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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q/A

(Amendment No. 1)



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



|For |  | the Quarterly Period Ended March 31, 2003
|--- |  | -----------------------------------------



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



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LOOKSMART, LTD.

(Exact Name of Registrant as Specified in its Charter)



|Delaware                        |  | 13-3904355         
|------------------------------- |  | -------------------
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)



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)



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).  Yes  x  No ̈



As of May 9, 2003, there were 103,080,319 shares of the registrants
common stock outstanding.



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FORM 10-Q

INDEX



|                                |  |                                                                                                                           |  | Page
|------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ----
|EXPLANATORY NOTE                |  | 3                                                                                                                        
|                                | 
|PART I    FINANCIAL INFORMATION |  |                                                                                                                          
|                                |  |                                                                                                                          
|ITEM 1:                         |  | Condensed Consolidated Financial Statements (unaudited)                                                                   |  | 4   
|                                |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                                          |  | 4   
|                                |  | Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2003 and 2002 |  | 5   
|                                |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002                        |  | 7   
|                                |  | Notes to Condensed Consolidated Financial Statements                                                                      |  | 8   
|                                |  |                                                                                                                          
|ITEM 2:                         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                     |  | 16  
|                                |  | Factors Affecting Operating Results                                                                                       |  | 26  
|                                |  |                                                                                                                          
|ITEM 3:                         |  | Quantitative and Qualitative Disclosures About Market Risk                                                                |  | 35  
|                                |  |                                                                                                                          
|ITEM 4:                         |  | Controls and Procedures                                                                                                   |  | 35  
|                                | 
|PART II    OTHER INFORMATION    |  |                                                                                                                          
|                                |  |                                                                                                                          
|ITEM 1:                         |  | Legal Proceedings                                                                                                         |  | 36  
|                                |  |                                                                                                                          
|ITEM 2:                         |  | Changes in Securities and Use of Proceeds                                                                                 |  | 36  
|                                |  |                                                                                                                          
|ITEM 6:                         |  | Exhibits and Reports on Form 8-K                                                                                          |  | 36  
|                                |  |                                                                                                                          
|ITEM 7:                         |  | Signature                                                                                                                 |  | 36  
|                                | 
|EXHIBIT INDEX                   |  | 37                                                                                                                       



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EXPLANATORY NOTE



The Form 10-Q for the
quarter ended March 31, 2003 was originally filed on May 15, 2003. This 10-Q/A is being filed to give effect to the revision of (1) Part I, Item 1  Note 3 to the condensed consolidated financial statements, (2) Part I, Item 2 
Managements Discussion and Analysis of Financial Condition and Results of Operations, and (3) Part II, Item 6  List of Exhibits.



Except for the Items listed above, no information included in the original 10-Q is amended by this Form10-Q/A. This Form 10-Q/A speaks only as of the
date the 10-Q was originally filed and except as noted above, we have not undertaken herein to amend, supplement or update any information contained in the original 10-Q to give effect to subsequent events.



For a more recent description of our business and the risk factors that may
affect our business, results of operations and financial condition, including the effects of current business and economic conditions in our industry and in our target markets, we urge you to carefully review and consider the various disclosures
made by us in our recent reports filed with the Securities and Exchange Commission, including recent Current Reports on Form 8-K, our Quarterly Report on Form 10-Q for the second quarter of 2003, and our other future filings with the SEC.



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PART I  FINANCIAL INFORMATION



|ITEM 1. |  | FINANCIAL STATEMENTS
|------- |  | --------------------



LOOKSMART, LTD.



CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, except per share data)

(Unaudited)



|                                                                                                                                                                                 |  | March 31, 2003 |          |   | December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | - | ----------------- | -
|ASSETS                                                                                                                                                                           |  |                |          |   |                   |  
|Current assets:                                                                                                                                                                  |  |                |          |   |                   |  
|Cash and cash equivalents                                                                                                                                                        |  | $              | 54,524   |   |                   | $
|Short-term investments                                                                                                                                                           |  |                | 162      |   |                   |  
|Trade accounts receivable, net                                                                                                                                                   |  |                | 15,834   |   |                   |  
|Due from related party                                                                                                                                                           |  |                | 1,894    |   |                   |  
|Prepaid expenses                                                                                                                                                                 |  |                | 1,837    |   |                   |  
|Other current assets                                                                                                                                                             |  |                | 739      |   |                   |  
|                                                                                                                                                                                 |  |                |          |   |                   |  
|Total current assets                                                                                                                                                             |  |                | 74,990   |   |                   |  
|Property and equipment, net                                                                                                                                                      |  |                | 9,707    |   |                   |  
|Security deposits and other assets                                                                                                                                               |  |                | 4,760    |   |                   |  
|Intangible assets, net                                                                                                                                                           |  |                | 6,957    |   |                   |  
|Goodwill                                                                                                                                                                         |  |                | 8,852    |   |                   |  
|                                                                                                                                                                                 |  |                |          |   |                   |  
|Total assets                                                                                                                                                                     |  | $              | 105,266  |   |                   | $
|                                                                                                                                                                                 |  |                |          |   |                   |  
|LIABILITIES & STOCKHOLDERS EQUITY                                                                                                                                               |  |                |          |   |                   |  
|Current liabilities:                                                                                                                                                             |  |                |          |   |                   |  
|Long term debt, current portion                                                                                                                                                  |  | $              | 1,305    |   |                   | $
|Trade accounts payable                                                                                                                                                           |  |                | 3,509    |   |                   |  
|Other accrued liabilities                                                                                                                                                        |  |                | 20,063   |   |                   |  
|Deferred revenue                                                                                                                                                                 |  |                | 6,835    |   |                   |  
|                                                                                                                                                                                 |  |                |          |   |                   |  
|Total current liabilities                                                                                                                                                        |  |                | 31,712   |   |                   |  
|Long term debt                                                                                                                                                                   |  |                | 1,042    |   |                   |  
|Other long term liabilities                                                                                                                                                      |  |                | 859      |   |                   |  
|                                                                                                                                                                                 |  |                |          |   |                   |  
|Total liabilities                                                                                                                                                                |  |                | 33,613   |   |                   |  
|Commitments and contingencies (Note 5)                                                                                                                                           |  |                |          |   |                   |  
|Stockholders equity:                                                                                                                                                            |  |                |          |   |                   |  
|Common stock, $.001 par value; Authorized: 200,000 at March 31, 2003 and December 31, 2002; Issued and Outstanding: 102,079, and
101,421 at March 31, 2003 and December 31, 2002 |  |                | 101      |   |                   |  
|Additional paid-in capital                                                                                                                                                       |  |                | 251,721  |   |                   |  
|Other equity                                                                                                                                                                     |  |                | 849      |   |                   |  
|Accumulated deficit                                                                                                                                                              |  |                | (181,018 | ) |                   |  
|                                                                                                                                                                                 |  |                |          |   |                   |  
|Total stockholders equity                                                                                                                                                       |  |                | 71,653   |   |                   |  
|                                                                                                                                                                                 |  |                |          |   |                   |  
|Total liabilities and stockholders equity                                                                                                                                       |  | $              | 105,266  |   |                   | $
|                                                                                                                                                                                 |  |                |          |   |                   |  



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





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LOOKSMART, LTD.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

INCOME/(LOSS)

(In Thousands, except per share data)

(Unaudited)



|                                                                                    |  | Three Months Ended March 31, |       
|----------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                    |  | 2003                         |       
|Revenues:                                                                           |  |                              |       
|Listings                                                                            |  | $                            | 29,434
|Licensing                                                                           |  |                              | 3,969 
|                                                                                    |  |                              |       
|Total revenues                                                                      |  |                              | 33,403
|Cost of revenues                                                                    |  |                              | 16,667
|                                                                                    |  |                              |       
|Gross profit                                                                        |  |                              | 16,736
|                                                                                    |  |                              |       
|Operating expenses:                                                                 |  |                              |       
|Sales and marketing                                                                 |  |                              | 5,337 
|Product development                                                                 |  |                              | 7,182 
|General and administrative                                                          |  |                              | 3,054 
|                                                                                    |  |                              |       
|Total operating expenses                                                            |  |                              | 15,573
|                                                                                    |  |                              |       
|Income (loss) from operations                                                       |  |                              | 1,163 
|                                                                                    |  |                             
|Non-operating income (expense):                                                     |  |                              |       
|Interest and other non-operating income (expense), net                              |  |                              | 148   
|Share of joint venture loss                                                         |  |                              | (256  
|                                                                                    |  |                              |       
|Income (loss) from continuing operations before income taxes and extraordinary gain |  |                              | 1,055 
|Income tax expense                                                                  |  |                              | (116  
|                                                                                    |  |                              |       
|Income (loss) from continuing operations before extraordinary gain                  |  |                              | 939   
|Loss from discontinued operations                                                   |  |                              |      
|                                                                                    |  |                              |       
|Income (loss) before extraordinary gain                                             |  |                              | 939   
|Extraordinary gain from the purchase of BTLS joint venture entities, net of tax     |  |                              | 202   
|                                                                                    |  |                              |       
|Net income (loss)                                                                   |  |                              | 1,141 
|Other comprehensive income (loss):                                                  |  |                              |       
|Change in unrealized gain on securities during the period                           |  |                              | 293   
|Change in translation adjustment                                                    |  |                              | 68    
|                                                                                    |  |                              |       
|Comprehensive income (loss)                                                         |  | $                            | 1,502 
|                                                                                    |  |                              |       



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



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LOOKSMART, LTD.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

INCOME/(LOSS), CONTINUED

(In
Thousands, except per share data)

(Unaudited)



|                                                                                |  | Three Months EndedMarch 31, |        
|------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                |  | 2003                        |        
|Net income (loss) per share:                                                    |  |                             |        
|                                                                                |  |                            
|Basic net income (loss) per share:                                              |  |                             |        
|Income (loss) from continuing operations                                        |  | $                           | 0.01   
|Loss from discontinued operations                                               |  |                             |       
|Extraordinary gain from the purchase of BTLS joint venture entities, net of tax |  |                             | 0.00   
|                                                                                |  |                             |        
|Net income (loss)                                                               |  | $                           | 0.01   
|                                                                                |  |                             |        
|Diluted net income (loss) per share:                                            |  |                             |        
|Income (loss) from continuing operations                                        |  | $                           | 0.01   
|Loss from discontinued operations                                               |  |                             |       
|Extraordinary gain from the purchase of BTLS Joint Venture entities, net of tax |  |                             | 0.00   
|                                                                                |  |                             |        
|Net income (loss)                                                               |  | $                           | 0.01   
|                                                                                |  |                             |        
|Weighted average shares outstanding used in per share calculationbasic         |  |                             | 100,374
|Weighted average shares outstanding used in per share calculationdiluted       |  |                             | 109,314
|                                                                                |  |                             |        



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



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LOOKSMART, LTD.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



|                                                                                           |  | Three Months EndedMarch 31, |       
|------------------------------------------------------------------------------------------ |  | --------------------------- | ------
|                                                                                           |  | 2003                        |       
|Cash flows from operating activities:                                                      |  |                             |       
|Net income (loss)                                                                          |  | $                           | 1,141 
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:   |  |                             |       
|Share of joint venture loss                                                                |  |                             | 261   
|Depreciation and amortization                                                              |  |                             | 1,872 
|Stock based compensation                                                                   |  |                             | 969   
|(Gain) loss from sale of assets and other non-cash charges                                 |  |                             | (1    
|Loss from discontinued operations                                                          |  |                             |      
|Extraordinary gain from the purchase of BTLS joint venture entities                        |  |                             | (202  
|Changes in operating assets and liabilities, net of effects of acquisitions and disposals: |  |                             |       
|Trade accounts receivable                                                                  |  |                             | 18    
|Prepaid expenses                                                                           |  |                             | 211   
|Other assets                                                                               |  |                             | (158  
|Trade accounts payable                                                                     |  |                             | 176   
|Other accrued liabilities                                                                  |  |                             | 1,657 
|Deferred revenue                                                                           |  |                             | (963  
|                                                                                           |  |                             |       
|Net cash provided by operating activities                                                  |  |                             | 4,981 
|                                                                                           |  |                             |       
|Cash flows from investing activities:                                                      |  |                             |       
|Acquisition of assets of Grub, Inc.                                                        |  |                             | (612  
|Proceeds from sale of short-term investments                                               |  |                             | 3,406 
|Funding to joint venture and subsidiaries                                                  |  |                             | (500  
|Restricted cash                                                                            |  |                             |      
|Payments for property, equipment and capitalized software development                      |  |                             | (1,503
|Proceeds from the sale of property and equipment                                           |  |                             | 1     
|                                                                                           |  |                             |       
|Net cash provided by investing activities                                                  |  |                             | 792   
|                                                                                           |  |                             |       
|Cash flows from financing activities:                                                      |  |                             |       
|Repayment of notes                                                                         |  |                             | (428  
|Proceeds from issuance of common stock                                                     |  |                             | 1,415 
|                                                                                           |  |                             |       
|Net cash provided by financing activities                                                  |  |                             | 987   
|                                                                                           |  |                             |       
|Effect of exchange rate changes on cash                                                    |  |                             | 68    
|                                                                                           |  |                             |       
|Increase in cash and cash equivalents                                                      |  |                             | 6,828 
|Cash and cash equivalents, beginning of period                                             |  |                             | 47,696
|                                                                                           |  |                             |       
|Cash and cash equivalents, end of period                                                   |  | $                           | 54,524
|                                                                                           |  |                             |       



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



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------



Nature of Business and Principles of Consolidation



LookSmart, Ltd. (the Company) is a leading provider of Internet search solutions for portals, Internet service providers and media companies, as well as a
leading provider of marketing products for advertisers who want to be included in relevant search results.



The consolidated financial statements include the accounts of the Company and its subsidiaries. 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, over which the Company does not exert any significant
influence, are accounted for by the cost method.



Use of
Estimates



The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting
period. Actual results could differ from those estimates.



Reclassifications



Certain prior years
balances have been reclassified to conform to the current years presentation.



Concentration of Business Risk



The Company derived approximately 64% and 33% of listings revenues in the three months ended March 31, 2003 and 2002, respectively, from its relationship with Microsoft. Either party may terminate the agreement with Microsoft for any reason
on six months notice and the agreement expires on December 3, 2003.



The Company derives all of its licensing revenue from its agreement with Microsoft, which expires on December 3, 2003.



Stock-Based Compensation



The Company accounts for stock-based employee compensation under the recognition and measurement principles of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB No. 25) and related interpretations. Under APB No. 25, compensation cost is equal to the difference, if any, on the date of grant between the fair value of the Companys stock and the
amount an employee must pay to acquire the stock. SFAS No. 123, Accounting for Stock-based Compensation, established accounting and disclosure requirements using a fair value based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123 and related SFAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure.



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(Unaudited)



The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had
applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation (in thousands, except per share data):



|                                                                                                                      |  | Three Months Ended March 31, |       
|--------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                                                      |  | 2003                         |       
|Net income (loss) as reported                                                                                         |  | $                            | 1,141 
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects            |  |                              | 969   
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of
tax |  |                              | (4,401
|                                                                                                                      |  |                              |       
|Pro forma net income (loss)                                                                                           |  | $                            | (2,291
|                                                                                                                      |  |                              |       
|Basic net income (loss) per share                                                                                     |  |                              |       
|As reported                                                                                                           |  | $                            | 0.01  
|Pro forma                                                                                                             |  | $                            | (0.02 
|                                                                                                                      |  |                             
|Diluted net income (loss) per share                                                                                   |  |                              |       
|As reported                                                                                                           |  | $                            | 0.01  
|Pro forma                                                                                                             |  | $                            | (0.02 



Net Loss Per Share



SFAS No. 128, Earnings per Share, establishes standards for
computing and presenting earnings per share. Basic earnings per share is calculated using the weighted average shares of common stock outstanding. Diluted earnings per share is calculated using the weighted average number of common and potentially
dilutive common shares outstanding during the period, using the as-if converted method for convertible preferred stock and the treasury stock method for options and warrants.



Segment Information



Starting on January 1, 2003, the Company has two operating segments: listings and licensing. The Company exited the ecommerce segment after the second
quarter of 2002 and ceased reporting the advertising segment after the fourth quarter of 2002, as it no longer manages advertising as a separate product. With the exception of accounts receivable and deferred revenue and goodwill, information (for
the purposes of making decisions about allocating resources) available to the chief operating decision makers, primarily the Chief Executive Officer and the Chief Financial Officer, of the Company does not include allocations of assets and
liabilities or operating costs to the Companys segments.



International revenues from the Companys foreign subsidiaries were less than 10% of total revenue in the three months ended March 31, 2003 and 2002 and were derived from its operations in Australia, Japan and the United Kingdom.



As of March 31, 2003 and December 31, 2002, all of the
Companys accounts receivable, intangible assets and goodwill related to the listings segment.



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(Unaudited)



As of March 31, 2003 and December 31, 2002, deferred revenue by segments is as follows (in thousands):



|          |  | March 31,2003 |       | December 31,2002
|--------- |  | ------------- | ----- | ----------------
|Listings  |  | $             | 4,469 |                 
|Licensing |  |               | 2,366 |                 
|          |  |               |       |                 
|Total     |  | $             | 6,835 |                 
|          |  |               |       |                 



Recently Issued Accounting
Pronouncements



In July 2002, the FASB issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities. This statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal
activity. The adoption of SFAS No. 146 at the beginning of 2003 did not have a material impact on the Companys consolidated financial position or results of operations.



In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. This issue addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units.
EITF No. 00-21 is effective for fiscal periods beginning after June 15, 2003. The Company is currently evaluating the impact of adopting EITF No. 00-21 on its results of operations and financial position.



In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. FIN No. 46 expands upon and strengthens existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest
entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for
the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or is entitled to
receive a majority of the entitys residual returns or both. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in
the first fiscal year or interim period beginning after June 15, 2003. Disclosure requirements apply to any financial statements issued after January 31, 2003. The Company has considered the provisions of FIN No. 46 and believes it will not be
necessary to include in the Companys financial statements any assets, liabilities, or activities of BT LookSmart, Ltd., its joint venture with British Telecommunications. The Company will continue to evaluate the impact of FIN No. 46 on the
consolidated financial statements and related disclosures.



|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



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(Unaudited)



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 consolidated financial statements and notes for the year ended December 31, 2002 included in its
Annual Report on Form 10-K filed with the Securities and Exchange Commission.



|3. |  | Acquisitions
|-- |  | ------------



WiseNut, Inc.



On April
2, 2002, the Company completed the acquisition of WiseNut, Inc. (WiseNut), a search engine technology company. The Company issued 2,646,000 shares of common stock at a price per share of $2.47, assumed 296,000 stock options with a fair
value of $0.7 million, incurred direct costs of the transaction in the amount of $0.5 million and recorded a liability in the amount of $0.9 million for all the outstanding capital stock of WiseNut. Of the total assumed stock options, approximately
132,000 stock options with an intrinsic value of $0.4 million were unvested. In accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, these unvested options were accounted for as
deferred stock-based compensation and are being recognized over their related vesting periods.



The common stock issued was valued in accordance with EITF Issue No. 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination,
using the average of the closing prices of the Companys common stock for the two days prior to, the date of and the two days after the announcement date of March 12, 2002. The assumed stock options were valued using the Black-Scholes valuation
model using a volatility rate of 130%, a risk-free interest rate of 4.3% and an estimated life of four years.



The allocation of the purchase price was to tangible and intangible assets, unearned compensation and liabilities assumed. Approximately $6.5 million was
allocated to existing search technology and $0.1 million was allocated to an existing customer contract. These amounts were determined through established valuation techniques in the technology industry. Technology acquired was amortized over a
seven-year period and the acquired customer contract was amortized through November 2002, when the contract expired.



Under the terms of the acquisition agreement, 1,190,000 shares of common stock were placed in an escrow account to secure certain seller representations
and warranties for a period of up to 18 months. If and when these shares are released from escrow, their fair value at that time will be recorded as goodwill and will be assigned to the Companys Listings segment.



The following table presents details of WiseNuts assets and liabilities
acquired by the Company as of the acquisition date (in thousands):



|Cash and cash equivalents |  | $ | 311   |  
|------------------------- |  | - | ----- | -
|Other current assets      |  |   | 165   |  
|Fixed assets              |  |   | 1,327 |  
|Technology                |  |   | 6,460 |  
|Customer contract         |  |   | 80    |  
|Accrued liabilities       |  |   | (195  | )
|Deferred compensation     |  |   | 378   |  
|                          |  |   |       |  
|Net assets acquired       |  | $ | 8,526 |  
|                          |  |   |       |  



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(Unaudited)



The following pro forma results of operations reflect the combined results of Looksmart and Wisenut
for three months ended March 31, 2002, as if the business combination occurred as of the beginning of the year.



|                                                                                      |  | Three Months Ended March 31, 2002 |       
|------------------------------------------------------------------------------------- |  | --------------------------------- | ------
|Revenue                                                                               |  | $                                 | 20,120
|Net loss                                                                              |  |                                   | (6,918
|Earnings (loss) per share - basic and diluted                                         |  |                                   | (0.07 
|Weighted average shares outstanding used in per share calculation - basic and diluted |  |                                   | 93,408



Grub, Inc.



In January 2003, the Company acquired intellectual property rights from
Grub, Inc. and an individual for total consideration of $1.3 million, consisting of $0.6 million cash payment, including $12,000 of direct costs and the commitment to issue 217,000 shares of LookSmart common stock valued at $0.7 million.



The intellectual property rights are classified as intangible assets on
the balance sheet and have an estimated useful life of three years.



|4. |  | Goodwill and Intangible Assets
|-- |  | ------------------------------



The Companys intangible assets consist primarily of purchased technology and have estimated useful lives of three to seven years. The Company has
reassessed the expected useful lives of existing intangible assets. This reassessment did not result in any significant changes to the useful lives. Goodwill and intangible assets are as follows (in thousands):



|                              |  | March 31,2003 |        | December 31,2002
|----------------------------- |  | ------------- | ------ | ----------------
|Goodwill                      |  | $             | 11,546 |                 
|Less accumulated amortization |  |               | 2,694  |                 
|                              |  |               |        |                 
|Goodwill                      |  | $             | 8,852  |                 
|                              |  |               |        |                 
|Intangible assets             |  | $             | 9,763  |                 
|Less accumulated amortization |  |               | 2,806  |                 
|                              |  |               |        |                 
|Intangible assets, net        |  | $             | 6,957  |                 
|                              |  |               |        |                 



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(Unaudited)



Intangible asset amortization expense was $0.5 million and $0.2 million for the three months ended
March 31, 2003 and 2002, respectively, and was included in cost of revenue and product development costs. Estimated future intangible amortization expense is as follows (in thousands):



|Year       |  | Estimated Amortization of Intangibles
|---------- |  | -------------------------------------
|2003       |  | $                                    
|2004       |  |                                      
|2005       |  |                                      
|2006       |  |                                      
|2007       |  |                                      
|Thereafter |  |                                      



|5. |  | Commitments and Contingencies
|-- |  | -----------------------------



Legal Proceedings



In May 2002, Legal Staffing Partners, Inc., an express listing customer, filed a proposed class action lawsuit in Superior Court in San Francisco County.
The complaint alleged breach of contract, unfair business practices and false advertising in connection with the launch of the Companys new Small Business Listings product announced in April 2002. The complaint sought restitution, unspecified
compensatory damages, injunctive relief and attorneys fees. In July 2002, Curt Kramer, an express listing customer, filed a proposed class action lawsuit in Superior Court in San Francisco County alleging claims that were substantially similar
to those alleged by Legal Staffing Partners. In October 2002, the two plaintiffs agreed to withdraw their complaints and file a single consolidated amended complaint containing substantially the same allegations as the prior two complaints. In
November 2002, the Company filed a motion to dismiss the claims in the amended complaint. The court denied the motion in January 2003. The Company filed an answer to the amended complaint in January 2003. Plaintiffs have served document and
deposition requests, but no other discovery is being sought at this time.



From time to time the Company is involved in lawsuits, claims, investigations and proceedings, in addition to those identified above, consisting of intellectual property, commercial, employment and other matters,
which arise in the ordinary course of business. In accordance with SFAS No. 5, the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These
provisions are reviewed at least quarterly and adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable.
However, the Company believes that it has valid defenses with respect to the legal matters pending against it. It is possible, nevertheless, that cash flows or results of operations could be affected in any particular period by the resolution of one
or more of these contingencies.



Joint Venture Funding



Pursuant to the settlement agreement with BT for the dissolution of the
joint venture, the Company and BT are jointly liable for the costs incurred to close the operations of the joint venture. The Company does not expect to incur significant additional expenses to dissolve the joint venture.



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(Unaudited)



Indemnities



In the normal course of business, the Company makes indemnities, commitments and guarantees under which it may be required
to make payments in relation to certain transactions. These indemnities include intellectual property indemnities to the Companys customers in connection with the sales of its products, indemnities to distribution partners in connection with
the distribution of the Companys listings, indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, and indemnities to directors and officers of the Company to the maximum extent
permitted under the laws of the State of Delaware.



|6. |  | Net Income (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):



|                                            |  | Three Months Ended March 31, |        
|------------------------------------------- |  | ---------------------------- | -------
|                                            |  | 2003                         |        
|NumeratorBasic and diluted:                |  |                              |        
|Net income (loss)                           |  | $                            | 1,141  
|                                            |  |                              |        
|Denominator                                 |  |                              |        
|Weighted average common shares outstanding: |  |                              |        
|Shares used to compute basic EPS            |  |                              | 100,374
|Dilutive common equivalent shares:          |  |                              |        
|Options                                     |  |                              | 7,210  
|Warrants                                    |  |                              | 540    
|Escrow Shares                               |  |                              | 1,190  
|                                            |  |                              |        
|Shares used to compute diluted EPS          |  |                              | 109,314
|                                            |  |                              |        
|Net income (loss) per share:                |  |                              |        
|Basic                                       |  | $                            | 0.01   
|Diluted                                     |  | $                            | 0.01   



Options and warrants
to purchase common stock are not included in the diluted income (loss) per share calculations if their effect is antidilutive. The antidilutive securities included potential common stock relating to stock options and warrants as follows (in
thousands):



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LOOKSMART, LTD.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(Unaudited)



|                          |  | March 31,2003 |  | March 31,2002
|------------------------- |  | ------------- |  | -------------
|Options                   |  | 496           |  | 1,329        
|Warrants                  |  | 32            |  | 273          
|                          |  |               |  |              
|Total antidilutive shares |  | 528           |  | 1,602        
|                          |  |               |  |              



|7. |  | Related Party Transactions:
|-- |  | ---------------------------



As of March 31, 2003 and December 31, 2002 the Company had related party receivables of $1.9 million and $1.4 million, respectively, from BT LookSmart.
These receivables represent reimbursable distribution costs incurred for paid clicks provided by one of the Companys distribution partners to BT LookSmart and have been classified on the balance sheet as due from related party.



In April 2002, the Company loaned an executive officer of the
Company $0.3 million. The loan is interest free and may be forgiven ratably over a period of four years, subject to certain performance measures being met. In addition, the Company has agreed to pay taxes due related to forgiveness of the loan and
imputed interest. In the event that the officers employment terminates during the four-year period, the outstanding unforgiven balance is due upon the next anniversary date of the loan. The amount being forgiven, plus imputed interest and
payments to cover taxes are charged to operations ratably over the life of the loan and was $0.1 million for the three months ended March 31, 2003.



|8. |  | Loss from Discontinued Operations
|-- |  | ---------------------------------



In the first quarter of 2002, the Company transferred its 52.8% ownership interest in its consolidated subsidiary, Futurecorp, to the minority
shareholders. The Company paid Futurecorp AU$90,000 (approximately US$47,000) and issued 16,437 shares of LookSmart common stock in connection with the transfer. As required by SFAS No. 144, the Company reported the results of operations of this
component as a loss from discontinued operations of $1.0 million, which includes a $1.0 million loss on disposal in the three months ended March 31, 2002. Revenue included in the loss on disposal was $0 and $0.6 million in the three months ended
March 31, 2003 and 2002, respectively. Pretax net income (loss) reported in discontinued operations was $0 and $63,000 in the three months ended March 31, 2003 and 2002, respectively. Loss from discontinued operations was $0 in 2003 and $1.0 million
in 2002.



|9. |  | Extraordinary Gain on Acquisition of Joint Venture Entities
|-- |  | -----------------------------------------------------------



In the first quarter of 2003, the Company recognized an extraordinary gain, net of tax, of $0.2 million in connection with the dissolution of BT LookSmart
and the assumption of its Japan and United Kingdom operations. This amount represents the fair value of net assets of the Japan and United Kingdom operating entities of BT LookSmart. The Company acquired these net assets on March 14, 2003 for
nominal consideration. The results of these operating entities have been included in the Companys consolidated financial statements as of March 1, 2003.



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|ITEM  2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
|-------- |  | --------------------------------------------------------------------------

|OPERATIONS |  | 
|---------- |  | 



The following discussion should be read in conjunction with the consolidated financial statements and the notes to those statements which appear elsewhere in this Quarterly Report on Form 10-Q. The following
discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as believes,
intends, expects, anticipates, plans, may, will and similar expressions to identify forward-looking statements. All forward looking statements, including but not limited to,
projections or estimates concerning our business, including demand for our products and services, mix of revenue streams, ability to control and/or reduce operating expenses, anticipated cost of revenues, expenses and operating results, cost
savings, product development efforts, general outlook of our business and industry, opportunities abroad, competitive position, stock compensation, adequate liquidity to fund our operations and meet our other cash requirements for the next 12 months
and disclosure controls and procedures, are inherently uncertain as they are based on our expectations and assumptions concerning future events. These forward-looking statements are subject to numerous known and unknown risks and uncertainties. Our
actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including our ability to maintain net profitability in future quarters, our continuing relationship with Microsoft, our ability to
expand our network of distribution partners, the success of our listings business and all other risks described below in the section entitled Risk Factors and elsewhere in this report. All forward-looking statements in this document are
made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statements.



Overview



LookSmart is a leading provider of Internet search solutions for portals, Internet service providers and media companies, as well as a leading provider of
marketing products for advertisers who want to be included in relevant search results. Our LookListings suite of products provides businesses of all sizes the opportunity to have listings for their company and products included in our broadly
distributed web search results, so that their listings are available to Internet users at the moment when they are searching for relevant information. By enabling advertisers to reach millions of users in a highly targeted search context, we provide
a proven method of acquiring customers, converting advertising leads into sales and generating useful marketing information for individual customer campaigns. Our campaign reporting technology enables advertisers to monitor the performance of their
search marketing campaigns and request additions or changes to their listings through the use of password-protected online accounts.



We distribute our search results across a distribution network by partnering with leading Internet portals, Internet service providers (ISPs), search
engines and media companies. These companies have increasingly recognized the valuable nature of search services for their web sites. We offer distribution partners a search solution with two important benefits. First, our search solution provides
highly relevant search results for their users, which can help to maintain the users satisfaction and increase repeat visits of those users. Second, we share with our distribution partners a portion of the listings revenues that we generate
from clicks on paid listings in those search results.



Critical Accounting
Policies



The financial condition and results of
operations of the Company are based upon certain critical accounting policies, which include estimates, assumptions, and judgments on the part of management. The following discussion highlights those policies and the underlying estimates and
assumptions, which management considers critical to an understanding of the financial information in this report.



Revenue Recognition. The Company generates revenues from listings and licensing. We exited the ecommerce segment after the second quarter of 2002
and ceased reporting the advertising segment after the fourth quarter of 2002, as we no longer manage avertising as a separate product. Revenues associated with listings products, including directory listings and affiliate commissions are generally
recognized once



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collectibility is established, as delivery of services occurs, once all performance obligations have been satisfied, and when no refund obligations exist.
Upfront fees are recognized ratably over the longer of the term of the contract or the expected relationship with the customer, which is currently estimated to be twelve months. This estimate is reviewed on an annual basis.



Affiliate revenues are based on commissions received for participation in
affiliate programs. Affiliate programs are programs operated by affiliate network services or online merchants, in which merchants pay traffic providers on a cost-per-acquisition basis. By participating in affiliate programs, we generate revenues
when Internet users make a purchase from a participating merchants web site after clicking on the merchants listing in our search results. Revenues from affiliates are earned on a per-sale basis or as a percentage of sale rather than a
per-click basis. Revenue is recognized in the period in which a merchant finalizes a sale and reports to the Company via its affiliate network.



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 the period and collection of the resulting receivable is reasonably assured. Company obligations typically include guarantees of a minimum number of impressions. An impression is an
appearance of an advertisement in pages viewed by users of the Companys or its partners online properties.



Revenues associated with our licensing agreement with Microsoft are recognized in the period in which URLs are added to the database and the database is
delivered to Microsoft, per the agreement, all performance obligations have been satisfied, and no refund obligations exist. Payments from Microsoft received in advance of delivery are recorded as deferred revenues. We recognize quarterly licensing
revenues under this contract based on the number of URL listings added to our database during the quarter relative to the total number of URL listings 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.



Determination of collectibility of payments requires significant judgment on the part of management and includes performing initial and ongoing credit
evaluations of customers. The Company provides a reserve for doubtful accounts receivable based upon expected collectibility, which reflects managements judgment based on ongoing credit evaluation. In addition, the Company provides a reserve
against revenue for estimated credits resulting from billing adjustments and sales adjustments in the event of product returns. The amount of this reserve is evaluated quarterly based upon historical trends.



Stock-Based Compensation.The Company accounts for stock-based
employee compensation arrangements in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB No. 25) and related interpretations, and complies with the disclosure provisions
of SFAS No. 123, Accounting for Stock-based Compensation and SFAS No. 148 Accounting for Stock-Based CompensationTransition and Disclosure. The disclosure provisions of SFAS No. 123 and SFAS No. 148 require judgments by
management as to the estimated lives of the outstanding options. Management has based the estimated life of the options on historical option exercise patterns. If the estimated life of the options increases, the valuation of the options will
increase as well.



As a result of the repricing of stock
options, which primarily occurred in the first quarter of 2001, the Company will incur a charge for compensation expense or a reversal of a charge in connection with variable accounting for outstanding repriced stock options, depending on the market
price of the Companys common stock at the end of each quarter.



Goodwill and Intangible Assets. We have recorded goodwill and intangible assets in connection with our business acquisitions. Management exercises judgment in the assessment of the related useful lives, and the fair value and
recoverability of these assets. The majority of intangible assets are amortized over three to seven years, the period of expected benefit. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company periodically
reassesses the valuation of intangible assets to conform to changes in managements estimates of future performance. Management considers existing and anticipated competitive and economic conditions in such assessments. Goodwill is reviewed for
impairment at least



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annually. The Company did not record a goodwill impairment charge in the first quarter of 2003. Cash flow forecasts used in evaluation of goodwill and
intangibles are based on trends of historical performance and managements estimate of future performance.



Internal Use Software Development Costs. The Company accounts for internal use software in accordance with American Institute of Certified Public
Accountants (AICPA) Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1). In accordance with the capitalization criteria of SOP 98-1, the Company has
capitalized external direct costs of materials and services consumed in developing and obtaining internal-use computer software and the payroll and payroll-related costs of employees who devote time to the internal-use computer software project.



Management judgment is required in determining the point at
which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. We expect to continue to invest in
internally developed software and to capitalize these costs in accordance with SOP 98-1.



Deferred Taxes.We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax bases of assets and liabilities. LookSmart regularly reviews
its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. If we operate at a loss
or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to
increase the valuation allowance against all or a significant portion of our deferred tax assets which could substantially increase our effective tax rate for such period. Alternatively, if our future taxable income is significantly higher than
expected and/or we are able to utilize our tax credits, we may be required to reverse all or a significant part of our valuation allowance against such deferred tax assets which could substantially reduce our effective tax rate for such period.
Therefore, any significant changes in statutory tax rates or the amount of our valuation allowance could have a material impact on the value of our deferred tax assets and liabilities, and our reported financial results.



Allowance for Doubtful Accounts. The Company maintains an allowance
for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. This valuation allowance is reviewed on a periodic basis to determine whether a provision or reversal is required. The review is based
on factors including the application of historical collection rates to current receivables. The Company will record a reversal of its allowance for doubtful accounts if there is a significant improvement in collection rates or economic conditions
are more favorable than the Company has anticipated. Additional allowances for doubtful accounts may be required if there is deterioration in past due balances, if economic conditions are less favorable than the Company has anticipated or for
customer-specific circumstances, such as bankruptcy. Management judgment is required in the periodic review of whether a provision or reversal is warranted.



Results of Operations



Revenues



Starting on January 1, 2003, LookSmart reports two operating segments: listings and licensing. We exited the ecommerce segment after the second quarter of 2002 and ceased reporting the advertising segment after the fourth quarter of 2002,
as we no longer manage advertising as a separate product. For purposes of historical comparison, advertising and, in 2002, ecommerce are included in the listings segment on our statement of operations for the first quarter of 2003 and 2002.



Listings.We derive listings revenues from our
LookListings suite of products, including Directory Listings, Affiliate Partner Commissions, Small Business Listings, Sponsored Listings and Index Listings and Advertising. Revenues from Directory Listings, Sponsored Listings, and Index Listings are
primarily



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composed of per-click fees that we charge customers, and often also include one-time review fees or set-up fees when generating listings for customers and
including them in our directories. Revenues from Small Business Listings are primarily composed of per-click fees that we charge customers, and also include a one-time set-up fee for preparing listings and including them in our directories.



Listings revenues also include revenues generated through our
participation in affiliate programs. Affiliate programs are programs operated by affiliate network services or online merchants, in which merchants pay traffic providers on a cost-per-acquisition basis. By participating in affiliate programs, we
generate revenues when Internet users make a purchase from a participating merchants web site after clicking on the merchants listing in our search results.



Advertising revenues, which are now included in listings revenues, are typically derived from short-term agreements
requiring the Company to deliver a minimum number of advertising impressions or clicks over the term of the agreement. We offer advertisers the ability to specify the category of traffic for their advertisements. Some advertising categories are
priced at a premium, depending on the associated economic value, the location of the advertisement on the page and the size of the audience requesting the page.



Listings revenues were $29.4 million for the three months ended March 31, 2003, representing an 80% increase over listings revenue of $16.3 million for
the three months ended March 31, 2002. The growth is due an 83% increase in URLs and the addition of 23,000 new customers.Listings revenue accounted for 88% of total revenues for the three months ended March 31, 2003, compared to 82% for the
three months ended March 31, 2002.



We believe listings
revenues will continue to grow both in absolute dollars and as a proportion of our overall revenues as paid inclusion continues to be adopted by customers as an effective marketing tool. Our listings revenues depend on the number of queries
delivered by our distribution partners. Changes in our distribution network may cause listings revenues to fluctuate over time.



Paid clicks increased to 176.2 million for the three months ended March 31, 2003. This consists primarily of 175.0 million listings clicks and 1.1 million
advertising clicks and represents an increase of 150% compared to 70.4 million in the three months ended March 31, 2002, which consisted of 61 million listings clicks and 9.4 million advertising clicks. The Company expects paid clicks to increase as
we grow our listings business.



Listings revenue per click, the
average cost per click to advertisers, decreased slightly to $0.17 per click for the three months ended March 31, 2003 from $0.18 per click for the three months ended March 31, 2002. This decrease was primarily the result of a $0.02 decline in the
rates for graphical advertising clicks from the previous year, with an impact of approximately half of $0.01 on the overall revenue per click and the introduction of LookListings Small Business product at $0.15 per click in April 2002, which also
had an impact of approximately half of $0.01 on the overall revenue per click. The Company expects revenue per click to remain relatively constant in the near term.



We derived approximately 64% of our listings revenues in the three months ended March 31, 2003 and approximately 33% of our
listings revenues in the three months ended March 31, 2002 from our relationship with Microsoft. Internet search traffic is increasingly concentrated among a small number of portals and ISPs, of which Microsoft is one. The increase in the proportion
of our listings revenues attributable to Microsoft was due primarily to the introduction of per-click pricing for our LookListings Small Business listings and distribution of those listings in Microsofts search results in the second quarter of
2002, which resulted in 23% of the increase, and the growing popularity of Microsofts MSN search service among Internet users and changes in Microsofts search service, which resulted in 77% of the increase.



If we increase our distribution from other sources in future quarters, our
percentage of listings revenues attributable to Microsoft will likely decline. However, it is difficult to predict whether the percentage of our listings revenues attributable to Microsoft will increase or decrease in the future.



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In the first quarter of 2003, Microsoft announced its intention to increase its investment in its search
services. Microsoft has from time to time expressed interest in changing the implementation of search results on MSN and such changes may reduce the number of queries and paid clicks we derive from our distribution agreement with Microsoft. For
example, In July 2003 Microsoft implemented a change to its search results in the United Kingdom, which will likely reduce the number of paid clicks we receive in that geographic market. If Microsoft decides to expand these changes or make similar
changes in other geographic markets, the paid clicks and listings revenues we derive from our relationship with Microsoft could decline significantly. Microsoft has tested in the past, and is likely to continue testing in the future, alternative
implementations of its search services in the United States market, and we cannot be certain what impact these changes may have on our operating results. In any case, we are likely to remain significantly dependent upon Microsoft for listings
revenues in 2003. Either party may terminate our agreement with Microsoft for any reason on six months notice and the agreement expires on December 3, 2003.



Licensing. We license our database content to Microsoft and customize it for their use. We expect revenues from
licensing to fluctuate from period to period because these revenues are dependent upon the terms of our licensing arrangement, and the timing of our delivery of URLs during each six-month period.



Licensing revenue was $4.0 million for the three months ended March 31, 2003
compared to $3.7 million for the three months ended March 31, 2002. The Company derives all of its licensing revenue from its agreement with Microsoft, which expires on December 3, 2003.



Cost of Revenues



Cost of revenues primarily consists of revenue-sharing payments to distribution partners, connectivity costs, sales operations personnel and amortization
of certain intangible assets. In cases where there is no LookSmart branding or other direct sales or marketing effort associated with the generation of listings revenues, payments to distribution partners are reflected as cost of revenue. The cost
of revenue associated with affiliate partner commissions consists of fees paid to distribution partners based on the affiliate vendor commissions earned by the Company. Cost of revenues also consists of personnel costs of our sales operations
employees, including stock-based compensation, equipment depreciation, expenses relating to hosting advertising operations and commissions paid to advertising agencies. Payments to distribution partners for referral of customers to our LookListings
Small Business program are reflected as sales and marketing expense because LookSmart branding is associated with the promotion of these products.



Cost of revenues were $16.7 million for the three months ended March 31, 2003, representing an increase of 226% over cost of revenues of $5.1 million for
the three months ended March 31, 2002. Of the increase, $8.3 million was attributable to the growth in revenue, $1.6 million was due to higher contractual revenue sharing costs for the listings products due to the tiered structure of our revenue
sharing agreements and $1.7 million was due to the introduction of revenue sharing obligations on Small Business Listings clicks with our partners starting in the second quarter of 2002. Our distribution agreement with Microsoft is structured in
tiers and provides that we share a greater proportion of our revenue with Microsoft as we receive more revenue, up to certain levels.



Distribution costs as a percentage of revenue increased to 53% for the quarter ended March 31, 2003 from 34% for the three months ended March 31, 2002. 8%
of this increase was attributable to the growth in revenue which results in higher contractual revenue sharing costs for the listings products due to the tiered structure of our revenue sharing agreements and 7% was due to revenue sharing
obligations on Small Business Listings clicks with our partners which we did not have in the quarter ended March 31, 2002. We expect distribution costs as a percent of revenue to be approximately 53-55% in 2003, assuming no significant changes to
our current distribution levels. If we enter into agreements with additional significant distribution partners, average distribution costs as a percentage of revenue may increase.



Operating Expenses



For purposes of managing our resources, we do not track operating expenses by reportable segment, but treat these as shared overhead of our reportable
segments.



Sales and Marketing. Sales and marketing
expenses include salaries, commissions, stock-based compensation and other costs of employment for the Companys sales force, sales administration and customer service staff, payments to distribution partners for directing online users to
LookSmart search results and referring Small Business customers when LookSmart branding is used, overhead, facilities, allocation of depreciation and the provision for and reversals of reserves for doubtful trade receivables.



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Sales and marketing expenses also include the costs of advertising, trade shows and public relations activities. Sales and marketing expenses changed as
follows (dollar figures are in thousands):



|                                               |  | Three MonthsEnded March 31, |      
|---------------------------------------------- |  | --------------------------- | -----
|                                               |  | 2003                        |      
|Amortization of deferred stock compensation    |  | $                           | 23   
|Stock compensation related to variable options |  |                             | 261  
|Bad debt provision (reversal)                  |  |                             | (481 
|Other sales and marketing expense              |  |                             | 5,534
|                                               |  |                             |      
|Total sales and marketing expense              |  | $                           | 5,337
|As % of revenue                                |  |                             | 16   



Sales and marketing
expenses for the three months ended March 31, 2003 declined compared to three months ended March 31, 2002 in actual dollars and as a percentage of revenue.



Stock-based compensation decreased $0.8 million for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. Amortization
of deferred stock compensation is related to stock granted to employees at less than market value. This expense will continue to decline in 2003 as it becomes fully amortized. Stock compensation related to variable options is the result of repriced
stock options. It is based on the Companys stock price at the end of each quarter and will continue to fluctuate as the Companys stock price fluctuates.



Bad debt provision (reversal) increased $1.1 million from the first quarter of 2002 to the first quarter of 2003. In the
first quarter of 2003, the Company reversed $0.5 million of reserves for bad debts. The reversal was due to the improvement in the Companys rate of collections and applying the improved collection rates to the Companys accounts
receivable balance as of March 31, 2003, net of cash collected subsequent to the end of the period.



Other sales and marketing expenses remained relatively flat at $5.5 million in the three months ended March 31, 2003 compared to $5.6 million in the three
months ended March 31, 2002. We expect sales and marketing expenses to increase slightly in 2003 as revenues increase.



Product Development.Product development costs include all costs related to development and engineering of new products and continued development
of our search databases and customer account features. These costs include salaries and associated costs of employment, including stock-based compensation, overhead, facilities and amortization of intangible assets. Costs related to the development
of software for internal use in the business, including salaries and associated costs of employment are capitalized. Software licensing and computer equipment depreciation related to supporting product development functions are also included in
product development expenses. Product development expenses changed as follows (dollar figures are in thousands):



|                                               |  | Three Months Ended March 31, |      
|---------------------------------------------- |  | ---------------------------- | -----
|                                               |  | 2003                         |      
|Amortization of deferred stock compensation    |  | $                            | 49   
|Stock compensation related to variable options |  |                              | 520  
|Other product development expense              |  |                              | 6,613
|                                               |  |                              |      
|Total product development expense              |  | $                            | 7,182
|As % of revenue                                |  |                              | 22   



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Product development expenses in absolute dollars remained relatively flat and declined as a percent of
revenue in the three months ended March 31, 2003 compared to the first three months of 2002.



Stock-based compensation expense decreased $0.6 million in the three months ended March 31, 2003 compared to the three months ended March 31, 2002. Amortization of deferred stock compensation is related to stock
granted to employees at less than market value. This expense will continue to decline in 2003 as it becomes fully amortized. Stock compensation related to variable options is the result of repriced stock options. It is based on the Companys
stock price at the end of the period and will continue to fluctuate as the Companys stock price fluctuates.



The increase in other product development expenses of $0.8 million was due to primarily to $0.6 million in additional salary and benefit expenses incurred
as we continue to invest in our search product portfolio.



We
expect product development costs in absolute dollars to increase as we continue to develop new products for the distribution market and improve the size, scope and freshness of our search index and as we continue to invest in developing enhancements
to our search algorithm, our editorial model and our paid inclusion platform. Where appropriate, we expect to capitalize these costs in accordance with SOP 98-1.



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, including stock-based compensation, overhead, facilities and allocation of depreciation. General and administrative expenses
also include legal, tax and accounting consulting and professional service fees. General and administrative expenses changed as follows (dollar figures are in thousands):



|                                               |  | Three MonthsEnded March 31, |      
|---------------------------------------------- |  | --------------------------- | -----
|                                               |  | 2003                        |      
|Amortization of deferred stock compensation    |  | $                           | 5    
|Stock compensation related to variable options |  |                             | 110  
|Other general and administrative expense       |  |                             | 2,939
|                                               |  |                             |      
|Total general and administrative expense       |  | $                           | 3,054
|As % of revenue                                |  |                             | 9    



General and
administrative expenses increased in absolute dollars and declined as a percent of revenue in the three months ended March 31, 2003 compared to the first three months of 2002.



Stock-based compensation expense decreased $0.5 million in the three months ended March 31, 2003 compared to the three
months ended March 31, 2002. Amortization of deferred stock compensation is related to stock granted to employees at less than market value. This expense will continue to decline in 2003 as it becomes fully amortized. Stock compensation related to
variable options is the result of repriced stock options. It is based on the Companys stock price at the end of the period and will continue to fluctuate as the Companys stock price fluctuates.



Other general and administrative expense increased to $2.9 million in the
three months ended March 31, 2003 compared to $2.1 million in the three months ended March 31, 2002, which was due primarily to an increase of $0.6 million additional consulting fees related to legal compliance, tax consulting and



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compliance with the Sarbanes-Oxley Act. General and administrative expenses may vary significantly over time, due to changes in amounts spent on litigation,
tax consulting, and Sarbanes-Oxley and other regulatory compliance.



Non-Operating Expenses



Interest and
Other Non-Operating expenses, net.Interest and other non-operating expense declined to $0.1 million for the three months ended March 31, 2003 compared to $1.3 million for the three months ended March 31, 2002. This decrease was primarily the
result of the settlement of the Companys loan with Transceptgate, a subsidiary of BT in December 2002.



Share of Joint Venture Loss.Share of joint venture loss includes LookSmarts 50% share of the loss of BT LookSmart. LookSmart recorded $0.1
million of expense for the three months ended March 31, 2003, compared to $1.1 million in expense recorded in the three months ended March 31, 2002. In December 2002, LookSmart entered into a settlement agreement with BT to terminate the joint
venture. The decrease in the loss was the result of this settlement and LookSmart does not expect significant gains or losses from the joint venture in the future.



Income Tax Expense



The provision for income taxes was $0.1 million for the three months ended March 31, 2003 and $14,000 for the three months ended March 31, 2002. Our
effective tax rate was 4.6% for the three months ended March 31, 2003 and was due primarily to statutory tax rates associated with our Japan entity. The Company did not incur tax expense on 2002 U.S. net income due to loss carryforwards and tax
credits. Income tax expense for the three months ended March 31, 2002 was primarily associated with our Australian operations. The effective tax rate in the upcoming quarters and for the year ending December 31, 2003 may vary due to a variety of
factors, including but not limited to, the relative income contribution by tax jurisdiction, changes in statutory tax rates, the amount of tax exempt interest income generated during the year, the ability to utilize foreign tax credits and foreign
net operating losses, and any non-deductible items related to acquisitions or other non-recurring charges.



Loss from Discontinued Operations



In the first quarter of 2002, the Company transferred its 52.8% ownership interest in its consolidated subsidiary, Futurecorp, to the minority shareholders and discontinued operations of Futurecorp. As required by
SFAS No. 144, the Company reported the results of operations of this component as a loss from discontinued operations of $1.0 million in 2002, which includes a $1.0 million loss on disposal. Revenue included in the loss on disposal was $0 and $0.6
million in the three months ended March 31, 2003 and 2002, respectively. Pretax net income (loss) reported in discontinued operations was $0 and $63,000 in the three months ended March 31, 2003 and 2002, respectively.



Extraordinary Gain on Acquisition of BT LookSmart Entities



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



In December 2002, LookSmart entered into a settlement agreement with BT to terminate the joint venture. LookSmart and BT are jointly liable for the
estimated settlement costs of $2.3 million expected to be incurred during the dissolution of the joint venture. These estimated costs were recorded in the fourth quarter of 2002 by the joint venture.



In the first quarter of 2003, as part of the dissolution of the joint
venture, BT LookSmart transferred ownership of its directories and of its European and Japanese subsidiaries to LookSmart. LookSmart



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received net assets of $0.2 million along with the ongoing operating and revenue-generating relationships contained in these entities as part of the
dissolution and settlement for nominal consideration. In connection with the acquisition of the joint venture entities, the Company recorded an extraordinary gain of $0.2 million, which represents the fair value of net assets we recorded in excess
of the consideration paid upon the acquisition.



Liquidity and Capital
Resources



The Company invests cash pending use in
investment grade debt and equity instruments with maturities of less than one year, with the intent to make such funds available for operating purposes. As of March 31, 2003, the Company had $54.7 million of unrestricted cash, cash equivalents and
short-term investments.



Operating activities provided $5.0
million of cash in the three months ended March 31, 2003 compared to $1.4 million in the three months ended March 31, 2002. The improvement in cash provided by operating activities is primarily attributable to increased revenue in the three months
ended March 31, 2003 compared to the same period in 2002, reduced employee-related expenses and continuing cost management.



Net cash provided by investing activities was $0.8 million in the three months ended March 31, 2003, compared to $10.3 million in the three months ended
March 31, 2002. Investment activity in each of the periods consisted of purchases and sales of investments, purchases of fixed assets and funding of the BT LookSmart. In the three months ended March 31, 2003 and 2002, securities classified as
short-term matured and were converted to cash and cash equivalents in the amount of $3.4 million and $10.7 million, respectively. We expect to invest a total of approximately $6 to $7 million in capital expenditures in 2003.



Net cash provided by financing activities was $1.0 million in the three
months ended March 31, 2003, compared to $0.9 million in the three months ended March 31, 2002. The cash provided by financing activities in both periods was due primarily to proceeds received from the issuance of common stock in connection with
employee stock option exercises.



We believe that our working
capital will provide adequate liquidity to fund our operations and meet other cash requirements for the next 12 months. If operations do not perform as expected management may seek to raise additional capital through public or private debt or equity
financings in order to fund our operations and capital expenditures, take advantage of favorable business opportunities, develop and upgrade our technology infrastructure, develop new product and service offerings, take advantage of favorable
conditions in capital markets or respond to competitive pressures. In addition, unanticipated developments in the short term, such as the entry into agreements which require large cash payments or the acquisition of businesses with negative cash
flows, may necessitate additional financing. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If we issue additional equity or convertible debt securities, our existing stockholders may experience
substantial dilution.



We do not have any off balance-sheet
arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.



Contractual Obligations and Commercial Commitments



We incur various contractual obligations and commercial commitments in our normal course of business. Such obligations and
commitments primarily consist of the following:



Capital
Lease ObligationsWe have one capital lease for the purchase of telephone equipment.



Operating Lease ObligationsWe have various operating leases covering facilities in San Francisco, New York and Los Angeles and various international offices. We also have some minor operating leases
relating to equipment rentals that amount to less than $0.3 million per year.



Note ObligationsWe have entered into note agreements to finance an insurance policy and to finance tenant improvements.



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Guarantees Under Letters of CreditWe have obtained standby letters of credit from time to
time as security for certain liabilities. At March 31, 2003, outstanding letters of credit related to security of building leases and the repayment of a loan to finance insurance premiums and totaled $3.2 million.



As of March 31, 2003, future payments related to contractual obligations and
commercial commitments are as follows:



|                              |  | March 31, 2003                       |       
|----------------------------- |  | ------------------------------------ | ------
|                              |  | Payments Due by Period(in thousands) |       
|                              |  | Total                                |       
|Contractual Obligations       |  |                                      |       
|Operating leases              |  | $                                    | 31,087
|Capital leases                |  |                                      | 119   
|Other Commercial Commitments: |  |                                      |       
|Note obligations              |  |                                      | 1,165 
|Deferred rent                 |  |                                      | (1,334



Recently Issued Accounting
Pronouncements



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



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FACTORS AFFECTING OPERATING RESULTS



You should carefully consider the risks described below before making an investment decision regarding our common stock. If any of the following risks actually occurs, our business, financial condition and results of operations could be
harmed. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.



We recently achieved profitability and may not be able to maintain profitability in future quarters



We reached profitability for the first time in the fourth quarter of 2002. Prior to that time, we incurred net losses in
every quarter since inception, including net losses of approximately $6.6 million in the first three quarters of 2002, $59.6 million in 2001, $62.6 million in 2000 and $64.7 million in 1999. As of March 31, 2003, we had an accumulated deficit of
approximately $181.0 million. We may be unable to maintain profitability in future quarters, depending on our ability to contain expenses, grow revenues and maintain and expand our distribution network. We expect to spend significant amounts to:



| |  | maintain and expand our network of distribution partners and make revenue sharing payments to our distribution partners,
|- |  | ------------------------------------------------------------------------------------------------------------------------



| |  | continue to develop and expand our databases of Internet listings, both in the U.S. and abroad,
|- |  | -----------------------------------------------------------------------------------------------



| |  | develop new listings products and enhance our search services,
|- |  | --------------------------------------------------------------



| |  | develop our international business, particularly in the United Kingdom, Australia and Japan, and
|- |  | ------------------------------------------------------------------------------------------------



| |  | acquire complementary technologies and businesses.
|- |  | --------------------------------------------------



Because of the foregoing factors, and others outlined in this report, we may be unable to maintain profitability on a quarterly or annual basis.



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



Microsoft accounted for approximately 73% of our paid clicks and 64% of our listings revenues in the first quarter of 2003. It is difficult to predict whether the percentage of our listings revenues attributable to Microsoft will increase
or decrease in the future. In any case, we are likely to remain significantly dependent upon Microsoft for listings revenues in 2003. The agreement expires on December 3, 2003. If the agreement is not renewed on terms similar to those in the
existing agreement, then our paid clicks and listings revenues would decline significantly and our results of operations would suffer.



In the first quarter of 2003, Microsoft announced its intention to increase its investment in its search services. Microsoft has from time to time
expressed interest in changing the implementation of search results on MSN and such changes may reduce the number of queries and paid clicks we derive from our distribution agreement with Microsoft. For example, in July 2003 Microsoft implemented a
change to its search results in the United Kingdom, which will likely reduce the number of paid clicks we receive in that geographic market. If Microsoft decides to expand these changes or make similar changes in other geographic markets, the paid
clicks and listings revenues we derive from our relationship with Microsoft could decline significantly. Microsoft has tested in the past, and is likely to continue testing in the future, alternative implementations of its search services in the
United States market, and we cannot be certain what impact these changes may have on our operating results.



Either party may terminate the agreement for any reason on six months notice and the agreement expires on December 3, 2003. If the distribution
portion of the agreement is terminated or is not renewed on terms similar to those in the existing agreement, then our paid clicks and listings revenues would decline significantly and our results of operations would suffer.



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Revenues from the licensing portion of our agreement with Microsoft accounted for all of our licensing
revenues in the first quarter of 2003. If the licensing portion of the agreement is terminated or is not renewed on terms similar to those in the existing agreement, then our licensing revenues and results of operations would decline significantly.



The cash payments we receive for each six-month period under
the licensing portion of the agreement are subject to full or partial refund if we fail to provide the stated number of URL listings 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 success depends on maintaining and expanding our network of distribution partners



Our ability to generate paid clicks depends on the distribution of our
listings through our network of portals, ISPs and media companies. Because our revenues depend on clicks on our customers listings, growth in our listings business depends on increasing the volume of traffic on our distribution network. We
have invested, and will continue to invest, a significant amount of our human and capital resources to expand this network. However, we face competition from other paid listing providers, some of whom have greater technical and capital resources
than we do. We cannot assure you that we will maintain and expand our distribution network on financially favorable terms, if at all. If we are unsuccessful in maintaining and expanding our distribution network, then our ability to generate revenues
would be seriously harmed.



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



Our revenues and operating results may fluctuate significantly from quarter to quarter as a result of a variety of factors, including:



| |  | changes in our distribution network, such as the gain or loss of distribution partners, changes to the terms of our distribution agreements, or changes by our distribution partners
in their web sites that affect the number of clicks on our search results,
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the number of advertisers who purchase our listings, or the number of listings purchased by our large business customers,
|- |  | -------------------------------------------------------------------------------------------------------------------------



| |  | the cost-per-click we receive from advertisers, or other factors that affect the demand for, and prevailing prices of, Internet advertising and marketing services,
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the timing of revenue recognition under our listings and licensing contracts,
|- |  | -----------------------------------------------------------------------------



| |  | the timing of our entry into and termination of new contracts for distribution and licensing,
|- |  | ---------------------------------------------------------------------------------------------



| |  | technical difficulties and systems downtime or failures, whether caused by us, third party service providers or hackers, and whether occurring on our web site or the web sites of
our distribution partners,
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the effect of variable accounting for stock options, which requires that we book an operating expense in connection with some of our outstanding stock options at the end of each
quarter, depending on the closing price of our common stock on the last trading day of the quarter and the number of stock options subject to variable accounting, or
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the timing of our delivery of URL listings under our contract with Microsoft. We recognize quarterly licensing revenues under this contract based on the number of
URL listings added to our database during the quarter relative to the total number of URL listings 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
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | obligations unevenly, the revenues we recognize under this contract may be skewed on a quarter-to-quarter basis.
| | ----------------------------------------------------------------------------------------------------------------



Our expenses 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. Also, we may incur stock compensation
expenses as a result of changes in our stock price, and these expenses could negatively affect our net income. Due to the above factors, we believe that period-to-period comparisons of our financial results are not necessarily meaningful, and you
should not rely on them as indicators of our future performance. If our financial results in any future period fall below the expectations of securities analysts and investors, the market price of our securities would likely decline.



Our growth prospects depend on the success of our listings business



To increase our revenues and maintain profitability, we will need to
continue expanding our listings business. Listings accounted for $29.4 million or 88% of our revenues in the first quarter of 2003. Our success will depend upon the extent to which advertisers choose to use our listings products. Some of our
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 necessary to expand our product offerings in a timely
manner. Even if we expand our product offerings, customers may not adopt our products at projected rates. 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 listings business, our results of operations and financial condition will suffer.



Although we expect our listings revenues to continue to increase as an absolute number and as a percentage of total revenues, this may not occur due to
continued weakness in the online advertising market, reductions in advertising expenditures, 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 web sites, for a share of our customers total advertising expenditures. We have experienced, and may continue to experience, downward pressure on advertising prices in the industry due to cost-cutting efforts by
businesses and the increasing amount of advertising inventory becoming available on the Internet. As the Internet evolves, advertisers may find search marketing to be a less effective means of promoting their products or services relative to other
advertising media and may reduce or eliminate their expenditures on search marketing. 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 search marketing. Acceptance of the search marketing among advertisers will depend, to a large extent, on its perceived effectiveness and the continued growth of commercial usage of the Internet.



We may face liability for claims related to our listings business, and these claims may be
costly to resolve



We offer listings services and make
listings information available to users of our search services, both on our web site and our distribution partners web sites. Although we do not believe that the services we offer or the listings in our database violate any 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 have been subject to purported class action lawsuits in connection with our listings services, and we or our
distribution partners could be subject to other claims for defamation, invasion of privacy, trademark infringement, product liability, breach of contract, unfair advertising, unfair competition or other theories based on our listings and services.
In addition, we are obligated under some agreements to indemnify our partners in the event that they are subject to claims that our listings or services infringe on the rights of others. Regardless of whether such claims result in liability to us or
our distribution partners, we could incur significant costs and diversion of management time in investigating and defending against them. Our insurance may not adequately cover claims of this type, if at all.



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We face risks of claims from third parties for intellectual property infringement and other matters that could
adversely affect our business



We make Internet search
services available to our users through the use of our proprietary algorithms and databases. This creates the potential for claims to be made against us, either directly or through indemnification provisions in contracts with partners and customers.
These claims might, for example, be made for trademark, copyright or patent infringement, defamation, negligence, personal injury, invasion of privacy or other claims. Allegations are made against us from time to time concerning these types of
matters. Litigating these claims could consume significant amounts of time and money, divert managements attention and resources, cause delays in integrating acquired technology or releasing new products, or require us to enter into royalty or
licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. If a court were to determine that some aspect of our search services or listings infringed upon or violated the rights of
others, we could be prevented from offering some or all of our services, which would negatively impact our revenues and business. There can be no assurance that our services do not infringe the intellectual property rights of third parties. A
successful claim of infringement against us and our failure or inability to license the infringed or similar technology could have a material adverse effect on our business, operating results and financial condition.



We face growing competitive pressures in the search marketing industry



We compete in the relatively new and rapidly evolving paid inclusion
industry, which presents many uncertainties that could require us to further refine our business model. Our success will depend on many factors, including our ability to:



| |  | profitably establish and expand our listings product offerings,
|- |  | ---------------------------------------------------------------



| |  | compete with our competitors, some of whom have greater capital or technical resources than we do,
|- |  | --------------------------------------------------------------------------------------------------



| |  | expand and maintain our network of distribution relationships, thereby increasing the amount of traffic using our search results, and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------



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



We compete with companies that provide pay-for-placement products, paid inclusion products, and other forms of search marketing, including
About.coms Sprinks, AOL Time Warner, Ask Jeeves, FindWhat, Google, Inktomi, Microsofts MSN, Terra Lycos and Yahoo. In the paid inclusion field, we compete for advertisers on the basis of the relevance of our search results, the price per
click charged to advertisers, the volume of clicks that we can deliver to advertisers, tracking and reporting of campaign results, customer service and other factors. Some of our competitors have greater capital or technical resources, larger
distribution networks or proprietary user bases, longer operating histories and greater brand recognition than we have.



The search industry has recently experienced rapid consolidation, particularly with the announcement of proposed acquisitions of companies offering
algorithmic search indices and paid inclusion programs. In March 2003, Yahoo! acquired Inktomi, which offers a paid inclusion program for its algorithmic search index. In April 2003, Overture Services acquired AltaVista and the web search unit of
FAST Search & Transfer, each of which also offers a paid inclusion program and algorithmic search indices. Industry consolidation may result in larger competitors with a greater focus on paid inclusion products. If these industry trends
continue, or if we are unable to compete in the paid inclusion industry, our financial results may suffer.



Some of our customers represent credit risks



We derive a significant portion of our revenues from the sale of listings to companies that represent credit risks. Some of our customers have gone out of business, have limited operating histories or 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 our allowance for doubtful accounts



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receivable as of March 31, 2003 was $2.8 million or 15% of our total accounts receivable. We may continue to have these difficulties in the future, and if a
significant part of our customer base experiences financial difficulties or is unable or unwilling to pay our search marketing fees for any reason, our business will suffer.



We face risks associated with acquisition of businesses and technologies; acquisitions will likely also dilute our existing stockholders



If we are presented with appropriate opportunities, we
intend to make 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. It may be difficult to retain key management and technical personnel of the acquired company during the transition period following an acquisition. 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. We may also be required to amortize significant amounts of intangible assets or record impairment of goodwill in connection with future
acquisitions, which would adversely affect our operating results.



We have acquired businesses and technologies, including the acquisition of WiseNut, Inc. in the second quarter of 2002 and the acquisition of the intellectual property assets of Grub, Inc. in the first quarter of 2003. Integration of
acquired companies and technologies into LookSmart could be expensive, time-consuming and strain our managerial resources. We may not be successful in integrating any acquired businesses or technologies and these transactions may not achieve
anticipated business benefits.



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



The stock market has experienced significant price and volume fluctuations in recent years, and the stock prices of Internet companies have been extremely volatile. 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. Our
stock price may decline, and you may not be able to sell your shares for a profit, as a result of a number of factors including:



| |  | changes in the market valuations of Internet companies in general and comparable companies in particular,
|- |  | ---------------------------------------------------------------------------------------------------------



| |  | quarterly fluctuations in our operating results,
|- |  | ------------------------------------------------



| |  | the termination or expiration of our distribution agreements,
|- |  | -------------------------------------------------------------



| |  | our potential failure to meet our forecasts or analyst expectations on a quarterly basis,
|- |  | -----------------------------------------------------------------------------------------



| |  | changes in ratings or financial estimates by analysts,
|- |  | ------------------------------------------------------



| |  | announcements of new partnerships, technological innovations, acquisitions or 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 by owners of businesses we have acquired, 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 April 30, 2003, the CDIs registered
for trading on the Australian Stock Exchange were exchangeable into an aggregate of approximately 17.6 million shares of common stock),
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | or
| | --



| |  | conditions or trends in the Internet that suggest a decline in rates of growth 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 merits or outcome of the
case.



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 the foreseeable future, unanticipated developments in the short term, such as the entry into
agreements which require large cash payments or the acquisition of businesses with negative cash flows, may necessitate additional financing. We may seek to raise additional capital through public or private debt or equity financings in order to:



| |  | fund our operations and capital expenditures,
|- |  | ---------------------------------------------



| |  | take advantage of favorable business opportunities, including geographic expansion or acquisitions of complementary businesses or technologies,
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | develop and upgrade our technology infrastructure,
|- |  | --------------------------------------------------



| |  | 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 historically 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. If we issue additional equity or convertible debt
securities, our existing stockholders may experience substantial dilution.



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 search the database, distribute the directories and serve advertising to associated web pages. Any of these software systems 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 web site or the web sites of our distribution partners:



| |  | substantial increases in editorial activity or the number of listings in our directory,
|- |  | ---------------------------------------------------------------------------------------



| |  | customization of our directory for distribution to particular partners,
|- |  | -----------------------------------------------------------------------



| |  | substantial increases in the number of search queries to our database, or
|- |  | -------------------------------------------------------------------------



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| |  | the addition of new products, features or changes in our directory structure.
|- |  | -----------------------------------------------------------------------------



If we fail to address these issues in a timely manner, we may lose the confidence of advertisers and partners, our revenues may decline and our
business could 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 likely suffer.



The performance of our operating
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 clicks and revenues. A system failure that prevents us from tracking paid clicks or reporting accurate information to our customers online accounts could
adversely affect our reputation and financial results. The occurrence of a natural disaster or unanticipated problems at our principal headquarters or at a third-party facility could cause interruptions or delays in our business, loss of data or
could render us unable to provide some services. Our California facilities exist on or near known earthquake fault zones and a significant earthquake could cause an interruption in our services. We do not have back-up sites for our main customer
operations center and editorial department which are both located at our San Francisco, California office. An interruption in our ability to provide customer support and editorial services would adversely affect our business.



Our users, partners and customers depend on ISPs, online service providers
and other third parties for access to the LookSmart search results. These service providers have experienced significant outages in the past and could experience outages, delays and other operating difficulties in the future. The occurrence of any
or all of these events could adversely affect our reputation, brand and business, which could have a material adverse effect on our financial results.



We have agreements with Savvis Communications, Inc. and AboveNet Communications, Inc. to house our networking and web serving hardware equipment. Our
networking hardware infrastructure is now fully redundant at separate locations. However, we do not presently maintain fully redundant click tracking, customer account and web serving systems at both locations. Accordingly, our operations depend on
each of Savvis and AboveNets 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 Savvis nor
AboveNet guarantees that our Internet access will be uninterrupted, error-free or secure. We have deployed firewall hardware at each facility to thwart hacker attacks. We have not developed a disaster recovery plan to respond in the event of a
catastrophic loss of our primary systems. 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 a
catastrophic system failure.



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



Our success depends, in part, on
the continued service of our key management personnel. The loss of the services of any of our key employees could adversely affect our business. Our success also depends on our ability to identify, attract, retain and motivate highly skilled search
development, technical, marketing and other management 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.



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



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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 incur unforeseen expenses and liabilities in connection with the dissolution of BT LookSmart



In the fourth quarter of 2002, we and BT agreed to close our joint venture, BT LookSmart. We are still in the process of
dissolving the joint venture and may incur unforeseen expenses in connection with the dissolution. Also, we have assumed the operations of BT LookSmart in the United Kingdom and Japan and we may incur costs in excess of the amounts we forecasted in
connection with the operation of those businesses.



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 marketing and commercial transactions. Internet usage for these purposes may not grow at projected rates for various reasons, such as:



| |  | 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,
|- |  | --------------------------------



| |  | government regulation, such as tax or privacy laws, and
|- |  | -------------------------------------------------------



| |  | uncertainty regarding intellectual property ownership and rights on the Internet.
|- |  | ---------------------------------------------------------------------------------



If these or other factors negatively affect the growth in the commercial use of the Internet, our business could be harmed.



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 investigated some Internet companies, and lawsuits have been filed against some Internet companies, regarding their handling or use of personal information. 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 laws or court judgments, in the United States or abroad, regarding the use of personal information are introduced or if any agency chooses to investigate our
privacy practices.



As is typical with most web sites, our web
site places information, known as cookies, on a users hard drive, generally without the users knowledge or consent. This technology enables web site 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 this option or are not knowledgeable enough to use this option. Some privacy advocates and governmental bodies have suggested limiting or eliminating the use of cookies. If this technology is



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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 or advertisers retain information about our
users. If others were able to penetrate the network security of these user databases and access or misappropriate this information, we and our partners or advertisers could be subject to liability. These claims may result in litigation, our
involvement in which, regardless of the outcome, could require us to expend significant time and financial resources.



New regulation of search engines may adversely affect the commercial use of the Internet and our financial results



The Federal Trade Commission, in response to a petition from a private
organization, reviewed the way in which search engines disclose paid placement or paid inclusion practices to Internet users. Recently, the FTC staff issued guidance on the matter in the form of letters to the petitioner and to members of the
industry, including LookSmart. The letters stated the staffs position on what disclosures are necessary to avoid misleading users about the possible effects of paid placement or paid inclusion listings on the search results. This guidance may
differ from the existing practices of some in the industry, including our practices and those of some of our distribution partners. The FTC has not yet taken any enforcement action to date against us or any of our distribution partners. If the FTC
were to require changes in the labeling or other disclosure of our listings, it may reduce the desirability of our services, and our business and the business of some of our distribution partners could be harmed. We and some of our distribution
partners have recently adjusted the disclosures on our search results pages on a voluntary basis, or are likely to do so in the future, and such disclosures may reduce the desirability of our listings, which could adversely affect our business.



New tax treatment of companies engaged in Internet commerce may adversely
affect the commercial use of the Internet 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 or our advertisers 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. New or revised taxes and, in particular, sales taxes, would likely increase the
cost of doing business online and decrease the attractiveness of advertising and selling goods and services over the Internet. Any of these events could have an adverse effect on our business and results of operations.



Provisions of Delaware corporate 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, prohibiting certain business combinations with an interested stockholder, could discourage potential acquisition proposals and could delay or prevent a
change of control.



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|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 March 31, 2003 or 2002. The Company invests its excess cash in debt and equity 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, issuer and type of instrument is limited.



Foreign Currency Risk.International revenues from the Companys foreign subsidiaries were less than 10% of total revenues for the three
months ended March 31, 2003 and were derived from our Australian, United Kingdom and Japanese 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. The effect of foreign exchange rate fluctuations on the Company for the three months ended March
31, 2003 and 2002 was not material.



|ITEM  4. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------



Within 90 days prior to the filing date of this Quarterly Report on Form 10-Q, LookSmart carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of LookSmarts disclosure controls and procedures and
internal controls pursuant to Item 307 of Regulation S-K. Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in the Companys reports filed under the
Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and (ii) information is accumulated and communicated to management,
including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Internal controls are procedures designed with the objective of providing reasonable assurance that our transactions are properly authorized, assets
are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported to permit the preparation of our financial statements in conformity with generally accepted accounting principles.



The evaluation of our disclosure controls and procedures and internal
controls included a review of their objectives and processes, implementation and effect on the information generated for use in this report. In the course of this evaluation, we sought to identify any significant deficiencies or material weaknesses
in our controls, and whether we had identified any acts of fraud involving personnel who have a significant role in our internal controls, and to confirm that any necessary corrective action, including process improvements, were being undertaken.
The overall goals of these evaluation activities are to monitor our disclosure and internal controls and to make modifications as necessary. We intend to maintain these controls as processes that may be appropriately modified as circumstances
warrant.



Based on the evaluation described above and subject
to the discussion below, our CEO and CFO concluded that our controls and procedures are effective in timely alerting them to material information (including our consolidated subsidiaries) required to be included in this report. There have been no
significant changes in our internal controls or in other factors that could significantly affect those controls since the date of their last evaluation.



However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues, if any, within LookSmart have been detected.



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PART II. OTHER INFORMATION



|ITEM  1. |  | LEGAL PROCEEDINGS
|-------- |  | -----------------



In May 2002, Legal Staffing Partners, Inc., an express listing customer, filed a proposed class action lawsuit in Superior Court in San Francisco County.
The complaint alleged breach of contract, unfair business practices and false advertising in connection with the launch of our new Small Business Listings product announced in April 2002. The complaint sought restitution, unspecified compensatory
damages, injunctive relief and attorneys fees. In July 2002, Curt Kramer, an express listing customer, filed a proposed class action lawsuit in Superior Court in San Francisco County alleging claims that were substantially similar to those
alleged by Legal Staffing Partners. In October 2002, the two plaintiffs agreed to withdraw their complaints and file a single consolidated amended complaint containing substantially the same allegations as the prior two complaints. In November 2002,
we filed a motion to dismiss the claims in the amended complaint. The court denied the motion in January 2003. We filed an answer to the amended complaint in January 2003. Plaintiffs have served document and deposition requests, but no other
discovery is being sought at this time. LookSmart believes that the allegations against it are without merit and intends to contest the allegations vigorously.



We are not a party to any other material legal proceedings.



|ITEM  2. |  | CHANGES IN SECURITIES AND USE OF PROCEEDS
|-------- |  | -----------------------------------------



In January 2003, in connection with the acquisition of substantially all of the assets of Grub, Inc., LookSmart issued or reserved for issuance an
aggregate of 217,000 shares of common stock. There were no underwriters employed in connection with the transaction. The issuance of the securities was deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering. The recipients acquired the securities for investment only and not in connection with any distribution thereof and appropriate legends were affixed to the share
certificates or other instruments issued in the transaction. All recipients either received adequate information about LookSmart or had access to such information.



|ITEM  6. |  | EXHIBITS AND REPORTS ON FORM 8-K
|-------- |  | --------------------------------



(a) Exhibits



Please see the exhibit list following the certifications of this report.



(b) Form 8-K



The Company filed Current Reports on Form 8-K on January 30, 2003 (fourth quarter 2002 financial results), May 5, 2003 (first quarter 2003 financial
results), May 28, 2003 (chief financial officer transition) and July 29, 2003 (second quarter 2003 financial results).



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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: August 5, 2003 |  |  |  | LOOKSMART, LTD.
|-------------------- |  |  |  | ---------------
|                     |  |  |  |                
|                     |  |  |  |                
|                     |  |  |  |                



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EXHIBIT INDEX



|ExhibitNumber |  | Description of Document                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|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                                                                                                                                  
|              | 
|10.6+(1)      |  | Development Agreement with Cox Interactive Media, Inc.                                                                                                                                   
|              | 
|10.7(3)       |  | Zeal Media, Inc. 1999 Stock Plan                                                                                                                                                         
|              | 
|10.8(5)       |  | Wisenut, Inc. 1999 Stock Incentive Plan                                                                                                                                                  
|              | 
|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                                                                                                                                                  
|              | 
|10.21(4)      |  | Employment Agreement with Kevin Berk dated September 29, 2000                                                                                                                            
|              | 
|10.22(4)      |  | Employment Agreement with Brian Goler dated September 29, 2000                                                                                                                           
|              | 
|10.24(6)      |  | Secured Promissory Note between LookSmart, Ltd. and Dianne Dubois, dated April 2, 2002                                                                                                   
|              | 
|10.25(6)      |  | Side Letter between LookSmart, Ltd. and Dianne Dubois, dated July 16, 2002                                                                                                               



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|            | 
|----------- | 
|10.26+(6)   | 
|            | 
|10.27(7)    | 
|            | 
|10.28(7)    | 
|            | 
|10.29(7)    | 
|            | 
|10.30(7)    | 
|            | 
|10.31(8)    | 
|            | 
|10.32(9)    | 
|            | 
|10.33(10)   | 
|            | 
|10.34(10)++ | 
|            | 
|31.1        | 
|            | 
|31.2        | 
|            | 
|32.1        | 

---

|(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 Registration Statement on Form S-8 filed with the SEC on, December 7, 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 Registration Statement on Form S-8 filed with the SEC on April 18, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------

|(6) |  | Filed in connection with the Companys Quarterly Report on Form 10-Q filed with the SEC on August 14, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------

|(7) |  | Filed in connection with the Companys Quarterly Report on Form 10-Q filed with the SEC on November 12, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(8) |  | Filed in connection with the Companys Annual Report on Form 10-K filed with the SEC on March 14, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------

|(9) |  | Filed in connection with the Companys Quarterly Report on Form 10-Q filed with the SEC on May 15, 2003.
|--- |  | --------------------------------------------------------------------------------------------------------

|(10) |  | Filed in connection with the Companys Annual Report on Form 10-K/A filed with the SEC on August 5, 2003.
|---- |  | ---------------------------------------------------------------------------------------------------------

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