Edgar Filing: LoopNet, Inc.

e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2009


o		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 000-52026

LOOPNET, INC.

(Exact name of registrant as specified in its charter)


Delaware		77-0463987
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

185 Berry Street, Suite 4000
San Francisco, CA 94107
(Address of principal executive offices)
(415) 243-4200
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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


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

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.

Yes o No þ

As of October 30, 2009, there were 34,543,409 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of December 31, 2008 and September 30, 2009		3

Condensed Consolidated Statements of Income for the three and nine month periods ended September 30, 2008 and 2009		4

Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2008 and 2009		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3. Quantitative and Qualitative Disclosures About Market Risk		17

Item 4. Controls and Procedures		17

PART II — OTHER INFORMATION		18

Item 1. Legal Proceedings		18

Item 1A. Risk Factors		18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27

Item 3. Defaults Upon Senior Securities		27

Item 4. Submission of Matters to a Vote of Security Holders		27

Item 5. Other Information		27

Item 6. Exhibits		27

SIGNATURES		28

EXHIBIT INDEX		29
EX-31.1
EX-31.2
EX-32.1
EX-32.2

LOOPNET, INC.

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


	December 31,			September 30,
	2008			2009
				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	61,325		$	122,040
Short-term investments		3,262			3,416
Accounts receivable, net of allowance of $121 and $181, respectively		1,564			1,758
Prepaid expenses and other current assets		1,530			1,285
Deferred income taxes, net		607			607


Total current assets		68,288			129,106

Property and equipment, net		2,208			2,515
Goodwill		23,056			23,368
Intangibles, net		5,678			4,781
Deferred income taxes, net, non-current		5,829			7,031
Deposits and other noncurrent assets		3,151			3,876


Total assets	$	108,210		$	170,677


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	622		$	1,234
Accrued liabilities		2,020			2,603
Accrued compensation and benefits		2,759			2,793
Deferred revenue		10,358			9,793


Total current liabilities		15,759			16,423

Commitments and contingencies
Series A convertible preferred stock		—			48,122
Stockholders’ equity:
Common stock, $.001 par value, 125,000,000 shares authorized; 39,218,665 and 39,443,402 shares issued, respectively; and 34,292,704 and 34,517,441 shares outstanding, respectively		39			39
Additional paid in capital		114,915			120,456
Other comprehensive loss		(276	)		(428	)
Treasury stock, at cost, 4,925,961 shares		(54,556	)		(54,556	)
Retained earnings		32,329			40,621


Total stockholders’ equity		92,451			106,132


Total liabilities and stockholders’ equity	$	108,210		$	170,677

The accompanying notes are an integral part of these unaudited condensed financial statements.

LOOPNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

(unaudited)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008		2009			2008		2009
Revenues	$	22,403	$	18,795		$	65,019	$	58,145
Cost of revenue (1)		2,876		2,670			7,994		8,339


Gross margin		19,527		16,125			57,025		49,806

Operating expenses (1):
Sales and marketing		4,711		2,650			14,375		11,394
Technology and product development		2,301		2,833			6,648		8,047
General and administrative		5,227		5,547			14,232		17,418


Total operating expenses		12,239		11,030			35,255		36,859


Income from operations		7,288		5,095			21,770		12,947
Interest and other income, net		459		52			1,914		159


Income before tax		7,747		5,147			23,684		13,106
Income tax expense		2,927		1,342			9,476		4,659


Net income		4,820		3,805			14,208		8,447
Convertible preferred stock accretion of discount		—		(85	)		—		(155	)


Net income applicable to common stockholders	$	4,820	$	3,720		$	14,208	$	8,292


Net income per share applicable to common stockholders
Basic	$	0.14	$	0.09		$	0.39	$	0.20


Diluted	$	0.13	$	0.09		$	0.38	$	0.19


Weighted average shares
Basic		35,503		41,915			36,243		41,833


Diluted		36,787		42,919			37,693		42,765


(1)		Stock-based compensation is allocated as follows:


Cost of revenue	$	153	$	4		$	408	$	361
Sales and marketing		554		(755	)		1,632		481
Technology and product development		347		699			919		1,745
General and administrative		465		1,174			1,418		2,475


Total	$	1,519	$	1,122		$	4,377	$	5,062

The accompanying notes are an integral part of these unaudited condensed financial statements.

LOOPNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)


	Nine Months Ended September 30,
	2008			2009
Cash flows from operating activities:
Net income	$	14,208		$	8,447
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		1,584			1,922
Stock-based compensation		4,377			5,062
Tax benefits from exercise of stock options		(689	)		(288	)
Deferred income tax		(938	)		(1,202	)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(652	)		(193	)
Prepaid expenses and other assets		(1,892	)		(16	)
Income taxes payable		(9	)		288
Accounts payable		78			612
Accrued expenses and other current liabilities		2,084			583
Accrued compensation and benefits		29			35
Deferred revenue		1,314			(566	)


Net cash provided by operating activities		19,494			14,684

Cash flows from investing activities:
Purchase of property and equipment		(1,041	)		(1,352	)
Purchase of investments		(750	)		(750	)
Acquisitions, net of acquired cash		(12,584	)		(312	)


Net cash used in investing activities		(14,375	)		(2,414	)

Cash flows from financing activities:
Net proceeds from exercise of stock options		327			190
Net proceeds from sale of preferred stock		—			47,967
Repurchase of common stock		(44,595	)		—
Tax benefits from exercise of stock options		689			288


Net cash provided by (used in) financing activities		(43,579	)		48,445


Net increase (decrease) in cash and cash equivalents		(38,460	)		60,715
Cash and cash equivalents at beginning of period		104,564			61,325


Cash and cash equivalents at end of period	$	66,104		$	122,040

The accompanying notes are an integral part of these unaudited condensed financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Background and Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated balance sheet as of September 30, 2009, the statements of income for the three and nine months ended September 30, 2008 and 2009 and the statements of cash flows for the nine months ended September 30, 2008 and 2009 are unaudited. These statements should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial position and results of operations, contained in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2008 and include normal and recurring adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. The results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2009. The Company has evaluated subsequent events after the balance sheet date through the financial statement issuance date for appropriate accounting and disclosure.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standard Codification ™ (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements issued for interim and annual periods ending after September 15, 2009. The Codification, which launched July 1, 2009, has changed the manner in which GAAP guidance is referenced, but did not have an impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB issued guidance regarding principles and requirements for how an acquirer accounts for business combinations. This guidance provides greater consistency in the accounting and financial reporting of business combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquiror to disclose the nature and financial effect of the business combination. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Effective beginning January 1, 2009, the Company will account for future business combinations in accordance with its provisions. There has been no material impact on the financial statements; however, the future effects of this guidance will affect any future acquisitions completed by the Company.

In December 2007, the FASB issued guidance to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance is effective for fiscal years beginning after December 15, 2008. Effective beginning January 1, 2009, the Company adopted this guidance and there has been no material impact on the financial statements.

Note 2 — Earnings Per Share (EPS)

The share count used to compute basic and diluted net income per share is calculated as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2009		2008		2009
Weighted average common shares outstanding		35,503		34,475		36,243		34,393
Convertible preferred stock		—		7,440		—		7,440


Shares used to compute basic net income applicable to common stockholders		35,503		41,915		36,243		41,833
Add dilutive common equivalents:
Stock options		1,223		942		1,371		898
Restricted stock units		11		62		11		34
Unvested restricted stock (1)		50		0		68		0


Shares used to compute diluted net income applicable to common stockholders		36,787		42,919		37,693		42,765


(1)		Outstanding unvested common stock purchased by employees is subject to repurchase by the Company and therefore is not included in the calculation of the weighted-average shares outstanding for basic earnings per share.

The following is a summary of the securities outstanding during the respective periods that have been excluded from the calculations because the effect on earnings per share would have been anti-dilutive (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2009		2008		2009
Stock options		3,157		4,898		2,414		4,741
Restricted stock units		—		113		—		114

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008		2009			2008		2009
Calculation of basic net income per share applicable to common stockholders
Net income	$	4,820	$	3,805		$	14,208	$	8,447
Convertible preferred stock accretion of discount		—		(85	)		—		(155	)


Net income applicable to common stockholders	$	4,820	$	3,720		$	14,208	$	8,292
Shares used to compute basic net income applicable to common stockholders		35,503		41,915			36,243		41,833

Basic net income per share applicable to common stockholders	$	0.14	$	0.09		$	0.39	$	0.20


Calculation of diluted net income per share applicable to common stockholders
Net Income	$	4,820	$	3,805		$	14,208	$	8,447
Convertible preferred stock accretion of discount		—		(85	)		—		(155	)


Net income applicable to common stockholders	$	4,820	$	3,720		$	14,208	$	8,292
Shares used to compute diluted net income applicable to common stockholders		36,787		42,919			37,693		42,765

Dilutive net income per share applicable to common stockholders	$	0.13	$	0.09		$	0.38	$	0.19

Note 3 — Acquisitions

On April 7, 2008, the Company acquired all of the shares of capital stock of REApplications, Inc., a private company incorporated in Delaware (“REApps”) pursuant to a Stock Purchase Agreement dated as of April 7, 2008, by and among the Company and the shareholders of REApps for a purchase price of $9.2 million net of acquired cash.

On July 29, 2008, the Company acquired all of the shares of capital stock of RPB Media, Inc., a private company incorporated in Massachusetts pursuant to a Stock Purchase Agreement dated as of July 29, 2008, by and among the Company and the sole shareholder of RPB Media, Inc. for a purchase price of $2.1 million net of acquired cash. In addition, the Company is obligated to make additional cash payments up to $750,000 if certain performance targets are met, which would be treated as additional consideration for the acquisition. On February 26, 2009, the Company made a cash payment of $187,500, which represents the first of four potential contingent payment obligations. On July 27, 2009, the Company made a second cash payment of $125,000. On August 19, 2008, Articles of Amendment were filed with The Commonwealth of Massachusetts to amend the exact name of the corporation from RPB Media, Inc. to LandAndFarm.com, Inc. (“LandAndFarm”).

The acquisitions of REApps and LandAndFarm were accounted for as a purchase consistent with the authoritative guidance of Business Combinations (see the Company’s 2008 Form 10-K for additional information).

Note 4 — Series A Convertible Preferred Stock

On April 14, 2009, the Company completed a $50 million private placement to accredited investors (the “Purchasers”). The transaction was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Pursuant to the Securities Purchase Agreement (the “Purchase Agreement”), the Company agreed to sell to the Purchasers an aggregate of 50,000 shares of its newly-created Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”). The Series A Preferred Stock is initially convertible into an aggregate of 7,440,476 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a conversion price of $6.72 per share (as may be adjusted for stock dividends, stock splits or similar recapitalizations).

The holders of the Series A Preferred Stock are entitled to receive, prior to any distribution to the holders of the Common Stock, an amount per share equal to the greater of (1) the Original Issue Price, plus any declared and unpaid dividends and (2) the amount that Purchasers would receive in respect of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock if all of the then outstanding Series A Preferred Stock were converted into Common Stock. The rights, privileges and preferences of the Series A convertible preferred stock are set forth in the Certificate of Designations of Series A Convertible Preferred Stock attached as an exhibit to the Company’s Form 8-K filed with the SEC on April 2, 2009.

The transaction closed on April 14, 2009. The net proceeds of $48 million from the issuance of the Series A Preferred Stock are net of issuance costs of $2 million. The Series A Preferred Stock reported on the Company’s condensed consolidated balance sheet consists of the net proceeds plus the amount of accretion for issuance costs. Such accretion costs are being accreted over 72 months with such accretion being recorded as a reduction in retained earnings. For the three months and nine month periods ended September 30, 2009, the Company recorded accretion on the issuance costs of $85,000 and $155,000, respectively.

Note 5 — Stock-Based Compensation

In the first quarter of 2006, the Company adopted the authoritative guidance of stock-based compensation accounting. This guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The Company adopted this guidance effective January 1, 2006, prospectively for new equity awards issued subsequent to January 1, 2006.

In connection with this guidance, the Company reviewed and updated, among other things, its forfeiture rate, expected term and volatility assumptions. The weighted average expected lives of the options for the three and nine month periods ended September 30, 2009 reflects the application of the simplified method. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches. Estimated volatility for the three and nine month periods ended September 30, 2009 also reflects the application of the authoritative guidance and, accordingly, incorporates historical volatility of similar companies whose share price is publicly available.

The fair value of each option is estimated on the date of grant using the Black-Scholes method with the following assumptions:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2009			2008			2009
Risk-free interest rate		3.11	%		2.47	%		3.00	%		2.15	%
Expected volatility		42	%		51	%		42	%		49	%
Expected life	4.6 years			4.6 years			4.6 years			4.6 years
Dividend yield		0	%		0	%		0	%		0	%

The weighted-average fair value of options granted during the three month period ended September 30, 2008 and 2009 was $4.23 and $3.62, respectively, and during the nine month periods ended September 30, 2008 and 2009 was $4.50 and $3.01, respectively, using the Black-Scholes method.

The Company periodically evaluates its forfeiture estimates and updates the estimates it uses in the determination of its stock-based compensation expense. During the third quarter of 2009, the Company updated the estimated forfeitures it uses in the determination of its stock-based compensation expense; this change was a result of an assessment that included an analysis of the actual number of equity awards that had been forfeited to date compared to prior estimates and an evaluation of future estimated forfeitures. The Company recorded a cumulative benefit from the change in estimate which decreased stock-based compensation expense by $736,000, increased net income by $544,000, and increased basic and diluted net income applicable to common shareholders by $0.01 per share.

The stock-based compensation benefit has been allocated as follows (in thousands):


Cost of revenue	$	(132	)
Sales and marketing		(1,177	)
Technology and product development		135
General and administrative		438
Total	$	(736	)

The total stock-based compensation has been allocated as follows (in thousands):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008		2009			2008		2009
Cost of revenue	$	153	$	4		$	408	$	361
Sales and marketing		554		(755	)		1,632		481
Technology and product development		347		699			919		1,745
General and administrative		465		1,174			1,418		2,475


Total	$	1,519	$	1,122		$	4,377	$	5,062

Stock Plan Activity

Stock options and other equity awards are granted by the Company under its 2006 Equity Incentive Plan. The 2006 Equity Incentive Plan became effective on June 9, 2006. Prior to that date, stock options were granted under the Company’s 2001 Stock Option Plan, which terminated on June 9, 2006.

A summary of the Company’s stock option activity is as follows:


	Options Outstanding							Options Exercisable
						Weighted						Weighted
				Weighted		Average				Weighted		Average
				Average		Remaining				Average		Remaining
	Number of			Exercise		Contractual		Number of		Exercise		Contractual
	Shares			Price		Life (Years)		Shares		Price		Life (Years)
Outstanding at December 31, 2008		4,637,240		$	10.10		5.72		2,175,935	$	7.96		5.45
Granted		2,279,197		$	7.27
Exercised		(182,678	)	$	1.32
Cancelled		(225,698	)	$	13.53


Outstanding at September 30, 2009		6,508,061		$	9.24		5.48		3,076,535	$	8.97		5.02

A summary of the Company’s restricted stock unit activity is as follows:


	Unvested Restricted Stock Units
						Weighted Average
				Weighted Average		Remaining
				Grant Date		Contractual
	Number of Shares			Fair Value		Life (Years)
Balance at December 31, 2008		195,000		$	11.47		1.74
Granted		245,000		$	7.19
Vested		(48,750	)	$	11.47
Cancelled		—		$	—


Outstanding at September 30, 2009		391,250		$	8.79		1.74

Note 6 — Income Taxes

The Company recorded a provision for income taxes of $4.7 million for the nine month period ended September 30, 2009, based upon a 35.5% effective tax rate. The effective tax rate is based upon the Company’s estimated fiscal 2009 income before the provision for income taxes. To the extent the estimate of fiscal 2009 income before the provision for income taxes changes, the Company’s provision for income taxes will change as well.

Note 7 — Stock Repurchases

On January 31, 2008, LoopNet’s Board of Directors authorized the repurchase of up to $50.0 million of the Company’s common stock. The stock repurchase program was announced on February 5, 2008. On July 30, 2008, the Company announced that the board of directors of the Company authorized the repurchase of up to an additional $50 million of the Company’s common stock. The repurchased shares are recorded as treasury stock and are accounted for under the cost method. During the third quarter of 2009, the Company made no repurchases. As of September 30, 2009, $54.6 million remained available for purchases under the program.

The stock repurchase program may be limited or terminated at any time without prior notice. Stock repurchases under this program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate and will be funded using the Company’s working capital. The timing and actual number of shares repurchased will depend on a variety of factors including corporate and regulatory requirements, price and other market conditions. The program is intended to comply with the volume, timing and other limitations set forth in Rule 10b-18 under the Securities Exchange Act of 1934.

Note 8 — Litigation and Other Contingencies

Litigation and Other Legal Matters

See Part I Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on February 27, 2009 and Part II Item 1 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed with the Securities and Exchange Commission on August 5, 2009 for a description of certain pending legal proceedings against the Company.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A of Part II, “Risk Factors.”

Overview

We are a leading online marketplace for commercial real estate in the United States, based on the number of monthly unique visitors to our marketplace, which averaged approximately 800,000 unique visitors per month during 2006, approximately 900,000 per month during 2007 and 2008, and approximately 1,000,000 per month during the third quarter of 2009 as reported by comScore Media Metrix. comScore Media Metrix defines a unique visitor as an individual who visited any content of a website, a category, a channel, or an application. Our online marketplace, available at www.LoopNet.com, enables commercial real estate agents, working on behalf of property owners and landlords, to list properties for sale or for lease and submit detailed information on property listings including qualitative descriptions, financial and tenant information, photographs and key property characteristics in order to find a buyer or tenant. We offer two types of memberships on the LoopNet online marketplace. Basic membership is available free-of-charge, and enables members to experience some of the benefits of the LoopNet offering, with limited functionality. LoopNet premium membership is available for a monthly subscription fee and provides enhanced marketing exposure for property listings and full access to LoopNet property listings, as well as numerous other features. The minimum term of a premium membership subscription is one month.

We believe that the key metrics that are material to an analysis of our business are the number of our registered members, the number of monthly unique visitors to our marketplace, the number of our premium members, the average monthly subscription price paid by our premium members and the cancellation rate of our premium members. We also believe that the number of listings on our marketplace and the number of property profiles viewed by visitors to LoopNet are key metrics, as they affect the attractiveness of our website to current and potential customers. Our registered members have grown from approximately 1.7 million as of December 31, 2006, to over 2.5 million as of December 31, 2007, to over 3.2 million as of December 31, 2008, to over 3.7 million as of September 30, 2009. The number of monthly unique visitors to our marketplace averaged 800,000 in 2006, 900,000 in 2007 and 2008, and 1,000,000 in the third quarter 2009. Our premium members were approximately 78,000 as of December 31, 2006, 88,000 as of December 31, 2007, 77,000 as of December 31, 2008, and 70,000 as of September 30, 2009. The average monthly subscription price paid by our premium members has increased from $47.26 in the fourth quarter of 2006, to $56.00 in the fourth quarter of 2007, to $65.64 in the fourth quarter of 2008, and to $66.09 in the third quarter of 2009. Since the fourth quarter of 2007, our average monthly cancellation rate for premium members has exceeded our historical rate. The average monthly cancellation rate in the third quarter of 2009 fell within the 4.5% to 6.5% range we began seeing two years ago, and which improved from 6.8% in the second quarter of 2009. We believe the higher cancellation rate in the last two years is primarily the result of a significant slow-down in transaction activity in the commercial real estate industry that began in the fourth quarter of 2007, due to deteriorating economic conditions and due to the “credit crunch” impacting the availability and cost of debt capital for real estate transactions. Premium membership fees have driven the majority of our growth in revenues since 2001 and were the source of approximately 80% of our revenues in 2006, 77% of our revenue in 2007, 75% of our revenue in 2008 and 74% of our revenue in the third quarter of 2009. The number of listings on our marketplace has grown from approximately 460,000 as of December 31, 2006, to approximately 560,000 as of December 31, 2007, to approximately 652,000 as of December 31, 2008, to approximately 729,000 as of September 30, 2009. The number of property profiles that were viewed by visitors to LoopNet was 44.1 million in the third quarter of 2009 compared to 44.4 million in the third quarter of 2008.

Our Revenues and Expenses

Our primary sources of revenues are:

	•		LoopNet premium membership fees;

	•		BizBuySell BrokerWorks membership fees and paid listings;

	•		LoopNet RecentSales membership fees;

	•		LoopLink product license fees; and

	•		advertising on, and lead generation from, our marketplaces.

Our revenues have grown in the past three years from $48.4 million in 2006, to $70.7 million in 2007 and to $86.1 million in 2008, although we currently expect our 2009 revenues to be less than 2008. We had revenues of $18.8 million and $58.1 million in the three and nine month periods ended September 30, 2009. We have been profitable and cash flow positive each quarter since the second quarter of 2003. The key factors influencing our growth in revenues in the past are:

	•		the increased adoption of our premium membership services by the commercial real estate industry;

	•		increases in the average monthly subscription price of our premium membership product;

	•		the increased adoption of our RecentSales services by the commercial real estate industry; and

	•		our acquisition of BizBuySell in October, 2004, and the increased adoption of our services by the operating business for sale industry.

Our ability to grow our revenues will largely depend on our ability to expand the number of users of www.LoopNet.com and www.BizBuySell.com and to convince those users to upgrade to our paid services, especially premium membership.

We derive the substantial majority of our revenues from customers that pay monthly fees for a suite of services to market and search for commercial real estate and operating businesses. The fee for our LoopNet premium membership averaged $66.09 per month during the third quarter of 2009. The minimum term of a premium membership subscription is one month. We also offer quarterly and annual memberships which are priced and discounted accordingly, and paid in advance for the subscription period. A customer choosing to cancel a discounted annual or quarterly membership will receive a refund based on the number of months the membership was used and charging the customer at the monthly rate rather than at the discounted quarterly or annual rates. We also license our LoopLink product to commercial real estate brokerage firms who pay a monthly, quarterly or annual fee. For our BrokerWorks product at BizBuySell, we charge $49.95 per month. We also charge fees associated with marketing individual businesses listed on BizBuySell. For our RecentSales product, we charge $29.95 per month or $1.95 to $3.95 for an individual transaction.

Revenues from other sources include advertising and lead generation revenues from both our LoopNet and BizBuySell marketplaces, which are recognized ratably over the period in which the advertisement is displayed, provided that no significant obligations remain and collection of the resulting receivable is probable. Advertising rates are dependent on the services provided and the placement of the advertisements. To date, the duration of our advertising commitments has generally averaged two to three months.

The largest component of our expenses is personnel costs. Personnel costs consist of salaries, benefits and incentive compensation for our employees, including commissions for salespeople. These expenses are categorized in our statements of operations based on each employee’s principal function.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Accordingly, our actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2008.

Seasonality and Cyclicality

The commercial real estate market is influenced by annual seasonality factors, as well as by overall economic cycles. The market is large and fragmented, and different segments of the industry are influenced differently by various factors. Broadly speaking, the commercial real estate industry has two major components: tenants leasing space from owners or landlords, and the investment market for buying and selling properties.

We have experienced seasonality in our business in the past, and expect to continue to experience it in the future. While individual geographic markets vary, commercial real estate transaction activity is fairly consistent throughout the year, with the exception of a slow-down during the end-of-year holiday period.

The commercial real estate industry has historically experienced cyclicality. The different segments of the industry, such as office, industrial, retail, multi-family, and others, are influenced differently by different factors, and have historically moved through cycles with different timing. The “for lease” and “for sale” components of the market also do not necessarily move on the same timing cycle. During the past several quarters transaction activity in the commercial real estate industry has slowed significantly, due to deteriorating economic conditions and due to the “credit crunch” impacting the availability and cost of debt capital for real estate transactions. We believe these conditions have negatively impacted our business.

Results of Operations

The following table presents our historical operating results as a percentage of revenues for the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2009			2008			2009
	(unaudited)
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		12.8			14.2			12.3			14.3


Gross margin		87.2			85.8			87.7			85.7

Operating expenses
Sales and marketing		21.0			14.1			22.1			19.6
Technology and product development		10.3			15.1			10.2			13.8
General and administrative		23.3			29.5			21.9			30.0


Total operating expenses		54.6			58.7			54.2			63.4


Income from operations		32.5			27.1			33.5			22.3
Interest and other income, net		2.0			0.3			2.9			0.3


Income before tax		34.6			27.4			36.4			22.5
Income tax expense		13.1			7.1			14.6			8.0


Net income		21.5			20.2			21.9			14.5
Convertible preferred stock accretion of discount		—			(0.5	)		—			(0.3	)


Net income applicable to common stockholders		21.5	%		19.8	%		21.9	%		14.3	%

Comparison of Three Months Ended September 30, 2008 and 2009

Revenues


	Three Months Ended September 30,
							Percent
	2008		2009		Decrease		Change
	(dollars in thousands)
Revenues	$	22,403	$	18,795	$	3,608		16.1	%
Premium members at September 30		83,803		69,809		13,994		16.7	%

The decrease in revenues was primarily due to a lower premium membership base due to the impact of the depressed market conditions in the commercial real estate industry.

We anticipate that revenues will decrease in future periods due to the current market conditions we are experiencing.

Cost of Revenues


	Three Months Ended September 30,
									Percent
	2008			2009			Decrease		Change
	(dollars in thousands)
Cost of revenues	$	2,876		$	2,670		$	206		7.2	%
Percentage of revenues		12.8	%		14.2	%

Cost of revenues consists of the expenses associated with the operation of our website, including depreciation of network infrastructure equipment, salaries and benefits of network operations personnel, Internet connectivity and hosting costs. Cost of revenues also includes salaries and benefits expenses associated with our data quality, data import and customer support personnel and credit card and other transaction fees relating to processing customer transactions.

The decrease in cost of revenues was due primarily to lower stock-based compensation, which decreased to $4,000 in the third quarter of 2009 compared to $153,000 in the third quarter of 2008. See Note 5 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

We expect cost of revenues to potentially increase in absolute dollar amounts and as a percentage of revenues, as we continue to aggregate listing content.

Sales and Marketing


	Three Months Ended September 30,
									Percent
	2008			2009			Decrease		Change
	(dollars in thousands)
Sales and marketing	$	4,711		$	2,650		$	2,061		43.7	%
Percentage of revenues		21.0	%		14.1	%

Sales and marketing expenses consist of the compensation and associated costs for sales and marketing personnel, advertising, public relations and other promotional activities.

The decrease in sales and marketing expenses was due in part to lower advertising costs and lower sales commissions. Also contributing to the decrease was lower stock-based compensation, which decreased to a benefit of $755,000 in the third quarter of 2009 compared to $554,000 in the third quarter of 2008. See Note 5 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

We expect sales and marketing expenses to potentially increase in absolute dollar amounts and as a percentage of revenues, as we continue to expand our marketing programs to attract and retain premium members.

Technology and Product Development


	Three Months Ended September 30,
									Percent
	2008			2009			Increase		Change
	(dollars in thousands)
Technology and product development	$	2,301		$	2,833		$	532		23.1	%
Percentage of revenues		10.3	%		15.1	%

Technology and product development costs include expenses for the research and development of new product enhancements and services, as well as improvements to and maintenance of existing products and services.

The increase in technology and product development expenses was due in part to increases in salaries and related costs associated with the launch of new product enhancements and services and the maintenance of our existing services. Also contributing to the increase was higher stock-based compensation, which increased to $699,000 in the third quarter of 2009 compared to $347,000 in the third quarter of 2008. See Note 5 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

We expect technology and product development expenses to potentially increase in absolute dollar amounts and as a percentage of revenues, as we continue to build the infrastructure required to support the development of new products and services.

General and Administrative


	Three Months Ended September 30,
									Percent
	2008			2009			Increase		Change
	(dollars in thousands)
General and administrative	$	5,227		$	5,547		$	320		6.12	%
Percentage of revenues		23.3	%		29.5	%

General and administrative expenses consist primarily of salaries and related expenses for executive, accounting, billing and human resources personnel. These costs also include insurance and professional fees, rent and related expenses. Professional fees primarily consist of outside legal and audit fees.

The increase in general and administrative expenses was due to higher stock-based compensation, which increased to $1,174,000 in the third quarter of 2009 compared to $465,000 in the third quarter of 2008. See Note 5 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Partly offsetting this increase was lower legal fees associated with litigation matters.

We expect general and administrative expenses to potentially increase in absolute dollar amounts and as a percentage of revenues, as we continue to incur additional litigation related costs.

Interest Income

Interest and other income decreased by $407,000 to $52,000 in the three months ended September 30, 2009, from $459,000 in the three months ended September 30, 2008. This decrease was due to lower interest rates.

Income Taxes

We recorded a provision for income taxes of $1.3 million for the three month period ended September 30, 2009, based upon a 35.5% effective tax rate for the full year of 2009. The effective tax rate is based upon our estimated fiscal 2009 income before the provision for income taxes. To the extent the estimate of fiscal 2009 income before the provision for income taxes changes, our provision for income taxes will change as well.

Comparison of Nine Months Ended September 30, 2008 and 2009

Revenues


	Nine Months Ended September 30,
							Percent
	2008		2009		Decrease		Change
	(dollars in thousands)
Revenues	$	65,019	$	58,145	$	6,874		10.6	%
Premium members at September 30		83,803		69,809		13,994		16.7	%

The decrease in revenues was primarily due to a lower premium membership base due to the impact of the depressed market conditions in the commercial real estate industry.

Cost of Revenues


	Nine Months Ended September 30,
									Percent
	2008			2009			Increase		Change
	(dollars in thousands)
Cost of revenues	$	7,994		$	8,339		$	345		4.3	%
Percentage of revenues		12.3	%		14.3	%

The increase in cost of revenues was due to an increase in salaries and benefit costs related to data quality, data import and customer support personnel, which was required in order to support our increased property listing and user activity.

Sales and Marketing


	Nine Months Ended September 30,
									Percent
	2008			2009			Decrease		Change
	(dollars in thousands)
Sales and marketing	$	14,375		$	11,374		$	3,001		20.9	%
Percentage of revenues		22.1	%		19.6	%

Sales and marketing expenses consist of the compensation and associated costs for sales and marketing personnel, advertising, public relations and other promotional activities.

The decrease in sales and marketing expenses was in part due to lower advertising costs and lower sales commissions. Also contributing to the decrease was lower stock-based compensation, which decreased to $481,000 in the nine months ended September 30, 2009 compared to $1,632,000 in the nine months ended September 30, 2008. See Note 5 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Technology and Product Development


	Nine Months Ended September 30,
									Percent
	2008			2009			Increase		Change
	(dollars in thousands)
Technology and product development	$	6,648		$	8,047		$	1,399		21.0	%
Percentage of revenues		10.2	%		13.8	%

The increase in technology and product development expenses was due in part to increases in salaries and related costs associated with the launch of new product enhancements and services and the maintenance of our existing services. Also contributing to the increase was higher stock-based compensation, which increased to $1,745,000 in the nine months ended September 30, 2009 compared to $919,000 in the nine months ended September 30, 2008. See Note 5 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

General and Administrative


	Nine Months Ended September 30,
									Percent
	2008			2009			Increase		Change
	(dollars in thousands)
General and administrative	$	14,232		$	17,418		$	3,186		22.4	%
Percentage of revenues		21.9	%		30.0	%

The increase in general and administrative expenses was due in part to higher legal fees associated with litigation matters. Also contributing to the increase was higher stock-based compensation, which increased to $2,475,000 in the nine months ended September 30, 2009 compared to $1,418,000 in the nine months ended September 30, 2008. See Note 5 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Interest Income

Interest and other income decreased by $1,755,000 to $159,000 in the nine months ended September 30, 2009, from $1,914,000 million in the nine months ended September 30, 2008. This decrease was due to lower interest rates. As of September 30, 2009, we held $125.5 million in cash, cash equivalents and short-term investments, compared to $69.4 million in cash, cash equivalents and short-term investments as of September 30, 2008.

Income Taxes

We recorded a provision for income taxes of $4.7 million for the nine month period ended September 30, 2009, based upon a 35.5% effective tax rate for the full year of 2009. The effective tax rate is based upon our estimated fiscal 2009 income before the provision for income taxes. To the extent the estimate of fiscal 2009 income before the provision for income taxes changes, our provision for income taxes will change as well.

Liquidity and Capital Resources

The following table summarizes our cash flows:


	Nine Months Ended
	September 30,
	2008			2009
	(unaudited)
	(in thousands)
Cash flow data:
Cash provided by operating activities	$	19,494		$	14,684
Cash used in investing activities		(14,375	)		(2,414	)
Cash provided by (used in) financing activities		(43,579	)		48,445

As of September 30, 2009, our cash, cash equivalents and short-term investments totaled $125.5 million, compared to $69.4 million in cash, cash equivalents and short-term investments as of September 30, 2008. The amount includes $48 million in aggregate net proceeds received on April 14, 2009 pursuant to our sale of Series A convertible preferred stock to certain accredited investors.

Cash equivalents and short-term investments consist of money market funds, and debt securities that we classify as available for sale. Our principal sources of liquidity are our cash, cash equivalents and short-term investments, as well as the cash flow that we generate from our operations. We do not currently have any commercial debt or posted letters of credit.

Operating Activities

Net cash provided by operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, amortization, stock-based compensation, and the effect of changes in working capital. Net cash provided by operating activities was $19.5 million and $14.7 million in the nine months ended September 30, 2008 and 2009, respectively. The decrease in cash provided by operating activities in the nine month period ended September 30, 2009 compared to the nine month period ended September 30, 2008 was primarily due to lower net income generated by the Company.

Investing Activities

Cash used in investing activities in the nine months ended September 30, 2009 of $2.4 million was attributable to capital expenditures of $1.3 million for the purchase of computer equipment, office equipment and furniture and leasehold improvements, the purchase of investments of $750,000, and $312,000 contingent purchase price payments related to the July 2008 acquisition of LandAndFarm.com.

Cash used in investing activities in the nine months ended September 30, 2008 of $14.4 million was attributable to the July 29, 2008 acquisition of LandAndFarm of $2.1 million, the April 7, 2008 acquisition of REApplications, Inc. of $9.2 million, a $1.3 million contingent purchase price payment related to the August 2007 acquisition of CityFeet.com, the purchase of investments of $750,000, and capital expenditures of $1.0 million primarily for the purchase of computer equipment, office equipment and furniture, and leasehold improvements.

Financing Activities

Cash provided by financing activities in the nine months ended September 30, 2009 of $48.4 was attributable to $48.0 million in aggregate net proceeds from the sale of Series A convertible preferred stock to certain accredited investors, $190,000 of proceeds from the exercise of stock-based awards and a $288,000 tax benefit from the exercise of stock options.

Cash used in financing activities in the nine months ended September 30, 2008 of $43.6 million was primarily attributable to the Company’s stock repurchases in the amount of $44.6 million partially offset by $327,000 of proceeds from the exercise of stock options and a $689,000 tax benefit from the exercise of stock options.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in short-term, high-quality, interest-bearing securities. Our investments in debt securities are subject to interest rate risk. To minimize our exposure to an adverse shift in interest rates, we invest in short-term securities and maintain an average maturity of one year or less. If interest rates were to instantaneously increase or decrease by 100 basis points, the change in the fair market value of our short-term investment would not be a material amount to our financial statements. There have not been any material changes during the period covered by this Quarterly Report on Form 10-Q to our primary market risk exposures, or how these exposures are managed.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Item 1A. Risk Factors.

We have updated the risk factors previously disclosed in Part I Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on February 27, 2009.

Because of the factors set forth below and elsewhere in this report and in other documents we filed with the SEC, as well as other variables affecting our operating results and financial condition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

Risks Related to Our Business

The ongoing decline in the commercial real estate market and overall economy could negatively affect our revenues, expenses and operating results.

Our business is sensitive to trends in the general economy and trends in commercial real estate markets, which are unpredictable and continue to experience severe disruptions. Currently, the credit crisis and turbulence in the debt markets continue to affect the investment sales market, contributing to a significant slow down in our industry, which we anticipate will continue through the remainder of 2009. These negative general economic conditions could further reduce the overall amount of sale and leasing activity in the commercial real estate industry, and hence the demand for our services. Conditions such as continued tightening in credit markets, reduced industry-wide transaction volumes and negative trends in consumer confidence in global and domestic markets could also further dampen the general economy, and our business. While we believe the increase in the number of distressed sales and resulting decrease in asset prices will eventually translate to greater market activity, the current overall reduction in sales transaction volume continues to negatively impact our business. Therefore, our operating results, to the extent they reflect changes in the broader commercial real estate industry, may be subject to significant fluctuations. Factors that are affecting and could further affect the commercial real estate industry include:

	•		periods of economic slowdown or recession globally, in the United States or locally;

	•		inflation;

	•		flows of capital into or out of real estate investment in the United States or various regions of the United States;

	•		rates of unemployment;

	•		interest rates;

	•		the availability and cost of capital;

	•		wage and salary levels; or

	•		concerns about any of the foregoing.

We believe that the commercial real estate industry is composed of many submarkets, each of which is influenced differently, and often in opposite ways, by various economic factors. We believe that commercial real estate submarkets can be differentiated based on factors such as geographic location, value of properties, whether properties are sold or leased, and other factors. Each such submarket may be affected differently by, among other things:

	•		economic slowdown or recession;

	•		changes in levels of rent or appreciation of asset values;

	•		changing interest rates;

	•		tax and accounting policies;

	•		the availability and cost of capital;

	•		costs of construction;

	•		increased unemployment;

	•		lower consumer confidence;

	•		lower wage and salary levels;

	•		war, terrorist attacks or natural disasters; or

	•		the public perception that any of these conditions may occur.

For example, as of September 30, 2009, more than 26% of our premium members were based in California and more than 11% were based in Florida. Negative conditions in these or other significant commercial real estate submarkets could disproportionately affect our business as compared to competitors who have less or different geographic concentrations of their customers. Additionally, negative general economic conditions could further reduce the overall amount of sale and leasing activity in the commercial real estate industry, and hence the demand for our services. Events such as a war or a significant terrorist attack are also likely to affect the general economy, and could cause a slowdown in the commercial real estate industry and therefore reduce utilization of our marketplace, which could reduce our revenue from premium members. In addition, the occurrence of any of the events listed above could increase our need to make significant expenditures to continue to attract customers to our marketplace.

Our business is largely based on a subscription model, and accordingly, any failure to increase the number of our customers or retain existing customers could cause our revenues to decline.

Our customers include premium members of our LoopNet marketplace, LoopLink users, users of our BizBuySell, Cityfeet and LandAndFarm marketplaces, RecentSales subscribers, REApplications users and advertising and lead generation customers. Most of our revenues are generated by subscription fees paid by our premium members. Our growth depends in large part on increasing the number of our free basic members and then converting them into paying premium members, as well as retaining existing premium members. Either category of members may decide not to continue to use our services in favor of alternate services or because of budgetary constraints or other reasons. Since the fourth quarter of 2007, our average monthly cancellation rate for premium members has exceeded our historical rate. We believe the higher cancellation rate in the last two years is primarily the result of a significant slow-down in transaction activity in the commercial real estate industry that began in the fourth quarter of 2007, due to deteriorating economic conditions and due to the “credit crunch” impacting the availability and cost of debt capital for real estate transactions.

If our existing members choose not to use our services, decrease their use of our services, or change from being premium members to basic members, or we are unable to attract new members, listings on our site could be reduced, search activity on our website could decline, the usefulness of our services could be diminished, and we could incur significant expenses and/or experience declining revenues.

The value of our marketplace to our customers is dependent on increasing the number of property listings provided by and searches conducted by our members. To grow our marketplace, we must convince prospective members to use our services. Prospective members may

not be familiar with our services and may be accustomed to using traditional methods of listing, searching, marketing and advertising commercial real estate. We cannot assure you that we will be successful in continuing to acquire more members, in continuing to convert free basic members into paying premium members or that our future sales efforts in general will be effective. Further, it is difficult to estimate the total number of active commercial real estate agents, property owners, landlords, buyers and tenants in the United States during any given period. As a result, we do not know the extent to which we have penetrated this market. If we reach the point at which we have attempted to sell our services to a significant majority of commercial real estate transaction participants in the United States, we will need to seek additional products and markets in order to maintain our rate of growth of revenues and profitability.

We rely on our marketing efforts to generate new registered members. If our marketing efforts are ineffective, we could fail to attract new registered members, which could reduce the attractiveness of our marketplace to current and potential customers and lead to a reduction in our revenues.

We believe that the attractiveness of our services and products to our current and potential customers increases as we attract additional members who provide additional property listings or conduct searches on our marketplace. This is because an increase in the number of our members and the number of listings on our website increases the utility of our website and of its associated search, listing and marketing services. In order to attract new registered members, we rely on our marketing efforts, such as word-of-mouth referrals, direct marketing, online and traditional advertising, sponsoring and attending local industry association events, and attending and exhibiting at industry trade shows and conferences. There is no guarantee that our marketing efforts will be effective. If we are unable to effectively market our products and services to new customers, or convert existing basic members into premium members, our revenues and operating results could decline as a result of current premium members failing to renew their premium memberships and potential premium members failing to become premium members.

If we are unable to obtain or retain listings from commercial real estate brokers, agents, and property owners, our marketplace could be less attractive to current or potential customers, which could result in a reduction in our revenues.

Our success depends substantially on the number of commercial real estate property listings submitted by brokers, agents and property owners to our online marketplace. The number of listings on our marketplace has grown from approximately 460,000 as of December 31, 2006, to approximately 560,000 as of December 31, 2007, to approximately 652,000 as of December 31, 2008, to approximately 729,000 as of September 30, 2009. If agents marketing large numbers of property listings, such as large brokers in key real estate markets, choose not to continue their listings with us, or choose to list them with a competitor, our website would be less attractive to other real estate industry transaction participants, thus resulting in cancelled premium memberships, failure to attract and retain new members, or failure to attract advertising and lead generation revenues.

We may be unable to compete successfully with our current or future competitors.

The market to provide listing, searching and marketing services to the commercial real estate industry is highly competitive and fragmented, with limited barriers to entry. Our current or new competitors may adopt certain aspects of our business model, which could reduce our ability to differentiate our services. All of the services which we provide to our customers, including property and business listing, searching, and marketing services, are provided separately or in combination to our current or potential customers by other companies that compete with us. These companies, or new market entrants, will continue to compete with us. Listings in the commercial real estate industry are not marketed exclusively through any single channel, and accordingly our competition could aggregate a set of listings similar to ours. Increased competition could result in a reduction in our revenues or our rate of acquisition of new customers, or loss of existing customers or market share, any of which would harm our business, operating results and financial condition.

We compete with CoStar Group, Inc., a provider of information and research services to the commercial real estate market. Some of the services that CoStar offers directly compete with our product offering. For example, CoStar provides commercial real estate for sale and for lease property listings which compete directly with our online commercial real estate marketplace.

Several companies, such as Property Line International, Inc., have created online property listing services that compete with us. These companies aggregate property listings obtained through various sources, including from commercial real estate agents. In addition, newspapers typically include on their websites listings of commercial real estate for sale and for lease. If our current or potential customers choose to use these services rather than ours, demand for our services could decline.

Additionally, the National Association of REALTORS ®, or NAR, its local boards of REALTORS ®, its various affiliates, and other third parties have in the past created, and they or others may in the future create, commercial real estate information and listing services. These services could provide commercial real estate for sale and for lease property listings which compete directly with our online commercial real estate marketplace. If they succeed in attracting a significant number of commercial real estate transaction participants, demand for our services may decrease.

Large Internet companies that have large user bases and significantly greater financial, technical and marketing resources than we do, such as eBay Inc. and craigslist, Inc., provide commercial real estate listing or advertising services in addition to a wide variety of other products or

services. Other large Internet companies, such as Google, Yahoo! and Microsoft, have classified listing services which could be used to market and search for commercial real estate property listings. Competition by these companies could reduce demand for our services or require us to make additional expenditures, either of which could reduce our profitability.

Our operating results and revenues are subject to fluctuations that may cause our stock price to decline, and our quarterly financial results may be subject to seasonality, each of which could cause our stock price to decline.

Our revenues, expenses and operating results have fluctuated in the past and are likely to continue to do so in the future. Our revenues, expenses and operating results may fluctuate from quarter to quarter due to factors including those described below and elsewhere in this Quarterly Report on Form 10-Q:

	•		rates of member adoption and retention;

	•		changes in our pricing strategy and timing of changes;

	•		changes in our marketing or other corporate strategies;

	•		our introduction of new products and services or changes to existing products and services;

	•		the amount and timing of our operating expenses and capital expenditures;

	•		the amount and timing of non-cash stock-based charges;

	•		the amount and timing of litigation related expenses;

	•		costs related to acquisitions of businesses or technologies; and

	•		other factors outside of our control.

Our results of operations could vary significantly from quarter to quarter due to the seasonal nature of the commercial real estate industry. The timing of widely observed holidays and vacation periods, particularly slow downs during the end-of-year holiday period, and availability of real estate agents and related service providers during these periods, could significantly affect our quarterly operating results during that period. For example, we have historically experienced a significant decline in the rate of growth of both new memberships and revenues during the fourth quarter.

These fluctuations or seasonality effects could negatively affect our results of operations during the period in question and/or future periods or cause our stock price to decline.

If we are unable to introduce new or upgraded services or products that our customers recognize as valuable, we may fail to attract new customers or retain existing customers. Our efforts to develop new and upgraded products and services could require us to incur significant costs.

To continue to attract new members to our online marketplace, we may need to continue to introduce new products or services. We may choose to develop new products and services independently or choose to license or otherwise integrate content and data from third parties. Developing and delivering these new or upgraded services or products may impose costs and require the attention of our product and technology department and management. This process is costly, and we may experience difficulties in developing and delivering these new or upgraded services or products. In addition, successfully launching and selling a new service or product will require the use of our sales and marketing resources. Efforts to enhance and improve the ease of use, responsiveness, functionality and features of our existing products and services have inherent risks, and we may not be able to manage these product developments and enhancements successfully. If we are unable to continue to develop new or upgraded services or products, then our customers may choose not to use our products or services.

We could face liability for information on our website.

We provide information on our website, including commercial real estate listings, that is submitted by our customers and third parties. We also allow third parties to advertise their products and services on our website and include links to third-party websites. We could be exposed to liability with respect to this information. Customers could assert that information concerning them on our website contains errors or omissions and third parties could seek damages for losses incurred if they rely upon incorrect information provided by our customers or advertisers. We could also be subject to claims that the persons posting information on our website do not have the right to post such information or are infringing the rights of third parties. In 1999, CoStar sued us, claiming that we had directly and indirectly infringed their copyrights in

photographs by permitting our members to post those photographs on our website. Although the court issued rulings that were favorable to us in that litigation, other persons might assert similar or other claims in the future. For example, in June 2009, CoStar filed a complaint against us alleging that we have infringed their copyrights and trademarks because photographs bearing CoStar’s logo that were posted by third parties allegedly appeared in our RecentSales product. Among other things, we might be subject to claims that by directly or indirectly providing links to websites operated by third parties, we would be liable for wrongful actions by the third parties operating those websites. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against these claims.

The Digital Millennium Copyright Act, or DMCA, allows copyright owners to obtain subpoenas compelling disclosure by an Internet service provider of the names of customers of that Internet service provider. We have been served with such subpoenas in the past, and may in the future be served with additional such subpoenas. Compliance with subpoenas under the DMCA may divert our resources, including the attention of our management, which could impede our ability to operate our business.

Our potential liability for information on our websites or distributed by us to others could require us to implement additional measures to reduce our exposure to such liability, which may require us to expend substantial resources and limit the attractiveness of our online marketplace to users. Our general liability insurance may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability that may be imposed.

If we are unable to convince commercial real estate brokers and other commercial real estate professionals that our services and products are superior to traditional methods of listing, searching, and marketing commercial real estate, they could choose not to use our marketplace, which could reduce our revenues or increase our expenses.

A primary source of new customers for us is the commercial real estate professional community. Many commercial real estate professionals are used to listing, searching and marketing real estate in traditional ways, such as through the distribution of print brochures, sharing of written lists, placing signs on properties, word-of-mouth, and newspaper advertisements. Commercial real estate professionals may prefer to continue to use traditional methods or may be slow to adopt our products and services. If we are not able to continue to persuade commercial real estate professionals of the efficacy of our products and services, they may choose not to use our marketplace, which could reduce our revenues. In addition, we could be required to increase our marketing and other expenditures to continue our efforts to attract these potential customers.

Our business depends on retaining and attracting capable management and operating personnel.

Our success depends in large part on our ability to retain and attract high-quality management and operating personnel, including our Chief Executive Officer and Chairman of the Board of Directors, Richard J. Boyle, Jr.; our President and Chief Operating Officer, Thomas Byrne; our Chief Financial Officer and Senior Vice President, Finance and Administration, Brent Stumme; our Chief Strategy Officer and Senior Vice President, Corporate Development, Jason Greenman; and our Chief Technology Officer and Senior Vice President, Information Technology, Wayne Warthen. Our business plan was developed in large part by our senior-level officers, and its implementation requires their skills and knowledge. We may not be able to offset the impact on our business of the loss of the services of Mr. Boyle or other key officers or employees. We have no employment agreements that prevent any of our key personnel from terminating their employment at any time, and we do not maintain any “key-person” life insurance for any of our personnel.

Furthermore, our business requires skilled technical, management, product and technology, and sales and marketing personnel, who are in high demand and are often subject to competing offers. Competition for qualified employees is intense in our industry, and the loss of a substantial number of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the expansion of our activities, could harm our business. To retain and attract key personnel, we use various measures, including an equity incentive program and incentive bonuses for key executive officers and other employees. We have also entered into change of control severance agreements with our key executive officers, which provide, in part, certain severance benefits and acceleration of unvested equity awards if their employment is terminated in connection with a change of control of the Company. These measures may not be enough to attract and retain the personnel we require to execute our business plan.

If we fail to protect confidential information against security breaches, or if our members or potential members are reluctant to use our marketplace because of privacy concerns, we might face additional costs, and activity in our marketplace could decline.

As part of our membership registration process, we collect, use and disclose personally identifiable information, including names, addresses, phone numbers, credit card numbers and email addresses. Our policies concerning the collection, use and disclosure of personally identifiable information are described on our websites. While we believe that our policies are appropriate and that we are in compliance with our policies, we could be subject to legal claims, government action or harm to our reputation if actual practices fail to comply or are seen as failing to comply with our policies or with local, state or federal laws concerning personally identifiable information or if our policies are inadequate to protect the personally identifiable information that we collect.

Concern among prospective customers regarding our use of the personal information collected on our websites could keep prospective customers from using our marketplace. Industry-wide incidents or incidents with respect to our websites, including misappropriation of third-party information, security breaches, or changes in industry standards, regulations or laws could deter people from using the Internet or our website to conduct transactions that involve the transmission of confidential information, which could harm our business. Last year, our

subsidiary, Cityfeet.com, was informed that there may have been a security breach to its credit card database and that some personally identifiable information of individuals contained in that database may have been misappropriated. Under California law and the laws of a number of other states, if there is a breach of our computer systems and we know or suspect that unencrypted personal customer data has been stolen, we are required to inform any customers whose data was stolen, which could harm our reputation and business.

In addition, another California law requires businesses that maintain personal information about California residents in electronic databases to implement reasonable measures to keep that information secure. Our practice is to encrypt all personal information, but we do not know whether our current practice will continue to be deemed sufficient under the California law. Other states have enacted different and sometimes contradictory requirements for protecting personal information collected and maintained electronically. Compliance with numerous and contradictory requirements of the different states is particularly difficult for an online business such as ours which collects personal information from customers in multiple jurisdictions.

Another consequence of failure to comply is the possibility of adverse publicity and loss of consumer confidence were it known that we did not take adequate measures to assure the confidentiality of the personally identifiable information that our customers had given to us. This could result in a loss of customers and revenue that could jeopardize our success. While we intend to comply fully with all relevant laws and regulations, we cannot assure you that we will be successful in avoiding all potential liability or disruption of business in the event that we do not comply in every instance or in the event that the security of the customer data that we collect is compromised, regardless of whether our practices comply or not. If we were required to pay any significant amount of money in satisfaction of claims under these laws or if we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any such laws, our business, operating results and financial condition could be adversely affected. Further, complying with the applicable notice requirements in the event of a security breach could result in significant costs.

Our services may infringe the intellectual property rights of others and we may be subject to claims of intellectual property rights infringement.

We may be subject to claims against us alleging infringement of the intellectual property rights of others, including our competitors. Any intellectual property claims, regardless of merit, could be expensive to litigate or settle and could significantly divert our management’s attention from other business concerns. For example, on or about April 8, 2008, Real Estate Alliance Ltd. filed a lawsuit against the Company and its subsidiary, Cityfeet.com Inc., in the U.S. District Court for the Central District of California, Western Division, alleging that the Company and Cityfeet.com Inc. have infringed upon certain patents of Real Estate Alliance Ltd. On June 8, 2009, CoStar filed a complaint against us alleging that we have infringed their copyrights and trademarks because photographs bearing CoStar’s logo that were posted by third parties allegedly appeared in our RecentSales product.

Our technologies and content may not be able to withstand third-party claims of infringement. If we were unable to successfully defend against such claims, we might have to pay damages, stop using the technology or content found to be in violation of a third party’s rights, seek a license for the infringing technology or content, or develop alternative noninfringing technology or content. Licenses for the infringing technology or content may not be available on reasonable terms, if at all. In addition, developing alternative noninfringing technology or content could require significant effort and expense. If we cannot license or develop technology or content for any infringing aspects of our business, we may be forced to limit our service offerings. Any of these results could reduce our ability to compete effectively and harm our business.

Our trademarks are important to our business. Other companies may own, obtain or claim trademarks that could prevent, limit or interfere with our use of trademarks. If we were unable to use our trademarks, we would need to devote substantial resources toward developing different brand identities.

If we are unable to enforce or defend our ownership and use of intellectual property, our business, competitive position and operating results could be harmed.

The success of our business depends in large part on our intellectual property, and our intellectual property rights, including existing and future trademarks, trade secrets, and copyrights, are and will continue to be valuable and important assets of our business. Our business could be significantly harmed if we are not able to protect the content of our databases and our other intellectual property.

We have taken measures to protect our intellectual property, such as requiring our employees and consultants with access to our proprietary information to execute confidentiality agreements. We also have taken action, and in the future may take additional action, against competitors or other parties who we believe to be infringing our intellectual property. For example, on November 15, 2007 the Company filed a lawsuit against CoStar Group, Inc. and CoStar Realty Information, Inc. in the Superior Court for the State of California, County of Los Angeles, asserting claims for breach of contract and unfair business practices arising out of CoStar’s alleged unlawful use of data from the Company’s Web site for competitive purposes. We may in the future find it necessary to assert claims regarding our intellectual property. These measures may not be sufficient or effective to protect our intellectual property. These measures could also be expensive and could significantly divert our management’s attention from other business concerns.

We also rely on laws, including those regarding patents, copyrights, and trade secrets, to protect our intellectual property rights. Current laws may not adequately protect our intellectual property or our databases and the data contained in them. In addition, legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and evolving, and we cannot assure you of the future viability or value of any of our proprietary rights.

Others may develop technologies that are similar or superior to our technology. Any significant impairment of our intellectual property rights could require us to develop alternative intellectual property, incur licensing or other expenses, or limit our product and service offerings.

If we are not able to successfully identify or integrate acquisitions, our management’s attention could be diverted, and efforts to integrate acquisitions could consume significant resources.

We have made acquisitions of, and investments in, other companies, and we may in the future further expand our markets and services in part through additional acquisitions of, or investments in, other complementary businesses, services, databases and technologies. For example, in October, 2004, we acquired BizBuySell, an online marketplace for operating businesses for sale, in June, 2007, we acquired a minority position in Xceligent, Inc., in August, 2007, we acquired Cityfeet.com Inc., in April, 2008, we acquired REApplications, Inc., and in July, 2008, we acquired LandAndFarm.com. Mergers and acquisitions are inherently risky, and we cannot assure you that our acquisitions will be successful. The successful execution of any acquisition strategy will depend on our ability to identify, negotiate, complete and integrate such acquisitions and, if necessary, obtain satisfactory debt or equity financing to fund those acquisitions. Failure to manage and successfully integrate acquired businesses could harm our business. Acquisitions involve numerous risks, including the following:

	•		difficulties in integrating the operations, technologies, and products of the acquired companies;

	•		diversion of management’s attention from the normal daily operations of our business;

	•		inability to maintain the key business relationships and the reputations of acquired businesses;

	•		entry into markets in which we have limited or no prior experience and in which competitors have stronger market positions;

	•		dependence on unfamiliar affiliates and partners;

	•		insufficient revenues to offset increased expenses associated with acquisitions;

	•		reduction or replacement of the sales of existing services by sales of products or services from acquired lines of business;

	•		responsibility for the liabilities of acquired businesses;

	•		inability to maintain our internal standards, controls, procedures and policies; and

	•		potential loss of key employees of the acquired companies.

We may also incur costs, and divert our management’s attention from our business, by pursuing potential acquisitions or other investments which are never consummated.

Although we undertake a due diligence investigation of each business that we acquire, there may be liabilities of the acquired companies that we fail to or are unable to discover during the due diligence investigation and for which we, as a successor owner, may be responsible. In connection with acquisitions, we generally seek to minimize the impact of these types of potential liabilities through indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to limitations in scope, amount or duration, financial limitations of the indemnitor or warrantor or other reasons.

In addition, if we finance or otherwise complete acquisitions or other investments by issuing equity or convertible debt securities, our existing stockholders may be diluted.

We may be unable to effectively manage our growth.

Our overall employee base has grown from 198 employees as of December 31, 2006 to 270 employees as of September 30, 2009. If we do not effectively manage our growth, our customer service and responsiveness could suffer and our costs could increase, which could harm our brand, increase our expenses, and reduce our profitability. Restructuring costs could also be required if we do not effectively manage our growth.

Unless we develop, maintain and protect our brand identity, our business may not grow and our financial results may suffer.

In an effort to obtain additional registered members and increase use of our online marketplace by commercial real estate transaction participants, we intend to continue to pursue a strategy of enhancing our brand both through online advertising and through traditional print media and to increase our marketing and business development expenditures to maintain and enhance our brand in the future. These efforts can involve significant expense and may not have a material positive impact on our brand identity. In addition, maintaining our brand will depend on our ability to provide products and services that are perceived as being high-value, which we may not be able to implement successfully. If

we are unable to maintain and enhance our brand, our ability to attract and retain customers or successfully expand our operations will be harmed.

Changes in or interpretations of accounting rules and regulations, such as expensing of stock options, could result in unfavorable accounting charges or require us to change our compensation policies.

In the first quarter of 2006, we adopted the authoritative guidance on stock-based compensation accounting. The guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their value and recognized as compensation expense over the vesting period. As a result of this guidance, we may choose to reduce our reliance on stock options as a compensation tool. If we reduce our use of stock options and do not adopt other forms of compensation, it may be more difficult for us to attract and retain qualified employees. If we do not reduce our reliance on stock options, our operating expenses would increase. We currently rely on stock options to retain existing employees and attract new employees. Although we believe that our accounting practices are consistent with current accounting pronouncements, changes to or interpretations of accounting methods or policies in the future may require us to adversely revise how our consolidated financial statements are prepared.

If our operating results do not meet the expectations of investors or equity research analysts, our market price may decline and we may be subject to class action litigation.

It is possible that in the future our operating results will not meet the expectations of investors or equity research analysts, causing the market price of our common stock to decline. In the past, companies that have experienced decreases in the market price of their stock have been subject to securities class action litigation. A securities class action lawsuit against us could result in substantial costs and divert our management’s attention from other business concerns.

If our website or our other services experience system failures, our customers may be dissatisfied and our operations could be impaired.

Our business depends upon the satisfactory performance, reliability and availability of our website. Problems with our website could result in reduced demand for our services. Furthermore, the software underlying our services is complex and may contain undetected errors. Despite testing, we cannot be certain that errors will not be found in our software. Any errors could result in adverse publicity, impaired use of our services, loss of revenues, cost increases or legal claims by customers.

Additionally, our services substantially depend on systems provided by third parties, over whom we have little control. Interruptions in our services could result from the failure of data providers, telecommunications providers, or other third parties. We depend on these third-party providers of Internet communication services to provide continuous and uninterrupted service. We also depend on Internet service providers that provide access to our services. Any disruption in the Internet access provided by third-party providers or any failure of third-party providers to handle higher volumes of user traffic could harm our business.

Our internal network infrastructure could be disrupted or penetrated, which could materially impact our ability to provide our services and our customers’ confidence in our services.

Our operations depend upon our ability to maintain and protect our computer systems, most of which are located in redundant and independent systems in Los Angeles, California and San Francisco, California. In addition, our BizBuySell website is hosted at a co-location facility in Virginia. While we believe that our systems are adequate to support our operations, our systems may be vulnerable to damage from break-ins, unauthorized access, vandalism, fire, floods, earthquakes, power loss, telecommunications failures and similar events. Although we maintain insurance against fires, floods, and general business interruptions, the amount of coverage may not be adequate in any particular case. Furthermore, any damage or disruption could materially impair or prohibit our ability to provide our services, which could significantly impact our business.

Experienced computer programmers, or hackers, may attempt to penetrate our network security from time to time. For example, in the first quarter of 2008, our subsidiary, Cityfeet.com, was informed that there may have been a security breach to its credit card database, and that some personally identifiable information of individuals contained in that database may have been misappropriated. The potential breach has not affected any personally identifiable information with respect to LoopNet members, which information is maintained on separate servers. Although we maintain a firewall, and will continue to enhance and review our databases to prevent unauthorized and unlawful intrusions, a hacker who penetrates our network security could misappropriate proprietary information or cause interruptions in our services. We might be required to expend significant capital and resources to protect against, or to alleviate, problems caused by hackers. We also may not have a timely remedy against a hacker who is able to penetrate our network security. In addition to purposeful security breaches, the inadvertent transmission of computer viruses could expose us to litigation or to a material risk of loss. Any of these incidents could materially impact our ability to provide our services as well as materially impact the confidence of our customers in our services, either of which could significantly impact our business.

We may be subject to regulation of our advertising and customer solicitation or other newly-adopted laws and regulations.

As part of our membership registration process, our customers agree to receive emails and other communications from us. However, we may be subject to restrictions on our ability to communicate with our customers through email and phone calls. Several jurisdictions have proposed or adopted privacy-related laws that restrict or prohibit unsolicited email or “spam.” These laws may impose significant monetary penalties for violations. For example, the CAN-SPAM Act of 2003, or CAN-SPAM, imposes complex and often burdensome requirements inconnection with sending commercial email. Key provisions of CAN-SPAM have yet to be interpreted by the courts. Depending on how it is interpreted, CAN-SPAM may impose burdens on our email marketing practices or services we offer or may offer. Although CAN-SPAM is

thought to have pre-empted state laws governing unsolicited email, the effectiveness of that preemption is likely to be tested in court challenges. If any of those challenges are successful, our business may also be subject to state laws and regulations that may further restrict our email marketing practices and the services we may offer. The scope of those regulations is unpredictable. Compliance with laws and regulations of different jurisdictions imposing different standards and requirements is very burdensome for an online business. Our business, like most online businesses, offers products and services to customers in multiple state jurisdictions. Our business efficiencies and economies of scale depend on generally uniform service offerings and uniform treatment of customers. Compliance requirements that vary significantly from jurisdiction to jurisdiction impose an added cost to our business and increased liability for compliance deficiencies. In addition, laws or regulations that could harm our business could be adopted, or reinterpreted so as to affect our activities, by the government of the United States, state governments, regulatory agencies or by foreign governments or agencies. This could include, for example, laws regulating the source, content or form of information or listings provided on our websites, the information or services we provide or our transmissions over the Internet. Violations or new interpretations of these laws or regulations may result in penalties or damage our reputation or could increase our costs or make our services less attractive.

An important aspect of the new Internet-focused laws is that where federal legislation is absent, states have begun to enact consumer-protective laws of their own and these vary significantly from state to state. Thus, it is difficult for any company to be sufficiently aware of the requirements of all applicable state laws, and it is further difficult or impossible for any company to fully comply with their inconsistent standards and requirements. In addition to the consequences that could result from violating one or another state’s laws, the cost of attempting to comply will be considerable. Also, as our business grows to be world-wide, we will be required to comply with the laws of foreign countries, and the costs of that compliance effort will be considerable.

Our stock price may be volatile and you may be unable to sell your shares at or above the purchase price.

The market price of our common stock could be subject to wide fluctuations in response to, among other things, the risk factors described in this section of this Quarterly Report on Form 10-Q, and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us.

Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock.

In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Our principal stockholders, executive officers and directors own a significant percentage of our stock, and as a result, the trading price for our shares may be depressed and these stockholders can take actions that may be adverse to your interests.

Our executive officers and directors and entities affiliated with them, in the aggregate, beneficially own approximately 33% of our outstanding shares of common stock. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. These stockholders, acting together, may have the ability to exert control over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders who are executive officers or directors, or who have representatives on our Board of Directors, could dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.

Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.

Our amended and restated certificate of incorporation and our bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:

	•		providing for a classified board of directors with staggered, three-year terms;

	•		not providing for cumulative voting in the election of directors; or imposing a majority voting standard;

	•		authorizing the board to issue, without stockholder approval, preferred stock rights senior to those of common stock;

	•		prohibiting stockholder action by written consent;

	•		limiting the persons who may call special meetings of stockholders; and

	•		requiring advance notification of stockholder nominations and proposals.

In addition, the provisions of Section 203 of the Delaware General Corporation Laws govern us. While we have waived the application of Section 203 of the Delaware General Corporation Laws with respect to the investors who acquired shares of our Series A convertible preferred stock in the April 2009 private placement, these provisions may otherwise prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.

These and other provisions in our amended and restated certificate of incorporation, our bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits:


31.1		Rule 13a-14(a) Certification (CEO)

31.2		Rule 13a-14(a) Certification (CFO)

32.1		Section 1350 Certification (CEO)

32.2		Section 1350 Certification (CFO)

SIGNATURES

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


	LOOPNET, INC.
Date: November 4, 2009	By:	/s/ Richard J. Boyle, Jr.
		Richard J. Boyle, Jr.
		Chief Executive Officer, and Chairman of the Board of Directors Principal Executive Officer


Date: November 4, 2009	By:	/s/ Brent Stumme
		Brent Stumme
		Chief Financial Officer and Senior Vice President, Finance and Administration Principal Financial or Accounting Officer

EXHIBIT INDEX

Exhibits:


31.1		Rule 13a-14(a) Certification (CEO)

31.2		Rule 13a-14(a) Certification (CFO)

32.1		Section 1350 Certification (CEO)

32.2		Section 1350 Certification (CFO)

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