10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from to

Commission file number: 001-34749

REACHLOCAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-0498783
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
21700 Oxnard Street, Suite 1600 Woodland Hills, California	91367
(Address of principal executive offices)	(Zip Code)

(818) 274-0260

(Registrant’s telephone number, including area code)

None

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

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

Title of each class	Name of each exchange on which registered
Common Stock, $0.00001 par value per share	The NASDAQ Stock Market LLC

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

None

(Title of Class)

(Title of Class)

PAGE 1

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

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

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

As of June 30, 2012, the aggregate market value of the common stock held by non-affiliates of the registrant was $107,543,018 based on a closing price of $11.00 on the NASDAQ Global Market on such date.

Class	Outstanding at March 5, 2013
Common Stock, $0.00001 par value per share	28,265,404 shares

Documents Incorporated by Reference

Portions of the registrant’s Proxy Statement relating to the registrant’s 2013 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

PAGE 2

REACHLOCAL, INC.

INDEX TO FORM 10-K

		Page
Part I
Item 1.	Business	4
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	31
Item 2.	Properties	31
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	54
Item 8.	Financial Statements and Supplementary Data	55
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	55
Item 9A.	Controls and Procedures	55
Item 9B.	Other Information	55
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	56
Item 11.	Executive Compensation	56
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
Item 13.	Certain Relationships and Related Transactions, and Director Independence	56
Item 14.	Principal Accounting Fees and Services	56
Part IV
Item 15.	Exhibits, Financial Statement Schedules	F-1
Signatures		F-30
Exhibit Index		F-34

PAGE 3

PART I

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

In this document, ReachLocal, Inc. and its subsidiaries are referred to as “we,” “our,” “us,” the “Company” or “ReachLocal.”

This annual report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Annual Report on Form 10-K. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Item 1. Business.

Business Overview

Our mission is to help small- and medium-sized businesses, or SMBs, acquire, transact with, maintain and retain customers via the Internet. We offer a comprehensive suite of online marketing and reporting solutions, including ReachSearch™ (search engine marketing), ReachCast™ (Web presence), ReachDisplay™ (display advertising),  ReachRetargeting™ (display retargeting), online marketing analytics, and other related products and solutions, each targeted to the SMB market. In 2013, we expect to expand our product suite to include ReachSite (a website solution) and two software-as-a-service, or SaaS, products: ReachConvert (marketing automation and lead conversion) and ReachCommerce (supporting online booking, transaction and back office processes).  We deliver these solutions to SMBs through a combination of our proprietary platform, the RL Platform, and our direct, “feet-on-the-street” sales force of Internet Marketing Consultants, or IMCs, and select third-party agencies, resellers and a franchisee.

We use our RL Platform to create advertising campaigns for SMBs to target potential customers in their geographic area, optimize those campaigns in real time and track tangible results. Through a single internet advertising budget, we enable our clients to reach local customers —whether using traditional computing devices or mobile devices—across the Internet, including through all of the major search engines and leading general interest and vertically focused online publishers. In 2010, we expanded the RL Platform to include ReachCast, our full-service Web presence and social media solution, and in September 2012, we launched ReachRetargeting, a ReachDisplay product targeting local consumers who have recently searched for an SMB’s business keywords as well as those who have recently visited their website. We continue to expand the RL Platform to include additional advertising products designed specifically for the needs of our SMB clients. Empowered by the RL Platform, our IMCs, which are based in or near the cities in which our clients operate, establish a direct consultative relationship with our clients and provide our solutions to achieve their marketing objectives.

At December 31, 2012, we managed 32,500 Active Campaigns across 22,000 Active Advertisers, a substantial majority of which spend from $500 to $4,000 per month with us (see Part II, Item 6, “Selected Financial Data” for an explanation of how we define Active Campaigns and Active Advertisers). Our clients include SMBs in five primary industry verticals:healthcare, home services, professional services, automotive, and specialty services. Since inception, we have delivered to our SMB clients over 700 million geographically targeted clicks and over 100 million leads, including 50 million phone calls. At December 31, 2012, we employed 824 IMCs in North America, Australia, the United Kingdom, Germany, the Netherlands, Japan and Brazil, and worked with over 620 third-party agencies and resellers that use the RL Platform to serve their SMB clients. We continue to expand our IMC sales force both in existing and new markets. We have business development and account management resources to develop and support our third-party agencies and resellers and National Brands advertisers.

PAGE 4

In 2013, we expect to roll-out a new suite of products.  ReachSite is a new website solution product that is intended to help businesses turn more of their website visitors into leads. ReachConvert is a SaaS product that helps businesses manage their leads and convert more of them into customers. ReachConvert is currently in beta in North America. ReachCommerce, also a SaaS product, enables local businesses to take their entire booking and buying process online. The product will initially be focused on merchants in the home services vertical.

We have developed a new consumer service, ClubLocal, through which we create a direct relationship with consumers and provide home-related services by engaging third-party suppliers who perform the agreed services on our behalf. ClubLocal has been in beta in Dallas-Fort Worth since July 2012. We expect to launch in a second ClubLocal beta market, San Francisco, in 2013.  The revenue from ClubLocal was immaterial in 2012.

We generate revenue by providing online advertising solutions for our clients through our ReachSearch, ReachDisplay, ReachCast and ReachRetargeting products, and our other products and services. We reported revenues of $455.4 million in 2012 and $375.2 million in 2011, representing an increase of 21.3%, Adjusted EBITDA of $23.6 million in 2012 and $15.9  million in 2011, representing an increase of 49%, a $0.2 million loss from continuing operations in 2012 and an $4.1  million loss from continuing operations in 2011, and a $0.2 million net loss in 2012 and a $10.3 million net loss in 2011.  For more financial information, see our Consolidated Financial Statements, beginning on page F-1, and see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for our definition of Adjusted EBITDA, why we present it and a reconciliation of our Adjusted EBITDA to loss from operations for each of the periods presented.

Industry Overview

The Local SMB Advertising and Commerce Market

SMBs serving local markets represent significant economic activity, control substantial purchasing power and address the needs of hundreds of millions of consumers. These SMBs include businesses such as lawyers, physicians, car dealers, dentists, plumbers, florists and local operations of national chains. To generate and sustain their businesses, SMBs spend money to market their services and to acquire, maintain and retain customers, and the associated expenditures are critical components of the operating budget for many SMBs, particularly given the potential value of each customer over the lifetime of the relationship. For example, a new dental patient may generate several hundred dollars in revenue during the first visit, thousands of dollars in subsequent visits and make referrals to friends and family that generate significant additional revenue. In addition to their customer acquisition efforts, increasingly SMBs are looking for platforms that enable them to transact with their customers online.  These efforts to manage the entire customer experience online—from lead generation to transaction execution to overall customer management—are key to the success of SMBs.

An SMB’s owner and operator is also typically its chief marketing officer because the business is too small to justify hiring dedicated marketing personnel. Companies that operate traditional offline media formats, such as the yellow pages, newspapers, radio stations and direct mail publishers, adapted to the limited amount of time and effort that SMB owners and operators are normally able to devote to advertising and marketing by developing products, distribution and service delivery models that greatly simplified the marketing process for SMBs. The products sold by these offline media companies—namely, space in their directories and periodicals or time on the radio and television—were easy to understand (e.g., a flat $1,500 a month for a quarter page ad in the yellow pages). Because of their scale, these traditional offline media companies were able to deploy direct local sales forces that walked into the SMB’s place of business, presented a media package that gave the SMB broad customer reach through a single advertising purchase, assisted in the creation of the media advertisement for the SMB and ultimately asked the SMB to do little more than write a check. The SMB owner and operator was able to focus his or her efforts on running the business with little attention to these marketing efforts.   Marketing in the offline world for an SMB was therefore relatively straightforward. There were a limited number of advertising channels, the channel owners sent dedicated personnel to visit and serve the SMB, and the SMB did not need to invest resources in managing the process.

The Digitization of Local Advertising and Local Commerce

Over the past decade, the local advertising market for SMBs and other local businesses has undergone rapid and fundamental changes. The delivery and consumption of local advertising, like all media, is becoming increasingly fragmented and digitized. Many consumers who used to search for a local business in the yellow pages or the local newspaper are now going online and searching on Google, checking reviews on Yelp and Citysearch, buying coupons on Groupon and LivingSocial, and asking their friends for their opinions through Facebook and Twitter. In addition, consumers have begun to directly book and buy local services online that traditionally were only booked or bought off-line.  Existing offerings from companies such as OpenTable (finding a restaurant) as well as new offerings from companies such as ZocDoc (finding a doctor) and Uber (booking and buying car services) consolidate many of the steps of acquiring and transacting with a customer into a single simple online experience.  This consumer-led digital transformation has profoundly disrupted the ways that businesses of all sizes need to acquire, transact with, maintain and retain their customers. As the Internet continues to grow and evolve, we believe that these trends will accelerate. To keep pace with this transformation, we believe that SMBs need to follow their customers and move an increasing portion of their marketing efforts and spend online.

PAGE 5

The Local Challenge

The growth of local online advertising spend has, however, significantly lagged the increase in online media consumption. We believe that this lag is the result of two significant challenges:

•  The Product Challenge: Re-create with online media the ease of purchasing and breadth of customer reach to which SMBs are accustomed with offline media. For owners and operators of SMBs, building an efficient and effective online marketing presence is a significant challenge, especially given the highly fragmented landscape of digital media publishers. In addition, SMBs want to manage the entire customer experience from lead generation to transaction execution to overall customer management through a single technology platform. While it is possible for an SMB to purchase various products that address these needs on an a la carte basis, we believe that these  products do not address the fundamental needs and business realities of the SMB advertiser, which include a lack of time and resources to research and integrate the various solution providers, lack of expertise, lack of transparency into performance, and lack of economic incentive relative to the time required.

• The Distribution Challenge: Re-create the ability to sell local online advertising products to SMBs in the manner to which they are accustomed purchasing offline advertising products. Selling advertising to SMBs is difficult, and creating and sustaining a local sales force to address the SMB market requires substantial investment. The SMB market is fragmented, and SMB owners and operators are busy running their businesses and have little time to consider new marketing options. Accordingly, SMBs require a third party to work with them in developing their marketing strategy.

The ReachLocal Solution

We combine advanced, publisher-agnostic technology and an experienced, digitally sophisticated direct sales force to provide SMBs with a single, easy to use and cost-effective solution to acquire, maintain and retain customers using digital media. Our target market is SMBs that spend at least $5,000 per year on advertising.

The Product Solution

Our RL Platform addresses the needs of the SMB and re-creates the simplicity and effectiveness with which SMBs have traditionally purchased offline advertising. Our product solutions include the following key features:

• One Check: The Internet Budget. Through the simplicity of a single Internet advertising budget, the RL Platform allows us to connect SMBs to multiple online publishers. We connect the SMB to a broad range of destinations on the Internet, including:

• major search engines such as Google, Yahoo!, Bing, AOL and Ask.com;

• an extensive network of local search and directory sites such as Superpages, Citysearch, Local.com, MagicYellow and others;

• leading display advertising networks such as Yahoo!/Right Media and the Google display network; and

• leading social media sites, such as Facebook and Twitter.

The RL Platform automates connections to publicly available, self-service advertising and social media platforms through application programming interfaces, or APIs, specific to those platforms. The RL Platform also allows us to provide SMBs with access to a greater breadth of media because we are able to leverage our significant customer base to gain access to advertising inventory typically unavailable to an SMB with a modest advertising budget. By combining these features, the RL Platform allows us to offer SMBs the simplicity of a single Internet advertising budget that connects them to a diverse array of online publishers.

PAGE 6

• Do It for Me: End-to-End Execution. The RL Platform is a proprietary, end-to-end technology platform that enables us to execute an online marketing campaign on behalf of an SMB. The RL Platform is a software-based solution that combines back-end automation and optimization technologies to manage advertising spend across a broad array of online publishers and media outlets. For advertisers interested in search engine marketing, the RL Platform automates the build-up of keyword search criteria for the leading search engines using a library of more than 20 million keywords. The RL Platform matches, sets and optimizes the bids for these keywords based on the SMB’s products and services as well as the SMB’s targeted geographic areas. For advertisers interested in display advertising, the RL Platform places display advertisements on websites selected in accordance with an SMB’s target geographic, demographic and behavioral profiles. For advertisers seeking social media and web presence solutions, the RL Platform integrates with leading social media sites, such as Facebook and Twitter.

• Do It Better Than I Can: Efficient and Optimized Buying. The RL Platform runs a set of proprietary algorithms multiple times a day to evaluate each publisher and each keyword and dynamically shifts spend to continuously optimize and improve the performance of our SMBs’ campaigns. We have run tens of thousands of online marketing campaigns for SMBs, and this scale and experience in purchasing online advertising from publishers allows us to make more efficient and effective purchasing decisions on behalf of our clients.

• Prove It: Calls, not Just Clicks. We employ a proprietary reverse proxy technology that automatically tracks campaign-generated activity, such as phone calls, e-mails and site navigation, without requiring the SMB to alter its website or maintain a separate website. SMBs can log in to the RL Platform to monitor their advertising spend on a daily basis and determine, for example, which online campaign generated which phone call. In addition, the RL Platform allows the SMB to use reverse lookup technology to see who called and provides a recording of each phone call. The ability of our RL Platform to allow SMBs to track accurately offline activity — principally phone calls — is a critical source of differentiation from available self-service online advertising platforms, which currently provide SMBs no data regarding offline activity.

Each of our products includes, through a single budget, access to multiple publishers, some of which are not available to SMBs, as well as access to our proprietary optimization and tracking technologies that dynamically adjust the publishers to which we allocate clients’ media spend in order to meet their performance objectives. In addition, powered by our RL Platform, we also offer non-media based digital marketing solutions, such as ReachCast, TotalLiveChat.  In addition, in 2013, we will be offering a number of other products and services to support the online marketing and local commerce needs of our SMB clients, such as ReachSite, ReachConvert and ReachCommerce. For these reasons, while we rely on third-party publishers for the substantial majority of the media we purchase on behalf of our clients, we are not simply a reseller of media; rather, we market our products as a complete package of services intended to drive the success of our clients.

The Distribution Solution

Our distribution solution is built around a direct, locally based sales force of IMCs who, empowered by the RL Platform, engage with our clients to help them achieve their marketing objectives in the consultative manner to which SMBs are accustomed.

The key characteristics of our IMC sales force are as follows:

• Internet-Focused and Trained. Our IMCs are 100% focused on selling Internet-based advertising products. This exclusive focus is unlike the sales forces of existing offline media companies that cross-sell online and offline advertising, often with an inherent bias towards their own offline products.

• Locally Based. Our 824 IMCs are located in 60 markets in North America, Australia, the United Kingdom, Germany,  Netherlands, Japan and Brazil where their clients are based, enabling them to provide the personal connection that is necessary for the IMC to develop and maintain a relationship with our clients. In our experience, our Direct Local clients, a substantial majority of which we calculate spend from $500 to $4,000 per month, require face-to-face interaction that is consistent with the way the SMB has historically purchased offline media.

• Consultative. Our IMCs are trained to consult with, educate and guide SMBs through the opportunities arising from and mechanics of purchasing online advertising.

In addition, we have a separate sales channel targeting national brands with operations in multiple local markets and select third-party agencies and resellers.

PAGE 7

We believe that the ReachLocal solution, a combination of technology and human capital, gives our SMB clients access to technology and media that they could not access by themselves, and we prove that it works in ways they understand. We allow SMBs to write a single check while we do the rest.

The ReachLocal Advantage

We have been a pioneer in addressing the needs of SMBs seeking local Internet advertising solutions and have focused solely on this market for more than nine years.

Scale and Experience

We have run tens of thousands of online marketing campaigns for SMBs. Our scale and experience in purchasing online advertising from publishers allows us to make more efficient and effective purchasing decisions on behalf of our clients. In addition, the RL Platform enables us to connect our SMB clients to a wide array of online publishers. Our platform not only allows us to expand the reach of our publisher network, but also allows us quickly to test and identify better performing advertising options for our clients. In addition, our leadership position in the local Internet advertising market provides us with the ability to attract and retain as IMCs experienced local salespeople who understand the transformative power of the Internet.

Client Relationships

Our IMCs establish a direct relationship with SMB clients. In 2012 and 2011, we generated 79% and 78%, respectively, of our revenue through our Direct Local channel. As new online advertising opportunities emerge, such as mobile, video and social media, we believe that having a direct client relationship will enable us to offer additional products and services to our clients. We are able to leverage both our sales force and the collective purchasing power of our SMB clients for the mutual benefit of our clients and third-party publishers. We provide publishers with no or a limited sales force access to SMB clients, which, in turn, enables us to offer our SMB clients advertising opportunities that they would not be able to obtain on their own. We believe that adding more publishers will attract additional advertisers which, in turn, will attract still more publishers.

Technology

Running thousands of SMB online advertising campaigns simultaneously across multiple publishers poses significant technical challenges. While technologies exist to help larger companies manage and optimize their online marketing spend, we believe that such solutions are too expensive and too complex to scale down to the typical SMB’s monthly advertising budget. We have built our services, systems and networks for maximum scalability and flexibility to manage these types of campaigns, and we have invested heavily in automation technologies that reduce the level of human intervention required to support these campaigns. This automation is critical to our ability to scale our business and deliver moderately budgeted campaigns in a cost-effective manner. We continually strive to develop technologies that allow us to improve the match of our solutions to the demands of our SMB clients. For example, our development of our reverse proxy technology has opened up a new way for SMBs to track and understand the tangible results of their online advertising, enabling us to incorporate offline conversion events, such as phone calls, into the optimization of the client’s online marketing campaign. As we continue to gather online and offline conversion data from marketing campaigns conducted through our RL Platform, we will continue to refine our operations to increase efficiencies and generate better results for our SMB clients.

Our Strategy

We believe that we are in the early stages of a large and long-term business opportunity presented by the shift of local marketing budgets from traditional media formats to digital media formats. Our strategy for pursuing this opportunity includes the following key components:

• Continue to Expand the Reach of our IMC Sales Force. We intend to continue to increase the size of our traditional IMC sales force in selective territories, particularly internationally.  In addition, starting in 2012, we began testing an inside sales force to address second and third tier markets.  We believe that these markets, while smaller, still present significant opportunities for growth, and the use of an inside sales force enables us to pursue those smaller markets in a more cost effective fashion.  In 2013, we intend to roll-out our inside sales efforts more broadly in North America.

• Expand Internationally. The local challenge is a global one, and we have found our product and distribution solutions to be well received in our international markets. Generally, our international IMCs are more productive than our domestic IMCs and we therefore intend to continue growing our international sales force and make other investments in service of those markets.

PAGE 8

• Increase IMC Productivity. We intend to continue to invest in our service delivery model and our sales approach to provide our IMCs with additional capacity and tools to manage and acquire more advertisers. For example, we are in the process of organizing our sales and service organization into verticals so that we can leverage greater subject matter expertise, we continue to explore different staffing approaches to enhance the IMC’s opportunity to  focus on new client acquisition, and we are deploying additional technology to make the selling process more efficient.

• Expand Media Offerings. We have developed a platform that enables us more easily to connect our SMB advertisers to a broader array of online publishers and, in the future, to reach customers through new formats such as mobile and video. Our plan has been, and continues to be, to fulfill, track and optimize an SMB’s entire digital media plan, regardless of media property or format. In addition, in 2012 we launched our ReachRetargeting product, a display advertising solution that targets consumers who have searched for a client’s keywords and those who have visited a client’s website.

• Develop Digital Marketing Software Solutions. Our current products target our clients’ needs to acquire customers through online media buying. We believe that there will be continued movement towards digital platforms in the other segments of an SMB’s marketing activities, such as marketing automation, lead conversion and customer relationship management. To address these and other needs, we plan to continue investing in the internal development or potential acquisition of products and services in these adjacent segments. For example, we recently announced the beta release of ReachConvert, a SaaS marketing automation solution designed to increase our client’s ability to track, respond to and convert leads.  ReachConvert is based on the technology we acquired in the acquisition of the assets of Real Practice in 2012.  We will continue to focus on expanding our relationship and utility to our clients through product innovation and new marketing solutions.

• Develop New Products Supporting Local Transactions.  Our original focus was to solve the local marketing problem for SMBs by developing innovative solutions to help them generate leads from local consumers.  A natural extension of those efforts is to enable the consumers to digitally book and buy from the SMB. To that end, we are developing a new SaaS product, ReachCommerce, that enables local businesses to take their entire booking and buying process online. In addition to providing a better consumer experience, ReachCommerce also digitizes the merchant’s back-office operation, including scheduling, employee and fleet management, estimating, transaction processing, invoicing, and business intelligence and reporting. ReachCommerce is expected to be released in beta in North America in 2013. The product will initially be focused on merchants in the home services vertical.

• Develop New Consumer Solution to Offer Local Services Online.  We recently began testing a new consumer service, ClubLocal through which we create a direct relationship with consumers and provide home-related services by engaging third-party suppliers who perform the agreed services on our behalf.  ClubLocal enables consumers to instantly book various home services via its website or mobile app. ClubLocal began testing in Dallas-Fort Worth in July 2012 and we are expecting to launch a second ClubLocal beta market in San Francisco in 2013.

Products and Services

We offer a comprehensive suite of SMB-focused online marketing and reporting solutions, including search engine marketing, display advertising, remarketing, digital presence and online marketing analytics, all of which run on our RL Platform.

• ReachSearch. Our ReachSearch product is focused on assuring that our clients’ advertisements appear prominently among the search results when local consumers enter certain keywords on leading local search sites such as Google, Yahoo! and Bing. The RL Platform is directly integrated into the advertising platforms of these and other leading search engines via APIs. In addition, as part of the ReachSearch product, our SMB clients also receive placement in the search results of our extensive network of online publishers and directory sites called the ReachLocal Search Network. This network provides additional qualified local traffic to the SMB and allows the SMB to reach potential customers across a broader range of sites.   The RL Platform automatically matches keywords for a business’ products or services through its extensive category taxonomy and keyword library, and its optimization engine dynamically adjusts keyword-level bids based on which keywords at which publishers are driving the most online leads and phone calls at the lowest price. Based on the SMB’s business and targeted geographic area, the RL Platform automatically paces the SMB’s target monthly budget and allocates and optimizes that budget across search publishers. Our ReachSearch product was introduced in 2004.

PAGE 9

• ReachDisplay. Our ReachDisplay product is primarily focused on maximizing the exposure for an SMB that wants to broadcast a message to a specific target online audience. There are various ReachDisplay products that allow an SMB to target different demographic, vertical and behavioral customer segments. For general exposure in a specific geographic area, the ReachDisplay Awareness package provides the SMB with reach across a network of sites. For advertisers wishing to target by vertical or by specific customer behavior, we offer additional display packages. For example, the ReachDisplay Automotive package provides SMBs in the automotive vertical access to audiences visiting automotive sites as well as customers whose previous behavior indicates that they may be in the market to purchase a car. We offer more than 25 different display advertising products across a wide variety of publishing partners, including Yahoo!/Right Media, Google Display Network, Facebook and other display networks and demand-side platforms. Our ReachDisplay product was introduced in 2009 and we continue to add new publishers and options as display advertising on the Internet evolves.

• ReachCast. ReachCast was introduced in 2010 and combines a proprietary technology platform with an expert service team to help SMBs build and optimize their Web presence for the purpose of driving online search discovery, powering reputation management, and managing social media marketing. As part of the ReachCast service, each SMB is partnered with an expert Web Presence Professional, or WPP, who works directly with the business to develop a strategy to meet their specific goals, starting with a consultation and initial setup of ReachCast and presence creation across Google, Facebook, Twitter and local directories. Then, in consultation with the business, the WPP regularly creates and publishes custom content, posts to social media sites, engages with fans and followers, and monitors online reputation.

• ReachRetargeting. Our remarketing and search retargeting products allow us to target consumers who have previously visited a specific client’s website, either through a ReachSearch campaign or a ReachDisplay campaign, or who have previously searched for a client’s keywords. When the potential customer visits any other site within our remarketing network, we can remarket to the target customer on behalf of that SMB. Because many purchases from local merchants involve an extended research process, providing the SMB with the ability to stay in front of a potential customer who has expressed an initial interest can lead to sales that might not have resulted from a single advertising impression. Our remarketing product, ReachRetargeting, which we introduced in 2012, can be purchased on a standalone basis or can be bundled into the ReachSearch and ReachDisplay product lines.

• ReachConvert.  ReachConvert is a SaaS product that helps businesses manage their leads and convert more of them into customers. ReachConvert notifies the business of new leads in real time via text message, email or the ReachLocal mobile app, so that the business can follow up within minutes. ReachConvert helps the business stay top of mind during the customer decision-making process by automatically sending new prospects targeted emails and sending alerts to the business’s staff reminding them to follow up on each lead. ReachConvert is currently in beta in North America.

• TotalTrack®, TotalLiveChat™, TotalVideoNow™, TotalBannerNow™. As part of our mission to provide a comprehensive suite of digital marketing solutions to SMBs, we have developed various products to address specific marketing needs, such as lead optimization, online analytics and digital creative solutions.

Distribution

We distribute our products and services directly though our sales force of IMCs, who are focused on serving SMBs in their local markets, as well as a separate sales force targeting national brands with operations in multiple local markets and select third-party agencies and resellers.

Internet Marketing Consultants

Our IMCs generally sell our services directly to our SMB clients through an in-person, consultative sales process. Over time, an individual IMC can build a valuable relationship with his or her clients by delivering measurable results via the RL Platform. Our IMCs are trained to explain the benefits of a digitally focused marketing strategy to SMBs which are generally preoccupied with operating and managing their businesses. As an IMC develops a portfolio of SMB clients, the IMC is responsible for calling on and maintaining contact with each client, working with each client to evaluate the performance of its digital campaigns and discussing available options and opportunities to extend or expand each client’s digital spend strategy.  In addition, in 2012 we launched a beta inside sales force to address second and third tier markets.

PAGE 10

Our IMCs are located in 60 markets in North America, Australia, the United Kingdom, Germany, the Netherlands, Japan and Brazil.

We make a significant investment in the hiring, training and ongoing support of our IMCs while they develop a portfolio of SMB clients. Our IMC development program divides IMCs into two groups: Underclassmen, which consists of IMCs during their first 12 months of employment; and Upperclassmen, which consists of IMCs with more than 12 months of employment. Increasing the number of our IMCs has been the principal engine for our growth. In particular, our growth is driven by the increase in the number of Upperclassmen, who are significantly more productive than our Underclassmen. Our recruitment, training and performance system is designed with the objective of increasing the number of our Upperclassmen over time and increasing the percentage of Underclassmen who become Upperclassmen.

At December 31, 2012, we had 405 Underclassmen and 419 Upperclassmen. We have created a system to identify and develop our Underclassmen into Upperclassmen, key elements of which include:

• Recruitment. We invest heavily in recruiting our sales force and have developed an in-house team of specialized recruiters. Typically, each month we hire 40–50 IMCs worldwide, with the hiring weighted towards the first 10 months of the year. IMC recruits are generally required to have at least three to five years of sales experience, preferably serving the SMB market. We generally seek experience selling online advertising and require that all IMC hires be technically proficient. Although many recruits come from traditional media companies where they have sold to the SMB market, we seek IMCs who understand the transformative power of the Internet and who have seen, first hand, the flow of advertising dollars online.

• Training. Each IMC attends a mandatory one week boot camp training session at our sales headquarters in Plano, Texas or, for international IMCs, a similar boot camp closer to their principal office locations. During the week, IMCs learn our business model and their responsibilities in it, learn the fundamentals of search engine and display marketing and social media and reputation management, and are trained on the RL Platform and our suite of products. Once an IMC returns to his or her specific office, the IMC engages in a standard onboarding process that includes hands-on instruction in prospecting SMB clients, scheduling and tracking appointments, and developing presentations for prospective clients. During the remainder of their first 12 months, Underclassmen are required to participate in ongoing training sessions that include general industry updates, RL Platform updates and presentations from Upperclassmen who provide guidance on how to sell to and serve specific SMB verticals.

• Focus on Performance. In order to track performance and underscore expectations, Underclassmen are provided a roadmap of expected performance milestones and receive constant support and counseling during this period to assist them in meeting the milestones and otherwise building a portfolio of SMB clients. We also use this support system to identify and try to remediate any problems if an IMC’s performance deviates too far from expected revenue contributions.

With each new class of IMCs, we track how the IMCs are performing relative to a standard level of revenue growth and other performance metrics for each month after their training. We do not expect all Underclassmen to become Upperclassmen, and our investment decisions anticipate the cost of attrition. We maintain data on the past and current performance of our IMCs, which we use as a basis for our hiring decisions. The performance of past and current IMCs allows us to adjust our investment model in the event there are significant changes in macroeconomic or competitive conditions.

National Brands, Agencies and Resellers

We have a separate sales force targeting national brands with operations in multiple local markets (e.g., franchise organizations) as well as a number of third-party agencies and resellers. The sales process for national brands can differ from the process employed by our IMCs and often requires an endorsement by, and potentially a direct financial contribution from, the parent entity such as a franchisor. If a local operation of one of our national brands requires face-to-face contact with a local sales representative, we are able to offer one of our IMCs to service that local operation.

In addition, we sell and provide access to our RL Platform to select third-party agencies and resellers in customer segments where they have a sales force with established relationships with their SMB client base. We currently have over 620 agencies and resellers actively selling on our RL Platform. We have a team that is responsible for identifying potential agencies and resellers, training their sales forces to sell our products and services and supporting the relationships on an ongoing basis. In addition, in 2012, we entered into our first franchise relationship, in which a third party was given the exclusive right to exploit and resell certain ReachLocal products in selected Eastern European markets under the ReachLocal name.

PAGE 11

Customer Service

Our customer service organization is responsible for providing ongoing support to our sales forces, advertisers and resellers, including technical assistance with the use of the RL Platform, as well as providing product- and campaign-specific technical assistance and recommendations to our SMB clients.

We also field an advanced campaign management team that is responsible for supporting and optimizing the overall performance of the products on a category-by-category level. Our RL Platform has a set of administrator-only tools that is used by the campaign management team to efficiently evaluate the success of ongoing campaigns and to recommend ways for our clients to improve their performance.

With a combination of employees in each of our regional markets and, India, we have a dedicated team focused on the provisioning and review of campaigns before they are deployed. This team is responsible for reviewing the keywords that are automatically generated by the RL Platform, ensuring that the creative aspects of the campaign and editorial standards conform to best practices and overseeing the reverse proxy services for our clients. This team employs automated tools to increase the number of campaigns that can be provisioned per person, per day.

Our team of Web Presence Professionals is responsible for the delivery of the ReachCast service, which includes creating and publishing custom content, posting to social media sites, engaging with fans and followers, and monitoring online reputation.

Technology Operations

Our RL Platform is hosted in various data centers. Our primary data center hardware is co-located in El Segundo, California. We also maintain smaller regional data centers at various locations to support our domestic and international operations. We also have a business continuity and disaster recovery data center hosted in Chandler, Arizona. All facilities employ around-the-clock security personnel, video surveillance and monitoring and are serviced by onsite electrical generators and fire detection and suppression systems. All facilities also have multiple Tier 1 connections to the Internet. We continuously monitor the performance and availability of our products and have well documented procedures to respond to incidents. In addition, we utilize cloud computing providers for certain of our products and services.

We architect our applications to enable us to scale our operations quickly while reducing deployment costs. We have a highly-available, scalable infrastructure that employs hardware load-balancers, redundant interconnected network switches and firewalls, replicated databases and fault-tolerant storage devices.

Product and Technology Development

We devote a substantial portion of our resources to developing new solutions and enhancing existing solutions, conducting product testing and quality assurance testing and improving core technology. We have teams of product and engineering professionals located in various locations in the United States and India.

Intellectual Property

Our success and ability to compete is dependent in part on our ability to develop and maintain the proprietary aspects of our technology and operate without infringing upon the proprietary rights of others. We have patent applications pending on some of our technology, but rely primarily on a combination of copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary technology and information. Among other practices, we enter into confidentiality agreements with our employees, consultants and business partners, and we control access to and distribution of our proprietary information.

On an ongoing basis, we consider trademark registration for some of our product names, slogans and logos in the United States and in some foreign countries. ReachLocal, ReachCast and TotalTrack are registered U.S. trademarks. We have also registered ReachLocal, ReachCast and TotalTrack as trademarks in a number of international territories. Other trademarks we use are ReachSearch, ReachDisplay, ReachRetargeting, ReachConvert and ClubLocal.

We are the registrant of the Internet domain name for our websites as well as for our proxy services, in addition to the international extensions of those domains. The information on, or accessible through, our websites does not constitute part of, and is not incorporated into, this Annual Report.

PAGE 12

Customers

We currently primarily sell to SMB advertisers, national brands, and agencies and resellers. No single advertiser, national brands, or agency or reseller represents more than 10% of our total consolidated revenue.  The customers of ClubLocal are the consumers to whom the services being offered.

Competition

The market for local online advertising solutions is intensely competitive and rapidly changing, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future. Many of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition, longer operating histories and larger marketing budgets, as well as substantially greater financial, technical and other resources. In addition, many of our current and potential competitors have established marketing relationships and access to larger customer bases.

Our competitors include:

• Internet Marketing Providers. We compete with large Internet marketing providers such as Google, Yahoo! and Microsoft. These providers typically offer their products and services through disparate, online-only, self-service platforms. We compete with these companies on the basis of our IMC sales force, our product offerings and our publisher-agnostic services to our clients. Although we compete against the self-service offerings of these large providers, we also have business relationships with them and we believe we are an important customer for their locally-targeted search inventory. We also believe that we provide a valuable service to these companies by connecting them to a large number of SMBs, which are generally disinclined to purchase online advertising via self-service platforms.

• Traditional, Offline Media Companies. We compete with traditional yellow page and newspaper companies with large, direct sales forces. While these traditional media companies have made investments to address the migration of advertising expenditures away from their existing print products, we believe that they face the prospect of cannibalizing their existing higher margin products that they own and the challenge of re-training and restructuring their sales forces, most of whom have only sold print products and many of whom still receive the majority of their income from selling those products. We compete with these companies on the basis of the strength and breadth of our technology platform and product offering and our focus exclusively on Internet advertising.

• Other SMB Marketing Providers. We also compete with technology companies providing online marketing platforms focused on the SMB market such as Angie’s List and Yelp, as well as newer market entrants, such as Groupon and LivingSocial, which are actively focused on new forms of online marketing solutions for SMBs and in some cases building significant direct sales forces. We compete with these companies based on our scale, technological platform, breadth of product suite, size and geographic scope of our IMCs and established publisher relationships.

• New Competitors in New Markets. We have recently launched a new consumer service, ClubLocal, through which we create a direct relationship with consumer and provide home-related services by engaging third-party suppliers who perform the agreed services on our behalf. We are also developing and launching new SaaS products, such as ReachConvert and ReachCommerce, designed to provide SMBs tools to convert leads to customers, retain customers, and transact with customers. In each case, as we enter new markets we will encounter new competitors.

Government Regulation

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet. Existing and future laws and regulations may impede the growth of the Internet or other online services. These regulations and laws may cover taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access 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. Unfavorable resolution of these issues may substantially harm our business and operating results.

PAGE 13

Employees

At December 31, 2012, we had approximately 1,900 employees worldwide. Approximately 20 of our employees in Brazil were subject to a collective bargaining agreement. None of our other employees is represented by a labor union. We believe that relations with our employees are good.

Available Information

We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any other filings required by the SEC. We make available free of charge in the investor relations section of our corporate website (http://investors.reachlocal.com) our annual report on form 10-K, quarterly reports on form 10-Q, current reports on form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. References to the Company’s corporate website address in this report are intended to be inactive textual references only, and none of the information contained on our website is part of this report or incorporated in this report by reference.

Item 1A. Risk Factors.

You should carefully consider the risks described below and the other information in this Annual Report on Form 10-K.

Risks Related to Our Business

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations, and the trading price of our common stock.

Our current business and future prospects are difficult to evaluate. We commenced operations in late 2004 in North America, and developed a strategy for taking advantage of what we believe is a shift of local marketing budgets from traditional media formats to digital media formats. Our strategy allowed us to grow rapidly.  However, our growth rate in North America has slowed and, as a result, our overall growth rate has also declined. In 2012, our North America revenues, which accounted for 72% of our 2012 revenues, grew by 13.2% versus 19.7% growth in 2011. We are expanding internationally and introducing new products to continue to grow our business, but we cannot assure you that our strategy will be successful and that our growth rate will not decline further. In particular, although our international IMCs are now considerably more productive than our North American IMCs, over time as those markets mature, international IMCs’ productivity may decline, putting further pressure on our growth rate and results of operations.

You must also consider our business and prospects in light of the risks and difficulties we encounter as a company in the rapidly evolving online marketing industry. These risks and difficulties include:

• our limited number of product offerings and the difficulties and risks associated with developing and selling new product offerings, including, in particular, software-as-a-service and consumer products;

• successfully entering new markets, domestically and internationally;

• maintaining the effectiveness of our RL Platform, and adapting our technology to new market opportunities and challenges;

• competition from existing and new competitors;

• reaching and maintaining profitability;

• continuing to attract new SMB clients, many of whom have not previously advertised online and may not understand the value to their businesses of our products and services; and

• effectively managing continued growth in our sales force, personnel and operations.

Failing to successfully address these challenges or others could significantly harm our business, financial condition, results of operations and liquidity.

PAGE 14

We have incurred significant operating losses in the past and may incur significant operating losses in the future.

As of December 31, 2012, we had an accumulated deficit of approximately $27.1 million, and we may incur net operating losses in the future. We expect our operating expenses to increase in the future as we expand our operations. Our business strategy contemplates hiring significant numbers of additional IMCs, both in new and existing markets, as well as making substantial investments in new and existing products, which will require significant expenditures. If our revenue does not grow to offset these increased expenses, we will not be profitable. We also expect that a variety of factors, including increased competition and the maturation of our business, may continue to cause our revenue growth rate to decline in the future, and we cannot assure you that our revenue will continue to grow or will not decline. As a result, you should not consider our historical revenue growth as indicative of our future performance. Furthermore, if our operating expenses exceed our expectations, our financial performance will be adversely affected.

We purchase most of our media from Google, and our business could be adversely affected if Google takes actions that are adverse to our interests or if we fail to meet advertiser or spend targets necessary for receiving rebates from Google. Similar actions from Yahoo!, Microsoft and other media providers could adversely affect our business, though to a lesser degree.

Nearly all of our cost of revenue is for the purchase of media, and a substantial majority of the media we purchase is from Google. Google accounts for a large majority of all U.S. searches, and Google’s share in foreign markets is often even greater. As a result, we expect that our business will depend upon media purchases from Google for the foreseeable future. This dependence makes us vulnerable to actions that Google may take to change the manner in which it sells AdWords, as described below, or conducts its business on a number of levels:

•  Google Can Choose to Change the Terms and Conditions Upon Which it Does Business with Us and our Advertisers. Google can act unilaterally to change the terms and conditions for our purchase of media or the purchase of Google products, and Google has done so in the past. Future changes by Google to the terms and conditions upon which we purchase media could materially and adversely affect our business.

• Competitive Risk. Google offers its products directly to SMBs through an online self-service option. Google enjoys substantial competitive advantages over us, such as substantially greater financial, technical and other resources. In addition, Google continues to launch products that are targeted directly at SMBs, which Google does not always make available to third parties. While we cannot assess at this time the effect of Google’s offering such products directly to SMBs, the prices charged by Google for direct service are lower than the prices we charge for the same media.

• Technology Risk. Our RL Platform interacts with Google through publicly available application programming interfaces, or APIs. If Google were to discontinue the availability of all or a portion of these APIs to us, we may have to change our technology, incur additional costs or discontinue certain products or services that we currently offer our clients. Any of these changes could adversely affect our ability to provide effective online marketing and reporting solutions to our clients. In addition, Google may decide to alter the amount it charges us for the right to use its APIs, which would decrease our gross margin absent any change in our pricing to our customers.

• Editorial Control. Google closely monitors the experience of end-users, and from time-to-time,   its editorial personnel request that companies alter their services based on Google’s determination that aspects of such services could adversely affect the end-user experience. For example, each of our media products includes TotalTrack, a tracking service powered by our proprietary reverse proxy technology. If Google were to determine that the tracking URLs utilized by our TotalTrack service adversely affects the end-user’s experience, Google could require us to alter or suspend the way we implement our tracking solutions. Such a change would significantly decrease our ability to optimize our clients’ advertising campaigns and limit our ability to provide the level of campaign performance reporting that we currently provide to our clients.

• Rebate/Incentive Risk. Google retains broad authority with respect to its rebate programs and has, from time to time, canceled rebate programs. For example, effective December 31, 2008, Google terminated a publisher rebate provided as part of its North American Authorized AdWords Reseller program, which was the primary reason that our cost of revenue as a percentage of revenue increased from 52.8% in 2008 to 54.5% in 2010. In the second quarter of 2011, we entered into reseller agreements with Google that, among other things, provide us with certain performance bonuses if certain advertiser and spend targets, including share of retail requirements, are met. If we fail to meet those targets, and do not qualify for the rebates, our operating results would be harmed. Our reseller agreements with Google are subject to broad mutual termination rights and termination of those agreements would negatively affect our cost of revenue.

PAGE 15

In addition, any new developments or rumors of developments regarding Google’s business practices that affect the local online advertising industry may create perceptions with our customers or investors that our ability to compete has been impaired.

The above risks also apply to other publishers from whom we purchase media, including Yahoo! and Microsoft.

We purchase a significant majority of our media from Google, Microsoft and Yahoo! in an auction marketplace. If we are unable to purchase media from any one of these companies, if prices for media significantly increase or if the manner in which the media is sold changes, our business could be adversely affected.

Our success depends on our ability to purchase media from Google, Microsoft and Yahoo! at reasonable prices so that we can provide our clients with a reasonable return on the advertising expenditures they make through us. We generally purchase this media in an auction marketplace. Increased competition or other factors may cause the cost of the media that we purchase from Google, Yahoo! and Microsoft to rise. In particular, if our expectation that local SMB advertising will increasingly migrate to the Internet is correct, the marketing budget available to bid in these auctions will increase and the price of media may increase substantially. An increase in the cost of media in these marketplaces without a corresponding increase in our media buying efficiency could result in an increase in our cost of revenue as a percentage of revenue even if our business expands. In addition, such an increase could result in an increase in the prices we must charge our clients or a decrease in our ability to fulfill our clients’ service expectations. Furthermore, the Internet search companies that operate these media marketplaces may change the operating rules or bidding procedures in ways that decrease the effectiveness of the technology that we use to optimize our purchases or otherwise prevent us from purchasing media at reasonable prices or at all. Any change in our ability to provide effective online marketing campaigns to our clients may adversely affect our ability to attract and retain clients.

The market in which we participate is intensely competitive, particularly in North America, and if we do not compete effectively, our operating results could be harmed.

The market for online marketing solutions is intensely competitive and rapidly changing, and with the emergence of new technologies and market entrants, we expect competition to intensify in the future.

Our competitors include:

• Internet Marketing Providers. We compete with large Internet marketing providers such as Google, Yahoo! and Microsoft. These providers typically offer their products and services through disparate, online-only, self-service platforms.

• Traditional, Offline Media Companies. We compete with traditional yellow page, newspaper, television and radio companies that, in many cases, have large, direct sales forces.

• Other SMB Marketing Providers. We also compete with technology companies providing online marketing platforms focused on the SMB market such as Angie’s List and Yelp, as well as newer market entrants, such as Groupon and LivingSocial, which are actively focused on new forms of online marketing solutions for SMBs and, in some cases, building significant direct sales forces. In addition, there are a number of smaller companies which provide internet marketing services and may be able to offer such services at highly competitive prices.

• New Competitors in New Markets. We have recently launched a new consumer service, ClubLocal, through which we create a direct relationship with customers and provide home-related services by engaging third-party suppliers who perform the agreed services on our behalf. We are also developing and launching new software-as-a-service, or SaaS, products designed to provide SMBs tools to convert leads to customers, retain customers, and transact with customers. In each case, as we enter new markets we will encounter new competitors.

Many of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition, longer operating histories, substantially greater financial, technical and other resources and, in some cases, the ability to combine their online marketing products with traditional offline media such as newspapers or yellow pages. These companies may use these advantages to offer products similar to ours at a lower price, develop different products to compete with our current solutions and respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or client requirements. In particular, if major Internet search companies such as Google, Yahoo! and Microsoft decide to devote greater resources to develop and market online advertising offerings directly to SMBs, greater numbers of our clients and potential clients may choose to purchase online advertising services directly from these competitors, particularly if and as the ease of their self-service models increases. In addition, many of our current and potential competitors have established marketing relationships with and access to larger client bases and are heavily investing in recruiting sales personnel, which might affect our ability to achieve our IMC hiring targets.

PAGE 16

As the market for local online advertising increases, we expect new competitors, business models and solutions to emerge, some of which may be superior to ours. We also believe that the marketplace for online media is more transparent than other media marketplaces. Our competitors may use information available to them to price their products at a discount to the prices that we currently offer. Clients and potential clients might adopt competitive products and services in lieu of purchasing our solutions, even if our online marketing and reporting solutions are more effective than those offered by our competitors, if we are not able to differentiate our products and convince clients that our products are more effective that our competitors’ offerings. For all of these reasons, we may not be able to compete successfully against our current and potential competitors.

Our future success depends in part on our ability to effectively develop and sell additional products, services and features.

We invest in the development of new products and services with the expectation that we will be able to effectively offer them to our clients. We are developing, and may in the future develop or acquire, other products and services that address new segments of an SMB’s marketing activities. We are also developing new direct to consumer and SaaS products, which present different challenges from those we have faced in the past. Our future revenue depends in part on our ability to stay competitive with our product and service offerings. Our ability to develop and launch new products on our expected timelines, or at all, is subject to numerous risks and uncertainties, such as the difficulties of designing complex software products, achieving desired functionality and integrating the new products with our existing technology.

The sale of new or additional features, products and services, the value or utility of which may be different from our current products and services or less easily understood by our clients, may require increasingly sophisticated and costly sales efforts and increased operating expenses, as well as additional training of our IMCs and education for our SMB clients. New product launches require the investment of resources in advance of any revenue generation. If new products fail to achieve market acceptance, we may never realize a return on this investment. If these efforts are not successful, our business may suffer. Many SMBs have modest advertising budgets. Accordingly, we cannot assure you that our SMB clients will increase their aggregate spending as a result of the introduction of new products and services or that the successful introduction of new products or services will not adversely affect sales of our current products and services through cannibalization of our current products or disharmony created by consumer offerings that could be perceived as in competition with our current customers. Any such adverse impact on our current media products could also adversely affect our publisher rebates.

We may be unsuccessful in managing or growing our international operations, which could harm our business, operating results and financial condition.

We currently have international sales operations in Australia, the United Kingdom, Canada, Germany, the Netherlands Japan and Brazil, and campaign support services in India. Revenue from international operations outside North America accounted for 28.1% and 22.9% of total revenue for the years ended December 31, 2012 and 2011, respectively. Over the long term, we intend to expand our international operations to new markets and countries. We may incur losses or otherwise fail to enter new markets successfully.

Our ability to operate internationally involves various risks, including the need to invest significant resources, the possibility that returns on such investments will not be achieved in the near future and competitive environments with which we are unfamiliar. Our international operations may not prove to be successful in certain or any markets. In addition, we have incurred and expect to continue to incur significant expenses as we attempt to establish our presence in particular international markets. Our current and any future international expansion plans will require management attention and resources and may be unsuccessful. Furthermore, in many international markets, we would not be the first entrant, and greater competition may exist with stronger brand recognition than we have faced in our current markets. Different privacy, censorship and liability standards and regulations and different intellectual property laws in foreign countries may cause our business and operating results to suffer.

Our international operations may also fail to succeed due to other risks inherent in foreign operations, including:

• difficulties or delays in developing a network of clients in one or more international markets;

• legal, political or systemic restrictions on the ability of U.S. companies to market products and services or otherwise do business in foreign countries;

• different regulatory requirements, including regulation of internet services, privacy and data protection, banking and money transmitting, and selling, that may limit or prevent the offering of our products in some jurisdictions;

PAGE 17

• international intellectual property laws that may be insufficient to protect our intellectual property or permit us to successfully defend ourselves or our intellectual property in international lawsuits;

• different employee/employer relationships and the existence of workers’ councils and labor unions, which could make it more difficult to terminate underperforming IMCs;

• difficulties in staffing and managing foreign operations;

• greater difficulty in accounts receivable collection;

• currency fluctuations or a weakening U.S. dollar, which can increase costs of international expansion;

• potential adverse tax consequences, including the difficulty of repatriating money;

• lack of infrastructure to adequately conduct electronic commerce transactions; and

• price controls or other restrictions on foreign currency.

As a result of these obstacles, we may find it impossible or prohibitively expensive to continue or expand our international operations and replicate our business model, which could harm our business, operating results and financial condition.

Failure to adequately recruit, train and retain our Internet Marketing Consultants would impede our growth and could harm our business, operating results and financial condition.

Our ability to maintain or grow revenue and achieve profitability will depend, in part, on increasing the size of our direct sales force of IMCs. We divide our IMCs into two groups: Underclassmen, who are IMCs during their first 12 months of employment, and Upperclassmen, who are IMCs with more than 12 months of employment. Generally, Upperclassmen are more productive than Underclassmen and generate revenue in excess of direct and allocable costs, while Underclassmen do not. Accordingly, we rely on the success of our Upperclassmen to fund our investment in Underclassmen. As we attempt to achieve larger scale in our business, if our Upperclassmen are not as successful as we anticipate, or if our Underclassmen do not successfully develop into productive Upperclassmen, our ability to grow revenue will suffer, our costs may increase and we may not ever become profitable. We assume a certain level of attrition when we hire new Underclassmen. We base that assumption on our historical experience and future expectations, and our assumptions may prove wrong. If our IMC attrition is greater than anticipated, our business will be harmed. In addition, as more companies seek to capitalize on the shift to online media, competition for knowledgeable and qualified online media sales personnel will increase. Moreover, employees that we hire from our competitors have in the past, and may in the future, be subject to claims of breach of noncompetition and non-solicitation obligations owed to their former employers, which could impact our ability to attract and hire high-quality candidates and potentially subject us to litigation. If we are unable to effectively recruit, train and retain IMCs, we may not be able to grow our sales force, our revenue may suffer or our costs may increase.

One of our international growth strategies is to enter new international markets through franchise or reseller arrangements, and if one or more of these relationships is unsuccessful, it could negatively impact us.

In July 2012, the Company entered into a franchise agreement with OxataSMB B.V. permitting it to operate and resell our services under the ReachLocal brand in Slovakia, Czech Republic, Hungary, Poland and Russia. At the same time, we entered into a market development loan agreement with OxataSMB pursuant to which we agreed to provide financing to OxataSMB of up to €2.9 million ($3.7 million), of which €1.45 million ($1.9 million) was immediately advanced. As we expand into other international markets, in addition to entering markets directly, we may enter through a franchisee or a reseller (as we have in New Zealand). The success of such strategy will depend on a number of factors, including whether our franchisees and resellers have the experience and financial resources to be effective operators and remain aligned with us on operating, promotional and capital-intensive initiatives, and the potential impact on us if they experience operational problems or project a brand image inconsistent with our values, particularly if our contractual and other rights and remedies are limited by local law or otherwise, or are costly to exercise. Difficulties of one or more of our international franchisee or reseller arrangements could result in losses stemming from related strategic investments, delay penetration into and/or negatively affect our brand in certain international markets, and distract management and absorb product development resources.

PAGE 18

More consumers are using devices other than personal computers to access the Internet and accessing new platforms to make search queries. If we are unable to effectively reach consumers on the Internet on behalf of our customers, our business could be adversely affected.

The number of people who access the internet through devices other than personal computers, including mobile phones and tablets has increased dramatically in the past few years. Mobile search advertising is growing very rapidly and may offer lower conversion rates for our customers, which if not offset by lower costs, may make search engine marketing less attractive for our customers. In addition, the lower resolution, functionality, and memory associated with some alternative devices may alter consumers’ use of the Internet, including of search engines and other websites where we publish advertisements on behalf of customers. For example, search queries are increasingly being undertaken via “apps” tailored to particular devices or social media platforms, which could affect our ability to deliver advertising results to our clients if we are unable to effectively reach consumers via those apps.

Our new ClubLocal service represents our entry into a new market and, as such, subjects us to new risks.

We have recently launched a new consumer service, ClubLocal, through which we create a direct relationship with customers and provide home-related services by engaging third-party suppliers who perform the agreed services on our behalf. Expanding our ClubLocal service to new markets will require substantial financial resources and establishing the ClubLocal brand with consumers is likely to require a significant investment in marketing. These increased costs may negatively impact our operating results and, if ClubLocal is unsuccessful, our financial condition.

Our new ClubLocal service is different from our other products and services, which have primarily been digital advertising products. A component of our ClubLocal service is a software service used by our third-party suppliers to administer the services on our behalf. Any errors, defects, disruptions in service or other performance problems could hurt our reputation and may damage our third-party suppliers’ businesses, which in turn would negatively affect our ability to offer the ClubLocal service. In addition, it is possible that the introduction of ClubLocal will be viewed as competitive by the purchasers of our marketing services, which could adversely affect sales of our media products and services.

ClubLocal may be subject to regulatory requirements and risks applicable to service professionals, which include management of licensing, permitting and quality of our third-party contractors. We have have sought to establish processes and procedures to manage risk and seek consumer satisfaction with the services provided by our third-party contractors. If we fail to manage these processes effectively or provide proper oversight of these services, we could suffer lost sales, fines and lawsuits, as well as damage to our reputation, which could adversely affect our business.

We may be liable to consumers for any damage we cause to their home or facility, belongings or property during the delivery of ClubLocal services, and we offer a ClubLocal Buyer Protection Plan guaranteeing ClubLocal services for up to $10,000. In addition, if a ClubLocal consumer is injured in connection with a ClubLocal service, we could be exposed to personal injury or product liability claims. Any such claims we face could result in significant refunds or payments to consumers, or could be expensive to defend and divert management’s attention. Also, any such claims and any adverse outcomes may subject us to adverse publicity, damage our reputation and competitive position and adversely affect sales of ClubLocal services and our other products.

We are introducing new SaaS products, which may not gain market acceptance or may not perform as we intend.

We are developing and launching new SaaS products designed to provide SMBs tools to convert leads to customers, retain customers, and transact with customers. The success of our new SaaS products is subject to numerous risks and uncertainties, such as the difficulties of designing complex software products, integrating the new SaaS products with our existing technology, training our IMCs to sell the new SaaS products, and gaining market acceptance. Because our SaaS products are complex and incorporate a variety of hardware and proprietary and third-party software, our SaaS products may have errors or defects that could result in unanticipated downtime for our customers and harm to our reputation and our business. Internet-based services frequently contain undetected errors when first introduced or when new versions or enhancements are released. We have from time to time found defects in our SaaS products and new errors in our SaaS products may be detected in the future. In addition, our customers may use our SaaS products in unanticipated ways that may cause a disruption in service for other customers attempting to access their data. If we acquire new technology, we may encounter difficulty in incorporating the acquired technologies into our SaaS products. Since our customers may use our SaaS products for important aspects of their business, such as scheduling, pricing, invoicing, calculation of sales taxes and transaction processing, any errors, defects, disruptions in service or other performance problems could damage our customers’ businesses and result in financial losses, which would hurt our reputation. As a result, customers could elect to not renew, or delay or withhold payment to us, we could lose future sales or customers may make warranty or other claims against us.

PAGE 19

We depend on key personnel to operate our business, and if we are unable to retain our current personnel or hire additional personnel, our ability to develop and successfully market our business could be harmed.

We believe that our future success is highly dependent on the contributions of our executive officers, as well as our ability to attract and retain highly skilled managerial, sales, technical and finance personnel. Qualified individuals are in high demand, and we may incur significant costs to attract them. All of our U.S. officers and other U.S. employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. If we are unable to attract and retain our executive officers and key employees, our business, operating results and financial condition will be harmed. In addition, our management team has a long history of working together, and we believe that our key executives have developed highly successful and effective working relationships. If one or more of these individuals leave, we may not be able to fully integrate new executives or replicate the current dynamic, and our operations could suffer.

Volatility or lack of performance in our stock price may also affect our ability to attract and retain our key employees. Our executive officers have become vested in a substantial amount of stock or stock options. Employees may be more likely to leave us if the shares they own or the shares underlying their options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or if the exercise prices of the options that they hold are significantly above the market price of our common stock.

During 2012, we realigned the roles of some of our executive management team. Those changes may not prove effective or may be disruptive to our business and could adversely affect our business and results of operations.

The impact of worldwide economic conditions, including the resulting effect on advertising budgets, may adversely affect our business, operating results and financial condition.

Our performance is subject to worldwide economic conditions and their impact on levels of advertising. In addition, as we increase our international footprint, we will become more sensitive to economic conditions outside of North America. We believe that the economic conditions remain challenging in North America and internationally, which have adversely affected our business.

To the extent that economic difficulties continue, or worldwide economic conditions materially deteriorate, our existing and potential clients may no longer consider investment in our online marketing solutions a necessity, or may elect to reduce advertising budgets. Historically, economic downturns have resulted in overall reductions in advertising spending. In particular, online marketing advertising solutions may be viewed by some of our existing and potential clients as a lower priority and may be among the first expenditures reduced as a result of unfavorable economic conditions. These developments could cause us to respond by temporarily reducing hiring or taking other measures and could have an adverse effect on our business, operating results and financial condition.

We are exposed to fluctuations in currency exchange rates.

Because we conduct a significant and growing portion of our business outside the United States but report our financial results in U.S. dollars, we face exposure to adverse movements in currency exchange rates. Our foreign operations are exposed to foreign exchange rate fluctuations as the financial results are translated from the local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income (or loss). If the U.S. dollar strengthens against foreign currencies, however, the translation of these foreign currency denominated transactions will result in decreased revenue, operating expenses and net income (or loss). As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations. In addition, approximately 44% of our cash balances are denominated in currencies other than the U.S. dollar, and the value of such holdings will increase or decrease along with the weakness or strength of the U.S. dollar, respectively.

If we fail to increase the number of our clients or retain existing clients, our revenue and our business will be harmed.

Our ability to grow our business depends in large part on maintaining and expanding our client base. To do so, we must convince prospective clients of the benefits of our RL Platform and existing clients of the continuing value of our products and services. The online marketing industry is new and rapidly evolving, and many prospective clients may not be familiar with the benefits of online marketing. These businesses may generally favor using more traditional methods of local advertising, such as newspapers or print yellow pages directories. In addition, as the online media options for SMBs proliferate and our clients become more familiar with such options, we cannot assure you that we will be successful in maintaining or expanding our client base.

PAGE 20

SMB marketing and advertising campaigns are often sporadic and difficult to predict, as they may be driven by seasonal promotions or business dynamics, evolving product and service offerings, available budgets and other factors. Some SMBs advertise only periodically, such as to promote sales or special offers. Because we need to address these business considerations of our clients, we do not require clients to enter into long-term obligations to purchase our products and services. Many do not renew their campaigns, and some cancel. We must continually add new clients both to replace clients who choose not to renew their advertising campaigns and to grow our business beyond our current client base. A client’s decision not to renew may be based on a number of factors, including dissatisfaction with our products and services, inability to continue operations and spending levels or because their campaigns were event-driven or otherwise intentionally limited in scope or duration. If our clients increasingly fail to fulfill their contracts or increasingly do not renew their advertising campaigns with us, or if we are unable to attract new clients in numbers greater than the number of clients that we lose, our client base will decrease and our business, financial condition and operating results will be adversely affected.

A significant portion of our revenue is generated by our national brands, agencies and resellers. If we are not able to maintain relationships with one or more of them, our sales may suffer and our revenue may decline.

We distribute our products and services through a separate sales force for national brands with operations in multiple local markets, as well as select third-party agencies and resellers. More generally, because national brands, agencies and resellers typically represent an aggregated group of SMB clients, if our relationship with one or more of these persons or companies were restricted or terminated, our sales would decrease and our revenue would be adversely affected, potentially materially. In addition, our strategy of distributing our products and services to our clients through our Direct Local channel and through our National Brands, Agencies and Resellers channel may result in distribution channel conflicts. Our Direct Local sales efforts may compete with our third-party agency and resellers and, to the extent different third-party agencies and resellers target the same clients, they may also come into conflict with each other. While we have certain policies in place to address these potential conflicts, there can be no assurance that these channel conflicts will not materially adversely affect our relationship with existing third-party agencies and resellers or adversely affect our ability to attract new third-party agencies and resellers. In the event that any of our relationships with existing third-party agencies and resellers are terminated or we are unable to attract new third-party agencies and resellers as a result of these distribution channel conflicts, our sales may suffer and our revenue may decline.

If SMBs increasingly opt to perform advertising tasks on their own, their demand for our products and services would decrease, negatively affecting our revenue.

Large Internet marketing providers such as Google, Yahoo! and Microsoft offer online advertising products and services through self-service platforms. As SMBs become more familiar with and experienced in interacting online, they may prefer to actively manage their own Internet presence and their demand for our products and services may decrease. We cannot predict the evolving experiences and preferences of SMBs, which may become more fully integrated into digitized modes of commerce and communication, and cannot assure you that we can develop our products and services in a manner that will suit their needs and expectations faster or more effectively than our competitors, or at all. If we are not able to do so, our results of operations would suffer.

We expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.

Our revenue and operating results could vary significantly from quarter-to-quarter and year-to-year because of a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:

• unilateral actions taken by Google or other media providers;

• seasonal variations in advertising budgets and media pricing;

• seasonal variations in IMC hiring;

• the rate at which SMBs migrate their advertising spending online;

PAGE 21

• the timing and stage of product and technology development;

• our ability to develop, introduce and manage consumer-facing products;

• the impact of fluctuations in currency exchange rates, particularly the relative strength of the US Dollar to the currencies in the countries in which we do business and its impact on our consolidated revenues and results of operations;

• the impact of worldwide economic conditions on our revenue and expenses;

• the timing of and our ability to enter new markets and manage expansion in new markets;

• our ability to appropriately set the price of non-media products;

• our ability to accurately forecast revenue and appropriately plan our expenses;

• the attraction and retention of qualified employees and key personnel;

• the effectiveness of our internal controls;

• our ability to effectively manage our growth;

• our ability to successfully manage any future acquisitions of businesses, solutions or technologies;

• interruptions in service and any related impact on our reputation;

• the effects of natural or man-made catastrophic events; and

• changes in government regulation affecting our business.

As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance. In addition, our operating results may not meet the expectations of investors.

Growth may place significant demands on our management and our infrastructure.

We have experienced substantial growth in our business. This growth has placed and may continue to place significant demands on our management and our operational and financial infrastructure. As our operations grow in size, scope and complexity, we will need to improve and upgrade our systems and infrastructure to offer an increasing number of clients enhanced solutions, features and functionality. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase. Continued growth could also strain our ability to maintain reliable service levels for our clients, develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel. Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to maintain the necessary level of discipline and efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.

Our ability to deliver reporting and tracking solutions to our clients depends upon the quality, availability, policies and prices of third-party call tracking providers, website hosting companies and domain registrars.

We rely on third parties to provide our call tracking and recording services. In certain geographies, we rely on a single call tracking provider. In the event the provider were to terminate our relationship or stop providing these services, our ability to provide our tracking services could be impaired. We may not be able to find an alternative provider in time to avoid a disruption of our services or at all, and we cannot be certain that such provider’s services would be compatible with our products without significant modifications or cost, if at all. Our proxy servers, which underlie key elements of our tracking services, require the use of various domains and IP address blocks. If domain registrars, website hosting companies or Internet service providers determined that our use of such domains and IP blocks were in violation of their terms of service or internet policies, such companies could elect to block our traffic. For example, several website hosting companies have blocked traffic from our reverse proxy servers for a group of our SMB clients, resulting in our inability to provide our full tracking services to those clients. Our ability to address or mitigate these risks may be limited. The failure of all or part of our tracking services could result in a loss of clients and associated revenue and could harm our results of operations.

PAGE 22

We rely on bandwidth providers, data centers and other third parties for key aspects of the process of providing online marketing solutions to our clients, and any failure or interruption in the services provided by these third parties could harm our ability to operate our business and damage our reputation.

We rely on third-party vendors, including data center, software as a service, cloud computing Internet infrastructure and bandwidth providers. Any disruption in the services provided by these third-party providers or any failure of these third-party providers to handle current or higher volumes of use could significantly harm our business. Any financial or other difficulties our providers face may have negative effects on our business, the nature and extent of which we cannot predict. We exercise little control over these third-party vendors, which increases our vulnerability to problems with the services they provide. We have experienced and expect to continue to experience interruptions and delays in service and availability for such elements. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services could negatively impact our relationship with our clients and adversely affect our brand and our business and could expose us to liabilities to third parties.

Client complaints or negative publicity about our customer service or other business practices could adversely affect our reputation and brand.

Client complaints or negative publicity about our technology, personnel or customer service could severely diminish confidence in and the use of our products and services. Effective customer service requires significant personnel expense, and this expense, if not managed properly, could significantly impact our operating results. Moreover, failure to provide our clients with high-quality customer experiences for any reason could substantially harm our reputation and our brand and adversely affect our efforts to develop as a trusted provider of online marketing and reporting solutions for the SMB market.

Rapid technological changes may render our online marketing and reporting solutions obsolete or decrease the attractiveness of our solutions to our clients.

To remain competitive, we must continue to enhance and improve the functionality and features of our RL Platform. The Internet, access to the Internet and the online marketing and advertising industry are rapidly changing. Our competitors are constantly developing new products and services in online marketing and advertising. As a result, we must continue to invest significant resources in order to enhance our existing products and services and introduce new products and services that clients can easily and effectively use. If competitors introduce new solutions embodying new technologies, or if new industry practices emerge, our existing technology may become obsolete. Our future success will depend on our ability to:

• enhance our existing solutions;

• develop new solutions and technologies that address the increasingly sophisticated and varied needs of our prospective clients; and

• respond to technological advances and emerging industry practices on a cost-effective and timely basis.

Developing our online marketing and reporting solutions and the underlying technology entail significant technical and business risks. We may use new technologies ineffectively, or we may fail to adapt our RL Platform and network infrastructure to client requirements or emerging industry practices. If we face material delays in introducing new or enhanced solutions, our clients may forego the use of our solutions in favor of those of our competitors.

Future acquisitions could disrupt our business and harm our financial condition and operating results.

Our success will depend, in part, on our ability to expand our offerings and markets and grow our business in response to changing technologies, client demands and competitive pressures. In some circumstances, such as our recent acquisition of the assets of RealPractice, Inc., we may determine to do so through the acquisition of complementary businesses, solutions or technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. Furthermore, even if we successfully complete an acquisition, we may not be able to successfully assimilate and integrate the business, technologies, solutions, personnel or operations of the company that we acquired, particularly if key personnel of an acquired company decide not to work for us. We may also inherit liability for activities of the acquired company before the acquisition, including violations of laws, rules and regulations, intellectual property disputes, commercial disputes, tax liabilities and other known and unknown liabilities. In addition, we may borrow to complete an acquisition, which would increase our costs, or issue equity securities, which would dilute our stockholders’ ownership and could adversely affect the price of our common stock. Historically, we have primarily grown organically, rather than through acquisitions. As a result, we have somewhat limited experience in identifying and executing acquisition opportunities. Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience. Consequently, we may not achieve anticipated benefits of the acquisitions which could harm our operating results.

PAGE 23

We make strategic investments from time to time and if they are unsuccessful, it could harm our financial condition.

We have made strategic investments in the past, such as the market development loan to OxataSMB, a franchisee, and may make additional similar or different strategic investments in the future. Such investments may not prove profitable or successful for us and may result in the partial or total loss of our invested capital. In addition, strategic investments, such as with OxataSMB, may involve future commitments to provide further capital and we cannot assure you any such further investments will be desirable if, and when made, or will prove profitable over the long term.

We may require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen circumstances. If capital is not available to us, our business, operating results and financial condition may be harmed.

We may require additional capital to operate or expand our business. In addition, some of our product development initiatives may require substantial additional capital resources before they begin to generate material revenue. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we do not have funds available to enhance our solutions, maintain the competitiveness of our technology or pursue business opportunities, we may not be able to service our existing clients or acquire new clients, which could have an adverse effect on our business, operating results and financial condition.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as computer viruses or terrorism.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and similar events. For example, a significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage will likely be insufficient to compensate us for losses that may occur. Our servers may also be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential intellectual property or client data. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting the Los Angeles area, and our business interruption insurance may be insufficient to compensate us for losses that may occur. As we rely heavily on our servers, computer and communications systems and the Internet to conduct our business and provide high quality customer service, such disruptions could negatively impact our ability to run our business, which could have an adverse affect on our operating results and financial condition.

If our security measures are breached and unauthorized access is obtained to a client’s data, our service may be perceived as not being secure and clients may curtail or stop using our service.

Our service involves the storage and transmission of clients’ proprietary information, such as credit card and bank account numbers, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. Our payment services may be susceptible to credit card and other payment fraud schemes, including unauthorized use of credit cards, debit cards or bank account information, identity theft or merchant fraud.

If our security measures are breached in the future as a result of third-party action, employee error, malfeasance or otherwise, and as a result, someone obtains unauthorized access to our clients’ data, our reputation will be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and clients.

PAGE 24

We are subject to a number of risks related to credit card payments we accept. If we fail to be in compliance with applicable credit card rules and regulations, we may incur additional fees, fines and ultimately, the revocation of the right to use the credit card company, which would have a material adverse effect on our business, financial condition or results of operations.

A majority of our clients’ campaigns were paid for using a credit card or debit card. For credit and debit card payments, we pay interchange and other fees, which may increase over time and raise our operating expenses and adversely affect our net income. 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. We believe we are compliant with the Payment Card Industry Data Security Standard, which incorporates Visa’s Cardholder Information Security Program and MasterCard’s Site Data Protection standard. However, there is no guarantee that we will maintain such compliance or that compliance will prevent illegal or improper use of our payment system. 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 our clients. A failure to adequately control fraudulent credit card transactions would result in significantly higher credit card-related costs and could have a material adverse effect on our business, financial condition or results of operations.

Our revenue may be negatively affected if we are required to charge sales tax or other transaction taxes on all or a portion of our past and future sales to customers located in jurisdictions where we are currently not collecting and reporting tax.

We generally do not charge, collect or have imposed upon us sales or other transaction taxes related to the products and services we sell, except for certain corporate level taxes and transaction level taxes outside of the United States. However, many states, local jurisdictions or one or more countries may seek to impose sales or other transaction tax obligations on us in the future. A successful assertion by any state, local jurisdiction or country in which we do business that we should be collecting sales or other transaction taxes on the sale of our products or services could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, discourage clients from purchasing products or services from us, decrease our ability to compete or otherwise substantially harm our business and results of operations. The imposition of new laws requiring the collection of sales or other transaction taxes on the sale of our products or services (or the introduction of new products or services that are subject to existing transaction taxes) could create increased administrative burdens or costs, discourage clients from purchasing products or services from us, decrease our ability to compete or otherwise substantially harm our business and results of operations.

The intended tax benefits of our corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictions and on how we operate our business.

Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transfer pricing of our intercompany transactions, are intended to reduce our worldwide effective tax rate. The application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business does not achieve the intended tax consequences, which could increase our worldwide effective tax rate and harm our financial position and results of operations.

Our corporate structure includes legal entities located in jurisdictions with income tax rates lower than the U.S. statutory tax rate. Our intercompany arrangements allocate income to such entities in accordance with arm’s-length principles and commensurate with functions performed, risks assumed and ownership of valuable corporate assets. We believe that income taxed in certain foreign jurisdictions at a lower rate relative to the U.S. statutory rate will have a beneficial impact on our worldwide effective tax rate.

Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. In addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In particular, there is uncertainty in relation to the U.S. tax legislation in terms of the future corporate tax rate but also in terms of the U.S. tax consequences of income derived from intellectual property related income earned overseas in low tax jurisdictions.

PAGE 25

Our existing corporate structure and intercompany arrangements have been implemented in a manner we believe is in compliance with current prevailing tax laws. However, the tax benefits which we intend to eventually derive could be undermined if we are unable to adapt the manner in which we operate our business and due to changing tax laws.

Failure to adequately protect our intellectual property could substantially harm our business and operating results.

Because our business is heavily dependent on our intellectual property, including our proprietary technology, the protection of our intellectual property rights is crucial to the success of our business. We rely on a combination of intellectual property rights, including trade secrets, patent applications, copyrights and trademarks, as well as contractual restrictions, to safeguard our intellectual property. These afford only limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our online marketing and reporting solutions, technology, software and functionality or obtain and use information that we consider proprietary. Moreover, policing our proprietary rights is difficult and may not always be effective. In particular, because we sell our solutions internationally, we may need to enforce our rights under the laws of countries that do not protect proprietary rights to as great an extent as do the laws of the United States.

Our proprietary technology is not currently protected by any issued patents, and policing our rights to such technology may be hindered if we are unable to obtain any patents. In addition, the type and extent of patent claims that may be issued to us in the future is uncertain, and any patents that are issued may not contain claims that permit us to stop competitors from using similar technology. In light of the costs of obtaining patent protection, at times we may choose not to protect certain innovations that later on prove to be highly important. To the extent that the various technologies underlying any patent applications are determined to be business methods, the law around these types of patents is rapidly developing, and pending changes may impact our ability to protect our technology and proprietary use thereof through patents.

We have registered ReachLocal and other trademarks as trademarks in the United States and in certain other countries. Some of our trade names are not eligible to receive trademark protection. Also, trademark protection may not be available, or sought by us, in every country in which our technology and products are available online. Competitors may adopt service names similar to ours, or purchase our trademarks and confusingly similar terms as keywords in Internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly leading to client confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term ReachLocal or our other trademarks.

Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and abroad may be necessary in the future to enforce our intellectual property rights, to protect our patent rights, trade secrets and domain names and to determine the validity and scope of the proprietary rights of others. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of resources and could substantially harm our operating results.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our employees, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

PAGE 26

Assertions by third parties of infringement by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.

Companies in the Internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets and frequently litigate or threaten litigation based on allegations of infringement or other violations of intellectual property rights. Other parties have asserted, and may in the future assert, that we have infringed their intellectual property rights. These types of litigations may involve patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents, if any, may provide little or no deterrence. In addition, we have been and could in the future become involved in disputes over the use of keywords by our clients, to the extent such clients’ competitors allege the use of such keywords on our RL Platform violates such competitors’ trademark rights. We cannot predict whether assertions of third-party intellectual property rights or claims arising from such assertions will substantially harm our business and operating results. If we are forced to defend against any infringement claims, whether they are with or without merit or are determined in our favor, we may face costly litigation and diversion of technical and management personnel. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s patent or copyright rights; cease making, licensing or using solutions that are alleged to incorporate the intellectual property of others; expend additional development resources to redesign our solutions; and enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. Over time, we expect that we will increasingly be subject to infringement claims as the number of competitors in our industry segment grows or as our presence and visibility within the industry increases.

We could lose clients if we or our media partners fail to detect click-through or other fraud on advertisements in a manner that is acceptable to our clients.

We are exposed to the risk of fraudulent clicks or actions on our third-party publishers’ websites. We may lose clients, or in the future, we may have to refund revenue that our clients have paid to us and that was later attributed to, or suspected to be caused by, click-through fraud. Click-through fraud occurs when an individual clicks on an ad displayed on a website or an automated system is used to create such clicks with little to no intent of viewing the underlying content. If fraudulent clicks are not detected, the affected clients may become dissatisfied with our campaigns, which in turn may lead to loss of clients and the related revenue.

Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, increased cost of operations, or otherwise harm our business.

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including user privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communications, competition, protection of minors, consumer protection, taxation, and online payment services. Foreign data protection, privacy, and other laws and regulations are often more restrictive than those in the United States. These U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain. These laws and regulations could have a significant impact on online advertising services depending on how these laws and regulations are interpreted and enforced.  It is also clear that the laws and regulations are intending to regulate behavioral targeting, the availability of which could become highly limited are eliminated entirely.  Our product suite does not rely heavily on the use of behavioral targeting, but we do offer a display remarketing product, which involves showing a consumer an ad for the website of an advertiser that the consumer has previously visited.

In addition, a number of proposals are pending before federal, state, and foreign legislative and regulatory bodies that could significantly affect our business. For example, a revision to the 1995 European Union Data Protection Directive is currently being considered by European legislative bodies that may include more stringent operational requirements for data processors and significant penalties for non-compliance. Similarly, there have been a number of recent legislative proposals in the United States, at both the federal and state level, that would impose new obligations in areas such as privacy, data protection and data breach notifications.  Some of the proposed changes to U.S. and European law could require that we obtain prior consent before using cookies or other tracking technologies or provide a “do not track” mechanism  in certain circumstances. These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices.

We process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy. Our actual or perceived failure to comply with such obligations could harm our business.

We receive, store and process personal information and other user data, including credit card information for certain users. There are numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other user data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. It is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation or negative publicity and could cause our advertisers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties with whom we work, such as our publishers or our providers of telephony services, violate applicable laws or our policies, such violations may also put our users’ information at risk and could have an adverse effect on our business.

PAGE 27

Some of our services may utilize “open source” software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

Some of our services may utilize software licensed by its authors or other third parties under so-called “open source” licenses, including, but not limited to, the GNU General Public License and the GNU Lesser General Public License. Some of those licenses may require that we make available source code for modifications or derivative works we create using the open source software, that we provide notices with our products and that we license any modifications or derivative works under an open source license or rights of further use to third parties. If we combine our proprietary software with open source software, we could be required to release the source code of our proprietary software. Although we take steps to ensure that our software engineers properly isolate our proprietary software they design from open source software components, we may not control the product development efforts of our engineers and we cannot be certain that they have not inappropriately incorporated open source software into our proprietary technologies. If an author or other third party that distributes open source software were to obtain a judgment against us based on allegations that we had not complied with the terms of any applicable open source license, we could be subject to liability for copyright infringement damages and breach of contract. In addition, we could be enjoined from selling our services that contained the open source software and required to make the source code for the open source software available, to grant third parties certain rights of further use of our software or to remove the open source software from our services, which could disrupt our distribution and sale of some of our services.

Government regulation of the Internet is evolving, and unfavorable changes could substantially harm our business and operating results.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet. Existing and future laws and regulations may impede the growth in use of the Internet and online services. The application of existing laws to the Internet and online services governing issues such as property ownership, sales and other taxes, libel and personal privacy has not yet been settled. Unfavorable resolution of these issues may substantially harm our business and operating results. Other laws and regulations that have been adopted, or may be adopted in the future, that may affect our business include those covering user privacy, data protection, spyware, “do not email” lists, access to high speed and broadband service, pricing, taxation, tariffs, patents, copyrights, trademarks, trade secrets, export of encryption technology, electronic contracting, click-fraud, acceptable content, search terms, lead generation, behavioral targeting, consumer protection, and quality of products and services. Any changes in regulations or laws that hinder growth of the Internet generally or that decrease the acceptance of the Internet as a communications, commercial and advertising medium could adversely affect our business. See also Part 1, Item 1A, “Risk Factors— If the technology that we currently use to target the delivery of online advertisements is restricted or becomes subject to regulation, our expenses could increase and we could lose clients.”

Risks Related to Owning Our Common Stock

Our stock price may be volatile, and the value of an investment in our common stock may decline.

Shares of our common stock were sold in our initial public offering in May 19, 2010 at a price of $13.00 per share, and our common stock has subsequently traded as high as $28.39 and as low as $6.05. An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our common stock. The trading price of our common stock may be subject to wide fluctuations in response to various factors, some of which are beyond our control, including:

• our operating performance and the operating performance of similar companies;

• the overall performance of the equity markets;

• the number of shares of our common stock publicly owned and available for trading;

• changes in the amounts and frequency of share repurchases;

PAGE 28

• threatened or actual litigation;

• changes in laws or regulations relating to our solutions;

• any major change in our board of directors or management;

• publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts;

• large volumes of sales of our shares of common stock by existing stockholders; and

• general political and economic conditions.

In addition, the stock market in general, and the market for Internet-related companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition. In addition, the recent distress in the financial markets has also resulted in extreme volatility in security prices.

Future sales of shares of our common stock by stockholders could depress the price of our common stock.

As of December 31, 2012, approximately 69% of our common stock is held by our directors, officers and entities affiliated with our directors, including approximately 45% beneficially owned by VantagePoint Capital Partners and approximately 10% beneficially owned by Rho Ventures. In addition, these percentages may increase as we repurchase shares of our common stock pursuant to our $47 million share repurchase program, of which approximately $30 million was available for repurchase as of March 4, 2013 (see Part II, Item 5, “Common Stock Repurchases”). Such shares have not been subject to lock-up agreements since November 2010. VantagePoint and Rho Ventures were our two primary venture capital investors and have owned their shares for a considerable length of time. If VantagePoint or Rho Ventures decides to exit its investments in us, it could negatively impact the price of our common stock. During August and November of 2012, Rho Ventures sold an aggregate of 575,000 shares.

 A number of members of our management team have adopted 10(b)5-1 trading plans covering approximately 1 million shares of common stock as of December 31, 2012. In addition, insiders may seek to sell shares without the adoption of trading plans. If there are substantial sales of our common stock in the public market, the trading price of our common stock could decline significantly. In addition, as of December 31, 2012, approximately 7.1 million shares subject to outstanding options under our 2004 Stock Plan and our Amended and Restated 2008 Stock Incentive Plan, are eligible for sale in the public market in the future, subject to certain legal and contractual limitations. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the price of our common stock could decline substantially.

 If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Our management continues to have broad discretion over the use of the proceeds we received in our initial public offering and might not apply the proceeds in ways that increase the value of your investment.

Our management generally has broad discretion to use the net proceeds from our initial public offering, and our stockholders will be relying on the judgment of our management regarding the application of these proceeds. We have used and will continue to use the net proceeds for the acquisition of businesses, solutions and technologies that we believe are complementary to our own. If we do not invest or apply the net proceeds from the offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

PAGE 29

Investment funds managed by VantagePoint Capital Partners own a substantial amount of our stock and have significant influence over our business. In the aggregate, insiders own a majority of our outstanding stock.

As of December 31, 2012, VantagePoint Capital Partners, one of our early venture capital investors, beneficially owned approximately 45% of our outstanding common stock. As a result, VantagePoint has significant influence over the outcome of matters submitted to our stockholders for approval, including the election of directors. VantagePoint’s significant ownership also could affect the market price of our common stock by, for example, delaying, deferring or preventing a change in corporate control, impeding a merger, consolidation, takeover or other business combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of us. Alan Salzman, the Chief Executive Officer of Vantage Point, serves as a member of our board of directors.

As of December 31, 2012, our current directors and executive officers as a group beneficially own approximately 69% of our outstanding common stock (including all shares issuable with respect to options held by such holders).

Certain provisions in our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.

Our certificate of incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things:

• a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

• no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

• the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

• the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

• a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

• the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, the Chief Executive Officer, the president (in absence of a Chief Executive Officer) or our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

• the requirement for the affirmative vote of holders of at least 662/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our certificate of incorporation relating to the issuance of preferred stock and management of our business or our bylaws, which may inhibit the ability of an acquiror from amending our certificate of incorporation or bylaws to facilitate a hostile acquisition;

• the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquiror from amending the bylaws to facilitate a hostile acquisition; and

• advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

PAGE 30

We are also subject to certain anti-takeover provisions under Delaware law. Under Delaware law, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, our board of directors has approved the transaction.

 Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We do not own any real estate. We lease 38,592 square-feet for our corporate office in Woodland Hills, California, and 66,785 square-feet for our corporate and sales offices in Plano, Texas. We also have over 60 leases for sales offices, support facilities and data centers in other locations in North America and overseas.

Item 3. Legal Proceedings.

From time to time, we are involved in legal proceedings arising in the ordinary course of our business. We believe that there is no litigation pending that is likely to have a material adverse effect on our results of operations and financial condition.

 Item 4. Mine Safety Disclosures.

Not applicable.

PAGE 31

PART II

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

Our common stock has been traded on The Nasdaq Global Select Market since May 20, 2010 under the symbol “RLOC.” The following table sets forth the high and low sales prices for our common stock as reported by The Nasdaq Global Select Market for the period indicated.

	2011				2012
	High		Low		High		Low
First quarter	$	28.39	$	16.54	$	9.85	$	6.05
Second quarter	$	26.00	$	15.57	$	11.75	$	6.25
Third quarter	$	21.73	$	10.49	$	13.98	$	9.71
Fourth quarter	$	11.10	$	6.08	$	13.76	$	9.99

As of March 5, 2013, we had approximately 41 stockholders of record of our common stock. We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our common stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

Stock Price Performance Graph

This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of ReachLocal, Inc. under the Securities Act or the Exchange Act.

PAGE 32

The following graph compares, for the period from May 20, 2010 through December 31, 2012, the total cumulative stockholder return on our common stock with the total cumulative return of the NASDAQ Composite Index and the RDG Internet Composite Index. The graph assumes a $100 investment at the beginning of the period in our common stock, the stocks represented in the NASDAQ Composite Index and the stocks represented in the RDG Internet Composite Index, and reinvestment of any dividends. Historical stock price performance should not be relied upon as an indication of future stock price performance:

	5/20/10	6/10	12/10	6/11	12/11	6/12	12/12
ReachLocal Inc.	100.00	86.58	132.91	139.05	41.26	73.43	86.18
NASDAQ Composite	100.00	88.68	112.50	118.15	114.02	126.61	128.07
RDG Internet Composite	100.00	85.01	108.60	109.62	112.32	134.77	133.48

Recent Sales of Unregistered Securities

On February 22, 2010, we agreed to issue up to 364,632 shares of common stock as partial deferred consideration for the acquisition of SMB:LIVE Corporation, and on February 22, 2011, August 22, 2011, and February 22, 2012, we issued 90,062, 93,346 and 181,224, respectively, of such shares of our common stock.

On February 8, 2011, we agreed to issue up to 21,297 shares of common stock as partial deferred consideration for the acquisition of DealOn, LLC, and on February 8, 2012 and August 8, 2012, we issued 10,649 and 5,324, respectively, of such shares of our common stock.

Use of Proceeds from Registered Securities

On May 19, 2010, our registration statement on Form S-1 (File No. 333-163905) was declared effective for our initial public offering, pursuant to which we registered the offering and sale of 3,941,103 shares of common stock, including shares from the exercise of the underwriters’ option to purchase 625,000 shares, and the associated sale of 850,564 shares of common stock by selling stockholders at a public offering price of $13.00 per share. J.P. Morgan and Merrill Lynch, Pierce, Fenner & Smith Incorporated were the joint book running managers and representatives of the underwriters.

PAGE 33

As a result of the offering, we received net proceeds of approximately $42.0 million, after deducting underwriting discounts and commissions of approximately $3.6 million and offering expenses payable by us of approximately $5.6 million. No offering expenses were paid directly or indirectly to any of our directors or officers or their associates or to persons owning ten percent or more of our common stock or to any other affiliates. The net offering proceeds have been invested into cash and money market accounts and have been used to make acquisitions, fund product development and expand internationally.

There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).

Common Stock Repurchases

On November 4, 2011, we announced that our Board of Directors authorized the repurchase of up to $20.0 million of our outstanding common stock.  On December 13, 2012, we announced that our Board of Directors increased our share repurchase program by $6.0 million, to a total authorization of $26.0 million, and on March 4, 2013, we announced that our Board of Directors increased the total authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At December 31, 2012, we had executed repurchases of $17.4 million of our common stock under the program. From January 1, 2013 to March 5, 2013, we executed repurchases of an additional $1.5 million of our common stock under the program. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by our management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion.

Common stock repurchases during the quarter ended December 31, 2012 were as follows:

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program		Maximum  Value of Shares That May Yet Be Purchased Under a Publicly Announced Program
October 2012		110,918	$	12.23		110,918	$	6,777,274
November 2012		218,344	$	11.52		218,344	$	4,254,412
December 2012		150,483	$	11.17		150,483	$	8,568,956

Item 6. Selected Financial Data.

The data set forth below are qualified in their entirety by reference to, and should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this report. The consolidated statements of operations data for the years ended December 31, 2012, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012 and 2011 are derived from our audited consolidated financial statements included elsewhere in this report. The consolidated statements of operations data for the years ended December 31, 2009 and 2008 and the consolidated balance sheet data as of December 31, 2010, 2009 and 2008 are derived from our audited consolidated financial statements not included in this report. In addition, as a result of the winding down of the operations of Bizzy, the local recommendation engine we developed, we have reclassified and presented all Bizzy related historical financial information as “discontinued operations” in the accompanying Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows. Historical results are not necessarily indicative of the results to be expected in the future.

PAGE 34

	Year Ended December 31,
	2012			2011			2010			2009			2008
(in thousands, except per share data)
Consolidated Statements of Operations:
Revenue	$	455,354		$	375,241		$	291,689		$	203,117		$	146,687
Cost of revenue (1)		227,336			190,559			159,018			112,218			77,496
Operating expenses:
Selling and marketing (1)		167,424			139,929			108,529			76,089			61,054
Product and technology (1)		19,776			15,602			9,957			4,657			2,938
General and administrative (1)		40,471			33,470			23,880			15,731			12,128
Total operating expenses		227,671			189,001			142,366			96,477			76,120
Income (loss) from operations		347			(4,319	)		(9,695	)		(5,578	)		(6,929	)
Gain on acquisition of ReachLocal Australia		—			—			—			16,223			—
Equity in losses of ReachLocal Australia		—			—			—			—			(813	)
Other income (expense), net		575			928			601			(7	)		889
Income (loss) before provision (benefit) for income taxes		922			(3,391	)		(9,094	)		10,638			(6,853	)
Provision (benefit) for income taxes		1,154			735			(540	)		217			145
Income (loss) from continuing operations, net of income taxes		(232	)		(4,126	)		(8,554	)		10,421			(6,998	)
Loss from discontinued operations, net of income taxes		—			(6,215	)		(2,844	)		(601	)		—
Net income (loss)		(232	)		(10,341	)		(11,398	)		9,820			(6,998	)
Undistributed income attributable to preferred stockholders		—			—			—			8,638			—
Net income (loss) available to common stockholders	$	(232	)	$	(10,341	)	$	(11,398	)	$	1,182		$	(6,998	)
Income (loss) per share from continuing operations, basic	$	(0.01	)	$	(0.14	)	$	(0.43	)	$	0.28		$	(1.23	)
Loss per share from discontinued operations, basic		—			(0.21	)		(0.14	)		(0.10	)		—
Net income (loss) per share, basic (2)	$	(0.01	)	$	(0.36	)	$	(0.57	)	$	0.19		$	(1.23	)
Income (loss) per share from continuing operations, diluted	$	(0.01	)	$	(0.14	)	$	(0.43	)	$	0.23		$	(1.23	)
Loss per share from discontinued operations, diluted		—			(0.21	)		(0.14	)		(0.07	)		—
Net income (loss) per share, diluted (2)	$	(0.01	)	$	(0.36	)	$	(0.57	)	$	0.15		$	(1.23	)
Weighted average common shares used in the computation of net income (loss) per share:
Basic		28,348			28,974			19,867			6,283			5,667
Diluted		28,348			28,974			19,867			7,901			5,667

(1)  Stock-based compensation, net of capitalization, and depreciation and amortization included in the above line items (in thousands):

	Year Ended December 31,
	2012		2011		2010		2009		2008
Stock-based compensation:
Cost of revenue	$	297	$	200	$	244	$	86	$	34
Selling and marketing		1,742		1,402		1,202		566		338
Product and technology		1,204		1,387		1,104		117		73
General and administrative		6,261		5,549		3,374		2,347		1,366
	$	9,504	$	8,538	$	5,924	$	3,116	$	1,811

	Year Ended December 31,
	2012		2011		2010		2009		2008
Depreciation and amortization:
Cost of revenue	$	706	$	645	$	364	$	261	$	186
Selling and marketing		2,436		1,443		1,038		889		596
Product and technology		9,056		6,764		3,822		1,741		916
General and administrative		1,554		1,422		1,078		430		154
	$	13,752	$	10,274	$	6,302	$	3,321	$	1,852

PAGE 35

	December 31,
	2012		2011		2010		2009			2008
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	95,485	$	85,169	$	88,114	$	43,416		$	39,127
Working capital	$	10,341	$	17,524	$	27,082	$	(6,606	)	$	15,256
Total assets	$	185,696	$	166,437	$	151,399	$	97,761		$	51,124
Total liabilities	$	103,810	$	84,150	$	69,383	$	55,643		$	28,610
Total stockholders’ equity	$	81,886	$	82,287	$	82,016	$	42,118		$	22,514

	Year Ended December 31,
	2012		2011		2010		2009		2008
(in thousands)
Other Financial Data:
Net cash provided by operating activities	$	42,359	$	18,989	$	17,675	$	14,308	$	12,062
Capital expenditures (3)	$	16,336	$	12,441	$	8,526	$	4,613	$	5,152
Non-GAAP Financial Measures:
Adjusted EBITDA (4)	$	23,635	$	15,915	$	3,133	$	1,920	$	(3,266	)
Underclassmen Expense (5)	$	45,250	$	44,488	$	36,073	$	26,824	$	27,886

	December 31,
	2012		2011		2010		2009		2008
Other Operational Data:
Number of IMCs:
Upperclassmen		419		372		286		235		80
Underclassmen		405		424		379		280		337
Total		824		796		665		515		417
Active Advertisers (6)		22,000		19,100		16,900		14,700		11,600
Active Campaigns (7)		32,500		27,500		22,700		18,600		13,500

(2)  See Note 2 to our consolidated financial statements for an explanation of the method used to calculate basic and diluted net income per share of common stock.

(3) Represents purchases of property and equipment and the amount of software development costs capitalized, in aggregate, excluding stock-based compensation and the acquisition of ReachLocal Australia in September 2009, and excluding capital expenditures related to the discontinued operations of Bizzy.

(4) See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for our definition of Adjusted EBITDA, why we present it and for a reconciliation of our Adjusted EBITDA to loss from operations for the years ended December 31, 2012, 2011 and 2010.

(5) See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for our definition of Underclassmen Expense.

(6) Active Advertisers is a number we calculate to approximate the number of clients directly served through our Direct Local channel as well as clients served through our National Brands, Agencies and Resellers channel. We calculate Active Advertisers by adjusting the number of Active Campaigns to combine clients with more than one Active Campaign as a single Active Advertiser. Clients with more than one location are generally reflected as multiple Active Advertisers. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Advertisers includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

(7) Active Campaigns is a number we calculate to approximate the number of individual products or services we are managing under contract for Active Advertisers. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client, we consider that two Active Campaigns. Similarly, if a client purchased ReachSearch campaigns for two different products or purposes, we consider that two Active Campaigns. Numbers are rounded to the nearest hundred.

PAGE 36

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

You should read the following discussion together with Part II, Item 6, “Selected Financial Data” and our consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe in Part I, Item 1A, “Risk Factors” and elsewhere in this Annual Report. See Part I, “Cautionary Notice Regarding Forward-Looking Statements.”

Overview

Our mission is to help small and medium-sized businesses, or SMBs, acquire, transact with, maintain and retain customers via the Internet. We offer a comprehensive suite of online marketing and reporting solutions, including ReachSearch™ (search engine marketing), ReachCast™ (Web presence), ReachDisplay™ (display advertising),  ReachRetargeting™ (display retargeting), online marketing analytics, and other related products and solutions, each targeted to the SMB market. In 2013, we expect to expand our product suite to include ReachSite (website solution) and two software-as-a-service, or SaaS, products ReachConvert (marketing automation and lead conversion) and ReachCommerce (supporting online booking, transaction and back office processes).  We deliver these solutions to SMBs through a combination of our proprietary platform, the RL Platform, and our direct, “feet-on-the-street” sales force of Internet Marketing Consultants, or IMCs, and select third-party agencies, resellers and a franchisee.

We use our RL Platform to create advertising campaigns for SMBs to target potential customers in their geographic area, optimize those campaigns in real time and track tangible results. Through a single Internet advertising budget, we enable our clients to reach local customers—whether using traditional computing devices or mobile devices—across the Internet, including through all of the major search engines and leading general interest and vertically focused online publishers. In 2010, we expanded the RL Platform to include ReachCast, our full-service Web presence and social media solution, and in September 2012, we launched ReachRetargeting, a ReachDisplay product targeting local consumers who have recently searched for an SMB’s business keywords as well as those who have recently visited their website. We continue to expand the RL Platform to include additional advertising products designed specifically for the needs of our SMB clients. Empowered by the RL Platform, our IMCs, which are based in or near the cities in which our clients operate, establish a direct consultative relationship with our clients and provide our solutions to achieve their marketing objectives.

We generate revenue by providing online advertising solutions for our clients through our portfolio of online marketing and advertising solutions. We sell ReachSearch, ReachDisplay and ReachRetargeting based on a package pricing model in which our clients commit to a fixed fee that includes the media; the optimization, reporting and tracking technologies of the RL Platform; and the personnel dedicated to support and manage their campaigns. We also generate revenue from digital marketing solutions for our clients that do not include the purchase of third-party media, including ReachCast, TotalTrack and TotalLiveChat. Generally, our products are sold to our clients in a single budget to simplify the purchasing process.

We offer our products and services through two primary channels. Our IMCs sell our products and services directly to SMBs, which we refer to as our Direct Local channel. We also sell our products and services through third-party agencies and resellers, and to national or regional businesses with multiple locations, such as franchisors, which we refer to as national brands. Because the sale to agencies, resellers and national brands involves negotiations with businesses that generally represent an aggregated group of SMB advertisers, we group them together as our National Brands, Agencies and Resellers channel.

 In 2006, we entered our first market outside of North America through a joint venture in Australia, and in 2009, we acquired the remaining interest in the joint venture. We entered the United Kingdom and Canada in 2008, Germany and the Netherlands in 2011, and Japan and Brazil in 2012. We also serve clients in New Zealand, Slovakia, Poland and Czech Republic through our resellers, including a franchisee. In 2010, we commenced campaign management and provisioning operations in India. 

 Business Model

Our Direct Local channel represents the majority of our revenue. As a percentage of revenue, Direct Local revenue has increased to 79% for the year ended December 31, 2012, from 78% for the year ended December 31, 2011. Growth in Direct Local revenue is largely attributable to an increase in the number of Upperclassmen and the productivity of Upperclassmen driven by their increased tenure. Also contributing to the increase was growth in the number of international IMCs who, on average, are more productive than our IMCs in North America.

PAGE 37

Typically, each month we hire 40-50 IMCs worldwide, with the hiring weighted towards the first ten months of the year. We refer to IMCs with 12 months or less of experience as Underclassmen. With each new class of Underclassmen, we track how they are performing relative to a standard level of revenue growth and other performance metrics for each month after their training. Understanding the performance of past and current Underclassmen allows us to adjust our investment in additional Underclassmen in the event we detect significant changes in their productivity.

We believe the key factors that affect the productivity of our IMCs are:

• IMC Tenure. As IMCs mature, they, on average, grow their advertiser base or sell additional products to existing advertisers, resulting in greater revenue productivity. In particular, Upperclassmen, those IMCs with more than 12 months of employment, are more productive than Underclassmen. As more and more IMCs mature and become Upperclassmen, as Upperclassmen become a higher percent of total IMCs, and as existing Upperclassmen mature, we expect overall IMC productivity to increase.

• Macroeconomic and Business Conditions. Macroeconomic conditions directly impact the amount of money SMBs allocate to market their business. Commencing in mid-2008, IMC productivity was significantly impacted by the economic recession as some of our SMB clients were forced to close or temporarily suspend their operations, while others curtailed their marketing expenditures in light of a contraction in consumer spending. From the end of 2009 through 2012, our IMC productivity remained higher than those levels experienced at the end of 2008. However, we believe the economic conditions remain challenging, particularly in North America. In addition, our IMCs’ productivity is affected by the amount of competition and online advertising consumption by SMBs. For example, our international IMCs have on average been more productive, which we attribute to lower levels of competition and online advertising consumption by SMBs in those markets.

• Number of Products. We believe that expanding our comprehensive suite of online marketing and reporting products and services will allow us to generate more revenue from each SMB relationship. Prior to 2009, we primarily offered a single product, ReachSearch. Since then, we launched our ReachDisplay and remarketing products in 2009, our TotalLiveChat and ReachCast products in 2010, our search retargeting and international ReachCast products in 2011, and our ReachRetargeting product in 2012.

• IMC Capacity. We continually endeavor to enhance the productivity of our IMCs. Our business model therefore contemplates additional investments in technology and support personnel to assist our IMCs in managing and maintaining existing clients in order to increase their capacity to acquire new clients. For example, we are in the process of organizing our sales and service organization into verticals so that we can leverage greater subject matter expertise, we continue to explore different staffing approaches to enhance the IMC’s opportunity to  focus on new client acquisition, and we are deploying additional technology to make the selling process more efficient.

• Client Tenure. One of the most time-consuming activities for our IMCs is the process of prospecting, arranging a time to visit and obtaining the first order for our products and services from a new client. A key factor in IMC productivity is therefore the success of our efforts to continue to sell our products and services to existing clients, which requires significantly less of an IMC’s time. We believe that a measure of the success of these efforts is the percentage of our revenue generated by sales to clients with different tenures. For this purpose, on an annual basis, we divide our clients into three groups to measure their revenue contribution:

• Trial Period Clients. We characterize a client’s initial four months as the “trial period” because that is generally the minimum term for a new client’s first agreement, and we believe that four months is the shortest period in which performance of an advertising campaign can be fully assessed.

• First-Year Post-Trial Clients. We characterize a client that continues to advertise through us after its four-month trial period and for up to one year after its trial period as a First-Year Post-Trial Client.

• Long-Term Clients. We characterize clients that continue to advertise through us for more than one year after their trial period as Long-Term Clients.

PAGE 38

The chart below presents the percentage of total revenues represented by our trial period, first-year post-trial, and long-term clients for the years ended December 31, 2010 to 2012.

Operating Metrics

We regularly review a number of other financial and operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. The following table shows certain key operating metrics for the three years ended December 31, 2012, 2011 and 2010.

	December 31,
	2012		2011		2010
Number of IMCs (at period end):
Upperclassmen		419		372		286
Underclassmen		405		424		379
Total		824		796		665
Underclassmen Expense for the year ended (in thousands) (1)	$	45,250	$	44,488	$	36,073
Active Advertisers (at period end) (2)		22,000		19,100		16,900
Active Campaigns (at period end) (3)		32,500		27,500		22,700

(1) See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for our definition of Underclassmen Expense.

(2) See Part II, Item 6, “Selected Financial Data” for our definition of Active Advertisers.

(3) See Part II, Item 6, “Selected Financial Data” for our definition of Active Campaigns.

PAGE 39

Number of IMCs

Our ongoing investment in increasing the number of our IMCs has been the principal engine for our growth. Typically, each month, we hire 40-50 IMCs worldwide, with the hiring weighted towards the first ten months of the year. We refer to IMCs with 12 months or less of experience as Underclassmen. In particular, our revenue growth is driven by the increase in the number of our Upperclassmen, who are significantly more productive than our Underclassmen. As such, we believe that our ability to grow our business is highly dependent on our ability to grow the number of our Upperclassmen. Beyond our hiring practices, which determine the number of IMCs to be hired as well as the rate at which we hire them, the increase in the number of Upperclassmen depends primarily on the productivity of Underclassmen, as the majority of Underclassmen attrition has been involuntary and is based on performance relative to a standard level of revenue growth and other performance metrics determined by us. We do not expect all Underclassmen to become Upperclassmen, and our investment decisions anticipate the cost of attrition. Our revenue growth is also driven by the increase in the number of our international IMCs as our international IMCs are on average more productive than our IMCs in North America, which we attribute to lower levels of competition and lower existing online advertising consumption by SMBs in those markets. Total IMCs in 2012 increased as compared to the preceding year due to the increase in the number of Underclassmen becoming Upperclassmen.  The number of Underclassmen at the end of 2012 was slightly lower than at the end of 2011 due to slightly lower IMC hiring rates in 2012.  During 2012, our strategy regarding hiring and maturation of IMCs was to maintain a more constant level of IMC hiring globally—as opposed to prior years when we sought to increase our number of Underclassmen more substantially—while shifting the hiring to our newer international markets and focusing on improving Upperclassmen productivity in our more established markets. 

Underclassmen Expense

Underclassmen do not, in the aggregate, make a positive contribution to operating income. Our largest operating expenses include the hiring, training and retention of Underclassmen in support of our goal of developing more Upperclassmen.

Underclassmen Expense is a number we calculate to approximate our investment in Underclassmen and is comprised of the selling and marketing expenses we allocate to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions and other variable compensation), training and sales organization expenses, including depreciation, allocated based on relative headcount and marketing expenses allocated based on relative revenue. While we believe that Underclassmen Expense provides useful information regarding our approximate investment in Underclassmen, the methodology we use to arrive at our estimated Underclassmen Expense was developed internally by management, is not a concept or method recognized by GAAP and other companies may use different methodologies to calculate or approximate measures similar to Underclassmen Expense. Accordingly, our calculation of Underclassmen Expense may not be comparable to similar measures used by other companies.

We determine the amount to invest in Underclassmen based on our objectives for development of the business and the key factors affecting IMC productivity described above. The increase in Underclassmen Expense in 2012 as compared to the preceding year was primarily attributable to our international expansion, partially offset by a reduced investment in North America. Underclassmen expense slightly increased as compared to the preceding year due to increased hiring in our international markets, though the increase was offset by a reduced investment in Underclassmen recruitment in North America.  The increase in Underclassmen Expense from 2011 to 2012 was lower than the increase from 2010 to 2011 as a result of our strategy to maintain a more constant level of IMC hiring globally—as opposed to prior years when we sought to increase Underclassmen hiring more substantially—while shifting the hiring to our newer international markets and focusing on improving Upperclassmen productivity in our more established markets.

Active Advertisers and Active Campaigns

We track the number of Active Advertisers and Active Campaigns to evaluate the growth, scale and diversification of our business. We also use these metrics to determine the needs and capacity of our sales forces, our support organization and other personnel and resources. Active Advertisers and Active Campaigns increased in 2012 due to an increase in the number of Upperclassmen and the productivity of Upperclassmen driven by their increased tenure, and an increase in the number of products available for our IMCs to sell.

Basis of Presentation

Discontinued Operations

As a result of the winding down of the operations of Bizzy, we have reclassified and presented all related historical financial information as “discontinued operations” in the Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows. In addition, we have excluded all Bizzy-related activities from the following discussions, unless specifically referenced.

Sources of Revenue

We derive our revenue principally from the provision and sale of online advertising to our clients. Revenue includes (i) the sale of our ReachSearch, ReachDisplay, ReachRetargeting and other products based on a package pricing model in which our clients commit to a fixed fee that includes the media, optimization, reporting and tracking technologies of the RL Platform, and the personnel dedicated to support and manage their campaigns; (ii) the sale of our ReachCast, TotalTrack, TotalLiveChat, and other products and services; and (iii) set-up, management and service fees associated with these products and other services. We distribute our products and services directly through our sales force of IMCs, who are focused on serving SMBs in their local markets through an in-person, consultative process, which we refer to as our Direct Local channel, as well as a separate sales force targeting our National Brands, Agencies and Resellers channel. The sales cycle for sales to SMBs ranges from one day to over a month. Sales to our National Brands, Agencies and Resellers clients generally require several months.

PAGE 40

           We typically enter into multi-month agreements for the delivery of our ReachSearch, ReachDisplay, ReachRetargeting and ReachCast products. Under our agreements, our SMB clients typically pay, in advance, a fixed fee on a monthly basis, which includes all charges for the included technology and media services, management, third-party content and other costs and fees. We record these prepayments as deferred revenue and only record revenue for income statement purposes as we purchase media and perform other services on behalf of clients. Generally, when at least 85% of requisite purchases and other services have occurred and an additional campaign cycle remains under the agreement, we make an additional billing or automatic collection for the next campaign cycle.

Our National Brands, Agencies and Resellers clients enter into agreements of various lengths or that are indefinite. Our National Brands, Agencies and Resellers clients either pay in advance or are extended credit privileges with payment generally due in 30 to 60 days. There were $3.8 million and $3.3 million of accounts receivables related to our National Brands, Agencies and Resellers at December 31, 2012 and 2011, respectively.

Cost of Revenue

Cost of revenue consists primarily of the costs of online media acquired from third-party publishers. Media cost is classified as cost of revenue in the period in which the corresponding revenue is recognized. From time to time, publishers offer the Company rebates based upon various factors and operating rules, including the amount of media purchased. We record these rebates in the period in which they are earned as a reduction to cost of revenue and the corresponding payable to the applicable publisher, or as an other receivable, as appropriate. Cost of revenue also includes third-party telephone and information services costs, data center and third-party hosting costs, credit card processing fees, third-party content and other direct costs. Cost of revenue also includes the cost of service providers related to our ClubLocal service.

In addition, cost of revenue includes costs to initiate, operate and manage clients’ campaigns, other than costs associated with the Company’s sales force, which are reflected as selling and marketing expenses. Cost of revenue includes salaries, benefits, bonuses and stock-based compensation for the related staff, including the cost of Web Presence Professionals who are the principal service providers for the Company’s ReachCast product, and allocated overhead such as depreciation expense, rent and utilities, as well as an allocable portion of our technical operations costs. Cost of revenue also includes the amortization and impairment charges on certain acquired intangible assets.

Operating Expenses

Selling and Marketing. Selling and marketing expenses consist primarily of personnel and related expenses for our selling and marketing staff, including salaries and wages, commissions and other variable compensation, benefits, bonuses and stock-based compensation; travel and business costs; training, recruitment, marketing and promotional events; advertising; other brand building and product marketing expenses; and occupancy, technology and other direct overhead costs. A portion of the compensation for IMCs, sales management and other employees in the sales organization is based on commissions and other variable compensation. In addition, the cost of agency commissions is included in selling and marketing expenses.

Product and Technology. Product and technology expenses consist primarily of personnel and related expenses for our product development and technology staff, including salaries, benefits, bonuses and stock-based compensation, and the cost of certain third-party service providers and other expenses, including occupancy, technology and other direct overhead costs. Technology operations costs, including related personnel and third-party costs, are included in product and technology expenses. We capitalize a portion of costs for software development and, accordingly, include amortization of those costs as product and technology expenses as the RL Platform addresses all aspects of our activities, including supporting the IMC selling and consultation process, online publisher integration, efficiencies and optimization, providing insight to our clients into the results and effects of their online advertising campaigns and supporting all of the financial and other back-office functions of our business.

Product and technology expenses also include the amortization of the technology obtained in acquisitions and expenses of the deferred payment obligations related to acquisitions attributable to product and technology personnel.

General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, human resources and corporate communications, including wages, benefits, bonuses and stock-based compensation, professional fees, insurance premiums and other expenses, including occupancy, technology and other direct overhead, public company costs and other corporate expenses.

PAGE 41

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us 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 consolidated financial statements and the reported amounts of revenue and expenses. We continually evaluate our estimates, judgments and assumptions based on available information and experience. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.

We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our consolidated financial statements:

• Revenue  recognition

• Software development costs

• Goodwill

•  Long-lived and intangible assets

•  Stock-based compensation

•  Variable interest entities

•  Income taxes

Revenue Recognition

We recognize revenue for our services when all of the following criteria are satisfied:

• persuasive evidence of an arrangement exists;

• services have been performed;

• the selling price is fixed or determinable; and

• collectability is reasonably assured.

We recognize revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of our clients. We recognize revenue for our ReachSearch product as clicks are recorded on sponsored links on the various search engines and for our ReachDisplay and ReachRetargeting product when the display advertisements record impressions or as otherwise provided in our agreement with the applicable publisher. We recognize revenue for our ReachCast product on a straight line basis over the applicable service period for each campaign. We recognize revenue when we charge set-up, management service or other fees on a straight line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When we receive advance payments from clients, we record these amounts as deferred revenue until the revenue is recognized. When we extend credit, we record a receivable when the revenue is recognized.

When we sell through agencies, we either receive payment in advance of services or in some cases extend credit. We pay each agency an agreed-upon commission based on the revenue we earn or cash we receive. Some agency clients that have been extended credit may offset the amount otherwise due to us by any commissions they have earned. We evaluate whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As we are the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, we recognize the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense. 

We also have a small number of resellers, including a franchisee. Resellers integrate our services, including ReachSearch, ReachDisplay and TotalTrack, into their product offerings. In most cases, the resellers integrate with our RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay us in arrears, net of commissions and other adjustments. We recognize revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as we believe that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

PAGE 42

We have recently launched a new consumer service, ClubLocal, through which we create a direct relationship with consumers and provide home-related services by engaging third-party suppliers who perform the agreed services on our behalf . Revenue is recognized when services have been provided. As we are the primary obligor under the arrangements, have discretion in supplier selection, have latitude in establishing prices, and bear the credit risk, we recognize the gross amount of sales as revenue and the cost of the service provided is recorded as cost of revenue.

We offer future incentives to clients in exchange for minimum commitments. In these circumstances, we estimate the amount of the future incentives that will be earned by clients and defer a portion of the otherwise recognizable revenue. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered. Should a client not meet its minimum commitment and no longer qualify for the incentive, we recognize the revenue previously deferred related to the estimated incentive. 

We account for sales and similar taxes imposed on our services on a net basis in the consolidated statements of operations.

Software Development Costs

We capitalize costs to develop software when we have determined that the development efforts will result in new or additional functionality or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying consolidated statements of operations. We monitor our existing capitalized software and reduce its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs.

Goodwill

We have total goodwill of $42.1 million as of December 31, 2012 and $41.8 million as of December 31, 2011 related to our acquired businesses. We operate in one reportable segment, in accordance with ASC 280, Segment Reporting, and have identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each segment’s management. North America’s assigned goodwill was $9.7 million as of December 31, 2012 and $9.4 million as of December 31, 2011.  Australia’s assigned goodwill was $32.4 million as of December 31, 2012 and 2011.  We review the carrying amounts of goodwill for possible impairment whenever events or changes in circumstance indicate that the related carrying amount may not be recoverable. We perform our annual assessment of goodwill impairment as of the first day of each fourth quarter.

For the year ended December 31, 2012, we followed the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. We estimate fair value utilizing the projected discounted cash flow method and discount rate determined by management to commensurate the risk inherent in our business model.

We performed our annual assessment of goodwill impairment as of the first day of the fourth quarter of 2012 and 2011, and determined that it was more likely than not that there was no impairment of goodwill. Accordingly, no impairment of goodwill was recorded as of December 31, 2012 and 2011.

PAGE 43

Long-Lived and Intangible Assets      

We report finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of one or three years. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

Management reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstance indicate that the related carrying amount may not be recoverable. In our analysis of other finite lived amortizable intangible assets, we apply the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses we have acquired.  Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

Stock-Based Compensation

We account for stock-based compensation based on fair value. We follow the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. We estimate forfeitures based upon our historical experience.

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes model significantly changes, stock-based compensation for future awards may differ materially from the awards granted previously.

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities, or VIEs, we analyze our interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If we determine that the entity is a VIE, we then assess if we must consolidate the VIE as its primary beneficiary. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that we absorb, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

In connection with our entrance into a franchise agreement with OxataSMB on July 6, 2012, we entered into a market development loan agreement with OxataSMB pursuant to which the Company agreed to provide financing to OxataSMB of up to €2.9 million ($3.7 million), of which €1.45 million ($1.9 million) has been advanced. We have determined that OxataSMB is considered a VIE, but that we are not the primary beneficiary of OxataSMB and, therefore, we did not consolidate the results of OxataSMB.

Deferred Consideration

  Deferred purchase consideration that is fixed and determinable and expected to be settled in cash is accrued as a liability as of the date of the respective acquisition. Deferred purchase consideration that is fixed and determinable and expected to be settled in common stock is recorded as an increase to additional paid-in capital as of the date of acquisition. Deferred stock-based compensation issued to employees in connection with acquisitions is measured at fair value on the date of grant/acquisition and recognized over the vesting period of the instruments in accordance with our Stock-Based Compensation policy.

Common Stock Repurchase and Retirement

Common stock repurchased is retired and the excess of the cost over the par value of the common shares repurchased is charged to additional paid-in capital.

PAGE 44

Income Taxes

We use the liability method of accounting for income taxes. Significant judgment is required in determining the consolidated provision for income taxes and evaluating our tax positions. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return positions are supportable, we believe that it is more likely than not that those positions may not be fully sustained upon review by tax authorities.

For the periods presented, income tax expense represents income taxes imposed by state, foreign and local tax jurisdictions applicable to our activities. We are otherwise generating net operating losses in the various tax jurisdictions in which we operate. We believe that it is likely that taxes imposed by state, local and foreign jurisdictions will increase in magnitude, particularly to the extent we become profitable in certain foreign jurisdictions before the time we obtain profitability on a consolidated basis.

Due to a history of losses, we have provided a valuation allowance against our deferred tax assets as more fully described in Note 12 of the consolidated financial statements. The ability to utilize these losses, any future losses and any other tax credits or attributes may be restricted or eliminated by changes in our ownership, including potentially as a result of our public offering, changes in legislation and other rules affecting the ability to offset future taxable income with losses from prior periods. Future determinations on the need for a valuation allowance on our net deferred tax assets will be made on a quarterly basis, and our assessment at December 31, 2012 reflects a continued need for a valuation allowance.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries in the amount of $1.1 million that are essentially permanent in duration. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

As a result of the acquisition of SMB:LIVE on February 22, 2010, we recorded a one-time discrete deferred tax benefit of $0.7 million from intangible assets recorded on the date of acquisition.

We are required to file income tax returns in the United States and various foreign jurisdictions, which requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions. Such returns are, and from time to time, have been subject to audit by the various federal, state and foreign taxing authorities, which may disagree with our tax positions. We believe that our accruals for tax liabilities are adequate for all open audit years based on our assessment of many factors, including past experience and interpretations of tax law. We review and update our estimates in light of changing facts and circumstances, such as the closing of a tax audit, the lapse of a statute of limitations or a material change in estimate. To the extent that the final tax outcome of these matters differs from our expectations, such differences will impact income tax expense in the period in which such determination is made.

PAGE 45

 Results of Operations

Comparison of the Years Ended December 31, 2012, 2011 and 2010

	Year Ended December 31,
	2012			2011			2010
(in thousands, except per share data)
Revenue	$	455,354		$	375,241		$	291,689
Cost of revenue (1)		227,336			190,559			159,018
Operating expenses:
Selling and marketing (1)		167,424			139,929			108,529
Product and technology (1)		19,776			15,602			9,957
General and administrative (1)		40,471			33,470			23,880
Total operating expenses		227,671			189,001			142,366
Income (loss) from operations		347			(4,319	)		(9,695	)
Other income, net		575			928			601
Income (loss) before provision for (benefit from) income taxes		922			(3,391	)		(9,094	)
Provision for (benefit from) income taxes		1,154			735			(540	)
Loss from continuing operations, net of income taxes		(232	)		(4,126	)		(8,554	)
Loss from discontinued operations, net of income taxes		—			(6,215	)		(2,844	)
Net loss	$	(232	)	$	(10,341	)	$	(11,398	)
Net loss:
Loss from continuing operations, net of income taxes	$	(232	)	$	(4,126	)	$	(8,554	)
Loss from discontinued operations, net of income taxes		—			(6,215	)		(2,844	)
Net loss	$	(232	)	$	(10,341	)	$	(11,398	)
Net loss per share, basic and diluted:
Loss per share from continuing operations, basic and diluted	$	(0.01	)	$	(0.14	)	$	(0.43	)
Loss per share from discontinued operations, basic and diluted		—			(0.21	)		(0.14	)
Net loss per share, basic and diluted	$	(0.01	)	$	(0.36	)	$	(0.57	)
Weighted average common shares used in the computation of net income (loss) per share:
Basic		28,348			28,974			19,867
Diluted		28,348			28,974			19,867

(1) Stock-based compensation, net of capitalization, and depreciation and amortization included in the above line-items (in thousands):

	Year Ended December 31,
	2012		2011		2010
Stock-based compensation:
Cost of revenue	$	297	$	200	$	244
Selling and marketing		1,742		1,402		1,202
Product and technology		1,204		1,387		1,104
General and administrative		6,261		5,549		3,374
	$	9,504	$	8,538	$	5,924
Depreciation and amortization:
Cost of revenue	$	706	$	645	$	364
Selling and marketing		2,436		1,443		1,038
Product and technology		9,056		6,764		3,822
General and administrative		1,554		1,422		1,078
	$	13,752	$	10,274	$	6,302

Revenue

	Year Ended December 31,
	2012		2011		2010		2012-2011 % Change			2011-2010 % Change
(in thousands)
Direct Local	$	359,505	$	291,444	$	217,846		23.4	%		33.8	%
National Brands, Agencies and Resellers		95,849		83,797		73,843		14.4	%		13.5	%
Total revenue	$	455,354	$	375,241	$	291,689		21.3	%		28.6	%

PAGE 46

	December 31,
	2012	2011	2010
(in thousands)
Number of IMCs:
Upperclassmen	419	372	286	12.6	%	30.1	%
Underclassmen	405	424	379	(4.0)	%	11.9	%
Total	824	796	665	3.8	%	19.7	%
Active Advertisers	22,000	19,100	16,900	15.2	%	13.0	%
Active Campaigns	32,500	27,500	22,700	18.2	%	21.1	%

The increase in Direct Local revenue of $68.1 million in 2012 compared to 2011 was largely attributable to an increase in the number of Upperclassmen and the productivity of Upperclassmen driven by their increased tenure. Also contributing to the increase was growth in the number of international IMCs who, on average, are more productive than our IMCs in North America, which we attribute to lower levels of competition and growing online advertising demand by SMBs in those markets. Total IMCs in 2012 increased as compared to the preceding year due to the increase in the number of Underclassmen becoming Upperclassmen. The number of Underclassmen at the end of 2012 was slightly lower than at the end of 2011 due to slightly lower IMC hiring rates in 2012. During 2012, our strategy regarding hiring and maturation of IMCs was to maintain a more constant level of IMC hiring globally—as opposed to prior years when we sought to increase Underclassmen more substantially—while shifting the hiring to our newer international markets and focusing on improving Upperclassmen productivity in our more established markets. While we maintain flexibility in our IMC hiring strategy based on macroeconomic and market conditions, we anticipate that we will pursue a level of Underclassmen hires similar to 2012, while focusing on Upperclassmen productivity improvements in the near-term.

The increase in National Brands, Agencies and Resellers revenue of $12.1 million in 2012 compared to 2011 was due to an increase in revenue from our domestic and international National Brands clients of $5.6 million, and an increase in revenue of $6.4 million from our domestic and international Agencies and Resellers. These increases were primarily driven by increases in expenditures by existing National Brands clients and existing Agencies and Resellers, as well as an increase in the number of Agencies and Resellers.

The increase in Direct Local revenue of $73.6 million in 2011 compared to 2010 was largely attributable to the increase in productivity of our IMCs as a result of the increases in the number of Upperclassmen, the tenure of our Upperclassmen, and the number of international IMCs as a percentage of our total IMCs as our international IMCs are on average more productive, which we attribute to lower levels of competition and online advertising consumption by SMBs in those markets.

The increase in National Brands, Agencies and Resellers revenue of $10.0 million in 2011 compared to 2010 was primarily due to $10.4 million in higher revenue from our domestic and international National Brands clients during 2011, and $1.2 million from our international Agencies and Resellers, which we attribute to greater success in these portions of the channel. This increase was offset in part by a decrease of $1.7 million in revenue from North American Agencies and Resellers during 2011, which was due to a decrease in spending from advertisers who advertised with us in both 2010 and 2011, and a decrease in the number of agencies advertising with us, partially offset by an increase in revenue from new agencies.

Cost of Revenue

	Year Ended December 31,												Year Ended December 31,
	2012		2011		2010		2012-2011 % Change			2011-2010 % Change			2012			2011			2010
(in thousands)													(as a percentage of revenue)
Cost of revenue	$	227,336	$	190,559	$	159,018		19.3	%		19.8	%		50.0	%		50.8	%		54.5	%

The decrease in our cost of revenue as a percentage of revenue in 2012 compared to 2011 was primarily due to an increase in publisher rebates, partially offset by the change in our geographic, product and service mix. As we enter new markets, the initial sales focus is on our ReachSearch product, which affects our product and service mix and has a higher cost of revenue than our other products.  Publisher rebates as a percentage of revenue increased to 4.6% of revenue in 2012 from 3.2% in 2011.

The decrease in our cost of revenue as a percentage of revenue in 2011 compared to 2010 was primarily due to changes in geographic, product and service mix, including increased international sales and sales of ReachCast and ReachDisplay, improved media buying efficiencies introduced in late 2010 related to our core products, an increase in publisher and vendor rebates, and economies of scale in our operations and service infrastructure.  Publisher rebates as a percentage of revenue increased to 3.2% of revenue in 2011 from 1.9% in 2010, due to more favorable rebate terms, primarily from our reseller agreements with Google.

PAGE 47

Our cost of revenue as a percentage of revenue will be affected in the future by the mix and relative amount of media we purchase to fulfill service requirements, the availability and amount of publisher rebates, the mix of products and services we offer, our media buying efficiency, and the costs of support and delivery.

Operating Expenses

Over the past several years, we have significantly increased the scope of our operations. We intend to continue to increase our sales force, product offerings and the infrastructure to support them. In growing our business, particularly in international markets, and in developing new products and solutions, we are incurring expenses to support our long-term growth plans, acknowledging that these investments may put pressure on near-term periodic operating results and increase our operating expenses as a percentage of revenue. 

Selling and Marketing

	Year Ended December 31,												Year Ended December 31,
	2012		2011		2010		2012-2011 % Change			2011-2010 % Change			2012			2011			2010
(in thousands)													(as a percentage of revenue)
Salaries, benefits and other costs	$	118,458	$	98,784	$	74,195		20.0	%		33.1	%		26.0	%		26.3	%		25.4	%
Commission expense		48,966		41,145		34,334		19.0	%		19.8	%		10.8			11.0			11.8
Total selling and marketing	$	167,424	$	139,929	$	108,529		19.7	%		28.9	%		36.8	%		37.3	%		37.2	%
Underclassmen Expense included above, excluding commissions	$	45,250	$	44,488	$	36,073		1.7	%		23.3	%

The increase in selling and marketing salaries, benefits and other costs in absolute dollars in 2012 compared to 2011 was primarily due to an increase in our IMC headcount and related recruiting, training and facilities costs, as well as increased advertising costs, including for ClubLocal.  The slight decrease in these costs as a percentage of revenue was primarily due to increased productivity and operational scale in our established markets, partially offset by expenses related to our entrance into new international markets and new product initiatives, including for ClubLocal.

The increase in commission expense in absolute dollars for 2012 compared to 2011 was due to increased sales. As a percentage of revenue, commission expense was slightly lower compared to the prior year. Commission expense includes commissions and other variable compensation. We do not expect continued decreases in commission expense as a percentage of revenue due to an expected higher percentage of Upperclassmen, who generally earn higher commission rates based on increased productivity.

Underclassmen expense slightly increased as compared to the preceding year due to increased hiring in our international markets, though the increase was offset by a reduced investment in Underclassmen recruitment in North America.  The increase in Underclassmen Expense from 2011 to 2012 was lower than the increase from 2010 to 2011 as a result of our strategy to maintain a more constant level of IMC hiring globally – as opposed to prior years where we were aggressively ramping up Underclassmen hiring – while shifting the hiring to emerging international markets and focusing on improving Upperclassmen productivity in our more established markets.

The increase in selling and marketing salaries, benefits and other costs in absolute dollars in 2011 compared to 2010 was primarily due to an increase in our IMC headcount and related recruiting, training and facilities costs.  The increase as a percentage of revenue in 2011 compared to 2010 was due primarily to the entrance into new international markets, partially offset by economies of scale in our established markets.

The increase in commission expense in absolute dollars for 2011 compared to 2010 was due to increased sales. As a percentage of revenue, commission expense decreased due to a higher percentage of revenue from our Direct Local channel, for which we pay lower commission rates.

PAGE 48

The increase in Underclassmen Expense in 2011 compared to 2010 was primarily due to increased IMC hiring, particularly in international markets.

Product and Technology

	Year Ended December 31,												Year Ended December 31,
	2012		2011		2010		2012-2011 % Change			2011-2010 % Change			2012			2011			2010
(in thousands)													(as a percentage of revenue)
Product and technology expenses	$	19,776	$	15,602	$	9,957		26.8	%		56.7	%		4.3	%		4.2	%		3.4	%
Capitalized software development costs from product and technology resources		8,912		6,776		6,884		31.5	%		(1.6	)%		2.0			1.8			2.4
Total product and technology costs expensed and capitalized	$	28,688	$	22,378	$	16,841		28.2	%		32.9	%		6.3	%		6.0	%		5.8	%

The increase in product and technology expenses in absolute dollars in 2012 compared to 2011 was primarily attributable to $1.6 million of increased salaries and compensation expense as a result of increased headcount related to the ongoing development of the RL Platform and new product initiatives, and $1.6 million of increased amortization expense related to previously capitalized software development costs and acquired intangibles. The increase as a percentage of revenue was primarily attributable to increased salaries and compensation expense as a result of increased headcount related to the ongoing development of the RL Platform and new product initiatives, including ClubLocal.

The changes in the amount of capitalized software development costs in both absolute dollars and as a percentage of revenues in 2012 compared to 2011 were primarily due to an increase in capitalizable projects, including those relating to our new product initiatives.

The increase in product and technology expenses in both absolute dollars and as a percentage of revenue in 2011 compared to 2010 was primarily attributable to $3.5 million of increased salaries and compensation expense as a result of increased headcount related to the ongoing development of the RL Platform, including ReachCast, and $2.1 million of increased amortization expense related to previously capitalized software development costs.

Capitalized software development costs were essentially flat between 2011 and 2010.

General and Administrative

	Year Ended December 31,												Year Ended December 31,
	2012		2011		2010		2012-2011 % Change			2011-2010 % Change			2012			2011			2010
(in thousands)													(as a percentage of revenue)
General and administrative	$	40,471	$	33,470	$	23,880		20.9	%		40.2	%		8.9	%		8.9	%		8.2	%

The increase in general and administrative expenses in absolute dollars in 2012 compared to 2011 was primarily due to $6.8 million of increased employee and facilities costs to support the growth of the business, including our international expansion, and $0.7 million of increased stock-based compensation expense, partially offset by $0.5 million of decreased professional fees, which consist of tax, consulting, audit and legal fees.

PAGE 49

The increase in general and administrative expenses in absolute dollars and as a percentage of revenue in 2011 compared to 2010 was primarily due to  $2.9 million of increased employee costs to support the growth of the business, $2.3 million of increased tax, consulting and legal professional fees, including costs to support our Sarbanes-Oxley compliance efforts and our international expansion initiatives, $2.2 million of increased stock-based compensation expense, and $1.8 million of increased facilities and related costs supporting the growth of the business and the requirements associated with being a public company.

We expect general and administrative expenses to increase in absolute dollars as we continue to add personnel and incur additional professional fees and other expenses to support our continued domestic and international growth.

Other Income, Net

Other income, net decreased in 2012 compared to 2011 due to foreign exchange rate fluctuations and lower interest rates on invested balances. Other income, net primarily consists of interest income resulting from invested balances.

The increase in other income in both absolute dollars and as a percentage of revenue in 2011 compared to 2010 was attributable to an increase in interest income resulting from higher invested balances.

Provision for (Benefit from) Income Taxes

The income tax provision of $1.2 million and $0.7 million for 2012 and 2011, respectively, relates to federal, state and foreign income taxes, including the deferred tax impact of prior business combinations. The income tax benefit of $0.5 million for 2010 was primarily attributable to the acquisition of SMB:LIVE, in which we recorded one-time discrete tax benefit of $0.7 million, which was partially offset by state, local and foreign income taxes of $0.2 million.

Loss from Discontinued Operations

On November 1, 2011, we announced that we would wind down the operations of Bizzy and determined that Bizzy would be considered a discontinued operation as of the third quarter of 2011. In connection with this decision, we recorded a charge of $4.0 million in 2011 to reflect the impairment of capitalized software development costs, personnel and severance costs, operating losses, facilities and other costs.

Non-GAAP Financial Measures

In addition to our GAAP results discussed above, we believe Adjusted EBITDA and Underclassmen Expense are useful to investors in evaluating our operating performance. For the years ended December 31, 2012, 2011 and 2010, our Adjusted EBITDA and Underclassmen Expense were as follows:

	Year Ended December 31,
Non-GAAP Financial Measures (unaudited):	2012		2011		2010
(in thousands)
Adjusted EBITDA (1)	$	23,635	$	15,915	$	3,133
Underclassmen Expense (2)	$	45,250	$	44,488	$	36,073

(1) Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) from continuing operations before interest, income taxes, depreciation and amortization expenses, excluding, when applicable, stock-based compensation, the effects of accounting for business combinations (including any impairment of acquired intangibles and, in the case of the acquisition of SMB:LIVE, the deferred cash consideration), and amounts included in other non-operating income or expense.

(2) Underclassmen Expense. We define Underclassmen Expense as our investment in Underclassmen, which is comprised of the selling and marketing expenses we allocate to Underclassmen during a reporting period. The amount includes the direct salaries and allocated benefits of the Underclassmen (excluding commissions and other variable compensation), training and sales organization expenses including depreciation allocated based on relative headcount and marketing expenses allocated based on relative revenue. While we believe that Underclassmen Expense provides useful information regarding our approximated investment in Underclassmen, the methodology we use to arrive at our estimated Underclassmen Expense was developed internally by the company, is not a concept or method recognized by GAAP and other companies may use different methodologies to calculate or approximate measures similar to Underclassmen Expense. Accordingly, our calculation of Underclassmen Expense may not be comparable to similar measures used by other companies.

Our management uses Adjusted EBITDA because (i) it is a key basis upon which our management assesses our operating performance; (ii) it may be a factor in the evaluation of the performance of our management in determining compensation; (iii) we use it, in conjunction with GAAP measures such as revenue and income (loss) from operations, for operational decision-making purposes; and (iv) we believe it is one of the primary metrics investors use in evaluating Internet marketing companies.

PAGE 50

Our management believes that Adjusted EBITDA permits an assessment of our operating performance, in addition to our performance based on our GAAP results that is useful in assessing the progress of the business. By excluding (i) the effects of accounting for business combinations and associated acquisition and integration costs, which obscure the measurable performance of the business operations; (ii) depreciation and amortization and other non-operating income and expense, each of which may vary from period to period without any correlation to underlying operating performance; and (iii) stock-based compensation, which is a non-cash expense, we believe that we are able to gain a fuller view of the operating performance of the business. We provide information relating to our Adjusted EBITDA so that investors have the same data that we employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a valuable indicator of operating performance on a consolidated basis and of our ability to produce operating cash flow to fund working capital needs, capital expenditures and investments in Underclassmen.

In addition, our management believes that Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties in our industry as a measure of financial performance and debt-service capabilities. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• Adjusted EBITDA does not reflect our cash expenditures for capital equipment or other contractual commitments;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;

• Adjusted EBITDA does not reflect the potentially significant interest expense or the cash requirements necessary to service interest or principal payments on indebtedness we may incur in the future;

• Adjusted EBITDA does not reflect income and expense items that relate to our financing and investing activities, any of which could significantly affect our results of operations or be a significant use of cash;

• Adjusted EBITDA does not reflect certain tax payments that may represent a reduction in cash available to us; and

• Other companies, including companies in our industry, calculate Adjusted EBITDA measures differently, which reduces its usefulness as a comparative measure.

            Adjusted EBITDA is not intended to replace operating income (loss), net income (loss) and other measures of financial performance reported in accordance with GAAP. Rather, Adjusted EBITDA is a measure of operating performance that you may consider in addition to those measures. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results, including cash flows provided by operating activities, and using total Adjusted EBITDA as a supplemental financial measure.

The following table presents a reconciliation of Adjusted EBITDA to our loss from operations for each of the periods indicated:

	Year Ended December 31,
	2012		2011			2010
(in thousands)
Income (loss) from operations	$	347	$	(4,319	)	$	(9,695	)
Add:
Stock-based compensation, net		9,504		8,538			5,924
Depreciation and amortization		13,752		10,274			6,302
Acquisition and integration costs		32		1,422			602
Adjusted EBITDA	$	23,635	$	15,915		$	3,133

PAGE 51

 Liquidity and Capital Resources  

	Year Ended December 31,
Consolidated Statements of Cash Flow Data:	2012			2011			2010
(in thousands)
Net cash provided by operating activities, continuing operations	$	42,588		$	20,861		$	19,805
Net cash used in investing activities, continuing operations	$	(24,598	)	$	(11,708	)	$	(16,924	)
Net cash used by discontinued operations	$	(229	)	$	(3,012	)	$	(3,533	)
Net cash provided by (used in) financing activities	$	(9,180	)	$	(973	)	$	44,097

At December 31, 2012 and 2011, we had cash and cash equivalents of $92.3 million and short-term investments of $3.1 million. Cash and cash equivalents consist of cash, money market accounts and certificates of deposit. Short term investments consist of certificates of deposit with original maturities in excess of three months but less than 12 months. To date, we have experienced no loss of our invested cash, cash equivalents or short-term investments. We cannot, however, provide any assurances that access to our invested cash, cash equivalents and short-term investments will not be impacted by adverse conditions in the financial markets. At December 31, 2012, we had no long-term indebtedness for borrowed money and are not subject to any restrictive bank covenants. At December 31, 2012, we had $1.2 million in restricted certificates of deposit to secure letters of credit issued to landlords and others.

At December 31, 2012 and 2011, we did not have contractual or purchase commitments for capital expenditures that were not reflected on our balance sheet as a liability. In addition, at December 31, 2012, we had significant internal product and technology resources working on projects that met the criteria for capitalization as software development costs and others that did not, although none of the projects in process were long-term projects (greater than one year). The amount capitalized for such projects in future periods will be evaluated by management and will impact the portion of costs for those internal resources that reduces net cash provided by operating activities and the portion of such costs used in investing activities. Funding for the committed capital expenditures, including software development costs, is expected to be provided by operating cash flows.

We have financed our operations, our expansion of our IMC sales force and the extension of our Direct Local channel into new territories through cash provided by operations. Deferred revenue arising from prepayment by the great majority of our clients and vendor trade financing, principally for the purchase of media, are major components of our cash flow from operations, and the cash provided by deferred revenue and accounts payable has increased as our business has continued to grow. In general, to the extent our revenue from our Direct Local channel continues to grow, we would expect both the amount of deferred revenue from customer prepayments and the amount of vendor financing for purchased media to increase, which, subject to offset from changes in other operating costs, cash demands or vendor terms, would result in an increase in net cash provided by operations. Should revenue from the Direct Local channel decrease, the amount of deferred revenue and vendor financing would likely decrease, which, subject to changes in other accounts, would cause net cash provided by operations to be reduced.

Although we expect that cash flow from operations and our existing cash balances will be sufficient to continue funding our expansion activities, these investments, including investments in developing new products and services for our clients, could require us to seek additional equity or debt financing, and that financing may not be available on terms favorable to us or at all. In addition, we intend to continue to increase our investment in Underclassmen and in the development of new products and services for our clients, which could require significant capital and entail non-capitalized expenses that could decrease our income from operations.

Operating Activities

Our cash flow from operating activities for 2012 resulted primarily from adjustments for non-cash expenses and increases in operating liabilities. Our loss from continuing operations, net of income taxes, of $0.2 million, was more than offset by non-cash depreciation and amortization of $13.8 million, and non-cash stock-based compensation of $9.5 million. Cash flow from operating activities also reflected increases in accounts payable and accrued expenses of $12.9 million due to growth of the business and the fluctuation in timing of payments to certain vendors, including the normalization of rebates receivable, and increases in deferred revenue, rent and other liabilities of $7.7 million due to the growth of our business.

Our cash flow from operating activities for 2011 resulted primarily from adjustments for non-cash expenses and increases in operating liabilities. Our loss from continuing operations of $4.1 million was offset by non-cash depreciation and amortization of $10.3 million, and non-cash stock-based compensation of $8.5 million. The loss was also offset by increases in accounts payable and accrued expenses of $7.1 million, reflecting a return to more normalized accounts payable levels as compared to 2010 due to the change in timing of payments to certain vendors, and $5.5 million of increases in deferred revenue and deferred payment obligations, both due to the growth of our business. The increases were partially offset by an increase in other receivables and prepaid expenses of $5.7 million, primarily related to an increase in vendor rebates of $6.3 million. 

PAGE 52

Our cash flow from operating activities for 2010 resulted primarily from changes in our operating assets and liabilities, with accounts payable and accrued liabilities increasing $11.2 million and deferred revenue and rent increasing $7.9 million, both due to the growth of our business. We had a net loss in 2010 of $8.6 million, which included non-cash depreciation and amortization of $6.3 million and non-cash stock-based compensation of $5.9 million.

Investing Activities

Our primary investing activities have consisted of purchases of property and equipment, capitalized software development costs, short-term investments, and business acquisitions. Our purchases of property and equipment and capitalization of software costs increased by $3.9 million year-over-year from in 2012 from 2011 reflecting our increased investment in our products, technology, facilities, and in newer markets. Purchases of property and equipment and capitalization of software costs will vary from period to period due to the timing of the expansion of our operations and our software development efforts. We expect to continue to use capital for acquisitions, purchases of property and equipment, and development of software.

On June 29, 2012, we entered into a market development loan agreement with OxataSMB pursuant to which we agreed to provide financing to OxataSMB of up to €2.9 million ($3.7 million), of which €1.45 million ($1.9 million) has been advanced. In addition, during 2012, we made acquisition related payments of $4.2 million, consisting of payments on deferred obligations related to the DealOn and SMB:LIVE acquisitions totaling $1.6 million, and payment for the RealPractice acquisition of $2.6 million. We have remaining obligations totaling $0.8 million related to these acquisitions. We also purchased certificates of deposits and short-term investments of $9.1 million, offset by maturities aggregating $6.6 million.

On February 8, 2011, we acquired DealOn for up to approximately $9.7 million in cash and stock. On the closing date, we paid $5.8 million in cash and issued 82,878 shares of our common stock. The balance of the purchase price was estimated to total up to $1.5 million, payable in cash, and 22,095 common shares of our stock, payable in three installments, with 50% (10,649 shares of common stock) paid in February 2012, 25% paid August 2012 and 25% paid February 2013.

In 2010, we invested $2.8 million, net of cash acquired, in the purchase of SMB:LIVE. The terms of our purchase agreement required us to make additional payments in 2011 of $0.4 million and in 2012 of $0.6 million. In 2009, we acquired the remaining interest of ReachLocal Australia and invested $8.9 million in net cash. Of this investment, $3.1 million was paid, net of cash acquired, in 2009 and the balance of $5.8 million was paid in conjunction with our initial public offering in 2010.

Financing Activities

During 2012, our financing activities primarily consisted of using $11.0 million of cash to settle the purchase of shares of our common stock pursuant to our share repurchase program, partially offset by $1.8 million in proceeds from exercise of stock options. Our cash flow used in financing activities for 2011 resulted primarily from settlements of repurchases of our common stock of $6.5 million, partially offset by $5.5 million in proceeds from the exercise of stock options. In May 2010, we received $43.0 million in proceeds, after deducting underwriting discounts and commissions and estimated offering costs payable by us, from the sale of shares of common stock in connection with our initial public offering.

Future cash flows from financing activities may also be affected by our repurchases of our common stock. On November 4, 2011, we announced that our Board of Directors authorized the repurchase of up to $20.0 million of our outstanding common stock. On December 13, 2012, we announced that our Board of Directors increased the total authorized repurchase amount to $26.0 million, and on March 4, 2013, we announced that our Board of Directors increased the total authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At December 31, 2012, we had executed repurchases of $17.4 million of our common stock under the program. From January 1, 2013 to March 5, 2013, we executed repurchases of an additional $1.5 million of our common stock under the program. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by our management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at our discretion.

Balance Sheet Arrangements

At December 31, 2012, we did not have any off-balance sheet arrangements.

PAGE 53

Contractual Obligations

At December 31, 2012, the remaining deferred payment obligation under the DealOn acquisition agreement included approximately $0.4 million in cash and 5,324 shares of our common stock, both of which were paid on February 8, 2013. The remaining deferred payment obligation related to the RealPractice acquisition was $0.3 million.

We lease our primary office space in Woodland Hills, California; Plano, Texas; and other locations under various cancelable and non-cancelable operating leases that will expire between 2012 and 2021. We have no debt obligations. All property and equipment have been purchased for cash, and we have no capital lease obligations recorded in the financial statements. We have a long-term purchase obligation outstanding with a vendor, of which $1.4 million is due within a year, and $3.5 million is due between 1 to 3 years.

As of December 31, 2012, future minimum payments under non-cancelable operating leases are as follows (in thousands):

	Payments Under Operating Leases
Less than 1 year	$	10,508
1-3 years		15,210
3-5 years		7,862
More than 5 years		6,687
Total future minimum payments	$	40,267

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

We are exposed to market risk in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and inflation risks.

Interest Rate Fluctuation Risk

We do not have any long-term indebtedness for borrowed money. Our investments include cash, cash equivalents and short-term investments. Cash and cash equivalents and short-term investments consist of cash, money market accounts and certificates of deposit. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be materially affected to any degree by a sudden change in market interest rates.

Foreign Currency Exchange Risk

We have foreign currency risks related to our investments, revenue and operating expenses denominated in currencies other than the U.S. dollar, principally the Australian dollar, the British pound sterling, the Canadian dollar, the euro, the Japanese yen, the Indian rupee, and the Brazilian real. For the year ended December 31, 2012, a 10% strengthening of the U.S. dollar relative to these foreign currencies would have resulted in a decrease in revenue of $14.1 million, but an increase in operating income of $0.9 million. A 10% weakening of the U.S. dollar relative to these foreign currencies, however, would have resulted in an increase in revenue of $14.1 million, but a decrease in operating income of $0.9 million. We currently do not hedge or otherwise manage our currency exposure. As our international operations expand to more countries and mature, our risks associated with fluctuations in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the costs of our international expansion.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

PAGE 54

Item 8. Financial Statements and Supplementary Data.

Please refer to Item 15—Exhibits and Financial Statement Schedules.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) as of December 31, 2012. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. A control system no matter how well designed and operated, can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Grant Thornton LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2012, as stated in their report, which is included in Item 8 of this Annual Report on Form 10-K.

(c) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PAGE 55

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated herein by reference to our Proxy Statement for our 2013 Annual Meeting of Stockholders.

We have adopted a code of business conduct and ethics applicable to our directors, officers (including our principal executive officer and principal financial officer) and employees. The Code of Business Conduct and Ethics is available on the investor relations section of our website at www.reachlocal.com under “Corporate Governance.”

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from , a provision of this Code of Business Conduct and Ethics by posting such information on our website, at the address and location specified above and, to the extent required by the listing standards of The NASDAQ Stock Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.

Item 11. Executive Compensation.

The information required by this item is incorporated herein by reference to our Proxy Statement for our 2013 Annual Meeting of Stockholders.

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

The information required by this item is incorporated herein by reference to our Proxy Statement for our 2013 Annual Meeting of Stockholders.

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

The information required by this item is incorporated herein by reference to our Proxy Statement for our 2013 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated herein by reference to our Proxy Statement for our 2013 Annual Meeting of Stockholders.

PAGE 56

PART IV

Item 15. Exhibits, Financial Statement Schedules.

We have filed the following documents as part of this Annual Report on Form 10-K:

		Page
(1)	ReachLocal, Inc. Consolidated Financial Statements
	Reports of Independent Registered Public Accounting Firm	F-2
	Consolidated Balance Sheets	F-4
	Consolidated Statements of Operations	F-5
	Consolidated Statements of Comprehensive Loss	F-6
	Consolidated Statements of Stockholders’ Equity	F-7
	Consolidated Statements of Cash Flows	F-9
	Notes to the Consolidated Financial Statements	F-10

PAGE F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

ReachLocal, Inc.

We have audited the accompanying consolidated balance sheets of ReachLocal, Inc. (a Delaware corporation) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ReachLocal, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 11, 2013 expressed an unqualified opinion thereon.

/s/ GRANT THORNTON LLP

Irvine, California

March 11, 2013

PAGE F - 2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

ReachLocal, Inc.

We have audited the internal control over financial reporting of ReachLocal, Inc. (a Delaware corporation) (the “Company”) as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2012, and our report dated March 11, 2013 expressed an unqualified opinion on those consolidated financial statements.

/s/ GRANT THORNTON LLP

Irvine, California

March 11, 2013

PAGE F - 3

REACHLOCAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	December 31,
	2012			2011
Assets
Current assets:
Cash and cash equivalents	$	92,336		$	84,525
Short-term investments		3,149			644
Accounts receivable, net of allowance for doubtful accounts of $259 and $363 at December 31, 2012 and 2011, respectively		5,689			4,240
Other receivables and prepaid expenses		8,957			9,226
Total current assets		110,131			98,635
Property and equipment, net		11,066			9,885
Capitalized software development costs, net		14,704			10,942
Restricted certificates of deposit		1,226			1,286
Intangible assets, net		2,442			1,957
Other assets		4,044			1,966
Goodwill		42,083			41,766
Total assets	$	185,696		$	166,437
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	35,297		$	29,831
Accrued expenses		27,422			19,537
Deferred revenue and other current liabilities		36,304			30,747
Liabilities of discontinued operations		767			996
Total current liabilities		99,790			81,111
Deferred rent and other liabilities		4,020			3,039
Total liabilities		103,810			84,150
Commitments and contingencies (Note 4, 8, 9 and 10)
Stockholders’ Equity:
Common stock, $0.00001 par value—140,000 shares authorized; 28,154 and 28,552 shares issued and outstanding at December 31, 2012 and 2011, respectively		—			—
Receivable from stockholder		(89	)		(87	)
Additional paid-in capital		110,573			109,493
Accumulated deficit		(27,076	)		(26,844	)
Accumulated other comprehensive loss		(1,522	)		(275	)
Total stockholders’ equity		81,886			82,287
Total liabilities and stockholders’ equity	$	185,696		$	166,437

See notes to consolidated financial statements.

PAGE F - 4

REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year Ended December 31,
	2012			2011			2010
Revenue	$	455,354		$	375,241		$	291,689
Cost of revenue		227,336			190,559			159,018
Operating expenses:
Selling and marketing		167,424			139,929			108,529
Product and technology		19,776			15,602			9,957
General and administrative		40,471			33,470			23,880
Total operating expenses		227,671			189,001			142,366
Income (loss) from operations		347			(4,319	)		(9,695	)
Other income, net		575			928			601
Income (loss) before provision for (benefit from) income taxes		922			(3,391	)		(9,094	)
Provision for (benefit from) income taxes		1,154			735			(540	)
Loss from continuing operations, net of income taxes		(232	)		(4,126	)		(8,554	)
Loss from discontinued operations, net of income taxes		—			(6,215	)		(2,844	)
Net loss	$	(232	)	$	(10,341	)	$	(11,398	)
Net loss:
Loss from continuing operations	$	(232	)	$	(4,126	)	$	(8,554	)
Loss from discontinued operations		—			(6,215	)		(2,844	)
Net loss	$	(232	)	$	(10,341	)	$	(11,398	)
Net loss per share, basic and diluted:
Loss per share from continuing operations, basic and diluted	$	(0.01	)	$	(0.14	)	$	(0.43	)
Loss per share from discontinued operations, basic and diluted		—			(0.21	)		(0.14	)
Net loss per share, basic and diluted	$	(0.01	)	$	(0.36	)	$	(0.57	)
Weighted average common shares used in the computation of net loss per share:
Basic		28,348			28,974			19,867
Diluted		28,348			28,974			19,867

See notes to consolidated financial statements.

PAGE F - 5

REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	Year Ended December 31,
	2012			2011			2010
Net loss	$	(232	)	$	(10,341	)	$	(11,398	)
Other comprehensive loss:
Foreign currency translation adjustments		(1,247	)		(282	)		145
Other comprehensive loss		(1,247	)		(282	)		145
Comprehensive loss	$	(1,479	)	$	(10,623	)	$	(11,253	)

See notes to consolidated financial statements.

PAGE F - 6

REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

	Convertible Preferred Stock						Common Stock					Receivable from			Additional Paid-in		Accumulated			Accumulated Other Comprehensive Income			Total Stockholders’
	Shares			Amount			Shares		Amount			Stockholder			Capital		Deficit			(Loss)			Equity
Balance as of December 31, 2009		16,453		$	1			6,932	$	1		$	(99	)	$	47,449	$	(5,099	)	$	(138	)	$	42,118
Preferred stock conversion		(16,453	)		(1	)		16,712		—			—			4		—			—			—
Issuance of common stock, net of costs		—			—			3,941		—			—			41,996		—			—			41,996
Par value adjustment		—			—			—		(1	)		—			1		—			—			—
Exercise of stock options		—			—			536		—			—			1,068		—			—			1,068
Stock-based compensation		—			—			—		—			—			7,997		—			—			7,997
Issuance of common stock in connection with vesting of restricted stock, exercise of warrant and BOD share plan compensation		—			—			44		—			—			78		—			—			78
Net loss		—			—			—		—			—			—		(11,398	)		—			(11,398	)
Foreign currency translation adjustments		—			—			—		—			12			—		—			145			157

PAGE F - 7

	Convertible Preferred Stock				Common Stock					Receivable from			Additional Paid-in			Accumulated			Accumulated Other Comprehensive Income			Total Stockholders’
	Shares		Amount		Shares			Amount		Stockholder			Capital			Deficit			(Loss)			Equity
Balance as of December 31, 2010		—		—		28,165			—		(87	)		98,593			(16,497	)		7			82,016
Exercise of stock options		—		—		938			—		—			5,495			—			—			5,495
Stock-based compensation		—		—		—			—		—			9,682			—			—			9,682
Common and restricted stock issued in business combinations		—		—		266			—		—			2,191			—			—			2,191
Issuance of common stock in connection with vesting of restricted stock and BOD share plan compensation		—		—		47			—		—			—			—			—			—
Exercise of restricted stock units		—		—		8			—		—			—			—			—			—
Common stock repurchase		—		—		(872	)		—		—			(6,468	)		—			—			(6,468	)
Net loss		—		—		—			—		—			—			(10,341	)		—			(10,341	)
Foreign currency translation adjustments		—		—		—			—		—			—			(6	)		(282	)		(288	)
Balance as of December 31, 2011		—		—		28,552			—		(87	)		109,493			(26,844	)		(275	)		82,287
Exercise of stock options		—		—		320			—		—			1,783			—			—			1,783
Stock-based compensation		—		—		—			—		—			9,805			—			—			9,805
Common and restricted stock issued in business combinations		—		—		197			—		—			455			—			—			455
Issuance of common stock in connection with vesting of restricted stock and BOD share plan compensation		—		—		118			—		—			—			—			—			—
Exercise of restricted stock units		—		—		83			—		—			—			—			—			—
Common stock repurchase		—		—		(1,116	)		—		—			(10,963	)		—			—			(10,963	)
Net loss		—		—		—			—		—			—			(232	)		—			(232	)
Foreign currency translation adjustments		—		—		—			—		(2	)		—			—			(1,247	)		(1,249	)
Balance as of December 31, 2012		—	$	—		28, 154		$	—	$	(89	)	$	110,573		$	(27,076	)	$	(1,522	)	$	81,886

See notes to consolidated financial statements.

PAGE F - 8

REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2012			2011			2010
Cash flow from operating activities:
Net loss from continuing operations	$	(232	)	$	(4,126	)	$	(8,554	)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization		13,752			10,274			6,302
Stock-based compensation		9,504			8,538			5,924
Provision for doubtful accounts		13			172			252
Impairment of intangible assets		—			764			—
Provision for deferred income taxes		212			185			(700	)
Changes in operating assets and liabilities:
Accounts receivable		(1,396	)		(1,077	)		(171	)
Other receivables and prepaid expenses		291			(5,740	)		(1,785	)
Other assets		(118	)		(673	)		(585	)
Accounts payable and accrued expenses		12,869			7,076			11,228
Deferred revenue, rent and other liabilities		7,693			5,468			7,894
Net cash provided by operating activities, continuing operations		42,588			20,861			19,805
Net cash used for operating activities, discontinued operations		(229	)		(1,872	)		(2,130	)
Net cash provided by operating activities		42,359			18,989			17,675
Cash flow from investing activities:
Additions to property, equipment and software		(16,336	)		(12,441	)		(8,526	)
Acquisitions, net of acquired cash		(3,976	)		(6,342	)		(8,612	)
Loan to franchisee		(1,863	)		—			—
Purchases of certificates of deposits and short-term investments		(9,069	)		(574	)		(375	)
Maturities of certificates of deposit and short-term investments		6,646			7,649			589
Net cash used in investing activities, continuing operations		(24,598	)		(11,708	)		(16,924	)
Net cash used in investing activities, discontinued operations		—			(1,140	)		(1,403	)
Net cash used in investing activities		(24,598	)		(12,848	)		(18,327	)
Cash flow from financing activities:
Proceeds from exercise of stock options		1,783			5,495			1,068
Common stock repurchases		(10,963	)		(6,468	)		—
Proceeds from initial public offering		—			—			47,649
Deferred offering costs		—			—			(4,620	)
Net cash provided by (used in) financing activities		(9,180	)		(973	)		44,097
Effect of exchange rate changes on cash and cash equivalents		(770	)		(549	)		1,082
Net change in cash and cash equivalents		7,811			4,619			44,527
Cash and cash equivalents—beginning of year		84,525			79,906			35,379
Cash and cash equivalents—end of year	$	92,336		$	84,525		$	79,906
Supplemental disclosure of other cash flow information:
Cash paid for interest	$	—		$	—		$	184
Cash paid for income taxes	$	1,040		$	151		$	214
Supplemental disclosure of non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	301		$	1,144		$	2,461
Deferred payment obligation	$	(195	)	$	1,850		$	530

See notes to consolidated financial statements.

PAGE F - 9

REACHLOCAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

ReachLocal, Inc. (the “Company”) was incorporated in the state of Delaware in August 2003. The Company’s operations are located in North America, Australia, the United Kingdom, the Netherlands, Germany, Japan, Brazil and India. The Company’s mission is to help small- and medium-sized businesses (“SMBs”) acquire, transact with, maintain and retain customers via the Internet. The Company offers a comprehensive suite of online marketing solutions, including search engine marketing (ReachSearch™), Web presence (ReachCast™), display advertising (ReachDisplay™), display retargeting (ReachRetargeting™), online marketing analytics (TotalTrack®), and assisted chat service (TotalLiveChat™), each targeted to the SMB market. The Company delivers this suite of services to SMBs through a combination of its proprietary technology platform, the RL Platform, its direct, “feet-on-the-street” sales force of Internet Marketing Consultants, or IMCs, and select third-party agencies and resellers. 

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Discontinued Operations

As a result of winding down and closing the operations of Bizzy, effective November 2011, the Company has reclassified and presented all related historical financial information as “discontinued operations” in the accompanying Consolidated Balance Sheets, Statements of Operations and Cash Flows. In addition, all Bizzy-related activities have been excluded from the notes unless specifically referenced.

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period presentation and certain immaterial adjustments have been recorded in prior periods as further described in Note 11, “Stock-Based Compensation—Adjustment to Historical Stock-Based Compensation Expense”.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Therefore, actual results could differ from those estimates.

Foreign Currency Translation

The Company’s operations are conducted in several countries around the world, and the financial statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the U.S. dollar, the reporting currency, for inclusion in the Company’s consolidated financial statements. Income, expenses, and cash flows are translated at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Resulting translation adjustments are included as a component of accumulated other comprehensive income (loss), net in stockholders’ equity. Foreign currency translation adjustments are generally not adjusted for income taxes as they are primarily related to indefinite investments in foreign subsidiaries. Foreign exchange transaction gains and losses are included in other income (expense), net in the accompanying consolidated statements of operations. Exchange gains and losses on intercompany balances that are considered permanently invested are also included as a component of accumulated other comprehensive loss in stockholders’ equity.

PAGE F - 10

Foreign currency translation adjustments included in other comprehensive income (loss), were $(1.2) million, $(0.3) million and $0.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. For the years ended December 31, 2012, 2011 and 2010, the Company recorded immaterial amounts of other income (loss) from foreign exchange transactions.

Cash and Cash Equivalents

The Company reports all highly liquid short-term investments with original maturities of three months or less at the time of purchase as cash equivalents. As of December 31, 2012 and 2011, cash equivalents consist of demand deposits and money market accounts. Cash equivalents are stated at cost, which approximates fair value.

Short-Term Investments

The Company classifies short-term investments when the original maturity is less than one year, or when the Company intends to sell the investment within one year. As of December 31, 2012 and 2011, short-term investments consisted of certificates of deposit. All of the short-term investments are classified as available-for-sale.

Financial Instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, loan receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.

Restricted Cash

Restricted cash represents certificates of deposit held at financial institutions, which are pledged as collateral for letters of credit related to lease commitments. The restrictions will lapse when the letters of credit expire at the end of the respective lease terms in 2021. As of December 31, 2012 and 2011, the Company had restricted certificates of deposit in the amounts of $1.2 million and $1.3 million, respectively. Restricted certificates of deposit are classified as non-current assets.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments and accounts receivable. The Company holds its cash and cash equivalents, short-term investments and restricted cash with major financial institutions around the world.

Cash and cash equivalents and certificates of deposit are deposited with a limited number of financial institutions in the United States, Canada, Australia, United Kingdom, India, the Netherlands, Germany, Japan and Brazil. The balances held at any one financial institution are generally in excess of Federal Deposit Insurance Corporation insurance limits or, in foreign territories, local insurance limits. To date, the Company has not experienced any loss or lack of access to cash in its operating accounts. However, the Company can provide no assurances that access to its cash and cash equivalents will not be impacted by adverse conditions in the financial markets. As of December 31, 2012, domestic bank balances in excess of insured limits were $44.1 million. The Company had $27.8 million in excess of insured limits in foreign bank accounts as of December 31, 2012.

The Company’s customers are dispersed both geographically and across a broad range of industries. Receivables are generated primarily through agencies and resellers. Management performs ongoing evaluation of trade receivables for collectability and provides an allowance for potentially uncollectible accounts. The following table summarizes the change in the Company’s allowance for doubtful accounts for each of the three years ended December 31, 2012, 2011 and 2010 (in thousands):

	2012			2011			2010
Allowance for doubtful accounts as of the beginning of the year	$	363		$	373		$	142
Additions charged to expense		13			172			252
Write-offs		(117	)		(182	)		(21	)
Allowance for doubtful accounts as of the end of the year	$	259		$	363		$	373

As of December 31, 2012, no client accounted for 10% or more of the total accounts receivable balance. As of December 31, 2011, one client accounted for 20% of the total accounts receivable balance.

PAGE F - 11

In 2012, 2011, and 2010, no client accounted for 10% or more of the Company’s total revenue.

During 2012, 2011, and 2010, the Company’s cost of revenue was primarily for the purchase of media and the media the Company purchased was primarily from Google, Yahoo! and Bing.

Other receivables and prepaid expenses included $5.9 million and $7.3 million of non-trade receivables from media vendors at December 31, 2012 and 2011, respectively.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets or, where applicable and if shorter, over the lease term. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.

Estimated useful lives of assets are as follows:

Computer hardware and software (in years)	3
Office equipment (in years)	5
Furniture and fixtures (in years)	7
Leasehold improvements	The lesser of their expected useful lives or the remaining lease term.

Software Development Costs

The Company capitalizes costs to develop software when management has determined that the development efforts will result in new or additional functionality or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying consolidated statements of operations. We monitor our existing capitalized software and reduce its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs.

Goodwill 

          The Company’s total goodwill of $42.1 million as of December 31, 2012, and $41.8 million as of December 31, 2011, is related to our acquired businesses. The increase in goodwill of $0.3 million in 2012 was related to the RealPractice, Inc. acquisition. See Note 4, “Acquisitions”, for further details. The Company operates in one reportable segment, in accordance with ASC 280, Segment Reporting, and has identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by segment management. North America’s assigned goodwill was $9.7 million as of December 31, 2012 and $9.4 million as of December 31, 2011.  Australia’s assigned goodwill was $32.4 million as of December 31, 2012 and 2011.  The Company reviews the carrying amounts of goodwill for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The Company performs its annual assessment of goodwill impairment as of the first day of each fourth quarter.

For the years ended December 31, 2012 and 2011, the Company followed the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company estimates fair value utilizing the projected discounted cash flow method and a discount rate determined by the Company to commensurate with the risk inherent in its business model.

PAGE F - 12

 The Company performed its annual assessment of goodwill impairment as of the first day of the fourth quarter of 2012 and 2011, and determined that it was more likely than not that there was no impairment of goodwill and accordingly, no impairment of goodwill was recorded.

Long-Lived and Intangible Assets      

At December 31, 2012 and 2011, the Company had $2.4 million and $2.0 million, respectively, of intangible assets resulting from acquisitions. The Company reports finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of three years, or one year, in the case of certain customer relationships. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

The Company reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. In its analysis of other finite lived amortizable intangible assets, the Company applies the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses the Company has acquired. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

Leases

The Company leases various facilities under agreements accounted for as operating leases. For leases that contain escalation or rent concessions provisions, management recognizes rent expense during the lease term on a straight-line basis over the term of the lease. The difference between rent paid and straight-line rent expense is recorded as a deferred rent liability in the accompanying consolidated balance sheets.

Revenue Recognition

The Company recognizes revenue for its services when all of the following criteria are satisfied:

• persuasive evidence of an arrangement exists;

• services have been performed;

• the selling price is fixed or determinable; and

• collectability is reasonably assured.

The Company recognizes revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of its clients. The Company recognizes revenue for its ReachSearch product as clicks are recorded on sponsored links on the various search engines and for its ReachDisplay and ReachRetargeting product when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for its ReachCast product on a straight line basis over the applicable service period for each campaign. The Company recognizes revenue when it charges set-up, management service or other fees on a straight line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When the Company receives advance payments from clients, management records these amounts as deferred revenue until the revenue is recognized. When the Company extends credit, management records a receivable when the revenue is recognized.

When the Company sells through agencies, it either receives payment in advance of services or in some cases extends credit. The Company pays each agency an agreed-upon commission based on the revenue it earns or cash it receives. Some agency clients who have been extended credit may offset the amount otherwise due to the Company by any commissions they have earned. Management evaluates whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As the Company is the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management recognizes the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

PAGE F - 13

The Company also has a small number of resellers, including a franchisee. Resellers integrate the Company’s services, including ReachSearch, ReachDisplay, and TotalTrack, into their product offerings. In most cases, the resellers integrate with the Company’s RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay the Company in arrears, net of commissions and other adjustments. Management recognizes revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as management believes that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

The Company recently launched a new consumer service, ClubLocal, through which it creates a direct relationship with customers and provides home-related services by engaging third-party suppliers who perform the agreed services on its behalf. Revenue is recognized when services have been provided. As the Company is the primary obligor under the arrangements, has discretion in supplier selection, has latitude in establishing prices, and bears the credit risk, the Company recognizes the gross amount of sales as revenue and the cost of the service provided is recorded as cost of revenue.

The Company offers future incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the future incentives that will be earned by clients and defers a portion of the otherwise recognizable revenue. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered. Should a client not meet its minimum commitment and no longer qualify for the incentive, management recognizes the revenue previously deferred related to the estimated incentive.

The Company accounts for sales and similar taxes imposed on its services on a net basis in the consolidated statements of operations.

Cost of Revenue

Cost of revenue consists primarily of the cost of media acquired from third-party publishers. Media cost is classified as cost of revenue in the corresponding period in which revenue is recognized. From time to time, publishers offer the Company rebates based upon various factors and operating rules, including the amount of media purchased. Management records these rebates in the period in which they are earned as a reduction to cost of revenue and the corresponding payable to the applicable publisher, or as an other receivable, as appropriate. Cost of revenue also includes third-party telephone and information services costs, data center and third-party hosting costs, credit card processing fees, third-party content and other direct costs. In addition, cost of revenue includes costs to initiate, operate and manage clients’ campaigns, other than costs associated with the Company’s sales force, which are reflected as selling and marketing expenses. Cost of revenue includes salaries, benefits, bonuses and stock-based compensation for the related staff, including the cost of Web Presence Professionals who are the principal service providers for the Company’s ReachCast product, and allocated overhead such as depreciation expense, rent and utilities, as well as an allocable portion of the Company’s technical operations costs, and the cost of service providers related to ClubLocal.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of personnel and related expenses for selling and marketing staff, including salaries and wages, commissions and other variable compensation, benefits, bonuses and stock-based compensation; travel and business costs; training, recruitment, marketing and promotional events; advertising; other brand building and product marketing expenses; and occupancy, technology and other direct overhead costs. A portion of the compensation for IMCs, sales management and other employees in the sales organization is based on commissions and other variable compensation. In addition, the cost of agency commissions is included in selling and marketing expenses.

Product and Technology Expenses

Product and technology expenses consist primarily of personnel and related expenses for product development and technology staff, including salaries, benefits, bonuses and stock-based compensation, and the cost of certain third-party service providers and other expenses, including occupancy, technology and other direct overhead costs. Technology operations costs, including related personnel and third-party costs, are included in product and technology expenses. The Company capitalizes a portion of its software development costs (Note 6) and, accordingly, includes amortization of those costs as costs of product and technology, as the RL Platform and the Company’s other systems address all aspects of the Company’s activities, including supporting the IMC selling and consultation process, online publisher integration, efficiencies and optimization, providing insight to clients into the results and effects of their online advertising campaigns and supporting all of the financial and other back-office functions of the business. Product and technology expenses also include the amortization of the technology obtained in acquisitions and the expenses of deferred payment obligations related to product and technology personnel.

PAGE F - 14

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, human resources and corporate communications, including wages, benefits, bonuses and stock-based compensation, professional fees, insurance premiums and other expenses, including occupancy, technology and other direct overhead, public company costs and other corporate expenses.

Advertising Expenses

The Company expenses advertising as incurred. Advertising expense was $2.9 million, $1.3 million and $1.6 million for the years ended December 31, 2012, 2011 and 2010, respectively, and was recorded in sales and marketing expense in the Consolidated Statements of Operations.

Stock-Based Compensation

The Company accounts for stock-based compensation based on fair value. The Company follows the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. Management estimates forfeitures based upon its historical experience.

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes model significantly changes, stock-based compensation for future awards may differ materially from the awards granted previously.

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities (“VIE”), the Company analyzes its interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If the Company determines that the entity is a VIE, the Company then assesses if it must consolidate the VIE as its primary beneficiary. The Company’s determination of whether it is the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that the Company absorbs, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. See Note 8, “Variable Interest Entities”, for more information.

Loan Receivable

 Loan receivable is recorded at carrying value, net of potential allowance for losses. Losses on the receivables are recorded when probable and estimable. The Company routinely evaluates the receivable for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that the Company will experience losses that are different from its current estimates. Write-offs are deducted from the allowance for losses when the Company judges the principal to be uncollectible. Any subsequent recoveries are added to the allowance at the time cash is received on a written-off balance. See Note 8, “Variable Interest Entities”, for more information. Interest income on the loan receivable is accrued on a monthly basis over the life of the loan.

PAGE F - 15

Deferred Consideration

Deferred purchase consideration that is fixed and determinable and expected to be settled in cash is accrued as a liability as of the date of the respective acquisition. Deferred purchase consideration that is fixed and determinable and expected to be settled in common stock is recorded as an increase to additional paid-in capital as of the date of acquisition. Deferred stock-based compensation issued to employees in connection with acquisitions is measured at fair value on the date of grant/acquisition and recognized over the vesting period of the instruments in accordance with the Company’s Stock-Based Compensation policy.

Common Stock Repurchase and Retirement

Common stock repurchased is retired and the excess of the cost over the par value of the common shares repurchased is charged to accumulated deficit.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method and convertible preferred stock under the if-converted method, where such conversions are dilutive. The Company was in a net loss position for the years ended December 31, 2012, 2011 and 2010, and therefore the number of diluted shares was equal to the number of basic shares for each of these periods.

The following potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as they would be anti-dilutive for the periods below (in thousands):

	Year Ended December 31,
	2012		2011		2010
Convertible preferred stock – if-converted method		—		—		6,419
Deferred stock consideration and unvested restricted stock		59		185		406
Stock options and warrant		6,336		4,571		3,519
		6,395		4,756		10,344

Income Taxes

The Company records income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company records tax benefits for income tax positions only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. Management considers many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may differ from actual outcomes. The Company follows a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company’s policy is to recognize interest and penalties related to tax in income tax expense.

PAGE F - 16

3. Fair Value of Financial Instruments

The Company applies the fair value hierarchy for financial instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, that are used to measure fair value:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

			Basis of Fair Value Measurement
	Balance at  December 31, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	92,336	$	92,336	$	—	$	—
Certificates of deposit	$	4,375	$	4,375	$	—	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 2011		Quoted Prices in Active Markets for Identical  Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
Cash and cash equivalents	$	84,525	$	84,525	$	—	$	—
Certificates of deposit	$	1,930	$	1,930	$	—	$	—

The following table provides information about assets not carried at fair value in the Company’s Consolidated Balance Sheets (in thousands).

	December 31, 2012						December 31, 2011
			Assets						Assets
	Notional amount		Carrying amount (net)		Estimated fair value		Notional amount		Carrying amount (net)		Estimated fair value
Loan receivable	$	—	$	1,954	$	1,954	$	—	$	—	$	—

The OxataSMB B.V. (“OxataSMB”) loan receivable is not actively traded and its fair value is estimated based on valuation methodologies using current market interest rate data adjusted for inherent credit risk. See Note 8 for further information on the loan receivable.

4. Acquisitions

Acquisition of RealPractice

On July 3, 2012, the Company acquired certain technology, advertisers and hired certain employees of  RealPractice, Inc. (“RealPractice”). RealPractice provides the Company with a platform for building a marketing automation and lead conversion.

At closing, the Company paid $2.6 million in cash of the estimated $2.9 million purchase price. The remaining amount of $0.3 million is payable in cash on the 18-month anniversary of the closing date, subject to adjustment on January 3, 2014. The Company also issued 150,292 restricted stock units to the hired employees, which are accounted for as stock-based compensation over the period in which they are earned.

PAGE F - 17

           The Company recorded acquired assets and liabilities at their respective fair values. The following table summarizes the fair value of acquired assets and liabilities (in thousands):

Assets acquired:
Intangible assets	$	2,550
Goodwill		317
Other		53
Total assets acquired		2,920
Liabilities assumed:
Deferred revenue		(20	)
Total fair value of net assets acquired	$	2,900

Intangible assets acquired from RealPractice included customer relationships of $0.1 million and technology of $2.5 million, which are amortized over one and three years, their respective estimated useful lives, using the straight line method.

Acquisition costs in connection with the RealPractice acquisition was immaterial for the year ended December 30, 2012.

 Acquisition of DealOn

On February 8, 2011, the Company acquired all of the outstanding member interests of DealOn, LLC (“DealOn”) for consideration of up to approximately $9.6 million in cash and stock. DealOn was a deal commerce company that operated in the United States and provided the Company with a deal commerce platform.

On the closing date, the Company paid $5.8 million in cash and issued 82,878 shares of its common stock, valued at $1.9 million based on fair value of the Company’s stock on the acquisition date. The balance of the purchase price of $2.0 million (the “DealOn Deferred Consideration”) was payable in cash of $1.5 million and in 21,297 shares of the Company’s common stock, and was subject to adjustment under the terms of the acquisition agreement.

For purposes of determining the Company’s acquisition consideration, management discounted the DealOn Deferred Consideration to its then present value, or $1.9 million, and recorded this amount at the time of acquisition. The Company has accrued interest on the deferred consideration originally recorded. The Company recorded the acquired assets and liabilities at their respective fair values. The following table summarizes the fair value of assets and liabilities acquired (in thousands):

Ass Assets acquired:
Intangible assets	$	2,080
Goodwill		7,648
Other		59
Total assets acquired		9,787
Liabilities assumed:
Accounts payable and accrued expenses		(221	)
Total fair value of net assets acquired	$	9,566

During 2011, the Company recorded a $0.8 million impairment charge to intangible assets related to customer relationships acquired in the DealOn acquisition.  This impairment is recorded in Cost of Revenue and resulted from a diminution in value attributable to a change in the Company’s business strategy for ReachDeals and the elimination of its dedicated deal sales force. Revenue from the acquired legacy products and services are immaterial for the years ended December 31, 2012 and 2011, respectively.

The intangible assets acquired from DealOn included customer relationships of $1.2 million, developed technology of $0.6 million, and trademarks of $0.3 million.

In connection with the DealOn acquisition, the Company incurred approximately $0.4 million in costs that are reflected in general and administrative expense in the accompanying Consolidated Statements of Operations for the year ended December 31, 2011.

PAGE F - 18

Acquisition of SMB:LIVE

On February 22, 2010, the Company acquired all of the issued and outstanding common stock of SMB:LIVE Corporation (“SMB:LIVE”) for consideration of approximately $8.5 million in cash and stock. SMB:LIVE is a provider of data syndication and social media monitoring products and services to SMBs. With the technology acquired through the SMB:LIVE acquisition, the Company developed a digital presence and reputation management solution (ReachCast) designed to enable an SMB to publish multi-media content from a single interface to a business profile page hosted by the Company as well as to local directory sites, search engines and social media sites, including Twitter and Facebook. The solution also provides automated monitoring of local review sites, social media sites, and local blogs for references to the SMB or comments related to the SMB’s business to provide an SMB with feedback, alerts and analytics to assist it in managing its online reputation.

On the closing date, the Company paid $2.8 million in cash as part of the purchase price. The balance of the consideration of $5.7 million was paid in cash and stock of the Company in 2012 and 2011. The Company recognized the deferred consideration as compensation expense over the period in which it was earned.

The Company recorded the assets and liabilities acquired at their respective fair values. The following table summarizes the fair value of assets and liabilities acquired (in thousands):

Assets acquired:
Intangible assets	$	2,300
Goodwill		1,730
Other		199
Total assets acquired		4,229
Liabilities assumed:
Accounts payable and other current liabilities		(770	)
Deferred tax liabilities		(702	)
Total fair value of net assets acquired	$	2,759

The intangible assets acquired consist of SMB:LIVE’s developed technology.

In connection with the acquisition, the Company incurred approximately $0.3 million in costs that are reflected in general and administrative expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2010.

The results of operations of acquired entities for the periods post-acquisition were included in the consolidated statements of operations and were immaterial for the years ended December 31, 2012, 2011 and 2010. The pro-forma financial statements for the above acquisitions have not been shown as the results of operations of the acquired companies have been immaterial for the years ended December 31, 2012, 2011 and 2010.

Deferred Consideration

In connection with the RealPractice acquisition, we are obligated to pay an additional $0.3 million in cash on January 3, 2014, subject to adjustment.

Pursuant to the terms of its 2011 acquisition of DealOn, on February 8, 2012, the Company made a deferred payment in the amount of $0.5 million, net of the working capital adjustment and certain other adjustments, and issued 10,649 shares of its common stock. On August 8, 2012, the Company made a deferred payment in the amount of $0.4 million and issued 5,324 shares of its common stock. On February 8, 2013, the Company made the final deferred payment in connection with the DealOn acquisition in the amount of $0.4 million and issued 5,324 shares of its common stock.

As part of the consideration paid to acquire SMB:LIVE, on February 22, 2012, the Company paid $0.6 million in cash and issued 181,224 shares of its common stock. The February 22, 2012 payment represented the final payment of deferred consideration in connection with the SMB:LIVE acquisition.

PAGE F - 19

Intangible Assets

As of December 31, 2012, intangible assets from acquisitions included developed technology of $2.4 million (net of accumulated amortization of $2.9 million) amortized over three years, and customer relationships of $25,000 (net of accumulated amortization of $25,000) amortized over one year. As of December 31, 2011, intangible assets from acquisitions included developed technology of $1.4 million (net of accumulated amortization of $1.8 million) amortized over three years, and customer relationships of $0.7 million (net of accumulated amortization of $2.1 million) amortized over one year. Based on the current amount of intangibles subject to amortization, the estimated amortization expense over the remaining lives are as follows (in thousands):

Year Ending December 31,
2013	$	1,173
2014		853
2015		416
Total	$	2,442

For the years ended December 31, 2012, 2011 and 2010, amortization expense related to acquired intangibles was $2.2 million, $2.3 million and $1.4 million, respectively.

5. Property and Equipment

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

	December 31,
	2012			2011
Computer hardware and software	$	13,307		$	9,388
Office equipment		1,599			1,383
Furniture and fixtures		4,234			3,741
Leasehold improvements		5,656			2,865
Assets not placed in service		177			1,292
		24,973			18,669
Less: Accumulated depreciation and amortization		(13,906	)		(8,784	)
	$	11,066		$	9,885

Depreciation expense for property and equipment was $5.1 million, $3.2 million and $2.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

6. Software Development Costs

Capitalized software development costs consisted of the following (in thousands):

	December 31,
	2012			2011
Capitalized software development costs	$	31,944		$	21,686
Accumulated amortization		(17,240	)		(10,744	)
Capitalized software development costs, net	$	14,704		$	10,942

The Company recorded amortization expense of $6.5 million, $4.7 million and $2.6 million for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012 and 2011, $3.3 million and $1.2 million, respectively, of capitalized software development costs are related to projects still in development and are not being amortized.

7. Current Liabilities

Accrued expenses consisted of the following (in thousands):

	December 31,
	2012		2011
Accrued compensation and benefits	$	14,558	$	9,880
Other		12,864		9,657
Total accrued expenses	$	27,422	$	19,537

PAGE F - 20

Deferred revenue and other current liabilities consisted of the following (in thousands):

	December 31,
	2012		2011
Deferred revenue	$	34,142	$	28,624
Other		2,162		2,123
Total deferred revenue and other current liabilities	$	36,304	$	30,747

8. Variable Interest Entities

On July 6, 2012, the Company completed a transaction with OxataSMB, in which the Company entered into a franchise agreement with OxataSMB permitting it to operate and resell the Company’s services under the ReachLocal brand in Slovakia, Czech Republic, Hungary, Poland and Russia. Pursuant to the franchise agreement, OxataSMB will receive access to the RL platform, training, marketing and branding materials, media purchasing, campaign management and provisioning, sourcing of telephony, and technical support. The Company does not anticipate OxataSMB will pursue activities other than as a franchisee. In addition, the Company entered into a market development loan agreement with OxataSMB pursuant to which the Company agreed to provide financing to OxataSMB of up to €2.9 million ($3.7 million), of which €1.45 million ($1.9 million) has been advanced. The ability to draw down the remaining loan amount is dependent on OxataSMB achieving certain milestones by June 29, 2013, subject to a six-month extension at the Company’s option. The loan has a two-year term and accrues interest at 4% per annum, but does not require principal or interest payments for two years, and can be extended for an additional 24 months based on achievement of certain milestones. Prior to advance of the loan, OxataSMB had €1.45 million ($1.9 million) of contributed capital. As of December 31, 2012, OxataSMB had assets of less than $4 million and its results of operations since inception were not significant. In addition, the Company has an option to buy OxataSMB at an independently-determined fair value at the end of the initial loan term, subject to extension.

OxataSMB is considered a VIE with respect to the Company because OxataSMB may not have sufficient equity to finance its activities without additional financial support depending on its performance. At December 31, 2012, the Company was not the primary beneficiary of OxataSMB because it does not have: (1) the power to direct the activities that most significantly impact OxataSMB’s economic performance or (2) the obligation to absorb losses of OxataSMB or the right to receive benefits from OxataSMB that could potentially be significant. Therefore, the Company did not consolidate the results of OxataSMB and transactions with OxataSMB results were accounted for similarly to the Company’s resellers. The loan receivable is included in “Other assets” in the accompanying Consolidated Balance Sheet. As of December 31, 2012, the Company’s maximum exposure to loss related to the unconsolidated VIE consisted of its loan and accumulated interest receivable of $2.0 million and its contingent commitment to provide €1.45 million ($1.9 million) of additional debt financing. No allowance for loan losses has been recorded against the loan receivable.

9. Commitments and Contingencies

The Company leases office facilities under operating lease agreements that expire at various dates through 2021. The terms of the majority of the Company’s lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on a straight-line basis over the lease term.

Rental expense, principally for leased office space under operating lease commitments, was $11.4 million, $9.7 million and $6.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

As of December 31, 2012, future minimum payments under cancelable and non-cancelable operating leases are as follows (in thousands):

Year Ended December 31,
2013	$	10,508
2014		8,655
2015		6,555
2016		4,886
2017		2,976
Thereafter		6,687
	$	40,267

PAGE F - 21

Letters of Credit and Restricted Certificates of Deposit

As of December 31, 2012 and 2011, the Company maintained letters of credit totaling $1.2 million and $1.3 million, respectively, to secure its obligations under facility operating lease agreements. The letters of credit are collateralized by restricted certificates of deposit and automatically renew for successive one-year periods over the duration of the lease term. As of December 31, 2012 and 2011, the Company was required to maintain cash reserve balances of at least $1.2 million and $1.3 million, respectively, to secure these letters of credit. These amounts were classified as restricted certificates of deposit in the accompanying Consolidated Balance Sheets.

Litigation

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, management believes that the final disposition of such matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. 

10. Stockholder’s Equity

Initial Public Offering

On May 19, 2010, the Company issued 3,941,103 shares of common stock, including shares from the exercise of the underwriters’ option to purchase 625,000 shares, at a price of $13.00 per share, raising proceeds to the Company of $42.0 million, net of underwriting discounts and commissions and offering costs. 

Convertible Preferred Stock

Upon the completion of the initial public offering in 2010, all of the then outstanding shares of convertible preferred stock were converted to 16,712,120 shares of common stock with a par value of $0.00001 per share. 

Warrants

In November 2009, the Company issued a warrant to a consultant to purchase up to 15,000 shares of common stock at an exercise price of $10.91 per share, which expires in November 2014.

Common Stock Repurchases

On November 4, 2011, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the Company’s outstanding common stock. On December 13, 2012, the Company announced the Board of Directors increased the total authorized repurchase amount by $6.0 million, to a total authorization of $26.0 million, and on March 4, 2013, the Company announced that its Board of Directors increased the total authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At December 31, 2012, the Company had executed repurchases of 2.0 million shares of its common stock under the program for an aggregate of $17.4 million, of which $11.0 million or 1.1 million shares were repurchased during the year ended December 31, 2012. From January 1, 2013 to March 5, 2013, the Company executed repurchases of an additional $1.5 million of its common stock under the program. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by the Company’s management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate the Company to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

PAGE F - 22

Shares Reserved For Future Issuance

The following table shows the number of shares of common stock reserved for future issuance as of December 31, 2012 (in thousands):

Stock options	7,784
Restricted stock units	295
DealOn deferred stock consideration	126
Warrants	15
Deferred compensation	13
	8,233

11. Stock-Based Compensation

Stock Option Exchange

On May 29, 2012, the Company commenced an offer to exchange options to purchase shares of its common stock with an exercise price equal to or greater than $10.91 per share or, for the Company’s executive officers subject to Section 16 of the Securities Exchange Act of 1934, as amended (“executive officers”), $16.71 per share, for replacement options to purchase a lesser number of shares of common stock having an exercise price equal to the fair market value of the Company’s common stock on the replacement grant date, or for replacement options issued to the Company’s executive officers, an exercise price equal to the greater of the fair market value of the Company’s common stock on the replacement grant date or $13 per share.

The stock option exchange closed on June 25, 2012.  All exchanged options were cancelled at that time and immediately thereafter, the Company granted replacement options under the Amended and Restated ReachLocal 2008 Stock Incentive Plan. Employees other than executive officers received options covering an aggregate of 158,752 shares, each with an exercise price of $10.56, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on June 25, 2012, and executive officers received options covering an aggregate of 396,998 shares, each with an exercise price of $13.00. After cancelling exchanged options to purchase an aggregate of 834,875 shares and granting replacement options to purchase an aggregate of 555,750 shares, the Company’s total number of shares subject to outstanding stock options was reduced by 279,125 shares.

The fair value of the replacement options granted was measured as the total of the unrecognized compensation cost of the original options exchanged plus any incremental compensation cost of the replacement options. The incremental compensation cost of the replacement options was measured as the excess of the fair value of the replacement options over the fair value of the exchanged options immediately before cancellation. The total remaining unrecognized compensation expense related to the exchanged options and the incremental compensation cost of the replacement options will be recognized over the four-year vesting period of the replacement options. The incremental compensation expense of the replacement options was immaterial.

Stock Option Plans

On April 21, 2004, the Company adopted the 2004 Stock Plan (the “2004 Plan”), as amended. Grants under the 2004 Plan may be incentive stock options or nonqualified stock options or awards. The 2004 Plan is administered by the Company’s board of directors, which has the authority to designate participants and determine the number and type of awards to be granted, the time at which awards are exercisable, the method of payment and any other terms or conditions of the awards. The vesting of these awards vary subject to the participant’s period of future service, or otherwise at the discretion of the Company’s board of directors. The majority of awards vest over four years and have a term of 10 years. There were no shares available for grant under the 2004 Plan as of December 31, 2012 and 2011.

On July 1, 2008, the Company adopted the 2008 Stock Incentive Plan (the “2008 Plan”) and retired the 2004 Plan. Options outstanding under the 2004 Plan are unaffected by the retirement of the 2004 Plan. The aggregate number of shares of the Company’s common stock available for issuance pursuant to awards granted under the 2008 Plan is equal to the sum of (x) 5,471,350 plus (y) any shares of the Company’s common stock subject to awards under the 2004 Plan that terminate, expire or lapse for any reason or are settled in cash after the date the 2008 Plan originally became effective, and (z) an annual increase in shares on the first day of each year beginning in 2011 and ending in 2018. The annual increase will be equal to the lesser of (A) 2,500,000 shares (as adjusted for stock splits, stock combinations, stock dividends and similar matters), (B) 4.5% of the Company’s common stock outstanding on the last day of the prior year or (C) such smaller number of shares as may be determined by the Board. The 2008 Plan is administered by the Company’s Compensation Committee, which has the authority to designate participants and determine the number and type of awards to be granted, the time at which awards are exercisable, the method of payment and any other terms or conditions of the awards. The vesting of these awards vary subject to the participant’s period of future service, or otherwise at the discretion of the Compensation Committee. The majority of awards issued under the 2008 Plan vest over four years and have a term of seven years. There were 732,197 and 686,103 shares available for grant under the 2008 Plan as of December 31, 2012 and 2011, respectively. On January 1, 2013, an additional 1,266,925 shares were added to the pool under the evergreen provision.

PAGE F - 23

       Stock Options

The following table summarizes stock option activity (in thousands, except years and per share amounts):

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		6,411		$	12.52
Granted		2,632		$	10.19
Exercised		(320	)	$	5.57
Forfeited/Exchanged		(1,671	)	$	17.82
Outstanding at December 31, 2012		7,052		$	10.71		4.8	$	18,025
Vested and exercisable at December 31, 2012		3,814		$	10.54		3.5	$	10,321
Unvested at December 31, 2012, net of estimated forfeitures		3,046		$	10.90		6.2	$	7,339

The assumptions utilized for purposes of the Black-Scholes pricing model are summarized as follows:

• Volatility—As the Company has limited trading history for its common stock, the expected stock price volatility was estimated by taking a combination of 1) the median historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants and 2) the Company’s own historic price volatility based on daily price observations since May 2010. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. Management did not rely on implied volatilities of traded options in its industry peers’ common stock because the volume of activity was relatively low.

• Expected term—The expected term was estimated using the simplified method allowed under Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment. Management uses this method because it has limited historical data to estimate future terms and it is unable to obtain objective, measurable and comparative historical data of comparable companies.

• Risk free rate—The risk free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

• Dividend yield—The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, management used an expected dividend yield of zero.

In addition, management estimates the forfeiture rate based on its historical experience with forfeitures and reviews estimated forfeiture rates each period-end, and makes changes as factors affecting the forfeiture rate calculations and assumptions change.

The following table summarizes the weighted average assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2012, 2011 and 2010.

	Year Ended December 31,
	2012			2011			2010
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		0.74	%		1.88	%		1.91	%
Expected life (in years)		4.86			4.75			4.75
Expected volatility		60	%		57	%		56	%
Weighted average fair value per share	$	6.10		$	9.65		$	6.55

PAGE F - 24

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2012, 2011 and 2010 were $1.9 million, $14.2 million and $6.7 million, respectively. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010 were $2.0 million, $6.1 million and $3.7 million, respectively.

The options outstanding and vested and exercisable as of December 31, 2012 have been segregated into ranges for additional disclosure as follows (number of options in thousands):

			Options Outstanding					Options Vested and Exercisable
Range of Exercise Prices (in dollars)			Number	Weighted Average Remaining Contractual Life (in years)		Weighted Average  Exercise  Price		Number		Weighted  Average Exercise  Price
$0.00	-	$5.00	374		3.68	$	0.67		374	$	0.67
$5.01	-	$10.00	1,824		5.95	$	8.39		406	$	9.08
$10.01	-	$15.00	4,482		4.27	$	11.78		2,840	$	11.46
$15.01	-	$20.00	219		6.10	$	16.96		125	$	17.07
$20.01	-	$25.00	127		5.13	$	22.15		58	$	22.15
$25.01	-	$30.00	26		5.32	$	25.51		11	$	25.51
			7,052		4.75	$	10.71		3,814	$	10.54

Restricted Stock and Restricted Stock Units

The Company may issue restricted stock and restricted stock units in conjunction with acquisitions and long-term employee incentive programs.   These shares of restricted stock and restricted stock units have vesting periods of 4 years. Stock-based compensation expense related to restricted stock units was $1.7 million, $0.7 million and $0.6 million for the years ended December 31, 2012, 2011, and 2010, respectively.

The following table summarizes restricted stock awards and restricted stock unit awards (in thousands, except per share amounts):

	Number of shares			Weighted Average Grant  Date Fair Value
Unvested at December 31, 2011		123		$	16.33
Granted		469		$	9.99
Forfeited		(92	)	$	10.38
Vested		(118	)	$	12.71
Unvested at December 31, 2012		382		$	11.10

Stock-based compensation expense

In conjunction with the Company’s stock option plan and restricted shares and reserved shares issued in connection with SMB:LIVE, the Company records stock-based compensation expense net of capitalized stock-based compensation in association with software development costs. The following table summarizes stock-based compensation (in thousands):

	Year Ended December 31,
	2012		2011		2010
Stock-based compensation	$	9,805	$	9,682	$	7,830
Less: Capitalized stock-based compensation		301		1,144		1,906
Stock-based compensation expense, net	$	9,504	$	8,538	$	5,924

PAGE F - 25

Stock-based compensation, net of capitalization, is included in the accompanying consolidated statements of operations, within the following captions (in thousands):

	Year Ended December 31,
	2012		2011		2010
Stock compensation, net of capitalization
Cost of revenue	$	297	$	200	$	244
Selling and marketing		1,742		1,402		1,202
Product and technology		1,204		1,387		1,104
General and administrative		6,261		5,549		3,374
	$	9,504	$	8,538	$	5,924

As of December 31, 2012, there was $19.9 million of unrecognized stock-based compensation related to restricted stock, restricted stock units and outstanding stock options, net of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 1.6 years. Future stock-based compensation expense for these awards may differ in the event actual forfeitures deviate from management’s estimates.

Adjustment to Historical Stock-Based Compensation Expense

In conjunction with the transition to an integrated stock-based compensation tracking and reporting system, immaterial adjustments relating to the impact of forfeitures on the computation of stock-based compensation expense were identified. As a result, stock-based compensation expense was understated by $0.2 million in 2011, $0.3 million in 2010, and $0.2 million in 2009 and prior periods. Based on an analysis of qualitative and quantitative factors, management has concluded that these adjustments were not material to any historical period, although the cumulative impact of correcting for the adjustments in 2012 would have been material to the current period. As a result, the affected balances have been revised in the accompanying consolidated financial statements as adjustments to additional paid-in capital and accumulated deficit as of December 31, 2009, and stock-based compensation expense for the years ended December 31, 2011 and 2010.

12. Income Taxes

The components of income (loss) from continuing operations before income taxes were (in thousands):

	Year Ended December 31,
	2012			2011			2010
United States	$	12,096		$	(1,689	)	$	(6,489	)
Foreign		(11,174	)		(1,702	)		(2,605	)
	$	922		$	(3,391	)	$	(9,094	)

The provision for income taxes for the years ended December 31, 2012, 2011 and 2010, consists primarily of state and foreign income taxes payable in the various jurisdictions in which the Company operates. In 2010, the Company recorded a one-time $0.7 million discrete deferred tax benefit related to the acquisition of SMB:LIVE. 

Significant components of the provision for (benefit from) for income taxes are as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Current:
State	$	771		$	205		$	64
Foreign		171			345			96
		942			550			160
Deferred:
Federal		6,773			509			(1,968	)
State		1,097			769			(193	)
Foreign		(3,634	)		(1,618	)		(101	)
		4,236			(340	)		(2,262	)
Valuation allowance		(4,024	)		525			1,562
Income Tax Provision (Benefit)	$	1,154		$	735		$	(540	)

PAGE F - 26

Income taxes payable as of December 31, 2012 and 2011 amounted to $0.5 million and $0.6 million, respectively, and were classified within “Accrued expenses” in the accompanying Consolidated Balance Sheets.

The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to income before income taxes as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Income tax expense (benefit) at the federal statutory rate	$	313		$	(1,153	)	$	(3,092	)
State income tax, net of federal tax benefit		1,233			643			(225	)
Foreign income taxes, net		578			(43	)		(372	)
Non-deductible stock-based compensation		2,550			398			2,254
Acquisition of SMB:LIVE		---			—			(702	)
Change in valuation allowance		(4,024	)		525			1,562
Other		504			365			35
	$	1,154		$	735		$	(540	)

The components of deferred income tax assets and liabilities are as follows (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Accrued expenses	$	1,912		$	850
Deferred rent		1,262			928
Vacation accrual		506			527
Intangible assets		404			965
State taxes		262			70
Allowance for doubtful accounts		105			148
Net operating loss carryforward		8,134			12,495
Gross deferred tax assets		12,585			15,983
Less: valuation allowance		(6,403	)		(10,427	)
Net deferred tax assets		6,182			5,556
Deferred tax liabilities:
Capitalized software		(4,024	)		(2,671	)
Depreciation		(2,555	)		(3,070	)
Net deferred tax liabilities	$	(397	)	$	(185	)

Net deferred tax liabilities are included in “Deferred rent and other liabilities” in the accompanying Consolidated Balance Sheets.

The following table summarizes the Company’s net operating loss carry-forwards as of December 31, 2012:

Net operating loss:	Balance at December 31, 2012 (in thousands)		Beginning Expiration Year
State	$	2,277	Various jurisdictions from 2020 to 2031
Foreign	$	25,756	Generally do not expire, but are subject to certain limitations

PAGE F - 27

The federal NOL carryforwards per the income tax returns filed included unrecognized tax benefits taken in prior years.  According to the application of ASC 740, they are larger than the NOLs for which a deferred tax asset is recognized for financial statement purposes.

The Company evaluates its deferred tax assets on a quarterly basis to determine if a valuation allowance against its net deferred tax assets is required.   Realization of the Company’s deferred tax assets is dependent primarily on the generation of future taxable income.  In considering the need for a valuation allowance, the Company considers its historical, as well as, future projected taxable income, along with other positive and negative evidence in assessing the realizability of its deferred tax assets.  Due to the Company’s history of cumulative losses, the Company recorded a valuation allowance of $6.4 million and $10.4 million in 2012 and 2011, respectively. In 2012, the net valuation allowance decreased by $4.0 million, primarily due to the utilization of net operating losses in certain US and foreign jurisdictions.  In 2011 and 2010, the net valuation allowance increased by $3.0 million and $2.7 million, respectively, due in part to the generation of additional deferred tax assets associated with net operating losses in certain US and foreign jurisdictions.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries in the amount of $1.1 million that are essentially permanent in duration. This amount becomes taxable upon a repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

At December 31, 2012, the Company had gross unrecognized tax benefits of approximately $2.1 million. Of this total, approximately $0.1 million would affect the Company’s effective tax rate if recognized. The Company classifies liabilities for unrecognized tax benefits for which it does not anticipate payment or receipt of cash within one year in non-current other liabilities.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows (in thousands):

	December 31,
	2012		2011		2010
Unrecognized tax benefits – beginning balance	$	2,100	$	2,000	$	2,000
Gross increases – tax positions taken in prior period		—		100		—
Unrecognized tax benefits – ending balance	$	2,100	$	2,100	$	2,000

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.  Related to the unrecognized tax benefits noted above, the Company accrued no additional interest or penalties during 2012 and in total, as of December 31, 2012, has recognized a liability for interest and penalties of $ 0.1 million.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Company’s income tax returns since inception are open to examination by federal, state, and foreign tax authorities.

The Company does not expect significant changes to the unrecognized tax benefits in the next 12 months.

13. 401(k) Plan

In February 2007, the Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan is available to all full-time employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company may contribute to the plan at the discretion of its board of directors. No contributions have been made to the plan during the years ended December 31, 2012, 2011 and 2010.

14. Segment Information

The Company operates in one operating segment. The Company’s chief operating decision maker (“CODM”) manages the Company’s operations on a consolidated basis for purposes of evaluating financial performance and allocating resources.

PAGE F - 28

Revenue by geographic region with respect to the Direct Local channel and National Brands is based on the physical location of the sales office, and with respect to Agencies and Resellers, is based on the physical location of the agency or reseller. The following summarizes revenue by geographic region (in thousands):

	Year Ended December 31,
	2012		2011		2010
Revenue:
North America	$	327,521	$	289,249	$	241,696
International		127,833		85,992		49,993
	$	455,354	$	375,241	$	291,689
Long Lived Assets:
North America	$	6,395	$	8,159
International		4,671		4,757
	$	11,066	$	12,916

The results of the Australia geographic region have been included in the Company’s consolidated financial statements and include revenues of $72.6 million, $56.2 million, and $32.7 million in 2012, 2011 and 2010, respectively. Long-lived assets of the Australia geographic region were $1.7 million and $2.4 million at December 31, 2012 and 2011, respectively.

15. Discontinued Operations

On November 1, 2011, the Company announced that it would wind down the operations of Bizzy and determined that Bizzy would be considered a discontinued operation as of the third quarter of 2011. In connection with this decision, the Company recorded a charge of $4.0 million in 2011 to reflect the impairment of capitalized software development costs, personnel and severance costs, operating losses, facilities and other costs. As of December 31, 2012, liabilities from discontinued operations are expected to be settled over the next year.

 16. Quarterly Information (Unaudited)

The following table sets forth unaudited quarterly financial data for the four quarters of each of 2012 and 2011. As a result of the winding down of the operations of Bizzy, management has reclassified and presented all related historical financial information as “discontinued operations” in the following Consolidated Statements of Operations. As more fully discussed in Note 11, stock-based compensation expense for the quarter ended December 31, 2011 was adjusted for the impact of historical forfeitures.

	Dec 31, 2012			Sept 30, 2012		June 30, 2012		Mar 31, 2012			Dec 31, 2011			Sept 30, 2011			June 30, 2011			Mar 31, 2011
Revenue	$	120,248		$	118,891	$	112,212	$	104,003		$	99,802		$	98,629		$	92,752		$	84,058
Cost of revenue	$	59,790		$	59,500	$	55,656	$	52,390		$	49,196		$	50,265		$	46,598		$	44,500
Income (loss) from continuing operations, net of income taxes	$	(394	)	$	836	$	332	$	(1,006	)	$	151		$	(1,329	)	$	(276	)	$	(2,672	)
Loss from discontinued operations, net of income taxes	$	—		$	—	$	—	$	—		$	(1,495	)	$	(3,272	)	$	(673	)	$	(775	)
Net income (loss)	$	(394	)	$	836	$	332	$	(1,006	)	$	(1,344	)	$	(4,601	)	$	(949	)	$	(3,447	)
Income (loss) per share from continuing operations, basic	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	0.01		$	(0.05	)	$	(0.01	)	$	(0.09	)
Loss per share from discontinued operations, basic		—			—		—		—			(0.05	)		(0.11	)		(0.02	)		(0.03	)
Net income (loss) per share, basic	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	(0.05	)	$	(0.16	)	$	(0.03	)	$	(0.12	)
Income (loss) per share from continuing operations, diluted	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	0.01		$	(0.05	)	$	(0.01	)	$	(0.09	)
Loss per share from discontinued operations, diluted		—			—		—		—			(0.05	)		(0.11	)		(0.02	)		(0.03	)
Net income (loss) per share, diluted	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	(0.05	)	$	(0.16	)	$	(0.03	)	$	(0.12	)

PAGE F - 29

EXHIBIT INDEX

Exhibit No.	Description of Document
3.01	Amended and Restated Certificate of Incorporation of ReachLocal, Inc., dated May 19, 2010 (incorporated by reference to Exhibit 3.01 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-34749) filed with the SEC on March 28, 2011)
3.02	Amended and Restated Bylaws of ReachLocal, Inc. (incorporated by reference to Exhibit 3.02 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-34749) filed with the SEC on March 28, 2011)
4.01	Form of ReachLocal, Inc. Common Stock Certificate (incorporated by reference to Exhibit 4.01 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)
4.02	Second Amended and Restated Investors’ Rights Agreement, by and among ReachLocal, Inc., the Investors listed on Exhibit A, Exhibit B, Exhibit C and Exhibit D thereto, and the Founders listed on Exhibit E thereto, dated as of September 17, 2007 and as amended as of July 1, 2008, May 14, 2009, and May 18, 2009 (incorporated by reference to Exhibit 4.02 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
4.03	Stockholders Agreement, by and between ReachLocal, Inc. and NetUs Pty Limited ACN 117 674 030, dated as of September 11, 2009 (incorporated by reference to Exhibit 4.03 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.01*	Form of Indemnification Agreement for Directors and Executive Officers
10.02*	Offer Letter between ReachLocal, Inc. and Zorik Gordon, dated May 14, 2004 (incorporated by reference to Exhibit 10.10 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.03*	Offer Letter between ReachLocal, Inc. and Michael Kline, dated May 14, 2004 (incorporated by reference to Exhibit 10.11 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.04*	Offer of Employment by and between ReachLocal, Inc. and Ross G. Landsbaum, dated as of May 30, 2008 (incorporated by reference to Exhibit 10.12 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.05*	Offer of Employment by and between ReachLocal, Inc. and Nathan Hanks, dated as of May 6, 2009 (incorporated by reference to Exhibit 10.14 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.06*	Amendment to Offer Letter between ReachLocal, Inc. and Zorik Gordon, dated February 22, 2010 (incorporated by reference to Exhibit 10.19 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)
10.07*	Amendment to Offer Letter between ReachLocal, Inc. and Michael Kline, dated February 22, 2010 (incorporated by reference to Exhibit 10.20 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)
10.08*	Amendment to Offer of Employment between ReachLocal, Inc. and Nathan Hanks, dated February 22, 2010 (incorporated by reference to Exhibit 10.21 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)

PAGE F - 30

10.09*	Offer Letter between ReachLocal, Inc. and John Mazur, dated January 14, 2008, as amended (incorporated by reference to Exhibit 10.01 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 (File No. 001-34749) filed with the SEC on May 4, 2012)
10.10*	Secondment Letter between ReachLocal, Inc. and John Mazur, dated January 1, 2012 (incorporated by reference to Exhibit 10.02 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 (File No. 001-34749) filed with the SEC on May 4, 2012)
10.11*	Transition Agreement between ReachLocal, Inc. and Michael Kline, dated November 1, 2012 (incorporated by reference to Exhibit 10.02 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (File No. 001-34749) filed with the SEC on November 6, 2012)
10.12*	Form of Amended and Restated Restricted Stock Purchase Agreement (incorporated by reference to Exhibit 10.15 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.13*	Share Purchase Agreement, by and among ReachLocal, Inc. and the Persons listed on Annex A thereto, dated as of September 11, 2009 (incorporated by reference to Exhibit 10.16 of the Company’s Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 24, 2010)
10.14*	ReachLocal, Inc. Incentive Bonus Plan, effective as of February 21, 2010 (incorporated by reference to Exhibit 10.17 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)
10.15*	ReachLocal, Inc. Director Stock Plan (incorporated by reference to Exhibit 10.18 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)
10.16*	2009 Executive Bonus Plan, effective as of January 1, 2009 (incorporated by reference to Exhibit 10.08 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.17*	ReachLocal, Inc. Change in Control and Severance Policy for Senior Management, effective as of February 21, 2010 (incorporated by reference to Exhibit 10.09 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)
10.18*	ReachLocal, Inc. 2004 Stock Plan, adopted April 21, 2004, as amended as of April 8, 2005, July 31, 2006 and September 17, 2007 (incorporated by reference to Exhibit 10.04 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.19*	Amended and Restated ReachLocal, Inc. 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.34 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (File No. 001-34749) filed with the SEC on March 28, 2011)
10.20*	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 001-34749) filed with the SEC on March 15, 2012)
10.21*	Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.01 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (File No. 001-34749) filed with the SEC on August 6, 2012)
10.22*	Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.02 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 (File No. 001-34749) filed with the SEC on August 6, 2012)
10.23*	Form of Performance-Vesting Restricted Stock Unit Award Agreement
10.24*	Form of Performance-Vesting Restricted Stock Award Agreement (incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K (File No. 001-34749) filed with the SEC on February 15, 2013)

PAGE F - 31

10.25*	Form of Stock Option Agreement (Regulation D Early Exercise) (incorporated by reference to Exhibit 10.06 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.26*	Form of Stock Option Agreement (Rule 701) (incorporated by reference to Exhibit 10.07 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.27*	Form of Non-Employee Director Stock Option Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 (File No. 001-34749) filed with the SEC on August 4, 2011)
10.28	Lease Agreement, dated as of June 2, 2006, between ReachLocal, Inc. and CB Parkway Business Center, Ltd., as amended (incorporated by reference to Exhibit 10.02 of the Company’s Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on February 2, 2010)
10.29	Fifth Amendment to Lease Agreement, dated November 27, 2012,  among ARI - International Business Park, LLC, ARI - IBP 1, LLC, ARI - IBP 2, LLC, ARI - IBP 3, LLC, ARI - IBP 4, LLC, ARI - IBP 5, LLC, ARI - IBP 6, LLC, ARI - IBP 7, LLC, ARI - IBP 8, LLC, ARI - IBP 9, LLC, ARI - IBP 11, LLC, and ARI - IBP 12, LLC, acting by and through Billingsley Property Services, Inc., as agent for Landlord, and ReachLocal, Inc. (incorporated by reference to Exhibit 99.01 of the Company’s Current Report on Form 8-K (File No. 001-34749) filed with the SEC on November 29, 2012)
10.30	Office Lease, dated as of August 30, 2006, by and between ReachLocal, Inc. and Douglas Emmett 2000, LLC, as amended (incorporated by reference to Exhibit 10.03 of the Company’s Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-163905) filed with the SEC on April 27, 2010)
10.31	Second Amendment to Office Lease, dated as of September 1, 2010, between Douglas Emmett 2000, LLC, as Landlord and ReachLocal, Inc., as Tenant (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 001-34749) filed with the Securities and Exchange Commission on November 4, 2010)
10.32	Third Amendment to Office Lease, dated as of July 22, 2011, between Douglas Emmett 2000, LLC, as Landlord and ReachLocal, Inc., as Tenant (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 (File No. 001-34749) filed with the SEC on November 7, 2011)
10.33	Lease Agreement, dated as of February 2, 2010,  among ARI – International Business Park, LLC, ARI- IBP 1, LLC, ARI - IBP 2, LLC, ARI - IBP 3, LLC, ARI - IBP 4, LLC, ARI - IBP 5, LLC, ARI - IBP 6, LLC, ARI - IBP 7, LLC, ARI - IBP 8, LLC, ARI - IBP 9, LLC, ARI - IBP 11, LLC, and ARI - IBP 12, LLC, acting by and through Billingsley Property Services, Inc., as agent for Landlord, and ReachLocal, Inc., as amended (incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 001-34749) filed with the SEC on March 15, 2012)
10.34	Fourth Amendment to Lease Agreement, dated November 27, 2012,  among ARI - International Business Park, LLC, ARI - IBP 1, LLC, ARI - IBP 2, LLC, ARI - IBP 3, LLC, ARI - IBP 4, LLC, ARI - IBP 5, LLC, ARI - IBP 6, LLC, ARI - IBP 7, LLC, ARI - IBP 8, LLC, ARI - IBP 9, LLC, ARI - IBP 11, LLC, and ARI - IBP 12, LLC, acting by and through Billingsley Property Services, Inc., as agent for Landlord, and ReachLocal, Inc. (incorporated by reference to Exhibit 99.02 of the Company’s Current Report on Form 8-K (File No. 001-34749) filed with the SEC on November 29, 2012)
10.35	Side Letter, dated November 30, 2012, between Billingsley Property Services, Inc. and ReachLocal, Inc.
10.36	Google Inc. AdWords Reseller Addendum, dated April 25, 2011, between ReachLocal, Inc. and Google Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 001-34749) filed with the SEC on May 16, 2011)

PAGE F - 32

10.37	Amendment to the Google Inc. AdWords Reseller Addendum, dated November 1, 2011, between ReachLocal, Inc. and Google Inc. (incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (File No. 001-34749) filed with the SEC on March 15, 2012)
10.38	Google AdWords Reseller Agreement, dated May 9, 2011, between ReachLocal Netherlands B.V. and Google Ireland Limited (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (File No. 001-34749) filed with the SEC on May 16, 2011)
10.39	Amendment Number Three to the Google Adwords Reseller Agreement, dated August 17, 2012, between ReachLocal Netherlands B.V. and Google Ireland Limited (incorporated by reference to Exhibit 10.01 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (File No. 001-34749) filed with the SEC on November 6, 2012)
21.01	List of subsidiaries of ReachLocal, Inc.
23.01	Consent of Independent Registered Public Accounting Firm
24.01	Power of Attorney (included on signature page to this Annual Report on Form 10-K)
31.01	Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

*	Indicates management contract or compensatory plan, contract or arrangement.
**	XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

PAGE F - 33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of March 11, 2013.

REACHLOCAL, INC.
By:	/s/ Zorik Gordon
Name:	Zorik Gordon
Title:	Chief Executive Officer

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints Zorik Gordon and Ross G. Landsbaum, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, solely for the purposes of filing any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof solely for the purposes stated therein.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities as of March 11, 2013.

Signature	Title	Date
/s/ Zorik Gordon	Chief Executive Officer, Director	March 11, 2013
Zorik Gordon	(Principal Executive Officer)
/s/ Ross G. Landsbaum	Chief Financial Officer	March 11, 2013
Ross G. Landsbaum	(Principal Financial Officer)
/s/ David Day	Senior Vice President, Corporate Controller and Chief	March 11, 2013
David Day	Accounting Officer (Principal Accounting Officer)
/s/ Nathan Hanks	President, Director	March 11, 2013
Nathan Hanks
/s/ David Carlick	Director	March 11, 2013
David Carlick
/s/ Robert Dykes	Director	March 11, 2013
Robert Dykes
/s/ James Geiger	Director	March 11, 2013
James Geiger
/s/ Habib Kairouz	Director	March 11, 2013
Habib Kairouz
/s/ Alan Salzman	Director	March 11, 2013
Alan Salzman

PAGE F - 34

EX-10.01

Exhibit 10.01

REACHLOCAL, INC.

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is effective as of [], by and between ReachLocal, Inc., a Delaware corporation (the “Company”), and [] (“Indemnitee”).

A.  The Company recognizes the continued difficulty in obtaining liability insurance for its directors, officers, employees, controlling persons, fiduciaries and other agents and affiliates, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.

B.  The Company further recognizes the substantial increase in corporate litigation in general, subjecting directors, officers, employees, controlling persons, fiduciaries and other agents and affiliates to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.

C.  The current protection available to directors, officers, employees, controlling persons, fiduciaries and other agents and affiliates of the Company may not be adequate under the present circumstances, and directors, officers, employees, controlling persons, fiduciaries and other agents and affiliates of the Company (or persons who may be alleged or deemed to be the same), including the Indemnitee, may not be willing to continue to serve or be associated with the Company in such capacities without additional protection.

D.  The Company (a) desires to attract and retain the involvement of highly qualified persons, such as Indemnitee, to serve and be associated with the Company and, accordingly, (b) wishes to provide for the indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by law.

E.  In view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein.

In consideration of the mutual promises and covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.            Certain Definitions.

(a)           “Change in Control” shall be deemed to have occurred if, on or after the date of this Agreement, (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then outstanding Voting Securities (as defined below), (ii) during any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections (i), (iii) or (iv) herein) whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least eighty percent (80%) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company’s assets.

(b)           “Claim” shall mean with respect to a Covered Event (as defined below):  any threatened, asserted, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, whether brought in the right of the Company or otherwise, or any hearing, inquiry or investigation (formal or informal) that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other, including any appeal therefrom.

(c)           References to the “Company” shall include, in addition to ReachLocal, Inc., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which ReachLocal, Inc. (or any of its wholly owned subsidiaries) is a party, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(d)           “Covered Event” shall mean any event or occurrence by reason of the fact that Indemnitee is or was a director, trustee, partner, managing member, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, trustee, partner, managing member, officer, employee, agent or fiduciary of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity.

2

(e)           “Expense Advance” shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgment in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation, which constitutes a Claim.

(f)            “Expenses” shall mean any and all direct and indirect costs, losses, claims, damages, fees, expenses and liabilities, joint or several (including attorneys’ fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred, of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement.  Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Claim, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, (ii) Expenses incurred in connection with recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether the Indemnitee is ultimately determined to be entitled to such indemnification, advancement or Expenses or insurance recovery, as the case may be and (iii) for purposes of Section 13(e) only, Expenses incurred by or on behalf of Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise.  The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable.

(g)           “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements) or (ii) any other party to the Claim giving rise to a claim for indemnification hereunder, within the last three (3) years.  Notwithstanding the foregoing, the term “Independent Legal Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(h)           References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

3

(i)            “Reviewing Party” shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Company’s obligations hereunder and under applicable law, which may include a member or members of the Company’s Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification, exoneration or hold harmless rights.

(j)            “Section” refers to a section of this Agreement unless otherwise indicated.

(k)           “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

2.            Indemnification.

(a)           Indemnification of Expenses.

(i)            Subject to the provisions of Section 2(b) below, the Company shall indemnify, exonerate or hold harmless Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party or potential party to or witness or other participant in, or is threatened to be made a party to or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges incurred in connection with or in respect of such Expenses.  The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Certificate of Incorporation, the Bylaws, vote of its stockholders or disinterested directors.

(ii)           Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of a Covered Event, a witness or otherwise asked to participate in any aspect of a Claim to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

(b)           Review of Indemnification Obligations.

(i)            Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified, exonerated or held harmless hereunder under applicable law, (A) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party and (B) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid in indemnifying, exonerating or holding harmless Indemnitee (within thirty (30) days after such determination); provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified, exonerated or held harmless hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying, exonerating or holding harmless Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed).  Indemnitee’s obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon.

4

(ii)           Subject to Section 2(b)(iii) below, if the Reviewing Party shall not have made a determination within forty-five (45) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (A) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (B) a prohibition of such indemnification under applicable law; provided, however, that such 45-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(iii)          Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of the Claim.

(c)           Indemnitee Rights on Unfavorable Determination; Binding Effect.  If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified, exonerated or held harmless hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding.  Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee.

(d)           Selection of Reviewing Party; Change in Control.  If there has not been a Change in Control, any Reviewing Party shall be (i) by a majority vote of the directors of the Company who are not and were not a party to the Claim in respect of which indemnification is sought by Indemnitee (“Disinterested Directors”), even though less than a quorum of the Board, (ii) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (iii) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (iv) if so directed by the Board, by the stockholders of the Company; and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning Indemnitee’s indemnification, exoneration or hold harmless rights for Expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation or bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by the Indemnitee and approved by Company (which approval shall not be unreasonably withheld).  Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified, exonerated or held harmless hereunder under applicable law and the Company agrees to abide by such opinion.  The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify, exonerate and hold harmless such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.  Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (A) the Company otherwise determines or (B) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees.

5

(e)           Mandatory Payment of Expenses.  Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the fullest extent permitted by applicable law and to the extent that Indemnitee was a party to (or participant in) and has been successful on the merits or otherwise, in any Claim or in defense of any claim, issue or matter therein, in whole or in part, Indemnitee shall be indemnified, exonerated and held harmless against all Expenses actually and reasonably incurred by Indemnitee in connection therewith.  If Indemnitee is not wholly successful in such Claim but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Claim, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Claim by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

(f)            Contribution.  To the fullest extent permitted by law, if the indemnification, exoneration or hold harmless rights provided for in this Agreement is for any reason whatsoever unavailable to an Indemnitee, then in lieu of indemnifying, exonerating or holding harmless Indemnitee thereunder, the Company shall contribute to the amount incurred by or on behalf of Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses (i) in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Claim or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with the action or inaction which resulted in such Expenses, as well as any other relevant equitable considerations.  In connection with the registration of the Company’s securities, the relative benefits received by the Company and Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the securities so offered.  The relative fault of the Company and Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

6

The Company and Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 2(f) were determined by pro rata or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  In connection with the registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 2(f) in excess of the net proceeds received by Indemnitee from its sale of securities under such registration statement.  No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(1) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

3.            Expense Advances. Notwithstanding any provision of this Agreement to the contrary (other than Sections 13(d) and (e)), the Company shall make Expense Advances, to the extent not prohibited by law, to an Indemnitee in connection with any Claim (or any part of any Claim) not initiated by Indemnitee, and such advancement shall be made within twenty (20) days after the receipt by the Company of a statement or statements requesting such advances from time to time (which shall include invoices received by the Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be so included), whether prior to or after final disposition of any Claim.  Expense Advances shall be unsecured and interest free.  Expense Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement.  In accordance with Section 13(e), advances shall include any and all Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed.  The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company.  No other form of undertaking shall be required other than the execution of this Agreement.  This Section 3 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 10.

4.            Procedures for Indemnification and Expense Advances.

(a)           Timing of Payments.  All payments of Expenses (including without limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than forty-five (45) days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be in accordance with Section 3 of this Agreement.  If the Company disputes a portion of the amounts for which indemnification is requested, the undisputed portion shall be paid and only the disputed portion withheld pending resolution of any such dispute.

7

(b)           Notice/Cooperation by Indemnitee.  Indemnitee shall give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification, Expense Advances, exoneration or hold harmless right will or could be sought under this Agreement.  Notice to the Company shall be directed to the President or Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee) and shall include a description of the nature of the Claim and the facts underlying the Claim, in each case to the extent known to Indemnitee.  To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Claim.  In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.  The failure by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement, except to the extent (solely with respect to the indemnity hereunder) that such failure or delay materially prejudices the Company.

(c)           Presumptions and Effect of Certain Proceedings.

(i)            In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 4 of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof and burden or persuasion by clear and convincing evidence to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.  Neither the failure of the Company (including by its directors or Independent Legal Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Legal Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(ii)           The termination of any Claim or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Claim, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

8

(iii)          For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise.  The provisions of this Section 4(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.  Whether or not the foregoing provisions of this Section 4(c) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.  Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(iv)          The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

(v)           For purposes of this Section 4(c), “Enterprise” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary.

 (d)          Notice to Insurers.  If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies.

(e)           Selection of Counsel.  In the event the Company shall be obligated hereunder to provide indemnification, exoneration or hold harmless rights for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company’s election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Claim; provided, however, that (i) Indemnitee shall have the right to employ Indemnitee’s separate counsel in any such Claim at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee’s separate counsel shall be Expenses for which Indemnitee may receive indemnification, exoneration or hold harmless rights or Expense Advances hereunder.  The Company shall have the right to conduct such defense as it sees fit in its sole discretion, including the right to settle any claim, action or proceeding against Indemnitee without the consent of Indemnitee, provided that the terms of such settlement include either: (1) a full release of Indemnitee by the claimant from all liabilities or potential liabilities under such claim or (2), in the event such full release is not obtained, the terms of such settlement do not limit any indemnification, exoneration or hold harmless right Indemnitee may now, or hereafter, be entitled to under this Agreement, the Company’s Certificate of Incorporation, bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware (the “DGCL”) or otherwise.

9

5.           Additional Indemnification Rights; Nonexclusivity.

(a)           Scope.  The Company hereby agrees to indemnify, exonerate and hold harmless the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification, exoneration or hold harmless right is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, the Company’s bylaws or by statute, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  The rights of indemnification and to receive Expense Advances as provided by this Agreement shall be interpreted independently of, and without reference to, any other such rights to which Indemnitee may at any time be entitled.  In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify, exonerate or hold harmless a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change.  In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify, exonerate or hold harmless a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder except as set forth in Section 10(a) hereof.

(b)           Nonexclusivity.  The indemnification, exoneration or hold harmless rights and the payment of Expense Advances provided by this Agreement shall be cumulative and in addition to any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its bylaws, any other agreement, any vote of stockholders or disinterested directors, the DGCL, or otherwise.  The indemnification, exoneration or hold harmless rights and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified, exonerated or held harmless capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity.

10

6.            No Duplication of Payments.  The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company’s Certificate of Incorporation, bylaws or otherwise) of the amounts otherwise payable hereunder, except as provided in Section 18 below.

7.            Partial Indemnification.  If Indemnitee is entitled under any provision of this Agreement to indemnification, exoneration or hold harmless rights by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for the total amount thereof, the Company shall nevertheless indemnify, exonerate or hold harmless Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

8.            Mutual Acknowledgment.  Both the Company and Indemnitee acknowledge that, in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying, exonerating or holding harmless its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise.  Indemnitee understands and acknowledges that the Company may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification, exoneration or hold harmless rights to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify, exonerate or hold harmless Indemnitee.

9.            Liability Insurance.  To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Inde mnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary.

10.          Exceptions.  Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement:

(a)           Excluded Action or Omissions.  To indemnify, exonerate or hold harmless Indemnitee for Expenses resulting from acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification, exoneration or hold harmless rights under this Agreement or applicable law; provided, however, that notwithstanding any limitation set forth in this Section 10(a) regarding the Company’s obligation to provide indemnification, exoneration or hold harmless rights to Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has engaged in acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Agreement or applicable law.

(b)           Claims Initiated by Indemnitee.  To indemnify, exonerate or hold harmless or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or cross claim, except (i) with respect to actions or proceedings brought to establish or enforce an indemnification, Expense Advances, exoneration or hold harmless right under this Agreement or any other agreement or insurance policy or under the Company’s Certificate of Incorporation or bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim or (iii) as otherwise required under Section 145 of the DGCL, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, exoneration, hold harmless right, Expense Advances or insurance recovery, as the case may be.

11

 (c)          Claims Under Section 16(b) or Sarbanes-Oxley Act.  To indemnify, exonerate or hold harmless Indemnitee for expenses and the payment of profits arising from (i) the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); provided, however, that notwithstanding any limitation set forth in this Section 10(c) regarding the Company’s obligation to provide indemnification or exoneration or hold harmless, Indemnitee shall be entitled under Section 3 to receive Expense Advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has violated said statute.

11.          Counterparts.  This Agreement may be executed in counterparts and by facsimile or electronic transmission, each of which shall constitute an original and all of which, together, shall constitute one instrument.

12.          Binding Effect; Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, and assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives.  The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.  This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company’s request.  The Company and Indemnitee agree that the Third-Party Indemnitors are express third party beneficiaries of this Agreement.

12

13.          Remedies of Indemnitee.

(a)           Subject to Section 2(b)(iii), in the event that (i) a determination is made pursuant to this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) Expense Advances are not timely made pursuant to Section 3 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to the provisions of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Sections 2(a)(i), 2(e) or 7 of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to the provisions of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification by a Reviewing Party or (vi) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or Expense Advances.  Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 13(a).  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b)           In the event that a determination shall have been made pursuant to this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.  In any judicial proceeding or arbitration commenced pursuant to this Section 13, the Company shall have the burden of proof and the burden of persuasion by clear and convincing evidence that Indemnitee is not entitled to indemnification or Expense Advances, as the case may be.

(c)           If a determination shall have been made pursuant to this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or (ii) a prohibition of such indemnification under applicable law.

(d)           The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e)           It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder.  In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys’ fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action.  In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified, exonerated or held harmless for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action.

13

14.          Notices.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked.  Addresses for notice to either party are as shown on the signature page of this Agreement or as subsequently modified by written notice.

15.          Consent to Jurisdiction.  The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim.

16.          Severability.  The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law.  Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

14

17.          Choice of Law.  This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws.

18.          Primacy of Indemnification; Subrogation.

(a)           The Company hereby acknowledges that Indemnitee has or may in the future have certain indemnification, exoneration, hold harmless or Expense advancement rights and/or insurance provided by one or more Third-Party Indemnitors.  The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of any Third-Party Indemnitors to advance Expenses or to provide indemnification, exoneration or hold harmless rights for the same Expenses incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of Expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, to the extent legally permitted and as required by the Certificate of Incorporation or bylaws of the Company (or any agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Third-Party Indemnitors and (iii) that it irrevocably waives, relinquishes and releases the Third-Party Indemnitors from any and all claims against the Third-Party Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof.  The Company further agrees that no advancement or payment by the Third-Party Indemnitors on behalf of Indemnitee with respect to any Claim for which Indemnitee has sought indemnification, exoneration or hold harmless rights from the Company shall affect the foregoing and the Third-Party Indemnitors shall have a right to receive from the Company, contribution and/or be subrogated, to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company.

(b)           Except as provided in Section 18(a) above, in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee from any insurance policy purchased by the Company, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.  In no event, however, shall the Company or any other person have any right of recovery, through subrogation or otherwise, against (i) Indemnitee, (ii) any Third-Party Indemnitor or (iii) any insurance policy purchased or maintained by Indemnitee or any Third-Party Indemnitor.

(c)           For purposes of this Agreement “Third-Party Indemnitor” means any person or entity that has or may in the future provide to the Indemnitee any indemnification, exoneration, hold harmless or Expense advancement rights and/or insurance benefits other than (i) the Company and (ii) any entity or entities through which the Company maintains liability insurance applicable to the Indemnitee.

19.           Amendment and Termination.  No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

15

20.          Integration and Entire Agreement.  This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, the Bylaws, any directors and officers insurance maintained by the Company and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

21.          No Construction as Employment Agreement.  Nothing contained in this Agreement shall be construed as giving Indemnitee any right to employment by the Company or any of its subsidiaries or affiliated entities.

22.          Additional Acts.  If for the validation of any of the provisions in this Agreement any act, resolution, approval or other procedure is required, the Company undertakes to cause such act, resolution, approval or other procedure to be affected or adopted in a manner that will enable the Company to fulfill its obligations under this Agreement.

(The remainder of this page is intentionally left blank.)

16

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.

REACHLOCAL, INC.

By:

Address:

21700 Oxnard Street

Suite 1600

Woodland Hills, CA 91367

Agreed to and accepted by:

INDEMNITEE:

By:  

Address:

21700 Oxnard Street

Suite 1600

Woodland Hills, CA 91367

Date:  

INDEMNIFICATION AGREEMENT

EX-10.23

Exhibit 10.23

REACHLOCAL, INC.

AMENDED AND RESTATED 2008 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD GRANT NOTICE

ReachLocal, Inc., a Delaware corporation, (the “Company”), pursuant to its Amended and Restated 2008 Stock Incentive Plan, as amended from time to time (the “Plan”), hereby grants to the holder listed below (“Holder”), an award of restricted stock units (“Restricted Stock Units”or“RSUs”).  Each vested Restricted Stock Unit represents the right to receive, in accordance with the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Agreement”) one share of Common Stock.  This award of Restricted Stock Units is subject to all of the terms and conditions set forth herein and in the Agreement, including without limitation, the Vesting and Forfeiture Conditions of Restricted Stock Unit Award attached thereto as Appendix A  and the Plan, each of which are incorporated herein by reference.  Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Grant Notice and the Agreement.

Holder:
Grant Date:
Total Number of RSUs:
Vesting Commencement Date:
Vesting Schedule:	The RSUs will be eligible to vest in accordance with the terms and conditions set forth in Section 2.3 of the Agreement and Appendix A attached thereto.
Termination:	The RSUs will be subject to forfeiture as set forth in Section 2.5 of the Agreement and Appendix A attached thereto.

Withholding Tax Election:  Holder understands that by signing the Grant Notice below, Holder hereby affirmatively elects to make the following election (a “Sell to Cover Election”):

Sell to Cover: Holder hereby elects to sell that number of shares of Common Stock determined in accordance with Section 2.6 of the Agreement and to allow the Agent (as defined in the Agreement) to remit the cash proceeds of such sale to the Company. Furthermore, Holder directs the Company to make a cash payment equal to the required tax withholding from the cash proceeds of such sale directly to the appropriate taxing authorities.  Holder has carefully reviewed Section 2.6 of the Agreement and Holder hereby represents and warrants that on the date hereof he or she (i) is not aware of any material, nonpublic information with respect to the Company or any securities of the Company, (ii) is not subject to any legal, regulatory or contractual restriction that would prevent the Agent from conducting sales, (iii) does not have, and will not attempt to exercise, authority, influence or control over any sales of shares of Common Stock effected by the Agent pursuant to the Agreement, and (iv) is entering into the Agreement and this election to “sell to cover” in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 (regarding trading of the Company’s securities on the basis of material nonpublic information) under the Exchange Act.  It is Holder’s intent that this election to “sell to cover” comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act and be interpreted to comply with the requirements of Rule 10b5-1(c) under the Exchange Act.

Exhibit 10.23

Holder hereby agrees to contact the Administrator prior to accepting this Grant Notice in the event Holder does not wish to make a Sell to Cover Election, and the Administrator will provide Holder a different Grant Notice.

By his or her signature and the Company’s signature below, Holder agrees to be bound by the terms and conditions of the Plan, the Agreement and this Grant Notice.  Holder has reviewed the Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Agreement and the Plan.  Holder hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.

REACHLOCAL, INC.:	HOLDER:
By:	By:
Print Name:	Print Name:
Title:
Address:	Address:

EXHIBIT A

TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE

REACHLOCAL, INC. RESTRICTED STOCK UNIT AWARD AGREEMENT

ARTICLE 1.

GENERAL

1.1              Defined Terms.  Capitalized terms not specifically defined herein (including in Appendix A hereto) shall have the meanings specified in the ReachLocal, Inc. Amended and Restated 2008 Stock Incentive Plan, as amended from time to time (the “Plan”) and the Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Restricted Stock Unit Award Agreement (the “Agreement”) is attached.

1.2              Incorporation of Terms of Plan.  The RSUs are subject to the terms and conditions of the Plan which are incorporated herein by reference.  In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE 2.

GRANT OF RESTRICTED STOCK UNITS

2.1              Grant of RSUs.  Pursuant to the Grant Notice and upon the terms and conditions set forth in the Plan and this Agreement (including Appendix A attached hereto), effective as of the Grant Date set forth in the Grant Notice, ReachLocal, Inc., a Delaware corporation (the “Company”), has granted to Holder an award of restricted stock units (“Restricted Stock Units”or“RSUs”) under the Plan in consideration of Holder’s past and/or continued employment with or service to the Company or a Subsidiary and for other good and valuable consideration.

2.2              Unsecured Obligation to RSUs.  Unless and until the RSUs have vested in the manner set forth in Article 2 hereof, Holder will have no right to receive Common Stock under any such RSUs.  Prior to actual payment of any vested RSUs, such RSUs will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.

2.3              Vesting Schedule.  Subject to Section 2.5 hereof, the RSUs shall vest and become nonforfeitable in accordance with the vesting schedule and forfeiture conditions set forth in Appendix A attached hereto.

2.4              Consideration to the Company.  In consideration of the grant of the award of RSUs by the Company, Holder agrees to render faithful and efficient services to the Company or any Subsidiary.  Nothing in the Plan or this Agreement shall confer upon Holder any right to continue in the employ or service of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Holder at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Holder.

2.5              Forfeiture, Termination and Cancellation.  The RSUs shall be subject to forfeiture, termination and cancellation as set forth in Appendix A attached hereto.

A-1

2.6              Issue of Common Stock upon Vesting.

(a)           As soon as administratively practicable following the Vesting of any Restricted Stock Units pursuant to Section 2.3 hereof and Appendix A attached hereto, but in no event later than thirty (30) days after such Vesting Date (for the avoidance of doubt, this deadline is intended to comply with the “short term deferral” exemption from Section 409A of the Code), the Company shall deliver to Holder (or any transferee permitted under Section 3.2 hereof) a number of shares of Common Stock (either by delivering one or more certificates for such shares or by entering such shares in book entry form, as determined by the Company in its sole discretion) equal to the number of RSUs subject to this award that Vest on the applicable Vesting Date, unless such RSUs terminate prior to the given Vesting Date pursuant to Section 2.5 hereof and Appendix A attached hereto.  Notwithstanding the foregoing, in the event shares of Common Stock cannot be issued pursuant to Section 11.4 of the Plan, the shares of Common Stock shall be issued pursuant to the preceding sentence as soon as administratively practicable after the Administrator determines that shares of Common Stock can again be issued in accordance with such Section.

(b)           As set forth in Section 11.2 of the Plan, the Company shall have the authority and the right to deduct or withhold, or to require the Holder to remit to the Company, an amount sufficient to satisfy all applicable federal, state and local taxes required by law to be withheld with respect to any taxable event arising in connection with the Restricted Stock Units.  In satisfaction of the foregoing requirement, unless otherwise determined by the Company, (i) the Company or any Subsidiary shall withhold shares of Common Stock otherwise issuable under this award of RSUs having a fair market value equal to the sums required to be withheld by federal, state and/or local tax law or (ii) the Company may, in its sole discretion upon Holder’s Sell to Cover Election as set forth in the Grant Notice at the time of this award of RSUs, permit Holder to elect to enter into a “sell to cover” commitment with Bank of America Merrill Lynch or such other party instructed by the Company (together with Bank of America Merrill Lynch, the “Agent”) whereby Holder irrevocably elects to sell the portion of the shares of Common Stock to be delivered under the RSUs necessary so as to satisfy the tax withholding obligations and whereby the Agent irrevocably commits to forward the proceeds necessary to satisfy the tax withholding obligations directly to the Company and/or its Subsidiaries.  The number of shares of Common Stock which shall be so withheld or sold, as applicable, in order to satisfy such federal, state and/or local withholding tax liabilities shall be limited to the number of shares which have a fair market value on the date of withholding equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state and/or local tax purposes that are applicable to such supplemental taxable income.  The Company shall not be obligated to deliver any new certificate representing shares of Common Stock to Holder or Holder’s legal representative or enter such shares of Common Stock in book entry form unless and until Holder or Holder’s legal representative shall have paid or otherwise satisfied in full the amount of all federal, state and local taxes applicable to the taxable income of Holder resulting from the grant or vesting of the Restricted Stock Units or the issuance of shares of Common Stock.  In the event Holder provided a Sell to Cover Election pursuant to the Grant Notice, Holder hereby acknowledges and agrees:

(i)           Holder hereby appoints the Agent as Holder’s agent and authorizes the Agent to (1) sell on the open market at the then prevailing market price(s), on Holder’s behalf, as soon as practicable on or after the shares of Common Stock are issued upon the vesting of the Restricted Stock Units, that number (rounded up to the next whole number) of the shares of Common Stock so issued necessary to generate proceeds to cover (A) any tax withholding obligations incurred with respect to such vesting or issuance and (B) all applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto and (2) apply any remaining funds to Holder’s federal tax withholding.

A-2

(ii)          Holder hereby authorizes the Company and the Agent to cooperate and communicate with one another to determine the number of shares of Common Stock that must be sold pursuant to subsection (i) above.

(iii)         Holder understands that the Agent may effect sales as provided in subsection (i) above in one or more sales and that the average price for executions resulting from bunched orders will be assigned to Holder’s account.  In addition, Holder acknowledges that it may not be possible to sell shares of Common Stock as provided by subsection (i) above due to (1) a legal or contractual restriction applicable to Holder or the Agent, (2) a market disruption, or (3) rules governing order execution priority on the national exchange where the shares of Common Stock may be traded.  In the event of the Agent’s inability to sell shares of Common Stock, Holder will continue to be responsible for the timely payment to the Company and/or its Subsidiaries of all federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld, including but not limited to those amounts specified in subsection (i) above.

(iv)         Holder acknowledges that regardless of any other term or condition of this Section 2.6(b), the Agent will not be liable to Holder for (1) special, indirect, punitive, exemplary, or consequential damages, or incidental losses or damages of any kind, or (2) any failure to perform or for any delay in performance that results from a cause or circumstance that is beyond its reasonable control.

(v)          Holder hereby agrees to execute and deliver to the Agent any other agreements or documents as the Agent reasonably deems necessary or appropriate to carry out the purposes and intent of this Section 2.6(b).  The Agent is a third-party beneficiary of this Section 2.6(b).

(vi)         This Section 2.6(b) shall terminate not later than the date on which all tax withholding obligations arising in connection with the vesting of the award of RSUs have been satisfied.

(c)           Notwithstanding the foregoing, in the event that Holder is subject to the Company’s Insider Trading Compliance Program (or any successor program or policy) and any Shares covered by the RSUs are scheduled to be delivered on a day (the “Original Delivery Date”) that does not occur during an open “window period” applicable to Holder, as determined by the Company in accordance with such policy, and the Company elects (i) not to satisfy its tax withholding obligations by withholding shares of Common Stock from Holder’s distribution, and (ii) not to permit Holder to satisfy its tax withholding obligations through  a “sell to cover” commitment with a broker-dealer (including but not limited to a commitment under a previously established Company-approved 10b5-1 plan or a “sell to cover” commitment pursuant to Holder’s Sell to Cover Election on the Grant Notice at the time of the award of RSUs), then such shares of Common Stock shall not be delivered on such Original Delivery Date and shall instead be delivered on the first business day of the next occurring open “window period” but in no event later than the later of December 31st of the calendar year of the Original Delivery Date, or the fifteenth (15th) day of the third calendar month following the Original Delivery Date.

2.7              Conditions to Delivery of Common Stock.  The shares of Common Stock deliverable hereunder may be either previously authorized but unissued shares of Common Stock, treasury shares of Common Stock or issued shares of Common Stock which have then been reacquired by the Company.  Such shares of Common Stock shall be fully paid.  The Company shall not be required to issue or deliver any certificates or make any book entries evidencing shares of Common Stock deliverable hereunder prior to fulfillment of the conditions set forth in Section 11.4 of the Plan.

2.8              Rights as Stockholder.  The holder of the RSUs shall not be, nor have any of the rights or privileges of, a stockholder of the Company, including, without limitation, voting rights and rights to dividends, in respect of the RSUs and any shares of Common Stock underlying the RSUs and deliverable hereunder unless and until such shares of Common Stock shall have been issued by the Company and held of record by such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company).  No adjustment will be made for a dividend or other right for which the record date is prior to the date the shares of Common Stock are issued, except as provided in Section 13.2 of the Plan.

A-3

ARTICLE 3.

OTHER PROVISIONS

3.1              Administration.  The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules.  All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Holder, the Company and all other interested persons.  No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the RSUs.

3.2              Grant is Not Transferable.  During the lifetime of Holder, the RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution.  Neither the RSUs nor any interest or right therein shall be liable for the debts, contracts or engagements of Holder or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

3.3              Tax Consultation.  Holder understands that Holder may suffer adverse tax consequences in connection with the RSUs granted pursuant to this Agreement (and the shares issuable with respect thereto).  Holder represents that Holder has consulted with any tax consultants Holder deems advisable in connection with the RSUs and the issuance of shares with respect thereto and that Holder is not relying on the Company for any tax advice.

3.4              Adjustments. Holder acknowledges that the RSUs are subject to modification and termination in certain events as provided in this Agreement and Article 13 of the Plan.

3.5              Binding Agreement.  Subject to the limitation on the transferability of the RSUs contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

3.6              Notices.  Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Holder shall be addressed to Holder at Holder’s last address reflected on the Company’s records.  By a notice given pursuant to this Section 3.6, either party may hereafter designate a different address for notices to be given to that party.  Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

3.7              Holder’s Representations.  If the shares of Common Stock issuable hereunder have not been registered under the Securities Act or any applicable state or foreign laws on an effective registration statement at the time of such issuance, Holder shall, if required by the Company, concurrently with such issuance, make such written representations as are deemed necessary or appropriate by the Company and/or its counsel.

A-4

3.8              Titles.  Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

3.9              Governing Law.  The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

3.10            Conformity to Securities Laws.  Holder acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations.  Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted, only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

3.11            Amendments, Suspension and Termination.  To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee or the Board; provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the RSUs in any material way without the prior written consent of Holder.

3.12            Successors and Assigns.  The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer herein set forth in Section 3.2 hereof, this Agreement shall be binding upon Holder and his or her heirs, executors, administrators, successors and assigns.

3.13            Limitations Applicable to Section 16 Persons.  Notwithstanding any other provision of the Plan or this Agreement, if Holder is subject to Section 16 of the Exchange Act, the Plan, the RSUs and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule.  To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

3.14            Entire Agreement.  The Plan, the Grant Notice and this Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Holder with respect to the subject matter hereof.

3.15            Section 409A.  Neither the RSUs nor this Agreement is intended to provide for any deferral of compensation subject to Section 409A of the Code, and, accordingly, notwithstanding anything to the contrary, the shares of Common Stock issuable hereunder shall be distributed no later than the later of: (i) the fifteenth (15th) day of the third (3rd) month following Holder’s first taxable year in which the RSUs are no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15th) day of the third (3rd) month following the first taxable year of the Company in which the RSUs are no longer subject to substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury Regulations and other guidance issued thereunder.  Nevertheless, to the extent that the Administrator determines that any RSUs may not be exempt from (or compliant with) Section 409A of the Code, the Administrator may (but shall not be required to) amend this Agreement in a manner intended to comply with the requirements of Section 409A of the Code or an exemption therefrom (including amendments with retroactive effect), or take any other actions as it deems necessary or appropriate to (a) exempt the RSUs from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the RSUs, or (b) comply with the requirements of Section 409A of the Code.  To the extent applicable, this Agreement shall be interpreted in accordance with the provisions of Section 409A of the Code.

A-5

3.16            Limitation on Holder’s Rights.  Participation in the Plan confers no rights or interests other than as herein provided.  This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust.  Neither the Plan nor any underlying program, in and of itself, has any assets.  Holder shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs, and rights no greater than the right to receive the Common Stock as a general unsecured creditor with respect to RSUs, as and when payable hereunder.

3.17            Not a Contract of Service Relationship.  Nothing in this Agreement or in the Plan shall confer upon Holder any right to serve or continue to serve as an Employee, Consultant or Director.

A-6

APPENDIX A

TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE

VESTING AND FORFEITURE CONDITIONS OF RESTRICTED STOCK UNIT AWARD

The RSUs shall vest and become nonforfeitable in accordance with the provisions of this Appendix A.  The number of RSUs that Vest on any Vesting Date shall be rounded to the nearest whole number, but in no event shall the aggregate number of RSUs that Vest and become payable in accordance with this award exceed the total number of RSUs as set forth in the Grant Notice (the “Total RSUs”).  Notwithstanding any accelerated vesting provisions contained in any other agreement between the Company and Holder or any Company plan, program or policy in which Holder participates, whether now in effect or subsequently adopted or entered into (other than any agreement which expressly, by its terms, amends this Agreement), the following provisions of this Appendix A, as applicable, shall govern the vesting and payment of the Award and such other accelerated vesting provisions (other than those imposed pursuant to an express amendment to this Agreement, if any) shall not apply.

(1)           Stock Price Performance.  Subject to Sections (2), (3) and (4) below, the RSUs shall Vest as follows:

a)           In the event that the Stock Price Target is first achieved in [], the RSUs shall Vest with respect to [] of the Total RSUs on [], subject to and conditioned upon Holder’s continued Service through the applicable Vesting Date.

b)           In the event that the Stock Price Target is not achieved in [] but is first achieved in [], the RSUs shall Vest with respect to [] of the Total RSUs on [] and with respect to [] of the Total RSUs on [], in each case, subject to and conditioned upon Holder’s continued Service through the applicable Vesting Date.

c)           In the event that the Stock Price Target is not achieved in [], but is first achieved in [], the RSUs shall Vest with respect to [] of the Total RSUs on [], subject to and conditioned upon Holder’s continued Service through the applicable Vesting Date.

(2)           Change in Control.

a)           Change in Control, Stock Price Target Met.  Subject to Sections (3) and (4) below, if (1) a Change in Control (including without limitation, a Non-Transactional Change in Control) occurs on or prior to [], (2) as of immediately prior to such Change in Control, the Stock Price Target has not been achieved [] and (3) the Company achieves the Stock Price Target as of the Change in Control, the RSUs shall Vest as follows:

(i)           In the event that such Change in Control occurs in [], the RSUs shall Vest with respect to [] of the Total RSUs on [], in each case, subject to and conditioned upon Holder’s continued Service through the applicable Vesting Date.

(ii)           In the event that such Change in Control occurs in [], the RSUs shall Vest with respect to [] of the Total RSUs on [] and with respect to [] of the Total RSUs on [], in each case, subject to and conditioned upon Holder’s continued Service through the applicable Vesting Date.

Appendix 1

(iii)           In the event that such Change in Control occurs in [], the RSUs shall Vest with respect to [] of the Total RSUs on [], subject to and conditioned upon Holder’s continued Service through the applicable Vesting Date.

b)           Change in Control After Stock Price Target Met.  For the avoidance of doubt, in the event a Change in Control occurs on or prior to [] but after the date on which the Stock Price Target is achieved, the RSUs shall Vest in accordance with Sections (1) and (3) hereof.

c)           General.  The RSUs shall be subject to the terms and conditions of the definitive Change in Control documents applicable to restricted stock units generally, if any, including without limitation any such terms and conditions of an applicable purchase agreement, and Holder hereby consents and agrees to be bound by any and all such terms and conditions with respect to any RSUs issued hereunder.

(3)           Qualifying Termination.  Subject to Section (4) below, in the event Holder experiences a Qualifying Termination on or prior to []:

a)           And prior to the date on which the Stock Price Target is achieved pursuant to Sections (1) or (2) above, the Eligible RSUs shall remain outstanding and eligible to Vest as follows:

(i)           In the event that the Stock Price Target is achieved in [] under Section (1) or (2) above, the RSUs shall Vest with respect to [] of the Eligible RSUs on the date on which the Stock Price Target is first achieved;

(ii)           In the event that the Stock Price Target is not achieved in [] but is achieved in [] under Section (1) or (2) above, the RSUs shall Vest with respect to [] of the Eligible RSUs on the date on which the Stock Price Target is first achieved; and

(iii)           In the event that the Stock Price Target is not achieved in [], but is achieved in [] under Section (1) or (2) above, the RSUs shall Vest with respect to [] of the Eligible RSUs on the date on which the Stock Price Target is first achieved.

All RSUs which become Forfeited RSUs upon a Qualifying Termination and which accordingly do not remain eligible to Vest in accordance with this Section (3)(a) shall automatically be forfeited upon such termination, and Holder’s rights in any such RSUs and such portion of the RSUs shall thereupon lapse and expire.

b)           And on or following the date on which the Stock Price Target is achieved, the RSUs shall Vest as follows:

(i)           In the event that the Stock Price Target is first achieved in [] under Section (1) or (2) above, the RSUs shall Vest with respect to [] of the Eligible RSUs on the date of the Qualifying Termination (less any RSUs that have already Vested pursuant to Section (1) above as of the date of the Qualifying Termination);

(ii)           In the event that the Stock Price Target is not achieved in [] but is first achieved in [] under Section (1) or (2) above, the RSUs shall Vest with respect to [] of the Eligible RSUs on the date of the Qualifying Termination (less any RSUs that have already Vested pursuant to Section (1) above as of the date of the Qualifying Termination); and

Appendix 2

(iii)           In the event that the Stock Price Target is not achieved in [], but is first achieved in [] under Section (1) or (2) above, the RSUs shall Vest with respect to [] of the Eligible RSUs on the date of the Qualifying Termination (less any RSUs that have already Vested pursuant to Section (1) above as of the date of the Qualifying Termination).

(4)           Forfeiture.

a)           Termination of Service.  In the event that Holder experiences a Termination of Service that is not a Qualifying Termination during the Performance Period, RSUs that have not Vested as of the date of termination shall thereupon automatically be forfeited, terminated and cancelled as of the date of termination without payment of any consideration by the Company, and Holder (or Holder’s beneficiary or personal representative, as the case may be) shall have no further rights hereunder.  In the event that Holder experiences a Qualifying Termination prior to [], (i) all RSUs that become Eligible RSUs upon such Qualifying Termination shall remain eligible to Vest following such Qualifying Termination as provided above, and shall be subject to forfeiture as provided in this Section (4), and (ii) all RSUs that become Forfeited RSUs upon such Qualifying Termination shall automatically be forfeited, terminated and cancelled as of the date of termination without payment of any consideration by the Company, and Holder (or Holder’s beneficiary or personal representative, as the case may be) shall have no further rights hereunder.

b)           Failure to Achieve Stock Price.

(i)           In the event that the Stock Price Target is not achieved in [], [] of the Total RSUs (or Eligible RSUs, as applicable) shall be forfeited, terminated and cancelled as of [];

(ii)           In the event that the Stock Price Target is not achieved in [], [] of the Total RSUs (or Eligible RSUs, as applicable) shall be forfeited as of [] and an additional [] of the Total RSUs (or Eligible RSUs, as applicable) shall be forfeited, terminated and cancelled as of []; and

(iii)           In the event that the Stock Price Target is not achieved in [], [] of the Total RSUs (or Eligible RSUs, as applicable) shall be forfeited, terminated and cancelled as of [], an additional [] of the Total RSUs (or Eligible RSUs, as applicable) shall be forfeited, terminated and cancelled as of [], and the remaining [] of the Total RSUs (or Eligible RSUs, as applicable) shall be forfeited, terminated and cancelled as of [] (such that, in any case, all RSUs shall be forfeited on or prior to []).

c)           Change in Control.  If a Change in Control (other than a Non-Transactional Change in Control) occurs during the Performance Period and the Stock Price Target has not been achieved prior to such Change in Control and is not achieved in connection with such Change in Control, [] of the Total RSUs (or Eligible RSUs, as applicable) shall be forfeited, terminated and cancelled immediately prior to such Change in Control.  If a Non-Transactional Change in Control occurs on or prior to [] and the Stock Price Target has not been achieved prior to or in connection with such Non-Transactional Change in Control, then the RSUs that remained eligible to Vest immediately prior to such Non-Transactional Change in Control shall remain outstanding and eligible to vest in accordance with Sections (1), (2) and (3) above, and shall remain subject to forfeiture in accordance with this Section (4).

Appendix 3

d)           For purposes of this Agreement, in the event that Holder is both an Employee and a Director, Holder shall not be deemed to have incurred a Termination of Service unless and until his or her status as both an Employee and Director has terminated.

(5)           Definitions.

a)           “Cause” shall be deemed to exist if Holder is terminated by the Company or a Subsidiary for any of the following reasons: (i) Holder’s willful failure to substantially perform Holder’s duties and responsibilities to the Company or its Subsidiaries; (ii) Holder’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused material injury to the Company or its Subsidiaries; (iii) unauthorized use or disclosure by Holder of any proprietary information or trade secrets of the Company, a Subsidiary or any other party to which Holder owes an obligation of nondisclosure as a result of Holder’s relationship with the Company or its Subsidiaries; (iv) Holder’s willful material breach of any of Holder’s obligations under any written agreement or covenant with the Company or a Subsidiary; or (v) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state thereof, to the material detriment of the Company or any of its Subsidiaries.

b)           “Disability” means that Holder has become “disabled” within the meaning of Section 409A of the Code.

c)           “Eligible RSUs” means a number of the Total RSUs determined by multiplying the Total RSUs by the Pro Rata Vesting Ratio.

d)           “Forfeited RSUs” means a number of the Total RSUs equal to the Total RSUs less the Eligible RSUs.

e)            “Non-Transactional Change in Control” means, during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 2.7(a) of the Plan or Section 2.7(c) of the Plan) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof.

f)           “Performance Period” means the period beginning on [] and ending on the first to occur of [] or a Change in Control (other than a Non-Transactional Change in Control).

g)           “Pro Rata Vesting Ratio” means a fraction, (i) the numerator of which equals the number of days elapsed from [] through the date of a Participant’s Qualifying Termination, and (ii) the denominator of which equals [].

h)           “Qualifying Termination” means a Termination of Service by the Company or a Subsidiary without Cause or due to Holder’s death or Disability.

i)           “Service” means Holder’s continued service as an Employee, Consultant and/or Director.

Appendix 4

j)           “Stock Price Target” shall be []; provided, however, that in the event that a Change in Control (other than a Non-Transactional Change in Control) occurs during the Performance Period, the Stock Price Target shall be deemed to be achieved immediately prior to the closing of the Change in Control if the price per share of Common Stock paid by the acquiror in the Change in Control transaction is greater than or equal to [].

k)            “Vest” or “Vested” means that, with respect to a RSU, both (i) the continued Service condition has been satisfied and (ii) the Stock Price Target has been achieved.

l)           “Vesting Date” means, with respect to a RSU, the date on which the Share becomes Vested.

Appendix 5

EX-10.35

 Exhibit 10.35

November 30, 2012

Mr. Nathan Hanks

ReachLocal, Inc.

6504 International Parkway

Suite 1300

Plano, TX 75093

RE: Lease Agreement by and between BILLINGSLEY PROPERTY SERVICES, INC., a Texas corporation or an affiliate ("Billingsley") and REACHLOCAL, INC., a Delaware corporation ("Tenant")

Nathan,

For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and to induce Tenant to enter into a lease agreement by and between Billingsley and Tenant for no less than 90,000sf for a term of no less than one hundred twenty (120) months (excluding any contraction or termination options included in such lease) (the “Lease”), by no later than March 31, 2013, 5:00pm CST, Billingsley hereby agrees that it will make monthly payments to Tenant in the sum of $23,725.05 beginning on February 1, 2014 through July 1, 2014 for a total payment of $142,350.32.  Notwithstanding anything contained herein to the contrary, Billingsley shall have no obligation to make such payments in the event that Tenant is in default beyond any applicable notice and cure periods under:

(i) the Lease,

(ii) that certain Lease Agreement dated June 2, 2006 ("6400 Original Lease") by and between CB PARKWAY BUSINESS CENTER, LTD., a Texas limited partnership ("Original 6400 Landlord") and Tenant, as amended by the First Amendment dated August 20, 2006 ("6400 First Amendment"), as amended by the Second Amendment dated November 29, 2006 ("6400 Second Amendment"), as amended by the Third Amendment dated May 22, 2007 ("6400 Third Amendment"), as amended by and between ARI – INTERNATIONAL BUSINESS PARK, LLC, ARI- IBP 1, LLC, ARI - IBP 2, LLC, ARI - IBP 3, LLC, ARI - IBP 4, LLC, ARI - IBP 5, LLC, ARI - IBP 6, LLC, ARI - IBP 7, LLC, ARI - IBP 8, LLC, ARI - IBP 9, LLC, LLC, ARI - IBP 11, LLC, and ARI - IBP 12, LLC, each a Delaware limited liability company("6400 Landlord"),acting by and through Billingsley Property Services, Inc., as agent for 6400 Landlord as successor-in-interest-to Original 6400 Landlord  and Tenant by the Fourth Amendment dated May 22, 2008 ("6400 Fourth Amendment") and as amended by the Fifth Amendment dated November 27, 2012 ("6504 Fifth Amendment"; the 6400 Original Lease, as amended by the 6400 First Amendment, as amended by the 6400 Second Amendment, as amended by the 6400 Third Amendment, as amended by the 6400 Fourth Amendment , and as amended by the 6400 Fifth Amendment is herein referred to as the "6400 Lease") in 6400 International Parkway, Plano, Texas 75093, or

(iii) that certain Lease Agreement dated February 2, 2010 ("6504 Original Lease") by and between ARI – INTERNATIONAL BUSINESS PARK, LLC, ARI- IBP 1, LLC, ARI - IBP 2, LLC, ARI - IBP 3, LLC, ARI - IBP 4, LLC, ARI - IBP 5, LLC, ARI - IBP 6, LLC, ARI - IBP 7, LLC, ARI - IBP 8, LLC, ARI - IBP 9, LLC, LLC, ARI - IBP 11, LLC, and ARI - IBP 12, LLC, each a Delaware limited liability company("Landlord"),acting by and through Billingsley Property Services, Inc., as agent for Landlord and Tenant, as amended by the First Amendment dated June 7, 2010 ("6504 First Amendment"), as amended by the Second Amendment dated March 23, 2011 ("6504 Second Amendment"), as amended by the Third Amendment dated August 31, 2011 ("6504 Third Amendment") and as amended by the Fourth Amendment dated November 27, 2012 ("6504 Fourth Amendment"; the 6504 Original Lease, as amended by the 6504 First Amendment, as amended by the 6504 Second Amendment, as amended by the 6504 Third Amendment, as amended by the 6504 Fourth Amendment is herein referred to as the "6504 Lease") in 6504 International Parkway, Plano, Texas 75093.

This letter agreement (a) is governed by Texas law, (b) is the entire agreement of the parties regarding the matters contained herein, (c) has been duly authorized and the persons executing on behalf of each such party are duly authorized, (d) may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document, and (e) shall be deemed delivered upon receipt of each of the undersigned of a signed facsimile copy hereof from the other.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

If the terms of this letter are acceptable, please sign in the space provided below and return it to my attention.

BILLINGSLEY PROPERTY SERVICES, INC.,                                                                                     

a Texas corporation

By: /s/ Ken Mabry                               

Name:  Ken Mabry

Title:    Senior Vice President

AGREED AND ACCEPTED ON NOVEMBER 30, 2012:

REACHLOCAL, INC.,

a Delaware corporation

By: /s/ Ross G. Landsbaum                                                     

Name: Ross G. Landsbaum

Title: CFO

EX-21.01

Exhibit 21.01

Subsidiaries of ReachLocal, Inc.

Subsidiary	Jurisdiction
Bizzy, Inc.	Delaware
ClubLocal, LLC	Delaware
DealOn, LLC	Delaware
ReachLocal Australia Pty Ltd.	Australia
ReachLocal Austria GmbH	Austria
ReachLocal Brasil Servicos Online de Marketing Limitada	Brazil
ReachLocal Canada Inc.	Delaware
ReachLocal DP, Inc.	Delaware
ReachLocal Europe B.V.	The Netherlands
ReachLocal GmbH	Germany
ReachLocal International, Inc.	Delaware
ReachLocal International GP LLC	Delaware
ReachLocal Japan K.K.	Japan
ReachLocal Japan Services G.K.	Japan
ReachLocal Netherlands B.V.	The Netherlands
ReachLocal New Zealand Ltd.	New Zealand
ReachLocal Services Private Limited	India
ReachLocal UK, Ltd.	England
RL International Investment C.V.	The Netherlands

EX-23.01

Exhibit 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 11, 2013, with respect to the consolidated financial statements, and internal control over financial reporting included in the Annual Report of ReachLocal, Inc. on Form 10-K for the year ended December 31, 2012. We hereby consent to the incorporation by reference of said reports in the Registration Statements of ReachLocal, Inc. on Form S-3 (File No. 333-175399, effective July 8, 2011) and on Forms S-8 (File No. 333-166971, effective May 20, 2010, File No. 333-172321, effective February 18, 2011 and File No. 333-180135, effective March 15, 2012).

/s/ GRANT THORNTON LLP

Irvine, California

March 11, 2013

EX-31.01

Exhibit 31.01

I, Zorik Gordon, certify that:

1. I have reviewed this Annual Report on Form 10-K of ReachLocal, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Zorik Gordon

Zorik Gordon

Chief Executive Officer

Date: March 11, 2013

EX-31.02

Exhibit 31.02

I, Ross G. Landsbaum, certify that:

1. I have reviewed this Annual Report on Form 10-K of ReachLocal, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Ross G. Landsbaum

Ross G. Landsbaum

Chief Financial Officer

Date: March 11, 2013

EX-32.01

Exhibit 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 of ReachLocal, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Zorik Gordon, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Zorik Gordon

Zorik Gordon

Chief Executive Officer

(Principal Executive Officer)

Date: March 11, 2013

EX-32.02

Exhibit 32.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 of ReachLocal, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ross G. Landsbaum, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ross G. Landsbaum

Ross G. Landsbaum

Chief Financial Officer

(Principal Financial Officer)

Date: March 11, 2013

XML

Note 2 - Summary of Significant Accounting Policies (Detail) - Estimated Useful Lives	12 Months Ended
	Dec. 31, 2012
Computer Equipment [Member]
Property plant and equipment	3 years
Office Equipment [Member]
Property plant and equipment	5 years
Furniture and Fixtures [Member]
Property plant and equipment	7 years

XML

Note 9 - Commitments and Contingencies (Detail) - Operating Leases Future Minimum Payments (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
2013	$ 10,508
2014	8,655
2015	6,555
2016	4,886
2017	2,976
Thereafter	6,687
	$ 40,267

XML

Note 6. Software Development Costs (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Amortization	$ 6.5	$ 4.7	$ 2.6
Capitalized Software Development Costs For Projects In Process	$ 3.3	$ 1.2

XML

Note 12 - Income Taxes (Detail) - Summary of Unrecognized Tax Benefits (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Unrecognized tax benefits – beginning balance	$ 2,100	$ 2,000	$ 2,000
Gross increases – tax positions taken in prior period	0	100	0
Unrecognized tax benefits – ending balance	$ 2,100	$ 2,100	$ 2,000

XML

Note 10 - Stockholders' Equity (Detail) (USD $)	0 Months Ended		1 Months Ended		2 Months Ended	3 Months Ended	12 Months Ended
	Mar. 04, 2013	Nov. 04, 2011	Dec. 31, 2012	May 19, 2010	Mar. 09, 2012	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Nov. 30, 2009
Stock Issued During Period, Shares, New Issues (in Shares)				3,941,103
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period (in Shares)				625,000			320,000
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in Dollars per share)				$ 13.00			$ 5.57
Stock Issued During Period, Value, New Issues				$ 42,000,000					$ 41,996,000
Convertible Preferred Stock, Shares Issued upon Conversion (in Shares)			16,712,120			16,712,120	16,712,120
Common Stock, Par or Stated Value Per Share (in Dollars per share)			$ 0.00001			$ 0.00001	$ 0.00001	$ 0.00001
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)										15,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)										10.91
Stock Repurchase Program, Authorized Amount		20,000,000
Stock Repurchase Program Increase In Total Authorized Repurchase Amount	21,000,000						6,000,000
Stock Repurchase Program, Value Authorized to be Repurchased	47,000,000		26,000,000			26,000,000	26,000,000
Stock Repurchased During Period, Shares (in Shares)			2,000,000				1,100,000
Stock Repurchased During Period, Value			$ 17,400,000		$ 1,500,000	$ 11,000,000	$ (10,963,000)	$ (6,468,000)
Conversion of Preferred Stock to Common Stock [Member]
Common Stock, Par or Stated Value Per Share (in Dollars per share)			$ 0.00001			$ 0.00001	$ 0.00001

XML

Note 5 - Property and Equipment (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Depreciation	$ 5.1	$ 3.2	$ 2.3

XML

Note 11 - Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		6,411		$	12.52
Granted		2,632		$	10.19
Exercised		(320	)	$	5.57
Forfeited/Exchanged		(1,671	)	$	17.82
Outstanding at December 31, 2012		7,052		$	10.71		4.8	$	18,025
Vested and exercisable at December 31, 2012		3,814		$	10.54		3.5	$	10,321
Unvested at December 31, 2012, net of estimated forfeitures		3,046		$	10.90		6.2	$	7,339

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Year Ended December 31,
	2012			2011			2010
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		0.74	%		1.88	%		1.91	%
Expected life (in years)		4.86			4.75			4.75
Expected volatility		60	%		57	%		56	%
Weighted average fair value per share	$	6.10		$	9.65		$	6.55

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

			Options Outstanding					Options Vested and Exercisable
Range of Exercise Prices (in dollars)			Number	Weighted Average Remaining Contractual Life (in years)		Weighted Average  Exercise  Price		Number		Weighted  Average Exercise  Price
$0.00	-	$5.00	374		3.68	$	0.67		374	$	0.67
$5.01	-	$10.00	1,824		5.95	$	8.39		406	$	9.08
$10.01	-	$15.00	4,482		4.27	$	11.78		2,840	$	11.46
$15.01	-	$20.00	219		6.10	$	16.96		125	$	17.07
$20.01	-	$25.00	127		5.13	$	22.15		58	$	22.15
$25.01	-	$30.00	26		5.32	$	25.51		11	$	25.51
			7,052		4.75	$	10.71		3,814	$	10.54

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

	Number of shares			Weighted Average Grant  Date Fair Value
Unvested at December 31, 2011		123		$	16.33
Granted		469		$	9.99
Forfeited		(92	)	$	10.38
Vested		(118	)	$	12.71
Unvested at December 31, 2012		382		$	11.10

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Year Ended December 31,
	2012		2011		2010
Stock-based compensation	$	9,805	$	9,682	$	7,830
Less: Capitalized stock-based compensation		301		1,144		1,906
Stock-based compensation expense, net	$	9,504	$	8,538	$	5,924

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Year Ended December 31,
	2012		2011		2010
Stock compensation, net of capitalization
Cost of revenue	$	297	$	200	$	244
Selling and marketing		1,742		1,402		1,202
Product and technology		1,204		1,387		1,104
General and administrative		6,261		5,549		3,374
	$	9,504	$	8,538	$	5,924

XML

Note 15 - Discontinued Operations (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2011
Discontinued Operation, Provision for Loss (Gain) on Disposal, Net of Tax	$ 4.0

XML

Note 11 - Stock-Based Compensation (Detail) (USD $)	1 Months Ended					12 Months Ended
	Jan. 31, 2013	Jun. 30, 2012	May 29, 2012	Jul. 31, 2008	Apr. 21, 2004	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price (in Dollars per share)			$ 16.71			$ 10.71	$ 12.52
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)			$ 13			$ 10.19
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)		555,750				2,632,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period (in Shares)		834,875
Reduction in Outstanding Stock Options (in Shares)		279,125
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				4 years	4 years
Share-based Compensation Arrangement by Share-based Payment Award Award Term				7 years	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)				5,471,350
Share-based Compensation Arrangement by Share-based Payment Award Annual Increase in Shares (in Shares)				2,500,000
Percent of Common Stock Outstanding				4.50%
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in Shares)							686,103	732,197
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in Shares)	1,266,925
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate						0.00%	0.00%	0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value						$ 1,900,000	$ 14,200,000	$ 6,700,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value						2,000,000	6,100,000	3,700,000
Share-based Compensation						9,504,000	8,538,000	5,924,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized						19,900,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition						1 year 219 days
Quantifying Misstatement in Current Year Financial Statements, Amount							200,000	300,000	200,000
Executive Officer [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)		13.00
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)		396,998
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period						4 years
Share-based Compensation						$ 1,700,000	$ 700,000	$ 600,000
Employee Stock Option [Member]
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)		10.56
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)		158,752

XML

Note 14 - Segment Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Number of Reportable Segments									1
Revenues	$ 120,248	$ 118,891	$ 112,212	$ 104,003	$ 99,802	$ 98,629	$ 92,752	$ 84,058	$ 455,354	$ 375,241	$ 291,689
Long-Lived Assets	11,066				12,916				11,066	12,916
Australia [Member]
Revenues									72,600	56,200	32,700
Long-Lived Assets	$ 1,700				$ 2,400				$ 1,700	$ 2,400

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	2012			2011			2010
Allowance for doubtful accounts as of the beginning of the year	$	363		$	373		$	142
Additions charged to expense		13			172			252
Write-offs		(117	)		(182	)		(21	)
Allowance for doubtful accounts as of the end of the year	$	259		$	363		$	373

Property, Plant and Equipment, Estimated Useful Lives

Computer hardware and software (in years)	3
Office equipment (in years)	5
Furniture and fixtures (in years)	7
Leasehold improvements	The lesser of their expected useful lives or the remaining lease term.

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Year Ended December 31,
	2012		2011		2010
Convertible preferred stock – if-converted method		—		—		6,419
Deferred stock consideration and unvested restricted stock		59		185		406
Stock options and warrant		6,336		4,571		3,519
		6,395		4,756		10,344

XML

Note 7. Current Liabilities (Detail) - Accrued expenses (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Accrued compensation and benefits	$ 14,558	$ 9,880
Other	12,864	9,657
Total accrued expenses	$ 27,422	$ 19,537

XML

Note 3 - Fair Value of Financial Instruments (Detail) - Assets Not Carried at Fair Value (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Loan receivable	$ 1,954	$ 0
Loan receivable	$ 1,954	$ 0

XML

Note 2 - Summary of Significant Accounting Policies (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Foreign Currency Transaction Gain (Loss), before Tax (in Dollars)		$ 1.2	$ (300,000)	$ 100,000
Restricted Cash and Cash Equivalents (in Dollars)	1,200,000	1,200,000	1,300,000
Concentration Risk, Percentage		10.00%	20.00%
Accounts and Other Receivables, Net, Current (in Dollars)	5,900,000	5,900,000	7,300,000
Finite-Lived Intangible Asset, Useful Life		3 years
Goodwill (in Dollars)	42,083,000	42,083,000	41,766,000
Goodwill, Period Increase (Decrease) (in Dollars)	300,000
Acquired Finite-lived Intangible Asset, Amount (in Dollars)	2,400,000	2,400,000	2,000,000
Advertising Expense (in Dollars)		2,900,000	1,300,000	1,600,000
North America [Member]
Goodwill (in Dollars)	9,700,000	9,700,000	9,400,000
Australia [Member]
Goodwill (in Dollars)	32,400,000	32,400,000	32,400,000
Software Development Costs [Member]
Finite-Lived Intangible Asset, Useful Life		3 years
Customer Relationships [Member]
Finite-Lived Intangible Asset, Useful Life		1 year
Acquired Finite-lived Intangible Asset, Amount (in Dollars)	700,000	700,000
Domestic [Member]
Cash, Uninsured Amount (in Dollars)	44,100,000	44,100,000
Foreign [Member]
Cash, Uninsured Amount (in Dollars)	$ 27,800,000	$ 27,800,000

XML

Note 8 - Variable Interest Entities (Detail)	12 Months Ended
	Dec. 31, 2012 USD ($)	Dec. 31, 2012 EUR (€)	Dec. 31, 2012 Amount Advanced [Member] USD ($)	Dec. 31, 2012 Amount Advanced [Member] EUR (€)	Dec. 31, 2012 Oxata Assets [Member] USD ($)
Loan To Franchisee	$ 3,700,000	€ 2,900,000	$ 1,900,000	€ 1,450,000	$ 4,000,000
Debt Instrument, Description	two	two
Debt Instrument, Interest Rate, Stated Percentage	4.00%	4.00%
Variable Interest Entity, Reporting Entity Involvement, Maximum Loss Exposure, Amount	$ 2.0

XML

Note 12 - Income Taxes (Detail) - Income Tax Rate Reconciliation (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income tax expense (benefit) at the federal statutory rate	$ 313	$ (1,153)	$ (3,092)
State income tax, net of federal tax benefit	1,233	643	(225)
Foreign income taxes, net	578	(43)	(372)
Non-deductible stock-based compensation	2,550	398	2,254
Acquisition of SMB:LIVE			(702)
Change in valuation allowance	(4,024)	525	1,562
Other	504	365	35
	$ 1,154	$ 735	$ (540)

XML

Note 11 - Stock-Based Compensation (Detail) - Summary of Restricted Stock Awards and Restricted Stock Unit Awards (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Unvested at December 31, 2011	123
Unvested at December 31, 2011 (in Dollars per share)	$ 16.33
Unvested at December 31, 2012	382
Unvested at December 31, 2012 (in Dollars per share)	$ 11.10
Granted	469
Granted (in Dollars per share)	$ 9.99
Forfeited	(92)
Forfeited (in Dollars per share)	$ 10.38
Vested	(118)
Vested (in Dollars per share)	$ 12.71

XML

Note 5 - Property and Equipment (Detail) - Property and Equipment (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Property, plant and equipment gross	$ 24,973	$ 18,669
Less: Accumulated depreciation and amortization	(13,906)	(8,784)
	11,066	9,885
Computer Equipment [Member]
Property, plant and equipment gross	13,307	9,388
Office Equipment [Member]
Property, plant and equipment gross	1,599	1,383
Furniture and Fixtures [Member]
Property, plant and equipment gross	4,234	3,741
Leasehold Improvements [Member]
Property, plant and equipment gross	5,656	2,865
Construction in Progress [Member]
Property, plant and equipment gross	$ 177	$ 1,292

XML

Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Discontinued Operations

As a result of winding down and closing the operations of Bizzy, effective November 2011, the Company has reclassified and presented all related historical financial information as “discontinued operations” in the accompanying Consolidated Balance Sheets, Statements of Operations and Cash Flows. In addition, all Bizzy-related activities have been excluded from the notes unless specifically referenced.

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period presentation and certain immaterial adjustments have been recorded in prior periods as further described in Note 11, “Stock-Based Compensation—Adjustment to Historical Stock-Based Compensation Expense”.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Therefore, actual results could differ from those estimates.

Foreign Currency Translation

The Company’s operations are conducted in several countries around the world, and the financial statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the U.S. dollar, the reporting currency, for inclusion in the Company’s consolidated financial statements. Income, expenses, and cash flows are translated at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Resulting translation adjustments are included as a component of accumulated other comprehensive income (loss), net in stockholders’ equity. Foreign currency translation adjustments are generally not adjusted for income taxes as they are primarily related to indefinite investments in foreign subsidiaries. Foreign exchange transaction gains and losses are included in other income (expense), net in the accompanying consolidated statements of operations. Exchange gains and losses on intercompany balances that are considered permanently invested are also included as a component of accumulated other comprehensive loss in stockholders’ equity.

Foreign currency translation adjustments included in other comprehensive income (loss), were $(1.2) million, $(0.3) million and $0.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. For the years ended December 31, 2012, 2011 and 2010, the Company recorded immaterial amounts of other income (loss) from foreign exchange transactions.

Cash and Cash Equivalents

The Company reports all highly liquid short-term investments with original maturities of three months or less at the time of purchase as cash equivalents. As of December 31, 2012 and 2011, cash equivalents consist of demand deposits and money market accounts. Cash equivalents are stated at cost, which approximates fair value.

Short-Term Investments

The Company classifies short-term investments when the original maturity is less than one year, or when the Company intends to sell the investment within one year. As of December 31, 2012 and 2011, short-term investments consisted of certificates of deposit. All of the short-term investments are classified as available-for-sale.

Financial Instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, loan receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.

Restricted Cash

Restricted cash represents certificates of deposit held at financial institutions, which are pledged as collateral for letters of credit related to lease commitments. The restrictions will lapse when the letters of credit expire at the end of the respective lease terms in 2021. As of December 31, 2012 and 2011, the Company had restricted certificates of deposit in the amounts of $1.2 million and $1.3 million, respectively. Restricted certificates of deposit are classified as non-current assets.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments and accounts receivable. The Company holds its cash and cash equivalents, short-term investments and restricted cash with major financial institutions around the world.

Cash and cash equivalents and certificates of deposit are deposited with a limited number of financial institutions in the United States, Canada, Australia, United Kingdom, India, the Netherlands, Germany, Japan and Brazil. The balances held at any one financial institution are generally in excess of Federal Deposit Insurance Corporation insurance limits or, in foreign territories, local insurance limits. To date, the Company has not experienced any loss or lack of access to cash in its operating accounts. However, the Company can provide no assurances that access to its cash and cash equivalents will not be impacted by adverse conditions in the financial markets. As of December 31, 2012, domestic bank balances in excess of insured limits were $44.1 million. The Company had $27.8 million in excess of insured limits in foreign bank accounts as of December 31, 2012.

The Company’s customers are dispersed both geographically and across a broad range of industries. Receivables are generated primarily through agencies and resellers. Management performs ongoing evaluation of trade receivables for collectability and provides an allowance for potentially uncollectible accounts. The following table summarizes the change in the Company’s allowance for doubtful accounts for each of the three years ended December 31, 2012, 2011 and 2010 (in thousands):

	2012			2011			2010
Allowance for doubtful accounts as of the beginning of the year	$	363		$	373		$	142
Additions charged to expense		13			172			252
Write-offs		(117	)		(182	)		(21	)
Allowance for doubtful accounts as of the end of the year	$	259		$	363		$	373

As of December 31, 2012, no client accounted for 10% or more of the total accounts receivable balance. As of December 31, 2011, one client accounted for 20% of the total accounts receivable balance.

In 2012, 2011, and 2010, no client accounted for 10% or more of the Company’s total revenue.

During 2012, 2011, and 2010, the Company’s cost of revenue was primarily for the purchase of media and the media the Company purchased was primarily from Google, Yahoo! and Bing.

Other receivables and prepaid expenses included $5.9 million and $7.3 million of non-trade receivables from media vendors at December 31, 2012 and 2011, respectively.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets or, where applicable and if shorter, over the lease term. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.

Estimated useful lives of assets are as follows:

Computer hardware and software (in years)	3
Office equipment (in years)	5
Furniture and fixtures (in years)	7
Leasehold improvements	The lesser of their expected useful lives or the remaining lease term.

Software Development Costs

The Company capitalizes costs to develop software when management has determined that the development efforts will result in new or additional functionality or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying consolidated statements of operations. We monitor our existing capitalized software and reduce its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs.

Goodwill 

          The Company’s total goodwill of $42.1 million as of December 31, 2012, and $41.8 million as of December 31, 2011, is related to our acquired businesses. The increase in goodwill of $0.3 million in 2012 was related to the RealPractice, Inc. acquisition. See Note 4, “Acquisitions”, for further details. The Company operates in one reportable segment, in accordance with ASC 280, Segment Reporting, and has identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by segment management. North America’s assigned goodwill was $9.7 million as of December 31, 2012 and $9.4 million as of December 31, 2011.  Australia’s assigned goodwill was $32.4 million as of December 31, 2012 and 2011.  The Company reviews the carrying amounts of goodwill for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The Company performs its annual assessment of goodwill impairment as of the first day of each fourth quarter.

For the years ended December 31, 2012 and 2011, the Company followed the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company estimates fair value utilizing the projected discounted cash flow method and a discount rate determined by the Company to commensurate with the risk inherent in its business model.

 The Company performed its annual assessment of goodwill impairment as of the first day of the fourth quarter of 2012 and 2011, and determined that it was more likely than not that there was no impairment of goodwill and accordingly, no impairment of goodwill was recorded.

Long-Lived and Intangible Assets      

At December 31, 2012 and 2011, the Company had $2.4 million and $2.0 million, respectively, of intangible assets resulting from acquisitions. The Company reports finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of three years, or one year, in the case of certain customer relationships. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

The Company reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. In its analysis of other finite lived amortizable intangible assets, the Company applies the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses the Company has acquired. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

Leases

The Company leases various facilities under agreements accounted for as operating leases. For leases that contain escalation or rent concessions provisions, management recognizes rent expense during the lease term on a straight-line basis over the term of the lease. The difference between rent paid and straight-line rent expense is recorded as a deferred rent liability in the accompanying consolidated balance sheets.

Revenue Recognition

The Company recognizes revenue for its services when all of the following criteria are satisfied:

• persuasive evidence of an arrangement exists;

• services have been performed;

• the selling price is fixed or determinable; and

• collectability is reasonably assured.

The Company recognizes revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of its clients. The Company recognizes revenue for its ReachSearch product as clicks are recorded on sponsored links on the various search engines and for its ReachDisplay and ReachRetargeting product when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for its ReachCast product on a straight line basis over the applicable service period for each campaign. The Company recognizes revenue when it charges set-up, management service or other fees on a straight line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When the Company receives advance payments from clients, management records these amounts as deferred revenue until the revenue is recognized. When the Company extends credit, management records a receivable when the revenue is recognized.

When the Company sells through agencies, it either receives payment in advance of services or in some cases extends credit. The Company pays each agency an agreed-upon commission based on the revenue it earns or cash it receives. Some agency clients who have been extended credit may offset the amount otherwise due to the Company by any commissions they have earned. Management evaluates whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As the Company is the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management recognizes the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

The Company also has a small number of resellers, including a franchisee. Resellers integrate the Company’s services, including ReachSearch, ReachDisplay, and TotalTrack, into their product offerings. In most cases, the resellers integrate with the Company’s RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay the Company in arrears, net of commissions and other adjustments. Management recognizes revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as management believes that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

The Company recently launched a new consumer service, ClubLocal, through which it creates a direct relationship with customers and provides home-related services by engaging third-party suppliers who perform the agreed services on its behalf. Revenue is recognized when services have been provided. As the Company is the primary obligor under the arrangements, has discretion in supplier selection, has latitude in establishing prices, and bears the credit risk, the Company recognizes the gross amount of sales as revenue and the cost of the service provided is recorded as cost of revenue.

The Company offers future incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the future incentives that will be earned by clients and defers a portion of the otherwise recognizable revenue. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered. Should a client not meet its minimum commitment and no longer qualify for the incentive, management recognizes the revenue previously deferred related to the estimated incentive.

The Company accounts for sales and similar taxes imposed on its services on a net basis in the consolidated statements of operations.

Cost of Revenue

Cost of revenue consists primarily of the cost of media acquired from third-party publishers. Media cost is classified as cost of revenue in the corresponding period in which revenue is recognized. From time to time, publishers offer the Company rebates based upon various factors and operating rules, including the amount of media purchased. Management records these rebates in the period in which they are earned as a reduction to cost of revenue and the corresponding payable to the applicable publisher, or as an other receivable, as appropriate. Cost of revenue also includes third-party telephone and information services costs, data center and third-party hosting costs, credit card processing fees, third-party content and other direct costs. In addition, cost of revenue includes costs to initiate, operate and manage clients’ campaigns, other than costs associated with the Company’s sales force, which are reflected as selling and marketing expenses. Cost of revenue includes salaries, benefits, bonuses and stock-based compensation for the related staff, including the cost of Web Presence Professionals who are the principal service providers for the Company’s ReachCast product, and allocated overhead such as depreciation expense, rent and utilities, as well as an allocable portion of the Company’s technical operations costs, and the cost of service providers related to ClubLocal.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of personnel and related expenses for selling and marketing staff, including salaries and wages, commissions and other variable compensation, benefits, bonuses and stock-based compensation; travel and business costs; training, recruitment, marketing and promotional events; advertising; other brand building and product marketing expenses; and occupancy, technology and other direct overhead costs. A portion of the compensation for IMCs, sales management and other employees in the sales organization is based on commissions and other variable compensation. In addition, the cost of agency commissions is included in selling and marketing expenses.

Product and Technology Expenses

Product and technology expenses consist primarily of personnel and related expenses for product development and technology staff, including salaries, benefits, bonuses and stock-based compensation, and the cost of certain third-party service providers and other expenses, including occupancy, technology and other direct overhead costs. Technology operations costs, including related personnel and third-party costs, are included in product and technology expenses. The Company capitalizes a portion of its software development costs (Note 6) and, accordingly, includes amortization of those costs as costs of product and technology, as the RL Platform and the Company’s other systems address all aspects of the Company’s activities, including supporting the IMC selling and consultation process, online publisher integration, efficiencies and optimization, providing insight to clients into the results and effects of their online advertising campaigns and supporting all of the financial and other back-office functions of the business. Product and technology expenses also include the amortization of the technology obtained in acquisitions and the expenses of deferred payment obligations related to product and technology personnel.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, human resources and corporate communications, including wages, benefits, bonuses and stock-based compensation, professional fees, insurance premiums and other expenses, including occupancy, technology and other direct overhead, public company costs and other corporate expenses.

Advertising Expenses

The Company expenses advertising as incurred. Advertising expense was $2.9 million, $1.3 million and $1.6 million for the years ended December 31, 2012, 2011 and 2010, respectively, and was recorded in sales and marketing expense in the Consolidated Statements of Operations.

Stock-Based Compensation

The Company accounts for stock-based compensation based on fair value. The Company follows the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. Management estimates forfeitures based upon its historical experience.

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes model significantly changes, stock-based compensation for future awards may differ materially from the awards granted previously.

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities (“VIE”), the Company analyzes its interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If the Company determines that the entity is a VIE, the Company then assesses if it must consolidate the VIE as its primary beneficiary. The Company’s determination of whether it is the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that the Company absorbs, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. See Note 8, “Variable Interest Entities”, for more information.

Loan Receivable

 Loan receivable is recorded at carrying value, net of potential allowance for losses. Losses on the receivables are recorded when probable and estimable. The Company routinely evaluates the receivable for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that the Company will experience losses that are different from its current estimates. Write-offs are deducted from the allowance for losses when the Company judges the principal to be uncollectible. Any subsequent recoveries are added to the allowance at the time cash is received on a written-off balance. See Note 8, “Variable Interest Entities”, for more information. Interest income on the loan receivable is accrued on a monthly basis over the life of the loan.

Deferred Consideration

Deferred purchase consideration that is fixed and determinable and expected to be settled in cash is accrued as a liability as of the date of the respective acquisition. Deferred purchase consideration that is fixed and determinable and expected to be settled in common stock is recorded as an increase to additional paid-in capital as of the date of acquisition. Deferred stock-based compensation issued to employees in connection with acquisitions is measured at fair value on the date of grant/acquisition and recognized over the vesting period of the instruments in accordance with the Company’s Stock-Based Compensation policy.

Common Stock Repurchase and Retirement

Common stock repurchased is retired and the excess of the cost over the par value of the common shares repurchased is charged to accumulated deficit.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method and convertible preferred stock under the if-converted method, where such conversions are dilutive. The Company was in a net loss position for the years ended December 31, 2012, 2011 and 2010, and therefore the number of diluted shares was equal to the number of basic shares for each of these periods.

The following potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as they would be anti-dilutive for the periods below (in thousands):

	Year Ended December 31,
	2012		2011		2010
Convertible preferred stock – if-converted method		—		—		6,419
Deferred stock consideration and unvested restricted stock		59		185		406
Stock options and warrant		6,336		4,571		3,519
		6,395		4,756		10,344

Income Taxes

The Company records income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company records tax benefits for income tax positions only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. Management considers many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may differ from actual outcomes. The Company follows a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company’s policy is to recognize interest and penalties related to tax in income tax expense.

XML

Note 11 - Stock-Based Compensation (Detail) - Summary of Stock Based Compensation (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Stock-based compensation	$ 9,805	$ 9,682	$ 7,830
Less: Capitalized stock-based compensation	301	1,144	1,906
Stock-based compensation expense, net	$ 9,504	$ 8,538	$ 5,924

XML

Note 4 - Acquisitions (Detail) (USD $)	0 Months Ended		12 Months Ended				1 Months Ended	0 Months Ended	3 Months Ended						0 Months Ended		1 Months Ended			0 Months Ended	12 Months Ended		12 Months Ended
	Feb. 08, 2013	Jul. 03, 2012	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Feb. 08, 2011	Feb. 22, 2011 SMB:LIVE [Member]	Feb. 08, 2012 DealOn [Member]	Sep. 30, 2012 DealOn [Member]	Dec. 31, 2012 DealOn [Member] Customer Relationships [Member]	Dec. 31, 2011 DealOn [Member] Customer Relationships [Member]	Dec. 31, 2012 DealOn [Member] Technology [Member]	Dec. 31, 2011 DealOn [Member] Developed Technology [Member]	Dec. 31, 2011 DealOn [Member] Trademarks [Member]	Feb. 08, 2011 DealOn [Member]	Feb. 22, 2010 DealOn [Member]	Feb. 22, 2012 SMB:LIVE [Member]	Feb. 22, 2010 SMB:LIVE [Member]	Dec. 31, 2012 RealPractice [Member]	Feb. 08, 2011 Customer Relationships [Member]	Dec. 31, 2012 Customer Relationships [Member]	Dec. 31, 2011 Customer Relationships [Member]	Dec. 31, 2012 Technology [Member]	Dec. 31, 2012 Developed Technology [Member]
Business Acquisition, Cost of Acquired Entity, Cash Paid	$ 400,000	$ 2,600,000													$ 5,800,000		$ 600,000	$ 2,800,000
Business Acquisition, Cost of Acquired Entity, Purchase Price		2,900,000													2,000,000
Business Acquisition, Contingent Consideration, Potential Cash Payment		300,000													1,500,000				300,000
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares)		150,292
Acquired Finite-lived Intangible Asset, Amount			2,400,000	2,000,000						100,000	1,200,000	2,500,000	600,000	300,000							700,000		1,400,000
Business Acquisition, Contingent Consideration, at Fair Value						1,900,000									9,600,000			8,500,000
Stock Issued During Period, Shares, Acquisitions (in Shares)															82,878
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned															1,900,000
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in Shares)	5,324														21,297		181,224
Other Asset Impairment Charges																				800,000
Business Acquisition, Cost of Acquired Entity, Transaction Costs															400,000	300,000
Deferred Payment							5,700,000	500,000	400,000
Deferred Payment Shares (in Shares)								10,649	5,324
Finite-Lived Intangible Assets, Net			2,442,000																			25,000		2,400,000
Finite-Lived Intangible Assets, Accumulated Amortization																					2,100,000	25,000	1,800,000	2,900,000
Finite-Lived Intangible Asset, Useful Life			3 years																		1 year		3 years
Amortization of Acquired Intangible Assets			$ 2,200,000	$ 2,300,000	$ 1,400,000

XML

Note 6. Software Development Costs (Tables)

12 Months Ended

Dec. 31, 2012

	December 31,
	2012			2011
Capitalized software development costs	$	31,944		$	21,686
Accumulated amortization		(17,240	)		(10,744	)
Capitalized software development costs, net	$	14,704		$	10,942

XML

Note 5 - Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment [Table Text Block]

	December 31,
	2012			2011
Computer hardware and software	$	13,307		$	9,388
Office equipment		1,599			1,383
Furniture and fixtures		4,234			3,741
Leasehold improvements		5,656			2,865
Assets not placed in service		177			1,292
		24,973			18,669
Less: Accumulated depreciation and amortization		(13,906	)		(8,784	)
	$	11,066		$	9,885

XML

Note 10 - Stockholders' Equity (Detail) - Number of Common Stock Reserved for Future Issuances In Thousands, unless otherwise specified	Dec. 31, 2012
Number of Common Stock Reserved for Future Issuance	8,233
Stock Options [Member]
Number of Common Stock Reserved for Future Issuance	7,784
Restricted Stock Units (RSUs) [Member]
Number of Common Stock Reserved for Future Issuance	295
DealOn Deferred Stock Consideration [Member]
Number of Common Stock Reserved for Future Issuance	126
Warrant [Member]
Number of Common Stock Reserved for Future Issuance	15
Deferred Compensation, Share-based Payments [Member]
Number of Common Stock Reserved for Future Issuance	13

XML

Note 4 - Acquisitions (Detail) - Summary of Fair Value of Acquired Assets and Liabilities Acquired (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
RealPractice [Member]
Assets acquired:
Intangible assets	$ 2,550
Goodwill	317
Other	53
Total assets acquired	2,920
Liabilities assumed:
Deferred revenue	(20)
Total fair value of net assets acquired	2,900
DealOn [Member]
Assets acquired:
Intangible assets	2,080
Goodwill	7,648
Total assets acquired	9,787
Liabilities assumed:
Total fair value of net assets acquired	9,566
Assets acquired:
Other current assets	59
Liabilities assumed:
Accounts payable and accrued expenses	(221)
SMB:LIVE [Member]
Assets acquired:
Intangible assets	2,300
Goodwill	1,730
Total assets acquired	4,229
Liabilities assumed:
Total fair value of net assets acquired	2,759
Assets acquired:
Other current assets	199
Liabilities assumed:
Accounts payable and other current liabilities	(770)
Deferred tax liabilities	$ (702)

XML

Note 7. Current Liabilities (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Accrued Liabilities [Table Text Block]

	December 31,
	2012		2011
Accrued compensation and benefits	$	14,558	$	9,880
Other		12,864		9,657
Total accrued expenses	$	27,422	$	19,537

Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]

	December 31,
	2012		2011
Deferred revenue	$	34,142	$	28,624
Other		2,162		2,123
Total deferred revenue and other current liabilities	$	36,304	$	30,747

XML

Note 9 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Year Ended December 31,
2013	$	10,508
2014		8,655
2015		6,555
2016		4,886
2017		2,976
Thereafter		6,687
	$	40,267

XML

Note 1 - Organization and Description of Business

12 Months Ended

Dec. 31, 2012

Nature of Operations [Text Block]

1. Organization and Description of Business

ReachLocal, Inc. (the “Company”) was incorporated in the state of Delaware in August 2003. The Company’s operations are located in North America, Australia, the United Kingdom, the Netherlands, Germany, Japan, Brazil and India. The Company’s mission is to help small- and medium-sized businesses (“SMBs”) acquire, transact with, maintain and retain customers via the Internet. The Company offers a comprehensive suite of online marketing solutions, including search engine marketing (ReachSearch™), Web presence (ReachCast™), display advertising (ReachDisplay™), display retargeting (ReachRetargeting™), online marketing analytics (TotalTrack®), and assisted chat service (TotalLiveChat™), each targeted to the SMB market. The Company delivers this suite of services to SMBs through a combination of its proprietary technology platform, the RL Platform, its direct, “feet-on-the-street” sales force of Internet Marketing Consultants, or IMCs, and select third-party agencies and resellers. 

XML

Note 10 - Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2012

Schedule Of Number Of Shares Reserved For Future Issuance [Text Block]

Stock options	7,784
Restricted stock units	295
DealOn deferred stock consideration	126
Warrants	15
Deferred compensation	13
	8,233

XML

Note 2 - Summary of Significant Accounting Policies (Detail) - Potentially Dilutive Securities	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Potentially Dilutive Securities	6,395	4,756	10,344
Weighted Average Convertible Preferred Stock [Member]
Potentially Dilutive Securities	-	-	6,419
Deferred Stock Consideration [Member]
Potentially Dilutive Securities	59	185	406
Stock Options and Warrant [Member]
Potentially Dilutive Securities	6,336	4,571	3,519

XML

Note 9 - Commitments and Contingencies (Detail) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating Leases, Rent Expense	$ 11.4	$ 9.7	$ 6.4
Letters of Credit Outstanding, Amount	1.2	1.3
Restricted Cash and Cash Equivalents	$ 1.2	$ 1.3

XML

Note 14 - Segment Information (Detail) - Revenue and Long Lived Assets by Geographic Area (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenue:
Revenue	$ 120,248	$ 118,891	$ 112,212	$ 104,003	$ 99,802	$ 98,629	$ 92,752	$ 84,058	$ 455,354	$ 375,241	$ 291,689
Long Lived Assets:
Long Lived Assets	11,066				12,916				11,066	12,916
North America [Member]
Revenue:
Revenue									327,521	289,249	241,696
Long Lived Assets:
Long Lived Assets	6,395				8,159				6,395	8,159
International [Member]
Revenue:
Revenue									127,833	85,992	49,993
Long Lived Assets:
Long Lived Assets	$ 4,671				$ 4,757				$ 4,671	$ 4,757

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 92,336	$ 84,525
Short-term investments	3,149	644
Accounts receivable, net of allowance for doubtful accounts of $259 and $363 at December 31, 2012 and 2011, respectively	5,689	4,240
Other receivables and prepaid expenses	8,957	9,226
Total current assets	110,131	98,635
Property and equipment, net	11,066	9,885
Capitalized software development costs, net	14,704	10,942
Restricted certificates of deposit	1,226	1,286
Intangible assets, net	2,442	1,957
Other assets	4,044	1,966
Goodwill (in Dollars)	42,083	41,766
Total assets	185,696	166,437
Current Liabilities:
Accounts payable	35,297	29,831
Accrued expenses	27,422	19,537
Deferred revenue and other current liabilities	36,304	30,747
Liabilities of discontinued operations	767	996
Total current liabilities	99,790	81,111
Deferred rent and other liabilities	4,020	3,039
Total liabilities	103,810	84,150
Commitments and contingencies (Note 4, 8, 9 and 10)
Stockholders’ Equity:
Common stock, $0.00001 par value—140,000 shares authorized; 28,154 and 28,552 shares issued and outstanding at December 31, 2012 and 2011, respectively	0	0
Receivable from stockholder	(89)	(87)
Additional paid-in capital	110,573	109,493
Accumulated deficit	(27,076)	(26,844)
Accumulated other comprehensive loss	(1,522)	(275)
Total stockholders’ equity	81,886	82,287
Total liabilities and stockholders’ equity	$ 185,696	$ 166,437

XML

Note 4 - Acquisitions (Detail) - Estimated Amortization Expense for the Succeeding Three Years (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
2013	$ 1,173
2014	853
2015	416
Total	$ 2,442

XML

Consolidated Statements Of Stockholders’ Equity (USD $) In Thousands, except Share data	Convertible Preferred Stock [Member]	Common Stock [Member]	Receivables from Stockholder [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2009	$ 1	$ 1	$ (99)	$ 47,449	$ (5,099)	$ (138)	$ 42,118
Balance (in Shares) at Dec. 31, 2009	16,453,000	6,932,000
Preferred stock conversion	(1)			4
Preferred stock conversion (in Shares)	(16,453,000)	16,712,000
Issuance of common stock, net of costs				41,996			41,996
Issuance of common stock, net of costs (in Shares)		3,941,000
Par value adjustment		(1)		1
Exercise of stock options		536		1,068			1,068
Stock-based compensation				7,997			7,997
Issuance of common stock in connection with vesting of restricted stock and BOD share plan compensation (in Shares)		44,000
Issuance of common stock in connection with vesting of restricted stock, exercise of warrant and BOD share plan compensation				78			78
Issuance of common stock in connection with vesting of restricted stock, exercise of warrant and BOD share plan compensation (in Shares)		44,000
Net loss					(11,398)		(11,398)
Foreign currency translation adjustments			12			145	157
Balance at Dec. 31, 2010			(87)	98,593	(16,497)	7	82,016
Balance (in Shares) at Dec. 31, 2010		28,165,000
Exercise of stock options		938		5,495			5,495
Stock-based compensation				9,682			9,682
Common and restricted stock issued in business combinations				2,191			2,191
Common and restricted stock issued in business combinations (in Shares)		266,000
Issuance of common stock in connection with vesting of restricted stock and BOD share plan compensation (in Shares)		47,000
Exercise of restricted stock units (in Shares)		8,000
Common stock repurchase				(6,468)			(6,468)
Common stock repurchase (in Shares)		(872,000)
Issuance of common stock in connection with vesting of restricted stock, exercise of warrant and BOD share plan compensation (in Shares)		47,000
Net loss					(10,341)		(10,341)
Foreign currency translation adjustments					(6)	(282)	(288)
Balance at Dec. 31, 2011			(87)	109,493	(26,844)	(275)	82,287
Balance (in Shares) at Dec. 31, 2011		28,552,000					28,552,000
Exercise of stock options		320		1,783			1,783
Stock-based compensation				9,805			9,805
Common and restricted stock issued in business combinations				455			455
Common and restricted stock issued in business combinations (in Shares)		197,000
Issuance of common stock in connection with vesting of restricted stock and BOD share plan compensation (in Shares)		118,000
Exercise of restricted stock units (in Shares)		83,000
Common stock repurchase				(10,963)			(10,963)
Common stock repurchase (in Shares)		(1,116,000)					1,100,000
Issuance of common stock in connection with vesting of restricted stock, exercise of warrant and BOD share plan compensation (in Shares)		118,000
Net loss					(232)		(232)
Foreign currency translation adjustments			(2)			(1,247)	(1,249)
Balance at Dec. 31, 2012			$ (89)	$ 110,573	$ (27,076)	$ (1,522)	$ 81,886
Balance (in Shares) at Dec. 31, 2012		28,154,000					28,154,000

XML

Note 11 - Stock-Based Compensation (Detail) - Weighted Average Assumptions Used to Estimate Fair Value of Stock Options Granted (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Expected dividend yield	0.00%	0.00%	0.00%
Risk-free interest rate	0.74%	1.88%	1.91%
Expected life (in years)	4 years 313 days	4 years 9 months	4 years 9 months
Expected volatility	60.00%	57.00%	56.00%
Weighted average fair value per share (in Dollars per share)	$ 6.10	$ 9.65	$ 6.55

XML

Note 14 - Segment Information (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	Year Ended December 31,
	2012		2011		2010
Revenue:
North America	$	327,521	$	289,249	$	241,696
International		127,833		85,992		49,993
	$	455,354	$	375,241	$	291,689
Long Lived Assets:
North America	$	6,395	$	8,159
International		4,671		4,757
	$	11,066	$	12,916

XML

Note 12 - Income Taxes (Detail) - Components of Income (Loss) Domestic and Foreign (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
United States	$ 12,096	$ (1,689)	$ (6,489)
Foreign	(11,174)	(1,702)	(2,605)
	$ 922	$ (3,391)	$ (9,094)

XML

Note 15 - Discontinued Operations

12 Months Ended

Dec. 31, 2012

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

15. Discontinued Operations

On November 1, 2011, the Company announced that it would wind down the operations of Bizzy and determined that Bizzy would be considered a discontinued operation as of the third quarter of 2011. In connection with this decision, the Company recorded a charge of $4.0 million in 2011 to reflect the impairment of capitalized software development costs, personnel and severance costs, operating losses, facilities and other costs. As of December 31, 2012, liabilities from discontinued operations are expected to be settled over the next year.

XML

Note 16 - Quarterly Financial Information (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Quarterly Financial Information [Table Text Block]

	Dec 31, 2012			Sept 30, 2012		June 30, 2012		Mar 31, 2012			Dec 31, 2011			Sept 30, 2011			June 30, 2011			Mar 31, 2011
Revenue	$	120,248		$	118,891	$	112,212	$	104,003		$	99,802		$	98,629		$	92,752		$	84,058
Cost of revenue	$	59,790		$	59,500	$	55,656	$	52,390		$	49,196		$	50,265		$	46,598		$	44,500
Income (loss) from continuing operations, net of income taxes	$	(394	)	$	836	$	332	$	(1,006	)	$	151		$	(1,329	)	$	(276	)	$	(2,672	)
Loss from discontinued operations, net of income taxes	$	—		$	—	$	—	$	—		$	(1,495	)	$	(3,272	)	$	(673	)	$	(775	)
Net income (loss)	$	(394	)	$	836	$	332	$	(1,006	)	$	(1,344	)	$	(4,601	)	$	(949	)	$	(3,447	)
Income (loss) per share from continuing operations, basic	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	0.01		$	(0.05	)	$	(0.01	)	$	(0.09	)
Loss per share from discontinued operations, basic		—			—		—		—			(0.05	)		(0.11	)		(0.02	)		(0.03	)
Net income (loss) per share, basic	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	(0.05	)	$	(0.16	)	$	(0.03	)	$	(0.12	)
Income (loss) per share from continuing operations, diluted	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	0.01		$	(0.05	)	$	(0.01	)	$	(0.09	)
Loss per share from discontinued operations, diluted		—			—		—		—			(0.05	)		(0.11	)		(0.02	)		(0.03	)
Net income (loss) per share, diluted	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	(0.05	)	$	(0.16	)	$	(0.03	)	$	(0.12	)

XML

Accounting Policies, by Policy (Policies)

12 Months Ended

Dec. 31, 2012

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Discontinued Operations, Policy [Policy Text Block]

Discontinued Operations

As a result of winding down and closing the operations of Bizzy, effective November 2011, the Company has reclassified and presented all related historical financial information as “discontinued operations” in the accompanying Consolidated Balance Sheets, Statements of Operations and Cash Flows. In addition, all Bizzy-related activities have been excluded from the notes unless specifically referenced.

Reclassification, Policy [Policy Text Block]

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period presentation and certain immaterial adjustments have been recorded in prior periods as further described in Note 11, “Stock-Based Compensation—Adjustment to Historical Stock-Based Compensation Expense”.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements. Therefore, actual results could differ from those estimates.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

The Company’s operations are conducted in several countries around the world, and the financial statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the U.S. dollar, the reporting currency, for inclusion in the Company’s consolidated financial statements. Income, expenses, and cash flows are translated at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Resulting translation adjustments are included as a component of accumulated other comprehensive income (loss), net in stockholders’ equity. Foreign currency translation adjustments are generally not adjusted for income taxes as they are primarily related to indefinite investments in foreign subsidiaries. Foreign exchange transaction gains and losses are included in other income (expense), net in the accompanying consolidated statements of operations. Exchange gains and losses on intercompany balances that are considered permanently invested are also included as a component of accumulated other comprehensive loss in stockholders’ equity.

Foreign currency translation adjustments included in other comprehensive income (loss), were $(1.2) million, $(0.3) million and $0.1 million for the years ended December 31, 2012, 2011 and 2010, respectively. For the years ended December 31, 2012, 2011 and 2010, the Company recorded immaterial amounts of other income (loss) from foreign exchange transactions.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

The Company reports all highly liquid short-term investments with original maturities of three months or less at the time of purchase as cash equivalents. As of December 31, 2012 and 2011, cash equivalents consist of demand deposits and money market accounts. Cash equivalents are stated at cost, which approximates fair value.

Marketable Securities, Policy [Policy Text Block]

Short-Term Investments

The Company classifies short-term investments when the original maturity is less than one year, or when the Company intends to sell the investment within one year. As of December 31, 2012 and 2011, short-term investments consisted of certificates of deposit. All of the short-term investments are classified as available-for-sale.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Financial Instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, loan receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Restricted cash represents certificates of deposit held at financial institutions, which are pledged as collateral for letters of credit related to lease commitments. The restrictions will lapse when the letters of credit expire at the end of the respective lease terms in 2021. As of December 31, 2012 and 2011, the Company had restricted certificates of deposit in the amounts of $1.2 million and $1.3 million, respectively. Restricted certificates of deposit are classified as non-current assets.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments and accounts receivable. The Company holds its cash and cash equivalents, short-term investments and restricted cash with major financial institutions around the world.

Cash and cash equivalents and certificates of deposit are deposited with a limited number of financial institutions in the United States, Canada, Australia, United Kingdom, India, the Netherlands, Germany, Japan and Brazil. The balances held at any one financial institution are generally in excess of Federal Deposit Insurance Corporation insurance limits or, in foreign territories, local insurance limits. To date, the Company has not experienced any loss or lack of access to cash in its operating accounts. However, the Company can provide no assurances that access to its cash and cash equivalents will not be impacted by adverse conditions in the financial markets. As of December 31, 2012, domestic bank balances in excess of insured limits were $44.1 million. The Company had $27.8 million in excess of insured limits in foreign bank accounts as of December 31, 2012.

The Company’s customers are dispersed both geographically and across a broad range of industries. Receivables are generated primarily through agencies and resellers. Management performs ongoing evaluation of trade receivables for collectability and provides an allowance for potentially uncollectible accounts. The following table summarizes the change in the Company’s allowance for doubtful accounts for each of the three years ended December 31, 2012, 2011 and 2010 (in thousands):

	2012			2011			2010
Allowance for doubtful accounts as of the beginning of the year	$	363		$	373		$	142
Additions charged to expense		13			172			252
Write-offs		(117	)		(182	)		(21	)
Allowance for doubtful accounts as of the end of the year	$	259		$	363		$	373

As of December 31, 2012, no client accounted for 10% or more of the total accounts receivable balance. As of December 31, 2011, one client accounted for 20% of the total accounts receivable balance.

In 2012, 2011, and 2010, no client accounted for 10% or more of the Company’s total revenue.

During 2012, 2011, and 2010, the Company’s cost of revenue was primarily for the purchase of media and the media the Company purchased was primarily from Google, Yahoo! and Bing.

Other receivables and prepaid expenses included $5.9 million and $7.3 million of non-trade receivables from media vendors at December 31, 2012 and 2011, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of the assets or, where applicable and if shorter, over the lease term. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.

Estimated useful lives of assets are as follows:

Computer hardware and software (in years)	3
Office equipment (in years)	5
Furniture and fixtures (in years)	7
Leasehold improvements	The lesser of their expected useful lives or the remaining lease term.

Research, Development, and Computer Software, Policy [Policy Text Block]

Software Development Costs

The Company capitalizes costs to develop software when management has determined that the development efforts will result in new or additional functionality or new products. Costs capitalized as internal use software are amortized on a straight-line basis over the estimated three-year useful life. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and are recorded along with amortization of capitalized software development costs as product and technology expenses within the accompanying consolidated statements of operations. We monitor our existing capitalized software and reduce its carrying value as the result of releases that render previous features or functions obsolete or otherwise reduce the value of previously capitalized costs.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill 

          The Company’s total goodwill of $42.1 million as of December 31, 2012, and $41.8 million as of December 31, 2011, is related to our acquired businesses. The increase in goodwill of $0.3 million in 2012 was related to the RealPractice, Inc. acquisition. See Note 4, “Acquisitions”, for further details. The Company operates in one reportable segment, in accordance with ASC 280, Segment Reporting, and has identified two reporting units—North America and Australia—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by segment management. North America’s assigned goodwill was $9.7 million as of December 31, 2012 and $9.4 million as of December 31, 2011.  Australia’s assigned goodwill was $32.4 million as of December 31, 2012 and 2011.  The Company reviews the carrying amounts of goodwill for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The Company performs its annual assessment of goodwill impairment as of the first day of each fourth quarter.

For the years ended December 31, 2012 and 2011, the Company followed the amended guidance for assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in accordance with ASC 350-20, Intangibles – Goodwill and Other. Entities are provided with the option of first performing a qualitative assessment on any of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. If an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a two-step impairment test is necessary. The first step of the impairment test involves comparing the estimated fair values of each of our reporting units with their respective carrying amounts, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of the reporting unit is less than its carrying amount, including goodwill, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. The Company estimates fair value utilizing the projected discounted cash flow method and a discount rate determined by the Company to commensurate with the risk inherent in its business model.

 The Company performed its annual assessment of goodwill impairment as of the first day of the fourth quarter of 2012 and 2011, and determined that it was more likely than not that there was no impairment of goodwill and accordingly, no impairment of goodwill was recorded.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Long-Lived and Intangible Assets      

At December 31, 2012 and 2011, the Company had $2.4 million and $2.0 million, respectively, of intangible assets resulting from acquisitions. The Company reports finite-lived, acquisition-related intangible assets at fair value, net of accumulated amortization. Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives of three years, or one year, in the case of certain customer relationships. Straight-line amortization is used because no other pattern over which the economic benefits will be consumed can be reliably determined.

The Company reviews the carrying values of long-lived assets, including intangible assets, for possible impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. In its analysis of other finite lived amortizable intangible assets, the Company applies the guidance of ASC 350-20, Intangibles – Goodwill and Other, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various developed technologies and client relationships of the businesses the Company has acquired. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

Lease, Policy [Policy Text Block]

Leases

The Company leases various facilities under agreements accounted for as operating leases. For leases that contain escalation or rent concessions provisions, management recognizes rent expense during the lease term on a straight-line basis over the term of the lease. The difference between rent paid and straight-line rent expense is recorded as a deferred rent liability in the accompanying consolidated balance sheets.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenue for its services when all of the following criteria are satisfied:

• persuasive evidence of an arrangement exists;

• services have been performed;

• the selling price is fixed or determinable; and

• collectability is reasonably assured.

The Company recognizes revenue as the cost for the third-party media is incurred, which is upon delivery of the advertising on behalf of its clients. The Company recognizes revenue for its ReachSearch product as clicks are recorded on sponsored links on the various search engines and for its ReachDisplay and ReachRetargeting product when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for its ReachCast product on a straight line basis over the applicable service period for each campaign. The Company recognizes revenue when it charges set-up, management service or other fees on a straight line basis over the term of the related campaign contract or the completion of any obligation for services, if shorter. When the Company receives advance payments from clients, management records these amounts as deferred revenue until the revenue is recognized. When the Company extends credit, management records a receivable when the revenue is recognized.

When the Company sells through agencies, it either receives payment in advance of services or in some cases extends credit. The Company pays each agency an agreed-upon commission based on the revenue it earns or cash it receives. Some agency clients who have been extended credit may offset the amount otherwise due to the Company by any commissions they have earned. Management evaluates whether it is appropriate to record the gross amount of campaign revenue or the net amount earned after commissions. As the Company is the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management recognizes the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

The Company also has a small number of resellers, including a franchisee. Resellers integrate the Company’s services, including ReachSearch, ReachDisplay, and TotalTrack, into their product offerings. In most cases, the resellers integrate with the Company’s RL Platform through a custom Application Programming Interface (API). Resellers are responsible for the price and specifications of the integrated product offered to their clients. Resellers pay the Company in arrears, net of commissions and other adjustments. Management recognizes revenue generated under reseller agreements net of the agreed-upon commissions and other adjustments earned or retained by the reseller, as management believes that the reseller has retained sufficient control and bears sufficient risks to be considered the primary obligor in those arrangements.

The Company recently launched a new consumer service, ClubLocal, through which it creates a direct relationship with customers and provides home-related services by engaging third-party suppliers who perform the agreed services on its behalf. Revenue is recognized when services have been provided. As the Company is the primary obligor under the arrangements, has discretion in supplier selection, has latitude in establishing prices, and bears the credit risk, the Company recognizes the gross amount of sales as revenue and the cost of the service provided is recorded as cost of revenue.

The Company offers future incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the future incentives that will be earned by clients and defers a portion of the otherwise recognizable revenue. Estimates are based upon a statistical analysis of previous campaigns for which such incentives were offered. Should a client not meet its minimum commitment and no longer qualify for the incentive, management recognizes the revenue previously deferred related to the estimated incentive.

The Company accounts for sales and similar taxes imposed on its services on a net basis in the consolidated statements of operations.

Cost of Sales, Policy [Policy Text Block]

Cost of Revenue

Cost of revenue consists primarily of the cost of media acquired from third-party publishers. Media cost is classified as cost of revenue in the corresponding period in which revenue is recognized. From time to time, publishers offer the Company rebates based upon various factors and operating rules, including the amount of media purchased. Management records these rebates in the period in which they are earned as a reduction to cost of revenue and the corresponding payable to the applicable publisher, or as an other receivable, as appropriate. Cost of revenue also includes third-party telephone and information services costs, data center and third-party hosting costs, credit card processing fees, third-party content and other direct costs. In addition, cost of revenue includes costs to initiate, operate and manage clients’ campaigns, other than costs associated with the Company’s sales force, which are reflected as selling and marketing expenses. Cost of revenue includes salaries, benefits, bonuses and stock-based compensation for the related staff, including the cost of Web Presence Professionals who are the principal service providers for the Company’s ReachCast product, and allocated overhead such as depreciation expense, rent and utilities, as well as an allocable portion of the Company’s technical operations costs, and the cost of service providers related to ClubLocal.

Selling and Marketing Expenses Policy Text Block

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of personnel and related expenses for selling and marketing staff, including salaries and wages, commissions and other variable compensation, benefits, bonuses and stock-based compensation; travel and business costs; training, recruitment, marketing and promotional events; advertising; other brand building and product marketing expenses; and occupancy, technology and other direct overhead costs. A portion of the compensation for IMCs, sales management and other employees in the sales organization is based on commissions and other variable compensation. In addition, the cost of agency commissions is included in selling and marketing expenses.

Product and Technology Expenses Policy Text Block

Product and Technology Expenses

Product and technology expenses consist primarily of personnel and related expenses for product development and technology staff, including salaries, benefits, bonuses and stock-based compensation, and the cost of certain third-party service providers and other expenses, including occupancy, technology and other direct overhead costs. Technology operations costs, including related personnel and third-party costs, are included in product and technology expenses. The Company capitalizes a portion of its software development costs (Note 6) and, accordingly, includes amortization of those costs as costs of product and technology, as the RL Platform and the Company’s other systems address all aspects of the Company’s activities, including supporting the IMC selling and consultation process, online publisher integration, efficiencies and optimization, providing insight to clients into the results and effects of their online advertising campaigns and supporting all of the financial and other back-office functions of the business. Product and technology expenses also include the amortization of the technology obtained in acquisitions and the expenses of deferred payment obligations related to product and technology personnel.

Selling, General and Administrative Expenses, Policy [Policy Text Block]

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related expenses for executive, legal, finance, human resources and corporate communications, including wages, benefits, bonuses and stock-based compensation, professional fees, insurance premiums and other expenses, including occupancy, technology and other direct overhead, public company costs and other corporate expenses.

Advertising Costs, Policy [Policy Text Block]

Advertising Expenses

The Company expenses advertising as incurred. Advertising expense was $2.9 million, $1.3 million and $1.6 million for the years ended December 31, 2012, 2011 and 2010, respectively, and was recorded in sales and marketing expense in the Consolidated Statements of Operations.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company accounts for stock-based compensation based on fair value. The Company follows the attribution method, which reduces current stock-based compensation expenses recorded by the effect of anticipated forfeitures. Management estimates forfeitures based upon its historical experience.

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, expected term and risk-free interest rate. The assumptions used in calculating the fair value of stock-based awards represent management’s estimate based on judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes model significantly changes, stock-based compensation for future awards may differ materially from the awards granted previously.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entities

In accordance with ASC 810, Consolidations, the applicable accounting guidance for the consolidation of variable interest entities (“VIE”), the Company analyzes its interests, including agreements, loans, guarantees, and equity investments, on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on the design of the entity, its organizational structure including its decision-making authority, and relevant agreements. If the Company determines that the entity is a VIE, the Company then assesses if it must consolidate the VIE as its primary beneficiary. The Company’s determination of whether it is the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that the Company absorbs, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. See Note 8, “Variable Interest Entities”, for more information.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Loan Receivable

 Loan receivable is recorded at carrying value, net of potential allowance for losses. Losses on the receivables are recorded when probable and estimable. The Company routinely evaluates the receivable for potential collection issues that might indicate an impairment. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible that the Company will experience losses that are different from its current estimates. Write-offs are deducted from the allowance for losses when the Company judges the principal to be uncollectible. Any subsequent recoveries are added to the allowance at the time cash is received on a written-off balance. See Note 8, “Variable Interest Entities”, for more information. Interest income on the loan receivable is accrued on a monthly basis over the life of the loan.

Deferred Consideration [Policy Text Block]

Deferred Consideration

Deferred purchase consideration that is fixed and determinable and expected to be settled in cash is accrued as a liability as of the date of the respective acquisition. Deferred purchase consideration that is fixed and determinable and expected to be settled in common stock is recorded as an increase to additional paid-in capital as of the date of acquisition. Deferred stock-based compensation issued to employees in connection with acquisitions is measured at fair value on the date of grant/acquisition and recognized over the vesting period of the instruments in accordance with the Company’s Stock-Based Compensation policy.

Common Stock Repurchase And Retirement [Policy Text Block]

Common Stock Repurchase and Retirement

Common stock repurchased is retired and the excess of the cost over the par value of the common shares repurchased is charged to accumulated deficit.

Earnings Per Share, Policy [Policy Text Block]

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method and convertible preferred stock under the if-converted method, where such conversions are dilutive. The Company was in a net loss position for the years ended December 31, 2012, 2011 and 2010, and therefore the number of diluted shares was equal to the number of basic shares for each of these periods.

The following potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as they would be anti-dilutive for the periods below (in thousands):

	Year Ended December 31,
	2012		2011		2010
Convertible preferred stock – if-converted method		—		—		6,419
Deferred stock consideration and unvested restricted stock		59		185		406
Stock options and warrant		6,336		4,571		3,519
		6,395		4,756		10,344

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company records income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company records tax benefits for income tax positions only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. Management considers many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may differ from actual outcomes. The Company follows a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company’s policy is to recognize interest and penalties related to tax in income tax expense.

XML

Note 12 - Income Taxes (Detail) - Deferred Tax Assets and Liabilities (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Accrued expenses	$ 1,912	$ 850
Deferred rent	1,262	928
Vacation accrual	506	527
Intangible assets	404	965
State taxes	262	70
Allowance for doubtful accounts	105	148
Net operating loss carryforward	8,134	12,495
Gross deferred tax assets	12,585	15,983
Less: valuation allowance	(6,403)	(10,427)
Net deferred tax assets	6,182	5,556
Capitalized software	(4,024)	(2,671)
Depreciation	(2,555)	(3,070)
Net deferred tax liabilities	$ (397)	$ (185)

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flow from operating activities:
Net loss from continuing operations	$ (232)	$ (4,126)	$ (8,554)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization	13,752	10,274	6,302
Stock-based compensation	9,504	8,538	5,924
Provision for doubtful accounts	13	172	252
Impairment of intangible assets		764
Provision for deferred income taxes	212	185	(700)
Changes in operating assets and liabilities:
Accounts receivable	(1,396)	(1,077)	(171)
Other receivables and prepaid expenses	291	(5,740)	(1,785)
Other assets	(118)	(673)	(585)
Accounts payable and accrued expenses	12,869	7,076	11,228
Deferred revenue, rent and other liabilities	7,693	5,468	7,894
Net cash provided by operating activities, continuing operations	42,588	20,861	19,805
Net cash used for operating activities, discontinued operations	(229)	(1,872)	(2,130)
Net cash provided by operating activities	42,359	18,989	17,675
Cash flow from investing activities:
Additions to property, equipment and software	(16,336)	(12,441)	(8,526)
Acquisitions, net of acquired cash	(3,976)	(6,342)	(8,612)
Loan to franchisee	(1,863)
Purchases of certificates of deposits and short-term investments	(9,069)	(574)	(375)
Maturities of certificates of deposit and short-term investments	6,646	7,649	589
Net cash used in investing activities, continuing operations	(24,598)	(11,708)	(16,924)
Net cash used in investing activities, discontinued operations		(1,140)	(1,403)
Net cash used in investing activities	(24,598)	(12,848)	(18,327)
Cash flow from financing activities:
Proceeds from exercise of stock options	1,783	5,495	1,068
Common stock repurchases	(10,963)	(6,468)
Proceeds from initial public offering			47,649
Deferred offering costs			(4,620)
Net cash provided by (used in) financing activities	(9,180)	(973)	44,097
Effect of exchange rate changes on cash and cash equivalents	(770)	(549)	1,082
Net change in cash and cash equivalents	7,811	4,619	44,527
Cash and cash equivalents—beginning of year	84,525	79,906	35,379
Cash and cash equivalents—end of year	92,336	84,525	79,906
Supplemental disclosure of other cash flow information:
Cash paid for interest			184
Cash paid for income taxes	1,040	151	214
Supplemental disclosure of non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	301	1,144	2,461
Deferred payment obligation	$ (195)	$ 1,850	$ 530

XML

Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Per Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in Dollars) (in Dollars) (in Dollars)	$ 259	$ 363
Common stock, par value (in Dollars per share) (in Dollars per share) (in Dollars per share)	$ 0.00001	$ 0.00001
Common stock, shares authorized	140,000	140,000
Common stock, shares issued	28,154	28,552
Common stock, shares outstanding	28,154	28,552

XML

Note 10 - Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity Note Disclosure [Text Block]

10. Stockholder’s Equity

Initial Public Offering

On May 19, 2010, the Company issued 3,941,103 shares of common stock, including shares from the exercise of the underwriters’ option to purchase 625,000 shares, at a price of $13.00 per share, raising proceeds to the Company of $42.0 million, net of underwriting discounts and commissions and offering costs. 

Convertible Preferred Stock

Upon the completion of the initial public offering in 2010, all of the then outstanding shares of convertible preferred stock were converted to 16,712,120 shares of common stock with a par value of $0.00001 per share. 

Warrants

In November 2009, the Company issued a warrant to a consultant to purchase up to 15,000 shares of common stock at an exercise price of $10.91 per share, which expires in November 2014.

Common Stock Repurchases

On November 4, 2011, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the Company’s outstanding common stock. On December 13, 2012, the Company announced the Board of Directors increased the total authorized repurchase amount by $6.0 million, to a total authorization of $26.0 million, and on March 4, 2013, the Company announced that its Board of Directors increased the total authorized repurchase amount by an additional $21.0 million, to a total authorization of $47.0 million. At December 31, 2012, the Company had executed repurchases of 2.0 million shares of its common stock under the program for an aggregate of $17.4 million, of which $11.0 million or 1.1 million shares were repurchased during the year ended December 31, 2012. From January 1, 2013 to March 5, 2013, the Company executed repurchases of an additional $1.5 million of its common stock under the program. Purchases may be made from time-to-time in open market or privately negotiated transactions as determined by the Company’s management. The amount and timing of the share repurchase will depend on business and market conditions, stock price, trading restrictions, acquisition activity, and other factors. The share repurchase program does not obligate the Company to acquire any particular amount of common stock, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

Shares Reserved For Future Issuance

The following table shows the number of shares of common stock reserved for future issuance as of December 31, 2012 (in thousands):

Stock options	7,784
Restricted stock units	295
DealOn deferred stock consideration	126
Warrants	15
Deferred compensation	13
	8,233

XML

Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 05, 2013	Jun. 30, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	ReachLocal Inc
Document Type	10-K
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		28,265,404
Entity Public Float			$ 107,543,018
Amendment Flag	false
Entity Central Index Key	0001297336
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY

XML

Note 11 - Stock-Based Compensation

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

11. Stock-Based Compensation

Stock Option Exchange

On May 29, 2012, the Company commenced an offer to exchange options to purchase shares of its common stock with an exercise price equal to or greater than $10.91 per share or, for the Company’s executive officers subject to Section 16 of the Securities Exchange Act of 1934, as amended (“executive officers”), $16.71 per share, for replacement options to purchase a lesser number of shares of common stock having an exercise price equal to the fair market value of the Company’s common stock on the replacement grant date, or for replacement options issued to the Company’s executive officers, an exercise price equal to the greater of the fair market value of the Company’s common stock on the replacement grant date or $13 per share.

The stock option exchange closed on June 25, 2012.  All exchanged options were cancelled at that time and immediately thereafter, the Company granted replacement options under the Amended and Restated ReachLocal 2008 Stock Incentive Plan. Employees other than executive officers received options covering an aggregate of 158,752 shares, each with an exercise price of $10.56, which was the closing price of the Company’s common stock on the NASDAQ Global Select Market on June 25, 2012, and executive officers received options covering an aggregate of 396,998 shares, each with an exercise price of $13.00. After cancelling exchanged options to purchase an aggregate of 834,875 shares and granting replacement options to purchase an aggregate of 555,750 shares, the Company’s total number of shares subject to outstanding stock options was reduced by 279,125 shares.

The fair value of the replacement options granted was measured as the total of the unrecognized compensation cost of the original options exchanged plus any incremental compensation cost of the replacement options. The incremental compensation cost of the replacement options was measured as the excess of the fair value of the replacement options over the fair value of the exchanged options immediately before cancellation. The total remaining unrecognized compensation expense related to the exchanged options and the incremental compensation cost of the replacement options will be recognized over the four-year vesting period of the replacement options. The incremental compensation expense of the replacement options was immaterial.

Stock Option Plans

On April 21, 2004, the Company adopted the 2004 Stock Plan (the “2004 Plan”), as amended. Grants under the 2004 Plan may be incentive stock options or nonqualified stock options or awards. The 2004 Plan is administered by the Company’s board of directors, which has the authority to designate participants and determine the number and type of awards to be granted, the time at which awards are exercisable, the method of payment and any other terms or conditions of the awards. The vesting of these awards vary subject to the participant’s period of future service, or otherwise at the discretion of the Company’s board of directors. The majority of awards vest over four years and have a term of 10 years. There were no shares available for grant under the 2004 Plan as of December 31, 2012 and 2011.

On July 1, 2008, the Company adopted the 2008 Stock Incentive Plan (the “2008 Plan”) and retired the 2004 Plan. Options outstanding under the 2004 Plan are unaffected by the retirement of the 2004 Plan. The aggregate number of shares of the Company’s common stock available for issuance pursuant to awards granted under the 2008 Plan is equal to the sum of (x) 5,471,350 plus (y) any shares of the Company’s common stock subject to awards under the 2004 Plan that terminate, expire or lapse for any reason or are settled in cash after the date the 2008 Plan originally became effective, and (z) an annual increase in shares on the first day of each year beginning in 2011 and ending in 2018. The annual increase will be equal to the lesser of (A) 2,500,000 shares (as adjusted for stock splits, stock combinations, stock dividends and similar matters), (B) 4.5% of the Company’s common stock outstanding on the last day of the prior year or (C) such smaller number of shares as may be determined by the Board. The 2008 Plan is administered by the Company’s Compensation Committee, which has the authority to designate participants and determine the number and type of awards to be granted, the time at which awards are exercisable, the method of payment and any other terms or conditions of the awards. The vesting of these awards vary subject to the participant’s period of future service, or otherwise at the discretion of the Compensation Committee. The majority of awards issued under the 2008 Plan vest over four years and have a term of seven years. There were 732,197 and 686,103 shares available for grant under the 2008 Plan as of December 31, 2012 and 2011, respectively. On January 1, 2013, an additional 1,266,925 shares were added to the pool under the evergreen provision.

       Stock Options

The following table summarizes stock option activity (in thousands, except years and per share amounts):

	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2011		6,411		$	12.52
Granted		2,632		$	10.19
Exercised		(320	)	$	5.57
Forfeited/Exchanged		(1,671	)	$	17.82
Outstanding at December 31, 2012		7,052		$	10.71		4.8	$	18,025
Vested and exercisable at December 31, 2012		3,814		$	10.54		3.5	$	10,321
Unvested at December 31, 2012, net of estimated forfeitures		3,046		$	10.90		6.2	$	7,339

The assumptions utilized for purposes of the Black-Scholes pricing model are summarized as follows:

• Volatility—As the Company has limited trading history for its common stock, the expected stock price volatility was estimated by taking a combination of 1) the median historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants and 2) the Company’s own historic price volatility based on daily price observations since May 2010. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. Management did not rely on implied volatilities of traded options in its industry peers’ common stock because the volume of activity was relatively low.

• Expected term—The expected term was estimated using the simplified method allowed under Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment. Management uses this method because it has limited historical data to estimate future terms and it is unable to obtain objective, measurable and comparative historical data of comparable companies.

• Risk free rate—The risk free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

• Dividend yield—The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, management used an expected dividend yield of zero.

In addition, management estimates the forfeiture rate based on its historical experience with forfeitures and reviews estimated forfeiture rates each period-end, and makes changes as factors affecting the forfeiture rate calculations and assumptions change.

The following table summarizes the weighted average assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2012, 2011 and 2010.

	Year Ended December 31,
	2012			2011			2010
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		0.74	%		1.88	%		1.91	%
Expected life (in years)		4.86			4.75			4.75
Expected volatility		60	%		57	%		56	%
Weighted average fair value per share	$	6.10		$	9.65		$	6.55

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2012, 2011 and 2010 were $1.9 million, $14.2 million and $6.7 million, respectively. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010 were $2.0 million, $6.1 million and $3.7 million, respectively.

The options outstanding and vested and exercisable as of December 31, 2012 have been segregated into ranges for additional disclosure as follows (number of options in thousands):

			Options Outstanding					Options Vested and Exercisable
Range of Exercise Prices (in dollars)			Number	Weighted Average Remaining Contractual Life (in years)		Weighted Average  Exercise  Price		Number		Weighted  Average Exercise  Price
$0.00	-	$5.00	374		3.68	$	0.67		374	$	0.67
$5.01	-	$10.00	1,824		5.95	$	8.39		406	$	9.08
$10.01	-	$15.00	4,482		4.27	$	11.78		2,840	$	11.46
$15.01	-	$20.00	219		6.10	$	16.96		125	$	17.07
$20.01	-	$25.00	127		5.13	$	22.15		58	$	22.15
$25.01	-	$30.00	26		5.32	$	25.51		11	$	25.51
			7,052		4.75	$	10.71		3,814	$	10.54

Restricted Stock and Restricted Stock Units

The Company may issue restricted stock and restricted stock units in conjunction with acquisitions and long-term employee incentive programs.   These shares of restricted stock and restricted stock units have vesting periods of 4 years. Stock-based compensation expense related to restricted stock units was $1.7 million, $0.7 million and $0.6 million for the years ended December 31, 2012, 2011, and 2010, respectively.

The following table summarizes restricted stock awards and restricted stock unit awards (in thousands, except per share amounts):

	Number of shares			Weighted Average Grant  Date Fair Value
Unvested at December 31, 2011		123		$	16.33
Granted		469		$	9.99
Forfeited		(92	)	$	10.38
Vested		(118	)	$	12.71
Unvested at December 31, 2012		382		$	11.10

Stock-based compensation expense

In conjunction with the Company’s stock option plan and restricted shares and reserved shares issued in connection with SMB:LIVE, the Company records stock-based compensation expense net of capitalized stock-based compensation in association with software development costs. The following table summarizes stock-based compensation (in thousands):

	Year Ended December 31,
	2012		2011		2010
Stock-based compensation	$	9,805	$	9,682	$	7,830
Less: Capitalized stock-based compensation		301		1,144		1,906
Stock-based compensation expense, net	$	9,504	$	8,538	$	5,924

Stock-based compensation, net of capitalization, is included in the accompanying consolidated statements of operations, within the following captions (in thousands):

	Year Ended December 31,
	2012		2011		2010
Stock compensation, net of capitalization
Cost of revenue	$	297	$	200	$	244
Selling and marketing		1,742		1,402		1,202
Product and technology		1,204		1,387		1,104
General and administrative		6,261		5,549		3,374
	$	9,504	$	8,538	$	5,924

As of December 31, 2012, there was $19.9 million of unrecognized stock-based compensation related to restricted stock, restricted stock units and outstanding stock options, net of estimated forfeitures. This amount is expected to be recognized over a weighted average period of 1.6 years. Future stock-based compensation expense for these awards may differ in the event actual forfeitures deviate from management’s estimates.

Adjustment to Historical Stock-Based Compensation Expense

In conjunction with the transition to an integrated stock-based compensation tracking and reporting system, immaterial adjustments relating to the impact of forfeitures on the computation of stock-based compensation expense were identified. As a result, stock-based compensation expense was understated by $0.2 million in 2011, $0.3 million in 2010, and $0.2 million in 2009 and prior periods. Based on an analysis of qualitative and quantitative factors, management has concluded that these adjustments were not material to any historical period, although the cumulative impact of correcting for the adjustments in 2012 would have been material to the current period. As a result, the affected balances have been revised in the accompanying consolidated financial statements as adjustments to additional paid-in capital and accumulated deficit as of December 31, 2009, and stock-based compensation expense for the years ended December 31, 2011 and 2010.

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenue	$ 455,354	$ 375,241	$ 291,689
Cost of revenue	227,336	190,559	159,018
Operating expenses:
Selling and marketing	167,424	139,929	108,529
Product and technology	19,776	15,602	9,957
General and administrative	40,471	33,470	23,880
Total operating expenses	227,671	189,001	142,366
Income (loss) from operations	347	(4,319)	(9,695)
Other income, net	575	928	601
Income (loss) before provision for (benefit from) income taxes	922	(3,391)	(9,094)
Provision for (benefit from) income taxes	1,154	735	(540)
Loss from continuing operations, net of income taxes	(232)	(4,126)	(8,554)
Loss from discontinued operations, net of income taxes		(6,215)	(2,844)
Net loss	$ (232)	$ (10,341)	$ (11,398)
Net loss per share, basic and diluted:
Loss per share from continuing operations, basic and diluted (in Dollars per share)	$ (0.01)	$ (0.14)	$ (0.43)
Loss per share from discontinued operations, basic and diluted (in Dollars per share)		$ (0.21)	$ (0.14)
Net loss per share, basic and diluted (in Dollars per share)	$ (0.01)	$ (0.36)	$ (0.57)
Weighted average common shares used in the computation of net loss per share:
Basic (in Shares)	28,348	28,974	19,867
Diluted (in Shares)	28,348	28,974	19,867

XML

Note 5 - Property and Equipment

12 Months Ended

Dec. 31, 2012

Property, Plant and Equipment Disclosure [Text Block]

5. Property and Equipment

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

	December 31,
	2012			2011
Computer hardware and software	$	13,307		$	9,388
Office equipment		1,599			1,383
Furniture and fixtures		4,234			3,741
Leasehold improvements		5,656			2,865
Assets not placed in service		177			1,292
		24,973			18,669
Less: Accumulated depreciation and amortization		(13,906	)		(8,784	)
	$	11,066		$	9,885

Depreciation expense for property and equipment was $5.1 million, $3.2 million and $2.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

XML

Note 4 - Acquisitions

12 Months Ended

Dec. 31, 2012

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

4. Acquisitions

Acquisition of RealPractice

On July 3, 2012, the Company acquired certain technology, advertisers and hired certain employees of  RealPractice, Inc. (“RealPractice”). RealPractice provides the Company with a platform for building a marketing automation and lead conversion.

At closing, the Company paid $2.6 million in cash of the estimated $2.9 million purchase price. The remaining amount of $0.3 million is payable in cash on the 18-month anniversary of the closing date, subject to adjustment on January 3, 2014. The Company also issued 150,292 restricted stock units to the hired employees, which are accounted for as stock-based compensation over the period in which they are earned.

           The Company recorded acquired assets and liabilities at their respective fair values. The following table summarizes the fair value of acquired assets and liabilities (in thousands):

Assets acquired:
Intangible assets	$	2,550
Goodwill		317
Other		53
Total assets acquired		2,920
Liabilities assumed:
Deferred revenue		(20	)
Total fair value of net assets acquired	$	2,900

Intangible assets acquired from RealPractice included customer relationships of $0.1 million and technology of $2.5 million, which are amortized over one and three years, their respective estimated useful lives, using the straight line method.

Acquisition costs in connection with the RealPractice acquisition was immaterial for the year ended December 30, 2012.

 Acquisition of DealOn

On February 8, 2011, the Company acquired all of the outstanding member interests of DealOn, LLC (“DealOn”) for consideration of up to approximately $9.6 million in cash and stock. DealOn was a deal commerce company that operated in the United States and provided the Company with a deal commerce platform.

On the closing date, the Company paid $5.8 million in cash and issued 82,878 shares of its common stock, valued at $1.9 million based on fair value of the Company’s stock on the acquisition date. The balance of the purchase price of $2.0 million (the “DealOn Deferred Consideration”) was payable in cash of $1.5 million and in 21,297 shares of the Company’s common stock, and was subject to adjustment under the terms of the acquisition agreement.

For purposes of determining the Company’s acquisition consideration, management discounted the DealOn Deferred Consideration to its then present value, or $1.9 million, and recorded this amount at the time of acquisition. The Company has accrued interest on the deferred consideration originally recorded. The Company recorded the acquired assets and liabilities at their respective fair values. The following table summarizes the fair value of assets and liabilities acquired (in thousands):

Assets acquired:
Intangible assets	$	2,080
Goodwill		7,648
Other		59
Total assets acquired		9,787
Liabilities assumed:
Accounts payable and accrued expenses		(221	)
Total fair value of net assets acquired	$	9,566

During 2011, the Company recorded a $0.8 million impairment charge to intangible assets related to customer relationships acquired in the DealOn acquisition.  This impairment is recorded in Cost of Revenue and resulted from a diminution in value attributable to a change in the Company’s business strategy for ReachDeals and the elimination of its dedicated deal sales force. Revenue from the acquired legacy products and services are immaterial for the years ended December 31, 2012 and 2011, respectively.

The intangible assets acquired from DealOn included customer relationships of $1.2 million, developed technology of $0.6 million, and trademarks of $0.3 million.

In connection with the DealOn acquisition, the Company incurred approximately $0.4 million in costs that are reflected in general and administrative expense in the accompanying Consolidated Statements of Operations for the year ended December 31, 2011.

Acquisition of SMB:LIVE

On February 22, 2010, the Company acquired all of the issued and outstanding common stock of SMB:LIVE Corporation (“SMB:LIVE”) for consideration of approximately $8.5 million in cash and stock. SMB:LIVE is a provider of data syndication and social media monitoring products and services to SMBs. With the technology acquired through the SMB:LIVE acquisition, the Company developed a digital presence and reputation management solution (ReachCast) designed to enable an SMB to publish multi-media content from a single interface to a business profile page hosted by the Company as well as to local directory sites, search engines and social media sites, including Twitter and Facebook. The solution also provides automated monitoring of local review sites, social media sites, and local blogs for references to the SMB or comments related to the SMB’s business to provide an SMB with feedback, alerts and analytics to assist it in managing its online reputation.

On the closing date, the Company paid $2.8 million in cash as part of the purchase price. The balance of the consideration of $5.7 million was paid in cash and stock of the Company in 2012 and 2011. The Company recognized the deferred consideration as compensation expense over the period in which it was earned.

The Company recorded the assets and liabilities acquired at their respective fair values. The following table summarizes the fair value of assets and liabilities acquired (in thousands):

Assets acquired:
Intangible assets	$	2,300
Goodwill		1,730
Other		199
Total assets acquired		4,229
Liabilities assumed:
Accounts payable and other current liabilities		(770	)
Deferred tax liabilities		(702	)
Total fair value of net assets acquired	$	2,759

The intangible assets acquired consist of SMB:LIVE’s developed technology.

In connection with the acquisition, the Company incurred approximately $0.3 million in costs that are reflected in general and administrative expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2010.

The results of operations of acquired entities for the periods post-acquisition were included in the consolidated statements of operations and were immaterial for the years ended December 31, 2012, 2011 and 2010. The pro-forma financial statements for the above acquisitions have not been shown as the results of operations of the acquired companies have been immaterial for the years ended December 31, 2012, 2011 and 2010.

Deferred Consideration

In connection with the RealPractice acquisition, we are obligated to pay an additional $0.3 million in cash on January 3, 2014, subject to adjustment.

Pursuant to the terms of its 2011 acquisition of DealOn, on February 8, 2012, the Company made a deferred payment in the amount of $0.5 million, net of the working capital adjustment and certain other adjustments, and issued 10,649 shares of its common stock. On August 8, 2012, the Company made a deferred payment in the amount of $0.4 million and issued 5,324 shares of its common stock. On February 8, 2013, the Company made the final deferred payment in connection with the DealOn acquisition in the amount of $0.4 million and issued 5,324 shares of its common stock.

As part of the consideration paid to acquire SMB:LIVE, on February 22, 2012, the Company paid $0.6 million in cash and issued 181,224 shares of its common stock. The February 22, 2012 payment represented the final payment of deferred consideration in connection with the SMB:LIVE acquisition.

Intangible Assets

As of December 31, 2012, intangible assets from acquisitions included developed technology of $2.4 million (net of accumulated amortization of $2.9 million) amortized over three years, and customer relationships of $25,000 (net of accumulated amortization of $25,000) amortized over one year. As of December 31, 2011, intangible assets from acquisitions included developed technology of $1.4 million (net of accumulated amortization of $1.8 million) amortized over three years, and customer relationships of $0.7 million (net of accumulated amortization of $2.1 million) amortized over one year. Based on the current amount of intangibles subject to amortization, the estimated amortization expense over the remaining lives are as follows (in thousands):

Year Ending December 31,
2013	$	1,173
2014		853
2015		416
Total	$	2,442

For the years ended December 31, 2012, 2011 and 2010, amortization expense related to acquired intangibles was $2.2 million, $2.3 million and $1.4 million, respectively.

XML

Note 16 - Quarterly Financial Information (Unaudited)

12 Months Ended

Dec. 31, 2012

Quarterly Financial Information [Text Block]

 16. Quarterly Information (Unaudited)

The following table sets forth unaudited quarterly financial data for the four quarters of each of 2012 and 2011. As a result of the winding down of the operations of Bizzy, management has reclassified and presented all related historical financial information as “discontinued operations” in the following Consolidated Statements of Operations. As more fully discussed in Note 11, stock-based compensation expense for the quarter ended December 31, 2011 was adjusted for the impact of historical forfeitures.

	Dec 31, 2012			Sept 30, 2012		June 30, 2012		Mar 31, 2012			Dec 31, 2011			Sept 30, 2011			June 30, 2011			Mar 31, 2011
Revenue	$	120,248		$	118,891	$	112,212	$	104,003		$	99,802		$	98,629		$	92,752		$	84,058
Cost of revenue	$	59,790		$	59,500	$	55,656	$	52,390		$	49,196		$	50,265		$	46,598		$	44,500
Income (loss) from continuing operations, net of income taxes	$	(394	)	$	836	$	332	$	(1,006	)	$	151		$	(1,329	)	$	(276	)	$	(2,672	)
Loss from discontinued operations, net of income taxes	$	—		$	—	$	—	$	—		$	(1,495	)	$	(3,272	)	$	(673	)	$	(775	)
Net income (loss)	$	(394	)	$	836	$	332	$	(1,006	)	$	(1,344	)	$	(4,601	)	$	(949	)	$	(3,447	)
Income (loss) per share from continuing operations, basic	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	0.01		$	(0.05	)	$	(0.01	)	$	(0.09	)
Loss per share from discontinued operations, basic		—			—		—		—			(0.05	)		(0.11	)		(0.02	)		(0.03	)
Net income (loss) per share, basic	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	(0.05	)	$	(0.16	)	$	(0.03	)	$	(0.12	)
Income (loss) per share from continuing operations, diluted	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	0.01		$	(0.05	)	$	(0.01	)	$	(0.09	)
Loss per share from discontinued operations, diluted		—			—		—		—			(0.05	)		(0.11	)		(0.02	)		(0.03	)
Net income (loss) per share, diluted	$	(0.01	)	$	0.03	$	0.01	$	(0.03	)	$	(0.05	)	$	(0.16	)	$	(0.03	)	$	(0.12	)

XML

Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

12. Income Taxes

The components of income (loss) from continuing operations before income taxes were (in thousands):

	Year Ended December 31,
	2012			2011			2010
United States	$	12,096		$	(1,689	)	$	(6,489	)
Foreign		(11,174	)		(1,702	)		(2,605	)
	$	922		$	(3,391	)	$	(9,094	)

The provision for income taxes for the years ended December 31, 2012, 2011 and 2010, consists primarily of state and foreign income taxes payable in the various jurisdictions in which the Company operates. In 2010, the Company recorded a one-time $0.7 million discrete deferred tax benefit related to the acquisition of SMB:LIVE. 

Significant components of the provision for (benefit from) for income taxes are as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Current:
State	$	771		$	205		$	64
Foreign		171			345			96
		942			550			160
Deferred:
Federal		6,773			509			(1,968	)
State		1,097			769			(193	)
Foreign		(3,634	)		(1,618	)		(101	)
		4,236			(340	)		(2,262	)
Valuation allowance		(4,024	)		525			1,562
Income Tax Provision (Benefit)	$	1,154		$	735		$	(540	)

Income taxes payable as of December 31, 2012 and 2011 amounted to $0.5 million and $0.6 million, respectively, and were classified within “Accrued expenses” in the accompanying Consolidated Balance Sheets.

The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to income before income taxes as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010
Income tax expense (benefit) at the federal statutory rate	$	313		$	(1,153	)	$	(3,092	)
State income tax, net of federal tax benefit		1,233			643			(225	)
Foreign income taxes, net		578			(43	)		(372	)
Non-deductible stock-based compensation		2,550			398			2,254
Acquisition of SMB:LIVE		---			—			(702	)
Change in valuation allowance		(4,024	)		525			1,562
Other		504			365			35
	$	1,154		$	735		$	(540	)

The components of deferred income tax assets and liabilities are as follows (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Accrued expenses	$	1,912		$	850
Deferred rent		1,262			928
Vacation accrual		506			527
Intangible assets		404			965
State taxes		262			70
Allowance for doubtful accounts		105			148
Net operating loss carryforward		8,134			12,495
Gross deferred tax assets		12,585			15,983
Less: valuation allowance		(6,403	)		(10,427	)
Net deferred tax assets		6,182			5,556
Deferred tax liabilities:
Capitalized software		(4,024	)		(2,671	)
Depreciation		(2,555	)		(3,070	)
Net deferred tax liabilities	$	(397	)	$	(185	)

Net deferred tax liabilities are included in “Deferred rent and other liabilities” in the accompanying Consolidated Balance Sheets.

The following table summarizes the Company’s net operating loss carry-forwards as of December 31, 2012:

Net operating loss:	Balance at December 31, 2012 (in thousands)		Beginning Expiration Year
State	$	2,277	Various jurisdictions from 2020 to 2031
Foreign	$	25,756	Generally do not expire, but are subject to certain limitations

The federal NOL carryforwards per the income tax returns filed included unrecognized tax benefits taken in prior years.  According to the application of ASC 740, they are larger than the NOLs for which a deferred tax asset is recognized for financial statement purposes.

The Company evaluates its deferred tax assets on a quarterly basis to determine if a valuation allowance against its net deferred tax assets is required.   Realization of the Company’s deferred tax assets is dependent primarily on the generation of future taxable income.  In considering the need for a valuation allowance, the Company considers its historical, as well as, future projected taxable income, along with other positive and negative evidence in assessing the realizability of its deferred tax assets.  Due to the Company’s history of cumulative losses, the Company recorded a valuation allowance of $6.4 million and $10.4 million in 2012 and 2011, respectively. In 2012, the net valuation allowance decreased by $4.0 million, primarily due to the utilization of net operating losses in certain US and foreign jurisdictions.  In 2011 and 2010, the net valuation allowance increased by $3.0 million and $2.7 million, respectively, due in part to the generation of additional deferred tax assets associated with net operating losses in certain US and foreign jurisdictions.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries in the amount of $1.1 million that are essentially permanent in duration. This amount becomes taxable upon a repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

At December 31, 2012, the Company had gross unrecognized tax benefits of approximately $2.1 million. Of this total, approximately $0.1 million would affect the Company’s effective tax rate if recognized. The Company classifies liabilities for unrecognized tax benefits for which it does not anticipate payment or receipt of cash within one year in non-current other liabilities.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows (in thousands):

	December 31,
	2012		2011		2010
Unrecognized tax benefits – beginning balance	$	2,100	$	2,000	$	2,000
Gross increases – tax positions taken in prior period		—		100		—
Unrecognized tax benefits – ending balance	$	2,100	$	2,100	$	2,000

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.  Related to the unrecognized tax benefits noted above, the Company accrued no additional interest or penalties during 2012 and in total, as of December 31, 2012, has recognized a liability for interest and penalties of $ 0.1 million.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Company’s income tax returns since inception are open to examination by federal, state, and foreign tax authorities.

The Company does not expect significant changes to the unrecognized tax benefits in the next 12 months.

XML

Note 8 - Variable Interest Entities

12 Months Ended

Dec. 31, 2012

Variable Interest Entity [Text Block]

8. Variable Interest Entities

On July 6, 2012, the Company completed a transaction with OxataSMB, in which the Company entered into a franchise agreement with OxataSMB permitting it to operate and resell the Company’s services under the ReachLocal brand in Slovakia, Czech Republic, Hungary, Poland and Russia. Pursuant to the franchise agreement, OxataSMB will receive access to the RL platform, training, marketing and branding materials, media purchasing, campaign management and provisioning, sourcing of telephony, and technical support. The Company does not anticipate OxataSMB will pursue activities other than as a franchisee. In addition, the Company entered into a market development loan agreement with OxataSMB pursuant to which the Company agreed to provide financing to OxataSMB of up to €2.9 million ($3.7 million), of which €1.45 million ($1.9 million) has been advanced. The ability to draw down the remaining loan amount is dependent on OxataSMB achieving certain milestones by June 29, 2013, subject to a six-month extension at the Company’s option. The loan has a two-year term and accrues interest at 4% per annum, but does not require principal or interest payments for two years, and can be extended for an additional 24 months based on achievement of certain milestones. Prior to advance of the loan, OxataSMB had €1.45 million ($1.9 million) of contributed capital. As of December 31, 2012, OxataSMB had assets of less than $4 million and its results of operations since inception were not significant. In addition, the Company has an option to buy OxataSMB at an independently-determined fair value at the end of the initial loan term, subject to extension.

OxataSMB is considered a VIE with respect to the Company because OxataSMB may not have sufficient equity to finance its activities without additional financial support depending on its performance. At December 31, 2012, the Company was not the primary beneficiary of OxataSMB because it does not have: (1) the power to direct the activities that most significantly impact OxataSMB’s economic performance or (2) the obligation to absorb losses of OxataSMB or the right to receive benefits from OxataSMB that could potentially be significant. Therefore, the Company did not consolidate the results of OxataSMB and transactions with OxataSMB results were accounted for similarly to the Company’s resellers. The loan receivable is included in “Other assets” in the accompanying Consolidated Balance Sheet. As of December 31, 2012, the Company’s maximum exposure to loss related to the unconsolidated VIE consisted of its loan and accumulated interest receivable of $2.0 million and its contingent commitment to provide €1.45 million ($1.9 million) of additional debt financing. No allowance for loan losses has been recorded against the loan receivable.

XML

Note 11 - Stock-Based Compensation (Detail) - Summary of Stock Option's by Exercise Price Range (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	May 29, 2012	Dec. 31, 2011
Options Outstanding Weighted Average Exercise Price (in Shares)	7,052		6,411
Options Outstanding Weighted Average Remaining Contractual Life	4 years 292 days
Options Outstanding Weighted Average Exercise Price	$ 10.71	$ 16.71	$ 12.52
Options Vested and Exercisable Number (in Shares)	3,814
Options Vested and Exercisable Weighted Average Exercise Price	$ 10.54
Range 1 [Member]
Lower Range of Exercise Price	$ 0.00
Upper Range of Exercise Price	$ 5.00
Options Outstanding Weighted Average Exercise Price (in Shares)	374
Options Outstanding Weighted Average Remaining Contractual Life	3 years 248 days
Options Outstanding Weighted Average Exercise Price	$ 0.67
Options Vested and Exercisable Number (in Shares)	374
Options Vested and Exercisable Weighted Average Exercise Price	$ 0.67
Range 2 [Member]
Lower Range of Exercise Price	$ 5.01
Upper Range of Exercise Price	$ 10.00
Options Outstanding Weighted Average Exercise Price (in Shares)	1,824
Options Outstanding Weighted Average Remaining Contractual Life	5 years 346 days
Options Outstanding Weighted Average Exercise Price	$ 8.39
Options Vested and Exercisable Number (in Shares)	406
Options Vested and Exercisable Weighted Average Exercise Price	$ 9.08
Range 3 [Member]
Lower Range of Exercise Price	$ 10.01
Upper Range of Exercise Price	$ 15.00
Options Outstanding Weighted Average Exercise Price (in Shares)	4,482
Options Outstanding Weighted Average Remaining Contractual Life	4 years 98 days
Options Outstanding Weighted Average Exercise Price	$ 11.78
Options Vested and Exercisable Number (in Shares)	2,840
Options Vested and Exercisable Weighted Average Exercise Price	$ 11.46
Range 4 [Member]
Lower Range of Exercise Price	$ 15.01
Upper Range of Exercise Price	$ 20.00
Options Outstanding Weighted Average Exercise Price (in Shares)	219
Options Outstanding Weighted Average Remaining Contractual Life	6 years 36 days
Options Outstanding Weighted Average Exercise Price	$ 16.96
Options Vested and Exercisable Number (in Shares)	125
Options Vested and Exercisable Weighted Average Exercise Price	$ 17.07
Range 5 [Member]
Lower Range of Exercise Price	$ 20.01
Upper Range of Exercise Price	$ 25.00
Options Outstanding Weighted Average Exercise Price (in Shares)	127
Options Outstanding Weighted Average Remaining Contractual Life	5 years 47 days
Options Outstanding Weighted Average Exercise Price	$ 22.15
Options Vested and Exercisable Number (in Shares)	58
Options Vested and Exercisable Weighted Average Exercise Price	$ 22.15
Range 6 [Member]
Lower Range of Exercise Price	$ 25.01
Upper Range of Exercise Price	$ 30.00
Options Outstanding Weighted Average Exercise Price (in Shares)	26
Options Outstanding Weighted Average Remaining Contractual Life	5 years 116 days
Options Outstanding Weighted Average Exercise Price	$ 25.51
Options Vested and Exercisable Number (in Shares)	11
Options Vested and Exercisable Weighted Average Exercise Price	$ 25.51

XML

Note 6. Software Development Costs

12 Months Ended

Dec. 31, 2012

Research, Development, and Computer Software Disclosure [Text Block]

6. Software Development Costs

Capitalized software development costs consisted of the following (in thousands):

	December 31,
	2012			2011
Capitalized software development costs	$	31,944		$	21,686
Accumulated amortization		(17,240	)		(10,744	)
Capitalized software development costs, net	$	14,704		$	10,942

The Company recorded amortization expense of $6.5 million, $4.7 million and $2.6 million for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012 and 2011, $3.3 million and $1.2 million, respectively, of capitalized software development costs are related to projects still in development and are not being amortized.

XML

Note 7. Current Liabilities

12 Months Ended

Dec. 31, 2012

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

7. Current Liabilities

Accrued expenses consisted of the following (in thousands):

	December 31,
	2012		2011
Accrued compensation and benefits	$	14,558	$	9,880
Other		12,864		9,657
Total accrued expenses	$	27,422	$	19,537

Deferred revenue and other current liabilities consisted of the following (in thousands):

	December 31,
	2012		2011
Deferred revenue	$	34,142	$	28,624
Other		2,162		2,123
Total deferred revenue and other current liabilities	$	36,304	$	30,747

XML

Note 9 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Text Block]

9. Commitments and Contingencies

The Company leases office facilities under operating lease agreements that expire at various dates through 2021. The terms of the majority of the Company’s lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on a straight-line basis over the lease term.

Rental expense, principally for leased office space under operating lease commitments, was $11.4 million, $9.7 million and $6.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.

As of December 31, 2012, future minimum payments under cancelable and non-cancelable operating leases are as follows (in thousands):

Year Ended December 31,
2013	$	10,508
2014		8,655
2015		6,555
2016		4,886
2017		2,976
Thereafter		6,687
	$	40,267

Letters of Credit and Restricted Certificates of Deposit

As of December 31, 2012 and 2011, the Company maintained letters of credit totaling $1.2 million and $1.3 million, respectively, to secure its obligations under facility operating lease agreements. The letters of credit are collateralized by restricted certificates of deposit and automatically renew for successive one-year periods over the duration of the lease term. As of December 31, 2012 and 2011, the Company was required to maintain cash reserve balances of at least $1.2 million and $1.3 million, respectively, to secure these letters of credit. These amounts were classified as restricted certificates of deposit in the accompanying Consolidated Balance Sheets.

Litigation

The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, management believes that the final disposition of such matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. 

XML

Note 12 - Income Taxes (Detail) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Tax Expense (Benefit)	$ 1,154,000	$ 735,000	$ (540,000)
Accrued Income Taxes	500,000	600,000
Deferred Tax Assets, Valuation Allowance	6,403,000	10,427,000
Valuation Allowance, Deferred Tax Asset, Change in Amount	(4,000,000)	3,000,000	2,700,000
Undistributed Earnings of Foreign Subsidiaries	1,100,000
Unrecognized Tax Benefits, Period Increase (Decrease)	2,100,000
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	100,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	100,000
SMB:LIVE [Member]
Income Tax Expense (Benefit)			$ 700,000

XML

Note 12 - Income Taxes (Detail) - Components of Income Tax Provision (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current:
State	$ 771	$ 205	$ 64
Foreign	171	345	96
	942	550	160
Deferred:
Federal	6,773	509	(1,968)
State	1,097	769	(193)
Foreign	(3,634)	(1,618)	(101)
	4,236	(340)	(2,262)
Valuation allowance	(4,024)	525	1,562
Income Tax Provision (Benefit)	$ 1,154	$ 735	$ (540)

XML

Note 11 - Stock-Based Compensation (Detail) - Stock Based Compensation Expense, Net of Capitalization, Included in the Condensed Consolidated Statements of Operations (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Stock compensation, net of capitalization
Allocated stock-based compensation expense	$ 9,504	$ 8,538	$ 5,924
Cost of Sales [Member]
Stock compensation, net of capitalization
Allocated stock-based compensation expense	297	200	244
Selling and Marketing Expense [Member]
Stock compensation, net of capitalization
Allocated stock-based compensation expense	1,742	1,402	1,202
Product and Technology [Member]
Stock compensation, net of capitalization
Allocated stock-based compensation expense	1,204	1,387	1,104
General and Administrative Expense [Member]
Stock compensation, net of capitalization
Allocated stock-based compensation expense	$ 6,261	$ 5,549	$ 3,374

XML

Note 12 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block]

	Year Ended December 31,
	2012			2011			2010
United States	$	12,096		$	(1,689	)	$	(6,489	)
Foreign		(11,174	)		(1,702	)		(2,605	)
	$	922		$	(3,391	)	$	(9,094	)

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Year Ended December 31,
	2012			2011			2010
Current:
State	$	771		$	205		$	64
Foreign		171			345			96
		942			550			160
Deferred:
Federal		6,773			509			(1,968	)
State		1,097			769			(193	)
Foreign		(3,634	)		(1,618	)		(101	)
		4,236			(340	)		(2,262	)
Valuation allowance		(4,024	)		525			1,562
Income Tax Provision (Benefit)	$	1,154		$	735		$	(540	)

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Year Ended December 31,
	2012			2011			2010
Income tax expense (benefit) at the federal statutory rate	$	313		$	(1,153	)	$	(3,092	)
State income tax, net of federal tax benefit		1,233			643			(225	)
Foreign income taxes, net		578			(43	)		(372	)
Non-deductible stock-based compensation		2,550			398			2,254
Acquisition of SMB:LIVE		---			—			(702	)
Change in valuation allowance		(4,024	)		525			1,562
Other		504			365			35
	$	1,154		$	735		$	(540	)

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	December 31,
	2012			2011
Deferred tax assets:
Accrued expenses	$	1,912		$	850
Deferred rent		1,262			928
Vacation accrual		506			527
Intangible assets		404			965
State taxes		262			70
Allowance for doubtful accounts		105			148
Net operating loss carryforward		8,134			12,495
Gross deferred tax assets		12,585			15,983
Less: valuation allowance		(6,403	)		(10,427	)
Net deferred tax assets		6,182			5,556
Deferred tax liabilities:
Capitalized software		(4,024	)		(2,671	)
Depreciation		(2,555	)		(3,070	)
Net deferred tax liabilities	$	(397	)	$	(185	)

Summary of Operating Loss Carryforwards [Table Text Block]

Net operating loss:	Balance at December 31, 2012 (in thousands)		Beginning Expiration Year
State	$	2,277	Various jurisdictions from 2020 to 2031
Foreign	$	25,756	Generally do not expire, but are subject to certain limitations

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	December 31,
	2012		2011		2010
Unrecognized tax benefits – beginning balance	$	2,100	$	2,000	$	2,000
Gross increases – tax positions taken in prior period		—		100		—
Unrecognized tax benefits – ending balance	$	2,100	$	2,100	$	2,000

XML

Note 7. Current Liabilities (Detail) - Deferred revenue and other current liabilities (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deferred revenue	$ 34,142	$ 28,624
Other	2,162	2,123
Total deferred revenue and other current liabilities	$ 36,304	$ 30,747

XML

Note 14 - Segment Information

12 Months Ended

Dec. 31, 2012

Segment Reporting Disclosure [Text Block]

14. Segment Information

The Company operates in one operating segment. The Company’s chief operating decision maker (“CODM”) manages the Company’s operations on a consolidated basis for purposes of evaluating financial performance and allocating resources.

Revenue by geographic region with respect to the Direct Local channel and National Brands is based on the physical location of the sales office, and with respect to Agencies and Resellers, is based on the physical location of the agency or reseller. The following summarizes revenue by geographic region (in thousands):

	Year Ended December 31,
	2012		2011		2010
Revenue:
North America	$	327,521	$	289,249	$	241,696
International		127,833		85,992		49,993
	$	455,354	$	375,241	$	291,689
Long Lived Assets:
North America	$	6,395	$	8,159
International		4,671		4,757
	$	11,066	$	12,916

The results of the Australia geographic region have been included in the Company’s consolidated financial statements and include revenues of $72.6 million, $56.2 million, and $32.7 million in 2012, 2011 and 2010, respectively. Long-lived assets of the Australia geographic region were $1.7 million and $2.4 million at December 31, 2012 and 2011, respectively.

XML

Note 3 - Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

			Basis of Fair Value Measurement
	Balance at  December 31, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	92,336	$	92,336	$	—	$	—
Certificates of deposit	$	4,375	$	4,375	$	—	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 2011		Quoted Prices in Active Markets for Identical  Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
Cash and cash equivalents	$	84,525	$	84,525	$	—	$	—
Certificates of deposit	$	1,930	$	1,930	$	—	$	—

Schedule of Carrying Values and Estimated Fair Values of Debt Instruments [Table Text Block]

	December 31, 2012						December 31, 2011
			Assets						Assets
	Notional amount		Carrying amount (net)		Estimated fair value		Notional amount		Carrying amount (net)		Estimated fair value
Loan receivable	$	—	$	1,954	$	1,954	$	—	$	—	$	—

XML

Note 6. Software Development Costs (Detail) - Capitalized software development costs (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Capitalized software development costs	$ 31,944	$ 21,686
Accumulated amortization	(17,240)	(10,744)
Capitalized software development costs, net	$ 14,704	$ 10,942

XML

Note 3 - Fair Value of Financial Instruments (Detail) - Basis of Fair Value Measurement (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Cash and cash equivalents	$ 92,336	$ 84,525
Certificates of deposit	4,375	1,930
Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	92,336	84,525
Certificates of deposit	4,375	1,930
Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents	0	0
Certificates of deposit	0	0
Fair Value, Inputs, Level 3 [Member]
Cash and cash equivalents	0	0
Certificates of deposit	$ 0	$ 0

XML

Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Net loss	$ (232)	$ (10,341)	$ (11,398)
Other comprehensive loss:
Foreign currency translation adjustments	(1,247)	(282)	145
Other comprehensive loss	(1,247)	(282)	145
Comprehensive loss	$ (1,479)	$ (10,623)	$ (11,253)

XML

Note 3 - Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Text Block]

3. Fair Value of Financial Instruments

The Company applies the fair value hierarchy for financial instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, that are used to measure fair value:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following table summarizes the basis used to measure certain of the Company’s financial assets that are carried at fair value (in thousands):

			Basis of Fair Value Measurement
	Balance at  December 31, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	92,336	$	92,336	$	—	$	—
Certificates of deposit	$	4,375	$	4,375	$	—	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 2011		Quoted Prices in Active Markets for Identical  Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
Cash and cash equivalents	$	84,525	$	84,525	$	—	$	—
Certificates of deposit	$	1,930	$	1,930	$	—	$	—

The following table provides information about assets not carried at fair value in the Company’s Consolidated Balance Sheets (in thousands).

	December 31, 2012						December 31, 2011
			Assets						Assets
	Notional amount		Carrying amount (net)		Estimated fair value		Notional amount		Carrying amount (net)		Estimated fair value
Loan receivable	$	—	$	1,954	$	1,954	$	—	$	—	$	—

The OxataSMB B.V. (“OxataSMB”) loan receivable is not actively traded and its fair value is estimated based on valuation methodologies using current market interest rate data adjusted for inherent credit risk. See Note 8 for further information on the loan receivable.

XML

Note 11 - Stock-Based Compensation (Detail) - Summary of Vested and Unvested Options Activity (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended			12 Months Ended
	Jun. 30, 2012	May 29, 2012	May 19, 2010	Dec. 31, 2012
Outstanding at December 31, 2011				6,411,000
Outstanding at December 31, 2011 (in Dollars per share)				$ 12.52
Outstanding at December 31, 2012				7,052,000
Outstanding at December 31, 2012 (in Dollars per share)		$ 16.71		$ 10.71
Outstanding at December 31, 2012				4 years 292 days
Outstanding at December 31, 2012 (in Dollars)				$ 18,025
Vested and exercisable at December 31, 2012				3,814,000
Vested and exercisable at December 31, 2012 (in Dollars per share)				$ 10.54
Vested and exercisable at December 31, 2012				3 years 6 months
Vested and exercisable at December 31, 2012 (in Dollars)				10,321
Unvested at December 31, 2012, net of estimated forfeitures				3,046,000
Unvested at December 31, 2012, net of estimated forfeitures (in Dollars per share)				$ 10.90
Unvested at December 31, 2012, net of estimated forfeitures				6 years 73 days
Unvested at December 31, 2012, net of estimated forfeitures (in Dollars)				$ 7,339
Granted	555,750			2,632,000
Granted (in Dollars per share)		$ 13		$ 10.19
Exercised			(625,000)	(320,000)
Exercised (in Dollars per share)			$ 13.00	$ 5.57
Forfeited/Exchanged				(1,671,000)
Forfeited/Exchanged (in Dollars per share)				$ 17.82

XML

Note 12 - Income Taxes (Detail) - Summary of Net Operating Loss Carryforwards (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
State and Local Jurisdiction [Member]
Net operating loss balance	$ 2,277
Beginning expiration year	Various jurisdictions from 2020 to 2031
Foreign Tax Authority [Member]
Net operating loss balance	$ 25,756
Beginning expiration year	Generally do not expire, but are subject to certain limitations

XML

Note 4 - Acquisitions (Tables)

12 Months Ended

Dec. 31, 2012

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Assets acquired:
Intangible assets	$	2,550
Goodwill		317
Other		53
Total assets acquired		2,920
Liabilities assumed:
Deferred revenue		(20	)
Total fair value of net assets acquired	$	2,900

Assets acquired:
Intangible assets	$	2,080
Goodwill		7,648
Other		59
Total assets acquired		9,787
Liabilities assumed:
Accounts payable and accrued expenses		(221	)
Total fair value of net assets acquired	$	9,566

Assets acquired:
Intangible assets	$	2,300
Goodwill		1,730
Other		199
Total assets acquired		4,229
Liabilities assumed:
Accounts payable and other current liabilities		(770	)
Deferred tax liabilities		(702	)
Total fair value of net assets acquired	$	2,759

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Year Ending December 31,
2013	$	1,173
2014		853
2015		416
Total	$	2,442

XML

Note 16 - Quarterly Financial Information (Unaudited) (Detail) - Unaudited Quarterly Financial Information (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Revenue (in Dollars)	$ 120,248	$ 118,891	$ 112,212	$ 104,003	$ 99,802	$ 98,629	$ 92,752	$ 84,058	$ 455,354	$ 375,241	$ 291,689
Cost of revenue (in Dollars)	59,790	59,500	55,656	52,390	49,196	50,265	46,598	44,500	227,336	190,559	159,018
Income (loss) from continuing operations, net of income taxes (in Dollars)	(394)	836	332	(1,006)	151	(1,329)	(276)	(2,672)	(232)	(4,126)	(8,554)
Loss from discontinued operations, net of income taxes (in Dollars)					(1,495)	(3,272)	(673)	(775)		(6,215)	(2,844)
Net income (loss) (in Dollars)	$ (394)	$ 836	$ 332	$ (1,006)	$ (1,344)	$ (4,601)	$ (949)	$ (3,447)	$ (232)	$ (10,341)	$ (11,398)
Income (loss) per share from continuing operations, basic	$ (0.01)	$ 0.03	$ 0.01	$ (0.03)	$ 0.01	$ (0.05)	$ (0.01)	$ (0.09)	$ (0.01)	$ (0.14)	$ (0.43)
Loss per share from discontinued operations, basic					$ (0.05)	$ (0.11)	$ (0.02)	$ (0.03)		$ (0.21)	$ (0.14)
Net income (loss) per share, basic	$ (0.01)	$ 0.03	$ 0.01	$ (0.03)	$ (0.05)	$ (0.16)	$ (0.03)	$ (0.12)	$ (0.01)	$ (0.36)	$ (0.57)
Income (loss) per share from continuing operations, diluted	$ (0.01)	$ 0.03	$ 0.01	$ (0.03)	$ 0.01	$ (0.05)	$ (0.01)	$ (0.09)
Loss per share from discontinued operations, diluted					$ (0.05)	$ (0.11)	$ (0.02)	$ (0.03)
Net income (loss) per share, diluted	$ (0.01)	$ 0.03	$ 0.01	$ (0.03)	$ (0.05)	$ (0.16)	$ (0.03)	$ (0.12)

XML

Note 2 - Summary of Significant Accounting Policies (Detail) - Change in Allowance for Doubtful Accounts (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Allowance for doubtful accounts as of the beginning of the year	$ 363	$ 373	$ 142
Additions charged to expense	13	172	252
Write-offs	(117)	(182)	(21)
Allowance for doubtful accounts as of the end of the year	$ 259	$ 363	$ 373

XML

Note 13 - 401(k) Plan

12 Months Ended

Dec. 31, 2012

Pension and Other Postretirement Benefits Disclosure [Text Block]

13. 401(k) Plan

In February 2007, the Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan is available to all full-time employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company may contribute to the plan at the discretion of its board of directors. No contributions have been made to the plan during the years ended December 31, 2012, 2011 and 2010.