<PAGE>

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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               ----------------

                                   FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the Quarterly Period Ended September 30, 2001

                                      OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from          to

                       Commission File Number: 000-26357

                               ----------------

                                LOOKSMART, LTD.
            (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S>                                            <C>
                  Delaware                                       13-3904355
       (State or other jurisdiction of                        (I.R.S. Employer
       incorporation or organization)                        Identification No.)
</TABLE>

                               625 Second Street
                        San Francisco, California 94107
             (Address of Principal Executive Offices and Zip Code)

                                (415) 348-7000
             (Registrant's Telephone Number, Including Area Code)

                               ----------------

   Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [_]

   As of November 7, 2001, there were 92,762,999 shares of the registrant's
common stock outstanding.

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<PAGE>

                                   FORM 10-Q

                                     INDEX

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
 <C>     <S>                                                                 <C>
                          PART I FINANCIAL INFORMATION
 ITEM 1: Condensed Consolidated Financial Statements (unaudited)
         Condensed Consolidated Balance Sheets as of December 31, 2000 and
          September 30, 2001..............................................     3
         Condensed Consolidated Statements of Operations and Comprehensive
          Loss for the three and nine months ended September 30, 2000 and
          2001............................................................     4
         Condensed Consolidated Statements of Cash Flows for the nine
          months ended September 30, 2000 and 2001........................     5
         Notes to Condensed Consolidated Financial Statements.............     6
 ITEM 2: Management's Discussion and Analysis of Financial Condition and
          Results of Operations...........................................    10
 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk.......    26
                            PART II OTHER INFORMATION
 ITEM 1: Legal Proceedings................................................    27
 ITEM 2: Changes in 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 and Reports on Form 8-K.................................    27
 ITEM 7: Signature........................................................    29
</TABLE>

                                       2
<PAGE>

                         PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                        LOOKSMART, LTD. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (unaudited)
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                     December 31, September 30,
                                                         2000         2001
                                                     ------------ -------------
<S>                                                  <C>          <C>
                       ASSETS
Current assets:
  Cash and cash equivalents.........................   $ 52,617     $ 31,147
  Restricted cash...................................     43,297       39,961
  Short-term investments............................      2,979       12,066
  Trade accounts receivable, net....................     18,307        8,430
  Accounts receivable from related parties..........      3,585        1,515
  Prepaid expenses..................................      7,718        2,310
  Other current assets..............................      1,963          761
                                                       --------     --------
    Total current assets............................    130,466       96,190
Property and equipment, net.........................     13,259       10,123
Goodwill and intangible assets, net.................     31,895       17,395
Security deposits...................................      2,902        2,878
Long-term investments...............................      1,759          954
Other assets........................................      2,115          834
                                                       --------     --------
    Total assets....................................   $182,396     $128,374
                                                       ========     ========
         LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
  Trade accounts payable............................   $  7,414     $  1,817
  Other accrued liabilities.........................     21,800       13,859
  Deferred revenue..................................     13,622       10,214
                                                       --------     --------
    Total current liabilities.......................     42,836       25,890
Credit facility from joint venture partner..........     50,154       50,411
Other liabilities...................................     10,184       18,081
                                                       --------     --------
    Total liabilities...............................    103,174       94,382
Stockholders' equity:
  Common stock, $.001 par value; Authorized: 200,000
   at December 31, 2000 and September 30, 2001;
   issued and outstanding: 91,569 and 92,233 at
   December 31, 2000 and September 30, 2001.........         92           92
  Warrants..........................................        913          913
  Additional paid-in capital........................    234,539      234,753
  Deferred stock compensation and other.............     (5,797)      (2,760)
  Accumulated deficit...............................   (150,525)    (199,006)
                                                       --------     --------
    Total stockholders' equity......................     79,222       33,992
                                                       --------     --------
    Total liabilities and stockholders' equity......   $182,396     $128,374
                                                       ========     ========
</TABLE>

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

                                       3
<PAGE>

                        LOOKSMART, LTD. AND SUBSIDIARIES

     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                                  (unaudited)
                    (In Thousands, except per share amounts)

<TABLE>
<CAPTION>
                                          Three Months
                                         Ended September    Nine Months Ended
                                               30,            September 30,
                                        ------------------  ------------------
                                          2000      2001      2000      2001
                                        --------  --------  --------  --------
<S>                                     <C>       <C>       <C>       <C>
Revenues:
  Listings............................. $  3,287  $  9,140  $  5,529  $ 23,651
  Advertising..........................   18,951     5,245    48,906    21,472
  Licensing............................    6,371     3,421    16,134    11,470
  Ecommerce............................   4 ,755       499    11,596     8,995
                                        --------  --------  --------  --------
    Total revenues.....................   33,364    18,305    82,165    65,588
Cost of revenues:
  Listings.............................      487     2,321       487     5,538
  Advertising..........................    1,433     1,307     3,521     4,067
  Ecommerce............................    2,851       221     7,016     5,559
                                        --------  --------  --------  --------
    Total cost of revenues.............    4,771     3,849    11,024    15,164
                                        --------  --------  --------  --------
Gross profit...........................   28,593    14,456    71,141    50,424
                                        --------  --------  --------  --------
Operating expenses:
  Sales and marketing (includes
   deferred stock compensation of $321
   and $338 in the three months ended
   September 30, 2000 and 2001,
   respectively, and $1,093 and $1,362
   in the nine months ended September
   30, 2000 and 2001, respectively)....   23,656     7,832    60,739    34,751
  Product development (includes
   deferred stock compensation of $159
   and $316 in the three months ended
   September 30, 2000 and 2001,
   respectively, and $535 and $902 in
   the nine months ended September 30,
   2000 and 2001, respectively)........    9,080     7,441    27,511    23,226
  General and administrative (includes
   deferred stock compensation of $180
   and $113 in the three months ended
   September 30, 2000 and 2001,
   respectively, and $675 and $364 in
   the nine months ended September 30,
   2000 and 2001, respectively)........    3,191     2,970     9,818     9,376
  Amortization of goodwill and
   intangibles.........................    1,612     1,619     5,388     6,055
  Other nonrecurring charges...........        0         0         0    11,791
                                        --------  --------  --------  --------
    Total operating expenses...........   37,539    19,862   103,456    85,199
                                        --------  --------  --------  --------
    Loss from operations...............   (8,946)   (5,406)  (32,315)  (34,775)
Non-operating income (expenses):
  Interest and other non-operating
   income(expense), net................     (918)   (2,418)     (956)   (5,742)
  Share of joint venture loss..........   (3,105)   (2,237)   (6,649)   (7,805)
                                        --------  --------  --------  --------
    Loss before income taxes...........  (12,969)  (10,061)  (39,920)  (48,322)
Income tax.............................      (41)       21      (135)      (55)
Minority interest......................       95      (141)      490      (106)
                                        --------  --------  --------  --------
    Net loss...........................  (12,915)  (10,181)  (39,565)  (48,483)
Other comprehensive income/(loss)
  Change in foreign currency
   translation adjustment during the
   period..............................     (108)       54      (208)     (164)
  Change in unrealized gains/(losses)
   during the period...................       78         3      (256)      336
                                        --------  --------  --------  --------
    Comprehensive loss................. $(12,945) $(10,124) $(40,029) $(48,311)
                                        ========  ========  ========  ========
Basic and diluted net loss per share... $  (0.14) $  (0.11) $  (0.45) $  (0.53)
                                        ========  ========  ========  ========
Weighted average shares outstanding
 used in per share calculation.........   89,575    92,406    88,517    91,648
                                        ========  ========  ========  ========
</TABLE>

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

                                       4
<PAGE>

                        LOOKSMART, LTD. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                              September 30,
                                                            ------------------
                                                              2000      2001
                                                            --------  --------
<S>                                                         <C>       <C>
Cash flows from operating activities:
  Net loss................................................. $(39,565) $(48,483)
  Adjustments to reconcile net loss to cash used in
   operating activities:
    Share of joint venture loss............................    6,649     7,805
    Depreciation and amortization..........................    8,861    11,018
    Impairment of goodwill.................................        0     8,371
    Non-cash charges.......................................      157       205
    Amortization of deferred stock compensation............    2,303     2,628
    Loss on foreign currency transactions..................        0        14
    Net gains from the sales of assets.....................        0      (100)
    Changes in operating assets and liabilities:
      Trade accounts receivable............................   (7,983)    9,877
      Prepaid expenses.....................................   (6,029)    5,408
      Inventory............................................      (19)    1,423
      Other assets.........................................   (3,548)    2,505
      Trade accounts payable...............................    2,130    (5,597)
      Other accrued liabilities and payables...............   12,727       828
      Deferred revenues....................................   (4,922)   (3,408)
    Minority interest......................................     (293)      106
                                                            --------  --------
        Net cash used in operating activities..............  (29,532)   (7,400)
                                                            --------  --------
Cash flows from investing activities:
  Acquisitions.............................................     (811)        0
  Purchase of investments..................................  (13,902)  (12,388)
  Proceeds from sale of investments........................   28,188     4,036
  Proceeds from the sale of property & equipment...........        0       152
  Funding to joint venture.................................   (4,000)   (4,000)
  Purchase of property and equipment.......................   (5,423)   (1,374)
                                                            --------  --------
        Net cash provided by (used in) investing
         activities........................................    4,052   (13,574)
                                                            --------  --------
Cash flows from financing activities:
  Proceeds from note.......................................      472         0
  Repayment on notes.......................................      (31)      (25)
  Repayments on equipment lease............................     (523)     (699)
  Proceeds from issuance of common stock...................    3,513       352
                                                            --------  --------
        Net cash provided by (used in) financing
         activities........................................    3,431      (372)
Effect of exchange rate changes on cash....................     (208)     (124)
                                                            --------  --------
Decrease in cash and cash equivalents......................  (22,257)  (21,470)
Cash and cash equivalents, beginning of period.............   75,971    52,617
                                                            --------  --------
Cash and cash equivalents, end of period................... $ 53,714  $ 31,147
                                                            ========  ========
</TABLE>

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

                                       5
<PAGE>

                        LOOKSMART, LTD. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

1. Summary of Significant Accounting Policies

Nature of Business and Principles of Consolidation

   LookSmart provides search targeted marketing services to customers through
distribution of proprietary directories to a large number of Internet users
through strategic partners, including portals, Internet service providers and
media companies.

   The consolidated financial statements include the accounts of the Company
and its subsidiaries: LookSmart International Pty Ltd, Futurecorp International
Pty Ltd, BeSeen.com, Inc., LookSmart Netherlands B.V., LookSmart Holdings
(Delaware), Ltd., LookSmart (Barbados), Inc., and LookSmart Germany GmbH. All
significant intercompany balances and transactions have been eliminated in
consolidation. Investments in 20% to 50% owned partnerships and affiliates are
accounted for by the equity method and investments in less than 20% owned
affiliates are accounted for by the cost method.

Revenue Recognition

   The Company generates revenues from listings, advertising, licensing and
ecommerce activities. Listings revenues are derived from Small Business fees,
from LookListings and from affiliate partner commissions. Small Business fees
result from the expedited review of customers' web sites. The Company
recognizes as revenue a one-time review fee upon completion of the review.
LookListings involve placement of URLs within the Company's featured listings,
directory listings, or index listings. Revenues associated with listings
contracts are recognized once collectibility is established, as delivery of
services occurs (as specified under the contracts), once all performance
obligations have been satisfied and when no refund obligations exist. Typically
LookListings contracts are paid on a cost-per-click (CPC) basis and are
recognized as earned. Affiliate partner commissions result from payments by
affiliate vendors for the referral of traffic. These commissions are paid on a
cost-per-acquired (CPA) basis and are recognized when earned. In some cases,
there is also an upfront and maintenance fee, which is recognized ratably over
the longer of the term of the contract or the expected relationship with the
customer.

   Advertising revenues are derived from the sale of advertisements on the
Company's web sites and its distribution affiliates in conjunction with
returning search content. Advertising revenues are recognized as impressions or
clicks are delivered over the period in which the advertisement is displayed,
provided that no significant Company obligations remain at the end of a period
and collection of the resulting receivable is reasonably assured. Company
obligations typically include guarantees of a minimum number of "impressions,"
or times that an advertisement appears in pages viewed by users of the
Company's or its partners' online properties.

   Revenues associated with licensing contracts are recognized as delivery
occurs as specified under the contracts, all performance obligations have been
satisfied, and no refund obligations exist. Payments from customers received in
advance of delivery are recorded as deferred revenues.

   The Company's ecommerce revenues are generated by the sale of merchandise.
In accordance with EITF Issue No. 99-19, "Reporting Gross Revenue vs. Net",
revenue from the sale of merchandise is reported on a gross basis if the
Company acts as the principal or on a net basis for transactions in which the
Company acts as an agent. Revenue is recognized at the time goods are shipped.

Expense Recognition

   Generally, all costs are expensed as incurred. However, product development
costs, including research and development, have been capitalized to the extent
that costs for internal use software are required to be

                                       6
<PAGE>

                        LOOKSMART, LTD. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (unaudited)

capitalized and amortized under American Institute of Certified Public
Accountants Statement of Position No. 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1).

Recently Issued Accounting Pronouncements

   In July 2001, the FASB issued two Statements: Statement No. 141, "Business
Combinations" (SFAS No. 141), and Statement No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). SFAS No. 141 revises the accounting
treatment for business combinations, requiring the use of purchase accounting
and prohibiting the use of the pooling-of-interests method for all business
combinations initiated after June 30, 2001, and broadens the criteria for
recording intangible assets separate from goodwill for all business
combinations completed after June 30, 2001. SFAS No. 142 revises the accounting
for goodwill and other intangible assets by not allowing the amortization of
goodwill and establishing accounting for the impairment of goodwill and other
intangible assets. SFAS No. 142 will be effective for fiscal years beginning
after December 15, 2001. The Company will adopt the pronouncement as of January
1, 2002 and perform the first of the required impairment tests of goodwill.

   In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144
revises the accounting for the measurement of long-lived assets to be disposed
of by sale and clarifies implementation issues for discontinued operations.
SFAS No. 144 will be effective for fiscal years beginning after December 15,
2001.

   The Company has not yet determined the effect of the pronouncements on its
financial statements.

Reclassifications

   Certain reclassifications have been made to prior periods' consolidated
financial statements to conform to the current presentation.

2. Unaudited Interim Financial Information

   The accompanying unaudited condensed consolidated financial statements
reflect all adjustments which are normal and recurring in nature, and, in the
opinion of management, are necessary for a fair statement of the results of
operations for the periods shown. The results of operations for such periods
are not necessarily indicative of the results expected for any full fiscal year
or for any future period.

   Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. These unaudited interim condensed
consolidated financial statements should be read in conjunction with
LookSmart's audited financial statements and notes for the year ended December
31, 2000, as included in LookSmart's Annual Report to Shareholders on Form 10-
K, as filed with the Securities and Exchange Commission.

3. Other Nonrecurring Charges

   Other nonrecurring charges include a $6,014,000 write-off of goodwill and
capitalized software related to the Inside The Web and LookSmart Live!
services, which LookSmart is no longer offering, a $1,264,000 write-off of
prepaid advertising expenses for the termination of long-term advertising
contracts in the quarter ended March 31, 2001, and a $2,357,000 impairment of
goodwill related to the Guthy-Renker Internet asset purchase in the quarter
ended June 30, 2001. Other non-recurring charges in the first quarter of 2001
also included $2,156,000 in severance costs related to a workforce reduction,
which occurred in January 2001.

                                       7
<PAGE>

                        LOOKSMART, LTD. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (unaudited)


4. Net Loss Per Share

   In accordance with the requirements of SFAS No. 128, a reconciliation of the
numerator and denominator of basic and diluted loss per share is provided as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                          Three Months
                                         Ended September    Nine Months Ended
                                               30,            September 30,
                                        ------------------  ------------------
                                          2000      2001      2000      2001
                                        --------  --------  --------  --------
                                           (unaudited)         (unaudited)
<S>                                     <C>       <C>       <C>       <C>
Numerator--Basic and diluted:
  Net loss............................. $(12,915) $(10,181) $(39,565) $(48,483)
                                        --------  --------  --------  --------
Denominator--Basic and diluted:
  Weighted average common shares
   outstanding.........................   89,575    92,406    88,517    91,648
                                        --------  --------  --------  --------
  Basic and diluted loss per share..... $  (0.14) $  (0.11) $  (0.45) $  (0.53)
                                        ========  ========  ========  ========
</TABLE>

   Diluted net loss per share for the three and nine months ended September 30,
2000 and 2001 does not include the effect of 11,901,000 and 15,191,445 stock
options, respectively, or 1,980,000 and 2,015,000 common stock warrants,
respectively, which were outstanding at the end of the period, as the effect of
their inclusion is antidilutive during each period.

5. Related Party Transactions

   The Company has a distribution and sponsorship agreement with Guthy-Renker,
one of the Company's stockholders. At September 30, 2001, the Company had a
receivable of $276,313 from Guthy-Renker arising from transactions under the
distribution agreement. During the three months and nine months ended
September 30, 2001, the Company paid Guthy-Renker $7,850 and $99,531,
respectively, for marketing and administrative support. During the three months
ended September 30, 2000 and 2001, the Company earned $4,731,262 and $790,646
in revenue from Guthy-Renker, respectively. During the nine months ended
September 30, 2000, and 2001, the Company earned $8,354,525 and $9,245,785 in
revenue from Guthy-Renker, respectively.

   The Company has a joint venture with British Telecommunications called BT
LookSmart. At September 30, 2001 the Company had an account receivable from the
joint venture in the amount of $1,238,252 related to joint venture charge back
expenses. In addition, the Company received revenues from BT LookSmart for the
licensing of LookSmart database content. Total revenue received from BT
LookSmart for the three months ended September 30, 2000 and 2001 was $250,000
and $0, respectively. Total revenue received from BT LookSmart for the nine
months ended September 30, 2000 and 2001 was $625,000 and $42,000,
respectively.

                                       8
<PAGE>

                        LOOKSMART, LTD. AND SUBSIDIARIES

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (unaudited)


6. Segment Information

   The Company operates in four segments: listings, advertising, licensing and
ecommerce. In the Condensed Consolidated Statements of Operations and
Comprehensive Loss, the Company reports revenue and cost of revenues for these
four segments based on the services currently provided by each. With the
exception of accounts receivable and deferred revenue, information available to
the chief operating decision makers of the Company does not include allocations
of assets and liabilities or operating costs to the Company's segments. As of
December 31, 2000 and September 30, 2001, accounts receivable by segments are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          2000         2001
                                                      ------------ -------------
                                                             (unaudited)
   <S>                                                <C>          <C>
   Listings..........................................   $ 2,806       $ 6,260
   Advertising.......................................    19,260         5,725
   Licensing.........................................       424         1,001
   Ecommerce.........................................        12            12
                                                        -------       -------
   Total.............................................    22,502        12,998
   Allowance for doubtful accounts...................    (4,195)       (4,568)
                                                        -------       -------
   Accounts receivable, net..........................   $18,307       $ 8,430
                                                        =======       =======
</TABLE>

   As of December 31, 2000 and September 30, 2001 deferred revenue by segment
was as follows (in thousands):

<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          2000         2001
                                                      ------------ -------------
                                                             (unaudited)
   <S>                                                <C>          <C>
   Listings..........................................   $   309       $   343
   Advertising.......................................       253           397
   Licensing.........................................    13,060         9,474
   Ecommerce.........................................         0             0
                                                        -------       -------
   Total.............................................   $13,622       $10,214
                                                        =======       =======
</TABLE>

7. Stock Option Plan

   During the nine months ended September 30, 2001, the Company granted
14,203,658 stock options at the then current fair market value of its
underlying common stock. During such period employees exercised an aggregate of
1,023,244 options, and 11,519,923 options were cancelled. Total outstanding
stock options were 15,191,445 as of September 30, 2001.


                                       9
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

   The following discussion should be read in conjunction with the condensed
consolidated financial statements included in this Form 10-Q and the notes to
those statements. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs, including without limitation
forward-looking statements regarding anticipated revenue growth, trends in
costs of revenues and operating expenses, international expansion and
introduction of additional services. 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 below and elsewhere in this Quarterly Report on Form 10-Q,
particularly in the section below entitled "Factors Affecting Operating
Results."

Overview

   LookSmart is a global leader in search targeted marketing, helping online
and offline businesses find qualified leads on the Internet through search.
LookSmart has built 33 Web directories spanning 28 countries and 13 languages.
These directories include more than 2.9 million URLs aggregated by editors and
classified appropriately within the directories. LookSmart directories are
distributed through portals, search engines, Internet service providers and
media companies. By providing its directories through a worldwide network of
partners, LookSmart is focused on enabling businesses to access qualified
customers at the very moment they are searching for products, services and
information.

Revenues and Cost of Revenues

   Listings. The Company's listings revenues are derived from Small Business
and LookListings fees and affiliate partner commissions. Small Business fees
result from the expedited review of customers' web sites. LookListings involve
placement of URLs within the Company's featured listings, directory listings or
index listings products. Affiliate partner commissions are derived from the
Company's affiliates program, in which affiliate vendors pay for referral of
traffic.

   The Company's costs of listings revenue are the distribution fees paid to
partners based on LookListings "cost-per-click" revenues when there is no
LookSmart branding or other direct sales and marketing efforts associated with
the generation of these clicks and revenues. In contrast, payments made to
distribution partners for our Small Business revenues are reflected as a sales
and marketing expense due to LookSmart branding associated with the purchase of
these products. The costs associated with affiliate partner commissions are the
fees paid to distribution partners based on the affiliate vendor commissions
earned. We expect payments to our affiliate and distribution partners to
increase as we expand our business.

   We expect listings revenues to continue to grow as a proportion of our
overall revenues as search targeted marketing continues to be adopted by
customers as a highly effective marketing tool. However, as described below in
"Factors Affecting Operating Results," listings revenues may fluctuate due to
various factors on a short-term or long-term basis.

   Advertising. The Company's advertising revenues are typically derived from
providing advertisers with one to three month agreements to serve a minimum
number of advertising impressions over the term of the agreement. We offer
advertisers the ability to specify the category of traffic for their
advertisements, and we are able to charge premiums on some categories based on
advertisers' perceptions of the associated economic value. This value is
derived from the location of the advertisement on the page, the targeting by
category or keyword and the size of the audience requesting the page.

   The principal components of cost of advertising revenues are personnel costs
of our in-house advertising operations employees, equipment depreciation, other
expenses relating to hosting advertising operations and agency commissions paid
to outside advertising sales organizations. Our costs of advertising revenues
are fixed,

                                       10
<PAGE>

at least in the short term, and cannot be expected to track short-term
fluctuations in advertising revenues. To the extent that costs do not track
changes in advertising revenues, fluctuations from this revenue source will
have a disproportionate impact on net income or loss.

   Advertising revenues, both on absolute terms and relative to total revenues,
have declined over the past year. We expect this trend to continue as marketers
shift to more targeted approaches, as described in the discussion of listings
revenues.

   Licensing. We license our database content to some of our partners,
including Microsoft and others. We expect revenues from licensing to fluctuate
from period to period because these revenues are dependent upon the particular
terms of our licensing arrangements and the expiration, renewal and addition of
agreements with current and future partners.

   Ecommerce. The Company's ecommerce revenues are generated primarily by the
sale of merchandise through online stores such as BuyItOnTheWeb (a wholly owned
business unit of LookSmart). Revenues from the sale of merchandise are reported
on a gross basis if the Company acts as the principal in the transactions.
Associated direct product costs are reported as cost of revenues.

   Effective April 1, 2001, LookSmart renegotiated its contract with Guthy-
Renker, which supplies a majority of the products offered for sale through
LookSmart's ecommerce channels. As a result of the new contract terms,
LookSmart no longer assumes inventory risk on Guthy-Renker products and records
only the commissions from initial sales to new customers. This change has
caused ecommerce revenues and cost of revenues to decline significantly, with
little impact on earnings per share.

Operating Expenses

   We do not track operating expenses by reportable segment, but treat these as
shared overhead of our four reportable segments.

   Sales and Marketing. Sales and marketing expenses primarily consist of
payments to distribution partners for directing online users to the LookSmart
directories and referring Small Business customers. Distribution costs can
exhibit significant fluctuations from period to period depending on the
contracts, volume and rates. Further, distribution costs as a percentage of
revenues can vary significantly depending on the structure of the payment
arrangements between LookSmart and its distribution partners. We expect
payments to our distribution partners to increase as we expand our
distribution.

   Sales and marketing expenses also include salaries and associated costs of
employment, overhead, facilities, allocation of depreciation, amortization of
unearned compensation, and provisions for uncollected trade receivables. Sales
and marketing expenses also include the costs of advertising, trade shows and
public relations activities. Due to the one-time nature of these advertising
expenditures, we expect that sales and marketing expenses will continue to
fluctuate from period to period.

   Product Development. Product development costs include all costs related to
development and engineering of new products and continued development of our
editorial databases. These costs include salaries and associated costs of
employment, overhead, facilities and amortization of unearned compensation.
Software licensing and computer equipment depreciation related to supporting
product development functions are also included in product development
expenses. These costs are relatively fixed in the short term.

   General and Administrative. General and administrative expenses include
overhead costs such as executive management, human resources, finance, legal
and facilities personnel. These costs include salaries and associated costs of
employment, overhead, facilities, allocation of depreciation and amortization
of unearned compensation. General and administrative expenses include related
consulting and professional service fees that will vary significantly over
time.

                                       11
<PAGE>

   Other Nonrecurring Charges. In January 2001, LookSmart announced a
restructuring of its management and operations. The costs associated with these
activities resulted in a nonrecurring charge related to LookSmart's exit from
non-core businesses, such as Inside The Web and LookSmart Live!, the amendment
of certain marketing agreements, and a reduction of staff by 172 employees. In
April 2001, LookSmart recognized an impairment charge related to goodwill from
the 1999 Guthy-Renker Internet asset purchase.

   Amortization of Goodwill and Intangibles. We are amortizing goodwill and
intangibles as a result of the purchase of intellectual property at our
inception in 1996, the BeSeen.com acquisition in October 1998, the Guthy-Renker
Internet asset purchase in April 1999 (through March 31, 2001), the ITW NewCorp
asset purchase in June 1999 (through December 31, 2000), the Futurecorp
investment made in December 1999 and in July 2000, and the Zeal Media, Inc.
acquisition in October 2000.

   Income Taxes. Although we are not yet profitable on a consolidated basis,
tax charges are incurred in connection with our operations in foreign
jurisdictions.

Results of Operations

Revenues

   Listings. Listings revenue was $9.1 million in the quarter ended September
30, 2001 and $23.7 million in the first nine months of 2001. This represented
an increase of 178% and 328%, respectively, compared with the corresponding
periods in 2000. The growth is due to our successful broadening of our
LookListings suite of products, continuing increases in our distribution
network, our sales and marketing efforts to promote these new products and the
products' focus on search targeted marketing. In the third quarter of 2001,
listings revenue accounted for 50% of total revenues, representing the largest
revenue segment for LookSmart for the second consecutive quarter.

   Advertising. Advertising revenue was $5.2 million in the quarter ended
September 30, 2001 and $21.5 million in the first nine months of 2001. This
represented a decrease of 72% and 56%, respectively, compared with the
corresponding periods in 2000. The decrease in advertising revenues is
attributable to the downturn in the online advertising market and reduced
demand and prices for these products.

   Licensing. Licensing revenue was $3.4 million in the quarter ended September
30, 2001 and $11.5 million in the first nine months of 2001. This represented a
decrease of 46% and 29%, respectively, compared with the corresponding periods
in 2000. The decrease in licensing revenue is attributable primarily to an
unusually high number of expedited links in the second and third quarters of
2000 ordered by Microsoft in support of a major re-launch and marketing
campaign of its portals. In 2001, the Microsoft activity returned to its normal
levels. The decline was also caused by the timing of delivery of URLs under our
agreement with Microsoft.

   Ecommerce. Ecommerce revenue was $499,000 in the quarter ended September 30,
2001 and $9.0 million in the first nine months of 2001. This represented a
decrease of 90% and 22%, respectively, compared with the corresponding periods
in 2000. The quarter over quarter decrease is predominantly a result of a
change in the way that revenue is recognized under the contract with Guthy-
Renker. Due to contractual changes, the Company, effective April 2001, records
only commissions on initial sales to new customers, rather than the gross sale
to the customer for Guthy-Renker products. See the discussion above entitled
"Revenues and Cost of Revenues--Ecommerce".

Cost of Revenues

   Listings. Listings cost of revenues was $2.3 million in the quarter ended
September 30, 2001 and $5.5 million in the first nine months of 2001. This
represented an increase of 377% and 1,037%, respectively, compared with the
corresponding periods in 2000. The increase in listings cost of revenues is
primarily attributable to the growth in partner distribution expenses for the
listings products. Since the listings products were in a start-up phase during
2000, costs were unusually low during that time period. In 2001, costs have
increased as the listings business matured and became an ongoing activity.

                                       12
<PAGE>

   Advertising. Advertising cost of revenues was $1.3 million in the quarter
ended September 30, 2001 and $4.1 million in the first nine months of 2001.
This represented a decrease of 9% and an increase of 16%, respectively,
compared with the corresponding periods in 2000. The quarter over quarter
decrease in advertising cost of revenues is primarily attributable to the
decline in the commission expense associated with the resale of advertising
contracts that existed in 2000. The year-to-date increase is related to an
increase in the costs of our in-house advertising operations employees and
related expenses.

   Ecommerce. Ecommerce cost of revenues was $221,000 in the quarter ended
September 30, 2001 and $5.6 million in the first nine months of 2001. This
represented a decrease of 92% and 21%, respectively, compared with the
corresponding periods in 2000. The decreases are predominantly a result of a
contractual change with Guthy-Renker. Effective April 2001, the Company no
longer records costs of revenue for Guthy-Renker products since it records only
commissions on sales rather than the sale itself. See the discussion above
entitled "Revenues and Cost of Revenues--Ecommerce".

Operating Expenses

   Sales and Marketing. Including charges for amortization of unearned
compensation and depreciation, sales and marketing expenses decreased as
follows (dollar figures are in millions):

<TABLE>
<CAPTION>
                                  Three Months           Nine Months
                                      Ended                 Ended
                                  September 30          September 30
                                  --------------   %    --------------    %
                                   2000   2001   change  2000    2001   change
                                  ------  ------ ------ ------  ------  ------
   <S>                            <C>     <C>    <C>    <C>     <C>     <C>
   Sales and Marketing Expense..   $23.7   $7.8   (67%)  $60.7   $34.8   (43%)
   As % of Revenue..............      71%    43%            74%     53%

   The decline in period over period expense as well as expense as a percentage
of revenues was driven primarily by an overall decrease in distribution costs,
a reduction in employee related expenses resulting from the January 2001
restructuring, and reduced corporate marketing and branding related spending.
In the short term, we anticipate that expenses in this area will continue to
decline as the full period impact of our lowered distribution costs is
realized.

   Product Development. Including charges for amortization of unearned
compensation and depreciation, product development expenses changed as follows
(dollar figures are in millions):

<CAPTION>
                                  Three Months           Nine Months
                                      Ended                 Ended
                                  September 30          September 30
                                  --------------   %    --------------    %
                                   2000   2001   change  2000    2001   change
                                  ------  ------ ------ ------  ------  ------
   <S>                            <C>     <C>    <C>    <C>     <C>     <C>
   Product Development Expense..  $  9.1  $ 7.4   (18%) $ 27.5  $ 23.2   (16%)
   As % of Revenue..............      27%    41%            33%     35%
</TABLE>

   The period over period decrease in expense was driven by the overall
decrease in employee related expenses resulting from the January 2001
restructuring. The period over period increase in expense as a percentage of
revenues resulted from a larger decline in total revenues in each period
relative to LookSmart's continued investment in product development activities.
In the third and fourth quarters of 2001, the Company invested in licensing the
technology and hiring the senior management team of Primary Knowledge, an
online marketing business intelligence firm. This investment will enhance the
Company's ability to track and report to its customers the effectiveness of its
advertising and listings products.

                                       13
<PAGE>

   General and Administrative. Including charges for amortization of unearned
compensation and depreciation, general and administrative expenses changed as
follows (dollar figures are in millions):

<TABLE>
<CAPTION>
                                Three Months             Nine Months
                                    Ended                   Ended
                                September 30            September 30
                                --------------    %     --------------    %
                                 2000    2001   change   2000    2001   change
                                ------  ------  ------  ------  ------  ------
   <S>                          <C>     <C>     <C>     <C>     <C>     <C>
   General and Administrative
    Expense.................... $  3.2  $  3.0    (7%)  $  9.8  $  9.4    (5%)
   As % of Revenue.............     10%     16%             12%     14%
</TABLE>


   The period over period decrease in expense was driven by the overall
decrease in employee related expenses resulting from the January 2001
restructuring and continuing costs management. The period over period increase
in expense as a percentage of revenues resulted from a larger decline in total
revenues in each period in proportion to the relatively fixed nature of G&A
costs required to support the organization.

   Amortization of Goodwill and Intangibles. LookSmart is amortizing goodwill
and intangibles as a result of the purchase of intellectual property at our
inception in 1996, the BeSeen.com acquisition in October 1998, the Guthy-Renker
Internet asset purchase in April 1999 (through March 31, 2001), the Futurecorp
investments in December 1999 and in July 2000, and the Zeal Media, Inc.
acquisition made in October 2000. The amortization charge on these assets
remained flat at $1.6 million in the quarter ended September 30, 2001 compared
to the same quarter of 2000 and increased by 12% to $6.1 million in the first
nine months of 2001 from $5.4 million in the first nine months of 2000. The
nine month period year-over-year increase was due to incremental amortization
resulting from LookSmart's additional investment in Futurecorp and the
acquisition of Zeal Media, Inc., partially offset by the reduced amortization
resulting from the write-off of Inside the Web and Guthy-Renker goodwill in the
first and second quarters of 2001.

   Other Nonrecurring Charges. In January 2001, LookSmart announced a
restructuring of its management and operations. The costs associated with these
activities resulted in a one-time charge of $9.4 million in the quarter ended
March 31, 2001. This included charges related to the exit from non-core
businesses, such as Inside The Web and LookSmart Live! ($6.0 million in
goodwill and capitalized development costs), the termination of certain
marketing contracts ($1.2 million in prepaid advertising), and a reduction of
staff by 172 employees ($2.2 million in severance and related employee
payments). These costs also included an April 2001 impairment charge of $2.4
million related to goodwill from the 1999 Guthy-Renker Internet asset purchase.
During the first nine months of 2001, as a percentage of revenues, other
nonrecurring charges were 18%. LookSmart incurred no non-recurring charges in
the quarter ended September 30, 2001.

   Interest and Other Non-Operating Expense. Interest and other non-operating
expense primarily includes interest expense on our debt and capital lease
obligations, net of interest income from our cash, cash equivalents and
investments, realized gains or losses on investments and foreign exchange gains
losses arising from the change in the value of foreign currencies, primarily
the Australian dollar, relative to the United States dollar.

   Interest and other non-operating expense increased by 163% to $2.4 million
in the quarter ended September 30, 2001 compared to $918,000 in the same period
of 2000. For the nine months ended September 2001, interest and other non-
operating expense increased by 502% to $5.7 million compared to $956,000 in the
same period of 2000. The quarterly and nine-month increase was driven primarily
by reduced interest income driven by lower overall rates and lower cash and
investment balances. Also, in 2001 the Company had additional interest expense
related to its $50.0 million loan from British Telecommunications, which
started in February 2000.

   Share of Joint Venture Loss. Share of Joint Venture Loss includes
LookSmart's 50% share of the loss of BT LookSmart. LookSmart recorded $2.2
million of expense in the quarter ended September 30, 2001, a decrease of 28%
compared to $3.1 million recorded during the quarter ended September 30, 2000
and expense

                                       14
<PAGE>

of $7.8 million during the first nine months of 2001, an increase of 17%
compared to $6.6 million in the same period of 2000. The quarterly decrease is
a result of BT LookSmart's combined revenue growth and scaled back expenses.
The year-to-date increase resulted from two additional months of net loss
activity factored into the 2001 numbers as the BT LookSmart joint venture
commenced operations in late February 2000.

Income Taxes

   LookSmart recorded income tax credits of $21,000 in the quarter ended
September 30, 2001 compared to expense of $41,000 in the quarter ended
September 30, 2000. For the first nine months of 2001, we recorded income tax
expense of $55,000 compared to $135,000 in the same period of 2000. Income tax
expense is primarily associated with our Australian operations.

Joint Venture

   In February 2000, LookSmart entered into a joint venture agreement with
British Telecommunications (BT). LookSmart and BT have an equal equity interest
in the joint venture, BT LookSmart, which provides localized directory services
in Europe and Asia. We account for our investment in the joint venture using
the equity method of accounting. Our share of the joint venture's net income or
loss is reported as non-operating income or expense.

   The agreement establishing the joint venture requires that LookSmart and BT
provide funding equally for the operations of the joint venture. Under the
terms of the agreement, BT extended a $50.0 million credit facility with
interest at 20% per annum. LookSmart drew down $50.0 million from the credit
facility in February 2000. BT may at its discretion convert the loan and
related interest to LookSmart common stock at $35.00 per share, or upon an
event of default may take possession of that portion of LookSmart's shares in
BT LookSmart that LookSmart pledged as collateral for the credit facility.

Liquidity and Capital Resources

   LookSmart invests cash pending use in investment grade debt instruments with
maturities of less than one year, with the intent to make such funds available
for operating purposes. As of September 30, 2001, LookSmart had $43.2 million
of unrestricted cash, cash equivalents and short-term investments and
$40.0 million of restricted cash. Restricted cash is only available for
investment in BT LookSmart.

   LookSmart has incurred losses and consumed cash each year since inception.
Operating activities used $7.4 million of cash in the nine months ended
September 30, 2001 compared to $29.5 million in the same period in 2000. The
improvement in cash used in operating activities is primarily attributable to
lower operating expenses caused by lower distribution costs, reduced employee-
related expenses resulting from the January 2001 company-wide restructuring and
continuing cost management.

   Net cash used in investing activities was $13.6 million in the nine months
ended September 30, 2001. In the first nine months of 2000, investing
activities provided $4.1 million. Investment activity in each of the periods
consisted of purchases and sales of investments and fixed assets. In the nine
months ended September 30, 2001, we sold $4.0 million worth of investments
compared with $28.2 million during the same period of 2000. In the nine months
ended September 30, 2001, we provided $4.0 million of funding to BT LookSmart,
sold $152,000 worth of property and equipment and purchased $1.4 million worth
of equipment and $12.4 million of investments.

   Net cash used in financing activities was $372,000 in the nine months ended
September 30, 2001. In the first nine months of 2000, financing activities had
provided $3.4 million, primarily due to $3.5 million in proceeds from the
issuance of common stock. The consumption of financing cash in the nine months
ended September 30, 2001, was primarily the result of an equipment lease
repayment of $699,000, offset by $352,000 of proceeds from the issuance of
common stock.

                                       15
<PAGE>

   Our capital requirements depend on numerous business factors, including our
staffing and product development needs, the funding needs of our strategic
alliances and distribution agreements and the pace at which we pursue overseas
expansion of our business. We have experienced a substantial increase in
expenditures since inception driven by growth in the size and nature of our
operations. We will continue to evaluate acquisitions and strategic investments
in strategic and complementary businesses both in the United States and
internationally. These acquisitions may require the use of cash and, to the
extent that acquired interests have not reached cash flow breakeven, we may
need to fund the operations and expansion of these acquired interests in
addition to funding the growth of our current business.

Recently Issued Accounting Pronouncements

   See Note 1 in the Notes to the Condensed Consolidated Financial Statements.

                      Factors Affecting Operating Results

We have a history of net losses and expect to continue to incur net losses

   We have incurred net losses since our inception, including net losses of
approximately $64.7 million in 1999 and $62.6 million in 2000. As of September
30, 2001, we had an accumulated deficit of approximately $199.0 million. We may
continue to have net losses and negative cash flow in the foreseeable future.
Although we continue to make significant effort to contain expenses, the size
of these net losses will depend, in part, on our success in these efforts and
our ability to grow our revenues and capitalize on new sources of revenue. We
expect to spend significant amounts to:

  .  maintain and expand our network of distribution partners;

  .  continue to develop and expand directories of Internet listings, both in
     the U.S. and abroad;

  .  develop new products and enhance the functionality of our search and
     directory listings services;

  .  develop our international business, particularly through our BT
     LookSmart joint venture with British Telecommunications; and

  .  acquire complementary technologies and businesses.

   Because our operating expenses are likely to continue to exceed our revenues
in the near term, we will need to significantly increase our revenues or reduce
our costs to achieve operating profitability. Even if we do achieve operating
profitability, we may not be able to maintain or increase our operating
profitability on a quarterly or annual basis.

Our quarterly revenues and operating results may fluctuate, each of which may
negatively affect our stock price

   Our quarterly revenues may fluctuate significantly as a result of a variety
of factors that could affect our operating results in any particular quarter.
These factors include:

  .  the level of user traffic and search queries on our and our distribution
     partners' websites and our ability to derive revenue from that traffic
     in any given quarter;

  .  the demand for, and prevailing prices of, Internet advertising and
     marketing services;

  .  the timing of revenue recognition under our listings, licensing and
     advertising contracts;

  .  the timing of our entry into and magnitude of new contracts for
     licensing and advertising;

                                       16
<PAGE>

  .  technical difficulties and systems downtime or failures, whether caused
     by us, third party service providers or hackers;

  .  changes in our or our partners' pricing policies or termination of
     contracts; and

  .  the timing of our delivery of URLs under our contract with Microsoft. We
     recognize quarterly revenues under this contract based on the number of
     URLs added to our database during the quarter relative to the total
     number of URLs we are required to add to our database during the
     relevant six-month period. As a result, to the extent that we satisfy
     our database update obligations unevenly, the revenues we recognize
     under this contract may be skewed on a quarter-to-quarter basis.

   Our expense levels are based in part on expectations of future revenues and,
to a large extent, are fixed. We may be unable to adjust spending quickly
enough to compensate for any unexpected revenue shortfall. Our operating
results may vary as a result of changes in our expenses and costs. Due to the
above factors, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful, and you should not rely on them as
indicators of our future performance. If our operating results in any future
period fall below the expectations of securities analysts and investors, the
market price of our securities would likely decline.

We may need additional capital in the future to support our growth and
additional financing may not be available to us

   Although we believe that our working capital will provide adequate liquidity
to fund our operations and meet our other cash requirements for at least twelve
months, unanticipated developments in the short term, such as the entry into
agreements which require large cash payments, further deterioration of the
online advertising market or the acquisition of businesses with negative cash
flows, may necessitate additional financing.

  .  fund our operations and capital expenditures;

  .  take advantage of favorable business opportunities, including geographic
     expansion or acquisitions of strategic and complementary businesses or
     technologies;

  .  develop and upgrade our technology infrastructure;

  .  reduce outstanding debt;

  .  develop new product and service offerings;

  .  take advantage of favorable conditions in capital markets; or

  .  respond to competitive pressures.

   The capital markets, and in particular the public equity market for Internet
companies, have traditionally been volatile. It is difficult to predict when,
if at all, it will be possible for Internet companies to raise capital through
these markets. We cannot assure you that the additional financing will be
available on terms favorable to us, or at all.

Our growth prospects depend on the success of our LookListings business

   To increase our revenues and reach profitability, we will need to continue
to expand our LookListings business, a suite of products including directory
listings, index listings and featured listings. The LookListings business
accounted for $9.1 million, or 50.0%, of our revenues in the quarter ended
September 30, 2001. Our success will depend upon the extent to which businesses
choose to use our LookListings products. These products are in early stages and
we cannot predict whether they will meet projected levels of revenues in future
quarters. Also, these products will require both modification of existing
software and systems and the creation or acquisition of new software and
systems. We may lack the managerial, editorial and technical resources

                                       17
<PAGE>

necessary to expand our service offerings. For these and other reasons, these
initiatives may not generate sufficient revenues to reach our profitability
goals. If we are unable to generate significant additional revenues from our
LookListings business, our results of operations and financial condition will
suffer.

   Although we expect our listings revenues to continue to increase as a
percentage of total revenues, this may not be the case due to continued
weakness in the online advertising market, reductions in online advertising
expenditures by Internet companies and downward pressure on advertising rates
industry-wide. We compete with traditional media such as television, radio and
print, as well as online advertisers and high-traffic websites, for a share of
businesses' total advertising expenditures. We have experienced, and may
continue to experience, downward pressure on advertising prices in the industry
due to the increasing amount of advertising inventory becoming available on the
Internet. As the Internet evolves, advertisers may find Internet advertising to
be a less effective means of promoting their products or services relative to
traditional advertising media and may reduce or eliminate their expenditures on
Internet advertising. Many potential advertisers and advertising agencies have
only limited experience advertising on the Internet and have not devoted a
significant portion of their advertising expenditures to Internet advertising.
Acceptance of the Internet among advertisers will depend, to a large extent, on
the perceived effectiveness of Internet advertising and the continued growth of
commercial usage of the Internet.

We derive a significant amount of our revenues from Microsoft, and if Microsoft
terminates its contract with us, our business could be harmed

   We derive a significant amount of our revenues under an agreement with
Microsoft Corporation, and either party may terminate the agreement for any
reason on six months' notice. For the quarter ended September 30, 2001,
revenues from Microsoft under this agreement accounted for $3.4 million or
18.7% of our total revenues. The cash payments we receive for each six-month
period under this agreement are subject to full or partial refund if we fail to
provide the stated number of URLs during that period. After the agreement is
terminated, Microsoft has the right to continue to use the content we delivered
during the term of the agreement. Microsoft also has the right to sublicense
these rights to others, both during and for up to two years after the term of
the agreement.

Our revenues and income potential are unproven and our business model is
continuing to evolve

   We were formed in July 1996 and launched our Internet directory in October
1996. Because of our limited operating history, it is extremely difficult to
evaluate our business and prospects. You should evaluate our business in light
of the risks, uncertainties, expenses, delays and difficulties associated with
managing and growing a relatively new business, many of which are beyond our
control. In addition, we compete in the relatively new and rapidly evolving
search targeted marketing market, which presents many uncertainties that could
require us to further refine or change our business model. Our success will
depend on many factors, including our ability to:

  .  profitably establish and expand our new product offerings, particularly
     LookListings;

  .  compete with our competitors, many of whom have longer operating
     histories, larger user bases, greater brand recognition, greater
     financial, technical and marketing resources than we have, and some of
     whom operate fully commercial search services that offer pay-for-
     placement search results and do not expend resources on non-commercial
     listings;

  .  expand and maintain our network of distribution relationships, thereby
     increasing the amount of traffic using our web directories; and

  .  attract and retain a large number of advertisers from a variety of
     industries.

   We compete with companies that provide pay-for-placement listings, directory
content, search algorithms and other forms of targeted advertising. As we
expand the scope of our Internet services, we will compete directly with a
greater number of targeted marketing providers and other web search companies
across a wide

                                       18
<PAGE>

range of different online services. To date, the search targeted marketing
market has been characterized by intense competition for consumer traffic. This
has resulted in the payment of consumer referral fees by us and others to
frequently-used websites, such as portals and ISPs. If these companies fail to
provide these referrals, or the market for these referrals becomes more
competitive so that the cost of referrals increases, our business and potential
profitability could be harmed. Our failure to succeed in one or more of these
areas may harm our business, results of operations and financial condition.

BT LookSmart will require a substantial investment of resources and may not
ever become profitable

   Our success will depend in part upon the success of BT LookSmart, our joint
venture with British Telecommunications. We face many risks associated with BT
LookSmart, such as:

  .  we will recognize 50% of the net loss from the joint venture as non-
     operating expense on our statement of operations. For the quarter ended
     September 30, 2001, our share of the joint venture's net loss was $2.2
     million. We expect the venture to incur significant losses and require
     capital expenditures for the foreseeable future. We cannot project when
     BT LookSmart will generate cash for us or become profitable, if at all;

  .  we were initially obligated under the joint venture documents to make
     funding contributions of up to $108 million over the first three years
     of BT LookSmart's operation. While the budget for the joint venture will
     be determined by the joint venture's board of directors, we expect that
     our financial contributions in 2001 will be approximately $9.25 million.
     However, there can be no assurance in this regard. If we are unable to
     meet our financing obligations, our equity ownership of the joint
     venture will be proportionately reduced;

  .  the joint venture will face competition in international markets from a
     range of competitors, including AOL Time Warner, Deutsche Telecom,
     France Telecom, Overture Services, Terra Lycos, Scandinavian Online,
     Sonera Plaza, Tele Denmark, UK Plus, Yahoo!, and other search targeted
     marketing, media, telecommunications and portal companies, many of which
     have greater capital resources and local experience in these markets;

  .  the joint venture may fail to offer locally-relevant web directories,
     which would prevent it from aggregating a large number of database
     queries;

  .  the joint venture faces risks associated with conducting operations in
     many different countries, including risks of currency fluctuations,
     government and legal restrictions, privacy and tax laws, cultural or
     technical incompatibilities and economic or political instability;

  .  the joint venture may be unable to generate advertising and other
     revenue streams from its traffic;

  .  the joint venture may fail to establish an effective management team and
     hire experienced and qualified personnel in each of the countries in
     which it competes; and

  .  we may be unable to maintain an effective working relationship with our
     partner in the joint venture due to differences in business goals,
     assessment of, and appetite for risk or other factors.

Many of our advertisers are emerging Internet companies that represent credit
risks

   We expect to continue to derive a significant portion of our revenues from
the sale of advertising and listings to Internet companies. Many of these
companies originally comprising our target customer group have gone out of
business. Many of those remaining have limited operating histories and are
operating at a loss. Moreover, many of these companies have limited cash
reserves and limited access to additional capital. We have in some cases
experienced difficulties collecting outstanding accounts receivable and, as a
result, our reserve for doubtful accounts receivable as of September 30, 2001
was $4.6 million, compared to $4.2 million as of December 31, 2000. We may
continue to have these difficulties in the future. If any significant part of
our customer base experiences commercial difficulties or is unable or unwilling
to pay our advertising or listing fees for any reason, our business will
suffer.

                                       19
<PAGE>

If we are unsuccessful in expanding the network of affiliates using our
directory and search services, we may be unable to increase future revenues

   Our success depends on our ability to distribute our directories through a
network of portals, ISPs, and media companies. We have invested, and will
continue to invest, a significant amount of our human and capital resources to
expand this network. However, we cannot assure you that we will maintain and
expand the network of websites using our directories on financially favorable
terms, if at all. If we are unsuccessful in doing so, the reach of our
directories, and consequently our ability to generate revenues, could be
seriously harmed. In that event, our business prospects and results of
operations may deteriorate.

The efforts required to integrate acquired businesses could divert management's
attention and harm our operations. Acquisitions will likely also dilute our
existing stockholders

   If we are presented with appropriate opportunities, we intend to make
additional acquisitions of, or significant investments in, complementary
companies or technologies to increase our technological capabilities and expand
our service offerings. Acquisitions may divert the attention of management from
the day-to-day operations of LookSmart. In addition, integration of acquired
companies into LookSmart could be expensive, time consuming and strain our
managerial resources. It may be difficult to retain key management and
technical personnel of the acquired company during the transition period
following an acquisition. We may not be successful in integrating any acquired
businesses or technologies and these transactions may not achieve anticipated
business benefits.

   Acquisitions or other strategic transactions may also result in dilution to
our existing stockholders if we issue additional equity securities and may
increase our debt. For example, as a result of our acquisition of Zeal Media,
Inc. on October 27, 2000, we issued or reserved for issuance 1,363,419 shares
of our common stock, which diluted existing stockholders. We may also be
required to amortize significant amounts of goodwill or other intangible assets
in connection with future acquisitions, which would adversely affect our
operating results.

LookSmart's securities may be delisted from the Nasdaq National Market and, if
so, may also be delisted from the Australian Stock Exchange

   The Nasdaq National Market requires us to satisfy certain continued listing
requirements, including maintaining a minimum closing bid price for our common
stock of at least $1.00 per share. In September 2001, Nasdaq announced the
suspension of the minimum closing bid price requirement for continued listing
until January 2, 2002. From July 13, 2001, through the date of this report, our
stock price has closed below $1.00 at the end of each trading day.

   Under Nasdaq listing requirements, if the closing bid price of our common
stock remains below $1.00 for a period of 30 consecutive trading days, Nasdaq
may, at its discretion, begin delisting proceedings. If our stock price
continues to close below $1.00 for 30 consecutive trading days after January 2,
2002, we will be subject to a probationary period to regain compliance with the
minimum closing bid price requirement. If we are unable to regain compliance
with this requirement within the probationary period, Nasdaq may determine to
delist our common stock. We anticipate that we will take appropriate measures
to avoid delisting and appeal any determination to delist our common stock from
the Nasdaq National Market, but there can be no assurance of success.

   If we lose our Nasdaq National Market status, we anticipate that our common
stock would trade in the over-the-counter market, which is viewed by most
investors as a less desirable and less liquid marketplace. In addition, the
loss of Nasdaq National Market status could also be followed by the loss of our
listing of CDIs on the Australian Stock Exchange. If our CDIs were delisted
from trading on the ASX, there would likely be a substantial increase the
number of shares trading in the over-the-counter market and corresponding
downward pressure on the stock price. The loss of our Nasdaq and ASX listings
would most likely harm our business and financial condition.

                                       20
<PAGE>

Our stock price is extremely volatile and investors may not be able to resell
their shares for a profit

   The stock market has recently experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly
Internet companies, have been extremely volatile. You may not be able to sell
your shares for a profit as a result of a number of factors that may cause a
decline in our stock price, including:

  .  changes in the market valuations of Internet companies in general and
     comparable companies in particular;

  .  quarterly fluctuations in our operating results;

  .  our potential failure to meet analyst expectations on a quarterly basis;

  .  changes in ratings or financial estimates by securities analysts;

  .  announcements of technological innovations, partnerships, acquisitions
     or new products or services by us or our competitors;

  .  the sales of substantial amounts of our common stock in the public
     market by participants in our pre-IPO equity financings, or the
     perception that such sales could occur;

  .  the exchange by CDI holders of CDIs for shares of common stock and
     resale of such shares in the Nasdaq National Market (as of October 31,
     2001, the CDIs registered for trading on the Australian Stock Exchange
     were exchangeable into an aggregate of approximately 22.4 million shares
     of common stock); or

  .  conditions or trends in the Internet that suggest a continuing decline
     in the growth rates of advertising-based Internet companies.

   In the past, securities class action litigation has often been instituted
after periods of volatility in the market price of a company's securities. A
securities class action suit against us could result in substantial costs and
the diversion of management's attention and resources, regardless of the
outcome.

We may be unable to address capacity constraints on our software and
infrastructure systems in a timely manner

   We have developed custom, proprietary software for use by our editors to
create the LookSmart directories, and we also use proprietary and licensed
software to distribute the directories and serve advertising to associated web
pages. This software may contain undetected errors, defects or bugs or may fail
to operate with other software applications. The following developments may
strain our capacity and result in technical difficulties with our website or
the websites of our distribution affiliates partners:

  .  substantial increases in editorial activity or the number of URLs in our
     directory;

  .  customization of our directory for syndication with particular partners;

  .  substantially increased traffic using our directory; and

  .  the addition of new features or changes in our directory structure.

If we fail to address these constraints and difficulties in a timely manner,
our advertising and other revenues may decline and our business would likely
suffer. In addition, as we expand our service offerings and enter into new
business areas, we may be required to significantly modify and expand our
software and infrastructure systems. If we fail to accomplish these tasks in a
timely manner, our business will suffer.

                                       21
<PAGE>

The operating performance of our systems is critical to our business and
reputation

   Any system failure, including network, software or hardware failure, whether
caused by us, a third party service provider, power interruptions, unauthorized
intruders and hackers, or natural disasters, that causes an interruption in our
service or a decrease in the responsiveness of the web pages that we serve
could result in reduced user traffic, a decline in revenues and damage to our
reputation. Our users, partners and customers depend on Internet service
providers, or ISPs, online service providers and other third parties for access
to the LookSmart directories. These service providers have experienced
significant outages in the past and could experience outages, delays and other
operating difficulties in the future.

   We have agreements with Exodus Communications, Inc. and Savvis
Communications, Inc., to house our networking and web serving hardware
equipment. Our networking hardware is now fully redundant at separate
locations. However, we do not presently maintain fully redundant web serving
systems at both locations, so our operations depend on each of Exodus' and
Savvis' ability to protect the systems in its data center from system failures,
earthquake, fire, power loss, water damage, telecommunications failure,
hackers, vandalism and similar events. Neither Exodus nor Savvis guarantees
that our Internet access will be uninterrupted, error-free or secure. We have
deployed intrusion detection and firewall hardware at each facility to thwart
hacker attacks. We have not developed a disaster recovery plan to respond to
system failures. Although we maintain property insurance and business
interruption insurance, we cannot guarantee that our insurance will be adequate
to compensate us for all losses that may occur as a result of any system
failure.

   In September 2001, Exodus announced the filing of voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. We cannot predict
the outcome of such reorganization proceedings or whether Exodus will continue
to perform its obligations under our agreement with them during such
proceedings. If Exodus fails to perform its obligations, we may be unable to
maintain our networking hardware at separate locations until we are able to
begin working with another hosting company. In the meantime, our systems would
be vulnerable to service interruptions, which could result in loss of revenues,
disruption of relationships with distribution partners, and other harm to our
business and financial condition.

Recent acquisitions and strategic alliances involving our competitors could
reduce traffic on our network

   A number of significant acquisitions and other alliances have been completed
or announced in the search targeted marketing business involving some of our
competitors, including:

  .  America OnLine's acquisition of Time Warner, Inc. and search partnership
     with Overture Services, Inc.;

  .  Terra Networks, S.A.'s acquisition of Lycos, Inc.;

  .  InfoSpace's acquisition of Go2Net;

  .  The Walt Disney Company's (Go Network) agreement with Overture regarding
     the use of Overture's search results on the Go Network portal;

  .  CMGI's acquisition of a controlling interest in AltaVista; and

  .  Yahoo, Inc.'s search partnership with Google.

   Although we cannot predict the effect of these transactions and agreements
on our business with certainty, these transactions could provide our
competitors with significant opportunities to increase traffic on their
websites and expand their service offerings, which could drive down traffic for
our network. In addition, these transactions align some of our competitors with
companies, including television networks, that are significantly

                                       22
<PAGE>

larger and have substantially greater capital, brand, marketing and technical
resources than LookSmart. As a result, these competitors may be able to respond
more quickly to new technologies and changes in consumer requirements and to
develop and promote their products and services more effectively than we can.

We may be unable to execute our business model in international markets

   A key component of our strategy is to expand our operations into selected
international markets, both through BT LookSmart in Europe and Asia and through
our direct offerings of search and navigation services in Australia, Canada and
selected countries in Latin America. To date, we have limited experience in
syndicating localized versions of our service offerings in international
markets, and we may be unable to execute our business model in these markets.
In addition, most foreign markets have lower levels of Internet usage and
online advertising than the United States. In pursuing our international
expansion strategy, we face several additional risks, including:


  .  lower per capita Internet usage and online shopping rates in many
     countries abroad, due to a variety of causes such as lower disposable
     incomes, lack of telecommunications and computer infrastructure and
     questions regarding adequate on-line security for e-commerce
     transactions;

  .  less-developed Internet advertising markets in foreign markets, which
     may make it more difficult to generate revenue from the traffic on our
     international directories;

  .  relatively small Internet markets in some countries may prevent us from
     aggregating sufficient traffic and advertising revenues and scaling our
     business model in those countries;

  .  competition in international markets from a broad range of competitors,
     including Yahoo!, Alta Vista and other United States and foreign
     telecommunications firms, search engines, content aggregators and
     portals, many of which have greater local experience than we have;

  .  uncertainty of market acceptance in new regions due to language,
     cultural, technological or other factors;

  .  our potential inability to aggregate a large amount of Internet traffic
     and find and develop relationships with advertisers;

  .  difficulties in recruiting qualified and knowledgeable staff and in
     building locally relevant products and services;

  .  unexpected changes and differences in regulatory, tax and legal
     requirements applicable to Internet services; and

  .  foreign currency fluctuations.

   Our failure to address these risks adequately could inhibit or preclude our
efforts to expand our business in international markets.

Our future success depends on our ability to attract and retain key personnel

   Our future success depends, in part, on the continued service of our key
management personnel, particularly Evan Thornley, our Chairman and Chief
Executive Officer, and Tracey Ellery, a member of our board of directors. Mr.
Thornley and Ms. Ellery are husband and wife. The loss of the services of
either of these individuals, or the services of other key employees, could
adversely affect our business. LookSmart does not have an employment agreement
with Mr. Thornley, and he does not have stock options or restricted stock
subject to vesting based on continued service.

   Our success also depends on our ability to identify, attract, retain and
motivate highly skilled administrative, technical, editorial, finance and
marketing personnel. We cannot assure you that we will be able to retain our
key employees or that we can identify, attract and retain highly skilled
personnel in the future.

                                       23
<PAGE>

If we become subject to unfair hiring claims, we could be prevented from hiring
needed personnel, incur liability for damages and incur substantial costs in
defending ourselves

   Companies in our industry whose employees accept positions with competitors
frequently claim that these competitors have engaged in unfair hiring practices
or that the employment of these persons would involve the disclosure or use of
trade secrets. These claims could prevent us from hiring personnel or cause us
to incur liability for damages. We could also incur substantial costs in
defending ourselves or our employees against these claims, regardless of their
merits. Defending ourselves from these claims could also divert the attention
of our management away from our operations.

We may face liability for intellectual property claims or information contained
in our search infrastructure services, and these claims may be costly to
resolve

   We make information available to end users on our search infrastructure
services, both on our website and our distribution affiliates' websites.
Although we do not believe that our website content and services infringe any
proprietary rights of others, we cannot assure you that others will not assert
claims against us in the future or that these claims will not be successful. We
or our distribution affiliates could be subject to claims for defamation,
invasion of privacy, negligence, copyright or trademark infringement, breach of
contract or other theories based on the nature and content of our information
and services. These types of claims have been brought, sometimes successfully,
against online service providers in the past. In addition, we are obligated
under some agreements to indemnify other parties as a result of claims that we
infringe on the proprietary rights of others. Even if such claims do not result
in liability to us or our distribution affiliates, we could incur significant
costs and diversion of management time in investigating and defending against
them. Our insurance may not cover claims of this type, may not be adequate to
cover all costs incurred in defense of these claims, and may not indemnify us
for all liability we incur.

Our business prospects depend on the continued growth in the use of the
Internet

   Our business is dependent upon continued growth in the use of the Internet
as a medium for search targeted marketing and advertising, obtaining
information and commercial transactions. Internet usage and e-commerce have not
and in the future may not grow at projected rates, for various reasons,
including:

  .  user inability or frustration in locating and accessing required
     information;

  .  actual or perceived lack of security of information;

  .  limitations of the Internet infrastructure resulting in traffic
     congestion, reduced reliability or increased access costs;

  .  inconsistent quality of service;

  .  governmental regulation, such as tax or privacy laws;

  .  general economic problems in the United States or abroad which decreases
     users' disposable income;

  .  uncertainty regarding intellectual property ownership; and

  .  lack of appropriate communications equipment.

We believe that capacity constraints caused by growth in the use of the
Internet may, unless resolved, impede further growth in Internet use. Further,
the adoption of the Internet for commerce and communications, particularly by
those individuals and companies that have historically relied upon traditional
means of commerce and communication, generally requires the understanding and
acceptance of a new way of conducting business and exchanging information.
Companies that have already invested substantial resources to conduct commerce
and exchange information through other means may be particularly reluctant or
slow to adopt a new Internet-based strategy that may make their existing
personnel and infrastructure obsolete. If any of the foregoing factors affects
the continuing growth in the use of the Internet, our business could be harmed.

                                       24
<PAGE>

Privacy-related regulation of the Internet could limit the ways we currently
collect and use personal information which could decrease our advertising
revenues or increase our costs

   Internet user privacy has become an issue both in the United States and
abroad. The Federal Trade Commission and government agencies in some states and
countries have been investigating some Internet companies, and lawsuits have
been filed against some Internet companies, regarding their use of personal
information. The European Union has adopted a directive that imposes
restrictions on the collection and use of personal data, guaranteeing citizens
of European Union member states various rights, including the right of access
to their data, the right to know where the data originated and the right to
recourse in the event of unlawful processing. Any laws imposed to protect the
privacy of Internet users may affect the way in which we collect and use
personal information. We could incur additional expenses if new regulations or
court judgments regarding the use of personal information are introduced or if
any regulator chooses to investigate our privacy practices.

   As is typical with most websites, our website places information, known as
cookies, on a user's hard drive, generally without the user's knowledge or
consent. This technology enables website operators to target specific users
with a particular advertisement and to limit the number of times a user is
shown a particular advertisement. Although some Internet browsers allow users
to modify their browser settings to remove cookies at any time or to prevent
cookies from being stored on their hard drives, many consumers are not aware of
or technically proficient enough to customize these options. In addition, some
Internet commentators, privacy advocates and governmental bodies have suggested
limiting or eliminating the use of cookies. If this technology is reduced or
limited, the Internet may become less attractive to advertisers and sponsors,
which could result in a decline in our revenues.

   We and some of our partners retain information about our users. If others
were able to penetrate our network security and gain access to, or in some
other way misappropriate, our users' information, we could be subject to
liability. These claims could result in litigation, our involvement in which,
regardless of the outcome, could require us to expend significant time and
financial resources.

New tax treatment of companies engaged in Internet commerce may adversely
affect the Internet industry and our company

   Tax authorities at the international, federal, state and local levels are
currently reviewing the appropriate tax treatment of companies engaged in
Internet commerce. New or revised state tax regulations may subject us to
additional state sales, income and other taxes. We cannot predict the effect of
current attempts to impose sales, income or other taxes on commerce over the
Internet. However, new or revised taxes and, in particular, sales taxes, would
likely increase our cost of doing business and decrease the attractiveness of
advertising and selling goods and services over the Internet. Any of these
events would likely have an adverse effect on our business and results of
operations.

Directors, officers and significant stockholders have substantial influence
over LookSmart, which could prevent or delay a change in control

   As of November 1, 2001, our executive officers, directors and significant
stockholders collectively owned approximately 43.6% of the outstanding shares
of LookSmart common stock. If these stockholders choose to act or vote
together, they will have the power to influence matters requiring stockholder
approval, including the election of our directors, amendments to our charter
and approval of significant corporate transactions, including mergers or asset
sales. This concentration of ownership may have the effect of discouraging
others from making a tender offer or bid to acquire LookSmart at a price per
share that is above the then-current market price.

                                       25
<PAGE>

The anti-takeover provisions of Delaware's general corporation law and
provisions of our charter and bylaws may discourage a takeover attempt

   Our charter and bylaws and provisions of Delaware law may deter or prevent a
takeover attempt, including an attempt that might result in a premium over the
market price for our common stock. Our board of directors has the authority to
issue shares of preferred stock and to determine the price, rights, preferences
and restrictions, including voting rights, of those shares without any further
vote or action by the stockholders. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of our outstanding voting stock. In
addition, our charter and bylaws provide for a classified board of directors.
These provisions, along with Section 203 of the Delaware General Corporation
Law, could discourage potential acquisition proposals and could delay or
prevent a change of control.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Interest Rate Risk. The Company's exposure to market risk for interest rate
changes relates primarily to its short-term investments. The Company had no
derivative financial instruments as of September 30, 2000 or 2001. The Company
invests in debt instruments of high-quality corporate issuers with original
maturities greater than three months and current maturities less than twelve
months. The amount of credit exposure to any one issue and issuer is limited.

   Foreign Currency Risk. International revenues from the Company's foreign
subsidiaries were less than 10% of total revenues in the quarters ended
September 30, 2000 and 2001, and were derived entirely from our Australian
operations. The Company's international business is subject to risks typical of
an international business, including but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions and foreign exchange rate volatility, particularly
the exchange rate between the Australian dollar and the United States dollar.
The effect of foreign exchange rate fluctuations on the Company for quarters
ended September 30, 2000 and 2001 was not material.

                                       26
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

   We are not a party to any material legal proceedings.

ITEM 2. CHANGES IN 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

   On August 17, 2001, Scott Whiteside resigned from our Board of Directors. On
November 13, 2001, the Board of Directors designated Edward F. West to fill the
vacancy created by Mr. Whiteside's resignation. Mr. West has served as Chief
Executive Officer of Centerwheel Corporation, a customer relationship
management company, since January 2001. From December 1999 to December 2000,
Mr. West served as Chief Executive Officer of RealNames International, a
subsidiary of RealNames Corporation, an Internet names and navigation platform
provider. From May 1998 to December 1999, Mr. West served as Executive Vice
President, Business Development, Sales and Marketing, at RealNames Corporation.
From January 1996 to April 1998, Mr. West served as Chief Operating Officer of
SOFTBANK Interactive Marketing, a provider of marketing services and sales
representation to Internet sites seeking interactive advertisers. Mr. West
holds an MBA from Harvard Business School and an AB, Architecture/Urban
Planning, from Princeton University.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (1) Exhibits

<TABLE>
<CAPTION>
 Exhibit
  Number                         Description of Document
 -------                         -----------------------
 <C>      <S>
  3.1(1)  Restated Certificate of Incorporation

  3.2(1)  Bylaws

  4.1(2)  Form of Specimen Stock Certificate

  4.2(1)  Second Amended and Restated Investor Rights Agreement dated March 24,
          1999

 10.1(1)  Form of Indemnification Agreement entered into between the Registrant
          and each of its directors and officers

 10.2(1)  Amended and Restated 1998 Stock Plan

 10.3(1)  1999 Employee Stock Purchase Plan

 10.4+(1) License and Update Agreement with Microsoft Corporation

 10.5+(1) Asset Purchase Agreement with Guthy-Renker Internet LLC

 10.6+(1) Development Agreement with Cox Interactive Media, Inc.

 10.7+(1) Premier Positions on US Search Pages with Netscape Communications
          Corporation

 10.8+(2) 1999-2000 U.S. Net Search Premier Provider Agreement with Netscape
          Communications Corporation
</TABLE>


                                       27
<PAGE>

<TABLE>
<CAPTION>
  Exhibit
  Number                          Description of Document
  -------                         -----------------------

 <C>       <S>
 10.9+(1)  PBS Group Sponsorship Agreements

 10.10(1)  Lease Agreement with 487 Bryant Street, LLC for property located at
           487 Bryant Street, San Francisco, California, dated May 4, 1998

 10.11(1)  Sublease Agreement with Jaran, Inc. for property located at 275
           Brannan Street, San Francisco, California, dated April 30, 1999

 10.12(1)  Lease Agreement with Rosenberg SOMA Investments III, LLC for
           property located at 625 Second Street, San Francisco, California,
           dated May 5, 1999

 10.13(1)  Consent to Sublease Agreement with Ninety Park Property LLC, and
           First Manhattan Consulting Group Inc. for property located at 90
           Park Avenue, New York, New York, dated October 22, 1998

 10.14(1)  Lease Agreement with Euro Asia Properties Pty Ltd for property
           located at Level 5, 388 Lonsdale Street, Melbourne, Australia, dated
           September 1, 1998

 10.15(1)  Lease Agreement with Tonicalon Pty Limited for property located at
           Level 3, 68 Alfred Street, Milsons Point, Sydney, Australia, dated
           June 1, 1999

 10.16(1)  Summary Plan Description of 401(k) Plan

 10.17+(3) Joint Venture Agreement between the Registrant, Transceptgate Ltd.,
           BT LookSmart Ltd., LookSmart (Barbados), Inc. and British
           Telecommunications Plc dated February 15, 2000

 10.18+(3) Joint Venture Know How Technology and Database License Agreement
           between the Registrant, BT LookSmart Ltd., and LookSmart (Barbados),
           Inc. dated February 15, 2000

 10.19(3)  Loan Letter Agreement between the Registrant and Transceptgate Ltd.
           dated February 15, 2000

 10.20+(4) Restated and Final Tagging and Marketing Agreement with Guthy-Renker
           Corporation dated August 9, 1999

 10.21(4)  Employment Agreement with Kevin Berk dated September 29, 2000

 10.22(4)  Employment Agreement with Brian Goler dated September 29, 2000

 10.23(5)  Separation Agreement and General Release between the Company and
           Brian Cowley, dated as of January 29, 2001

 10.24(5)  Separation Agreement and General Release between the Company and
           Chris Tucher, dated as of January 29, 2001

 10.25(5)  Agreement between the Company and Ned Brody, dated as of January 25,
           2001

 21.1(1)   List of Subsidiaries
</TABLE>
--------
(1) Filed in connection with the Company's Registration Statement on Form S-1
    (File No. 333-80581) filed with the SEC on June 14, 1999.

(2) Filed in connection with the Company's Amendment No. 1 to the Registration
    Statement on Form S-1 (File No. 333-80581) filed with the SEC on July 27,
    1999.

(3) Filed in connection with the Company's Annual Report on Form 10-K filed
    with the SEC on March 30, 2000.

(4) Filed in connection with the Company's Annual Report on Form 10-K filed
    with the SEC on March 16, 2001.

(5) Filed in connection with the Company's Quarterly Report on Form 10-Q filed
    with the SEC on May 15, 2001.

(+) Confidential treatment has been granted with respect to portions of the
    exhibit.

   (2) Current Reports on Form 8-K.

   The Company filed no Current Reports on Form 8-K during the quarter ended
September 30, 2001.

                                       28
<PAGE>

                                   SIGNATURE

   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.

Date: November 14, 2001

                                          LOOKSMART, LTD.

                                                   /s/ Dianne Dubois
                                          By: _________________________________
                                                       Dianne Dubois
                                                  Chief Financial Officer
                                                 (Principal Accounting and
                                                     Financial Officer)

                                       29