LookSmart Reports Second Quarter 2009 Results

LookSmart, Ltd. (NASDAQ: LOOK), an online search advertising network

solutions company, today announced financial results for the second

quarter ended June 30, 2009.

Revenues for the second quarter of 2009 were $13.2 million, a 23%

decrease from $17.1 million in the second quarter of 2008 and a 0.2%

decrease from $13.3 million in the first quarter of 2009. Net loss for

the second quarter of 2009 was $1.3 million, or ($0.08) per share based

on approximately 17.1 million weighted average shares outstanding. This

is compared to a net loss for the second quarter of 2008 of $0.2

million, or ($0.01) per share based on approximately 17.0 million

weighted average shares outstanding. Net loss for the first quarter of

2009 was $2.0 million, or ($0.12) per share based on 17.1 million

weighted average shares outstanding.

Loss from continuing operations for the second quarter of 2009 was $1.4

million, which includes a $0.2 million impairment charge and $0.2

million of expenses related to the evaluation of strategic growth

alternatives. This compares to a loss from continuing operations in the

second quarter of 2008 of $0.04 million. Loss from continuing operations

for the first quarter of 2009 was $2.1 million, which included $0.8

million of expenses related to the evaluation of strategic growth

alternatives.

“As expected, economic conditions were tenuous during the first half of

2009, hampering industry demand for search advertising and impacting our

second quarter financial results,” commented Ted West, President and

Chief Executive Officer. “In this environment, we are focused on

aligning our operating expense structure with our core search

advertising networks business to better meet search advertisers’

requirements for improved campaign performance. In conjunction with this

effort, we continue to focus on delivering innovations on the Ad Center

technology platform, high quality distribution and other initiatives

with a view to improving scale and enhancing performance in our search

advertising network. In doing so, we believe LookSmart will be better

positioned to become the leading non-proprietary, keyword-based click

provider.”

Revenues from the Company’s Advertiser Network were $12.0 million in the

second quarter of 2009, a decrease of 24% from $15.7 million in the

second quarter of 2008. Revenues from the Company’s Publisher Solutions

were $1.2 million in the second quarter of 2009, a decrease of 10% from

$1.4 million in the second quarter of 2008. Revenues from the Company’s

Advertising Network and Publisher Solutions were $12.0 million and $1.2

million in the first quarter of 2009, respectively.

Gross margins from continuing operations were 40% in the second quarter

of 2009, consistent with the second quarter of 2008. Gross margins from

continuing operations for the first quarter of 2009 were 39%. We

increased traffic acquisition costs (TAC) during the quarter to attract

more high quality traffic. We intend to continue this investment, which

will have a material adverse effect on gross margins in the third

quarter of 2009.

Total operating expenses in the second quarter of 2009 were $6.7

million, which includes $0.5 million of non-cash, share-based

compensation charges, a $0.2 million impairment charge and $0.2 million

of expenses related to the evaluation of strategic growth alternatives.

Operating expenses for the second quarter of 2008 were $7.1 million,

which included $0.6 million of non-cash, share-based compensation

charges. Operating expenses for the first quarter of 2009 were $7.3

million, which included $0.5 million of non-cash, share-based

compensation charges and $0.8 million of expenses related to the

evaluation of strategic growth alternatives.

Non-GAAP net loss (net loss before discontinued operations and excluding

stock based compensation and impairment charges) for the second quarter

of 2009 was $0.7 million compared to non-GAAP net income of $0.5 million

in the second quarter of 2008. Non-GAAP net loss for the first quarter

of 2009 was $1.6 million.

An explanation of LookSmart’s use of non-GAAP financial measures,

including the limitations of such measures relative to GAAP measures and

reconciliation between GAAP and non-GAAP measures where appropriate, is

included later in this release.

Capital expenditures, including capitalization of internally developed

software, in the second quarter of 2009 were $0.4 million, compared to

$0.9 million in the second quarter of 2008, and $0.9 million in the

first quarter of 2009. During the second quarters of both 2009 and 2008,

the Company purchased no intangible assets. Depreciation and

amortization from continuing operations in the second quarter of 2009

was $0.8 million, compared to $0.8 million in the second quarter of 2008

and $0.7 million in the first quarter of 2009.

The Company ended the quarter with $29.7 million in cash, cash

equivalents, and investments, a decrease of approximately $0.8 million

from approximately $30.5 million at March 31, 2009. The decrease in cash

was primarily due to the operating loss generated in the second quarter

of 2009. On a per share basis, the Company’s cash and investment balance

was $1.74 as of June 30, 2009.

The Company will launch post-pay in the second half of 2009 whereby

self-service customers will pay for clicks after they occur rather than

the current practice of being billed in advance. The customer’s credit

card will be charged based on its history of activity and

creditworthiness. The impact of this change will be a decrease in

deferred revenue until those customers with prepaid balances have used

all the funds in their account. As a result, the Company expects this to

have a material adverse affect on cash flow as customer deferred

balances are used up, but the Company does not expect this change to

have a significant impact on the liquidity and capital resources of the

Company.

Q2 2009 Key Metrics Performance

• Total paid clicks for the second quarter of 2009 were 207 million,

  compared to 195 million for the second quarter of 2008 and 184 million

  for the first quarter of 2009.

• Average Advertising Network revenue per click (RPC) for the second

  quarter of 2009 was $0.06, a decrease from $0.08 in the second quarter

  of 2008 and $0.07 in the first quarter of 2009.

• Traffic acquisition costs (TAC) of 62% for LookSmart's Ad Network was

  unchanged from the 62% rate in the second quarter of 2008, and

  decreased from the 63% rate in the first quarter of 2009.

Conference Call

LookSmart will host a conference call today at 5:00 p.m. ET to discuss

its second quarter 2009 financial results. To listen to the call from

the US, dial 1-877-941-9205 from outside the US, dial 1-480-629-9835. A

telephonic replay of the call will be available until Monday, August 17,

2009, 11:59 pm ET. To access the replay from the US, dial 1-800-406-7325

and enter passcode 4118216, from outside the US, dial 1-303-590-3030 and

enter passcode 4118216. The call will also be available live by webcast

on LookSmart's Investor Relations website at http://www.shareholder.com/looksmart/.

About LookSmart, Ltd.

LookSmart is an online search advertising network solutions company that

provides performance solutions for online search advertisers and online

publishers. LookSmart offers advertisers targeted, pay-per-click (PPC)

search advertising and contextual search advertising via its Advertiser

Networks; and an Ad Center platform for customizable private-label

advertiser solutions for online publishers. LookSmart is based in San

Francisco, California. For more information, visit www.looksmart.com

or call 415-348-7500.

GAAP to Non-GAAP Reconciliation

We provide a reconciliation of GAAP net loss to non-GAAP net income

(loss) below:

Use of Non-GAAP Measures

Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and

other provisions of the Securities Exchange Act of 1934, as amended,

define and prescribe the conditions for use of certain non-GAAP

financial information. LookSmart provides "non-GAAP net income

(loss),” which is a non-GAAP financial measure. Non-GAAP net income

(loss) consists of net loss before (a) income (loss) from discontinued

operations; (b) impairment charges; and (c) share-based compensation

expense related to stock options.

The Company believes this non-GAAP financial measure provides important

supplemental information to management and investors. This non-GAAP

financial measure reflects an additional way of viewing aspects of the

Company's operations that the Company believes, when viewed with the

GAAP results and the accompanying reconciliation to corresponding GAAP

financial measures, provides useful information regarding factors and

trends affecting the Company's business and results of operations.

For the non-GAAP financial measure non-GAAP net income (loss), the

adjustment provides management with information about LookSmart’s

operating performance that enables comparison of its operating financial

results in different reporting periods. Additionally, our management

uses non-GAAP net income (loss) as a supplemental measure in the

evaluation of our business, and believes that non-GAAP net income (loss)

provides visibility into our ability to meet our future capital

expenditures and working capital requirements.

This non-GAAP financial measure is used in addition to, and in

conjunction with, results presented in accordance with GAAP and should

not be relied upon to the exclusion of GAAP financial measures.

Management strongly encourages investors to review the Company's

consolidated financial statements in their entirety and to not rely on

any single financial measure. Because non-GAAP financial measures are

not standardized, it may not be possible to compare these financial

measures with other companies' non-GAAP financial measures having the

same or similar names. In addition, the Company expects to continue to

incur expenses similar to the non-GAAP adjustments described above, in

particular stock based compensation expense, and exclusion of these

items from the Company's non-GAAP measures should not be construed as an

inference that these costs are unusual, infrequent or non-recurring.

Forward-Looking Statements

This press release contains forward-looking statements, such as

references to our business prospects. These statements, including their

underlying assumptions, are subject to risks and uncertainties and are

not guarantees of future performance. Results may differ due to various

factors such as the possibility that our efforts to control expenses may

not be successful, that our efforts to increase revenue and improve

gross margin may not succeed, that we may be unable to gain or maintain

customer acceptance of our publisher solutions or ad backfill products,

that existing and potential customers for our products may opt to work

with, or favor the products of, others due to more favorable products or

pricing terms, that we may be limited in our ability or unable to retain

and grow our ad and customer base, and that we may be limited in our

ability to, or be unable to, enhance our products or our network of

distribution partners. Additional risks that could cause actual results

to differ materially from those projected are discussed in our Annual

Report on Form 10-K for the year ended December 31, 2008, as filed with

the Securities and Exchange Commission and our Quarterly Report on Form

10-Q for the quarter ended March 31, 2009. Readers are cautioned not to

place undue reliance on these forward-looking statements, which reflect

management’s analysis only as of the date hereof.

The statements presented in this press release speak only as of the date

of the release. Please note that except as required by applicable law we

undertake no obligation to revise or update publicly any forward-looking

statements for any reason.

NOTE: "LookSmart" is a trademark of LookSmart, Ltd., and/or its

subsidiaries in the U.S. and other countries. All other trademarks

mentioned are the property of their respective owners.

LookSmart, Ltd.

Ted West, Chief Executive Officer and President

twest@looksmart.net

or

Steve

Markowski, Chief Financial Officer

415-348-7206

smarkowski@looksmart.net

or

ICR,

Inc.

Laura Foster

310-954-1100

laura.foster@icrinc.com