10-K

Table Of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-K

_________________

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015

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:

	Name of each
Title of each class	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)

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

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  ☒

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  ☒    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    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.  ☐

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

Large accelerated filer	☐	Accelerated filer	☐
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  ☒

As of June 30, 2015, the aggregate market value of the common stock held by non-affiliates of the registrant was $36,685,152 based on a closing price of $3.15 on the NASDAQ Global Market on such date.

Class	Outstanding at March 23, 2016
Common Stock, $0.00001 par value per share	30,070,750 shares

Documents Incorporated by Reference

Portions of the registrant’s Proxy Statement relating to the registrant’s 2016 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

REACHLOCAL, INC.

INDEX TO FORM 10-K

		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	26
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
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
Exhibit Index		58
Signatures		59

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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.”

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this 2015 Annual Report on Form 10-K. 

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, 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

ReachLocal’s mission is to provide more customers to local businesses. We began in 2004 with the goal of helping local businesses move their advertising spend from traditional media and yellow pages to online search. While we have sold to a variety of local businesses and will continue to do so, our present focus is on small to medium-sized businesses (SMBs) and in particular, what we refer to as Premium SMBs. A Premium SMB generally has 10 to 30 employees, $1 to $10 million in annual revenue and spends approximately $40,000 annually on marketing. Premium SMBs have become increasingly sophisticated in their understanding of online marketing. However, we believe that Premium SMBs have not changed their desire for a single, unified solution to their marketing needs. Our goal is to provide a total digital marketing solution that will address Premium SMBs’ online marketing needs. Our total digital marketing solution consists of products and solutions in three categories: digital advertising (including ReachSearch™, ReachDisplay™, ReachDisplay InApp^TM and ReachRetargeting™), web presence (including ReachSite+ReachEdge™, ReachSEO™, ReachCast™, ReachListings™, and TotalLiveChat™), and software (ReachEdge™ and Kickserv™).

We began by offering online advertising solutions with the rollout of ReachSearch in 2005, when we pioneered the provisioning of search engine marketing services (SEM) on a mass scale for local businesses through the use of our technology platform. ReachSearch combines search engine marketing optimized across multiple publishers, call tracking and call recording services, and industry leading campaign performance transparency. ReachSearch remains a leading SEM offering for local businesses and has won numerous awards since its rollout, including most recently winning Google’s Quality Score Champion Award in North America and Latin America. However, ReachSearch does not solve all of the online advertising challenges of our clients. We have therefore added additional elements to our platform including our display products, such as ReachDisplay and ReachDisplay InApp, our behavioral targeting product, ReachRetargeting, and other products that are primarily focused on leveraging third-party media to drive leads to our clients.

To complement our online advertising solutions, we have also launched a number of web presence solutions. These solutions include websites, search engine optimization (SEO), social, chat, listings and other products and solutions, all focused on expanding and leveraging our clients’ web presence. Often these products are designed to work in concert with our digital advertising products with a goal of enhancing the return to our clients. These products are generally available in North America and selectively available in our international markets.

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We also recognize that even successfully driving leads to our clients does not represent a complete solution to local businesses’ online marketing needs. In 2013 we expanded into lead conversion software with the introduction of ReachEdge in order to move beyond being a media-driven lead generation business to offering integrated solutions for our clients. ReachEdge is marketing automation and lead conversion software and includes tools for capturing web traffic information and converting leads into new customers. Initially, ReachEdge only came bundled with a responsive website. However, beginning in the first quarter of 2015, clients have been able to license ReachEdge’s lead conversion software without having to also purchase a website, allowing us to sell ReachEdge to local businesses who do not need a new website or who purchase their website from another provider.

Over time, we plan to add additional dynamic optimization functionality to ReachEdge, as well as features that create a more seamless relationship between our clients and their customers. For example, in the fourth quarter of 2014, we acquired Kickserv, a provider of cloud-based business management software for service businesses. With this addition, we have the ability to provide an end-to-end solution to our clients that starts with lead generation (ReachSearch, ReachDisplay and ReachSEO), includes lead conversion software (ReachEdge), and then closes and manages the business relationship (Kickserv). Local businesses already spend marketing dollars in these categories with a significant number of providers in a highly fragmented and confusing marketplace. Our integrated total marketing solution seeks to address this broad array of business needs with a simple integrated solution.

In North America, we sell our products and solutions directly, principally through our outside sales force and in certain situations, an inside sales force, in what we refer to as our Direct Local channel. Our sales personnel (primarily referred to as Digital Marketing Consultants or DMCs) both generate the sale and manage the client relationship. Each DMC is paired with a Marketing Expert (or ME) who provides day-to-day campaign management. We believe that this approach enables the DMC to focus primarily on selling and managing client relationships, while the client benefits from the support and expertise of dedicated MEs. We also have certain veteran salespeople that we refer to as IMCs who have more discretion to manage their client relationships and campaigns. Our international markets generally operate under a modified version of the North American model, suited for local market and product availability differences.

We refer to our separate sales channel targeting national brands, franchises and strategic accounts with operations in multiple local markets, and select third-party agencies and resellers, as our NBAR channel. The sales process for the NBAR channel typically has substantially longer lead times than in our Direct Local channel. In addition, national brand clients often involve complex operational and marketing requirements that are not typically required by our Direct Local clients. Our third-party agencies and reseller partners use our technology platform in customer segments where they have sales forces with established relationships with their client bases. We currently have over 350 agencies and resellers actively selling on our technology 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.

During the third quarter of 2015 we introduced our Web Partner Program, under which we distribute ReachEdge through third-party web developers. We are focusing on potential partners that typically have client bases ranging from 200 to 2,000 clients. By distributing ReachEdge with their platforms, Web Partners can deliver value to their clients while also earning an additional revenue stream. We believe that our Web Partner Program can increase our sales force’s productivity by giving our sales people easier access to potential new clients.

In addition to the United States and Canada, we have sales operations in Australia, New Zealand, Japan, Germany, the Netherlands, Austria, Brazil and Mexico. We exited direct sales in the United Kingdom market in the fourth quarter of 2015 when our local subsidiary ReachLocal UK Ltd. entered administration. We continue to review our operations in order to rationalize those that are underperforming and to optimize operations in our other markets.

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Industry Overview

Over the past decade, the market for online marketing services for SMBs and other local businesses has undergone rapid and fundamental changes. The delivery and consumption of local online marketing services, like all media, has become fragmented and digitized. Consumers are searching on Google and Bing, checking reviews on Yelp and Citysearch, asking friends for their opinions on Facebook and Twitter, and doing it increasingly on mobile. Accordingly, for SMBs to prosper in this evolving world, they need to possess a tool kit that enables them to reach and interact with consumers in the same manner that consumers are seeking their services. 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 local businesses need to follow their customers and move an increasing portion of their marketing efforts and spend online. Accordingly, we believe that the market opportunity is huge and as we expand our product suite we will further differentiate our company from competitors. 

The ReachLocal Solution

We provide local businesses with a suite of products that are optimized for their needs. Our products are designed to work the way that local businesses—and in particular, SMBs—work. They are easy to use, value-added, “do-it-for-me” solutions that leverage our technology and service platforms to enable our clients to acquire, transact with and retain customers. While we have sold to a wide variety of local businesses and will continue to do so, we target what we refer to as the Premium SMB. A Premium SMB generally has 10 to 30 employees, $1 to $10 million in annual revenue and spends approximately $40,000 annually on marketing. In addition, we focus on certain core verticals, which include Home Services (such as plumbers), Professional Services (such as lawyers and accountants), Specialty Services (such as travel agents) and Healthcare (such as doctors and dentists). We also provide solutions to multi-location advertisers, such as franchises and other businesses that have multiple locations across a number of cities and states.

Our Products

We offer a comprehensive suite of online marketing and reporting solutions designed to deliver efficacy and insight to our clients.

Our products are organized into three categories: digital advertising, web presence and software:

Digital Advertising. Our digital advertising products are designed to drive customers to our clients in an efficient and cost-effective manner.
•	ReachSearch. Our award-winning ReachSearch is focused on ensuring 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. ReachSearch is optimized for local markets in each of our territories. ReachSearch accounted for 88%, 86% and 87% of our revenue during 2015, 2014 and 2013, respectively. As over one-third of searches are now being conducted through mobile devices (smartphones and tablets) we also provide mobile optimized websites to all of our clients that purchase ReachSearch. ReachSearch is available in all of our markets.
•	ReachDisplay. Our ReachDisplay products are primarily focused on maximizing the exposure for local businesses by displaying their ads on websites that, in the aggregate, reach an estimated 90% of the U.S. online audience. We offer a number of display advertising products across a wide variety of publishing partners, including multiple 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. In May 2015 we launched ReachDisplay InApp, which shows compelling, interactive ads to consumers using popular mobile apps when they are near our client’s business. ReachDisplay is available in most of our markets.
•	ReachRetargeting. Our ReachRetargeting 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 retargeting network, we can market to the target customer on behalf of that client. ReachRetargeting is available in most of our markets.
Web Presence. Our suite of web presence products are designed to enhance the profile of our clients on the Internet.
•	ReachSite + ReachEdge. Our ReachSite + ReachEdge solution provides a professionally designed, mobile-responsive web site optimized to enhance lead generation, paired with our ReachEdge lead conversion software. ReachSite +ReachEdge is available in North America, Australia, New Zealand and our European markets.
•	ReachCast. Our ReachCast solution was introduced in 2010 and combines a proprietary technology platform with an expert service team to help local businesses build and optimize their Web presence for the purpose of driving online search discovery, powering reputation management, and managing social media marketing. We substantially revamped this solution in 2014. ReachCast is available in North America.
•	ReachSEO. Our ReachSEO solution has historically been designed to boost the visibility of our ReachSite + ReachEdge clients on the top search engines, but beginning in 2016 will be available to clients in North America and certain of our international markets who do not use our website solution. ReachSEO is available in North America, Australia and New Zealand.
•	TotalLiveChat. Our TotalLiveChat widget gives our clients the ability to interact with new website visitors and collect their contact information so they can follow up with them later. TotalLiveChat is available in North America, Australia, New Zealand and our European markets.
•	ReachListings. Our ReachListings solution provides a managed local listings service that broadens our client’s online exposure in search engines and directories to help drive more traffic from local search. ReachListings is available in our US Market.

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Software. Our software products are designed to enable our clients to both easily assess the efficacy of their marketing efforts and to facilitate their interactions with their customers.
•	ReachEdge. In 2013, we introduced ReachEdge, our most important new product introduction to date. ReachEdge is a marketing automation platform that includes tools for capturing web traffic information and converting leads into new customers for our clients. With ReachEdge, we are working to solve the critical problem of lead capture and conversion, while also providing business insights such as marketing ROI. While we have generated tens of millions of leads for our clients during our history, with ReachEdge, we provide our clients with tools designed to significantly improve their conversion of leads to customers. ReachEdge manages the leads generated by our other products. For example, ReachEdge notifies our client of new leads in real time via text message, email or the ReachLocal mobile app, so that the client is able to follow up within minutes. ReachEdge also helps the client stay top-of-mind during the prospect’s decision-making process by using integrated marketing automation to send new prospects targeted emails and alerts to the client’s staff reminding them to follow up on each lead. ReachEdge also provides reports to show clients how many leads they are getting from each marketing source and other important business insights. ReachSite +ReachEdge is available in most of our markets.
•	Kickserv. Kickserv is cloud-based business management software for service businesses. Kickserv allows us to provide an end-to-end solution to our clients that starts with lead generation (ReachSearch, ReachDisplay and ReachSEO), includes lead conversion (ReachEdge), and then closes and manages the business relationship (Kickserv). Kickserv is available in North America.

Our Distribution Approach

Sales Organization

In 2006, we executed on a strategy to build the first pure-play online advertising sales force. Our approach to the market has gone through many iterations. Today, our sales personnel (primarily referred to as Digital Marketing Consultants or DMCs) both generate the sale and manage the client relationship. Each DMC is paired with a Marketing Expert (or ME), who provides day-to-day campaign management. We believe this approach enables the DMC to focus on selling and maintaining client relationships, while the client benefits from the support and expertise of dedicated MEs. We also have certain veteran salespeople that we refer to as IMCs who have more discretion to manage their client relationships and campaigns. In addition, we have a small inside sales force that we leverage in certain situations.

We employ a separate sales channel targeting national brands, franchises and strategic accounts with operations in multiple local markets and select third-party agencies and resellers. We refer to this as our NBAR channel. The sales process for the NBAR channel typically has substantially longer lead times than in our Direct Local channel. In addition, national brand clients often involve complex operational and marketing requirements that are not typically required by our Direct Local clients. Our third-party agencies and reseller partners use our technology platform in customer segments where they have sales forces with established relationships with their client bases. We currently have over 350 agencies and resellers actively selling on our technology 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.

During the third quarter of 2015 we introduced our Web Partner Program, under which we distribute ReachEdge through third-party web developers. We are focusing on potential partners that typically have client bases ranging from 200 to 2,000 clients. By distributing ReachEdge with their platforms, Web Partners can deliver value to their clients while also earning an additional revenue stream. We believe that our Web Partner Program can increase our sales force’s productivity by giving our sales people easier access to potential new clients.

Historically we focused on international expansion. Our first expansion was in Australia in 2006. We subsequently entered Europe (the United Kingdom, Germany, the Netherlands and Austria), Japan, Brazil, Mexico and New Zealand. During the fourth quarter of 2015 we exited the United Kingdom and continue to review our operations in order to rationalize our underperforming markets and optimize operations in our primary markets. We are transitioning to localized versions of our DMC sales models in our international markets.

Customer Service

Our customer service organization is responsible for providing ongoing support to our sales forces, clients and resellers, including technical assistance with the use of our platform, as well as providing product- and campaign-specific technical assistance and recommendations to our local business clients. Our Marketing Experts (or MEs) provide primary client support. 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. 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.

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Our Strategy

We believe that the market for online marketing solutions for local businesses is still in its early stages and the market is still highly fragmented, providing us with significant opportunities for growth. Our strategy for pursuing this opportunity includes the following key components:

• Great Products. We plan to offer our clients a total digital marketing system with lead conversion software at its core that shows them how their marketing is working and helps them more effectively turn leads into customers. Our software will be supported and enhanced by our core digital advertising solutions (search, display, retargeting, social media, in-app display) and our web presence solutions (websites, SEO, chat, listings). During 2016 we plan to continue to deliver new offerings and will focus on driving licenses of our software solutions to increase penetration, client engagement and client retention.

• Great Client Experience. We believe that our sales model enables us to build strong relationships with our clients. We continue to focus on taking a more proactive approach to client support in order to both increase client retention and improve our reputation. We also intend to leverage our DMCs to produce more client referrals.

• Great Reputation. If we build great products and provide great client experience, a great reputation will follow. Our reputation will be built on the way we sell and service our clients, and the strength of our products. It comes from doing the right thing for the client every time. We’re building a culture that thinks client-first in everything we do.

• Great Go-To-Market. We believe that optimizing our go-to-market model across products and markets is critical to our success. Our Direct Local Channel utilizes a consultative sales approach with local execution, but we believe that our Web Partner Program can increase our sales force’s productivity by giving our sales people easier access to potential new clients. We are also focused on strengthening our NBAR channel, which gives us access to different types of clients than our Direct Local Channel.

  Product and Technology Development and Technology Operations

We devote a substantial portion of our resources to developing new solutions and enhancing existing solutions, conducting product and quality assurance testing, and improving our core technology.  We have approximately 160 product and engineering professionals located in various locations primarily in the United States and India.

Our technology platform has been built to scale globally. We have a large number of customer facing services that reside in seven data centers spanning five countries, and we keep more than a 99.9% service availability. Our primary data center hardware is co-located in El Segundo, California. We also maintain smaller regional data centers, including redundant facilities at various locations to support our domestic and international operations. 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. Research and development expenses are included in product and technology expenses in the accompanying consolidated statements of operations. Our research and development expenses were $6.9 million, $15.5 million, and $9.5 million, during 2015, 2014 and 2013, respectively, and our capitalized software development costs were $10.1 million, $13.5 million, and $11.5 million during 2015, 2014 and 2013, respectively. We have also completed several acquisitions to accelerate our product paths, increase our core competencies and otherwise expand or accelerate various technology initiatives.

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 patents in certain foreign jurisdictions and 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.

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

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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.

We also participate actively in free and open-source software (FOSS) programs, which afford us opportunities to lead technology discussions in the industry and across leading technology conferences.

Clients

We currently primarily sell to SMB clients, national brands, agencies and resellers. No single client, national brand, agency or reseller represents more than 10% of our total consolidated revenue. 

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:
•	Online Publishers. 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 and digital publishing properties.

• Local SMB Marketing Providers. The market for internet marketing services is highly fragmented and there are a number of smaller companies which provide internet marketing services and may be able to offer such services at highly competitive prices.

• Vertical-Specific SMB Marketing Providers. Increasingly we compete with vertical-specific SMB marketing providers such as Dealer.com, Haystak Digital Marketing or Healthgrades, who offer solutions tailored for specific verticals that often include vertical-specific features that our products do not.

• SMB Marketing Technology Providers. We also compete with technology companies providing online marketing platforms focused on the SMB market such as Angie’s List, Groupon, Intuit, Web.com, Wix, GoDaddy and Yelp, and, in some cases, with significant direct sales forces.

• New Competitors in New Markets. With the expansion of our product suite that came with the introduction of our ReachEdge and ReachSite + ReachEdge solutions, and the acquisition of Kickserv, we will encounter new competitors. While we believe that there are no competitors that offer an integrated solution similar to ours, there are a number of companies that offer various related services, such as Hubspot, Web.com, Wix and Constant Contact, as well as smaller start-ups.

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. For more information about laws and regulations that affect us and our business, including privacy and data protection laws and regulations, see Item 1A. Risk Factors below.

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The Company

ReachLocal, Inc. was incorporated as a Delaware corporation in 2003. 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 Canada in 2008, Germany and the Netherlands in 2011, Japan and Brazil in 2012, Austria in 2013, and Mexico and New Zealand in 2014. We also entered the United Kingdom in 2008 and exited direct sales in the market in the fourth quarter of 2015 when our local subsidiary ReachLocal UK Ltd. entered administration. We also serve clients in certain other countries through our resellers.

For information about revenues from external customers and long-lived assets by geographic area, see Note 18 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Employees

At December 31, 2015, we had approximately 1,300 employees worldwide. Approximately 80 of our employees in Brazil were subject to a collective bargaining agreement. None of our other employees are subject to a collective bargaining agreement. 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, including declining revenue, 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 slowed over a number of years and in 2015 and 2014 our revenue declined 19.4% and 7.6%, respectively, as compared to the respective prior year. In addition, in the fourth quarter of 2015 we exited direct sales in the U.K. market, which represented 6.6% of 2015 revenue and we continue to review our international operations in order to rationalize our operations in underperforming markets. We are introducing products internationally, continuing to refine the structure of our sales force and introducing new go-to-market strategies, and developing new products to attempt to grow our business, but we cannot assure you that our strategy will be successful and that our revenue will not decline further. In particular, although our international salespeople historically were more productive than our North American salespeople, as those markets have matured, our international salespeople’s productivity has declined and may decline further, putting further pressure on our results of operations. As our revenues have declined we have reduced costs to maintain economic viability, but if revenues continue to decline, we may not be able to implement enough additional cost savings to sustain the business.

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 products and solutions, including, in particular, new subscription and software-as-a-service (SaaS) products;

• successfully executing new sales and go-to-market strategies and approaches, including the realignment of our North American sales force;

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• successfully entering new markets, domestically and internationally;

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

• competition from existing and new competitors, technologies, and products;

• reaching and maintaining profitability;

• maintaining compliance with debt covenants;

• acquiring additional capital, if necessary;

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

• effectively managing 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 the trading price of our common stock. 

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

At December 31, 2015, we had an accumulated deficit of approximately $136.1 million, and we may incur significant net operating losses in the future. Our cash and cash equivalents decreased from $43.7 million as of December 31, 2014 to $18.8 million as of December 31, 2015, which includes the amounts borrowed under our Loan and Security Agreement with Hercules Technology Growth Capital (the “Hercules Loan Agreement”) ($10 million of unrestricted cash) and pursuant to the 4.0% Convertible Second Lien Subordinated Notes issued to certain affiliates of VantagePoint Capital Partners (the “VantagePoint Notes”) ($5 million). Although we have significantly reduced, and are attempting to further reduce, our operating expenses, we may not be successful or our operating expenses may increase in the future as we expand our operations. In addition, our business strategy contemplates making substantial investments in new and existing products, which will require significant expenditures. If our expenses don’t decrease according to our plan or revenues are less than expected, we will not be profitable and our liquidity and financial condition will be adversely affected. We also expect that a variety of factors, including increased competition and the maturation of our business, may continue to put pressure on our revenue, and we cannot assure you that our revenue will not continue to decline. As a result, you should not consider our historical revenue performance as indicative of our future performance.

Our Hercules Loan Agreement and VantagePoint Notes contain operating and financial covenants that may restrict our business and financing activities.

Borrowings under the Hercules Loan Agreement are secured by substantially all of our assets. The Hercules Loan Agreement includes certain affirmative and negative covenants applicable to us and our subsidiaries which are co-borrowers under the loan, and in certain cases, to all of our subsidiaries. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on investments in and cash held at foreign subsidiaries, transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions. We are also required to maintain minimum cash and cash equivalents in accounts subject to a control agreement with Hercules, as administrative agent, in an amount equal to $15.0 million (which decreases to $12.5 million under certain circumstances) at all times. The term loan is secured by substantially all of our personal property, including our intellectual property.

In addition, the Hercules Loan Agreement requires performance within certain trailing-three-month revenue and adjusted EBITDA targets, computed on a monthly basis. The operating and financial restrictions and covenants in the Loan Agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. During 2015 we entered into several amendments to the Hercules Loan Agreement that allowed us to maintain compliance with the term loan’s covenants, including an amendment on August 3, 2015 to reduce the term loan’s covenant thresholds for revenue for the months ending September 30, 2015 through December 31, 2015, and an amendment on November 9, 2015, to waive compliance with the term loan’s revenue and earnings covenant thresholds for November and December 2015. In connection with the November amendment, we paid Hercules a one-time fee of $0.2 million, reset the schedule of prepayment fees, and agreed to amend the Hercules warrant to lower the exercise price and increase the number of shares subject to it. A breach of any of the Hercules Loan Agreement covenants could result in a default under the Hercules Loan Agreement, which could cause all of the outstanding indebtedness under the term loan to become immediately due and payable and Hercules could exercise remedies against the collateral securing the term loan, including our cash, or could result in the interest-only extension period being unavailable to us.

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The VantagePoint Notes also include events of default, including any event of default under the Hercules Loan Agreement.

If we are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either when they mature or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to continue as a going concern.

We cannot be certain that the significant steps that we have taken to strengthen our North American market will work.

Commencing in the fourth quarter of 2013, we realigned our sales infrastructure in North America, which we believe significantly contributed to our 2014 and 2015 revenue declines. In 2015, we further refined the structure of our sales force to combine the best elements of our original sales model and our more recent sales model. We believe the current North American sales model is superior to the prior model, but we cannot be certain that this continued evolution will slow the declines and ultimately return our North American operations to growth.

We depend on key personnel to operate our business, and our workforce has undergone significant disruption which may adversely affect performance and tenure.

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.

2014 and 2015 were very difficult years for our business. Our operating and stock price performance have resulted in a drop in morale within our work force. While we have taken reasonable steps to ensure that our key people are adequately incented to stay with the company, we cannot be certain that such incentives will be sufficient to keep our top performers.

Volatility or lack of performance in our stock price and limitations imposed by the size of our equity plan may also affect our ability to attract and retain our key employees. In addition, as some of our executive officers become vested in a substantial amount of stock or stock options, if our stock price appreciates significantly they may be more likely to leave us as their equity holdings become valuable.

Our product roadmap relies on developing a total marketing solution, which is a somewhat untested product concept that may not gain market acceptance or may not perform as we intend.

ReachEdge, our lead conversion software, is our initial step towards our goal of offering a total marketing solution. In addition, during the fourth quarter of 2014 we acquired Kickserv, a business management platform for service businesses that we are beginning to integrate with ReachEdge. The success of this new product strategy is subject to numerous risks and uncertainties, such as uncertain customer acceptance, the difficulties of designing a complex software product, integrating our software products with our existing technology and third-party service providers, training our salespeople to sell software products, and gaining market acceptance. We are also still developing our go-to market strategy for our software business, which has different requirements than our traditional media business. Because our software products are complex and incorporate a variety of proprietary and third-party software, they 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. In addition, our customers may use our software products in unanticipated ways that may cause a disruption in service for other customers attempting to access their data. Since our customers may use this product for important aspects of their business, such as lead generation, lead management, scheduling, and other services, 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. In addition, our total marketing solution is a relatively new solution for the marketplace and, therefore, wide market acceptance cannot be assured. Substantial components of our software products may be outsourced to third parties. While we believe that our relationships with these third parties are sound, if one of those relationships were to deteriorate, our ability to sell and maintain our software products could be substantially degraded.

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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.

Most 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 Clients. 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 local businesses through an online self-service option. In addition, Google has continued to expand its partner program, which we believe has attracted additional competitors to enter our market. 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 technology 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 and/or avoid providing Google-dependent services to certain types of clients. For example, each of our media products includes TotalTrack, a tracking service powered by our proprietary reverse proxy technology and tracking code. 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. During 2014, we entered into a new global agreement with Google that provides rebates based on overall global growth of our spending with Google. We amended the terms of our Google agreement in December 2015, and during the fourth quarter of 2015 we earned a rebate well in excess of the amount we have received in recent quarters. The December 2015 amendment only applies through the end of 2016 and we can provide no assurance that we will qualify for rebates under the current Google agreement or otherwise in the future. Even if we earn rebates from Google in the future, the agreement is subject to broad mutual termination rights and there is no assurance of renewal. Termination or nonrenewal of the Google agreement would negatively affect our cost of revenue materially.

In addition, any new developments or rumors of developments regarding Google’s business practices that affect the local online advertising industry may adversely affect our products or create perceptions with our customers or investors that our ability to compete has been impaired. For instance, beginning in February 2016, Google began changing where and how ads are shown next to search results, potentially significantly reducing the number of ad impressions available to advertisers, including our clients.

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

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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, which may adversely impact our margins 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. In particular, some of our competitors offer products similar to ours at a lower price, putting pressure on us to lower our prices or lose clients.

Our competitors include:
•	Internet Online Publishers. 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 and digital publishing properties.

• Local SMB Marketing Providers. The market for internet marketing services is highly fragmented and there are a number of smaller companies which provide internet marketing services and offer such services at highly competitive prices. Many of these partners also participate in publisher partner programs, which allows them to compete with us more effectively.

• SMB Marketing Technology Providers. We also compete with technology companies providing online marketing platforms focused on the SMB market such as Angie’s List, Groupon, Intuit, Web.com, Wix, and Yelp, and, in some cases, building significant direct sales forces.

• New Competitors in New Markets. In late 2013 we launched ReachEdge, our lead conversion software-as-a-service, or SaaS, product, and in late 2014, we acquired Kickserv, business management software for service businesses. We are also developing other new subscription and SaaS products designed to provide SMBs additional 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 salespeople hiring targets. 

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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 than 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 and solutions.

We invest in the development of new products and solutions 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 solutions that address new segments of local companies’ marketing activities. We are also developing subscription and SaaS products, such as ReachEdge and Kickserv, 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, including providing integrated solutions to our clients. Our ability to develop and launch new products on our expected timelines, or at all, is subject to numerous risks and uncertainties, such as our decreased product and technology spending, 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 salespeople 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 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. The Hercules Loan Agreement restricts our ability to obtain additional capital without Hercules’ consent or payment in full. 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 would have an adverse effect on our business, operating results and financial condition.

Client dissatisfaction with our products, complaints, negative publicity or litigation related to our sales tactics, customer service or other business practices could adversely affect our reputation and brand.

Client dissatisfaction with our products, client complaints or negative publicity, including third-party media outlets, about our products, technology, personnel or customer service, could severely diminish confidence in and the use of our products. Our products, as well as those of our competitors, are regularly reviewed, and those reviews are regularly shared, by our clients. Negative reviews, or reviews in which our competitors’ products are rated more highly than ours, could negatively affect our brand and reputation. From time to time, our clients have expressed dissatisfaction, including dissatisfaction with our customer service, our sales and billing practices and the way our products perform. If we do not handle client complaints effectively, or otherwise adequately address clients’ concerns, our brand and reputation may suffer, we may lose our clients’ confidence and they may choose to stop working with us. For example, we experienced negative publicity in the United Kingdom, which adversely impacted our business in that region and contributed to our decision to exit the market in 2015. We have also faced legal claims regarding our business practices in both the United Kingdom and the United States and may face additional claims in the future. Complaints, negative publicity or legal claims related to our products, our sales tactics or our customer service could materially and adversely impact our reputation and brand, as well as our business, financial condition and results of operations.

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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, Canada, Germany, the Netherlands, Japan, Brazil, Austria and Mexico, and campaign support services in India. Revenue from international operations outside North America accounted for 34.9%, 38.3% and 33.5% of total revenue for the years ended December 31, 2015, 2014 and 2013, respectively. We exited the United Kingdom market in the fourth quarter of 2015 and continue to review our international operations in order to rationalize our operations in overseas markets we determine to be underperforming and to optimize operations in our primary markets. We may continue to incur losses or 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;

• 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 salespeople;

• 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.

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Failure to adequately recruit, train and retain our salespeople would impede our strategy 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 the size and effectiveness of our direct sales force. During 2015, we refined the structure of our North American sales force to combine the best elements of our original sales model and our 2014 sales model. In addition, we are now standardizing our international sales models to use localized versions of our North American sales model. However, if many of our salespeople do not perform well in their new roles, or are unhappy with the new structure, we may experience greater than anticipated attrition. If our salespeople attrition is greater than anticipated, our business will be harmed. We also have certain long-tenured salespeople with significant client bases and losses of one or more of them would negatively impact our business. 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, and hiring salespeople may be more difficult than it has been historically. 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 salespeople, 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 has been to enter new international markets through franchise or reseller arrangements, but that strategy is subject to risks.

As we expand into other international markets, in addition to entering markets directly, we may enter through a franchisee or a reseller (as we did in New Zealand and Eastern Europe and are currently operating in Singapore). The success of this 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.  For example, 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 and €0.92 million ($1.2 million) was advanced in August 2013. The OxataSMB operations did not perform as contemplated, and as a result, the Company recorded a $3.3 million impairment of the loan receivable and related interest from OxataSMB and a $1.6 million provision for bad debt related to the trade receivable from OxataSMB. Ultimately we terminated OxataSMB’s franchise agreement in the fourth quarter of 2014 and have not been repaid any amounts under the loan.

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 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 niches, or via 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.

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.

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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). For example, the strengthening of the U.S. dollar against the foreign currencies in which we do business resulted in a reduction in 2015 revenue of $25.9 million, principally driven by a 16% reduction in the average value of the Australian dollar relative to the prior year. As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations. In addition, approximately 30% 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. We continue to review potential hedging strategies that may reduce the effect of fluctuating currency rates on our business, but there can be no assurances that we will implement such a hedging strategy or that once implemented, such a strategy would accomplish our objectives or not result in losses.

If we fail to stabilize our client base, our business, financial condition and operating results will be adversely affected.

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 technology platform and existing clients of the continuing value of our products and services. As the online media options for SMBs have proliferated and our sales force has shrunk, our number of Active Clients has fallen from 23,900 as of December 31, 2013 to 20,800 as of December 31, 2014 and 17,500 as of December 31, 2015. We cannot assure you that we will be successful in maintaining or expanding our client base in the future. 

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 cancel soon after completing their initial contract terms and some cancel early. We must continually add new clients both to replace clients who choose to cancel or not to renew their advertising campaigns and to grow our business beyond our current client base. A client’s decision to cancel or 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 them, our sales may suffer and it may contribute to further revenue declines.

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.

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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 salespeople hiring;

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

• the timing and stage of product and technology development;

• our ability to develop, introduce and manage SaaS 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.

Our expense reduction initiatives may place significant demands on our management and our infrastructure.

We have experienced substantial growth in the size and complexity of our business. This growth has placed significant demands on our management and our operational and financial infrastructure. However, during the past few years we have implemented a number of expense reduction initiatives, which may make it more difficult for us to continue to maintain, improve and upgrade our systems and infrastructure. Expense constraints 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. 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.

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 Our ability to introduce new solutions and features is dependent on adequate research and development resources. If we do not adequately fund our research and development efforts, we may not be able to compete effectively and our business and operating results may be harmed.

To remain competitive, we must continue to develop new solutions, features and enhancements to our marketing system. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential. If we are unable to develop our solutions internally due to certain constraints, such as high employee turnover, lack of management ability or a lack of other research and development resources, we may miss market opportunities. Further, many of our competitors expend a considerably greater amount of funds on their research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors’ research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors could materially adversely affect our business.

Our ability to deliver our products depends upon the quality, availability, policies and prices of certain third-party service providers.

We rely on third parties to provide technology and services that are integrated into our solutions. Examples include our call tracking and recording services, and certain aspects of our software products. In certain geographies, we rely on a single service provider for some of these services. In the event the provider were to terminate our relationship or stop providing these services, our ability to provide the affected products 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. 

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.

We rely on a number of financial services providers, both domestically and internationally, for banking, payment processing and other financial transaction support and any interruption in the services provided by these institutions could harm our ability to operate our business.

We rely on a number of financial services providers, both domestically and internationally, for banking, payment processing and other financial transaction support. If one or more of our financial services providers reduces some or all of the services available to us due to our financial position or otherwise, it could significantly harm our business by requiring us to change current processes to less efficient models or expend considerable resources to migrate to a different provider. For example, during the first quarter of 2016, one of our primary banking partners reduced the services available to us and one of our primary payment processors gave us notice of their intent to terminate the relationship. We have been in discussions with alternate financial service providers and believe that we will not have an interruption of service, but if no alternative financial service provider is available or we cannot migrate in time, we could have difficulty collecting payments from our clients or could fail to remain in compliance with the covenants under our Hercules Loan Agreement.

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Rapid technological changes may render our lead generation and conversion 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 technology 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 technology 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 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.

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. For example, the OxataSMB operations did not perform as contemplated, and as a result, at December 31, 2013, the Company recorded a $3.3 million impairment of the OxataSMB loan receivable and related interest and a $1.6 million provision for bad debt related to a trade receivable from OxataSMB. In addition, strategic investments 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.

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 effect on our operating results and financial condition.

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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.

We provide services to clients in regulated industries (such as healthcare, financial and legal) in the United States and internationally. Clients in these regulated industries often have additional country-specific statutory and customer-specific contractual requirements. If we are not able to meet these changing requirements we could face litigation and could lose customers in those industries.

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 results of operations. 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, MasterCard’s Site Data Protection standard, and American Express’ Data Security Operating Policy and Discover Information Security & Compliance (DISC) program. 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 have not historically collected, or had 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, sales of our ReachEdge and Kickserv products are taxable in many state, local, and foreign jurisdictions, of which one or more may seek to impose additional 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.

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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.

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.

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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. 

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 technology 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 a client that the consumer has previously visited.

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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.

We have in the past relied on adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU Safe Harbor Framework, which established a means for legitimating the transfer of personally identifiable information by U.S. companies doing business in Europe from the European Economic Area to the U.S. As a result of the October 6, 2015 European Union Court of Justice, or ECJ, opinion in the Schrems v. Data Protection Commissioner case, the U.S. – EU Safe Harbor Framework is no longer deemed to be a valid method of compliance with restrictions set forth in the Data Protection Directive (and member states’ implementations thereof) regarding the transfer of data outside of the EEA. We are currently relying on other methods to our customers to enable compliant data transfers from the EEA to the U.S. and are monitoring further developments in this area.

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 clients 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.

 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.

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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—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.”

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 $0.55. In addition, at times during the past year, trading volumes have declined substantially as compared to earlier periods. 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;

• our capital and liquidity position and ability to access additional capital, if necessary;

• 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;

• 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.

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

As of March 23, 2016, approximately 55% of our common stock is held by our directors, officers and entities affiliated with our directors, including approximately 43% beneficially owned by VantagePoint Capital Partners (including approximately 450,000 shares issuable upon conversion of the VantagePoint Notes) and approximately 9% beneficially owned by Rho Ventures. 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 either VantagePoint or Rho Ventures decides to exit its investment in us, it could negatively impact the price of our common stock. During February and March of 2014, Rho Ventures sold an aggregate of approximately 187,000 shares of our common stock.

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, 2015, approximately 6.9 million shares subject to outstanding options and RSUs under our 2004 Stock Plan, our Amended and Restated 2008 Stock Incentive Plan and inducement awards, are potentially eligible for sale in the public market in the future. 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. The number of analysts covering our company has decreased from a maximum of nine to two currently and 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.

   If we are unable to continue to comply with the NASDAQ Global Select Market’s continued listing requirements, our common stock may be delisted from the NASDAQ Global Select Market, which could have an adverse effect on the liquidity and market price of such shares.

NASDAQ’s continued listing requirements require, among other requirements, that we maintain at least $15 million of public float and that the minimum bid price of our common stock not fall below $1.00 per share for 30 consecutive business days. Although as of March 23, 2016, we are in compliance with NASDAQ’s continued listing requirements, our public float fell below $15 million in December 2015 and our common stock has traded below $1.00 in the recent past. If we fail to meet either of these requirements, or others, for more than 30 consecutive trading days, we will have 180 days to satisfy such requirement for a period of at least 10 trading days. If we fail to regain compliance during such period, we could be subject to delisting from the NASDAQ Global Select Market.

If we fail to maintain our listing on the NASDAQ Global Select Market, the market liquidity and market price of our common stock will be harmed. If the stock were to trade it would likely trade on the OTC “pink sheets,” which provide significantly less liquidity than does NASDAQ. As a result, the liquidity of our common stock would be impaired, not only in the number of shares which could be bought and sold, but also through delays in the timing of transactions, reduction in security analysts’ and news media’s coverage, and lower prices for our common stock than might otherwise be attained. In addition, our common stock would become subject to the low-priced security or so-called “penny stock” rules that impose additional sales practice requirements on broker-dealers who sell such securities.

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 March 23, 2016, VantagePoint Capital Partners, one of our early venture capital investors, beneficially owned approximately 43% of our outstanding common stock (including approximately 450,000 shares issuable upon conversion of the VantagePoint Notes). 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 VantagePoint, serves as a member of our board of directors.

As of March 23, 2016, our current directors and executive officers as a group beneficially owned approximately 55% of our outstanding common stock.

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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 66 ²/3% 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.

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 and 90,000 square feet for our corporate and sales offices in Woodland Hills, California, and in Plano, Texas, respectively. We also have over 65 leases for sales offices, support facilities and data centers in other locations in North America and overseas.

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Item 3. Legal Proceedings.

From time to time, we are involved in legal proceedings arising in the ordinary course of our business.

North America

On May 2, 2014, a lawsuit, purporting to be a class action, was filed by one of our former clients in the United States District Court in Los Angeles. The complaint alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of California’s unfair competition law. The complaint sought monetary damages, restitution and attorneys’ fees. We filed a motion to dismiss on June 20, 2014, which was denied on December 4, 2014. On February 5, 2016, we entered into a confidential settlement agreement and release with plaintiffs to settle all of their claims. The settlement was not material to our consolidated financial position, results of operations or cash flows.

Europe

Over the past two years, our United Kingdom subsidiary (“RL UK”), has been involved in a number of disputes with former clients that allege RL UK made misrepresentations in connection with sales to those clients. We resolved a number of these disputes in 2014. On June 15, 2015, one former RL UK client filed a lawsuit in the High Court of Justice alleging fraudulent misrepresentations and breach of contract. Our insurance carrier provided a defense under a reservation of rights. On December 16, 2015, RL UK entered administration, to allow for an orderly exit from the market and as a result, any claims against RL UK are stayed, pending the outcome of the administration. Upon entering administration, we no longer held a controlling interest, and therefore deconsolidated the subsidiary.

Item 4. Mine Safety Disclosures.

Not applicable.  

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.

	2014				2015
	High		Low		High		Low
First quarter	$	14.27	$	9.70	$	3.62		2.82
Second quarter	$	10.59	$	5.87	$	3.50		2.64
Third quarter	$	7.65	$	3.60	$	3.18		2.01
Fourth quarter	$	4.67	$	3.08	$	2.35		0.55

At March 23, 2016, we had 24 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, and share repurchases, 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.

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      The following graph compares, for the period from December 31, 2010 through December 31, 2015, 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:

*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.

	12/10		12/11		12/12		12/13		12/14		12/15
ReachLocal, Inc.		100.00		31.04		64.84		63.84		17.28		8.29
NASDAQ Composite		100.00		100.53		116.92		166.19		188.78		199.95
RDG Internet Composite		100.00		102.11		122.23		199.42		195.42		267.25

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Recent Sales of Unregistered Securities

On December 17, 2015, we entered into a convertible note purchase agreement with affiliates of our largest shareholder, VantagePoint Capital Partners (“VantagePoint”), for the immediate issuance of $5.0 million of Convertible Second Lien Subordinated Notes (the “VantagePoint Notes”). The note purchase agreement also provides for the issuance and sale of up to an additional $5.0 million aggregate principal amount of convertible notes, upon mutual agreement of ReachLocal and VantagePoint (and Hercules’ consent). The VantagePoint Notes bear an annual interest rate of 4%, compounded quarterly. ReachLocal is required to begin making quarterly interest and principal payments on April 15, 2017, subject to a subordination agreement with Hercules. The VantagePoint Notes mature on April 15, 2018, and all remaining principal payments and unpaid interest is due at that time. The holders of the VantagePoint Notes have the right to convert any portion of the VantagePoint Notes into shares of ReachLocal common stock, par value $0.00001 per share, at an initial conversion rate of 200 shares of common stock per $1,000 principal amount of VantagePoint Notes, which represents an initial conversion price of $5.00 per share. The conversion rate is subject to customary anti-dilution adjustments for stock dividends, splits and combinations, certain distributions on the common stock, including cash dividends, spin-offs and certain tender or exchange offers for the common stock. An event of default, as defined in the agreement, may result in the acceleration of the maturity of the notes.

On February 4, 2016, we entered into an amendment to the VantagePoint Notes. The amendment provides that, except in certain circumstances, the convertibility of the VantagePoint Notes is limited such that conversion may not result in the holders collectively acquiring beneficial ownership of more than 1.9% of our outstanding shares of common stock during any 12-month period.

VantagePoint and its affiliates beneficially own approximately 43% of ReachLocal’s common stock immediately after the issuance of $5.0 million principal amount of the Convertible Notes, and VantagePoint’s Chief Executive Officer and Managing Partner, is a member of ReachLocal’s Board of Directors.

Common Stock Repurchases

The Company’s Board of Directors previously authorized the repurchase of up to $47.0 million of our outstanding common stock. At December 31, 2013, the Company had executed repurchases of 3.4 million shares of its common stock under the program for an aggregate of $36.3 million. There were no repurchases under the program during 2014 or 2015. On April 29, 2015, the Board of Directors terminated the Company’s repurchase program.

The Company is deemed to repurchase common stock surrendered by participants to cover tax withholding obligations with respect to the vesting of restricted stock and restricted stock units.

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, 2015, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015 and 2014 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, 2012 and 2011 and the consolidated balance sheet data as of December 31, 2013, 2012 and 2011 are derived from our audited consolidated financial statements not included in this report. In addition, as a result of the disposal of our ClubLocal business and the winding down of the operations of Bizzy, we have reclassified and presented all 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.

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	Years Ended December 31,
	2015			2014			2013			2012			2011
(in thousands, except per share data)
Consolidated Statements of Operations:
Revenue	$	382,597		$	474,921		$	514,070		$	454,957		$	375,241
Cost of revenue (1)		213,409			252,721			256,450			226,482			190,559
Operating expenses:
Selling and marketing (1)		126,966			182,720			182,854			164,168			139,929
Product and technology (1)		28,414			27,510			22,240			18,980			15,602
General and administrative (1)		39,332			52,155			46,362			40,378			33,470
Restructuring charges		7,546			5,927			—			—			—
Impairment of goodwill		27,800			—			—			—			—
Total operating expenses		230,058			268,312			251,456			223,526			189,001
Operating income (loss)		(60,870	)		(46,112	)		6,164			4,949			(4,319	)
Gain on deconsolidation of subsidiary, net		2,853			—			—			—			—
Interest expense		(2,790	)		(67	)		(14	)		(60	)		(37	)
Other income (expense), net		(339	)		1,003			600			616			965
Income (loss) from continuing operations before income taxes		(61,146	)		(45,176	)		6,750			5,505			(3,391	)
Income tax provision		369			484			3,699			1,340			735
Income (loss) from continuing operations		(61,515	)		(45,660	)		3,051			4,165			(4,126	)
Income (loss) from discontinued operations, net of income taxes		—			650			(5,534	)		(4,397	)		(6,215	)
Net loss	$	(61,515	)	$	(45,010	)	$	(2,483	)	$	(232	)	$	(10,341	)
Net income (loss) per share:
Basic:
Income (loss) from continuing operations (2)	$	(2.11	)	$	(1.60	)	$	0.11		$	0.15		$	(0.14	)
Income (loss) from discontinued operations, net of income taxes		—			0.02			(0.20	)		(0.16	)		(0.22	)
Net loss per share	$	(2.11	)	$	(1.58	)	$	(0.09	)	$	(0.01	)	$	(0.36	)
Diluted:
Income (loss) from continuing operations (2)	$	(2.11	)	$	(1.60	)	$	0.11		$	0.14		$	(0.14	)
Income (loss) from discontinued operations, net of income taxes		—			0.02			(0.20	)		(0.15	)		(0.22	)
Net loss per share	$	(2.11	)	$	(1.58	)	$	(0.09	)	$	(0.01	)	$	(0.36	)
Weighted average common shares used in the computation of income (loss) per share:
Basic		29,174			28,461			27,764			28,348			28,974
Diluted		29,174			28,461			29,051			28,896			28,974

 ______________

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

	Years Ended December 31,
	2015		2014		2013		2012		2011
Stock-based compensation:
Cost of revenue	$	487	$	932	$	697	$	258	$	200
Selling and marketing		1,510		2,959		3,040		1,756		1,402
Product and technology		725		825		627		1,194		1,387
General and administrative		5,949		8,544		7,141		6,261		5,549
	$	8,671	$	13,260	$	11,505	$	9,469	$	8,538

	Years Ended December 31,
	2015		2014		2013		2012		2011
Depreciation and amortization:
Cost of revenue	$	735	$	674	$	761	$	706	$	645
Selling and marketing		3,039		3,041		2,925		2,418		1,443
Product and technology		13,910		11,730		10,214		8,924		6,764
General and administrative		1,997		1,949		1,196		1,554		1,422
	$	19,681	$	17,394	$	15,096	$	13,602	$	10,274

________________ 

(2)  See Note 16 to our consolidated financial statements for an explanation of the method used to calculate basic and diluted net income (loss) from continuing operations per share of common stock.

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	December 31,
	2015			2014			2013			2012		2011
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	19,192		$	44,624		$	77,774		$	95,469	$	85,169
Working capital (3)	$	(60,627	)	$	(46,525	)	$	(4,007	)	$	11,513	$	17,524
Total assets (3)	$	122,196		$	171,388		$	187,132		$	185,696	$	166,437
Total term loan	$	24,546		$	—		$	—		$	—	$	—
Convertible notes – related party	$	5,000		$	—		$	—		$	—	$	—
Total capital leases	$	1,182		$	1,727		$	—		$	—	$	—
Total liabilities (3)	$	124,182		$	118,464		$	108,764		$	103,810	$	84,150
Total stockholders’ equity (deficit)	$	(1,986	)	$	52,924		$	78,368		$	81,886	$	82,287

	Year Ended December 31,
	2015			2014			2013		2012		2011
(in thousands)
Other Financial Data:
Net cash provided by (used in) operating activities	$	(20,083	)	$	(2,318	)	$	26,686	$	42,343	$	18,522
Capital expenditures (4)	$	13,894		$	25,735		$	19,748	$	15,013	$	11,974
Non-GAAP Financial Measures:
Adjusted EBITDA (5)	$	2,842		$	(9,410	)	$	32,801	$	28,052	$	15,915

	December 31,
	2015		2014		2013		2012		2011
Other Operational Data:
Active Clients (6)		17,500		20,800		23,900		22,000		19,100
Active Product Units (7)		27,900		31,400		35,200		32,500		27,500

_______________

(3)	We retrospectively adopted FASB Accounting Standards Update 2015-17 during the fourth quarter of 2015, which requires the presentation of all deferred income taxes as long-term assets or liabilities. Accordingly, 2014 and 2013 total assets and liabilities have been adjusted by $1.7 million and $1.1 million, respectively. The adoption did not impact 2012 or 2011.
(4)	Represents purchases of property and equipment and the amount of software development costs capitalized, in aggregate, excluding capital expenditures related to the discontinued operations of Bizzy and ClubLocal.

(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 Adjusted EBITDA, why we present it and for a reconciliation of our Adjusted EBITDA to loss from operations for the years ended December 31, 2015, 2014 and 2013.

(6)

Active Clients 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 Clients by adjusting the number of Active Product Units to combine clients with more than one Active Product Unit as a single Active Client. Clients with more than one location are generally reflected as multiple Active Clients. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Clients includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

(7)

Active Product Units is a number we calculate to approximate the number of individual products, licenses, or services we are providing under contract for Active Clients. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client who also licenses ReachEdge, we consider that three Active Product Units. Similarly, if a client purchases ReachSearch campaigns for two different products or purposes, we consider that two Active Product Units. Numbers are rounded to the nearest hundred.

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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

ReachLocal’s mission is to provide more customers to businesses. We began in 2004 with the goal of helping local businesses move their advertising spend from traditional media and yellow pages to online search. While we have sold to a variety of local businesses and will continue to do so, our present focus is on small to medium-sized businesses (SMBs) and in particular, what we refer to as Premium SMBs. A Premium SMB generally has 10 to 30 employees, $1 to $10 million in annual revenue and spends approximately $40,000 annually on marketing. Premium SMBs have become increasingly sophisticated in their understanding of online marketing. However, we believe that Premium SMBs have not changed their desire for a single, unified solution to their marketing needs. Our goal is to provide a total digital marketing solution that will address Premium SMBs’ online marketing needs. Our total digital marketing solution consists of products and solutions in three categories: digital advertising (including ReachSearch™, ReachRetargeting™, ReachDisplay™, and ReachDisplay InApp^TM ), web presence (including ReachSEO™, ReachCast™, TotalLiveChat™, ReachSite+ReachEdge™) and software (ReachEdge™ and Kickserv™).

We began by offering online advertising solutions with the rollout of ReachSearch in 2005, when we pioneered the provisioning of search engine marketing services (SEM) on a mass scale for local businesses through the use of our technology platform. ReachSearch combines search engine marketing optimized across multiple publishers, call tracking and call recording services, and industry leading campaign performance transparency. ReachSearch remains a leading SEM offering for local businesses and has won numerous awards since its rollout, including most recently winning Google’s Quality Score Champion Award in North America and Latin America. However, ReachSearch does not solve all of the online advertising challenges of our clients. We have therefore added additional elements to our platform including our display product, ReachDisplay and ReachDisplay InApp, our behavioral targeting product, ReachRetargeting, and other products that are primarily focused on leveraging third-party media to drive leads to our clients.

To complement our online digital advertising solutions, we have also launched a number of presence solutions. These solutions include websites, social, search engine optimization (SEO), chat and other products and solutions, all focused on expanding and leveraging our clients’ web presence. Often these products are designed to work in concert with our digital advertising products with a goal of enhancing the return to our clients. These products are generally available in North America and selectively available in our international markets.

We also recognize that even successfully driving leads to our clients does not represent a complete solution to local businesses’ online marketing needs. In 2013, we expanded into lead conversion software with the introduction of ReachEdge in order to move beyond being a media-driven lead generation business to offering integrated solutions for our clients. ReachEdge is marketing automation and lead conversion software and includes tools for capturing web traffic information and converting leads into new customers. Initially, ReachEdge only came bundled with a responsive website. However, beginning in the first quarter of 2015, clients have been able to license ReachEdge’s lead conversion software without having to also purchase a website, allowing us to sell ReachEdge to local businesses who do not need a new website or who purchase their website from another provider.

Over time, we plan to add additional dynamic optimization functionality to ReachEdge, as well as features that create a more seamless relationship between our clients and their customers. For example, in the fourth quarter of 2014, we acquired Kickserv, a provider of cloud-based business management software for service businesses. With this addition, we now have the ability to provide an end-to-end solution to our clients that starts with lead generation (ReachSearch, ReachDisplay and ReachSEO), includes lead conversion software (ReachEdge), and then closes and manages the business relationship (Kickserv). Local businesses already spend marketing dollars in these categories with a significant number of providers in a highly fragmented and confusing marketplace. Our integrated total marketing solution seeks to address this broad array of business needs with a simple integrated solution.

In North America, we sell our products and solutions directly, principally through our outside sales force and in certain situations, an inside sales force, in what we refer to as our Direct Local channel. Our sales personnel (primarily referred to as Digital Marketing Consultants or DMCs) both generate the sale and manage the client relationship. Each DMC is paired with a Marketing Expert (or ME) who provides day-to-day campaign management. We believe that this approach enables the DMC to focus primarily on selling and managing client relationships, while the client benefits from the support and expertise of dedicated MEs. We also have certain veteran salespeople that we refer to as IMCs who have more discretion to manage their client relationships and campaigns. Our international markets generally operate under a modified version of the North American model, suited for local market and product availability differences.

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We refer to our separate sales channel targeting national brands, franchises and strategic accounts with operations in multiple local markets, and select third-party agencies and resellers as our NBAR channel. The sales process for the NBAR channel typically has substantially longer lead times than in our Direct Local channel. In addition, national brand clients often involve complexity due to operational and marketing requirements that are not normally required by our Direct Local clients. Our third-party agencies and reseller partners use our technology platform in customer segments where they have sales forces with established relationships with their client bases. We currently have over 350 agencies and resellers actively selling on our technology 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.  

During the third quarter of 2015 we introduced our Web Partner Program, under which we distribute ReachEdge through third-party web developers. We are focusing on potential partners that typically have client bases ranging from 200 to 2,000 clients. By distributing ReachEdge with their platforms, Web Partners can deliver value to their clients while also earning an additional revenue stream. We believe that our Web Partner Program can increase our sales force’s productivity by giving our sales people easier access to potential new clients.

In addition to the United States and Canada, we have sales operations in Australia, New Zealand, Japan, Germany, the Netherlands, Austria Brazil and Mexico. We exited direct sales in the United Kingdom market in the fourth quarter of 2015 when our local subsidiary ReachLocal UK Ltd. (“RL UK”) entered administration and we continue to review our international operations in order to rationalize operations in overseas markets we determine to be underperforming and to optimize operations in our primary markets.

Operating Metrics

We regularly review a number of 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, 2015, 2014 and 2013.

	December 31,
	2015		2014		2013
Active Clients (at period end) (1)		17,500		20,800		23,900
Active Product Units (at period end) (2)		27,900		31,400		35,200

 ______________

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

Active Clients and Active Product Units

We track the number of Active Clients and Active Product Units 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. The decrease in the number of Active Clients and Active Product Units is primarily due to an overall decrease in salespeople in both the Direct Local and NBAR channel as we decreased the size of our sales force in an effort to focus on more productive salespeople, partially offset by the addition of Kickserv clients and increased client retention in the Direct Local channel. The productivity of our current sales force improved compared to the prior-year period, but not enough to offset the decrease in number of sales people. Our exit from direct sales in the U.K. in the fourth quarter of 2015 reduced our number of Active Clients and Active Product Units at year-end and will continue to have a negative effect on those metrics in the first quarter of 2016.

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Basis of Presentation

Sources of Revenue

We derive our revenue principally from the provision and sale of online marketing products to our clients. Revenue includes (i) the sale of our ReachSearch, ReachRetargeting, ReachDisplay, 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 our technology platform, and the personnel dedicated to support and manage their campaigns; (ii) the license (or sale) of ReachEdge, ReachSEO, ReachCast, TotalLiveChat, TotalTrack, ReachSite, Kickserv and other products and solutions; and (iii) set-up, management and service fees associated with these products and other solutions. We distribute our products and solutions directly through our outside and inside sales force that is focused on serving local businesses in their local markets through a 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 our clients ranges from one day to over a month. Sales to our National Brands, Agencies and Resellers clients generally require several months. 

We typically enter into multi-month agreements for the delivery of our products. Under our agreements, our Direct Local clients typically pay, in advance, a fixed fee on a monthly basis, which includes all charges for the included technology and any media services, management, third-party content and other costs and fees. We record these prepayments as deferred revenue and only recognize revenue in our statement of operations as we purchase media and perform other services on behalf of clients. Certain Direct Local clients are extended credit privileges with payment generally due in 30 days. Revenue from the licensing of our products is recognized on a straight-line basis over the applicable license or service period. There were $4.0 million and $3.2 million of accounts receivable related to our Direct Local channel at December 31, 2015 and December 31, 2014, respectively.

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 $3.3 million and $5.0 million of accounts receivable related to our National Brands, Agencies and Resellers at December 31, 2015 and December 31, 2014, respectively.

Cost of Revenue

Cost of revenue consists primarily of the costs of online media acquired from third-party publishers. Media cost is recorded as cost of revenue in the period in which the corresponding revenue is recognized. From time to time, publishers offer us 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 other receivable, as appropriate. Cost of revenue also includes the third-party telephone and information services costs, other third-party service provider costs, data center and third-party hosting costs, credit card processing fees, and other direct costs.

In addition, cost of revenue includes costs to manage and operate our various solutions and technology infrastructure, other than costs associated with our 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 our MEs who manage client accounts and provide client-facing support, and allocated overhead such as depreciation expense, rent and utilities. Cost of revenue also includes the amortization and impairment charges (as applicable) on acquired technology, customer relationships and trade names.

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 employees in the sales organization is based on commissions. In addition, the cost of agency commissions is included in selling and marketing expenses. Generally, commissions are expensed as earned. However, we pay commissions to certain sales people for the acquisition of new clients and because our client contracts are generally not cancelable without a penalty, we defer those commissions and amortize them over the initial contract term.

Product and Technology. Product and technology expenses consist primarily of personnel and related expenses for our product development and engineering professionals, including salaries, benefits, bonuses and stock-based compensation, and the cost of third-party contractors and 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 as software development and, accordingly, include amortization of those costs as product and technology expenses. Our technology platform addresses all aspects of our activities, including supporting the selling and consultation process, integrating with online publishers, driving efficiency and optimization, providing insight to our clients into the results and effects of their online advertising campaigns and supporting financial and other back-office functions of our business.

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Product and technology expenses also include the amortization of the technology obtained in acquisitions and the expensing of acquisition-related deferred payment obligations attributable to product and technology personnel. Product and technology expenses do not include the costs to deliver our solutions to clients, which are included in cost of revenue.

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

Restructuring Charges. Restructuring charges consist of costs associated with the realignment and reorganization of our operations. Restructuring charges include employee termination costs, facility closure and relocation costs, contract termination costs and costs associated with utilizing a third party consultant to facilitate the execution of our 2015 restructuring plan. The timing of associated cash payments is dependent upon the type of exit cost and can extend over a 12-month period or longer. We record liabilities related to restructuring charges in accrued restructuring in the consolidated balance sheets. See further discussion in Note 11 of the Notes to the Consolidated Financial Statements.

Goodwill Impairment. During the quarter ended September 30, 2015, due to a decline in internal projections for the Asia-Pacific reporting unit of both revenue and profitability as a result of recent declines its financial performance, we determined that sufficient indicators of potential impairment existed to require an interim quantitative goodwill assessment for the Asia-Pacific reporting unit as of August 31, 2015. The amount of goodwill assigned to the Asia-Pacific reporting unit at August 31, 2015 was $34.1 million. Based on our revised forecasts, the carrying value of goodwill exceeded the implied fair value of goodwill for the Asia-Pacific reporting unit. As a result, we recorded an estimated impairment charge of $27.8 million for the goodwill in the Asia-Pacific reporting unit during the third quarter of 2015, which was finalized during the fourth quarter of 2015 without further adjustment and is included in impairment of goodwill in the accompanying consolidated statements of operations. We did not identify an impairment of our finite-lived intangible assets or other long-lived assets based on our estimates included in the second step of the quantitative test.

The process of estimating the fair value of goodwill is subjective and requires us to make estimates that may significantly impact the outcome of the analyses. The estimated fair value of the Asia-Pacific reporting unit as of August 31, 2015 was determined using both an income-based valuation approach, and a market-based valuation approach, each weighted 50%. Under the income approach, fair value of the reporting unit is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in our business model, and other assumptions. The future cash flows for the reporting unit was projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). We took into account expected competitive global industry and market conditions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings.

The inputs of the discounted cash flow method used to determine the fair value of the Asia-Pacific reporting unit included a conservative average 3% growth rate to calculate the terminal value and a discount rate of 17%. Factors that have the potential to create variances in the estimated fair value of the Asia-Pacific reporting unit include, but are not limited to, fluctuations in (i) number of clients and active campaigns, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics and changes in consumer preferences; (ii) marketing costs to generate new campaigns; and (iii) equity valuations of peer companies.

Discontinued Operations

As a result of the disposal of our ClubLocal business in exchange for a minority equity interest in December 2013, we have reclassified and presented all related historical financial information with respect to ClubLocal as “discontinued operations” in the Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Cash Flows. In addition, we have excluded all ClubLocal related activities from the following discussions, unless specifically referenced.

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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:

• Accounts receivable

• Software development costs

• Loan receivables

•  Non-marketable investments

•  Variable interest entities

•  Finite-lived intangible assets and other long-lived assets

•  Goodwill

•  Revenue recognition

•  Restructuring charges

• Stock-based compensation

•  Income taxes

 Accounts Receivable 

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history, the customer’s creditworthiness and various other factors, as determined by our review of their credit information. We monitor collections and payments from our customers and maintain an allowance for estimated credit losses based on our historical experience and any customer-specific collection issues that we have identified.

Software Development Costs

Costs to develop software for internal use are capitalized when we have determined that the development efforts will result in new or additional functionality or new products. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and included in product and technology expenses, in addition to amortization of capitalized software development costs, in the accompanying consolidated statements of operations. We monitor our existing capitalized software costs and reduce its carrying value as the result of releases that render previous features or functions obsolete. Software development costs are evaluated for impairment in accordance with our policy for finite-lived intangible assets and other long-lived assets. Costs capitalized as internal use software are amortized on a straight-line basis over an estimated useful life of three years.

Loan Receivables

We record loan receivables at carrying value, net of potential allowance for losses. Losses on receivables are recorded when probable and estimable. Interest income on loan receivables is accrued on a monthly basis over the life of the loan, and interest recognition is suspended upon impairment of loan principal.

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Non-marketable Investments

We account for non-marketable investments under the cost method, which are periodically assessed for other-than-temporary impairment. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if a significant adverse event were identified, we would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data. If we determine that an other-than-temporary impairment has occurred, the investment is written-down to its fair value.

Variable Interest Entities

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 variable interest entity (“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 assesses if we must consolidate the VIE as our 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.

Finite-Lived Intangible Assets and Other Long-Lived Assets

Finite-lived intangible assets are attributable to the various developed technologies, trade names, and customer relationships of the businesses we have acquired. We report finite-lived, acquisition-related intangible assets at acquisition date fair value, net of accumulated amortization. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from two to ten years. Straight-line amortization is used as another pattern over which the economic benefits will be consumed cannot be reliably determined. We review 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 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 review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of an intangible asset is measured by comparing its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate, if it is determined that an asset is not recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

At December 31, 2015 and 2014, there were no indications of impairment of our finite-lived intangible assets or other long-lived assets.

Goodwill

Goodwill represents the excess of the purchase price of our acquired businesses over the fair value of the net tangible and intangible assets acquired. We account for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other, which addresses financial accounting and reporting requirements for acquired goodwill. ASC 350 prohibits the amortization of goodwill and requires us to test goodwill at the reporting unit level for impairment at least annually.

We test the goodwill of our reporting units for impairment annually on the first day of the fourth quarter, and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired. Events or circumstances which could trigger an impairment review include, but are not limited to, a significant adverse change in the legal or business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key management or other personnel, significant changes in the manner of our use of the acquired assets or the strategy for the acquired business or our overall business, significant and sustained decline in market capitalization, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

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Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwill impairment test, we have the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwill impairment test for selected reporting units. If we choose the qualitative option, we are not required to perform the two-step quantitative goodwill impairment test unless we have determined, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The first step of the impairment test involves comparing the estimated fair values of a reporting unit with its respective carrying amount, 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, or if the reporting unit has a negative carrying value and we believe it is more likely than not that a goodwill impairment exists, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value, which is determined by deducting the aggregate fair value of the reporting unit's identifiable assets and liabilities from the fair value of the reporting unit. 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 process of estimating the fair value of goodwill is subjective and requires us to make estimates that may significantly impact the outcome of the analyses. The estimated fair value for each reporting unit is determined using both an income-based valuation approach, as well as a market-based valuation approach. Under the income approach, each reporting unit’s fair value is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in its business model, and other assumptions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings. The income-based approach is weighted between 50.0% and 66.7% depending on the amount and timing of projected operating earnings attributable to each reporting unit.

We operate in one reportable segment, in accordance with ASC 280, Segment Reporting, which is the basis that financial results are regularly reviewed by our chief operating decision maker in deciding how to allocate resources and assess performance. We have identified our reporting units as North America, Asia-Pacific, Latin America, and Europe. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. Our goodwill is comprised of balances in both the North America and Asia-Pacific reporting units.

Goodwill Impairment Assessment

During the quarter ended September 30, 2015, due to a decline in internal projections for the Asia-Pacific reporting unit of both revenue and profitability as a result of recent declines its financial performance, we determined that sufficient indicators of potential impairment existed to require an interim quantitative goodwill assessment for the Asia-Pacific reporting unit as of August 31, 2015. The amount of goodwill assigned to the Asia-Pacific reporting unit at August 31, 2015 was $34.1 million. Based on our revised forecasts, the carrying value of goodwill exceeded the implied fair value of goodwill for the Asia-Pacific reporting unit. As a result, we recorded an estimated impairment charge of $27.8 million for the goodwill in the Asia-Pacific reporting unit during the third quarter of 2015, which was finalized during the fourth quarter of 2015 without further adjustment and is included in impairment of goodwill in the accompanying consolidated statements of operations. We did not identify an impairment of our finite-lived intangible assets or other long-lived assets based on our estimates included in the second step of the quantitative test.

The process of estimating the fair value of goodwill is subjective and requires us to make estimates that may significantly impact the outcome of the analyses. The estimated fair value of the Asia-Pacific reporting unit as of August 31, 2015 was determined using both an income-based valuation approach, and a market-based valuation approach, each weighted 50%. Under the income approach, fair value of the reporting unit is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in our business model, and other assumptions. The future cash flows for the reporting unit was projected based on our estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). We took into account expected competitive global industry and market conditions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings.

The inputs of the discounted cash flow method used to determine the fair value of the Asia-Pacific reporting unit included a conservative average 3% growth rate to calculate the terminal value and a discount rate of 17%. Factors that have the potential to create variances in the estimated fair value of the Asia-Pacific reporting unit include, but are not limited to, fluctuations in (i) number of clients and active campaigns, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics and changes in consumer preferences; (ii) marketing costs to generate new campaigns; and (iii) equity valuations of peer companies.

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As of October 1, 2015, the date of our annual goodwill impairment assessment, we considered our recent interim quantitative goodwill impairment assessment, which included a reconciliation of our total market capitalization based on the estimated fair value of our individual reporting units as of August 31, 2015. We qualitatively determined that then existing facts and circumstances were considered in our quantitative interim impairment test, such that it was not necessary to perform the two-step quantitative goodwill impairment test for our North America and Asia Pacific reporting units as of the annual testing date.

As of November 30, 2015, due to the then recent significant declines in our market capitalization and other changes in the business, including consideration of exiting the U.K. market, and the entrance of RL UK into administration, we determined that sufficient indicators existed to perform an interim quantitative goodwill impairment assessment of our North America and Asia Pacific reporting units.

The first step of the November 30, 2015 quantitative goodwill impairment test resulted in the determination that the estimated fair value of both our North American reporting unit and our Asia Pacific reporting unit each substantially exceeded its respective carrying amount, including goodwill. Accordingly, the second step was not required. The inputs for the fair value calculations of the North America reporting unit included a conservative 2% growth rate to calculate the terminal value and a discount rate of 18%. The inputs for the fair value calculations of the Asia Pacific reporting unit included a conservative 2% growth rate to calculate the terminal value and a discount rate of 20.5%. In addition, we assumed revenue growth and applied margin and other cost assumptions consistent with each reporting unit's historical trends. Factors that have the potential to create variances in the estimated fair value of the reporting units include, but are not limited to, fluctuations in (i) number of clients and active campaigns, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics and changes in consumer preferences; (ii) marketing costs to generate new campaigns; and (iii) equity valuations of peer companies.

Revenue Recognition

We recognize revenue for our products and solutions when 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 for search engine marketing as clicks are recorded on sponsored links on the various search engines and for our display advertising and retargeting when the display advertisements record impressions or as otherwise provided in our agreement with the applicable publisher. We recognize revenue for lead conversion software, web presence and other products with a defined license or service period on a straight line basis over the applicable license or service period. We recognize revenue when we charge set-up, management service or other fees on a straight line basis over the term of the related contract or the completion of any obligation for services, if shorter. We account for sales and similar taxes imposed on our services on a net basis in the consolidated statements of operations.

When we receive advance payments from clients, we record these amounts as deferred revenue until the revenue is recognized. From time to time, we offer incentives to clients in exchange for minimum commitments. In these circumstances, we estimate the amount of the incentives that will be earned by clients and adjust the recognition of revenue to reflect such incentives. Estimates are either based upon a statistical analysis of previous campaigns for which such incentives were offered, or calculated on a straight-line basis over the life of the campaign.

When we sell through agencies, we either receive payment in advance of the delivery of our products or solutions 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 generally the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, we typically 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. Resellers integrate our products and solutions, including branded search engine marketing, display advertising and online marketing analytics, into their product offerings. In most cases, the resellers integrate with our technology 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. 

Restructuring Charges

We record costs associated with exit activities related to restructuring plans in accordance with the ASC Topic 420, Exit or Disposal Obligations. Liabilities for costs associated with an exit or disposal activity are recognized in the period in which the liability is incurred. Restructuring charges consist of costs associated with the realignment and reorganization of our operations. Restructuring charges include employee termination costs, facility closure and relocation costs, and contract termination costs. The timing of associated cash payments is dependent upon the type of exit cost and can extend over a 12-month period. We record restructuring charge liabilities in accrued restructuring in the consolidated balance sheet.

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Stock-Based Compensation

We account for stock-based compensation based on the fair market value of the equity award on the date of grant. 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 option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and the risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of our common stock on the date of grant. In addition, we use a Monte Carlo simulation model to estimate the fair value of market-based performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment, including estimating volatility, risk-free rate and expected future stock price. We determine the probability of achievement of performance milestones for non-market based performance vesting restricted stock and restricted stock units, and recognize expense based on the fair value of the award if it is probable that the performance milestone will be achieved. The assumptions described above rely on management estimates based on judgment and subjective future expectations, which may result in stock-based compensation for future awards that differs significantly from the awards granted previously.

The fair value of modifications to stock-based awards is generally estimated using the Black-Scholes option pricing model. If a stock-based compensation award is modified after the grant date, incremental compensation expense is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for fully vested awards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original award on the modification date is recognized over the modified service period.

Income Taxes

We use the asset and 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 federal, state, foreign and local tax jurisdictions applicable to our activities. We are also 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 jurisdictions before the time we obtain profitability on a consolidated basis.

We evaluate deferred tax assets on a quarterly basis to determine if a valuation allowance against deferred tax assets is required. Realization of our deferred tax assets is dependent primarily on the generation of future taxable income. Due to our recent history of cumulative losses, we recorded a full valuation allowance against our net deferred tax assets, excluding indefinite lived assets in U.S. jurisdictions. We continue to monitor the valuation allowance at each reporting period, and at this time, it is uncertain when such a release will occur.

The value of our investments in foreign subsidiaries exceeds our tax basis in those subsidiaries by $1.0 million. However, we have not recognized deferred income taxes on the associated gain because the gain only becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary and these amounts are expected to be reinvested indefinitely outside of the U.S. 

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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. 

Results of Operations

Comparison of the Years Ended December 31, 2015, 2014 and 2013

	Years Ended December 31,
	2015			2014			2013
(in thousands, except per share data)
Revenue	$	382,597		$	474,921		$	514,070
Cost of revenue (1)		213,409			252,721			256,450
Operating expenses:
Selling and marketing (1)		126,966			182,720			182,854
Product and technology (1)		28,414			27,510			22,240
General and administrative (1)		39,332			52,155			46,362
Restructuring charges		7,546			5,927			—
Impairment of goodwill		27,800			—			—
Total operating expenses		230,058			268,312			251,456
Operating income (loss)		(60,870	)		(46,112	)		6,164
Gain on deconsolidation of subsidiary, net		2,853			—			—
Interest expense		(2,790	)		(67	)		(14	)
Other income (expense), net		(339	)		1,003			600
Income (loss) from continuing operations before income taxes		(61,146	)		(45,176	)		6,750
Income tax provision		369			484			3,699
Income (loss) from continuing operations		(61,515	)		(45,660	)		3,051
Income (loss) from discontinued operations, net of income tax of $11 and $3,036 for the years ended December 31, 2014, and 2013		—			650			(5,534	)
Net loss	$	(61,515	)	$	(45,010	)	$	(2,483	)
Net income (loss) per share:
Basic:
Income (loss) from continuing operations	$	(2.11	)	$	(1.60	)	$	0.11
Income (loss) from discontinued operations, net of income taxes		—			0.02			(0.20	)
Net loss per share	$	(2.11	)	$	(1.58	)	$	(0.09	)
Diluted:
Income (loss) from continuing operations	$	(2.11	)	$	(1.60	)	$	0.11
Income (loss) from discontinued operations, net of income taxes		—			0.02			(0.20	)
Net loss per share	$	(2.11	)	$	(1.58	)	$	(0.09	)
Weighted average common shares used in the computation of income (loss) per share:
Basic		29,174			28,461			27,764
Diluted		29,174			28,461			29,051

______________

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

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	Years Ended December 31,
	2015		2014		2013
Stock-based compensation:
Cost of revenue	$	487	$	932	$	697
Selling and marketing		1,510		2,959		3,040
Product and technology		725		825		627
General and administrative		5,949		8,544		7,141
	$	8,671	$	13,260	$	11,505
Depreciation and amortization:
Cost of revenue	$	735	$	674	$	761
Selling and marketing		3,039		3,041		2,925
Product and technology		13,910		11,730		10,214
General and administrative		1,997		1,949		1,196
	$	19,681	$	17,394	$	15,096

Revenue

	Years Ended December 31,
	2015		2014		2013		2015-2014 % Change			2014-2013 % Change
(in thousands)
North America (1)
Direct Local	$	181,022	$	208,459	$	258,206		(13.2	)%		(19.3	)%
National Brands, Agencies and Resellers		68,202		84,637		83,531		(19.4	)%		1.3	%
Total North America revenue	$	249,224	$	293,096	$	341,737		(15.0	)%		(14.2	)%

	Years Ended December 31,
	2015		2014		2013		2015-2014 % Change			2014-2013 % Change
(in thousands)
International
Direct Local	$	118,537	$	164,363	$	152,072		(27.9	)%		8.1	%
National Brands, Agencies and Resellers		14,836		17,462		20,261		(15.0	)%		(13.8	)%
Total International revenue	$	133,373	$	181,825	$	172,333		(26.6	)%		5.5	%

	December 31,							2015-2014			2014-2013
	2015		2014		2013		% Change			% Change
At period end:
Active Clients (2)		17,500		20,800		23,900		(15.9	)%		(13.0	)%
Active Product Units (3)		27,900		31,400		35,200		(11.1	)%		(10.8	)%

____________

(1) North America includes the United States and Canada. International includes all other countries.

(2)

Active Clients 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 Clients by adjusting the number of Active Product Units to combine clients with more than one Active Product Unit as a single Active Client. Clients with more than one location are generally reflected as multiple Active Clients. Because this number includes clients served through the National Brands, Agencies and Resellers channel, Active Clients includes entities with which we do not have a direct client relationship. Numbers are rounded to the nearest hundred.

(3)

Active Product Units is a number we calculate to approximate the number of individual products, licenses, or services we are providing under contract for Active Clients. For example, if we were performing both ReachSearch and ReachDisplay campaigns for a client that also licenses ReachEdge, we consider that three Active Product Units. Similarly, if a client purchases ReachSearch campaigns for two different products or purposes, we consider that two Active Product Units. Numbers are rounded to the nearest hundred.

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North American revenue decreased by $43.9 million in 2015 compared to 2014. North America Direct Local revenue declined $27.4 million in 2015 compared to 2014 due to smaller client bases entering the period and fewer new client acquisitions during the period due to a more difficult selling environment and fewer salespeople as we decreased the size of our salesforce in an effort to focus on more productive salespeople, partially offset by improvements in client retention. The average productivity of our current sales force improved compared to the prior-year period, but did not improve enough to offset client cancellations and fewer salespeople. North America National Brands, Agencies and Resellers revenue decreased by $16.4 million in 2015 compared to 2014 primarily due to a decrease in client acquisitions and a decrease in client budgets in both the National Brands and Agencies and Resellers channels due to losses of key partners in both channels.

International revenue decreased by $48.5 million in 2015 compared to 2014. International revenue was negatively impacted by foreign currency translations of $24.1 million due to the substantial strengthening of the U.S. dollar compared to certain foreign currencies, particularly the euro and Australian dollar. International Direct Local decreased by $24.8 million, on a constant currency basis compared to the prior-year period, due to smaller client bases entering the periods and fewer new client acquisitions during the periods due to a more difficult selling environment and fewer salespeople as we contracted our salesforce during the ongoing transition to our new sales model, partially offset by an improvement in client retention. The decrease in 2015, was partially offset by an increase of $1.6 million of revenue from former SureFire clients being reported in the Direct Local channel rather than the National Brands, Agencies and Resellers channel as in the prior-year period. Excluding the impact of the SureFire revenue, the International National Brands, Agencies and Resellers revenue remained relatively flat on a constant currency basis compared to 2014. International revenue related to our U.K. market, which we exited in 2015, was $25.2 million and $36.4 million in 2015 and 2014, respectively.

Direct Local revenue decreased by $37.5 million in 2014 compared to 2013. The decrease was primarily due to a 19.3% decline of North American Direct Local revenue compared to the prior year period as a result of decreased new customer acquisitions due to lower sales productivity, lower customer retention and fewer salespeople selling our products during 2014, each of which we believe are primarily attributable to the realignment of our North American Direct Local sales force. Since the realignment of our North American sales force in late 2013, we experienced high attrition in our North American sales force, which negatively impacted client acquisition and retention. The decline in our North American Direct Local revenue was partially offset by growth in our international markets. We experienced this growth notwithstanding negative impact from the substantial strengthening of the U.S. dollar compared to certain foreign currencies, particularly the Australian dollar.

Direct Local and National Brands, Agencies and Resellers revenue were both impacted as SureFire-related revenue that was reported as part of our National Brands, Agencies and Resellers channel prior to our acquisition of SureFire is now reported as part of our Direct Local channel. As a result, $6.4 million of SureFire revenue is included in Direct Local for 2014 instead of National Brands, Agencies and Resellers.

The decrease in National Brands, Agencies and Resellers revenue of $1.7 million in 2014 compared to 2013 was primarily due to reporting revenue from Surefire clients in the Direct Local channel rather than in National Brands, Agencies and Resellers. Revenue from SureFire included in National Brands, Agencies and Resellers for 2014 was $1.3 million as compared to $5.0 million in the prior-year period. 

Cost of Revenue

	Years Ended December 31,
	2015			2014			2013			2015-2014 % Change			2014-2013 % Change
(in thousands)
Cost of revenue	$	213,409		$	252,721		$	256,450			(15.6	)%		(1.5	)%
As a percentage of revenue		55.8	%		53.2	%		49.9	%

The increase in our cost of revenue as a percentage of revenue in 2015 compared to 2014 was primarily due to transfers of certain personnel to service and support functions (MEs) costing approximately $5.0 million that were previously included in sales and marketing, and an increase in service costs primarily related to our non-media products.

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Publisher rebates as a percentage of revenue decreased to 1.7% of revenue in 2015 from 2.5% in 2014. In addition, 2015 publisher rebates included 0.5% better than normal benefits attributable to the impact of regional and product mix, foreign exchange and program structure, which we do not expect to reoccur. On June 27, 2014, we entered into a new global agreement with Google Inc. and certain of its affiliates (the “2014 Google Agreement”) that replaced our expiring Google agreement. The 2014 Google agreement provided rebates based on overall global growth of our spending with Google, as opposed to commitments to enter new markets and market-specific growth targets. On December 8, 2015, we amended the terms of the 2014 Google Agreement to replace the growth of spending targets with tiered aggregate global spending targets.

The increase in cost of revenue as a percentage of revenue in 2014 compared to 2013 was primarily due to a decrease in publisher rebates from 4.2% in 2013 to 2.5% in 2014, an increase in service, support, and third party costs primarily related to the launch of our ReachEdge and ReachSEO products, and increased costs to improve the performance of certain of our products.

Our gross margins will be affected in the future by the availability and amount of publisher rebates, the costs of support and delivery, the mix and relative amount of media we purchase to fulfill service requirements, and the cost of third-party service providers that we use as part of our solutions. We expect publisher rebates as a percentage of revenue to be between 0.5% and 1.0% during 2016.

Operating Expenses

Selling and Marketing

	Years Ended December 31,
	2015			2014			2013			2015-2014 % Change			2014-2013 % Change
(in thousands)
Salaries, benefits and other costs	$	92,833		$	142,381		$	130,653			(34.8	)%		9.0	%
Commission expense		34,133			40,339			52,201			(15.4	)%		(22.7	)%
Total selling and marketing	$	126,966		$	182,720		$	182,854			(30.5	)%		(0.1	)%
As a percentage of revenue:
Salaries, benefits and other costs		24.3	%		30.0	%		25.4	%
Commission expense		8.9			8.5			10.2
Total selling and marketing		33.2	%		38.5	%		35.6	%

 The decreases in selling and marketing salaries, benefits and other costs in absolute dollars in 2015 compared to 2014 was primarily due to fewer salespeople and non-sales personnel, and related cost reductions, including transfers of certain personnel to service and support functions (MEs) and reported in cost of revenue as a result of our transition to our DMC sales model. The decreases as a percentage of revenue were also due to increased revenue per-salesperson as we decreased the number of salespeople to focus on higher performing salespeople and consolidate client accounts.

The increases in commission expense as a percentage of revenue in 2015 compared to 2014 was primarily driven by a shift in the revenue mix as a higher percentage of revenue was derived from channels which pay a higher commission rate and a lower percentage of revenue derived from channels which pay a lower commission rate.

The increase in selling and marketing salaries, benefits and other costs as a percentage of revenue in 2014 compared to 2013 was primarily due to the decrease in revenue and increases in salaries and fixed costs as a result of partially replacing residual commissions with base compensation for most of our North American sales personnel under the 2013 realignment of that sales force. The increase in selling and marketing salaries, benefits and other costs in absolute dollars was primarily a result of the shift to base compensation from residual commissions.

The decrease in commission expense in absolute dollars and as a percentage of revenue in 2014 compared to 2013 was due to a decrease in sales activity and a change in compensation structure in North America in connection with the North American sales force realignment. Commission expense also decreased due to a higher percentage of revenue from our international Direct Local channel, for which we have historically paid lower commission rates. 

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Product and Technology

	Years Ended December 31,
	2015			2014			2013			2015-2014 % Change			2014-2013 % Change
(in thousands)
Product and technology expenses	$	28,414		$	27,510		$	22,240			3.3	%		23.7	%
Capitalized software development costs from product and technology resources		10,107			13,538			11,510			(25.3	)%		17.6	%
Total product and technology costs expensed and capitalized	$	38,521		$	41,048		$	33,750			(6.2	)%		21.6	%
As a percentage of revenue:
Product and technology expenses		7.4	%		5.8	%		4.3	%
Capitalized software development costs from product and technology resources		2.6			2.8			2.3
Total product and technology costs expensed and capitalized		10.0	%		8.6	%		6.6	%

Product and technology expenses increased in absolute dollars in 2015 compared to 2014, while total product and technology expenses and capitalized costs decreased during the period. Employee and professional services costs decreased by $5.7 million during 2015 due to our cost savings initiatives, but were more than offset by increased amortization of software development costs of $2.1 million and a decrease in the amount of total product and technology costs expensed and capitalized during the period of $3.4 million due to the timing of achieving certain project development milestones. The increase in total product and technology costs expensed and capitalized as a percentage of revenue were primarily driven by the decrease in revenue.

The increases in product and technology expenses in absolute dollars and as a percentage of revenue in 2014 compared to 2013 were primarily attributable to increased third-party development costs of $4.0 million and increased salaries and compensation expense of $2.2 million, each as part of the ongoing development of our technology platform and new product initiatives, and increased expense related to the commencement of amortization of previously capitalized software development costs and acquired intangibles of $0.9 million. The increases were partially offset by $2.0 million of increased capitalization due to an increase in capitalizable projects, including those relating to our new product initiatives. The increases in product and technology expenses as a percentage of revenue were also a result of decreased revenue.

General and Administrative

	Years Ended December 31,
	2015			2014			2013			2015-2014 % Change			2014-2013 % Change
(in thousands)
General and administrative	$	39,332		$	52,155		$	46,362			(24.6	)%		12.5	%
As a percentage of revenue		10.3	%		11.0	%		9.0	%

The decreases in general and administrative expenses in absolute dollars and as a percentage of revenue in 2015 compared to 2014 were primarily due to decreases of $5.1 million for employee costs and $3.2 million for stock based compensation, each due to workforce reductions as a result of our cost management activities, and a decrease of $0.7 million in professional services costs. In addition, 2014 included $1.5 million for bad debt expense related to our United Kingdom market, which did not occur in 2015.

The increases in general and administrative expenses in absolute dollars and as a percentage of revenue in 2014 compared to 2013 were primarily due to a $3.5 million increase in employee-related costs largely as a result of increased salaries and payroll costs, $3.6 million of professional fees, which consist of tax, consulting, audit and legal fees, primarily as a result of increased legal fees and contingencies in the U.K., and a $1.9 million increase in stock-based compensation expense as a result of extending, on March 27, 2014, the time to exercise from seven to ten years for certain options granted during 2008 and 2009 with a strike price of $10.91. The increases were partially offset by a decrease in bad debt expense as compared to 2013 when we impaired $3.9 million due from OxataSMB. The increase in general and administrative expenses as a percentage of revenue was also a result of decreased revenue.

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Restructuring Charges

In January 2015, we commenced our 2015 Restructuring Plan as part of our ongoing efforts to reduce expenses and improve the operating performance of our business. The initiative is focused on enhancing earnings through an analysis of opportunities to both improve revenue performance and reduce costs. Restructuring charges in 2015 totaled $7.5 million, consisting of $3.6 million in costs associated with utilizing a third party consultant to facilitate the execution of the plan, $2.3 million in contract termination costs, $1.1 million of lease termination costs as a result of down-sizing a North American facility, and $0.5 million in other associated costs. We expect to have continued restructuring activity under this plan for at least the next 12 months.

During the first and second quarters of 2014, we also implemented restructuring plans to streamline operations and increase profitability. There has been no additional restructuring activity recognized within these 2014 plans in 2015, other than settlement of associated liabilities.

Impairment of Goodwill

      During the quarter ended September 30, 2015, due to a decline in internal projections for the Asia-Pacific reporting unit of both revenue and profitability as a result of recent declines its financial performance, we determined that sufficient indicators of potential impairment existed to require an interim quantitative goodwill assessment for the Asia-Pacific reporting unit as of August 31, 2015. The amount of goodwill assigned to the Asia-Pacific reporting unit at August 31, 2015 was $34.1 million. Based on our revised forecasts, the carrying value of goodwill exceeded the implied fair value of goodwill for the Asia-Pacific reporting unit. As a result, we recorded an estimated impairment charge of $27.8 million for the goodwill in the Asia-Pacific reporting unit during the third quarter of 2015, which was finalized during the fourth quarter of 2015 without further adjustment and is included in impairment of goodwill in the accompanying consolidated statements of operations.

Gain on Deconsolidation of Subsidiary, Net

During the fourth quarter of 2015, we recorded a gain of $2.9 million related to the deconsolidation of RL U.K. upon its entrance into administration in connection with our plan to exit from the U.K. market. The gain is principally due to relief of accrued liabilities and reversal of the previously recorded cumulative translation adjustments that were previously reflected in operating income and loss. See further discussion in Note 12 of the Notes to the Consolidated Financial Statements.

Interest Expense

Interest expense increased $2.7 million in 2015 compared to 2014 as we began paying interest under a Loan and Security Agreement (the “Hercules Loan Agreement”) entered into on April 30, 2015.

Interest expense remained relatively flat in 2014 compared to 2013.

Other Income (Expense), Net

Other expense, net of $0.3 million in 2015 primarily consisted of foreign currency fluctuations affecting our cash balances, offset by interest income resulting from invested balances.

Other income, net of $1.0 million in 2014 primarily consisted of interest income from invested balances of $0.6 million, the revaluation of the contingent consideration for SureFire of $0.3 million.

Provision for Income Taxes

Our effective tax rate for 2015, 2014 and 2013 was (0.6) %, (1.0) % and 54.8%, respectively. We recorded a provision for income taxes of $0.4 million in 2015, compared to $0.5 million in 2014 and $3.7 million in 2013.

The income tax provisions for 2015, 2014 and 2013 relate primarily to U.S. Federal and State taxes as well as certain foreign income taxes. The overall decrease in tax expense in 2014 compared to the same period in 2013 was primarily due to the tax benefits associated with current period losses in U.S. jurisdictions, offset by the recording of a full valuation allowance against our net deferred tax assets, excluding indefinite-lived assets in the U.S.

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Gain (Loss) from Discontinued Operations

In the fourth quarter of 2013, our Board of Directors approved a plan to dispose of our ClubLocal business, and on February 18, 2014, we completed the contribution of our ClubLocal business to a new entity in exchange for a minority interest in the entity. This business has been accounted for as discontinued operations for all periods presented.

Non-GAAP Financial Measures

In addition to our GAAP results discussed above, we believe Adjusted EBITDA is useful to investors in evaluating our operating performance. For the years ended December 31, 2015, 2014 and 2013, our Adjusted EBITDA was as follows:

	Years Ended December 31,
	2015			2014			2013
(in thousands)
Operating income (loss)	$	(60,870	)	$	(46,112	)	$	6,164
Add:
Depreciation and amortization		19,681			17,394			15,096
Stock-based compensation, net		8,671			13,260			11,505
Acquisition and integration costs		14			121			36
Restructuring charges		7,546			5,927			—
Impairment of goodwill		27,800			—			—
Adjusted EBITDA (1)	$	2,842		$	(9,410	)	$	32,801

___________

(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), restructuring charges, and other non-operating income or expense. Adjusted EBITDA reflects the reclassification of discontinued operations.

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. 

We believe 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) restructuring charges, which we do not consider reflective of our ongoing operating performance; (iii) 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 (iv) 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 our sales force.

In addition, we believe 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;

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• 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.

Liquidity and Capital Resources  

	Years Ended December 31,
Consolidated Statements of Cash Flow Data:	2015			2014			2013
(in thousands)
Net cash provided by (used in) operating activities, continuing operations	$	(20,038	)	$	(1,403	)	$	30,687
Net cash used in investing activities, continuing operations	$	(13,770	)	$	(35,298	)	$	(23,849	)
Net cash provided by (used in) financing activities, continuing operations	$	12,877		$	6,110		$	(11,097	)
Net cash used by discontinued operations	$	(45	)	$	(915	)	$	(7,181	)

Operating Activities

During 2015, we used $20.0 million of net cash in operating activities from continuing operations, primarily due to a loss of $61.5 million from continuing operations and a change in operating assets and liabilities of $20.5 million, partially offset by non-cash expenses of $62.0 million. The change in operating assets and liabilities included a decrease in accounts payable of $9.2 million due to the timing of payments, a decrease in deferred revenue of $4.5 million due to a decrease in sales, and a decrease in accrued restructuring of $6.5 million. Non-cash expenses included $27.8 million of goodwill impairment, $19.7 million of depreciation and amortization, $8.7 million of stock-based compensation expense, and $7.5 million of restructuring charges, offset in part by a gain of $2.9 million on deconsolidation of our U.K subsidiary due to exiting the market.

Net cash used in operating activities related to continuing operations increased by $18.6 million in 2015 compared to 2014, primarily as a result of lower operating performance, offset by a reduction in expenses. Cash flow from operating activities was unfavorably impacted by a decrease in accounts payable of $18.3 million compared to 2014 due to the timing of payments and a decrease in accrued restructuring of $3.9 million. These unfavorable impacts to cash flow were partially offset by a decrease of income from continuing operations adjusted for non-cash items of $7.4 million primarily due to reduction in operating expenses and a gain of $2.9 million on deconsolidation of our U.K subsidiary due to exiting the market.

Net cash used in operating activities related to continuing operations increased by $32.1 million in 2014 compared to 2013, primarily as a result of lower operating performance. Income from continuing operations adjusted for non-cash items decreased by $37.5 million. In addition, cash flow from operating activities was unfavorably impacted by a decrease in accrued compensation and benefits of $3.8 million compared to 2013 due to lower accruals for commissions and severance, a decrease in deferred revenue of $3.1 million compared to 2013 due to decreased sales, and restructuring payments of $2.6 million that did not occur in 2013. These unfavorable impacts to cash flow were partially offset by an increase in accounts payable of $6.2 million due to a change in timing of payment to vendors, a decrease in accounts receivable of $5.9 million compared to 2013 due to decreased sales, and an increase in deferred rent and other liabilities of $1.9 million compared to 2013 due to increased rent on operating leases and increased sales tax payables related to our international markets.

Investing Activities

Our primary investing activities have consisted of capitalized software development costs, purchases of property and equipment, business acquisitions, investments in a partnership, and short-term investments. Each of these activities varies from period to period due to the timing of the expansion of our operations and our software development efforts.

We invested $13.8 million during 2015, which was a decrease of $21.5 million compared to 2014. The decrease primarily relates to decreases in purchases of property and equipment of $8.6 million and software development costs of $3.2 million as we constrained investment as part of our cost savings initiatives. In addition, in 2014 we made investments that were not matched in 2015, including $5.3 million to acquire Kickserv, an investment of $2.0 million in a privately held partnership and an investment of $1.5 million as part of the SureFire acquisition.

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We invested $35.3 million in 2014, which was an increase of $11.4 million compared to 2013. Our purchases of property and equipment increased by $3.8 million and cash outflow from capitalization of software increased by $2.1 million in 2014 compared to 2013. We made a number of strategic investments totaling $9.1 million, including $5.3 million to acquire Kickserv, $1.5 million as part of the SureFire acquisition, and made an additional $2.0 million in a privately held partnership.

At December 31, 2015, 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 was a long-term project (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 are included in cash used in investing activities. At December 31, 2015, we also had significant deferred revenue arising from prepayment by the great majority of our clients and vendor trade financing, principally for media. If our revenue continues to decline, we would expect our deferred revenue to decrease.

We expect to continue to reduce our use of capital for acquisitions, purchases of property and equipment, and development of software consistent with our cost savings initiatives.

Financing Activities

Our primary financing activities have consisted of borrowing under a term loan and convertible notes, net proceeds from the exercise of stock options, and capital lease obligations.

Net cash provided by financing activities increased by $6.8 million during 2015 compared to 2014, due to $24.7 million of net proceeds from the term loan entered into during April 2015, offset by segregation of $15.0 million of the term loan proceeds as restricted cash, and $5.0 million of proceeds from convertible notes issued to a related party. The increase was offset by a decrease in net proceeds from the exercise of stock options of $6.4 million. In addition, during 2015, we made a final payment totaling $0.5 million for the earn-out and indemnity holdback related to the acquisition of SureFire.

Net cash provided by financing activities increased by $17.2 million in 2014 compared to 2013, primarily due to the absence of share repurchases in 2014.

Hercules Loan Agreement

On April 30, 2015, we entered into the Hercules Loan Agreement with our direct and indirect domestic subsidiaries, as co-borrowers, Hercules Technology Growth Capital, Inc. (“Hercules”), as administrative agent, and the lenders party thereto from time to time (the “Lenders”), including Hercules, pursuant to which the Lenders agreed to make a term loan available to us for working capital and general business purposes, in a principal amount of $25.0 million. The term loan has an annual interest rate equal to the greater of (i) 11.75% and (ii) the sum of (a) the prime rate, plus (b) 8.50%. During December 2015, the annual interest rate increased from 11.75% to 12.00%. The annual interest rate on the Hercules Loan was 12.00% at December 31, 2015. On the closing date we paid a fee of $0.3 million, which is to be credited against the final payment, and debt issuance costs of $0.2 million.

We are required to make interest-only payments on the term loan through May 1, 2016, though such payments may be extended through August 1, 2016 and November 1, 2016 if we remain in continuous compliance with the financial covenants under the Hercules Loan Agreement through April 1, 2016 and July 1, 2016, respectively, and no default or event of default has occurred and is continuing on such dates. The term loan will begin amortizing at the end of the applicable interest-only period, with monthly payments of principal and interest to the Lenders in consecutive monthly installments following the end of such interest-only period. The term loan matures on April 1, 2018 or, if the interest-only payments are extended through November 1, 2016, the term loan will mature October 1, 2018. Upon repayment of the term loan, we are also required to make an end-of-term payment to the Lenders equal to $1.5 million, which is accrued as interest based on the effective interest method over the 3-year term of the Hercules Loan Agreement. The term loan is secured by substantially all of our personal property, including our intellectual property.

At our option, the outstanding principal balance of the term loan may be prepaid in whole, or in part in a minimum amount of $2.5 million, subject to a prepayment fee of 3% of any amount prepaid if the prepayment occurs on or prior to April 30, 2016, or 2% of the amount prepaid if the prepayment occurs after April 30, 2016 but on or prior to April 30, 2017. If the prepayment occurs after April 30, 2017, there is no prepayment fee.

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The Hercules Loan Agreement includes covenants applicable to us, which include restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions. These restrictions also include a maximum net new investment in our foreign subsidiaries, subject to certain exclusions of $8.0 million during 2015, $5.5 million during 2016, $4.0 million annually thereafter, and $18.0 million in the aggregate during the term of the agreement. Additionally, the Hercules Loan Agreement includes financial covenant requirements to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term, as amended on August 3, 2015 from September 30, 2015 through December 31, 2015. These minimum levels of revenue and earnings were waived for compliance for November and December 2015 as amended on November 9, 2015. Under the Hercules Loan Agreement, we are required to maintain minimum cash in North America in an amount equal to $15.0 million at all times, as amended on December 17, 2015, unless we achieve positive “Adjusted EBITDA” as defined, for three consecutive quarters, in which case the minimum cash and cash equivalent balance decreases to $12.5 million. We achieved positive “Adjusted EBITDA” as defined, during the quarters ended September 30, 2015 and December 31, 2015, which qualifies as two quarters of the required three consecutive quarters. The Hercules Loan Agreement also includes events of default, the occurrence and continuation of which provide Hercules, as administrative agent, with the right to exercise remedies against us and the collateral securing the term loan, including potential foreclosure against our assets securing the Hercules Loan Agreement, including our cash. The Hercules Loan Agreement also contains a subjective acceleration clause that can be triggered if we experience a Material Adverse Effect, as defined in the Hercules Loan Agreement, which would be considered an event of default.

On August 3, 2015, we entered into an amendment to the Hercules Loan Agreement, which reduced the term loan’s covenant thresholds for revenue for the months ending September 30, 2015 through December 31, 2015. On November 9, 2015, we entered into a second amendment to the Hercules Loan Agreement with Hercules, which waives compliance with the term loan’s revenue and earnings covenant thresholds for November and December 2015. In connection with the amendment, we (i) paid Hercules a one-time fee of $0.2 million, (ii) reset the schedule of prepayment fees to begin from November 9, 2015, instead of April 30, 2016, and (iii) agreed to amend the Hercules warrant as described below. On December 17, 2015, we entered into the third amendment to the Hercules Loan Agreement, which reduces the amount of restricted cash we are required to maintain in North America from $17.5 million to $15.0 million and which amount will further be reduced to $12.5 million if we achieve positive “Adjusted EBITDA” as defined in the loan agreement. We are in compliance with all of the Hercules Loan Agreement’s covenants as of December 31, 2015.

Concurrently with entrance into the Hercules Loan Agreement, we issued to Hercules, as the sole lender on the closing date, a warrant to purchase up to 177,304 shares of our common stock, at an exercise price of $2.82 per share. In connection with the November 9, 2015 Hercules Loan Agreement amendment, we agreed to amend the warrant to increase the number of shares to 300,000 and reduce the exercise price to $0.85. The warrant is exercisable in full and not in part. In addition, if upon the sale of all shares issued upon exercise of the warrant, or in the case of a merger or sale transaction involving other securities in whole or in part, upon the sale of such securities, the absolute return on the warrant exceeds $2.55 per share underlying the warrant, the warrant holder will pay us the excess in cash. The warrant may be exercised either for cash or on a cashless basis. The warrant expires April 30, 2022. We estimated the fair value of the warrant to be $0.3 million based on its relative fair value to the term loan using a Black-Sholes pricing model and accounted for the warrant as a discount on the carrying amount of the term loan and a component of additional paid-in capital. The fair value of the warrant will be amortized in the statement of operations as a component of interest expense.

 VantagePoint Convertible Notes (Related Party)

On December 17, 2015, we entered into a convertible note purchase agreement with affiliates of our largest shareholder, VantagePoint Capital Partners (“VantagePoint”), for the immediate issuance of $5.0 million of Convertible Second Lien Subordinated Notes (the “VantagePoint Notes”). The note purchase agreement also provides for the issuance and sale of up to an additional $5.0 million aggregate principal amount of convertible notes, upon mutual agreement of ReachLocal and VantagePoint (and Hercules’ consent). The notes bear an annual interest rate of 4%, compounded quarterly. We are required to begin making quarterly interest and principal payments on April 15, 2017, subject to a subordination agreement with Hercules. The VantagePoint Notes mature on April 15, 2018, and remaining principal payments and unpaid interest is due at that time. The holders of the VantagePoint Notes have the right to convert any portion of the VantagePoint Notes into shares of ReachLocal common stock, par value $0.00001 per share, at an initial conversion rate of 200 shares of common stock per $1,000 principal amount of VantagePoint Notes, which represents an initial conversion price of $5.00 per share. The conversion rate is subject to customary anti-dilution adjustments for stock dividends, splits and combinations, certain distributions on the common stock, including cash dividends, spin-offs and certain tender or exchange offers for the common stock. An event of default, as defined in the agreement, may result in the acceleration of the maturity of the notes. The VantagePoint Notes are included in convertible notes – related party in our accompanying consolidated balance sheet. 

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On February 4, 2016, we entered into an amendment to the VantagePoint Notes. The amendment provides that, except in certain circumstances, the convertibility of the VantagePoint Notes is limited such that conversion may not result in the holders collectively acquiring beneficial ownership of more than 1.9% of our outstanding shares of common stock during any 12-month period.

VantagePoint and its affiliates beneficially own approximately 43% of our common stock and VantagePoint’s Chief Executive Officer and Managing Partner, is a member of our Board of Directors.

The agreement governing the notes and the term loan contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under the term loan to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.

Liquidity

During 2015, we experienced declining revenues as a result of challenging market conditions and worse than expected performance in our international markets. These conditions, combined with our initiatives to transform the business and focus on profitable revenue, have had a significant negative impact on our operating results and cash flows. As a result, we have taken a number of steps to reduce expenses and improve our results of operations through, for example, our 2015 Restructuring Plan, including cost-saving measures, such as workforce reductions, downsizing certain facilities in North America, as well as reductions of general corporate expenses and capital expenditures.

In order to provide additional liquidity to meet working capital and capital resource requirements, on April 30, 2015, we entered into the Hercules Loan Agreement for a $25.0 million term loan. We received $24.7 million of net proceeds from the term loan, $15.0 million of which is considered restricted cash required under the terms of the Hercules Loan Agreement. In addition, on December 17, 2015, we entered into a convertible note purchase agreement with affiliates of its largest shareholder for the immediate issuance of $5.0 million of the VantagePoint Notes. The note purchase agreement also provides for the issuance and sale of up to an additional $5.0 million aggregate principal amount of convertible notes, upon mutual agreement of ReachLocal and VantagePoint (and Hercules’ consent). We are required to make interest-only payments on the Hercules term loan through May 1, 2016, though such payments may be extended through August 1, 2016 and November 1, 2016 if we remain in continuous compliance with the financial covenants under the Hercules Loan Agreement through April 1, 2016 and July 1, 2016, respectively, and no default or event of default has occurred and is continuing on such dates. Upon repayment of the term loan, we are also required to make an end-of-term payment to the Lenders equal to $1.5 million, which is accrued as interest based on the effective interest method over the 3-year term of the Hercules Loan Agreement. The term loan is secured by substantially all of our personal property, including our intellectual property. We are required to begin making quarterly interest and principal payments on the VantagePoint Notes on April 15, 2017, subject to a subordination agreement with Hercules.

The Hercules Loan Agreement includes covenants applicable to the Company and its subsidiaries, which include restrictions on transferring collateral, incurring additional indebtedness, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions, as well as financial covenant requirements to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term. These restrictions also include a maximum net new investment in our foreign subsidiaries, subject to certain exclusions of $8.0 million during 2015, $5.5 million during 2016, $4.0 million annually thereafter, and $18.0 million in the aggregate during the term of the agreement. The Hercules Loan Agreement also contains a subjective acceleration clause that can be triggered if we experience a Material Adverse Effect, as defined in the Hercules Loan Agreement, which would be considered an event of default. On August 3, 2015, we entered into an amendment to the Hercules Loan Agreement, which reduced the Hercules Loan Agreement’s covenant thresholds for revenue for the months ending September 30, 2015 through December 31, 2015. On November 9, 2015, we entered into an amendment to the Hercules Loan Agreement, which waived compliance with the revenue and earnings covenant thresholds for November and December 2015. In connection with the amendment, we (i) paid Hercules a one-time fee of $0.2 million, (ii) reset the schedule of prepayment fees to begin from November 9, 2015, instead of April 30, 2016, and (iii) agreed to amend the Hercules Warrant. As of December 31, 2015, we were in compliance with all financial covenants of the Hercules Loan Agreement.

Our operating losses and capital expenditures more than offset the $15.0 million of net unrestricted cash from the Hercules Loan Agreement and VantagePoint Notes, resulting in cash and cash equivalents of $18.8 million and short-term investments of $0.4 million at December 31, 2015. 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, although some of those balances are subject to foreign currency exchange risk (see Item 3, “Foreign Currency Exchange Risk,” for more information). 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, 2015, we had restricted cash in North America related to the minimum cash balance required to be maintained under the terms of the Hercules Loan Agreement of $15.0 million. If we achieve positive “Adjusted EBITDA” as defined in the Loan Agreement, for three consecutive quarters, the minimum cash balance decreases to $12.5 million. We achieved positive “Adjusted EBITDA” as defined during the quarters ended September 30, 2015 and December 31, 2015, which qualifies as two quarters of the required three consecutive quarters. Also, at December 31, 2015, we had restricted cash related to certificates of deposits held at financial institutions that are pledged as collateral for letters of credit related to lease commitments, collateral for merchant accounts, and cash deposits funded to a restricted account determined on a monthly basis in accordance with our employee health care self-insurance plan in the amount of $3.5 million, of which, $0.2 million relate to the employee health care self-insurance plan. Our current liabilities exceeded our current assets by $60.6 million at December 31, 2015, and we incurred an operating loss of $61.5 million for the year then ended.

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We believe that we will be able to maintain compliance with the minimum cash balance in North America in excess of $15.0 million through March 31, 2016, and subsequently maintain a minimum cash balance in North America of $12.5 million in accordance with achievement of positive “Adjusted EBITDA” as defined above. We also believe that we will extend our interest-only payments through November 1, 2016 by maintaining continuous compliance and not experiencing a default or event of default through July 1, 2016. In addition, we believe that we will be able to maintain compliance with the other financial covenants contained in the Hercules Loan Agreement through 2016 as a result of our cost and capital expenditure control measures. We believe that we will be able to achieve the revenue and earnings targets for 2016 under the Hercules Loan Agreement, which equal 90% of the revenue estimated in our 2016 operating plan and 70% and 80% of the earnings estimated for the first and second six months, respectively, in our 2016 operating plan as approved by our board of directors.

To meet our liquidity needs, we expect to minimize increases in personnel until our business performance has improved and supports additional costs. However, we may need to implement further cost reductions in our operating expenses to maintain a sufficient cash balance to fund its operations and maintain compliance with the minimum cash balance requirement under the Hercules Loan Agreement. Should it become necessary, we would implement additional cost reductions primarily through forgoing certain discretionary compensation increases, and further constraining identified non-critical product investments, and marketing and other costs, including reductions in personnel related to those activities. These identified potential actions, commencing as soon as May 2016, comprise a developed plan to reduce such costs by $4.6 million, net of implementation costs. In addition, we would consider borrowing up to an additional $5.0 million under the current VantagePoint notes purchase agreement, however such borrowings would be subject to VantagePoint’s willingness to lend and Hercules’ consent. We will continue to evaluate the extent and effectiveness of our cost-saving measures and monitor expenses compared to revenue and intend to implement additional cost reductions in future periods if and as circumstances warrant. However, there can be no assurance that these actions will be successful or that further adverse events outside of our control may arise that would result in our inability to comply with the Hercules Loan Agreement’s covenants. If an event of default were to occur, we may be required to obtain a further amendment or a waiver to the Hercules Loan Agreement, refinance the term loan, divest non-core assets or operations and/or obtain additional equity or debt financing. If we were unable to obtain such a waiver or amendment, or consummate such a transaction, the administrative agent could exercise remedies against us and the collateral securing the term loan, including potential foreclosure against our assets securing the Hercules Loan Agreement, including our cash. Further, the VantagePoint Notes and Hercules Loan Agreement contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under the term loan to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.

In consideration of these conditions, we currently anticipate that funds expected to be generated from operations, including cost-saving measures we have taken and intend to take will be sufficient to meet our anticipated cash requirements through at least the next twelve months. However, there is no assurance that the results of operations and cash flows expected during that period of time will be achieved

Off-Balance Sheet Arrangements

At December 31, 2015, we did not have any off-balance sheet arrangements.

Contractual Obligations

The following table presents certain payments due under contractual obligations with minimum firm commitments as of December 31, 2015:

	Payments due by period (in thousands)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations	$	41,693		9,070		14,923		8,762		8,938
Hercules loan agreement (1)		24,700		8,662		16,038		—		—
VantagePoint notes (2)		5,000		—		5,000		—		—
Aggregate interest obligation (3)		6,391		2,985		3,406		—		—
Purchase obligations		2,556		2,556		—		—		—
Capital lease obligations (4)		1,233		734		499		—		—
Total contractual obligations	$	81,573		24,007		39,866		8,762		8,938

__________

(1) Represents principal payments due on debt, including the credit against the final payment.

(2) The VantagePoint Notes are subject to a subordination agreement with Hercules such that the VantagePoint Notes are subordinated in right of repayment to all of our obligations under the Hercules Loan Agreement. In accordance with the subordination agreement, payment of the VantagePoint Notes would commence in the second quarter of 2018.

(3) Represents estimated aggregate interest obligations for our outstanding debt obligations that are payable in cash, including the end of term charge under the Hercules Loan agreement, and excluding capital lease obligations and, the non-cash amortization of debt issuance costs.

(4) Includes principal and imputed interest.

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Operating Leases

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 2015 and 2024. All of our property and equipment have been purchased for cash or leased pursuant to capital leases.  

During 2015, we recorded facilities restructuring charges related to lease termination costs as a result of closing facilities as part of our restructuring plan. Operating lease payments in the table above include approximately $2.4 million of lease payments related to terminated or restructured leases, net of actual sublease income of $0.4 million, from operating lease commitments for those facilities. Amounts related to the lease terminations will be paid over the respective lease terms, the longest of which extends through 2024.

Hercules Loan Agreement

We have entered into the Loan Agreement with a principal amount of $25.0 million. The term loan has an annual interest rate equal to the greater of (i) 11.75% and (ii) the sum of (a) the prime rate, plus (b) 8.50%. The annual interest rate as of December 31, 2015 was 12.00%. We are required to make interest-only payments on the Hercules term loan through May 1, 2016, though such payments may be extended through August 1, 2016 and November 1, 2016 if we remain in continuous compliance with the financial covenants under the Hercules Loan Agreement through April 1, 2016 and July 1, 2016, respectively, and no default or event of default has occurred and is continuing on such dates. The term loan matures on April 1, 2018 or, if the interest-only payments are extended through November 1, 2016, the term loan will mature October 1, 2018. For more information see the Financing Activities section above.

VantagePoint Convertible Notes (Related Party)

We have entered into a convertible note agreement for the immediate issuance of $5.0 million of Convertible Second Lien Subordinated Notes. The notes bear an annual interest rate of 4%, compounded quarterly, and mature on April 15, 2018. Quarterly principle and interest payments are due starting April 15, 2017, subject to a subordination agreement with Hercules. For more information see the Financing Activities section above.

Purchase Obligations

We have long-term purchase obligations outstanding with partners and third-party service providers for enhanced marketing functionality for our clients and for internal business software.

Capital Leases

We have entered into non-cancelable capital leases for computer equipment. We recorded $1.2 million of capital leases, net of accumulated amortization of $0.8 million. The interest rates on these leases range from 4.8% to 5.2%. Interest payable on the lease obligations was $0.1 million as of December 31, 2015.

Recent Accounting Pronouncements Adopted in 2015

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. We early adopted this standard retrospectively and reclassified all of our current deferred tax assets to noncurrent deferred tax assets on our consolidated balance sheets for all periods presented. Adoption resulted in a $1.8 million decrease in prepaid expenses and other current assets, a $0.1 million increase in other assets, and a $1.7 million increase in deferred rent and other liabilities in our Consolidated Balance Sheet as of December 31, 2014.

In April 2015, the FASB issued ASU No. 2015-03, Interest- Imputation of Interest. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. The amendments in this update are effective for us as of January 1, 2016. We early adopted this update in the second quarter of 2015.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date, and was effective for us as of January 1, 2015. We have applied this guidance to our consolidated financial statements in 2015.

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Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases. The amendments in this update supersedes the guidance in former Accounting Standards Codification (“ASC”) 840, Leases with ASC 842, Leases, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The amendments in this update are effective for us as of January 1, 2019. Early application of this update is permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. We are currently assessing the impact of this update on our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments- Overall. The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update are effective for us as of January 1, 2018. Early application of certain aspects of the amendment is permitted by public entities, otherwise early adoption is not permitted. We are currently assessing the impact of this update on our consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an acquirer to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for us as of January 1, 2016. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update. We are currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software. The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments in this update are effective for us as of January 1, 2016. We are currently assessing the impact of this update on our consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation. The amendments in this update require management to reevaluate whether certain legal entities should be consolidated. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminate the presumption that a general partner should consolidate a limited partnership, (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update are effective for us as of January 1, 2016. We are currently assessing the impact of this update, and believe that its adoption on January 1, 2016 will not have a material impact on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern. The amendments in this update require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for us as of January 1, 2017. Early application is permitted. The adoption of this standard is not expected to have an impact on our consolidated financial statements.

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In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update will be effective for us as of January 1, 2016. Earlier adoption is permitted. Entities may apply the amendments in this update either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. We are currently assessing the impact of this update, and believe that its adoption on January 1, 2016 will not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The guidance in this update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance throughout the Codification. Additionally, this update supersedes some cost guidance included in ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of ASC 360, Property, Plant, and Equipment, and intangible assets, within the scope of ASC 350, Intangibles - Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement in this update. The standard was to be effective for us as of January 1, 2017, but in August 2015, the FASB delayed the effective date of the new revenue accounting standard to January 1, 2019, and will permit early adoption as of the original effective date. Earlier adoption is not otherwise permitted for public entities. An entity can apply the revenue standard retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings (simplified transition method). We are currently assessing the impact of this update on our consolidated financial statements.

 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

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.

On April 30, 2015, we entered into the Hercules Loan Agreement for a $25.0 million term loan. The term loan bears interest at the prime rate plus 8.5% (with a prime rate floor of 3.25%), which increases our risk exposure to increases in interest rates. During December 2015, the annual interest rate increased from 11.75% to 12.00%. Accordingly, a one percentage point increase in the prime rate above the floor would result in net additional annual interest expense on our outstanding borrowings as of December 31, 2015 of $0.2 million.

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, including 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, 2015, a 10% strengthening of the U.S. dollar relative to those foreign currencies would have resulted in a decrease in revenue of $14.0 million, but an increase in operating income of $0.9 million. A 10% weakening of the U.S. dollar relative to those foreign currencies, however, would have resulted in an increase in revenue of $14.0 million, but a decrease in operating income of $0.9 million. As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations. In addition, approximately 30% 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. We continue to review potential hedging strategies that may reduce the effect of fluctuating currency rates on our business, but there can be no assurances that we will implement such a hedging strategy or that once implemented, such a strategy would accomplish our objectives or not result in losses.

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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. 

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, 2015. 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 the 2013 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, 2015.

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.

(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, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Amendment to Hercules Loan Agreement

On March 25. 2016, the Company and certain of its affiliates entered into a Fourth Amendment to Loan and Security Agreement with Hercules Capital, Inc. (formerly Hercules Technology Capital, Inc.), as administrative agent and lender. The loan amendment amends the Hercules Loan Agreement to increase the maximum net new investment in the Company’s foreign subsidiaries during 2016 from $4.0 million to $5.5 million.

Amended and Restated Employment Letter with Ross G. Landsbaum

On March 28, 2016, the Company entered into an amended and restated employment letter with Ross G. Landsbaum, the Company’s Chief Financial Officer.

The employment letter provides Mr. Landsbaum an annual base salary of $400,000 per year (effective July 1, 2016) and an annual bonus opportunity of up to 100% of his base salary. The employment letter also provides that Mr. Landsbaum’s 2016 annual bonus will not be less than 100% of his base salary. During his employment, Mr. Landsbaum will continue to be eligible to participate in the Company’s health and welfare, retirement and other plans and programs that the company makes available to senior executives from time to time. On March 28, 2016, in connection with entering into the employment letter, Mr. Landsbaum was granted 40,000 restricted stock units pursuant to the Company’s Amended and Restated 2008 Stock Incentive Plan, which will vest 25% on the one-year anniversary of the date on which we entered into the employment letter, and quarterly thereafter for the subsequent three years, subject to Mr. Landsbaum’s continued employment through the applicable vesting date.

Under the employment letter, upon the occurrence of a “change in control” (as defined in the Company’s Change in Control and Severance Policy (the “Severance Policy”)) of the Company, then Mr. Landsbaum will be entitled to receive his 2016 annual bonus and each of Mr. Landsbaum’s equity awards will, immediately prior to the occurrence of the change in control, vest with respect to 100% of the then-remaining outstanding unvested shares. Mr. Landsbaum’s employment letter also provides that he will be eligible to participate in the Severance Policy as a Group A participant.In the event Mr. Landsbaum gives the Company at least three months’ notice, he may resign effective December 31, 2016 and receive certain severance benefits available to him as a Group A Participant under the Severance Policy.

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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 2016 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 our 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 2016 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 2016 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 2016 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 2016 Annual Meeting of Stockholders.

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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
ReachLocal, Inc. Consolidated Financial Statements
	Report of Independent Registered Public Accounting Firm	F-2
	Consolidated Balance Sheets	F-3
	Consolidated Statements of Operations	F-4
	Consolidated Statements of Comprehensive Loss	F-5
	Consolidated Statements of Stockholders’ Equity (Deficit)	F-6
	Consolidated Statements of Cash Flows	F-7
	Notes to the Consolidated Financial Statements	F-8

The exhibits listed in the accompanying Exhibit Index are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

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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. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2015. 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. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Irvine, California

March 30, 2016

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REACHLOCAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	December 31, 2015			December 31, 2014
Assets
Current Assets:
Cash and cash equivalents	$	18,833		$	43,720
Short-term investments		359			904
Accounts receivable, net of allowance for doubtful accounts of $803 and $961 at December 31, 2015 and December 31, 2014, respectively		6,278			7,844
Prepaid expenses and other current assets		8,296			7,855
Total current assets		33,766			60,323
Property and equipment, net		13,550			19,639
Capitalized software development costs, net		20,691			21,555
Restricted cash - term loan		15,000			—
Restricted cash		3,502			3,589
Intangible assets, net		4,011			5,492
Non-marketable investments		9,000			9,000
Other assets		2,547			3,601
Goodwill		20,129			48,189
Total assets	$	122,196		$	171,388
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Accounts payable	$	33,581		$	44,874
Accrued compensation and benefits		14,478			15,972
Deferred revenue		22,985			29,016
Accrued restructuring		3,329			3,196
Term loan		8,352			—
Capital lease		698			624
Other current liabilities		10,166			12,316
Liabilities of discontinued operations		804			850
Total current liabilities		94,393			106,848
Term loan		16,194			—
Convertible notes – related party		5,000			—
Capital lease		484			1,103
Deferred rent and other liabilities		8,111			10,513
Total liabilities		124,182			118,464
Commitments and contingencies (Note 8)
Stockholders’ Equity (Deficit):
Common stock, $0.00001 par value—140,000 shares authorized; 29,639 and 29,269 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively		—			—
Receivable from stockholder		(55	)		(65	)
Additional paid-in capital		140,398			132,080
Accumulated deficit		(136,084	)		(74,569	)
Accumulated other comprehensive loss		(6,245	)		(4,522	)
Total stockholders’ equity (deficit)		(1,986	)		52,924
Total liabilities and stockholders’ equity (deficit)	$	122,196		$	171,388

See notes to consolidated financial statements.

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REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Years Ended December 31,
	2015			2014			2013
Revenue	$	382,597		$	474,921		$	514,070
Cost of revenue		213,409			252,721			256,450
Operating expenses:
Selling and marketing		126,966			182,720			182,854
Product and technology		28,414			27,510			22,240
General and administrative		39,332			52,155			46,362
Restructuring charges		7,546			5,927			—
Impairment of goodwill		27,800			—			—
Total operating expenses		230,058			268,312			251,456
Operating income (loss)		(60,870	)		(46,112	)		6,164
Gain on deconsolidation of subsidiary, net		2,853			—			—
Interest expense		(2,790	)		(67	)		(14	)
Other income (expense), net		(339	)		1,003			600
Income (loss) from continuing operations before income taxes		(61,146	)		(45,176	)		6,750
Income tax provision		369			484			3,699
Income (loss) from continuing operations		(61,515	)		(45,660	)		3,051
Income (loss) from discontinued operations, net of income tax of $11, and $3,036 for the years ended December 31, 2014, and 2013, respectively		—			650			(5,534	)
Net loss	$	(61,515	)	$	(45,010	)	$	(2,483	)
Net income (loss) per share:
Basic:
Income (loss) from continuing operations	$	(2.11	)	$	(1.60	)	$	0.11
Income (loss) from discontinued operations, net of income taxes		—			0.02			(0.20	)
Net loss per share	$	(2.11	)	$	(1.58	)	$	(0.09	)
Diluted:
Income (loss) from continuing operations	$	(2.11	)	$	(1.60	)	$	0.11
Income (loss) from discontinued operations, net of income taxes		—			0.02			(0.20	)
Net loss per share	$	(2.11	)	$	(1.58	)	$	(0.09	)
Weighted average common shares used in the computation of income (loss) per share:
Basic		29,174			28,461			27,764
Diluted		29,174			28,461			29,051

See notes to consolidated financial statements.

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REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

	Years Ended December 31,
	2015			2014			2013
Net loss	$	(61,515	)	$	(45,010	)	$	(2,483	)
Other comprehensive loss:
Foreign currency translation adjustments		(1,723	)		(588	)		(2,412	)
Comprehensive loss	$	(63,238	)	$	(45,598	)	$	(4,895	)

See notes to consolidated financial statements.

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REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)   

	Common Stock					Receivable from			Additional Paid-in			Accumulated			Accumulated Other Comprehensive Income			Total Stockholders’ Equity
	Shares			Amount		Stockholder			Capital			Deficit			(Loss)			(Deficit)
Balance as of December 31, 2012		28,154			—	$	(89	)	$	110,573		$	(27,076	)	$	(1,522	)	$	81,886
Issuance of common stock related to stock-based compensation plans		1,495			—		—			6,681			—			—			6,681
Stock-based compensation		—			—		—			12,332			—			—			12,332
Common and restricted stock issued in business combinations		5			—		—			126			—			—			126
Common stock repurchase		(1,395	)		—		—			(18,963	)		—			—			(18,963	)
Excess tax benefits from stock-based awards		—			—		—			1,185			—			—			1,185
Net loss		—			—		—			—			(2,483	)		—			(2,483	)
Foreign currency translation adjustments		—			—		16			—			—			(2,412	)		(2,396	)
Balance as of December 31, 2013		28,259			—		(73	)		111,934			(29,559	)		(3,934	)		78,368
Issuance of common stock related to stock-based compensation plans		1,010			—		—			6,438			—			—			6,438
Stock-based compensation		—			—		—			13,777			—			—			13,777
Common stock repurchase		—			—		—			(69	)		—			—			(69	)
Net loss		—			—		—			—			(45,010	)		—			(45,010	)
Foreign currency translation adjustments		—			—		8			—			—			(588	)		(580	)
Balance as of December 31, 2014		29,269			—		(65	)		132,080			(74,569	)		(4,522	)		52,924
Issuance of common stock related to stock-based compensation plans		370			—		—			7			—			—			7
Stock-based compensation		—			—		—			8,068			—			—			8,068
Common stock repurchase		—			—		—			(7	)		—			—			(7	)
Issuance of Hercules Warrant		—			—		—			250			—			—			250
Net loss		—			—		—			—			(61,515	)		—			(61,515	)
Foreign currency translation adjustments		—			—		10			—			—			(1,723	)		(1,713	)
Balance as of December 31, 2015		29,639		$	—	$	(55	)	$	140,398		$	(136,084	)	$	(6,245	)	$	(1,986	)

See notes to consolidated financial statements.

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REACHLOCAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2015			2014			2013
Cash flows from operating activities:
Income (loss) from continuing operations	$	(61,515	)	$	(45,660	)	$	3,051
Adjustments to reconcile income (loss) from continuing operations, net of income taxes, to net cash provided by (used in) operating activities:
Depreciation and amortization		19,681			17,394			15,096
Goodwill impairment loss		27,800			—			—
Stock-based compensation		8,671			13,260			11,505
Restructuring charges		7,546			5,927			—
Gain on deconsolidation of subsidiary		(2,853	)		—			—
Excess tax benefits from stock-based awards		—			—			(1,185	)
Loss on disposal of property and equipment		168			—			—
Provision for doubtful accounts		260			1,649			2,304
Contingent consideration—fair value adjustment		—			(416	)		—
Non-cash interest expense		641			17			—
Impairment of loan to franchisee		—			—			3,279
Deferred taxes, net		93			873			(3,500	)
Changes in operating assets and liabilities:
Accounts receivable		703			(460	)		(6,317	)
Prepaid expenses and other current assets		(1,077	)		701			121
Other assets		222			(669	)		(1,175	)
Accounts payable		(9,185	)		9,081			2,906
Accrued compensation and benefits		(151	)		(557	)		3,292
Deferred revenue		(4,541	)		(3,400	)		(255	)
Accrued restructuring		(6,510	)		(2,564	)		—
Deferred rent and other liabilities		9			3,421			1,565
Net cash provided by (used in) operating activities, continuing operations		(20,038	)		(1,403	)		30,687
Net cash used in operating activities, discontinued operations		(45	)		(915	)		(4,001	)
Net cash provided by (used in) operating activities		(20,083	)		(2,318	)		26,686
Cash flows from investing activities:
Additions to property, equipment and software		(13,894	)		(25,735	)		(19,748	)
Acquisitions, net of acquired cash		—			(7,089	)		(363	)
Loan to franchisee		—			—			(1,221	)
Investments in non-marketable investments		—			(2,000	)		(2,500	)
Purchases of certificates of deposits and short-term investments		—			(474	)		(2,578	)
Maturities of certificates of deposits and short-term investments		124			—			2,561
Net cash used in investing activities, continuing operations		(13,770	)		(35,298	)		(23,849	)
Net cash used in investing activities, discontinued operations		—			—			(3,180	)
Net cash used in investing activities		(13,770	)		(35,298	)		(27,029	)
Cash flows from financing activities:
Proceeds from term loan, net		24,700			—			—
Restricted cash – term loan		(15,000	)		—			—
Issuance of convertible notes (related party)		5,000			—			—
Payment of deferred and contingent consideration		(529	)		—			—
Proceeds from exercise of stock options		7			6,438			6,681
Excess shortfalls from stock-based awards		—			—			1,185
Principal payments on capital lease obligations		(752	)		(259	)		—
Term loan costs		(542	)		—			—
Common stock repurchases		(7	)		(69	)		(18,963	)
Net cash provided by (used in) financing activities		12,877			6,110			(11,097	)
Effect of exchange rate changes on cash and cash equivalents		(3,911	)		(2,288	)		(3,366	)
Net change in cash and cash equivalents		(24,887	)		(33,794	)		(14,806	)
Cash and cash equivalents—beginning of year		43,720			77,514			92,320
Cash and cash equivalents—end of year	$	18,833		$	43,720		$	77,514

See notes to consolidated financial statements.

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REACHLOCAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

ReachLocal, Inc.’s (the “Company”) operations are located in the United States, Canada, Australia, New Zealand, Japan, Germany, the Netherlands, Austria, Brazil, Mexico, and India. The Company’s mission is to provide more customers to local businesses around the world. The Company offers online marketing products and solutions in three categories: digital advertising (including ReachSearch™, ReachRetargeting™, ReachDisplay™, and ReachDisplay InApp^TM), software (ReachEdge™ and Kickserv™), and web presence (including ReachSEO™, ReachCast™, ReachSite + ReachEdge™, and TotalLiveChat™). The Company delivers its suite of products and solutions to local businesses through a combination of its proprietary technology platform, its direct inside and outside sales force, and select third-party agencies and resellers. 

Liquidity and Capital Resources

During 2015, the Company experienced declining revenues as a result of challenging market conditions and worse than expected performance in the Company’s international markets. These conditions, combined with the Company’s initiatives to transform the business and focus on profitable revenue, have had a significant negative impact on its operating results and cash flows. As a result, the Company has taken a number of steps to reduce expenses and improve its results of operations through, for example, its 2015 Restructuring Plan, including cost-saving measures such as workforce reductions, downsizing certain facilities in North America, as well as reductions of general corporate expenses and capital expenditures.

      In order to provide additional liquidity to meet working capital and capital resource requirements, on April 30, 2015, the Company entered into a Loan and Security Agreement (the “Hercules Loan Agreement”) for a $25.0 million term loan. The Company received $24.7 million of net proceeds from the term loan, $15.0 million of which is considered restricted cash required under the terms of the Hercules Loan Agreement. In addition, on December 17, 2015, the Company entered into a convertible note purchase agreement with affiliates of its largest shareholder for the immediate issuance of $5.0 million of Convertible Second Lien Subordinated Notes (the “VantagePoint Notes”). The note purchase agreement also provides for the issuance and sale of up to an additional $5.0 million aggregate principal amount of convertible notes, upon mutual agreement of ReachLocal and VantagePoint (and Hercules’ consent). The Company is required to make interest-only payments on the Hercules term loan through May 1, 2016, though such payments may be extended through August 1, 2016 and November 1, 2016 if the Company remains in continuous compliance with the financial covenants under the Hercules Loan Agreement through April 1, 2016 and July 1, 2016, respectively, and no default or event of default has occurred and is continuing on such dates. Upon repayment of the term loan, the Company is also required to make an end-of-term payment to the Lenders equal to $1.5 million, which is accrued as interest based on the effective interest method over the 3-year term of the Hercules Loan Agreement. The term loan is secured by substantially all of the Company’s personal property, including the Company’s intellectual property. The Company is required to begin making quarterly interest and principal payments on the VantagePoint Notes on April 15, 2017, subject to a subordination agreement with Hercules.

The Hercules Loan Agreement includes covenants applicable to the Company, which include restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions, as well as financial covenant requirements to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term. These restrictions also include a maximum net new investment in the Company’s foreign subsidiaries, subject to certain exclusions of $8.0 million during 2015, $5.5 million during 2016, $4.0 million annually thereafter, and $18.0 million in the aggregate during the term of the agreement. The Hercules Loan Agreement also contains a subjective acceleration clause that can be triggered if the Company experiences a Material Adverse Effect, as defined in the Hercules Loan Agreement, which would be considered an event of default. On August 3, 2015, the Company entered into an amendment to the Hercules Loan Agreement, which reduced the Hercules Loan Agreement’s covenant thresholds for revenue for the months ending September 30, 2015 through December 31, 2015. On November 9, 2015, the Company entered into an amendment to the Hercules Loan Agreement, which waived compliance with the revenue and earnings covenant thresholds for November and December 2015. In connection with the amendment, the Company (i) paid Hercules a one-time fee of $0.2 million, (ii) reset the schedule of prepayment fees to begin from November 9, 2015, instead of April 30, 2016, and (iii) agreed to amend the Hercules Warrant as described in Note 13, Debt and Other Obligations. The Company is in compliance with all of the Hercules Loan Agreement’s covenants as of December 31, 2015.

The Company’s operating losses and capital expenditures more than offset the $15.0 million of net unrestricted cash from the Hercules Loan Agreement and VantagePoint Notes, resulting in cash and cash equivalents of $18.8 million and short-term investments of $0.4 million at December 31, 2015. To date, the Company has experienced no loss of its invested cash, cash equivalents or short-term investments, although some of those balances are subject to foreign currency exchange risk. The Company cannot, however, provide any assurances that access to its invested cash, cash equivalents and short-term investments will not be impacted by adverse conditions in the financial markets. At December 31, 2015, the Company had restricted cash in North America related to the minimum cash balance required to be maintained under the terms of the Hercules Loan Agreement of $15.0 million. If the Company achieves positive “Adjusted EBITDA” as defined in the Hercules Loan Agreement, for three consecutive quarters, the minimum cash balance decreases to $12.5 million. The Company achieved positive “Adjusted EBITDA” as defined, during the quarters ended September 30, 2015 and December 31, 2015, which qualifies as two quarters of the required three consecutive quarters. Also, at December 31, 2015, the Company had restricted cash related to certificates of deposits held at financial institutions that are pledged as collateral for letters of credit related to lease commitments, collateral for merchant accounts, and cash deposits funded to a restricted account determined on a monthly basis in accordance with its employee health care self-insurance plan in the amount of $3.5 million, of which, $0.2 million relate to the employee health care self-insurance plan. The Company’s current liabilities exceeded its current assets by $60.6 million at December 31, 2015, and it incurred an operating loss of $61.5 million for the year then ended.

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The Company believes that it will be able to maintain compliance with the minimum cash balance in North America in excess of $15.0 million through March 31, 2016, and subsequently maintain a minimum cash balance in North America of $12.5 million in accordance with achievement of positive “Adjusted EBITDA” as defined above. The Company also believes that it will extend its interest-only payments through November 1, 2016 by maintaining continuous compliance and not experiencing a default or event of default through July 1, 2016. In addition, the Company believes that it will be able to maintain compliance with the other financial covenants contained in the Hercules Loan Agreement through 2016 as a result of its implemented cost and capital expenditure control measures. The Company believes that it will be able to achieve the revenue and earnings targets for 2016 under the Hercules Loan Agreement, which equal 90% of the revenue estimated in the Company’s 2016 operating plan and 70% and 80% of the earnings estimated for the first and second six months, respectively, in the Company’s 2016 operating plan as approved by the Company’s board of directors.

To meet the Company’s liquidity needs, management expects to minimize increases in personnel until the Company’s business performance has improved and supports additional costs. However, the Company may need to implement further cost reductions in its operating expenses to maintain a sufficient cash balance to fund its operations and maintain compliance with the minimum cash balance requirement under the Hercules Loan Agreement. Should it become necessary, the Company would implement additional cost reductions primarily through forgoing certain discretionary compensation increases, and further constraining identified non-critical product investments, and marketing and other costs, including reductions in personnel related to those activities. These identified potential actions, commencing as soon as May 2016, comprise a developed plan to reduce such costs by $4.6 million, net of implementation costs. In addition, the Company would consider borrowing up to an additional $5.0 million under the current VantagePoint notes purchase agreement, however such borrowings would be subject to VantagePoint’s willingness to lend and Hercules’ consent. The Company will continue to evaluate the extent and effectiveness of its cost-saving measures and monitor expenses compared to revenue and intends to implement additional cost reductions in future periods if and as circumstances warrant. However, there can be no assurance that these actions will be successful or that further adverse events outside of the Company’s control may arise that would result in the Company’s inability to comply with the Hercules Loan Agreement’s covenants. If an event of default were to occur, the Company may be required to obtain a further amendment or a waiver to the Hercules Loan Agreement, refinance the term loan, divest non-core assets or operations and/or obtain additional equity or debt financing. If the Company was unable to obtain such a waiver or amendment, or consummate such a transaction, the administrative agent could exercise remedies against the Company and the collateral securing the term loan, including potential foreclosure against the Company’s assets securing the Hercules Loan Agreement, including the Company’s cash. Further, the VantagePoint Notes and Hercules Loan Agreement contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under the term loan to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.

In consideration of these conditions, the Company currently anticipates that funds expected to be generated from operations, including cost-saving measures the Company has taken and intends to take, will be sufficient to meet the Company’s anticipated cash requirements through at least the next twelve months. However, there is no assurance that the results of operations and cash flows expected during that period of time will be achieved. 

2. Summary of Significant Accounting Policies 

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly owned subsidiaries. The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results may differ from those estimates.

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period presentation. See further discussion below under recent accounting pronouncements and in Note 14, Income Taxes.

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. Revenue and expenses 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. 

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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, 2015 and 2014, 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 investments as short-term 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, 2015 and 2014, short-term investments consisted of certificates of deposit. All of the short-term investments are classified as available-for-sale. Short-term investments are stated at cost, which approximates fair value.

Accounts Receivable

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history, the customer’s creditworthiness and various other factors, as determined by its review of their credit information. The Company monitors collections and payments from its customers and maintains an allowance for estimated credit losses based upon its historical experience and any customer-specific collection issues that it has identified.

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. 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, and as a result, access to the Company’s cash and cash equivalents may be impacted by adverse conditions in the global financial markets, including fluctuations in currency exchange rates. As of December 31, 2015, domestic bank balances in excess of insured limits were $23.3 million and foreign bank balances in excess of insured limits were $12.5 million.

During March 2016, the Company commenced a process to transition its two primary financial service providers of commercial banking services and merchant services for its credit and debit card processing in North America. The Company does not expect a significant impact to its financial position, results of operations or cash flows in North America as a result of the transition, which is expected to be completed by May 2016.

The Company’s customers are primarily local businesses, dispersed both geographically and across a broad range of industries. 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, 2015, 2014 and 2013 (in thousands):

	2015			2014			2013
Allowance for doubtful accounts as of the beginning of the year	$	961		$	2,212		$	259
Additions charged to expense		563			2,621			6,080
Write-offs		(1,026	)		(4,511	)		(4,396	)
Recoveries		305			639			268
Allowance for doubtful accounts as of the end of the year	$	803		$	961		$	2,212

For the years ended December 31, 2015, 2014, and 2013, the Company did not have any individual clients that comprised more than 10% of consolidated revenues.

During 2015, 2014, and 2013, the Company’s cost of revenue was primarily for the purchase of media from two of the Company’s vendors. Other receivables and prepaid expenses included $3.6 million and $0.6 million of non-trade receivables from media vendors at December 31, 2015 and 2014, respectively. Accounts payable included $17.3 million and $17.1 million of accrued media expenses from media vendors at December 31, 2015 and 2014, respectively.

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer hardware and software, five years for office equipment, and seven years for furniture and fixtures. Leasehold improvements are amortized using the straight-line method over the lesser of the useful life or 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.

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Software Development Costs

Costs to develop software for internal use are capitalized when the Company has determined that the development efforts will result in new or additional functionality or new products. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and included in product and technology expenses, in addition to amortization of capitalized software development costs, in the accompanying consolidated statements of operations. The Company monitors its existing capitalized software costs and reduces its carrying value as the result of releases that render previous features or functions obsolete. Software development costs are evaluated for impairment in accordance with the Company’s policy for finite-lived intangible assets and other long-lived assets. Costs capitalized as internal use software are amortized on a straight-line basis over an estimated useful life of three years.

Restricted Cash—Term Loan

Under the terms of the Hercules Loan Agreement, as amended, the Company is required to maintain, at all times, cash in North America of at least $15.0 million, unless the Company achieves positive “Adjusted EBITDA” as defined in the Loan Agreement for three consecutive quarters, in which case the minimum cash balance decreases to $12.5 million. Restricted cash—term loan represents the required minimum compensating balance to secure the term loan. See Note 13, Debt and Other Obligations, for more information.

Restricted Cash

Restricted cash represents certificates of deposit held at financial institutions that are pledged as collateral for letters of credit related to lease commitments, collateral for the Company’s merchant accounts, and cash deposits in a restricted account in accordance with the Company’s employee health care self-insurance plan. The letters of credit will lapse at the end of the respective lease terms through 2024 and the certificates of deposit automatically renew for successive one-year periods over the duration of the lease term. The restrictions related to merchant accounts and the Company’s self-insurance plan will lapse upon termination of the respective underlying arrangements. At December 31, 2015 and December 31, 2014, the Company had restricted cash in the amount of $3.5 million and $3.6 million, respectively, of which, $0.2 million, related to the employee health care self-insurance plan.

Loan Receivables

The Company records loan receivables at carrying value, net of potential allowance for losses. Losses on receivables are recorded when probable and estimable. Interest income on loan receivables is accrued on a monthly basis over the life of the loan, and interest recognition is suspended upon impairment of loan principal.

Non-marketable Investments

The Company accounts for non-marketable investments under the cost method, which are periodically assessed for other-than-temporary impairment. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if a significant adverse event were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data. If the Company determines that an other-than-temporary impairment has occurred, the investment is written-down to its fair value.

Variable Interest Entities

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 variable interest entity (“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.

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Finite-Lived Intangible Assets and Other Long-Lived Assets

Finite-lived intangible assets are attributable to the various developed technologies, trade names, and customer relationships of the businesses the Company has acquired. The Company reports finite-lived, acquisition-related intangible assets at acquisition date fair value, net of accumulated amortization. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from two to ten years. Straight-line amortization is used as another pattern over which the economic benefits will be consumed cannot 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 review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of an intangible asset is measured by comparing its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate, if it is determined that an asset is not recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

At December 31, 2015 and 2014, there were no indications of impairment of the Company’s finite-lived intangible assets or other long-lived assets.

Goodwill 

Goodwill represents the excess of the purchase price of the Company’s acquired businesses over the fair value of the net tangible and intangible assets acquired. The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other, which addresses financial accounting and reporting requirements for goodwill and requires testing of goodwill at the reporting unit level for impairment at least annually.

The Company tests the goodwill of its reporting units for impairment annually on the first day of the fourth quarter, and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired. Events or circumstances which could trigger an impairment review include, but are not limited to, a significant adverse change in the legal or business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key management or other personnel, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the acquired business or the Company’s overall business, significant and sustained decline in market capitalization, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwill impairment test, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwill impairment test for selected reporting units. If the Company chooses the qualitative option, the Company is not required to perform the two-step quantitative goodwill impairment test unless the Company has determined, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The first step of the impairment test involves comparing the estimated fair values of a reporting unit with its respective carrying amount, 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, or if the reporting unit has a negative carrying value and the Company believes it is more likely than not that a goodwill impairment exists, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value, which is determined by deducting the aggregate fair value of the reporting unit's identifiable assets and liabilities from the fair value of the reporting unit. 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 process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analyses. The estimated fair value for each reporting unit is determined using both an income-based valuation approach, as well as a market-based valuation approach. Under the income-based approach, each reporting unit’s fair value is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in its business model, and other assumptions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings. The income-based approach is weighted between 50.0% and 66.7% depending on the amount and timing of projected operating earnings attributable to each reporting unit.

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The Company operates in one reportable segment, in accordance with ASC 280, Segment Reporting, which is the basis that financial results are regularly reviewed by the Company's chief operating decision maker in deciding how to allocate resources and assess performance. The Company has identified its reporting units as North America, Asia Pacific, Latin America, and Europe. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. The Company’s goodwill is comprised of balances in both the North America and Asia Pacific reporting units.

Self-Insurance

Beginning July 2, 2014, the Company implemented a self-insurance plan to provide for potential liabilities for employee health care claims in the United States. Liabilities associated with the risks are estimated, in part, by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions. The Company had insurance liabilities totaling approximately $1.3 million and $0.5 million at December 31, 2015 and December 31, 2014, respectively, which are included in accrued compensation and benefits in the accompanying consolidated balance sheets.

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.

Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or at the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful life of the asset or the period of the related lease. Principal payments on capital lease obligations are recorded as reduction of capital lease liability in the accompanying consolidated balance sheets, and interest payments are recorded as interest expense which is included in other income, net in the accompanying consolidated statements of operations.

Revenue Recognition

The Company recognizes revenue for its products and solutions when persuasive evidence of an arrangement exists, services have been performed, the selling price is fixed or determinable, and collectibility is reasonably assured. The Company recognizes revenue for search engine marketing as clicks are recorded on sponsored links on the various search engines and for its display advertising and retargeting when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for lead conversion software, web presence and other products with a defined license or service period on a straight-line basis over the applicable license or service period. 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 contract or the completion of any obligation for services, if shorter. The Company accounts for sales and similar taxes imposed on its services on a net basis in the consolidated statements of operations.

When the Company receives advance payments from clients, it records these amounts as deferred revenue until the revenue is recognized. From time to time, the Company offers incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the incentives that will be earned by clients and adjusts the recognition of revenue to reflect such incentives. Estimates are either based upon a statistical analysis of previous campaigns for which such incentives were offered, or calculated on a straight-line basis over the life of the campaign.

When the Company sells through agencies, it either receives payment in advance of delivery of its products or solutions 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 generally the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management typically recognizes the gross amount of such sales as revenue and any commissions are recognized as a selling and marketing expense.

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The Company also has a small number of resellers. Resellers integrate the Company’s products and solutions, including the Company’s branded search engine marketing, display advertising and online marketing analytics, into their product offerings. In most cases, the resellers integrate with the Company’s technology 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 distributes its products and solutions directly through its outside and inside sales force that is focused on serving local businesses in their local markets through a consultative process, which the Company refers to as its Direct Local channel. The Direct Local channel also includes revenue from licensing of the Company’s Kickserv software solution, which is marketed directly to local businesses over the Internet. In addition, the Company employs a separate sales channel targeting national brands, franchises and strategic accounts with operations in multiple local markets and select third-party agencies and resellers. The Company refers to this as its National Brands, Agencies and Resellers channel.

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. Rebates are recorded 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 the third-party telephone and information services costs, other third-party service provider costs, data center and third-party hosting costs, credit card processing fees, and other direct costs.

In addition, cost of revenue includes costs to manage and operate the Company’s various solutions and technology infrastructure, 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, and allocated overhead such as depreciation expense, rent and utilities. Cost of revenue also includes the amortization and impairment charges on certain acquired intangible assets.

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 employees in the sales organization is based on commissions. In addition, the cost of agency commissions is included in selling and marketing expenses. Generally, commissions are expensed as earned. However, commencing in 2014, the Company began paying commissions to certain sales people for the acquisition of new clients. Client contracts are generally not cancelable without a penalty, and the Company defers those commissions and amortizes them over the term of the initial customer campaign. Unamortized commission expense of $0.2 million and $0.6 million at December 31, 2015 and December 31, 2014, respectively, is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

Product and Technology Expenses

Product and technology expenses consist primarily of personnel and related expenses for product development and engineering professionals, including salaries, benefits, bonuses and stock-based compensation, and the cost of third-party contractors and certain other 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. Research and development expenses are included in product and technology costs and were $6.9 million, $15.5 million, and $9.5 million during 2015, 2014, and 2013, respectively. The Company capitalizes a portion of its software development costs and, accordingly, includes amortization of those costs as costs of product and technology, as the Company’s technology platform and the Company’s other systems address all aspects of the Company’s activities, including supporting the 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.  Product and technology costs do not include the costs to operate and deliver the Company’s solutions to clients, which are included in cost of revenue in the consolidated statements of operations.

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General and Administrative Expenses

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

Restructuring Charges

The Company records costs associated with exit activities related to restructuring plans in accordance with the ASC Topic 420, Exit or Disposal Obligations. Liabilities for costs associated with an exit or disposal activity are recognized in the period in which the liability is incurred. Restructuring charges consist of costs associated with the realignment and reorganization of the Company’s operations. Restructuring charges include employee termination costs, facility closure and relocation costs, and contract termination costs. The timing of associated cash payments is dependent upon the type of exit cost and can extend over a 12-month period. The Company records restructuring charge liabilities in accrued restructuring in the consolidated balance sheets.

Advertising Expenses

The Company expenses advertising as incurred. Advertising expense was $2.1 million, $2.9 million and $1.7 million for the years ended December 31, 2015, 2014 and 2013, 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 the fair market value of the equity award on the date of grant. 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 option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and the risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of the Company's common stock on the date of grant. In addition, the Company uses a Monte Carlo simulation model to estimate the fair value of market-based performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment, including estimating volatility, risk-free rate and expected future stock price. The Company determines the probability of achievement of performance milestones for non-market based performance vesting restricted stock and restricted stock units, and recognize expense based on the fair value of the award if it is probable that the performance milestone will be achieved. The assumptions described above rely on management estimates based on judgment and subjective future expectations, which may result in stock-based compensation for future awards that differs significantly from the awards granted previously.

The fair value of modifications to stock-based awards is generally estimated using the Black-Scholes option pricing model. If a stock-based compensation award is modified after the grant date, incremental compensation expense is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for fully vested awards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original award on the modification date is recognized over the modified service period.

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.

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Recent Accounting Pronouncements Adopted in 2015

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company early adopted this standard retrospectively and reclassified all of the current deferred tax assets to noncurrent deferred tax assets on the consolidated balance sheets for all periods presented. Adoption resulted in a $1.8 million decrease in prepaid expenses and other current assets, a $0.1 million increase in other assets, and a $1.7 million increase in deferred rent and other liabilities in the Company’s consolidated balance sheet as of December 31, 2014.

In April 2015, the FASB issued ASU No. 2015-03, Interest- Imputation of Interest. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. The Company early adopted this update in the second quarter of 2015.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date, and was effective for the Company as of January 1, 2015. The Company has applied this guidance to the Company’s consolidated financial statements in 2015.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases. The amendments in this update supersedes the guidance in former Accounting Standards Codification (“ASC”) 840, Leases with ASC 842, Leases, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The amendments in this update are effective for the Company as of January 1, 2019. Early application of this update is permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. The Company is currently assessing the impact of this update on its consolidated financial statements.

In January 2016, the FASB ASU No. 2016-01, Financial Instruments- Overall. The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update are effective for the Company as of January 1, 2018. Early application of certain aspects of the amendment is permitted by public entities, otherwise early adoption is not permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an acquirer to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for the Company as of January 1, 2016. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on the consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software. The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The Company is currently assessing the impact of this update on its consolidated financial statements.

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In February 2015, the FASB issued ASU No. 2015-02, Consolidation. The amendments in this update require management to reevaluate whether certain legal entities should be consolidated. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminate the presumption that a general partner should consolidate a limited partnership, (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update are effective for the Company as of January 1, 2016. Early adoption is permitted. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern. The amendments in this update require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the Company as of January 1, 2017. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update will be effective for the Company as of January 1, 2016. Earlier adoption is permitted. Entities may apply the amendments in this update either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The guidance in this update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance throughout the Codification. Additionally, this update supersedes some cost guidance included in ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of ASC 360, Property, Plant, and Equipment, and intangible assets, within the scope of ASC 350, Intangibles - Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement in this update. The standard was to be effective for the Company as of January 1, 2017, but in August 2015, the FASB delayed the effective date of the new revenue accounting standard to January 1, 2019, and would permit early adoption as of the original effective date. Earlier adoption is not otherwise permitted for public entities. An entity can apply the revenue standard retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings (simplified transition method). The Company is currently assessing the impact of this update on its consolidated financial statements.

3. Fair Value of Financial Instruments

The Company applies the fair value hierarchy for its financial assets and liabilities. 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:

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• 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 and liabilities that are carried at fair value (in thousands): 

			Basis of Fair Value Measurement
	Balance at December 31, 2015		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	18,833	$	18,833	$	—	$	—
Restricted cash—term loan	$	15,000	$	15,000	$	—	$	—
Short-term investments	$	359	$	359	$	—	$	—
Restricted cash	$	3,502	$	—	$	3,502	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 2014		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	$	43,720	$	43,720	$	—	$	—
Short-term investments	$	904	$	904	$	—	$	—
Restricted cash	$	3,589	$	—	$	3,589	$	—
Liabilities:
Acquisition-related contingent consideration	$	349	$	—	$	—	$	349

The Company’s restricted cash is valued using pricing sources and models utilizing market observable inputs, as provided to the Company by its broker.

On April 10, 2015, ReachLocal New Zealand Limited (“RL NZ”) paid NZ$0.4 million ($0.3 million) of earn-out consideration due, offset by NZ$0.2 million ($0.1 million) pursuant to a net working capital adjustment in the Company’s favor. On September 18, 2015, RL NZ made the final payment of $0.1 million for the indemnity holdback.

The Company also has an investment in a privately held partnership that is one of its service providers. During March 2013, the Company invested $2.5 million for a 4% equity interest in the service provider, and in March 2014, the Company invested $2.0 million for an additional 3.2% equity interest. The Company does not have significant influence over the entity. In addition, the Company has an equity interest of 14.2% in SERVIZ, Inc., the entity that acquired its former ClubLocal business and does not have significant influence over the entity. The carrying amounts of the Company’s cost method investments were each $4.5 million at December 31, 2015 and December 31, 2014, and are included in non-marketable investments in the accompanying consolidated balance sheet. The Company’s maximum exposure to loss is limited to its cost based investments.

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Financial Instruments Not Recorded at Fair Value on a Recurring Basis    

The Company carries its financial instruments at fair value with the exception of its debt. Financial instruments that are not recorded at fair value are measured at fair value on a quarterly basis for disclosure purposes. The carrying amounts and estimated fair values of financial instruments not recorded at fair value are as follows:

	Year Ended December 31, 2015
	Carrying Amount		Estimated Fair Value
(in thousands)
Term loan	$	24,546		$	24,500
Convertible notes- related party	$	5,000		$	4,600

The Company’s debt relates to its Hercules Loan Agreement and VantagePoint Notes. The term loan and notes are considered Level 3 under ASC 820 because there is no known or accessible market or market indices for these debt instruments to be traded or exchanged. The fair value of the Hercules Loan Agreement and the VantagePoint Notes was determined by discounting their respective cash flows expected to be paid using a discount rate commensurate with the risk, including market participant assumptions about current interest rates and the creditworthiness of the Company. The fair value of the Hercules Loan Agreement includes the discounts attributable to issuance costs as well as the end-of-term payment. The fair value of the VantagePoint Notes includes an estimated value for the embedded conversion feature determined based on its contractual terms as well as the trading information of the Company's common stock into which the notes are convertible.

During 2015, the Company recognized a $27.8 million goodwill impairment charge related to the Company’s Asia Pacific reporting unit. The Company recognized an impairment charge to write-down the goodwill to its fair value. The Company utilized unobservable inputs in determining the magnitude of the non-recurring impairment representing level 3 inputs in the fair value hierarchy.

The Company did not have any financial instruments not recorded at fair value on a recurring basis as of December 31, 2014.

4. Acquisitions

Acquisition of Kickserv

On November 21, 2014, the Company acquired Kickserv, Inc. (“Kickserv”) as part of the Company’s continued effort to expand its product offerings. Kickserv is a provider of cloud-based business management software for service businesses.

The purchase price consisted of $6.75 million of initial consideration, subject to a holdback and certain adjustments, and up to $4.0 million of earn-out consideration. At closing, the Company paid $5.3 million in cash with the remaining balance of the initial purchase price payable after the 18-month anniversary of the closing date, subject to certain conditions. The Company also issued 250,000 restricted stock units to the hired employees, which are accounted for as stock-based compensation over the period in which they are earned. A liability was not recorded for the earn-out consideration as the financial targets, as defined in the purchase agreement, are not expected to be achieved. Any changes in the fair value of the earn-out consideration will be recorded as other income or expense. There has been no change in the fair value since the date of acquisition.

           The acquisition was accounted for using the acquisition method of accounting. The Company completed and finalized the purchase price allocation in the fourth quarter of 2014. The Company recorded assets acquired and liabilities assumed at their respective fair values. The following table summarizes the final fair value of assets acquired and liabilities assumed (in thousands):

Assets acquired:
Cash and cash equivalents	$	58
Intangible assets		4,280
Goodwill		3,985
Total assets acquired		8,323
Liabilities assumed:
Non-interest bearing liabilities		24
Long-term debt		350
Deferred tax liabilities		1,249
Total liabilities assumed		1,623
Total fair value of net assets acquired	$	6,700

Intangible assets acquired from Kickserv included software technology of $3.0 million, trade names of $0.6 million and customer relationships of $0.7 million, amortized over eight, ten, and four years, their respective estimated useful lives, using the straight-line method. The estimated useful life of the technology was determined based on assumptions of its remaining economic life. The estimated useful life of trade names was determined based on assumptions of revenue attributable to the trade name, and the estimated useful life of the customer relationships was determined based on assumptions of customer attrition rates. The fair value of the intangible assets were determined by applying the income approach and based on significant inputs that are not observable in the market. Key assumptions include estimated future revenues from acquired customers and a discount rate of 15%, comprised of an estimated internal rate of return for this transaction and a weighted average cost of capital for comparable companies. The goodwill arising from the acquisition consists largely of the synergies expected from combining the operations of Kickserv and the Company. The acquired goodwill is not expected to be deductible for tax purposes.

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Acquisition costs in connection with the Kickserv acquisition were immaterial. The revenues and results of operations of the acquired businesses for the post-acquisition period were included in the consolidated statements of operations and were immaterial for the periods ended December 31, 2015 and December 31, 2014. The pro forma results are not shown as the impact is not material.

Acquisition of SureFire

On March 21, 2014, RL NZ acquired certain assets and hired certain employees of SureFire Search Limited (“SureFire”) as part of the Company’s international expansion plan. From 2010 until the acquisition, SureFire was the Company’s exclusive reseller in New Zealand.

At closing, RL NZ paid NZ$1.7 million ($1.5 million) in cash of the estimated NZ$2.8 million ($2.4 million) purchase price. The remaining balance of the estimated purchase price was deferred subject to meeting revenue targets and an indemnity holdback, payable, if at all, after the 12-month anniversary of the closing date, and the 12- and 18-month anniversaries of the closing date, respectively. The maximum amount of contingent consideration payable was NZ$2.0 million and the fair value of the contingent consideration was recorded as an accrued expense. The fair value of the earn-out consideration under the income approach was determined at the time of acquisition by using the Black-Scholes option pricing model. This approach is based on significant inputs that are not observable in the market, which are considered Level 3 inputs. Key assumptions include forecasted first year revenue, volatility of 30% based on volatilities of selected comparable companies, and a risk-free rate of 0.14% based on a one-year U.S, treasury yield rate. The liability for the indemnity holdback was recorded based on the assumption that there would be no claims made against the holdback and that 65% ($0.2 million) of the indemnity holdback would be paid April 2015, and the remaining 35% ($0.1 million) would be paid October 2015. The fair value of the indemnity holdback at the date of acquisition was NZ$0.4 million ($0.3 million). On April 10, 2015, RL NZ paid NZ$0.6 million ($0.4 million), which included NZ$0.4 million ($0.3 million) of earn-out consideration and NZ$0.3 million ($0.2 million) for the 12-month indemnity holdback release, offset by NZ$0.2 million ($0.1 million) to a net working capital adjustment in the Company’s favor. On September 18, 2015, RL NZ made the final payment of $0.1 million for the indemnity holdback.

            The acquisition was accounted for using the acquisition method of accounting. The Company completed a preliminary purchase price allocation in the first quarter of 2014 and finalized the allocation in the third quarter of 2014 with respect to the timing of certain valuation adjustments. The Company recorded acquired assets and liabilities assumed at their respective fair values. The following table summarizes the final fair value of acquired assets and liabilities assumed (in thousands):

Assets acquired:
Goodwill	$	2,350
Intangible assets		1,280
Accounts receivable		330
Property and equipment		13
Total assets acquired		3,973
Liabilities assumed:
Deferred tax liabilities		358
Deferred revenue		284
Accrued compensation and benefits		111
Other		782
Total liabilities assumed		1,535
Total fair value of net assets acquired	$	2,438

Intangible assets acquired from SureFire included customer relationships of $1.3 million which are amortized over three years, their estimated useful life, using the straight line method. The estimated useful life was determined based on assumptions of customer attrition rates. The fair value of the intangible assets was determined by applying the income approach and based on Level 3 inputs. Key assumptions include estimated future revenues from acquired customers and a discount rate of 25%, comprised of an estimated internal rate of return for this transaction and a weighted average cost of capital for comparable companies. The goodwill arising from the acquisition consists largely of the synergies expected from combining the operations of SureFire. The Company expects to increase its presence in the Asia-Pacific region as a result of this acquisition. The acquired goodwill is not expected to be deductible for tax purposes.

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Acquisition costs in connection with the SureFire acquisition were immaterial. The revenues and results of operations of the acquired businesses for the periods post-acquisition were included in the consolidated statements of operations and were immaterial for the periods ended December 31, 2015 and December 31, 2014. The pro forma results are not shown as the impact is not material.

5. Goodwill and Finite-Lived Intangible Assets 

Goodwill represents the excess of the purchase price of the Company’s acquired businesses over the fair value of the net tangible and intangible assets acquired. The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other, which addresses financial accounting and reporting requirements for goodwill and requires testing of goodwill at the reporting unit level for impairment at least annually. The Company’s goodwill is comprised of balances in both the North America and Asia-Pacific reporting units. The Company tests the goodwill of its reporting units for impairment annually on the first day of the fourth quarter, and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired.

The goodwill impairment test involves a two-step process. However, for the annual goodwill assessment prior to performing the two-step quantitative test, the Company has the option to first assess qualitative factors. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value or if the carrying value of the reporting unit is negative, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.

Impairment of Goodwill

During the quarter ended September 30, 2015, due to a decline in internal projections for the Asia-Pacific reporting unit of both revenue and profitability as a result of recent declines in its financial performance, the Company determined that sufficient indicators of potential impairment existed to require an interim quantitative goodwill impairment test for the Asia-Pacific reporting unit as of August 31, 2015. The amount of goodwill assigned to the Asia-Pacific reporting unit at August 31, 2015 was $34.1 million. Based on the Company’s revised forecasts, the carrying value of goodwill exceeded the implied fair value of goodwill for the Asia-Pacific reporting unit. As a result, the Company recorded an estimated impairment charge of $27.8 million for the goodwill in the Asia-Pacific reporting unit during the third quarter of 2015, which was finalized during the fourth quarter of 2015 without further adjustment and is included in impairment of goodwill in the accompanying consolidated statements of operations. The Company did not identify an impairment of its finite-lived intangible assets or other long-lived assets based on its estimates included in the second step of the quantitative test.

The process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analyses. The estimated fair value of the Asia-Pacific reporting unit as of August 31, 2015 was determined using both an income-based valuation approach, and a market-based valuation approach, each weighted 50%. Under the income approach, fair value of the reporting unit is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in its business model, and other assumptions. The future cash flows for the reporting unit were projected based on the Company’s estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). The Company considered expected competitive global industry and market conditions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings.

The inputs of the discounted cash flow method used to determine the fair value of the Asia-Pacific reporting unit included a conservative average 3% growth rate to calculate the terminal value and a discount rate of 17%. Factors that have the potential to create variances in the estimated fair value of the Asia-Pacific reporting unit include, but are not limited to, fluctuations in (i) number of clients and active campaigns, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics and changes in consumer preferences; (ii) marketing costs to generate new campaigns; and (iii) equity valuations of peer companies.

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As of October 1, 2015, the date of the Company’s annual goodwill impairment assessment, the Company considered the recent interim quantitative goodwill impairment assessment, which included a reconciliation of the Company’s total market capitalization based on the estimated fair value of the Company’s individual reporting units as of August 31, 2015. The Company qualitatively determined that the existing facts and circumstances were considered in the quantitative interim impairment test, such that it was not necessary to perform the two-step quantitative goodwill impairment test for the North America and the Asia-Pacific reporting units as of the annual testing date.

As of November 30, 2015, due to the then recent significant declines in the Company’s market capitalization and other changes in the business, including consideration of exiting the U.K. market, and the entrance of ReachLocal UK Limited (“RL UK”), into administration, the Company determined that sufficient indicators existed to perform an interim quantitative goodwill impairment assessment of the North America and the Asia-Pacific reporting units.

The first step of the November 30, 2015 quantitative goodwill impairment test resulted in the determination that the estimated fair value of both the North America reporting unit and the Asia-Pacific reporting unit each substantially exceeded its respective carrying amount, including goodwill. Accordingly, the second step was not required. The inputs for the fair value calculations of the North America reporting unit included a conservative 2% growth rate to calculate the terminal value and a discount rate of 18%. The inputs for the fair value calculations of the Asia-Pacific reporting unit included a conservative 2% growth rate to calculate the terminal value and a discount rate of 20.5%. In addition, the Company assumed revenue growth and applied margin and other cost assumptions consistent with each reporting unit's historical trends. Factors that have the potential to create variances in the estimated fair value of the reporting units include, but are not limited to, fluctuations in (i) number of clients and active campaigns, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics and changes in consumer preferences; (ii) marketing costs to generate new campaigns; and (iii) equity valuations of peer companies.

The changes in the carrying amount of goodwill for the year ended December 31, 2015 were as follows (in thousands):

	North America		Asia-Pacific			Total
Balance at December 31, 2013	$	9,695	$	32,388		$	42,083
Goodwill acquired		3,985		2,445			6,430
Acquisition adjustments		—		(95	)		(95	)
Foreign currency translation		—		(229	)		(229	)
Balance at December 31, 2014		13,680		34,509			48,189
Accumulated impairment loss		—		(27,800	)		(27,800	)
Foreign currency translation		—		(260	)		(260	)
Balance at December 31, 2015	$	13,680	$	6,449		$	20,129

Finite-Lived Intangible Assets

At December 31, 2015 and 2014, finite-lived intangible assets consisted of the following (in thousands):

	December 31, 2015
	Useful Life (years)				Gross Value		Accumulated Amortization		Net
Developed technology		3	-	8	$	5,490	$	2,920	$	2,570
Customer contracts and relationships		2	-	4		1,733		799		934
Trade names			10			570		63		507
Total					$	7,793	$	3,782	$	4,011

	December 31, 2014
	Useful Life (years)				Gross Value		Accumulated Amortization		Net
Developed technology		3	-	8	$	5,490	$	2,130	$	3,360
Customer contracts and relationships		2	-	4		1,875		306		1,569
Trade names			10			570		7		563
Total					$	7,935	$	2,443	$	5,492

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Based on the current amount of intangibles subject to amortization, the estimated amortization expense over the remaining lives is as follows (in thousands):

Years Ending December 31,
2016	$	962
2017		681
2018		584
2019		431
2020		431
Thereafter		922
Total	$	4,011

For the year ended December 31, 2015, 2014 and 2013 amortization expense related to acquired intangible assets was $1.4 million, $1.2 million, and $1.2 million, respectively.

6. Property and Equipment

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

	December 31,
	2015			2014
Computer hardware and licensed software	$	19,783		$	20,345
Office equipment		3,999			4,229
Furniture and fixtures		4,057			4,976
Leasehold improvements		11,397			13,096
Construction in progress		349			525
		39,585			43,171
Less: Accumulated depreciation and amortization		(26,035	)		(23,532	)
	$	13,550		$	19,639

For the years ended December 31, 2015, 2014 and 2013 depreciation expense for property and equipment was $6.4 million, $6.4 million and $5.8 million, respectively.

7. Software Development Costs

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

	December 31,
	2015			2014
Capitalized software development costs	$	67,610		$	56,498
Accumulated amortization		(46,919	)		(34,943	)
Capitalized software development costs, net	$	20,691		$	21,555

For the years ended December 31, 2015, 2014 and 2013, the Company recorded amortization expense of $11.4 million, $9.7 million and $8.1 million, respectively. At December 31, 2015 and 2014, $2.9 million and $5.0 million, respectively, of capitalized software development costs were related to projects still in process of development.

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8. Commitments and Contingencies

Operating Leases

The Company leases office facilities under operating lease agreements that expire at various dates through 2024. 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 $9.1 million, $13.0 million and $11.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.  

As of December 31, 2015, future minimum payments under cancelable and non-cancelable operating leases are as follows (in thousands):

Years Ended December 31,
2016	$	9,070
2017		8,236
2018		6,687
2019		4,927
2020		3,835
Thereafter		8,938
	$	41,693

During 2015 and 2014, the Company recorded facilities restructuring charges related to lease termination costs as a result of closing facilities as part of a restructuring plan. Operating lease payments in the table above, include approximately $2.4 million of lease payments related to terminated or restructured leases, net of actual sublease income of $0.4 million, from operating lease commitments for those facilities. Amounts related to the lease terminations will be paid over the respective lease terms, the longest of which extends through 2024.

As part of the Company’s 2015 Restructuring Plan, during March, 2016, the Company entered into an agreement to sublease 21,000 square feet of its Plano, Texas office.  

Purchase Obligations

The Company has long-term purchase obligations outstanding with partners and third-party service providers for enhanced marketing functionality for its clients and for internal business software. As of December 31, 2015, future minimum payments under purchase obligations are as follows (in thousands):

Years Ended December 31,
2016	$	2,556

Letters of Credit and Restricted Certificates of Deposit

At December 31, 2015 and 2014, the Company has certificates of deposit held at financial institutions, which are pledged as collateral for letters of credit related to lease commitments or collateral for the Company’s merchant accounts. The letters of credit will lapse at the end of the respective lease terms through 2024 and the certificates of deposit automatically renew for successive one-year periods over the duration of the lease term. The restrictions related to merchant accounts will lapse upon termination of the merchant accounts. At December 31, 2015 and 2014, the Company had restricted certificates of deposit in the amounts of $3.3 million and $3.4 million, respectively. At December 31, 2015, restricted cash also included $0.2 million of cash reserved to provide for potential liabilities for employee health care claims.

Litigation

From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business. The Company believes that there is no litigation or claims pending or threatened that are likely to have a material adverse effect on its consolidated financial position, results of operations or cash flows.

North America

On May 2, 2014, a lawsuit, purporting to be a class action, was filed by one of the Company’s former clients in the United States District Court in Los Angeles. The complaint alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of California’s unfair competition law. The complaint sought monetary damages, restitution and attorneys’ fees. The Company filed a motion to dismiss on June 20, 2014, which was denied on December 4, 2014. On February 5, 2016, the Company entered into a confidential settlement agreement and release with plaintiffs to settle all of their claims. The settlement was not material to the Company’s consolidated financial position, results of operations or cash flows.

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Europe

Over the past two years, the Company’s United Kingdom subsidiary (“RL UK”), has been involved in a number of disputes with former clients that allege RL UK made misrepresentations in connection with sales to those clients. The Company resolved a number of these disputes. On June 15, 2015, one former RL UK client filed a lawsuit in the High Court of Justice alleging fraudulent misrepresentations and breach of contract. The Company’s insurance carrier provided a defense under a reservation of rights. On December 16, 2015, RL UK entered administration, to allow for an orderly exit from the market and as a result, any claims against RL UK are stayed, pending the outcome of the administration. Upon entering administration, the Company no longer held a controlling interest, and therefore deconsolidated the subsidiary.

Other Commitments

The Company engaged a third party facilitator to provide direct support in the execution of its 2015 Restructuring Plan. In addition to fees incurred during 2015, the Company will continue to make payments for the final committed fees based on the future projected value of results achieved by the facilitator-led program. The final payment to the facilitator was made in January 2016. See Note 11, Restructuring Charges, for more information.

9. Stockholder’s Equity

Common Stock Repurchases

The Company’s Board of Directors previously authorized the repurchase of up to $47.0 million of the Company’s outstanding common stock. At December 31, 2013, the Company had executed repurchases of 3.4 million shares of its common stock under the program for an aggregate of $36.3 million. There were no repurchases under the program during 2014 or 2015. On April 29, 2015, the Board of Directors terminated the Company’s repurchase program.

The Company is deemed to repurchase common stock surrendered by participants to cover tax withholding obligations with respect to the vesting of restricted stock and restricted stock units.

Shares Reserved For Future Issuance

The following table shows the number of shares of common stock reserved for future issuance as of December 31, 2015 (in thousands):

Stock options	8,196
Convertible notes	1,000
Warrants	300
Restricted stock units	253
	9,749

10. Stock-Based Compensation

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 varies 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, 2015 and 2014.

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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 2,682,047 shares available for grant under the 2008 Plan as of December 31, 2015. On January 1, 2016, an additional 1,334,000 shares were added to the pool under the evergreen provision.

During the second quarter of 2014, the Company granted stock options to certain new employees as “employment inducement” awards pursuant to NASDAQ rules. The inducement awards were not issued under the 2008 Plan and did not decrease the number of shares available thereunder, but 160,000 inducement awards are included in the table of stock options below.

On February 29, 2016, the Company granted stock options covering 1,397,000 shares, primarily related to its annual compensation program. 

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, 2014		6,096		$	9.48
Granted		5,801		$	4.29
Exercised		(31	)	$	0.24
Forfeited		(5,318	)	$	9.33
Outstanding at December 31, 2015		6,548		$	5.05		6.3	$	—
Vested and exercisable at December 31, 2015		1,747		$	7.83		5.3	$	—
Unvested at December 31, 2015, net of estimated forfeitures		3,902		$	4.06		6.8	$	—

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.

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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, 2015, 2014 and 2013.

	Years Ended December 31,
	2015			2014			2013
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		1.55	%		1.64	%		0.95	%
Expected life (in years)		4.90			4.99			4.81
Expected volatility		57	%		54	%		59	%
Weighted average fair value per share	$	2.24		$	3.63		$	6.33

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 were $0.1 million, $2.7 million and $5.3 million, respectively. The total grant-date fair value of stock options exercised and restricted stock and restricted stock units vested during the years ended December 31, 2015, 2014 and 2013 were $3.7 million, $9.0 million and $4.2 million, respectively.

Restricted Stock and Restricted Stock Units

The Company issues restricted stock and restricted stock units in conjunction with acquisitions and long-term employee incentive programs from time to time. These shares of restricted stock and restricted stock units generally have vesting periods of 4 years. Stock-based compensation expense related to restricted stock and restricted stock units was $3.3 million, $5.6 million and $3.0 million for the years ended December 31, 2015, 2014, and 2013, respectively.

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

	Number of shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2014		912		$	5.98
Granted		—		$	—
Forfeited		(138	)	$	10.06
Vested		(439	)	$	8.38
Unvested at December 31, 2015		335		$	5.37

Stock-Based Compensation Expense

The Company records stock-based compensation expense, net of amounts capitalized as software development costs. The following table summarizes stock-based compensation (in thousands):

	Years Ended December 31,
	2015		2014		2013
Stock-based compensation	$	9,061	$	13,730	$	11,948
Less: Capitalized stock-based compensation		390		470		443
Stock-based compensation expense, net	$	8,671	$	13,260	$	11,505

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

	Years Ended December 31,
	2015		2014		2013
Stock-based compensation expense, net
Cost of revenue	$	487	$	932	$	697
Selling and marketing		1,510		2,959		3,040
Product and technology		725		825		627
General and administrative		5,949		8,544		7,141
	$	8,671	$	13,260	$	11,505

At December 31, 2015, there was $11.1 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 1.44 years. Future stock-based compensation expense for these awards may differ to the extent actual forfeitures vary from management estimates.

Stock-based compensation for the year ended December 31, 2014 includes $1.9 million of expense related to the modification of grants to 73 participants in March 2014, which extended the time to exercise from seven years to ten years for certain options granted during 2008 and 2009 with a strike price of $10.91.

Commencing in 2015, 50% of the Company’s annual corporate bonus plan for certain executives and senior level employees will be settled with fully vested restricted stock units, and is payable in the first quarter of the following fiscal year. The plan does not limit the number of shares that can be issued to settle the obligation. During 2015, the Company has recognized stock-based compensation expense related to this plan of $1.0 million. As of December 31, 2015, 603,000 shares would be required to satisfy the obligation relating to the 2015 annual corporate bonus plan. On February 26, 2016, 414,239 shares (net of 258,255 shares withheld to satisfy tax withholding obligations) were issued to satisfy the 2015 annual corporate bonus plan obligation.

Stock Option Exchange

On December 2, 2014, the Company commenced an option exchange to permit employee option holders to surrender certain outstanding stock options for cancellation in exchange for the grant of new replacement options to purchase an equal number of shares having an exercise price equal to the greater of $6.00 and the fair market value of the Company’s common stock on the replacement grant date. The option exchange was completed on January 9, 2015. 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 with exercise prices of $6.00 per share. A total of 2.8 million options were exchanged. The Company is amortizing the incremental expense of $1.5 million in addition to the remaining expense attributable to the exchanged awards over the vesting period of the new awards.

11. Restructuring Charges

The Company has implemented various restructuring plans to reduce its cost structure, align resources with its product strategy, improve operating efficiency and implement cost savings, which have resulted in workforce reductions and the consolidation of certain real estate facilities and data centers.

2015 Restructuring Plan

In accordance with the Company’s ongoing efforts to reduce expenses and improve the operating performance of its business, the Company commenced its 2015 Restructuring Plan. The initiative is focused on enhancing earnings through an analysis of opportunities to both improve revenue performance and reduce costs. Operational efficiency improvements under the 2015 Restructuring Plan are identified and implemented through strategic realignment and targeted cost reductions, including workforce costs, facility-related expenditures and other operating expenses. The charges incurred during the year ended December 31, 2015 primarily involved down-sizing certain facilities in North America, costs to utilize a third party facilitator to aid execution of the plan, and a reduction of the Company’s North American and international workforces. The Company expects to have continued restructuring activity under this plan, including estimated additional expenses relating to facilitation and execution of the plan of $0.7 million, estimated to be incurred through the third quarter of 2016.

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A summary of the accrued restructuring liability related to this plan, which is recorded in “Accrued restructuring” on the consolidated balance sheet is as follows (in thousands):

	Workforce  Reduction Costs			Facility Closures and Equipment Write-downs			Other  Associated  Costs			Total
Balance at December 31, 2014	$	—		$	—		$	—		$	—
Amounts accrued		2,332			1,268			4,125			7,725
Amounts paid		(1,742	)		(157	)		(3,313	)		(5,212	)
Accretion		—			69			—			69
Non-cash items		(4	)		(574	)		(468	)		(1,046	)
Balance at December 31, 2015	$	586		$	606		$	344		$	1,536

The Company expects the facility closures and equipment write-downs to be paid through the third quarter of 2024 and the workforce reduction costs to be paid through the fourth quarter of 2016.

2014 Restructuring Plans

As a result of declining performance in the Company’s North American operations during the first quarter of 2014, the Company implemented a restructuring plan that primarily involved a reduction of the Company’s North American and international workforces, as well as the closure of facilities in North America and certain international markets. The Company does not expect to have continued restructuring activity under this plan, other than settlement of associated liabilities.

A summary of the accrued restructuring liability related to this plan, which is recorded in “Accrued restructuring” on the consolidated balance sheet is as follows (in thousands):

	Facility Closures and Equipment Write-downs			Total
Balance at December 31, 2014	$	2,519		$	2,519
Amounts paid		(771	)		(771	)
Accretion		45			45
Balance at December 31, 2015	$	1,793		$	1,793

The Company expects the facility closures and equipment write-downs to be paid through the third quarter of 2024.

During the second quarter of 2014, the Company implemented a business restructuring plan which involved the elimination of certain senior management positions, a reduction of international workforce, as well as the closure of facilities in certain international markets. The Company does not expect to have continued restructuring activity under this plan, other than settlement of associated liabilities.

A summary of the accrued restructuring liability related to this plan, which is recorded in “Accrued restructuring” on the consolidated balance sheet is as follows (in thousands):

	Workforce Reduction Costs			Facility Closures			Total
Balance at December 31, 2014	$	51		$	626		$	677
Reversal of amount previously accrued		—			(179	)		(179	)
Amounts paid		(50	)		(477	)		(527	)
Non-cash items		(1	)		30			29
Balance at December 31, 2015	$	—		$	—		$	—

The Company does not expect to have continued restructuring activity under this plan.

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12. Gain on Deconsolidation of Subsidiary 

On December 16, 2015, RL UK entered administration to allow for an orderly exit from the market. Upon entering administration, the Company no longer held a controlling interest, and therefore deconsolidated the subsidiary. As a result, the Company recorded a gain of $2.9 million, which is included in Gain on deconsolidation of subsidiary, net in the Company’s consolidated statement of operations for the year ended December 31, 2015.

The gain is primarily comprised of the net reduction in carrying value of the assets and liabilities of RL UK from the consolidated balance sheet and the resulting reduction of the net amounts due from RL UK to the Company and its subsidiaries, including the effects of cumulative translation adjustments of $1.1 million, which was reclassified from accumulated other comprehensive income to Gain on deconsolidation of subsidiary, net in the consolidated statement of operations.

13. Debt and Other Obligations

Long-term debt consisted of the following (in thousands):

Hercules term loan	$	25,244
VantagePoint notes		5,000
Less unamortized debt issuance costs (1)		(698	)
Total debt		29,546
Less current portion of long-term debt		(8,352	)
Long-term debt	$	21,194

(1) Debt issuance costs are related to the Hercules term loan and are amortized to interest expense over the life of the term loan.

Hercules Term Loan

On April 30, 2015, the Company entered into the Hercules Loan Agreement with its direct and indirect domestic subsidiaries, as co-borrowers, Hercules Technology Growth Capital, Inc. (“Hercules”), as administrative agent, and the lenders party thereto from time to time (the “Lenders”), including Hercules, pursuant to which the Lenders agreed to make a term loan available to the Company for working capital and general business purposes, in a principal amount of $25.0 million. The term loan has an annual interest rate equal to the greater of (i) 11.75% and (ii) the sum of (a) the prime rate, plus (b) 8.50%. During December 2015, the annual interest rate increased from 11.75% to 12.00%. The annual interest rate on the Hercules Loan was 12.00% at December 31, 2015. On the closing date the Company paid a fee of $0.3 million, which is to be credited against the final payment, and debt issuance costs of $0.2 million. Debt issuance costs will be amortized over the life of the loan of 3 years and calculated using the effective interest method.    

The Company is required to make interest-only payments on the term loan through May 1, 2016, though such payments may be extended through August 1, 2016 and November 1, 2016 if the Company remains in continuous compliance with the financial covenants under the Hercules Loan Agreement through April 1, 2016 and July 1, 2016, respectively, and no default or event of default has occurred and is continuing on such dates. The term loan will begin amortizing at the end of the applicable interest-only period, with monthly payments of principal and interest to the Lenders in consecutive monthly installments following the end of such interest-only period. The term loan matures on April 1, 2018 or, if the interest-only payments are extended through November 1, 2016, the term loan will mature October 1, 2018. Upon repayment of the term loan, the Company is also required to make an end-of-term payment to the Lenders equal to $1.5 million, which is accrued as interest based on the effective interest method over the 3-year term of the Hercules Loan Agreement. The term loan is secured by substantially all of the Company’s personal property, including its intellectual property.

At the Company’s option, the outstanding principal balance of the term loan may be prepaid in whole, or in part in a minimum amount of $2.5 million, subject to a prepayment fee of 3% of any amount prepaid if the prepayment occurs on or prior to April 30, 2016, or 2% of the amount prepaid if the prepayment occurs after April 30, 2016 but on or prior to April 30, 2017. If the prepayment occurs after April 30, 2017, there is no prepayment fee.

The Hercules Loan Agreement includes covenants applicable to the Company and its subsidiaries, which include restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions. These restrictions also include a maximum net new investment in the Company’s foreign subsidiaries, subject to certain exclusions of $8.0 million during 2015, $5.5 million during 2016, $4.0 million annually thereafter, and $18.0 million in the aggregate during the term of the agreement. Additionally, the Hercules Loan Agreement includes financial covenant requirements to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term, as amended on August 3, 2015 from September 30, 2015 through December 31, 2015. These minimum levels of revenue and earnings were waived for compliance for November and December 2015 as amended on November 9, 2015. Under the Hercules Loan Agreement, the Company is also required to maintain minimum cash in North America in an amount equal to $15.0 million at all times, unless the Company achieves positive “Adjusted EBITDA” as defined in the Hercules Loan Agreement for three consecutive quarters, in which case the minimum cash balance decreases to $12.5 million. The Company achieved positive “Adjusted EBITDA” as defined, during the quarters ended September 30, 2015 and December 31, 2015, which qualifies as two quarters of the required three consecutive quarters. The Hercules Loan Agreement also includes events of default, the occurrence and continuation of which provide Hercules, as administrative agent, with the right to exercise remedies against the Company and the collateral securing the term loan, including potential foreclosure against the Company’s assets securing the Hercules Loan Agreement, including the Company’s cash. The Hercules Loan Agreement contains a subjective acceleration clause that can be triggered if the Company experiences a Material Adverse Effect, as defined in the Hercules Loan Agreement, which would be considered an event of default.

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On August 3, 2015, the Company entered into an amendment to the Hercules Loan Agreement, which reduced the term loan’s covenant thresholds for revenue for the months ending September 30, 2015 through December 31, 2015. On November 9, 2015, the Company entered into a second amendment to the Hercules Loan Agreement, which waives compliance with the term loan’s revenue and earnings covenant thresholds for November and December 2015. In connection with the amendment, the Company (i) paid Hercules a one-time fee of $0.2 million, (ii) reset the schedule of prepayment fees to begin from the November 9, 2015, instead of April 30, 2016, and (iii) agreed to amend the Hercules warrant as described below. On December 17, 2015 the Company entered into the third amendment to the Hercules Loan Agreement, which reduces the amount of restricted cash the Company is required to maintain in North America from $17.5 million to $15.0 million and which amount will further be reduced to $12.5 million if the Company achieves positive “Adjusted EBITDA” as defined in the loan agreement. The Company is in compliance with all of the Hercules Loan Agreement’s covenants as of December 31, 2015.

Hercules Warrant

Concurrently with entrance into the Hercules Loan Agreement, the Company issued to Hercules, as the sole lender on the closing date, a warrant to purchase up to 177,304 shares of the Company’s common stock at an exercise price of $2.82 per share. In connection with the November 9, 2015 Hercules Loan Agreement amendment, the Company agreed to amend the warrant to increase the number of shares to 300,000 and reduce the exercise price to $0.85. The warrant is exercisable in full and not in part. In addition, if upon the sale of all shares issued upon exercise of the warrant, or in the case of a merger or sale transaction involving other securities in whole or in part, upon the sale of such securities, the absolute return on the warrant exceeds $2.55 per share underlying the warrant, the warrant holder will pay the Company the excess in cash. The warrant may be exercised either for cash or on a cashless basis. The warrant expires April 30, 2022. The Company estimated the fair value of the warrant to be $0.3 million based on its relative fair value to the term loan using a Black-Sholes pricing model and accounted for the warrant as a discount on the carrying amount of the term loan and a component of additional paid-in capital. The fair value of the warrant will be amortized in the statement of operations as a component of interest expense.

VantagePoint Convertible Notes (Related Party)

On December 17, 2015, the Company entered into a convertible note purchase agreement with affiliates of the Company’s largest shareholder, VantagePoint, for the immediate issuance of $5.0 million of VantagePoint Notes. The note purchase agreement also provides for the issuance and sale of up to an additional $5.0 million aggregate principal amount of convertible notes, upon mutual agreement of ReachLocal and VantagePoint (and Hercules’ consent). The notes bear an annual interest rate of 4%, compounded quarterly. The Company is required to begin making quarterly interest and principal payments on April 15, 2017, subject to a subordination agreement with Hercules. The VantagePoint Notes mature on April 15, 2018, and all principal and unpaid interest is due at that time. The holders of the VantagePoint Notes have the right to convert any portion of the VantagePoint Notes into shares of ReachLocal common stock, par value $0.00001 per share, at an initial conversion rate of 200 shares of common stock per $1,000 principal amount of VantagePoint Notes, which represents an initial conversion price of $5.00 per share. The conversion rate is subject to customary anti-dilution adjustments for stock dividends, splits and combinations, certain distributions on the common stock, including cash dividends, spin-offs and certain tender or exchange offers for the common stock. An event of default, as defined in the agreement, may result in the acceleration of the maturity of the notes. The VantagePoint Notes are included in convertible notes – related party in the accompanying consolidated balance sheet.

On February 4, 2016, the Company entered into an amendment to the VantagePoint Notes. The amendment provides that, except in certain circumstances, the convertibility of the VantagePoint Notes is limited such that conversion may not result in the holders collectively acquiring beneficial ownership of more than 1.9% of the Company’s outstanding shares of common stock during any 12-month period.

VantagePoint and its affiliates beneficially own approximately 43% of the Company’s common stock and VantagePoint’s Chief Executive Officer and Managing Partner, is a member of the Company’s Board of Directors.

The VantagePoint Notes and Hercules Loan Agreement contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under the term loan to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.

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Future Debt Maturities

Aggregate principal payments, exclusive of any unamortized debt issuance costs or discounts, due on debt as of December 31, 2015 are as follows (in thousands):

Years Ended December 31,	Hercules Term Loan			VantagePoint Notes			Total
2016	$	11,647		$	—		$	11,647
2017		14,130			254			14,384
2018		4,806			5,254			10,060
Total minimum payments		30,583			5,508			36,091
Less amount representing interest		(5,883	)		(508	)		(6,391	)
Total minimum payments less interest	$	24,700		$	5,000		$	29,700

Capital Leases

The Company has entered into non-cancelable capital leases for computer equipment. At December 31, 2015, the Company had $1.2 million of capital leases, net of accumulated amortization of $0.8 million, of which $0.7 million is recorded in short-term liabilities and $0.5 million is recorded in long-term liabilities. Amortization of assets recorded under capital leases is included in depreciation expense. The interest rates on these leases range from 4.8% to 5.2%. As of December 31, 2015, future minimum payments under these leases are as follows (in thousands): 

Years Ended December 31,
2016	$	734
2017		497
2018		2
Total minimum payments		1,233
Less amount representing interest		(51	)
Total minimum payments less interest	$	1,182

14. Income Taxes

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

	Years Ended December 31,
	2015			2014			2013
United States	$	(25,495	)	$	(18,997	)	$	25,044
Foreign		(35,651	)		(26,179	)		(18,294	)
	$	(61,146	)	$	(45,176	)	$	6,750

The provision for income taxes for the years ended December 31, 2015, 2014 and 2013, consists primarily of federal, state and foreign income taxes payable in the various jurisdictions in which the Company operates.

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

	Years Ended December 31,
	2015			2014(a)			2013(a)
Current:
Federal	$	(3	)	$	(2,019	)	$	5,687
State		29			98			1,134
Foreign		242			205			378
		268			(1,716	)		7,199
Deferred:
Federal		(4,353	)		(422	)		(930	)
State		(1,403	)		(1,383	)		(4,048	)
Foreign		(6,843	)		(8,769	)		(8,232	)
		12,599			(10,574	)		(13,210	)
Valuation allowance		12,700			12,774			9,710
Income tax provision	$	369		$	484		$	3,699

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Income taxes payable as of December 31, 2015 amounted to $0.1 million and was classified within “Other current liabilities” in the accompanying consolidated balance sheet. Income taxes receivable as of December 31, 2014 amounted to $2.0 million and was classified within prepaid expenses and other current assets in the accompanying consolidated balance sheet.

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):

	Years Ended December 31,
	2015			2014(a)			2013(a)
Income tax expense (benefit) at the federal statutory rate	$	(20,790	)	$	(15,360	)	$	2,295
State income tax, net of federal tax benefit		(931	)		(848	)		(1,923	)
Foreign income taxes, net		(2,818	)		337			(3,189	)
Goodwill impairment		8,340			—			—
Non-deductible stock-based compensation		3,546			3,765			1,149
Research and development credits		(88	)		(325	)		(2,629	)
Change in valuation allowance		12,700			12,774			7,235
Deferred tax adjustments		—			—			617
Other		410			141			144
	$	369		$	484		$	3,699

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

	December 31,
	2015			2014(a)
Deferred tax assets:
Net operating loss carryforward	$	23,787		$	25,315
Federal and state credits		8,189			5,139
Investments		5,422			—
Accruals and provisions		5,409			5,743
Stock options		2,500			3,640
Gross deferred tax assets		45,307			39,837
Less: valuation allowance		(36,530	)		(28,055	)
Net deferred tax assets		8,777			11,782
Deferred tax liabilities:
Capitalized software		(7,534	)		(9,187	)
Intangible assets		(1,154	)		(1,362	)
Fixed assets		(851	)		(1,893	)
Net deferred tax liabilities		(9,539	)		(12,442	)
Net deferred tax asset (liabilities)	$	(762	)	$	(660	)

(a) For the years ended December 31, 2014 and 2013, the presentation of foreign income tax expense, net operating loss carryforward deferred tax asset, and corresponding valuation allowance have been revised in the above tables due to a prior overstatement of foreign net operating losses in both respective years. As a result of the valuation allowance recorded against the foreign net deferred tax assets, there is no impact to the accompanying consolidated balance sheets or statement of operations.

In the accompanying consolidated balance sheets, the non-current portion of deferred tax assets of $0.2 million and $0.1 million as of December 31, 2015 and 2014, respectively, is included in other assets. The non-current portion of net deferred tax liabilities of $0.9 million and $0.7 million as of December 31, 2015 and 2014, is included in deferred rent and other liabilities.

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The following table summarizes the Company’s net operating loss carryforwards as of December 31, 2015:

Net operating loss:	Balance at December 31, 2015 (in thousands)		Beginning Expiration Year
Federal	$	19,216		2033
State	$	30,554		Various jurisdictions from 2019 to 2030
Foreign	$	65,946		Generally do not expire, but are subject to certain limitations

The federal net operating loss and research and development credit carryforwards per the income tax returns filed included unrecognized tax benefits taken in prior years, and are larger than the net operating losses and credits for which a deferred tax asset is recognized for financial statement purposes.

As of December 31, 2015, the Company had gross federal and state research and development credit carryforwards of approximately $5.3 million and $3.9 million, respectively. The federal carryovers begin to expire in 2024, while the state carryovers have an indefinite carryover period. At December, 31, 2015, the Company had $0.1 million of foreign tax credits carryovers which begin to expire in 2023. As of December 31, 2015, the Company had gross California Enterprise Zone Credits of $1.4 million which begin to expire in 2024.

Certain deferred tax assets are not presented that arose directly from tax deductions related to equity compensation greater than the amount of compensation recognized for financial reporting. Equity will be increased by $2.2 million if and when such deferred tax assets are ultimately realized.

As of December 31, 2015 and 2014, the Company recorded valuation allowances of $36.5 million and $28.1 million, respectively, as the Company has determined that it is more likely than not that the deferred tax assets will not be realized. Due to the Company’s cumulative losses in U.S. and certain foreign jurisdictions, management has concluded that a full valuation allowance continues to be warranted with respect to the net deferred tax assets in these jurisdictions, excluding indefinite lived assets.

In 2015, the net increase in valuation allowance of $8.5 million was primarily due to net operating losses in domestic and foreign jurisdictions and the deconsolidation of RL U.K. In 2014, the net increase in valuation allowance of $12.8 million was primarily due to net operating losses in foreign jurisdictions and the recording of a full valuation allowance against its net domestic deferred tax assets, excluding indefinite lived assets.

The book value of the Company’s investments in foreign subsidiaries exceeds its tax basis in those subsidiaries by $1.0 million. However, the deferred income taxes on the associated gain have not been recognized, as gains become taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary, and these amounts are expected to be reinvested indefinitely outside of the U.S. 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, 2015, the Company had gross unrecognized tax benefits of approximately $1.6 million. Of this total, approximately $1.5 million would affect the Company’s effective tax rate if recognized. The liabilities for unrecognized tax benefits are primarily recorded as a reduction of gross deferred taxes which are included in deferred rent and other liabilities in the accompanying balance sheets.

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

	December 31,
	2015			2014			2013
Unrecognized tax benefits – beginning balance	$	1,570		$	1,700		$	824
Gross increases – tax positions taken in prior period		—			—			642
Gross decreases – tax positions taken in prior period		(14	)		(219	)		—
Gross increases– tax positions taken in current period		70			89			234
Unrecognized tax benefits – ending balance	$	1,626		$	1,570		$	1,700

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The Company expects a decrease of $0.8 million of unrecognized tax benefits in the next 12 months due to expiration of the applicable statute of limitations. These unrecognized tax benefits relate to the formation of a foreign joint venture.

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 interest or penalties during 2015 and in total, as of December 31, 2015, has not recognized a liability for interest and penalties.

The Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. Certain statutes begin to expire as early as 2016.

In May of 2015, the Internal Revenue Service initiated an examination of the Company’s U.S. consolidated 2013 and 2014 income tax returns that was finalized in December 2015 with no proposed adjustments.

15. Retirement Contribution Plans

The Company provides a defined contribution savings plan under Section 401(k) of the Internal Revenue Code and certain other plans in other countries. The 401(k) plan is available to all full-time U.S. employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company may contribute to the 401(k) plan at the discretion of its board of directors. No contributions have been made to the plan during the years ended December 31, 2015, 2014 and 2013.

16. Net Income (Loss) Per Share

Basic net income (loss) from continuing operations 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. Shares of unvested restricted stock are excluded from the calculation of basic weighted average shares outstanding, but their dilutive impact is added back in the calculation of diluted weighted average shares outstanding. Diluted net income (loss) from continuing operations 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 shares issuable upon the conversion of convertible debt using the if-converted method. The Company had a loss from continuing operations for the year ended December 31, 2015 and therefore the number of diluted shares was equal to the number of basic shares for the period.  

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):

	Years Ended December 31,
	2015		2014		2013
Deferred stock consideration and unvested restricted stock		596		768		216
Stock options, convertible notes, and warrant		8,223		6,489		3,534
		8,819		7,257		3,750

The following table sets forth the computation of basic and diluted income (loss) from continuing operations per share (in thousands, except per share amounts):

	Years Ended December 31,
	2015			2014			2013
Numerator:
Income (loss) from continuing operations	$	(61,515	)	$	(45,660	)	$	3,051
Denominator:
Weighted average common shares used in computation of income (loss) per share from continuing operations, basic		29,174			28,461			27,764
Deferred stock consideration and restricted stock		—			—			199
Stock options and warrants		—			—			1,088
Weighted average common shares used in computation of income (loss) per share from continuing operations, diluted		29,174			28,461			29,051
Income (loss) per share from continuing operations, basic	$	(2.11	)	$	(1.60	)	$	0.11
Income (loss) per share from continuing operations, diluted	$	(2.11	)	$	(1.60	)	$	0.11

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17. Variable Interest Entities

In July 2012, the Company entered into a franchise agreement with OxataSMB B.V. permitting it to operate and resell the Company’s services under the ReachLocal brand in Slovakia, Czech Republic, Hungary, Poland and Russia. At the same time, the Company 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 and €0.92 million ($1.2 million) was advanced in August 2013. The OxataSMB operations did not perform as contemplated, and as a result, the Company recorded a $3.3 million impairment of the loan receivable and related interest from OxataSMB and a $1.6 million provision for bad debt related to the trade receivable from OxataSMB. Ultimately we terminated OxataSMB’s franchise agreement in the fourth quarter of 2014 and have not been repaid any amounts under the loan.

18. Segment Information

Revenue by geographic region with respect to the Direct Local channel and National Brands, Agencies and Resellers, 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):

	Years Ended December 31,
	2015		2014		2013
Revenue:
North America	$	249,224	$	293,096	$	341,737
International		133,373		181,825		172,333
	$	382,597	$	474,921	$	514,070
Long Lived Assets:
North America	$	9,033	$	12,723
International		4,529		6,819
	$	13,562	$	19,542

The results of the Australia geographic region have been included in the Company’s consolidated financial statements and include revenues of $52.5 million, $80.3 million, and $85.0 million in 2015, 2014 and 2013, respectively. Long-lived assets of the Australia geographic region were $1.7 million at December 31, 2015 and 2014.

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

19. Supplemental Cash Flow Information

The following table sets forth supplemental cash flow disclosures (in thousands):

	Years Ended December 31,
	2015			2014		2013
Cash paid for interest, net	$	1,860		$	30	$	—
Cash paid for (received from) income taxes, net	$	(1,836	)	$	1,093	$	3,474
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	390		$	470	$	443
Issuance of Hercules warrant	$	250		$	—	$	—
Unpaid purchases of property and equipment	$	193		$	113	$	83
Assets acquired under capital leases	$	38		$	1,727	$	—
Investment related to the ClubLocal disposition	$	—		$	4,500	$	—
Deferred payment obligation decrease	$	—		$	—	$	(122	)

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20. Discontinued Operations

ClubLocal

In the fourth quarter of 2013, the Company’s Board of Directors approved a plan to dispose of the Company’s ClubLocal business, and on February 18, 2014, the Company closed a transaction in which it transferred its ClubLocal business to SERVIZ, Inc. in exchange for a minority equity interest. The Company has an equity interest in the new entity of 14.2%, with a recorded fair value of $4.5 million. As a result of the disposition, in the first quarter of 2014 the Company recorded a gain on disposal of $0.8 million, net of income tax of $0.4 million. This business has been accounted for as discontinued operations.

21. Quarterly Information (Unaudited)

The following table sets forth unaudited and quarterly financial data for the four quarters of each of 2015 and 2014.

	Dec 31, 2015			Sept 30, 2015			June 30, 2015			Mar 31, 2015			Dec 31, 2014			Sept 30, 2014			June 30, 2014			Mar 31, 2014
Revenue	$	88,977		$	95,282		$	98,776		$	99,563		$	109,009		$	117,623		$	123,553		$	124,736
Cost of revenue	$	48,131		$	53,671		$	55,390		$	56,217		$	61,708		$	64,154		$	63,461		$	63,398
Loss from continuing operations	$	(2,504	)	$	(35,637	)	$	(10,593	)	$	(12,782	)	$	(17,737	)	$	(11,284	)	$	(10,326	)	$	(6,313	)
Income (loss) from discontinued operations, net of income taxes	$	—		$	—		$	—		$	—		$	(279	)	$	—		$	31		$	(371	)
Net loss	$	(2,504	)	$	(35,637	)	$	(10,593	)	$	(12,782	)	$	(17,458	)	$	(11,284	)	$	(10,295	)	$	(5,973	)
Net income (loss) per share:
Basic and diluted:
Loss from continuing operations	$	(0.09	)	$	(1.22	)	$	(0.36	)	$	(0.44	)	$	(0.62	)	$	(0.40	)	$	(0.36	)	$	(0.22	)
Income (loss) from discontinued operations, net of income taxes		—			—			—			—			0.01			—			—			(0.01	)
Net loss per share	$	(0.09	)	$	(1.22	)	$	(0.36	)	$	(0.44	)	$	(0.61	)	$	(0.40	)	$	(0.36	)	$	(0.21	)

22. Subsequent Events

Amendment to Hercules Loan Agreement

On March 25. 2016, the Company and certain of its affiliates entered into a Fourth Amendment to Loan and Security Agreement with Hercules Capital, Inc. (formerly Hercules Technology Capital, Inc.), as administrative agent and lender. The loan amendment amends the Hercules Loan Agreement to increase the maximum net new investment in the Company’s foreign subsidiaries during 2016 from $4.0 million to $5.5 million.

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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 30, 2016.

REACHLOCAL, INC.
By:	/s/ Sharon T. Rowlands
Name:	Sharon T. Rowlands
Title:	Chief Executive Officer

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and appoints Sharon Rowlands and Ross 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 on the date indicated.

Signature	Title	Date
/s/ Sharon T. Rowlands	Chief Executive Officer, Director	March 30, 2016
Sharon T. Rowlands	(Principal Executive Officer)
/s/ Ross G. Landsbaum	Chief Financial Officer	March 30, 2016
Ross G. Landsbaum	(Principal Financial Officer and Principal Accounting Officer)
/s/ James Geiger	Director	March 30, 2016
James Geiger
/s/ Thomas Hale	Director	March 30, 2016
Thomas Hale
/s/ Habib Kairouz	Director	March 30, 2016
Habib Kairouz
/s/ Lawrence Kutscher	Director	March 30, 2016
Lawrence Kutscher
/s/ Alan Salzman	Director	March 30, 2016
Alan Salzman

/s/ Edward Thompson	Director	March 30, 2016
Edward Thompson

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Exhibit No.	Description of Document
3.1	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)
3.2	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)
4.1	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)
4.2	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)
4.3	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)
4.4	Warrant Agreement, dated as of April 30, 2015, by and among ReachLocal, Inc., direct and indirect domestic subsidiaries of ReachLocal, Inc., as co-borrowers, Hercules Technology Growth Capital, Inc., as administrative agent, and the lenders party thereto from time to time, including Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (File No. 001-34749) filed with the SEC on May 6, 2015)
4.5	First Amendment to Warrant Agreement, dated as of November 11, 2015, between ReachLocal, Inc. and Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K (File No. 001-34749) filed with the SEC on November 12, 2015)
4.6	Form of 4.0% Convertible Second Lien Subordinated Note
4.7	Amendment to 4.0% Convertible Second Lien Subordinated Notes
10.1*	Form of Indemnification Agreement for Directors and Executive Officers (incorporated by reference to Exhibit 10.01 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34749) filed with the SEC on March 11, 2013)
10.2*	Employment Letter between ReachLocal, Inc. and Sharon T. Rowlands, dated March 31, 2014 (incorporated by reference to Exhibit 10.01 of the Company’s Current Report on Form 8-K (File No. 001-34749) filed with the SEC on April 2, 2014)
10.3*	Amendment to Employment Letter between ReachLocal, Inc. and Sharon T. Rowlands, dated November 1, 2015 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 001-34749) filed with the SEC on November 9, 2015)
10.4*	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)
10.5*	Amended and Restated Employment Letter between ReachLocal, Inc. and Ross G. Landsbaum, dated as of March 28, 2016.

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10.6*	Offer Letter between ReachLocal, Inc. and Kris Barton, dated January 30, 2012 (incorporated by reference to Exhibit 10.01 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 (File No. 001-34749) filed with the SEC on May 8, 2014)
10.7*	Employment Letter between ReachLocal, Inc. and Adam Wergeles, dated November 15, 2007, as amended (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (File No. 001-34749) filed with the SEC on May 6, 2015)
10.8*	Transition Agreement between ReachLocal, Inc. and Adam Wergeles, dated March 9, 2015 (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (File No. 001-34749) filed with the SEC on May 6, 2015)
10.9*	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)

10.10*	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)
10.11*	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)
10.12*	ReachLocal, Inc. Non-Employee Director Compensation Program, effective as of December 12, 2014 (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-34749) filed with the SEC on March 12, 2015)
10.13*	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)
10.14*	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)
10.15*	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)

10.16*	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)
10.17*	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)
10.18*	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 3, 2012)
10.19*	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 3, 2012)
10.20*	Form of Performance-Vesting Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (File No. 001-34749) filed with the SEC on March 11, 2013)

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10.21*	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)
10.22*	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)
10.23*	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)
10.24*	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)
10.25*	Form of Interim-Employee Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.33 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 001-34749) filed with the SEC on March 4, 2014)
10.26*	Form of Inducement Stock Option Agreement (incorporated by reference to Exhibit 10.02 of the Company’s Current Report on Form 8-K (File No. 001-34749) filed with the SEC on April 2, 2014)

10.27	Loan and Security Agreement, dated as of April 30, 2015, by and among ReachLocal, Inc., direct and indirect domestic subsidiaries of ReachLocal, Inc., as co-borrowers, Hercules Technology Growth Capital, Inc., as administrative agent, and the lenders party thereto from time to time, including Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (File No. 001-34749) filed with the SEC on May 7, 2015)
10.28	First Amendment to Loan and Security Agreement, dated as of August 3, 2015, by and between ReachLocal, Inc., direct and indirect domestic subsidiaries of ReachLocal, Inc., as co-borrowers, Hercules Technology Growth Capital, Inc., as administrative agent, and the lenders party thereto from time to time, including Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-34749) filed with the SEC on August 6, 2015)
10.29	Second Amendment to Loan and Security Agreement, dated as of November 9, 2015, by and among ReachLocal, Inc., direct and indirect domestic subsidiaries of ReachLocal, Inc., as co-borrowers, Hercules Technology Growth Capital, Inc., as administrative agent, and the lenders party thereto from time to time, including Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-34749) filed with the SEC on November 12, 2015)
10.30	Third Amendment to Loan and Security Agreement, dated as of December 17, 2015, by and among ReachLocal, Inc., direct and indirect domestic subsidiaries of ReachLocal, Inc., as co-borrowers, Hercules Technology Growth Capital, Inc., as administrative agent, and the lenders party thereto from time to time, including Hercules Technology Growth Capital, Inc.
10.31	Fourth Amendment to Loan and Security Agreement, dated as of March 28, 2016, by and among ReachLocal, Inc., direct and indirect domestic subsidiaries of ReachLocal, Inc., as co-borrowers, Hercules Capital, Inc., as administrative agent, and the lenders party thereto from time to time, including Hercules Capital, Inc.
10.32	Note Purchase Agreement, dated as of December 17, 2015, by and among ReachLocal, Inc., and the purchasers thereof
10.33	Security Agreement, dated as of December 17, 2015, by and among ReachLocal, Inc., and the holders of the Company’s 4.0% Convertible Second Lien Subordinated Notes from time to time
10.34	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)
10.35	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)

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10.36	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)
10.37	Lease Agreement, dated June 17, 2013, between EPC-IBP 16, LLC and ReachLocal (incorporated by reference to Exhibit 10.01 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001-34749) filed with the SEC on August 7, 2013)
10.38	Side Letter, dated June 17, 2013, between EPC-IBP 16, LLC and ReachLocal, Inc. (incorporated by reference to Exhibit 10.03 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 (File No. 001-34749) filed with the SEC on August 7, 2013)
10.39†	Google Adwords PSP Addendum, dated June 27, 2014, among ReachLocal, Inc. and certain of its affiliates, and Google Inc. and certain of its affiliates (incorporated by reference to Exhibit 10.02 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (File No. 001-34749) filed with the SEC on August 7, 2014)
10.40	Sales Promotion Addendum to Google Adwords PSP Addendum, dated February 2, 2015, among ReachLocal Europe B.V. and Google Ireland Limited (incorporated by reference to Exhibit 10.33 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-34749) filed with the SEC on March 12, 2015)
10.41†	Addendum to Google AdWords PSP Addendum, dated May 4, 2015, among ReachLocal, Inc. and certain of its affiliates, and Google Inc. and certain of its affiliates (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (File No. 001-34749) filed with the SEC on May 7, 2015)
10.42†	Amendment to Google AdWords PSP Addendum, effective June 1, 2015, among ReachLocal, Inc. and certain of its affiliates, and Google Inc. and certain of its affiliates (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 (File No. 001-34749) filed with the SEC on August 6, 2015)
10.43†	Amendment to Google AdWords PSP Addendum, effective October 1, 2015, among ReachLocal, Inc. and certain of its affiliates, and Google Inc. and certain of its affiliates
21.1	List of subsidiaries of ReachLocal, Inc.
23.1	Consent of Independent Registered Public Accounting Firm
24.1	Power of Attorney (included on signature page to this Annual Report on Form 10-K)
31.1	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
31.2	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
32.1	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
32.2	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.INSXBRL	Instance Document
101.SCHXBRL	Taxonomy Extension Schema Document
101.CALXBRL	Taxonomy Extension Calculation Linkbase Document

Page 61

Table Of Contents

101.DEFXBRL Taxonomy Extension Definition Linkbase Document

101.LABXBRL	Taxonomy Extension Label Linkbase Document
101.PREXBRL	Taxonomy Extension Presentation Linkbase Document

_________________

*	Indicates management contract or compensatory plan, contract or arrangement.
†	Certain provisions of this exhibit have been omitted pursuant to a request for confidential treatment.

Page 62

EX-4.6

Exhibit 4.6

REACHLOCAL, INC.

4.00% Convertible Second Lien Subordinated Note

THE OFFER AND SALE OF THIS NOTE AND THE SHARES OF COMMON STOCK, IF ANY, ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER:

(1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT; AND

(2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE OR ANY BENEFICIAL INTEREST HEREIN, EXCEPT ONLY:

(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF;

(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT;

(C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT;

(D) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT; OR

(E) PURSUANT TO ANY OTHER EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

BEFORE THE REGISTRATION OF ANY SALE OR TRANSFER IN ACCORDANCE WITH (2)(C), (D) OR (E) ABOVE, THE COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH CERTIFICATES OR OTHER DOCUMENTATION OR EVIDENCE AS IT MAY REASONABLY REQUIRE IN ORDER TO DETERMINE THAT THE PROPOSED SALE OR TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.

THE COMPANY IS A PARTY TO A SUBORDINATION AGREEMENT WITH HERCULES TECHNOLOGY GROWTH CAPITAL, INC., AND (I) ENFORCEMENT OF THE SECURITY AGREEMENT DATED DECEMBER 17, 2015 BY AND AMONG THE COMPANY AND EACH HOLDER FROM TIME TO TIME PARTY THERETO; AND (II) PAYMENT OF THE NOTES IS SUBJECT TO SUCH SUBORDINATION AGREEMENT.

REACHLOCAL, INC.

4.00% Convertible Second Lien Subordinated Note

Certificate No. A-[_]

ReachLocal, Inc., a Delaware corporation, for value received, promises to pay to [purchaser’s legal name], or its registered assigns, the principal sum of [__] dollars ($[__]), together with interest thereon, as provided in this Note, until the principal and all accrued and unpaid interest are paid or duly provided for.

Additional provisions of this Note are set forth on the other side of this Note.

[The Remainder of This Page Intentionally Left Blank; Signature Page Follows]

IN WITNESS WHEREOF, ReachLocal, Inc. has caused this instrument to be duly executed as of the date set forth below.

	ReachLocal, Inc.
Date:     December ___, 2015	By:
		Name:
		Title:

[Signature Page to Convertible Second Lien Subordinated Note, Certificate No. A-[_]]

REACHLOCAL, INC.

4.00% Convertible Second Lien Subordinated Note

This Note is one of a duly authorized issue of notes of ReachLocal, Inc., a Delaware corporation (the “Company”), designated as its 4.00% Convertible Second Lien Subordinated Notes (collectively, the “Notes”).

Section 1.01.     Definitions.

“Additional Interest” has the meaning set forth in Section 1.10(A).

“Affiliate” has the meaning set forth in Rule 144 under the Securities Act.

“Bankruptcy Law” means Title 11, United States Code, or any similar U.S. federal or state or non-U.S. law for the relief of debtors.

“Board of Directors” means the board of directors of the Company or a committee of such board duly authorized to act on behalf of such board.

“Business Combination Event” has the meaning set forth in Section 1.11.

“Business Day” means any day other than a Saturday, a Sunday or any day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed.

“Capital Stock” of any Person means any and all shares of, interests in, rights to purchase, warrants or options for, participations in, or other equivalents of, in each case however designated, the equity of such Person, but excluding any debt securities convertible into such equity.

“Close of Business” means 5:00 p.m., New York City time.

“Commission” means the U.S. Securities and Exchange Commission.

“Common Stock” means the common stock, $0.00001 par value per share, of the Company, subject to Section 1.06(G).

“Common Stock Change Event” has the meaning set forth in Section 1.06(G).

“Conversion Consideration” has the meaning set forth in Section 1.06(C)(i).

“Conversion Date” means, with respect to a Note, the first Business Day on which the requirements set forth in Section 1.06(B) to convert such Note are satisfied.

“Conversion Price” means, as of any time, an amount equal to (A) one thousand dollars ($1,000) divided by (B) the Conversion Rate in effect at such time.

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“Conversion Rate” initially means 200.0000 shares of Common Stock per $1,000 principal amount of Notes, which amount is subject to adjustment pursuant to Section 1.06. Whenever this Note refers to the Conversion Rate as of a particular date without setting forth a particular time on such date, such reference will be deemed to be to the Conversion Rate as of the Close of Business on such date.

“Default” means any event that is (or, after notice, passage of time or both, would be) an Event of Default.

“Event of Default” has the meaning set forth in Section 1.12(A).

“Ex-Dividend Date” means, with respect to an issuance, dividend or distribution on the Common Stock, the first date on which shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such issuance, dividend or distribution (including pursuant to due bills or similar arrangements required by the relevant stock exchange). For the avoidance of doubt, any alternative trading convention on the applicable exchange or market in respect of the Common Stock under a separate ticker symbol or CUSIP number will not be considered “regular way” for this purpose.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“Expiration Date” has the meaning set forth in Section 1.06(E)(i)(5).

“Tender/Exchange Offer Valuation Period” has the meaning set forth in Section 1.06(E)(i)(5).

“Hercules Loan and Security Agreement” means that certain Loan and Security Agreement, dated as of April 30, 2015, among the Company, certain subsidiaries of the Company party thereto, Hercules Technology Growth Capital, Inc., and the lenders party thereto from time to time., as the same may be amended from time to time.

“Holder” means a person in whose name a Note is registered on the books of the Company.

“Last Original Issue Date” means, with respect to any Note, and any Notes issued in exchange therefor or in substitution thereof, the date such Note was originally issued.

“Last Reported Sale Price” of the Common Stock for any Trading Day means the closing sale price per share (or, if no closing sale price is reported, the average of the last bid price and the last ask price per share or, if more than one in either case, the average of the average last bid prices and the average last ask prices per share) of Common Stock on such Trading Day as reported in composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock is then listed. If the Common Stock is not listed on a U.S. national or regional securities exchange on such Trading Day, then the Last Reported Sale Price will be the last quoted bid price per share of Common Stock on such Trading Day in the over-the-counter market as reported by OTC Markets Group Inc. or a similar organization. If the Common Stock is not so quoted on such Trading Day, then the Last Reported Sale Price will be the average of the mid-point of the last bid price and the last ask price per share of Common Stock on such Trading Day from a nationally recognized independent investment banking firms selected by the Company.

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“Market Disruption Event” means, with respect to any date, the occurrence or existence, during the one-half hour period ending at the scheduled close of trading on such date on the principal U.S. national or regional securities exchange or other market on which the Common Stock is listed for trading or trades, of any material suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant exchange or otherwise) in the Common Stock or in any options, contracts or future contracts relating to the Common Stock.

“Maturity Date” means April 15, 2018.

“Open of Business” means 9:00 a.m., New York City time.

“Payment Date” has the meaning set forth in Section 1.04.

“Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof.

“Reference Property” has the meaning set forth in Section 1.06(G).

“Reference Property Unit” has the meaning set forth in Section 1.06(G).

“Securities Act” means the U.S. Securities Act of 1933, as amended.

“Security Agreement” means the Security Agreement, dated December 17, 2015, by and among the Company and each Holder from time to time party thereto, relating to the Notes.

“Significant Subsidiary” means any Subsidiary of the Company that constitutes, or any group of Subsidiaries of the Company that, in the aggregate, would constitute, a “significant subsidiary” (as defined in Rule 1-02(w) of Regulation S-X under the Exchange Act) of the Company.

“Spin-Off” has the meaning set forth in Section 1.06(E)(i)(3)(ii).

“Subordination Agreement” has the meaning set forth in Section 1.08.

“Successor Person” has the meaning set forth in Section 1.06(G).

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“Subsidiary” means, with respect to any Person, (A) any corporation, association or other business entity (other than a partnership or limited liability company) of which more than fifty percent (50%) of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency, but after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees, as applicable, of such corporation, association or other business entity is owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person; and (B) any partnership or limited liability company where (i) more than fifty percent (50%) of the capital accounts, distribution rights, equity and voting interests, or of the general and limited partnership interests, as applicable, of such partnership or limited liability company are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person, whether in the form of membership, general, special or limited partnership or limited liability company interests or otherwise; and (ii) such Person or any one or more of the other Subsidiaries of such Person is a controlling general partner of, or otherwise controls, such partnership or limited liability company.

“Tender/Exchange Offer Valuation Period” has the meaning set forth in Section 1.06(E)(i)(5).

“Trading Day” means any day on which (A) trading in the Common Stock generally occurs on the principal U.S. national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on a U.S. national or regional securities exchange, on the principal other market on which the Common Stock is then traded; and (B) there is no Market Disruption Event. If the Common Stock is not so listed or traded, then “Trading Day” means a Business Day.

Section 1.02.     Persons Deemed Owners.

The Holder of this Note will be treated as the owner of this Note for all purposes.

Section 1.03.     Denominations; Transfers and Exchanges.

All Notes will be in registered form, without coupons, in denominations of $1,000 or any integral multiple of $1,000 in excess thereof. The Holder of this Note may transfer or exchange this Note by presenting it to the Company; provided, however, that the Company may refuse to effect any transfer of this Note until the Holder thereof provides the Company with such certificates or other documentation or evidence as the Company may reasonably require to determine that such transfer complies with the Securities Act and other applicable securities laws.

The Company will not impose any service charge on any Holder for any transfer, exchange or conversion of Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge that may be imposed in connection with any transfer, exchange or conversion of any Note if the Holder thereof requests that such Note or any share of Common Stock issuable upon conversion of such Note, as applicable, be issued in a name other than such Holder’s name.

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Section 1.04.     Payments of Principal and Interest.

The principal of and interest (other than Additional Interest that may accrue pursuant to Section 1.10) on this Note will be payable in equal payments on each of April 15, 2017, July 15, 2017, October 15, 2017, January 15, 2018 and April 15, 2018 (each, a “Payment Date”) such that the present value of all such payments, as of the original issuance date of this Note, is equal to the original principal amount of this Note, calculated using an discount rate of 4.00% per annum, compounded quarterly. As soon as reasonably practicable at or after the time this Note is issued, the Company and the Holder of this Note will attach to this Note a schedule setting forth the payments due on each Payment Date and the principal amount of this Note outstanding immediately after such Payment Date. If this Note is exchanged for a new Note of a different principal amount, or if this Note is partially converted and a new Note is issued representing the unconverted portion, then the schedule attached to such new Note will be updated to reflect the revised payments due on, and principal amounts of such new Note outstanding immediately after, each subsequent Payment Date. For the avoidance of doubt, payments due on each Payment Date will be subject to the Subordination Agreement.

Section 1.05.     Method of Payment; When Payment Date is Not a Business Day.

(A)     Method of Payment. The Company will pay all cash amounts due under this Note by check mailed to the address of the Holder of this Note entitled to such payment as set forth in the books of the Company (or, if such Holder provides the Company, at least fifteen (15) days before such amount is due, with written notice of an account of such Holder within the United States, by wire transfer of immediately available funds to such account).

(B)     Delay of Payment when Payment Date is Not a Business Day. If the due date for a payment on a Note as provided in this Note is not a Business Day, then, notwithstanding anything to the contrary in this Notes, such payment may be made on the immediately following Business Day and no interest will accrue on such payment as a result of the related delay.

Section 1.06.     Conversion.

(A)     Right to Convert.

(i)     Generally. Subject to the provisions of this Section 1.06, each Holder may, at its option, convert such Holder’s Notes into Conversion Consideration at any time prior to the Close of Business on the Business Day immediately preceding the Maturity Date.

(ii)     Conversions in Part. Subject to the terms of the Notes, the Notes may be converted in part. Provisions of this Section 1.06 applying to the conversion of a Note in whole will equally apply to conversions of a permitted portion of a Note.

(B)     Conversion Procedures.

(i)     Generally. To convert all or a portion of a Note, the Holder of such Note must (1) complete, manually sign and deliver to the Company the conversion notice attached to such Note or a facsimile of such conversion notice (at which time such conversion will become irrevocable); (2) deliver such Note to the Company; (3) furnish any endorsements and transfer documents that the Company may require; and (4) pay any amounts due pursuant to Section 1.06(B)(iv).

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(ii)     Effect of Converting a Note. At the Close of Business on the Conversion Date for a Note (or any portion thereof), such Note (or such portion thereof) will be deemed to cease to be outstanding (and, for the avoidance of doubt, no Person will be deemed to be a Holder of such Note (or such portion thereof) as of the Close of Business on such Conversion Date).

(iii)     Holder of Record of Conversion Shares. The person in whose name any share of Common Stock is issuable upon conversion of any Note will be deemed to become the holder of record of such share as of the Close of Business on the Conversion Date for such conversion.

(iv)     Taxes and Duties. If a Holder converts a Note, the Company will pay any documentary, stamp or similar issue or transfer tax or duty due on the issue of any shares of Common Stock upon such conversion; provided, however, that if any tax or duty is due because such Holder requested such shares to be issued in a name other than that of such Holder, then such Holder will pay such tax or duty and, until having received a sum sufficient to pay such tax or duty, the Company may refuse to deliver any such shares to be issued in a name other than that of such Holder.

(C)     Settlement upon Conversion.

(i)     Generally. The consideration (the “Conversion Consideration”) due in respect of each $1,000 principal amount of a Note to be converted will be a number of shares of Common Stock equal to the Conversion Rate in effect on the Conversion Date for such conversion; provided, however, that the Company will not be obligated to issue any fractional share and will, in lieu thereof, deliver a cash amount based on the Last Reported Sale Price per share of Common Stock on the relevant Conversion Date.

(ii)     Delivery of the Conversion Consideration. Except as set forth in Section Section 1.06(E), the Company will pay or deliver, as applicable, the Conversion Consideration due upon the conversion of any Note to the Holder on or before the third (3rd) Business Day immediately after the Conversion Date for such conversion.

(iii)     Deemed Payment of Principal and Interest; Settlement of Accrued Interest Notwithstanding Conversion. If a Holder converts a Note, then the Company will not adjust the Conversion Rate to account for any accrued and unpaid interest on such Note, and the Company’s delivery of the Conversion Consideration due in respect of such conversion will be deemed to fully satisfy and discharge the Company’s obligation to pay the principal of, and accrued and unpaid interest, if any, on, such Note to, but excluding the Conversion Date. As a result, any accrued and unpaid interest on a converted Note will be deemed to be paid in full rather than cancelled, extinguished or forfeited.

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(D)     Reserve and Status of Common Stock Issued upon Conversion.

(i)     Stock Reserve. At all times when any Notes are outstanding, the Company will reserve, out of its authorized but unissued and unreserved shares of Common Stock, a number of shares of Common Stock sufficient to permit the conversion of all then-outstanding Notes.

(ii)     Status of Conversion Shares; Listing. Each share of Common Stock delivered upon conversion of any Note will be a newly issued or treasury share and will be duly and validly issued, fully paid, non-assessable, free from preemptive rights and free of any lien or adverse claim (except to the extent of any lien or adverse claim created by the action or inaction of the Holder of such Note or the Person to whom such share will be delivered). If the Common Stock is then listed on any securities exchange, or quoted on any inter-dealer quotation system, then the Company will cause each share of Common Stock issued upon conversion of a Note, when delivered upon such conversion, to be admitted for listing on such exchange or quotation on such system.

(E)     Adjustments to the Conversion Rate.

(i)     Events Requiring an Adjustment to the Conversion Rate. The Company will adjust the Conversion Rate from time to time as follows:

(1)     Stock Dividends, Splits and Combinations. If the Company issues solely shares of Common Stock as a dividend or distribution on all or substantially all shares of the Common Stock, or if the Company effects a stock split or a stock combination of the Common Stock (in each case excluding an issuance solely pursuant to a Common Stock Change Event, as to which the provisions set forth in Section 1.06(G) will apply), then the Conversion Rate will be adjusted based on the following formula:

where:

CR₀     =     the Conversion Rate in effect immediately before the Open of Business on the Ex-Dividend Date for such dividend or distribution, or immediately before the Open of Business on the effective date of such stock split or stock combination, as applicable;

CR₁     =     the Conversion Rate in effect immediately after the Open of Business on such Ex-Dividend Date or the Open of Business on such effective date, as applicable;

OS₀     =     the number of shares of Common Stock outstanding immediately before the Open of Business on such Ex-Dividend Date or effective date, as applicable; and

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OS₁     =     the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, stock split or stock combination.

For the avoidance of doubt, as provided in the definition of CR0 above, such adjustment to the Conversion Rate will become effective immediately after the Open of Business on such Ex-Dividend Date or the Open of Business on such effective date, as applicable. If any dividend, distribution, stock split or stock combination of the type described in this Section 1.06(E)(i)(1) is declared or announced, but not so paid or made, then the Conversion Rate will be readjusted, effective as of the date the Board of Directors determines not to pay such dividend or distribution or to effect such stock split or stock combination, to the Conversion Rate that would then be in effect had such dividend, distribution, stock split or stock combination not been declared or announced.

(2)     Rights, Options and Warrants. If the Company issues, to all or substantially all holders of Common Stock, rights, options or warrants entitling such holders, for a period of not more than sixty (60) calendar days after the record date of such issuance, to subscribe for or purchase shares of Common Stock at a price per share that is less than the average of the Last Reported Sale Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading Day immediately before the date such issuance is announced, then the Conversion Rate will be increased based on the following formula:

 

where:

CR₀     =     the Conversion Rate in effect immediately before the Open of Business on the Ex-Dividend Date for such issuance;

CR₁     =     the Conversion Rate in effect immediately after the Open of Business on such Ex-Dividend Date;

OS₀     =     the number of shares of Common Stock outstanding immediately before the Open of Business on such Ex-Dividend Date;

X     =     the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and

Y     =     a number of shares of Common Stock obtained by dividing (x) the aggregate price payable to exercise such rights, options or warrants by (y) the average of the Last Reported Sale Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading Day immediately before the date

such issuance is announced.

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For the avoidance of doubt, as provided in the definition of CR0 above, such adjustment to the Conversion Rate will become effective immediately after the Open of Business on such Ex-Dividend Date. Adjustments to the Conversion Rate pursuant to this Section 1.06(E)(i)(2) will be made successively whenever any such rights, options or warrants are issued. To the extent that shares of Common Stock are not delivered after the expiration of such rights, options or warrants (including as a result of such rights, options or warrants not being exercised), the Conversion Rate will be readjusted to the Conversion Rate that would then be in effect had the increase to the Conversion Rate for such issuance been made on the basis of delivery of only the number of shares of Common Stock actually delivered upon exercise of such rights, option or warrants. To the extent such rights, options or warrants are not so issued, the Conversion Rate will be readjusted to the Conversion Rate that would then be in effect had the Ex-Dividend Date for the issuance of such rights, options or warrants not occurred.

For purposes of this Section 1.06(E)(i)(2), in determining whether any rights, options or warrants entitle holders of Common Stock to subscribe for or purchase shares of Common Stock at a price per share that is less than the average of the Last Reported Sale Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading Day immediately before the date of the issuance of such rights, options or warrants is announced, and in determining the aggregate price payable to exercise such rights, options or warrants, there will be taken into account any consideration the Company receives for such rights, options or warrants and any amount payable on exercise thereof, with the value of such consideration, if not cash, to be determined by the Board of Directors.

(3)     Spin-Offs and Other Distributed Property.

(i)     Distributions Other than Spin-Offs. If the Company distributes shares of its Capital Stock, evidences of its indebtedness or other assets or property of the Company, or rights, options or warrants to acquire Capital Stock of the Company or other securities, to all or substantially all holders of the Common Stock, excluding:

(v)     dividends, distributions, rights, options or warrants for which an adjustment to the Conversion Rate is required (or would be required without regard to Section 1.06(E)(iii)) pursuant to Section 1.06(E)(i)(1) or Section 1.06(E)(i)(2);

(w)     dividends or distributions paid exclusively in cash for which an adjustment to the Conversion Rate is required (or would be required without regard to Section 1.06(E)(iii)) pursuant to Section 1.06(E)(i)(4);

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(x)     rights issued or otherwise distributed pursuant to a stockholder rights plan, except to the extent provided in Section 1.06(E)(vi);

(y)     Spin-Offs for which an adjustment to the Conversion Rate is required (or would be required without regard to Section 1.06(E)(iii)) pursuant to Section 1.06(E)(i)(3)(ii); and

(z)     a distribution solely pursuant to a Common Stock Change Event, as to which the provisions set forth in Section 1.06(G) will apply,

then the Conversion Rate will be increased based on the following formula:

 

where:

CR₀     =     the Conversion Rate in effect immediately before the Open of Business on the Ex-Dividend Date for such distribution;

CR₁     =     the Conversion Rate in effect immediately after the Open of Business on such Ex-Dividend Date;

SP₀     =     the average of the Last Reported Sale Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading Day immediately before such Ex-Dividend Date; and

FMV     =     the fair market value (as determined by the Board of Directors), as of such Ex-Dividend Date, of the shares of Capital Stock, evidences of indebtedness, assets, property, rights, options or warrants distributed per share of Common Stock pursuant to such distribution;

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provided, however, that if FMV is equal to or greater than SP0, then, in lieu of the foregoing adjustment to the Conversion Rate, each Holder will receive, for each $1,000 principal amount of Notes held by such Holder on the record date for such distribution, at the same time and on the same terms as holders of Common Stock, the amount and kind of shares of Capital Stock, evidences of indebtedness, assets, property, rights, options or warrants that such Holder would have received if such Holder had owned, on such record date, a number of shares of Common Stock equal to the Conversion Rate in effect on such record date.

For the avoidance of doubt, as provided in the definition of CR0 above, such adjustment to the Conversion Rate will become effective immediately after the Open of Business on such Ex-Dividend Date. To the extent such distribution is not so paid or made, or such rights, options or warrants are not exercised before their expiration (including as a result of being redeemed or terminated), the Conversion Rate will be readjusted to the Conversion Rate that would then be in effect had the adjustment been made on the basis of only the distribution, if any, actually made or paid or on the basis of the distribution of only such rights, options or warrants, if any, that were actually exercised, if at all.

(ii)     Spin-Offs. If the Company distributes or dividends shares of Capital Stock of any class or series, or similar equity interest, of or relating to an Affiliate, a Subsidiary or other business unit of the Company to all or substantially all holders of the Common Stock (excluding a distribution solely pursuant to a Common Stock Change Event, as to which the provisions set forth in Section 1.06(G) apply), and such Capital Stock or equity interest is listed or quoted (or will be listed or quoted upon the consummation of the transaction) on a U.S. national securities exchange (a “Spin-Off”), then the Conversion Rate will be increased based on the following formula:

 

where:

CR₀     =     the Conversion Rate in effect immediately before the Open of Business on the Ex-Dividend Date for such Spin-Off;

CR₁     =     the Conversion Rate in effect immediately after the Open of Business on such Ex-Dividend Date;

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FMV₀     =     the average of the Last Reported Sale Prices of the Capital Stock or equity interests distributed per share of Common Stock in such Spin Off over the ten (10) consecutive Trading Day period (the “Spin-Off Valuation Period”) beginning on, and including, such Ex-Dividend Date (such average to be determined as if references to Common Stock in the definitions of Last Reported Sale Price and Trading Day were instead references to the number of units of such Capital Stock or equity interests); and

MP₀     =     the average of the Last Reported Sale Prices per share of Common Stock over the Spin-Off Valuation Period.

The adjustment to the Conversion Rate pursuant to this Section 1.06(E)(i)(3)(ii) will be calculated as of the Close of Business on the last Trading Day of the Spin-Off Valuation Period but will be given effect immediately after the Open of Business on the Ex-Dividend Date for the Spin-Off, with retroactive effect. If a Note is converted and the Conversion Date occurs during the Spin-Off Valuation Period, then, notwithstanding anything to the contrary in the Notes, the Company will, if necessary, delay the settlement of such conversion until the third (3rd) Business Day after the last day of the Spin-Off Valuation Period.

To the extent any dividend or distribution of the type set forth in this Section 1.06(E)(i)(3)(ii) is declared but not made or paid, the Conversion Rate will be readjusted to the Conversion Rate that would then be in effect had the adjustment been made on the basis of only the distribution, if any, actually made or paid.

(4)     Cash Dividends or Distributions. If any cash dividend or distribution is made to all or substantially all holders of Common Stock, then the Conversion Rate will be increased based on the following formula:

 

where:

CR₀     =     the Conversion Rate in effect immediately before the Open of Business on the Ex-Dividend Date for such dividend or distribution;

CR₁     =     the Conversion Rate in effect immediately after the Open of Business on such Ex-Dividend Date;

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SP₀     =     the Last Reported Sale Price per share of Common Stock on the Trading Day immediately before such Ex-Dividend Date; and

D     =     the cash amount distributed per share of Common Stock in such dividend or distribution;

provided, however, that if D is equal to or greater than SP0, then, in lieu of the foregoing adjustment to the Conversion Rate, each Holder will receive, for each $1,000 principal amount of Notes held by such Holder on the record date for such dividend or distribution, at the same time and on the same terms as holders of Common Stock, the amount of cash that such Holder would have received if such Holder had owned, on such record date, a number of shares of Common Stock equal to the Conversion Rate in effect on such record date. For the avoidance of doubt, as provided in the definition of CR0 above, such adjustment to the Conversion Rate will become effective immediately after the Open of Business on such Ex-Dividend Date. To the extent such dividend or distribution is declared but not made or paid, the Conversion Rate will be readjusted to the Conversion Rate that would then be in effect had the adjustment been made on the basis of only the dividend or distribution, if any, actually made or paid.

(5)     Tender Offers or Exchange Offers. If the Company or any of its Subsidiaries makes a payment in respect of a tender offer or exchange offer for shares of Common Stock, and the value (determined as of the Expiration Time by the Board of Directors) of the cash and other consideration paid per share of Common Stock in such tender or exchange offer exceeds the Last Reported Sale Price per share of Common Stock on the Trading Day immediately after the last date (the “Expiration Date”) on which tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended), then the Conversion Rate will be increased based on the following formula:

 

where:

CR₀     =     the Conversion Rate in effect immediately before the time (the “Expiration Time”) such tender or exchange offer expires;

CR₁     =     the Conversion Rate in effect immediately after the Expiration Time;

AC     =     the aggregate value (determined as of the Expiration Time by the Board of Directors) of all cash and other consideration paid for shares of Common Stock purchased in such tender or exchange offer;

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OS₀     =     the number of shares of Common Stock outstanding immediately before the Expiration Time (before giving effect to the purchase of all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer);

OS₁     =     the number of shares of Common Stock outstanding immediately after the Expiration Time (excluding all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer); and

SP₁     =     the average of the Last Reported Sale Prices per of Common Stock over the ten (10) consecutive Trading Day period (the “Tender/Exchange Offer Valuation Period”) beginning on, and including, the Trading Day immediately after the Expiration Date.

The adjustment to the Conversion Rate pursuant to this Section 1.06(E)(i)(5) will be calculated as of the Close of Business on the last Trading Day of the Tender/Exchange Offer Valuation Period but will be given effect immediately after the Expiration Time, with retroactive effect. If a Note is converted and the Conversion Date occurs during the Tender/Exchange Offer Valuation Period, then, notwithstanding anything to the contrary in the Notes, the Company will, if necessary, delay the settlement of such conversion until the third (3rd) Business Day after the last day of the Tender/Exchange Offer Valuation Period.

(ii)     No Adjustments in Certain Cases.

(1)     Where Holders Participate in the Transaction or Event Without Conversion. Notwithstanding anything to the contrary in Section 1.06(E)(i), the Company will not be obligated to adjust the Conversion Rate on account of a transaction or other event otherwise requiring an adjustment pursuant to Section 1.06(E)(i) (other than a stock split or combination) if each Holder participates, at the same time and on the same terms as holders of Common Stock, and solely by virtue of being a Holder of Notes, in such transaction or event without having to convert such Holder’s Notes and as if such Holder held a number of shares of Common Stock equal to the product of (i) the Conversion Rate in effect on the applicable record date, effective date or Expiration Date, as applicable; and (ii) the aggregate principal amount (expressed in thousands) of Notes held by such Holder on such date.

(2)     Certain Events. Notwithstanding anything to the contrary in the Notes, the Company will not be obligated to adjust the Conversion Rate on account of:

(u)     the sale of shares of Common Stock for a purchase price that is less than the market price per share of Common Stock or less than the Conversion Price;

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(v)     the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on the Company’s securities and the investment of additional optional amounts in shares of Common Stock under any such plan;

(w)     the issuance of any shares of Common Stock or options or rights to purchase shares of Common Stock pursuant to any present or future employee, director or consultant benefit plan or program of, or assumed by, the Company or any of its Subsidiaries;

(x)     the issuance of any shares of Common Stock pursuant to any option, warrant, right or convertible or exchangeable security of the Company outstanding as of the Issue Date;

(y)     a change in the par value of the Common Stock; or

(z)     accrued and unpaid interest on the Notes.

(iii)     Adjustment Deferral. If an adjustment to the Conversion Rate otherwise required by this Section 1.06(E) would result in a change of less than one percent (1%) to the Conversion Rate, then, notwithstanding anything to the contrary in this Section 1.06(E), the Company may, at its election, defer such adjustment, except that all such deferred adjustments must be given effect immediately upon the earliest of the following: (i) when all such deferred adjustments would result in a change of at least one percent (1%) to the Conversion Rate; (ii) the Conversion Date of any Note; and (iii) the fifteenth (15th) calendar day immediately preceding the Maturity Date.

(iv)     Adjustments Not Yet Effective. Notwithstanding anything to the contrary in the Notes, if:

(1)     a Note is to be converted and, on the Conversion Date for such conversion, the record date, effective date or Expiration Time for any event that requires an adjustment to the Conversion Rate pursuant to Section 1.06(E) has occurred on or before such Conversion Date but an adjustment to the Conversion Rate for such event has not yet become effective;

(2)     the Conversion Consideration due upon such conversion consists of any whole shares of Common Stock; and

(3)     such shares are not entitled to participate in such event (because they were not held on the related record date or otherwise),

then, solely for purposes of such conversion, the Company will, without duplication, give effect to such adjustment on such Conversion Date.

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(v)     Conversion Rate Adjustments where Converting Holders Participate in the Relevant Transaction or Event. Notwithstanding anything to the contrary in the Notes, if:

(1)     a Conversion Rate adjustment for any event becomes effective on any Ex-Dividend Date pursuant to Section 1.06(E);

(2)     a Note is to be converted;

(3)     the Conversion Date for such conversion occurs on or after such Ex-Dividend Date and on or before the related record date;

(4)     the Conversion Consideration due upon such conversion includes any whole shares of Common Stock; and

(5)     the Holder of such Note would be treated, on such record date, as the record holder of such shares of Common Stock based on a Conversion Rate that is adjusted for such event,

then such Conversion Rate adjustment will not be given effect for such conversion. Instead, such Holder will be treated as if such Holder were, as of such record date, the record owner of such shares of Common Stock on an unadjusted basis and will participate in such event.

(vi)     Stockholder Rights Plans. If any shares of Common Stock are to be issued upon conversion of any Note and, at the time of such conversion, the Company has in effect any stockholder rights plan, then the Holder of such Note will be entitled to receive, in addition to, and concurrently with the delivery of, the Conversion Consideration otherwise payable hereunder upon such conversion, the rights set forth in such stockholder rights plan, unless such rights have separated from the Common Stock at such time, in which case, and only in such case, the Conversion Rate will be adjusted pursuant to Section 1.06(E)(i)(3)(i) on account of such separation as if as if, at the time of such separation, the Company had made a distribution of the type referred to in such Section to all holders of the Common Stock, subject to readjustment in accordance with such Section if such rights expire, terminate or are redeemed.

(vii)     Limitation on Effecting Transactions Resulting in Certain Adjustments. The Company will not engage in or be a party to any transaction or event that would require the Conversion Rate to be adjusted pursuant to Section 1.06(E) to an amount that would result in the Conversion Price per share of Common Stock being less than the par value per share of Common Stock.

(viii)     Equitable Adjustments to Last Reported Sale Price. Whenever any provision of the Notes requires the Company to calculate the Last Reported Sale Prices, or any function thereof, over a span of multiple days, the Company will make appropriate adjustments to account for any adjustment to the Conversion Rate that becomes effective, or any transaction or other event requiring an adjustment to the Conversion Rate where the Ex-Dividend Date, effective date or Expiration Date, as applicable, of such transaction or event occurs, at any time during the period when such Last Reported Sale Prices or function thereof is to be calculated.

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(ix)     Calculations. All calculations with respect to the Conversion Rate and adjustments thereto will be made to the nearest cent (with 0.5 of a cent rounded upward) or to the nearest 1/10,000th of a share of Common Stock (with 5/100,000ths rounded upward), as applicable.

(x)     Notice of Conversion Rate Adjustments. Upon the effectiveness of any adjustment to the Conversion Rate pursuant to Section 1.06(E), the Company will promptly provide written notice to the Holders, containing (i) a brief description of the transaction or other event on account of which such adjustment was made; (ii) the Conversion Rate in effect immediately after such adjustment; and (iii) the effective time of such adjustment.

(F)     Compliance with Stock Exchange Listing Standards. Notwithstanding anything to the contrary in the Notes, the Company will not engage in any transaction, or take any action, that would require an increase to the Conversion Rate pursuant to Section 1.06(E) without complying with the applicable stockholder approval rules of The NASDAQ Stock Market. The restrictions set forth in the preceding sentence will apply at any time when the Notes are outstanding, regardless of whether the Company then has a class of securities listed on The NASDAQ Stock Market.

(G)     Effect of Certain Recapitalizations, Reclassifications, Consolidations, Mergers and Sales.

(i)     Generally. If there occurs:

(1)     any recapitalization, reclassification or change of the Common Stock (other than (x) changes solely resulting from a subdivision or combination or change only in par value or from par value to no par value or no par value to par value and (y) stock splits and stock combinations that do not involve the issuance of any other series or class of securities);

(2)     any consolidation, merger, combination or binding share exchange involving the Company;

(3)     any sale, lease or other transfer, in one transaction or a series of transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any Person; or

(4)     any statutory share exchange,

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and, in each case, as a result of such occurrence, the Common Stock is converted into, or is exchanged for, or represents solely the right to receive, other securities or other property (including cash or any combination of the foregoing) (such an event, a “Common Stock Change Event,” and such other securities or other property, the “Reference Property,” and the amount and kind of Reference Property that a holder of one (1) share of Common Stock would be entitled to receive on account of such Common Stock Change Event (without giving effect to any arrangement not to issue fractional shares of securities or other property), a “Reference Property Unit”), then, notwithstanding anything to the contrary in the Notes, at the effective time of such Common Stock Change Event, the Conversion Consideration due upon conversion of any Note, and the conditions to any such conversion, will be determined in the same manner as if each reference to any number of shares of Common Stock in this Section 1.06 (or in any related definitions) were instead a reference to the same number of Reference Property Units. For these purposes, the Last Reported Sale Price of any Reference Property Unit or portion thereof that does not consist of a class of securities will be the fair value of such Reference Property Unit or portion thereof, as applicable, determined in good faith by the Company (or, in the case of cash denominated in U.S. dollars, the face amount thereof).

If the Reference Property consists of more than a single type of consideration (determined based in part upon any form of stockholder election), then the composition of the Reference Property Unit will be deemed to be (x) the weighted average, per share of Common Stock, of the types and amounts of consideration received by the holders of Common Stock that affirmatively make such an election; or (y) if no holders of Common Stock affirmatively make such an election, the types and amounts of consideration actually received, per share of Common Stock, by the holders of Common Stock. The Company will notify Holders of the weighted average as soon as practicable after such determination is made.

At or before the effective date of such Common Stock Change Event, the Company and the resulting, surviving or transferee Person (if not the Company) of such Common Stock Change Event (the “Successor Person”) will execute and deliver such instruments or agreements that will (x) provide for subsequent conversions of Notes in the manner set forth in this Section 1.06(G); (y) provide for subsequent adjustments to the Conversion Rate pursuant to Section 1.06(E) in a manner consistent with this Section 1.06(G); and (z) contain such other provisions as the Company in good faith determines are appropriate to preserve the economic interests of the Holders and to give effect to the provisions of this Section 1.06(G). If the Reference Property includes shares of stock or other securities or assets of a Person other than the Successor Person, then such other Person will also execute such instruments or agreements and such instruments or agreements will contain such additional provisions the Company reasonably determines are appropriate to preserve the economic interests of the Holders.

(ii)     Notice of Common Stock Change Events. As soon as practicable after learning the anticipated or actual effective date of any Common Stock Change Event, the Company will provide written notice to the Holders of such Common Stock Change Event, including a brief description of such Common Stock Change Event, its anticipated effective date and a brief description of the anticipated change in the conversion right of the Notes.

(iii)     Compliance Covenant. The Company will not become a party to any Common Stock Change Event unless its terms are consistent with this Section 1.06(G).

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Section 1.07.     Rule 144A Information; Exchange Act reports.

(A)     Rule 144A Information. The Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) of the Exchange Act and the Notes or any shares of Common Stock issuable upon conversion thereof are “restricted securities” (as defined in Rule 144(a)(3) under the Securities Act), make available to any Holder or beneficial holder of such Notes, or any holder of such shares, and any prospective purchaser of such Notes or shares designated by such Holder or holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of such Holder or holder, all to the extent required to enable such Holder or holder to sell such Notes or shares without registration under the Securities Act pursuant to Rule 144A under the Securities Act. The Company shall take such further action as any such Holder or holder may reasonably request to the extent required from time to time to enable such Holder or holder to sell such Notes or shares in accordance with Rule 144A under the Securities Act, as such rule may be amended from time to time.

(B)     Exchange Act Reports. The Company shall deliver to Holders of the Notes within fifteen (15) days after the same is required to be filed with the Commission, copies of any documents or reports that the Company is required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act (after giving effect to any grace periods provided under the Exchange Act). Any such document or report that the Company files with the Commission via the Commission’s EDGAR system (or any successor thereto) shall be deemed to be delivered to Holders for purposes of this Section 1.07(B) at the time such documents are filed via the EDGAR system (or such successor). Notwithstanding anything to the contrary in this Section 1.07(B), in no event will this Section 1.07(B) require the Company to deliver or otherwise provide any information for which it is seeking, or has received, confidential treatment from the Commission.

Section 1.08.     Subordination.

This Note is subject in all respects to the Subordination Agreement, dated December 17, 2015, by and among the Holders and Hercules Technology Growth Capital, Inc. (the “Subordination Agreement”) In the case of any conflict or inconsistency between any terms of this Note, on the one hand, and any of the terms and provisions of the Subordination Agreement, on the other hand, then the terms and provisions of the Subordination Agreement will control.

Section 1.09.     Security Agreement.

The Notes are secured pursuant to the terms of the Security Agreement.

Section 1.10.     Additional Interest.

(A)     Accrual of Additional Interest. If, at any time during the six (6) month period beginning on, and including, the date that is six (6) months after the Last Original Issue Date of any Note, the Company fails to timely file any report (other than Form 8-K reports) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act (after giving effect to all applicable grace periods thereunder), then additional interest (“Additional Interest”) will accrue on such Note for each day during such period on which such failure is continuing. For purposes of this Note, the term “interest” includes Additional Interest, unless the context requires otherwise.

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(B)     Amount and Payment of Additional Interest. Any Additional Interest that accrues on a Note pursuant to Section 1.10(A) will (i) be payable in arrears on each Payment Date; (ii) accrue at a rate per annum equal to one quarter of one percent (0.25%) of the principal amount of such Note; and (iii) be computed on the basis of a 360-day year comprised of twelve 30-day months; provided, however, that (x) for purposes of the Subordination Agreement only (and not for purposes of this Note), Additional Interest will be deemed to be principal amounts on such Note; and (y) if the Subordination Agreement prohibits the payment of any Additional Interest on such Note on any date in accordance with this clause (B), then such Additional Interest will not be paid on such date and Additional Interest will continue to accrue on the principal amount (excluding such Additional Interest, for the avoidance of doubt) of such Note and be paid on the first date when such payment is no longer prohibited by the Subordination Agreement.

Section 1.11.     Successors.

The Company will not consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to another Person (a “Business Combination Event”), unless either (A) the resulting, surviving or transferee Person is the Company or (B) all outstanding principal and interest due on this Notes are paid immediately prior to the closing of such Business Combination Event.

Section 1.12.     Defaults and Remedies

(A)     Events of Default.

(i)     Definition of Events of Default. “Event of Default” means the occurrence of any of the following:

(1)     a default in the payment when due (whether at maturity or otherwise) of the principal of any Note, regardless of whether such payment is prohibited by Section 1.08 and the Subordination Agreement;

(2)     a default for thirty (30) consecutive days in the payment when due of interest on any Note, regardless of whether such payment is prohibited by Section 1.08 and the Subordination Agreement;

(3)     a default in the Company’s obligation to convert a Note in accordance with Section 1.06 upon the exercise of the conversion right with respect thereto;

(4)     a default in the Company’s obligations under Section 1.11;

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(5)     a default in any of the Company’s obligations or agreements under the Notes (other than a default set forth in clause (1), (2), (3) or (4) of this Section 1.12(A)(i)), the Security Agreement or the Subordination Agreement, in each case where such default continues for sixty (60) days after written notice to the Company by Holders of at least twenty five percent (25%) of the aggregate principal amount of Notes then outstanding, which notice must specify such default, demand that it be remedied and state that the such notice is a “Notice of Default”;

(6)     the occurrence of an “Event of Default” (as defined in the Hercules Loan and Security Agreement);

(7)     a default by the Company or any of its Subsidiaries with respect to any one or more mortgages, agreements or other instruments under which there is outstanding, or by which there is secured or evidenced, any indebtedness for money borrowed of at least Five Hundred Thousand Dollars ($500,000) (or its foreign currency equivalent) in the aggregate of the Company or any of its Subsidiaries, whether such indebtedness exists as of the Issue Date or is thereafter created, where such default:

(A)     constitutes a failure to pay the principal of, or premium or interest on, any of such indebtedness when due and payable at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise, in each case after the expiration of any applicable grace period]; or

(B)     results in such indebtedness becoming or being declared due and payable before its stated maturity;

(8)     the Company or any of its Significant Subsidiaries, pursuant to or within the meaning of any Bankruptcy Law, either:

(A)     commences a voluntary case or proceeding;

(B)     consents to the entry of an order for relief against it in an involuntary case or proceeding;

(C)     consents to the appointment of a custodian of it or for any substantial part of its property;

(D)     makes a general assignment for the benefit of its creditors;

(E)     takes any comparable action under any foreign Bankruptcy Law; or

(F)     generally is not paying its debts as they become due; or

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(9)     a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that either:

(A)     is for relief against Company or any of its Significant Subsidiaries in an involuntary case or proceeding;

(B)     appoints a custodian of the Company or any of its Significant Subsidiaries, or for any substantial part of the property of the Company or any of its Significant Subsidiaries;

(C)     orders the winding up or liquidation of the Company or any of its Significant Subsidiaries; or

(D)     grants any similar relief under any foreign Bankruptcy law,

and, in each case under this Section 1.12(A)(i)(9), such order or decree remains unstayed and in effect for at least sixty (60) days.

(B)     Acceleration.

(i)     Automatic Acceleration in Certain Circumstances. If an Event of Default set forth in Section 1.12(A)(i)(8) or Section 1.12(A)(i)(9) occurs with respect to the Company (and not solely with respect to a Significant Subsidiary of the Company), then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any Person. For the avoidance of doubt, payments of accelerated amounts under this Note will be subject to the Subordination Agreement.

(ii)     Optional Acceleration. If an Event of Default (other than an Event of Default set forth in Section 1.12(A)(i)(8) or Section 1.12(A)(i)(9) with respect to the Company and not solely with respect to a Significant Subsidiary of the Company) occurs and is continuing, then Holders of a majority of the aggregate principal amount of Notes then outstanding, by notice to the Company, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. For the avoidance of doubt, payments of accelerated amounts under this Note will be subject to the Subordination Agreement.

(C)     Rescission of Acceleration. Notwithstanding anything to the contrary in the Notes, the Holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company, may, on behalf of all Holders, rescind any acceleration of the Notes and its consequences if (i) such rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (ii) all existing Events of Default (except the non-payment of principal of, or interest on, the Notes that has become due solely because of such acceleration) have been cured or waived. No such rescission will affect any subsequent Default or impair any right consequent thereto.

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(D)     Waiver of Past Defaults. An Event of Default pursuant to clause (1), (2), (3) or (5) of Section 1.12(A)(i) (that, in the case of clause (5) only, results from a Default under any covenant that cannot be amended without the consent of each affected Holder), and a Default that could lead to such an Event of Default, can be waived only with the consent of each affected Holder. Each other Default or Event of Default may be waived, on behalf of all Holders, by the Holders of a majority in aggregate principal amount of the Notes then outstanding. If an Event of Default is so waived, then it will cease to exist. If a Default is so waived, then it will be deemed to be cured and any Event of Default arising therefrom will be deemed not to occur. However, no such waiver will extend to any subsequent or other Default or Event of Default or impair any right arising therefrom.

(E)     Absolute Right of Holders to Receive Payment and Conversion Consideration. Notwithstanding anything to the contrary in the Notes (but, for the avoidance of doubt, subject to the Subordination Agreement), the right of each Holder of a Note to receive payment or delivery, as applicable, of the principal of, or any interest on, or the Conversion Consideration due pursuant to Section 1.06 upon conversion of, such Note on or after the respective due dates therefor provided in the Notes, or to bring suit for the enforcement of any such payment or delivery on or after such respective due dates, will not be impaired or affected without the consent of such Holder.

Section 1.13.     Amendments, Supplements and Waivers

(A)     Without the Consent of Holders.

Notwithstanding anything to the contrary in Section 1.13(B), the Company may amend or supplement the Notes without the consent of any Holder to:

(i)     cure any ambiguity or correct any omission, defect or inconsistency;

(ii)     add guarantees with respect to the Company’s obligations under the Notes;

(iii)     add to the Company’s covenants or Events of Default for the benefit of the Holders or surrender any right or power conferred on the Company;

(iv)     provide for the assumption of the Company’s obligations under the Notes pursuant to, and in compliance with, Section 1.11;

(v)     enter into instruments or agreements pursuant to, and in accordance with, Section 1.06(G) in connection with a Common Stock Change Event; or

(vi)     make any other change to the Notes that does not, individually or in the aggregate with all other such changes, adversely affect the rights of the Holders.

(B)     With the Consent of Holders.

(i)     Generally. Subject to Sections Section 1.13(A), Section 1.12(D) and Section 1.12(E) and the immediately following sentence, the Company may, with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding, amend or supplement the Notes or waive compliance with any provision of the Notes. Notwithstanding anything to the contrary in the foregoing sentence, without the consent of each affected Holder, no amendment or supplement to the Notes, or waiver of any provision of the Notes, may:

(1)     reduce the principal, or extend the stated maturity, of any Note;

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(2)     reduce the rate, or extend the time for the payment, of interest on any Note;

(3)     make any change that adversely affects the conversion rights of any Note;

(4)     impair the rights of any Holder set forth in Section 1.12(E);

(5)     change the subordination of the Notes in any manner that is adverse to the Holders;

(6)     make any note payable in money, or at a place of payment, other than that stated in the Note;

(7)     reduce the amount of Notes whose Holders must consent to any amendment, supplement, waiver or other modification; or

(8)     make any direct or indirect change to any amendment, supplement, waiver or modification provision of the Notes that requires the consent of each affected Holder.

(ii)     Holders Need Not Approve the Particular Form of any Amendment. A consent of any Holder pursuant to this Section 1.13(B) need approve only the substance, and not necessarily the particular form, of the proposed amendment, supplement or waiver.

Section 1.14.     Notice of Amendments, Supplements and Waivers.

Promptly after any amendment, supplement or waiver pursuant to Section 1.13(A) or Section 1.13(B) becomes effective, the Company will send to the Holders written notice that (A) describes the substance of such amendment, supplement or waiver in reasonable detail and (B) states the effective date thereof. The failure to send, or the existence of any defect in, such notice will not impair or affect the validity of such amendment, supplement or waiver.

(A)     Revocation, Effect and Solicitation of Consents; Special Record Dates; Etc.

(i)     Revocation and Effect of Consents. The consent of a Holder of a Note to an amendment, supplement or waiver will bind (and constitute the consent of) each subsequent Holder of any Note to the extent the same evidences any portion of the same indebtedness as the consenting Holder’s Note, subject to the right of any Holder of a Note to revoke (if not prohibited pursuant to Section 1.14(A)(ii)) any such consent with respect to such Note by delivering written notice of revocation to the company before the time such amendment, supplement or waiver becomes effective.

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(ii)     Special Record Dates. The Company may, but is not required to, fix a record date for the purpose of determining the Holders entitled to consent or take any other action in connection with any amendment, supplement or waiver pursuant to this Section 1.13. If a record date is fixed, then, notwithstanding anything to the contrary in Section 1.14(A)(i), only Persons who are Holders as of such record date (or their duly designated proxies) will be entitled to give such consent, to revoke any consent previously given or to take any such action, regardless of whether such Persons continue to be Holders after such record date; provided, however, that no such consent will be valid or effective for more than one hundred and twenty (120) calendar days after such record date.

(iii)     Solicitation of Consents. For the avoidance of doubt, each reference in the Notes to the consent of a Holder will be deemed to include any such consent obtained in connection with a repurchase of, or tender or exchange offer for, any Notes.

(iv)     Effectiveness and Binding Effect. Each amendment, supplement or waiver pursuant to Section 1.13 will become effective in accordance with its terms and, when it becomes effective with respect to any Note (or any portion thereof), will thereafter bind every Holder of such Note (or such portion).

(B)     Notations and Exchanges. If any amendment, supplement or waiver changes the terms of a Note, then the Company may, in its discretion, require the Holder of such Note to deliver such Note to the Company so that the Company may place an appropriate notation on such Note and return such Note to such Holder. Alternatively, at its discretion, the Company may, in exchange for such Note, issue, execute and deliver a new Note that reflects the changed terms. The failure to make any appropriate notation or issue a new Note will not impair or affect the validity of such amendment, supplement or waiver.

Section 1.15.     Replacement Notes.

If a Holder of any Note claims that such Note has been mutilated, lost, destroyed or wrongfully taken, then the Company will issue, execute and deliver a replacement Note upon surrender to the Company of such mutilated Note, or upon delivery to the Company of evidence of such loss, destruction or wrongful taking reasonably satisfactory to the Company. In the case of a lost, destroyed or wrongfully taken Note, the Company may require the Holder thereof to provide such security or n indemnity that is reasonably satisfactory to the Company to protect the Company from any loss that it may suffer if such Note is replaced.

- 25 -

Section 1.16.     Notices.

Any notice or communication to the Company will be deemed to have been duly given if in writing and delivered in person or by first class mail (registered or certified, return receipt requested), facsimile transmission, electronic transmission or other similar means of unsecured electronic communication or overnight air courier guaranteeing next day delivery, or to the other’s address, which initially is as follows:

ReachLocal, Inc.

21700 Oxnard Street

Suite 1600

Woodland Hills, CA 91367

Attention: Chief Financial Officer

The Company, by notice to the Holders, may designate additional or different addresses for subsequent notices or communications.

Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. The failure to mail a notice or communication to a Holder, or any defect in such notice or communication, will not affect its sufficiency with respect to any other Holder.

If a notice or communication is mailed in the manner provided above within the time prescribed, it will be deemed to have been duly given, whether or not the addressee receives it.

Section 1.17.     No Personal Liability of Directors, Officers, Employees and Stockholders.

No past, present or future director, officer, employee, incorporator or stockholder of the Company, as such, will have any liability for any obligations of the Company under the Notes or for any claim based on, in respect of, or by reason of, such obligations or their creation. By accepting any Note, each Holder waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes.

Section 1.18.     Successors.

All agreements of the Company in the Notes will bind its successors.

Section 1.19.     Severability.

If any provision of the Notes is invalid, illegal or unenforceable, then the validity, legality and enforceability of the remaining provisions of the Notes will not in any way be affected or impaired thereby.

- 26 -

Section 1.20.     Headings, Etc.

The headings of the Articles and Sections of this Note have been inserted for convenience of reference only, are not to be considered a part of this Note and will in no way modify or restrict any of the terms or provisions of this Note.

Section 1.21.     Governing Law; Waiver of Jury Trial.

THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS NOTE. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTES.

Section 1.22.     Submission to Jurisdiction.

The Company (A) agrees that any suit, action or proceeding against it arising out of or relating to the Notes may be instituted in any U.S. federal court with applicable subject matter jurisdiction sitting in The City of New York; (B) waives, to the fullest extent permitted by applicable law, (i) any objection that it may now or hereafter have to the laying of venue of any such suit, action or proceeding; and (ii) any claim that it may now or hereafter have that any such suit, action or proceeding in such a court has been brought in an inconvenient forum; and (C) submits to the nonexclusive jurisdiction of such courts in any such suit, action or proceeding.

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CONVERSION NOTICE

REACHLOCAL, INC.

4.00% Convertible Second Lien Subordinated Notes

Subject to the terms of the Notes, by executing and delivering this Conversion Notice, the undersigned Holder of the Note identified below directs the Company to convert (check one):

☐ the entire principal amount of

☐ $                      aggregate principal amount of

the Note identified by Certificate No.                      .

Date:
	(Legal Name of Holder)
	By:
		Name:
		Title:

EX-4.7

Exhibit 4.7

Amendment to ReachLocal, Inc. 4.00% Convertible Second Lien Subordinated Notes

WHEREAS

A. Each of the undersigned purchased from ReachLocal, Inc. (“Company”) a 4.00% Convertible Second Lien Subordinated Note (each, a “Note”) on December 17, 2015 pursuant to a Note Purchase Agreement (“Agreement”).

B. The undersigned and the Company wish to amend each Note to provide that, except in certain circumstances, the undersigned cannot collectively acquire, through conversion of the Notes, beneficial ownership of 2% or more of the Company’s Common Stock during any 12-month period.

C. Pursuant to Section 1.04 of each Note, each of the undersigned and the Company are required to attach thereto a schedule (each, a “Payment Schedule”) setting forth the payments due on each Payment Date (as defined in such Note) and the principal amount of such Note outstanding immediately after such Payment Date, and the undersigned and the Company wish to set forth the contents of the Payment Schedules.

Therefore, each of the undersigned with respect to its Note, and the Company, agree that Section 1.06(A)(i) of each Note is amended to read as follows:

Generally. Subject to the provisions of this Section 1.06, each Holder may, at its option, convert such Holder’s Notes into Conversion Consideration at any time prior to the Close of Business on the Business Day immediately preceding the Maturity Date, provided, however, that

(1) Except as set forth below in this Section 1.06, during any twelve (12) month period, the Holders collectively may convert their Notes into no more than the number of shares of the Company’s Common Stock equal to (A) 1.9% of the Company’s then-outstanding shares of Common Stock, minus (B) any shares of Common Stock beneficially acquired during that period by the Holders or the persons and entities affiliated with the Holders which report their ownership of the Company’s securities on Form 4. Such Conversion Consideration shall be allocated among the Holders proportionately based on the principal amount of each Holder’s Note. For purposes of determining (A) above, the number of outstanding shares of Common Stock stated in the Company’s most recently filed Quarterly Report on Form 10-Q, Annual Report on Form 10-K or Current Report on Form 8-K will apply, unless Company has advised Holder in writing of the number of shares of Common Stock outstanding as of a more recent date, in which case such number of shares will apply.

(2) The limitation described in Section 1.06(a)(i)(1) shall not apply immediately before the closing of a Business Combination or any other consolidation, merger, or sale or lease of all or substantially all of the Company’s assets in one transaction or a series of related transactions, as a result of which the holders of the Company’s Common Stock before the transaction or series of related transactions hold less than a majority of the voting power of the Company’s or the successor entity’s voting securities after the transaction or series of related transactions.

In addition, attached hereto as Schedule A are the Payment Schedules for each Note, and each of the undersigned and the Company hereby agree that the Payment Schedule corresponding to the Note of such undersigned will be deemed to be the “schedule” referred to in Section 1.04 of such Note.

All other provisions of each Note shall continue unaffected by this Amendment.

This Amendment is the entire agreement among the Company and the Holders with respect to its subject matter. This Amendment may be executed in counterparts, which together will constitute one and the same agreement. Facsimile copies of signed signature pages to this Amendment will be deemed binding originals.

The amendment is executed on February 4, 2016 but shall effective as of December 17, 2015.

ReachLocal, Inc.

 By:  /s/ Ross G. Landsbaum

Name: Ross G. Landsbaum

Title: CFO

VantagePoint Venture Partners III (Q), L.P.

VantagePoint Venture Partners III, L.P.

By: VantagePoint Venture Associates III, L.L.C.

 By:  /s/ Alan E. Salzman  

 Alan E. Salzman, Managing Member

VantagePoint Venture Partners IV (Q), L.P.

VantagePoint Venture Partners IV, L.P.

VantagePoint Venture Partners IV Principals Fund, L.P.

By: VantagePoint Venture Associates IV, L.L.C.

 By:  /s/ Alan E. Salzman               

 Alan E. Salzman, Managing Member

VantagePoint Venture Partners 2006 (Q), L.P.

By: VantagePoint Venture Associates 2006, L.L.C.

 By:  /s/ Alan E. Salzman

 Alan E. Salzman, Managing Member

Schedule A

Payment Schedule

				Payment Schedule
Purchaser	Note	Note Amount		4/15/17		7/15/17		10/15/17		1/15/18		4/15/18
VantagePoint Venture Partners III (Q), L.P.	A-1	$	778,673.79	$	169,114.31	$	169,114.31	$	169,114.31	$	169,114.31	$	169,114.31
VantagePoint Venture Partners III, L.P.	A-2	$	94,802.68	$	20,589.48	$	20,589.48	$	20,589.48	$	20,589.48	$	20,589.48
VantagePoint Venture Partners IV (Q), L.P.	A-3	$	3,369,732.80	$	731,846.95	$	731,846.95	$	731,846.95	$	731,846.95	$	731,846.95
VantagePoint Venture Partners IV, L.P.	A-3	$	337,346.03	$	73,265.65	$	73,265.65	$	73,265.65	$	73,265.65	$	73,265.65
VantagePoint Venture Parners IV Principals Fund, L.P.	A-4	$	12,275.81	$	2,666.09	$	2,666.09	$	2,666.09	$	2,666.09	$	2,666.09
VantagePoint Venture Partners 2006 (Q), L.P.	A-5	$	407,168.89	$	88,429.95	$	88,429.95	$	88,429.95	$	88,429.95	$	88,429.95
Total		$	5,000,000.00	$	1,085,912.43	$	1,085,912.43	$	1,085,912.43	$	1,085,912.43	$	1,085,912.43

EX-10.5

Exhibit 10.5

March 28, 2016

Ross G. Landsbaum

Dear Ross,

This employment letter will amend and restate the offer letter (this “Letter”) between you and ReachLocal, Inc. (the “Company”), dated May 30, 2008, in its entirety and will provide the terms under which you will continue to serve as the Company’s as Chief Financial Officer from and after the date hereof (the “Effective Date”).

Set forth below are the following important points concerning the terms of your employment:

1. Compensation.

(a)     Base Compensation. Effective as of July 1, 2016, the Company will pay you a base salary at the rate of $400,000 per year (the “Base Salary”), payable in accordance with the Company’s normal payroll procedures. The Base Salary is subject to modification during your employment in accordance with the Company’s practices, policies and procedures.

(b)     Bonus Compensation. Commencing with calendar year 2016, during your employment with the Company you will be eligible to receive an annual bonus (an “Annual Bonus”) of up to 100% of your Base Salary pursuant to the Company’s Executive Bonus Plan. Annual Bonuses, if any, will be payable in accordance with the Company’s end-of-year bonus payroll procedures (which have typically resulted in payment of annual bonuses, if any, in February of the subsequent year). You must be employed by the Company on the date annual bonuses are payable to senior management in order to receive any Annual Bonus. However, for 2016, your Annual Bonus will not be less than 100% of your Base Salary, and will be paid to you if you remain continuously employed through December 31, 2016 or, if earlier, through a Change in Control (as defined in the Severance Policy). Your 2016 Annual Bonus will be paid no later than March 15, 2017 but if there occurs a termination of service following a Change in Control, then it will be paid upon any termination of service following such Change in Control (provided earlier than March 15, 2017). Subject to the foregoing, you will also be eligible to participate, to the extent determined by the Company’s Board of Directors or its Compensation Committee, in the Company’s Executive Bonus Plan or any other short- or long-term bonus or incentive plan that the Company may from time to time establish for its senior executives, on a basis consistent with your position.

(c)     Equity Awards. The Company will grant you, on or soon after the Effective Date, a restricted stock unit award covering 40,000 shares of the Company’s common stock (the “RSUs”). The RSUs will be granted pursuant to the Company’s Amended and Restated 2008 Stock Incentive Plan and will be evidenced by an agreement in a form prescribed by the Company. The RSUs will vest with respect to 25% of the total number of RSUs on the one year anniversary of the Effective Date and with respect to 1/16^th of the total number of RSUs on each quarterly anniversary of the Effective Date thereafter, subject to your continued employment with the Company through the applicable vesting date. In addition, the RSUs will be subject to the severance and change in control provisions described in Sections 2 and 3 below.

Ross Landsbaum

Page 2 of 4

2.     Severance Arrangements. You are eligible to participate in the Company’s Change in Control and Severance Policy for Senior Management (the “Severance Policy”), a copy of which is attached hereto as Exhibit A, as a Group A Participant (as such term is defined in the Severance Policy). Moreover, in the event you give the Company at least three months’ notice, you may tender your resignation to be effective December 31, 2016 and receive the severance benefits available to you as a Group A Participant under Sections 5(a), 5(b) and 5(c) of the Severance Policy, subject to the terms and conditions set forth in the Severance Policy. Nothing under the is agreement shall limit the benefits under the Severance Policy under Section 2(b)(1) thereof or otherwise.

3.     Change in Control. In the event that a Change in Control occurs and you remain continuously employed through at least immediately prior to such Change in Control, then 100% of the shares subject to all of your outstanding and unvested Company equity compensation awards shall become vested and non-forfeitable immediately prior to such Change in Control.

4.     Benefits. You will continue to be eligible to participate in all savings and retirement plans, and all group welfare benefit plans (including, if applicable, medical, dental, disability, employee life, group life and accidental death insurance plans and programs) maintained by the Company from time to time which are applicable to the Company’s senior executive officers, subject to the terms and conditions of such plans. Notwithstanding the foregoing, nothing herein is intended, or shall be construed to require the Company to institute or continue any, or any particular, plan or benefits.

5.     Clawback. To the extent required by applicable law or any applicable securities exchange listing standards, any amounts paid or payable under this Letter (including, without limitation, amounts paid prior to the effectiveness of such law or listing standards) will be subject to forfeiture, repayment or recapture as determined by the Company in its discretion.

6.     409A Considerations. To the extent that any payment under this Letter constitutes nonqualified deferred compensation for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and such payment would otherwise be payable hereunder by reason of a termination of your employment, then, to the extent required by Section 409A, all references to your termination of employment will be construed to mean a Separation of Service (as defined in the Severance Policy) and such amounts will only be paid upon or by reference to your Separation from Service. Notwithstanding the foregoing, no compensation or benefits, including without limitation any severance payments or benefits described in Section 2 shall be paid to you during the six (6)-month period following your Separation from Service if the Company determines that paying such amounts at the time or times indicated in this Letter would be a prohibited distribution under Section 409A. If the payment of any such amounts is delayed as a result of the previous sentence, then on the first business day following the end of such six (6)-month period (or such earlier date upon which such amount can be paid under Section 409A of the Code without resulting in a prohibited distribution, including as a result of your death), the Company shall pay you a lump-sum amount equal to the cumulative amount that would have otherwise been payable to you during such period, plus interest credited at the applicable federal rate in effect as of the Termination Date (as defined in the Severance Policy) provided for in Section 7872(f)(2)(A) of the Code.

Ross Landsbaum

Page 3 of 4

7.     Good Reason and Cause Definitions. Notwithstanding anything to the contrary in the 2008 Stock Incentive Plan, any equity award agreements or any other Company plan, with respect to this Letter and the Severance Policy, the terms “Cause” and “Good Reason” shall have the meanings given to them in the Severance Policy (in the form attached hereto). Notwithstanding the foregoing, the Company may terminate your employment for Cause, only upon providing you with 30 days prior written notice (the “Notice Period”), which notice shall identify the basis for the termination (the “Cause Notice”). Such termination shall become effective immediately upon the conclusion of the Notice Period, provided that you have not cured, by the conclusion of the Notice Period, the action purporting to give rise to Cause (the “Breach”) in the sole discretion of the Company. No Cause Notice shall be required if, in the Company’s sole discretion, the Breach is not of such a nature that it can be cured. You acknowledge that, pursuant to Section 6(b)(i) of the Severance Policy, future grants of equity awards, if any, may not be subject to the same acceleration or other rights as set forth in the Severance Policy or this Letter (meaning, among other things, that the Company may elect to eliminate or modify the definitions of Cause or Good Reason in connection with such future grants).

8.     Nature of Employment. Your employment with the Company will be at-will, meaning that your employment is not for a specified period of time and can be terminated by you or the Company at any time, with or without cause and with or without notice.

9.     Miscellaneous. You acknowledge and agree that you previously executed, and continue to be bound by the commitments and obligations set forth in, the Company’s Employment, Confidential Information, and Invention Assignment Agreement (the “Non-Disclosure Agreement”) and the Company’s Arbitration Agreement, and you hereby reaffirm the covenants contained in such agreements.

Furthermore, in your work for the Company and its subsidiaries, you will be expected not to use or disclose any confidential information, including trade secrets, of any former employer or other person to whom you have any obligation of confidentiality.  You agree that you will not bring onto the Company premises any unpublished documents or property belonging to any former employer or other person to whom you have an obligation of confidentiality. 

You will also adhere to all enforceable post-termination restrictive covenants (such as non-solicit obligations) that you may be subject to as the result of your agreements with any prior employers and you have provided the Company with copies of any such agreements in advance of signing this Letter.

Ross Landsbaum

Page 4 of 4

To indicate your acceptance of the terms and conditions set forth in this Letter, please sign and date this Letter in the space provided below and return it to me or Tenlay Naliboff within three (3) business days of this Letter’s date. This Letter may not be modified or amended except by a written agreement, signed by the Company and by you.

We look forward to continuing to work with you.

Sincerely,

ReachLocal, Inc.

/s/ Sharon T. Rowlands                                                  
Sharon T. Rowlands, Chief Executive Officer

I hereby accept my continuation of employment with ReachLocal, Inc. on the terms set forth in this Letter. I acknowledge that the terms described in this Letter, together with the Non-Disclosure Agreement and the Arbitration Agreement, set forth the entire understanding between us and no promises, representations or commitments have been made to me concerning my employment with ReachLocal, Inc. other than those set forth in this Letter.

ACCEPTED, ACKNOWLEDGED AND AGREED TO this 28^th day of March, 2016:

Ross G. Landsbaum                              
Ross G. Landsbaum

Exhibit A

Change in Control and Severance Policy

EX-10.30

Exhibit 10.30

ThIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT

THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the “Amendment”) is made and dated as of December 17, 2015, and is entered into by and between REACHLOCAL, INC., a Delaware corporation, and each of its Domestic Subsidiaries (other than any FSHCO) and each of its Eligible Foreign Subsidiaries party to the Agreement (hereinafter collectively referred to as “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (collectively, referred to as “Lender”), and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent for itself and the Lender (in such capacity, “Agent”).

RECITALS

A.     Borrower, Agent and Lender previously entered into that certain Loan and Security Agreement dated April 30, 2015, as amended pursuant to that certain First Amendment to Loan and Security Agreement dated as of August 3, 2015 and that certain Second Amendment to Loan and Security Agreement dated as of November 9, 2015 (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the “Agreement”);

B.     Borrower acknowledges that it is currently required to maintain Unrestricted Cash of $17,500,000 pursuant to Section 7.15(a) of the Agreement;

C.     Borrower requests that the covenants contained in Section 7.15(a) and paragraph 2 of Schedule 7.15(b) of the Agreement be amended as provided herein; and

D.     Agent and Lender are willing to waive such covenants as provided herein.

AGREEMENT

NOW, THEREFORE, Borrower, Agent and Lender agree as follows:

1.     Unless otherwise defined herein, all capitalized terms shall have the meaning provided in the Agreement. The recitals set forth above are hereby incorporated by reference.

2.     As of the Effective Date (defined in Section 8, below), Section 7.15(a) of the Agreement is amended and restated in its entirety as follows:

(a)     Borrower’s Unrestricted Cash shall be not less than $12,500,000 at any time, provided however, that if Borrower makes the EBITDA Election, the Unrestricted Cash Balance shall be not less than $15,000,000 at any time after making the EBITDA Election unless Adjusted EBITDA (excluding all Cash and non-Cash restructuring charges or expenses) is positive for three consecutive calendar quarters, at which time, the Unrestricted Cash Balance shall adjust back to $12,500,000.

1

3.     As of the Effective Date (defined in Section 8, below), paragraph 2 of Schedule 7.15(b) is amended and restated in its entirety as follows:

2.     Subsequent Revenue/Adjusted EBITDA. Revenue and Adjusted EBITDA for each 12 month period beginning January 2016 throughout the Term Loan Maturity Date shall be at least 90% and 80%, respectively, of the trailing three month amounts for Revenue and Adjusted EBITDA provided in the Operating Budget, tested on a monthly basis as of the last day of the month. Notwithstanding the foregoing, (i) should Borrower with Agent’s consent exit any country where Revenue attributable to such market is in excess of 2% of Revenue in the Operating Budget, the Operating Budget shall be amended to reflect the exit, and (ii) for the first six months of 2016, the threshold for Adjusted EBITDA shall be 70% in lieu of 80%.

4.     This Amendment shall not be deemed to constitute an amendment to the Agreement except as expressly provided in Sections 8 and 9 hereof, and all other terms and conditions of the Agreement shall remain in full force and effect.

5. Borrower hereby represents and warrants to Agent and Lender as follows:

(a)     Borrower has all requisite power and authority to execute this Amendment and any other agreements or instruments required hereunder and to perform all of its obligations hereunder, and this Amendment and all such other agreements and instruments have been duly executed and delivered by Borrower and constitute the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(b)     Other than the Subsidiaries listed on Schedule 1 of the Agreement, Borrower has no other Subsidiaries.

(c)     The execution, delivery and performance by Borrower of this Amendment and any other agreements or instruments required hereunder have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any material provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Borrower, or the certificate of incorporation or by-laws of Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or the Agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected.

(d)     No Event of Default exists under the Agreement, and all of Borrower’s representations and warranties contained in the Agreement are correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

6.     The execution of this Amendment and all other agreements and instruments related hereto shall not be deemed to be a waiver of any Event of Default under the Agreement, if any, or a waiver of any breach or default under any of the other Loan Documents, whether or not known to Agent or Lender and whether or not existing on the date of this Amendment.

2

7.     Borrower hereby reaffirms its agreement under the Agreement, to pay or reimburse Agent and Lender for all costs and expenses incurred by Agent and Lender in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, Borrower specifically agrees to pay all reasonable fees and disbursements of counsel to Agent and Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. Payment of such amount shall be made by wire transfer in same day funds to Agent. Borrower hereby agrees that Lender may, at any time or from time to time in its sole discretion and without further authorization by Borrower, apply the proceeds of any loan, for the purpose of paying any such unpaid fees, disbursements, costs and expenses.

8.     This Agreement shall become effective on payment of the amounts specified in Section 7 hereof (the “Effective Date”).

9.     Borrower, for itself and on behalf of its Subsidiaries, respective legal representatives and successors and assigns, hereby releases Agent, Lenders and all of their Affiliates, shareholders, partners, predecessors, employees, officers, directors, attorneys, parent corporations, subsidiaries, agents, participants, assignees, servicers and receivers (collectively, the “Released Parties”), except for claims, disputes, differences, liabilities and obligations arising under this Amendment, the Agreement and the other Loan Documents after the date hereof, from any and all known and unknown claims, disputes, differences, liabilities and obligations of any and every nature whatsoever that Borrower, Guarantor or any of them may have or claim, as of the date hereof or as of any prior date, against any one or more of the Released Parties arising from, based upon or related to the Loan Documents, or any other agreement, understanding, action or inaction whatsoever with regard to the Loan Documents or any transaction or matter related thereto, including, without limitation, the origination and servicing the Term Loan and the enforcement or attempted enforcement of any rights or remedies for default or asserted default under the Loan Documents (collectively, the “Released Claims”).

10.     Borrower further acknowledges and agrees that the Released Claims include, among other things, all claims arising out of or with respect to any and all transactions relating to the Loan Documents based on any fact, act, inaction, or other occurrence or nonoccurrence on or prior to the date hereof, including, without limitation, any breach of fiduciary duty or duty of fair dealing, breach of confidence, breach of loan commitment, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, violation of the Racketeer Influenced and Corrupt Organizations Act, violation of any other statute, ordinance or regulation, intentional or negligent infliction of mental or emotional distress, tortious interference with contractual relations or prospective business advantage, tortious interference with corporate governance, breach of contract, bad practices, unfair competition, libel, slander, conspiracy or any claim for wrongfully accelerating the Term Loan or attempting to foreclose on, or obtain a receiver for, any collateral for the Term Loan and all statutory claims and causes of action of every nature.

3

11.     In connection with the release contained in Sections 9 through 15 (the “Release”), Borrower acknowledges that it is aware that it may hereafter discover facts in addition to or different from those that it now knows or believes to be true with respect to the Released Claims, but that it is Borrower’s intention hereby fully, finally and forever to settle and release all claims, disputes, differences, liabilities and obligations, known or unknown, suspected or unsuspected, that now exist, may exist or heretofore have existed by Borrower, its Subsidiaries, respective legal representatives and successors and assigns against any one or more of the Released Parties. In furtherance of that intention, the Release contained in this Amendment shall be and remain in effect as a full and complete release notwithstanding the discovery of the existence of any such additional or different facts.

12.     The Release contained in this Amendment shall be effective and irrevocable upon the execution of this Amendment by Agent, Lender and Borrower and shall be deemed affirmed and restated upon, and effective as of, the Effective Date without any further documentation.

13.     BORROWER AGREES AND ACKNOWLEDGES THAT THE RELEASED CLAIMS ARE NOT LIMITED TO MATTERS THAT ARE KNOWN OR DISCLOSED TO BORROWER AND THAT THE RELEASED CLAIMS INCLUDE ALL CLAIMS, DISPUTES, DIFFERENCES, LIABILITIES AND OBLIGATIONS THAT BORROWER, ITS SUBSIDIARIES, RESPECTIVE LEGAL REPRESENTATIVES AND SUCCESSORS AND ASSIGNS DO NOT KNOW OR SUSPECT TO EXIST AS OF THE DATE HEREOF. BORROWER UNDERSTANDS THAT IT IS GIVING UP ALL RIGHTS AND CLAIMS AGAINST AGENT AND LENDER AND THE OTHER RELEASED PARTIES, KNOWN OR UNKNOWN, THAT ARE IN ANY WAY RELATED TO THE COLLATERAL OR THE LOAN.

14.     THE PARTIES SPECIFICALLY ALLOCATE THE RISK OF ANY MISTAKE IN ENTERING INTO THE RELEASE TO THE PARTY OR PARTIES CLAIMING TO HAVE BEEN MISTAKEN.

15.     Borrower acknowledges having read and understood and hereby waives the benefits of Section 1542 of the California Civil Code, which provides as follows (and hereby waives the benefits of any similar law of the state that may be applicable):

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

16.     This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. The provisions of Section 11 of the Agreement shall be deemed incorporated herein by reference, mutatis mutandis.

(signatures provided on the next page)

4

IN WITNESS WHEREOF, Borrower, Subsidiary, Agent and Lender have duly executed and delivered this Third Amendment to Loan and Security Agreement as of the date and year first above written.

BORROWER:

ReachLocal, Inc.

Signature:	/s/ Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

Bizzy, Inc.

Signature:	/s/ Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

Kickserv, Inc.

Signature:	/s/ Ross G. Landsbaum
Title:	Chief Financial Officer
Print Name:	Ross G. Landsbaum

ReachLocal DP, Inc.

Signature:	/s/ Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

ReachLocal Canada, Inc.

Signature:	/s/ Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

ReachLocal International, Inc.

Signature:	/s/ Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

DealOn, LLC

Signature:	/s/ Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

5

IN WITNESS WHEREOF, Borrower, Subsidiary, Agent and Lender have duly executed and delivered this Third Amendment to Loan and Security Agreement as of the date and year first above written.

ReachLocal International GP LLC

Signature:	/s/ Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

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IN WITNESS WHEREOF, Borrower, Subsidiary, Agent and Lender have duly executed and delivered this Third Amendment to Loan and Security Agreement as of the date and year first above written.

Accepted in Palo Alto, California:
                                   

LENDER:
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Signature:	/s/ Ben Bang
Print Name:	Ben Bang
Title:	Associate General Counsel
AGENT:
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
Signature:	/s/ Ben Bang
Print Name:	Ben Bang
Title:	Associate General Counsel

7

EX-10.31

Exhibit 10.31

FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT

THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the “Amendment”) is made and dated as of March 28, 2016, and is entered into by and between REACHLOCAL, INC., a Delaware corporation, and each of its Domestic Subsidiaries (other than any FSHCO) and each of its Eligible Foreign Subsidiaries party to the Agreement (hereinafter collectively referred to as “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (collectively, referred to as “Lender”), and HERCULES CAPITAL, INC., a Maryland corporation, (fka, Hercules Technology Growth Capital, Inc.) in its capacity as administrative agent for itself and the Lender (in such capacity, “Agent”).

RECITALS

A.     Borrower, Agent and Lender previously entered into that certain Loan and Security Agreement dated April 30, 2015, as amended pursuant to that certain First Amendment to Loan and Security Agreement dated as of August 3, 2015, that certain Second Amendment to Loan and Security Agreement dated as of November 9, 2015, and that certain Third Amendment to Loan and Security Agreement dated as of December 17, 2015 (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the “Agreement”); and

B.     Borrower requests that a certain aspect of Permitted Investment as allowed under the Agreement be increased as provided in this Amendment, and Agent and Lender are willing to agree to such request.

AGREEMENT

NOW, THEREFORE, Borrower, Agent and Lender agree as follows:

1.     Unless otherwise defined herein, all capitalized terms shall have the meaning provided in the Agreement. The recitals set forth above are hereby incorporated by reference.

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2.     As of the Effective Date (defined in Section 7, below), the definition of “Permitted Investment” in the Agreement is hereby amended and restated in its entirety in order to change the level of permitted investment under subclause (III) of Section (x) of such definition as follows:

“Permitted Investment” means: (i) Investments existing on the Closing Date which are disclosed in Schedule 1B; (ii) (a) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (b) commercial paper maturing no more than one year from the date of creation thereof and currently having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (c) certificates of deposit issued by any bank with assets of at least $500,000,000 maturing no more than one year from the date of investment therein, and (d) money market accounts; (iii) repurchases of stock from former and current employees, directors, or consultants of Borrower (a) under the terms of applicable repurchase agreements at the original issuance price of such securities in an aggregate amount not to exceed $250,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, and (b) in connection with transactions related to tax withholding obligations related to Borrower’s equity plans; (iv) Investments accepted in connection with Permitted Transfers; (v) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (vi) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (vi) shall not apply to Investments of Borrower in any Subsidiary; (vii) Investments consisting of loans not involving the net transfer on a substantially contemporaneous basis of cash proceeds to employees, officers or directors relating to the purchase of capital stock of Borrower pursuant to employee stock purchase plans or other similar agreements approved by Borrower’s Board of Directors; (viii) Investments consisting of travel advances in the ordinary course of business; (ix) Investments in Domestic Subsidiaries, provided that each such Domestic Subsidiary is either a party hereto or enters into a Joinder Agreement promptly after its formation by Borrower and executes such other documents as shall be reasonably requested by Agent; (x) Investments in Foreign Subsidiaries after the Closing Date (a) approved in advance in writing by Agent, or (b) not to exceed without Agent’s prior written consent in each case on a net basis after taking into account funds transferred from the applicable Foreign Subsidiary to Borrower during any fiscal year (except that for fiscal 2015, only such funds transferred after the Closing date) and excluding any non-cash intercompany charges or intercompany interest expense, if any, unless funded (I) 3,300,000 at any time outstanding in RL-Brazil in fiscal year 2015, (II) $1,700,000 in RL-Mexico at any time outstanding per year or $4,500,000 at any time outstanding in the aggregate during the term of the Agreement, and (III) $8,000,000 at any time outstanding in fiscal 2015, $5,500,000 at any time outstanding in fiscal 2016, and $4,000,000 at any time outstanding annually thereafter in all other Foreign Subsidiaries, not to exceed $18,000,000 at any time outstanding in the aggregate during the term of the Agreement, provided in all cases such funds are used in the ordinary course of business consistent with past practices, and shall be inclusive of and not in addition to the Permitted Indebtedness allowed in subclause (ix) of the definition of Permitted Indebtedness; (xi) joint ventures, strategic alliances, or other comparable collaborations in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support permitted hereunder, provided that any Cash used by Borrower in connection with such Investments does not exceed $1,000,000 in the aggregate in any fiscal year; and (xii) additional Investments that do not exceed $500,000 in the aggregate.

3.     This Amendment shall not be deemed to constitute an amendment to the Agreement except as expressly provided in Section 2 hereof, and all other terms and conditions of the Agreement shall remain in full force and effect.

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4. Borrower hereby represents and warrants to Agent and Lender as follows:

(a)     Borrower has all requisite power and authority to execute this Amendment and any other agreements or instruments required hereunder and to perform all of its obligations hereunder, and this Amendment and all such other agreements and instruments have been duly executed and delivered by Borrower and constitute the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(b)     Other than the Subsidiaries listed on Schedule 1 of the Agreement, Borrower has no other Subsidiaries.

(c)     The execution, delivery and performance by Borrower of this Amendment and any other agreements or instruments required hereunder have been duly authorized by all necessary corporate action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any material provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Borrower, or the certificate of incorporation or by-laws of Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or the Agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its properties may be bound or affected.

(d)     No Event of Default exists under the Agreement, and all of Borrower’s representations and warranties contained in the Agreement are correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

5.          The execution of this Amendment and all other agreements and instruments related hereto shall not be deemed to be a waiver of any Event of Default under the Agreement, if any, or a waiver of any breach or default under any of the other Loan Documents, whether or not known to Agent or Lender and whether or not existing on the date of this Amendment.

6.          Borrower hereby reaffirms its agreement under the Agreement, to pay or reimburse Agent and Lender for all costs and expenses incurred by Agent and Lender in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, Borrower specifically agrees to pay all reasonable fees and disbursements of counsel to Agent and Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. Payment of such amount shall be made by wire transfer in same day funds to Agent. Borrower hereby agrees that Lender may, at any time or from time to time in its sole discretion and without further authorization by Borrower, apply the proceeds of any loan, for the purpose of paying any such unpaid fees, disbursements, costs and expenses.

7.          This Agreement shall become effective on payment of the amounts specified in Section 6 hereof (the “Effective Date”).

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8.     Borrower, for itself and on behalf of its Subsidiaries, respective legal representatives and successors and assigns, hereby releases Agent, Lenders and all of their Affiliates, shareholders, partners, predecessors, employees, officers, directors, attorneys, parent corporations, subsidiaries, agents, participants, assignees, servicers and receivers (collectively, the “Released Parties”), except for claims, disputes, differences, liabilities and obligations arising under this Amendment, the Agreement and the other Loan Documents after the date hereof, from any and all known and unknown claims, disputes, differences, liabilities and obligations of any and every nature whatsoever that Borrower, Guarantor or any of them may have or claim, as of the date hereof or as of any prior date, against any one or more of the Released Parties arising from, based upon or related to the Loan Documents, or any other agreement, understanding, action or inaction whatsoever with regard to the Loan Documents or any transaction or matter related thereto, including, without limitation, the origination and servicing the Term Loan and the enforcement or attempted enforcement of any rights or remedies for default or asserted default under the Loan Documents (collectively, the “Released Claims”).

9.     Borrower further acknowledges and agrees that the Released Claims include, among other things, all claims arising out of or with respect to any and all transactions relating to the Loan Documents based on any fact, act, inaction, or other occurrence or nonoccurrence on or prior to the date hereof, including, without limitation, any breach of fiduciary duty or duty of fair dealing, breach of confidence, breach of loan commitment, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, violation of the Racketeer Influenced and Corrupt Organizations Act, violation of any other statute, ordinance or regulation, intentional or negligent infliction of mental or emotional distress, tortious interference with contractual relations or prospective business advantage, tortious interference with corporate governance, breach of contract, bad practices, unfair competition, libel, slander, conspiracy or any claim for wrongfully accelerating the Term Loan or attempting to foreclose on, or obtain a receiver for, any collateral for the Term Loan and all statutory claims and causes of action of every nature.

10.     In connection with the release contained in Sections 8 through 14 (the “Release”), Borrower acknowledges that it is aware that it may hereafter discover facts in addition to or different from those that it now knows or believes to be true with respect to the Released Claims, but that it is Borrower’s intention hereby fully, finally and forever to settle and release all claims, disputes, differences, liabilities and obligations, known or unknown, suspected or unsuspected, that now exist, may exist or heretofore have existed by Borrower, its Subsidiaries, respective legal representatives and successors and assigns against any one or more of the Released Parties. In furtherance of that intention, the Release contained in this Amendment shall be and remain in effect as a full and complete release notwithstanding the discovery of the existence of any such additional or different facts.

11.     The Release contained in this Amendment shall be effective and irrevocable upon the execution of this Amendment by Agent, Lender and Borrower and shall be deemed affirmed and restated upon, and effective as of, the Effective Date without any further documentation.

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12.     BORROWER AGREES AND ACKNOWLEDGES THAT THE RELEASED CLAIMS ARE NOT LIMITED TO MATTERS THAT ARE KNOWN OR DISCLOSED TO BORROWER AND THAT THE RELEASED CLAIMS INCLUDE ALL CLAIMS, DISPUTES, DIFFERENCES, LIABILITIES AND OBLIGATIONS THAT BORROWER, ITS SUBSIDIARIES, RESPECTIVE LEGAL REPRESENTATIVES AND SUCCESSORS AND ASSIGNS DO NOT KNOW OR SUSPECT TO EXIST AS OF THE DATE HEREOF. BORROWER UNDERSTANDS THAT IT IS GIVING UP ALL RIGHTS AND CLAIMS AGAINST AGENT AND LENDER AND THE OTHER RELEASED PARTIES, KNOWN OR UNKNOWN, THAT ARE IN ANY WAY RELATED TO THE COLLATERAL OR THE LOAN.

13.     THE PARTIES SPECIFICALLY ALLOCATE THE RISK OF ANY MISTAKE IN ENTERING INTO THE RELEASE TO THE PARTY OR PARTIES CLAIMING TO HAVE BEEN MISTAKEN.

14.     Borrower acknowledges having read and understood and hereby waives the benefits of Section 1542 of the California Civil Code, which provides as follows (and hereby waives the benefits of any similar law of the state that may be applicable):

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

15.     This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. The provisions of Section 11 of the Agreement shall be deemed incorporated herein by reference, mutatis mutandis.

(signatures provided on the next page)

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IN WITNESS WHEREOF, Borrower, Subsidiary, Agent and Lender have duly executed and delivered this Fourth Amendment to Loan and Security Agreement as of the date and year first above written.

BORROWER:
ReachLocal, Inc.
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer
Bizzy, Inc.
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer
Kickserv, Inc.
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer
ReachLocal DP, Inc.
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer
ReachLocal Canada, Inc.
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer
ReachLocal International, Inc.
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer
DealOn, LLC
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

6

IN WITNESS WHEREOF, Borrower, Subsidiary, Agent and Lender have duly executed and delivered this Fourth Amendment to Loan and Security Agreement as of the date and year first above written.

ReachLocal International GP LLC
Signature:	Ross G. Landsbaum
Print Name:	Ross G. Landsbaum
Title:	Chief Financial Officer

7

IN WITNESS WHEREOF, Borrower, Subsidiary, Agent and Lender have duly executed and delivered this Fourth Amendment to Loan and Security Agreement as of the date and year first above written.

Accepted in Palo Alto, California:

LENDER:
HERCULES CAPITAL, INC.
Signature:	/s/ Jennifer Choe
Print Name:	Jennifer Choe
Title:	Assistant General Counsel

AGENT:
HERCULES CAPITAL, INC.
Signature:	/s/ Jennifer Choe
Print Name:	Jennifer Choe
Title:	Assistant General Counsel

                     

8

EX-10.32

Exhibit 10.32

NOTE PURCHASE AGREEMENT

This Note Purchase Agreement, dated as of December 17, 2015 (this “Agreement”), is entered into by and among ReachLocal, Inc., a Delaware corporation (the “Company”), and the persons and entities listed on the schedule of purchasers attached hereto as Schedule I (each a “Purchaser” and, collectively, the “Purchasers”), as such Schedule I may be amended in accordance with Section 7 hereof.

RECITALS

A.     On the terms and subject to the conditions set forth herein, each Purchaser is willing to purchase from the Company, and the Company is willing to sell to such Purchaser, a 4.00% convertible second lien subordinated note in the principal amount set forth opposite such Purchaser’s name on Schedule I hereto.

B.     Capitalized terms not otherwise defined herein shall have the meaning set forth in the form of Note (as defined below) attached hereto as Exhibit A.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing, and the representations, warranties, and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:

1.     The Notes.

(a)     Issuance of Notes. Subject to all of the terms and conditions hereof, the Company agrees to issue and sell to each of the Purchasers, and each of the Purchasers severally agrees to purchase, a 4.00% convertible second lien subordinated note substantially in the form of Exhibit A hereto (each, a “Note” and, collectively, the “Notes”) in the principal amount set forth opposite such Purchaser’s name on Schedule I hereto. The obligations of the Purchasers to purchase Notes are several and not joint. The aggregate principal amount of all Notes issued hereunder on the Closing Date (as defined below) is $5,000,000. The aggregate principal amount for all Notes issued hereunder shall not exceed $10,000,000.

(b)     Delivery. The sale and purchase of the Notes shall take place at a closing (the “Closing”) to be held at such place and time as the Company and the Purchasers may determine (the “Closing Date”). At the Closing, the Company will deliver to each of the Purchasers the Note to be purchased by such Purchaser, against receipt by the Company of the purchase price therefor equal to 100% of the principal amount to be purchased by such Purchaser as set forth on Schedule I hereto (the “Purchase Price”). The Company may conduct one or more additional closings with one or more Purchasers (each, an “Additional Closing”) in an aggregate principal amount of up to $5,000,000 to be held at such places and times as the Company and the Purchasers participating in such Additional Closing may determine (each, an “Additional Closing Date”). At each Additional Closing, the Company will deliver to each of the Purchasers participating in such Additional Closing the Note to be purchased by such Purchaser, against receipt by the Company of the Purchase Price therefor. Each of the Notes will be registered in such Purchaser’s name in the Company’s records.

(c)     Use of Proceeds. The proceeds of the sale and issuance of the Notes shall be used for general corporate purposes.

(d)     Payments. The address for each Purchaser to be set forth in the register for the Notes will be as set forth on Schedule I hereto, or at such other address as a Purchaser or other registered holder of a Note may from time to time direct in writing.

2.     Representations and Warranties of the Company. The Company represents and warrants to each Purchaser that:

(a)     Due Incorporation, Qualification, etc. The Company is duly organized, validly existing and in good standing under the laws of the date of Delaware and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as it is being conducted, and, except as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect, has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business so as to require such qualification. Except as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect, each Subsidiary of the Company that is a “significant subsidiary” (as defined in Rule 1.02(w) of the SEC’s Regulation S-X) has been duly organized and is validly existing in good standing (to the extent that the concept of “good standing” is recognized by the applicable jurisdiction) under the laws of its jurisdiction of organization..

(b)     Authority. The execution, delivery and performance of each Transaction Document to be executed by the Company and the consummation of the transactions contemplated thereby are within the power of the Company and have been duly authorized by the Board of Directors, and all other necessary corporate action on the part of the Company has been taken. The Transaction Documents and the transactions contemplated thereby have been approved unanimously by the disinterested directors of the Company’s Board of Directors after full disclosure of all material aspects of the transaction and any interest of a director therein.

(c)     Enforceability. Each Transaction Document executed, or to be executed, by the Company has been, or will be, duly executed and delivered by the Company and constitutes, or will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

(d)     Non-Contravention. The execution and delivery by the Company of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby do not and will not (i) violate the Company’s Certificate of Incorporation or Bylaws (as amended, the “Charter Documents”) or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other Person to accelerate (whether after the giving of notice or lapse of time or both), any material mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any Lien upon any property, asset or revenue of the Company (other than any Lien arising under the Transaction Documents) or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties.

(e)     Approvals. No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other Person (including, without limitation, the shareholders of any Person) is required in connection with the execution and delivery of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby, other than such as have been obtained and remain in full force and effect and other than such qualifications or filings under applicable securities laws as may be required in connection with the transactions contemplated by this Agreement.

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(f)     No Violation or Default. None of the Company or the Company’s Subsidiaries is in violation of or in default with respect to (i) its Charter Documents or other organizational documents or any material judgment, order, writ, decree, statute, rule or regulation applicable to such Person; or (ii) any material mortgage, indenture, agreement, instrument or contract to which such Person is a party or by which it is bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default).

(g)     Commission Reports. The Company has complied in all material respects with the filing requirements of the Commission under the Exchange Act and all rules and regulations thereunder as are required to comply with the “current public information” requirement of Rule 144(c) under the Exchange Act. As of their respective filing dates, all documents filed by the Company with the Commission since the beginning of the Company’s 2015 fiscal year (the “Exchange Act Reports”) complied in all material respects with the requirements of the Exchange Act and all rules and regulations thereunder, and none of the Exchange Act Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(h)     Accuracy of Information Furnished. None of (i) the Transaction Documents, certificates, statements and/or information furnished to Purchasers by or on behalf of the Company or the Company’s Subsidiaries at or prior to the Closing (or, solely with respect to any Additional Closing, at or prior to such Additional Closing) in connection with the Transaction Documents, or the transactions contemplated thereby or (ii) the statements and information furnished in writing to the Purchasers (including information provided to Alan E. Salzman in his capacity as a director) by the Company in connection with this Agreement, the purchase of the Notes and the transactions contemplated thereby, when considered in the aggregate together with the Exchange Act Reports (including, without limitation, the disclosures under Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and any subsequent Exchange Act Report amending or supplementing the same) contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that with respect to any guidance or projections included in any such certificates, statements or information, the Company represents, in lieu of the foregoing representation, that such guidance or projections were, at the respective times they were expressed, made in good faith and with a reasonable basis, and each Purchaser acknowledges that none of such guidance or projections are guarantees of future performance and that actual results may vary materially from that implied by such guidance or projections.

3.     Representations and Warranties of Purchasers. Each Purchaser, for that Purchaser alone, represents and warrants to the Company upon the acquisition of a Note as follows:

(a)     Binding Obligation. Such Purchaser has full legal capacity, power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement and the Transaction Documents constitute valid and binding obligations of such Purchaser, enforceable in accordance with their terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

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Purchase for Own Account.  The Notes being acquired by the Purchaser are being acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the Securities Act except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, such Purchaser does not agree to hold any of the Notes or shares issuable upon conversion of the Notes for any minimum or other specific term and reserves the right to dispose of the Notes and shares issuable upon conversions of the Notes at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act, and the Purchaser has no present agreement or understanding relating to selling, granting any participation in, or otherwise distributing the same. The Purchaser also represents that it has not been formed for the specific purpose of acquiring the Notes.

Investment Experience.  The Purchaser understands that the purchase of the Notes involves substantial risk. The Purchaser has experience as an investor in securities of companies and acknowledges that it is able to fend for itself, can bear the economic risk of its investment in the Notes and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of this investment in the Notes and protecting its own interests in connection with this investment.

Accredited Purchaser Status.  The Purchaser is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act.

Reliance Upon Purchaser’s Representations.  The Purchaser understands that the issuance and sale of the Notes to it and the issuance of common stock to the Purchaser in the event of conversion of the Notes will not be registered under the Securities Act on the ground that such issuance and sale will be exempt from registration under the Securities Act pursuant to Regulation D promulgated under the Securities Act and/or Section 4(a)(2) of the Securities Act, and that the Company’s reliance on such exemptions is based on the Purchaser’s representations set forth herein.

4.     Conditions to Closing of the Purchasers. Each Purchaser’s obligations at the Closing are subject to the fulfillment, on or prior to the Closing Date, of all of the following conditions, any of which may be waived in whole or in part by all of the Purchasers:

(a)     Representations and Warranties. The representations and warranties made by the Company in Section 2 hereof shall have been true and correct when made, and shall be true and correct on the Closing Date.

(b)     Governmental Approvals and Filings. Except for any notices required or permitted to be filed after the Closing Date with certain federal and state securities commissions, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes.

(c)     Legal Requirements. At the Closing, the sale and issuance by the Company, and the purchase by the Purchasers, of the Notes to be issued at the Closing shall be legally permitted by all laws and regulations to which the Purchasers or the Company are subject.

(d)     Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchasers.

(e)     Transaction Documents. The Company shall have duly executed and delivered to the Purchasers the following documents:

(i)     this Agreement;

(ii)     each Note issued hereunder at such Closing;

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(iii)     the Subordination Agreement;

(iv)     the Security Agreement substantially in the form of Exhibit B hereto (the “Security Agreement”, and together with this Agreement, each Note, the Subordination Agreement, the “Transaction Documents”); and

(v)     A copy of the amendment to the Hercules Loan and Security Agreement in form and substance satisfactory to the Purchasers.

5.     Conditions to Additional Closings of the Purchasers. The obligations of any Purchaser participating in an Additional Closing are subject to the fulfillment, on or prior to the applicable Additional Closing Date, of all of the following conditions, any of which may be waived in whole or in part by all of the Purchasers participating in such Additional Closing:

(a)     Representations and Warranties. The representations and warranties made by the Company in Section 2 hereof shall be true and correct in all material respects on such Additional Closing Date.

(b)     Governmental Approvals and Filings. Except for any notices required or permitted to be filed after the Additional Closing Date with certain federal and state securities commissions, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes at such Additional Closing.

(c)     Legal Requirements. At such Additional Closing, the sale and issuance by the Company, and the purchase by the Purchasers participating in such Additional Closing, of the Notes to be issued at such Additional Closing shall be legally permitted by all laws and regulations to which such Purchasers or the Company are subject.

(d)     Transaction Documents. The Company shall have duly executed and delivered to the Purchasers participating in such Additional Closing each Note to be issued at such Additional Closing and shall have delivered to such Purchasers fully executed copies, if applicable, of all documents delivered to the Purchasers participating in the initial Closing.

6.     Conditions to Obligations of the Company. The Company’s obligation to issue and sell the Notes at the Closing and at each Additional Closing is subject to the fulfillment, on or prior to the Closing Date or such Additional Closing Date, as applicable, of the following conditions, any of which may be waived in whole or in part by the Company:

(a)     Representations and Warranties. The representations and warranties made by the applicable Purchasers in Section 3 hereof shall be true and correct when made, and shall be true and correct on the Closing Date or such Additional Closing Date, as applicable.

(b)     Legal Requirements. At the Closing or such Additional Closing, as applicable, the sale and issuance by the Company, and the purchase by the applicable Purchasers, of the Notes shall be legally permitted by all laws and regulations to which such Purchasers or the Company are subject.

(c)     Purchase Price. Each Purchaser purchasing a Note at the Closing or such Additional Closing, as applicable, shall have delivered to the Company the Purchase Price for such Note referenced in Section 1(b) hereof.

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7.     Miscellaneous.

(a)     Waivers and Amendments. Any provision of this Agreement may be amended, waived or modified only upon the written consent of the Company and a majority in aggregate principal amount of the Notes then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon all of the parties hereto. Notwithstanding the foregoing, this Agreement may be amended to add a party as a Purchaser hereunder in connection with Additional Closings without the consent of any other Purchaser, but with the Company’s consent, by delivery to the Company of a counterparty signature page to this Agreement and the Security Agreement, together with a supplement to Schedule I hereto. Such amendment shall take effect at the Additional Closing and such party shall thereafter be deemed an “Purchaser” for all purposes hereunder and Schedule I hereto shall be updated to reflect the addition of such Purchaser.

(b)     Governing Law. This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law provisions of the State of New York or of any other state.

(c)     Survival. The representations, warranties, covenants and agreements made herein shall survive the execution and delivery of this Agreement.

(d)     Successors and Assigns. Subject to the restrictions on transfer set forth in the Notes or described in Section 7(f) below, the rights and obligations of the Company and the Purchasers shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

(e)     Registrable Form. The Notes issuable under this Agreement shall be issued in registered and certificated form.

(f)     Assignment by the Company. The rights, interests or obligations hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of a majority in aggregate principal amount of the Notes then outstanding.

(g)     Entire Agreement. This Agreement together with the other Transaction Documents constitute and contain the entire agreement among the Company and Purchasers with respect to the subject matter hereof and thereof and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties relating to such subject matter, whether written or oral, respecting the subject matter hereof.

(h)     Notices. All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and mailed, emailed or delivered to each party as follows: (i) if to a Purchaser, at such Purchaser’s address set forth in the Schedule of Purchasers attached as Schedule I or by email to all of asalzman@vpcp.com, hfriedman@vpcp.com and nwolff@vpcp.com, or at such other address as such Purchaser shall have furnished the Company in writing, or (ii) if to the Company, at 21700 Oxnard Street, Suite 1600, Woodland Hills, CA 91367, or at such other address number as the Company shall have furnished to the Purchasers in writing. All such notices and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight courier service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with postage prepaid.

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(i)     Expenses. The Company shall pay on demand all reasonable, documented fees and expenses incurred by the Purchasers, including reasonable attorneys’ fees and expenses incurred by the Purchasers in connection with the preparation, execution and delivery of this Agreement and the other Transaction Documents. The Company shall pay on demand all reasonable, documented fees and expenses, including reasonable attorneys’ fees and expenses, incurred by Purchasers with respect to any amendments or waivers hereof requested by the Company or in the enforcement or attempted enforcement of any of the obligations of the Company to the Purchasers under the Transaction Documents or in preserving any of the Purchasers’ rights and remedies (including, without limitation, all such fees and expenses incurred in connection with any “workout” or restructuring affecting the Transaction Documents or the obligations thereunder or any bankruptcy or similar proceeding involving the Company or any of its Subsidiaries).

(j)     Separability of Agreements; Severability of this Agreement. The Company’s agreement with each of the Purchasers is a separate agreement and the sale of the Notes to each of the Purchasers is a separate sale. Unless otherwise expressly provided herein, the rights of each Purchaser hereunder are several rights, not rights jointly held with any of the other Purchasers. Any invalidity, illegality or limitation on the enforceability of the Agreement or any part thereof, by any Purchaser whether arising by reason of the law of the respective Purchaser’s domicile or otherwise, shall in no way affect or impair the validity, legality or enforceability of this Agreement with respect to other Purchasers. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

(k)     Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same agreement. Facsimile copies of signed signature pages will be deemed binding originals.

(Signature Page Follows)

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The parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date and year first written above.

COMPANY:

ReachLocal, Inc.

a Delaware corporation

By: /s/ Ross G. Landsbaum              

Name: Ross G. Landsbaum

Title: CFO

[Signature page to Note Purchase Agreement]

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PURCHASERS:
VantagePoint Venture Partners III (Q), L.P.
By:	VantagePoint Venture Associates III, L.L.C.
By:	/s/ Alan E. Salzman
	Alan E. Salzman, Managing Member
VantagePoint Venture Partners III, L.P.
By:	VantagePoint Venture Associates III, L.L.C.
By:	/s/ Alan E. Salzman
	Alan E. Salzman, Managing Member
VantagePoint Venture Partners IV (Q), L.P.
By:	VantagePoint Venture Associates IV, L.L.C.
By:	/s/ Alan E. Salzman
	Alan E. Salzman, Managing Member
VantagePoint Venture Partners IV, L.P.
By:	VantagePoint Venture Associates IV, L.L.C.
By:	/s/ Alan E. Salzman
	Alan E. Salzman, Managing Member
VantagePoint Venture Partners IV Principals Fund, L.P.
By:	VantagePoint Venture Associates IV, L.L.C.
By:	/s/ Alan E. Salzman
	Alan E. Salzman, Managing Member
VantagePoint Venture Partners 2006 (Q), L.P.
By:	VantagePoint Venture Associates 2006, L.L.C.
By:	/s/ Alan E. Salzman
	Alan E. Salzman, Managing Member

[Signature page to Note Purchase Agreement]

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SCHEDULE I

SCHEDULE OF PURCHASERS

Name and Address	Note Amount		State of Residency/Principal Place of Business
VantagePoint Venture Partners III (Q), L.P.	$	778,673.79	California
VantagePoint Venture Partners III, L.P.	$	94,802.68	California
VantagePoint Venture Partners IV (Q), L.P.	$	3,369,732.80	California
VantagePoint Venture Partners V, L.P.	$	337,346.03	California
VantagePoint Venture Partners IV Principals Fund, L.P.	$	12,275.81	California
VantagePoint Venture Partners 2006 (Q), L.P.	$	407,168.89	California

Address for all notices for all Purchasers:

1001 Bayhill Drive Suite 300

San Bruno, CA 94066

Attn: Chief Financial Officer

With a copy addressed to General Counsel

Tel: 650-866-3100

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Exhibit A

FORM OF NOTE

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Exhibit B

FORM OF SECURITY AGREEMENT

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EX-10.33

Exhibit 10.33

SECURED PARTIES ARE EACH PARTY TO A SUBORDINATION AGREEMENT WITH Hercules Technology Growth Capital, Inc. AND ENFORCEMENT OF THIS SECURITY AGREEMENT AND PAYMENT OF THE NOTES IS SUBJECT TO SUCH SUBORDINATION AGREEMENT.

SECURITY AGREEMENT

This Security Agreement dated as of December 17, 2015 (this “Agreement”) by and among REACHLOCAL, INC., a Delaware corporation (“Debtor”), and each Holder from time to time party to a Note (as defined below) that is a signatory from time to time hereto (each a “Secured Party” and collectively the “Secured Parties”).

Debtor and the Secured Parties hereby agree as follows:

I.     Certain Definitions. Except as otherwise provided in this Agreement, capitalized terms used herein shall have the meanings set forth in any Convertible Second Lien Subordinated Note issued by Debtor for the benefit of a Secured Party, dated December 17, 2015 (each a “Note” and collectively, the “Notes”). As used in this Agreement, the following terms, unless the context otherwise requires, have the following meanings:

“Debtor’s Books” are Debtor’s or any of its Subsidiaries’ books and records including ledgers, federal, and state tax returns, records regarding Debtor’s or its Subsidiaries’ assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Eligible Foreign Subsidiary” shall have the meaning set forth in the Senior Loan Agreement.

“Foreign Subsidiary” is a Subsidiary that is not an entity organized under the laws of the United States or any state thereof.

“FSHCO” is any direct or indirect Domestic Subsidiary substantially all of the assets of which consist of equity interests of one or more direct or indirect Foreign Subsidiaries other than Eligible Foreign Subsidiaries (or of such equity interests and debt of such Foreign Subsidiaries other than Eligible Foreign Subsidiaries).

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest, or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

“Minority Interests” shall have the meaning set forth in the Senior Loan Agreement.

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency

“RL-Brazil” is ReachLocal Brazil Servicos Online de Marketing Limitada, a Limitada formed under the laws of Brazil.

“RL-Canada” is ReachLocal Canada, Inc., a Delaware corporation.

“Senior Loan Agreement” is that certain Loan and Security Agreement made and dated April 30, 2015, by and between Debtor and each of its Subsidiaries (other than any FSHCO) and each of its Eligible Foreign Subsidiaries, the several banks and other financial institutions or entities from time to time parties thereto as lenders, and Hercules Technology Growth Capital, Inc., as lender and administrative agent, as amended as of the date hereof.

“Subsidiary” is an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls 50% or more of the outstanding voting securities. Unless otherwise specified, references herein to a Subsidiary means a Subsidiary of Debtor.

II.     Security Agreement.

A.     Grant. Debtor, for valuable consideration, the receipt of which is acknowledged, hereby grants to the Secured Parties a security interest in and Lien on all of the property described on Exhibit A attached hereto (the “Collateral”) now owned or at any time hereafter acquired by Debtor or in which Debtor now has or at any time in the future may acquire any right, title or interest.

B.     Debtor Remains Liable. Anything herein to the contrary notwithstanding, (i) Debtor shall remain liable under any contracts, agreements and other documents included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Secured Parties of any of the rights hereunder shall not release Debtor from any of its duties or obligations under such contracts, agreements and other documents included in the Collateral, and (iii) the Secured Parties shall not have any obligation or liability under any contracts, agreements and other documents included in the Collateral by reason of this Agreement, nor shall the Secured Parties be obligated to perform any of the obligations or duties of Debtor thereunder or to take any action to collect or enforce any such contract, agreement or other document included in the Collateral hereunder.

C.     Continuing Security Interest. Debtor agrees that this Agreement shall create a continuing security interest in the Collateral which shall remain in effect until payment and performance in full of all of the Obligations (other than inchoate indemnity obligations).

III.     Obligations Secured. The security interest granted hereby secures the full and timely payment of all obligations of Debtor to pay principal and interest under the Notes and all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of Debtor to the Secured Parties under the Notes, provided that the “Obligations” shall not include any obligations with respect to any equity investments, right to convert or other similar conversion right on obligations or any obligations under a warrant or similar instrument (such obligations, the “Obligations”).

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IV.     Debtor’s Representations, Warranties And Covenants. Debtor hereby represents, warrants and covenants to the Secured Parties that:

A.     Debtor’s principal place of business is 21700 Oxnard St. Suite 1600, Woodland Hills, CA 91367 and Debtor keeps its records concerning accounts, contract rights and other property at that location. Other than with respect to information disclosed to the Secured Parties as of the hereof, Debtor will notify the Secured Parties 20 days prior to the establishment of any new place of business where any of the Collateral is kept, except if moved in the ordinary course of business. Debtor is a corporation organized under the laws of the State of Delaware. Debtor will notify the Secured Parties 20 days prior to changing either its form or jurisdiction of organization.

B.     Debtor will at all times keep in a manner reasonably satisfactory to the Secured Parties accurate and complete records of the Collateral and will keep such Collateral insured to the extent similarly situated companies insure their assets.

C.     Debtor shall not use the Collateral in violation of any applicable statute, ordinance, law or regulation or in violation of any insurance policy maintained by Debtor with respect to the Collateral, in each case to the extent such violation would reasonably be likely to result in a material adverse effect on Debtor.

D.     Other Financing Statements. Other than financing statements, security agreements, chattel mortgages, assignments, fixture filings and other agreements or instruments executed, delivered, filed or recorded for the purpose of granting or perfecting any Lien (collectively, “Financing Statements”) that may have priority as a matter of law, existing as of the date hereof and disclosed to the Secured Parties or arising after the date hereof in connection with Financing Statements in favor of the Secured Parties, no effective Financing Statement naming Debtor as debtor, assignor, grantor, mortgagor, pledgor or the like and covering all or any part of the Collateral is on file in any filing or recording office in any jurisdiction.

E.     Notices, Reports and Information. Debtor will (i) notify the Secured Parties of any material claim made or asserted against the Collateral by any Person or other event that could materially adversely affect the value of the Collateral or the Secured Parties’ Lien thereon; (ii) furnish to the Secured Parties such statements and schedules further identifying and describing the Collateral and such other reports and other information in connection with the Collateral as the Secured Parties may reasonably request, all in reasonable detail; and (iii) upon the reasonable request of the Secured Parties make such demands and requests for information and reports as Debtor is entitled to make in respect of the Collateral.

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V.     Financing Statements. Debtor shall at its cost execute any Financing Statement in respect of any security interest created pursuant to this agreement that may at any time be required or that, in the reasonable opinion ofthe Secured Parties, may at any time be desirable. If any recording or filing thereof (or the filing of any statements of continuation or assignment of any Financing Statement) is required to protect and preserve such Lien, Debtor shall at its cost execute the same at the time and in the manner requested by Secured Parties (or any counsel on behalf of the Secured Parties). To the fullest extent permitted by applicable law, Debtor authorizes the Secured Parties (or any counsel on behalf of the Secured Parties) to file any such Financing Statements authorized hereunder without the signature of Debtor.

VI.     Debtor’s Rights Until Default. So long as an Event of Default does not exist, Debtor shall have the right to possess the Collateral, manage its property and sell its inventory in the ordinary course of business.

VII.     Event of Default. An “Event of Default” shall exist under this Agreement upon the occurrence of any default under the Notes, without demand or notice from the Secured Parties.

VIII.     Rights and Remedies on Event of Default.

A.     During the continuance of an Event of Default, the Secured Parties shall have the right to declare all Obligations to be immediately due and payable and the Secured Parties may exercise any and all rights and remedies hereunder or under applicable law; provided, however, if any Event of Default occurs as a consequence of the commencement of a bankruptcy or other insolvency proceeding by or against Debtor, all of the Obligations shall be automatically and immediately due and payable without further action or demand. Without limiting the generality of the foregoing, the Secured Parties shall have the right to sell or otherwise dispose of all or any part of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as the Secured Parties, in their sole discretion, may deem advisable, and the Secured Parties shall have the right to purchase at any such sale. Debtor agrees that a notice sent at least ten days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made shall be reasonable notice of such sale or other disposition. The proceeds of any such sale, or other Collateral disposition shall be applied: first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to the Secured Parties’ reasonable attorneys’ fees and legal expenses; second, to the Secured Parties in satisfaction of the then unpaid Obligations; and third, to Debtor or as otherwise required by law. If, upon the sale or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, Debtor shall be liable for the deficiency, together with interest thereon at the rates set forth in the Notes, and the reasonable fees of any attorneys the Secured Parties employs to collect such deficiency; provided, however, that the foregoing shall not be deemed to require the Secured Parties to resort to or initiate proceedings against the Collateral prior to the collection of any such deficiency from Debtor. To the extent permitted by applicable law, Debtor waives all claims, damages and demands against the Secured Parties arising out of the retention or sale or lease of the Collateral or other exercise of the Secured Parties’ rights and remedies with respect thereto. “UCC” means the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of New York; provided, that, to the extent that the “UCC” is used to define any term herein and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, the Secured Parties’ Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions. The rights and remedies with respect to Debtor and the Collateral, whether established hereby or by any other agreements, instruments or documents or by law, shall be cumulative and may be exercised singly or concurrently, and are not exclusive of any other rights or remedies provided under any other agreement, instrument or document to which Debtor is a party or by which it or any of the Collateral is bound or by law or equity.

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B.     Debtor will upon request promptly execute and deliver all further instruments and documents, and take all further action that the Secured Parties may reasonably request in order to perfect, protect and maintain the priority of the security interest granted by this Agreement and to enable the Secured Parties to exercise and enforce its rights and remedies under this Agreement.

C.     Debtor hereby waives (a) the right to require the Secured Parties to proceed against any other person or against any other collateral it may hold; (b) other than as provided in the Notes, presentment, protest and notice of protest, demand and notice of nonpayment, demand of performance, notice of sale, and advertisement of sale, (c) following an Event of Default that is continuing, any right to the benefit of or to direct the application of any of the Collateral until the obligations (other than inchoate indemnity obligations) of Debtor shall have been paid in full, and (d) any defenses which may arise by reason of, or be based on, lack of diligence in collection.

D.     Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate to divest all of Debtor’s right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the Collateral sold, and shall be a perpetual bar, both at law and in equity, against Debtor, its successors and assigns, and against all Persons claiming the Collateral sold or any part thereof under, by or through Debtor, its successors or assigns.

E.     Debtor appoints the Secured Parties, and any trustee, authorized agent or designee of the Secured Parties, with full power of substitution, as Debtor’s true and lawful attorney-in-fact, effective as of the date hereof, with power, upon the Secured Parties’ election, in its own name or in the name of Debtor, during the continuance of an Event of Default, (i) to endorse any notes, checks, drafts, money orders, or other instruments of payment in respect of the Collateral that may come into the Secured Parties’ possession, (ii) to sign and endorse any drafts against Debtor, assignments, verifications and notices in connection with accounts, and other documents relating to Collateral; (iii) to pay or discharge taxes or Liens at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, issue receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to notify Persons obligated with respect to the Collateral to make payments directly to the Secured Parties; and, (vi) generally, to do, at the Secured Parties’ option and at Debtor’s expense, at any time, or from time to time, all acts and things that the Secured Parties deems reasonably necessary to protect, preserve and realize upon the Collateral and the Secured Parties’ security interest therein to effect the intent of this Agreement, all as fully and effectually as Debtor might or could do; and Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable as long as any of the Obligations are outstanding.

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F.     All of the Secured Parties’ rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

IX.     Secured Parties’ Rights; Debtor Waivers.

A.     The Secured Parties’ acceptance of partial or delinquent payment from Debtor under the Notes or hereunder, or the Secured Parties’ failure to exercise any right hereunder, shall not constitute a waiver of any obligation of Debtor hereunder, or any right of the Secured Parties hereunder, and shall not affect in any way the right to require full performance at any time thereafter.

B.     Debtor waives, to the fullest extent permitted by law, (i) any right of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshaling of the Collateral or other collateral or security for the Obligations; (ii) any right to require the Secured Parties (A) to proceed against any Person, (B) to exhaust any other collateral or security for any of the Obligations, (C) to pursue any remedy in the Secured Parties’ power, or (D) other than as provided in the Notes, to make or give any presentments, demands for performance, notices of nonperformance, protests, notices of protests or notices of dishonor in connection with any of the Collateral; and (iii) all claims, damages, and demands against the Secured Parties arising out of the repossession, retention, sale or application of the proceeds of any sale of the Collateral.

C.     Debtor hereby agrees to indemnify each Secured Party, its principals and agents (the “Indemnified Parties”) for, and agrees to protect and hold each of them harmless from and against, any and all liabilities, obligations, losses, damages, costs and expenses (including, without limitation, reasonable attorneys’ fees), causes of action, suits, claims, demands and judgments of any nature or description whatsoever, which may at any time be imposed upon, incurred by or awarded against any Indemnified Party (other than as a result of such Indemnified Party’s own gross negligence or willful misconduct) as a result of the grant to any Secured Party of any interest in or to any of the Collateral or in connection with this Agreement.

X.     Insurance; Risk of Loss.

A.     Debtor shall maintain, at its expense, such public liability and third party property damage and business interruption insurance in such amounts and with such deductibles as it maintains as of the date hereof or as is customary for companies such as Debtor.

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XI.     Termination; Reinstatement

A.     Termination. Upon the payment in full in cash of all Obligations under the Notes (other than the obligations that are intended to survive the termination of the Notes, as the case may be) or the conversion of the Notes into equity securities of Debtor pursuant to the terms of the Notes, and subject to Section XI(B) herein, this Agreement and the security interest and all other rights granted hereby shall automatically terminate and all rights to the Collateral shall revert to Debtor without any further action of the Secured Parties. Upon any such termination, the Secured Parties shall authorize Debtor to file any UCC-3 or other termination statements to evidence such termination, to release all security interest on the Collateral and to return such Collateral to Debtor. Furthermore, the Secured Parties shall, at Debtor’s expense and upon its written direction, execute and deliver to Debtor such documents (including UCC-3 termination statements) as Debtor shall reasonably request to evidence such termination, to release all security interest on the Collateral and to return such Collateral to Debtor.

B.     Reinstatement. This Agreement and the obligations of Debtor hereunder shall automatically be reinstated if and to the extent that for any reason any payment made pursuant to this Agreement is rescinded or must otherwise be restored or returned, whether as a result of any proceedings in bankruptcy or reorganization or otherwise with respect to Debtor or as a result of any settlement or compromise with any person (including Debtor) in respect of such payment, and Debtor shall pay the Secured Parties on demand all of its reasonable costs and expenses (including reasonable fees of counsel) incurred by the Secured Parties in connection with such rescission or restoration.

XII.     Miscellaneous.

A.     Reserved.

B.     Amendment and Waiver. Subject to the restrictions and conditions of the Subordination Agreement dated December 17, 2015 by and among the Holders and Hercules Technology Growth Capital, Inc., neither this Agreement nor any part hereof may be changed, waived, or amended except by an instrument in writing signed by the Secured Parties and Debtor; and waiver on one occasion shall not operate as a waiver on any other occasion.

C.     Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, if not so confirmed, then on the next business day, (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid or (iv) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the addresses shown below such parties signature hereunder (or at such other addresses as shall be specified by notice given in accordance with this Section XII(C)).

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D.     Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of, the successors and assigns of the parties hereto, including, without limitation, all future holders of the Notes.

E.     Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof.

F.     Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

G.     Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

H.     Governing Law; Venue. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS AGREEMENT. DEBTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

Debtor (A) agrees that any suit, action or proceeding against it arising out of or relating to this Agreement may be instituted in any U.S. federal court with applicable subject matter jurisdiction sitting in The City of New York; (B) waives, to the fullest extent permitted by applicable law, (i) any objection that it may now or hereafter have to the laying of venue of any such suit, action or proceeding; and (ii) any claim that it may now or hereafter have that any such suit, action or proceeding in such a court has been brought in an inconvenient forum; and (C) submits to the nonexclusive jurisdiction of such courts in any such suit, action or proceeding.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written.

DEBTOR:

REACHLOCAL, INC.

By: /s/ Ross G. Landsbaum                                                                 

Name: Ross G. Landsbaum

Title: CFO

Address:        21700 Oxnard St., Suite 1600

Woodland Hills, CA 91367

Email:

[Signature page to Security Agreement]

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written.

SECURED PARTY:

VantagePoint Venture Partners III (Q), L.P.

By:  VantagePoint Venture Associates III, L.L.C.

By:  Alan E. Salzman                                                                

Alan E. Salzman, Managing Member

Address:    1001 Bayhill Drive, Suite 300

San Bruno, CA 94066

Attn: Chief Financial Officer

With a copy addressed to

General Counsel

Email Address:

[Signature page to Security Agreement]

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written.

SECURED PARTY:

VantagePoint Venture Partners III, L.P.

By:  VantagePoint Venture Associates III, L.L.C.

By:  Alan E. Salzman                                                                

Alan E. Salzman, Managing Member

Address:    1001 Bayhill Drive, Suite 300

San Bruno, CA 94066

Attn: Chief Financial Officer

With a copy addressed to

General Counsel

Email Address:

[Signature page to Security Agreement]

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written.

SECURED PARTY:

VantagePoint Venture Partners IV (Q), L.P.

By: VantagePoint Venture Associates IV, L.L.C.

By:  Alan E. Salzman                                                                

Alan E. Salzman, Managing Member

Address:    1001 Bayhill Drive, Suite 300

San Bruno, CA 94066

Attn: Chief Financial Officer

With a copy addressed to

General Counsel

Email Address:

[Signature page to Security Agreement]

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written.

SECURED PARTY:

VantagePoint Venture Partners IV, L.P.

By: VantagePoint Venture Associates IV, L.L.C.

By:  Alan E. Salzman                                                                

Alan E. Salzman, Managing Member

Address:    1001 Bayhill Drive, Suite 300

San Bruno, CA 94066

Attn: Chief Financial Officer

With a copy addressed to

General Counsel

Email Address:

[Signature page to Security Agreement]

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written.

SECURED PARTY:

VantagePoint Venture Partners IV Principals Fund, L.P.

By: VantagePoint Venture Associates IV, L.L.C.

By:  Alan E. Salzman                                                                

Alan E. Salzman, Managing Member

Address:    1001 Bayhill Drive, Suite 300

San Bruno, CA 94066

Attn: Chief Financial Officer

With a copy addressed to

General Counsel

Email Address:

[Signature page to Security Agreement]

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written.

SECURED PARTY:

VantagePoint Venture Partners 2006 (Q), L.P.

By: VantagePoint Venture Associates 2006, L.L.C.

By:  Alan E. Salzman                                                                

Alan E. Salzman, Managing Member

Address:    1001 Bayhill Drive, Suite 300

San Bruno, CA 94066

Attn: Chief Financial Officer

With a copy addressed to

General Counsel

Email Address:

[Signature page to Security Agreement]

EXHIBIT A

COLLATERAL DESCRIPTION

The Collateral consists of (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles (including Intellectual Property); (e) Inventory; (f) Investment Property; (g) Deposit Accounts; (h) Cash; (i) Goods; and all other tangible and intangible personal property of Debtor whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Debtor and wherever located, and any of Debtor’s property in the possession or under the control of Secured Parties; and, to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.

Notwithstanding the above, the Collateral shall not include (i) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Debtor in any (a) first-tier Foreign Subsidiary other than an Eligible Foreign Subsidiary or RL-Brazil as provided in Section 7.12(b) of the Senior Loan Agreement, or (b) FSHCO, in each case, which shares entitle the holder thereof to vote for directors or any other matter, (ii) any interests in any second-tier or lower Foreign Subsidiary other than any Eligible Foreign Subsidiary or RL-Canada or its successors, (iii) any “intent to use” trademarks at all times prior to the first use thereof, whether by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise, (iv) nonassignable licenses or contracts, which by their terms require the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406, 9407 and 9408 of the UCC), and (v) the Minority Interests until such Minority Interests are pledged as Collateral hereunder.

Terms used in this Exhibit A but not defined shall have the meaning given to such terms in the UCC.

EX-10.43

Exhibit 10.43

Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits information subject to the confidentiality request. Omissions are designated as [*****]. A complete version of this exhibit has been filed with the Securities and Exchange Commission.

AMENDMENT TO GOOGLE ADWORDS PSP ADDENDUM

This Addendum (the “Amendment”), effective as of October 1, 2015 (the “Amendment Effective Date”), is between ReachLocal, Inc. (“ReachLocal US”), ReachLocal Europe B.V. (“ReachLocal Europe”) and the ReachLocal Affiliates on behalf of themselves and their Affiliates (each a “PSP” or “Customer” and, collectively, “ReachLocal PSP”) and Google Inc. and the Google Affiliates (together, “Google”) and is an addendum to the Google AdWords PSP Addendum between the parties with an effective date of July 1, 2014 (the “Addendum”). Capitalized terms not defined in this Bonus Addendum have the meanings given to those terms in the Addendum. The parties agree as follows:

1. The parties agree that as of the Amendment Effective Date, the “Bonus Addendum” executed between the parties with an effective date of April 1, 2015 is terminated and superseded by this Amendment.

2. Term. The first sentence of Section 12 of the Addendum is deleted and replaced with the following:

“This Addendum will commence on the Effective Date and will continue through December 31, 2016 (the “Term”), unless terminated earlier in accordance with this Section.”

3. Minimum Qualified Advertiser Threshold. As of the Amendment Effective Date,

a. Section 12(D) of the Addendum is deleted and replaced with the following: “(D) INTENTIONALLY DELETED”.

b. [*****]

4. Performance Bonus.

a. [*****]

b. [*****]

5. [*****]

6. [*****]

7. [*****]

8. [*****]

9. Miscellaneous. The parties may execute this Addendum in counterparts, including facsimile, PDF, or other electronic copies, which taken together will constitute one instrument. This Amendment sets out all terms agreed between the parties and supersedes all previous or contemporaneous agreements between the parties relating to its subject matter.

[SIGNATURES CONTINUE ON THE NEXT PAGE]

IN WITNESS WHEREOF, the parties have executed this Amendment by persons duly authorized.

GOOGLE INC.	PREMIER SMB PARTNER: REACHLOCAL, INC.
By: /s/ Philipp Schindler	By: /s/ Ross G. Landsbaum
Name: Philipp Schindler	Name: Ross G. Landsbaum
Title: Authorized Signatory	Title: CFO
Date: December 9, 2015	Date: December 7, 2015

GOOGLE IRELAND LIMITED	PREMIER SMB PARTNER: REACHLOCAL EUROPE BV
By: /s/ Jane O’Reilly	By: /s/ Craig Harris
Name: Jane O’Reilly for Ronan Harris (Board Director)	Name: Craig Harris
Title:	Title: Managing Director
Date: December 9, 2015	Date: December 7, 2015
GOOGLE ASIA PACIFIC PTE. LTD.	PREMIER SMB PARTNER: REACHLOCAL BRASIL SERVICOS ONLINE DE MARKETING LIMITADA
By: /s/ Marco Borla	By: /s/ Jose G. B. Coscelli
Name: Marco Borla	Name: Jose G. B. Coscelli
Title: Finance Director Google Asia Pacific Pte. Ltd.	Title: General Manager
Date: December 10, 2015	Date: December 8, 2015
GOOGLE OPERACIONES DE MEXICO S DE RL DE CV	PREMIER SMB PARTNER: REACHLOCAL MEXICO, S. DE R.L. DE C.V.
By: /s/ Andrea Garcia Rodriguez	By: /s/ Jose G. B. Coscelli
Name: Andrea Garcia Rodriguez	Name: Jose G. B. Coscelli
Title: Represente Legal/Legal Representative	Title: General Manager
Date: December 10, 2015	Date: December 8, 2015

GOOGLE BRASIL INTERNET LTDA.

By: /s/ Fábio Coelho

Name: Fábio Coelho

Title: VP, Diretor Geral

Date: December 9, 2015

Confidential material redacted and filed separately with the Securities and Exchange Commission.

EX-21.1

Exhibit 21.1

Subsidiaries of ReachLocal, Inc.
Subsidiary	Jurisdiction
Bizzy Inc.	Delaware
DealOn, LLC	Delaware
Kickserv, Inc.	Delaware
ReachLocal Australia Pty Ltd.	Australia
ReachLocal Austria Gmbh	Austria
ReachLocal Belgium B.V.B.A.	Belgium
ReachLocal Brasil Serviços 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 Services G.K.	Japan
ReachLocal Mexico, S. de R.L. de C.V.	Mexico
ReachLocal Netherlands B.V.	The Netherlands
RL Services New Zealand Limited	New Zealand
ReachLocal Services B.V.	The Netherlands
ReachLocal Services Private Ltd	India
ReachLocal Singapore Pte Ltd	Singapore
ReachLocal UK, Ltd.	England
RL International Investment C.V.	The Netherlands

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 30, 2016, with respect to the consolidated financial statements included in the Annual Report of ReachLocal, Inc. on Form 10-K for the year ended December 31, 2015.  We consent to the incorporation by reference of said report 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; File No. 333-180135, effective March 15, 2012; File No. 333-187186, effective March 12, 2013; File No. 333-196137, effective May 21, 2014; and File No. 333-202867, effective March 19, 2015).

/s/ GRANT THORNTON LLP

Irvine, California

March 30, 2016

EX-31.1

Exhibit 31.1

I, Sharon T. Rowlands, 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/ Sharon T. Rowlands 

Sharon T. Rowlands

Chief Executive Officer

Date: March 30, 2016

EX-31.2

Exhibit 31.2

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 30, 2016

EX-32.1

Exhibit 32.1

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, 2015 of ReachLocal, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sharon T. Rowlands, 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/ Sharon T. Rowlands 

Sharon T. Rowlands

Chief Executive Officer

(Principal Executive Officer)

Date: March 30, 2016 

EX-32.2

Exhibit 32.2

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, 2015 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 30, 2016 

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Mar. 23, 2016	Jun. 30, 2015
Entity Registrant Name	ReachLocal Inc
Entity Central Index Key	0001297336
Trading Symbol	rloc
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		30,070,750
Entity Public Float			$ 36,685,152
Document Type	10-K
Document Period End Date	Dec. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Convertible Debt [Member]
Current Liabilities:
Convertible notes – related party	$ 5,000,000
Cash and Cash Equivalents, at Carrying Value	18,833,000	$ 43,720,000
Short-term investments	359,000	904,000
Accounts receivable, net of allowance for doubtful accounts of $803 and $961 at December 31, 2015 and December 31, 2014, respectively	6,278,000	7,844,000
Prepaid expenses and other current assets	8,296,000	7,855,000
Total current assets	33,766,000	60,323,000
Property and equipment, net	13,550,000	19,639,000
Capitalized software development costs, net	20,691,000	$ 21,555,000
Restricted cash - term loan	15,000,000
Restricted cash	3,502,000	$ 3,589,000
Intangible assets, net	4,011,000	5,492,000
Non-marketable investments	9,000,000	9,000,000
Other assets	2,547,000	3,601,000
Goodwill	20,129,000	48,189,000
Total assets	122,196,000	171,388,000
Accounts payable	33,581,000	44,874,000
Accrued compensation and benefits	14,478,000	15,972,000
Deferred revenue	22,985,000	29,016,000
Accrued restructuring	3,329,000	$ 3,196,000
Term loan	8,352,000
Capital lease	698,000	$ 624,000
Other current liabilities	10,166,000	12,316,000
Liabilities of discontinued operations	804,000	850,000
Total current liabilities	94,393,000	$ 106,848,000
Term loan	16,194,000
Capital Lease Obligations, Noncurrent	484,000	$ 1,103,000
Deferred rent and other liabilities	8,111,000	10,513,000
Total liabilities	$ 124,182,000	$ 118,464,000
Commitments and contingencies (Note 8)
Stockholders’ Equity (Deficit):
Common stock, $0.00001 par value—140,000 shares authorized; 29,639 and 29,269 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively	$ 0	$ 0
Receivable from stockholder	(55,000)	(65,000)
Additional paid-in capital	140,398,000	132,080,000
Accumulated deficit	(136,084,000)	(74,569,000)
Accumulated other comprehensive loss	(6,245,000)	(4,522,000)
Total stockholders’ equity (deficit)	(1,986,000)	52,924,000
Total liabilities and stockholders’ equity (deficit)	$ 122,196,000	$ 171,388,000

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Allowance for doubtful accounts	$ 803	$ 961
Common stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Common stock, shares authorized (in shares)	140,000	140,000
Common stock, shares issued (in shares)	29,639	29,269
Common stock, shares outstanding (in shares)	29,639	29,269

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Revenue	$ 382,597	$ 474,921	$ 514,070
Cost of revenue	213,409	252,721	256,450
Operating expenses:
Selling and marketing	126,966	182,720	182,854
Product and technology	28,414	27,510	22,240
General and administrative	39,332	52,155	$ 46,362
Amounts accrued	7,546	$ 5,927
Goodwill impairment loss	27,800
Total operating expenses	230,058	$ 268,312	$ 251,456
Operating income (loss)	(60,870)	$ (46,112)	$ 6,164
Gain on deconsolidation of subsidiary, net	2,853
Interest expense	(2,790)	$ (67)	$ (14)
Other income (expense), net	(339)	1,003	600
Income (loss) from continuing operations before income taxes	(61,146)	(45,176)	6,750
Income tax provision	369	484	3,699
Income (loss) from continuing operations	$ (61,515)	(45,660)	3,051
Income (loss) from discontinued operations, net of income tax of $11, and $3,036 for the years ended December 31, 2014, and 2013, respectively		650	(5,534)
Net loss	$ (61,515)	$ (45,010)	$ (2,483)
Basic:
Income (loss) from continuing operations (in dollars per share)	$ (2.11)	$ (1.60)	$ 0.11
Income (loss) from discontinued operations, net of income taxes (in dollars per share)		0.02	(0.20)
Net loss per share (in dollars per share)	$ (2.11)	(1.58)	(0.09)
Diluted:
Income (loss) per share from continuing operations, diluted (in dollars per share)	$ (2.11)	(1.60)	0.11
Income (loss) from discontinued operations, net of income taxes (in dollars per share)		0.02	(0.20)
Net loss per share (in dollars per share)	$ (2.11)	$ (1.58)	$ (0.09)
Weighted average common shares used in the computation of income (loss) per share:
Basic (in shares)	29,174	28,461	27,764
Diluted (in shares)	29,174	28,461	29,051

XML

Consolidated Statements of Operations (Parentheticals) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Income (loss) from discontinued operations, tax	$ 11	$ 3,036

XML

Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Net loss	$ (61,515)	$ (45,010)	$ (2,483)
Other comprehensive loss:
Foreign currency translation adjustments	(1,723)	(588)	(2,412)
Comprehensive loss	$ (63,238)	$ (45,598)	$ (4,895)

XML

Consolidated Statement of Stockholders' Equity (Deficit) - USD ($) shares in Thousands	Common Stock [Member]	Receivables from Stockholder [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2012	28,154
Balance at Dec. 31, 2012		$ (89,000)	$ 110,573,000	$ (27,076,000)	$ (1,522,000)	$ 81,886,000
Issuance of common stock related to stock-based compensation plans (in shares)	1,495
Issuance of common stock related to stock-based compensation plans			6,681,000			6,681,000
Stock-based compensation			12,332,000			12,332,000
Common and restricted stock issued in business combinations (in shares)	5
Common and restricted stock issued in business combinations			126,000			126,000
Common stock repurchase (in shares)	(1,395)
Common stock repurchase			(18,963,000)			(18,963,000)
Excess tax benefits from stock-based awards			$ 1,185,000			1,185,000
Net loss				$ (2,483,000)		(2,483,000)
Foreign currency translation adjustments		$ 16,000			$ (2,412,000)	(2,396,000)
Balance (in shares) at Dec. 31, 2013	28,259
Balance at Dec. 31, 2013		$ (73,000)	$ 111,934,000	$ (29,559,000)	$ (3,934,000)	78,368,000
Issuance of common stock related to stock-based compensation plans (in shares)	1,010
Issuance of common stock related to stock-based compensation plans			6,438,000			6,438,000
Stock-based compensation			13,777,000			13,777,000
Common stock repurchase			$ (69,000)			(69,000)
Net loss				$ (45,010,000)		(45,010,000)
Foreign currency translation adjustments		$ 8,000			$ (588,000)	$ (580,000)
Balance (in shares) at Dec. 31, 2014	29,269					29,269
Balance at Dec. 31, 2014		$ (65,000)	$ 132,080,000	$ (74,569,000)	$ (4,522,000)	$ 52,924,000
Issuance of common stock related to stock-based compensation plans (in shares)	370
Issuance of common stock related to stock-based compensation plans			7,000			7,000
Stock-based compensation			8,068,000			8,068,000
Common stock repurchase			$ (7,000)			(7,000)
Net loss				$ (61,515,000)		(61,515,000)
Foreign currency translation adjustments		$ 10,000			$ (1,723,000)	$ (1,713,000)
Balance (in shares) at Dec. 31, 2015	29,639					29,639
Balance at Dec. 31, 2015		$ (55,000)	$ 140,398,000	$ (136,084,000)	$ (6,245,000)	$ (1,986,000)
Issuance of Hercules Warrant			$ 250,000			$ 250,000

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Convertible Debt [Member]
Cash flows from financing activities:
Issuance of convertible notes (related party)	$ 5,000,000
Income (loss) from continuing operations	(61,515,000)	$ (45,660,000)	$ 3,051,000
Depreciation and amortization	19,681,000	$ 17,394,000	$ 15,096,000
Goodwill impairment loss	27,800,000
Stock-based compensation	8,671,000	$ 13,260,000	$ 11,505,000
Restructuring charges	7,546,000	$ 5,927,000
Gain on deconsolidation of subsidiary	$ (2,853,000)
Excess tax benefits from stock-based awards			$ (1,185,000)
Loss on disposal of property and equipment	$ 168,000
Provision for doubtful accounts	$ 260,000	$ 1,649,000	$ 2,304,000
Contingent consideration—fair value adjustment		(416,000)
Non-cash interest expense	$ 641,000	$ 17,000
Impairment of loan to franchisee			$ 3,279,000
Deferred taxes, net	$ 93,000	$ 873,000	(3,500,000)
Accounts receivable	703,000	(460,000)	(6,317,000)
Prepaid expenses and other current assets	(1,077,000)	701,000	121,000
Other assets	222,000	(669,000)	(1,175,000)
Accounts payable	(9,185,000)	9,081,000	2,906,000
Accrued compensation and benefits	(151,000)	(557,000)	3,292,000
Deferred revenue	(4,541,000)	(3,400,000)	$ (255,000)
Accrued restructuring	(6,510,000)	(2,564,000)
Deferred rent and other liabilities	9,000	3,421,000	$ 1,565,000
Net cash provided by (used in) operating activities, continuing operations	(20,038,000)	(1,403,000)	30,687,000
Net cash used in operating activities, discontinued operations	(45,000)	(915,000)	(4,001,000)
Net cash provided by (used in) operating activities	(20,083,000)	(2,318,000)	26,686,000
Additions to property, equipment and software	$ (13,894,000)	(25,735,000)	(19,748,000)
Acquisitions, net of acquired cash		$ (7,089,000)	(363,000)
Loan to franchisee			(1,221,000)
Investments in non-marketable investments		$ (2,000,000)	(2,500,000)
Purchases of certificates of deposits and short-term investments		$ (474,000)	(2,578,000)
Maturities of certificates of deposits and short-term investments	$ 124,000		2,561,000
Net cash used in investing activities, continuing operations	$ (13,770,000)	$ (35,298,000)	(23,849,000)
Net cash used in investing activities, discontinued operations			(3,180,000)
Net cash used in investing activities	$ (13,770,000)	$ (35,298,000)	$ (27,029,000)
Proceeds from term loan, net	24,700,000
Restricted cash – term loan	(15,000,000)
Payment of deferred and contingent consideration	(529,000)
Proceeds from exercise of stock options	$ 7,000	$ 6,438,000	$ 6,681,000
Excess shortfalls from stock-based awards			$ 1,185,000
Principal payments on capital lease obligations	$ (752,000)	$ (259,000)
Term loan costs	(542,000)
Common stock repurchases	(7,000)	$ (69,000)	$ (18,963,000)
Net cash provided by (used in) financing activities	12,877,000	6,110,000	(11,097,000)
Effect of exchange rate changes on cash and cash equivalents	(3,911,000)	(2,288,000)	(3,366,000)
Net change in cash and cash equivalents	(24,887,000)	(33,794,000)	(14,806,000)
Cash and cash equivalents—beginning of year	43,720,000	77,514,000	92,320,000
Cash and cash equivalents—end of year	$ 18,833,000	$ 43,720,000	$ 77,514,000

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Note 1 - Organization and Description of Business

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Nature of Operations [Text Block]

1. Organization and Description of Business

ReachLocal, Inc.’s (the “Company”) operations are located in the United States, Canada, Australia, New Zealand, Japan, Germany, the Netherlands, Austria, Brazil, Mexico, and India. The Company’s mission is to provide more customers to local businesses around the world. The Company offers online marketing products and solutions in three categories: digital advertising (including ReachSearch™, ReachRetargeting™, ReachDisplay™, and ReachDisplay InApp

TM

), software (ReachEdge™ and Kickserv™), and web presence (including ReachSEO™, ReachCast™, ReachSite + ReachEdge™, and TotalLiveChat™). The Company delivers its suite of products and solutions to local businesses through a combination of its proprietary technology platform, its direct inside and outside sales force, and select third-party agencies and resellers. 

Liquidity and Capital Resources

During 2015, the Company experienced declining revenues as a result of challenging market conditions and worse than expected performance in the Company’s international markets. These conditions, combined with the Company’s initiatives to transform the business and focus on profitable revenue, have had a significant negative impact on its operating results and cash flows. As a result, the Company has taken a number of steps to reduce expenses and improve its results of operations through, for example, its 2015 Restructuring Plan, including cost-saving measures such as workforce reductions, downsizing certain facilities in North America, as well as reductions of general corporate expenses and capital expenditures.

      In order to provide additional liquidity to meet working capital and capital resource requirements, on April 30, 2015, the Company entered into a Loan and Security Agreement (the “Hercules Loan Agreement”) for a $25.0 million term loan. The Company received $24.7 million of net proceeds from the term loan, $15.0 million of which is considered restricted cash required under the terms of the Hercules Loan Agreement. In addition, on December 17, 2015, the Company entered into a

convertible note purchase agreement with affiliates of its largest shareholder for the immediate issuance of $5.0 million of Convertible Second Lien Subordinated Notes (the “VantagePoint Notes”). The note purchase agreement also provides for the issuance and sale of up to an additional $5.0 million aggregate principal amount of convertible notes, upon mutual agreement of ReachLocal and VantagePoint (and Hercules’ consent). The Company is required to make interest-only payments on the Hercules term loan through May 1, 2016, though such payments may be extended through August 1, 2016 and November 1, 2016 if the Company remains in continuous compliance with the financial covenants under the Hercules Loan Agreement through April 1, 2016 and July 1, 2016, respectively, and no default or event of default has occurred and is continuing on such dates.

Upon repayment of the term loan, the Company is also required to make an end-of-term payment to the Lenders equal to $1.5 million, which is accrued as interest based on the effective interest method over the 3-year term of the Hercules Loan Agreement. The term loan is secured by substantially all of the Company’s personal property, including the Company’s intellectual property. The Company is required to begin making quarterly interest and principal payments on the VantagePoint Notes on April 15, 2017, subject to a subordination agreement with Hercules.

The Hercules Loan Agreement includes covenants applicable to the Company, which include restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions, as well as financial covenant requirements to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term. These restrictions also include a maximum net new investment in the Company’s foreign subsidiaries, subject to certain exclusions of $8.0 million during 2015, $5.5 million during 2016, $4.0 million annually thereafter, and $18.0 million in the aggregate during the term of the agreement. The Hercules Loan Agreement also contains a subjective acceleration clause that can be triggered if the Company experiences a Material Adverse Effect, as defined in the Hercules Loan Agreement, which would be considered an event of default. On August 3, 2015, the Company entered into an amendment to the Hercules Loan Agreement, which reduced the Hercules Loan Agreement’s covenant thresholds for revenue for the months ending September 30, 2015 through December 31, 2015. On November 9, 2015, the Company entered into an amendment to the Hercules Loan Agreement, which waived compliance with the revenue and earnings covenant thresholds for November and December 2015. In connection with the amendment, the Company (i) paid Hercules a one-time fee of $0.2 million, (ii) reset the schedule of prepayment fees to begin from November 9, 2015, instead of April 30, 2016, and (iii) agreed to amend the Hercules Warrant as described in Note 13, Debt and Other Obligations. The Company is in compliance with all of the Hercules Loan Agreement’s covenants as of December 31, 2015.

The Company’s operating losses and capital expenditures more than offset the $15.0 million of net unrestricted cash from the Hercules Loan Agreement and VantagePoint Notes, resulting in cash and cash equivalents of $18.8 million and short-term investments of $0.4 million at December 31, 2015.

To date, the Company has experienced no loss of its invested cash, cash equivalents or short-term investments, although some of those balances are subject to foreign currency exchange risk. The Company cannot, however, provide any assurances that access to its invested cash, cash equivalents and short-term investments will not be impacted by adverse conditions in the financial markets. At December 31, 2015, the Company had restricted cash in North America related to the minimum cash balance required to be maintained under the terms of the Hercules Loan Agreement of $15.0 million. If the Company achieves positive “Adjusted EBITDA” as defined in the Hercules Loan Agreement, for three consecutive quarters, the minimum cash balance decreases to $12.5 million. The Company achieved positive “Adjusted EBITDA” as defined, during the quarters ended September 30, 2015 and December 31, 2015, which qualifies as two quarters of the required three consecutive quarters. Also, at December 31, 2015, the Company had restricted cash related to certificates of deposits held at financial institutions that are pledged as collateral for letters of credit related to lease commitments, collateral for merchant accounts, and cash deposits funded to a restricted account determined on a monthly basis in accordance with its employee health care self-insurance plan in the amount of $3.5 million, of which, $0.2 million relate to the employee health care self-insurance plan. The Company’s current liabilities exceeded its current assets by $60.6 million at December 31, 2015, and it incurred an operating loss of $61.5 million for the year then ended.

The Company believes that it will be able to maintain compliance with the minimum cash balance in North America in excess of $15.0 million through March 31, 2016, and subsequently maintain a minimum cash balance in North America of $12.5 million in accordance with achievement of positive “Adjusted EBITDA” as defined above. The Company also believes that it will extend its interest-only payments through November 1, 2016 by maintaining continuous compliance and not experiencing a default or event of default through July 1, 2016. In addition, the Company believes that it will be able to maintain compliance with the other financial covenants contained in the Hercules Loan Agreement through 2016 as a result of its implemented cost and capital expenditure control measures. The Company believes that it will be able to achieve the revenue and earnings targets for 2016 under the Hercules Loan Agreement, which equal 90% of the revenue estimated in the Company’s 2016 operating plan and 70% and 80% of the earnings estimated for the first and second six months, respectively, in the Company’s 2016 operating plan as approved by the Company’s board of directors.

To meet the Company’s liquidity needs, management expects to minimize increases in personnel until the Company’s business performance has improved and supports additional costs. However, the Company may need to implement further cost reductions in its operating expenses to maintain a sufficient cash balance to fund its operations and maintain compliance with the minimum cash balance requirement under the Hercules Loan Agreement. Should it become necessary, the Company would implement additional cost reductions primarily through forgoing certain discretionary compensation increases, and further constraining identified non-critical product investments, and marketing and other costs, including reductions in personnel related to those activities. These identified potential actions, commencing as soon as May 2016, comprise a developed plan to reduce such costs by $4.6 million, net of implementation costs. In addition, the Company would consider borrowing up to an additional $5.0 million under the current VantagePoint notes purchase agreement, however such borrowings would be subject to VantagePoint’s willingness to lend and Hercules’ consent. The Company will continue to evaluate the extent and effectiveness of its cost-saving measures and monitor expenses compared to revenue and intends to implement additional cost reductions in future periods if and as circumstances warrant. However, there can be no assurance that these actions will be successful or that further adverse events outside of the Company’s control may arise that would result in the Company’s inability to comply with the Hercules Loan Agreement’s covenants. If an event of default were to occur, the Company may be required to obtain a further amendment or a waiver to the Hercules Loan Agreement, refinance the term loan, divest non-core assets or operations and/or obtain additional equity or debt financing. If the Company was unable to obtain such a waiver or amendment, or consummate such a transaction, the administrative agent could exercise remedies against the Company and the collateral securing the term loan, including potential foreclosure against the Company’s assets securing the Hercules Loan Agreement, including the Company’s cash. Further, the VantagePoint Notes and Hercules Loan Agreement contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under the term loan to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.

In consideration of these conditions, the Company currently anticipates that funds expected to be generated from operations, including cost-saving measures the Company has taken and intends to take, will be sufficient to meet the Company’s anticipated cash requirements through at least the next twelve months. However, there is no assurance that the results of operations and cash flows expected during that period of time will be achieved. 

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Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

 

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly owned subsidiaries. The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results may differ from those estimates.

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period presentation. See further discussion below under recent accounting pronouncements and in Note 14, Income Taxes.

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. Revenue and expenses 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. 

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, 2015 and 2014, 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 investments as short-term 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, 2015 and 2014, short-term investments consisted of certificates of deposit. All of the short-term investments are classified as available-for-sale. Short-term investments are stated at cost, which approximates fair value.

Accounts Receivable

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history, the customer’s creditworthiness and various other factors, as determined by its review of their credit information. The Company monitors collections and payments from its customers and maintains an allowance for estimated credit losses based upon its historical experience and any customer-specific collection issues that it has identified.

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. 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, and as a result, access to the Company’s cash and cash equivalents may be impacted by adverse conditions in the global financial markets, including fluctuations in currency exchange rates. As of December 31, 2015, domestic bank balances in excess of insured limits were $23.3 million and foreign bank balances in excess of insured limits were $12.5 million.

During March 2016, the Company commenced a process to transition its two primary financial service providers of commercial banking services and merchant services for its credit and debit card processing in North America. The company does not expect a significant impact to its financial position, results of operatin or cash flows in North America as a result of the transition, which is expected to be completed May 2016

The Company’s customers are primarily local businesses, dispersed both geographically and across a broad range of industries. 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, 2015, 2014 and 2013 (in thousands):

	201 5			201 4			201 3
Allowance for doubtful accounts as of the beginning of the year	$	961		$	2,212		$	259
Additions charged to expense		563			2,621			6,080
Write-offs		(1,026	)		(4,511	)		(4,396	)
Recoveries		305			639			268
Allowance for doubtful accounts as of the end of the year	$	803		$	961		$	2,212

For the years ended December 31, 2015, 2014, and 2013, the Company did not have any individual clients that comprised more than 10% of consolidated revenues.

During 2015, 2014, and 2013, the Company’s cost of revenue was primarily for the purchase of media from two of the Company’s vendors. Other receivables and prepaid expenses included $3.6 million and $0.6 million of non-trade receivables from media vendors at December 31, 2015 and 2014, respectively. Accounts payable included $17.3 million and $17.1 million of accrued media expenses from media vendors at December 31, 2015 and 2014, respectively.

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer hardware and software, five years for office equipment, and seven years for furniture and fixtures. Leasehold improvements are amortized using the straight-line method over the lesser of the useful life or 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.

Software Development Costs

Costs to develop software for internal use are capitalized when the Company has determined that the development efforts will result in new or additional functionality or new products. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and included in product and technology expenses, in addition to amortization of capitalized software development costs, in the accompanying consolidated statements of operations. The Company monitors its existing capitalized software costs and reduces its carrying value as the result of releases that render previous features or functions obsolete. Software development costs are evaluated for impairment in accordance with the Company’s policy for finite-lived intangible assets and other long-lived assets. Costs capitalized as internal use software are amortized on a straight-line basis over an estimated useful life of three years.

Restricted Cash

—

Term Loan

Under the terms of the Hercules Loan Agreement, as amended, the Company is required to maintain, at all times, cash in North America of at least $15.0 million, unless the Company achieves positive “Adjusted EBITDA” as defined in the Loan Agreement for three consecutive quarters, in which case the minimum cash balance decreases to $12.5 million. Restricted cash—term loan represents the required minimum compensating balance to secure the term loan. See Note 13, Debt and Other Obligations, for more information.

Restricted Cash

Restricted cash represents certificates of deposit held at financial institutions that are pledged as collateral for letters of credit related to lease commitments, collateral for the Company’s merchant accounts, and cash deposits in a restricted account in accordance with the Company’s employee health care self-insurance plan. The letters of credit will lapse at the end of the respective lease terms through 2024 and the certificates of deposit automatically renew for successive one-year periods over the duration of the lease term. The restrictions related to merchant accounts and the Company’s self-insurance plan will lapse upon termination of the respective underlying arrangements. At December 31, 2015 and December 31, 2014, the Company had restricted cash in the amount of $3.5 million and $3.6 million, respectively, of which, $0.2 million, related to the employee health care self-insurance plan.

Loan Receivables

The Company records loan receivables at carrying value, net of potential allowance for losses. Losses on receivables are recorded when probable and estimable. Interest income on loan receivables is accrued on a monthly basis over the life of the loan, and interest recognition is suspended upon impairment of loan principal.

Non-marketable Investments

The Company accounts for non-marketable investments under the cost method, which are periodically assessed for other-than-temporary impairment. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if a significant adverse event were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data. If the Company determines that an other-than-temporary impairment has occurred, the investment is written-down to its fair value.

Variable Interest Entities

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 variable interest entity (“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.

Finite-Lived Intangible Assets and Other Long-Lived Assets

Finite-lived intangible assets are attributable to the various developed technologies, trade names, and customer relationships of the businesses the Company has acquired. The Company reports finite-lived, acquisition-related intangible assets at acquisition date fair value, net of accumulated amortization. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from two to ten years. Straight-line amortization is used as another pattern over which the economic benefits will be consumed cannot 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 review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of an intangible asset is measured by comparing its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate, if it is determined that an asset is not recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

At December 31, 2015 and 2014, there were no indications of impairment of the Company’s finite-lived intangible assets or other long-lived assets.

Goodwill 

Goodwill represents the excess of the purchase price of the Company’s acquired businesses over the fair value of the net tangible and intangible assets acquired. The Company accounts for goodwill in accordance with ASC 350,

Intangibles—Goodwill and Othe

r

, which addresses financial accounting and reporting requirements for goodwill and requires testing of goodwill at the reporting unit level for impairment at least annually.

The Company

tests the goodwill of its reporting units for impairment annually on the first day of the fourth quarter, and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired. Events or circumstances which could trigger an impairment review include, but are not limited to, a significant adverse change in the legal or business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key management or other personnel, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the acquired business or the Company’s overall business, significant and sustained decline in market capitalization, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwill impairment test, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwill impairment test for selected reporting units. If the Company chooses the qualitative option, the Company is not required to perform the two-step quantitative goodwill impairment test unless the Company has determined, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The first step of the impairment test involves comparing the estimated fair values of a reporting unit with its respective carrying amount, 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, or if the reporting unit has a negative carrying value and the Company believes it is more likely than not that a goodwill impairment exists, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value, which is determined by deducting the aggregate fair value of the reporting unit's identifiable assets and liabilities from the fair value of the reporting unit. 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 process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analyses. The estimated fair value for each reporting unit is determined using both an income-based valuation approach, as well as a market-based valuation approach. Under the income-based approach, each reporting unit’s fair value is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in its business model, and other assumptions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings. The income-based approach is weighted between 50.0% and 66.7% depending on the amount and timing of projected operating earnings attributable to each reporting unit.

The Company operates in one reportable segment, in accordance with ASC 280,

Segment Reporting

, which is the basis that financial results are regularly reviewed by the Company's chief operating decision maker in deciding how to allocate resources and assess performance. The Company has identified its reporting units as North America, Asia Pacific, Latin America, and Europe. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. The Company’s goodwill is comprised of balances in both the North America and Asia Pacific reporting units.

Self-Insurance

Beginning July 2, 2014, the Company implemented a self-insurance plan to provide for potential liabilities for employee health care claims in the United States. Liabilities associated with the risks are estimated, in part, by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions. The Company had insurance liabilities totaling approximately $1.3 million and $0.5 million at December 31, 2015 and December 31, 2014, respectively, which are included in accrued compensation and benefits in the accompanying consolidated balance sheets.

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.

Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or at the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful life of the asset or the period of the related lease. Principal payments on capital lease obligations are recorded as reduction of capital lease liability in the accompanying consolidated balance sheets, and interest payments are recorded as interest expense which is included in other income, net in the accompanying consolidated statements of operations.

Revenue Recognition

The Company recognizes revenue for its products and solutions when persuasive evidence of an arrangement exists, services have been performed, the selling price is fixed or determinable, and collectibility is reasonably assured. The Company recognizes revenue for search engine marketing as clicks are recorded on sponsored links on the various search engines and for its display advertising and retargeting when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for lead conversion software, web presence and other products with a defined license or service period on a straight-line basis over the applicable license or service period. 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 contract or the completion of any obligation for services, if shorter. The Company accounts for sales and similar taxes imposed on its services on a net basis in the consolidated statements of operations.

When the Company receives advance payments from clients, it records these amounts as deferred revenue until the revenue is recognized. From time to time, the Company offers incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the incentives that will be earned by clients and adjusts the recognition of revenue to reflect such incentives. Estimates are either based upon a statistical analysis of previous campaigns for which such incentives were offered, or calculated on a straight-line basis over the life of the campaign.

When the Company sells through agencies, it either receives payment in advance of delivery of its products or solutions 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 generally the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management typically 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. Resellers integrate the Company’s products and solutions, including the Company’s branded search engine marketing, display advertising and online marketing analytics, into their product offerings. In most cases, the resellers integrate with the Company’s technology 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 distributes its products and solutions directly through its outside and inside sales force that is focused on serving local businesses in their local markets through a consultative process, which the Company refers to as its Direct Local channel. The Direct Local channel also includes revenue from licensing of the Company’s Kickserv software solution, which is marketed directly to local businesses over the Internet. In addition, the Company employs a separate sales channel targeting national brands, franchises and strategic accounts with operations in multiple local markets and select third-party agencies and resellers. The Company refers to this as its National Brands, Agencies and Resellers channel.

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. Rebates are recorded 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 the third-party telephone and information services costs, other third-party service provider costs, data center and third-party hosting costs, credit card processing fees, and other direct costs.

In addition, cost of revenue includes costs to manage and operate the Company’s various solutions and technology infrastructure, 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, and allocated overhead such as depreciation expense, rent and utilities. Cost of revenue also includes the amortization and impairment charges on certain acquired intangible assets.

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 employees in the sales organization is based on commissions. In addition, the cost of agency commissions is included in selling and marketing expenses. Generally, commissions are expensed as earned. However, commencing in 2014, the Company began paying commissions to certain sales people for the acquisition of new clients. Client contracts are generally not cancelable without a penalty, and the Company defers those commissions and amortizes them over the term of the initial customer campaign. Unamortized commission expense of $0.2 million and $0.6 million at December 31, 2015 and December 31, 2014, respectively, is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

Product and Technology Expenses

Product and technology expenses consist primarily of personnel and related expenses for product development and engineering professionals, including salaries, benefits, bonuses and stock-based compensation, and the cost of third-party contractors and certain other 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. Research and development expenses are included in product and technology costs and were $6.9 million, $15.5 million, and $9.5 million during 2015, 2014, and 2013, respectively.

The Company capitalizes a portion of its software development costs and, accordingly, includes amortization of those costs as costs of product and technology, as the Company’s technology platform and the Company’s other systems address all aspects of the Company’s activities, including supporting the 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.  Product and technology costs do not include the costs to operate and deliver the Company’s solutions to clients, which are included in cost of revenue in the consolidated statements of operations.

General and Administrative Expenses

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

Restructuring Charges

The Company records costs associated with exit activities related to restructuring plans in accordance with the ASC Topic 420,

Exit or Disposal Obligations

. Liabilities for costs associated with an exit or disposal activity are recognized in the period in which the liability is incurred. Restructuring charges consist of costs associated with the realignment and reorganization of the Company’s operations. Restructuring charges include employee termination costs, facility closure and relocation costs, and contract termination costs. The timing of associated cash payments is dependent upon the type of exit cost and can extend over a 12-month period. The Company records restructuring charge liabilities in accrued restructuring in the consolidated balance sheets.

Advertising Expenses

The Company expenses advertising as incurred. Advertising expense was $2.1 million, $2.9 million and $1.7 million for the years ended December 31, 2015, 2014 and 2013, 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 the fair market value of the equity award on the date of grant. 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 option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and the risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of the Company's common stock on the date of grant. In addition, the Company uses a Monte Carlo simulation model to estimate the fair value of market-based performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment, including estimating volatility, risk-free rate and expected future stock price. The Company determines the probability of achievement of performance milestones for non-market based performance vesting restricted stock and restricted stock units, and recognize expense based on the fair value of the award if it is probable that the performance milestone will be achieved. The assumptions described above rely on management estimates based on judgment and subjective future expectations, which may result in stock-based compensation for future awards that differs significantly from the awards granted previously.

The fair value of modifications to stock-based awards is generally estimated using the Black-Scholes option pricing model. If a stock-based compensation award is modified after the grant date, incremental compensation expense is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for fully vested awards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original award on the modification date is recognized over the modified service period.

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.

Recent Accounting Pronouncements Adopted in 2015

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17,

Balance Sheet Classification of Deferred Taxes.

The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company early adopted this standard retrospectively and reclassified all of the current deferred tax assets to noncurrent deferred tax assets on the consolidated balance sheets for all periods presented. Adoption resulted in a $1.8 million decrease in prepaid expenses and other current assets, a $0.1 million increase in other assets, and a $1.7 million increase in deferred rent and other liabilities in the Company’s consolidated balance sheet as of December 31, 2014.

In April 2015, the FASB issued ASU No. 2015-03,

Interest- Imputation of Interest.

The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. The Company early adopted this update in the second quarter of 2015.

In April 2014, the FASB issued ASU No. 2014-08,

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

. The amendments in this update changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date, and was effective for the Company as of January 1, 2015. The Company has applied this guidance to the Company’s consolidated financial statements in 2015.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02,

Leases.

The amendments in this update supersedes the guidance in former

Accounting Standards Codification (“ASC”) 840, Leases

with

ASC 842, Leases

, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The amendments in this update are effective for the Company as of January 1, 2019. Early application of this update is permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. The Company is currently assessing the impact of this update on its consolidated financial statements.

In January 2016, the FASB ASU No. 2016-01,

Financial Instruments- Overall.

The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update are effective for the Company as of January 1, 2018. Early application of certain aspects of the amendment is permitted by public entities, otherwise early adoption is not permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16,

Business Combinations.

The amendments in this updaterequire that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an acquirer to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for the Company as of January 1, 2016. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on the consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05,

Intangibles-Goodwill and Other-Internal-Use Software.

The amendments in this updateprovide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The Company is currently assessing the impact of this update on its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02,

Consolidation.

The amendments in this update require management to reevaluate whether certain legal entities should be consolidated. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminate the presumption that a general partner should consolidate a limited partnership, (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update are effective for the Company as of January 1, 2016. Early adoption is permitted. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15,

Presentation of Financial Statements – Going Concern

. The amendments in this update require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the Company as of January 1, 2017. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12,

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification (“ASC”) 718,

Compensation – Stock Compensation

, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update will be effective for the Company as of January 1, 2016. Earlier adoption is permitted. Entities may apply the amendments in this update either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09,

Revenue from Contracts with Customers

. The guidance in this update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance throughout the Codification. Additionally, this update supersedes some cost guidance included in ASC 605-35,

Revenue Recognition - Construction-Type and Production-Type Contracts

. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of ASC 360,

Property, Plant, and Equipment, and intangible assets, within the scope of ASC 350

,

Intangibles - Goodwill and Other

) are amended to be consistent with the guidance on recognition and measurement in this update. The standard was to be effective for the Company as of January 1, 2017, but in August 2015, the FASB delayed the effective date of the new revenue accounting standard to January 1, 2019, and would permit early adoption as of the original effective date. Earlier adoption is not otherwise permitted for public entities. An entity can apply the revenue standard retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings (simplified transition method). The Company is currently assessing the impact of this update on its consolidated financial statements.

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Note 3 - Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Fair Value Disclosures [Text Block]

3. Fair Value of Financial Instruments

The Company applies the fair value hierarchy for its financial assets and liabilities. 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 and liabilities that are carried at fair value (in thousands): 

			Basis of Fair Value Measurement
	Balance at December 31, 201 5		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets :
Cash and cash equivalents	$	18,833	$	18,833	$	—	$	—
Restricted cash—term loan	$	15,000	$	15,000	$	—	$	—
Short-term investments	$	359	$	359	$	—	$	—
Restricted cash	$	3,502	$	—	$	3,502	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 201 4		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets :
Cash and cash equivalents	$	43,720	$	43,720	$	—	$	—
Short-term investments	$	904	$	904	$	—	$	—
Restricted cash	$	3,589	$	—	$	3,589	$	—
Liabilities :
Acquisition-related contingent consideration	$	349	$	—	$	—	$	349

The Company’s restricted cash is valued using pricing sources and models utilizing market observable inputs, as provided to the Company by its broker.

On April 10, 2015, ReachLocal New Zealand Limited (“RL NZ”) paid NZ$0.4 million ($0.3 million) of earn-out consideration due, offset by NZ$0.2 million ($0.1 million) pursuant to a net working capital adjustment in the Company’s favor. On September 18, 2015, RL NZ made the final payment of $0.1 million for the indemnity holdback.

The Company also has an investment in a privately held partnership that is one of its service providers. During March 2013, the Company invested $2.5 million for a 4% equity interest in the service provider, and in March 2014, the Company invested $2.0 million for an additional 3.2% equity interest. The Company does not have significant influence over the entity. In addition, the Company has an equity interest of 14.2% in SERVIZ, Inc., the entity that acquired its former ClubLocal business and does not have significant influence over the entity. The carrying amounts of the Company’s cost method investments were each $4.5 million at December 31, 2015 and December 31, 2014, and are included in non-marketable investments in the accompanying consolidated balance sheet. The Company’s maximum exposure to loss is limited to its cost based investments.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company carries its financial instruments at fair value with the exception of its debt. Financial instruments that are not recorded at fair value are measured at fair value on a quarterly basis for disclosure purposes. The carrying amounts and estimated fair values of financial instruments not recorded at fair value are as follows:

	Year Ended December 31, 2015
	Carrying Amount		Estimated Fair Value
(in thousands)
Term loan	$	24,546		$	24,500
Convertible notes- related party	$	5,000		$	4,600

The Company’s debt relates to its Hercules Loan Agreement and VantagePoint Notes.

The term loan and notes are considered Level 3 under ASC 820 because there is no known or accessible market or market indices for these debt instruments to be traded or exchanged. The fair value of the Hercules Loan Agreement and the VantagePoint Notes was determined by discounting their respective cash flows expected to be paid using a discount rate commensurate with the risk, including market participant assumptions about current interest rates and the creditworthiness of the Company. The fair value of the Hercules Loan Agreement includes the discounts attributable to issuance costs as well as the end-of-term payment. The fair value of the VantagePoint Notes includes an estimated value for the embedded conversion feature determined based on its contractual terms as well as the trading information of the Company's common stock into which the notes are convertible.

During 2015, the Company recognized a $27.8 million goodwill impairment charge related to the Company’s Asia Pacific reporting unit. The Company recognized an impairment charge to write-down the goodwill to its fair value. The Company utilized unobservable inputs in determining the magnitude of the non-recurring impairment representing level 3 inputs in the fair value hierarchy.

The Company did not have any financial instruments not recorded at fair value on a recurring basis as of December 31, 2014.

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Note 4 - Acquisitions

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

4. Acquisitions

Acquisition of Kickserv

On November 21, 2014, the Company acquired Kickserv, Inc. (“Kickserv”) as part of the Company’s continued effort to expand its product offerings. Kickserv is a provider of cloud-based business management software for service businesses.

The purchase price consisted of $6.75 million of initial consideration, subject to a holdback and certain adjustments, and up to $4.0 million of earn-out consideration. At closing, the Company paid $5.3 million in cash with the remaining balance of the initial purchase price payable after the 18-month anniversary of the closing date, subject to certain conditions. The Company also issued 250,000 restricted stock units to the hired employees, which are accounted for as stock-based compensation over the period in which they are earned. A liability was not recorded for the earn-out consideration as the financial targets, as defined in the purchase agreement, are not expected to be achieved. Any changes in the fair value of the earn-out consideration will be recorded as other income or expense. There has been no change in the fair value since the date of acquisition.

           The acquisition was accounted for using the acquisition method of accounting. The Company completed and finalized the purchase price allocation in the fourth quarter of 2014. The Company recorded assets acquired and liabilities assumed at their respective fair values. The following table summarizes the final fair value of assets acquired and liabilities assumed (in thousands):

Assets acquired:
Cash and cash equivalents	$	58
Intangible assets		4,280
Goodwill		3,985
Total assets acquired		8,323
Liabilities assumed:
Non-interest bearing liabilities		24
Long-term debt		350
Deferred tax liabilities		1,249
Total liabilities assumed		1,623
Total fair value of net assets acquired	$	6,700

Intangible assets acquired from Kickserv included software technology of $3.0 million, trade names of $0.6 million and customer relationships of $0.7 million, amortized over eight, ten, and four years, their respective estimated useful lives, using the straight-line method. The estimated useful life of the technology was determined based on assumptions of its remaining economic life. The estimated useful life of trade names was determined based on assumptions of revenue attributable to the trade name, and the estimated useful life of the customer relationships was determined based on assumptions of customer attrition rates. The fair value of the intangible assets were determined by applying the income approach and based on significant inputs that are not observable in the market. Key assumptions include estimated future revenues from acquired customers and a discount rate of 15%, comprised of an estimated internal rate of return for this transaction and a weighted average cost of capital for comparable companies. The goodwill arising from the acquisition consists largely of the synergies expected from combining the operations of Kickserv and the Company. The acquired goodwill is not expected to be deductible for tax purposes.

Acquisition costs in connection with the Kickserv acquisition were immaterial. The revenues and results of operations of the acquired businesses for the post-acquisition period were included in the consolidated statements of operations and were immaterial for the periods ended December 31, 2015 and December 31, 2014. The pro forma results are not shown as the impact is not material.

Acquisition of SureFire

On March 21, 2014, RL NZ acquired certain assets and hired certain employees of SureFire Search Limited (“SureFire”) as part of the Company’s international expansion plan. From 2010 until the acquisition, SureFire was the Company’s exclusive reseller in New Zealand.

At closing, RL NZ paid NZ$1.7 million ($1.5 million) in cash of the estimated NZ$2.8 million ($2.4 million) purchase price. The remaining balance of the estimated purchase price was deferred subject to meeting revenue targets and an indemnity holdback, payable, if at all, after the 12-month anniversary of the closing date, and the 12- and 18-month anniversaries of the closing date, respectively. The maximum amount of contingent consideration payable was NZ$2.0 million and the fair value of the contingent consideration was recorded as an accrued expense. The fair value of the earn-out consideration under the income approach was determined at the time of acquisition by using the Black-Scholes option pricing model. This approach is based on significant inputs that are not observable in the market, which are considered Level 3 inputs. Key assumptions include forecasted first year revenue, volatility of 30% based on volatilities of selected comparable companies, and a risk-free rate of 0.14% based on a one-year U.S, treasury yield rate. The liability for the indemnity holdback was recorded based on the assumption that there would be no claims made against the holdback and that 65% ($0.2 million) of the indemnity holdback would be paid April 2015, and the remaining 35% ($0.1 million) would be paid October 2015. The fair value of the indemnity holdback at the date of acquisition was NZ$0.4 million ($0.3 million). On April 10, 2015, RL NZ paid NZ$0.6 million ($0.4 million), which included NZ$0.4 million ($0.3 million) of earn-out consideration and NZ$0.3 million ($0.2 million) for the 12-month indemnity holdback release, offset by NZ$0.2 million ($0.1 million) to a net working capital adjustment in the Company’s favor. On September 18, 2015, RL NZ made the final payment of $0.1 million for the indemnity holdback.

            The acquisition was accounted for using the acquisition method of accounting. The Company completed a preliminary purchase price allocation in the first quarter of 2014 and finalized the allocation in the third quarter of 2014 with respect to the timing of certain valuation adjustments. The Company recorded acquired assets and liabilities assumed at their respective fair values. The following table summarizes the final fair value of acquired assets and liabilities assumed (in thousands):

Assets acquired:
Goodwill	$	2,350
Intangible assets		1,280
Accounts receivable		330
Property and equipment		13
Total assets acquired		3,973
Liabilities assumed:
Deferred tax liabilities		358
Deferred revenue		284
Accrued compensation and benefits		111
Other		782
Total liabilities assumed		1,535
Total fair value of net assets acquired	$	2,438

Intangible assets acquired from SureFire included customer relationships of $1.3 million which are amortized over three years, their estimated useful life, using the straight line method. The estimated useful life was determined based on assumptions of customer attrition rates. The fair value of the intangible assets was determined by applying the income approach and based on Level 3 inputs. Key assumptions include estimated future revenues from acquired customers and a discount rate of 25%, comprised of an estimated internal rate of return for this transaction and a weighted average cost of capital for comparable companies. The goodwill arising from the acquisition consists largely of the synergies expected from combining the operations of SureFire. The Company expects to increase its presence in the Asia-Pacific region as a result of this acquisition. The acquired goodwill is not expected to be deductible for tax purposes.

Acquisition costs in connection with the SureFire acquisition were immaterial. The revenues and results of operations of the acquired businesses for the periods post-acquisition were included in the consolidated statements of operations and were immaterial for the periods ended December 31, 2015 and December 31, 2014. The pro forma results are not shown as the impact is not material.

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Note 5 - Goodwill and Finite-lived Intangible Assets

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

5. Goodwill and Finite-Lived Intangible Assets

Goodwill represents the excess of the purchase price of the Company’s acquired businesses over the fair value of the net tangible and intangible assets acquired. The Company accounts for goodwill in accordance with ASC 350,

Intangibles—Goodwill and Othe

r

, which addresses financial accounting and reporting requirements for goodwill and requires testing of goodwill at the reporting unit level for impairment at least annually. The Company’s goodwill is comprised of balances in both the North America and Asia-Pacific reporting units. The Company

tests the goodwill of its reporting units for impairment annually on the first day of the fourth quarter, and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired.

The goodwill impairment test involves a two-step process. However, for the annual goodwill assessment prior to performing the two-step quantitative test, the Company has the option to first assess qualitative factors. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value or if the carrying value of the reporting unit is negative, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.

Impairment of Goodwill

During the quarter ended September 30, 2015, due to a decline in internal projections for the Asia-Pacific reporting unit of both revenue and profitability as a result of recent declines in its financial performance, the Company determined that sufficient indicators of potential impairment existed to require an interim quantitative goodwill impairment test for the Asia-Pacific reporting unit as of August 31, 2015. The amount of goodwill assigned to the Asia-Pacific reporting unit at August 31, 2015 was $34.1 million. Based on the Company’s revised forecasts, the carrying value of goodwill exceeded the implied fair value of goodwill for the Asia-Pacific reporting unit. As a result, the Company recorded an estimated impairment charge of $27.8 million for the goodwill in the Asia-Pacific reporting unit during the third quarter of 2015, which was finalized during the fourth quarter of 2015 without further adjustment and is included in impairment of goodwill in the accompanying consolidated statements of operations. The Company did not identify an impairment of its finite-lived intangible assets or other long-lived assets based on its estimates included in the second step of the quantitative test.

The process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analyses. The estimated fair value of the Asia-Pacific reporting unit as of August 31, 2015 was determined using both an income-based valuation approach, and a market-based valuation approach, each weighted 50%. Under the income approach, fair value of the reporting unit is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in its business model, and other assumptions. The future cash flows for the reporting unit were projected based on the Company’s estimates, at that time, of future revenues, operating income and other factors (such as working capital and capital expenditures). The Company considered expected competitive global industry and market conditions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings.

The inputs of the discounted cash flow method used to determine the fair value of the Asia-Pacific reporting unit included a conservative average 3% growth rate to calculate the terminal value and a discount rate of 17%. Factors that have the potential to create variances in the estimated fair value of the Asia-Pacific reporting unit include, but are not limited to, fluctuations in (i) number of clients and active campaigns, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics and changes in consumer preferences; (ii) marketing costs to generate new campaigns; and (iii) equity valuations of peer companies.

As of October 1, 2015, the date of the Company’s annual goodwill impairment assessment, the Company considered the recent interim quantitative goodwill impairment assessment, which included a reconciliation of the Company’s total market capitalization based on the estimated fair value of the Company’s individual reporting units as of August 31, 2015. The Company qualitatively determined that the existing facts and circumstances were considered in the quantitative interim impairment test, such that it was not necessary to perform the two-step quantitative goodwill impairment test for the North America and the Asia-Pacific reporting units as of the annual testing date.

As of November 30, 2015, due to the then recent significant declines in the Company’s market capitalization and other changes in the business, including consideration of exiting the U.K. market, and the entrance of ReachLocal UK Limited (“RL UK”), into administration, the Company determined that sufficient indicators existed to perform an interim quantitative goodwill impairment assessment of the North America and the Asia-Pacific reporting units.

The first step of the November 30, 2015 quantitative goodwill impairment test resulted in the determination that the estimated fair value of both the North America reporting unit and the Asia-Pacific reporting unit each substantially exceeded its respective carrying amount, including goodwill. Accordingly, the second step was not required. The inputs for the fair value calculations of the North America reporting unit included a conservative 2% growth rate to calculate the terminal value and a discount rate of 18%. The inputs for the fair value calculations of the Asia-Pacific reporting unit included a conservative 2% growth rate to calculate the terminal value and a discount rate of 20.5%. In addition, the Company assumed revenue growth and applied margin and other cost assumptions consistent with each reporting unit's historical trends. Factors that have the potential to create variances in the estimated fair value of the reporting units include, but are not limited to, fluctuations in (i) number of clients and active campaigns, which can be driven by multiple external factors affecting demand, including macroeconomic factors, competitive dynamics and changes in consumer preferences; (ii) marketing costs to generate new campaigns; and (iii) equity valuations of peer companies.

The changes in the carrying amount of goodwill for the year ended December 31, 2015 were as follows (in thousands):

	North America		Asia-Pacific			Total
Balance at December 31, 2013	$	9,695	$	32,388		$	42,083
Goodwill acquired		3,985		2,445			6,430
Acquisition adjustments		—		(95	)		(95	)
Foreign currency translation		—		(229	)		(229	)
Balance at December 31, 2014		13,680		34,509			48,189
Accumulated impairment loss		—		(27,800	)		(27,800	)
Foreign currency translation		—		(260	)		(260	)
Balance at December 31, 2015	$	13,680	$	6,449		$	20,129

Finite-Lived Intangible Assets

At December 31, 2015 and 2014, finite-lived intangible assets consisted of the following (in thousands):

	December 31, 201 5
	Useful Life (years)				Gross Value		Accumulated Amortization		Net
Developed technology		3	-	8	$	5,490	$	2,920	$	2,570
Customer contracts and relationships		2	-	4		1,733		799		934
Trade names			10			570		63		507
Total					$	7,793	$	3,782	$	4,011

	December 31, 2014
	Useful Life (years)				Gross Value		Accumulated Amortization		Net
Developed technology		3	-	8	$	5,490	$	2,130	$	3,360
Customer contracts and relationships		2	-	4		1,875		306		1,569
Trade names			10			570		7		563
Total					$	7,935	$	2,443	$	5,492

Based on the current amount of intangibles subject to amortization, the estimated amortization expense over the remaining lives is as follows (in thousands):

Years Ending December 31,
2016	$	962
2017		681
2018		584
2019		431
2020		431
Thereafter		922
Total	$	4,011

For the year ended December 31, 2015, 2014 and 2013 amortization expense related to acquired intangible assets was $1.4 million, $1.2 million, and $1.2 million, respectively.

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Note 6 - Property and Equipment

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

6. Property and Equipment

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

	December 31,
	201 5			201 4
Computer hardware and licensed software	$	19,783		$	20,345
Office equipment		3,999			4,229
Furniture and fixtures		4,057			4,976
Leasehold improvements		11,397			13,096
Construction in progress		349			525
		39,585			43,171
Less: Accumulated depreciation and amortization		(26,035	)		(23,532	)
	$	13,550		$	19,639

For the years ended December 31, 2015, 2014 and 2013 depreciation expense for property and equipment was $6.4 million, $6.4 million and $5.8 million, respectively.

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Note 7 - Software Development Costs

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Research, Development, and Computer Software Disclosure [Text Block]

7. Software Development Costs

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

	December 31,
	201 5			201 4
Capitalized software development costs	$	67,610		$	56,498
Accumulated amortization		(46,919	)		(34,943	)
Capitalized software development costs, net	$	20,691		$	21,555

For the years ended December 31, 2015, 2014 and 2013, the Company recorded amortization expense of $11.4 million, $9.7 million and $8.1 million, respectively. At December 31, 2015 and 2014, $2.9 million and $5.0 million, respectively, of capitalized software development costs were related to projects still in process of development.

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Note 8 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

8. Commitments and Contingencies

Operating Leases

The Company leases office facilities under operating lease agreements that expire at various dates through 2024. 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 $9.1 million, $13.0 million and $11.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.  

As of December 31, 2015, future minimum payments under cancelable and non-cancelable operating leases are as follows (in thousands):

Years Ended December 31,
2016	$	9,070
2017		8,236
2018		6,687
2019		4,927
2020		3,835
Thereafter		8,938
	$	41,693

During 2015 and 2014, the Company recorded facilities restructuring charges related to lease termination costs as a result of closing facilities as part of a restructuring plan. Operating lease payments in the table above, include approximately $2.4 million of lease payments related to terminated or restructured leases, net of actual sublease income of $0.4 million, from operating lease commitments for those facilities. Amounts related to the lease terminations will be paid over the respective lease terms, the longest of which extends through 2024.

As part of the Company’s 2015 Restructuring Plan, during March, 2016, the Company entered into an agreement to sublease 21,000 square feet of its Plano, Texas office.  

Purchase Obligations

The Company has long-term purchase obligations outstanding with partners and third-party service providers for enhanced marketing functionality for its clients and for internal business software. As of December 31, 2015, future minimum payments under purchase obligations are as follows (in thousands):

Years Ended December 31,
2016	$	2,556

Letters of Credit and Restricted Certificates of Deposit

At December 31, 2015 and 2014, the Company has certificates of deposit held at financial institutions, which are pledged as collateral for letters of credit related to lease commitments or collateral for the Company’s merchant accounts. The letters of credit will lapse at the end of the respective lease terms through 2024 and the certificates of deposit automatically renew for successive one-year periods over the duration of the lease term. The restrictions related to merchant accounts will lapse upon termination of the merchant accounts. At December 31, 2015 and 2014, the Company had restricted certificates of deposit in the amounts of $3.3 million and $3.4 million, respectively. At December 31, 2015, restricted cash also included $0.2 million of cash reserved to provide for potential liabilities for employee health care claims.

Litigation

From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business. The Company believes that there is no litigation or claims pending or threatened that are likely to have a material adverse effect on its consolidated financial position, results of operations or cash flows.

North America

On May 2, 2014, a lawsuit, purporting to be a class action, was filed by one of the Company’s former clients in the United States District Court in Los Angeles. The complaint alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of California’s unfair competition law. The complaint sought monetary damages, restitution and attorneys’ fees. The Company filed a motion to dismiss on June 20, 2014, which was denied on December 4, 2014. On February 5, 2016, the Company entered into a confidential settlement agreement and release with plaintiffs to settle all of their claims. The settlement was not material to the Company’s consolidated financial position, results of operations or cash flows.

Europe

Over the past two years, the Company’s United Kingdom subsidiary (“RL UK”), has been involved in a number of disputes with former clients that allege RL UK made misrepresentations in connection with sales to those clients. The Company resolved a number of these disputes. On June 15, 2015, one former RL UK client filed a lawsuit in the High Court of Justice alleging fraudulent misrepresentations and breach of contract. The Company’s insurance carrier provided a defense under a reservation of rights. On December 16, 2015, RL UK entered administration, to allow for an orderly exit from the market and as a result, any claims against RL UK are stayed, pending the outcome of the administration. Upon entering administration, the Company no longer held a controlling interest, and therefore deconsolidated the subsidiary.

Other Commitments

The Company engaged a third party facilitator to provide direct support in the execution of its 2015 Restructuring Plan. In addition to fees incurred during 2015, the Company will continue to make payments for the final committed fees based on the future projected value of results achieved by the facilitator-led program. The final payment to the facilitator was made in January 2016. See Note 11, Restructuring Charges, for more information.

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Note 9 - Stockholders' Equity

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

9. Stockholder’s Equity

Common Stock Repurchases

The Company’s Board of Directors previously authorized the repurchase of up to $47.0 million of the Company’s outstanding common stock. At December 31, 2013, the Company had executed repurchases of 3.4 million shares of its common stock under the program for an aggregate of $36.3 million. There were no repurchases under the program during 2014 or 2015. On April 29, 2015, the Board of Directors terminated the Company’s repurchase program.

The Company is deemed to repurchase common stock surrendered by participants to cover tax withholding obligations with respect to the vesting of restricted stock and restricted stock units.

Shares Reserved For Future Issuance

The following table shows the number of shares of common stock reserved for future issuance as of December 31, 2015 (in thousands):

Stock options	8,196
Convertible notes	1,000
Warrants	300
Restricted stock units	253
	9,749

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Note 10 - Stock-based Compensation

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

10. Stock-Based Compensation

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 varies 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, 2015 and 2014.

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 2,682,047 shares available for grant under the 2008 Plan as of December 31, 2015. On January 1, 2016, an additional 1,334,000 shares were added to the pool under the evergreen provision.

During the second quarter of 2014, the Company granted stock options to certain new employees as “employment inducement” awards pursuant to NASDAQ rules. The inducement awards were not issued under the 2008 Plan and did not decrease the number of shares available thereunder, but 160,000 inducement awards are included in the table of stock options below.

On February 29, 2016, the Company granted stock options covering 1,397,000 shares, primarily related to its annual compensation program. 

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, 2014		6,096		$	9.48
Granted		5,801		$	4.29
Exercised		(31	)	$	0.24
Forfeited		(5,318	)	$	9.33
Outstanding at December 31, 2015		6,548		$	5.05		6.3	$	—
Vested and exercisable at December 31, 2015		1,747		$	7.83		5.3	$	—
Unvested at December 31, 2015, net of estimated forfeitures		3,902		$	4.06		6.8	$	—

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, 2015, 2014 and 2013.

	Years Ended December 31,
	201 5			201 4			201 3
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		1.55	%		1.64	%		0.95	%
Expected life (in years)		4.90			4.99			4.81
Expected volatility		57	%		54	%		59	%
Weighted average fair value per share	$	2.24		$	3.63		$	6.33

The aggregate intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 were $0.1 million, $2.7 million and $5.3 million, respectively. The total grant-date fair value of stock options exercised and restricted stock and restricted stock units vested during the years ended December 31, 2015, 2014 and 2013 were $3.7 million, $9.0 million and $4.2 million, respectively.

Restricted Stock and Restricted Stock Units

The Company issues restricted stock and restricted stock units in conjunction with acquisitions and long-term employee incentive programs from time to time. These shares of restricted stock and restricted stock units generally have vesting periods of 4 years. Stock-based compensation expense related to restricted stock and restricted stock units was $3.3 million, $5.6 million and $3.0 million for the years ended December 31, 2015, 2014, and 2013, respectively.

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

	Number of shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2014		912		$	5.98
Granted		—		$	—
Forfeited		(138	)	$	10.06
Vested		(439	)	$	8.38
Unvested at December 31, 2015		335		$	5.37

Stock-Based Compensation Expense

The Company records stock-based compensation expense, net of amounts capitalized as software development costs. The following table summarizes stock-based compensation (in thousands):

	Years Ended December 31,
	201 5		201 4		201 3
Stock-based compensation	$	9,061	$	13,730	$	11,948
Less: Capitalized stock-based compensation		390		470		443
Stock-based compensation expense, net	$	8,671	$	13,260	$	11,505

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

	Years Ended December 31,
	201 5		201 4		201 3
Stock-based compensation expense, net
Cost of revenue	$	487	$	932	$	697
Selling and marketing		1,510		2,959		3,040
Product and technology		725		825		627
General and administrative		5,949		8,544		7,141
	$	8,671	$	13,260	$	11,505

At December 31, 2015, there was $11.1 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 1.44 years. Future stock-based compensation expense for these awards may differ to the extent actual forfeitures vary from management estimates.

Stock-based compensation for the year ended December 31, 2014 includes $1.9 million of expense related to the modification of grants to 73 participants in March 2014, which extended the time to exercise from seven years to ten years for certain options granted during 2008 and 2009 with a strike price of $10.91.

Commencing in 2015, 50% of the Company’s annual corporate bonus plan for certain executives and senior level employees will be settled with fully vested restricted stock units, and is payable in the first quarter of the following fiscal year. The plan does not limit the number of shares that can be issued to settle the obligation. During 2015, the Company has recognized stock-based compensation expense related to this plan of $1.0 million. As of December 31, 2015, 603,000 shares would be required to satisfy the obligation relating to the 2015 annual corporate bonus plan. On February 26, 2016, 414,239 shares (net of 258,255 shares withheld to satisfy tax withholding obligations) were issued to satisfy the 2015 annual corporate bonus plan obligation.

Stock Option Exchange

On December 2, 2014, the Company commenced an option exchange to permit employee option holders to surrender certain outstanding stock options for cancellation in exchange for the grant of new replacement options to purchase an equal number of shares having an exercise price equal to the greater of $6.00 and the fair market value of the Company’s common stock on the replacement grant date. The option exchange was completed on January 9, 2015. 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 with exercise prices of $6.00 per share. A total of 2.8 million options were exchanged. The Company is amortizing the incremental expense of $1.5 million in addition to the remaining expense attributable to the exchanged awards over the vesting period of the new awards.

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Note 11 - Restructuring Charges

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

11. Restructuring Charges

The Company has implemented various restructuring plans to reduce its cost structure, align resources with its product strategy, improve operating efficiency and implement cost savings, which have resulted in workforce reductions and the consolidation of certain real estate facilities and data centers.

201

5

Restructuring

Plan

In accordance with the Company’s ongoing efforts to reduce expenses and improve the operating performance of its business, the Company commenced its 2015 Restructuring Plan. The initiative is focused on enhancing earnings through an analysis of opportunities to both improve revenue performance and reduce costs. Operational efficiency improvements under the 2015 Restructuring Plan are identified and implemented through strategic realignment and targeted cost reductions, including workforce costs, facility-related expenditures and other operating expenses. The charges incurred during the year ended December 31, 2015 primarily involved down-sizing certain facilities in North America, costs to utilize a third party facilitator to aid execution of the plan, and a reduction of the Company’s North American and international workforces. The Company expects to have continued restructuring activity under this plan, including estimated additional expenses relating to facilitation and execution of the plan of $0.7 million, estimated to be incurred through the third quarter of 2016.

A summary of the accrued restructuring liability related to this plan, which is recorded in “Accrued restructuring” on the consolidated balance sheet is as follows (in thousands):

	Workforce  Reduction Costs			Facility Closures and Equipment Write-down s			Other  Associated  Costs			Total
Balance at December 31, 2014	$	—		$	—		$	—		$	—
Amounts accrued		2,332			1,268			4,125			7,725
Amounts paid		(1,742	)		(157	)		(3,313	)		(5,212	)
Accretion		—			69			—			69
Non-cash items		(4	)		(574	)		(468	)		(1,046	)
Balance at December 31, 2015	$	586		$	606		$	344		$	1,536

The Company expects the facility closures and equipment write-downs to be paid through the third quarter of 2024 and the workforce reduction costs to be paid through the fourth quarter of 2016.

2014 Restructuring Plans

As a result of declining performance in the Company’s North American operations during the first quarter of 2014, the Company implemented a restructuring plan that primarily involved a reduction of the Company’s North American and international workforces, as well as the closure of facilities in North America and certain international markets. The Company does not expect to have continued restructuring activity under this plan, other than settlement of associated liabilities.

A summary of the accrued restructuring liability related to this plan, which is recorded in “Accrued restructuring” on the consolidated balance sheet is as follows (in thousands):

	Facility Closures and Equipment Write-downs			Total
Balance at December 31, 2014	$	2,519		$	2,519
Amounts paid		(771	)		(771	)
Accretion		45			45
Balance at December 31, 2015	$	1,793		$	1,793

The Company expects the facility closures and equipment write-downs to be paid through the third quarter of 2024.

During the second quarter of 2014, the Company implemented a business restructuring plan which involved the elimination of certain senior management positions, a reduction of international workforce, as well as the closure of facilities in certain international markets. The Company does not expect to have continued restructuring activity under this plan, other than settlement of associated liabilities.

A summary of the accrued restructuring liability related to this plan, which is recorded in “Accrued restructuring” on the consolidated balance sheet is as follows (in thousands):

	Workforce Reduction Costs			Facility Closures			Total
Balance at December 31, 2014	$	51		$	626		$	677
Reversal of amount previously accrued		—			(179	)		(179	)
Amounts paid		(50	)		(477	)		(527	)
Non-cash items		(1	)		30			29
Balance at December 31, 2015	$	—		$	—		$	—

The Company does not expect to have continued restructuring activity under this plan.

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Note 12 - Gain on Deconsolidation of Subsidiary

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Deconsolidation of Subsidiary [Text Block]

12. Gain on Deconsolidation of Subsidiary 

On December 16, 2015, RL UK entered administration to allow for an orderly exit from the market. Upon entering administration, the Company no longer held a controlling interest, and therefore deconsolidated the subsidiary. As a result, the Company recorded a gain of $2.9 million, which is included in Gain on deconsolidation of subsidiary, net in the Company’s consolidated statement of operations for the year ended December 31, 2015.

The gain is primarily comprised of the net reduction in carrying value of the assets and liabilities of RL UK from the consolidated balance sheet and the resulting reduction of the net amounts due from RL UK to the Company and its subsidiaries, including the effects of cumulative translation adjustments of $1.1 million, which was reclassified from accumulated other comprehensive income to Gain on deconsolidation of subsidiary, net in the consolidated statement of operations.

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Note 13 - Debt and Other Obligations

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Debt Disclosure [Text Block]

13. Debt and Other Obligations

Long-term debt consisted of the following (in thousands):

Hercules term loan	$	25,244
VantagePoint notes		5,000
Less unamortized debt issuance costs (1)		(698	)
Total debt		29,546
Less current portion of long-term debt		(8,352	)
Long-term debt	$	21,194

(1) Debt issuance costs are related to the Hercules term loan and are amortized to interest expense over the life of the term loan.

Hercules

Term Loan

On April 30, 2015, the Company entered into the Hercules Loan Agreement with its direct and indirect domestic subsidiaries, as co-borrowers, Hercules Technology Growth Capital, Inc. (“Hercules”), as administrative agent, and the lenders party thereto from time to time (the “Lenders”), including Hercules, pursuant to which the Lenders agreed to make a term loan available to the Company for working capital and general business purposes, in a principal amount of $25.0 million. The term loan has an annual interest rate equal to the greater of (i) 11.75% and (ii) the sum of (a) the prime rate, plus (b) 8.50%. During December 2015, the annual interest rate increased from 11.75% to 12.00%. The annual interest rate on the Hercules Loan was 12.00% at December 31, 2015. On the closing date the Company paid a fee of $0.3 million, which is to be credited against the final payment, and debt issuance costs of $0.2 million. Debt issuance costs will be amortized over the life of the loan of 3 years and calculated using the effective interest method.    

The Company is required to make interest-only payments on the term loan through May 1, 2016, though such payments may be extended through August 1, 2016 and November 1, 2016 if the Company remains in continuous compliance with the financial covenants under the Hercules Loan Agreement through April 1, 2016 and July 1, 2016, respectively, and no default or event of default has occurred and is continuing on such dates. The term loan will begin amortizing at the end of the applicable interest-only period, with monthly payments of principal and interest to the Lenders in consecutive monthly installments following the end of such interest-only period. The term loan matures on April 1, 2018 or, if the interest-only payments are extended through November 1, 2016, the term loan will mature October 1, 2018. Upon repayment of the term loan, the Company is also required to make an end-of-term payment to the Lenders equal to $1.5 million, which is accrued as interest based on the effective interest method over the 3-year term of the Hercules Loan Agreement. The term loan is secured by substantially all of the Company’s personal property, including its intellectual property.

At the Company’s option, the outstanding principal balance of the term loan may be prepaid in whole, or in part in a minimum amount of $2.5 million, subject to a prepayment fee of 3% of any amount prepaid if the prepayment occurs on or prior to April 30, 2016, or 2% of the amount prepaid if the prepayment occurs after April 30, 2016 but on or prior to April 30, 2017. If the prepayment occurs after April 30, 2017, there is no prepayment fee.

The Hercules Loan Agreement includes covenants applicable to the Company and its subsidiaries, which include restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions. These restrictions also include a maximum net new investment in the Company’s foreign subsidiaries, subject to certain exclusions of $8.0 million during 2015, $5.5 million during 2016, $4.0 million annually thereafter, and $18.0 million in the aggregate during the term of the agreement. Additionally,

the Hercules Loan Agreement includes financial covenant requirements to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term, as amended on August 3, 2015 from September 30, 2015 through December 31, 2015. These minimum levels of revenue and earnings were waived for compliance for November and December 2015 as amended on November 9, 2015.

Under the Hercules Loan Agreement, the Company is also required to maintain minimum cash in North America in an amount equal to $15.0 million at all times, unless the Company achieves positive “Adjusted EBITDA” as defined in the Hercules Loan Agreement for three consecutive quarters, in which case the minimum cash balance decreases to $12.5 million. The Company achieved positive “Adjusted EBITDA” as defined, during the quarters ended September 30, 2015 and December 31, 2015, which qualifies as two quarters of the required three consecutive quarters. The Hercules Loan Agreement also includes events of default, the occurrence and continuation of which provide Hercules, as administrative agent, with the right to exercise remedies against the Company and the collateral securing the term loan, including potential foreclosure against the Company’s assets securing the Hercules Loan Agreement, including the Company’s cash. The Hercules Loan Agreement contains a subjective acceleration clause that can be triggered if the Company experiences a Material Adverse Effect, as defined in the Hercules Loan Agreement, which would be considered an event of default.

On August 3, 2015, the Company entered into an amendment to the Hercules Loan Agreement, which reduced the term loan’s covenant thresholds for revenue for the months ending September 30, 2015 through December 31, 2015. On November 9, 2015, the Company entered into a second amendment to the Hercules Loan Agreement, which waives compliance with the term loan’s revenue and earnings covenant thresholds for November and December 2015. In connection with the amendment, the Company (i) paid Hercules a one-time fee of $0.2 million, (ii) reset the schedule of prepayment fees to begin from the November 9, 2015, instead of April 30, 2016, and (iii) agreed to amend the Hercules warrant as described below. On December 17, 2015 the Company entered into the third amendment to the Hercules Loan Agreement, which reduces the amount of restricted cash the Company is required to maintain in North America from $17.5 million to $15.0 million and which amount will further be reduced to $12.5 million if the Company achieves positive “Adjusted EBITDA” as defined in the loan agreement. The Company is in compliance with all of the Hercules Loan Agreement’s covenants as of December 31, 2015.

Hercules W

arrant

Concurrently with entrance into the Hercules Loan Agreement, the Company issued to Hercules, as the sole lender on the closing date, a warrant to purchase up to 177,304 shares of the Company’s common stock at an exercise price of $2.82 per share.

In connection with the November 9, 2015 Hercules Loan Agreement amendment, the Company agreed to amend the warrant to increase the number of shares to 300,000 and reduce the exercise price to $0.85. The warrant is exercisable in full and not in part. In addition, if upon the sale of all shares issued upon exercise of the warrant, or in the case of a merger or sale transaction involving other securities in whole or in part, upon the sale of such securities, the absolute return on the warrant exceeds $2.55 per share underlying the warrant, the warrant holder will pay the Company the excess in cash. The warrant may be exercised either for cash or on a cashless basis. The warrant expires April 30, 2022. The Company estimated the fair value of the warrant to be $0.3 million based on its relative fair value to the term loan using a Black-Sholes pricing model and accounted for the warrant as a

discount on the carrying amount of the term loan and a component of additional paid-in capital. The fair value of the warrant will be amortized in the statement of operations as a component of interest expense.

VantagePoint Convertible Notes (Related Party)

On December 17, 2015, the Company entered into a convertible note purchase agreement with affiliates of the Company’s largest shareholder, VantagePoint, for the immediate issuance of $5.0 million of VantagePoint Notes. The note purchase agreement also provides for the issuance and sale of up to an additional $5.0 million aggregate principal amount of convertible notes, upon mutual agreement of ReachLocal and VantagePoint (and Hercules’ consent). The notes bear an annual interest rate of 4%, compounded quarterly. The Company is required to begin making quarterly interest and principal payments on April 15, 2017, subject to a subordination agreement with Hercules. The VantagePoint Notes mature on April 15, 2018, and all principal and unpaid interest is due at that time. The holders of the VantagePoint Notes have the right to convert any portion of the VantagePoint Notes into shares of ReachLocal common stock, par value $0.00001 per share, at an initial conversion rate of 200 shares of common stock per $1,000 principal amount of VantagePoint Notes, which represents an initial conversion price of $5.00 per share. The conversion rate is subject to customary anti-dilution adjustments for stock dividends, splits and combinations, certain distributions on the common stock, including cash dividends, spin-offs and certain tender or exchange offers for the common stock. An event of default, as defined in the agreement, may result in the acceleration of the maturity of the notes. The VantagePoint Notes are included in convertible notes – related party in the accompanying consolidated balance sheet.

On February 4, 2016, the Company entered into an amendment to the VantagePoint Notes. The amendment provides that, except in certain circumstances, the convertibility of the VantagePoint Notes is limited such that conversion may not result in the holders collectively acquiring beneficial ownership of more than 1.9% of the Company’s outstanding shares of common stock during any 12-month period.

VantagePoint and its affiliates beneficially own approximately 43% of the Company’s common stock and VantagePoint’s Chief Executive Officer and Managing Partner, is a member of the Company’s Board of Directors.

The VantagePoint Notes and Hercules Loan Agreement contain cross-default provisions whereby a default under one agreement would likely result in cross defaults under agreements covering other borrowings. The occurrence of a default under any of these borrowing arrangements would permit the applicable note holders or the lenders under the term loan to declare all amounts outstanding under those borrowing arrangements to be immediately due and payable.

Future Debt Maturities

Aggregate principal payments, exclusive of any unamortized debt issuance costs or discounts, due on debt as of December 31, 2015 are as follows (in thousands):

Years Ended December 31,	Hercules Term Loan			VantagePoint Notes			Total
2016	$	11,647		$	—		$	11,647
2017		14,130			254			14,384
2018		4,806			5,254			10,060
Total minimum payments		30,583			5,508			36,091
Less amount representing interest		(5,883	)		(508	)		(6,391	)
Total minimum payments less interest	$	24,700		$	5,000		$	29,700

Capital Leases

The Company has entered into non-cancelable capital leases for computer equipment. At December 31, 2015, the Company had $1.2 million of capital leases, net of accumulated amortization of $0.8 million, of which $0.7 million is recorded in short-term liabilities and $0.5 million is recorded in long-term liabilities. Amortization of assets recorded under capital leases is included in depreciation expense. The interest rates on these leases range from 4.8% to 5.2%. As of December 31, 2015, future minimum payments under these leases are as follows (in thousands): 

Years Ended December 31,
2016	$	734
2017		497
2018		2
Total minimum payments		1,233
Less amount representing interest		(51	)
Total minimum payments less interest	$	1,182

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Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Income Tax Disclosure [Text Block]

14. Income Taxes

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

	Years Ended December 31,
	2015			2014			2013
United States	$	(25,495	)	$	(18,997	)	$	25,044
Foreign		(35,651	)		(26,179	)		(18,294	)
	$	(61,146	)	$	(45,176	)	$	6,750

The provision for income taxes for the years ended December 31, 2015, 2014 and 2013, consists primarily of federal, state and foreign income taxes payable in the various jurisdictions in which the Company operates.

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

	Years Ended December 31,
	2015			2014(a)			2013(a)
Current:
Federal	$	(3	)	$	(2,019	)	$	5,687
State		29			98			1,134
Foreign		242			205			378
		268			(1,716	)		7,199
Deferred:
Federal		(4,353	)		(422	)		(930	)
State		(1,403	)		(1,383	)		(4,048	)
Foreign		(6,843	)		(8,769	)		(8,232	)
		12,599			(10,574	)		(13,210	)
Valuation allowance		12,700			12,774			9,710
Income tax provision	$	369		$	484		$	3,699

Income taxes payable as of December 31, 2015 amounted to $0.1 million and was classified within “Other current liabilities” in the accompanying consolidated balance sheet. Income taxes receivable as of December 31, 2014 amounted to $2.0 million and was classified within prepaid expenses and other current assets in the accompanying consolidated balance sheet.

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):

	Years Ended December 31,
	2015			2014(a)			2013(a)
Income tax expense (benefit) at the federal statutory rate	$	(20,790	)	$	(15,360	)	$	2,295
State income tax, net of federal tax benefit		(931	)		(848	)		(1,923	)
Foreign income taxes, net		(2,818	)		337			(3,189	)
Goodwill impairment		8,340			—			—
Non-deductible stock-based compensation		3,546			3,765			1,149
Research and development credits		(88	)		(325	)		(2,629	)
Change in valuation allowance		12,700			12,774			7,235
Deferred tax adjustments		—			—			617
Other		410			141			144
	$	369		$	484		$	3,699

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

	December 31,
	2015			2014(a)
Deferred tax assets:
Net operating loss carryforward	$	23,787		$	25,315
Federal and state credits		8,189			5,139
Investments		5,422			—
Accruals and provisions		5,409			5,743
Stock options		2,500			3,640
Gross deferred tax assets		45,307			39,837
Less: valuation allowance		(36,530	)		(28,055	)
Net deferred tax assets		8,777			11,782
Deferred tax liabilities:
Capitalized software		(7,534	)		(9,187	)
Intangible assets		(1,154	)		(1,362	)
Fixed assets		(851	)		(1,893	)
Net deferred tax liabilities		(9,539	)		(12,442	)
Net deferred tax asset (liabilities)	$	(762	)	$	(660	)

(a) For the years ended December 31, 2014 and 2013, the presentation of foreign income tax expense, net operating loss carryforward deferred tax asset, and corresponding valuation allowance have been revised in the above tables due to a prior overstatement of foreign net operating losses in both respective years. As a result of the valuation allowance recorded against the foreign net deferred tax assets, there is no impact to the accompanying consolidated balance sheets or statement of operations.

In the accompanying consolidated balance sheets, the non-current portion of deferred tax assets of $0.2 million and $0.1 million as of December 31, 2015 and 2014, respectively, is included in other assets. The non-current portion of net deferred tax liabilities of $0.9 million and $0.7 million as of December 31, 2015 and 2014, is included in deferred rent and other liabilities.

The following table summarizes the Company’s net operating loss carryforwards as of December 31, 2015:

Net operating loss:	Balance at December 31, 2015 (in thousands)		Beginning Expiration Year
Federal	$	19,216		2033
State	$	30,554		Various jurisdictions from 2019 to 2030
Foreign	$	65,946		Generally do not expire, but are subject to certain limitations

The federal net operating loss and research and development credit carryforwards per the income tax returns filed included unrecognized tax benefits taken in prior years, and are larger than the net operating losses and credits for which a deferred tax asset is recognized for financial statement purposes.

As of December 31, 2015, the Company had gross federal and state research and development credit carryforwards of approximately $5.3 million and $3.9 million, respectively. The federal carryovers begin to expire in 2024, while the state carryovers have an indefinite carryover period. At December, 31, 2015, the Company had $0.1 million of foreign tax credits carryovers which begin to expire in 2023. As of December 31, 2015, the Company had gross California Enterprise Zone Credits of $1.4 million which begin to expire in 2024.

Certain deferred tax assets are not presented that arose directly from tax deductions related to equity compensation greater than the amount of compensation recognized for financial reporting. Equity will be increased by $2.2 million if and when such deferred tax assets are ultimately realized.

As of December 31, 2015 and 2014, the Company recorded valuation allowances of $36.5 million and $28.1 million, respectively, as the Company has determined that it is more likely than not that the deferred tax assets will not be realized. Due to the Company’s cumulative losses in U.S. and certain foreign jurisdictions, management has concluded that a full valuation allowance continues to be warranted with respect to the net deferred tax assets in these jurisdictions, excluding indefinite lived assets.

In 2015, the net increase in valuation allowance of $8.5 million was primarily due to net operating losses in domestic and foreign jurisdictions and the deconsolidation of RL U.K. In 2014, the net increase in valuation allowance of $12.8 million was primarily due to net operating losses in foreign jurisdictions and the recording of a full valuation allowance against its net domestic deferred tax assets, excluding indefinite lived assets.

The book value of the Company’s investments in foreign subsidiaries exceeds its tax basis in those subsidiaries by $1.0 million. However, the deferred income taxes on the associated gain have not been recognized, as gains become taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary, and these amounts are expected to be reinvested indefinitely outside of the U.S. 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, 2015, the Company had gross unrecognized tax benefits of approximately $1.6 million. Of this total, approximately $1.5 million would affect the Company’s effective tax rate if recognized. The liabilities for unrecognized tax benefits are primarily recorded as a reduction of gross deferred taxes which are included in deferred rent and other liabilities in the accompanying balance sheets.

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

	December 31,
	2015			2014			2013
Unrecognized tax benefits – beginning balance	$	1,570		$	1,700		$	824
Gross increases – tax positions taken in prior period		—			—			642
Gross decreases – tax positions taken in prior period		(14	)		(219	)		—
Gross increases– tax positions taken in current period		70			89			234
Unrecognized tax benefits – ending balance	$	1,626		$	1,570		$	1,700

The Company expects a decrease of $0.8 million of unrecognized tax benefits in the next 12 months due to expiration of the applicable statute of limitations. These unrecognized tax benefits relate to the formation of a foreign joint venture.

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 interest or penalties during 2015 and in total, as of December 31, 2015, has not recognized a liability for interest and penalties.

The Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. Certain statutes begin to expire as early as 2016.

In May of 2015, the Internal Revenue Service initiated an examination of the Company’s U.S. consolidated 2013 and 2014 income tax returns that was finalized in December 2015 with no proposed adjustments.

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Note 15 - Retirement Contribution Plans

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

15. Retirement Contribution Plans

The Company provides a defined contribution savings plan under Section 401(k) of the Internal Revenue Code and certain other plans in other countries. The 401(k) plan is available to all full-time U.S. employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company may contribute to the 401(k) plan at the discretion of its board of directors. No contributions have been made to the plan during the years ended December 31, 2015, 2014 and 2013.

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Note 16 - Net Income (Loss) Per Share

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Earnings Per Share [Text Block]

16. Net Income (Loss) Per Share

Basic net income (loss) from continuing operations 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. Shares of unvested restricted stock are excluded from the calculation of basic weighted average shares outstanding, but their dilutive impact is added back in the calculation of diluted weighted average shares outstanding. Diluted net income (loss) from continuing operations 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 shares issuable upon the conversion of convertible debt using the if-converted method. The Company had a loss from continuing operations for the year ended December 31, 2015 and therefore the number of diluted shares was equal to the number of basic shares for the period.  

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):

	Years Ended December 31,
	201 5		201 4		201 3
Deferred stock consideration and unvested restricted stock		596		768		216
Stock options, convertible notes, and warrant		8,223		6,489		3,534
		8,819		7,257		3,750

The following table sets forth the computation of basic and diluted income (loss) from continuing operations per share (in thousands, except per share amounts):

	Years Ended December 31,
	201 5			201 4			201 3
Numerator:
Income (loss) from continuing operations	$	(61,515	)	$	(45,660	)	$	3,051
Denominator:
Weighted average common shares used in computation of income (loss) per share from continuing operations, basic		29,174			28,461			27,764
Deferred stock consideration and restricted stock		—			—			199
Stock options and warrants		—			—			1,088
Weighted average common shares used in computation of income (loss) per share from continuing operations, diluted		29,174			28,461			29,051
Income (loss) per share from continuing operations, basic	$	(2.11	)	$	(1.60	)	$	0.11
Income (loss) per share from continuing operations, diluted	$	(2.11	)	$	(1.60	)	$	0.11

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Note 17 - Variable Interest Entities

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Variable Interest Entity Disclosure [Text Block]

17. Variable Interest Entities

In July 2012, the Company entered into a franchise agreement with OxataSMB B.V. permitting it to operate and resell the Company’s services under the ReachLocal brand in Slovakia, Czech Republic, Hungary, Poland and Russia. At the same time, the Company 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 and €0.92 million ($1.2 million) was advanced in August 2013. The OxataSMB operations did not perform as contemplated, and as a result, the Company recorded a $3.3 million impairment of the loan receivable and related interest from OxataSMB and a $1.6 million provision for bad debt related to the trade receivable from OxataSMB. Ultimately we terminated OxataSMB’s franchise agreement in the fourth quarter of 2014 and have not been repaid any amounts under the loan.

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Note 18 - Segment Information

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

18. Segment Information

Revenue by geographic region with respect to the Direct Local channel and National Brands, Agencies and Resellers, 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):

	Years Ended December 31,
	201 5		2014		2013
Revenue:
North America	$	249,224	$	293,096	$	341,737
International		133,373		181,825		172,333
	$	382,597	$	474,921	$	514,070
Long Lived Assets:
North America	$	9,033	$	12,723
International		4,529		6,819
	$	13,562	$	19,542

The results of the Australia geographic region have been included in the Company’s consolidated financial statements and include revenues of $52.5 million, $80.3 million, and $85.0 million in 2015, 2014 and 2013, respectively. Long-lived assets of the Australia geographic region were $1.7 million at December 31, 2015 and 2014.

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

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Note 19 - Supplemental Cash Flow Information

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

19. Supplemental Cash Flow Information

The following table sets forth supplemental cash flow disclosures (in thousands):

	Years Ended December 31,
	201 5		201 4		201 3
Cash paid for interest, net	$	1,860	$	30	$	—
Cash paid for (received from) income taxes, net	$	(1,836)	$	1,093	$	3,474
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	390	$	470	$	443
Issuance of Hercules warrant	$	250	$	—	$	—
Unpaid purchases of property and equipment	$	193	$	113	$	83
Assets acquired under capital leases	$	38	$	1,727	$	—
Investment related to the ClubLocal disposition	$	—	$	4,500	$	—
Deferred payment obligation decrease	$	—	$	—	$	(122	)

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Note 20 - Discontinued Operations

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

20. Discontinued Operations

ClubLocal

In the fourth quarter of 2013, the Company’s Board of Directors approved a plan to dispose of the Company’s ClubLocal business, and on February 18, 2014, the Company closed a transaction in which it transferred its ClubLocal business to SERVIZ, Inc. in exchange for a minority equity interest. The Company has an equity interest in the new entity of 14.2%, with a recorded fair value of $4.5 million. As a result of the disposition, in the first quarter of 2014 the Company recorded a gain on disposal of $0.8 million, net of income tax of $0.4 million. This business has been accounted for as discontinued operations.

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Note 21 - Quarterly Information (Unaudited)

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Quarterly Financial Information [Text Block]

21. Quarterly Information (Unaudited)

The following table sets forth unaudited and quarterly financial data for the four quarters of each of 2015 and 2014.

	Dec 31, 201 5			Sept 30, 201 5			June 30, 201 5			Mar 31, 201 5			Dec 31, 201 4			Sept 30, 201 4			June 30, 201 4			Mar 31, 201 4
Revenue	$	88,977		$	95,282		$	98,776		$	99,563		$	109,009		$	117,623		$	123,553		$	124,736
Cost of revenue	$	48,131		$	53,671		$	55,390		$	56,217		$	61,708		$	64,154		$	63,461		$	63,398
Loss from continuing operations	$	(2,504	)	$	(35,637	)	$	(10,593	)	$	(12,782	)	$	(17,737	)	$	(11,284	)	$	(10,326	)	$	(6,313	)
Income (loss) from discontinued operations, net of income taxes	$	—		$	—		$	—		$	—		$	(279	)	$	—		$	31		$	(371	)
Net loss	$	(2,504	)	$	(35,637	)	$	(10,593	)	$	(12,782	)	$	(17,458	)	$	(11,284	)	$	(10,295	)	$	(5,973	)
Net income (loss) per share:
Basic and diluted:
Loss from continuing operations	$	(0.09	)	$	(1.22	)	$	(0.36	)	$	(0.44	)	$	(0.62	)	$	(0.40	)	$	(0.36	)	$	(0.22	)
Income (loss) from discontinued operations, net of income taxes		—			—			—			—			0.01			—			—			(0.01	)
Net loss per share	$	(0.09	)	$	(1.22	)	$	(0.36	)	$	(0.44	)	$	(0.61	)	$	(0.40	)	$	(0.36	)	$	(0.21	)

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Note 22 - Subsequent Events

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Subsequent Events [Text Block]

22. Subsequent Events

Amendment to Hercules Loan Agreement

On March 25. 2016, the Company and certain of its affiliates entered into a Fourth Amendment to Loan and Security Agreement with Hercules Capital, Inc. (formerly Hercules Technology Capital, Inc.), as administrative agent and lender. The loan amendment amends the Hercules Loan Agreement to increase the maximum net new investment in the Company’s foreign subsidiaries during 2016 from $4.0 million to $5.5 million.

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of ReachLocal, Inc. and its wholly owned subsidiaries. The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results may differ from those estimates.

Reclassification, Policy [Policy Text Block]

Reclassifications and Adjustments

Certain prior period amounts have been reclassified to conform to the current period presentation. See further discussion below under recent accounting pronouncements and in Note 14, Income Taxes.

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. Revenue and expenses 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. 

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, 2015 and 2014, 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 investments as short-term 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, 2015 and 2014, short-term investments consisted of certificates of deposit. All of the short-term investments are classified as available-for-sale. Short-term investments are stated at cost, which approximates fair value.

Receivables, Policy [Policy Text Block]

Accounts Receivable

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history, the customer’s creditworthiness and various other factors, as determined by its review of their credit information. The Company monitors collections and payments from its customers and maintains an allowance for estimated credit losses based upon its historical experience and any customer-specific collection issues that it has identified.

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. 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, and as a result, access to the Company’s cash and cash equivalents may be impacted by adverse conditions in the global financial markets, including fluctuations in currency exchange rates. As of December 31, 2015, domestic bank balances in excess of insured limits were $23.3 million and foreign bank balances in excess of insured limits were $12.5 million.

During March 2016, the Company commenced a process to transition its two primary financial service providers of commercial banking services and merchant services for its credit and debit card processing in North America. The company does not expect a significant impact to its financial position, results of operatin or cash flows in North America as a result of the transition, which is expected to be completed May 2016

The Company’s customers are primarily local businesses, dispersed both geographically and across a broad range of industries. 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, 2015, 2014 and 2013 (in thousands):

	201 5			201 4			201 3
Allowance for doubtful accounts as of the beginning of the year	$	961		$	2,212		$	259
Additions charged to expense		563			2,621			6,080
Write-offs		(1,026	)		(4,511	)		(4,396	)
Recoveries		305			639			268
Allowance for doubtful accounts as of the end of the year	$	803		$	961		$	2,212

For the years ended December 31, 2015, 2014, and 2013, the Company did not have any individual clients that comprised more than 10% of consolidated revenues.

During 2015, 2014, and 2013, the Company’s cost of revenue was primarily for the purchase of media from two of the Company’s vendors. Other receivables and prepaid expenses included $3.6 million and $0.6 million of non-trade receivables from media vendors at December 31, 2015 and 2014, respectively. Accounts payable included $17.3 million and $17.1 million of accrued media expenses from media vendors at December 31, 2015 and 2014, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally three years for computer hardware and software, five years for office equipment, and seven years for furniture and fixtures. Leasehold improvements are amortized using the straight-line method over the lesser of the useful life or 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.

Research, Development, and Computer Software, Policy [Policy Text Block]

Software Development Costs

Costs to develop software for internal use are capitalized when the Company has determined that the development efforts will result in new or additional functionality or new products. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and included in product and technology expenses, in addition to amortization of capitalized software development costs, in the accompanying consolidated statements of operations. The Company monitors its existing capitalized software costs and reduces its carrying value as the result of releases that render previous features or functions obsolete. Software development costs are evaluated for impairment in accordance with the Company’s policy for finite-lived intangible assets and other long-lived assets. Costs capitalized as internal use software are amortized on a straight-line basis over an estimated useful life of three years.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

—

Term Loan

Under the terms of the Hercules Loan Agreement, as amended, the Company is required to maintain, at all times, cash in North America of at least $15.0 million, unless the Company achieves positive “Adjusted EBITDA” as defined in the Loan Agreement for three consecutive quarters, in which case the minimum cash balance decreases to $12.5 million. Restricted cash—term loan represents the required minimum compensating balance to secure the term loan. See Note 13, Debt and Other Obligations, for more information.

Restricted Cash

Restricted cash represents certificates of deposit held at financial institutions that are pledged as collateral for letters of credit related to lease commitments, collateral for the Company’s merchant accounts, and cash deposits in a restricted account in accordance with the Company’s employee health care self-insurance plan. The letters of credit will lapse at the end of the respective lease terms through 2024 and the certificates of deposit automatically renew for successive one-year periods over the duration of the lease term. The restrictions related to merchant accounts and the Company’s self-insurance plan will lapse upon termination of the respective underlying arrangements. At December 31, 2015 and December 31, 2014, the Company had restricted cash in the amount of $3.5 million and $3.6 million, respectively, of which, $0.2 million, related to the employee health care self-insurance plan.

Loans and Leases Receivable, Allowance for Loan Losses Policy [Policy Text Block]

Loan Receivables

The Company records loan receivables at carrying value, net of potential allowance for losses. Losses on receivables are recorded when probable and estimable. Interest income on loan receivables is accrued on a monthly basis over the life of the loan, and interest recognition is suspended upon impairment of loan principal.

Investment, Policy [Policy Text Block]

Non-marketable Investments

The Company accounts for non-marketable investments under the cost method, which are periodically assessed for other-than-temporary impairment. The fair value of a cost method investment is not evaluated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. However, if a significant adverse event were identified, the Company would estimate the fair value of its cost method investment considering available information at the time of the event, such as current cash position, earnings and cash flow forecasts, recent operational performance and any other readily available data. If the Company determines that an other-than-temporary impairment has occurred, the investment is written-down to its fair value.

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

Variable Interest Entities

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 variable interest entity (“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.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Finite-Lived Intangible Assets and Other Long-Lived Assets

Finite-lived intangible assets are attributable to the various developed technologies, trade names, and customer relationships of the businesses the Company has acquired. The Company reports finite-lived, acquisition-related intangible assets at acquisition date fair value, net of accumulated amortization. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from two to ten years. Straight-line amortization is used as another pattern over which the economic benefits will be consumed cannot 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 review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of an intangible asset is measured by comparing its carrying amount to the expected future undiscounted cash flows that the asset is expected to generate, if it is determined that an asset is not recoverable. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

At December 31, 2015 and 2014, there were no indications of impairment of the Company’s finite-lived intangible assets or other long-lived assets.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill 

Goodwill represents the excess of the purchase price of the Company’s acquired businesses over the fair value of the net tangible and intangible assets acquired. The Company accounts for goodwill in accordance with ASC 350,

Intangibles—Goodwill and Othe

r

, which addresses financial accounting and reporting requirements for goodwill and requires testing of goodwill at the reporting unit level for impairment at least annually.

The Company

tests the goodwill of its reporting units for impairment annually on the first day of the fourth quarter, and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired. Events or circumstances which could trigger an impairment review include, but are not limited to, a significant adverse change in the legal or business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key management or other personnel, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the acquired business or the Company’s overall business, significant and sustained decline in market capitalization, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwill impairment test, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwill impairment test for selected reporting units. If the Company chooses the qualitative option, the Company is not required to perform the two-step quantitative goodwill impairment test unless the Company has determined, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The first step of the impairment test involves comparing the estimated fair values of a reporting unit with its respective carrying amount, 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, or if the reporting unit has a negative carrying value and the Company believes it is more likely than not that a goodwill impairment exists, then the second step is performed to compare the carrying amount of the goodwill with its implied fair value, which is determined by deducting the aggregate fair value of the reporting unit's identifiable assets and liabilities from the fair value of the reporting unit. 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 process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analyses. The estimated fair value for each reporting unit is determined using both an income-based valuation approach, as well as a market-based valuation approach. Under the income-based approach, each reporting unit’s fair value is estimated using the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates determined to be commensurate with the risks inherent in its business model, and other assumptions. Under the market-based valuation approach, each reporting unit’s fair value is estimated based on industry multiples of revenues and operating earnings. The income-based approach is weighted between 50.0% and 66.7% depending on the amount and timing of projected operating earnings attributable to each reporting unit.

The Company operates in one reportable segment, in accordance with ASC 280,

Segment Reporting

, which is the basis that financial results are regularly reviewed by the Company's chief operating decision maker in deciding how to allocate resources and assess performance. The Company has identified its reporting units as North America, Asia Pacific, Latin America, and Europe. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by each reporting unit’s management. The Company’s goodwill is comprised of balances in both the North America and Asia Pacific reporting units.

Self Insurance Reserve [Policy Text Block]

Self-Insurance

Beginning July 2, 2014, the Company implemented a self-insurance plan to provide for potential liabilities for employee health care claims in the United States. Liabilities associated with the risks are estimated, in part, by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions. The Company had insurance liabilities totaling approximately $1.3 million and $0.5 million at December 31, 2015 and December 31, 2014, respectively, which are included in accrued compensation and benefits in the accompanying consolidated balance sheets.

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.

Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or at the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful life of the asset or the period of the related lease. Principal payments on capital lease obligations are recorded as reduction of capital lease liability in the accompanying consolidated balance sheets, and interest payments are recorded as interest expense which is included in other income, net in the accompanying consolidated statements of operations.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenue for its products and solutions when persuasive evidence of an arrangement exists, services have been performed, the selling price is fixed or determinable, and collectibility is reasonably assured. The Company recognizes revenue for search engine marketing as clicks are recorded on sponsored links on the various search engines and for its display advertising and retargeting when the display advertisements record impressions or as otherwise provided in its agreement with the applicable publisher. The Company recognizes revenue for lead conversion software, web presence and other products with a defined license or service period on a straight-line basis over the applicable license or service period. 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 contract or the completion of any obligation for services, if shorter. The Company accounts for sales and similar taxes imposed on its services on a net basis in the consolidated statements of operations.

When the Company receives advance payments from clients, it records these amounts as deferred revenue until the revenue is recognized. From time to time, the Company offers incentives to clients in exchange for minimum commitments. In these circumstances, management estimates the amount of the incentives that will be earned by clients and adjusts the recognition of revenue to reflect such incentives. Estimates are either based upon a statistical analysis of previous campaigns for which such incentives were offered, or calculated on a straight-line basis over the life of the campaign.

When the Company sells through agencies, it either receives payment in advance of delivery of its products or solutions 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 generally the primary party obligated in the arrangement, subject to the credit risk, with discretion over both price and media, management typically 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. Resellers integrate the Company’s products and solutions, including the Company’s branded search engine marketing, display advertising and online marketing analytics, into their product offerings. In most cases, the resellers integrate with the Company’s technology 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 distributes its products and solutions directly through its outside and inside sales force that is focused on serving local businesses in their local markets through a consultative process, which the Company refers to as its Direct Local channel. The Direct Local channel also includes revenue from licensing of the Company’s Kickserv software solution, which is marketed directly to local businesses over the Internet. In addition, the Company employs a separate sales channel targeting national brands, franchises and strategic accounts with operations in multiple local markets and select third-party agencies and resellers. The Company refers to this as its National Brands, Agencies and Resellers channel.

Cost of Sales, Policy [Policy Text Block]

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. Rebates are recorded 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 the third-party telephone and information services costs, other third-party service provider costs, data center and third-party hosting costs, credit card processing fees, and other direct costs.

In addition, cost of revenue includes costs to manage and operate the Company’s various solutions and technology infrastructure, 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, and allocated overhead such as depreciation expense, rent and utilities. Cost of revenue also includes the amortization and impairment charges on certain acquired intangible assets.

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 employees in the sales organization is based on commissions. In addition, the cost of agency commissions is included in selling and marketing expenses. Generally, commissions are expensed as earned. However, commencing in 2014, the Company began paying commissions to certain sales people for the acquisition of new clients. Client contracts are generally not cancelable without a penalty, and the Company defers those commissions and amortizes them over the term of the initial customer campaign. Unamortized commission expense of $0.2 million and $0.6 million at December 31, 2015 and December 31, 2014, respectively, is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

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 engineering professionals, including salaries, benefits, bonuses and stock-based compensation, and the cost of third-party contractors and certain other 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. Research and development expenses are included in product and technology costs and were $6.9 million, $15.5 million, and $9.5 million during 2015, 2014, and 2013, respectively.

The Company capitalizes a portion of its software development costs and, accordingly, includes amortization of those costs as costs of product and technology, as the Company’s technology platform and the Company’s other systems address all aspects of the Company’s activities, including supporting the 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.  Product and technology costs do not include the costs to operate and deliver the Company’s solutions to clients, which are included in cost of revenue in the consolidated statements of operations.

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 board, executive, legal, finance, human resources and corporate communications, including wages, benefits, bonuses and stock-based compensation, professional fees, insurance premiums, business taxes and other expenses, including occupancy, technology and other direct overhead, public company costs and other corporate expenses.

Costs Associated with Exit or Disposal Activities or Restructurings, Policy [Policy Text Block]

Restructuring Charges

The Company records costs associated with exit activities related to restructuring plans in accordance with the ASC Topic 420,

Exit or Disposal Obligations

. Liabilities for costs associated with an exit or disposal activity are recognized in the period in which the liability is incurred. Restructuring charges consist of costs associated with the realignment and reorganization of the Company’s operations. Restructuring charges include employee termination costs, facility closure and relocation costs, and contract termination costs. The timing of associated cash payments is dependent upon the type of exit cost and can extend over a 12-month period. The Company records restructuring charge liabilities in accrued restructuring in the consolidated balance sheets.

Advertising Costs, Policy [Policy Text Block]

Advertising Expenses

The Company expenses advertising as incurred. Advertising expense was $2.1 million, $2.9 million and $1.7 million for the years ended December 31, 2015, 2014 and 2013, 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 the fair market value of the equity award on the date of grant. 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 option awards on the date of grant. Determining the fair value of stock option awards at the grant date under this model requires judgment, including estimating volatility, expected term and the risk-free interest rate. The fair value of restricted stock and restricted stock unit awards is based on the closing market price of the Company's common stock on the date of grant. In addition, the Company uses a Monte Carlo simulation model to estimate the fair value of market-based performance-vesting restricted stock and restricted stock units. Determining the fair value of these awards at the grant date under this model requires judgment, including estimating volatility, risk-free rate and expected future stock price. The Company determines the probability of achievement of performance milestones for non-market based performance vesting restricted stock and restricted stock units, and recognize expense based on the fair value of the award if it is probable that the performance milestone will be achieved. The assumptions described above rely on management estimates based on judgment and subjective future expectations, which may result in stock-based compensation for future awards that differs significantly from the awards granted previously.

The fair value of modifications to stock-based awards is generally estimated using the Black-Scholes option pricing model. If a stock-based compensation award is modified after the grant date, incremental compensation expense is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for fully vested awards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original award on the modification date is recognized over the modified service period.

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.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements Adopted in 2015

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17,

Balance Sheet Classification of Deferred Taxes.

The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Early application is permitted for all entities as of the beginning of an interim or annual reporting period. The Company early adopted this standard retrospectively and reclassified all of the current deferred tax assets to noncurrent deferred tax assets on the consolidated balance sheets for all periods presented. Adoption resulted in a $1.8 million decrease in prepaid expenses and other current assets, a $0.1 million increase in other assets, and a $1.7 million increase in deferred rent and other liabilities in the Company’s consolidated balance sheet as of December 31, 2014.

In April 2015, the FASB issued ASU No. 2015-03,

Interest- Imputation of Interest.

The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. The Company early adopted this update in the second quarter of 2015.

In April 2014, the FASB issued ASU No. 2014-08,

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

. The amendments in this update changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date, and was effective for the Company as of January 1, 2015. The Company has applied this guidance to the Company’s consolidated financial statements in 2015.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02,

Leases.

The amendments in this update supersedes the guidance in former

Accounting Standards Codification (“ASC”) 840, Leases

with

ASC 842, Leases

, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The amendments in this update are effective for the Company as of January 1, 2019. Early application of this update is permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. The Company is currently assessing the impact of this update on its consolidated financial statements.

In January 2016, the FASB ASU No. 2016-01,

Financial Instruments- Overall.

The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update are effective for the Company as of January 1, 2018. Early application of certain aspects of the amendment is permitted by public entities, otherwise early adoption is not permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16,

Business Combinations.

The amendments in this updaterequire that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an acquirer to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for the Company as of January 1, 2016. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on the consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05,

Intangibles-Goodwill and Other-Internal-Use Software.

The amendments in this updateprovide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The Company is currently assessing the impact of this update on its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02,

Consolidation.

The amendments in this update require management to reevaluate whether certain legal entities should be consolidated. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminate the presumption that a general partner should consolidate a limited partnership, (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships, and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The amendments in this update are effective for the Company as of January 1, 2016. Early adoption is permitted. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15,

Presentation of Financial Statements – Going Concern

. The amendments in this update require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the Company as of January 1, 2017. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12,

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Accounting Standards Codification (“ASC”) 718,

Compensation – Stock Compensation

, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update will be effective for the Company as of January 1, 2016. Earlier adoption is permitted. Entities may apply the amendments in this update either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. The Company is currently assessing the impact of this update, and believes that its adoption on January 1, 2016 will not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09,

Revenue from Contracts with Customers

. The guidance in this update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance throughout the Codification. Additionally, this update supersedes some cost guidance included in ASC 605-35,

Revenue Recognition - Construction-Type and Production-Type Contracts

. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of ASC 360,

Property, Plant, and Equipment, and intangible assets, within the scope of ASC 350

,

Intangibles - Goodwill and Other

) are amended to be consistent with the guidance on recognition and measurement in this update. The standard was to be effective for the Company as of January 1, 2017, but in August 2015, the FASB delayed the effective date of the new revenue accounting standard to January 1, 2019, and would permit early adoption as of the original effective date. Earlier adoption is not otherwise permitted for public entities. An entity can apply the revenue standard retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings (simplified transition method). The Company is currently assessing the impact of this update on its consolidated financial statements.

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Note 2 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Allowance for Credit Losses on Financing Receivables [Table Text Block]

	201 5			201 4			201 3
Allowance for doubtful accounts as of the beginning of the year	$	961		$	2,212		$	259
Additions charged to expense		563			2,621			6,080
Write-offs		(1,026	)		(4,511	)		(4,396	)
Recoveries		305			639			268
Allowance for doubtful accounts as of the end of the year	$	803		$	961		$	2,212

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Note 3 - Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

			Basis of Fair Value Measurement
	Balance at December 31, 201 5		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets :
Cash and cash equivalents	$	18,833	$	18,833	$	—	$	—
Restricted cash—term loan	$	15,000	$	15,000	$	—	$	—
Short-term investments	$	359	$	359	$	—	$	—
Restricted cash	$	3,502	$	—	$	3,502	$	—

			Basis of Fair Value Measurement
	Balance at December 31, 201 4		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets :
Cash and cash equivalents	$	43,720	$	43,720	$	—	$	—
Short-term investments	$	904	$	904	$	—	$	—
Restricted cash	$	3,589	$	—	$	3,589	$	—
Liabilities :
Acquisition-related contingent consideration	$	349	$	—	$	—	$	349

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

	Year Ended December 31, 2015
	Carrying Amount		Estimated Fair Value
(in thousands)
Term loan	$	24,546		$	24,500
Convertible notes- related party	$	5,000		$	4,600

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Note 4 - Acquisitions (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Assets acquired:
Cash and cash equivalents	$	58
Intangible assets		4,280
Goodwill		3,985
Total assets acquired		8,323
Liabilities assumed:
Non-interest bearing liabilities		24
Long-term debt		350
Deferred tax liabilities		1,249
Total liabilities assumed		1,623
Total fair value of net assets acquired	$	6,700

Assets acquired:
Goodwill	$	2,350
Intangible assets		1,280
Accounts receivable		330
Property and equipment		13
Total assets acquired		3,973
Liabilities assumed:
Deferred tax liabilities		358
Deferred revenue		284
Accrued compensation and benefits		111
Other		782
Total liabilities assumed		1,535
Total fair value of net assets acquired	$	2,438

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Note 5 - Goodwill and Finite-lived Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Goodwill [Table Text Block]

	North America		Asia-Pacific			Total
Balance at December 31, 2013	$	9,695	$	32,388		$	42,083
Goodwill acquired		3,985		2,445			6,430
Acquisition adjustments		—		(95	)		(95	)
Foreign currency translation		—		(229	)		(229	)
Balance at December 31, 2014		13,680		34,509			48,189
Accumulated impairment loss		—		(27,800	)		(27,800	)
Foreign currency translation		—		(260	)		(260	)
Balance at December 31, 2015	$	13,680	$	6,449		$	20,129

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	December 31, 201 5
	Useful Life (years)				Gross Value		Accumulated Amortization		Net
Developed technology		3	-	8	$	5,490	$	2,920	$	2,570
Customer contracts and relationships		2	-	4		1,733		799		934
Trade names			10			570		63		507
Total					$	7,793	$	3,782	$	4,011

	December 31, 2014
	Useful Life (years)				Gross Value		Accumulated Amortization		Net
Developed technology		3	-	8	$	5,490	$	2,130	$	3,360
Customer contracts and relationships		2	-	4		1,875		306		1,569
Trade names			10			570		7		563
Total					$	7,935	$	2,443	$	5,492

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Years Ending December 31,
2016	$	962
2017		681
2018		584
2019		431
2020		431
Thereafter		922
Total	$	4,011

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Note 6 - Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Property, Plant and Equipment [Table Text Block]

	December 31,
	201 5			201 4
Computer hardware and licensed software	$	19,783		$	20,345
Office equipment		3,999			4,229
Furniture and fixtures		4,057			4,976
Leasehold improvements		11,397			13,096
Construction in progress		349			525
		39,585			43,171
Less: Accumulated depreciation and amortization		(26,035	)		(23,532	)
	$	13,550		$	19,639

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Note 7 - Software Development Costs (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Capitalized Computer Software [Table Text Block]

	December 31,
	201 5			201 4
Capitalized software development costs	$	67,610		$	56,498
Accumulated amortization		(46,919	)		(34,943	)
Capitalized software development costs, net	$	20,691		$	21,555

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Note 8 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Years Ended December 31,
2016	$	9,070
2017		8,236
2018		6,687
2019		4,927
2020		3,835
Thereafter		8,938
	$	41,693

Long-term Purchase Commitment [Table Text Block]

Years Ended December 31,
2016	$	2,556

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Note 9 - Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Number of Common Stock Reserved for Future Issuances [Table Text Block]

Stock options	8,196
Convertible notes	1,000
Warrants	300
Restricted stock units	253
	9,749

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Note 10 - Stock-based Compensation (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

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, 2014		6,096		$	9.48
Granted		5,801		$	4.29
Exercised		(31	)	$	0.24
Forfeited		(5,318	)	$	9.33
Outstanding at December 31, 2015		6,548		$	5.05		6.3	$	—
Vested and exercisable at December 31, 2015		1,747		$	7.83		5.3	$	—
Unvested at December 31, 2015, net of estimated forfeitures		3,902		$	4.06		6.8	$	—

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Years Ended December 31,
	201 5			201 4			201 3
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		1.55	%		1.64	%		0.95	%
Expected life (in years)		4.90			4.99			4.81
Expected volatility		57	%		54	%		59	%
Weighted average fair value per share	$	2.24		$	3.63		$	6.33

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, 2014		912		$	5.98
Granted		—		$	—
Forfeited		(138	)	$	10.06
Vested		(439	)	$	8.38
Unvested at December 31, 2015		335		$	5.37

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Years Ended December 31,
	201 5		201 4		201 3
Stock-based compensation	$	9,061	$	13,730	$	11,948
Less: Capitalized stock-based compensation		390		470		443
Stock-based compensation expense, net	$	8,671	$	13,260	$	11,505

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Years Ended December 31,
	201 5		201 4		201 3
Stock-based compensation expense, net
Cost of revenue	$	487	$	932	$	697
Selling and marketing		1,510		2,959		3,040
Product and technology		725		825		627
General and administrative		5,949		8,544		7,141
	$	8,671	$	13,260	$	11,505

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Note 11 - Restructuring Charges (Tables)

12 Months Ended

Dec. 31, 2015

Restructuring Plan 2, 2014 [Member]

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Workforce Reduction Costs			Facility Closures			Total
Balance at December 31, 2014	$	51		$	626		$	677
Reversal of amount previously accrued		—			(179	)		(179	)
Amounts paid		(50	)		(477	)		(527	)
Non-cash items		(1	)		30			29
Balance at December 31, 2015	$	—		$	—		$	—

Restructuring Plan 1, 2014 [Member]

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Facility Closures and Equipment Write-downs			Total
Balance at December 31, 2014	$	2,519		$	2,519
Amounts paid		(771	)		(771	)
Accretion		45			45
Balance at December 31, 2015	$	1,793		$	1,793

Restructuring Plan 2015 [Member]

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Workforce  Reduction Costs			Facility Closures and Equipment Write-down s			Other  Associated  Costs			Total
Balance at December 31, 2014	$	—		$	—		$	—		$	—
Amounts accrued		2,332			1,268			4,125			7,725
Amounts paid		(1,742	)		(157	)		(3,313	)		(5,212	)
Accretion		—			69			—			69
Non-cash items		(4	)		(574	)		(468	)		(1,046	)
Balance at December 31, 2015	$	586		$	606		$	344		$	1,536

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Note 13 - Debt and Other Obligations (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Debt [Table Text Block]

Hercules term loan	$	25,244
VantagePoint notes		5,000
Less unamortized debt issuance costs (1)		(698	)
Total debt		29,546
Less current portion of long-term debt		(8,352	)
Long-term debt	$	21,194

Schedule of Maturities of Long-term Debt [Table Text Block]

Years Ended December 31,	Hercules Term Loan			VantagePoint Notes			Total
2016	$	11,647		$	—		$	11,647
2017		14,130			254			14,384
2018		4,806			5,254			10,060
Total minimum payments		30,583			5,508			36,091
Less amount representing interest		(5,883	)		(508	)		(6,391	)
Total minimum payments less interest	$	24,700		$	5,000		$	29,700

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Years Ended December 31,
2016	$	734
2017		497
2018		2
Total minimum payments		1,233
Less amount representing interest		(51	)
Total minimum payments less interest	$	1,182

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Note 14 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block]

	Years Ended December 31,
	2015			2014			2013
United States	$	(25,495	)	$	(18,997	)	$	25,044
Foreign		(35,651	)		(26,179	)		(18,294	)
	$	(61,146	)	$	(45,176	)	$	6,750

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Years Ended December 31,
	2015			2014(a)			2013(a)
Current:
Federal	$	(3	)	$	(2,019	)	$	5,687
State		29			98			1,134
Foreign		242			205			378
		268			(1,716	)		7,199
Deferred:
Federal		(4,353	)		(422	)		(930	)
State		(1,403	)		(1,383	)		(4,048	)
Foreign		(6,843	)		(8,769	)		(8,232	)
		12,599			(10,574	)		(13,210	)
Valuation allowance		12,700			12,774			9,710
Income tax provision	$	369		$	484		$	3,699

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Years Ended December 31,
	2015			2014(a)			2013(a)
Income tax expense (benefit) at the federal statutory rate	$	(20,790	)	$	(15,360	)	$	2,295
State income tax, net of federal tax benefit		(931	)		(848	)		(1,923	)
Foreign income taxes, net		(2,818	)		337			(3,189	)
Goodwill impairment		8,340			—			—
Non-deductible stock-based compensation		3,546			3,765			1,149
Research and development credits		(88	)		(325	)		(2,629	)
Change in valuation allowance		12,700			12,774			7,235
Deferred tax adjustments		—			—			617
Other		410			141			144
	$	369		$	484		$	3,699

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	December 31,
	2015			2014(a)
Deferred tax assets:
Net operating loss carryforward	$	23,787		$	25,315
Federal and state credits		8,189			5,139
Investments		5,422			—
Accruals and provisions		5,409			5,743
Stock options		2,500			3,640
Gross deferred tax assets		45,307			39,837
Less: valuation allowance		(36,530	)		(28,055	)
Net deferred tax assets		8,777			11,782
Deferred tax liabilities:
Capitalized software		(7,534	)		(9,187	)
Intangible assets		(1,154	)		(1,362	)
Fixed assets		(851	)		(1,893	)
Net deferred tax liabilities		(9,539	)		(12,442	)
Net deferred tax asset (liabilities)	$	(762	)	$	(660	)

Summary of Operating Loss Carryforwards [Table Text Block]

Net operating loss:	Balance at December 31, 2015 (in thousands)		Beginning Expiration Year
Federal	$	19,216		2033
State	$	30,554		Various jurisdictions from 2019 to 2030
Foreign	$	65,946		Generally do not expire, but are subject to certain limitations

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	December 31,
	2015			2014			2013
Unrecognized tax benefits – beginning balance	$	1,570		$	1,700		$	824
Gross increases – tax positions taken in prior period		—			—			642
Gross decreases – tax positions taken in prior period		(14	)		(219	)		—
Gross increases– tax positions taken in current period		70			89			234
Unrecognized tax benefits – ending balance	$	1,626		$	1,570		$	1,700

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Note 16 - Net Income (Loss) Per Share (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Years Ended December 31,
	201 5		201 4		201 3
Deferred stock consideration and unvested restricted stock		596		768		216
Stock options, convertible notes, and warrant		8,223		6,489		3,534
		8,819		7,257		3,750

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Years Ended December 31,
	201 5			201 4			201 3
Numerator:
Income (loss) from continuing operations	$	(61,515	)	$	(45,660	)	$	3,051
Denominator:
Weighted average common shares used in computation of income (loss) per share from continuing operations, basic		29,174			28,461			27,764
Deferred stock consideration and restricted stock		—			—			199
Stock options and warrants		—			—			1,088
Weighted average common shares used in computation of income (loss) per share from continuing operations, diluted		29,174			28,461			29,051
Income (loss) per share from continuing operations, basic	$	(2.11	)	$	(1.60	)	$	0.11
Income (loss) per share from continuing operations, diluted	$	(2.11	)	$	(1.60	)	$	0.11

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Note 18 - Segment Information (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	Years Ended December 31,
	201 5		2014		2013
Revenue:
North America	$	249,224	$	293,096	$	341,737
International		133,373		181,825		172,333
	$	382,597	$	474,921	$	514,070
Long Lived Assets:
North America	$	9,033	$	12,723
International		4,529		6,819
	$	13,562	$	19,542

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Note 19 - Supplemental Cash Flow Information (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Years Ended December 31,
	201 5		201 4		201 3
Cash paid for interest, net	$	1,860	$	30	$	—
Cash paid for (received from) income taxes, net	$	(1,836)	$	1,093	$	3,474
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	390	$	470	$	443
Issuance of Hercules warrant	$	250	$	—	$	—
Unpaid purchases of property and equipment	$	193	$	113	$	83
Assets acquired under capital leases	$	38	$	1,727	$	—
Investment related to the ClubLocal disposition	$	—	$	4,500	$	—
Deferred payment obligation decrease	$	—	$	—	$	(122	)

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Note 21 - Quarterly Information (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2015

Notes Tables

Schedule of Quarterly Financial Information [Table Text Block]

	Dec 31, 201 5			Sept 30, 201 5			June 30, 201 5			Mar 31, 201 5			Dec 31, 201 4			Sept 30, 201 4			June 30, 201 4			Mar 31, 201 4
Revenue	$	88,977		$	95,282		$	98,776		$	99,563		$	109,009		$	117,623		$	123,553		$	124,736
Cost of revenue	$	48,131		$	53,671		$	55,390		$	56,217		$	61,708		$	64,154		$	63,461		$	63,398
Loss from continuing operations	$	(2,504	)	$	(35,637	)	$	(10,593	)	$	(12,782	)	$	(17,737	)	$	(11,284	)	$	(10,326	)	$	(6,313	)
Income (loss) from discontinued operations, net of income taxes	$	—		$	—		$	—		$	—		$	(279	)	$	—		$	31		$	(371	)
Net loss	$	(2,504	)	$	(35,637	)	$	(10,593	)	$	(12,782	)	$	(17,458	)	$	(11,284	)	$	(10,295	)	$	(5,973	)
Net income (loss) per share:
Basic and diluted:
Loss from continuing operations	$	(0.09	)	$	(1.22	)	$	(0.36	)	$	(0.44	)	$	(0.62	)	$	(0.40	)	$	(0.36	)	$	(0.22	)
Income (loss) from discontinued operations, net of income taxes		—			—			—			—			0.01			—			—			(0.01	)
Net loss per share	$	(0.09	)	$	(1.22	)	$	(0.36	)	$	(0.44	)	$	(0.61	)	$	(0.40	)	$	(0.36	)	$	(0.21	)

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Note 1 - Organization and Description of Business (Details Textual) - USD ($)				4 Months Ended	12 Months Ended
	Dec. 17, 2015	Nov. 09, 2015	Apr. 30, 2015	Apr. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Hercules [Member] | Cash [Member]
Proceeds from Issuance of Long-term Debt			$ 15,000,000
Hercules [Member]
Debt Instrument, Face Amount			25,000,000	$ 25,000,000
Proceeds from Issuance of Long-term Debt			24,700,000
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid			$ 1,500,000	$ 1,500,000
Debt Instrument, Term				3 years
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Current					$ 8,000,000
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Year Two					5,500,000
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Annually Thereafter					4,000,000
Debt Instrument, Covenant Description, Aggregate Foreign Subsidiary Exclusion					18,000,000
Loan Processing Fee		$ 200,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents	$ 15,000,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents, Positive Earnings Achieved	12,500,000
VantagePoint Notes [Member] | Convertible Debt [Member]
Notes Payable, Related Parties, Noncurrent	5,000,000
VantagePoint Notes [Member]
Additional Notes Issuable	$ 5,000,000
Health Care Benefit Reserve [Member]
Restricted Cash and Cash Equivalents					200,000	$ 200,000
Convertible Debt [Member]
Notes Payable, Related Parties, Noncurrent					5,000,000
Proceeds from Issuance of Long-term Debt					24,700,000
Cash and Cash Equivalents, at Carrying Value					18,833,000	$ 43,720,000	$ 77,514,000	$ 92,320,000
Short-term Investments					359,000	904,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents					15,000,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents, Positive Earnings Achieved					12,500,000
Restricted Cash and Cash Equivalents					3,500,000	3,600,000
Working Capital					60,600,000
Operating Income (Loss)					$ (60,870,000)	$ (46,112,000)	$ 6,164,000

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Note 2 - Summary of Significant Accounting Policies (Details Textual)	12 Months Ended
	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
Health Care Benefit Reserve [Member]
Restricted Cash and Cash Equivalents	$ 200,000	$ 200,000
Domestic [Member]
Cash, Uninsured Amount	23,300,000
Foreign [Member]
Cash, Uninsured Amount	12,500,000
Accrued Media Expense [Member]
Accounts Payable, Current	$ 17,300,000	17,100,000
Computer Equipment [Member]
Property, Plant and Equipment, Useful Life	3 years
Office Equipment [Member]
Property, Plant and Equipment, Useful Life	5 years
Furniture and Fixtures [Member]
Property, Plant and Equipment, Useful Life	7 years
Computer Software, Intangible Asset [Member]
Finite-Lived Intangible Asset, Useful Life	3 years
Minimum [Member]
Finite-Lived Intangible Asset, Useful Life	2 years
Fair Value Estimate Income Based Approach Weight	50.00%
Maximum [Member]
Finite-Lived Intangible Asset, Useful Life	10 years
Fair Value Estimate Income Based Approach Weight	66.70%
Employee Related Liabilities, Current [Member]
Self Insurance Reserve, Current	$ 1,300,000	500,000
Prepaid Expenses and Other Current Assets [Member] | Reclassification from Current Deferred Tax Assets to Noncurrent Deferred Tax Assets [Member] | December 31, 2014 [Member]
Prior Period Reclassification Adjustment	1,800,000
Prepaid Expenses and Other Current Assets [Member]
Deferred Sales Commission	200,000	600,000
Other Assets [Member] | Reclassification from Current Deferred Tax Assets to Noncurrent Deferred Tax Assets [Member] | December 31, 2014 [Member]
Prior Period Reclassification Adjustment	100,000
Deferred Rent and Other Liabilities [Member] | Reclassification from Current Deferred Tax Assets to Noncurrent Deferred Tax Assets [Member] | December 31, 2014 [Member]
Prior Period Reclassification Adjustment	1,700,000
Product and Technology [Member]
Research and Development Expense	6,900,000	15,500,000	$ 9,500,000
Restricted Cash and Cash Equivalents	$ 3,500,000	3,600,000
Number of Vendors	2
Accounts and Other Receivables, Net, Current	$ 3,600,000	600,000
Accounts Payable, Current	33,581,000	44,874,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents	$ 15,000,000
Debt Instrument, Covenant Description, Number of Consecutive Quarters	3
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents, Positive Earnings Achieved	$ 12,500,000
Certificates of Deposit, Automatic Renewal Period	1 year
Number of Reportable Segments	1
Restructuring Charges, Cash Payment Period	1 year
Advertising Expense	$ 2,100,000	$ 2,900,000	$ 1,700,000

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Note 2 - Summary of the Allowance for Doubtful Accounts (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Allowance for doubtful accounts as of the beginning of the year	$ 961	$ 2,212	$ 259
Additions charged to expense	563	2,621	6,080
Write-offs	(1,026)	(4,511)	(4,396)
Recoveries	305	639	268
Allowance for doubtful accounts as of the end of the year	$ 803	$ 961	$ 2,212

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Note 3 - Fair Value of Financial Instruments (Details Textual) NZD in Millions				1 Months Ended		3 Months Ended	12 Months Ended
	Sep. 18, 2015 USD ($)	Apr. 10, 2015 USD ($)	Apr. 10, 2015 NZD	Mar. 31, 2014 USD ($)	Mar. 31, 2013 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
Non-marketable Investments [Member] | Club Local [Member]
Cost Method Investments							$ 4,500,000	$ 4,500,000
Club Local [Member]
Cost Method Investments							$ 4,500,000
Cost Method Investment, Ownership Percentage							14.20%
Investment in Service Provider [Member]
Payments to Acquire Other Investments				$ 2,000,000	$ 2,500,000
Cost Method Investment, Ownership Percentage Acquired				3.20%	4.00%
Earnout Consideration Payment [Member] | Sure Fire [Member]
Payments of Merger Related Costs, Financing Activities		$ 300,000	NZD 0.4
Sure Fire [Member]
Payments of Merger Related Costs, Financing Activities	$ 100,000
Net Working Capital Adjustments		$ 100,000	NZD 0.2
Asia Pacific [Member]
Goodwill, Impairment Loss						$ 27,800,000	$ 27,800,000
Cost Method Investments							9,000,000	$ 9,000,000
Payments of Merger Related Costs, Financing Activities							$ 529,000
Payments to Acquire Other Investments								$ 2,000,000	$ 2,500,000
Goodwill, Impairment Loss							$ 27,800,000

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Note 3 - Basis of Fair Value Measurement (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Fair Value, Inputs, Level 1 [Member]
Assets:
Cash and cash equivalents	$ 18,833,000	$ 43,720,000
Restricted cash—term loan	15,000,000
Short-term investments	$ 359,000	$ 904,000
Restricted cash
Liabilities:
Acquisition-related contingent consideration
Fair Value, Inputs, Level 2 [Member]
Assets:
Cash and cash equivalents
Restricted cash—term loan
Short-term investments
Restricted cash	$ 3,502,000	$ 3,589,000
Liabilities:
Acquisition-related contingent consideration
Fair Value, Inputs, Level 3 [Member]
Assets:
Cash and cash equivalents
Restricted cash—term loan
Short-term investments
Restricted cash
Liabilities:
Acquisition-related contingent consideration		$ 349,000
Cash and cash equivalents	$ 18,833,000	$ 43,720,000
Restricted cash—term loan	15,000,000
Short-term investments	359,000	$ 904,000
Restricted cash	$ 3,502,000	3,589,000
Acquisition-related contingent consideration		$ 349,000

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Note 3 - Financial Instruments Not Recorded at Fair Value on a Recurring Basis (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Vantage Point [Member]
Convertible Notes, Related Party	$ 5,000
Convertible notes- related party	4,600
Hercules term loan	24,546
Term loan	$ 24,500

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Note 4 - Acquisitions (Details Textual) NZD in Millions							12 Months Ended
	Sep. 18, 2015 USD ($)	Apr. 10, 2015 USD ($)	Apr. 10, 2015 NZD	Nov. 21, 2014 USD ($) shares	Mar. 21, 2014 USD ($)	Mar. 21, 2014 NZD	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Mar. 21, 2014 NZD
Kickserv [Member] | Trade Names [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life				10 years
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill				$ 600,000
Kickserv [Member] | Developed Technology Rights [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life				8 years
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill				$ 3,000,000
Kickserv [Member] | Customer Relationships [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life				4 years
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill				$ 700,000
Kickserv [Member] | Restricted Stock Units (RSUs) [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares | shares				250,000
Kickserv [Member]
Business Acquisition, Goodwill, Expected Tax Deductible Amount				$ 0
Business Combination, Consideration Transferred				6,750,000
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High				4,000,000
Payments to Acquire Businesses, Gross				$ 5,300,000
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill							$ 4,280,000
Fair Value Inputs, Discount Rate				15.00%
Sure Fire [Member] | Customer Relationships [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill					$ 1,300,000
Finite-Lived Intangible Asset, Useful Life					3 years	3 years
Sure Fire [Member] | Maximum [Member]
Business Combination, Contingent Consideration, Liability | NZD										NZD 2.0
Sure Fire [Member] | Paid April 2015 [Member]
Business Acquisition, Percentage of Indemnity Holdback					65.00%	65.00%
Business Acquisition, Indemnity Holdback, Current					$ 200,000
Sure Fire [Member] | Paid October 2015 [Member]
Business Acquisition, Percentage of Indemnity Holdback					35.00%	35.00%
Business Acquisition, Indemnity Holdback, Current					$ 100,000
Sure Fire [Member] | Earnout Consideration Payment [Member]
Payments of Merger Related Costs, Financing Activities		$ 300,000	NZD 0.4
Sure Fire [Member] | Indemnity Holdback Release [Member]
Payments of Merger Related Costs		200,000	0.3
Sure Fire [Member]
Business Acquisition, Goodwill, Expected Tax Deductible Amount					0
Business Combination, Consideration Transferred					2,400,000	NZD 2.8
Payments to Acquire Businesses, Gross					$ 1,500,000	NZD 1.7
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill							$ 1,280,000
Fair Value Inputs, Discount Rate					25.00%	25.00%
Fair Value Assumptions, Expected Volatility Rate					30.00%	30.00%
Fair Value Assumptions, Risk Free Interest Rate					0.14%	0.14%
Business Acquisition, Fair Value of Indemnity Holdback					$ 300,000					NZD 0.4
Payments of Merger Related Costs		400,000	0.6
Payments of Merger Related Costs, Financing Activities	$ 100,000
Net Working Capital Adjustments		$ 100,000	NZD 0.2
Trade Names [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life
Trade Names [Member]
Finite-Lived Intangible Asset, Useful Life							10 years	10 years
Developed Technology Rights [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life							8 years	8 years
Customer Relationships [Member] | Maximum [Member]
Finite-Lived Intangible Asset, Useful Life							4 years	4 years
Maximum [Member]
Finite-Lived Intangible Asset, Useful Life							10 years
Payments of Merger Related Costs, Financing Activities							$ 529,000

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Note 4 - Assets Acquired and Liabilities Assumed (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Kickserv [Member]
Assets acquired:
Cash and cash equivalents	$ 58
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill	4,280
Goodwill	3,985
Total assets acquired	8,323
Liabilities assumed:
Non-interest bearing liabilities	24
Long-term debt	350
Deferred tax liabilities	1,249
Total liabilities assumed	1,623
Total fair value of net assets acquired	6,700
Sure Fire [Member]
Assets acquired:
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill	1,280
Goodwill	2,350
Total assets acquired	3,973
Accounts receivable	330
Property and equipment	13
Liabilities assumed:
Deferred tax liabilities	358
Total liabilities assumed	1,535
Total fair value of net assets acquired	2,438
Deferred revenue	284
Accrued compensation and benefits	111
Other	782
Goodwill	$ 20,129

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Note 5 - Goodwill and Finite-lived Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Aug. 31, 2015
Income Approach Valuation Technique [Member] | Asia Pacific [Member]
Goodwill Valuation Approach, Percentage	50.00%
Market Approach Valuation Technique [Member] | Asia Pacific [Member]
Goodwill Valuation Approach, Percentage	50.00%
Asia Pacific [Member]
Goodwill		$ 6,449	$ 34,509	$ 32,388	$ 34,100
Goodwill, Impairment Loss	$ 27,800	$ 27,800
Fair Value Inputs, Long-term Revenue Growth Rate	3.00%	2.00%
Fair Value Inputs, Discount Rate	17.00%	20.50%
North America [Member]
Goodwill		$ 13,680	13,680	9,695
Goodwill, Impairment Loss
Fair Value Inputs, Long-term Revenue Growth Rate		2.00%
Fair Value Inputs, Discount Rate		18.00%
Goodwill		$ 20,129	$ 48,189	$ 42,083
Goodwill, Impairment Loss		27,800
Amortization of Intangible Assets		$ 1,400	$ 1,200	$ 1,200

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Note 5 - Goodwill (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
North America [Member]
Goodwill	$ 13,680	$ 9,695
Goodwill acquired		$ 3,985
Acquisition adjustments
Foreign currency translation
Goodwill	$ 13,680	$ 13,680
Accumulated impairment loss
Asia Pacific [Member]
Goodwill	$ 34,509	32,388
Goodwill acquired		2,445
Acquisition adjustments		(95)
Foreign currency translation	(260)	(229)
Goodwill	6,449	34,509
Accumulated impairment loss	(27,800)
Goodwill	48,189	42,083
Goodwill acquired		6,430
Acquisition adjustments		(95)
Foreign currency translation	(260)	(229)
Goodwill	20,129	$ 48,189
Accumulated impairment loss	$ (27,800)

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Note 5 - Intangible Assets (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Minimum [Member] | Developed Technology Rights [Member]
Finite-Lived Intangible Asset, Useful Life	3 years	3 years
Minimum [Member] | Customer Relationships [Member]
Finite-Lived Intangible Asset, Useful Life	2 years	2 years
Minimum [Member]
Finite-Lived Intangible Asset, Useful Life	2 years
Maximum [Member] | Developed Technology Rights [Member]
Finite-Lived Intangible Asset, Useful Life	8 years	8 years
Maximum [Member] | Customer Relationships [Member]
Finite-Lived Intangible Asset, Useful Life	4 years	4 years
Maximum [Member] | Trade Names [Member]
Finite-Lived Intangible Asset, Useful Life
Maximum [Member]
Finite-Lived Intangible Asset, Useful Life	10 years
Developed Technology Rights [Member]
Gross Value	$ 5,490	$ 5,490
Accumulated Amortization	2,920	2,130
Net	2,570	3,360
Customer Relationships [Member]
Gross Value	1,733	1,875
Accumulated Amortization	799	306
Net	$ 934	$ 1,569
Trade Names [Member]
Finite-Lived Intangible Asset, Useful Life	10 years	10 years
Gross Value	$ 570	$ 570
Accumulated Amortization	63	7
Net	507	563
Gross Value	7,793	7,935
Accumulated Amortization	3,782	2,443
Net	$ 4,011	$ 5,492

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Note 5 - Estimated Amortization Expense over the Remaining Lives (Details) $ in Thousands	Dec. 31, 2015 USD ($)
2016	$ 962
2017	681
2018	584
2019	431
2020	431
Thereafter	922
Total	$ 4,011

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Note 6 - Property and Equipment (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Depreciation	$ 6.4	$ 6.4	$ 5.8

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Note 6 - Components of Property and Equipment (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Computer Equipment [Member]
Propert Plant and Equipment	$ 19,783,000	$ 20,345,000
Office Equipment [Member]
Propert Plant and Equipment	3,999,000	4,229,000
Furniture and Fixtures [Member]
Propert Plant and Equipment	4,057,000	4,976,000
Leasehold Improvements [Member]
Propert Plant and Equipment	11,397,000	13,096,000
Construction in Progress [Member]
Propert Plant and Equipment	349,000	525,000
Propert Plant and Equipment	39,585,000	43,171,000
Less: Accumulated depreciation and amortization	(26,035,000)	(23,532,000)
	$ 13,550,000	$ 19,639,000

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Note 7 - Software Development Costs (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Capitalized Computer Software, Amortization	$ 11.4	$ 9.7	$ 8.1
Capitalized Software Development Costs for Projects in Process	$ 2.9	$ 5.0

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Note 7 - Capitalized Software Development Costs (Details) - USD ($)	Dec. 31, 2015	Dec. 31, 2014
Capitalized software development costs	$ 67,610,000	$ 56,498,000
Accumulated amortization	(46,919,000)	(34,943,000)
Capitalized software development costs, net	$ 20,691,000	$ 21,555,000

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Note 8 - Commitments and Contingencies (Details Textual) $ in Millions	12 Months Ended
	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Mar. 30, 2016 ft²
Facility Closing [Member]
Operating Lease Commitments	$ 2.4
Operating Leases, Income Statement, Sublease Revenue	0.4
Sublease of Space of Plano, Texas Office [Member] | Subsequent Event [Member]
Area of Real Estate Property | ft²				21,000
Certificates of Deposit [Member]
Restricted Cash and Cash Equivalents	3.3	$ 3.4
Health Care Benefit Reserve [Member]
Restricted Cash and Cash Equivalents	0.2	0.2
Operating Leases, Rent Expense, Net	9.1	13.0	$ 11.9
Restricted Cash and Cash Equivalents	$ 3.5	$ 3.6

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Note 8 - Operating Leases (Details) $ in Thousands	Dec. 31, 2015 USD ($)
2016	$ 9,070
2017	8,236
2018	6,687
2019	4,927
2020	3,835
Thereafter	8,938
	$ 41,693

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Note 8 - Purchase Obligations (Details) $ in Thousands	Dec. 31, 2015 USD ($)
2016	$ 2,556

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Note 9 - Stockholders' Equity (Details Textual) - USD ($) $ in Millions	12 Months Ended		50 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2015
Stock Repurchased and Retired During Period, Shares	0	0	3,400,000
Stock Repurchase Program, Authorized Amount	$ 47.0		$ 47.0
Stock Repurchased and Retired During Period, Value			$ 36.3

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Note 9 - Number of Common Stock Reserved for Future Issuances (Details) shares in Thousands	Dec. 31, 2015 shares
Employee Stock Option [Member]
Stock reserved for future issuance (in shares)	8,196
Restricted Stock Units (RSUs) [Member]
Stock reserved for future issuance (in shares)	253
Convertible Debt [Member]
Stock reserved for future issuance (in shares)	1,000
Warrant [Member]
Stock reserved for future issuance (in shares)	300
Stock reserved for future issuance (in shares)	9,749

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Note 10 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Thousands						3 Months Ended	12 Months Ended
	Feb. 29, 2016	Feb. 26, 2016	Jan. 01, 2016	Jan. 09, 2015	Jul. 01, 2008	Jun. 30, 2014	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 02, 2014
The 2004 Plan [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period							4 years
The 2004 Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period							10 years
The 2004 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant							0	0
The 2008 Plan [Member] | Subsequent Event [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized			1,334,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	1,397,000
The 2008 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant							2,682,047
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period							4 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					5,471,350
Share-based Compensation Arrangement By Share-based Payment Award, Annual Increase in Shares					2,500,000
Percent of Common Stock Outstanding					4.50%
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period							7 years
Employee Inducement [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						160,000
Minimum [Member] | Certain Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period								7 years
Maximum [Member] | Certain Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period								10 years
Subsequent Event [Member] | Restricted Stock Units (RSUs) [Member]
Restricted Stock, Shares Issued Net of Shares for Tax Withholdings		414,239
Shares Paid for Tax Withholding for Share Based Compensation		258,255
Restricted Stock and Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period							4 years
Allocated Share-based Compensation Expense							$ 3,300	$ 5,600	$ 3,000
Certain Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Plan Modification, Incremental Compensation Cost								$ 1,900
Share-based Compensation Arrangement by Share-based Payment Award, Plan Modification, Number of Employees Affected								73
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price								$ 10.91
Restricted Stock Units (RSUs) [Member]
Allocated Share-based Compensation Expense							$ 1,000
Stock Option Exchange [Member]
Allocated Share-based Compensation Expense				$ 1,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross							5,801,000
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, Intrinsic Value							$ 100	$ 2,700	$ 5,300
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value							3,700	9,000	4,200
Allocated Share-based Compensation Expense							8,671	$ 13,260	$ 11,505
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized							$ 11,100
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition							1 year 160 days
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 6			$ 4.29
Annual Corporate Bonus Plan, Percentage to be Settled With Restricted Stock Units							50.00%
Annual Corporate Bonus Plan, Shares Required to Satisfy Bonus Obligation							603,000
Option Exchange Share Price										$ 6
Options Exchanged in Option Exchange				2,800,000

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Note 10 - Summary of Vested and Unvested Options Activity (Details) shares in Thousands	12 Months Ended
	Dec. 31, 2015 $ / shares shares
Outstanding, number of shares (in shares) | shares	6,096
Outstanding, weighted average exercise price per share (in dollars per share) | $ / shares	$ 9.48
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	5,801
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares	$ 4.29
Exercised, number of shares (in shares) | shares	(31)
Exercised, weighted average exercise price per share (in dollars per share) | $ / shares	$ 0.24
Forfeited, number of shares (in shares) | shares	(5,318)
Forfeited, weighted average exercise price per share (in dollars per share) | $ / shares	$ 9.33
Outstanding, number of shares (in shares) | shares	6,548
Outstanding, weighted average exercise price per share (in dollars per share) | $ / shares	$ 5.05
Outstanding, weighted average remaining contractual life (in years)	6 years 109 days
Vested and exercisable at June 30, 2015, number of shares (in shares) | shares	1,747
Vested and exercisable at June 30, 2015, weighted average exercise price per share (in dollars per share) | $ / shares	$ 7.83
Vested and exercisable at June 30, 2015, weighted average remaining contractual life (in years)	5 years 109 days
Unvested at June 30, 2015, net of estimated forfeitures, number of shares (in shares) | shares	3,902
Unvested at June 30, 2015, net of estimated forfeitures, weighted average exercise price per share (in dollars per share) | $ / shares	$ 4.06
Unvested at June 30, 2015, net of estimated forfeitures, weighted average remaining contractual life (in years)	6 years 292 days

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Note 10 - Weighted Average Assumptions Used to Estimate Fair Value of Stock Options Granted (Details) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%	0.00%	0.00%
Risk-free interest rate	1.55%	1.64%	0.95%
Expected life (in years)	4 years 328 days	4 years 361 days	4 years 295 days
Expected volatility	57.00%	54.00%	59.00%
Weighted average fair value per share (in dollars per share)	$ 2.24	$ 3.63	$ 6.33

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Note 10 - Summary of Restricted Stock Awards and Restricted Stock Unit Awards (Details) - Restricted Stock and Restricted Stock Units [Member]	12 Months Ended
	Dec. 31, 2015 $ / shares shares
Unvested at December 31, 2014, number of shares (in shares)	912,000
Unvested at December 31, 2014, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.98
Granted, number of shares (in shares)	0
Forfeited, number of shares (in shares)	(138,000)
Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares	$ 10.06
Vested, number of shares (in shares)	(439,000)
Vested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 8.38
Unvested at September 30, 2015, number of shares (in shares)	335,000
Unvested at September 30, 2015, weighted average grant date fair value (in dollars per share) | $ / shares	$ 5.37

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Note 10 - Summary of Stock Based Compensation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Stock-based compensation	$ 9,061	$ 13,730	$ 11,948
Less: Capitalized stock-based compensation	390	470	443
Stock-based compensation expense, net	$ 8,671	$ 13,260	$ 11,505

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Note 10 - Stock-based Compensation Expense, Net of Capitalization, Included in the Condensed Consolidated Statements of Operations (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cost of Sales [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	$ 487	$ 932	$ 697
Selling and Marketing Expense [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	1,510	2,959	3,040
Product and Technology [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	725	825	627
General and Administrative Expense [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	5,949	8,544	7,141
Allocated Share-based Compensation Expense	$ 8,671	$ 13,260	$ 11,505

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Note 11 - Restructuring Charges (Details Textual) $ in Millions	Dec. 31, 2015 USD ($)
Restructuring Plan 2015 [Member] | Expenses Relating to Facilitation and Execution of the Plan [Member]
Restructuring and Related Cost, Expected Cost	$ 0.7

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Note 11 - Summary of the 2015 Accrued Restructuring Liability (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Employee Severance [Member] | Restructuring Plan 2015 [Member]
Balance at December 31, 2014	$ 0
Amounts accrued	2,332,000
Amounts paid	$ (1,742,000)
Accretion
Non-cash items	$ (4,000)
Balance at December 31, 2015	586,000	$ 0
Facility Closing [Member] | Restructuring Plan 2015 [Member]
Balance at December 31, 2014	0
Amounts accrued	1,268,000
Amounts paid	(157,000)
Accretion	69,000
Non-cash items	(574,000)
Balance at December 31, 2015	606,000	0
Other Restructuring [Member] | Restructuring Plan 2015 [Member]
Balance at December 31, 2014	0
Amounts accrued	4,125,000
Amounts paid	$ (3,313,000)
Accretion
Non-cash items	$ (468,000)
Balance at December 31, 2015	344,000	0
Restructuring Plan 2015 [Member]
Balance at December 31, 2014	0
Amounts accrued	7,725,000
Amounts paid	(5,212,000)
Accretion	69,000
Non-cash items	(1,046,000)
Balance at December 31, 2015	1,536,000	0
Balance at December 31, 2014	3,196,000
Amounts accrued	7,546,000	5,927,000
Balance at December 31, 2015	$ 3,329,000	$ 3,196,000

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Note 11 - Summary of the 2014 Accrued Restructuring Liability (Details)	12 Months Ended
	Dec. 31, 2015 USD ($)
Facility Closing [Member] | Restructuring Plan 1, 2014 [Member]
Balance at December 31, 2014	$ 2,519,000
Amounts paid	(771,000)
Accretion	45,000
Balance at December 31, 2015	1,793,000
Restructuring Plan 1, 2014 [Member]
Balance at December 31, 2014	2,519,000
Amounts paid	(771,000)
Accretion	45,000
Balance at December 31, 2015	1,793,000
Balance at December 31, 2014	3,196,000
Balance at December 31, 2015	$ 3,329,000

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Note 11 - Summary of the Accrued Restructuring Liability (Details)	12 Months Ended
	Dec. 31, 2015 USD ($)
Restructuring Plan 2, 2014 [Member] | Employee Severance [Member]
Balance at December 31, 2014	$ 51,000
Reversal of amount previously accrued
Amounts paid	$ (50,000)
Non-cash items	$ (1,000)
Balance at December 31, 2015
Restructuring Plan 2, 2014 [Member] | Facility Closing [Member]
Balance at December 31, 2014	$ 626,000
Reversal of amount previously accrued	(179,000)
Amounts paid	(477,000)
Non-cash items	$ 30,000
Balance at December 31, 2015
Restructuring Plan 2, 2014 [Member]
Balance at December 31, 2014	$ 677,000
Reversal of amount previously accrued	(179,000)
Amounts paid	(527,000)
Non-cash items	$ 29,000
Balance at December 31, 2015
Balance at December 31, 2014	$ 3,196,000
Balance at December 31, 2015	$ 3,329,000

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Note 12 - Gain on Deconsolidation of Subsidiary (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Reclassification out of Accumulated Other Comprehensive Income [Member] | Accumulated Foreign Currency Adjustment Attributable to Parent [Member]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Reclassification Adjustment from AOCI, Realized upon Sale or Liquidation, Tax	$ 1,100
Deconsolidation, Gain (Loss), Amount	$ 2,853

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Note 13 - Debt and Other Obligations (Details Textual)						6 Months Ended	12 Months Ended
	Mar. 25, 2016 USD ($)	Mar. 24, 2016 USD ($)	Dec. 17, 2015 USD ($) $ / shares	Nov. 09, 2015 USD ($) $ / shares shares	Apr. 30, 2015 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) $ / shares	Dec. 31, 2015 USD ($) $ / shares	Feb. 04, 2016	Dec. 31, 2014 USD ($) $ / shares
Hercules [Member] | If Prepayment Occurs After April 30, 2017 [Member]
Debt Instrument Prepayment Fee, Percentage					0.00%
Hercules [Member] | If Prepayment Occurs on or Prior to April 30, 2016 [Member]
Debt Instrument Prepayment Fee, Percentage					3.00%
Hercules [Member] | If Prepayment Occurs After April 30, 2016 but on or Prior to April 30, 2017 [Member]
Debt Instrument Prepayment Fee, Percentage					2.00%
Hercules [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate					8.50%
Hercules [Member] | Subsequent Event [Member]
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Year Two	$ 5,500,000	$ 4,000,000
Hercules [Member]
Debt Instrument, Face Amount					$ 25,000,000
Debt Instrument, Interest Rate, Effective Percentage Rate Range, Minimum					11.75%		12.00%
Debt Instrument, Interest Rate, Effective Percentage						12.00%	12.00%
Debt Instrument, Fee Amount					$ 300,000
Debt Issuance Cost					$ 200,000
Debt Instrument, Term					3 years
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid					$ 1,500,000
Debt Instrument Minimum Prepayment, Amount					2,500,000
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Current							$ 8,000,000
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Year Two							5,500,000
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Annually Thereafter							4,000,000
Debt Instrument, Covenant Description, Aggregate Foreign Subsidiary Exclusion							$ 18,000,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents			$ 15,000,000		17,500,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents, Positive Earnings Achieved			12,500,000		$ 12,500,000
Debt Instrument, Covenant Description, Number of Consecutive Quarters						2	3
Loan Processing Fee				$ 200,000
VantagePoint Notes [Member] | Vantage Point [Member] | Subsequent Event [Member]
Maximum Percentage of Oustanding shares that may Be Converted								1.90%
VantagePoint Notes [Member] | Vantage Point [Member]
Convertible Notes, Related Party			5,000,000
Additional Notes Issuable			$ 5,000,000
Debt Instrument, Interest Rate, Stated Percentage			4.00%
Common Stock, Par or Stated Value Per Share | $ / shares			$ 0.00001
Debt Instrument, Convertible, Conversion Ratio			200
Debt Instrument, Convertible, Amount of Principal for Conversion of Stock			$ 1,000
Debt Instrument, Convertible, Conversion Price | $ / shares			$ 5
Vantage Point [Member]
Convertible Notes, Related Party						$ 5,000,000	$ 5,000,000
Vantage Point [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners						43.00%	43.00%
Minimum [Member]
Capital Lease Obligations Interest Rate						4.80%	4.80%
Maximum [Member]
Capital Lease Obligations Interest Rate						5.20%	5.20%
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents						$ 15,000,000	$ 15,000,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents, Positive Earnings Achieved						$ 12,500,000	$ 12,500,000
Debt Instrument, Covenant Description, Number of Consecutive Quarters							3
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares				300,000	177,304
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares				$ 0.85	$ 2.82
Class of Warrant or Right, Absolute Return Per Share, Maximum | $ / shares				$ 2.55
Warrants and Rights Outstanding					$ 300,000
Common Stock, Par or Stated Value Per Share | $ / shares						$ 0.00001	$ 0.00001		$ 0.00001
Capital Lease Obligations						$ 1,200,000	$ 1,200,000
Capital Leases, Lessee Balance Sheet, Assets by Major Class, Accumulated Depreciation						800,000	800,000
Capital Lease Obligations, Current						698,000	698,000		$ 624,000
Capital Lease Obligations, Noncurrent						$ 484,000	$ 484,000		$ 1,103,000

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Note 13 - Long-term Debt (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Hercules [Member] | Term Loan [Member]
Hercules term loan	$ 25,244
VantagePoint Notes [Member] | Vantage Point [Member]
VantagePoint notes	5,000
Hercules term loan	24,546
Less unamortized debt issuance costs (1)	(698)	[1]
Total debt	29,546
Less current portion of long-term debt	(8,352)
Long-term debt	$ 21,194

[1] Debt issuance costs are related to the Hercules term loan and are amortized to interest expense over the life of the term loan.

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Note 13 - Future Payments on Total Debt (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Hercules [Member] | Term Loan [Member]
2016	$ 11,647
2017	14,130
2018	4,806
Total minimum payments	30,583
Less amount representing interest	(5,883)
Total minimum payments less interest	$ 24,700
VantagePoint Notes [Member] | Vantage Point [Member]
2016
2017	$ 254
2018	5,254
Total minimum payments	5,508
Less amount representing interest	(508)
Total minimum payments less interest	5,000
2016	11,647
2017	14,384
2018	10,060
Total minimum payments	36,091
Less amount representing interest	(6,391)
Total minimum payments less interest	$ 29,700

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Note 13 - Capital Leases (Details) $ in Thousands	Dec. 31, 2015 USD ($)
2016	$ 734
2017	497
2018	2
Total minimum payments	1,233
Less amount representing interest	(51)
Total minimum payments less interest	$ 1,182

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Note 14 - Income Taxes (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Other Current Liabilities [Member]
Accrued Income Taxes	$ 100,000
Prepaid Expenses and Other Current Assets [Member]
Income Taxes Receivable		$ 2,000,000
Other Assets [Member]
Deferred Tax Assets, Net of Valuation Allowance, Noncurrent	200,000	100,000
Deferred Rent and Other Liabilities [Member]
Deferred Tax Liabilities, Net, Noncurrent	900,000	700,000
Domestic Tax Authority [Member] | Research Tax Credit Carryforward [Member]
Tax Credit Carryforward, Amount	5,300,000
State and Local Jurisdiction [Member] | Research Tax Credit Carryforward [Member]
Tax Credit Carryforward, Amount	3,900,000
State and Local Jurisdiction [Member] | California Enterprise Zone Credits [Member]
Tax Credit Carryforward, Amount	1,400,000
Foreign Tax Authority [Member]
Tax Credit Carryforward, Amount	100,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	0
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense	0
Unrealized Deferred Tax Assets	2,200,000
Deferred Tax Assets, Valuation Allowance	36,530,000	28,055,000
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	8,500,000	12,800,000
Investments in Foreign Subsidiaries in Excess of Tax Basis	1,000,000
Unrecognized Tax Benefits	1,626,000	$ 1,570,000	$ 1,700,000	$ 824,000
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	1,500,000
Decrease in Unrecognized Tax Benefits is Reasonably Possible	$ 800,000

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Note 14 - Components of Income (Loss) Domestic and Foreign (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
United States	$ (25,495)	$ (18,997)	$ 25,044
Foreign	(35,651)	(26,179)	(18,294)
	$ (61,146)	$ (45,176)	$ 6,750

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Note 14 - Components of Income Tax Provision (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Current:
Federal	$ (3)	$ (2,019)	$ 5,687
State	29	98	1,134
Foreign	242	205	378
	268	(1,716)	7,199
Deferred:
Federal	(4,353)	(422)	(930)
State	(1,403)	(1,383)	(4,048)
Foreign	(6,843)	(8,769)	(8,232)
	12,599	(10,574)	(13,210)
Valuation allowance	12,700	12,774	9,710
Income tax provision	$ 369	$ 484	$ 3,699

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Note 14 - Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income tax expense (benefit) at the federal statutory rate	$ (20,790)	$ (15,360)	$ 2,295
State income tax, net of federal tax benefit	(931)	(848)	(1,923)
Foreign income taxes, net	(2,818)	$ 337	$ (3,189)
Goodwill impairment	8,340
Non-deductible stock-based compensation	3,546	$ 3,765	$ 1,149
Research and development credits	(88)	(325)	(2,629)
Change in valuation allowance	$ 12,700	$ 12,774	7,235
Deferred tax adjustments			617
Other	$ 410	$ 141	144
	$ 369	$ 484	$ 3,699

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Note 14 - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Deferred tax assets:
Net operating loss carryforward	$ 23,787	$ 25,315
Federal and state credits	8,189	$ 5,139
Investments	5,422
Accruals and provisions	5,409	$ 5,743
Stock options	2,500	3,640
Gross deferred tax assets	45,307	39,837
Less: valuation allowance	(36,530)	(28,055)
Net deferred tax assets	8,777	11,782
Deferred tax liabilities:
Capitalized software	(7,534)	(9,187)
Intangible assets	(1,154)	(1,362)
Fixed assets	(851)	(1,893)
Net deferred tax liabilities	(9,539)	(12,442)
Net deferred tax asset (liabilities)	$ (762)	$ (660)

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Note 14 - Summary of Net Operating Loss Carryforwards (Details) $ in Thousands	Dec. 31, 2015 USD ($)
Domestic Tax Authority [Member]
Operating Loss Carryforwards	$ 19,216
State and Local Jurisdiction [Member]
Operating Loss Carryforwards	30,554
Foreign Tax Authority [Member]
Operating Loss Carryforwards	$ 65,946

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Note 14 - Summary of Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Unrecognized tax benefits – beginning balance	$ 1,570	$ 1,700	$ 824
Gross increases – tax positions taken in prior period			$ 642
Gross decreases – tax positions taken in prior period	$ (14)	$ (219)
Gross increases– tax positions taken in current period	70	89	$ 234
Unrecognized tax benefits – ending balance	$ 1,626	$ 1,570	$ 1,700

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Note 15 - Retirement Contribution Plans (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 0	$ 0	$ 0

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Note 16 - Antidilutive Securities Excluded in Earnings Per Share (Details) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Deferred Stock Consideration and Unvested Restricted Stock [Member]
Antidilutive securities (in shares)	596	768	216
Stock Option and Warrant [Member]
Antidilutive securities (in shares)	8,223	6,489	3,534
Antidilutive securities (in shares)	8,819	7,257	3,750

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Note 16 - Earnings Per Share (Details) - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Numerator:
Income (loss) from continuing operations	$ (61,515)	$ (45,660)	$ 3,051
Denominator:
Weighted average common shares used in computation of income (loss) per share from continuing operations, basic (in shares)	29,174	28,461	27,764
Deferred stock consideration and restricted stock (in shares)			199
Stock options and warrants (in shares)			1,088
Weighted average common shares used in computation of income (loss) per share from continuing operations, diluted (in shares)	29,174	28,461	29,051
Income (loss) per share from continuing operations, basic (in dollars per share)	$ (2.11)	$ (1.60)	$ 0.11
Income (loss) per share from continuing operations, diluted (in dollars per share)	$ (2.11)	$ (1.60)	$ 0.11

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Note 17 - Variable Interest Entities (Details Textual) € in Thousands, $ in Thousands			1 Months Ended		12 Months Ended
	Jul. 06, 2012 EUR (€)	Jul. 06, 2012 USD ($)	Aug. 31, 2013 EUR (€)	Aug. 31, 2013 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Dec. 31, 2012 EUR (€)	Dec. 31, 2012 USD ($)
Oxata SMB [Member] | Maximum [Member]
Loan to Franchisee	€ 2,900	$ 3,700
Oxata SMB [Member]
Loan to Franchisee			€ 920	$ 1,200				€ 1,450	$ 1,900
Asset Impairment Charges							$ 3,300
Provision for Doubtful Accounts						$ 1,600
Asset Impairment Charges							3,279
Provision for Doubtful Accounts					$ 260	$ 1,649	$ 2,304

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Note 18 - Segment Information (Details Textual) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2015 USD ($)	Sep. 30, 2015 USD ($)	Jun. 30, 2015 USD ($)	Mar. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Sep. 30, 2014 USD ($)	Jun. 30, 2014 USD ($)	Mar. 31, 2014 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
AUSTRALIA
Long-Lived Assets	$ 1,700				$ 1,700				$ 1,700	$ 1,700
Revenues									52,500	80,300	$ 85,000
Long-Lived Assets	13,562				19,542				13,562	19,542
Revenues	$ 88,977	$ 95,282	$ 98,776	$ 99,563	$ 109,009	$ 117,623	$ 123,553	$ 124,736	$ 382,597	$ 474,921	$ 514,070
Number of Operating Segments									1

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Note 18 - Revenue and Long Lived Assets by Geographic Area (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
North America [Member]
Revenue	$ 249,224	$ 293,096	$ 341,737
Long Lived Assets	9,033	12,723
International [Member]
Revenue	133,373	181,825	$ 172,333
Long Lived Assets	4,529	6,819
Revenue	382,597	474,921	$ 514,070
Long Lived Assets	$ 13,562	$ 19,542

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Note 19 - Supplemental Cash Flow Disclosures (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cash paid for interest, net	$ 1,860	$ 30
Cash paid for (received from) income taxes, net	(1,836)	1,093	$ 3,474
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	390	$ 470	$ 443
Issuance of Hercules warrant	250
Unpaid purchases of property and equipment	193	$ 113	$ 83
Assets acquired under capital leases	$ 38	1,727
Investment related to the ClubLocal disposition		$ 4,500
Deferred payment obligation decrease			$ (122)

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Note 20 - Discontinued Operations (Details Textual) - USD ($)	3 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014
Club Local [Member]
Cost Method Investment, Ownership Percentage	14.20%
Cost Method Investments	$ 4,500,000
Club Local [Member]
Discontinued Operation, Gain (Loss) on Disposal of Discontinued Operation, Net of Tax								$ 800,000
Discontinued Operation, Tax (Expense) Benefit from Provision for (Gain) Loss on Disposal								400,000
Cost Method Investments	$ 9,000,000				$ 9,000,000
Discontinued Operation, Gain (Loss) on Disposal of Discontinued Operation, Net of Tax					$ (279,000)		$ 31,000	$ (371,000)

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Note 21 - Quarterly Financial Data (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014
Revenues	$ 88,977	$ 95,282	$ 98,776	$ 99,563	$ 109,009	$ 117,623	$ 123,553	$ 124,736
Cost of revenue	48,131	53,671	55,390	56,217	61,708	64,154	63,461	63,398
Loss from continuing operations	$ (2,504)	$ (35,637)	$ (10,593)	$ (12,782)	(17,737)	$ (11,284)	(10,326)	(6,313)
Discontinued Operation, Gain (Loss) on Disposal of Discontinued Operation, Net of Tax					(279)		31	(371)
Net loss	$ (2,504)	$ (35,637)	$ (10,593)	$ (12,782)	$ (17,458)	$ (11,284)	$ (10,295)	$ (5,973)
Basic and diluted:
Loss from continuing operations (in dollars per share)	$ (0.09)	$ (1.22)	$ (0.36)	$ (0.44)	$ (0.62)	$ (0.40)	$ (0.36)	$ (0.22)
Income (loss) from discontinued operations, net of income taxes (in dollars per share)					0.01			(0.01)
Net loss per share (in dollars per share)	$ (0.09)	$ (1.22)	$ (0.36)	$ (0.44)	$ (0.61)	$ (0.40)	$ (0.36)	$ (0.21)

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Note 22 - Subsequent Events (Details Textual) - Hercules [Member] - USD ($)			12 Months Ended
	Mar. 25, 2016	Mar. 24, 2016	Dec. 31, 2015
Subsequent Event [Member]
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Year Two	$ 5,500,000	$ 4,000,000
Debt Instrument, Covenant Description, Foreign Subsidiary Exclusion, Year Two			$ 5,500,000