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EX-32.1 - EX-32.1 - LOCAL Corp | a58085exv32w1.htm |
EX-31.1 - EX-31.1 - LOCAL Corp | a58085exv31w1.htm |
EX-31.2 - EX-31.2 - LOCAL Corp | a58085exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - LOCAL Corp | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 June 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34197
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 Number) |
7555 Irvine Center Drive
Irvine, CA 92618
(Address of principal executive offices, including zip code)
Irvine, CA 92618
(Address of principal executive offices, including zip code)
(949) 784-0800
(Registrants telephone number, including area code)
(Registrants 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 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 o 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 þ | Non-accelerated filer o | 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
As of July 31, 2011 there were 22,001,181 shares of the registrants common stock, $0.00001
par value, outstanding.
LOCAL.COM CORPORATION
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EX-32.1 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
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Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
LOCAL.COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(in thousands, except par value)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 13,482 | $ | 13,079 | ||||
Restricted cash |
10 | | ||||||
Accounts receivable, net of allowances of $294 and $297, respectively |
10,981 | 11,912 | ||||||
Notes receivable current
portion |
749 | 249 | ||||||
Prepaid expenses and other current assets |
913 | 1,454 | ||||||
Total current assets |
26,135 | 26,694 | ||||||
Property and equipment, net |
7,792 | 7,119 | ||||||
Goodwill |
20,340 | 17,339 | ||||||
Intangible assets, net |
10,585 | 8,989 | ||||||
Long-term portion of note recievable |
637 | 751 | ||||||
Deposits |
57 | 52 | ||||||
Total assets |
$ | 65,546 | $ | 60,944 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 8,047 | $ | 7,626 | ||||
Accrued compensation |
2,118 | 1,906 | ||||||
Deferred rent |
602 | 641 | ||||||
Warrant liability |
870 | 2,840 | ||||||
Other accrued liabilities |
525 | 651 | ||||||
Revolving line of credit |
| 7,000 | ||||||
Deferred revenue |
381 | 699 | ||||||
Total current liabilities |
12,543 | 21,363 | ||||||
Deferred income taxes |
188 | 188 | ||||||
Total liabilities |
12,731 | 21,551 | ||||||
Commitments and contingencies |
||||||||
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 21,274 and 16,584, respectively |
| | ||||||
Additional paid-in capital |
114,338 | 94,194 | ||||||
Accumulated deficit |
(61,523 | ) | (54,801 | ) | ||||
Stockholders equity |
52,815 | 39,393 | ||||||
Total liabilities and stockholders equity |
$ | 65,546 | $ | 60,944 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
LOCAL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
$ | 15,584 | $ | 23,004 | $ | 32,379 | $ | 41,635 | ||||||||
Operating Expenses: |
||||||||||||||||
Cost of revenues |
10,812 | 13,176 | 21,800 | 23,978 | ||||||||||||
Sales and marketing |
4,646 | 3,945 | 7,928 | 7,043 | ||||||||||||
General and administrative |
3,291 | 2,209 | 5,901 | 4,123 | ||||||||||||
Research and development |
1,359 | 1,142 | 2,887 | 2,254 | ||||||||||||
Amortization of intangibles |
1,210 | 1,454 | 2,408 | 2,684 | ||||||||||||
Total operating expenses |
21,318 | 21,926 | 40,924 | 40,082 | ||||||||||||
Operating income (loss) |
(5,734 | ) | 1,078 | (8,545 | ) | 1,553 | ||||||||||
Interest and other income (expense), net |
(30 | ) | (61 | ) | (85 | ) | (117 | ) | ||||||||
Change in fair value of warrant liability |
411 | 335 | 1,970 | 63 | ||||||||||||
Income (loss) before income taxes |
(5,353 | ) | 1,352 | (6,660 | ) | 1,499 | ||||||||||
Provision for income taxes |
51 | 122 | 62 | 135 | ||||||||||||
Net income (loss) |
$ | (5,404 | ) | $ | 1,230 | $ | (6,722 | ) | $ | 1,364 | ||||||
Per share data: |
||||||||||||||||
Basic net income (loss) per share |
$ | (0.25 | ) | $ | 0.08 | $ | (0.32 | ) | $ | 0.09 | ||||||
Diluted net income (loss) per share |
$ | (0.25 | ) | $ | 0.07 | $ | (0.32 | ) | $ | 0.08 | ||||||
Basic weighted average shares outstanding |
21,254 | 15,989 | 20,750 | 15,301 | ||||||||||||
Diluted weighted average shares outstanding |
21,254 | 17,342 | 20,750 | 16,498 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
LOCAL.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
(in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (6,722 | ) | $ | 1,364 | |||
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
3,760 | 3,189 | ||||||
Provision for doubtful accounts |
| 85 | ||||||
Stock-based compensation expense |
1,992 | 1,284 | ||||||
Change in fair value of warrant liability |
(1,970 | ) | (63 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
1,191 | (7,069 | ) | |||||
Note receivable |
114 | | ||||||
Prepaid expenses and other |
554 | (178 | ) | |||||
Accounts payable and accrued liabilities |
63 | 3,181 | ||||||
Deferred revenue |
(398 | ) | 30 | |||||
Net cash (used in) provided by operating activities |
(1,416 | ) | 1,823 | |||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(2,013 | ) | (1,715 | ) | ||||
Issuance of notes receivable |
(1,085 | ) | | |||||
Proceeds from notes receivable |
585 | | ||||||
Acquisitions, net of cash acquired |
(6,217 | ) | | |||||
Purchases of intangible assets |
(554 | ) | (3,887 | ) | ||||
Net cash used in investing activities |
(9,284 | ) | (5,602 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from the exercise of warrants |
| 6,974 | ||||||
Proceeds from the exercise of options |
158 | 1,784 | ||||||
Proceeds from the public offering of common stock |
18,227 | | ||||||
Payment of revolving credit facility |
(7,000 | ) | (3,000 | ) | ||||
Proceeds from revolving credit facility |
| 3,000 | ||||||
Payment of financing related costs |
(282 | ) | (10 | ) | ||||
Net cash provided by financing activities |
11,103 | 8,748 | ||||||
Net increase in cash and cash equivalents |
403 | 4,969 | ||||||
Cash and cash equivalents, beginning of the period |
13,079 | 10,080 | ||||||
Cash and cash equivalents, end of the period |
$ | 13,482 | $ | 15,049 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 64 | $ | 381 | ||||
Income taxes paid |
$ | 11 | $ | 206 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
LOCAL.COM CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
1. The Company and Summary of Significant Accounting Policies
Nature of operations
We are a local media advertising company that enables local businesses and consumers to find each
other and connect. We operate online businesses that collectively reach over 20 million monthly
unique visitors across over 100,000 websites, and we serve over 35,000 small business customers
with a variety of web hosting and local online advertising products. Our Owned & Operated business
unit (O&O) manages our flagship property, Local.com, our newly acquired shopping content provider
Krillion.com, and a proprietary network of over 20,000 local websites, which collectively reaches
over 15 million monthly unique visitors. Our Network business unit (Network) operates (i) a
leading private label local syndication network of over 1,000 U.S. regional media websites, (ii)
80,000 third-party local websites, and (iii) our own organic feed of local businesses plus
third-party advertising feeds, both of which are focused primarily on local consumers, to a
distribution network of hundreds of websites. Our Sales & Ad Services business unit (SAS) sells
and supports products directly to small businesses. These products include our ExactMatch product
suite; our Local Premium direct listing products and our Rovion rich media display advertising
products. We also provide over 35,000 direct monthly subscribers with web hosting or web listing
products. We use patented and proprietary search 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. In May 2011, the Company officially launched
Spreebird, the Companys new daily deal service, website and brand. Spreebird represents the
Companys new Social Buying business unit (Social Buying). In July 2011, the Company acquired a
daily deals business, Screamin Media Group, Inc. (SMG) as part of its efforts to expand its
social buying business. SMG is currently active in 14 markets located in California, Utah and
Illinois.
Principles of consolidation and basis of presentation
Our consolidated financial statements include the accounts of Local.com Corporation and its
wholly-owned subsidiaries, Local.com PG Acquisition Corporation and Krillion, Inc.. All
intercompany balances and transactions were eliminated. In April 2010, Local.com PG Acquisition
Corporation merged with and into Local.com Corporation and the separate corporate entity of
Local.com PG Acquisition Corporation ceased to exist. We have evaluated all subsequent events
through the date the consolidated financial statements were issued.
The unaudited interim condensed consolidated financial statements as of June 30, 2011, and for the
three and six months ended June 30, 2011 and 2010, included herein, have been prepared by us,
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 and six months ended June 30, 2011, 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, 2010, included in our Form 10-K/A filed with the
Securities and Exchange Commission on April 29, 2011.
Use of estimates
The preparation of 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. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Our financial instruments consist principally of cash and cash equivalents, accounts receivable,
long and short term notes receivable, revolving line of credit and accounts payable. The fair value
of our cash equivalents is determined based on Level 1 inputs, which consist of quoted prices in
active markets for identical assets. 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 market
related and therefore the carrying value also approximates its fair value. We believe that the
recorded values of all of our other financial instruments approximate their current fair values
because of their nature and respective relatively short maturity dates or durations.
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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 we expect 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.
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 June 30, 2011, no portion of the note receivable balance was past due. The note receivable is
secured by the domain names sold to the customer.
During 2011 the Company also loaned Digital Post Interactive, Inc., a Nevada corporation
(DGLP) a total of $485,000 pursuant to seven separate short term promissory notes. The Company
entered into an asset purchase agreement with DGLP by which the Company acquired substantially all
of the assets of Rovion, Inc. (Rovion) a wholly-owned subsidiary of DGLP. As part of the asset
purchase agreement, cash paid by the Company for the acquisition of assets was used to repay the
promissory notes in full. No interest was collected on these notes. During the second quarter 2011
the Company also loaned Krillion, Inc. (Krillion) a total of $100,000 pursuant to a short term
promissory note. Subsequently, the Company entered into a stock purchase agreement with Krillion
for the acquisition of all of the outstanding stock of Krillion. As part of the stock purchase
agreement, cash paid by the Company for the acquisition of the stock was used to repay the
promissory note in full. No interest was collected on the note. Also during the second quarter
2011, the Company loaned Screamin Media Group, Inc. (SMG) $500,000 pursuant to a short term
promissory note. On July 8, 2011, the Company entered into a merger agreement with SMG pursuant to
which a wholly owned subsidiary of the Company formed for purposes of effecting the merger and was
merged with and into SMG and SMG became a wholly owned subsidiary of the Company. As part of the
merger agreement, cash paid by the Company as consideration to the SMG stockholders in the merger
was used to repay the promissory note in full on August 3, 2011.
3. Intangible assets
Intangible assets, net, consisted of the following (in thousands):
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
Gross | Net | Weighted | Gross | Net | Weighted | |||||||||||||||||||||||||||
Carrying | Accumulated | Carrying | Average | Carrying | Accumulated | Carrying | Average | |||||||||||||||||||||||||
Amount | Amortization | Amount | Useful Life | Amount | Amortization | Amount | Useful Life | |||||||||||||||||||||||||
(years) | (years) | |||||||||||||||||||||||||||||||
Developed technology |
$ | 6,808 | $ | (2,832 | ) | $ | 3,976 | 4 | $ | 3,933 | $ | (2,446 | ) | $ | 1,487 | 4 | ||||||||||||||||
Non-compete agreements |
98 | (39 | ) | 59 | 2 | 83 | (25 | ) | 58 | 2 | ||||||||||||||||||||||
Customer-related |
13,653 | (9,460 | ) | 4,193 | 4 | 12,939 | (7,534 | ) | 5,405 | 4 | ||||||||||||||||||||||
Patents |
431 | (431 | ) | | 3 | 431 | (431 | ) | | 3 | ||||||||||||||||||||||
Domain names indefinite life |
1,601 | | 1,601 | 1,601 | | 1,601 | ||||||||||||||||||||||||||
Trademarks and Trade Name |
900 | (144 | ) | 756 | 4 | 500 | (62 | ) | 438 | 4 | ||||||||||||||||||||||
$ | 23,491 | $ | (12,906 | ) | $ | 10,585 | $ | 19,487 | $ | (10,498 | ) | $ | 8,989 | |||||||||||||||||||
On May 31, 2011, we acquired approximately 4,617 website hosting accounts for $554,040 in cash
from LaRoss Partners, LLC (LaRoss). The acquisition was part of a requirement to purchase
additional subscriber bases, provided in a previously executed sales and services agreement with
LaRoss dated July 2010. LaRoss will provide ongoing billing services and hosting of the sites. The
purchase price will be amortized over four years based on how we expect the customer relationships
to contribute to future cash flows.
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4. Acquisitions
iTwango LLC Asset Purchase
On January 1, 2011, the Company entered into an asset purchase agreement for the purchase of all
the assets of iTwango. The assets acquired consisted of an early stage group-buying technology
platform that allows advertisers to submit discounted offers to consumers who receive those
geo-targeted offers daily via email and various other sources. The Company made an initial payment
of $300,000 and issued a total of 7,639 shares, worth approximately $50,000, for the assets. The
initial agreement included certain earnout provisions for additional payments of up to $100,000.
The Company made an initial earnout payment of $10,000 in January 2011. On February 25, 2011, the
Company entered into a modification and release agreement whereby the Company made an additional
payment of $90,000 in exchange for the release of any future liability to the Company as it relates
to the earnout payments noted in the original asset purchase agreement. The assets acquired are
being used in the Companys new social buying business unit. As a result of this transaction, the
Company recognized approximately $450,000 of amortizable intangible assets.
Krillion, Inc. Stock Purchase
On April 29, 2011, the Company entered into a Stock Purchase Agreement (SPA) with Krillion, Inc.,
a Delaware corporation, with all of the stockholders of Krillion and the stockholders agent to
purchase all of the outstanding shares of Krillion for an aggregate purchase price of $3.5 million
in cash. The transaction was funded from the Companys cash on hand. The purchase price was
subject to working capital adjustments as outlined in the SPA. The Company entered into three
separate employee agreements with former employees of Krillion. The employee agreements provides
for retention bonuses, contingent upon continued employment with the Company, totaling $750,000
over a period of approximately two years. We evaluated the fair value of the acquisitions total
consideration, and determined that there is no contingent consideration relating to the
acquisition.
Krillion provides consumers and its business partners real-time information on where specific
branded products are sold, and which retailer, at a particular retail location, has them in stock.
Krillion aggregates and structures consumer product information in real time, to create an
up-to-the-minute index of products across various brands, at various retailer locations in multiple
cities across the United States. Krillion further provides the following products and services:
| patent-pending local product search platform, the Krillion Localization Engine that helps connect customers with in-stock products at local retailers; | ||
| real-time StockCheck tool that enables web-savvy shoppers to find, compare and buy products at particular retail locations near them; | ||
| the ability for consumers to take advantage of in-store pickup and other convenience services offered by multichannel retailers and; | ||
| local product information that is available as a data service that powers the websites and applications of manufacturers and content providers, mobile providers and applications, and rich media for marketers. |
The Company, Krillion and the Krillion stockholders also agreed to establish a $1.0 million escrow
fund to secure the Companys rights to seek indemnification under the SPA, as well as any
adjustment to the purchase price that might be required. The escrow fund will terminate the day on
or after all the funds have been paid out of the escrow fund.
The allocation of the purchase price of the assets acquired and liabilities assumed based on their
fair values was as follows (in thousands):
Developed technology |
$ | 1,570 | ||
Trademark and tradenames |
200 | |||
Customer-related intangibles |
10 | |||
Goodwill |
1,862 | |||
Other assets received |
125 | |||
Liabilities assumed |
(266 | ) | ||
Total |
$ | 3,501 | ||
Purchased identifiable intangible assets are amortized on a straight-line basis over the respective
useful lives. Our estimated useful life of the identifiable intangible assets acquired is four
years for the developed technology, trademark and tradenames,
and customer-related intangibles. We recognized goodwill of $1.9 million. Goodwill is recognized as
we expect to be able to realize synergies between the two companies, primarily our ability to
provide distribution and reach for the Krillion products
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and services to a broad base of customers
using the Companys current distribution channels. We also consider the assembled workforce as a
component of goodwill. Goodwill is expected to be deductible for tax purposes.
Rovion Asset Purchase
On April 4, 2011, the Company entered into an Asset Purchase Agreement (APA) with DGLP and
Rovion, pursuant to which the Company acquired substantially all of the assets of Rovion on May 5,
2011. The purchase of the Rovion assets was completed following the satisfaction of all closing
conditions, including approval by the bankruptcy court hearing the bankruptcy proceeding of Rovion.
In accordance with the terms of the APA, the Company paid DGLP and Rovion $2,196,000 net of
$485,000 in loans owed by DGLP. The transaction was funded from the Companys cash on hand. The
Company entered into five separate employee agreements with former employees of DGLP and Rovion.
The employee agreements provide for retention bonuses, contingent upon continued employment with
the Company, totaling $1.5 million over a period of approximately two years. We evaluated the fair
value of the acquisitions total consideration, and determined that there is no contingent
consideration relating to the acquisition. The assets acquired include:
| a rich media advertising platform, which allows for the sale, creation, delivery and tracking of animated and video-based ads for both national and local advertisers, including In-Person the online video spokesperson, as well as virtually all other forms of rich media advertisements; | ||
| a rich media advertising toolset, known as the Rovion Ad Management Platform (RAMP), targeted to local media publishers and medium to small ad agencies, which allows for self-service rich media ad creation by professional media developers and novices alike, and subsequently enables the delivery, tracking and reporting of all ad activity through the RAMP control panel; | ||
| a workflow/tracking toolset that facilitates the schedules and tracking of In-Person ad requests, scheduling of actors and studios and the approval of scripts; and | ||
| two professional quality green-screen studios and a network of relationships for access to additional professional quality green-screen studios throughout the United States. |
The allocation of the purchase price of the assets acquired and liabilities assumed based on their
fair values was as follows (in thousands):
Developed technology |
$ | 750 | ||
Trademark and tradenames |
200 | |||
Customer-related intangibles |
150 | |||
Goodwill |
1,139 | |||
Other assets received |
176 | |||
Liabilities assumed |
(219 | ) | ||
Total |
$ | 2,196 | ||
Purchased identifiable intangible assets are amortized on a straight-line basis over the respective
useful lives. Our estimated useful life of the identifiable intangible assets acquired is three
years for the developed technology and trademark and tradenames and one year for customer-related
intangibles. We recognized goodwill of $1.1 million. Goodwill is recognized as we expect to be able
to realize synergies between the two companies, primarily through our ability to utilize the
Companys current media relationships and sales channel reach to distribute and sell the rich media
advertising platform and toolset. We also consider the assembled workforce as a component of
goodwill. Goodwill is expected to be deductible for tax purposes.
The Company incurred a minimal amount of legal, accounting and other professional fees related to
these acquisitions, of which all were expensed. The operations of the acquisitions are not
considered significant in relation to the condensed consolidated financial statements taken as a
whole and therefore no pro-forma financial information is presented. The results of operations for
the new acquisitions are included in the condensed consolidated financial statements from the date
of acquisition. It is impracticable to provide their revenue and earnings from the date of
acquisition as the products, services and technology platforms are incorporated into the operations
and results of our current business units and the combined results of operations related for these
acquisitions are not tracked in separate reporting units.
5. 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. We perform annual impairment reviews during the fourth
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fiscal quarter of each year or earlier if indicators of potential impairment exist. For
goodwill, we engage an independent appraiser to assist management in the determination of the fair
value of our reporting unit and compare the resulting fair value to the carrying value of the
reporting unit to determine if there is goodwill impairment. For other intangible assets with
indefinite lives, we compare the fair value of related assets to the carrying value to determine if
there is impairment. For other intangible assets with definite lives, 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. We performed our annual
impairment analysis for our indefinite lived intangible assets, as of December 31, 2010, and
determined that the estimated fair value of the reporting unit substantially exceeded its carrying
value and therefore no impairment existed. Future impairment reviews may result in charges against
earnings to write-down the value of intangible assets.
6. Website development costs and computer software developed for internal use
U.S. GAAP requires 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 website
development be expensed as incurred and that certain costs incurred in the development stage of
website development be capitalized and amortized over its useful life. Capitalized website costs
are included in property and equipment, net.
The following table sets forth the additional capitalized website development costs and the
amortization of capitalized website development costs for the period indicated (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Additional capitalized website development costs |
$ | 834 | $ | 737 | $ | 1,732 | $ | 949 | ||||||||
Amortization of capitalized website development costs |
$ | (425 | ) | $ | (115 | ) | $ | (806 | ) | $ | (229 | ) |
7. 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.
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 June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | (5,404 | ) | $ | 1,230 | $ | (6,722 | ) | $ | 1,364 | ||||||
Denominator: |
||||||||||||||||
Denominator for historical basic calculation weighted average shares |
21,254 | 15,989 | 20,750 | 15,301 | ||||||||||||
Dilutive common stock equivalents:* |
||||||||||||||||
Options |
| 1,263 | | 1,128 | ||||||||||||
Warrants |
| 90 | | 69 | ||||||||||||
Denominator for historical diluted calculation weighted average shares. |
21,254 | 17,342 | 20,750 | 16,498 | ||||||||||||
Net income (loss) per share: |
||||||||||||||||
Historical basic net income (loss) per share |
$ | (0.25 | ) | $ | 0.08 | $ | (0.32 | ) | $ | 0.09 | ||||||
Historical diluted net income (loss) per share |
$ | (0.25 | ) | $ | 0.07 | $ | (0.32 | ) | $ | 0.08 | ||||||
* | For the three and six months ended June 30, 2011, potentially dilutive securities, which consist of options to purchase 4,257,792 shares of common stock at prices ranging from $1.41 to $16.59 per share and warrants to purchase 1,477,936 shares of common stock at prices ranging from $4.32 to $8.09 per share were not included in the computation of diluted net income per share because such inclusion would be antidilutive. |
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8. Property and equipment
Property and equipment, net, consisted of the following (in thousands):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Furniture and fixtures |
$ | 892 | $ | 835 | ||||
Office equipment |
417 | 397 | ||||||
Computer equipment |
3,036 | 2,737 | ||||||
Computer software |
7,891 | 6,249 | ||||||
Leasehold improvements |
893 | 886 | ||||||
13,129 | 11,104 | |||||||
Less accumulated depreciation and amortization |
(5,337 | ) | (3,985 | ) | ||||
Property and equipment, net |
$ | 7,792 | $ | 7,119 | ||||
9. Interest and other income, net
Interest and other income (expense), net, consisted of the following (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest income |
$ | 15 | $ | 6 | $ | 32 | $ | 12 | ||||||||
Interest expense |
(45 | ) | (67 | ) | (117 | ) | (129 | ) | ||||||||
Interest and other income (expense), net |
$ | (30 | ) | $ | (61 | ) | $ | (85 | ) | $ | (117 | ) | ||||
10. Credit facilities
On August 3, 2011, we entered into a Loan and Security Agreement (the Security Agreement) with
Square 1 Bank. The Security Agreement provides us with a revolving credit facility of up to $12
million (the Facility). Subject to the terms of the Security 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 Security Agreement (the Formula Revolving Line).
Notwithstanding the foregoing, we may advance up to $3 million from the Facility at any time,
irrespective of our borrowing base (the Non-Formula Revolving Line), provided that total advances
under the Facility will not exceed $12 million and we are otherwise in compliance with the terms of
the Security Agreement. The Facility expires on August 3, 2013.
All amounts borrowed under the Facility are secured by a general security interest on our assets,
except for our intellectual property, which we have instead agreed to remain unencumbered during
the term of the Security Agreement.
Except as otherwise set forth in the Security 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 1 Bank) plus 2.0%. In connection with establishing the Facility, we
incurred fees payable to Square 1 Bank of approximately $10,000. 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 Security 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 Security 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 1 Bank has certain rights and
remedies under the Security 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 of 1.25 to 1, which is defined as cash on hand plus the most
recently reported borrowing base divided by outstanding bank debt, and (ii) certain Adjusted EBITDA covenants, as more particularly described
in the Security Agreement (such
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Adjusted EBITDA amounts are for financial covenant purposes only, and do not
represent projections of the Companys financial results).
In connection with the anticipated closing of the Security Agreement, on July 29, 2011 we cancelled
our Loan and Security Agreement (the LSA) with Silicon Valley Bank (SVB) which provided us with
a revolving credit facility of up to $30.0 million (the Revolving Line) , which we entered into
on June 28, 2010.
The LSA allowed us to choose whether borrowings made from the Revolving Line bear would interest
either at the prime rate announced from time to time by SVB or the prime rate plus 0.5% or 1%, or
at LIBOR plus 2%, 2.5% or 3%, depending in the case of both prime rate and LIBOR rate borrowings on
whether our leverage ratio was less than one, at least one and not greater than two, or greater
than two. The leverage ratio was our consolidated funded indebtedness to our consolidated EBITDA
for the twelve months ending on the date of determination.
Our ability to borrow under the Revolving Line was subject to various conditions precedent,
described in further detail in the LSA. Some of these conditions were subject to SVBs judgment in
its sole discretion as to specified matters such as whether or not there had been any material
impairment in our results of operation or financial condition. The LSA contained customary
representations, warranties, and affirmative and negative covenants for facilities of this type,
including certain restrictions on dispositions of our assets, changes in business, change in
control, mergers and acquisitions, payment of dividends, and incurrence of certain indebtedness and
encumbrances. The LSA also contained customary events of default, including payment defaults and a
breach of representations and warranties and covenants.
Under the LSA, we were required to meet certain financial covenants, including maintaining a
minimum adjusted quick ratio of 1.25 to 1, which was a ratio of our unrestricted cash and cash
equivalents plus net billed accounts receivable and investments that mature in fewer than 12 months
to our then current liabilities minus deferred revenue, warrant liability and plus 25% of any
outstanding credit extensions under the Revolving Line. We were also required to maintain a
Leverage Ratio of not greater than 2.5 at the end of each fiscal quarter through June 30, 2012, and
2.0 at the end of each fiscal quarter thereafter. In addition, our quarterly adjusted EBITDA was
required to equal at least $1,000,000. As of June 30, 2011 we had no balance outstanding on the
revolving line of credit and therefore such financial covenants were not applicable. The Companys
results for the second quarter of 2011 were such that the Company did not satisfy the quarterly
EBITDA requirement of $1,000,000 under the Revolving Line. As such, we did not have any funds
available under the Revolving Line at the end of the second quarter of 2011.
We paid a facility fee of $75,000 to SVB on June 28, 2010, pursuant to the LSA. Additionally, there
was an annual facility fee of 0.25% of the unused portion of the Revolving Line, calculated as
specified in the LSA. In addition, we paid $225,000 in professional fees related to closing the
LSA.
During the first quarter of 2011, the Company repaid the total amount outstanding of $7 million on
the Revolving Line.
11. Operating information
U.S. GAAP regarding disclosures about segments of an enterprise requires that public business
enterprises report entity-wide disclosures. Although we have aligned our operations primarily into
three business units, all of our business units meet the criteria for aggregation into one
reporting segment: paid-search. The following table presents summary operating geographic and
product information as required by the entity-wide disclosure requirements (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue by geographic region: |
||||||||||||||||
United States |
$ | 15,584 | $ | 23,004 | $ | 32,379 | $ | 41,635 | ||||||||
Revenue by product: |
||||||||||||||||
Pay-Per-Click (PPC) |
11,660 | 17,601 | $ | 24,087 | $ | 32,398 | ||||||||||
Subscription Advertising Products |
857 | 1,901 | 1,820 | 3,455 | ||||||||||||
Domain Sales and Services |
1,447 | 2,052 | 3,320 | 3,225 | ||||||||||||
Display and Banner Advertising Services |
1,620 | 1,442 | 3,152 | 2,537 | ||||||||||||
Local Connect (License) |
| 8 | | 20 | ||||||||||||
Total revenue |
$ | 15,584 | $ | 23,004 | $ | 32,379 | $ | 41,635 | ||||||||
12. Stock-based compensation
Stock option activity under the equity incentive plans during the six months ended June 30, 2011,
was as follows:
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Weighted | Aggregate | |||||||||||
Average | Intrinsic Value | |||||||||||
Shares | Exercise Price | (in thousands) | ||||||||||
Outstanding at December 31, 2010 |
4,037,768 | $ | 5.02 | |||||||||
Granted |
814,050 | 3.97 | ||||||||||
Exercised |
(81,836 | ) | 1.93 | |||||||||
Cancelled |
(512,190 | ) | 5.50 | |||||||||
Outstanding at June 30, 2011 |
4,257,792 | $ | 4.82 | $ | 752 | |||||||
Exercisable at June 30, 2011 |
2,165,452 | $ | 5.08 | $ | 562 | |||||||
The weighted-average fair value at grant date for the options granted during the six months ended
June 30, 2011 and 2010 was $2.73 and $5.71 per option, respectively.
The aggregate intrinsic value of all options exercised during the six months ended June 30, 2011
and 2010, was $193,000 and $2.1 million, respectively.
The following table summarizes information regarding options outstanding and exercisable at June
30, 2011:
Options Outstanding | ||||||||||||||||||||
Weighted | Options Exercisable | |||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||
Contractual | Exercise | Exercise | ||||||||||||||||||
Range of Exercise Prices | Shares | Life | Price | Shares | Price | |||||||||||||||
$0.00 - $2.00 |
363,608 | 6.0 years | $ | 1.57 | 286,723 | $ | 1.57 | |||||||||||||
$2.01 - $3.00 |
98,462 | 7.2 years | 2.30 | 48,565 | 2.30 | |||||||||||||||
$3.01 - $4.00 |
1,153,226 | 7.4 years | 3.63 | 470,903 | 3.72 | |||||||||||||||
$4.01 - $5.00 |
1,262,156 | 7.3 years | 4.61 | 663,986 | 4.67 | |||||||||||||||
$5.01 - $6.00 |
271,400 | 7.1 years | 5.50 | 158,974 | 5.63 | |||||||||||||||
$6.01 - $7.00 |
682,237 | 8.8 years | 6.16 | 137,436 | 6.39 | |||||||||||||||
$7.01 - $8.00 |
221,862 | 4.8 years | 7.49 | 200,692 | 7.50 | |||||||||||||||
$8.01 - $9.00 |
106,665 | 3.2 years | 8.67 | 99,997 | 8.68 | |||||||||||||||
$9.01 - $10.00 |
15,000 | 3.9 years | 9.90 | 15,000 | 9.90 | |||||||||||||||
$10.01 - $16.59 |
83,176 | 2.9 years | 15.62 | 83,176 | 15.62 | |||||||||||||||
4,257,792 | 7.1 years | $ | 4.82 | 2,165,452 | $ | 5.08 | ||||||||||||||
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 June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Risk-free interest rate |
1.88 | % | 2.43 | % | 1.92 | % | 2.69 | % | ||||||||
Expected lives (in years) |
5.2 years | 5.4 years | 5.2 years | 5.9 years | ||||||||||||
Expected dividend yield |
None | None | None | None | ||||||||||||
Expected volatility |
85.35 | % | 92.63 | % | 85.35 | % | 94.88 | % |
Total stock-based compensation expense recognized for the three and six months ended June 30,
2011 and 2010 was as follows (in thousands, except per share amount):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of revenues |
$ | 66 | $ | 65 | $ | 153 | $ | 85 | ||||||||
Sales and marketing |
359 | 161 | 678 | 318 | ||||||||||||
General and administrative |
489 | 285 | 936 | 585 | ||||||||||||
Research and development |
106 | 149 | 225 | 296 | ||||||||||||
Total stock-based compensation expense |
$ | 1,020 | $ | 660 | $ | 1,992 | $ | 1,284 | ||||||||
Basic and diluted net stock-based compensation expense per share |
$ | 0.05 | $ | 0.04 | $ | 0.10 | $ | 0.08 | ||||||||
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13. Stock repurchase program
On August 4, 2010, our Board of Directors approved a stock repurchase program of up to $2.0 million
of Local.com Corporation common stock. The share repurchase program was authorized for 12 months
and authorized us to repurchase shares from time to time through open market or privately
negotiated transactions. The number of shares purchased and the timing of the purchases will be
based on market conditions, share price and other factors. The stock repurchase program did not
require us to repurchase any specific dollar value or number of shares. During the year ended
December 31, 2010, we repurchased 270,400 shares of common stock at an average price of $4.52 per
share and an aggregate purchase price of approximately $1.2 million. During the quarter ended March
31, 2011, the board of directors terminated the stock repurchase plan.
14. Warrants
On January 20, 2011, in connection with the completion of the offer and sale to the underwriter of
4,600,000 shares of common stock and in accordance with the anti-dilution provisions contained in
each of the warrants to purchase up to 537,373 shares of common stock at an exercise price of $7.89
per share that were issued in a private placement transaction on August 1, 2007 (the Series A
Warrants) and the warrants to purchase up to 537,373 shares of common stock at an exercise price
of $9.26 per share that were issued in the same private placement transaction on August 1, 2007
(the Series B Warrants), the exercise price of the Series A Warrants and the Series B Warrants
was reduced to $7.02 per share and $8.09 per share, respectively, and the Company issued an
additional 66,207 Series A Warrants at an exercise price of $7.02 per share, which are immediately
exercisable (the New Series A Warrants), and an additional 77,707 Series B Warrants at an
exercise price of $8.09 per share, which are immediately exercisable (the New Series B Warrants
and together with the New Series A Warrants, the New Warrants). The Series A Warrants and the
Series B Warrants are exercisable until February 1, 2013, and February 3, 2014, respectively, and
the New Series A Warrants and the New Series B Warrants are exercisable until February 1, 2013, and
February 3, 2014, respectively.
Warrant activity for the six months ended June 30, 2011, was as follows:
Weighted | ||||||||
Average | ||||||||
Shares | Exercise Price | |||||||
Outstanding at December 31, 2010 |
1,334,022 | $ | 7.88 | |||||
Issued |
143,914 | 7.60 | ||||||
Exercised |
| | ||||||
Expired |
| | ||||||
Outstanding at June 30, 2011 |
1,477,936 | $ | 7.11 | |||||
Exercisable at June 30, 2011 |
1,477,936 | $ | 7.11 | |||||
The following table summarizes information regarding warrants outstanding and exercisable at June
30, 2011:
Warrants Outstanding and Exercisable | ||||||||||||
Average | ||||||||||||
Remaining | Weighted | |||||||||||
Contractual | Average | |||||||||||
Range of Exercise Price | Shares | Life | Exercise Price | |||||||||
$4.00 - $4.99 |
129,638 | 0.7 years | $ | 4.60 | ||||||||
$5.00 - $5.99 |
129,638 | 0.7 years | 5.41 | |||||||||
$7.00 - $7.99 |
603,580 | 1.6 years | 7.02 | |||||||||
$9.00 - $9.99 |
615,080 | 2.6 years | 8.09 | |||||||||
1,477,936 | 1.8 years | $ | 7.11 | |||||||||
15. Fair Value Measurement of Assets and Liabilities
The following table summarizes our financial assets and liabilities measured at fair value on a
recurring basis as of June 30, 2011 (in thousands):
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Quoted Prices in | ||||||||||||
As of | Active Markets | Significant | ||||||||||
June 30, | for Identical | Unobservable | ||||||||||
Description | 2011 | Assets (Level 1) | Inputs (Level 3) | |||||||||
Assets: |
||||||||||||
Cash and cash equivalents: |
||||||||||||
Bank deposits and money market funds |
$ | 13,482 | $ | 13,482 | $ | | ||||||
Total financial assets |
$ | 13,482 | $ | 13,482 | $ | | ||||||
Liabilities: |
||||||||||||
Warrant liability |
$ | 870 | $ | | $ | 870 | ||||||
The following table summarizes our financial assets and liabilities measured at fair value on
a recurring basis as of December 31, 2010 (in thousands):
Quoted Prices in | ||||||||||||
As of | Active Markets | Significant | ||||||||||
December 31, | for Identical | Unobservable | ||||||||||
Description | 2010 | Assets (Level 1) | Inputs (Level 3) | |||||||||
Assets: |
||||||||||||
Cash and cash equivalents: |
||||||||||||
Bank deposits and money market funds |
$ | 13,079 | $ | 13,079 | $ | | ||||||
Total financial assets |
$ | 13,079 | $ | 13,079 | $ | | ||||||
Liabilities: |
||||||||||||
Warrant liability |
$ | 2,840 | $ | | $ | 2,840 | ||||||
Our financial assets are valued using market prices on active markets (Level 1) obtained from
real-time quotes for transactions in active exchange markets involving identical assets. As of June
30, 2011, our warrant liability was based on measurement at fair value without observable market
values that required a high level of judgment to determine fair value (Level 3) using pricing
models that take into account the contract terms as well as multiple inputs where applicable, such
as our stock price, risk-free interest rates and expected volatility.
The fair value of the warrant liability was estimated at June 30, 2011 grant using a Black-Scholes
option pricing model with the following assumptions:
Exercise Price of Related Warrants | ||||||||
$8.09 | $7.02 | |||||||
Risk-free interest rate |
0.81 | % | 0.45 | % | ||||
Expected lives (in years) |
2.6 years | 1.6 years | ||||||
Expected dividend yield |
None | None | ||||||
Expected volatility |
81.09 | % | 73.99 | % |
The following table presents a reconciliation for our warrant liability measured and recorded
at fair value on a recurring basis, using significant unobservable inputs (Level 3) (in thousands):
Level 3 | ||||
Balance at December 31, 2010 |
$ | 2,840 | ||
Change in fair value of warrant liability |
(1,970 | ) | ||
Balance at June 30, 2011 |
$ | 870 | ||
16. Subsequent Events
Effective July 9, 2011, we acquired Screamin Media Group, Inc., a Delaware corporation, following
our execution on July 8, 2011, of an Agreement and Plan of Merger (the Merger Agreement) by and
among the Company, Screamin Media Group, Inc, Agile Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of the Company (Subcorp), and
15
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Dan Griffith, as Stockholders Agent (the Stockholders Agent) pursuant to which Subcorp was merged with and into SMG and SMG became
our wholly-owned subsidiary (the Merger). As consideration for the Merger, we paid upfront
consideration of $5,000,000 in cash, 727,360 shares of Local.com common stock, $0.00001 par value
(the Shares), and $5,000,000 in secured promissory notes (the Notes) bearing interest at 10%
per annum for all amounts outstanding subsequent to August 1, 2011, subject to adjustment as
described below (collectively, the Merger Consideration). As of the date of this report all of
the Notes have been repaid in full. The cash portion of the Merger Consideration payable to the SMG
Stockholders will be reduced by $862,500 to repay certain debt obligations of SMG immediately
following the closing. The Shares actually issued were reduced to whole share amounts and all
fractional shares converted to cash at approximately $3.437 per share, which is the twenty day
trailing average close price of the Shares prior to July 7, 2011. The aggregate amount of Notes
issued will be reduced by up to $2,378,000, including $500,000 to repay a promissory note issued by
SMG and held by us and up to $1,878,000 to establish an escrow fund for indemnification claims
asserted by us against SMG consistent with the terms of the Merger Agreement (the Escrow Fund).
The cash portion of the Merger Consideration was funded from our cash on hand. Allocation of the
purchase price will be determined based on fair market valuation of the net assets acquired.
SMG has approximately 60 employees serving hundreds of thousands of subscribers with deals from
thousands of local merchants in 14 markets throughout the U.S. including Los Angeles, Orange
County, Salt Lake City and San Diego. SMG also recently launched travel deals. SMG supports local
communities with its school rewards program, which allows consumers to donate ten percent of SMGs
net proceeds from each deal to a school or non-profit organization chosen by the consumer. More
than 700 local schools and non-profits currently benefit from this community program.
Subject to meeting certain additional financial performance milestones throughout the two year
period beginning July 1, 2011, as more particularly described in the Merger Agreement, the SMG
Stockholders will be eligible to receive an aggregate of up to an additional $20,000,000 (the
Earn-out). The Earn-Out may be paid in a combination of cash and Local.com common stock, provided
that any such payments are comprised of at least twenty five percent cash and we will not issue
twenty percent or more of Local.com common stock outstanding immediately prior to the closing date
of the Merger in connection with this transaction.
The initial accounting for the SMG purchase is not yet complete. We are currently analyzing the
fair value of each major class of assets acquired and liabilities assumed. These fair value
calculations and judgments are complex and not yet completed as of the date of this report.
As discussed in more detail in the Credit Facilities footnote, on July 29, 2011 the Company
cancelled its Revolving Line with SVB. On August 3, 2011, the Company entered into a Loan and
Security Agreement with Square 1 Bank. The Security Agreement provides us with a revolving credit
facility of up to $12 million.
16
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Item 2. Managements 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, 2010 and for the year ended December 31, 2010 included in our Annual Report on Form
10-K/A filed with the Securities and Exchange Commission on April 29, 2011.
Overview
We are a local media advertising company that enables local businesses and consumers to find each
other and connect. We operate online businesses that collectively reach over 20 million monthly
unique visitors across over 100,000 websites, and we serve over 35,000 small business customers
with a variety of web hosting and local online advertising products.
Our Owned & Operated business unit manages our flagship property, Local.com, and a proprietary
network of over 20,000 local websites, which reaches over 15 million monthly unique visitors. Our
Network business unit operates (i) a leading private label local syndication network of over 1,000
U.S. regional media websites, (ii) 80,000 third-party local websites, and (iii) our own organic
feed of local businesses plus third-party advertising feeds, both of which are focused primarily on
local consumers to a distribution network of hundreds of websites. Our Sales & Ad Services business
unit sells and supports products directly to small businesses. These products include our
ExactMatch product suite; our LocalPremium direct listing products and our Rovion rich media
display advertising products. We also provide over 35,000 direct monthly subscribers with web
hosting or web listing products. We use patented and proprietary search 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, our local syndication network in July 2007, and we
expanded our sales and advertiser services offerings to include a larger number of direct service
subscribers throughout 2009 and 2010. In the third quarter of 2010, we also acquired Octane360
which included the ExactMatch product suit. During the second quarter of 2011, we acquired
Krillion, Inc. which included a robust local product search platform that enables consumers to
search for products and product availability at local retailers, and Rovion which included a rich
media advertising platform and toolset that allows for the sale, creation, delivery and tracking of
animated and video-based ads for both national and local advertisers. 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
we believe we can continue to grow through our own efforts and the acquisition of complementary
businesses and technologies intended to accelerate our growth.
In May 2011, the Company launched Spreebird, the Companys new daily deal service, website and
brand. Spreebird represents the Companys new Social Buying business unit. In July 2011, the
Company acquired a daily deals business, Screamin Media Group, Inc. as part of its efforts to
expand its social buying business. SMG is currently active in 14 markets located in California,
Utah and Illinois.
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Recent Developments
On April 4, 2011, the Company entered into an Asset Purchase Agreement with DGLP and Rovion,
pursuant to which the Company acquired substantially all of the assets of Rovion on May 5, 2011.
The assets acquired included:
| a rich media advertising platform, which allows for the sale, creation, delivery and tracking of animated and video-based ads for both national and local advertisers, including In-Person the online video spokesperson, as well as virtually all other forms of rich media advertisements; |
| a rich media advertising toolset, known as the Rovion Ad Management Platform (RAMP), targeted to local media publishers and medium to small ad agencies, which allows for self-service rich media ad creation by professional media developers and novices alike, and subsequently enables the delivery, tracking and reporting of all ad activity through the RAMP control panel; |
| a workflow/tracking toolset that facilitates the schedules and tracking of In-Person ad requests, scheduling of actors and studios and the approval of scripts; and |
| two professional quality green-screen studios and a network of relationships for access to additional professional quality green-screen studios throughout the United States. |
The purchase of the Rovion assets was completed following the satisfaction of all closing
conditions, including approval by the bankruptcy court hearing the bankruptcy proceeding of Rovion.
In accordance with the terms of the Agreement, the Company paid DGLP and Rovion $2,196,000 net of
$485,000 in loans owed by DGLP.
On April 29, 2011, the Company entered into a Stock Purchase Agreement with Krillion, Inc., a
Delaware corporation, all of the stockholders of Krillion and the stockholders agent to purchase
all of the outstanding shares of Krillion for an aggregate purchase price of $3.5 million in cash.
The transaction was funded from the Companys cash on hand. The purchase price was subject to
working capital adjustments as outlined in the SPA. Krillion provides consumers and its business
partners real-time information on where specific branded products are sold, and which retailer, at
a particular retail location, has them in stock. Krillion aggregates and structures consumer
product information in real time, to create an up-to-the-minute index of products across various
brands, at various retailer locations in multiple cities across the United States.
On June 30, 2011, the Company entered into a Google Services Agreement. The
agreement with Google provides for the implementation by Local.com of certain advertising and
search services on certain websites, effective August 1, 2011. The Agreement runs through July 31,
2013, subject to certain early termination provisions.
On July 9, 2011, the Company acquired Screamin Media Group, Inc., as a result of a merger of the
Companys wholly-owned subsidiary with and into SMG, in consideration of $5,000,000 in cash,
727,360 shares of Local.com common stock, $0.00001 par value (the Shares), and $5,000,000 in
secured promissory notes, which have since been repaid. The merger agreement also provides for
additional earn-outs payments of up to $20.0 million payable in a combination of cash and Company
stock dependent on certain performance criteria. SMG has moved into the Companys principal offices
in Irvine since the closing of the merger. SMG has approximately 60 employees, and currently offers
daily deals in 14 markets. SMG will form part of the Company social buying business and will
operate as part of the Companys Spreebird brand.
Outlook for Our Business
Local search allows consumers to search for local businesses, products or services by including
geographic area, zip code, city name, or other geographically targeted search parameters in their
search requests.
According to a September 2010 study, The Kelsey Group estimates that the local search market in the
United States will grow from $4.2 billion in 2010 to $8.6 billion by 2014. Local businesses, those
that principally serve consumers within a fifty mile radius of their location, are increasingly
shifting their newspaper and print yellow pages ad spend to online advertising, some of which is
directed towards local search advertising.
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
O&O and Network business units are designed to serve this market of consumers and advertisers,
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.
Local search is relatively new, and as a result it is difficult to determine our current market
share or predict our future market share. Our revenue, profitability and future growth depend not
only on our ability to execute our business plan, but also,
among other things, on acceptance of our services, the growth of the paid-search market, our
ability to effectively compete with other providers of local search, and paid-search technologies
and services.
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We have also taken steps to diversify our revenue sources, while maintaining our focus on local
offerings, including through the acquisition of Octane360 and more recently the acquisition of
Krillion, a local shopping data and content provider, Rovion, which includes a self-service rich
media advertising platform and toolset, and Screamin Media Group, Inc. which expands our recently
launched social buying business, Spreebird. With the products and technology acquired in these acquisitions the Company believes it is able to
differentiate itself from other online media companies by assembling a unique range of
complimentary advertising products that can over time be marketed to a variety of consumers,
regional media publishers and local merchants.
We intend to continue making significant investments in the Spreebird business and Rovion and
Krillion acquisitions as part of our initiative to diversify our revenue sources and promote the
future growth of the Company.
As we continue to invest in our core offerings, while pursuing the acquisitions noted above, we
have increased our operating expenses, mainly related to traffic acquisition costs, the deployment
of new features and functionality across business units and the support of our acquired companies.
Our entry into the Google Services Agreement in June 2011 and the amendment to our Yahoo! publisher
network agreement effective July 29, 2011, are intended to reverse the trend of continued decline
in the revenue per click (RPC) that our advertising partners pay us for clicks on their
advertisements on our sites and to diversify our sources of revenue. We cannot give assurances that
our efforts to improve monetization through this strategy will be successful.
Sources of Revenue
We generate revenue primarily on our Local.com website and Network 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; |
| domain sales and services; |
| web hosting services; and |
| rich media advertising services |
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 LEC billings). We advertise on large search
engine websites such as Google, Yahoo!, MSN/Bing and Ask.com, as well as other search
engine websites, by bidding on certain keywords we believe will drive traffic to our Local.com
website. During the six months ended June 30, 2011, approximately 63% of our overall traffic was
purchased from other search engine websites. During the six months ended June 30, 2011, advertising
costs to drive consumers to our Local.com website were $15.9 million of which $11.8 million was
attributable to Google, Inc. 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.
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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
consolidated financial statements and the reported amounts of revenue and expenses during the
reported period. We review our estimates on an ongoing basis. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances, the result of which forms the basis for making judgments about the carrying values
of assets and liabilities and the reported amounts of revenue and expenses. Actual results may
differ from these estimates under different assumptions or conditions. Our significant accounting
policies described in more detail in Note 1 to our consolidated financial statements included in
this Report, involve judgments and estimates that are significant to the presentation of our
consolidated financial statements.
Revenue Recognition
We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive
evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of
fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is
probable.
We generate revenue when it is realizable and earned, as evidenced by click-throughs occurring on
advertisers sponsored listings, the display of a banner advertisement, the fulfillment of
subscription listing obligations, or the delivery of ExactMatch products to our customers. 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 our contractual agreement.
Sponsored listings and banner advertisements are included as search results in response to keyword
searches performed by consumers on our Local.com website and network partner websites. Revenue is
recognized when earned based on click-through and impression activity to the extent that collection
is reasonably assured from credit worthy advertisers. We have analyzed our revenue recognition and
determined that our web hosting revenue will be recognized net of direct costs. All other revenue
is recognized on a gross basis.
During the year ended December 31, 2010, we entered into multiple-deliverable arrangements for the
sale of domains and for providing services relating to such domains. We evaluated the agreements in
accordance with the provision of the revenue recognition topic that addresses multiple-deliverable
revenue arrangements as updated in October 2009. Although such updated provisions were only
effective for fiscal periods beginning on or after June 15, 2010, we opted to adopt such provisions
early. The multiple-deliverable arrangements entered into consisted of various units of accounting
such as the sale of domains, website development fees, content delivery and hosting fees. Such
elements were considered separate units of accounting due to each element having value to the
customer on a stand-alone basis. The selling price for each of the units of accounting was
determined using a combination of vendor-specific objective evidence and management estimates.
Revenue relating to domains was recognized with the transfer of title of such domains. Revenue for
website development, content delivery and hosting fees are recognized as such services are
performed or delivered. The agreements did not include any cancellation, termination or refund
provisions that we consider probable.
Allowance for Doubtful Accounts
Our management estimates the losses that may result from that portion of our accounts 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 June 30, 2011, two customers, Yahoo! and SuperMedia represented 45.6% of our total accounts
receivable. These customers have historically paid within the payment period provided for under
their contracts and management believes these customers will continue to do so.
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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. We perform annual impairment reviews during the fourth fiscal quarter of
each year or earlier if indicators of potential impairment exist. For goodwill, we engage an
independent appraiser to assist management in the determination of the fair value of our reporting
unit and compare the resulting fair value to the carrying value of the reporting unit to determine
if there is goodwill impairment. For other intangible assets with indefinite lives, we compare the
fair value of related assets to the carrying value to determine if there is impairment. For other
intangible assets with definite lives, 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. We performed our annual impairment analysis for our indefinite lived
intangible assets, as of December 31, 2010, and determined that the estimated fair value of the
reporting unit substantially exceeded its carrying value and therefore no impairment existed.
Future impairment reviews may result in charges against earnings to write-down the value of
intangible assets.
Stock Based Compensation
Total stock-based compensation expense recognized for the three and six months ended June 30, 2011
and 2010, is as follows (in thousands, except per share amount):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of revenues |
$ | 66 | $ | 65 | $ | 153 | $ | 85 | ||||||||
Sales and marketing |
359 | 161 | 678 | 318 | ||||||||||||
General and administrative |
489 | 285 | 936 | 585 | ||||||||||||
Research and development |
106 | 149 | 225 | 296 | ||||||||||||
Total stock-based compensation expense |
$ | 1,020 | $ | 660 | $ | 1,992 | $ | 1,284 | ||||||||
Basic and diluted net stock-based compensation expense per share |
$ | 0.05 | $ | 0.04 | $ | 0.10 | $ | 0.08 | ||||||||
Results of Operations
The following table sets forth our historical operating results as a percentage of revenue for the
three and six months ended June 30, 2011 and 2010:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Operating expenses: |
||||||||||||||||
Cost of revenues |
69.4 | 57.3 | 67.3 | 57.6 | ||||||||||||
Sales and marketing |
29.8 | 17.1 | 24.5 | 16.9 | ||||||||||||
General and administrative |
21.1 | 9.6 | 18.2 | 9.9 | ||||||||||||
Research and development |
8.7 | 5.0 | 8.9 | 5.4 | ||||||||||||
Amortization of intangibles |
7.8 | 6.3 | 7.4 | 6.4 | ||||||||||||
Total operating expenses |
136.8 | 95.3 | 126.4 | 96.3 | ||||||||||||
Operating income (loss) |
(36.8 | ) | 4.7 | (26.4 | ) | 3.7 | ||||||||||
Interest and other income (expense), net |
(0.2 | ) | (0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||||
Change in fair value of warrant liability |
2.6 | 1.5 | 6.1 | 0.2 | ||||||||||||
Income (loss) before income taxes |
(34.3 | ) | 5.9 | (20.6 | ) | 3.6 | ||||||||||
Provision for income taxes |
0.3 | 0.5 | 0.2 | 0.3 | ||||||||||||
Net income (loss) |
(34.7) | % | 5.3 | % | (20.8) | % | 3.3 | % | ||||||||
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Three and six months ended June 30, 2011 and 2010
Revenue (dollars in thousands):
Three Months Ended June 30, | Percent | Six Months Ended June 30, | Percent | |||||||||||||||||||||||||||||||||||||
2011 | (*) | 2010 | (*) | change | 2011 | (*) | 2010 | (*) | change | |||||||||||||||||||||||||||||||
Owned and operated |
$ | 9,502 | 61.0 | % | $ | 12,072 | 52.5 | % | -21.3 | % | $ | 19,744 | 61.0 | % | $ | 22,788 | 54.7 | % | -13.4 | % | ||||||||||||||||||||
Network |
3,716 | 23.8 | % | 6,980 | 30.3 | % | -46.8 | % | 7,439 | 23.0 | % | 12,169 | 29.2 | % | -38.9 | % | ||||||||||||||||||||||||
Sales and advertiser services |
2,366 | 15.2 | % | 3,952 | 17.2 | % | -40.1 | % | 5,196 | 16.0 | % | 6,678 | 16.0 | % | -22.2 | % | ||||||||||||||||||||||||
Total revenue |
$ | 15,584 | 100.0 | % | $ | 23,004 | 100.0 | % | -32.3 | % | $ | 32,379 | 100.0 | % | $ | 41,635 | 100.0 | % | -22.2 | % | ||||||||||||||||||||
(*) | | Percent of total revenue |
Owned and operated revenue for the three and six months ended June 30, 2011, decreased 21.3% and
13.4%, respectively, compared to the same periods in 2010. The decrease in revenue is primarily due
to decreased monetization as our revenue per thousand visitors (RKV) decreased to $193 and $203,
respectively for the three and six months ended June 30, 2011, from $230 and $243, respectively for
the three and six months ended June 30, 2010. The decrease in RKV was primarily a result of the
continued decrease in RPC. The decline in the revenue from decreased RPC started during the fourth
quarter of 2010.
Network revenue for the three and six months ended June 30, 2011, decreased 46.8% and 38.9%,
respectively, compared to the same periods in 2010. The decrease is primarily due to a decrease in
network partners on the Companys distribution network due to the decreased RPC. This lower level
of monetization is expected to continue through 2011.
Sales and advertiser services revenue for the three and six months ended June 30, 2011, decreased
40.1% and 22.2%, respectively, compared to the same periods in 2010 as our base of small business
subscribers decreased from over 70,000 as of June 30, 2010, to approximately 35,000 as of June 30,
2011. The decrease in the small business subscriber base is due to the natural attrition of the
current subscriber bases, subject to prior contractual commitments, as well as the Companys
decision to suspend acquisitions of LEC-billed subscriber bases in order to concentrate resources
around the ExactMatch product suite powered by our recently acquired Octane360 platform. As a
result, we anticipate revenue from our existing subscribers to continue to decline. The expected
growth in revenue from ExactMatch products is not expected to fully offset the decline in revenue
from existing subscribers until 2012.
The growth in small business subscribers in prior years was a result of acquisitions of subscriber
bases and internal and outsourced sales efforts. 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 June 30, | Percent | Six Months Ended June 30, | Percent | |||||||||||||||||||||||||||||||||||||
2011 | (*) | 2010 | (*) | change | 2011 | (*) | 2010 | (*) | change | |||||||||||||||||||||||||||||||
Revenue from internal and outsourced sales |
$ | 886 | 37.4 | % | $ | 1,371 | 34.7 | % | -35.4 | % | $ | 1,710 | 32.9 | % | $ | 2,196 | 32.9 | % | -22.1 | % | ||||||||||||||||||||
Revenue from acquired bases |
1,480 | 62.6 | % | 2,581 | 65.3 | % | -42.7 | % | 3,486 | 67.1 | % | 4,482 | 67.1 | % | -22.2 | % | ||||||||||||||||||||||||
Total sales and advertiser services revenue |
$ | 2,366 | 100.0 | % | $ | 3,952 | 100.0 | % | -40.1 | % | $ | 5,196 | 100.0 | % | $ | 6,678 | 100.0 | % | -22.2 | % | ||||||||||||||||||||
Based on the above, total revenue for the three and six months ended June 30, 2011, decreased
32.3% and 22.2%, respectively, compared to the same periods in 2010.
The following table identifies our major customers that represented greater than 10% of our total
revenue in the periods presented:
Percentage of Total Revenue | Percentage of Total Revenue | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
Customer | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Yahoo! Inc. |
33.6 | % | 51.2 | % | 35.4 | % | 50.4 | % | ||||||||
SuperMedia Inc. |
21.5 | % | 18.1 | % | 22.1 | % | 19.2 | % |
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Operating expenses:
Operating expenses were as follows (dollars in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
Percent of | Percent of | Percent of | Percent of | |||||||||||||||||||||||||||||||||||||
Total | Total | Percent | Total | Total | Percent | |||||||||||||||||||||||||||||||||||
2011 | Revenue | 2010 | Revenue | Change | 2011 | Revenue | 2010 | Revenue | Change | |||||||||||||||||||||||||||||||
Cost of revenues |
$ | 10,812 | 69.4 | % | $ | 13,176 | 57.3 | % | (17.9 | )% | $ | 21,800 | 67.3 | % | $ | 23,978 | 57.6 | % | (9.1 | )% | ||||||||||||||||||||
Sales and marketing |
4,646 | 29.8 | % | 3,945 | 17.1 | % | 17.8 | % | 7,928 | 24.5 | % | 7,043 | 16.9 | % | 12.6 | % | ||||||||||||||||||||||||
General and administrative |
3,291 | 21.1 | % | 2,209 | 9.6 | % | 49.0 | % | 5,901 | 18.2 | % | 4,123 | 9.9 | % | 43.1 | % | ||||||||||||||||||||||||
Research and development |
1,359 | 8.7 | % | 1,142 | 5.0 | % | 19.0 | % | 2,887 | 8.9 | % | 2,254 | 5.4 | % | 28.1 | % | ||||||||||||||||||||||||
Amortization of intangibles |
1,210 | 7.8 | % | 1,454 | 6.3 | % | (16.8 | )% | 2,408 | 7.4 | % | 2,684 | 6.4 | % | (10.3 | )% | ||||||||||||||||||||||||
Total operating expenses |
$ | 21,318 | 136.8 | % | $ | 21,926 | 95.3 | % | (2.8 | )% | $ | 40,924 | 126.4 | % | $ | 40,082 | 96.3 | % | 2.1 | % | ||||||||||||||||||||
Cost of revenues
Cost of revenues expenses for the three and six months ended June 30, 2011, decreased by 17.9% and
9.1%, respectively, compared to the same periods in 2010. During the period we had decreased
revenue share payments to distribution network partners due to decrease revenue relating to the
distribution network, together with a decrease in traffic acquisition costs associated with driving
consumers to our Local.com website.
Sales and marketing
Sales and marketing expenses for the three and six months ended June 30, 2011, increased 17.8% and
12.6%, respectively, compared to the same periods in 2010. The increase was primarily due to higher
personnel-related costs due to increased costs related to the two acquisitions completed during the
quarter.
General and administrative
General and administrative expenses for the three and six months ended June 30, 2011, increased by
49.0% and 43.1%, respectively, compared to the same periods in 2010. The increase is due to higher
personnel-related costs as a result of severance costs totaling approximately $658,000 incurred and
increased headcount for the quarter. Headcount increased primarily due to the two acquisitions
completed during the quarter.
Research and development
Research and development expenses for the three and six months ended June 30, 2011, increased by
19.0% and 28.1%, respectively, compared to the same periods in 2010. The increase is due to higher
personnel-related costs.
The following table sets forth research and development expenses, additional capitalized website
development costs and amortization of capitalized website development costs for the periods
indicated (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Research and development expense |
$ | 1,359 | $ | 1,142 | $ | 2,887 | $ | 2,254 | ||||||||
Capitalized website development costs |
$ | 834 | $ | 737 | $ | 1,732 | $ | 949 | ||||||||
Amortization of capitalized website development costs |
$ | (425 | ) | $ | (115 | ) | $ | (806 | ) | $ | (229 | ) |
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Amortization of intangibles
Amortization of intangibles expense was $1,210,000 and $2,408,000 for the three and six months
ended June 30, 2011, respectively, compared to $1,454,000 and $2,684,000 for the same periods in
2010. The decrease is due to the Companys decision to suspend the further acquisition of
subscriber bases as well as the manner in which these subscriber bases are being amortized, with
the majority of the amortization expense being recognized in the first year. The decrease is
partially offset by increased amortization from the intangible assets identified in the two
acquisitions during the quarter.
Interest and other income (expense), net
Interest and other income (expense), net was ($30,000) and ($85,000) for the three and six months
ended June 30, 2011, respectively, compared to ($61,000) and ($117,000) for the same period in
2010. The decrease is due to interest expense and amortization of fees related to our revolving
credit facility. We had $3.0 million of borrowings outstanding on our revolving credit
facility during the first six months of 2010, while we only had $7.0 million debt outstanding for a
portion of the first quarter 2011.
Provision for income taxes
Provision for income taxes was $51,000 and $62,000 for the three and six months ended June 30,
2011, primarily due 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):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Cash and cash equivalents |
$ | 13,482 | $ | 13,079 | ||||
Working capital |
$ | 14,462 | $ | 8,171 | ||||
Cash flow highlights (in thousands):
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Net cash (used in) provided by operating activities |
$ | (1,416 | ) | $ | 1,823 | |||
Net cash used in investing activities |
(9,284 | ) | (5,602 | ) | ||||
Net cash provided by financing activities |
11,103 | 8,748 |
We have funded our business, to date, primarily from issuances of equity securities as well as
through debt facilities; however, during the years ended December 31, 2010 and 2009, we generated
positive cash flow from operations. Cash and cash equivalents were $13.5 million as of June 30,
2011, and $13.0 million as of December 31, 2010. We had working capital of $14.5 million as of June
30, 2011, and $8.1 million as of December 31, 2010. On July 9, 2011 the Company also entered into a
merger agreement with SMG that would require the Company to make payments of $5.0 million at the
date of acquisition and an additional $5.0 million payment on August 1, 2011. The merger agreement
also provides for additional consideration which is discussed in more detail below. Additionally,
pursuant to a loan and security agreement with Square 1 Bank that we entered into on August 3,
2011, as further discussed below, we have secured a revolving credit facility of up to $12 million,
based on certain formulas as set forth below.
Net cash used in operating activities was $1.4 million for the six months ended June 30, 2011. 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 $2.9
million. Changes in operating assets and liabilities provided cash of $1.5 million. Net cash
provided by operating activities was $1.8 million for the six months ended June 30, 2010. Net
income adjusted for non-cash charges provided cash of $5.9 million. Changes in operating assets and
liabilities used cash of $4.0 million.
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 six months ended June 30, 2011, the terms of our accounts receivable and
accounts payable remained unchanged.
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The table below substantiates the change in net cash provided by (used in) operating
activities for the six months ended June 30, 2011 and 2010 (in thousands):
Six Months Ended June 30, | ||||||||||||
2011 | 2010 | Change | ||||||||||
Net income (loss) |
$ | (6,722 | ) | $ | 1,364 | $ | (8,086 | ) | ||||
Non-cash (1) |
3,782 | 4,495 | (713 | ) | ||||||||
Subtotal |
(2,940 | ) | 5,859 | (8,799 | ) | |||||||
AR, AP and Other |
1,524 | (4,036 | ) | 5,560 | ||||||||
Net cash (used in) provided by operations |
$ | (1,416 | ) | $ | 1,823 | $ | (3,239 | ) | ||||
(1) | Includes depreciation, amortization, change in fair value of warrant liability, non-cash expense related to stock-based compensation and provision for doubtful accounts. |
Net cash used in investing activities was $9.3 million for the six months ended June 30, 2011, and
consisted of $2.0 million for capital expenditures, $6.7 million acquisition related cost and $0.5
million for purchases of customer-related intangible assets. Net cash provided by financing
activities was $11.1 million for the six months ended June 30, 2011, primarily consisted of $18.2
million from a public offering of the Companys common stock partially offset by the repayment of
the $7.0 million outstanding balance of the revolving credit facility with SVB.
Net cash used in investing activities was $5.6 million for the six months ended June 30, 2010, and
consisted of $1.7 million for capital expenditures and $3.9 million related to purchases of
customer-related intangible assets. Net cash provided by financing activities was $8.7 million for
the six months ended June 30, 2010, primarily from the proceeds from the exercise of warrants and
stock options. At the end of June 2010, we used $3.0 million of cash to pay off the expiring Square
1 Bank credit facility and borrowed $3.0 million of cash from the new Silicon Valley Bank credit
facility.
Management believes, based upon projected operating needs, that our working capital is sufficient
to fund our operations for at least the next 12 months.
Shelf Registration Statement
On January 14, 2011, we filed the New Registration Statement with the Securities and Exchange
Commission pursuant to which we registered 8,000,000 shares of our common stock. On March 23, 2011,
we filed an amendment to the New Registration Statement with an effective date of April 12, 2011.
The shelf registration statement is set to expire in April 2014. We may periodically offer all or a
portion of the remaining shares of common stock registered on the New Registration Statement, when
it becomes effective, at prices and on terms to be announced when and if the shares of common stock
are so offered. The specifics of any future offerings, along with the use of proceeds of any common
stock offered, will be described in detail in a prospectus supplement, or other offering materials,
at the time of the offering. Our ability to sell our common stock, including on terms and at prices
that are acceptable to the Company, is subject to market conditions and other factors, such as
contractual commitments of our previously issued warrants.
Subsequent events
Effective July 9, 2011, we acquired Screamin Media Group, Inc., a Delaware corporation, following
our execution on July 8, 2011, of an Agreement and Plan of Merger by and among the Company,
Screamin Media Group, Inc, Agile Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company, and Dan Griffith, as Stockholders Agent pursuant to which Subcorp was
merged with and into SMG and SMG became our wholly-owned subsidiary. As consideration for the
Merger, we paid upfront consideration of $5,000,000 in cash, 727,360 shares of Local.com common
stock, $0.00001 par value, and $5,000,000 in secured promissory notes bearing interest at 10% per
annum for all amounts outstanding subsequent to August 1, 2011, subject to adjustment as described
below. As of the date of this report all of the Notes have been repaid in full. The cash portion of
the Merger Consideration payable to the SMG Stockholders will be reduced by $862,500 to repay
certain debt obligations of SMG immediately following the closing. The Shares actually issued were
reduced to whole share amounts and all fractional shares converted to cash at approximately $3.437
per share, which is the twenty day trailing average close price of the Shares prior to July 7,
2011. The aggregate amount of Notes issued will be reduced by up to $2,378,000, including $500,000
to repay a promissory note issued by SMG and held by us and up to $1,878,000 to establish an escrow
fund for indemnification claims asserted by us against SMG consistent with the terms of
the Merger Agreement. The cash portion of the Merger Consideration was funded from our cash on
hand. Allocation of the purchase price will be determined based on fair market valuation of the net
assets acquired.
SMG has approximately 60 employees serving hundreds of thousands of subscribers with deals from
thousands of local merchants in 14 markets throughout the U.S. including Los Angeles, Orange
County, Salt Lake City and San Diego. SMG
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also recently launched travel deals. SMG supports local
communities with its School Rewards program, which allows consumers to donate ten percent of SMGs
net proceeds from each deal to a school or non-profit organization chosen by the consumer. More
than 700 local schools and non-profits currently benefit from this community program.
Subject to meeting certain additional financial performance milestones throughout the two year
period beginning July 1, 2011, as more particularly described in the Merger Agreement, the SMG
Stockholders will be eligible to receive an aggregate of up to an additional $20,000,000. The
Earn-Out may be paid in a combination of cash and Local.com common stock, provided that any such
payments are comprised of at least twenty five percent cash and we will not issue twenty percent or
more of Local.com common stock outstanding immediately prior to the closing date of the Merger in
connection with this transaction.
On July 29, 2011 the Company cancelled its Revolving Line with SVB. On August 3, 2011, we entered
into a Loan and Security Agreement with Square 1 Bank. The Security Agreement provides us with a
revolving credit facility of up to $12 million. Subject to the terms of the Security 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 Security Agreement. Notwithstanding the
foregoing, we may advance up to $3 million from the Facility at any time, irrespective of our
borrowing base, provided that total advances under the Facility will not exceed $12 million and we
are otherwise in compliance with the terms of the Security Agreement. The Facility expires on
August 3, 2013.
All amounts borrowed under the Facility are secured by a general security interest on our assets,
except for our intellectual property, which we have instead agreed to remain unencumbered during
the term of the Security Agreement.
Except as otherwise set forth in the Security 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 1 Bank) plus 2.0%. In connection with establishing the Facility, we
incurred fees payable to Square 1 Bank of approximately $10,000. 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 Security 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 Security 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 1 Bank has certain rights and
remedies under the Security 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 of 1.25 to 1, which is defined as cash on hand plus the most
recently reported borrowing base divided by outstanding bank debt, and (ii) certain Adjusted EBITDA
covenants, as more particularly described in the Security Agreement (such Adjusted EBITDA amounts are for
financial covenant purposes only, and do not represent projections of the Companys financial
results).
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,
2010. See also Item 7A in our Annual Report on Form 10-K/A for the year ended December 31, 2010 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 be subject to a variety of legal proceedings and claims in the ordinary
course of business, including claims of alleged infringement of intellectual property rights and
claims arising in connection with our services. Other than the GEOTAG litigation 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 at www.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 are investigating the
merits of the claims and intend to vigorously defend ourselves.
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/A for the year ended December 31, 2010, filed with the Securities and Exchange Commission
on April 29, 2011. There were no material changes from the risk factors previously disclosed in our
Annual Report on Form 10-K/A for the year ended December 31, 2010, except as follows:
Our recent acquisition, Screamin Media Group, Inc,. may not maintain the revenue growth that it has
experienced since inception.
Although Screamin Media Group (SMG) has increased its revenue substantially since inception, we
may not be able to maintain its historical rate of revenue growth. We believe that Screamin Media
Groups continued revenue growth will depend, among other factors, on our ability to:
| acquire new subscribers who purchase daily deals; | ||
| retain our existing subscribers and have them continue to purchase daily deals; | ||
| attract new merchants who wish to offer deals through the sale of Spreebird/Screamin Media Group daily deals; | ||
| retain our existing merchants and have them offer additional deals through our marketplace; | ||
| expand the number, variety and relevance of products and deals we offer each day; | ||
| increase the awareness of our brand across geographies; | ||
| provide our subscribers and merchants with a superior experience; | ||
| respond to changes in consumer access to and use of the internet and mobile devices; and | ||
| react to challenges from existing and new competitors. |
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However, we cannot assure you that we will successfully implement any of these actions.
SMG has experienced rapid growth over a short period in a new market and we do not know whether
this market will continue to develop or whether it can be maintained. If we are unable to
successfully respond to changes in the market, our daily deals group buying business, including SMG
(collectively, Spreebird) could be harmed.
Our Spreebird business has grown rapidly as merchants and consumers have increasingly used our
marketplace. However, this is a new market which has operated at a substantial scale for only a
limited period of time. Given the limited history, it is difficult to predict whether this market
will continue to grow or whether it can be maintained. For example, as a result of our limited
operating history in a new industry and because the majority of our Spreebird subscribers
registered for our Spreebird service or made their initial purchase of a daily deal in the past 12
months, it is difficult to discern meaningful or established trends with respect to the purchase
activity of our Spreebird subscribers or customers. We expect that the market will evolve in ways
which may be difficult to predict. For example, we anticipate that over time we will reach a point
in most markets where we have achieved a market penetration such that investments in new Spreebird
subscriber acquisition are less productive and the continued growth of our gross profit will
require more focus on increasing the rate at which our existing subscribers purchase our Spreebird
daily deals. It is also possible that merchants or customers could broadly determine that they no
longer believe in the value of our current services or marketplace. In the event of these or any
other changes to the market, our continued success will depend on our ability to successfully
adjust our strategy to meet the changing market dynamics.
If we are unable to do so, our Spreebird business could be harmed and our results of operations
subject to a material negative impact.
If we fail to retain our existing Spreebird subscribers or acquire new Spreebird subscribers, our
revenue and Spreebird business will be harmed.
We must continue to retain and acquire Spreebird subscribers that purchase Spreebird daily deals in
order to increase revenue and achieve profitability. We cannot assure you that the revenue or gross profit from
Spreebird subscribers we acquire will ultimately exceed the cost of acquiring new Spreebird
subscribers. If consumers do not perceive our Spreebird daily deal offers to be of high value and
quality or if we fail to introduce new and more relevant deals, we may not be able to
acquire or retain Spreebird subscribers. If we are unable to acquire new Spreebird subscribers who
purchase Spreebird daily deals in numbers sufficient to grow our Spreebird business, or if
Spreebird subscribers cease to purchase Spreebird daily deals, the revenue or gross profit we
generate may decrease and our operating results will be adversely affected.
We believe that many of our new Spreebird subscribers originate from word-of-mouth and other
non-paid referrals from existing subscribers, including our school rewards program, and therefore
we must ensure that our existing Spreebird subscribers remain loyal to our service in order to
continue receiving those referrals. If our efforts to satisfy our existing Spreebird subscribers
are not successful, we may not be able to acquire new Spreebird subscribers in sufficient numbers
to continue to grow our Spreebird business or we may be required to incur significantly higher
marketing expenses in order to acquire new Spreebird subscribers. Further, we believe that our
success is influenced by the level of communication and sharing among Spreebird subscribers. If the
level of usage by our Spreebird subscriber base declines or does not grow as expected, we may
suffer a decline in subscriber growth or revenue. A significant decrease in the level of usage or
Spreebird subscriber growth would have an adverse effect on our business, financial condition and
results of operations.
If we fail to retain existing Spreebird merchants or add new Spreebird merchants, our revenue and
business will be harmed.
We depend on our ability to attract and retain merchants that are prepared to offer products or
services on compelling terms through our Spreebird marketplace. We do not have long-term
arrangements to guarantee the availability of deals that offer attractive quality, value and
variety to consumers or favorable payment terms to us. We must continue to attract and retain
merchants to our Spreebird business in order to increase revenue and achieve profitability. If new
Spreebird merchants do not find our marketing and promotional services effective, or if existing
Spreebird merchants do not believe that utilizing our products provides them with a long-term
increase in customers, revenues or profits, they may stop making offers through our marketplace. In
addition, we may experience attrition in our merchants in the ordinary course of business resulting
from several factors, including losses to competitors and merchant closures or bankruptcies. If we
are unable to attract new merchants in numbers sufficient to grow our Spreebird business, or if too
many merchants are unwilling to offer products or services with compelling terms through our
Spreebird marketplace or offer favorable payment terms to us, we may sell fewer daily deals and our
operating results will be adversely affected.
If our efforts to market, advertise and promote products and services from our existing merchants
are not successful, or if our existing merchants do not believe that utilizing our services
provides them with a long-term increase in customers, revenues or profits, we may not be able to
retain or attract merchants in sufficient numbers to grow our Spreebird business or we may be
required to incur significantly higher marketing expenses or accept lower margins in order to
attract new Spreebird merchants. A significant increase in Spreebird merchant attrition or decrease
in merchant growth would have an adverse effect on our business, financial condition and results of
operation.
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Our Spreebird business is highly competitive. Competition presents an ongoing threat to the success
of our Spreebird business.
We expect competition in e-commerce generally, and daily deals group buying in particular, to
continue to increase because there are no significant barriers to entry. We have larger and more
established competitors, including Groupon and Living Social in our daily deals business, with
substantially more resources to compete than we have, and there are a substantial number of group
buying sites that have similar offerings to our own daily deals offerings. In addition to such
competitors, we expect to increasingly compete against other large internet and technology-based
businesses, such as Facebook, Google and Microsoft, each of which has launched initiatives which
are directly competitive to our Spreebird business. We also expect to compete against other
internet sites that are focused on specific communities or interests and offer coupons or discount
arrangements related to such communities or interests. We also compete with traditional offline
coupon and discount services, as well as newspapers, magazines and other traditional media
companies who provide coupons and discounts on products and services.
We believe that our ability to compete depends upon many factors both within and beyond our
control, including the following:
| the size and composition of our Spreebird subscriber base and the number of merchants we feature; | ||
| the timing and market acceptance of daily deals we offer, including the developments and enhancements to those daily deals offered by us or our competitors; | ||
| Spreebird subscriber and merchant service and support efforts; | ||
| selling and marketing efforts; | ||
| ease of use, performance, price and reliability of services offered either by us or our competitors; | ||
| our ability to cost-effectively manage our operations; and | ||
| our reputation and brand strength relative to our competitors. |
Many of our current and potential competitors have longer operating histories, significantly
greater financial, marketing and other resources and larger subscriber bases than we do. These
factors may allow our competitors to benefit from their existing customer or subscriber base with
lower customer acquisition costs or to respond more quickly than we can to new or emerging
technologies and changes in consumer habits. These competitors may engage in more extensive
research and development efforts, undertake more far-reaching marketing campaigns and adopt more
aggressive pricing policies, which may allow them to build larger subscriber bases or generate
revenue from their subscriber bases more effectively than we do. Our competitors may offer deals
that are similar to the deals we offer or that achieve greater market acceptance than the deals we
offer. This could attract subscribers away from our websites and applications, reduce our market
share and adversely impact our gross margin. In addition, we are dependent on some of our existing
or potential competitors, including Facebook, Google and Microsoft, for banner advertisements and
other marketing initiatives to acquire new Spreebird subscribers. Our ability to utilize their
platforms to acquire new Spreebird subscribers may be adversely affected if they choose to compete
more directly with us.
If we are unable to recover Spreebird subscriber acquisition costs with revenue and gross profit
generated from those Spreebird subscribers, our business and operating results will be harmed.
As our subscriber base continues to evolve, it is possible that the composition of our Spreebird
subscribers may change in a manner that makes it more difficult to generate revenue and gross
profit to offset the costs associated with acquiring new Spreebird subscribers. For example, if we
acquire a large number of new Spreebird subscribers who are not viewed as an attractive demographic
by merchants, we may not be able to generate compelling products for those Spreebird subscribers to
offset the cost of acquiring those Spreebird subscribers. If the cost to acquire Spreebird
subscribers is greater than the revenue or gross profit we generate over time from those Spreebird
subscribers, our business and operating results will be harmed.
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If we are unable to maintain favorable terms with our Spreebird merchants, our gross profit may be
adversely affected.
The success of our Spreebird business depends in part on our ability to retain and increase the
number of merchants who use our Spreebird service. Currently, when a merchant partners with us to
offer a deal for its products or services, it receives an agreed upon percentage of the revenue
from each daily deal sold, and we retain the rest. If merchants decide that utilizing our services
no longer provides an effective means of attracting new customers or selling their goods and
services, they may demand a higher percentage of the revenue from each daily deal sold. This would
adversely affect our gross profit.
In addition, we expect to face increased competition from existing daily deal providers, including
Groupon and Living Social, as well as other internet and technology-based businesses such as
Facebook, Google and Microsoft, each of which has launched initiatives which are directly
competitive to our Spreebird business. We also have seen that some competitors will accept lower
margins, or negative margins, to attract attention and acquire new subscribers. If competitors
engage in group buying daily deal initiatives in which merchants receive a higher percentage of the
revenue than we currently offer, we may be forced to pay a higher percentage of the revenue than we
currently offer, which may reduce our gross profit.
Our Spreebird business relies heavily on email and other messaging services, and any restrictions
on the sending of emails or messages or a decrease in subscriber willingness to receive messages
could adversely affect our revenue and Spreebird business.
Our Spreebird business is highly dependent upon email and other messaging services. Deals offered
through emails and other messages sent by us, or on our behalf by our affiliates, generate a
substantial portion of our Spreebird-related revenue. Because of the importance of email and other
messaging services to our businesses, if we are unable to successfully deliver emails or messages
to our Spreebird subscribers or potential Spreebird subscribers, or if Spreebird subscribers
decline to open our emails or messages, our revenue and profitability would be adversely affected.
Actions by third parties to block, impose restrictions on, or charge for the delivery of, emails or
other messages could also materially and adversely impact our business. From time to time, internet
service providers block bulk email transmissions or otherwise experience technical difficulties
that result in our inability to successfully deliver emails or other messages to third parties. In
addition, our use of email and other messaging services to send communications about our website or
other matters may result in legal claims against us, which if successful might limit or prohibit
our ability to send emails or other messages. Any disruption or restriction on the distribution of
emails or other messages or any increase in the associated costs would materially and adversely
affect our revenue and profitability.
We have a rapidly evolving business model and our new product and service offerings could fail to
attract or retain Spreebird subscribers or generate revenue.
We have a rapidly evolving business model and are regularly exploring entry into new market
segments and the introduction of new products and features with respect to which we may have
limited experience. In addition, our Spreebird subscribers may not respond favorably to our new
products and services. These products and services may present new and significant technology
challenges, and we may be subject to claims if subscribers of these offerings experience service
disruptions or failures or other quality issues. If products or services we introduce, such as
changes to our websites and applications, the introduction of social networking and
location-based marketing elements to our websites, or entirely new lines of business that we may
pursue, fail to engage Spreebird subscribers or merchants, we may fail to acquire or retain
Spreebird subscribers or generate sufficient revenue or other value to justify our investment, and
our business may be materially and adversely affected. Our ability to retain or increase our
Spreebird subscriber base and revenue will depend heavily on our ability to innovate and to create
successful new products and services. In addition, the relative profitability, if any, of our new
activities may be lower than that of our historical activities, and we may not generate sufficient
revenue from new activities to recoup our investments in them. If any of this were to occur, it
could damage our reputation, limit our growth and negatively affect our operating results.
An increase in our refund rates could reduce our liquidity and profitability.
We have historically provided our customers with a refund of the purchase price of a Spreebird
daily deal if they are unhappy with the level of service that they have received from us or our
local merchant partners. As we increase our revenue, our refund rates may exceed our historical
levels. A downturn in general economic conditions may also increase our refund rates. An increase
in our refund rates could significantly reduce our liquidity and profitability.
As we do not have control over our merchants and the quality of products or services they deliver,
we rely on a combination of our historical experience with each merchant and online and offline
research of customer reviews of merchants for the development of our estimate for refund claims.
Our actual level of refund claims could prove to be greater than the level of refund claims we
estimate. If our refund reserves are not adequate to cover future refund claims, this inadequacy
could have a material adverse effect on our liquidity and profitability.
Our standard agreements with our merchants generally limit the time period during which we may seek
reimbursement for customer refunds or claims. Our customers may make claims for refunds with
respect to which we are unable to seek reimbursement from our merchants. Our inability to seek
reimbursement from our merchants for refund claims could have an adverse effect on our
liquidity and profitability.
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If our merchants do not meet the needs and expectations of our Spreebird subscribers, our Spreebird
business could suffer.
Our Spreebird business depends on our reputation for providing high-quality deals, and our brand
and reputation may be harmed by actions taken by merchants that are outside our control. Any
shortcomings of one or more of our merchants, particularly with respect to an issue affecting the
quality of the deal offered or the products or services sold, may be attributed by our Spreebird
subscribers to us, thus damaging our reputation, brand value and potentially affecting our results
of operations. In addition, negative publicity and Spreebird subscriber sentiment generated as a
result of fraudulent or deceptive conduct by our merchants could damage our reputation, reduce our
ability to attract new Spreebird subscribers or retain our current Spreebird subscribers, and
diminish the value of our brand.
We may be subject to additional unexpected regulation which could increase our costs or otherwise
harm our business.
The application of certain laws and regulations to our Spreebird business, as a new product
category, is uncertain. These include laws and regulations such as the Credit Card Accountability
Responsibility and Disclosure Act of 2009, or the CARD Act, and unclaimed and abandoned property
laws. In addition, from time to time, we may be notified of additional laws and regulations which
governmental organizations or others may claim should be applicable to our business. If we are
required to alter our Spreebird business practices as a result of any laws and regulations, our
revenue could decrease, our costs could increase and our business could otherwise be harmed. In
addition, the costs and expenses associated with defending any actions related to such additional
laws and regulations and any payments of related penalties, judgments or settlements could
adversely impact our profitability.
The implementation of the CARD Act and similar state and foreign laws may harm our Spreebird
business and results of operations.
The certificates issued by Spreebird to customers may be considered gift cards, gift certificates,
stored value cards or prepaid cards and therefore governed by, among other laws, the CARD Act, and
state laws governing gift cards, stored value cards and coupons. This law contain provisions
governing the use of gift cards, gift certificates, stored value cards or prepaid cards, including
specific disclosure requirements and prohibitions or limitations on the use of expiration dates and
the imposition of certain fees. For example, if Spreebird certificates are subject to the CARD Act
and are not included in the exemption for promotional programs, it is possible that the purchase
value, which is the amount equal to the price paid for the Spreebird certificate, or the
promotional value, which is the add-on value of Spreebird certificate in excess of the price paid,
or both, may not expire before the later of (i) five years after the date on which the Spreebird
certificate was issued or the date on which the Spreebird subscriber last loaded funds on the
Spreebird certificate if the Spreebird certificate has a reloadable feature; (ii) the Spreebird
certificates stated expiration date (if any); or (iii) a later date provided by applicable state
law. Although not directly involved, we are aware of numerous class action lawsuits that have been
filed in federal and state court claiming that certificates similar to Spreebird certificates are
subject to the CARD Act and various state laws governing gift cards and that the defendants have
violated these laws by issuing certificates similar to Spreebird certificates with expiration dates
and other restrictions. In the event that it is determined that Spreebird certificates are subject
to the CARD Act or any similar state or foreign law or regulation, and are not within various
exemptions that may be available to Spreebird under the CARD Act or under some of the various state
or foreign jurisdictions, our liabilities with respect to unredeemed Spreebird certificates may be
materially higher than the amounts shown in our financial statements and we may be subject to
additional fines and penalties. In addition, if federal or state laws require that the face value
of Spreebird certificates have a minimum expiration period beyond the period desired by a merchant
for its promotional program, or no expiration period, this may affect the willingness of merchants
to issue Spreebird certificates in jurisdictions where these laws apply. If we are required to
materially increase the estimated liability recorded in our financial statements with respect to
unredeemed gift cards, our net income could be materially and adversely affected.
If we are required to materially increase the estimated liability recorded in our financial
statements with respect to unredeemed Spreebird certificates, our net income could be materially
and adversely affected.
In certain states and foreign jurisdictions, Spreebird certificates may be considered a gift card.
Some of these states and foreign jurisdictions include gift cards under their unclaimed and abandoned property laws
which require companies to remit to the government the value of the unredeemed balance on the gift
cards after a specified period of time (generally between one and five years) and impose certain
reporting and recordkeeping obligations. We do not remit any amounts relating to
unredeemed Spreebird certificates based on our assessment of applicable laws. The analysis of the
potential application of the unclaimed and abandoned property laws to Spreebird is complex,
involving an analysis of constitutional and statutory provisions and factual issues, including our
relationship with Spreebird subscribers and merchants and our role as it relates to the issuance
and delivery of a Spreebird certificate. In the event that one or more states or foreign
jurisdictions successfully challenges our position on the application of its unclaimed and
abandoned property laws to Spreebird certificates, or if the estimates that we use in projecting
the likelihood of Spreebird certificates being redeemed prove to be inaccurate, our liabilities
with respect to unredeemed Spreebird certificates may be materially higher than the amounts shown
in our financial statements. If we are required to materially increase the estimated liability
recorded in our financial statements with respect to unredeemed gift cards, our net income could be
materially and adversely affected. Moreover, a successful challenge to our position could subject
us to penalties or interest on unreported and unremitted sums, and any such penalties or interest
would have a further material adverse impact on our net income.
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Government regulation of the internet and e-commerce is evolving, and unfavorable changes or
failure by us to comply with these regulations could substantially harm our Spreebird business and
results of operations.
We are subject to general business regulations and laws as well as regulations and laws
specifically governing the internet and e-commerce. Existing and future regulations and laws could
impede the growth of the internet or other online services. These regulations and laws may involve
taxation, tariffs, subscriber privacy, data protection, content, copyrights, distribution,
electronic contracts and other communications, consumer protection, the provision of online payment
services and the characteristics and quality of services. It is not clear how existing laws
governing issues such as property ownership, sales and other taxes, libel and personal privacy
apply to the internet as the vast majority of these laws were adopted prior to the advent of the
internet and do not contemplate or address the unique issues raised by the internet or e-commerce.
In addition, it is possible that governments of one or more countries may seek to censor content
available on our websites and applications or may even attempt to completely block access to our
websites. Adverse legal or regulatory developments could substantially harm our business.
New tax treatment of companies engaged in internet commerce may adversely affect the commercial use
of our services and our financial results.
Due to the global nature of the internet, it is possible that various states or foreign countries
might attempt to regulate our transmissions or levy sales, income or other taxes relating to our
activities. Tax authorities at the international, federal, state and local levels are currently
reviewing the appropriate treatment of companies engaged in internet commerce. New or revised
international, federal, state or local tax regulations may subject us or our Spreebird subscribers
to additional sales, income and other taxes. We cannot predict the effect of current attempts to
impose sales, income or other taxes on commerce over the internet. New or revised taxes and, in
particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business
online and decrease the attractiveness of advertising and selling goods and services over the
internet. New taxes could also create significant increases in internal costs necessary to capture
data, and collect and remit taxes. Any of these events could have an adverse effect on our business
and results of operations.
Failure to comply with federal, state and international privacy laws and regulations, or the
expansion of current or the enactment of new privacy laws or regulations, could adversely affect
our business.
A variety of federal, state and international laws and regulations govern the collection, use,
retention, sharing and security of consumer data. The existing privacy-related laws and regulations
are evolving and subject to potentially differing interpretations. In addition, various federal,
state and foreign legislative and regulatory bodies may expand current or enact new laws regarding
privacy matters. For example, recently there have been Congressional hearings and increased
attention to the capture and use of location-based information relating to users of smartphones and
other mobile devices. We have posted privacy policies and practices concerning the collection, use
and disclosure of subscriber data on our websites and applications. Several internet companies have
incurred penalties for failing to abide by the representations made in their privacy policies and
practices. In addition, several states have adopted legislation that requires businesses to implement and maintain reasonable security procedures and
practices to protect sensitive personal information and to provide notice to consumers in the event
of a security breach. Any failure, or perceived failure, by us to comply with our posted privacy
policies or with any data-related consent orders, Federal Trade Commission requirements or orders
or other federal, state or international privacy or consumer protection-related laws, regulations
or industry self-regulatory principles could result in claims, proceedings or actions against us by
governmental entities or others or other liabilities, which could adversely affect our business. In
addition, a failure or perceived failure to comply with industry standards or with our own privacy
policies and practices could result in a loss of Spreebird subscribers or merchants and adversely
affect our business. Federal, state and international governmental authorities continue to evaluate
the privacy implications inherent in the use of third-party web cookies for behavioral
advertising. The regulation of these cookies and other current online advertising practices could
adversely affect our business.
Our total number of Spreebird subscribers may be higher than the number of our actual individual
Spreebird subscribers and may not be representative of the number of persons who are active
potential customers.
Our total number of Spreebird subscribers may be higher than the number of our actual individual
Spreebird subscribers because some Spreebird subscribers have multiple registrations, other
Spreebird subscribers have died or become incapacitated and others may have registered under
fictitious names. Given the challenges inherent in identifying these Spreebird subscribers, we do
not have a reliable system to accurately identify the number of actual individual Spreebird
subscribers, and thus we rely on the number of total Spreebird subscribers as our measure of the
size of our Spreebird subscriber base. In addition, the number of Spreebird subscribers includes
the total number of individuals that have completed registration through a specific date, less
individuals who have unsubscribed, and should not be considered as representative of the number of
persons who continue to actively consider our deals by reviewing our email offers.
We depend on the continued growth of online commerce.
The business of selling goods and services over the internet, particularly through coupons, is
dynamic and relatively new. Concerns about fraud, privacy and other problems may discourage
additional consumers and merchants from adopting the internet as a medium of commerce.
Additionally, acquiring new Spreebird subscribers for our services may be more difficult and costly
than it has been in the past. In order to expand our Spreebird subscriber base, we must appeal to
and acquire Spreebird subscribers who historically have used traditional means of commerce to
purchase goods and services and may prefer internet analogues to our offerings, such as the
retailers own website. If these consumers prove to be less active than our earlier Spreebird
subscribers, or we are unable to gain efficiencies in our operating costs, including our cost of
acquiring new Spreebird subscribers, our Spreebird business could be adversely impacted.
Our results of operations may be negatively impacted by investments we make as we enter new product
and service categories.
We have offered Spreebird certificates in over 15 different types of businesses, services and
activities that fall into six broad categories. We intend to continue to invest in the development
of our existing categories and to expand into new categories. We may make substantial investments
in such new categories in anticipation of future revenue. We may also face greater competition in
specific categories from internet sites that are more focused on such categories. If the launch of
a new category requires investments greater than we expect, if we are unable to generate sufficient
merchant offers which are of high quality, value and variety or if the revenue generated from a new
category grows more slowly or produces lower gross profit than we expect, our results of operations
could be adversely impacted.
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Failure to deal effectively with fraudulent transactions and subscriber disputes would increase our
loss rate and harm our Spreebird business.
Spreebird certificates are issued in the form of redeemable coupons with unique identifiers. It is
possible that consumers or other third parties will seek to create counterfeit Spreebird
certificates in order to fraudulently purchase discounted goods and services from our merchants.
While we use advanced anti-fraud technologies, it is possible that technically knowledgeable criminals will attempt to circumvent our anti-fraud systems
using increasingly sophisticated methods. In addition, our service could be subject to employee
fraud or other internal security breaches, and we may be required to reimburse consumers and/or
merchants for any funds stolen or revenue lost as a result of such breaches. Our merchants could
also request reimbursement, or stop using Spreebird, if they are affected by buyer fraud or other
types of fraud.
We may incur significant losses from fraud and counterfeit Spreebird certificates. We may incur
losses from claims that the consumer did not authorize the purchase, from merchant fraud, from
erroneous transmissions, and from consumers who have closed bank accounts or have insufficient
funds in them to satisfy payments. In addition to the direct costs of such losses, if they are
related to credit card transactions and become excessive, they could potentially result in our
losing the right to accept credit cards for payment. If we were unable to accept credit cards for
payment, we would suffer substantial reductions in revenue, which would cause our Spreebird
business to suffer. While we have taken measures to detect and reduce the risk of fraud, these
measures need to be continually improved and may not be effective against new and continually
evolving forms of fraud or in connection with new product offerings. If these measures do not
succeed, our Spreebird business will suffer.
We are subject to payments-related risks.
We accept payments using a variety of methods, including credit card, debit card and gift
certificates. As we offer new payment options to consumers, we may be subject to additional
regulations, compliance requirements and fraud. For certain payment methods, including credit and
debit cards, we pay interchange and other fees, which may increase over time and raise our
operating costs and lower profitability. We rely on third parties to provide payment processing
services, including the processing of credit cards and debit cards and it could disrupt our
Spreebird business if these companies become unwilling or unable to provide these services to us.
We are also subject to payment card association operating rules, certification requirements and
rules governing electronic funds transfers, which could change or be reinterpreted to make it
difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we
may be subject to fines and higher transaction fees and lose our ability to accept credit and debit
card payments from consumers or facilitate other types of online payments, and our Spreebird
business and operating results could be adversely affected.
We are also subject to or voluntarily comply with a number of other laws and regulations relating
to money laundering, international money transfers, privacy and information security and electronic
fund transfers. If we were found to be in violation of applicable laws or regulations, we could be
subject to civil and criminal penalties or forced to cease our payments services business.
Federal laws and regulations, such as the Bank Secrecy Act and the USA PATRIOT Act and similar
foreign laws, could be expanded to include Spreebird certificates.
Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and
regulations, such as the European Directive on the prevention of the use of the financial system
for the purpose of money laundering and terrorist financing, impose certain anti-money laundering
requirements on companies that are financial institutions or that provide financial products and
services. For these purposes, financial institutions are broadly defined to include money services
businesses such as money transmitters, check cashers and sellers or issuers of stored value cards.
Examples of anti-money laundering requirements imposed on financial institutions include subscriber
identification and verification programs, record retention policies and procedures and transaction
reporting. We do not believe that we are a financial institution subject to these laws and
regulations based, in part, upon the characteristics of Spreebird certificates and our role with
respect to the distribution of Spreebird certificates to subscribers. However, the Financial Crimes
Enforcement Network, a division of the U.S. Treasury Department tasked with implementing the
requirements of the Bank Secrecy Act, recently proposed amendments to the scope and requirements
for parties involved in stored value or prepaid access cards, including a proposed expansion of
financial institutions to include sellers or issuers of prepaid access cards. In the event that
this proposal is adopted as proposed, it is possible that a Spreebird certificate could be
considered a financial product and that we could be a financial institution. In the event that we
become subject to the requirements of the Bank Secrecy Act or any other anti-money laundering law
or regulation imposing obligations on us as a money services business, our regulatory compliance
costs to meet these obligations would likely increase which could reduce our net income.
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State and foreign laws regulating money transmission could be expanded to include Spreebird
certificates.
Many states and certain foreign jurisdictions impose license and registration obligations on those
companies engaged in the business of money transmission, with varying definitions of what
constitutes money transmission. We do not currently believe we are a money transmitter given our
role and the product terms of Spreebird. However, a successful challenge to our position or
expansion of state or foreign laws could subject us to increased compliance costs and delay our
ability to offer Spreebird certificates in certain jurisdictions pending receipt of any necessary
licenses or registrations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Removed and Reserved
Item 5. Other Information
None
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Item 6. Exhibits
Exhibit | ||
Number | Description | |
1.1(1)
|
Underwriting Agreement dated January 14, 2011, by and between Registrant and Canaccord Genuity Inc. | |
3.1 (2)
|
Amended and Restated Certificate of Incorporation of the Registrant | |
3.2 (3)
|
Amendment to Restated Certificate of Incorporation of the Registrant | |
3.2 (4)
|
Amended and Restated Bylaws of the Registrant | |
3.3 (5)
|
Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into Interchange Corporation | |
3.4 (6)
|
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Local.com Corporation. | |
4.1 (6)
|
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)#
|
Fourth Amended and Restated Employment Agreement by and between the Registrant and Kenneth S. Cragun dated January 5, 2011. | |
10.2 (8)
|
Asset Purchase Agreement by and among the Registrant and DigitalPost Interactive, Inc. dated February 11, 2011. | |
10.3 (9)
|
Promissory note by and among the Registrant and DigitalPost Interactive, Inc. dated March 10, 2011. | |
10.4 (10)
|
Termination of Asset Purchase Agreement dated February 11, 2011, by and among the Registrant and DigitalPost Interactive, Inc. dated March 23, 2011. | |
10.5 (11)
|
Asset Purchase Agreement by and among the Registrant and DigitalPost Interactive, Inc. dated April 4, 2011. | |
10.6 (11)†
|
Amendment No. 2 to Yahoo! Publisher Network Agreement dated April 4, 2011, by and among the Registrant and Yahoo! Inc. | |
10.7(11)†
|
Amendment No. 2 to SuperMedia Superpages Advertising Distribution Agreement dated April 5, 2010, by and between the Registrant and SuperMedia LLC. | |
10.8(12)
|
Stock Purchase Agreement by and among Local.com Corporation, Krillion, Inc. the stockholders of Krillion, Inc., and Hummer Winbald Venture Partners V, L.P., as stockholders agent dated April 29, 2011. | |
10.9(13)
|
Amendment Number 3 to Yahoo! Publisher Network Contract dated May 6, 2011, by and among the Registrant and Yahoo! Inc. | |
10.10(14)#
|
Separation and General Release Agreement by and between the Registrant and Stanley B. Crair dated May 11, 2011. | |
10.11(14)#
|
Amended and Restated Employment Agreement by and between the Registrant and Michael Sawtell dated May 12, 2011. | |
10.12(15)†
|
Google Services Agreement dated June 30, 2011 by and among the Registrant and Google Inc. | |
31.1*
|
Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 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**
|
Interactive data files: (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 30, 2010, (ii) the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and June 30, 2010, (iii) Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements. |
* | Filed herewith. | |
# | Indicates management contract or compensatory plan. | |
** | Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. | |
† | Application has been made with the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. | |
(1) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 14, 2011. | |
(2) | Incorporated by reference from the Registrants Statement on Form SB-2, Amendment No. 2, filed with the Securities and Exchange Commission on September 16, 2004. | |
(3) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2009 |
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(4) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 2, 2007. | |
(5) | Incorporated by reference from the Registrants Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on November 2, 2006. | |
(6) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 15, 2008. | |
(7) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 5, 2011. | |
(8) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 16, 2011. | |
(9) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 15, 2011. | |
(10) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 29, 2011. | |
(11) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 8, 2011. | |
(12) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2011. | |
(13) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on May11, 2011. | |
(14) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 16, 2011. | |
(15) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2011. |
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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.COM CORPORATION |
||||
August 9, 2011 | /s/ Heath B. Clarke | |||
Date | Heath B. Clarke | |||
Chief Executive Officer (principal executive officer) and Chairman |
||||
August 9, 2011 | /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 | |
1.1(1)
|
Underwriting Agreement dated January 14, 2011, by and between Registrant and Canaccord Genuity Inc. | |
3.1 (2)
|
Amended and Restated Certificate of Incorporation of the Registrant | |
3.2 (3)
|
Amendment to Restated Certificate of Incorporation of the Registrant | |
3.2 (4)
|
Amended and Restated Bylaws of the Registrant | |
3.3 (5)
|
Certificate of Ownership and Merger of Interchange Merger Sub, Inc. with and into Interchange Corporation | |
3.4 (6)
|
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Local.com Corporation. | |
4.1 (6)
|
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)#
|
Fourth Amended and Restated Employment Agreement by and between the Registrant and Kenneth S. Cragun dated January 5, 2011. | |
10.2 (8)
|
Asset Purchase Agreement by and among the Registrant and DigitalPost Interactive, Inc. dated February 11, 2011. | |
10.3 (9)
|
Promissory note by and among the Registrant and DigitalPost Interactive, Inc. dated March 10, 2011. | |
10.4 (10)
|
Termination of Asset Purchase Agreement dated February 11, 2011, by and among the Registrant and DigitalPost Interactive, Inc. dated March 23, 2011. | |
10.5 (11)
|
Asset Purchase Agreement by and among the Registrant and DigitalPost Interactive, Inc. dated April 4, 2011. | |
10.6 (11)†
|
Amendment No. 2 to Yahoo! Publisher Network Agreement dated April 4, 2011, by and among the Registrant and Yahoo! Inc. | |
10.7(11)†
|
Amendment No. 2 to SuperMedia Superpages Advertising Distribution Agreement dated April 5, 2010, by and between the Registrant and SuperMedia LLC. | |
10.8(12)
|
Stock Purchase Agreement by and among Local.com Corporation, Krillion, Inc. the stockholders of Krillion, Inc., and Hummer Winbald Venture Partners V, L.P., as stockholders agent dated April 29, 2011. | |
10.9(13)
|
Amendment Number 3 to Yahoo! Publisher Network Contract dated May 6, 2011, by and among the Registrant and Yahoo! Inc. | |
10.10(14)#
|
Separation and General Release Agreement by and between the Registrant and Stanley B. Crair dated May 11, 2011. | |
10.11(14)#
|
Amended and Restated Employment Agreement by and between the Registrant and Michael Sawtell dated May 12, 2011. | |
10.12(15)†
|
Google Services Agreement dated June 30, 2011 by and among the Registrant and Google Inc. | |
31.1*
|
Certification of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 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**
|
Interactive data files: (i) Condensed Consolidated Balance Sheets at June 30, 2011 and December 30, 2010, (ii) the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and June 30, 2010, (iii) Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements. |
* | Filed herewith. | |
# | Indicates management contract or compensatory plan. | |
** | Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. | |
† | Application has been made with the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission. | |
(1) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 14, 2011. | |
(2) | Incorporated by reference from the Registrants Statement on Form SB-2, Amendment No. 2, filed with the Securities and Exchange Commission on September 16, 2004. | |
(3) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 17, 2009 |
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(4) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 2, 2007. | |
(5) | Incorporated by reference from the Registrants Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on November 2, 2006. | |
(6) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 15, 2008. | |
(7) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 5, 2011. | |
(8) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 16, 2011. | |
(9) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 15, 2011. | |
(10) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 29, 2011. | |
(11) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 8, 2011. | |
(12) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2011. | |
(13) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 11, 2011. | |
(14) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 16, 2011. | |
(15) | Incorporated by reference from the Registrants Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 7, 2011. |
39