Local (LOCMQ) 10-Q 2013 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number: 001-34197

LOCAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	33-0849123
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

7555 Irvine Center Drive

Irvine, CA 92618

(Address of principal executive offices, including zip code)

(949) 784-0800

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

As of April 30, 2013 there were 22,877,526 shares of the registrant’s common stock, $0.00001 par value, outstanding.

LOCAL CORPORATION

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets As of March 31, 2013 and December 31, 2012 (Unaudited)		3
	Condensed Consolidated Statements of Operations For the three months ended March 31, 2013 and 2012 (Unaudited)		4
	Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2013 and 2012 (Unaudited)		5
	Notes to Condensed Consolidated Financial Statements (Unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 3.	Defaults Upon Senior Securities		27
Item 4.	Mine Safety Disclosures		27
Item 5.	Other Information		27
Item 6.	Exhibits		28
	Signatures		30
	Index to Exhibits		31

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LOCAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)

	March 31,			December 31,
	2013			2012
ASSETS
Current assets:
Cash	$	3,067		$	3,696
Restricted cash		42			42
Accounts receivable, net of allowances of $64 and $250, respectively		10,716			10,618
Notes receivable - current portion		269			319
Prepaid expenses and other current assets		1,007			648
Total current assets		15,101			15,323
Property and equipment, net		6,462			6,769
Goodwill		21,850			21,850
Intangible assets, net		3,607			3,932
Long-term receivable, net of allowances of $1,710 and $1,710, respectively		1,579			1,585
Escrow receivable		390			390
Deposits		68			58
Total assets	$	49,057		$	49,907
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,684		$	8,367
Accrued compensation		1,332			829
Deferred rent		642			452
Warrant liability		—			5
Other accrued liabilities		1,558			1,315
Revolving line of credit		9,042			10,000
Deferred revenue		243			203
Total current liabilities		22,501			21,171
Deferred income taxes		302			302
Total liabilities		22,803			21,473
Commitments, contingencies and subsequent events
Stockholders’ equity:
Convertible preferred stock, $0.00001 par value; 10,000 shares authorized; none issued and outstanding for all periods presented		—			—
Common stock, $0.00001 par value; 65,000 shares authorized; issued and outstanding 22,844 and 22,172, respectively		—			—
Additional paid-in capital		123,209			122,036
Accumulated deficit		(96,955	)		(93,602	)
Stockholders’ equity		26,254			28,434
Total liabilities and stockholders’ equity	$	49,057		$	49,907

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

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LOCAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Revenue	$	21,755		$	25,032
Operating Expenses:
Cost of revenues		15,631			17,345
Sales and marketing		3,577			5,795
General and administrative		2,947			2,385
Research and development		1,719			1,182
Amortization of intangibles		325			924
Total operating expenses		24,199			27,631
Operating income (loss)		(2,444	)		(2,599	)
Interest and other income (expense), net		(842	)		(97	)
Change in fair value of warrant liability		5			(58	)
Income (loss) from continuing operations before income taxes		(3,281	)		(2,754	)
Provision for income taxes		72			55
Net income (loss) from continuing operations		(3,353	)		(2,809	)
Income (loss) from discontinued operations (net of taxes)		—			(393	)
Net income (loss)	$	(3,353	)	$	(3,202	)
Per share data:
Basic net income (loss) per share from continuing operations	$	(0.15	)	$	(0.13	)
Basic net income (loss) per share from discontinued operations	$	—		$	(0.02	)
Basic net income (loss) per share	$	(0.15	)	$	(0.14	)
Diluted net income (loss) per share from continuing operations	$	(0.15	)	$	(0.13	)
Diluted net income (loss) per share from discontinued operations	$	—		$	(0.02	)
Diluted net income (loss) per share	$	(0.15	)	$	(0.14	)
Basic weighted average shares outstanding		22,564			22,083
Diluted weighted average shares outstanding		22,564			22,083

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

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LOCAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities:
Net income (loss)	$	(3,353	)	$	(3,202	)
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:
Depreciation and amortization		1,267			1,925
Stock-based compensation expense		543			771
Loss on exchange of warrants		723			—
Change in fair value of warrant liability		(5	)		58
Changes in operating assets and liabilities:
Accounts receivable		(98	)		(864	)
Long term receivable		6			(50	)
Note receivable		50			62
Prepaid expenses and other		(359	)		(10	)
Other non-current assets		(10	)		—
Accounts payable and accrued liabilities		2,253			(1,226	)
Deferred revenue		40			(59	)
Net cash (used in) provided by operating activities		1,057			(2,595	)
Cash flows from investing activities:
Capital expenditures		(635	)		(972	)
Increase in restricted cash		—			(42	)
Net cash used in investing activities		(635	)		(1,014	)
Cash flows from financing activities:
Proceeds from the exercise of options		1			2
Payment of revolving credit facility		(958	)		—
Payment of financing related costs		(94	)		—
Net cash (used in) provided by financing activities		(1,051	)		2
Net (decrease) increase in cash		(629	)		(3,607	)
Cash, beginning of the period		3,696			10,394
Cash, end of the period	$	3,067		$	6,787
Supplemental cash flow information:
Interest paid	$	118		$	142
Income taxes paid	$	—		$	7

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

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LOCAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. The Company and Summary of Significant Accounting Policies

Nature of operations

Local Corporation (the “Company”) is a local media company that specializes in connecting local businesses with online consumers. We reach consumers on our proprietary sites, as well as third-party sites (collectively, “Consumer Properties”), which includes our Owned & Operated web sites such as Local.com and Krillion.com (collectively, “O&O”), as well as our network of third-party U.S. regional media websites (collectively, “Network”). The Company also offers a variety of digital media services to small and medium sized businesses (“SMBs”) to enable these SMBs to reach consumers both on our Consumer Properties, as well as on the major search engines (collectively, “Business Solutions”). The Company also enables third parties to distribute their advertiser listings on our Consumer Properties, from which we generate ad revenue. The Company generates revenue principally from display advertising and performance ad units such as pay-per-click, pay-per-call, daily deals, lead generation and subscription ad units.

We use patented and proprietary technologies and systems to provide users of our O&O websites and our Network with relevant search results for local businesses, products and services, incorporating daily deals, event information, ratings and reviews, driving directions and more into our search results. By distributing this information across our Consumer Properties, we are able to reach users that our direct advertisers and advertising partners desire to reach.

In January 2013, the Company shifted its Business Solutions strategy to focus exclusively on channel sales opportunities. The Company continues to develop theses channel sales relationships through which it intends to be able to offer its Launch by Local products. Also included in its Business Solutions business unit are activities related to the Company’s Spreebird daily deals business. Spreebird earns revenue through serving hundreds of thousands of subscribers with deals from thousands of local merchants in markets located principally in Southern California. Spreebird also has a School Rewards Program which allows consumers to donate ten percent of Spreebird’s net proceeds from each deal to a school or non-profit organization chosen by the consumer. The Company recognizes revenue from its daily deals business net of the merchant’s portion of gross billings.

Principles of consolidation and basis of presentation

The Company’s condensed consolidated financial statements include the accounts of Local Corporation and its wholly-owned subsidiaries: Krillion, Inc. and Screamin Media Group, Inc (“SMG”). All intercompany balances and transactions were eliminated. The Company has evaluated all subsequent events through the date the condensed consolidated financial statements were issued.

The unaudited interim condensed consolidated financial statements as of March 31, 2013, and for the three months ended March 31, 2013 and 2012, included herein, have been prepared by the Company, without audit, pursuant to rules and regulations of the Securities and Exchange Commission, and, in the opinion of management, reflect all adjustments (consisting of only normal recurring adjustments), which are necessary for a fair presentation.

The consolidated results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2012, included in our Form 10-K filed with the Securities and Exchange Commission on April 2, 2013.

Future Operations, Liquidity and Capital Resources

The Company has experienced substantial net losses from operations for the years ended December 31, 2012 and 2011, totaling $24.2 million and $14.6 million, respectively. Further, the Company had negative cash flow from operations for the years ended December 31, 2012 and 2011, of $8.9 million and $748,000, respectively. As of March 31, 2013, the Company had a working capital deficit of $7.4 million, which included $9.0 million relating to the line of credit with Square One Bank. The Company’s future is highly dependent on its ability to monetize its search traffic at a profit and its ultimate return to profitability.

The Company believes that it has addressed some of the concerns related to liquidity by reducing its headcount from 212 employees as of December 31, 2011, to 92 employees as of March 31, 2013. This strategy shift, coupled with improved performance of our O&O and Network businesses resulted in positive cash flow from operating activities for the three months ended March 31, 2013. During the first quarter of fiscal 2013, the Company entered into an amendment with Square

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One Bank to extend the maturity date of the line of credit to February, 2015. In connection with such amendment, $3.0 million of our revolving line of credit converted to a term loan requiring repayment over 24 equal monthly installments, plus accrued interest, beginning on April 28, 2013. In addition, subsequent to quarter-end, the Company raised $5.0 million additional capital pursuant to a Convertible Note and Warrant Purchase Agreement.

We believe the actions taken to date, including the raising of additional capital resolved the liquidity issues that we have recently confronted, provided we do not continue to experience declines in the revenue per click we receive from our primary search monetization partner or additional policy changes by our primary traffic acquisition partner that negatively impacts our ability to profitably acquire traffic.

Discontinued Operations

As a result of the Company’s decision to sell all of the assets and liabilities relating to the Rovion business, the Company has reclassified and presented all related historical financial information as “discontinued operations” in the consolidated statements of operations. In addition, all related activities have been excluded from footnote disclosures unless specifically referenced. These reclassifications have no effect on previously reported net income (loss).

Use of estimates

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”) 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. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable (including long-term receivable) and sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of accounts receivable, long and short term notes receivable, revolving line of credit, accounts payable and our warrant liability. The carrying amount of the revolving line of credit approximates its fair value because the interest rate on these instruments fluctuates with market interest rates. The long term note receivable has a fixed interest rate considered to be at market rates and therefore the carrying value also approximates its fair value. The Company believes that the recorded values of all of its other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

The fair value of the warrant liability is determined using the Black-Scholes valuation method, a “Level 3” input, based on the quoted price of our common stock, volatility based on the historical market activity of our stock, the expected life based on the remaining contractual term of the warrants and the risk free interest rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants’ contractual life.

Intangible Assets

Intangible assets are amortized over their estimated useful lives, generally on a straight-line basis over two to four years. The small business subscriber relationships are amortized based on how the Company expects the customer relationships to contribute to future cash flows. As a result, amortization of the small business subscriber relationships intangible assets is accelerated over a period of approximately four years with the weighted average percentage amortization for all small business subscriber relationships acquired to date being approximately 60% in year one, 21% in year two, 14% in year three and 5% in year four. In 2012, the Company accelerated the amortization of certain small business subscriber relationships as the expected useful lives of such small business subscriber relationship was truncated due to changes in the Company’s ability to bill such small business subscribers.

Revenue Recognition

The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service or product 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.

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, the fulfillment of subscription listing obligations, the sale of deal of the day vouchers, or the delivery of its SMB products to its customers or those of its channel partners. The Company enters

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into contracts to distribute sponsored listings and banner advertisements with our direct and indirect advertisers. Most of these contracts are short-term, do not contain multiple elements and can be cancelled at anytime. The Company’s indirect advertisers provide us with sponsored listings with bid prices (for example, what their advertisers are willing to pay for each click-through on those listings). The Company recognizes its portion of the bid price based upon our contractual agreement. Sponsored listings and banner advertisements are included within pages that display search results, among others, in response to keyword searches performed by consumers on its Consumer Properties. Revenue is recognized when earned based on click-through and impression activity to the extent that collection is reasonably assured from credit worthy advertisers. Management has analyzed our revenue recognition and determined that our web hosting revenue will be recognized net of direct costs.

The Company launched its Spreebird daily deals business in May 2011. Revenue relating to the Spreebird daily deals business is recorded exclusive of the portion of gross billings paid as merchant revenue share, since the Company generally acts as the agent, rather than the principal, when connecting merchants with online customers. Spreebird deal vouchers are sold primarily through email marketing and the Company’s www.spreebird.com website. Revenue for the Company’s Spreebird business is recognized when earned. Revenue is considered to be earned once all revenue recognition criteria have been satisfied.

The Company evaluates whether it is appropriate to record the gross amount of sales and related costs or the net amount earned as revenue. Generally, when the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenue is recorded at the gross sales price. The Company generally records the net amounts as revenue earned if we are not primarily obligated and do not have latitude in establishing prices. Such amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two. All revenue, other than Spreebird daily deals revenue and web hosting revenue, is recognized on a gross basis.

Cost of Revenues

Cost of revenues consists of traffic acquisition costs, revenue sharing payments that the Company makes to its network partners, and other cost of revenues. Traffic acquisition costs consist primarily of campaign costs associated with driving consumers to its O&O websites, including personnel costs associated with managing traffic acquisition programs. Other cost of revenues consists of Internet connectivity costs, data center costs, amortization of certain software license fees and maintenance, depreciation of computer equipment used in providing our paid-search services, and payment processing fees (credit cards and fees for LEC billings). The Company advertises on large search engine websites such as Google, Inc. (“Google), Yahoo!, Inc. (“Yahoo”), and Microsoft Inc./Bing (“Microsoft”), as well as other search engine websites, by bidding on certain keywords we believe will drive traffic to its O&O websites. During the three months ended March 31, 2013 and 2012, approximately 54% and 63% respectively, of our overall traffic was purchased from other search engine websites. During the three months ended March 31, 2013, advertising costs to drive consumers to our Local.com website were $10.3 million of which $7.4 million and $2.0 million were attributable to Google and Yahoo, respectively. During the three months ended March 31, 2012, advertising costs to drive consumers to our Local.com website were $14.5 million of which $10.0 million and $4.1 million were attributable to Google and Yahoo, respectively. If we are unable to advertise on these websites, or the cost to advertise on these websites increases, our financial results will likely suffer materially.

2. Notes receivable

During 2010, the Company entered into a promissory note and security agreement with one of its customers related to the sale of domain names and services. The promissory note totaled $1,000,000, carrying interest at 5% per annum payable in twelve equal quarterly payments of $54,000 beginning on March 31, 2011, and continuing on the last day of each calendar quarter thereafter until December 31, 2013, and three additional annual balloon payments of $80,000, $210,000 and $157,238 due on the 31st day of December of 2011, 2012 and 2013, respectively. The Company considered the credit quality of the customer and determined that no allowance for credit losses is necessary. As of March 31 2013, no portion of the note receivable balance was past due. The note receivable is secured by the domain names sold to the customer.

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3. Intangible assets

Intangible assets, net, consisted of the following (in thousands):

	March 31, 2013									December 31, 2012
	Gross Carrying Amount		Accumulated Amortization and impairment			Net Carrying Amount		Weighted Average Useful Life		Gross Carrying Amount		Accumulated Amortization and impairment			Net Carrying Amount		Weighted Average Useful Life
								(years)									(years)
Developed technology	$	6,053	$	(4,470	)	$	1,583		4	$	6,053	$	(4,222	)	$	1,831		4
Non-compete agreements		138		(103	)		35		2		138		(93	)		45		2
Vendor-related		300		(175	)		125		3		300		(150	)		150		3
Customer-related		14,194		(14,049	)		145		4		14,194		(14,021	)		173		4
Patents		431		(431	)		—		3		431		(431	)		—		3
Domain names - indefinite life		1,601		—			1,601				1,601		—			1,601
Trademarks and Trade Name		700		(596	)		104		4		700		(583	)		117		4
License agreements		600		(586	)		14		4		600		(585	)		15		4
	$	24,017	$	(20,410	)	$	3,607			$	24,017	$	(20,085	)	$	3,932

4. 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 names are recorded at cost. Intangible assets, such as goodwill and domain names, which are determined to have an indefinite life, are not amortized. The first step in determining if there is any goodwill impairment is a comparison of the estimated fair value of an internal reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step is unnecessary. If the carrying value of the reporting unit exceeds its estimated fair value, the second step is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If the carrying amount of goodwill is greater than the implied value, an impairment charge is recognized for the difference.

The Company performs annual impairment reviews during the fourth fiscal quarter of each year or earlier if indicators of potential impairment exist. For other intangible assets with indefinite lives, the Company compares the fair value of related assets to the carrying value to determine if there is impairment. Our indefinite lived intangible assets consist of domain names for which the fair value is determined by using a third party valuation site which calculates the value of domain names using internal algorithms. For other intangible assets with definite lives, the Company compares future undiscounted cash flow forecasts prepared by management to the carrying value of the related intangible asset group to determine if there is impairment.

During the first quarter 2013, the Company did not identify any impairment triggers that would require us to perform an impairment analysis of goodwill or intangible assets.

5. Website development costs and computer software developed for internal use

U.S. GAAP require that development 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. U.S. GAAP further 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 its useful life. During the three months ended March 31, 2013, the Company capitalized $556,000 related to web site development. Amortization of capitalized web site costs was $644,000 for the three months ended March 31, 2013. Capitalized web site costs are included in property and equipment, net on the accompanying condensed consolidated balance sheets. During the three months ended March 31, 2012, the Company capitalized $690,000, related to web site development. Amortization of capitalized web site costs was $519,000, for the three months ended March 31, 2012.

6. Net income (loss) 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.

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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):

	Three Months Ended March 31,
	2013			2012
Numerator:
Net income (loss) per share from continuing operations	$	(3,353	)	$	(2,809	)
Net income (loss) per share from discontinued operations	$	—		$	(393	)
Net income (loss)	$	(3,353	)	$	(3,202	)
Denominator:
Denominator for historical basic calculation weighted average shares		22,564			22,083
Dilutive common stock equivalents *:
Options		—			—
Warrants		—			—
Denominator for historical diluted calculation weighted average shares		22,564			22,083
Net loss per share:
Basic net income (loss) per share from continuing operations	$	(0.15	)	$	(0.13	)
Basic net income (loss) per share from discontinued operations	$	—		$	(0.02	)
Basic net income (loss) per share	$	(0.15	)	$	(0.14	)
Diluted net income (loss) per share from continuing operations	$	(0.15	)	$	(0.13	)
Diluted net income (loss) per share from discontinued operations	$	—		$	(0.02	)
Diluted net income (loss) per share	$	(0.15	)	$	(0.14	)

* For the three months ended March 31, 2013, potentially dilutive securities, which consist of options to purchase 3,693,400 shares of common stock at prices ranging from $1.41 to $16.59 per share and warrants to purchase 20,000 shares of common stock at a price of $2.87 per share were not included in the computation of diluted net loss per share because such inclusion would be antidilutive.

* For the three months ended March 31, 2012, potentially dilutive securities, which consist of options to purchase 4,775,493 shares of common stock at prices ranging from $1.41 to $16.59 per share and warrants to purchase 1,238,660 shares of common stock at prices ranging from $2.87 to $8.09 per share were not included in the computation of diluted net loss per share because such inclusion would be antidilutive.

7. Property and equipment

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

	March 31, 2013			December 31, 2012
Furniture and fixtures	$	981		$	981
Office equipment		506			503
Computer equipment		3,452			3,428
Computer software		12,266			11,658
Leasehold improvements		905			905
		18,110			17,475
Less accumulated depreciation and amortization		(11,648	)		(10,706	)
Property and equipment, net	$	6,462		$	6,769

Depreciation expense for the three months ended March 31, 2013 and 2012 was $942,000 and $885,000, respectively.

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8. Interest and other income, net

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

	Three Months Ended March 31,
	2013			2012
Interest income	$	4		$	9
Interest expense		(123	)		(106	)
Loss on exchange of warrants		(723	)		—
Interest and other income (expense), net	$	(842	)	$	(97	)

See Note 12 regarding the loss on exchange of warrants.

9. Credit facilities

On August 3, 2011, the Company entered into a Loan and Security Agreement with Square One Bank, as amended. The Loan Agreement provides us with a revolving credit facility of up to $12.0 million (the “Facility”). The Loan Agreement maturity date is February 3, 2015. Subject to the terms of the Loan Agreement, the borrowing base used to determine loan availability under the Facility is based on a formula equal to 80% of eligible accounts receivable, with account eligibility measured in accordance with standard determinations as more particularly defined in the Loan Agreement (the “Formula Revolving Line”). Prior to March 28, 2013, the Company was allowed and borrowed $3.0 million from the Facility (the “Non-Formula Advance”). On March 28, 2013, the date of the sixth amendment, Square One Bank terminated the non-Formula Advances and has required the Company to repay the outstanding Non-Formula Advance amount of $3.0 million, plus all accrued interest, over 24 months beginning on April 28, 2013. On April 10, 2013, the date of the Seventh Amendment, Square One Bank added as security under the Loan Agreement all of our intellectual property and to undertake certain reporting obligations to Square One Bank with respect to such intellectual property. All amounts borrowed under the Facility are secured by a general security interest on our assets.

Except as otherwise set forth in the Loan Agreement, borrowings made pursuant to the Formula Revolving Line will bear interest at a rate equal to the greater of (i) 5.0% or (ii) the Prime Rate (as announced by Square 1 Bank) plus 1.75% and borrowings made pursuant to the Non-Formula Revolving Line will bear interest at a rate equal to the greater of (i) 5.25% or (ii) the Prime Rate (as announced by Square One Bank) plus 2.0%. Additionally, there is an annual fee of $25,000 and an unused line fee equal to 0.25% of the unused line if less than 40% of the Facility is in use.

The Loan Agreement contains customary representations, warranties, and affirmative and negative covenants for facilities of this type, including certain restrictions on dispositions of assets, changes in business, change in control, mergers and acquisitions, payment of dividends, and incurrence of certain indebtedness and encumbrances. The Loan Agreement also contains customary events of default, including payment defaults and a breach of representations and warranties and covenants. If an event of default occurs and is continuing, Square One Bank has certain rights and remedies under the Loan Agreement, including declaring all outstanding borrowings immediately due and payable, ceasing to advance money or extend credit, and rights of set-off.

The Company must meet certain financial covenants during the term of the Facility, including (i) maintaining a minimum liquidity ratio, which is defined as cash on hand plus the most recently reported borrowing base less the aggregate amount outstanding under the Non-Formula Revolving Line divided by outstanding bank debt less the Non-Formula Revolving Line, and (ii) certain Adjusted EBITDA covenants, as defined, as more particularly described in the Agreement and amendments to the Agreement (such Adjusted EBITDA amounts are for financial covenant purposes only, and do not represent projections of the Company’s financial results). The Loan Agreement provides for a five day cure period for any liquidity ratio violations before any such violation would deemed an event of default under the Loan Agreement. As of March 31, 2013, the Company was in compliance with its minimum liquidity ratio as required by its financial covenants. The Loan Agreement also includes a covenant requiring us to obtain approval from Square One Bank in the event we have a going concern paragraph included in the independent registered public accounting firm’s opinion. As the Company is required to supply Square One Bank with its audited consolidated financial statements within 150 days after December 31, 2012, the Company will request a waiver of this condition from Square One Bank prior to the 150 day reporting requirement.

At March 31, 2013, the Company had $9.0 million outstanding on the Facility and was in compliance with the Facility’s covenants.

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10. Operating information

The Company manages its business functionally and has two reportable operating segments: Paid Search and Daily Deals. Paid Search consists of the Company’s online businesses that collectively reach customers with a variety of local online advertising products and web hosting. The Company’s Daily Deals segment consists of the Company’s business that reaches its customers with discounted offers for goods and services provided by merchants.

Management relies on an internal management reporting process that provides revenue and segment operating income (loss) for making financial decisions and allocating resources. Management believes that segment revenues and operating income (loss) are appropriate measures of evaluating the operational performance of the Company’s segments.

The following is a summary of operating results from continuing operations and assets by business segment (in thousands):

	Three Months Ended March 31, 2013
	Daily Deals			Paid Search			Totals
Segment revenue	$	291		$	21,464		$	21,755
Depreciation and amortization	$	38		$	1,229		$	1,267
Operating loss	$	(127	)	$	(2,317	)	$	(2,444	)
Interest and other income (expense), net								(842	)
Change in fair value of warrant liability								5
Provision for income taxes								(72	)
Net loss from continuing operations							$	(3,353	)
Segment assets as of March 31, 2013	$	3,409		$	45,648		$	49,057
Goodwill as of March 31, 2013	$	2,569		$	19,281		$	21,850

	Three Months Ended March 31, 2012
	Daily Deals			Paid Search			Totals
Segment revenue	$	684		$	24,348		$	25,032
Depreciation and amortization	$	41		$	1,743		$	1,784
Operating loss	$	(1,108	)	$	(1,491	)	$	(2,599	)
Interest and other income (expense), net								(97	)
Change in fair value of warrant liability								(58	)
Provision for income taxes								(55	)
Net loss from continuing operations							$	(2,809	)
Segment assets as of December 31, 2012	$	3,614		$	46,293		$	49,907
Goodwill as of December 31, 2012	$	2,569		$	19,281		$	21,850

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The following table presents summary operating geographic and product information as required by the entity-wide disclosure requirements (in thousands):

	Three Months Ended March 31,
	2013		2012
Revenue by geographic region:
United States	$	21,755	$	25,032
Revenue by product:
Pay-Per-Click (PPC)		17,535		19,042
Subscription Advertising Products		348		715
Domain Sales and Services		83		1,597
Display and Banner Advertising Services		3,463		2,994
Spreebird Daily Deals		291		684
Other		35		—
Total revenue	$	21,755	$	25,032

11. Stock-based compensation

Stock option activity under the equity incentive plans during the three months ended March 31, 2013, was as follows:

	Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2012		4,048,461		$	4.07
Granted		96,500			1.84
Exercised		—			—
Cancelled		(451,561	)		3.36
Outstanding at March 31, 2013		3,693,400		$	4.10	$	33
Exercisable at March 31, 2013		2,649,952		$	4.60	$	31

The weighted-average fair value at grant date for the options granted during the three months ended March 31, 2013 was $1.09.

The aggregate intrinsic value of all options exercised during the three months ended March 31, 2013 was $0.

The following table summarizes information regarding options outstanding and exercisable at March 31, 2013:

	Options Outstanding
			Weighted				Options Exercisable
Range of Exercise Prices	Shares		Average Remaining Contractual Life		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$  0.00 - $  2.00		293,078		5.2 years	$	1.60		219,578	$	1.56
$  2.01 - $  3.00		1,104,782		5.8 years		2.36		372,468		2.36
$  3.01 - $  4.00		698,083		5.6 years		3.57		585,743		3.57
$  4.01 - $  5.00		742,080		4.4 years		4.66		698,586		4.65
$  5.01 - $  6.00		171,362		4.9 years		5.59		157,361		5.62
$  6.01 - $  7.00		460,006		6.3 years		6.17		394,083		6.19
$  7.01 - $  8.00		80,833		2.5 years		7.18		79,582		7.18
$  8.01 - $  9.00		62,500		2.8 years		8.90		61,875		8.90
$  9.01 - $10.00		15,000		2.2 years		9.90		15,000		9.90
$10.01 - $16.59		65,676		1.8 years		15.76		65,676		15.76
		3,693,400		5.3 years	$	4.10		2,649,952	$	4.60

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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:

	Three Months Ended March 31,
	2013
Risk-free interest rate		0.61	%
Expected lives (in years)		4.5 years
Expected dividend yield		None
Expected volatility		77.35	%

Restricted stock unit activity under the 2011 Omnibus Plan for the three months ended March 31, 2013, is as follows:

	Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2012		349,214		$	2.26
Granted		300,419			2.10
Vested		(280,420	)		2.24
Cancelled		(60,616	)		2.12
Unvested at March 31, 2013		308,597		$	2.14

Performance stock unit activity under the 2011 Omnibus Plan for the three months ended March 31, 2013, is as follows:

	Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2012		210,585		$	2.28
Granted		217,209			2.10
Vested		—			—
Cancelled		(237,089	)		2.26
Unvested at March 31, 2013		190,705		$	2.10

Total stock-based compensation expense recognized for the three months ended March 31, 2013 and 2012, was as follows (in thousands, except per share amount):

	Three Months Ended March 31,
	2013		2012
Cost of revenues	$	28	$	20
Sales and marketing		143		318
General and administrative		290		336
Research and development		82		53
Total stock-based compensation expense	$	543	$	727
Basic and diluted net stock-based compensation expense per share	$	0.02	$	0.03

12. Warrants

On February 7, 2013, the Company repriced warrants to purchase 615,080 shares of the Company’s common stock with an exercise price of $8.09 per share to an exercise price of $2.10 per share. The warrants were issued in connection with a private placement transaction consummated on August 1, 2007, including warrants to purchase 537,373 shares of the Company’s common stock issued on August 1, 2007 (the “Series B Warrants”) and warrants to purchase 77,707 shares of the Company’s common stock issued on January 20, 2011, as a result of the anti-dilution provisions contained in each of the Series B Warrants (the “New Series B Warrants” and together with the Series B Warrants, the “Warrants”). The Warrants were re-priced by the Company’s Board of Directors pursuant to Section 2(c) of the Warrant.

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On February 28, 2013, the Company entered into separate Exchange Agreements with each of the holders (collectively the “Investors”) of all outstanding Series B warrants to purchase shares of the Company’s common stock (“Warrants”).

In the Exchange Agreements, the Investors agreed to surrender for cancellation all of their Warrants in exchange for an aggregate of 430,561 shares of the Company’s common stock. As a result of the exchange, the Company recorded a loss on warrant exchange of $723,000 for the three months ended March 31, 2013. The loss on warrant exchange has been included in interest income and other income (expense), net in the accompanying condensed consolidated statements of operations.

Warrant activity for the three months ended March 31, 2013, was as follows:

	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2012		1,238,660		$	7.48
Issued		—			—
Exercised		—			—
Expired		(603,580	)		2.10
Exchanged		(615,080	)		7.02
Outstanding at March 31, 2013		20,000		$	2.87
Exercisable at March 31, 2013		20,000		$	2.87

The following table summarizes information regarding warrants outstanding and exercisable at March 31, 2013:

	Warrants Outstanding						Warrants Exercisable
Range of Exercise Price	Shares		Average Remaining Contractual Life		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$ 2.87		20,000		1.6 years	$	2.87		20,000	$	2.87

13. Discontinued Operations

As a result of the decision by the Company to sell all of the assets related to the Rovion business, the results of operations relating to this business have been reclassified to discontinued operations in the consolidated statements of operations for all periods presented.

Revenue and pretax income (loss) related to discontinued operations are as follows: (in thousands):

	Three Months Ended March 31,
	2013		2012
Revenue	$	—	$	170
Pretax income (loss)	$	—	$	(387	)
Provision (benefit) for income taxes		—		6
Income (loss) from discontinued operations (net of taxes)	$	—	$	(393	)

All revenue from discontinued operations is part of the Company’s paid search segment.

14. Subsequent Events

On April 10, 2013, the Company entered into a Convertible Note and Warrant Purchase Agreement (“Agreement”) with two investors. Pursuant to this agreement, the investors purchased an aggregate of $5.0 million of 7% subordinated convertible notes (“Notes”) and warrants to purchase shares of the Company’s common stock. Interest will be payable quarterly in cash or registered shares of the Company’s common stock at the Company’s option. Stock payments will be at a 7% discount to

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the lower of the closing price on the trading day immediately preceding or the average of the daily Volume Weighted Average Price (“VWAP”) for the 20 trading days preceding the payment date. The Notes are secured by the Company’s assets and are due on April 10, 2015. Each Note holder has 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 $2.01 of principal amount of their note. The Company shall have the option to force conversion of all or part of the Notes provided the Company’s common stock price exceeds 200% of the conversion price for 90 consecutive trading days. The Company also issued warrants to purchase an aggregate of 746,268 shares of common stock at an exercise price of $2.01 per share that expire five years from the date of issuance. The Notes are subordinate to the Square One Bank line of credit.

In connection with the issuance of the Notes, the Company paid $356,000 in cash for placement agent fees of which $127,500 was paid to a director of the Company. These fees are recorded in prepaid expenses and will be amortized into interest expense over the life of the Notes. The Company also incurred legal and other consulting fees totaling $244,000 related to the issuance of the Notes. Fees related to the issuance of the Notes are recorded in prepaid expenses at March 31, 2013 and will be amortized into interest expense over the life of the Notes.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q or certain information included or incorporated by reference in this report, contains or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, are statements that could be deemed “forward-looking statements” within the meaning of the federal securities laws. These statements relate to our future operations, prospects, potential products, services, developments and business strategies. These statements can, in some cases, be identified by the use of terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” and “potential” or the negative of such terms or other comparable terminology. In addition, important factors to consider in evaluating such forward-looking statements include changes or developments in social, economic, market, legal or regulatory circumstances, changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors, the actions or omissions of third parties, including customers, competitors and governmental authorities, and various other factors, including those described or referred to in Item 1A of Part II of this Quarterly Report. Should any one or more of these risks or uncertainties materialize, or the underlying estimates or assumptions prove incorrect, our actual results could differ materially from those expressed in the forward-looking statements and there can be no assurance that the forward-looking statements contained in this report will in fact occur.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the attached condensed consolidated financial statements and related notes thereto, and with the audited consolidated financial statements and related notes thereto as of December 31, 2012, and for the year ended December 31, 2012, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2013.

Overview

We are a local media advertising company that connects brick-and-mortar businesses with over a million online and mobile consumers each day using a variety of digital marketing products.

Our Consumer Properties business unit consists of our O&O and Network division and reaches over 30 million monthly unique visitors. O&O consists primarily of our flagship property, Local.com. Network operates a leading private label local syndication network of over 1,200 U.S. regional media websites and our own organic feed of local businesses along with third-party advertising feeds. Our Business Solutions business unit develops and supports products for use directly by small businesses. In January of 2013, we began offering these small business solutions exclusively through channel sales relationships we are developing. Our Business Solutions business unit also includes our Spreebird daily deals products. We use patented and proprietary technologies and systems to provide consumers with relevant search results for local businesses, products and services. By providing our users and those of our network partners with robust, current, local information about businesses and other offerings in their local area, we have attracted an audience of users that our direct advertisers and advertising partners desire to reach.

We launched Local.com in August of 2005 and our local syndication network in July 2007. In the third quarter of 2010, we also acquired Octane360 which provided the technology platform for our SMB product suite. During the second quarter of 2011, we acquired Krillion which includes a robust local product search platform that enables consumers to search for products and product availability at local retailers. In the third quarter of 2011, we acquired SMG, a daily deals business, as part of our efforts to expand our own daily deals business, Spreebird (located at www.spreebird.com), which we had launched in May 2011. We have been regularly developing and deploying new features and functionality to each of these channels designed to enhance the experience of our users and increase the value of our audience to our advertisers. With a strategic focus on three key drivers for our business – traffic, technology and advertisers – our goal is to improve our bottom-line results by increasing our margin on our largest business, O&O, and growing our most profitable business, the Network.

Recent Developments

On January 30, 2013, we entered into the Fourth Amendment to the Square One Bank Loan and Security Agreement (“Loan Agreement”) which temporarily revised the terms under which we were allowed to draw the maximum amount on the Non-Formula Revolving Line.

On February 13, 2013, we entered into the Fifth Amendment to the Loan Agreement which extended the maturity date of the Loan Agreement through February 3, 2015.

On March 28, 2013, we entered into the Sixth Amendment to the Loan Agreement which waives any and all violations of the Liquidity Ratio covenants prior to the date of the Sixth Amendment, terminates the Non-Formula Advances under the Agreement and requires equal monthly payments of the outstanding Non-Formula principal, plus all accrued interest, over 24 months beginning on April 28, 2013.

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On April 10, 2013, we entered into the Seventh Amendment to the Loan Agreement. The seventh amendment added as security for Square One Bank for our obligations under the Loan Agreement all of our intellectual property and to undertake certain reporting obligations to Square One Bank with respect to such intellectual property.

On April 10, 2013, we entered into a Convertible Note and Warrant Purchase Agreement (“Agreement”) with two investors. Pursuant to this Agreement, the investors purchased an aggregate of $5.0 million of 7% subordinated convertible notes (“Notes”) and warrants to purchase 746,268 shares of our common stock (the “Warrants”). The obligation under the Notes and Warrants are secured by all of our assets. The Notes mature on April 10, 2015. The Warrants expire on April 10, 2018. The Notes are convertible into our common stock and the Warrants are exercisable at $2.01 a share. In connection with the issuance of the Notes, we paid $356,000 in cash for placement agent fees of which $127,500 was paid to one of our directors. The Company also incurred legal and other consulting fees totaling $244,000 related to the issuance of the Notes. Fees related to the Notes are recorded in prepaid expenses at March 31, 2013 and will be amortized into interest expense over the life of the Notes.

Outlook for Our Business

According to BIA/Kelsey, the U.S. online advertising market is an approximately $42 billion a year industry. “Local search,” that is, searches for products, services and businesses within a geographic region is an increasingly significant segment of the online advertising industry. 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 – such as entering “florists in Irvine, CA.” According to a September 2012 study, BIA/Kelsey estimates that the local search market in the United States will grow from $6.1 billion in 2011, to $13.4 billion by 2016. Consumers who conduct local searches on the Internet (“local searchers”) tend to convert into buying customers at a higher rate than other types of Internet users. As a result, advertisers often pay a significant premium to place their ads in front of local searchers on websites like those powered by our Consumer Properties business, including Local.com or our network partners’ websites. Additionally, local SMBs that would not normally compete at the national level for advertising opportunities are increasingly engaging in and competing for local advertising opportunities, including local search, to promote their products and services.

Local online search is still relatively new, and as a result, it is difficult to determine our current market share, or predict our future market share. However, we have a number of competitors that have announced an intention to increase their focus on local search with regard to U.S. online advertising, including some of the leading online advertising companies in the world, including Google, Yahoo, and Microsoft, among many others, with greater experience and resources than we have. For example, Facebook recently announced a Graph Search tool which allows users to access the interests and opinions of friends regarding local places, movies and interests and which may emerge as a significant competitor to our current offerings.

The U.S. online advertising industry, including the local search segment, is regularly impacted and changed by new and emerging technologies, including, for instance, ad targeting and mobile technologies, as well as the increased fragmentation of the online advertising industry in general, from different technology platforms, to different advertising formats, targeting methodologies and the like. Those companies within our industry who are able to quickly adapt to new technologies, as well as offer innovations of their own, have a better chance of succeeding than those that do not.

We believe that local search will be an increasingly significant segment of the online advertising industry. Although search advertising has been used primarily by businesses that serve the national market, local businesses are increasingly using online advertising to attract local customers. Our Consumer Properties are all designed to serve this market of consumers, advertisers and publishers, which we believe will provide an opportunity for growth from increased local search volumes by consumers, as well as increased competition by advertisers to display their ad listings in front of those consumers.

Our revenue, profitability and future growth depend not only on our ability to execute our business plan, but also, the growth of the paid-search market and our ability to effectively compete with other providers of local, and paid-search technologies and services among other things.

As we continue to diversify our technologies and traffic sources, we remain focused on local media offerings that will improve the experience for our end users, and allow our regional media network partners to enhance their service offerings and lower their costs. While we are still very focused on the local search industry, we believe there are additional opportunities in local media that we and our customers can benefit from, while diversifying our revenue sources. We intend to continue making significant investments in initiatives to diversify our revenue sources and promote our future growth.

As we continue to invest in our core offerings, we have increased our operating expenses, mainly related to traffic acquisition costs, the deployment of new features and functionality across our business and the support of our acquired companies. We cannot give assurances that our efforts to improve our results of operations through this strategy will be successful.

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Sources of Revenue

We generate revenue primarily on our Consumer Properties from both direct and indirect advertiser relationships, via:

• click-throughs on sponsored listings;

• calls to cost-per-call advertiser listings;

• lead generation;

• banner ads;

• subscription advertiser listings;

• small business advertising services;

• domain sales and services; and

• daily deal offerings

Operating Expenses

Cost of Revenues

Cost of revenues consists of traffic acquisition costs, revenue sharing payments that we make to our network partners, and other cost of revenues. Traffic acquisition costs consist primarily of campaign costs associated with driving consumers to our Local.com website, including personnel costs associated with managing traffic acquisition programs. Other cost of revenues consists of Internet connectivity costs, data center costs, amortization of certain software license fees and maintenance, depreciation of computer equipment used in providing our paid-search services, and payment processing fees (credit cards and fees for Local Exchange Carrier (“LEC”) billings ended in December 2012). We advertise on large search engine websites such as Google, Yahoo and Microsoft, as well as other search engine websites, by bidding on certain keywords we believe will drive traffic to our Local.com website. During the three months ended March 31, 2013 and 2012, approximately 54% and 63% respectively, of our overall traffic was purchased from other search engine websites. During the three months ended March 31, 2013, advertising costs to drive consumers to our Local.com website were $10.3 million, of which $7.4 million and $2.0 million were attributable to Google and Yahoo, respectively. During the three months ended March 31, 2012, advertising costs to drive consumers to our Local.com website were $14.5 million, of which $10.0 million and $4.1 million were attributable to Google and Yahoo, respectively. If we are unable to advertise on these websites, or the cost to advertise on these websites increases, our financial results will likely suffer materially.

Sales and Marketing

Sales and marketing expenses consist of sales commissions and salaries for our internal and outsourced sales force, customer service staff and marketing personnel, advertising and promotional expenses. We record advertising costs and sales commission in the period in which the expense is incurred. We expect our sales and marketing expenses will increase in absolute dollars as we continue to experience growth.

General and Administrative

General and administrative expenses consist of salaries and other costs associated with employment of our executive, finance, human resources and information technology staff, legal, tax and accounting, and professional service fees.

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 website development costs.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. GAAP 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 condensed 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 materially from these estimates under different assumptions or conditions. Our significant accounting policies described in more detail in Note 1 to our condensed consolidated financial statements included in this Report on Form 10-Q, involve judgments and estimates that are significant to the presentation of our condensed consolidated financial statements.

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Revenue Recognition

We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service or product 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, the fulfillment of subscription listing obligations, the sale of deal of the day vouchers, or the delivery of our SMB products to our customers or those of our channel partners. We enter into contracts to distribute sponsored listings and banner advertisements with our direct and indirect advertisers. Most of these contracts are short-term, do not contain multiple elements and can be cancelled at anytime. Our indirect advertisers provide us with sponsored listings with bid prices (for example, what their advertisers are willing to pay for each click-through on those listings). We recognize our portion of the bid price based upon the execution of our contractual obligations. Sponsored listings and banner advertisements are included within pages that display search results, among others, in response to keyword searches performed by consumers on our Consumer Properties. Revenue is recognized when earned based on click-through and impression activity to the extent that collection is reasonably assured from credit worthy advertisers. Management has analyzed our revenue recognition and determined that our web hosting revenue is recognized net of direct costs.

Revenue relating to the Spreebird daily deals business will be recorded exclusive of the portion of gross billings paid as merchant revenue share, since we generally act as the agent, rather than the principal, when connecting merchants with online customers. Spreebird deal vouchers are sold primarily through email marketing and our www.spreebird.com website. Revenue for our Spreebird business is recognized when earned. Revenue is considered to be earned once all revenue recognition criteria have been satisfied.

We evaluate whether it is appropriate to record the gross amount of sales and related costs or the net amount earned as revenue. Generally, when we are primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sales price. We generally record the net amounts as revenue earned if we are not primarily obligated and do not have latitude in establishing prices. Such amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two. All revenue, other than Spreebird daily deals revenue and web hosting revenue, is recognized on a gross basis.

Allowance for Doubtful Accounts

Our management estimates the losses that may result from that portion of our accounts receivable, including long-term receivable, that may not be collectible as a result of 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 and for which collectability is not reasonably assured.

As of March 31, 2013, and December 31, 2012, two customers, Yahoo and Google represented 60% and 61% of our total accounts receivable, respectively. These customers have historically paid within the payment period provided for under their contracts and management believes these customers will continue to do so.

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 names are recorded at cost. Intangible assets, such as goodwill and domain names, which are determined to have an indefinite life, are not amortized. The first step in determining if there is any goodwill impairment is a comparison of the estimated fair value of an internal reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step is unnecessary. If the carrying value of the reporting unit exceeds its estimated fair value, the second step is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If the carrying amount of goodwill is greater than the implied value, an impairment charge is recognized for the difference. We engage an independent appraiser to assist management in the valuation.

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We perform annual impairment reviews during the fourth fiscal quarter of each year or earlier if indicators of potential impairment exist. For other intangible assets with indefinite lives, we compare the fair value of related assets to the carrying value to determine if there is impairment. Our indefinite lived intangible assets consist of domain names for which the fair value is determined by using a third party valuation site which calculates the value of domain names using internal algorithms. For other intangible assets with definite lives, if an impairment trigger is identified, we compare future undiscounted cash flow forecasts prepared by management to the carrying value of the related intangible asset group to determine if there is impairment.

During the first quarter 2013, we did not identify any impairment triggers that would require us to perform an impairment analysis of goodwill or intangible assets.

Stock Based Compensation

Total stock-based compensation expense recognized for the three months ended March 31, 2013 and 2012, is as follows (in thousands, except per share amount):

	Three Months Ended March 31,
	2013		2012
Cost of revenues	$	28	$	20
Sales and marketing		143		318
General and administrative		290		336
Research and development		82		53
Total stock-based compensation expense	$	543	$	727
Basic and diluted net stock-based compensation expense per share	$	0.02	$	0.03

Results of Operations

The following table sets forth our historical operating results as a percentage of revenue for the three months ended March 31, 2013 and 2012:

	Three Months Ended March 31,
	2013			2012
Revenue		100.0	%		100.0	%
Operating expenses:
Cost of revenues		71.9			69.3
Sales and marketing		16.4			23.2
General and administrative		13.5			9.5
Research and development		7.9			4.7
Amortization of intangibles		1.5			3.7
Total operating expenses		111.2			110.4
Operating income (loss)		(11.2	)		(10.4	)
Interest and other income (expense), net		(3.9	)		(0.4	)
Change in fair value of warrant liability		0.0			(0.2	)
Income (loss) from continuing operations before income taxes		(15.1	)		(11.0	)
Provision for income taxes		0.3			0.2
Net income (loss) from continuing operations		(15.4	)		(11.2	)
Income (loss) from discontinued operations (net of taxes)		—			(1.6	)
Net income (loss)		(15.4	)%		(12.8	)%

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Three months ended March 31, 2013 and 2012

Revenue (dollars in thousands):

	Three Months Ended March 31,										Percent
	2013		(*)			2012		(*)			change
Owned and operated	$	12,987		59.7	%	$	17,973		71.8	%		(27.7	)%
Network		8,283		38.1	%		4,214		16.8	%		96.6	%
Business Solutions		485		2.2	%		2,845		11.4	%		(83.0	)%
Total revenue	$	21,755		100.0	%	$	25,032		100.0	%		(13.1	)%

(*) – Percent of total revenue

Owned and operated revenue for the three months ended March 31, 2013, decreased 27.7% compared to the same period in 2012. The decrease in revenue for the three months ended March 31, 2013, compared to the same period in 2012 is due to a decrease in monetization as our revenue per thousand visitors (“RKV”) decreased from $285 for the three months ended March 31, 2012, to $214 for the three months ended March 31, 2013, coupled with a slight decrease in traffic. The decrease in RKV is largely due to periodical changes to traffic provider policies and guidelines. These changes impacted both our advertising campaigns to purchase traffic and the monetization of our search results pages. During October 2012, our largest traffic provider made certain changes to their policies and guidelines. These changes had a negative impact on our first quarter of fiscal 2013 Owned and Operated revenue and results of operations. We also expect changes from this advertising partner in June 2013 related to bidding for mobile and desktop advertising campaigns, which may have a negative impact on our traffic and monetization of such traffic. We continue to work closely with this traffic provider to refine our traffic acquisition approach and user experience on our search results pages.

Network revenue for the three months ended March 31, 2013, increased 96.6%, compared to the same period in 2012. The increase is primarily due to an increase in the number of network partner websites, an increase in organic traffic to existing partner websites and improved monetization of those sites. A portion of the Network revenue is based on other websites for which we provide our organic and third-party ad feeds. We have experienced volatility in this portion of our Network revenue related to changes in the partners’ traffic levels, traffic quality and market conditions for paid search.

Business Solutions revenue for the three months ended March 31, 2013, decreased 83.0% compared to the same period in 2012. The decrease in revenue is due to a decrease in revenue from our LEC-billed subscriber bases, a decrease in revenue from our Launch by Local product suite and lower revenue from our Spreebird business. The decrease in revenue from our LEC-billed subscriber bases is due to a decision by certain LEC’s to no longer provide billing services for our products and services during 2012. In January 2013, we made a decision to eliminate our direct sales efforts of our Launch by Local product suit to small and medium size businesses. We will still be providing our SMB solution through our channel partners.

The following table provides the revenue relating to the acquisition of subscriber bases and revenue relating to internal and outsourced sales efforts (dollars in thousands):

	Three Months Ended March 31,										Percent
	2013		(*)			2012		(*)			change
Revenue from internal and outsourced sales	$	194		40.0	%	$	1,081		38.0	%		(82.1	)%
Revenue from acquired subscriber bases		—		0.0	%		1,080		38.0	%		(100.0	)%
Spreebird daily deals revenue		291		60.0	%		684		24.0	%		(57.5	)%
Total business solutions revenue	$	485		100.0	%	$	2,845		100.0	%		(83.0	)%

Based on the above, total revenue for the three months ended March 31, 2013, decreased 13.1%, compared to the same period in 2012.

The following table identifies our major customers that represented greater than 10% of our total revenue in the periods presented:

	Percentage of Total Revenue Three Months Ended March  31,
Customer	2013			2012
Google Inc		34.7	%		44.9	%
Yahoo! Inc.		33.3	%		27.2	%

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Operating expenses:

Operating expenses were as follows (dollars in thousands):

	Three Months Ended March 31,
	2013		Percent  of Total Revenue			2012		Percent  of Total Revenue			Percent Change
Cost of revenues	$	15,631		71.9	%	$	17,345		69.3	%		(9.9	)%
Sales and marketing		3,577		16.4	%		5,795		23.2	%		(38.3	)%
General and administrative		2,947		13.5	%		2,385		9.4	%		23.6	%
Research and development		1,719		7.9	%		1,182		4.7	%		45.4	%
Amortization of intangibles		325		1.5	%		924		3.7	%		(64.8	)%
Total operating expenses	$	24,199		111.2	%	$	27,631		110.4	%		(12.4	)%

Cost of revenues

Cost of revenues for the three months ended March 31, 2013, decreased by 9.9%, compared to the same period in 2012. The decrease during the three months ended March 31, 2013, compared to the same period in 2012 is due to a decrease in traffic acquisition costs associated with driving consumers to our Local.com website. Cost incurred related to the Daily Deals segment was immaterial for the three months ended March 31, 2013 and 2012.

Sales and marketing

Sales and marketing expenses for the three months ended March 31, 2013, decreased 38.3% compared to the same period in 2012. The decrease is mainly due to a decrease in personnel-related costs as part of our continued cost savings efforts. The reduction in personnel related cost was partially offset by severance cost and an accrual of $256,000 for a vacant leased property incurred during the first quarter of fiscal 2013. In January 2013, we made a decision to eliminate our direct sales efforts of our SMB product suite to small and medium size businesses. We will still be providing our SMB solution through our channel partners. Included in sales and marketing expense for the three months ended March 31, 2013 and 2012, are expenses of $398,000 and $1.7 million, respectively, relating to the Daily Deals segment. The reduction in sales and marketing expense for the Daily Deals segment is mainly due to a reduction in personnel related costs.

General and administrative

General and administrative expenses for the three months ended March 31, 2013, increased 23.6% compared to the same period in 2012. The increase was mainly due to an increase in consulting and legal expense related to our efforts to secure financing. Costs incurred related to the Daily Deals segment was immaterial for the three months ended March 31, 2013 and 2012.

Research and development

Research and development expenses for the three months ended March 31, 2013, increased by 45.4%, compared to the same period in 2012. The increase is due to lower capitalization of personnel related cost as well as an increase in personnel related cost in the first quarter of 2013. We capitalized an additional $556,000 of research and development expenses for website development and amortized $644,000 of capitalized website development costs during the three months ended March 31, 2013. We capitalized an additional $690,000 of research and development expenses for website development and amortized $519,000 during the three months ended March 31, 2012. Cost incurred related to the Daily Deals segment was immaterial for the three months ended March 31, 2013 and 2012.

Amortization of intangibles

Amortization of intangibles expense was $325,000 for the three months ended March 31, 2013, compared to $924,000 for the same period in 2012. The decrease in amortization expense was primarily due to the accelerated amortization of subscriber related intangible assets in 2012 with all subscriber related intangible assets fully amortized as of the end of fiscal 2012.

Interest and other income (expense), net

Interest and other income (expense), net was ($842,000) for the three months ended March 31, 2013, compared to ($97,000) for the same period in 2012. The increase in interest expense is due to an average balance of approximately $9.5 million outstanding on the Square One Bank line of credit at the end of the first quarter 2013 while we had $8.0 million outstanding at the end of the first quarter 2012. Also included in interest and other income (expense) is $723,000 related to the loss on exchange of warrants.

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Provision for income taxes

Provision for income taxes was $72,000 and $55,000 for the three months ended March 31, 2013 and 2012, respectively. Taxes are primarily due to anticipated tax amortization on indefinite-lived assets, partially offset by California research and development credits.

Liquidity and Capital Resources

Liquidity and capital resources highlights (in thousands):

	March 31, 2013			December 31, 2012
Cash	$	3,067		$	3,696
Working capital (deficit)	$	(7,400	)	$	(5,843	)

Cash flow highlights (in thousands):

	Three Months Ended March 31,
	2013			2012
Net cash provided by (used in) operating activities	$	1,057		$	(2,595	)
Net cash used in investing activities		(635	)		(1,014	)
Net cash (used in) provided by financing activities		(1,051	)		2

We have funded our business, to date, primarily from issuances of equity securities as well as through debt facilities. Cash was $3.1 million as of March 31, 2013, and $3.7 million as of December 31, 2012. We had a working capital deficit of $7.4 million as of March 31, 2013, and $5.8 as of December 31, 2012. As of March 31, 2013, we had a total of $9.0 million outstanding on the revolving credit facility with Square One Bank, with additional availability dependent on fluctuations in the borrowing base. The decrease in working capital is largely due to an increase in accounts payable and accrued expenses due to the timing of payments to vendors. Cash also decreased by $629,000 for the first quarter fiscal 2013. Accounts receivable increased slightly due to timing of cash receipts.

Net cash provided by operating activities was $1.1 million for the three months ended March 31, 2013. Net loss adjusted for non-cash charges (adding back depreciation and amortization, stock-based compensation expense, change in fair value of warrant liability and loss on exchange of warrants) used was approximately $825,000, and changes in operating assets and liabilities provided cash of $1.8 million for the three months ended March 31, 2013. Net cash used in operating activities was $2.6 million for the three months ended March 31, 2012. Net loss adjusted for non-cash charges (adding back depreciation and amortization, stock-based compensation expense, and change in fair value of warrant liability) used was approximately $448,000, and changes in operating assets and liabilities used cash of $2.1 million for the three months ended March 31, 2012.

There are four primary drivers that affect cash provided by or (used in) operations: net income (loss); non-cash adjustments to net income (loss); changes in accounts receivable; and changes in accounts payable. For the three months ended March 31, 2013, the terms of our accounts receivable and accounts payable remained unchanged.

The table below substantiates the change in net cash provided by (used in) operating activities for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended March 31,
	2013			2012			Change
Net income (loss)	$	(3,353	)	$	(3,202	)	$	(151	)
Non-cash (1)		2,528			2,754			(226	)
Subtotal		(825	)		(448	)		(377	)
AR, AP and Other		1,882			(2,147	)		4,029
Net cash (used in) provided by operations	$	1,057		$	(2,595	)	$	3,652

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(1) Includes depreciation, amortization, change in fair value of warrant liability, loss on exchange of warrants, non-cash expense related to stock-based compensation and provision for doubtful accounts.

Net cash used in investing activities was $635,000 for the three months ended March 31, 2013, of which all related to capital expenditures, primarily for website development costs. Net cash used in financing activities was $1.1 million for the three months ended March 31, 2013, and primarily consisted of $1.0 million repayment of a portion of the outstanding balance on the Square One Bank line of credit. Net cash used in investing activities was $1.0 million for the three months ended March 31, 2012, and consisted of $1.0 million for capital expenditures, primarily related to website development costs. There was no material financing activities for the three months ended March 31 2012.

During the second half of 2012, we were able to reduce our operating losses (excluding impairment charges) through the restructuring of agreements with current partners, entering into agreements with new partners and continued efforts to optimize monetization on our Consumer Properties. We also initiated aggressive cost savings efforts in the second half of fiscal 2012 through the first quarter of fiscal 2013. These efforts resulted in the sale of the Rovion business and our decision to cease the direct sales effort of the SMB product suite. These actions resulted in estimated annual cost savings of approximately $5.0 million and a reduction in our headcount from 146 as of December 31, 2012, to 94 as of March 31, 2013.

During October 2012, our largest traffic partner made changes to their policies and guidelines. These changes had a negative impact on our revenues and results of operations for the fourth quarter of fiscal 2012 and the first quarter of fiscal 2013. We are continuing to evaluate the effects of these changes to our business and are working on making the necessary adjustments to compensate for the loss of revenue and liquidity.

On January 30, 2013, the Loan Agreement with Square One Bank was amended to temporarily revise the terms under which we were allowed to draw the maximum amount on the Non-Formula Revolving Line.

On February 13, 2013, we executed the Fifth Amendment to the Loan Agreement with Square One Bank, extending the maturity date through February 3, 2015. On March 28, 2013, we executed the Sixth Amendment to the Loan Agreement with Square One Bank. The Sixth Amendment waives any and all violations of the Liquidity Ratio covenants prior to the Sixth Amendment, terminates the Non-Formula Advances under the Agreement and requires monthly payments of the outstanding Non-Formula principal, plus all accrued interest, over 24 months beginning on April 28, 2013. On April 10, 2013, we entered into the Seventh Amendment to the Loan Agreement. The Seventh Amendment provided for us to add as security for our obligations under the Loan Agreement all of our intellectual property and to undertake certain reporting obligations to Square One Bank with respect to such intellectual property.

On April 10, 2013, we entered into a Convertible Note and Warrant Purchase Agreement. Pursuant to this Agreement, the investors purchased an aggregate of $5.0 million of 7% subordinated convertible notes and warrants to purchase shares of our common stock. In connection with the issuance of the Notes, we received a cash payment of $4.6 million net of $356,000 in placement agent fees. The Notes are subordinate to the Square One Bank line of credit facilities.

Management believes that based upon projected operating needs, cash from operations, availability on our revolving credit facility and issuance of Notes will be sufficient to fund our operations for at least the next 12 months. However, we continue to evaluate our operating plan and manage our costs in line with estimated revenues, including contingencies for further cost reductions if projected revenue and improvements in operating results are not fully realized. Furthermore, if the projections and assumptions used by management to form its opinion prove incorrect, then we may require additional capital to fund our operations over the next 12 months. Management cannot provide assurances that, if required, any additional equity or debt arrangements will be available to us in the future or that the required capital would be available on terms acceptable to us, if at all, or that any such activity would not be dilutive to our stockholders.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our disclosures regarding market risk since December 31, 2012. See also Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2012, for further sensitivity analysis regarding our market risk related to interest rates and derivative liabilities.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a- 15(e) and Rule 15d-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may initiate or be subject to a variety of legal proceedings and claims in the ordinary course of business, including claims seeking to enforce our intellectual property rights, claims that allege we infringe the intellectual property rights of another party and claims arising in connection in the ordinary course of business. Other than the litigations discussed below, we are not currently a party to any material legal proceedings.

GEOTAG Litigation

On July 23, 2010, a lawsuit alleging patent infringement was filed in the United States District Court for the Eastern District of Texas against us and others in our sector, by GEOTAG, Inc., a Delaware corporation with its principal offices in Plano, Texas. The complaint alleges that we infringe U.S. Patent No. 5,930,474 (hereinafter, the “ ‘474 Patent”) as a result of the operation of our website atwww.local.com. GEOTAG, Inc. purports to be the rightful assignee of all right, title and interest in and to the ‘474 Patent. The complaint seeks unspecified amounts of damages and costs incurred, including attorney fees, as well as a permanent injunction preventing us from continuing those activities that are alleged to infringe the ‘474 Patent. We continue to evaluate the merits of the claims and to vigorously defend ourselves. If it is determined that we have infringed the ‘474 Patent, we could be subject to damages and a permanent injunction that could have a material adverse effect on us and our operations. In addition, although we believe that there is only a remote possibility that it will be determined that we have infringed on the ‘474 Patent, this litigation could have a material adverse effect on our financial condition and results of operations because of defense costs, diversion of management’s attention and resources and other factors. There can be no assurances that our assessment of the ultimate outcome of this litigation will be correct.

Fry’s Electronics Litigation

On June 18, 2012, we filed a lawsuit against Fry’s Electronics, Inc. (“Fry’s”) alleging that Fry’s violates our registered U.S. Patent No. 7,062,453, which is entitled “Methods and systems for dynamic networked commerce architecture.” The lawsuit was filed in the Central District of California. We are seeking an injunction against Fry’s and an award of damages in an amount to be determined at trial, as well as attorney’s fees. There can be no guarantees as to the outcome of the litigation.

Item 1A. Risk Factors

Information on risk factors can be found in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on April 2, 2013. There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

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Item 6. Exhibits

Exhibit Number	Description
3.1 (1)	Amended and Restated Certificate of Incorporation of the Registrant.
3.2 (2)	Amendment to Restated Certificate of Incorporation of the Registrant.
3.3 (3)	Amended and Restated Bylaws of the Registrant.
3.4 (4)	Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into Interchange Corporation.
3.5 (5)	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Local.com Corporation.
3.6 (6)	Certificate of Ownership and Merger Merging Wide Out Corporation Into Local.com Corporation.
4.1 (5)	Preferred Stock Rights Agreement, dated as of October 15, 2008, by and between Local.com Corporation and Computershare Trust Company, N.A., as Rights Agent (which includes the form of Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Local.com Corporation as Exhibit A thereto, the form of Rights Certificate as Exhibit B thereto, and the Stockholder Rights Plan, Summary of Rights as Exhibit C thereto).
10.1# (7)	Description of material Terms of the Registrant’s Bonus Program as of January 16, 2013.
10.2# (7)	Description of material Terms of the Registrant’s Retention Program as of January 16, 2013.
10.3 (8)	Fourth Amendment dated January 30, 2013, to Loan and Security Agreement dated August 3, 2011, by and among the Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square 1 Bank.
10.4 (9)	Form of Repricing Letter.
10.5 (10)	Fifth Amendment dated February 13, 2013, to Loan and Security Agreement dated August 3, 2011, by and among the Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square 1 Bank.
10.6 (11)	Form of Exchange Agreement dated February 28, 2012, by and between the Registrant and the Investor named therein.
10.7† (12)	Yahoo! Publisher Network Contract, dated November 1, 2012, by and among the Registrant, Yahoo! Inc., and Yahoo! SARL.
10.8 (13)	Sixth Amendment dated March 28, 2013, to Loan and Security Agreement dated August 3, 2011, by and among the Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square 1 Bank.
10.9# (14)	Separation and General Release Agreement by and between the Registrant and Peter Hutto dated March 31, 2013.
10.10 (15)	Convertible Note and Warrant Purchase Agreement dated April 10, 2013, by and among the Registrant and certain institutional investors.
10.11 (15)	Form of 7% Convertible Note.
10.12 (15)	Form of Common Stock Purchase Warrant.
10.13 (15)	Form of Investor Rights Agreement.
10.14 (15)	Form of Subsidiary Guarantee.
10.15 (15)	Seventh Amendment, dated April 10, 2013, to Loan and Security Agreement dated August 3, 2011, by and among Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square One Bank.
31.1*	Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith.

# Indicates management contract or compensatory plan.

† Application has been made with the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.

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

(2) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2009

(3) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 2, 2007.

(4) Incorporated by reference from the Registrant’s Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on November 2, 2006.

(5) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 15, 2008.

(6) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2012.

(7) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 23, 2013.

(8) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 1, 2013.

(9) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 11, 2013.

(10) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2013.

(11) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 1, 2013.

(12) Incorporated by reference from the Registrant’s Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on March 15, 2013.

(13) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 2, 2013.

(14) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 3, 2013.

(15) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 11, 2013.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LOCAL CORPORATION
May 10, 2013	/s/ Heath B. Clarke
Date	Heath B. Clarke
	Chief Executive Officer
	(principal executive officer) and Chairman
May 10, 2013	/s/ Kenneth S. Cragun
Date	Kenneth S. Cragun
	Chief Financial Officer (principal financial and accounting officer) and Secretary

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INDEX TO EXHIBITS

Exhibit Number	Description
3.1 (1)	Amended and Restated Certificate of Incorporation of the Registrant.
3.2 (2)	Amendment to Restated Certificate of Incorporation of the Registrant.
3.3 (3)	Amended and Restated Bylaws of the Registrant.
3.4 (4)	Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into Interchange Corporation.
3.5 (5)	Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Local.com Corporation.
3.6 (6)	Certificate of Ownership and Merger Merging Wide Out Corporation Into Local.com Corporation.
4.1 (5)	Preferred Stock Rights Agreement, dated as of October 15, 2008, by and between Local.com Corporation and Computershare Trust Company, N.A., as Rights Agent (which includes the form of Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Local.com Corporation as Exhibit A thereto, the form of Rights Certificate as Exhibit B thereto, and the Stockholder Rights Plan, Summary of Rights as Exhibit C thereto).
10.1# (7)	Description of material Terms of the Registrant’s Bonus Program as of January 16, 2013.
10.2# (7)	Description of material Terms of the Registrant’s Retention Program as of January 16, 2013.
10.3 (8)	Fourth Amendment dated January 30, 2013, to Loan and Security Agreement dated August 3, 2011, by and among the Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square 1 Bank.
10.4 (9)	Form of Repricing Letter.
10.5 (10)	Fifth Amendment dated February 13, 2013, to Loan and Security Agreement dated August 3, 2011, by and among the Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square 1 Bank.
10.6 (11)	Form of Exchange Agreement dated February 28, 2012, by and between the Registrant and the Investor named therein.
10.7† (12)	Yahoo! Publisher Network Contract, dated November 1, 2012, by and among the Registrant, Yahoo! Inc., and Yahoo! SARL.
10.8 (13)	Sixth Amendment dated March 28, 2013, to Loan and Security Agreement dated August 3, 2011, by and among the Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square 1 Bank.
10.9# (14)	Separation and General Release Agreement by and between the Registrant and Peter Hutto dated March 31, 2013.
10.10 (15)	Convertible Note and Warrant Purchase Agreement dated April 10, 2013, by and among the Registrant and certain institutional investors.
10.11 (15)	Form of 7% Convertible Note.
10.12 (15)	Form of Common Stock Purchase Warrant.
10.13 (15)	Form of Investor Rights Agreement.
10.14 (15)	Form of Subsidiary Guarantee.
10.15 (15)	Seventh Amendment, dated April 10, 2013, to Loan and Security Agreement dated August 3, 2011, by and among Registrant, Krillion, Inc., Screamin Media Group, Inc. and Square One Bank.
31.1*	Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith.

# Indicates management contract or compensatory plan.

† Application has been made with the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.

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

(2) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2009

(3) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 2, 2007.

(4) Incorporated by reference from the Registrant’s Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on November 2, 2006.

(5) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 15, 2008.

(6) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2012.

(7) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 23, 2013.

(8) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 1, 2013.

(9) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 11, 2013.

(10) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 14, 2013.

(11) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 1, 2013.

(12) Incorporated by reference from the Registrant’s Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on March 15, 2013.

(13) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 2, 2013.

(14) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 3, 2013.

(15) Incorporated by reference from the Registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 11, 2013.

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