installments of 1/36th of the shares subject to such option on each of the monthly anniversaries of the date of grant, commencing with the first such monthly anniversary, such that each option will be 100% vested on the third anniversary of its date of grant. The options will have a ten year term. Our 2004 Equity Incentive Plan, as amended, 2005 Equity Incentive Plan and 2007 Equity Incentive Plan provide that with respect to options granted to independent directors, the plans will be administered by our board.

The plans also provide for the issuance of stock purchase rights to eligible individuals. Stock purchase rights will generally be subject to such transferability and vesting restrictions as the plan administrator shall determine.

In the event of certain corporate transactions and changes in our corporate structure or capitalization, the plan administrator may make appropriate adjustments to (i) the aggregate number and kind of shares issuable under the plans, (ii) the number and kind of shares subject to outstanding awards, and (iii) the grant or exercise price of each outstanding award. In addition, in the event of an acquisition, each outstanding award may be assumed or substituted by the surviving corporation. In the event the surviving corporation does not assume or substitute such outstanding awards, the vesting of awards held by participants in the applicable plan whose status as a service provider has not terminated prior to such event will be accelerated and made fully exercisable and all restrictions thereon will lapse at least ten days prior to the closing of the acquisition. In the case of awards under our 2004 Equity

Incentive Plan, immediately prior to the closing of the acquisition and with respect to any other awards outstanding under the applicable plan, such awards will be terminated if not exercised prior to the closing of the acquisition. The plan administrator also has the authority under the plans to take certain other actions with respect to outstanding awards in the event of certain transactions, including provision for the cash-out, termination, assumption or substitution of such awards.

Our board may at any time amend, alter, suspend or terminate any of the plans. However, no amendment may increase the maximum number of shares issuable under the applicable plan or extend the term of the applicable plan without the approval of our stockholders. Any amendment, alteration, suspension or termination of any of the plans which impairs the rights of any holder of an outstanding award requires the written consent of the affected holder.

On November 19, 2004, we filed with the SEC a registration statement onForm S-8 covering the shares of common stock issuable under the 1999 Equity Incentive Plan, 2000 Equity Incentive Plan and 2004 Equity Incentive Plan, as amended.

On August 24, 2005, we filed with the SEC a registration statement onForm S-8 covering the shares of common stock issuable under the 2005 Equity Incentive Plan.

On August 22, 2007, we filed with the SEC a registration statement onForm S-8 covering the shares of common stock issuable under the 2007 Equity Incentive Plan.

1999 Equity Incentive Plan

In March 1999, our board of directors adopted and our stockholders approved our 1999 Equity Incentive Plan. An aggregate of 500,000 shares of our common stock are reserved for issuance under the 1999 Equity Incentive Plan. At December 31, 2007, options granted under the 1999 Plan to purchase an aggregate of 188,469 shares of our common stock, at a weighted average exercise price of approximately $2.87 per share, were outstanding.

2000 Equity Incentive Plan

In March 2000, our board of directors adopted and our stockholders approved our 2000 Equity Incentive Plan. An aggregate of 500,000 shares of our common stock are reserved for issuance under the 2000 Equity Incentive Plan. At December 31, 2007, options granted under the 2000 Equity Incentive Plan to purchase an aggregate of 350,181 shares of our common stock, at a weighted average exercise price of approximately $3.34 per share, were outstanding.

2004 Equity Incentive Plan

In January 2004, our board of directors adopted our 2004 Incentive Equity Plan. In August 2004, our board of directors amended our 2004 Equity Incentive Plan and adopted our Amended and Restated 2004 Equity Incentive Plan which our stockholders approved in September 2004. An aggregate of 600,000 shares of our common stock are reserved for issuance under the 2004 Equity Incentive Plan. At December 31, 2007, options granted under the 2004 Equity Incentive Plan to purchase an aggregate of 463,940 shares of our common stock, at a weighted average exercise price of approximately $8.07 per share, were outstanding.

2005 Equity Incentive Plan

In August 2005, our board of directors adopted and our stockholders approved our 2005 Equity Incentive Plan. An aggregate of 1,000,000 shares of our common stock are reserved for issuance under the 2005 Equity Incentive Plan. At December 31, 2007, option granted under the 2005 Equity Incentive Plan to purchase an aggregate of 914,706 shares of our common stock, at a weighted average exercise price of approximately $4.82 per share, were outstanding.

2007 Equity Incentive Plan

In August 2007, our board of directors adopted and our stockholders approved our 2007 Equity Incentive Plan. An aggregate of 1,000,000 shares of our common stock are reserved for issuance under the 2007 Equity Incentive

Plan. At December 31, 2007, option granted under the 2007 Equity Incentive Plan to purchase an aggregate of 786,554 shares of our common stock, at a weighted average exercise price of approximately $4.77 per share, were outstanding

Option Exercises and Stock Vested

The following table provides information regarding the exercise of stock options and stock vested for each of our named executive officer during the fiscal year ended December 31, 2007.

Option Awards

Stock Awards

Number or Shares

Value

Number of Shares

Value

Acquired on

Realized on

Acquired on

Realized on

Name

Exercise (#)

Exercise ($)

Vesting (#)

Vesting ($)

Douglas S. Norman

10,000

35,000

—

5,000

30,000

—

Director Compensation

The following table provides information regarding the compensation earned during the fiscal year ended December 31, 2007 by members of our Board or Directors unless the director is also a named executive officer:

2007 Director Compensation


	Fees Earned or		Option
	Paid in Cash		Awards		Total
Name	($)		($)(1)		($)

Norman K. Farra Jr.(2)		38,750		62,826		101,576
Philip K. Fricke(3)		43,550		62,826		106,376
Theodore E. Lavoie(3)		53,550		62,826		116,376
John E. Rehfeld(4)		60,550		62,826		123,376


(1)		The value of option awards granted to our directors has been estimated pursuant to SFAS 123R using theBlack-Scholes option pricing model with the following weighted average assumptions: expected life: 7.0 years; volatility: 100.0%; risk free interest rate: 3.78%; and dividend yield: none.

(2)		80,000 aggregate stock options outstanding as of December 31, 2007.

(3)		70,000 aggregate stock options outstanding as of December 31, 2007.

(4)		70,794 aggregate stock options outstanding as of December 31, 2007.

Non-employee members of the Board of Directors receive an annual retainer of $20,000 plus $1,500 for each meeting attended in person and $750 for each meeting attended telephonically. The Lead Director receives and annual fee of $12,500. The Chairman of the Audit Committee receives an annual fee of $10,000. The Chairman of the Nominating, Compensation and Governance Committee receives an annual fee of $7,500. Board of Directors committee members receive $1,200 for each committee meeting attended. In addition, all members of the Board of Directors receive an annual grant of an option to purchase 15,000 shares of Local.com Corporation common stock. New members to the Board of Directors receive a grant of an option to purchase 20,000 shares of our common stock and a pro-rata amount of the regular annual grant amount of an option to purchase 15,000 shares of our common stock. One-half of each of the options granted to the member of the Board of Directors are vested at the time of the grant, and the remaining portions vest in equal monthly installments over the following twelve months.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors.

COMPENSATION COMMITTEE REPORT

The Nominating, Compensation and Governance Committee operates under a written charter adopted by the Board of Directors on October 14, 2005. The Committee is responsible for the Company’s executive compensation philosophy and major compensation policies. The Committee also determines all aspects of the compensation paid to our executive officers including the Company’s Chief Executive Officer. The Committee met four times and acted once by unanimous written consent during fiscal 2007 to fulfill its responsibilities. All members of the Committee are non-employee directors and satisfy the current Nasdaq Stock Market listing standards and SEC requirements with respect to independence.

The Nominating, Compensation and Governance Committee has reviewed and discussed the Compensation Discussion and Analysis section of this Report with management and based on the review and discussion recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Report.

John E. Rehfeld, Chairman
Philip K. Fricke
Theodore E. Lavoie

March 7, 2008


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The following table sets forth the beneficial ownership of shares of our common stock as of February 29, 2008 and as adjusted to reflect the sale of common stock offered by us for:


	•	each person (or group of affiliated persons) known by us to beneficially own more than 5% of our common stock;

	•	each of our directors;

	•	each named executive officer; and

	•	all of our directors and executive officers as a group.

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares of common stock underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of February 29, 2008 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.

The percentage of beneficial ownership is based on 14,204,110 shares of common stock outstanding.

Except as otherwise noted below, and subject to applicable community property laws, the persons named have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Unless otherwise indicated, the address of the following stockholders isc/o Local.com Corporation, One Technology Drive, Building G, Irvine, California 92618.


			Percentage of
			Shares
	Number of Shares		Beneficially
Name and Address of Beneficial Owner	Beneficially Held		Owned

5% Stockholders:
Hearst Communications, Inc.(1)		1,496,117		9.7	%
Executive Officers and Directors:
Heath B. Clarke(2)		1,262,095		8.2	%
Stanley B. Crair(3)		171,299		1.2	%
Douglas S. Norman(4)		186,683		1.3	%
Norman J. Farra Jr.(5)		180,281		1.3	%
Philip K. Fricke(6)		65,152		0.5	%
Theodore E. Lavoie(7)		68,749		0.5	%
John E. Rehfeld(8)		75,793		0.5	%
All directors and executive officers as a group (7 persons)(9)		2,010,052		12.5	%


(1)		Includes 1,194,030 shares issuable upon the exercise of warrants. Hearst Communications, Inc. is a subsidiary of Hearst Magazines Property, Inc. (Hearst Magazines) and Hearst Holdings, Inc (Hearst Holdings). Hearst Magazines is a wholly-owned subsidiary of Communications Data Services Inc (CDS). CDS is a wholly-owned subsidiary of Hearst Holdings. Hearst Holdings is a wholly-owned subsidiary of The Hearst Corporation (Hearst). Hearst is owned by The Hearst Family Trust (Hearst Trust). The address for Hearst, Hearst Holdings, and Hearst Communications Inc. is 300 West 57^th Street, New York, New York 10019. The address for the Hearst Trust is 888 Seventh Avenue, New York, New York 10106. The address for CDS is 1901 Bell Avenue, Des Moines, Iowa 50315. The address for Hearst Magazines is 2 Sound View Drive, Greenwich, Connecticut 06830.

(2)		Includes 477,667 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008. Does not include 261,700 shares which were pledged as collateral for a personal loan with a third party. The pledge included the transfer of beneficial ownership of these shares during the time that the loan is


		outstanding. Following repayment of the loan, Mr. Clarke will once again have beneficial ownership of the shares.

(3)		Includes 167,149 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008.

(4)		Includes 170,720 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008.

(5)		Includes 95,282 shares issuable upon the exercise of warrants and 74,999 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008.

(6)		Includes 64,999 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008. Does not include 67,000 shares which were pledged as collateral for personal loans with a third party. The pledge included the transfer of beneficial ownership of these shares during the time that the loans are outstanding. Following repayment of the loans, Mr. Fricke will once again have beneficial ownership of the shares.

(7)		Includes 64,999 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008.

(8)		Includes 65,793 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008.

(9)		Includes 95,282 shares issuable upon the exercise of warrants and 1,086,386 shares issuable upon the exercise of options that are exercisable within 60 days of February 29, 2008.

Securities authorized for issuance under equity compensation plans

The following table provides information as of December 31, 2007, with respect to our compensation plans including our 1999 Equity Incentive Plan, 2000 Equity Incentive Plan, 2004 Equity Incentive Plan, as amended, 2005 Equity Incentive Plan and 2007 Equity Incentive Plan under which we may issue shares of our common stock.

Equity Compensation Plan Information

Number of Securities

Remaining Available

Number of Securities

for Future Issuance

to be Issued Upon

Weighted-Average

Under Equity

Exercise of Outstanding

Exercise Price of

Compensation Plans

Options, Warrants

Outstanding Options,

(Excluding Securities

and Rights

Warrants and Rights

Reflected in Column (a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

2,703,850

5.04

234,800

Equity compensation plans not approved by security holders

—

Total

2,703,850

5.04

234,800


Item 13.	*Certain Relationships and Related Transactions, and Director Independence*

Certain Relationships and Related Transactions

None

Director Independence

Nominating,

Compensation and

Audit Committee

Corporate Governance

Director

Independent(1)

Member

Committee Member

Heath B. Clarke

Norman K. Farra Jr.

Yes

Philip K. Fricke

Yes

Theodore E. Lavoie

Yes

John E. Rehfeld

Yes


(1)		As defined by applicable SEC rule and the listing standards of the Nasdaq Capital Market.


Item 14.	*Principal Accountant Fees and Services*

The following table sets forth the aggregate fees for professional audit services rendered by Haskell & White LLP for audit of our annual financial statements for the years ended December 31, 2007 and 2006, and fees billed for other services provided by Haskell & White LLP for the years ended December 31, 2007 and 2006.


	Years Ended December 31,
	2007		2006

Audit Fees	$	186,460	$	162,040
Audit-Related Fees		27,050		9,810
Tax Fees		22,360		17,110
All Other Fees		3,810		—

Total Fees Paid	$	239,680	$	188,960

Audit Fees

The aggregate fees for the annual audit of our financial statements and review of our quarterly financial statements.

Audit-Related Fees

The aggregate fees for the auditor’s consent for use of our audited financial statements in ourS-3 andS-8 registration statements and Sarbanes-Oxley (SOX) compliance.

Tax Fees

The aggregate fees for tax preparation, tax advice and tax planning.

All Other Fees

The aggregate fees for services related to our acquisitions.

Our audit committee pre-approves all services provided by Haskell & White LLP.

PART IV


Item 15.	*Exhibits, Financial Statement Schedules*


Exhibit
Number			Description

	2	.1(1)	Agreement and Plan of Merger by and among Local.com Corporation, Local.com PG Acquisition Corporation, PremierGuide, Inc. and Malcolm Lewis dated July 18, 2007.
	3	.1(2)	Amended and Restated Certificate of Incorporation of the Registrant
	3	.2(3)	Amended and Restated Bylaws of the Registrant
	3	.3(4)	Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into Interchange Corporation
	4	.1(5)	Purchase Agreement dated February 22, 2007 by and among the Registrant, Hearst Communication Inc., SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway Offshore Operating Fund, L.P.
	4	.2(5)	Form of warrants to be issued to GunnAllen Financial, Inc. and Norman K. Farra Jr.
	4	.3(6)	Amendment No. 1 to Purchase Agreement dated March 29, 2007 by and among Registrant, Hearst Communication Inc., SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway Offshore Operating Fund, L.P.
	4	.4(7)	Securities Purchase Agreement dated July 31, 2007 by and among the Registrant and the investors listed on the Schedule of Buyers attached to the Securities Purchase Agreement.
	4	.5(7)	Registration Rights Agreement dated July 31, 2007 by and among the Registrant and the investors listed on the Schedule of Buyers attached to the Securities Purchase Agreement filed as Exhibit 4.1 hereto.
	4	.6(7)	Form of Series [A] [B] Warrant.
	4	.7(7)	Consent to Equity Sales dated July 31, 2007 made and delivered by SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P., SRB Greenway Offshore Operating Fund, L.P. to and for the benefit of the Registrant.
	4	.8(7)	Consent to Equity Sales dated July 31, 2007 made and delivered by Hearst Communications, Inc. to and for the benefit of the Registrant.
	4	.9 (8)#	2007 Equity Incentive Plan.
	10	.1(9)	Amended and Restated PFP Advertiser Distribution Agreement dated March 1, 2007 by and among the Registrant and Idearc Media Corp.
	10	.2(10)	Amendment No. 3 to Yahoo! Publisher Network Agreement dated August 28, 2007 by and among the Registrant and Overture Services, Inc.
	21	.1*	Subsidiaries of Registrant.
	23	.1*	Consent of Haskell & White LLP, independent registered public accounting firm.
	31	.1*	Certification of Principal Executive Officer Required byRule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2*	Certification of Principal Financial Officer Required byRule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

#		Indicates management contract or compensatory plan.

(1)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on July 20, 2007.

(2)		Incorporated by reference from the Registrant’s Registration Statement onForm SB-2, Amendment No. 2, filed with the Securities and Exchange Commission on September 16, 2004.

(3)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on November 2, 2007.


(4)		Incorporated by reference from the Registrant’s Current Report on Form8-K/A, filed with the Securities and Exchange Commission on November 2, 2006.

(5)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on February 26, 2007.

(6)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on April 4, 2007.

(7)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on August 1, 2007.

(8)		Incorporated by reference from the Registrant’s definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on July 3, 2007.

(9)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on March 7, 2007. Confidential portions omitted and filed separately with the Securities and Exchange Commission pursuant toRule 24b-2 promulgated under the Securities and Exchange Act of 1934, as amended.

(10)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on September 1, 2007. Confidential portions omitted and filed separately with the Securities and Exchange Commission pursuant toRule 24b-2 promulgated under the Securities and Exchange Act of 1934, as amended.

SIGNATURES

In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of the 7th day of March, 2008.

LOCAL.COM CORPORATION


	By:	/s/ Heath B. Clarke

Heath B. Clarke

Chief Executive Officer and Chairman

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby severally constitutes and appoints Heath B. Clarke and Douglas S. Norman and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this Report onForm 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date


/s/ Heath B. Clarke Heath B. Clarke	Chairman, Chief Executive Officer and Director	March 7, 2008

/s/ Douglas S. Norman Douglas S. Norman	Chief Financial Officer, Principal Accounting Officer and Secretary	March 7, 2008

/s/ Norman K. Farra Jr. Norman K. Farra Jr.	Director	March 7, 2008

/s/ Philip K. Fricke Philip K. Fricke	Director	March 7, 2008

/s/ Theodore E. Lavoie Theodore E. Lavoie	Director	March 7, 2008

/s/ John E. Rehfeld John E. Rehfeld	Director	March 7, 2008

LOCAL.COM CORPORATION

INDEX TO FINANCIAL STATEMENTS


Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006			F-3
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005			F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005			F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005			F-6
Notes to Consolidated Financial Statements			F-7
Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2007, 2006 and 2005			F-26
Supplementary Financial Data:
Selected Quarterly Financial Data for the two years ended December 31, 2007 (Unaudited)			F-27

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Local.com Corporation

We have audited the accompanying consolidated balance sheets of Local.com Corporation (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007. Our audit also included the financial statement schedule listed in the index at F-1. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Local.Com Corporation as of December 31, 2007 and 2006, and the results of its consolidated operations and its cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed at Note 1 “Stock-based Compensation,” to the consolidated financial statements, during the year ended December 31, 2006, the Company changed the manner in which it accounts for stock compensation costs. Also, as discussed in Note 4 to the consolidated financial statements, effective January 1, 2007, the Company changed its method of accounting for uncertain tax positions.

/s/

HASKELL & WHITE LLP

Irvine, California

March 7, 2008

F-2

LOCAL.COM CORPORATION

CONSOLIDATED BALANCE SHEETS


	December 31,			December 31,
	2007			2006
	(In thousands,
	except share data)

ASSETS
Current Assets:
Cash and cash equivalents	$	14,258		$	3,264
Restricted cash		30			41
Marketable securities		1,999			1,972
Accounts receivable, net of allowances of $15 and $9, respectively		3,595			2,091
Prepaid expenses and other current assets		292			302

Total current assets		20,174			7,670
Property and equipment, net		1,473			2,028
Intangible assets, net		3,156			2,813
Goodwill		13,233			12,213
Long-term restricted cash		66			125
Deposits		12			42

Total assets	$	38,114		$	24,891


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,029		$	2,851
Accrued compensation		456			328
Deferred rent		316			432
Other accrued liabilities		194			374
Notes payable		—			63
Deferred revenue		177			245

Total liabilities, all current		5,172			4,293

Commitments and contingencies (Note 5)
Stockholders’ equity: (Notes 6, 7, 10, 11, 12 and 13)
Convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized; none issued and outstanding for all periods presented		—			—
Common stock, $0.00001 par value; 30,000,000 shares authorized; 14,204,110 and 9,297,502 issued and outstanding, respectively		—			—
Additional paid-in capital		82,176			51,657
Accumulated other comprehensive loss		(1	)		(27	)
Accumulated deficit		(49,233	)		(31,032	)

Stockholders’ equity		32,942			20,598

Total liabilities and stockholders’ equity	$	38,114		$	24,891

The accompanying notes are an integral part of the consolidated financial statements.

F-3

LOCAL.COM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years Ended December 31,
	2007			2006			2005
	(In thousands, except share and
	per shares amounts)

Revenue	$	21,525		$	14,213		$	18,139

Operating Expenses:
Search serving		3,862			4,960			10,707
Sales and marketing		20,268			13,169			6,025
General and administrative		4,890			5,881			4,025
Research and development		2,555			2,829			2,988
Amortization and write-down of intangibles		1,121			947			1,078

Total operating expenses		32,696			27,786			24,823

Operating loss		(11,171	)		(13,573	)		(6,684	)
Interest and other income (expense)		(7,030	)		288			680

Loss before income taxes		(18,201	)		(13,285	)		(6,004	)
Provision for income taxes		1			1			498

Net loss	$	(18,202	)	$	(13,286	)	$	(6,502	)

Per share data:
Basic net loss per share	$	(1.58	)	$	(1.44	)	$	(0.75	)

Diluted net loss per share	$	(1.58	)	$	(1.44	)	$	(0.75	)

Basic weighted average shares outstanding		11,499,879			9,249,973			8,658,069
Diluted weighted average shares outstanding		11,499,879			9,249,973			8,658,069

The accompanying notes are an integral part of the consolidated financial statements.

F-4

LOCAL.COM CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


												Accumulated
					Convertible				Additional			Other						Total
	Common Stock				Preferred Stock				Paid-in			Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Loss			Deficit			Equity
	(In thousands)

Balance at December 31, 2004		7,954	$	—		—	$	—	$	45,497		$	(36	)	$	(11,244	)	$	34,217
Common stock issued:
Exercise of warrants		629		—		—		—		1,143			—			—			1,143
Exercise of options		484		—		—		—		1,426			—			—			1,426
Asset purchase		104		—		—		—		750			—			—			750
Non-cash equity based expense for services		—		—		—		—		95			—			—			95
Financing costs		—		—		—		—		(205	)		—			—			(205	)
Comprehensive income:
Net unrealized loss on marketable securities		—		—		—		—		—			(109	)		—			(109	)
Foreign currency translation adjustments		—		—		—		—		—			(6	)		—			(6	)
Net income		—		—		—		—		—			—			(6,502	)		(6,502	)

Comprehensive income		—		—		—		—		—			—			—			(6,617	)

Balance at December 31, 2005		9,171		—		—		—		48,706			(151	)		(17,746	)		30,809
Common stock issued:
Exercise of warrants		43		—		—		—		77			—			—			77
Exercise of options		83		—		—		—		345			—			—			345
Non-cash equity based expense for services		—		—		—		—		2,531			—			—			2,531
Financing costs		—		—		—		—		(3	)		—			—			(3	)
Swing sale profit contribution		—		—		—		—		1			—			—			1
Comprehensive income:
Net unrealized gain on marketable securities		—		—		—		—		—			118			—			118
Foreign currency translation adjustments		—		—		—		—		—			6			—			6
Net loss		—		—		—		—		—			—			(13,286	)		(13,286	)

Comprehensive loss		—		—		—		—		—			—			—			(13,162	)

Balance at December 31, 2006		9,297		—		—		—		51,657			(27	)		(31,032	)		20,598
Common stock issued:
Conversion of senior secured convertible notes		1,990		—		—		—		8,000			—			—			8,000
Private placement		2,357		—		—		—		12,963			—			—			12,963
Exercise of warrants		366		—		—		—		1,385			—			—			1,385
Exercise of options		90		—		—		—		343			—			—			343
Asset purchase		104		—		—		—		431			—			—			431
Issue of senior secured convertible notes and warrants		—		—		—		—		6,679			—			—			6,679
Non-cash stock based compensation		—		—		—		—		1,748			—			—			1,748
Financing costs		—		—		—		—		(1,035	)		—			—			(1,035	)
Swing sale profit contribution		—		—		—		—		5			—			—			5
Comprehensive income:
Net unrealized gain on marketable securities		—		—		—		—		—			26			—			26
Net loss		—		—		—		—		—			—			(18,202	)		(18,202	)

Comprehensive loss		—		—		—		—		—			—			—			(18,176	)

Balance at December 31, 2007		14,204	$	—		—	$	—	$	82,176		$	(1	)	$	(49,233	)	$	32,942

The accompanying notes are an integral part of the consolidated financial statements.

F-5

LOCAL.COM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
	2007			2006			2005
	(In thousands)

Cash flows from operating activities:
Net income (loss)	$	(18,202	)	$	(13,286	)	$	(6,502	)
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:
Depreciation and amortization		2,206			2,160			1,539
Write-down of intangible asset		—			—			337
Provision for doubtful accounts		14			(23	)		69
Non-cash equity expense related to stock option issuances		1,748			2,531			95
Non-cash interest expense		6,803			—			—
Non-cash interest income		—			(6	)		(15	)
Loss on disposal of property and equipment		—			18			63
Realized loss on marketable securities		—			42			34
Realized loss on foreign exchange translation		—			4			—
Cash received for lease incentive		—			—			547
Changes in operating assets and liabilities:
Accounts receivable		(1,391	)		(930	)		163
Prepaid expenses and other		(114	)		157			30
Deferred income tax assets		—			—			678
Other non-current assets		30			5			(5	)
Accounts payable and accrued liabilities		873			138			(242	)
Deferred revenue		(68	)		(50	)		(214	)

Net cash used in operating activities		(8,101	)		(9,240	)		(3,423	)

Cash flows from investing activities:
Capital expenditures		(531	)		(487	)		(4,010	)
Purchases of marketable securities		—			—			(7,982	)
Proceeds from sales of marketable securities		—			11,354			4,998
Decrease (increase) in restricted cash		70			10			(112	)
Increase (decrease) in minority interest		—			1			(1	)
Proceeds from sale of property and equipment		—			6			—
Acquisition, net of cash acquired		(2,042	)		232			(15,329	)

Net cash provided by (used in) investing activities:		(2,503	)		11,116			(22,436	)

Cash flows from financing activities:
Proceeds from issuance of common stock:
From private placement		12,963			—			—
Exercise of warrants		1,385			77			1,143
Exercise of options		343			344			1,426
Issuance of senior secured convertible notes		8,000			—			—
Payment of notes payable		(63	)		(109	)		(41	)
Swing sale profit contribution		5			1			—
Payment of financing related costs		(1,035	)		(3	)		(205	)

Net cash provided by financing activities		21,598			310			2,323

Effect of currency translation on cash		—			3			(6	)

Net increase (decrease) in cash and cash equivalents		10,994			2,189			(23,542	)
Cash and cash equivalents, beginning of year		3,264			1,075			24,617

Cash and cash equivalents, end of year	$	14,258		$	3,264		$	1,075

Supplemental Cash Flow Information:
Interest paid	$	279		$	5		$	2

Income taxes paid	$	1		$	1		$	1

Non-cash investing and financing transactions:
Common stock issued for asset purchase							$	750

Insurance financing	$	88		$	88		$	125

Debt discount related to issuance of senior secured convertible notes	$	6,221

Conversion of senior secured convertible notes into common stock	$	8,000

Warrants issued for financing costs	$	458

Common stock issued for asset purchase	$	431

The accompanying notes are an integral part of the consolidated financial statements.

F-6

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Nature of operations and summary of significant accounting policies

Nature of operations

Local.com Corporation, a Delaware corporation (the Company), is a provider of paid-search services on the Internet. The Company provides advertisers’ sponsored listings in response to local searches on the Company’s own web site, Local.com and other search engines that have integrated the Company’s search service into their web sites. The Company’s sponsored listings are comprised of subscription-based fixed placement advertisers and advertisers of other paid-search companies. Advertisers pay a specified bid price for each click-through on the advertisers’ sponsored listing. The Company operates in one reportable business segment.

On November 2, 2006, the Company changed its name from Interchange Corporation to Local.com Corporation. The Company amended its Amended and Restated Certificate of Incorporation in connection with a merger of a wholly-owned subsidiary of the Company with and into the Company in accordance with Section 253 of the Delaware General Corporation Law.

Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to current year’s presentation. Accrued royalties of $19,000 as of December 31, 2006 is included in other accrued liabilities. Non-cash equity based expense of $95,000 for the year ended December 31, 2005 is included in general and administrative expense.

Principles of consolidation

Prior to January 1, 2007, the Company’s consolidated financial statements included the accounts of Local.com Corporation, its wholly-owned subsidiaries, Interchange Europe Holding Corporation, Interchange Internet Search GmbH, Inspire Infrastructure 2i AB, and Inspire Infrastructure (UK) Limited, along with its majority owned subsidiary Inspire Infrastructure Espana SL. From January 1, 2007 to June 30, 2007, the Company’s financial statements include only the accounts of Local.com Corporation as all of the Company’s subsidiaries had been dissolved. Subsequent to July 1, 2007, the Company’s financial statements include the accounts of Local.com Corporation and its wholly-owned subsidiary Local.com PG Acquisition Corporation. All intercompany balances and transactions were eliminated.

Foreign currency translation

The Company measures the financial statements for its foreign subsidiaries using the local currency as the functional currency. Current assets and current liabilities of these subsidiaries are translated at the exchange rate as of the balance sheet date, while long-term items are translated at historical rates. Revenues, costs and expenses are translated at the rates prevailing during the year. Translation adjustments from this process are included in stockholders’ equity. Any gains or losses from foreign currency transactions are included in other income.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and therefore bear minimal risk.

F-7

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted cash

On June 26, 2002, the Company pledged $100,000 of cash for an irrevocable letter of credit related to the lease of office space that is classified as restricted cash on the balance sheet. The letter of credit was reduced to $40,960 on April 1, 2006. The letter of credit expired on April 1, 2007.

On April 22, 2005, the Company pledged $125,129 of cash for an irrevocable letter of credit related the lease of new office space that is classified as restricted cash on the balance sheet. The letter of credit was reduced to $96,397 on July 31, 2007 and will be reduced to $66,506 on July 31, 2008, and $35,448 on July 31, 2009. The letter of credit will expire on July 31, 2010.

Marketable securities

The Company carries marketable securities at fair value, with unrealized gains and losses, net of any tax, reported as a separate component of stockholders’ equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on short-term investments are included in interest and other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

Accounts receivable

The Company’s accounts receivable are due primarily from customers located in the United States and are typically unsecured. Management specifically analyzes accounts receivable and historical bad debt, customer concentration, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If management believes that a customer’s financial condition has deteriorated such that it impairs its ability to make payments, additional allowances may be required. The Company’s subscription-based advertisers pay monthly in advance. In addition, the Company grants its advertiser partners net 30 terms. Of the customers that do not pay in advance, as of December 31, 2007 and 2006, one customer represented 62% and 52% of total accounts receivable, respectively and one additional customer represented 12% of total accounts receivable as of December 31, 2007 and another customer represented 11% of total accounts receivable as of December 31, 2006.

Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are calculated under the straight-line basis over the shorter of the estimated useful lives or the respective assets as follows:


Furniture and fixtures		7 years
Office equipment		5 years
Computer equipment		3 years
Computer software		3 years
Leasehold improvements		5 years (life of lease)

Repairs and maintenance expenditures that do not significantly add to the value of the property, or prolong its life, are charged to expense, as incurred. Gains and losses on dispositions of property and equipment are included in the operating results of the related period.

F-8

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible assets

Developed technology arising from acquisitions is recorded at cost and amortized on a straight-line basis over five years. Accumulated amortization at December 31, 2007 was $1,265,367. Accumulated amortization at December 31, 2006 was $818,767.

Non-compete agreement arising from acquisitions is recorded at cost and amortized on a straight-line basis over two to three years. Accumulated amortization at December 31, 2007 was $245,400. Accumulated amortization at December 31, 2006 was $158,400.

Purchased technology arising from acquisitions is recorded at cost and amortized on a straight-line basis over three years. Accumulated amortization at December 31, 2007 was $1,056,794. Accumulated amortization at December 31, 2006 was $643,715.

Patents are recorded at cost and amortized on a straight-line basis over three years. Accumulated amortization at December 31, 2007 was $78,981.

Customer-related intangibles arising from acquisitions are recorded at cost and amortized on a straight-line basis over five years. Accumulated amortization at December 31, 2007 was $92,129.

The estimated total amortization expense for intangible asset over the next five years is as follows (in thousands):


For the Years Ending December 31,	Amortization Expense

2008	$	999
2009	$	798
2010	$	343
2011	$	204
2012	$	119

Impairment of long-lived assets

The Company accounts for the impairment and disposition of definite life intangible and long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 144,Accounting for the Impairment of Disposal of Long-Lived Assets(SFAS No. 144). In accordance with SFAS No. 144, such assets to be held are reviewed for events, or changes in circumstances, which indicate that their carrying value may not be recoverable. The Company periodically reviews related carrying values to determine whether or not impairment to such value has occurred. During the year ended December 31, 2005, due to the deterioration of revenues in Europe since the acquisition of Inspire in February 2005, management believed that the carrying amount for customer contracts and relationships was impaired. The carrying amount of customer contracts and relationships exceeded the sum of the undiscounted cash flows expected and as a result, the Company wrote-down the remaining unamortized balance of $337,000. For the years ended December 31, 2007 and 2006, management had no evidence of impairment.

Goodwill and other intangible assets

Goodwill representing the excess of the purchase price over the fair value of the net tangible and intangible assets arising from acquisitions and purchased domain name are recorded at cost. Intangible assets, such as goodwill and domain name, which are determined to have an indefinite life, are not amortized in accordance with SFAS No. 142,Goodwill and Other Intangible Assets. The Company performs annual impairment reviews during the fourth fiscal quarter of each year, or earlier if indicators of potential impairment exist. For goodwill, the Company engages an independent appraiser to assist management in the determination of the fair value of its reporting unit and compares the resulting fair value to the carrying value of the reporting unit to determine if there is goodwill impairment. For other intangible assets with indefinite lives, the Company compares future undiscounted

F-9

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cash flow forecasts prepared by management to the carrying value of the related intangible asset group to determine if there is impairment. The Company performed its annual impairment analysis as of December 31, 2007 and determined that no impairment existed. Future impairment reviews may result in charges against earnings to write-down the value of intangible assets.

Fair value of financial instruments

The Company’s balance sheets include the following financial instruments: cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities. The Company considers the carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities in the financial statements to approximate fair value for these financial instruments because of the relatively short period of time between origination of the instruments and their expected realization.

Deferred revenue

Deferred revenue represents deposits from direct advertisers for their advertising campaigns and is recognized as revenue upon a click-through.

Sales commissions

When an advertiser makes a deposit into its account with the Company, the Company’s applicable salesperson earns a commission, subject to certain criteria. The Company records sales commission expense in the period the deposit is received.

Refunds

Refunds of any remaining deposits paid by direct advertisers are available to those advertisers upon written request submitted between 30 and 90 days from the date of deposit.

Revenue recognition

Revenue is recognized when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of the Company’s fees is probable. The Company generates revenue when it is realizable and earned, as evidenced by click-throughs occurring on advertisers’ sponsored listings, the display of a banner advertisement or the fulfillment of subscription listing obligations. Management believes all four revenue recognition criteria are met as a result of each click-through, display of a banner advertisement or the fulfillment of subscription listing obligation (monthly). The Company enters into a contractual arrangement to distribute sponsored listings and banners from an advertiser or an Advertiser Network partner. The advertisers provide sponsored listings along with bid prices (what the advertisers are willing to pay for each click-through on those listings) to the Company. These sponsored listings and banners are then included as search results that the Company distributes in response to keyword searches performed by consumers on the Company’s web site. Depending on the source of the advertiser, the Company recognizes an applicable portion of the bid price for each click-through the Company delivers on advertisers’ sponsored listings. Revenue is recognized when earned based on click-through activity to the extent that collection is reasonably assured from credit worthy direct advertisers and Advertiser Network partners.

One local advertising network partner represented 49%, 40% and 2% of the Company’s total revenue for the years ended December 31, 2007, 2006 and 2005, respectively, one local advertising network partner represented 15%, 3% and 0% of the Company’s total revenue for the years ended December 31, 2007, 2006 and 2005, respectively and one national advertising network partner represented 1%, 15% and 30% of the Company’s total revenue for the years ended December 31, 2007, 2006 and 2005, respectively.

F-10

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Search serving

Search serving expenses consist primarily of revenue-sharing payments that the Company makes to its Distribution Network partners, and to a lesser extent, royalties, Internet connectivity costs, data center costs, amortization of certain software license fees and maintenance and depreciation of computer equipment used in providing the Company’s paid-search services.

Web site development costs and computer software developed for internal use

Statement of Position98-1,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use(SOP 98-1), requires that costs incurred in the preliminary project and post-implementation stages of an internal use software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized. Emerging Issues Task Force IssueNo. 00-02Accounting for Web Site Development Costs(EITF 00-02), requires that costs incurred in the preliminary project and operating stage of web site development be expensed as incurred and that certain costs incurred in the development stage of web site development be capitalized and amortized over the estimated useful life. During the year ended December 31, 2007, the Company capitalized $330,000 related to web site development with an estimated useful life of three years. During the year ended December 31, 2007, amortization of capitalized web site costs was $187,000. During the year ended December 31, 2006, the Company capitalized $392,000 related to the web site development with an estimated useful life of three years. During the year ended December 31, 2006, amortization of capitalized web site costs was $174,000. During the year ended December 31, 2005, the Company capitalized $244,000 related to the web site development with an estimated useful life of three years. During the year ended December 31, 2005, amortization of capitalized web site costs was $34,000. Capitalized web site costs are included in property and equipment, net.

Research and development

Research and development expenses consist of expenses incurred by the Company in the development, creation and enhancement of its paid-search services. Research and development expenses include salaries and other costs of employment of the Company’s development staff as well as outside contractors and the amortization of capitalized web site development costs.

Traffic acquisition cost

The Company advertises on other search engine web sites, primarily google.com, but also yahoo.com, msn.com and ask.com, by bidding on certain keywords it believes will drive traffic to its Local.com web site. During the year ended December 31, 2007, approximately 92% of the traffic on our Local.com web site was acquired from other search engine web sites. During the year ended December 31, 2007, traffic acquisition costs (TAC) were $13.7 million of which $10.9 million was paid to Google, Inc and such amounts are included in sales and marketing in accompanying consolidated statements of operations. During the year ended December 31, 2006, traffic acquisition costs (TAC) were $7.7 million of which $6.9 million was paid to Google, Inc and such amounts are included in sales and marketing in accompanying consolidated statements of operations.

Income taxes

The Company follows the provisions of SFAS No. 109,Accounting for Income Taxes, which requires recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements and tax returns. Deferred income tax assets and liabilities are determined based upon the difference between the financial statement and tax bases of assets and liabilities, using the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that deferred income tax assets will not be realized.

F-11

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Comprehensive income (loss)

The Company accounts for comprehensive income (loss) using SFAS No. 130,Reporting Comprehensive Income(SFAS No. 130). SFAS No. 130 establishes standards for reporting comprehensive income (loss) and its components in financial statements. Comprehensive income (loss), as defined therein, refers to revenue, expenses, gains and losses that are not included in net income (loss) but rather are recorded directly in shareholders’ equity. For the year ended December 31, 2007, comprehensive income consisted of net loss plus unrealized gain on marketable securities. For the years ended December 31, 2006 and 2005, comprehensive loss consisted of net loss plus net unrealized gain/loss on marketable securities and foreign currency translation adjustments.

Supplemental comprehensive income (loss) information (in thousands):


	Years Ended December 31,
	2007		2006			2005

Foreign currency translation adjustments arising during period	$	—	$	10		$	(6	)
Reclassification adjustment for losses included in net loss		—		(4	)		—

Foreign currency translation adjustments	$	—	$	6		$	(6	)

Unrealized holding gains (losses) arising during period	$	26	$	160		$	(75	)
Reclassification adjustment for losses included in net loss		—		(42	)		(34	)

Net unrealized gain (loss) on marketable securities	$	26	$	118		$	(109	)

Stock-based compensation

The Company adopted SFAS No. 123R on January 1, 2006, the beginning of its first quarter of fiscal 2006, using the modified-prospective transition method. Under the modified-prospective transition method prior periods of the Company’s financial statements are not restated for comparison purposes. In addition, the measurement, recognition and attribution provisions of SFAS No. 123R apply to new grants and grants outstanding on the adoption date. Estimated compensation expense for outstanding grants at the adoption date will be recognized over the remaining vesting period using the compensation expense calculated for the pro forma disclosure purposes under SFAS No. 123,Accounting for Stock-Based Compensation.

Total stock-based compensation expense recognized for the years ended December 31, 2007 and 2006 is as follows (in thousands, except per share amount):


	Year Ended December 31,
	2007		2006

Sales and marketing	$	544	$	601
General and administrative		968		1,674
Research and development		236		256

Total stock-based compensation expense	$	1,748	$	2,531

Basic and diluted net stock-based compensation expense per share	$	0.15	$	0.27

F-12

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair values of these options were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:


	Year Ended December 31,
	2007			2006

Risk-free interest rate		4.02	%		4.66	%
Expected lives (in years)		7.0			6.5
Expected dividend yield		None			None
Expected volatility		100.00	%		112.37	%

As of December 31, 2007, there was $3.4 million of unrecognized stock-based compensation expense related to outstanding stock options, net of forecasted forfeitures. This amount is expected to be recognized over a weighted average period of 1.5 years. The stock-based compensation expense for these awards will be different if the actual forfeiture rate is different from the Company’s forecasted rate.

Prior to the adoption of SFAS No. 123R the Company accounted for stock-based employee compensation under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25,Accounting for Stock Issued to Employeesand the disclosure requirements of SFAS No. 123 and related SFAS No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure.

The following table illustrates the pro forma effect of the fair value recognition of stock-based compensation on net income (loss) and net income (loss) per share for the year ended December 31, 2005 (in thousands, except per share amounts):


	Year Ended December 31,
	2005

Net income (loss), as reported	$	(6,502	)
Additional stock-based employee compensation expense determined under fair value based method for all awards, net of tax effects		(4,725	)

Pro forma net income (loss)	$	(11,227	)

Earnings (loss) per share:
Basic — as reported	$	(0.75	)

Basic — pro forma	$	(1.30	)

Earnings (loss) per share:
Diluted — as reported	$	(0.75	)

Diluted — pro forma	$	(1.30	)

The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:


	Year Ended December 31,
	2005

Risk free interest rate		4.62	%
Expected lives (in years)		9.3
Dividend yield		None
Expected volatility		62	%

F-13

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Net income (loss) per share

SFAS No. 128, Earnings per Share, establishes standards for computing and presenting earnings per share. Basic net income (loss) per share is calculated using the weighted average shares of common stock outstanding during the periods. Diluted net income (loss) per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding during the period, using the treasury stock method for options and warrants.

For the year ended December 31, 2007, potentially dilutive securities, which consist of options to purchase 2,703,850 share of common stock at prices ranging from $0.40 to $16.59 and warrants to purchase 3,470,278 shares of common stock at prices ranging from $3.00 to $25.53 were not included in the computation of diluted net income per share because such inclusion would be antidilutive.

For the year ended December 31, 2006, potentially dilutive securities, which consist of options to purchase 1,933,363 share of common stock at prices ranging from $0.40 to $16.59 and warrants to purchase 1,043,664 shares of common stock at prices ranging from $3.00 to $25.53 were not included in the computation of diluted net income per share because such inclusion would be antidilutive.

For the year ended December 31, 2005, potentially dilutive securities, which consist of options to purchase 1,339,360 shares of common stock at prices ranging from $0.40 to $16.59 and warrants to purchase 1,279,575 shares of common stock at prices ranging from $2.00 to $25.53 were not included in the computation of diluted net income per share because such inclusion would be antidilutive.

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):


	Years Ended December 31,
	2007			2006			2005

Numerator:
Net income (loss)	$	(18,202	)	$	(13,286	)	$	(6,502	)

Denominator:
Denominator for historical basic calculation weighted average shares		11,500			9,250			8,658
Dilutive common stock equivalents:
Options		—			—			—
Warrants		—			—			—

Denominator for historical diluted calculation weighted average shares		11,500			9,250			8,658

Net income (loss) per share:
Historical basic net income (loss) per share	$	(1.58	)	$	(1.44	)	$	(0.75	)

Historical diluted net income (loss) per share	$	(1.58	)	$	(1.44	)	$	(0.75	)

New accounting pronouncements

F-14

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. The provision of SFAS 141R are effective for fiscal years beginning after December 15, 2008 with earlier adoption prohibited. The Company is currently analyzing the effect of adopting SFAS 141R.

In December 2007, FASB issued SFAS No. 160,Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51(SFAS 160), which requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain aspects of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141R. This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The provisions of SFAS 160 are effective for fiscal years beginning after December 15, 2008 with earlier adoption prohibited. The Company is currently analyzing the effect of adopting SFAS 160.


2.	Composition of certain balance sheet and statement of operations captions

Property and equipment consisted of the following (in thousands):


	December 31,			December 31,
	2006			2006

Furniture and fixtures	$	203		$	201
Office equipment		119			91
Computer equipment		1,889			1,750
Computer software		1,841			1,473
Leasehold improvements		583			583

		4,635			4,098
Less accumulated depreciation and amortization		(3,162	)		(2,070	)

Property and equipment, net	$	1,473		$	2,028

Intangible assets consisted of the following (in thousands):


	December 31,			December 31,
	2007			2006

Developed technology	$	2,233		$	2,233
Non-compete agreements		274			261
Purchased technology		1,239			1,239
Customer-related		1,020			—
Patents		431			—
Domain name		701			701

		5,898			4,434
Less accumulated amortization		(2,742	)		(1,621	)

Intangible assets, net	$	3,156		$	2,813

F-15

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Interest and other income (expense), net consisted of the following (in thousands):


	Year Ended December 31,
	2007			2006			2005

Interest income	$	536		$	328		$	600
Interest expense		(887	)		(5	)		45
Interest expense — non-cash		(6,679	)		—			—
IRS penalty reversal		—			—			132
Net gain (loss) on sale of fixed assets		—			7			(63	)
Realized loss on sale of marketable securities		—			(42	)		(34	)

Interest and other income (expense), net	$	(7,030	)	$	288		$	680


3.	Marketable securities

The following is a summary of marketable securities all of which are classified as available for sale (in thousands):


			Gross			Estimated
			Unrealized			Fair
	Cost		Loss			Value

As of December 31, 2007:
Mortgage backed government securities	$	2,000	$	(1	)	$	1,999

As of December 31, 2006:
Mortgage backed government securities	$	1,999	$	(27	)	$	1,972

The contractual maturities of marketable securities are as follows (in thousands):


			Gross			Estimated
			Unrealized			Fair
	Cost		Loss			Value

As of December 31, 2007:
Maturities:
Less than one year	$	2,000	$	(1	)	$	1,999

As of December 31, 2006:
Maturities:
After one year through five years	$	1,999	$	(27	)	$	1,972

F-16

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


4.	Income taxes

The Company’s provision (benefit) for income taxes consists of the following (in thousands):


	Years Ended December 31,
	2007		2006		2005

Current:
Federal	$	—	$	—	$	—
State		1		—		(2	)
Foreign		—		1		(27	)

Total current		1		1		(29	)

Deferred:
Federal		—		—		412
State		—		—		115
Foreign		—		—		—

Total deferred		—		—		527

Total provision (benefit) for income taxes	$	1	$	1	$	498

The provision (benefit) for income taxes differs from the amount computed by applying the federal income tax rate as follows:


	Years Ended December 31,
	2007			2006			2005

Statutory federal tax rate		34	%		34	%		34	%
State income taxes, net of federal benefit		—			—			—
Stock option grants		3			(4	)		—
Change in valuation allowance		(37	)		(30	)		(43	)
Other		—			—			1

		—	%		—	%		(8	)%

F-17

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows (in thousands):


	Years Ended December 31,
	2007			2006			2005

Deferred income tax assets:
Net operating loss carryforwards	$	18,402		$	10,730		$	7,666
Accrued expenses		1,290			1,095			76
Fixed assets/depreciation		1,440			1,551			241

Gross deferred tax assets		21,132			13,376			7,983
Valuation allowance		(20,015	)		(11,808	)		(6,335	)

		1,117			1,568			1,648

Deferred income tax liabilities:
Acquired intangibles		(1,102	)		(1,285	)		(1,356	)
Fixed assets/depreciation		(15	)		—			—
Other		—			(283	)		(292	)

		(1,117	)		(1,568	)		(1,648	)

Net deferred tax assets (liabilities)	$	—		$	—		$	—

As of December 31, 2007, the Company has approximately $2.6 million of valuation allowance attributable to the tax benefit of exercised stock options and warrants issued for services, which will be credited directly to paid-in capital when the related deferred tax assets are realized.

As of December 31, 2007, the Company had $47.2 million and $40.6 million in net operating loss carryforwards for federal and state income tax purposes, respectively. The losses begin to expire in 2021 for federal and 2012 for state income tax purposes.

In June 2006, FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes(FIN 48), which defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. A tax position that meet the “more-likely-than-not” criterion shall be measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. FIN 48 applies to all tax positions accounted for under SFAS No. 109,Accounting for Income Taxes. FIN 48 is effective for fiscal years beginning after December 15, 2006.

The Company adopted FIN 48 as of January 1, 2007, the beginning of its current fiscal year. Based on the Company’s preliminary analysis, the Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position including its effective tax rate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48 and the Company did not record a cumulative effect adjustment related to the adoption of FIN 48. In addition, the Company has not recorded any accrued interest and penalties related to income tax. It is the Company’s policy to classify interest and penalties related to income tax as income taxes in its financial statements.

The following tax years that remain subject to examination by major tax jurisdictions are as follows:

Federal — 2004, 2005 and 2006;

California (state) — 2004, 2005 and 2006;

Virginia (state) — 2004, 2005 and 2006.

F-18

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.	Commitments and contingencies

Lease Commitments

The Company leases office space under an operating lease agreement that expires in June 2010. The future minimum lease payments under non-cancelable operating leases at December 31, 2007 are as follows (in thousands):


	Operating Leases

Years ending December 31,
2008	$	375
2009		389
2010		199

Total minimum lease payments	$	963

The Company recognizes rent expense on a straight-line basis over the life of the operating lease as the lease contains a fixed escalation rent clause. Rent expense for the years ended December 31, 2007, 2006 and 2005 was $249,000, $336,000 and $407,000, respectively.

401(k) Plan

The Company maintains a 401(k) plan for eligible employees. Employees become eligible to participate in the plan at the beginning of each calendar quarter (January, April, July, October) following their hire date. Employees may contribute amounts ranging from 1% to 15% or their annual salary, up to maximum limits set by the Internal Revenue Service. The Company may make matching contributions at its own discretion. Employees immediately vest 100% of their own contributions and 20% of the Company’s matching contributions for each year of service. Through December 31, 2007, the Company has made no matching contributions.

Employment Agreements

The Company has signed employment agreements with its three executive officers and six of its key employees. The agreements provide for the payments of annual salaries totaling $1.9 million and annual bonuses of up to $702,000 in the aggregate. The agreements have a term of one year and automatically renew for one year terms unless terminated on at least 30 days notice by either party. If the Company terminates one of these officers or key employees without cause, the Company is obligated to pay the terminated officer or key employee (i) his annual salary and other benefits earned prior to termination, (ii) the greater of such officer’s or key employee’s annual salary for the remaining term of the agreement or such officer’s or key employee’s annual salary, (iii) the average of all bonuses during the term of the employment agreement, (iv) the same benefits that such officer or key employee received prior to termination, for a period of 12 months following termination, and (v) the right to exercise all options, including any as yet unvested options, for a period of 12 months following termination.

Legal Proceedings

From time to time, however, the Company may be subject to a variety of legal proceedings and claims in the ordinary course of business.


6.	Stockholders’ equity

The Company has authorized 30,000,000 shares of common stock and 10,000,000 shares of convertible preferred stock.

F-19

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Warrants

Warrant activity for the years ended December 31, 2005, 2006 and 2007 was as follows:


				Weighted Average
	Shares			Exercise Price

Outstanding at December 31, 2004		2,088,194		$	6.43
Exercised		(761,369	)		3.07
Expired		(47,250	)		14.58

Outstanding at December 31, 2005		1,279,575			8.13
Exercised		(159,682	)		3.91
Expired		(76,229	)		3.58

Outstanding at December 31, 2006		1,043,644			9.11
Issued		2,810,070			6.22
Exercised		(365,331	)		3.79
Expired		(18,125	)		7.31

Outstanding at December 31, 2007		3,470,278		$	7.34

Exercisable at December 31, 2007		2,395,532		$	6.79

The weighted average fair value at grant date of the warrants granted during the year ended December 31, 2007 was $3.83. No warrants were issued during the years ended December 31, 2005 and 2006.

The following table summarizes information regarding warrants outstanding and exercisable at December 31, 2007:


		Warrants Outstanding
				Weighted				Warrants Exercisable
				Average		Weighted				Weighted
				Remaining		Average				Average
				Contractual		Exercise				Exercise
Range of Exercise Prices		Shares		Life		Price		Shares		Price

$	3.00 - $ 3.99		173,124		0.6	$	3.50		173,124	$	3.50
$	4.00 - $ 4.99		874,596		4.1	$	4.36		874,596	$	4.36
$	5.00 - $ 5.99		867,662		4.1	$	5.17		867,662	$	5.17
$	7.00 - $ 7.99		537,373		4.6	$	7.89		—	$	—
$	9.00 - $ 9.99		537,373		4.6	$	9.26		—	$	—
$	10.00 - $19.99		315,750		1.8	$	10.00		315,750	$	10.00
$	20.00 - $25.53		164,400		2.0	$	25.53		164,400	$	25.53

			3,470,278		3.8	$	7.34		2,395,532	$	6.79


7.	Stock plans

In March 1999, the Company adopted the 1999 Equity Incentive Plan (1999 Plan). The 1999 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the

F-20

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 500,000 shares for issuance under the 1999 Plan, of which 188,469 were outstanding and 23 were available for future grant at December 31, 2007.

In March 2000, the Company adopted the 2000 Equity Incentive Plan (2000 Plan). The 2000 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 500,000 shares for issuance under the 2000 Plan, of which 350,181 were outstanding and 42 were available for future grant at December 31, 2007.

In January 2004, the Company adopted the 2004 Equity Incentive Plan (2004 Plan), in August 2004, the Company amended the 2004 Plan and in September 2004, the stockholders of the Company approved the 2004 Plan, as amended. The 2004 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 600,000 shares for issuance under the 2004 Plan, of which 463,940 were outstanding and 16,596 were available for future grant at December 31, 2007.

In August 2005, the Company adopted and the stockholders of the Company approved the 2005 Equity Incentive Plan (2005 Plan). The 2005 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006 and thereafter, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The Company has reserved 1,000,000 shares for issuance under the 2005 Plan, of which 914,706 were outstanding and 4,693 were available for future grant at December 31, 2007.

In August 2007, the Company adopted and the stockholders of the Company approved the 2007 Equity Incentive Plan (2007 Plan). The 2007 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 1,000,000 shares for issuance under the 2007 Plan, of which 786,554 were outstanding and 213,446 were available for future grant at December 31, 2007.

F-21

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock option activity under the plans for the years ended December 31, 2005, 2006 and 2007 is as follows:


				Weighted Average		Aggregate
	Shares			Exercise Price		Intrinsic Value(1)
						(In thousands)

Outstanding at December 31, 2004		1,292,947		$	3.19
Granted		773,814			9.61
Exercised		(484,211	)		2.94
Canceled		(243,190	)		8.91

Outstanding at December 31, 2005		1,339,360			5.95
Granted		864,104			4.05
Exercised		(82,748	)		4.16
Canceled		(187,353	)		6.77

Outstanding at December 31, 2006		1,933,363			5.10
Granted		1,001,054			4.89
Exercised		(90,016	)		3.81
Canceled		(140,551	)		5.62

Outstanding at December 31, 2007		2,703,850		$	5.04	$	1,896

Exercisable at December 31, 2007		1,347,613		$	5.35	$	1,389

The weighted-average fair value at grant date for the options granted during the years ended December 31, 2005, 2006 and 2007 was $9.01, $3.50, and $4.11 per option, respectively.

The aggregate intrinsic value of all options exercised during the years ended December 31, 2005, 2006 and 2007 was $2.1 million, $122,000 and $406,000, respectively.

The following table summarizes information regarding options outstanding and exercisable at December 31, 2007:


	Options Outstanding
			Weighted				Options Exercisable
			Average		Weighted				Weighted
			Remaining		Average				Average
			Contractual		Exercise				Exercise
Range of Exercise Price	Shares		Life		Price		Shares		Price

$ 0.00 - $ 1.00		18,625		0.3 years	$	0.40		18,625	$	0.40
$ 1.01 - $ 2.00		160,000		5.0 years		2.00		160,000		2.00
$ 2.01 - $ 3.00		141,028		4.4 years		2.25		141,028		2.25
$ 3.01 - $ 4.00		772,815		7.3 years		3.69		448,517		3.75
$ 4.01 - $ 5.00		938,388		9.6 years		4.67		66,164		4.58
$ 5.01 - $ 6.00		133,459		8.2 years		5.69		95,218		5.71
$ 6.01 - $ 7.00		117,773		7.9 years		6.39		97,657		6.39
$ 7.01 - $ 8.00		190,112		7.7 years		7.51		142,414		7.54
$ 8.01 - $10.00		120,000		8.3 years		8.76		68,333		9.18
$ 15.01 - $16.59		111,650		6.6 years		15.61		109,657		15.60

		2,703,850		7.9 years	$	5.04		1,347,613	$	5.35

F-22

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


8.	Operating segment information

SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131), requires that public business enterprises report certain information about operating segments. The Company has one reporting segment: paid-search. The following table presents summary operating geographic information as required by SFAS No. 131 (in thousands):


	Years Ended December 31,
	2007		2006		2005

Revenue by geographic region:
United States	$	21,116	$	14,069	$	17,663
Europe		409		144		476

Total revenue	$	21,525	$	14,213	$	18,139


9.	Inspire Infrastructure 2i AB acquisition

On February 28, 2005, the Company completed the acquisition, through a wholly owned subsidiary, of all of the outstanding capital stock of Inspire Infrastructure 2i AB (Inspire), a Swedish Internet and wireless local-search technology company for $15.0 million in cash and cash acquisition costs of $409,000. Under the terms of the acquisition, Inspire shareholders could have received additional consideration consisting of up to 447,067 shares of Local.com common stock, valued at $7.5 million based upon a30-day moving average at the date of acquisition, which was payable upon the achievement of certain future business performance criteria.

On May 15, 2006, the Company entered into a Share Purchase Termination Agreement with Interchange Europe Holding Corporation, a wholly owned subsidiary of the Company, and the five former shareholders of Inspire Infrastructure 2i AB (Sellers) to terminate all provisions of the Share Purchase Agreement dated February 2, 2005, except for Provision 10 — Non-Compete and Section 11.7 — Confidentiality. As a result of this termination, $232,000 of the cash escrow was returned to the Company which reduced goodwill. In addition, the Sellers will not earn or receive the additional consideration of 447,067 shares of Local.com common stock.

On December 20, 2006, the Company entered into a Share Purchase Agreement with Starboard Finans AB to sell all of the outstanding capital stock of Interchange Europe AB (formerly Inspire Infrastructure 2i AB) it owns (1,000 shares) for $140 (SEK 1,000).


10.	Senior Secured Convertible Notes

On February 22, 2007, the Company entered into a Purchase Agreement with two investors. Pursuant to this agreement, the investors purchased an aggregate of $8.0 million of 9% senior secured convertible notes and warrants to purchase shares of the Company’s common stock. The senior secured convertible notes are secured by the Company’s assets and were due on February 23, 2009. Each senior secured convertible note holder had the right, at any time, to convert their note into shares of the Company’s common stock at an initial conversion ratio of one share of common stock for each $4.02 of principal amount of their note. The Company recorded a beneficial conversion feature amount of $3.1 million as debt discount which was amortized into interest expense over the life of the notes. The Company also issued warrants to purchase an aggregate of 796,020 shares of common stock at an exercise price of $4.82 per share that expire five years from the date of issuance and warrants to purchase an aggregate of 796,020 shares of common stock at an exercise price of $5.63 per share that expire five years from the date of issuance. The relative fair value of these warrants, using the Black-Scholes model at the date of grant, was $3.1 million and was recorded as convertible debt discount and was amortized into interest expense over the life of the notes. The assumptions used in the Black-Scholes model were as follows: no dividend yield; 4.67% interest rate; five years contractual life; and volatility of 100%.

In connection with the issuance of the senior secured convertible notes, the Company paid $530,000 in cash for placement agent fees of which $205,000 was paid to a director of the Company. These fees are recorded in prepaid

F-23

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expenses and will be amortized into interest expense over the life of the notes. The Company also issued to the placement agents warrants to purchase an aggregate of 71,642 shares of common stock, of which 27,711 were issued to a director of the Company, at an exercise price of $4.82 per share that expire five years from the date of issuance and warrants to purchase an aggregate of 71,642 shares of common stock, of which 27,711 were issued to a director of the Company, at an exercise price of $5.63 per share that expire five years from the date of issuance. The fair value of these warrants, using the Black-Scholes model at the date of grant, was $458,000 and was recorded in prepaid expenses and will be amortized into interest expense over the life of the notes.

On March 29, 2007, the Company entered into Amendment No. 1 to the Purchase Agreement whereby the exercise date of the warrants issued to the investors was amended to be the six month anniversary of the closing date (February 23, 2007) of the Purchase Agreement.

During July 2007, the Investors converted all of the $8.0 million in aggregate principal amount of the Notes into an aggregate of 1,990,050 shares of the Company’s common stock.

On July 31, 2007, the Company entered into a Consent to Equity Sales agreements with the Investors whereby the Investors waived the application of Section 7.9 of the Convertible Note Agreement which prohibits the Company from selling securities under certain circumstances and the Strategic Investor waived their Right of First Refusal pursuant to Section 7.12 of the Convertible Note Agreement with respect to any equity transaction that occurs during the 90 day period following July 9, 2007. In addition, the Company agreed to amend the warrants issued to the Investors so that the exercise price of the Series A Warrant is decreased to $4.32 per share and the exercise price per share of the Series B Warrant is decreased to $5.13 per share. The difference of the fair value of the repriced warrants and the original warrants on the date of the repricing using the Black-Scholes model was $133,000 and was recorded as a private placement cost (Note 13). The assumptions used in the Black-Scholes model were as follows: no dividend yield; 4.6% interest rate; 4.58 years contractual life; and volatility of 100%.


11.	Atlocal asset purchase

On June 9, 2005, the Company entered into an asset purchase agreement with Xiongwu Xia, an individual, to purchase the patent-pending Atlocal Search Engine Computer software, the Atlocal.com domain name, a computer server, and the Atlocal.com database for $500,000 in cash, cash acquisition costs of $3,238 and 104,311 unregistered shares of Local.com common stock valued at $750,000 based upon a90-day moving average. In addition, the Company will issue Mr. Xia an additional 104,311 shares of unregistered Local.com common stock if the patent is issued for the Atlocal Search Engine Computer software before June 9, 2010.

On June 12, 2007, the Company was issued patent number 7,231,405,Methods and Apparatus of Indexing Web Pages of a Web Site for Geographical Searchine Based on User Location. The Company issued Mr. Xia the additional 104,311 shares of unregistered Local.com common stock valued at $431,000 based upon the closing price of the Company’s common stock of $4.13 and recorded the amount as an intangible asset and will amortize the value over three years.

F-24

LOCAL.COM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. PremierGuide, Inc. acquisition

On July 18, 2007, the Company completed the acquisition, through a wholly owned subsidiary, of all of the outstanding capital stock of PremierGuide, Inc. (PremierGuide), a Delaware corporation and provider of online business directories for an aggregate purchase price of $2.0 million in cash and cash acquisition costs of $81,000. The purchase price of $2.1 million was allocated as follows (in thousands):


Current assets	$	192
Customer-related intangibles		1,020
Non-compete agreement		13
Goodwill		1,020
Liabilities assumed		(139	)

Total purchase price	$	2,106

PremierGuide’s operating results have been included in the Company’s consolidated financial statements from the date of acquisition. Customer-related intangibles are being amortized on a straight-line basis over five years. Non-compete agreement is being amortized on a straight-line basis over two years. Goodwill, which is determined to have an indefinite life, is not amortized in accordance with SFAS No. 142,Goodwill and Other Intangible Assets.


13.	Private placement

On August 1, 2007, the Company issued 2,356,900 shares of its common stock, par value $0.00001 per share, for an aggregate purchase price of $12,962,950 to five institutional investors in a private placement transaction pursuant to a Securities Purchase Agreement, dated as of July 31, 2007 (Securities Purchase Agreement). In connection with the sale of the common stock, the Company also issued the investors warrants to purchase up to 471,380 shares of the Company’s common stock at an exercise price of $7.89 per share exercisable beginning February 1, 2008 and for a period of five years thereafter; and warrants to purchase up to 471,380 shares of the Company’s common stock at an exercise price of $9.26 per share exercisable beginning February 1, 2008 and for a period of six years thereafter. In connection with the transaction described herein, the Company also entered into a Registration Rights Agreement which obligates the Company to register the resale of the shares of common stock sold in the private placement and the shares of common stock issuable upon exercise of the warrants under the Securities Act of 1933, as amended and indemnifies the investors against any Claims, as defined in the Registration Rights Agreement, incurred as a result of any Violations, as defined in the Registration Rights Agreement. These shares were registered on aForm S-3 (RegistrationNo. 333-145580) declared effective by the Securities and Exchange Commission on August 28, 2007.

In connection with the transaction, GunnAllen Financial Inc. (GunnAllen) acted as the Company’s placement agent. For payment for these services, the Company paid GunnAllen fees of $827,777 in cash, of which $250,000 was paid to Norman K. Farra Jr., a director of the Company and an employee of GunnAllen. In addition, the Company issued GunnAllen warrants to purchase up to 46,063 shares of the Company’s common stock at $7.89 per share and warrants to purchase up to 46,063 shares of the Company’s common stock at $9.26 per share. In addition, the Company issued Norman K. Farra Jr. warrants to purchase 19,930 shares of the Company’s common stock at $7.89 per share and warrants to purchase 19,930 shares of the Company’s common stock at $9.26 per share.

The fair value of all of the warrants issued, using the Black-Scholes model at the date of grant, was $4,648,108 and was recorded as a private placement cost. The assumptions used in the Black-Scholes model were as follows: no dividend yield; 4.6% interest rate; five years contractual life; and volatility of 100%.

F-25

Schedule II — Valuation and Qualifying Accounts
Years ended December 31, 2007, 2006 and 2005


	Balance at		Charges to						Balance at
	Beginning		Costs and						End of
	of Period		Expenses			Deductions			Period

Accounts receivable (in thousands):
Year ended December 31, 2007
Allowance for doubtful accounts	$	9	$	14		$	(8	)	$	15
Year ended December 31, 2006
Allowance for doubtful accounts	$	30	$	(23	)	$	2		$	9
Year ended December 31, 2005
Allowance for doubtful accounts	$	5	$	69		$	(44	)	$	30

F-26

SELECTED QUARTERLY FINANCIAL DATA


	Quarters Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2007			2007			2007			2007			2006			2006			2006			2006
	(In thousands, except per share amounts)
	(Unaudited)

Revenue	$	5,932		$	5,614		$	5,098		$	4,881		$	3,628		$	4,059		$	3,374		$	3,151
Operating loss	$	(2,860	)	$	(2,879	)	$	(2,537	)	$	(2,894	)	$	(3,244	)	$	(2,886	)	$	(3,557	)	$	(3,887	)
Net loss	$	(2,666	)	$	(9,297	)	$	(3,151	)	$	(3,087	)	$	(3,159	)	$	(2,832	)	$	(3,475	)	$	(3,783	)
Basic net loss per share	$	(0.19	)	$	(0.71	)	$	(0.34	)	$	(0.33	)	$	(0.34	)	$	(0.31	)	$	(0.38	)	$	(0.41	)
Diluted net loss per share	$	(0.19	)	$	(0.71	)	$	(0.34	)	$	(0.33	)	$	(0.34	)	$	(0.31	)	$	(0.38	)	$	(0.41	)

F-27

INDEX TO EXHIBITS


Exhibit
Number			Description

	2	.1(1)	Agreement and Plan of Merger by and among Local.com Corporation, Local.com PG Acquisition Corporation, PremierGuide, Inc. and Malcolm Lewis dated July 18, 2007.
	3	.1(2)	Amended and Restated Certificate of Incorporation of the Registrant
	3	.2(3)	Amended and Restated Bylaws of the Registrant
	3	.3(4)	Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into Interchange Corporation
	4	.1(5)	Purchase Agreement dated February 22, 2007 by and among the Registrant, Hearst Communication Inc., SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway Offshore Operating Fund, L.P.
	4	.2(5)	Form of warrants to be issued to GunnAllen Financial, Inc. and Norman K. Farra Jr.
	4	.3(6)	Amendment No. 1 to Purchase Agreement dated March 29, 2007 by and among Registrant, Hearst Communication Inc., SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P. and SRB Greenway Offshore Operating Fund, L.P.
	4	.4(7)	Securities Purchase Agreement dated July 31, 2007 by and among the Registrant and the investors listed on the Schedule of Buyers attached to the Securities Purchase Agreement.
	4	.5(7)	Registration Rights Agreement dated July 31, 2007 by and among the Registrant and the investors listed on the Schedule of Buyers attached to the Securities Purchase Agreement filed as Exhibit 4.1 hereto.
	4	.6(7)	Form of Series [A] [B] Warrant.
	4	.7(7)	Consent to Equity Sales dated July 31, 2007 made and delivered by SRB Greenway Capital, L.P., SRB Greenway Capital (QP), L.P., SRB Greenway Offshore Operating Fund, L.P. to and for the benefit of the Registrant.
	4	.8(7)	Consent to Equity Sales dated July 31, 2007 made and delivered by Hearst Communications, Inc. to and for the benefit of the Registrant.
	4	.9(8)#	2007 Equity Incentive Plan.
	10	.1(9)	Amended and Restated PFP Advertiser Distribution Agreement dated March 1, 2007 by and among the Registrant and Idearc Media Corp.
	10	.2(10)	Amendment No. 3 to Yahoo! Publisher Network Agreement dated August 28, 2007 by and among the Registrant and Overture Services, Inc.
	21	.1*	Subsidiaries of Registrant.
	23	.1*	Consent of Haskell & White LLP, independent registered public accounting firm.
	31	.1*	Certification of Principal Executive Officer Required byRule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2*	Certification of Principal Financial Officer Required byRule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

#		Indicates management contract or compensatory plan.

(1)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on July 20, 2007.

(2)		Incorporated by reference from the Registrant’s Registration Statement onForm SB-2, Amendment No. 2, filed with the Securities and Exchange Commission on September 16, 2004.

(3)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on November 2, 2007.

(4)		Incorporated by reference from the Registrant’s Current Report on Form8-K/A, filed with the Securities and Exchange Commission on November 2, 2006.


(5)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on February 26, 2007.

(6)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on April 4, 2007.

(7)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on August 1, 2007.

(8)		Incorporated by reference from the Registrant’s definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on July 3, 2007.

(9)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on March 7, 2007. Confidential portions omitted and filed separately with the Securities and Exchange Commission pursuant toRule 24b-2 promulgated under the Securities and Exchange Act of 1934, as amended.

(10)		Incorporated by reference from the Registrant’s Current Report on Form8-K, filed with the Securities and Exchange Commission on September 1, 2007. Confidential portions omitted and filed separately with the Securities and Exchange Commission pursuant toRule 24b-2 promulgated under the Securities and Exchange Act of 1934, as amended.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Good

Local (LOCMQ) Inactive 10-K2007 FY Annual report

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