10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

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)

Registrant’s telephone number, including area code: (818) 274-0260

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer. See definition of “accelerated filer,” “large 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  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Class	Number of Shares Outstanding on August 10, 2016
Common Stock, $0.00001 par value	100

INDEX

			Page
Part I.	Financial Information
	Item 1.	Condensed Consolidated Financial Statements (unaudited)	2
		Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	2
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015	3
		Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2016 and 2015	4
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	5
		Notes to the Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
	Item 4.	Controls and Procedures	35
Part II.	Other Information
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 6.	Exhibits	36
		Signatures	37

1

PART I

FINANCIAL INFORMATION

Item 1.         FINANCIAL STATEMENTS

REACHLOCAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

	June 30, 2016			December 31, 2015
Assets
Current Assets:
Cash and cash equivalents	$	15,171		$	18,833
Short-term investments		274			359
Accounts receivable, net of allowance for doubtful accounts of $853 and $803 at June 30, 2016 and December 31, 2015, respectively		7,137			6,278
Prepaid expenses and other current assets		6,748			8,296
Total current assets		29,330			33,766
Property and equipment, net		10,763			13,550
Capitalized software development costs, net		19,559			20,691
Restricted cash- term loan		12,500			15,000
Restricted cash		3,451			3,502
Intangible assets, net		3,543			4,011
Non-marketable investments		9,000			9,000
Other assets		2,557			2,547
Goodwill		20,200			20,129
Total assets	$	110,903		$	122,196
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	32,036		$	33,581
Accrued compensation and benefits		12,739			14,478
Deferred revenue		22,566			22,985
Accrued restructuring		3,389			3,329
Term loan		13,296			8,352
Capital lease		707			698
Other current liabilities		9,256			10,166
Liabilities of discontinued operations		798			804
Total current liabilities		94,787			94,393
Term loan		11,758			16,194
Convertible notes – related party		5,000			5,000
Capital lease		131			484
Deferred rent and other liabilities		8,031			8,111
Total liabilities		119,707			124,182
Commitments and contingencies (Note 7)
Stockholders’ Deficit:
Common stock $0.00001 par value—140,000 shares authorized; 30,103 and 29,639 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively		-			-
Receivable from stockholder		(57	)		(55	)
Additional paid-in capital		143,512			140,398
Accumulated deficit		(146,473	)		(136,084	)
Accumulated other comprehensive loss		(5,786	)		(6,245	)
Total stockholders’ deficit		(8,804	)		(1,986	)
Total liabilities and stockholders’ deficit	$	110,903		$	122,196

See notes to condensed consolidated financial statements.

2

REACHLOCAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share data)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Revenue	$	81,460		$	98,776		$	160,169		$	198,339
Cost of revenue		45,591			55,390			89,442			111,607
Operating expenses:
Selling and marketing		22,975			33,046			46,099			69,329
Product and technology		6,063			7,082			12,149			14,504
General and administrative		9,536			9,910			17,414			20,623
Restructuring charges		233			3,133			2,689			4,588
Total operating expenses		38,807			53,171			78,351			109,044
Operating loss		(2,938	)		(9,785	)		(7,624	)		(22,312	)
Loss on deconsolidation of subsidiaries, net		(99	)		-			(171	)		-
Interest expense		(1,115	)		(713	)		(2,230	)		(788	)
Other income (expense), net		90			(135	)		78			(216	)
Loss before income taxes		(4,062	)		(10,633	)		(9,947	)		(23,316	)
Income tax provision (benefit)		175			(40	)		442			59
Net loss	$	(4,237	)	$	(10,593	)	$	(10,389	)	$	(23,375	)
Net loss per share:
Net loss per share, basic and diluted	$	(0.14	)	$	(0.36	)	$	(0.35	)	$	(0.80	)
Weighted average common shares used in the computation of loss per share:
Basic and diluted		29,840			29,097			29,824			29,083

See notes to condensed consolidated financial statements.

3

REACHLOCAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net loss	$	(4,237	)	$	(10,593	)	$	(10,389	)	$	(23,375	)
Other comprehensive income (loss):
Foreign currency translation adjustments		404			(204	)		459			(70	)
Comprehensive loss	$	(3,833	)	$	(10,797	)	$	(9,930	)	$	(23,445	)

See notes to condensed consolidated financial statements.

4

REACHLOCAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net loss	$	(10,389	)	$	(23,375	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		8,965			10,283
Stock-based compensation		2,537			4,360
Restructuring charges		2,689			4,588
Loss on deconsolidation of subsidiary		171			-
(Gain) loss on disposal of fixed assets		(9	)		135
Provision for doubtful accounts		396			66
Non-cash interest expense, net		558			173
Changes in operating assets and liabilities:
Accounts receivable		(1,103	)		1,859
Prepaid expenses and other current assets		1,419			2,229
Restricted cash		(249	)		-
Other assets		55			(264	)
Accounts payable		(1,894	)		(8,475	)
Accrued compensation and benefits		(648	)		(823	)
Deferred revenue		(598	)		(1,259	)
Accrued restructuring		(1,280	)		(2,358	)
Deferred rent and other liabilities		(29	)		(129	)
Net cash provided by (used in) operating activities, continuing operations		591			(12,990	)
Net cash used in operating activities, discontinued operations		(7	)		(60	)
Net cash provided by (used in) operating activities		584			(13,050	)
Cash flows from investing activities:
Additions to property, equipment and software		(5,257	)		(7,748	)
Proceeds from sales of property and equipment		348			-
Changes in restricted cash due to certificates of deposits		360			50
Maturities of certificates of deposits and short-term investments		145			796
Net cash used in investing activities		(4,404	)		(6,902	)
Cash flows from financing activities:
Proceeds from term loan, net		-			24,700
Changes in restricted cash- term loan		2,500			(17,500	)
Payment of deferred and contingent consideration		(1,346	)		(434	)
Proceeds from exercise of stock options		5			6
Principal payments on capital lease obligations		(385	)		(443	)
Term loan costs		-			(194	)
Common stock repurchases		(492	)		(5	)
Net cash provided by financing activities		282			6,130
Effect of exchange rate changes on cash and cash equivalents		(124	)		(1,274	)
Net change in cash and cash equivalents		(3,662	)		(15,096	)
Cash and cash equivalents—beginning of period		18,833			43,720
Cash and cash equivalents—end of period	$	15,171		$	28,624

See notes to condensed consolidated financial statements.

5

REACHLOCAL, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(UNAUDITED)

1. Organization and Description of Business

Overview

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™, ReachDisplay InApp™ and ReachSocial Ads™), 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. 

The Merger

On June 27, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) under which Gannett Co., Inc. (“Parent”) and Raptor Merger Sub, Inc. (“Purchaser”), a wholly owned subsidiary of Parent, commenced a tender offer (the “Offer”) on July 11, 2016 to acquire all of the Company’s outstanding shares of common stock at a purchase price of $4.60 per share in cash, subject to reduction for any applicable withholding taxes, without interest (“Merger Consideration”). Upon the completion of the tender offer on August 9, 2016, Purchaser acquired over 92% of the Company's outstanding common stock and, promptly afterwards, Purchaser merged with and into the Company without a vote of the Company's stockholders (the “Merger”), with the Company surviving as a wholly owned subsidiary of Parent. The Company is now in the process of deregistering under the Exchange Act.

In connection with the closing of the Merger, on August 9, 2016, the Company repaid its $25.0 million term loan with Hercules Technology Growth Capital (“Hercules Loan Agreement”), including applicable fees and interest, in full. In addition, in connection with the closing, the Company’s issued and outstanding convertible notes of $5.0 million with affiliates of VantagePoint, the Company’s largest shareholder, were repaid in full. In connection with the Merger, the Company recognized acquisition-related costs of $2.4 million for the three and six months ended June 30, 2016, which are included in operating expenses in the condensed consolidated statements of operations, primarily related to professional services fees. See Note 17, Subsequent Events, for more information.

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The Condensed Consolidated Balance Sheet as of December 31, 2015 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures included in those audited consolidated financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s statement of financial position at June 30, 2016, the Company’s results of operations for the three and six months ended June 30, 2016 and 2015 and the Company’s cash flows for the six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. All references to the three and six months ended June 30, 2016 and 2015 in the notes to the condensed consolidated financial statements are unaudited. The condensed consolidated financial statements as presented herein have not been adjusted as of June 30, 201​6​for the effects of the Merger, which closed on August 9, 2016. See Note 17, Subsequent Events, for more information.

6

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.

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 June 30, 2016 and December 31, 2015, cash equivalents consist of demand deposits and money market accounts. Cash equivalents are stated at cost, which approximates fair value.

Restricted Cash—Term Loan

Under the terms of the Hercules Loan Agreement the Company was required to maintain, at all times, cash in North America of at least $15.0 million, unless the Company achieved 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. At April 1, 2016, the Company had achieved positive “Adjusted EBITDA” as defined for three consecutive quarters and therefore the restricted cash balance required under the Hercules Loan Agreement decreased to $12.5 million. Restricted cash—term loan represents the required minimum compensating balance to secure the term loan. See Note 12, 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 June 30, 2016 and December 31, 2015, the Company had restricted cash in the amount of $3.5 million, of which, $0.2 million, related to the employee health care self-insurance plan.

Non-Cash Stock Bonus Plan

50% of the Company’s annual corporate bonus plan is settled in fully vested restricted stock units for certain executives and senior level employees. The Company determined that bonus expense incurred under this plan should be presented as a liability, and recognized as an expense equal to the estimated dollar value of the awards upon settlement from the period of service inception date through the grant date.

Recent Accounting Pronouncements Adopted in 2016

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 were effective for the Company on 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 adoption of this standard did not have an impact on the Company’s financial statements. The Company will apply this update prospectively, as appropriate.

7

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 of cloud computing providers 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 assessed its accounting treatment in its capacity as a cloud computing customer and has determined that no adjustments to the financial statements are necessary. The Company will apply this update going forward, as appropriate.

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 were effective for the Company as of January 1, 2016. In accordance with the adoption of this standard, the Company evaluated its non-marketable investments, comprised of a 7.2% equity interest in a privately held limited partnership that is one of its service providers, and a 14.2% equity interest in SERVIZ, Inc. (“Serviz”), the entity that acquired its former ClubLocal business.  Under the amended guidance, the limited partnership interest became a VIE as the limited partners do not have substantive participating rights or kick-out rights (including liquidation rights) over the general partner.  As an early-stage company, Serviz was considered a VIE as it may not have sufficient equity to finance its activities without additional financial support.  The Company is not the primary beneficiary of its non-marketable investments as it does not have: (1) the power to direct the activities that most significantly impact their economic performance or (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant, due to a lack of voting rights or decision-making authority, rights to receive residual returns, or obligations to provide additional financial support with either entity.  Adoption of the standard did not change the Company’s determination that the non-marketable investments do not require consolidation and did not have an impact on the Company’s financial statements. The Company will apply this update going forward, as appropriate.

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 were 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 adoption of this standard did not have an impact on the Company’s financial statements. No prior periods were retrospectively adjusted. The Company will apply this update going forward, as appropriate.

Recent Accounting Pronouncements Not Yet Adopted

In March 2016, the FASB issued ASU No. 2016-09, Compensation- Stock Compensation. The amendments in this update simplify the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Investments- Equity Method and Joint Ventures. The amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted. An entity should apply the amendments in this update prospectively. The Company is currently assessing the impact of this update on its consolidated financial statements.

8

In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging. The amendments in this update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted, including adoption in an interim period. An entity should apply the amendments in this update on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. The Company is currently assessing the impact of this update on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The amendments in this update supersedes the guidance in former 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 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 May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12, respectively. 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:

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

9

• 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 June 30, 2016		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	$	15,171	$	15,171	$	-	$	-
Restricted cash-term loan	$	12,500	$	12,500	$	-	$	-
Short-term investments	$	274	$	274	$	-	$	-
Restricted cash	$	3,451	$	-	$	3,451	$	-

			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	$	-

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

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 June 30, 2016 and December 31, 2015, and are included in non-marketable investments in the accompanying condensed consolidated balance sheet. The Company’s maximum financial 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:

	June 30, 2016
	Carrying Amount		Estimated Fair Value
(in thousands)
Term loan	$	25,054	$	24,800
Convertible notes- related party	$	5,000	$	4,500

	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 prior to the closing of the Merger, related to its Hercules Loan Agreement and VantagePoint Notes. The term loan and notes were determined using Level 3 inputs 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 each 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 of 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.

 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 and on May 20, 2016 the Company made the final payment of $1.35 million for the indemnity holdback.

Acquisition of SureFire

On March 21, 2014, ReachLocal New Zealand Limited (“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 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 a NZ$0.2 million ($0.1 million) 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.

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5. Goodwill and Finite-Lived Intangible Assets

At June 30, 2016 and December 31, 2015, goodwill consisted of the following (in thousands):

	North America		Asia-Pacific			Total
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
Foreign currency translation		-		71			71
Balance at June 30 2016	$	13,680	$	6,520		$	20,200

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.

During 2015, due to a decline in internal projections for the Asia-Pacific reporting unit for both revenue and profitability as a result of declines in 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. 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 and as a result, the Company recorded an impairment charge of $27.8 million. Subsequent to the interim impairment test, due to further declines in the Company’s market capitalization and consideration of exiting the U.K. market, the Company determined that sufficient indicators existed to perform an additional interim quantitative goodwill impairment assessment of the North America and Asia-Pacific reporting units. Based on the assessment, it was determined that the estimated fair value of both reporting units substantially exceeded its carrying amount, including goodwill. Accordingly, no further impairment charge was recorded. During the six months ended June 30, 2016, no events have occurred or circumstances have changed to indicate that goodwill might be impaired.

Finite-Lived Intangible Assets

At June 30, 2016 and December 31, 2015, finite-lived intangible assets consisted of the following (in thousands):

	June 30, 2016
	Useful Life (years)		Gross Value		Accumulated Amortization		Net
Developed technology		3-8	$	5,490	$	3,107	$	2,383
Customer contracts and relationships		2-4		1,773		1,090		683
Trade names		10		570		93		477
Total			$	7,833	$	4,290	$	3,543

	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

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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,
Remaining 2016	$	491
2017		685
2018		584
2019		431
2020		431
Thereafter		921
Total	$	3,543

For the three months ended June 30, 2016 and 2015, amortization expense related to acquired intangible assets was $0.2 million and $0.4 million, respectively. For the six months ended June 30, 2016 and 2015, amortization expense related to acquired intangible assets was $0.5 million and $0.9 million, respectively.

 6. Software Development Costs

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

	June 30, 2016			December 31, 2015
Capitalized software development costs	$	72,460		$	67,610
Accumulated amortization		(52,901	)		(46,919	)
Capitalized software development costs, net	$	19,559		$	20,691

For the three months ended June 30, 2016 and 2015, the Company recorded amortization expense of $2.9 million and $3.0 million, respectively. For the six months ended June 30, 2016 and 2015, the Company recorded amortization expense of $5.7 million and $5.8 million, respectively. At June 30, 2016 and December 31, 2015, $3.8 million and $2.9 million, respectively, of capitalized software development costs were related to projects still in process.

7. Commitments and Contingencies  

Legal Matters

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 financial position, results of operations or cash flows.

On July 15, 2016, Todd Miranda filed a putative class action lawsuit challenging the Merger in the Superior Court of the State of California, County of Los Angeles. In addition to the Company, the members of the Company’s Board of Directors and certain Gannett entities were named as defendants. The complaint alleges breaches of fiduciary duty by the individual members of the Company Board in connection with the Merger Agreement by allegedly accepting an inadequate offer price and allegedly agreeing to unreasonable deal protection provisions, among other actions. The complaint further alleges that the Company, Parent and Purchaser aided and abetted the purported breaches of fiduciary duty. The plaintiffs generally seek equitable and injunctive relief, including an order enjoining the defendants from completing the proposed merger transaction, rescission of any consummated transaction, unspecified amounts in damages and attorneys’ fees. The Company believes this lawsuit is without merit, and intends to vigorously defend against it.

On July 27, 2016, Donal Casey filed a putative class action lawsuit challenging the Merger in the Superior Court of the State of California, County of Los Angeles. In addition to the Company, the members of the Company’s Board of Directors were named as defendants. The complaint alleges breaches of fiduciary duty by the individual members of the Company Board in connection with the Merger Agreement by allegedly failing to properly value the Company, allegedly agreeing to unreasonable deal protection provisions, and allegedly failing to make adequate disclosures regarding the Merger, among other actions. The plaintiffs generally seek equitable and injunctive relief, including an order enjoining the defendants from completing the Merger, rescission of any consummated transaction, unspecified amounts in damages and attorneys’ fees. The Company believes this lawsuit is without merit, and intends to vigorously defend against it.

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8. 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.

9. Stock-Based Compensation

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, 2015		6,548		$	5.05
Granted		1,761		$	1.89
Exercised		(15	)	$	0.34
Forfeited		(378	)	$	5.50
Outstanding at June 30, 2016		7,916		$	4.33		6.2	$	9,899
Vested and exercisable at June 30, 2016		3,006		$	5.86		6.0	$	2,110
Unvested at June 30, 2016, net of estimated forfeitures		4,910		$	3.40		6.3	$	7,789

      The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted during the three and six months ended June 30, 2016 and 2015:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		1.39	%		1.54	%		1.26	%		1.53	%
Expected life (in years)		5.37			4.99			4.88			4.93
Expected volatility		68	%		57	%		69	%		57	%

The per-share weighted average grant date fair value of options granted during the six months ended June 30, 2016 was $1.07. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2016 and 2015, were $19,337 and $68,531, respectively. 

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Restricted Stock and Restricted Stock Units

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, 2015		335		$	5.37
Granted		712		$	1.90
Forfeited		(17	)	$	5.99
Vested		(755	)	$	2.45
Unvested at June 30, 2016		275		$	4.51

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):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock-based compensation	$	1,450	$	2,314	$	2,673	$	4,579
Less: Capitalized stock-based compensation		53		100		136		219
Stock-based compensation expense, net	$	1,397	$	2,214	$	2,537	$	4,360

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock-based compensation expense, net
Cost of revenue	$	59	$	134	$	109	$	290
Selling and marketing		207		424		408		906
Product and technology		178		126		240		294
General and administrative		953		1,530		1,780		2,870
Stock-based compensation expense, net	$	1,397	$	2,214	$	2,537	$	4,360

 At June 30, 2016, there was $9.3 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 1.4 years. Future stock-based compensation expense for these awards may differ to the extent actual forfeitures vary from management estimates.

Commencing in 2015, 50% of the Company’s annual corporate bonus plan for certain executives and senior level employees is being 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. On February 26, 2016, 414,239 shares (net 258,255 shares withheld to satisfy tax withholding obligations) were issued to satisfy the stock portion of the 2015 annual corporate bonus plan. During the three and six months ended June 30, 2016, the Company has recognized stock-based compensation expense related to the 2016 plan of $0.3 million and $0.3 million, respectively. As of June 30, 2016, approximately 273,998 shares would be required to satisfy the total estimated obligation relating to the stock portion of the 2016 annual corporate bonus plan.

 Stock Option Exchange

On January 9, 2015, an option exchange was completed that allowed 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 date grant. Total options covering 2.8 million shares 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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Effect of the Merger

Immediately prior to the effective time of the Merger on August 9, 2016, each outstanding Company stock option, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the excess, if any, of (1) the Merger Consideration over (2) the exercise price per share of such option, and (B) the number of Company shares underlying such option. Any Company stock option with an exercise price per share in excess of the Merger Consideration was cancelled without payment. Each outstanding Company restricted stock unit award and each restricted stock award, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the Merger Consideration, and (B) the number of Company shares underlying such award.

10. 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 was 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 were 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 six months ended June 30, 2016 primarily involved down-sizing certain facilities in North America, costs to utilize a third party facilitator to aid execution of the plan and reductions of the Company’s international workforces.

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, 2015	$	586		$	606		$	344		$	1,536
Amounts accrued		292			1,879			-		$	2,171
Amounts paid		(813	)		(18	)		(278	)	$	(1,109	)
Accretion		-			(169	)		-		$	(169	)
Non-cash items		(8	)		(654	)		-		$	(662	)
Balance at June 30, 2016	$	57		$	1,644		$	66		$	1,767

In addition to the amount paid above, the Company also has a prepaid balance for restructuring as of June 30, 2016, of $0.2 million included in “Prepaid expenses and other current assets” on the consolidated balance sheet.

The Company expects the remaining facility closure liabilities 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.

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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):

	Facility Closures and Equipment Write-downs			Total
Balance at December 31, 2015	$	1,793		$	1,793
Amounts paid		(171	)	$	(171	)
Balance at June 30, 2016	$	1,622		$	1,622

The Company expects the remaining facility closure liabilities to be paid through the third quarter of 2024.

11. Gain (loss) 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 during the fourth quarter of 2015. During the three and six months ended June 30, 2016, the Company recorded a loss of $0.1 million and $0.2 million, respectively, related to residual expenses associated with the deconsolidation which is included in Loss on deconsolidation of subsidiary, net in the Company’s condensed consolidated statement of operations.

 12. Debt and Other Obligations

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, 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 had 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% and remained 12.00% through June 30, 2016. On the closing date of the Hercules Loan Agreement the Company paid a fee of $0.3 million, and debt issuance costs of $0.2 million.

In accordance with the Hercules Loan Agreement, the Company made monthly, contractual interest-only payments. The Company’s covenants under the Hercules Loan Agreement included 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 covenants to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term. Under the Hercules Loan Agreement, the Company agreed to maintain minimum cash in North America at all times, which equaled $15.0 million at December 31, 2015 and reduced to $12.5 million as of April 1, 2016.

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 waived 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 reduced the amount of restricted cash the Company was required to maintain in North America from $17.5 million to $15.0 million and which amount would be further reduced to $12.5 million if the Company achieved positive “Adjusted EBITDA” as defined in the Hercules Loan Agreement. On March 25. 2016, the Company and certain of its affiliates entered into a Fourth Amendment to the Hercules Loan Agreement which increased the maximum net new investment in the Company’s foreign subsidiaries during 2016 from $4.0 million to $5.5 million.

In connection with the closing of the Merger, on August 9, 2016, the Company repaid the Hercules term loan in full, including applicable fees and accrued and unpaid interest of $2.3 million.

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. 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 exceeded $2.55 per share underlying the warrant, the warrant holder would pay the Company the excess in cash. 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.

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In connection with the closing of the Merger, on August 9, 2016, the warrant was cancelled in exchange for a payment in cash of an amount equal to (a) the total number of shares underlying the warrant (300,000), multiplied by (b) $2.55.

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 issuance of $5.0 million of VantagePoint Notes. The note purchase agreement also provided for the 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 bore an annual interest rate of 4%, compounded quarterly. The Company was required to begin making quarterly interest and principal payments commencing on April 15, 2017, subject to a subordination agreement with Hercules. The holders of the VantagePoint Notes had 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 represented an initial conversion price of $5.00 per share. 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 provided that, except in certain circumstances, the convertibility of the VantagePoint Notes was 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 owned approximately 42% of the Company’s common stock as of June 30, 2016, and prior to the closing of the Merger, VantagePoint’s Chief Executive Officer and Managing Partner, was a member of the Company’s Board of Directors.

In connection with the closing of the Merger, on August 9, 2016, the VantagePoint Notes, including applicable fees and accrued and unpaid interest of $0.2 million, were repaid in full.

VantagePoint Irrevocable Letter of Credit and Reimbursement Agreement (Related Party)

On May 31, 2016, the Company entered into a reimbursement agreement with certain affiliates of VantagePoint (“LC Creditors”) pursuant to which the Company has agreed to reimburse the LC Creditors for (i) any amounts drawn on a $2.0 million irrevocable letter of credit issued by First Republic Bank to PayPal, Inc. for which the LC Creditors provided cash collateral to First Republic Bank in the amount of $2.0 million, and (ii) related costs, expenses and fees. Additionally, pursuant to the reimbursement agreement, the Company agreed to pay the LC Creditors an annual fee equal to 10% of the original face amount of the letter of credit, payable quarterly beginning on June 30, 2016 and, if the letter of credit is drawn upon by PayPal, Inc. in any amount, the Company has agreed to pay a fee equal to 200% of the amount so drawn. As of June 30, 2016, the irrevocable letter of credit had not been drawn upon by PayPal, Inc. and no fee was owed by the Company. The Company expensed the annual fee as incurred.

In connection with the closing of the Merger, the letter of credit was returned to the LC Creditors for cancellation and the reimbursement agreement was terminated.

13. Income Taxes

The Company provides for income taxes in interim periods based on the estimated effective income tax rate for the complete fiscal year. For the three and six months ended June 30, 2016, the Company recorded a provision for income taxes totaling $0.2 million and $0.4 million. This is compared to a benefit from income taxes of $40,000 and a provision for income taxes of $59,000 for the three and six months ended June 30, 2015, respectively. The Company’s tax provision notwithstanding pre-tax losses is due to its full valuation allowance against its net deferred tax assets in the US and certain foreign jurisdictions. Generally, a full valuation allowance will result in a zero net tax provision, since the income tax expense or benefit that would otherwise be recognized is offset by the change in the valuation allowance. However, the income tax provision for the period ended June 30, 2016 relates primarily to income taxes in the Company’s state and foreign jurisdictions and a non-cash income tax liability related to tax deductible goodwill that cannot be considered when determining a need for a valuation allowance.

The income tax provision is computed on the year to date pretax income (loss) of the consolidated entities located within each taxing jurisdiction based on current tax law. Deferred tax assets and liabilities are determined based on the future tax consequences associated with temporary differences between income and expenses reported for financial accounting and tax reporting purposes. A valuation allowance for deferred tax assets is recorded to the extent the Company determines that it is more likely than not that the deferred tax assets will not be realized.

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Realization of deferred tax assets is principally dependent upon future taxable income, the estimation of which requires significant management judgment. The Company’s judgment regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans and/or tax planning strategies. These changes, if any, may require material adjustments to these deferred tax asset balances. On a quarterly basis, the Company reassesses the need for these valuation allowances based on operating results and its assessment of the likelihood of future taxable income and developments in the relevant tax jurisdictions. The Company continues to maintain a valuation allowance against its net deferred tax assets in US and various foreign jurisdictions, where the Company believes it is more likely than not that deferred tax assets will not be realized.

The Company strives to resolve open matters with each tax authority at the examination level and could reach an agreement with a tax authority at any time. While the Company has accrued for amounts it believes are the expected outcomes, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the financial statements. In addition, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal. The liability is reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations between tax authorities, identification of new issues, and issuance of new legislation, regulations or case law. Management believes that adequate amounts of tax and related interest, if any, have been provided for any adjustments that may result from these examinations of uncertain tax positions. Interest and penalties are included in income tax expense.

The Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. Certain jurisdiction’s statutes of limitations will begin to expire in 2017.  

14. Net Loss Per Share

 Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method. The Company had a loss from continuing operations for the three and six months ended June 30, 2016 and 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):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Deferred stock consideration and unvested restricted stock		294		644		293		779
Stock options, convertible notes, and warrant		8,753		7,189		8,313		6,721
		9,047		7,833		8,606		7,500

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Numerator:
Net loss	$	(4,237	)	$	(10,593	)	$	(10,389	)	$	(23,375	)
Denominator:
Weighted average common shares used in computation of loss per share		29,840			29,097			29,824			29,083
Net loss per share, basic and diluted	$	(0.14	)	$	(0.36	)	$	(0.35	)	$	(0.80	)

 15. Segment Information

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. 

16. Supplemental Cash Flow Information

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

	Six Months Ended June 30,
	2016		2015
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	136	$	219
Unpaid purchases of property and equipment	$	67	$	131
Assets acquired under capital leases	$	-	$	(204	)
Issuance of warrant	$	-	$	250

17. Subsequent Events

On June 27, 2016, the Company entered into a Merger Agreement under which Gannett Co., Inc. (“Parent”) and Raptor Merger Sub, Inc. (“Purchaser”), a wholly owned subsidiary of Parent, commenced a tender offer (the “Offer”) on July 11, 2016 to acquire all of the Company’s outstanding shares of common stock at a purchase price of $4.60 per share in cash, subject to reduction for any applicable withholding taxes, without interest (“Merger Consideration”). Upon completion of the tender offer on August 9, 2016, Purchaser acquired over 92% of the Company's outstanding common stock and, promptly afterwards, Purchaser merged with and into the Company without a vote of the Company's stockholders (the "Merger"), with the Company surviving as a wholly owned subsidiary of Parent.

Immediately prior to the effective time of the Merger on August 9, 2016, each outstanding Company stock option, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the excess, if any, of (1) the Merger Consideration over (2) the exercise price per share of such option, and (B) the number of Company shares underlying such option. Any Company stock option with an exercise price per share in excess of the Merger Consideration was cancelled without payment. Each outstanding Company restricted stock unit award and each restricted stock award, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the Merger Consideration, and (B) the number of Company shares underlying such award.

In connection with the closing of the Merger, on August 9, 2016, the Company repaid the Hercules loan in full, including applicable fees and accrued and unpaid interest of $2.3 million. In addition, the warrant issued to Hercules was cancelled in exchange for a payment in cash of an amount equal to (a) the total number of shares underlying the warrant (300,000), multiplied by (b) $2.55. Further, the Company’s issued and outstanding convertible notes of $5.0 million with affiliates of VantagePoint, the Company’s largest shareholder, were repaid in full including applicable fees and accrued and unpaid interest of $0.2 million. The VantagePoint Irrevocable Letter of Credit was returned to the creditors for cancellation. In accordance with the Merger, the Company recognized acquisition-related costs of $2.4 million for the three and six months ended June 30, 2016, which are included in operating expenses in the condensed consolidated statements of operations, primarily related to professional services fees. Upon closing of the Merger, the Company incurred additional transaction-related costs of $7.3 million.    

As a result of the Merger, the Company’s assets and liabilities will be fair valued as of the date of the acquisition, August 9, 2016, and will be recorded in Gannett’s consolidated financial statements based upon their appraised values in accordance with the acquisition method of accounting. This purchase price allocation will include the valuation of identifiable intangible assets, including developed technology, customer relationships, and trade names as well as estimates of other assets and liabilities. After the fair value has been assigned to assets and liabilities, the remainder of the purchase price will be recorded as goodwill.

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Item 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   

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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2015 Annual Report on Form 10-K.

This quarterly report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 our 2015 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.

The Merger

On June 27, 2016, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) under which Gannett Co., Inc. (“Parent”) and Raptor Merger Sub, Inc. (“Purchaser”), a wholly owned subsidiary of Parent, commenced a tender offer (the “Offer”) on July 11, 2016 to acquire all of our outstanding shares of common stock at a purchase price of $4.60 per share in cash, subject to reduction for any applicable withholding taxes, without interest. Upon completion of the tender offer on August 9, 2016, Purchaser acquired over 92% of our outstanding common stock and, promptly afterwards, Purchaser merged with and into ReachLocal, Inc. without a vote of our stockholders (the "Merger"), with ReachLocal, Inc. surviving as a wholly owned subsidiary of Parent.

On August 9, 2016, we (i) notified the NASDAQ Stock Market LLC (“NASDAQ”) of the consummation of the Merger and (ii) requested that NASDAQ (x) suspend trading of the common stock before the opening of trading on August 10, 2016 and (y) file with the Securities and Exchange Commission (“SEC”) a Form 25 Notification of Removal from Listing and/or Registration to delist and deregister our common stock under Section 12(b) of the Securities Exchange Act of 1934, as amended. We are in the process of filing with the SEC a certification on Form 15 under the Exchange Act, requesting the deregistration of our common stock and the suspension of our reporting obligations under Sections 13 and 15(d) of the Exchange Act.

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, ReachRetargeting™ and ReachSocial Ads™), 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.

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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 available in certain of 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 that do not need a new website or who purchase their website from another provider.

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, as adapted 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.

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 as of June 30, 2016 and 2015:

	June 30,
	2016		2015		% Change
Active Clients (1)		16,000		19,500		(17.9	)%
Active Product Units (2)		27,700		29,600		(6.4	)%

(1) (2) See “Results of Operations” for our definition of Active Clients. See “Results of Operations” for our definition of Active Product Units.

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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 compared to the same period in 2015, is primarily due to an overall decrease in salespeople in the Direct Local and NBAR channels as we decreased the size of our sales force in an effort to focus on more productive salespeople, partially offset by increased retention and productivity due to an increase in selling new products to our existing customer base. Compared to the period ended March 31, 2016, Active Clients decreased by 2.4% primarily due to a decrease in productivity quarter over quarter, while Active Product Units increased by 1.8% due to an increase in product units per client.

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 record revenue for income statement purposes 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 $4.6 million and $4.0 million of accounts receivable related to our Direct Local channel at June 30, 2016 and December 31, 2015, 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 $3.2 million and $3.3 million of accounts receivable related to our National Brands, Agencies and Resellers at June 30, 2016 and December 31, 2015, 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 our MEs and related staff, 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.

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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.

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, acquisition related 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 condensed consolidated balance sheets. See further discussion in Note 10 of the Notes to the Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

The preparation of our condensed 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.

There have been no material changes to our critical accounting policies. For further information on our critical and significant accounting policies, see our 2015 Annual Report on Form 10-K. 

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2016 and 2015

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
(in thousands)
Revenue	$	81,460		$	98,776		$	160,169		$	198,339
Cost of revenue (1)		45,591			55,390			89,442			111,607
Operating expenses:
Selling and marketing (1)		22,975			33,046			46,099			69,329
Product and technology (1)		6,063			7,082			12,149			14,504
General and administrative (1)		9,536			9,910			17,414			20,623
Restructuring charges		233			3,133			2,689			4,588
Total operating expenses		38,807			53,171			78,351			109,044
Operating loss		(2,938	)		(9,785	)		(7,624	)		(22,312	)
Loss on deconsolidation of subsidiaries, net		(99	)		-			(171	)		-
Interest expense		(1,115	)		(713	)		(2,230	)		(788	)
Other income (expense), net		90			(135	)		78			(216	)
Loss before income taxes		(4,062	)		(10,633	)		(9,947	)		(23,316	)
Income tax provision (benefit)		175			(40	)		442			59
Net loss	$	(4,237	)	$	(10,593	)	$	(10,389	)	$	(23,375	)

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock-based compensation:
Cost of revenue	$	59	$	134	$	109	$	290
Selling and marketing		207		424		408		906
Product and technology		178		126		240		294
General and administrative		953		1,530		1,780		2,870
	$	1,397	$	2,214	$	2,537	$	4,360
Depreciation and amortization:
Cost of revenue	$	166	$	219	$	325	$	351
Selling and marketing		504		824		1,067		1,657
Product and technology		3,259		3,591		6,533		7,298
General and administrative		503		515		1,040		977
	$	4,432	$	5,149	$	8,965	$	10,283

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Revenue

	Three Months Ended							Six Months Ended
	June 30,							June 30,
	2016		2015		2016-2015 % Change			2016		2015		2016-2015 % Change
(in thousands)
North America (1)
Direct Local	$	43,943	$	46,189		(4.9	)%	$	85,179	$	92,113		(7.5	)%
National Brands, Agencies and Resellers		15,546		17,787		(12.6	)%		29,883		35,362		(15.5	)%
Total revenue	$	59,489	$	63,976		(7.0	)%	$	115,062	$	127,475		(9.7	)%

	Three Months Ended							Six Months Ended
	June 30,							June 30,
	2016		2015		2016-2015 % Change			2016		2015		2016-2015 % Change
(in thousands)
International
Direct Local	$	18,511	$	31,085		(40.5	)%	$	38,036	$	63,894		(40.5	)%
National Brands, Agencies and Resellers		3,460		3,715		(6.9	)%		7,071		6,970		1.4	%
Total revenue	$	21,971	$	34,800		(36.9	)%	$	45,107	$	70,864		(36.3	)%

	June 30,
	2016		2015		2016-2015 % Change
At period end:
Active Clients (2)		16,000		19,500		(17.9	)%
Active Product Units (3)		27,700		29,600		(6.4	)%

(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 which 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.

North America revenue decreased by $4.5 million and $12.4 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. North America Direct Local revenue decreased $2.2 million and $6.9 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015, due to a smaller client base entering the periods, partially offset by an increase in product units per client. The average productivity of our current sales force improved compared to the prior-year period, but did not improve enough to offset client cancellations. North America National Brands, Agencies and Resellers revenue decreased by $2.2 million and $5.5 million for the three and six months ended June 30, 2016, respectively, compared to the same period in 2015 primarily due to decreased new client acquisitions, partially offset by an increase in client retention.

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International revenue decreased by $12.8 million and $25.8 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The decrease was primarily due to declines of $6.4 million and $12.9 million as a result of our exit from direct sales in the U.K. during the fourth quarter of 2015, and declines of $6.2 million and $13.0 million due to smaller client bases entering 2016. International National Brands, Agencies and Resellers revenue decreased $0.3 million and increased $0.1 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015, primarily due to a decrease in sales force productivity during the three months ended June 30, 2016 and an increase in client retention during the six months ended June 30, 2016.

Cost of Revenue

	Three Months Ended June 30,									Six Months Ended June 30,
	2016			2015			2016-2015 % Change			2016			2015			2016-2015 % Change
(in thousands)
Cost of revenue	$	45,591		$	55,390			(17.7	)%	$	89,422		$	111,607			(19.9	)%
As a percentage of revenue:		56.0	%		56.1	%					55.8	%		56.3	%

The decreases in our cost of revenue as a percentage of revenue for the three and six months ended June 30, 2016 compared to the same periods in 2015, were primarily due to improved margins on our ReachSearch product and a shift in product mix to our ReachSEO product and lead conversion software, which have higher margins. The decrease was partially offset by a decrease in publisher rebates as a percentage of revenue to 0.5% of revenue during the three and six months ended June 30, 2016, compared to 1.2% and 0.9 % during the same periods in 2015.

 Operating Expenses

 Selling and Marketing 

	Three Months Ended June 30,									Six Months Ended June 30,
	2016			2015			2016-2015 % Change			2016			2015			2016-2015 % Change
(in thousands)
Salaries, benefits and other costs	$	15,885		$	23,737			(33.1	)%	$	32,685		$	51,140			(36.1	)%
Commission expense		7,090			9,309			(23.8	)%		13,414			18,189			(26.3	)%
Total selling and marketing	$	22,975		$	33,046			(30.5	)%	$	46,099		$	69,329			(33.5	)%
As a percentage of revenue:
Salaries, benefits and other costs		19.5	%		24.0	%					20.4	%		25.8	%
Commission expense		8.7			9.5						8.4			9.2
Total selling and marketing		28.2	%		33.5	%					28.8	%		35.0	%

The decreases in selling and marketing salaries, benefits and other costs in absolute dollars for the three and six months ended June 30, 2016, compared to the same periods in 2015, were primarily due to fewer salespeople, partly stemming from our exit from direct selling in the UK market. The decrease as a percentage of revenue was primarily due to increased productivity per-salesperson as we decreased the number of salespeople to focus on higher performing salespeople and consolidate client accounts.

The decreases in commission expense as a percentage of revenue for the three and six months ended June 30, 2016, as compared to the same periods in 2015, were primarily due to changes made to improve the cost effectiveness of our commission plans.

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Product and Technology

	Three Months Ended June 30,									Six Months Ended June 30,
	2016			2015			2016-2015 % Change			2016			2015			2016-2015 % Change
(in thousands)
Product and technology costs expense	$	8,169		$	9,717			(15.9	)%	$	16,419		$	19,737			(16.8	)%
Capitalized software development costs from product and technology resources		2,106			2,635			(20.1	)%		4,270			5,233			(18.4	)%
Total product and technology expense, net capitalized costs	$	6,063		$	7,082			(14.4	)%	$	12,149		$	14,504			(16.2	)%
Percentage of revenue:
Product and technology expenses cost		10.0	%		9.9	%					10.3	%		10.0	%
Capitalized software development costs from product and technology resources		2.6			2.7						2.7			2.7
Total product and technology costs expense, net capitalized costs		7.4	%		7.2	%					7.6	%		7.3	%

The decreases in total product and technology expense in absolute dollars for the three and six months ended June 30, 2016, compared to the same periods in 2015, were primarily attributable to our 2015 restructuring plan and cost savings initiatives and resulted from a decrease in employee and professional services costs of $1.5 million and $3.3 million, respectively. The decreases in capitalized software development costs in absolute dollars for the three and six months ended June 30, 2016, were primarily due to a shift to lower cost resources during the three months ended June 30, 2016, as well as a decrease in headcount during the six months ended June 30, 2016. The increase in capitalized software development costs as a percentage of revenue for the six months ended June 30, 2016, was primarily driven by the decrease in revenue.

General and Administrative

	Three Months Ended June 30,									Six Months Ended June 30,
	2016			2015			2016-2015 % Change			2016			2015			2016-2015 % Change
(in thousands)
General and administrative	$	9,536		$	9,910			(3.8	)%	$	17,414		$	20,623			(15.6	)%
As a percentage of revenue:		11.7	%		10.0	%					10.9	%		10.4	%

 The decreases in general and administrative expenses in absolute dollars for the three and six months ended June 30, 2016, compared to the same periods in 2015, were primarily due to cost savings and the absence of certain charges that occurred in the prior period.

During the three months ended June 30, 2016 compared to the same period in 2015, professional and employee costs decreased $1.7 million, stock based compensation expense decreased $0.5 million, and accrued fringe benefits decreased $0.3 million, offset by accrued acquisition related costs of $2.4 million.

During the six months ended June 30, 2016 compared to the same period in 2015, professional and employee costs decreased $2.3 million, stock based compensation decreased $1.1 million and accrued legal fees and contingencies decreased $1.6 million as a result of exiting the U.K., offset by accrued acquisition related costs of $2.4 million.

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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 increase revenue and reduce costs. Restructuring charges during the six months ended June 30, 2016 totaled $2.7 million, consisting of $1.9 million of lease termination costs as a result of down-sizing a North American facility, $0.5 million of costs associated with utilizing a third party consultant to facilitate the execution of the plan, and $0.3 million of contract termination costs.

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 since the year ended December 31, 2014, other than settlement of associated liabilities.

Gain (loss) on Deconsolidation of Subsidiary, Net

During the fourth quarter of 2015, we deconsolidated RL U.K. and recorded a gain of $2.9 million. During the three and six months ended June 30, 2016, we recorded a loss of $0.1 million and $0.2 million, respectively, related to residual expenses associated with the deconsolidation.

Interest Expense

Interest expense increased $0.4 million and $1.4 million during the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015 due to interest expense related to our Loan and Security Agreement (the “Hercules Loan Agreement”) entered into on April 30, 2015 and the Convertible Second Lien Subordinated Notes (the “VantagePoint Notes”) entered on December 17, 2015.

Other Income (Expense), Net

Other income (expense), net primarily consisted of foreign currency fluctuations affecting our cash balances, offset by interest income resulting from invested balances.

Provision for Income Taxes

For the three and six months ended June 30, 2016, we recorded a provision for income taxes of $0.2 million and $0.4 million. This is compared to a benefit from income taxes of $40,000 and a provision for income taxes of $59,000 for the three and six months ended June 30, 2015, respectively. The overall increase in tax expense in 2016 compared to the same period in 2015 was primarily due to having a valuation allowance against net deferred tax assets in certain foreign jurisdictions in 2016 that did not have a valuation allowance in 2015. The income tax provision for the period ended June 30, 2016 relates primarily to income taxes in our state and foreign jurisdictions and a non-cash income tax liability related to tax deductible goodwill that cannot be considered when determining a need for a valuation allowance.

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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 three and six months ended June 30, 2016 and 2015, our Adjusted EBITDA was as follows: 

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
(in thousands)
Net loss	$	(4,237	)	$	(10,593	)	$	(10,389	)	$	(23,375	)
Add (subtract):
Income tax provision (benefit)		175			(40	)		442			59
Other income (expense), net		(90	)		135			(78	)		216
Interest expense		1,115			713			2,230			788
Loss on deconsolidation of subsidiaries, net		99			-			171			-
Operating loss		(2,938	)		(9,785	)		(7,624	)		(22,312	)
Add:
Depreciation and amortization		4,432			5,149			8,965			10,283
Stock-based compensation, net		1,397			2,214			2,537			4,360
Acquisition and integration costs		2,409			4			2,419			11
Restructuring charges		233			3,133			2,689			4,588
Adjusted EBITDA (1)	$	5,533		$	715		$	8,986		$	(3,070	)

(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;

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

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

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

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

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

Liquidity and Capital Resources

	Six Months Ended June 30,
Consolidated Statements of Cash Flow Data:	2016			2015
(in thousands)
Net cash provided by (used in) operating activities, continuing operations	$	591		$	(12,990	)
Net cash used in investing activities, continuing operations	$	(4,404	)	$	(6,902	)
Net cash provided by financing activities, continuing operations	$	282		$	6,130
Net cash used in discontinued operations	$	(7	)	$	(60	)

Operating Activities

During the six months ended June 30, 2016, net cash provided by operating activities from continuing operations of $0.6 million was primarily due to $15.3 million of non-cash expense adjustments made to our net loss of $10.4 million, partially offset by a change in operating assets and liabilities of $4.3 million. Non-cash expenses included $9.0 million of depreciation and amortization, $2.7 million of restructuring charges and $2.5 million of stock-based compensation expense. The change in operating assets and liabilities included a decrease in accounts payable of $1.9 million due to the timing of payments, a decrease in accrued restructuring of $1.3 million as restructuring expenses were incurred, and an increase in accounts receivable of $1.1 million due to an increase in sales on credit.

Net cash provided by operating activities related to continuing operations increased by $13.6 million during the six months ended June 30, 2016 compared to 2015, primarily as a result of a decrease in net loss of $13.0 million and an increase in operating liabilities of $8.6 million, offset by a decrease in non-cash items of $4.3 million and an increase in operating assets of $3.7 million. The increase in operating liabilities was primarily due to an increase in accounts payable of $6.6 million and accrued restructuring of $1.1 million due to timing of payments and restructuring activity, respectively. The increase in operating assets was primarily due to an increase in accounts receivable of $3.0 million due to an increase in sales on credit and an increase of $0.8 million in other receivables and prepaid expenses due to timing of prepaid annual contracts.

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 $4.4 million during the six months ended June 30, 2016, which was a decrease of $2.5 million compared to the comparable period in 2015. The decrease primarily relates to decreases in purchases of property and equipment of $1.4 million and software development costs of $1.0 million as we constrained investment as part of our cost savings initiatives. Our investments were offset in part by $0.4 million due to change in restricted cash due to closing a certificate of deposit and $0.3 million of proceeds from sales of property and equipment.

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Financing Activities

Our primary financing activities have consisted of borrowing under a term loan and convertible notes, net proceeds from exercise of stock options, capital lease obligations and common stock repurchases in connection with equity award vesting as more fully described below.

Net cash provided by financing activities decreased by $5.8 million during the six months ended June 30, 2016 compared to the same period in 2015. During the six months ended June 30, 2015, we received $24.7 million of net proceeds from the Hercules term loan, offset by $17.5 million of the term loan proceeds as restricted cash

Liquidity

At June 30, 2016, we had cash and cash equivalents of $15.2 million and short-term investments of $0.3 million. Cash and cash equivalents consist of cash, money market accounts and certificates of deposit. Short term investments consist of certificates of deposit with original maturities in excess of three months but less than 12 months. To date, we have experienced no loss of our invested cash, cash equivalents or short-term investments, although some of those balances are subject to foreign currency exchange risk (see Item 3, “Foreign Currency Exchange Risk,” for more information). At June 30, 2016, we had restricted cash in North America related to the minimum cash balance under the terms of the Hercules Loan Agreement of $12.5 million.

At June 30, 2016, we had restricted cash related to certificates of deposit 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 $65.5 million at June 30, 2016, and we incurred an operating loss of $7.6 million for the six months ended June 30, 2016 and $60.9 million for the twelve months ended December 31, 2015.

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. In addition, on December 17, 2015, we entered into a convertible note purchase agreement with affiliates of our largest shareholder for issuance of $5.0 million of the VantagePoint Notes. The note purchase agreement for the VantagePoint Notes also provided for the 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.

Under the Hercules Loan Agreement, we made monthly interest-only payments. Under the VantagePoint Notes, we were due to begin making quarterly interest and principal payments on the VantagePoint Notes on April 15, 2017, subject to a subordination agreement with Hercules.

Our covenants under the Hercules Loan Agreement included 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 covenants to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term. Under the Hercules Loan Agreement, we were required to maintain minimum cash in North America at all times, which equaled $15.0 million at December 31, 2015 and reduced to $12.5 million as of April 1, 2016.

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, 2016, instead of April 30, 2016, and (iii) agreed to amend the Hercules Warrant. On December 17, 2015 the Company entered into the third amendment to the Hercules Loan Agreement, which reduced the amount of restricted cash the Company was required to maintain in North America from $17.5 million to $15.0 million and which amount would be further reduced to $12.5 million if the Company achieved positive “Adjusted EBITDA” as defined in the Hercules Loan Agreement. On March 25, 2016, we entered into a Fourth Amendment to the Hercules Loan Agreement which increased the maximum net new investment in our foreign subsidiaries during 2016 from $4.0 million to $5.5 million. At June 30, 2016, we were in compliance with all financial covenants of the Hercules Loan Agreement.

In connection with the closing of the Merger, on August 9, 2016, we repaid the Hercules loan in full, including applicable fees and accrued and unpaid interest of $2.3 million. In addition, the warrant issued to Hercules was cancelled in exchange for a payment in cash of an amount equal to (a) the total number of shares underlying the warrant (300,000), multiplied by (b) $2.55. Further, in connection with the closing, our issued and outstanding convertible notes of $5.0 million with affiliates of VantagePoint, our largest shareholder, were repaid in full, including applicable fees and accrued and unpaid interest of $0.2 million.

Off-Balance Sheet Arrangements

On May 31, 2016, we entered into a reimbursement agreement with certain affiliates of VantagePoint (“LC Creditors”) pursuant to which we have agreed to reimburse the LC Creditors for (i) any amounts drawn on a $2.0 million irrevocable letter of credit issued by First Republic Bank to PayPal, Inc. for which the LC Creditors provided cash collateral to First Republic Bank in the amount of $2.0 million, and (ii) related costs, expenses and fees. Additionally, if the letter of credit is drawn upon by PayPal, Inc. in any amount, we have agreed to pay a fee equal to 200% of the amount so drawn. As of June 30, 2016, the irrevocable letter of credit has not been drawn upon by PayPal, Inc. and no fee is owed by us.

In connection with the closing of the Merger, the letter of credit was returned to the LC Creditors for cancellation and the reimbursement agreement was terminated.

Recent Accounting Pronouncements Adopted in 2016

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 were effective for us on 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 adoption of this standard did not have an impact on our financial statements. We will apply this update prospectively, as appropriate.

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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 of cloud computing providers 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. We assessed our accounting treatment in our capacity as a cloud computing customer and determined that no adjustments to the financial statements are necessary. We will apply this update going forward, as appropriate.

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 were effective for us as of January 1, 2016. In accordance with the adoption of this standard, we evaluated our non-marketable investments, comprised of a 7.2% equity interest in a privately held limited partnership that is one of our service providers, and a 14.2% equity interest in SERVIZ, Inc. (“Serviz”), the entity that acquired our former ClubLocal business.  Under the amended guidance, the limited partnership interest became a VIE as the limited partners do not have substantive participating rights or kick-out rights (including liquidation rights) over the general partner.  As an early-stage company, Serviz was considered a VIE as it may not have sufficient equity to finance its activities without additional financial support.  We are not the primary beneficiary of our non-marketable investments as we do not have: (1) the power to direct the activities that most significantly impact their economic performance or (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant, due to a lack of voting rights or decision-making authority, rights to receive residual returns, or obligations to provide additional financial support with either entity.  Adoption of the standard did not change our determination that the non-marketable investments do not require consolidation and did not have an impact on our financial statements. We will apply this update going forward, as appropriate.

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 were 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. The adoption of this standard did not have an impact on our financial statements. No prior periods were retrospectively adjusted. We will apply this update going forward, as appropriate.

Recent Accounting Pronouncements Not Yet Adopted

In March 2016, the FASB issued ASU No. 2016-09, Compensation- Stock Compensation. The amendments in this update simplify the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The amendments in this update are effective for us as of January 1, 2017. Early adoption is permitted. We are currently assessing the impact of this update on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Investments- Equity Method and Joint Ventures. The amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this update are effective for us as of January 1, 2017. Early adoption is permitted. An entity should apply the amendments in this update prospectively. We are currently assessing the impact of this update on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06, Derivatives and Hedging. The amendments in this update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The amendments in this update are effective for us as of January 1, 2017. Early adoption is permitted, including adoption in an interim period. An entity should apply the amendments in this update on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. We are currently assessing the impact of this update on our consolidated financial statements.

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In February 2016, the FASB issued ASU No. 2016-02, Leases. The amendments in this update supersedes the guidance in former 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 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 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. The adoption of this standard is not expected to have an impact on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12, respectively. 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 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). We are currently assessing the impact of this update on our consolidated financial statements.

Item 3.          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, an additional one percentage point increase in the prime rate would result in net additional annual interest expense on our outstanding borrowings as of June 30, 2016 of $0.2 million. However, in connection with the closing of the Merger, on August 9, 2016, the Hercules loan was repaid in full, including applicable fees and accrued and unpaid interest of $2.3 million.

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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 six months ended June 30, 2016, a 10% strengthening of the U.S. dollar relative to those foreign currencies would have resulted in a decrease in revenue of $5.1 million, but an increase in operating income of $0.2 million. A 10% weakening of the U.S. dollar relative to those foreign currencies, however, would have resulted in an increase in revenue of $5.1 million, but a decrease in operating income of $0.2 million. As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations. In addition, approximately 35% 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.

 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 4.     CONTROLS AND PROCEDURES  

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 June 30, 2016. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of such time 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.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the three and six months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

35

PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

On July 15, 2016, Todd Miranda filed a putative class action lawsuit challenging the Merger in the Superior Court of the State of California, County of Los Angeles. In addition to the Company, the members of our Board of Directors and certain Gannett entities were named as defendants. The complaint alleges breaches of fiduciary duty by the individual members of our Board in connection with the Merger Agreement by allegedly accepting an inadequate offer price and allegedly agreeing to unreasonable deal protection provisions, among other actions. The complaint further alleges that we, Parent and Purchaser aided and abetted the purported breaches of fiduciary duty. The plaintiffs generally seek equitable and injunctive relief, including an order enjoining the defendants from completing the proposed merger transaction, rescission of any consummated transaction, unspecified amounts in damages and attorneys’ fees. We believe this lawsuit is without merit, and intend to vigorously defend against it.

On July 27, 2016, Donal Casey filed a putative class action lawsuit challenging the Merger in the Superior Court of the State of California, County of Los Angeles. In addition to the Company, the members of our Board of Directors were named as defendants. The complaint alleges breaches of fiduciary duty by the individual members of our Board in connection with the Merger Agreement by allegedly failing to properly value the Company, allegedly agreeing to unreasonable deal protection provisions, and allegedly failing to make adequate disclosures regarding the Merger, among other actions. The plaintiffs generally seek equitable and injunctive relief, including an order enjoining the defendants from completing the Merger, rescission of any consummated transaction, unspecified amounts in damages and attorneys’ fees. We believe this lawsuit is without merit, and intend to vigorously defend against it.

Item 1A. RISK FACTORS

Investors should carefully consider the risk factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, in addition to the other information contained in our Annual Report and in this quarterly report on Form 10-Q.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 6. EXHIBITS

The exhibits listed in the Exhibit Index following the signature page to this report are filed as part of, or incorporated by reference into, this report.

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

Date: August 11, 2016

37

EXHIBIT INDEX 

Exhibit No	Description of Exhibit
2.1	Agreement and Plan of Merger, dated as of June 27, 2016, by and among Gannett Co., Inc., Raptor Merger Sub, Inc. and ReachLocal, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K (File No. 001-34749) filed with the SEC on June 27, 2016)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

38

EX-31.1

Exhibit 31.1

I, Sharon T. Rowlands, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: August 11, 2016

EX-31.2

Exhibit 31.2

I, Ross G. Landsbaum, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: August 11, 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 Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 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: August 11, 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 Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 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: August 11, 2016

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 10, 2016
Document Information [Line Items]
Entity Registrant Name	ReachLocal Inc
Entity Central Index Key	0001297336
Trading Symbol	rloc
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		100
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Convertible Debt [Member]
Current Liabilities:
Convertible notes – related party	$ 5,000,000	$ 5,000,000
Cash and cash equivalents	15,171,000	18,833,000
Short-term investments	274,000	359,000
Accounts receivable, net of allowance for doubtful accounts of $853 and $803 at June 30, 2016 and December 31, 2015, respectively	7,137,000	6,278,000
Prepaid expenses and other current assets	6,748,000	8,296,000
Total current assets	29,330,000	33,766,000
Property and equipment, net	10,763,000	13,550,000
Capitalized software development costs, net	19,559,000	20,691,000
Restricted cash- term loan	12,500,000	15,000,000
Restricted cash	3,451,000	3,502,000
Intangible assets, net	3,543,000	4,011,000
Non-marketable investments	9,000,000	9,000,000
Other assets	2,557,000	2,547,000
Goodwill	20,200,000	20,129,000
Total assets	110,903,000	122,196,000
Accounts payable	32,036,000	33,581,000
Accrued compensation and benefits	12,739,000	14,478,000
Deferred revenue	22,566,000	22,985,000
Accrued restructuring	3,389,000	3,329,000
Term loan	13,296,000	8,352,000
Capital lease	707,000	698,000
Other current liabilities	9,256,000	10,166,000
Liabilities of discontinued operations	798,000	804,000
Total current liabilities	94,787,000	94,393,000
Term loan	11,758,000	16,194,000
Capital lease	131,000	484,000
Deferred rent and other liabilities	8,031,000	8,111,000
Total liabilities	119,707,000	124,182,000
Stockholders’ Deficit:
Common stock $0.00001 par value—140,000 shares authorized; 30,103 and 29,639 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively	0	0
Receivable from stockholder	(57,000)	(55,000)
Additional paid-in capital	143,512,000	140,398,000
Accumulated deficit	(146,473,000)	(136,084,000)
Accumulated other comprehensive loss	(5,786,000)	(6,245,000)
Total stockholders’ deficit	(8,804,000)	(1,986,000)
Total liabilities and stockholders’ deficit	$ 110,903,000	$ 122,196,000

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Allowance for doubtful accounts	$ 853	$ 803
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)	30,103	29,639
Common stock, shares outstanding (in shares)	30,103	29,639

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenue	$ 81,460,000	$ 98,776,000	$ 160,169,000	$ 198,339,000
Cost of revenue	45,591,000	55,390,000	89,442,000	111,607,000
Operating expenses:
Selling and marketing	22,975,000	33,046,000	46,099,000	69,329,000
Product and technology	6,063,000	7,082,000	12,149,000	14,504,000
General and administrative	9,536,000	9,910,000	17,414,000	20,623,000
Amounts accrued	233,000	3,133,000	2,689,000	4,588,000
Total operating expenses	38,807,000	53,171,000	78,351,000	109,044,000
Operating loss	(2,938,000)	(9,785,000)	(7,624,000)	(22,312,000)
Deconsolidation, Gain (Loss), Amount	(99,000)		(171,000)
Interest expense	(1,115,000)	(713,000)	(2,230,000)	(788,000)
Other income (expense), net	(90,000)	135,000	(78,000)	216,000
Loss before income taxes	(4,062,000)	(10,633,000)	(9,947,000)	(23,316,000)
Income tax provision (benefit)	175,000	(40,000)	442,000	59,000
Net loss	$ (4,237,000)	$ (10,593,000)	$ (10,389,000)	$ (23,375,000)
Net loss per share, basic and diluted (in dollars per share)	$ (0.14)	$ (0.36)	$ (0.35)	$ (0.80)
Weighted average common shares used in the computation of loss per share:
Basic and diluted (in dollars per share)	$ 29,840	$ 29,097	$ 29,824	$ 29,083

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Net loss	$ (4,237)	$ (10,593)	$ (10,389)	$ (23,375)
Other comprehensive income (loss):
Foreign currency translation adjustments	404	(204)	459	(70)
Comprehensive loss	$ (3,833)	$ (10,797)	$ (9,930)	$ (23,445)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net loss	$ (10,389,000)	$ (23,375,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	8,965,000	10,283,000
Stock-based compensation	2,537,000	4,360,000
Restructuring charges	2,689,000	4,588,000
Loss on deconsolidation of subsidiary	171,000
(Gain) loss on disposal of fixed assets	(9,000)	135,000
Provision for doubtful accounts	396,000	66,000
Non-cash interest expense, net	558,000	173,000
Changes in operating assets and liabilities:
Accounts receivable	(1,103,000)	1,859,000
Prepaid expenses and other current assets	1,419,000	2,229,000
Restricted cash	(249,000)
Other assets	55,000	(264,000)
Accounts payable	(1,894,000)	(8,475,000)
Accrued compensation and benefits	(648,000)	(823,000)
Deferred revenue	(598,000)	(1,259,000)
Accrued restructuring	(1,280,000)	(2,358,000)
Deferred rent and other liabilities	(29,000)	(129,000)
Net cash provided by (used in) operating activities, continuing operations	591,000	(12,990,000)
Net cash used in operating activities, discontinued operations	(7,000)	(60,000)
Net cash provided by (used in) operating activities	584,000	(13,050,000)
Cash flows from investing activities:
Additions to property, equipment and software	(5,257,000)	(7,748,000)
Proceeds from sales of property and equipment	348,000
Changes in restricted cash due to certificates of deposits	360,000	50,000
Maturities of certificates of deposits and short-term investments	145,000	796,000
Net cash used in investing activities	(4,404,000)	(6,902,000)
Cash flows from financing activities:
Proceeds from term loan, net		24,700,000
Changes in restricted cash- term loan	2,500,000	(17,500,000)
Payment of deferred and contingent consideration	(1,346,000)	(434,000)
Proceeds from exercise of stock options	5,000	6,000
Principal payments on capital lease obligations	(385,000)	(443,000)
Term loan costs		(194,000)
Common stock repurchases	(492,000)	(5,000)
Net cash provided by financing activities	282,000	6,130,000
Effect of exchange rate changes on cash and cash equivalents	(124,000)	(1,274,000)
Net change in cash and cash equivalents	(3,662,000)	(15,096,000)
Cash and cash equivalents—beginning of period	18,833,000	43,720,000
Cash and cash equivalents—end of period	$ 15,171,000	$ 28,624,000

XML

Note 1 - Organization and Description of Business

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Nature of Operations [Text Block]

1. Organization and Description of Business

Overview

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™, ReachDisplay InApp™and ReachSocial Ads™), 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. 

The

Merger

On

June 27, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) under which Gannett Co., Inc. (“Parent”) and Raptor Merger Sub, Inc. (“Purchaser”), a wholly owned subsidiary of Parent, commenced a tender offer (the “Offer”) on July 11, 2016 to acquire all of the Company’s outstanding shares of common stock at a purchase price of $4.60 per share in cash, subject to reduction for any applicable withholding taxes, without interest (“Merger Consideration”). Upon the completion of the tender offer on August 9, 2016, Purchaser acquired over 92% of the Company's outstanding common stock and, promptly afterwards, Purchaser merged with and into the Company without a vote of the Company's stockholders (the “Merger”), with the Company surviving as a wholly owned subsidiary of Parent. The Company is now in the process of deregistering under the Exchange Act.

In connection with the closing of the

Merger, on August 9, 2016, the Company repaid its $25.0 million term loan with Hercules Technology Growth Capital (“Hercules Loan Agreement”), including applicable fees and interest, in full. In addition, in connection with the closing, the Company’s issued and outstanding convertible notes of $5.0 million with affiliates of VantagePoint, the Company’s largest shareholder, were repaid in full. In connection with the Merger, the Company recognized acquisition-related costs of $2.4 million for the three and six months ended June 30, 2016, which are included in operating expenses in the condensed consolidated statements of operations, primarily related to professional services fees. See Note 17, Subsequent Events, for more information.

XML

Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules

 and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The Condensed Consolidated Balance Sheet as of December 31, 2015 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures included in those audited consolidated financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company

’s statement of financial position at June 30, 2016, the Company’s results of operations for the three and six months ended June 30, 2016 and 2015 and the Company’s cash flows for the six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. All references to the three and six months ended June 30, 2016 and 2015 in the notes to the condensed consolidated financial statements are unaudited. T

he condensed consolidated financial statements as presented herein have not been adjusted as of June 30, 201​6​for the effects of the Merger, which closed on

August 9, 2016. See Note 17, Subsequent Events, for more information.

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

.

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

June 30, 2016 and December 31, 2015, cash equivalents consist of demand deposits and money market accounts. Cash equivalents are stated at cost, which approximates fair value.

Restricted Cash

—

Term Loan

Under the terms of the

Hercules Loan Agreement the Company was required to maintain, at all times, cash in North America of at least $15.0 million, unless the Company achieved 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. At April 1, 2016, the Company had achieved positive “Adjusted EBITDA” as defined for three consecutive quarters and therefore the restricted cash balance required under the Hercules Loan Agreement decreased to $12.5 million. Restricted cash—term loan represents the required minimum compensating balance to secure the term loan. See Note 12, 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 June 30, 2016 and December 31, 2015, the Company had restricted cash in the amount of $3.5 million, of which, $0.2 million, related to the employee health care self-insurance plan.

Non-Cash

Stock Bonus Plan

50% of the Company

’s annual corporate bonus plan is settled in fully vested restricted stock units for certain executives and senior level employees. The Company determined that bonus expense incurred under this plan should be presented as a liability, and recognized as an expense equal to the estimated dollar value of the awards upon settlement from the period of service inception date through the grant date.

Recent Accounting Pronouncements

Adopted in 2016

In September 2015, the

Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 were effective for the Company on 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 adoption of this standard did not have an impact on the Company’s financial statements. The Company will apply this update prospectively, as appropriate.

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 of cloud computing providers 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 assessed its accounting treatment in its capacity as a cloud computing customer and has determined that no adjustments to the financial statements are necessary. The Company will apply this update going forward, as appropriate.

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 were effective for the Company as of January 1, 2016. In accordance with the adoption of this standard, the Company evaluated its non-marketable investments, comprised of a 7.2% equity interest in a privately held limited partnership that is one of its service providers, and a 14.2% equity interest in SERVIZ, Inc. (“Serviz”), the entity that acquired its former ClubLocal business.  Under the amended guidance, the limited partnership interest became a VIE as the limited partners do not have substantive participating rights or kick-out rights (including liquidation rights) over the general partner.  As an early-stage company, Serviz was considered a VIE as it may not have sufficient equity to finance its activities without additional financial support.  The Company is not the primary beneficiary of its non-marketable investments as it does not have: (1) the power to direct the activities that most significantly impact their economic performance or (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant, due to a lack of voting rights or decision-making authority, rights to receive residual returns, or obligations to provide additional financial support with either entity.  

Adoption of the standard did not change the Company’s determination that the non-marketable investments do not require consolidation and 

did not have an impact on the Company’s financial statements. The Company will apply this update going forward, as appropriate.

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 were 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 adoption of this standard did not have an impact on the Company’s financial statements. No prior periods were retrospectively adjusted. The Company will apply this update going forward, as appropriate.

Recent Accounting Pronouncements Not Yet Adopted

In March 2016, the FASB issued ASU No. 2016-09,

Compensation- Stock Compensation.

The amendments in this update simplify the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07,

Investments- Equity Method and Joint Ventures.

The amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted. An entity should apply the amendments in this update prospectively. The Company is currently assessing the impact of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06,

Derivatives and Hedging.

The amendments in this update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted, including adoption in an interim period. An entity should apply the amendments in this update on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. The Company is currently assessing the impact of this update on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02,

Leases.

The amendments in this update supersedes the guidance in former

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 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 May 2014, the FASB issued ASU No. 2014-09,

Revenue from Contracts with Customers

and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12, respectively

. 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

6 Months Ended

Jun. 30, 2016

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 June 30, 2016		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	$	15,171	$	15,171	$	-	$	-
Restricted cash-term loan	$	12,500	$	12,500	$	-	$	-
Short-term investments	$	274	$	274	$	-	$	-
Restricted cash	$	3,451	$	-	$	3,451	$	-

			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	$	-

The Company

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

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 June 30, 2016 and December 31, 2015, and are included in non-marketable investments in the accompanying condensed consolidated balance sheet. The Company’s maximum financial 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:

	June 30, 2016
	Carrying Amount		Estimated Fair Value
(in thousands)
Term loan	$	25,054	$	24,800
Convertible notes- related party	$	5,000	$	4,500

	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 prior to the closing of the Merger, related to its Hercules Loan Agreement and VantagePoint Notes. The term loan and notes were determined using

Level 3 inputs

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 each 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 of 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.

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Note 4 - Acquisitions

6 Months Ended

Jun. 30, 2016

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 and on May 20, 2016 the Company made the final payment of $1.35 million for the indemnity holdback.

Acquisition of SureFire

On March 21, 2014,

ReachLocal New Zealand Limited (“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 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 a NZ$0.2 million ($0.1 million) 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.

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Note 5 - Goodwill and Finite-lived Intangible Assets

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

5. Goodwill and Finite-Lived Intangible Assets

At

June 30, 2016 and December 31, 2015, goodwill consisted of the following (in thousands):

	North America		Asia-Pacific			Total
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
Foreign currency translation		-		71			71
Balance at June 30 2016	$	13,680	$	6,520		$	20,200

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.

During 2015, due to a decline in internal projections for the Asia-Pacific reporting unit for both revenue and profitability as a result of declines in financial performance, the Company determined that sufficient indicators of potential impairment existed to require an interim quantitative goodwill imp

airment test for the Asia-Pacific reporting unit. 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 and as a result, the Company recorded an impairment charge of $27.8 million. Subsequent to the interim impairment test, due to further declines in the Company’s market capitalization and consideration of exiting the U.K. market, the Company determined that sufficient indicators existed to perform an additional interim quantitative goodwill impairment assessment of the North America and Asia-Pacific reporting units. Based on the assessment, it was determined that the estimated fair value of both reporting units substantially exceeded its carrying amount, including goodwill. Accordingly, no further impairment charge was recorded. During the six months ended June 30, 2016, no events have occurred or circumstances have changed to indicate that goodwill might be impaired.

Finite-Lived Intangible Assets

At

June 30, 2016 and December 31, 2015, finite-lived intangible assets consisted of the following (in thousands):

	June 30, 2016
	Useful Life (years)		Gross Value		Accumulated Amortization		Net
Developed technology		3-8	$	5,490	$	3,107	$	2,383
Customer contracts and relationships		2-4		1,773		1,090		683
Trade names		10		570		93		477
Total			$	7,833	$	4,290	$	3,543

	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

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,
Remaining 2016	$	491
2017		685
2018		584
2019		431
2020		431
Thereafter		921
Total	$	3,543

For the three months ended

June 30, 2016 and 2015, amortization expense related to acquired intangible assets was $0.2 million and $0.4 million, respectively. For the six months ended June 30, 2016 and 2015, amortization expense related to acquired intangible assets was $0.5 million and $0.9 million, respectively.

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Note 6 - Software Development Costs

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Research, Development, and Computer Software Disclosure [Text Block]

 

6

. Software Development Costs

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

	June 30, 2016			December 31, 2015
Capitalized software development costs	$	72,460		$	67,610
Accumulated amortization		(52,901	)		(46,919	)
Capitalized software development costs, net	$	19,559		$	20,691

For the three months ended

June 30, 2016 and 2015, the Company recorded amortization expense of $2.9 million and $3.0 million, respectively. For the six months ended June 30, 2016 and 2015, the Company recorded amortization expense of $5.7 million and $5.8 million, respectively. At June 30, 2016 and December 31, 2015, $3.8 million and $2.9 million, respectively, of capitalized software development costs were related to projects still in process.

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Note 7 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

7

. Commitments and Contingencies

L

egal Matters

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 financial position, results of operations or cash flows.

On July 15, 2016,

Todd Miranda filed

a putative class action lawsuit challenging the Merger in the Superior Court of the State of California, County of Los Angeles. In addition to the Company, the members of the Company’s Board of Directors and certain Gannett entities were named as defendants.

The complaint alleges breaches of fiduciary duty by the individual members of the Company Board in connection with the Merger Agreement by allegedly accepting an inadequate offer price and allegedly agreeing to unreasonable deal protection provisions, among other actions. The complaint further alleges that the Company, Parent and Purchaser aided and abetted the purported breaches of fiduciary duty. The plaintiffs generally seek equitable and

injunctive relief, including an order enjoining the defendants from completing the proposed merger transaction, rescission of any consummated transaction, unspecified amounts in damages and attorneys’ fees. The Company believes this lawsuit is without merit, and intends to vigorously defend against it.

On July

 27, 2016, Donal Casey filed

a putative class action lawsuit challenging the Merger in the Superior Court of the State of California, County of Los Angeles. In addition to the Company, the members of the Company’s Board of Directors were named as defendants.

The complaint alleges breaches of fiduciary duty by the individual members of the Company Board in connection with the Merger Agreement by allegedly failing to properly value the Company, allegedly agreeing to unreasonable deal protection provisions, and allegedly failing to make adequate disclosures regarding the Merger, among other actions. The plaintiffs generally seek equitable and

injunctive relief, including an order enjoining the defendants from completing the Merger, rescission of any consummated transaction, unspecified amounts in damages and attorneys’ fees. The Company believes this lawsuit is without merit, and intends to vigorously defend against it.

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Note 8 - Stockholders' Equity

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

8. 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.

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Note 9 - Stock-based Compensation

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

9

. Stock-Based Compensation

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, 2015		6,548		$	5.05
Granted		1,761		$	1.89
Exercised		(15	)	$	0.34
Forfeited		(378	)	$	5.50
Outstanding at June 30, 2016		7,916		$	4.33		6.2	$	9,899
Vested and exercisable at June 30, 2016		3,006		$	5.86		6.0	$	2,110
Unvested at June 30, 2016, net of estimated forfeitures		4,910		$	3.40		6.3	$	7,789

 

     The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted during the three and six months ended June 30, 2016 and 2015:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		1.39	%		1.54	%		1.26	%		1.53	%
Expected life (in years)		5.37			4.99			4.88			4.93
Expected volatility		68	%		57	%		69	%		57	%

The per-share weighted average grant date fair value of options granted during the six months ended June 30, 2016

was $1.07. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2016 and 2015, were $19,337 and $68,531, respectively. 

Restricted Stock and Restricted Stock Units

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, 2015		335		$	5.37
Granted		712		$	1.90
Forfeited		(17	)	$	5.99
Vested		(755	)	$	2.45
Unvested at June 30, 2016		275		$	4.51

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):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock-based compensation	$	1,450	$	2,314	$	2,673	$	4,579
Less: Capitalized stock-based compensation		53		100		136		219
Stock-based compensation expense, net	$	1,397	$	2,214	$	2,537	$	4,360

Stock-based compensation, net of capitalization, is included in the accompanying

condensed consolidated statements of operations within the following captions (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock-based compensation expense, net
Cost of revenue	$	59	$	134	$	109	$	290
Selling and marketing		207		424		408		906
Product and technology		178		126		240		294
General and administrative		953		1,530		1,780		2,870
Stock-based compensation expense, net	$	1,397	$	2,214	$	2,537	$	4,360

 

At June 30, 2016, there was $9.3 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 1.4 years. Future stock-based compensation expense for these awards may differ to the extent actual forfeitures vary from management estimates.

Commencing in 2015, 50% of the Company

’s annual corporate bonus plan for certain executives and senior level employees is being 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. On February 26, 2016, 414,239 shares (net 258,255 shares withheld to satisfy tax withholding obligations) were issued to satisfy the stock portion of the 2015 annual corporate bonus plan. During the three and six months ended June 30, 2016, the Company has recognized stock-based compensation expense related to the 2016 plan of $0.3 million and $0.3 million, respectively. As of June 30, 2016, approximately 273,998 shares would be required to satisfy the total estimated obligation relating to the stock portion of the 2016 annual corporate bonus plan.

 

Stock Option Exchange

On January 9, 2015, an option exchange was completed

that allowed 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 date grant. Total options covering 2.8 million shares 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.

Effect of the Merger

Immediately prior to the effective time of the

Merger on August 9, 2016, each outstanding Company stock option, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the excess, if any, of (1) the Merger Consideration over (2) the exercise price per share of such option, and (B) the number of Company shares underlying such option. Any Company stock option with an exercise price per share in excess of the Merger Consideration was cancelled without payment. Each outstanding Company restricted stock unit award and each restricted stock award, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the Merger Consideration, and (B) the number of Company shares underlying such award.

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Note 10 - Restructuring Charges

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

10

. 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 was 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 were 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 six months ended June 30, 2016 primarily involved down-sizing certain facilities in North America, costs to utilize a third party facilitator to aid execution of the plan and reductions of the Company’s international workforces.

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, 2015	$	586		$	606		$	344		$	1,536
Amounts accrued		292			1,879			-		$	2,171
Amounts paid		(813	)		(18	)		(278	)	$	(1,109	)
Accretion		-			(169	)		-		$	(169	)
Non-cash items		(8	)		(654	)		-		$	(662	)
Balance at June 30, 2016	$	57		$	1,644		$	66		$	1,767

In addition to the amount paid above, the Company also has a prepaid balance for restructuring as of

June 30, 2016, of $0.2 million included in “Prepaid expenses and other current assets” on the consolidated balance sheet.

The Company expects the remaining facility closure liabilities 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 Plan

s

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.

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, 2015	$	1,793		$	1,793
Amounts paid		(171	)	$	(171	)
Balance at June 30, 2016	$	1,622		$	1,622

The Company expects the remaining facility closure liabilities to be paid through the third quarter of 2024.

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Note 11 - Gain (loss) on Deconsolidation of Subsidiary

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Deconsolidation of Subsidiary [Text Block]

1

1

. Gain

(loss)

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

during the fourth quarter of 2015. During the three and six months ended June 30, 2016, the Company recorded a loss of $0.1 million and $0.2 million, respectively, related to residual expenses associated with the deconsolidation which is included in Loss on deconsolidation of subsidiary, net in the Company’s condensed consolidated statement of operations.

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Note 12 - Debt and Other Obligations

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

 

1

2

. Debt and Other Obligations

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, 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

had 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% and remained 12.00% through June 30, 2016. On the closing date of the Hercules Loan Agreement the Company paid a fee of $0.3 million, and debt issuance costs of $0.2 million.

In accordance with t

he Hercules Loan Agreement, the Company made monthly, contractual interest-only payments. The Company’s covenants under the Hercules Loan Agreement included 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 covenants to maintain certain minimum levels of revenue and earnings during each three-month period, tested monthly, during the term. Under the Hercules Loan Agreement, the Company agreed to maintain minimum cash in North America at all times, which equaled $15.0 million at December 31, 2015 and reduced to $12.5 million as of April 1, 2016.

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 waived 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 reduced the amount of restricted cash the Company was required to maintain in North America from $17.5 million to $15.0 million and which amount would be further reduced to $12.5 million if the Company achieved positive “Adjusted EBITDA” as defined in the Hercules Loan Agreement. On March 25. 2016, the Company and certain of its affiliates entered into a Fourth Amendment to the Hercules Loan Agreement which increased the maximum net new investment in the Company’s foreign subsidiaries during 2016 from $4.0 million to $5.5 million.

In connection with the closing of the Merger, on August 9, 2016, the Company repaid the Hercules term loan in full, including applicable fees and accrued and unpaid interest of $2.3 million.

H

ercules 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. 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 exceeded $2.55 per share underlying the warrant, the warrant holder would pay the Company the excess in cash. 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.

In connection with the closing of the Merger, on August 9, 2016, the warrant was cancelled in exchange for

a payment in cash of an amount equal to (a) the total number of shares underlying the warrant (300,000), multiplied by (b) $2.55.

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 issuance of $5.0 million of VantagePoint Notes. The note purchase agreement also provided for the 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 bore an annual interest rate of 4%, compounded quarterly. The Company was required to begin making quarterly interest and principal payments commencing on April 15, 2017, subject to a subordination agreement with Hercules. The holders of the VantagePoint Notes had 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 represented an initial conversion price of $5.00 per share. 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

provided that, except in certain circumstances, the convertibility of the VantagePoint Notes was 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 b

eneficially owned approximately 42% of the Company’s common stock as of June 30, 2016, and prior to the closing of the Merger, VantagePoint’s Chief Executive Officer and Managing Partner, was a member of the Company’s Board of Directors.

In connection with the closing of the Merger, on August 9, 2016, the VantagePoint Notes

, including applicable fees and accrued and unpaid interest of $0.2 million, were repaid in full.

VantagePoint

Irrevocable Letter of Credit and Reimbursement Agreement

(Related Party)

On May 31, 2016, the Company entered into a reimbursement agreement with certain affiliates of VantagePoint (“LC Creditors”) pursuant to which the Company has agreed to reimburse the LC Creditors for (i) any amounts drawn on a $2.0 million

irrevocable letter of credit issued by First Republic Bank to PayPal, Inc. for which the LC Creditors provided cash collateral to First Republic Bank in the amount of $2.0 million, and (ii) related costs, expenses and fees. Additionally, pursuant to the reimbursement agreement, the Company agreed to pay the LC Creditors an annual fee equal to 10% of the original face amount of the letter of credit, payable quarterly beginning on June 30, 2016 and, if the letter of credit is drawn upon by PayPal, Inc. in any amount, the Company has agreed to pay a fee equal to 200% of the amount so drawn. As of June 30, 2016, the irrevocable letter of credit had not been drawn upon by PayPal, Inc. and no fee was owed by the Company. The Company expensed the annual fee as incurred.

In connection with the closing of the

Merger, the letter of credit was returned to the LC Creditors for cancellation and the reimbursement agreement was terminated.

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Note 13 - Income Taxes

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1

3

. Income Taxes

The Company provides for income taxes in interim periods based on the estimated effective income tax rate for the complete fiscal year.

For the three and six months ended June 30, 2016, the Company recorded a provision for income taxes totaling $0.2 

million and $0.4 million. This is compared to a benefit from income taxes of $40,000 and a provision for income taxes of $59,000 for the three and six months ended June 30, 2015, respectively. The Company

’s tax provision

notwithstanding pre-tax losses

is due to

its full valuation allowance against its net deferred tax assets in the US and certain foreign jurisdictions. Generally, a full valuation allowance will result in a zero net tax provision, since the income tax expense or benefit that would otherwise be recognized is offset by the change in the valuation allowance.

However, the income tax provision for the period ended June 30, 2016 relates primarily to income taxes in the Company’s state and foreign jurisdictions and a non-cash income tax liability related to tax deductible goodwill

that cannot be considered when determining a need for a valuation allowance.

The income tax provision is computed on the year to date pretax income (loss) of the consolidated entities located within each taxing jurisdiction based on current tax law. Deferred tax assets and liabilities are determined based on the future tax consequences associated with temporary differences between income and expenses reported for financial accounting and tax reporting purposes. A valuation allowance for deferred tax assets is recorded to the extent the Company determines that it is more likely than not that the deferred tax assets will not be realized.

Realization of deferred tax assets is principally dependent upon future taxable income, the estimation of which requires significant management judgment. The Company

’s judgment regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans and/or tax planning strategies. These changes, if any, may require material adjustments to these deferred tax asset balances. On a quarterly basis, the Company reassesses the need for these valuation allowances based on operating results and its assessment of the likelihood of future taxable income and developments in the relevant tax jurisdictions. The Company continues to maintain a valuation allowance against its net deferred tax assets in US and various foreign jurisdictions, where the Company believes it is more likely than not that deferred tax assets will not be realized.

The Company strives to resolve open matters with each tax authority at the examination level and could reach an agreement with a tax authority at any time. While the Company has accrued for amounts it believes are the expected outcomes, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the financial statements. In addition, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal. The liability is reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations between tax authorities, identification of new issues, and issuance of new legislation, regulations or case law. Management believes that adequate amounts of tax and related interest, if any, have been provided for any adjustments that may result from these examinations of uncertain tax positions. Interest and penalties are included in income tax expense.

The Company and its subsidiaries file income tax returns in the U.S. federal, various state and foreign jurisdictions. Certain jurisdiction

’s statutes of limitations will begin to expire in 2017.  

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Note 14 - Net Loss Per Share

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

1

4

. Net

Loss

Per Share

 

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options, warrants and unvested restricted shares using the treasury stock method. The Company had a loss from continuing operations for the three and six months ended June 30, 2016 and 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):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Deferred stock consideration and unvested restricted stock		294		644		293		779
Stock options, convertible notes, and warrant		8,753		7,189		8,313		6,721
		9,047		7,833		8,606		7,500

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Numerator:
Net loss	$	(4,237	)	$	(10,593	)	$	(10,389	)	$	(23,375	)
Denominator:
Weighted average common shares used in computation of loss per share		29,840			29,097			29,824			29,083
Net loss per share, basic and diluted	$	(0.14	)	$	(0.36	)	$	(0.35	)	$	(0.80	)

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Note 15 - Segment Information

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

 

1

5

.

Segment Information

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 16 - Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

1

6

. Supplemental Cash Flow Information

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

	Six Months Ended June 30,
	2016		2015
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	136	$	219
Unpaid purchases of property and equipment	$	67	$	131
Assets acquired under capital leases	$	-	$	(204	)
Issuance of warrant	$	-	$	250

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Note 17 - Subsequent Events

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Subsequent Events [Text Block]

17. Subsequent Events

On

June 27, 2016, the Company entered into a Merger Agreement under which Gannett Co., Inc. (“Parent”) and Raptor Merger Sub, Inc. (“Purchaser”), a wholly owned subsidiary of Parent, commenced a tender offer (the “Offer”) on July 11, 2016 to acquire all of the Company’s outstanding shares of common stock at a purchase price of $4.60 per share in cash, subject to reduction for any applicable withholding taxes, without interest (“Merger Consideration”). Upon completion of the tender offer on August 9, 2016, Purchaser acquired over 92% of the Company's outstanding common stock and, promptly afterwards, Purchaser merged with and into the Company without a vote of the Company's stockholders (the "Merger"), with the Company surviving as a wholly owned subsidiary of Parent.

Immediately prior to the effective time of the Merger on August 9, 2016, e

ach outstanding Company stock option, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the excess, if any, of (1) the Merger Consideration over (2) the exercise price per share of such option, and (B) the number of Company shares underlying such option. Any Company stock option with an exercise price per share in excess of the Merger Consideration was cancelled without payment. Each outstanding Company restricted stock unit award and each restricted stock award, whether or not vested, was cancelled and converted into the right to receive an amount in cash, if any, without interest and less the amount of any tax withholdings, equal to the product of (A) the Merger Consideration, and (B) the number of Company shares underlying such award.

In conn

ection with the closing of the Merger, on August 9, 2016, the Company repaid the Hercules loan in full, including applicable fees and accrued and unpaid interest of $2.3 million. In addition, the warrant issued to Hercules was cancelled in exchange for a payment in cash of an amount equal to (a) the total number of shares underlying the warrant (300,000), multiplied by (b) $2.55. Further, the Company’s issued and outstanding convertible notes of $5.0 million with affiliates of VantagePoint, the Company’s largest shareholder, were repaid in full including applicable fees and accrued and unpaid interest of $0.2 million. The VantagePoint Irrevocable Letter of Credit was returned to the creditors for cancellation. In accordance with the Merger, the Company recognized acquisition-related costs of $2.4 million for the three and six months ended June 30, 2016, which are included in operating expenses in the condensed consolidated statements of operations, primarily related to professional services fees. Upon closing of the Merger, the Company incurred additional transaction-related costs of $7.3 million.    

As a result of the Merger, t

he Company’s assets and liabilities will be fair valued as of the date of the acquisition, August 9, 2016, and will be recorded in Gannett’s consolidated financial statements based upon their appraised values in accordance with the acquisition method of accounting. This purchase price allocation will include the valuation of identifiable intangible assets, including developed technology, customer relationships, and trade names as well as estimates of other assets and liabilities. After the fair value has been assigned to assets and liabilities, the remainder of the purchase price will be recorded as goodwill.

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

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

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules

 and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The Condensed Consolidated Balance Sheet as of December 31, 2015 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures included in those audited consolidated financial statements.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company

’s statement of financial position at June 30, 2016, the Company’s results of operations for the three and six months ended June 30, 2016 and 2015 and the Company’s cash flows for the six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. All references to the three and six months ended June 30, 2016 and 2015 in the notes to the condensed consolidated financial statements are unaudited.

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

.

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

June 30, 2016 and December 31, 2015, cash equivalents consist of demand deposits and money market accounts. Cash equivalents are stated at cost, which approximates fair value.

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 the Company was required to maintain, at all times, cash in North America of at least $15.0 million, unless the Company achieved 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. At April 1, 2016, the Company had achieved positive “Adjusted EBITDA” as defined for three consecutive quarters and therefore the restricted cash balance required under the Hercules Loan Agreement decreased to $12.5 million. Restricted cash—term loan represents the required minimum compensating balance to secure the term loan. See Note 12, 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 June 30, 2016 and December 31, 2015, the Company had restricted cash in the amount of $3.5 million, of which, $0.2 million, related to the employee health care self-insurance plan.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Non-Cash

Stock Bonus Plan

50% of the Company

’s annual corporate bonus plan is settled in fully vested restricted stock units for certain executives and senior level employees. The Company determined that bonus expense incurred under this plan should be presented as a liability, and recognized as an expense equal to the estimated dollar value of the awards upon settlement from the period of service inception date through the grant date.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

Adopted in 2016

In September 2015, the

Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 were effective for the Company on 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 adoption of this standard did not have an impact on the Company’s financial statements. The Company will apply this update prospectively, as appropriate.

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 of cloud computing providers 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 assessed its accounting treatment in its capacity as a cloud computing customer and has determined that no adjustments to the financial statements are necessary. The Company will apply this update going forward, as appropriate.

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 were effective for the Company as of January 1, 2016. In accordance with the adoption of this standard, the Company evaluated its non-marketable investments, comprised of a 7.2% equity interest in a privately held limited partnership that is one of its service providers, and a 14.2% equity interest in SERVIZ, Inc. (“Serviz”), the entity that acquired its former ClubLocal business.  Under the amended guidance, the limited partnership interest became a VIE as the limited partners do not have substantive participating rights or kick-out rights (including liquidation rights) over the general partner.  As an early-stage company, Serviz was considered a VIE as it may not have sufficient equity to finance its activities without additional financial support.  The Company is not the primary beneficiary of its non-marketable investments as it does not have: (1) the power to direct the activities that most significantly impact their economic performance or (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant, due to a lack of voting rights or decision-making authority, rights to receive residual returns, or obligations to provide additional financial support with either entity.  

Adoption of the standard did not change the Company’s determination that the non-marketable investments do not require consolidation and 

did not have an impact on the Company’s financial statements. The Company will apply this update going forward, as appropriate.

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 were 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 adoption of this standard did not have an impact on the Company’s financial statements. No prior periods were retrospectively adjusted. The Company will apply this update going forward, as appropriate.

Recent Accounting Pronouncements Not Yet Adopted

In March 2016, the FASB issued ASU No. 2016-09,

Compensation- Stock Compensation.

The amendments in this update simplify the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07,

Investments- Equity Method and Joint Ventures.

The amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted. An entity should apply the amendments in this update prospectively. The Company is currently assessing the impact of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06,

Derivatives and Hedging.

The amendments in this update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The amendments in this update are effective for the Company as of January 1, 2017. Early adoption is permitted, including adoption in an interim period. An entity should apply the amendments in this update on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year for which the amendments are effective. The Company is currently assessing the impact of this update on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02,

Leases.

The amendments in this update supersedes the guidance in former

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 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 May 2014, the FASB issued ASU No. 2014-09,

Revenue from Contracts with Customers

and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12, respectively

. 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 (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

			Basis of Fair Value Measurement
	Balance at June 30, 2016		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	$	15,171	$	15,171	$	-	$	-
Restricted cash-term loan	$	12,500	$	12,500	$	-	$	-
Short-term investments	$	274	$	274	$	-	$	-
Restricted cash	$	3,451	$	-	$	3,451	$	-

			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	$	-

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

	June 30, 2016
	Carrying Amount		Estimated Fair Value
(in thousands)
Term loan	$	25,054	$	24,800
Convertible notes- related party	$	5,000	$	4,500

	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 5 - Goodwill and Finite-lived Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Goodwill [Table Text Block]

	North America		Asia-Pacific			Total
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
Foreign currency translation		-		71			71
Balance at June 30 2016	$	13,680	$	6,520		$	20,200

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	June 30, 2016
	Useful Life (years)		Gross Value		Accumulated Amortization		Net
Developed technology		3-8	$	5,490	$	3,107	$	2,383
Customer contracts and relationships		2-4		1,773		1,090		683
Trade names		10		570		93		477
Total			$	7,833	$	4,290	$	3,543

	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

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Years Ending December 31,
Remaining 2016	$	491
2017		685
2018		584
2019		431
2020		431
Thereafter		921
Total	$	3,543

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Note 6 - Software Development Costs (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Capitalized Computer Software [Table Text Block]

	June 30, 2016			December 31, 2015
Capitalized software development costs	$	72,460		$	67,610
Accumulated amortization		(52,901	)		(46,919	)
Capitalized software development costs, net	$	19,559		$	20,691

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Note 9 - Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2016

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, 2015		6,548		$	5.05
Granted		1,761		$	1.89
Exercised		(15	)	$	0.34
Forfeited		(378	)	$	5.50
Outstanding at June 30, 2016		7,916		$	4.33		6.2	$	9,899
Vested and exercisable at June 30, 2016		3,006		$	5.86		6.0	$	2,110
Unvested at June 30, 2016, net of estimated forfeitures		4,910		$	3.40		6.3	$	7,789

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		1.39	%		1.54	%		1.26	%		1.53	%
Expected life (in years)		5.37			4.99			4.88			4.93
Expected volatility		68	%		57	%		69	%		57	%

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, 2015		335		$	5.37
Granted		712		$	1.90
Forfeited		(17	)	$	5.99
Vested		(755	)	$	2.45
Unvested at June 30, 2016		275		$	4.51

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock-based compensation	$	1,450	$	2,314	$	2,673	$	4,579
Less: Capitalized stock-based compensation		53		100		136		219
Stock-based compensation expense, net	$	1,397	$	2,214	$	2,537	$	4,360

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock-based compensation expense, net
Cost of revenue	$	59	$	134	$	109	$	290
Selling and marketing		207		424		408		906
Product and technology		178		126		240		294
General and administrative		953		1,530		1,780		2,870
Stock-based compensation expense, net	$	1,397	$	2,214	$	2,537	$	4,360

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Note 10 - Restructuring Charges (Tables)

6 Months Ended

Jun. 30, 2016

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, 2015	$	1,793		$	1,793
Amounts paid		(171	)	$	(171	)
Balance at June 30, 2016	$	1,622		$	1,622

Restructuring Plan 2015 [Member]

Notes Tables

Restructuring and Related Costs [Table Text Block]

	Workforce Reduction Costs			Facility Closures and Equipment Write-downs			Other Associated Costs			Total
Balance at December 31, 2015	$	586		$	606		$	344		$	1,536
Amounts accrued		292			1,879			-		$	2,171
Amounts paid		(813	)		(18	)		(278	)	$	(1,109	)
Accretion		-			(169	)		-		$	(169	)
Non-cash items		(8	)		(654	)		-		$	(662	)
Balance at June 30, 2016	$	57		$	1,644		$	66		$	1,767

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Note 14 - Net Loss Per Share (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Deferred stock consideration and unvested restricted stock		294		644		293		779
Stock options, convertible notes, and warrant		8,753		7,189		8,313		6,721
		9,047		7,833		8,606		7,500

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Numerator:
Net loss	$	(4,237	)	$	(10,593	)	$	(10,389	)	$	(23,375	)
Denominator:
Weighted average common shares used in computation of loss per share		29,840			29,097			29,824			29,083
Net loss per share, basic and diluted	$	(0.14	)	$	(0.36	)	$	(0.35	)	$	(0.80	)

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Note 16 - Supplemental Cash Flow Information (Tables)

6 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Six Months Ended June 30,
	2016		2015
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$	136	$	219
Unpaid purchases of property and equipment	$	67	$	131
Assets acquired under capital leases	$	-	$	(204	)
Issuance of warrant	$	-	$	250

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Note 1 - Organization and Description of Business (Details Textual) - USD ($) $ / shares in Units, $ in Millions		3 Months Ended	6 Months Ended
	Aug. 09, 2016	Jun. 30, 2016	Jun. 30, 2016	Jul. 11, 2016
Subsequent Event [Member] | Merger Agreement [Member]
Business Acquisition, Share Price				$ 4.60
Business Combination, Acquisition Related Costs	$ 7.3
Subsequent Event [Member] | Hercules Loan [Member]
Repayment of Loan	25.0
Repayment of Convertible Notes, Related Party	5.0
Subsequent Event [Member] | VantagePoint Notes [Member]
Repayment of Convertible Notes, Related Party	$ 5.0
Merger Agreement [Member]
Business Combination, Acquisition Related Costs		$ 2.4	$ 2.4

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Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2016	Apr. 02, 2016	Dec. 31, 2015
Computer Equipment [Member]
Property, Plant and Equipment, Useful Life	3 years
Health Care Benefit Reserve [Member]
Restricted Cash and Cash Equivalents	$ 0.2		$ 0.2
Variable Interest Entity, Not Primary Beneficiary [Member] | Privately Held Limited Partnership that is a Service Provider [Member]
Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage	7.20%
Variable Interest Entity, Not Primary Beneficiary [Member] | Serviz [Member]
Variable Interest Entity, Qualitative or Quantitative Information, Ownership Percentage	14.20%
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents	$ 15.0
Debt Instrument, Covenant Description, Number of Consecutive Quarters	3
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents, Positive Earnings Achieved	$ 12.5	$ 12.5
Certificates of Deposit, Automatic Renewal Period	1 year
Restricted Cash and Cash Equivalents	$ 3.5		$ 3.5
Annual Corporate Bonus Plan, Percentage to be Settled With Restricted Stock Units	50.00%

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Note 3 - Fair Value of Financial Instruments (Details Textual) - USD ($)	1 Months Ended		6 Months Ended	12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Jun. 30, 2016	Dec. 31, 2015
Non-marketable Investments [Member] | Club Local [Member]
Cost Method Investments			$ 4,500,000	$ 4,500,000
Club Local [Member]
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%
Asia Pacific [Member]
Goodwill, Impairment Loss				27,800,000
Cost Method Investments			$ 9,000,000	9,000,000
Goodwill, Impairment Loss			$ 0	$ 27,800,000

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Note 3 - Basis of Fair Value Measurement (Details) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Inputs, Level 1 [Member]
Assets:
Cash and cash equivalents	$ 15,171,000	$ 18,833,000
Restricted cash-term loan	12,500,000	15,000,000
Short-term investments	274,000	359,000
Restricted cash
Fair Value, Inputs, Level 2 [Member]
Assets:
Cash and cash equivalents
Restricted cash-term loan
Short-term investments
Restricted cash	3,451,000	3,502,000
Fair Value, Inputs, Level 3 [Member]
Assets:
Cash and cash equivalents
Restricted cash-term loan
Short-term investments
Restricted cash
Cash and cash equivalents	15,171,000	18,833,000
Restricted cash-term loan	12,500,000	15,000,000
Short-term investments	274,000	359,000
Restricted cash	$ 3,451,000	$ 3,502,000

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Note 3 - Financial Instruments Not Recorded at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Vantage Point [Member]
Convertible Notes, Related Party	$ 5,000	$ 5,000
Convertible notes- related party	4,500	4,600
Term loan	25,054	24,546
Term loan	$ 24,800	$ 24,500

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Note 4 - Acquisitions (Details Textual) $ in Thousands, NZD in Millions								6 Months Ended
	May 20, 2016 USD ($)	Sep. 18, 2015 USD ($)	Apr. 10, 2015 USD ($)	Apr. 10, 2015 NZD	Nov. 21, 2014 USD ($)	Mar. 21, 2014 USD ($)	Mar. 21, 2014 NZD	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Mar. 21, 2014 NZD
Kickserv [Member] | Indemnity Holdback [Member]
Payments to Acquire Businesses, Gross	$ 1,350
Kickserv [Member]
Business Combination, Consideration Transferred					$ 6,750
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High					4,000
Payments to Acquire Businesses, Gross					$ 5,300
Sure Fire [Member] | Earnout Consideration Payment [Member]
Payments of Merger Related Costs, Financing Activities			$ 300	NZD 0.4
Sure Fire [Member] | Indemnity Holdback Release [Member]
Payments of Merger Related Costs			200	0.3
Sure Fire [Member]
Business Combination, Consideration Transferred						$ 2,400	NZD 2.8
Payments to Acquire Businesses, Gross						1,500	NZD 1.7
Business Acquisition, Fair Value of Indemnity Holdback						$ 300				NZD 0.4
Payments of Merger Related Costs			400	0.6
Payments of Merger Related Costs, Financing Activities		$ 100
Net Working Capital Adjustments			$ 100	NZD 0.2
Payments of Merger Related Costs, Financing Activities								$ 1,346	$ 434

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Note 5 - Goodwill and Finite-lived Intangible Assets (Details Textual) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Asia Pacific [Member]
Goodwill, Impairment Loss					$ 27,800,000
Goodwill, Impairment Loss			$ 0		$ 27,800,000
Amortization of Intangible Assets	$ 200,000	$ 400,000	$ 500,000	$ 900,000

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Note 5 - Goodwill (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
North America [Member]
Goodwill	$ 13,680,000	$ 13,680,000
Accumulated impairment loss
Foreign currency translation
Goodwill	13,680,000	13,680,000
Asia Pacific [Member]
Goodwill	6,449,000	34,509,000
Accumulated impairment loss		(27,800,000)
Foreign currency translation	71,000	(260,000)
Goodwill	6,520,000	6,449,000
Goodwill	20,129,000	48,189,000
Accumulated impairment loss	0	(27,800,000)
Foreign currency translation	71,000	(260,000)
Goodwill	$ 20,200,000	$ 20,129,000

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Note 5 - Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Developed Technology Rights [Member] | Minimum [Member]
Useful Life	3 years	3 years
Developed Technology Rights [Member] | Maximum [Member]
Useful Life	8 years	8 years
Developed Technology Rights [Member]
Gross Value	$ 5,490	$ 5,490
Accumulated Amortization	3,107	2,920
Net	$ 2,383	$ 2,570
Customer Relationships [Member] | Minimum [Member]
Useful Life	2 years	2 years
Customer Relationships [Member] | Maximum [Member]
Useful Life	4 years	4 years
Customer Relationships [Member]
Gross Value	$ 1,773	$ 1,733
Accumulated Amortization	1,090	799
Net	$ 683	$ 934
Trade Names [Member]
Useful Life	10 years	10 years
Gross Value	$ 570	$ 570
Accumulated Amortization	93	63
Net	477	507
Gross Value	7,833	7,793
Accumulated Amortization	4,290	3,782
Net	$ 3,543	$ 4,011

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Note 5 - Estimated Amortization Expense over the Remaining Lives (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Remaining 2016	$ 491
2017	685
2018	584
2019	431
2020	431
Thereafter	921
Total	$ 3,543	$ 4,011

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Note 6 - Software Development Costs (Details Textual) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Capitalized Computer Software, Amortization	$ 2.9	$ 3.0	$ 5.7	$ 5.8
Capitalized Software Development Costs for Projects in Process	$ 3.8		$ 3.8		$ 2.9

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Note 6 - Capitalized Software Development Costs (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Capitalized software development costs	$ 72,460	$ 67,610
Accumulated amortization	(52,901)	(46,919)
Capitalized software development costs, net	$ 19,559	$ 20,691

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Note 8 - Stockholders' Equity (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Mar. 31, 2016
Stock Repurchased and Retired During Period, Shares	0	0	3,400,000
Stock Repurchase Program, Authorized Amount				$ 47.0
Stock Repurchased and Retired During Period, Value			$ 36.3

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Note 9 - Stock-based Compensation (Details Textual) - USD ($)			3 Months Ended		6 Months Ended
	Feb. 26, 2016	Jan. 09, 2015	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
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
Allocated Share-based Compensation Expense			$ 300,000		$ 300,000
Stock Option Exchange [Member]
Allocated Share-based Compensation Expense		$ 1,500,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value					$ 1.07
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value					$ 19,337	$ 68,531
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized			9,300,000		$ 9,300,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					1 year 146 days
Annual Corporate Bonus Plan, Percentage to be Settled With Restricted Stock Units					50.00%
Allocated Share-based Compensation Expense			$ 1,397,000	$ 2,214,000	$ 2,537,000	$ 4,360,000
Annual Corporate Bonus Plan, Shares Required to Satisfy Bonus Obligation			273,998		273,998
Option Exchange Share Price		$ 6
Options Exchanged in Option Exchange		2,800,000

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Note 9 - Summary of Vested and Unvested Options Activity (Details) $ / shares in Units, shares in Thousands, $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($) $ / shares shares
Outstanding, number of shares (in shares) | shares	6,548
Outstanding, weighted average exercise price per share (in dollars per share) | $ / shares	$ 5.05
Outstanding, aggregate intrinsic value | $
Granted, number of shares (in shares) | shares	1,761
Granted, weighted average exercise price per share (in dollars per share) | $ / shares	$ 1.89
Forfeited, number of shares (in shares) | shares	(378)
Forfeited, weighted average exercise price per share (in dollars per share) | $ / shares	$ 5.50
Outstanding, number of shares (in shares) | shares	7,916
Outstanding, weighted average exercise price per share (in dollars per share) | $ / shares	$ 4.33
Outstanding, weighted average remaining contractual life (in years)	6 years 73 days
Outstanding, aggregate intrinsic value | $	$ 9,899
Vested and exercisable at June 30, 2015, number of shares (in shares) | shares	3,006
Vested and exercisable at June 30, 2015, weighted average exercise price per share (in dollars per share) | $ / shares	$ 5.86
Vested and exercisable at June 30, 2015, weighted average remaining contractual life (in years)	6 years
Vested and exercisable, aggregate intrinsic value | $	$ 2,110
Unvested at June 30, 2015, net of estimated forfeitures, number of shares (in shares) | shares	4,910
Unvested at June 30, 2015, net of estimated forfeitures, weighted average exercise price per share (in dollars per share) | $ / shares	$ 3.40
Unvested at June 30, 2015, net of estimated forfeitures, weighted average remaining contractual life (in years)	6 years 109 days
Unvested, net of estimated forfeitures, aggregate intrinsic value | $	$ 7,789

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Note 9 - Weighted Average Assumptions Used to Estimate Fair Value of Stock Options Granted (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Risk-free interest rate	1.39%	1.54%	1.26%	1.53%
Expected life (in years)	5 years 135 days	4 years 361 days	4 years 321 days	4 years 339 days
Expected volatility	68.00%	57.00%	69.00%	57.00%

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Note 9 - Summary of Restricted Stock Awards and Restricted Stock Unit Awards (Details) shares in Thousands	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Restricted Stock and Restricted Stock Units [Member]
Unvested at December 31, 2014, number of shares (in shares) | shares	335
Unvested at December 31, 2014, weighted average grant date fair value (in dollars per share)	$ 5.37
Granted, number of shares (in shares) | shares	712
Granted, weighted average exercise price per share (in dollars per share)	$ 1.90
Forfeited, number of shares (in shares) | shares	(17)
Forfeited, weighted average grant date fair value (in dollars per share)	$ 5.99
Vested, number of shares (in shares) | shares	(755)
Vested, weighted average grant date fair value (in dollars per share)	$ 2.45
Unvested at September 30, 2015, number of shares (in shares) | shares	275
Unvested at September 30, 2015, weighted average grant date fair value (in dollars per share)	$ 4.51
Granted, weighted average exercise price per share (in dollars per share)	$ 1.89

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Note 9 - Summary of Stock Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Stock-based compensation	$ 1,450	$ 2,314	$ 2,673	$ 4,579
Less: Capitalized stock-based compensation	53	100	136	219
Stock-based compensation expense, net	$ 1,397	$ 2,214	$ 2,537	$ 4,360

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Note 9 - Stock-based Compensation Expense, Net of Capitalization, Included in the Condensed Consolidated Statements of Operations (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Cost of Sales [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	$ 59	$ 134	$ 109	$ 290
Selling and Marketing Expense [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	207	424	408	906
Product and Technology [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	178	126	240	294
General and Administrative Expense [Member]
Stock-based compensation expense, net
Allocated Share-based Compensation Expense	953	1,530	1,780	2,870
Allocated Share-based Compensation Expense	$ 1,397	$ 2,214	$ 2,537	$ 4,360

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Note 10 - Restructuring Charges (Details Textual) $ in Millions	Jun. 30, 2016 USD ($)
Restructuring Plan 2015 [Member] | Prepaid Expenses and Other Current Assets [Member]
Restructuring and Related Cost, Expected Cost	$ 0.2

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Note 10 - Summary of the 2016 Accrued Restructuring Liability (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Severance [Member] | Restructuring Plan 2015 [Member]
Balance at December 31, 2015			$ 586,000
Amounts accrued			292,000
Amounts paid			(813,000)
Accretion
Non-cash items			(8,000)
Balance at June 30, 2016	$ 57,000		57,000
Facility Closing [Member] | Restructuring Plan 2015 [Member]
Balance at December 31, 2015			606,000
Amounts accrued			1,879,000
Amounts paid			(18,000)
Accretion			(169,000)
Non-cash items			(654,000)
Balance at June 30, 2016	1,644,000		1,644,000
Other Restructuring [Member] | Restructuring Plan 2015 [Member]
Balance at December 31, 2015			344,000
Amounts accrued
Amounts paid			(278,000)
Accretion
Non-cash items
Balance at June 30, 2016	66,000		66,000
Restructuring Plan 2015 [Member]
Balance at December 31, 2015			1,536,000
Amounts accrued			2,171,000
Amounts paid			(1,109,000)
Accretion			(169,000)
Non-cash items			(662,000)
Balance at June 30, 2016	1,767,000		1,767,000
Balance at December 31, 2015			3,329,000
Amounts accrued	233,000	$ 3,133,000	2,689,000	$ 4,588,000
Balance at June 30, 2016	$ 3,389,000		$ 3,389,000

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Note 10 - Summary of the 2014 Accrued Restructuring Liability (Details)	6 Months Ended
	Jun. 30, 2016 USD ($)
Facility Closing [Member] | Restructuring Plan 1, 2014 [Member]
Balance at December 31, 2015	$ 1,793,000
Amounts paid	(171,000)
Balance at June 30, 2016	1,622,000
Restructuring Plan 1, 2014 [Member]
Balance at December 31, 2015	1,793,000
Amounts paid	(171,000)
Balance at June 30, 2016	1,622,000
Balance at December 31, 2015	3,329,000
Balance at June 30, 2016	$ 3,389,000

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Note 11 - Gain (loss) on Deconsolidation of Subsidiary (Details Textual) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Deconsolidation, Gain (Loss), Amount	$ (99)	$ 2,900		$ (171)

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Note 12 - Debt and Other Obligations (Details Textual)						3 Months Ended	6 Months Ended
	Aug. 09, 2016 USD ($) $ / shares shares	May 31, 2016 USD ($)	Dec. 17, 2015 USD ($) $ / shares	Nov. 09, 2015 USD ($) $ / shares shares	Apr. 30, 2015 USD ($) $ / shares shares	Mar. 25, 2016 USD ($)	Jun. 30, 2016 USD ($) $ / shares	Jun. 30, 2015 USD ($)	Apr. 02, 2016 USD ($)	Feb. 04, 2016	Dec. 31, 2015 USD ($) $ / shares
Hercules Loan [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Effective Percentage					11.75%						12.00%
Hercules Loan [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate					8.50%
Hercules Loan [Member] | Subsequent Event [Member]
Payments for Fees and Interest	$ 2,300,000
Hercules Loan [Member]
Debt Instrument, Face Amount					$ 25,000,000
Debt Instrument, Interest Rate, Effective Percentage							12.00%
Debt Instrument, Fee Amount					300,000
Debt Issuance Costs, Net					$ 200,000
Debt Instrument, Term					3 years
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents					$ 17,500,000						$ 15,000,000
Debt Instrument, Covenant Description, Minimum Cash and Cash Equivalents, Positive Earnings Achieved			$ 12,500,000		$ 12,500,000
Loan Processing Fee				$ 200,000
Debt Instrument, Covenant Description, Foreign Subsidiary Investment, Maximum						$ 4,000,000
Debt Instrument, Covenant Description, Foreign Subsidiary Investment, Maximum, Thereafter						$ 5,500,000
Subsequent Event [Member] | VantagePoint Notes [Member]
Payments of Debt Issuance Costs	$ 200,000
Subsequent Event [Member]
Number of Shares of Cancelled Warrant | shares	300,000
Class of Warrant or Right, Absolute Return Per Share | $ / shares	$ 2.55
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
Maximum Percentage of Oustanding shares that may Be Converted										1.90%
Vantage Point [Member]
Convertible Notes, Related Party							$ 5,000,000				$ 5,000,000
LC Creditors [Member] | Financial Standby Letter of Credit [Member]
Maximum Letter of Credit Amount		$ 2,000,000
Letter of Credit Annual Fee Percentage		10.00%
Letter of Credit Draw Fee		200.00%
Amount of Letter of Credit Drawn							0
LC Creditors [Member] | Fee of Letter of Credit [Member]
Amount of Letter of Credit Drawn							$ 0
Vantage Point [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners							42.00%
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		$ 12,500,000
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
Payments of Debt Issuance Costs								$ 194,000

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Note 13 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Tax Expense (Benefit)	$ 175,000	$ (40,000)	$ 442,000	$ 59,000

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Note 14 - Antidilutive Securities Excluded in Earnings Per Share (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Deferred Stock Consideration and Unvested Restricted Stock [Member]
Antidilutive securities (in shares)	294	644	293	779
Stock Options, Convertible Notes, and Warrant [Member]
Antidilutive securities (in shares)	8,753	7,189	8,313	6,721
Antidilutive securities (in shares)	9,047	7,833	8,606	7,500

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Note 14 - Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Numerator:
Net loss	$ (4,237)	$ (10,593)	$ (10,389)	$ (23,375)
Denominator:
Weighted average common shares used in computation of loss per share (in shares)	29,840	29,097	29,824	29,083
Net loss per share, basic and diluted (in dollars per share)	$ (0.14)	$ (0.36)	$ (0.35)	$ (0.80)

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Note 15 - Segment Information (Details Textual)	6 Months Ended
	Jun. 30, 2016
Number of Operating Segments	1

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Note 16 - Supplemental Cash Flow Disclosures (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Non-cash investing and financing activities:
Capitalized software development costs resulting from stock-based compensation and deferred payment obligations	$ 136	$ 219
Unpaid purchases of property and equipment	67	131
Assets acquired under capital leases		(204)
Issuance of warrant		$ 250

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Note 17 - Subsequent Events (Details Textual) - USD ($) $ / shares in Units, $ in Millions		3 Months Ended	6 Months Ended
	Aug. 09, 2016	Jun. 30, 2016	Jun. 30, 2016	Jul. 11, 2016
Subsequent Event [Member] | Merger Agreement [Member]
Business Acquisition, Share Price				$ 4.60
Business Combination, Acquisition Related Costs	$ 7.3
Subsequent Event [Member] | Hercules Loan [Member]
Payments for Fees and Interest	2.3
Repayment of Convertible Notes, Related Party	5.0
Subsequent Event [Member] | VantagePoint Notes [Member]
Payments for Fees and Interest	0.2
Repayment of Convertible Notes, Related Party	$ 5.0
Subsequent Event [Member]
Number of Shares of Cancelled Warrant	300,000
Class of Warrant or Right, Absolute Return Per Share	$ 2.55
Merger Agreement [Member]
Business Combination, Acquisition Related Costs		$ 2.4	$ 2.4