LookSmart Reports Second Quarter 2008 Results

-- Revenue Increased 27% to $17.1 Million Versus Q2 2007

-- Q2 Net Loss Per Share of ($0.01) versus Net Loss Per Share of
($0.09) in Q2 2007
SAN FRANCISCO--(Business Wire)--
LookSmart, Ltd. (NASDAQ: LOOK), an online search advertising
network and technology solutions company, today announced financial
results for the second quarter ended June 30, 2008.

Revenues for the second quarter of 2008 were $17.1 million, a 27%
increase from $13.5 million in the second quarter of 2007 and a 2%
decrease from $17.5 million in the first quarter of 2008. Net loss for
the second quarter of 2008 was $176 thousand, or ($0.01) per share
based on approximately 17.0 million weighted average shares
outstanding, compared to a net loss of $2.1 million, or ($0.09) per
share based on approximately 22.9 million weighted average shares
outstanding in the second quarter of 2007. Net loss for the first
quarter of 2008 was $0.5 million, or ($0.02) per share based on 20.5
million weighted average shares outstanding.

During the first quarter of 2008, the company classified certain
consumer assets as Assets Held for Sale on the Consolidated Balance
Sheet. The results for the current and prior periods exclude these
certain consumer assets which are accounted for in discontinued
operations.

Loss from continuing operations for the second quarter of 2008 was
$40 thousand, or approximately break-even on a per share basis on
approximately 17.0 million weighted average shares outstanding,
compared to a loss from continuing operations in the second quarter of
2007 of $1.3 million, or ($0.06) per share based on 22.9 million
weighted average shares outstanding. Loss from continuing operations
in the first quarter of 2008 was $181 thousand, or ($0.01) per share
based on 20.5 million weighted average shares outstanding.

"During the second quarter we made continued progress in
sustaining year-over-year revenue growth, and in approaching
profitability," commented Ted West, President and Chief Executive
Officer. "We expanded our base of search advertising customers, and we
grew paid clicks served on our search advertiser networks. These
results reflect the entire organization's continued focus on driving
revenue growth and diversity, improving operating efficiency, and
generating positive cash flow from operations."

Revenues from the Company's Advertiser Network were $15.7 million
in the second quarter of 2008, an increase of 30% from $12.1 million
in the second quarter of 2007. Revenues from the Company's Publisher
Solutions were $1.4 million in the second quarter of 2008, flat with
$1.4 million in the second quarter of 2007.

Gross margins from continuing operations were 40% in the second
quarter of 2008 versus 46% in the second quarter of 2007 primarily due
to higher traffic acquisition costs (TAC) and line rental charges on
the Advertiser Network in the second quarter of 2008 as compared to
the prior year period. During the second quarter of 2008, the Company
continued to manage TAC higher in order to drive higher advertising
revenues and profit contribution in the Advertiser Network. Gross
margins from continuing operations for the first quarter of 2008 were
42%.

Total operating expenses in the second quarter of 2008 were $7.1
million, which included $0.5 million of non-cash, share-based
compensation charges. This compares to total operating expenses of
$8.1 million in the second quarter of 2007, which included $0.6
million of non-cash, share-based compensation charges, and $8.0
million in the first quarter of 2008, which included $1.0 million of
non-cash, share-based compensation charges.

On a non-GAAP basis, for the second quarter of 2008, Adjusted
EBITDA (net loss before interest income, net, taxes, depreciation and
amortization excluding stock based compensation charges and loss from
discontinued operations) was $1.0 million compared to an Adjusted
EBITDA loss of $0.8 million in the second quarter of 2007.

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, remained constant at $0.7 million in the second
quarter of 2008, compared to $0.7 million in the second quarter of
2007. During the second quarter of both 2008 and 2007, the Company
purchased no intangible assets. Depreciation and amortization from
continuing operations was $0.8 million in the second quarter of 2008
compared to $0.4 million in the second quarter of 2007.

The Company ended the quarter with approximately $34.4 million in
cash, cash equivalents, and short-term investments, an increase of
approximately $1.6 million from approximately $32.8 million on March
31, 2008. This increase in cash was primarily due to the receipt of
previously escrowed proceeds from the sale of certain consumer assets
of approximately $1.0 million with the remainder being generated from
operations.

Q2 2008 Key Metrics Performance

-- Total paid clicks increased to approximately 193 million for
the second quarter of 2008 compared to approximately 120
million for the second quarter of 2007 and 152 million for the
first quarter of 2008.

-- Average revenue per click (RPC) for the second quarter of 2008
was approximately $0.08, a decrease from approximately $0.10
in the second quarter of 2007, and a decrease from the first
quarter of 2008 at approximately $0.10. The change reflects a
shift in channels to reach search advertising network
customers.

-- Traffic acquisition costs (TAC) of 61.9% for LookSmart's Ad
Network increased from the 58.1% rate in the second quarter of
2007, and increased from the 61.5% rate in the first quarter
of 2008.

Stock Repurchase Program for LookSmart Common Stock

On February 26, 2008, the Company announced the authorization of a
stock repurchase program pursuant to which up to $5 million of its
outstanding common stock may be repurchased through December 31, 2008.
During the first quarter of 2008 the Company repurchased 801,092
shares of its common stock at an average price of $3.51 per share, for
a total expenditure of approximately $2.8 million. The Company did not
repurchase any additional shares of its common stock during the second
quarter of 2008. As such, the Company currently has $2.2 million
authorized for share repurchase through the open market at the
prevailing market price or in privately negotiated transactions under
this program.

The number of shares of common stock outstanding at the end of the
second quarter of 2008 was 17,035,390.

Conference Call

LookSmart will host a conference call today at 5:00 p.m. ET to
discuss its financial results. To listen to the call from the US, dial
1-800-762-8932; from outside the US, dial 1-480-629-9031. A telephonic
replay of the call will be available until Tuesday, August 12, 2008,
11:59 p.m. ET. To access the replay from the US, dial 1-800-406-7325
and enter passcode 3902941, from outside the US, dial 1-303-590-3030
and enter passcode 3902941. 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 and technology solutions
company that provides performance solutions for online advertisers and
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

When evaluating Adjusted EBITDA, investors should consider, among
other factors, (i) increasing or decreasing trends in Adjusted EBITDA,
and (ii) how Adjusted EBITDA compares to levels of interest expense,
taxes and depreciation and amortization. We provide a reconciliation
of Adjusted EBITDA to GAAP net income (loss).

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Quarter Quarter Quarter
Ended Ended Ended
June 30, March 31, June 30,
2008 2008 2007
('000s) (unaudited) (unaudited) (unaudited)
---------------------------------- ----------- ----------- -----------
Net loss $ (176) $ (488) $(2,068)
Add: taxes 7 7 ---
Less: interest income, net (247) (433) (518)
Add: loss from discontinued
operations 136 307 739
Add: depreciation and amortization 753 755 439
---------------------------------- ----------- ----------- -----------
EBITDA 473 148 (1,408)
Add: stock-based compensation, net 547 1,013 611
---------------------------------- ----------- ----------- -----------
Adjusted EBITDA 1,020 1,161 (797)
*T

Use of Non-GAAP Measures

LookSmart provides non-GAAP financial information to assist
investors in assessing its current and future operations in the way
that LookSmart's management evaluates those operations. Non-GAAP
Adjusted EBITDA is a supplemental measure of LookSmart's performance
that is not required by, and is not presented in accordance with,
generally accepted accounting principles (GAAP). The non-GAAP
information does not substitute for any performance measure derived in
accordance with GAAP. LookSmart believes that this non-GAAP
information provides useful information to investors by excluding the
effect of some non-cash expenses and other amounts that are required
to be recorded under GAAP but that LookSmart believes are not
indicative of LookSmart's cash-based operating results.

LookSmart's management evaluates and makes operating decisions
about its business operations primarily based on revenue and the cash
costs of those business operations (distinct from non-cash costs of
operations). Therefore, management presents the non-GAAP financial
measure Adjusted EBITDA, along with GAAP measures, in this earnings
release by excluding these non-cash items from the period expenses. A
limitation associated with this non-GAAP measure is that it does not
include stock-based compensation expense related to our workforce nor
interest, taxes, depreciation and amortization amounts related to our
business operations. Adjusted EBITDA line items involved in the
adjustment from GAAP to non-GAAP presentation in this earnings release
are the following items that include equity-based compensation charges
(1) operating expenses, research and development; (2) operating
expenses, selling and marketing; and (3) operating expenses, general
and administrative. These items in turn affect (1) total costs and
expenses; (2) operating income/loss; (3) income before income taxes;
(4) net loss, and (5) basic earnings per share.

For the non-GAAP financial measure Adjusted EBITDA, the adjustment
provides management with information about LookSmart's underlying
cash-based operating performance that enables comparison of its
cash-based financial results in different reporting periods.
Additionally, our management uses Adjusted EBITDA as a supplemental
measure in the evaluation of our business, and believes that Adjusted
EBITDA provides visibility into our ability to meet our future capital
expenditures and working capital requirements.

LookSmart's management excludes the impact of equity-based
compensation to eliminate the effects of this non-cash item, which,
because it is based upon estimates on the grant dates, may bear little
resemblance to the actual values realized upon the future exercise,
expiration, termination or forfeiture of the stock-based compensation,
and which, as it relates to stock options and stock purchase plan
shares, is required for GAAP purposes to be estimated under valuation
models, including the Black-Scholes model used by LookSmart.
LookSmart's management also excludes the impact of equity-based
compensation to help it compare current period cash operating expenses
against the operating expenses for prior periods. LookSmart's
management excludes the impact of discontinued operations to help it
compare current profitability from continuing operations against the
profitability of continuing operations for prior periods.

Management uses non-GAAP measures to help it make budgeting
decisions between those expenses that affect operating expenses and
operating margin (such as research and development, sales and
marketing, and general and administrative expenses), and those
expenses that affect cost of revenue and gross margin. Further, the
availability of non-GAAP financial information helps management track
actual performance relative to financial targets, including both
internal targets and publicly announced targets. Making this non-GAAP
financial information available to investors, in addition to the GAAP
information, helps investors compare LookSmart's performance with the
performance of other companies in our industry, which use similar
financial measures to supplement their GAAP financial information.

As stated above, management recognizes that the use of non-GAAP
measures has limitations, including the fact that management must
exercise judgment in determining which types of charges should be
excluded from the non-GAAP financial information. Because other
companies, including companies similar to LookSmart, may calculate
their non-GAAP earnings differently than LookSmart, non-GAAP measures
may have limited usefulness in comparing companies. Management
believes, however, that providing this non-GAAP financial information,
in addition to the GAAP information, facilitates comparison of
LookSmart's financial performance on a cash basis over time. LookSmart
has provided non-GAAP results to the investment community, not as an
alternative but as an important supplement to GAAP information, to
enable investors to evaluate LookSmart's cash-based operating
performance in the same way that management does.

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 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, limitations on or our
inability to retain and grow our ad and customer base, and limitations
on or our inability to enhance our products. Additional risks that
could cause actual results to differ materially from those projected
are discussed in our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2008 and our Annual Report on Form 10-K for the year
ended December 31, 2007, as filed with the Securities and Exchange
Commission. 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.

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Exhibit A
LOOKSMART, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

June 30, December 31,
2008 2007
--------- ------------
ASSETS
---------------------------------------------
Current assets:
Cash and cash equivalents $ 13,321 $ 35,743
Short-term investments 21,101 20,464
--------- ------------

Total cash, cash equivalents and short-
term investments 34,422 56,207
Trade accounts receivable, net 6,125 5,183
Prepaid expenses 709 638
Other current assets 932 1,628
--------- ------------

Total current assets 42,188 63,656
Property and equipment, net 2,934 3,401
Capitalized software and other assets, net 2,175 2,693
Intangible assets, net 319 247
Goodwill 9,810 10,296
Assets held for sale 1,010 --
--------- ------------

Total assets $ 58,436 $ 80,293
========= ============

LIABILITIES & STOCKHOLDERS' EQUITY
---------------------------------------------
Current liabilities:
Trade accounts payable $ 4,327 $ 3,407
Accrued expenses and other accrued
liabilities 5,555 8,437
Deferred revenue and customer deposits 1,800 1,596
Current portion of long term liabilities 1,672 1,621
--------- ------------

Total current liabilities 13,354 15,061
Lease restructuring and other long-term
liabilities, net of current portion 1,756 2,277
--------- ------------

Total liabilities 15,110 17,338
Commitment and contingencies
Stockholders' equity:
Common stock, $0.001 par value; Authorized:
200,000 at June 30, 2008 and December 31,
2007; Issued and Outstanding 17,035 and
22,925 at June 30, 2008 and December 31,
2007, respectively 17 23
Additional paid-in capital 258,021 276,964
Other equity (4) 12
Accumulated deficit (214,708) (214,044)
Treasury stock, at cost --- --
--------- ------------

Total stockholders' equity 43,326 62,955
--------- ------------

Total liabilities and stockholders'
equity $ 58,436 $ 80,293
========= ============
*T

The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of
America.

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LOOKSMART, LTD.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2008 2007 2008 2007
--------- ------- ------- -------
Revenue $17,092 $13,493 $34,636 $25,416
Cost of revenue 10,318 7,330 20,476 14,073
--------- ------- ------- -------

Gross profit 6,774 6,163 14,160 11,343
Operating expenses:
Sales and marketing 1,994 2,223 4,210 4,351
Product development 2,833 2,943 5,738 6,044
General and administrative 2,362 2,918 5,234 5,914

Restructuring costs (135) --- (135 ) ---
Impairment charges --- --- --- ---
--------- ------- ------- -------
Total operating expenses 7,054 8,084 15,047 16,309
--------- ------- ------- -------
Other operating income (loss),
net --- 74 --- (123)
--------- ------- ------- -------

Loss from operations (280) (1,847) (887) (5,089)
Non-operating income, net 247 518 680 1,033
--------- ------- ------- -------

Loss from continuing operations
before income taxes (33) (1,329) (207) (4,056)
Income tax expense (7) -- (14) (6)
--------- ------- ------- -------

Loss from continuing operations (40) (1,329) (221) (4,062)
Income (loss) from discontinued
operations, net of tax (136) (739) (443) (1,431)
--------- ------- ------- -------

Net income (loss) $ (176) $(2,068) $ (664) $(5,493)
========= ======= ======= =======

Net loss per share - Basic and
Diluted
Loss from continuing
operations $ (0.00) $ (0.06) $ (0.01) $ (0.18)
Loss from discontinued
operations, net of tax (0.01) (0.03) (0.03) (0.06)
--------- ------- ------- -------

Net loss per share $ (0.01) $ (0.09) $ (0.04) $ (0.24)
========= ======= ======= =======

Weighted average shares
outstanding used in per share
calculation 16,998 22,900 18,773 22,893
*T

LookSmart, Ltd.
Ted West, Chief Executive Officer and President
415-348-7500
twest@looksmart.net
or
Brian Gibson, Acting Chief Financial Officer
415-348-7207
bgibson@looksmart.net
or
ICR, Inc.
Laura Foster, 310-954-1100
laura.foster@icrinc.com

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