10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

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

For the transition period from                      to                     

Commission File Number: 000-50989

LOCAL.COM CORPORATION

(Exact name of registrant as specified in its charter)

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

One Technology Drive, Building G
Irvine, CA 92618
(Address of principal executive offices)(Zip Code)

(949) 784-0800
(Registrant’s telephone number, including area code)

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

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

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

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

Number of shares outstanding at April 30, 2008:	Common:	14,204,110
	Preferred:	0

LOCAL.COM CORPORATION
TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007		3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 (Unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2008 and 2007 (Unaudited)		5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (Unaudited)		6
	Notes to Condensed Consolidated Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		19
Item 4T.	Controls and Procedures.		19
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.		20
Item 1A.	Risk Factors.		20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		20
Item 3.	Defaults Upon Senior Securities.		20
Item 4.	Submission of Matters to a Vote of Security Holders.		20
Item 5.	Other Information.		20
Item 6.	Exhibits.		21

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

LOCAL.COM CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	March 31,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,742		$	14,258
Restricted cash		30			30
Marketable securities		—			1,999
Accounts receivable, net of allowances of $15		5,755			3,595
Prepaid expenses and other current assets		268			292
Total current assets		20,795			20,174
Property and equipment, net		1,225			1,473
Intangible assets, net		2,839			3,156
Goodwill		13,233			13,233
Long-term restricted cash		66			66
Deposits		12			12
Total assets	$	38,170		$	38,114
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,997		$	4,029
Accrued compensation		719			456
Deferred rent		288			316
Other accrued liabilities		216			194
Deferred revenue		127			177
Total liabilities, all current		7,347			5,172
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized; none issued and outstanding for all periods presented		—			—
Common stock, $0.00001 par value; 30,000,000 shares authorized; 14,204,110 issued and outstanding for all periods presented		—			—
Additional paid-in capital		82,815			82,176
Accumulated comprehensive loss		—			(1	)
Accumulated deficit		(51,992	)		(49,233	)
Stockholders’ equity		30,823			32,942
Total liabilities and stockholders’ equity	$	38,170		$	38,114

See accompanying notes to the condensed consolidated financial statements.

3

LOCAL.COM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)

	Three months ended
	March 31,
	2008			2007
Revenue	$	8,842		$	4,881
Operating expenses:
Search serving		1,453			807
Sales and marketing		7,643			4,699
General and administrative		1,443			1,333
Research and development		878			699
Amortization of intangibles		318			237
Total operating expenses		11,735			7,775
Operating loss		(2,893	)		(2,894	)
Interest and other income (expense)		135			(192	)
Loss before income taxes		(2,758	)		(3,086	)
Provision for income taxes		1			1
Net loss	$	(2,759	)	$	(3,087	)
Per share data:
Basic net loss per share	$	(0.19	)	$	(0.33	)
Diluted net loss per share	$	(0.19	)	$	(0.33	)
Basic weighted average shares outstanding		14,204,110			9,298,281
Diluted weighted average shares outstanding		14,204,110			9,298,281

See accompanying notes to the condensed consolidated financial statements.

4

LOCAL.COM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)

	Three months ended
	March 31,
	2008			2007
Net loss	$	(2,759	)	$	(3,087	)
Other comprehensive income (loss):
Net unrealized gain on marketable securities		1			6
Total comprehensive loss	$	(2,758	)	$	(3,081	)
Supplemental comprehensive income (loss) information:
Unrealized holding gain arising during period	$	1		$	6
Reclassification adjustment for losses included in net loss		—			—
Net unrealized gain on marketable securities	$	1		$	6

See accompanying notes to the condensed consolidated financial statements.

5

LOCAL.COM CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

	Three months ended
	March 31,
	2008			2007
Cash flows from operating activities:
Net loss	$	(2,759	)	$	(3,087	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		561			510
Non-cash stock based compensation		650			491
Non-cash interest expense		—			137
Changes in operating assets and liabilities:
Accounts receivable		(2,160	)		(1,105	)
Prepaid expenses and other		24			(527	)
Accounts payable and accrued liabilities		2,226			841
Deferred revenue		(50	)		(15	)
Net cash used in operating activities		(1,508	)		(2,755	)
Cash flows from investing activities:
Capital expenditures		4			(100	)
Proceeds from sales of marketable securities		2,000			—
Net cash provided by (used in) investing activities		2,004			(100	)
Cash flows from financing activities:
Proceeds from issuance of senior secured convertible notes		—			8,000
Proceeds from issuance of common stock from exercise of options		—			4
Proceeds from issuance of common stock from exercise of warrants		—			4
Proceeds from swing-sale profits		3			—
Payment of notes payable		—			(37	)
Payment of financing related costs		(15	)		(3	)
Net cash (used in) provided by financing activities		(12	)		7,968
Net increase in cash and cash equivalents		484			5,113
Cash and cash equivalents, beginning of period		14,258			3,264
Cash and cash equivalents, end of period	$	14,742		$	8,377
Supplemental cash flow information:
Interest paid	$	—		$	1
Income taxes paid	$	1		$	1
Non-cash investing and financing transactions:
Debt discount related to issuance of senior secured convertible notes				$	6,221
Warrants issued for financing costs				$	458

See accompanying notes to the condensed consolidated financial statements.

6

LOCAL.COM CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of presentation

The unaudited interim condensed consolidated financial statements as of March 31, 2008 and for the three months ended March 31, 2008 and 2007, 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, 2008 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, 2007 included in the Company’s Form 10-K filed with the Securities and Exchange Commission.

2. Significant accounting policies

Principles of consolidation

From January 1, 2007 to June 30, 2007, the Company’s financial statements include only the accounts of Local.com Corporation because the Company did not have any subsidiaries during that period. Subsequent to July 1, 2007, the Company’s financial statements include the accounts of Local.com Corporation and its wholly-owned subsidiary Local.com PG Acquisition Corporation. All intercompany balances and transactions were eliminated.

Intangible assets

Developed technology arising from acquisitions is recorded at cost and amortized on a straight-line basis over five years. Accumulated amortization at March 31, 2008 was $1,377,017. Accumulated amortization at December 31, 2007 was $1,265,367.

Non-compete agreements arising from acquisitions are recorded at cost and amortized on a straight-line basis over three years. Accumulated amortization at March 31, 2008 was $264,794. Accumulated amortization at December 31, 2007 was $248,335.

Purchased technology arising from acquisitions is recorded at cost and amortized on a straight-line basis over three years. Accumulated amortization at March 31, 2008 was $1,160,064. Accumulated amortization at December 31, 2007 was $1,056,794.

Patents are recorded at cost and amortized on a straight-line basis over three years. Accumulated amortization at March 31, 2008 was $114,881. Accumulated amortization at December 31, 2007 was $78,981.

Customer-related intangibles arising from acquisitions are recorded at cost and amortized on a straight-line basis over five years. Accumulated amortization at March 31, 2008 was $143,129. Accumulated amortization at December 31, 2007 was $92,129.

Goodwill

Goodwill representing the excess of the purchase price over the fair value of the net tangible and intangible assets arising from acquisitions and purchased domain name are recorded at cost. Intangible assets, such as goodwill and domain name, which are determined to have an indefinite life, are not amortized in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. The Company performs annual impairment reviews during the fourth fiscal quarter of each year, or earlier, if indicators of potential impairment exist. The Company performed its annual impairment analysis as of December 31, 2007 and determined that no impairment existed. Future impairment reviews may result in charges against earnings to write-down the value of non-amortized assets.

Web site development costs and computer software developed for internal use

Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1), requires that costs incurred in the preliminary project and post-implementation stages of an internal use

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software project be expensed as incurred and that certain costs incurred in the application development stage of a project be capitalized. Emerging Issues Task Force Issue No. 00-02 Accounting for Web Site Development Costs (EITF 00-02), requires that costs incurred in the preliminary project and operating stage of web site development be expensed as incurred and that certain costs incurred in the development stage of web site development be capitalized and amortized over its useful life. During the three months ended March 31, 2008, the Company did not capitalize any expenses related to the web site development. Amortization of capitalized web site costs was $77,000 for the three months ended March 31, 2008. During the three months ended March 31, 2007, the Company capitalized an additional $67,000 related to the web site development with a useful life of three years. Amortization of capitalized web site costs was $42,000 for the three months ended March 31, 2007. Capitalized web site costs are included in property and equipment, net.

Stock-based compensation

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment on January 1, 2006, the beginning of its first quarter of fiscal 2006, using the modified-prospective transition method.

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			Three months ended
	March 31, 2008			March 31, 2007
Risk-free interest rate		3.15	%		4.55	%
Expected lives (in years)		7.0			7.0
Expected dividend yield	None			None
Expected volatility		100.0	%		100.0	%

Total stock-based compensation expense recognized for the three months ended March 31, 2008 and 2007 is as follows (in thousands, except per share amount):

	Three months ended		Three months ended
	March 31, 2008		March 31, 2007
Sales and marketing	$	240	$	120
General and administrative		339		292
Research and development		71		79
Total stock-based compensation expense	$	650	$	491
Basic and diluted net stock-based compensation expense per share	$	0.05	$	0.05

Net loss per share

SFAS No. 128, Earnings per Share, establishes standards for computing and presenting earnings per share. Basic net loss per share is calculated using the weighted average shares of common stock outstanding during the periods. Diluted net loss per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding during the period, using the as-if converted method for senior secured convertible notes, and the treasury stock method for options and warrants.

For the three months ended March 31, 2008, potentially dilutive securities, which consist of options to purchase 2,649,988 shares of common stock at prices ranging from $2.00 to $16.59 per share and warrants to purchase 3,469,653 shares of common stock at prices ranging from $3.00 to $25.53 per share were not included in the computation of diluted net income per share because such inclusion would be antidilutive.

For the three months ended March 31, 2007, potentially dilutive securities, which consist of options to purchase 1,909,061 shares of common stock at prices ranging from $0.40 to $16.59 per share, warrants to purchase 2,777,263 shares of common stock at prices ranging from $3.00 to $25.53 per share and senior secured convertible notes that

8

could convert into 1,990,050 shares of common stock were not included in the computation of diluted net income per share because such inclusion would be antidilutive.

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

	Three months ended
	March 31,
	2008			2007
Numerator:
Net loss	$	(2,759	)	$	(3,087	)
Denominator:
Denominator for basic calculation weighted average shares		14,204			9,298
Dilutive common stock equivalents:
Options					—
Warrants					—
Denominator for diluted calculation weighted average shares		14,204			9,298
Net loss per share:
Basic net loss per share	$	(0.19	)	$	(0.33	)
Diluted net loss per share	$	(0.19	)	$	(0.33	)

New accounting pronouncements

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement No. 133, which changes the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161 requires entities to provide enhanced disclosures on how and why the entity uses derivative instruments, how derivative instruments and related hedging items are accounted for under SFAS No. 133, and how derivative instruments and related hedging items affect an entity’s financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently analyzing the effect of adoption SFAS 161.

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

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

	March 31,			December 31,
	2008			2007
Furniture and fixtures	$	203		$	203
Office equipment		119			119
Computer equipment		1,905			1,889
Computer software		1,820			1,841
Leasehold improvements		583			583
		4,630			4,635
Less accumulated depreciation and amortization		(3,405	)		(3,162	)
Property and equipment, net	$	1,225		$	1,473

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Intangible assets consisted of the following (in thousands):

	March 31,			December 31,
	2008			2007
Developed technology	$	2,233		$	2,233
Non-compete agreements		274			274
Purchased technology		1,239			1,239
Customer-related		1,020			1,020
Patents		431			431
Domain name		701			701
		5,898			5,898
Less accumulated amortization		(3,059	)		(2,742	)
Intangible assets, net	$	2,839		$	3,156

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

	Three months ended
	March 31,
	2008		2007
Interest income	$	135	$	71
Interest expense		—		(103	)
Interest expense – non-cash		—		(160	)
Interest and other income (expense)	$	135	$	(192	)

4. Operating segment information

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

	Three month ended
	March 31,
	2008		2007
Revenue by geographic region:
United States	$	8,704	$	4,873
Europe		138		8
Total revenue	$	8,842	$	4,881

5. Stock option plans

1999 Plan

In March 1999, the Company adopted the 1999 Equity Incentive Plan (1999 Plan). The 1999 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 500,000 shares for issuance under the 1999 Plan, of which 142,844 were outstanding and 45,648 were available for future grant at March 31, 2008.

10

2000 Plan

In March 2000, the Company adopted the 2000 Equity Incentive Plan (2000 Plan). The 2000 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 500,000 shares for issuance under the 2000 Plan, of which 349,889 were outstanding and 334 were available for future grant at March 31, 2008.

2004 Plan

In January 2004, the Company adopted the 2004 Equity Incentive Plan (2004 Plan), in August 2004, the Company amended the 2004 Plan and in September 2004, the stockholders of the Company approved the 2004 Plan, as amended. The 2004 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 600,000 shares for issuance under the 2004 Plan, of which 463,940 were outstanding and 16,596 were available for future grant at March 31, 2008.

2005 Plan

In August 2005, the Company adopted and the stockholders of the Company approved the 2005 Equity Incentive Plan (2005 Plan). The 2005 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. Prior to 2006, 25% of the options were available for exercise at the end of nine months, while the remainder of the grant were exercisable ratably over the next 27 month period, provided the optionee remained in service to the Company. For options granted in 2006 and thereafter, 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 1,000,000 shares for issuance under the 2005 Plan, of which 900,787 were outstanding and 18,612 were available for future grant at March 31, 2008.

2007 Plan

In August 2007, the Company adopted and the stockholders of the Company approved the 2007 Equity Incentive Plan (2007 Plan). The 2007 Plan provides for the grant of non-qualified and incentive stock options to employees, directors and consultants of options to purchase shares of the Company’s stock. Options are granted at exercise prices equal to the fair market value of the common stock on the date of grant. 33.33% of the options are available for exercise at the end of one year, while the remainder of the grant is exercisable ratably over the next 8 quarters, provided the optionee remains in service to the Company. The options generally expire ten years from the date of grant. The Company has reserved 1,000,000 shares for issuance under the 2007 Plan, of which 792,528 were outstanding and 207,472 were available for future grant at March 31, 2008.

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Stock option activity under the plans during the three months ended March 31, 2008 is as follows:

			Weighted		Aggregate
			Average		Intrinsic Value
	Shares		Exercise Price		(in thousands)
Outstanding at December 31, 2007		2,703,850	$	5.04
Granted		14,725		3.97
Cancelled		68,587		3.09
Outstanding at March 31, 2008		2,649,988	$	5.08	$	898
Exercisable at March 31, 2008		1,405,918	$	5.41	$	768

The weighted-average fair value at grant date for the options granted during the three months ended March 31, 2008 and 2007 was $3.31 and $1.72 per option, respectively.

The aggregate intrinsic value of all options exercised during the three month ended March 31, 2007 was $2,000. There were no options exercised during the three months ended March 31, 2008.

Stock option summary information for the plans at March 31, 2008 is as follows:

	Options Outstanding					Options Exercisable
			Weighted
			Average	Weighted				Weighted
			Remaining	Average				Average
			Contractual	Exercise				Exercise
Range of Exercise Prices	Shares		Life	Price		Shares		Price
$1.01 - $2.00		160,000	4.8 years	$	2.00		160,000	$	2.00
$2.01 - $3.00		141,028	4.2 years	$	2.25		141,028	$	2.25
$3.01 - $4.00		746,829	7.2 years	$	3.68		474,857	$	3.72
$4.01 - $5.00		929,137	9.4 years	$	4.67		89,656	$	4.60
$5.01 - $6.00		133,459	7.9 years	$	5.69		99,841	$	5.69
$6.01 - $7.00		117,773	7.7 years	$	6.39		101,847	$	6.38
$7.01 - $8.00		190,112	7.4 years	$	7.51		157,873	$	7.54
$8.01 - $10.00		120,000	8.1 years	$	8.76		69,166	$	9.18
$15.01 - $16.59		111,650	6.4 years	$	15.61		111,650	$	15.61
		2,649,988	7.8 years	$	5.08		1,405,918	$	5.41

6. Warrants

Warrant activity during the three months ended March 31, 2008 is as follows:

				Weighted Average
	Shares			Exercise Price
Outstanding at December 31, 2007		3,470,278		$	7.34
Expired		(625	)		4.00
Outstanding and exercisable at March 31, 2008		3,469,653		$	7.34

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Warrant summary information at March 31, 2008 is as follows:

	Warrants Outstanding and Exercisable
			Weighted
			Average		Weighted
			Remaining		Average
			Contractual		Exercise
Range of Exercise Prices	Shares		Life		Price
$0.00 - $3.99		173,124		0.5	$	3.50
$4.00 - $4.99		873,971		3.9	$	4.36
$5.00 - $5.99		867,662		3.9	$	5.17
$7.00 - $7.99		537,373		4.3	$	7.89
$9.00 - $9.99		537,373		4.3	$	9.26
$10.00 - $19.99		315,750		1.6	$	10.00
$20.00 - $25.53		164,400		1.8	$	25.53
		3,469,653		3.5	$	7.34

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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 that involve risks, uncertainties and assumptions. All statements, other than statements of historical fact, are statements that could be deemed “forward- looking statements” within the meaning of the federal securities laws. In addition, important factors to consider in evaluating such forward-looking statements include changes or developments in social, economic, market, legal or regulatory circumstances, changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors, the actions or omissions of third parties, including customers, competitors and governmental authorities, and various other factors, including those described or referred to in Item 1A of 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, 2007 and for the year ended December 31, 2007 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2008.

Overview

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

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

Stock-based compensation

We adopted Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, on January 1, 2006, the beginning of our first quarter of fiscal 2006, using the modified-prospective transition method.

Total stock-based compensation expense recognized for the three months ended March 31, 2008 and 2007 is as follows (in thousands, except per share amount):

	Three months ended		Three months ended
	March 31, 2008		March 31, 2007
Sales and marketing	$	240	$	120
General and administrative		339		292
Research and development		71		79
Total stock-based compensation expense	$	650	$	491
Basic and diluted net compensation expense per share	$	0.05	$	0.05

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Results of Operations

The following table sets forth our historical operating results as a percentage of revenue for the periods indicated and is derived from our unaudited financial statements, which, in the opinion of our management, reflect all adjustments that are of a normal recurring nature, necessary to present such information fairly:

	Three months ended
	March 31,
	2008			2007
Revenue		100.0	%		100.0	%
Operating expenses:
Search serving		16.4			16.5
Sales and marketing		86.5			96.3
General and administrative		16.3			27.3
Research and development		9.9			14.3
Amortization of intangibles		3.6			4.9
Total operating expenses		132.7			159.3
Operating loss		(32.7	)		(59.3	)
Interest and other income (expense)		1.5			(3.9	)
Loss before income taxes		(31.2	)		(63.2	)
Provision for income taxes		0.0			0.0
Net loss		(31.2	)%		(63.2	)%

Revenue

Revenue by business categories was as follows (dollars in thousands):

	Three months ended March 31,										Percent
	2008		(*)			2007		(*)			change
Local domestic	$	8,038		90.9	%	$	4,083		83.6	%		96.9	%
Local international		138		1.6	%		8		0.2	%		1,625.0	%
Total local		8,172		92.5	%		4,091		83.8	%		99.8	%
National		666		7.5	%		790		16.2	%		(15.7	)%
Total revenue	$	8,842		100.0	%	$	4,881		100.0	%		81.2	%

(*) – Percent of total revenue.

Domestic local search revenue for the three months ended March 31, 2008 increased $4.0 million, or 96.9%, compared to the same period in 2007. The increase in revenue was primarily due to increased monetization as our revenue per thousand visitors (RKV) increased to $228 for the three months ended March 31, 2008 from $137 for the three months ended March 31, 2007. The increase in RKV was a result of additional ad units per page, optimization of search results to improve page yields, greater revenue share received from our advertising partners and improved search engine marketing.

International local search revenue for the three months ended March 31, 2008 increased $130,000, or 1,625.0%, compared to the same period in 2007. The increase in revenue was primarily due to an increase in revenue-generating click-throughs from an increase in traffic to our uk.local.com web site.

15

National revenue for the three months ended March 31, 2008 decreased $124,000, or 15.7%, compared to the same period in 2007. The decrease in revenue was primarily due to a decrease in revenue-generating click-throughs as we have transitioned away from national search to focus our business efforts on local search.

Total revenue for the three months ended March 31, 2008 increased $4.0 million, or 81.2%, compared to the same period in 2007.

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

	Percentage of total revenue
	Three months ended
	March 31,
Customer	2008			2007
Yahoo! Inc.		47.5	%		47.8	%
Idearc Media Corp.		14.5	%		15.6	%

Operating expenses:

Operating expenses were as follows (dollars in thousands):

	Three months ended March 31,										Percent
	2008		(*)			2007		(*)			change
Search serving	$	1,453		16.4	%	$	807		16.5	%		80.0	%
Sales and marketing		7,643		86.5	%		4,699		96.3	%		62.7	%
General and administrative		1,443		16.3	%		1,333		27.3	%		8.3	%
Research and development		878		9.9	%		699		14.3	%		25.6	%
Amortization and write-down of intangibles		318		3.6	%		237		4.9	%		34.2	%
Total operating expenses	$	11,735		132.7	%	$	7,775		159.3	%		50.9	%

(*) – Percent of total revenue.

Search serving

Search serving expenses for the three months ended March 31, 2008 increased $646,000, or 80.0%, compared to the same period in 2007. The increase was primarily due to an increase in payments to our private label partners associated with the business we acquired from PremierGuide, Inc. We expect search serving expense to decrease slightly as our national business continues to decrease.

Search serving expenses were 16.4% and 16.5% of total revenue for the three months ended March 31, 2008 and 2007, respectively.

Sales and marketing

Sales and marketing expenses for the three months ended March 31, 2008 increased $2.9 million, or 62.7%, compared to the same period in 2007. The increase was primarily due to an increase in advertising and traffic acquisition costs (TAC) for our Local.com web site. We expect sales and marketing expenses to increase as we increase our TAC and marketing efforts for our Local.com web site.

Sales and marketing expenses were 86.5% and 96.3% of total revenue for the three months ended March 31, 2008 and 2007, respectively.

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General and administrative

General and administrative expenses for the three months ended March 31, 2008 increased $110,000, or 8.3%, compared to the same period in 2007. The increase was primarily due to an increase payroll and non-cash stock based compensation expense. We expect general and administrative expenses to decrease slightly due to lower non-cash stock based compensation expense.

General and administrative expenses were 16.3% and 27.3% of total revenue for the three months ended March 31, 2008 and 2007, respectively.

Research and development

Research and development expenses for the three months ended March 31, 2008 increased $179,000, or 25.6%, compared to the same period in 2007. The increase was primarily due to a decrease in capitalized research and development expenses and an increase in amortized web site development expense. We expect research and development expenses to continue at the same level. We did not capitalize any research and development expenses during the three months ended March 31, 2008 and we amortized $77,000 during the three months ended March 31, 2008. We capitalized an additional $67,000 of research and development expenses for web site development and amortized $42,000 during the three months ended March 31, 2007.

Research and development expenses were 9.9% and 14.3% of total revenue for the three months ended March 31, 2008 and 2007, respectively.

Amortization of intangibles

Amortization of intangibles expense was $318,000 and $237,000 for the three months ended March 31, 2008 and 2007, respectively. This includes the amortization of developed technology and non-compete agreements associated with the Inspire acquisition, the amortization of purchased technology associated with the Atlocal asset purchase and the amortization of non-compete agreement and customer-related intangibles associated with the PremierGuide acquisition.

Interest and other income (expense)

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

	Three months ended
	March 31,
	2008		2007
Interest income	$	135	$	71
Interest expense		—		(103	)
Interest expense – non-cash		—		(160	)
Interest and other income (expense)	$	135	$	(192	)

Interest and other income (expense) was $135,000 and $(192,000) for the three months ended March 31, 2008 and 2007, respectively, representing an increase of $327,000. This increase was due to higher interest income as a result of more cash to invest and the elimination of interest expense related to the senior secured convertible notes.

Provision for income taxes

Provision for income taxes was $1,000 for the three months ended March 31, 2008 and 2007 respectively. This amount represents the minimum amounts required for state income taxes.

17

Liquidity and Capital Resources

Liquidity and capital resources highlights (in thousands):

	March 31,		December 31,
	2008		2007
Cash and cash equivalents	$	14,742	$	14,258
Marketable securities		—		1,999
Total cash, cash equivalents and marketable securities	$	14,742	$	16,257
Working capital	$	13,448	$	15,002

Cash flow highlights (in thousands):

	Three months ended March 31,
	2008			2007
Net cash used in operating activities	$	(1,508	)	$	(2,755	)
Net cash provided by (used in) investing activities	$	2,004		$	(100	)
Net cash (used in) provided by financing activities	$	(12	)	$	7,968

We have funded our business, to date, primarily from issuances of equity and debt securities. Cash, cash equivalents and marketable securities were $14.7 million as of March 31, 2008 and $16.3 million as of December 31, 2007. We had working capital of $13.4 million as of March 31, 2008 and $15.0 million as of December 31, 2007.

Net cash used in operations was $1.5 million and $2.8 million for the three months ended March 31, 2008 and 2007, respectively. The decrease in cash used in operations was due to a lower operating loss and an increase accounts payable partially offset by an increase in accounts receivable as a result of higher revenue.

Net cash provided by (used in) investing activities was $2.0 million and $(100,000) for the three months ended March 31, 2008 and 2007, respectively. Investing activity for the three months ended March 31, 2008 consisted of proceeds from the sale of marketing securities. Investing activity for the three months ended March 31, 2007 included capital expenditure of $100,000.

Net cash (used in) provided by financing activities was $(12,000) and $8.0 million for the three months ended March 31, 2008 and 2007, respectively. During the three months ended March 31, 2008, we raised gross proceeds of $3,000 from swing-sale profits.

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

Off-Balance Sheet Arrangements

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

New Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement No. 133, which changes the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161 requires entities to provide enhanced disclosures on how and why the entity uses derivative instruments, how derivative instruments and related hedging items are accounted for under SFAS No. 133, and how derivative instruments and related hedging items affect an entity’s financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for

18

fiscal years and interim periods beginning after November 15, 2008. We are currently analyzing the effect of adoption SFAS 161.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of March 31, 2008, we have no exposure to market risk relating to interest rate changes or foreign currency exchange rates, commodity prices, equity prices, or other changes that affect market risk sensitive instruments.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

Management’s Report on Internal Control over Financial Reporting

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

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based upon its assessment, management concluded that, as of March 31, 2008, our internal control over financial reporting was effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

None

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, 2007. 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, 2007.

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

None

Item 3. Defaults upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

None

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Item 6. Exhibits.

Exhibit
Number	Description
31.1*	Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

21

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.COM CORPORATION
May 9, 2008	/s/ Heath B. Clarke
Date	Heath B. Clarke
	Chief Executive Officer
	(principal executive officer) and Chairman
	/s/ Douglas S. Norman
	Douglas S. Norman
	Chief Financial Officer (principal financial
	and accounting officer) and Secretary

22

EXHIBITS FILED WITH THIS REPORT

Exhibit
Number	Description
31.1*	Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

23

EX-31.1

EXHIBIT 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

I, Heath B. Clarke, certify that:

1.	I have reviewed this Form 10-Q of Local.com Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2008	/s/ Heath B. Clarke
	Heath B. Clarke
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

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

I, Douglas S. Norman, certify that:

1.	I have reviewed this Form 10-Q of Local.com Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2008	/s/ Douglas S. Norman
	Douglas S. Norman
	Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 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

In connection with the Quarterly Report on Form 10-Q of Local.com Corporation (the “Company”) for the period ended March 31, 2008 (the “Report”), the undersigned hereby certify in their capacities as Chief Executive Officer and Chief Financial Officer of the Company, respectively, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2008	/s/ Heath B. Clarke
	Heath B. Clarke
	Chief Executive Officer (Principal Executive Officer)
	/s/ Douglas S. Norman
	Douglas S. Norman
	Chief Financial Officer (Principal Financial Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.