10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2006

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from                      to                     .

Commission File Number: 000-26357

LOOKSMART, LTD.

(Exact Name of Registrant as Specified in its Charter)

Delaware	13-3904355
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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)

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 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨                     Accelerated filer  x                     Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.  Yes ¨  No x

As of May 1, 2006, there were 22,809,937 shares of the registrant’s common stock outstanding.

FORM 10-Q

INDEX

		Page
PART I FINANCIAL INFORMATION
ITEM 1:	Unaudited Condensed Consolidated Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005	3
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2006 and March 31, 2005	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and March 31, 2005	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3:	Quantitative and Qualitative Disclosures About Market Risk	22
ITEM 4:	Controls and Procedures	22
PART II OTHER INFORMATION
ITEM 1:	Legal Proceedings	23
ITEM1A:	Risk Factors	24
ITEM 5:	Other Information	31
ITEM 6:	Exhibits	31
ITEM 7:	Signature	32
EXHIBIT INDEX		33

2

PART I — FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LOOKSMART, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	March 31, 2006			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	30,106		$	33,436
Short-term investments		14,818			17,871
Total cash, cash equivalents and short-term investments		44,924			51,307
Trade accounts receivable, net of allowance for doubtful accounts of $256 at March 31, 2006 and $240 at December 31, 2005 and allowance for returns of $10 at March 31, 2006 and $14 at December 31, 2005		3,235			2,781
Prepaid expenses		603			443
Other current assets		558			569
Total current assets		49,320			55,100
Long-term investments		996			—
Property and equipment, net		5,466			5,503
Security deposits and other assets, net		2,877			2,464
Intangible assets, net		4,920			5,519
Goodwill		14,422			14,422
Total assets	$	78,001		$	83,008
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		1,698			1,629
Accrued expenses and other current liabilities		4,613			4,865
Deferred revenue and customer deposits		1,807			2,047
Current portion of long-term liabilities		1,498			1,530
Total current liabilities		9,616			10,071
Long-term debt, net of current portion		170			184
Other long-term liabilities, net of current portion		3,929			4,302
Total liabilities		13,715			14,557
Commitments and contingencies (Note 5)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; Authorized: 5,000 at March 31, 2006 and December 31, 2005; Issued and Outstanding: none at March 31, 2006 and December 31, 2005		—			—
Common stock, $0.001 par value; Authorized: 200,000 at March 31, 2006 and December 31, 2005; Issued and Outstanding: 22,921 and 22,912 at March 31, 2006 and December 31, 2005, respectively		23			23
Additional paid-in capital		272,173			271,851
Other equity		418			386
Accumulated deficit		(208,328	)		(203,809	)
Total stockholders’ equity		64,286			68,451
Total liabilities and stockholders’ equity	$	78,001		$	83,008

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

3

LOOKSMART, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2006			2005
Revenue	$	10,543		$	12,001
Cost of revenue		7,088			8,292
Gross profit		3,455			3,709
Operating expenses:
Sales and marketing		1,742			1,635
Product development		4,282			4,765
General and administrative		2,428			2,182
Restructuring charges		—			25
Total operating expenses		8,452			8,607
Loss from operations		(4,997	)		(4,898	)
Non-operating income, net		489			478
Loss from continuing operations before income taxes		(4,508	)		(4,420	)
Income tax expense		(11	)		(2	)
Loss from continuing operations		(4,519	)		(4,422	)
Gain from discontinued operations, net of tax		—			82
Net loss		(4,519	)		(4,340	)
Other comprehensive loss:
Change in unrealized gain (loss) on securities during the period		31			(77	)
Comprehensive loss		(4,488	)		(4,417	)
Basic and diluted net loss per common share:
Loss from continuing operations	$	(0.20	)	$	(0.19	)
Gain from discontinued operations, net of tax		—			—
Net loss	$	(0.20	)	$	(0.19	)
Weighted average shares outstanding used in per share calculation		22,804			22,748

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

4

LOOKSMART, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,519	)	$	(4,340	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,778			2,011
Share-based compensation		295			(23	)
Loss from sale of assets and other non-cash charges		43			53
Changes in operating assets and liabilities:
Trade accounts receivable, net		(454	)		1,940
Prepaid expenses		(160	)		139
Other assets		(111	)		288
Trade accounts payable		68			403
Accrued expenses and other current liabilities		(654	)		(1,309	)
Deferred revenue and customer deposits		(239	)		(129	)
Net cash used in operating activities		(3,953	)		(967	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments		(1,996	)		(3,731	)
Maturities of investments		4,041			1,881
Proceeds from sale of investments		—			5,000
Payments for property, equipment and capitalized software development		(1,434	)		(231	)
Net cash provided by investing activities		611			2,919
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes		(14	)		(12	)
Proceeds upon exercise of stock options		26			24
Net cash provided by financing activities		12			12
Increase (decrease) in cash and cash equivalents		(3,330	)		1,964
Cash and cash equivalents, beginning of period		33,436			43,262
Cash and cash equivalents, end of period	$	30,106		$	45,226

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

5

LOOKSMART, LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Principles of Consolidation

LookSmart is an online media and technology company specializing in vertical search. The Company, a Delaware corporation, was incorporated in 1996.

The unaudited Condensed Consolidated Financial Statements as of March 31, 2006 and for the three months ended March 31, 2006 include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying unaudited Condensed Consolidated Financial Statements as of March 31, 2006 and for the three months ended March 31, 2006 reflect all adjustments that are normal and recurring in nature and, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The unaudited Condensed Consolidated Balance Sheet as of December 31, 2005 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financials statements. The results of operations for the interim period ended March 31, 2006 are not necessarily indicative of results to be expected for the full year.

Use of Estimates and Assumptions

The unaudited Condensed Consolidated 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, revenue, expenses, and contingent assets and liabilities during the reporting period. The Company bases its estimates on various factors and information which may include, but are not limited to, history and prior experience, experience of other enterprises in the same industry, new related events, current economic conditions and information from third party professionals that is believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Reclassifications

Certain prior periods’ balances have been reclassified to conform to the current year’s presentation. These reclassifications did not materially change the previously reported net loss, cash flows and stockholders’ equity.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk comprise all or portions of cash equivalents, short-term investments, long-term investments and accounts receivable. As of March 31, 2006 and December 31, 2005, substantially all of the Company’s cash, cash equivalents and investments were managed by one financial institution. The fair value of these investments is subject to fluctuation based on market prices.

Credit Risk Evaluation

Accounts receivable are typically unsecured and are derived from revenue earned from customers. The Company performs ongoing credit evaluations of its customers and maintains allowances for estimated credit losses. The Company applies judgment as to its ability to collect outstanding receivables based primarily on management’s evaluation of the customer’s financial condition and past collection history and records a specific allowance. In addition, the Company records an allowance based on the length of time the accounts receivables are past due. Historically, such losses have been within management’s expectations. As of March 31, 2006, one customer accounted for 36% of accounts receivable. As of March 31, 2005, no one customer accounted for 10 percent or more of accounts receivable.

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Revenue Concentrations

The Company derived the following percentages of its revenue primarily from its relationship with significant distribution network partners, as well as customers:

	Three months ended March 31,
	2006		2005
Company 1	21	%	6	%
Company 2	12	%	22	%
Company 3	11	%	3	%
Company 4	2	%	16	%

Share-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values. SFAS 123R supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R.

The Company adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of the Company’s fiscal year 2006. The Company’s unaudited Condensed Consolidated Financial Statements as of March 31, 2006 and for the three months ended March 31, 2006 reflect the impact of SFAS 123R. In accordance with the modified prospective transition method, the Company’s unaudited Condensed Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Share-based compensation expense recognized under SFAS 123R for the three months ended March 31, 2006 was approximately $0.3 million, which was related to stock options and employee stock purchases. In connection with the grant of certain stock options to employees and members of the Board of Directors and in connection with certain acquisitions, the Company recorded a share-based compensation benefit under APB No. 25 of approximately $23,000 during the three months ended March 31, 2005.

SFAS 123R requires companies to estimate the fair value of share-based payment awards on the grant date using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s unaudited Condensed Consolidated Statements of Operations over the requisite service periods. Prior to the adoption of SFAS 123R, the Company accounted for share-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under SFAS 123. Under the intrinsic value method, no share-based compensation expense related to stock options had been recognized in the Company’s unaudited Condensed Consolidated Statements of Operations, other than as related to acquisitions and investments, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the grant date.

Share-based compensation expense recognized during the current period is based on the value of the portion of share-based payment awards that is ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant in order to estimate the amount of share-based awards that will ultimately vest. The forfeiture rate is based on historical rates. Share-based compensation expense recognized in the Company’s unaudited Condensed Consolidated Statements of Operations for the first quarter of fiscal 2006 includes (i) compensation expense for share-based payment awards granted prior to, but not yet fully vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the pro forma provisions of SFAS 123 and (ii) compensation expense for the share-based payment awards granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

Upon adoption of SFAS 123R, the Company continued its use of the Black-Scholes method of valuation for share-based awards granted beginning in fiscal 2006, which was previously used for the Company’s pro forma information required under SFAS 123.

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. SFAS 123R-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and unaudited Condensed Consolidated Statements of Cash Flows of the tax effects of employee share-based compensation awards that are outstanding upon adoption of SFAS 123R. The Company is in the process of evaluating whether to adopt the provisions of SFAS 123R-3.

Segment Information

As of March 31, 2006 and December 31, 2005, all of the Company’s accounts receivable, intangible assets, goodwill and deferred revenue related to the online advertising segment. All of the Company’s revenue included in continuing operations was generated in the United States. See Note 7 (Discontinued Operations) regarding foreign revenue reported as discontinued operations. All long-lived assets are located in the United States.

7

Recently Issued Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 154 Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). SFAS 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes (“APB 20”) and Statement of Financial Accounting Standards No. 3, Reporting Accounting Changes in Interim Financial Statements (“SFAS 3”), and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted SFAS 154 effective in fiscal 2006 and such adoption is not expected to have a material effect on the Company’s consolidated financial statements.

2. GOODWILL AND INTANGIBLE ASSETS

The Company’s intangible assets consist primarily of purchased technology and have estimated useful lives of two to seven years. Goodwill and intangible assets are as follows (in thousands):

	March 31, 2006			December 31, 2005
Goodwill	$	14,422		$	14,422
Intangible assets:
Purchased technology	$	10,179		$	10,179
Less accumulated amortization		(6,711	)		(6,365	)
Net purchased technology		3,468			3,814
Trade names		1,743			1,743
Less accumulated amortization		(617	)		(516	)
Net trade names		1,126			1,227
Other intangibles		2,170			2,170
Less accumulated amortization		(1,844	)		(1,692	)
Net other intangibles		326			478
Intangible assets, net	$	4,920		$	5,519

Intangible asset amortization expense was $0.6 million and $0.6 million, for the three months ended March 31, 2006 and 2005, respectively, and was recorded primarily in product development costs.

Estimated future intangible amortization expense is as follows (in thousands):

Period	Estimated Remaining Amortization of Intangibles
Nine months ended December 31, 2006	$	1,567
Fiscal years ending December 31:
2007		1,744
2008		1,236
2009		344
Thereafter		29
	$	4,920

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3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following (in thousands):

	March 31, 2006		December 31, 2005
Accrued compensation and related expenses	$	1,144	$	1,487
Accrued distribution and partner costs		2,222		1,936
Accrued professional services		645		723
Customer refunds		120		82
Accrued equipment purchases		141		343
Other		341		294
Total accrued liabilities	$	4,613	$	4,865

4. RESTRUCTURING CHARGES

In connection with employee severance restructuring activities, the Company closed certain leased facilities and incurred lease restructuring costs related to closing these facilities during 2005. These costs are classified as restructuring charges on the unaudited Condensed Consolidated Statements of Operations, and are included in operating expenses.

During the first half of 2005, the Company had limited success in subleasing its unused space since the establishment of the restructuring liability, and modified its original estimates. This resulted in additional restructuring charges of $1.9 million in the second quarter of 2005, reflecting the reduced probability of subleasing the available space. However in October 2005, the Company and one of its sublessees executed a letter of intent to sublease an additional portion of the unused space, which resulted in a reduction of the restructuring liability by $0.3 million was recorded in the third quarter of 2005. A further reduction of the restructuring liability by $0.6 million was recorded in the fourth quarter of 2005 based on an executed letter of intent. The lease restructuring liability is amortized using the interest method through the life of the lease, which terminates in 2009.

As of March 31, 2006 and December 31, 2005, the lease restructuring liability was $5.1 million and $5.4 million, respectively. Of this amount, $1.2 million and $1.2 million was included in current portion of long-term liabilities as of March 31, 2006 and December 31, 2005, respectively. Further, $3.9 million and $4.2 million was included in other long-term liabilities on the unaudited Condensed Consolidated Balance Sheet as of March 31, 2006 and December 31, 2005, respectively.

The Company does not currently expect to incur significant further restructuring charges or receive additional benefits related to closing redundant leased facilities in 2006 as it has sublet most of its unused space.

The following table sets forth restructuring activity during the periods ended March 31, 2006 and December 31, 2005 (in thousands):

	Lease Restructuring Costs
Balance at December 31, 2004	$	5,662
Additional restructuring costs		1,024
Amortization of lease restructuring costs		(1,288	)
Balance at December 31, 2005		5,398
Additional restructuring costs		—
Amortization of lease restructuring costs		(330	)
Balance at March 31, 2006	$	5,068

5. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space under a non-terminable operating lease that expires in 2009.

Future minimum payments under all operating leases and minimum sublease rental income, at March 31, 2006 are as follows (in thousands):

Period	Operating Leases		Minimum Sublease Rental Income
Nine months ended December 31, 2006	$	3,464	$	570
Fiscal years ending December 31:
2007		4,684		664
2008		4,751		703
2009		4,412		595
Total	$	17,311	$	2,532

9

The Company has outstanding standby letters of credit (“SBLC”) related to security of its building lease and security for payroll processing services of $1.3 million at March 31, 2006. The SBLC contains four financial covenants. As of March 31, 2006, the Company was in compliance with all required covenants.

Guarantees and Indemnities

During its normal course of business, the Company has made certain guarantees, indemnities and commitments under which it may be required to make payments in relation to certain transactions. These indemnities include intellectual property and other indemnities to the Company’s customers and distribution network partners in connection with the sales of its products, and indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease. Further, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving, at the Company’s request, in such capacity, to the maximum extent permitted under the laws of the State of Delaware. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company maintains directors and officers insurance coverage that may contribute, up to certain limits, a portion of any future amounts paid for indemnification of directors and officers. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. Historically, the Company has not incurred any losses or recorded any liabilities related to performance under these types of indemnities.

Legal Proceedings

The Company is involved, from time to time, in various legal proceedings arising from the normal course of business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not expect resolution of these matters to have a material adverse impact on its consolidated results of operations, cash flows or financial position. However, an unfavorable resolution of a matter could, depending on its amount and timing, materially affect its future results of operations, cash flows or financial position in a future period. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors.

Cisneros v. Yahoo! Inc

On August 3, 2004, Mario Cisneros and Michael Voight filed a private attorney general lawsuit on behalf of a proposed class in Superior Court in San Francisco County, California. The complaint names thirteen search engines or Web publishers as defendants, including the Company, and alleges unfair business practices, unlawful business practices, and other causes of action in connection with the display of advertisements from Internet gambling companies. The complaint seeks restitution, unspecified compensatory damages, declaratory and injunctive relief, and attorneys’ fees. Plaintiffs also filed a motion for preliminary injunction on August 3, 2004.

On January 3, 2005, the Company filed a demurrer to the complaint, which was overruled on January 27, 2005. On January 3, 2005, the Company also filed a motion to strike certain allegations regarding claims for restitution, which was denied in part and granted in part on May 9, 2005. The Company filed an answer to the complaint on February 28, 2005, consisting of a general denial of all allegations. On October 11, 2005, the court conducted a trail on two of the Company’s affirmative defenses. The court held that California public policy bars the plaintiffs from receiving a portion of their requested damages.

On December 2, 2005, plaintiffs filed a renewed motion for a preliminary injunction. The Company filed its response on February 27, 2005. The Court has not yet scheduled a hearing for plaintiffs’ renewed motion. The court has allowed certain discovery to proceed with respect to plaintiffs’ renewed motion. On or about April 3, 2006, plaintiffs filed a Motion to Amend their Complaint to Add Additional Plaintiffs. The Defendants filed their Opposition to the Motion on May 1, 2006 and a hearing has been scheduled for May 23, 2006.

At this point in time, the Company does not have sufficient information to assess the validity of the complaint or the amount of potential damages.

Lane’s Gifts and Collectibles, L.L.C., v. Yahoo! Inc

On March 14, 2005 the Company was served with the second amended complaint in a class action lawsuit in the Circuit Court of Miller County, Arkansas. The complaint names eleven search engines and Web publishers as defendants, including the Company, and alleges breach of contract, restitution/unjust enrichment/money had and received, and civil conspiracy claims in connection with contracts allegedly entered into with plaintiffs for Internet pay-per-click advertising. The named plaintiffs on the second amended complaint are Lane’s Gifts and Collectibles, L.L.C., U.S. Citizens for Fair Credit Card Terms, Inc., Savings 4 Merchants, Inc., and Max Caulfield d/b/a Caulfield Investigations.

10

On March 30, 2005 the case was removed to United States District Court for the Western District of Arkansas. On April 4, 2005 plaintiffs U.S. Citizens for Fair Credit Card Terms, Inc. and Savings 4 Merchants, Inc. filed a motion of voluntary dismissal without prejudice. The motion was granted on April 7, 2005. Plaintiffs Lane’s Gifts and Collectibles, L.L.C. and Max Caulfield d/b/a Caulfield Investigations filed a motion to remand the case to state court on April 13, 2005, which was granted in June 2005. In July 2005, defendants, including the Company, petitioned the Eighth Circuit Court of Appeals for an appeal of the remand order, and moved to stay the proceedings while the appeal is pending. The petition was denied on September 8, 2005 and the case was remanded to the Circuit Court of Miller County, Arkansas. The Company was served with discovery requests on October 7, 2005. The Company has filed and/or joined motions to dismiss on the basis of failure to state a claim upon which relief can be granted, lack of personal jurisdiction, and improper venue. Pursuant to the court’s initial scheduling order, plaintiffs had until January 27, 2006 to respond to the motions to dismiss for lack of personal jurisdiction and improper venue; and until June 9, 2006 to respond to the motion to dismiss on the basis of failure to state a claim upon which relief can be granted. However the court entered an order staying all proceedings for a period of 60 days on January 9, 2006. On March 8, 2006, the Court entered an order extending the stay until March 31, 2006. On April 1, 2006, the Court further extended the stay until April 20, 2006. On April 20, 2006 the Court preliminarily approved a class settlement among plaintiffs, defendant Google, Inc., and certain defendants who display Google advertisements on their Networks. The class settlement purports to release Google of all claims and also purports to release certain defendants, including the Company, for any claims associated with the display of Google advertisements on their networks. The Court scheduled a final settlement hearing date for July 24 and 25, 2006. On April 21, 2006, the Court ordered the remaining defendants, including the Company, to mediation and further stayed the proceedings to June 21, 2006 at which time the defendants are to report back to the Court regarding their progress at mediation.

At this point in time, the Company does not have sufficient information to assess the validity of the complaint or the amount of potential damages.

JV Funding

Pursuant to the settlement agreement with British Telecommunications (“BT”) for the dissolution of the joint venture, LookSmart and BT are jointly liable for the costs incurred to shut down operations of the joint venture. The Company does not expect to incur significant additional expenses to shut down the joint venture.

6. SHARE-BASED COMPENSATION

For the three months ended March 31, 2005, the following table illustrates the effect on net loss and net loss per share as if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (“SFAS 148”), to share-based employee compensation (in thousands, except per share data):

	Three Months Ended March 31, 2005
Net loss as reported	$	(4,340	)
Add: Share-based employee compensation benefit included in reported net loss, net of related tax effects		(23	)
Deduct: Total share-based employee compensation expense determined under fair value method for all awards, net of tax		(569	)
Pro forma net loss	$	(4,932	)
Net loss per share:
As reported	$	(0.19	)
Pro forma	$	(0.23	)

For the three months ended March 31, 2005, the Company used the Black-Scholes option-pricing model to estimate the pro forma fair value of option grants using the following weighted average assumptions: volatility 113%; risk-free interest rate 4.2%; expected term 4.0 years; expected dividend yield 0%.

The effect on net loss and net loss per share from the adoption of SFAS 123R on the first quarter of fiscal year 2006 is as follows:

	Three Months Ended March 31, 2006
Share-based compensation expense by award type:
Employee stock options	$	285
Employee stock purchase plan		10
Total share-based compensation	$	295
Effect on net loss	$	(295	)
Effect on basic and diluted net loss per common share:
Basic	$	(0.01	)
Diluted	$	(0.01	)

The adoption of SFAS 123R did not have a material impact on income tax expense or cash flows.

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Share-based compensation expense recorded during the first quarter of fiscal year 2006 has been included in the Company’s unaudited Condensed Consolidated Statement of Operations as follows (in thousands):

	Three Months Ended March 31, 2006
Cost of revenue	$	1
Sales and marketing		26
Product development		70
General and administrative		198
Total share-based compensation	$	295

The Company accounts for employee stock options under SFAS 123R and related interpretations. For the three months ended March 31, 2006, the Company recorded stock based compensation expense of approximately $0.3 million. Of that amount, approximately $10,000 was capitalized related to the development of internal-use software in accordance with SOP 98-1.

Valuation Assumptions

As share-based compensation expense recognized in the unaudited Condensed Consolidated Statement of Operations for the first fiscal quarter of 2006 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.

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For the three months ended March 31, 2006, the fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Employee stock options:
Volatility	92.1	%
Risk-free interest rate	4.8	%
Expected term (years)	3.6
Expected dividend yield	—
Annual forfeiture rate	11.4	%
Employee stock purchase plan:
Volatility	92.0	%
Risk-free interest rate	4.8	%
Expected term (years)	0.5
Expected dividend yield	—
Annual forfeiture rate	0.0	%

Volatility: The volatility factor was based on the Company’s historical stock prices over the most recent period commensurate with the estimated expected term of the stock options.

Risk-Free Interest Rate: The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term.

Expected Term: The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Expected Dividend: The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company has not issued any dividends, and does not expect to issue dividends in the foreseeable future.

Annual Forfeiture Rate: When estimating pre-vesting forfeitures, the Company considers voluntary termination behavior as well as potential future workforce reduction programs.

The weighted average grant-date fair value of options granted in the three months ended March 31, 2006 was $2.99.

The aggregate intrinsic value of options exercised in the three months ended March 31, 2006 was approximately $15,000. The Company issues new shares of common stock upon exercise of stock options. No income tax benefits have been realized from exercised stock options.

Total unrecognized share-based compensation expense was approximately $3.3 million as of March 31, 2006, and the weighted average period over which it is expected to be recognized is 1.7 years.

Stock Option Plans

In December 1997, the Company approved the 1998 Stock Option Plan (the “Plan”). In October 2000, the Company acquired Zeal and assumed all the stock options outstanding under the 1999 Zeal Media, Inc. Stock Plan (the “Zeal Plan”). In April 2002, the Company acquired WiseNut, Inc. and assumed all the stock options outstanding under the WiseNut, Inc. 1999 Stock Incentive Plan (the “WiseNut Plan”). The Company has reserved 4,148,990, and 4,177,410 shares of common stock for issuance under its stock option plans at March 31, 2006 and 2005, respectively. Outstanding stock options generally become exercisable over a three or four year period from the grant date and have a term of ten years. Under the Plan, the Company may grant incentive stock options, nonqualified stock options and stock purchase rights to employees, directors and consultants.

As of March 31, 2006, 2,907,051 options were outstanding and 1,241,872 shares remained available for grant under the Company’s plans.

Stock option activity under the plans during the periods indicated is as follows (in thousands, except per share data):

	Outstanding Options Number of Shares		Weighted Average Exercise Price Per Share
Balance at December 31, 2004	1,965		$	10.15
Granted	932			3.81
Exercised	(27	)		3.45
Expired/forfeited	(1,046	)		9.42
Balance at December 31, 2005	1,824		$	7.31
Granted	1,267			4.62
Exercised	(9	)		3.23
Expired/forfeited	(175	)		7.54
Balance at March 31, 2006	2,907		$	6.13

The following table summarizes information about stock options outstanding at March 31, 2006 (in thousands, except per share data):

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number Exercisable	Weighted Average Exercise Price		Aggregate Intrinsic Value
$1.25–$4.60	677	9.43	$	3.55	$	1,239	182	$	3.46	$	349
$4.61–$4.61	1,231	9.93		4.61		948	—		—		—
$4.70–$10.40	695	8.59		8.10		13	343		7.69		9
$10.55–$85.31	304	8.19		13.59		—	212		14.07		—
$1.25–$85.31	2,907	9.53	$	6.13	$	2,200	737	$	8.49	$	358

Aggregate intrinsic value represents the total pretax intrinsic value, based on the Company’s closing stock price on March 31, 2006 ($5.38), which would have been received by option holders had all option holders exercised their options on that date.

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As of March 31, 2005, there were 1,824,145 options outstanding and 834,315 options exercisable.

Employee Stock Purchase Plan

In July 1999, the stockholders approved the 1999 Employee Stock Purchase Plan (the “ESPP Plan”). At March 31, 2006, a total of 440,000 shares of common stock were reserved for issuance under the ESPP Plan, plus annual increases at the Board’s discretion effective on January 1 of each year, beginning in 2000. As of March 31, 2006, 396,001 shares have been issued under the ESPP Plan and 43,999 shares remain available for issuance.

7. DISCONTINUED OPERATIONS

In January 2004, the Company agreed to sell certain assets and related intellectual property rights of its Australian, Japanese and United Kingdom subsidiaries.

As the Company finalizes the liquidation process of its Australian subsidiary, it expects to record additional income related to the reversal of the cumulative translation adjustment of approximately $0.5 million in 2006.

Revenue and pretax net loss from the discontinued international operations (excluding gain on disposal), previously included in the online advertising segment of the business, reported in discontinued operations were as follows (in thousands):

	Three Months Ended March 31,
	2006		2005
Revenue	$	—	$	—
Pretax net loss (excluding gain on disposal)		—		—
Tax benefit		—		67
Gain on disposal		—		15
Net gain from discontinued operations	$	—	$	82

8. NET LOSS PER SHARE

In accordance with the requirements of Statement of Financial Accounting Standards No. 128, Earnings per Share (“SFAS 128”), a reconciliation of the numerator and denominator of basic and diluted net loss per share is provided as follows (in thousands, except per share amounts):

	Three Months Ended March 31,
	2006			2005
Numerator-Basic and diluted:
Net loss	$	(4,519	)	$	(4,340	)
Denominator:
Weighted average common shares outstanding:
Shares used to compute basic net loss per share		22,804			22,748
Dilutive potential common shares		—			—
Shares used to compute diluted net loss per share		22,804			22,748
Net loss per share:
Basic	$	(0.20	)	$	(0.19	)
Diluted	$	(0.20	)	$	(0.19	)

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Options and warrants to purchase common stock are not included in the diluted loss per share calculations if their effect is antidilutive. The antidilutive securities included potential common stock relating to stock options for the three months ended March 31, 2006 and 2005 were 32,308 and 38,191, respectively.

For the three months ended March 31, 2006 and 2005, 998,406 and 1,629,498 respectively, potential common shares related to outstanding stock options and warrants have been excluded from the calculation of diluted net income (loss) per share as their respective exercise prices were more than the average market value for the respective periods.

9. RELATED PARTY TRANSACTIONS

The Company has a related party receivable from the BT LookSmart joint venture. The investment balance at March 31, 2006 is approximately $0.3 million, which reflects the estimated value upon final liquidation of the joint venture.

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

The following discussion should be read in conjunction with the unaudited Condensed 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. Discussions containing forward-looking statements may be found in the material set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of the report. All forward-looking statements, including, but not limited to, projections, expectations 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 gross margins and operating results, anticipated levels of restructuring charges, cost savings, product development efforts, general outlook of our business and industry, future profits or losses, opportunities abroad, competitive position, share-based compensation, and adequate liquidity to fund our operations and meet our other cash requirements, 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. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including our ability to achieve or maintain net profitability in future quarters, our ability to expand and diversify our network of distribution partners, the success of our online advertising business, and all other risks described below in the section entitled “Risk Factors” and elsewhere in this report. All forward-looking statements in this report 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.

All share and per share information provided in this Quarterly Report is presented giving effect to the one-for-five reverse stock split of our common stock effected on October 26, 2005.

BUSINESS OVERVIEW

LookSmart is an online media and technology company specializing in vertical search. We provide relevant content, advertising and technology solutions for consumers, advertisers and publishers. Our owned-and-operated vertical search sites are where consumers look for what they need. Our sites and web tools offer search results with the ability to find, save and share resources from and links to websites and online publishers. In addition to owned-and-operated properties, LookSmart’s distribution network includes selected, monitored, syndicated publishers and search engine partners who improve advertiser return on investment. We also offer a comprehensive and customizable set of syndicated solutions for publishers to grow their advertiser relationships and audience.

We operate 181 vertical search sites in 13 categories, delivering consumers relevant search results and advertisers a more qualified customer. For each vertical category, we developed an array of niche sites. For example, our Health web sites include topics such as: alternative medicines, pregnancy, sports medicine diseases, fitness and more. Content found through our vertical search sites is freely

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accessible and from a wide variety of sources, including online publishers, print-based magazines, directories, specialized listings, and unique references related to the subject areas.

Within each vertical site there are specific recommended searches. However, the sites help consumers see core results and then search or browse for more. In addition, there are specific ways to save and share what consumers have searched for, using Furl.net (our proprietary technology) functionality embedded in the site navigational elements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial condition and results of operations are based upon certain critical accounting policies, which include estimates, assumptions, and judgments on the part of management. The Company bases its estimates on various factors and information which may included, but are not limited to, history and prior experience, experience of other enterprises in the same industry, new related events, current economic conditions and information from third party professionals that is believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying of values of assets and liabilities that are not readily apparent from other sources. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Actual results may differ from those estimates. The following discussion highlights those policies and the underlying estimates and assumptions, which we consider critical to an understanding of the financial information in this report.

Revenue Recognition

Online Advertising

Prior to 2005, online advertising revenue was captioned as listings revenue in our unaudited Condensed Consolidated Statements of Operations. Our online advertising revenue is primarily composed of per-click fees that we charge customers. Customers set the per-click fee charged for inclusion-targeted listings when their account is established. The per-click fee charged for keyword-targeted listings is calculated based on the results of online bidding for keywords or page content, up to a maximum cost per keyword or page content set by the customer.

Revenue associated with online advertising products, including LookListings, FindArticles, our vertical search sites, and banner advertisements are generally recognized once collectibility is established, delivery of services has occurred, all performance obligations have been satisfied, and no refund obligations exist. We pay distribution network partners based on clicks on the advertiser’s online advertising products that are displayed on the websites of these distribution network partners. These payments are called traffic acquisition costs and are included in cost of revenue. In accordance with Emerging Issues Task Force Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent (“EITF 99-19”), the revenue derived from these arrangements that involve traffic supplied by distribution network partners is reported gross of the payment to the distribution network partners. This revenue is reported gross due to the fact that we are the primary obligor to the advertisers who are the customers of the advertising service.

Affiliate revenue is included in online advertising revenue and is 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 revenue when Internet consumers 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 sales rather than a per-click basis. Revenue is recognized in the period in which a merchant finalizes a sale and reports to us via our affiliate network.

We also enter into agreements to provide private-labeled versions of our products, including the Ad Center and Furl product. These arrangements include multiple elements such as upfront fees, license fees, and revenue-sharing based on the publishers’ customer’s monthly revenue. We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (“SAB 104”), and Financial Accounting Standards Board Emerging Issues Task Force No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). We recognize upfront fees over the term of the arrangement or the expected period of performance, license fees over the term of the license, and revenue-sharing portions over the period in which such revenue is earned. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectibility of the resulting receivable is reasonably assured.

We provide a provision against revenue for estimated reductions resulting from billing adjustments and product returns. The amounts of these provisions are evaluated periodically based upon customer experience and historical trends.

We also recognize revenue from the sale of our Net Nanny software product. Software revenue is recognized upon shipment, provided pervasive evidence of arrangement exists, price is fixed and determinable, collection is determined to be probable and no significant obligations remain on our part. Revenue from distributors is subject to agreements allowing certain rights of return. Accordingly, recognized revenue is reduced by estimated future returns at the time the related revenue is recorded. The estimates for returns are adjusted periodically based upon historical rates of returns, inventory levels in the distribution channel and other related factors. We record royalties when distribution network partners ship products incorporating our software, provided collection of such

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revenue is deemed probable. We provide a provision against revenue for estimated reductions resulting from billing adjustments and product returns. The amounts of these provisions are evaluated periodically based upon customer experience and historical trends. Revenue for products sold on a subscription basis is recognized ratably over the subscription period.

Deferred revenue is recorded when payments are received in advance of performance in underlying agreements. Customer deposits are recorded when customers make prepayments for online advertising.

Allowance for Doubtful Accounts

Determination of collectibility of payments requires significant judgment on the part of management and includes performing initial and ongoing credit evaluations of customers. We maintain 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. We will record a reduction of our allowance for doubtful accounts if there is a significant improvement in collection rates or economic conditions are more favorable than we anticipated. Additional allowances for doubtful accounts may be required if there is deterioration in past due balances, if economic conditions are less favorable than we anticipated or for customer-specific circumstances, such as bankruptcy. Management’s judgment is required in the periodic review of whether a provision or reversal is warranted.

Valuation of 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, fair value and recoverability of these assets. The majority of intangible assets are amortized over three to seven years, the period of expected benefit. Goodwill is not amortized. In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), we periodically re-assess the valuation and asset lives 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 annually and as a result of any event that significantly changes our business.

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. We regularly review our deferred tax assets for recoverability and establish 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.

Internal Use Software Development Costs

We account 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, we have 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’s 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 costs in accordance with SOP 98-1.

Restructuring Charges

We have recorded a restructuring accrual related to closing certain leased facilities in accordance with Statement of Financial Accounting Standard No. 146, Accounting for Costs Associated with Exit or Disposal of Activities (“SFAS 146”). Management’s judgment is required in estimating when the redundant facilities will be subleased and at what rate they will be subleased.

Shared-Based Compensation

On January 1, 2006, the Company adopted SFAS 123R, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan (“employee stock purchases”) based on estimated fair values. SFAS 123R supersedes the Company’s previous accounting under APB No. 25 for periods beginning in fiscal 2006. In March 2005, the SEC issued SAB 107 relating to SFAS 123R. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R.

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Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 1 (Summary of Significant Accounting Policies) in the Notes to the Unaudited Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

Overview of the Quarter Ended March 31, 2006

During the first quarter of 2006 we continued to focus on the following primary operating priorities:

• Improving our ad network. Total paid clicks for the first quarter of 2006 were 74 million compared to 83 million in the first quarter of 2005. In the first quarter of 2006, our average revenue per click (“RPC”) was $0.12 per click compared to $0.14 per click in the first quarter of 2005. This decrease is attributable to our adding “run of site” advertising products in the second half of 2005.

• Developing syndicated solutions for publishers. We continued focusing on our private-labeled Ad Center, providing web search and search of a publisher’s own archived content, and a tailored version of our Furl online book marking system for publishers. During the quarter, we generated revenue under agreements with several major companies. We added one new customer during the first quarter.

• Focusing on our vertical search business. We are leveraging our core expertise in directories, database structures, algorithmic searches and communities by integrating Furl and other LookSmart technologies to provide a compelling environment for both customers and advertisers. We operate 181 vertical search sites in 13 different categories.

Substantially all of our revenue is derived via online advertising either on a pay per click or pay per impression basis.

Revenue

	Three months ended March 31,
(in thousands)	2006		Change		2005
Revenue	$	10,543	-12	%	$	12,001

Revenue in the first quarter of 2006 decreased compared to the first quarter of 2005 primarily due to the elimination of certain network distribution partners in connection with our efforts to improve the quality standard of our distributed advertising network. Total paid clicks for our online advertising revenue declined 11% in the first quarter of 2006 compared to the first quarter of 2005. Overall average RPC declined 14% over the same period. Increased revenue from publisher services solutions, which began in the third quarter of 2005, offset a portion of the decline in revenue described above.

Revenue for the second quarter of 2006 is expected to increase by 6-8% over the first quarter as we continue to focus on growing online advertising revenue from our ad network, consumer owned-and-operated sites and publisher services assets.

Cost of Revenue

	Three months ended March 31,
(in thousands)	2006			Change		2005
Traffic acquisition costs	$	5,550		-15	%	$	6,560
Percentage of ad network revenue		66	%				59	%
Content costs		366		246	%		149
Other costs of revenue		1,172		-26	%		1,583
Total cost of revenue	$	7,088		-15	%	$	8,292
Percentage of total revenue		67	%				69	%

Traffic acquisition costs, the costs paid to our distribution network partners, decreased in the first quarter of 2006 compared to the first quarter of 2005, which coincides with our decrease in online advertising revenue. We expect traffic acquisition costs as a percent of ad network revenue to remain within 63-66% in the second quarter of 2006 as we continue optimizing our distribution network and focusing on higher converting traffic.

Content costs represent amounts paid to license searchable content and search results that are displayed on our network of owned-and-operated sites. Content costs increased in the first quarter of 2006 compared to the first quarter of 2005 due to increased costs associated with the launch of our vertical search sites in the third quarter of 2005.

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Other costs of revenue consist of connectivity costs, personnel costs of our operations employees, including share-based compensation, equipment depreciation, expenses relating to hosting advertising operations, commissions paid to advertising agencies and amortization of intangible assets. These costs decreased in the first quarter of 2006 compared to the first quarter of 2005 due to a reduction in connectivity costs.

Operating Expenses

Sales and Marketing

	Three months ended March 31,
(in thousands)	2006			Change		2005
Sales and marketing	$	1,742		7	%	$	1,635
Percentage of total revenue		17	%				14	%

Sales and marketing expenses include salaries, commissions, share-based compensation and other costs of employment for our sales force, sales administration, customer service staff and marketing personnel, overhead, facilities, an allocation of depreciation and the provision for and reductions of the allowance for doubtful trade receivables. Sales and marketing expenses also include the costs of advertising, trade show, public relations and various other activities supporting our customer acquisition efforts.

Sales and marketing expenses in the first quarter of 2006 increased compared to the first quarter of 2005 primarily due to higher trade show and promotional expenses. This increase was somewhat offset by lower labor costs in the first quarter of 2006.

Sales and marketing expenses are expected to increase during the remainder of 2006 as the Company supports its online advertising, consumer products, and publisher services revenue streams.

Product Development

	Three months ended March 31,
(in thousands)	2006			Change		2005
Capitalized software development costs	$	(658	)	522	%	$	(126	)
Other product development expenses		4,940		1	%		4,891
Total product development expenses	$	4,282		10	%	$	4,765
Percentage of total revenue		41	%				40	%

Product development costs include all costs related to the development and engineering of new products and continued development of our search databases and additional features for our customer account management platform. These costs include salaries and associated costs of employment, including share-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 after certain milestones have been achieved. Software licensing and computer equipment depreciation related to supporting product development functions are also included in product development expenses.

Capitalized software development costs include the costs to develop software for internal use, excluding costs associated with research and development, training and testing. The increase in the amount capitalized for the three months ended March 31, 2006 compared to the three months ended March 31, 2005 was primarily related to an increase in the magnitude of ongoing capitalizable projects in 2006. During the first quarter of 2006 the Company was in development of its next generation Ad Center, its system that allows advertisers to upload listings ads and bid for placement of those ads, collects click data for each listing that we manage for our customers, filters out invalid clicks, and provides customer billing. In addition, the Company has development projects to further enhance other core assets, such as Furl and search technologies, associated with its network of owned-and-operated sites.

The increase in other product development expenses in the first quarter of 2006 compared to the first quarter of 2005 relates to the increased level of development described above.

Both capitalized software development and other product development costs are expected to increase in 2006 as the Company increases its product development resources to support its technology platforms.

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General and Administrative

	Three months ended March 31,
(in thousands)	2006			Change		2005
General and administrative	$	2,428		11	%	$	2,182
Percentage of total revenue		23	%				18	%

General and administrative expenses include costs of executive management, human resources, finance, legal and facilities personnel. These costs include salaries and associated costs of employment, including share-based compensation, overhead, facilities and an allocation of depreciation. General and administrative expenses also include legal, tax and accounting, consulting and professional services fees.

The increase in general and administrative expenses in the first quarter of 2006 compared to the first quarter of 2005 was primarily due to share-based compensation costs of employees and directors.

Compared with the first quarter of 2006, general and administrative expenses are expected to decrease over the remainder of year as a majority of professional services fees in connection the Company’s annual financial audit and related Sarbanes-Oxley compliance certification are incurred in the first quarter.

Restructuring Costs

	Three months ended March 31,
(in thousands)	2006			Change		2005
Restructuring charges	$	—		-100	%	$	25
Percentage of total revenue		0	%				0	%

In connection with employee severance restructuring activities, we closed certain leased facilities and incurred lease restructuring costs related to closing these facilities during 2005. These costs are classified as restructuring charges on the unaudited Condensed Consolidated Statements of Operations, and are included in operating expenses. The lease restructuring liability is amortized using the interest method through the life of the lease, which terminates in 2009.

During the first half of 2005, we had limited success in subleasing our unused space since the establishment of the restructuring liability, and modified our original estimates. This resulted in additional restructuring charges of approximately $25,000 and $1.9 million in the first and second quarters of 2005, reflecting the reduced probability of subleasing the available space. However in October 2005, we executed a letter of intent to sublease an additional portion of the unused space, which resulted in a reduction of the restructuring liability by approximately $0.3 million, recorded in the third quarter of 2005. Further, in March 2006, we executed a letter of intent to sublease an additional portion of the unused space, which resulted in a further reduction of the restructuring liability by approximately $0.6 million, recorded in the fourth quarter of 2005.

We do not currently expect to record significant further restructuring charges or benefits related to closing redundant leased facilities in 2006 as we have sublet most of our unused space.

Non-Operating Income

	Three months ended March 31,
(in thousands)	2006		Change		2005
Non-operating income, net	$	489	2	%	$	478

Interest and Other Non-Operating income, net

Interest and other non-operating income increased in the first quarter of 2006 compared to the first quarter of 2005 primarily due to higher overall returns earned by our investment portfolio, which had lower average balances in 2006 compared to 2005. Non-operating income in the first quarter of 2005 included a gain on foreign currency transactions related to transfers of cash from our discontinued foreign entities. We do not expect to incur significant foreign currency gains or losses in 2006.

Income Tax Expense

	Three months ended March 31,
(in thousands)	2006			Change		2005
Income tax expense	$	(11	)	550	%	$	(2	)

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The effective tax rate in upcoming quarters and for the year ending December 31, 2006 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 and any non-deductible items related to acquisitions or other non-recurring charges.

Gain from Discontinued Operations

	Three months ended March 31,
(in thousands)	2006		Change		2005
Gain from discontinued operations, net of tax	$	—	-100	%	$	82

In January 2004, we agreed to sell certain assets and related intellectual property rights of our Australian, Japanese and United Kingdom subsidiaries. The gain on disposal of these operations of $1.0 million, net of $0.4 million for transitional expenses, was recorded in 2004. In 2005, the Company recognized an additional gain of $0.1 million related to additional disposal activities and an increased tax benefit.

As we finalize the liquidation process in our Australian subsidiary, we expect to record additional income related to the reversal of the cumulative translation adjustment of approximately $0.5 million in 2006.

Liquidity and Capital Resources

The following table presents our cash flows provided by (used in) operating, investing and financing activities for the three months ended March 31, 2006 and 2005.

	Three Months Ended March 31,
(in thousands)	2006			2005
Cash flows used in operating activities	$	(3,953	)	$	(967	)
Cash flows provided by investing activities	$	611		$	2,919
Cash flows provided by financing activities	$	12		$	12

Our primary source of cash is receipts from revenue. The primary uses of cash are payroll (salaries, benefits, and other employee compensation), general operating expenses (office rent, utilities, insurance and supplies), payments to distribution network partners related to traffic acquisition and content costs, and professional services fees related to legal and audit costs. We ended the first quarter of 2006 with $45.9 million in cash, cash equivalents, and short-term and long-term investments, a decrease of $5.4 million from December 31, 2005 of $51.3 million.

The increase in cash used in operating activities in the first quarter of 2006 compared to the first quarter of 2005 was primarily due to increases in accounts receivable, prepaid expenses and other assets. The increase in accounts receivable was caused by a past due amount from a major customer, which was subsequently collected in April 2006.

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Net cash provided by investing activities in the first quarter of 2006 was lower than in the first quarter of 2005 as less maturities and sales of investments occurred in 2006. Proceeds from maturities and sales of investments were $2.8 million less in the first quarter of 2006 than in the first quarter of 2005. Offsetting this decline in proceeds was a $1.7 million reduction in purchases of investments during the same comparative period. Additionally, the Company invested $1.2 million more in property, equipment and capitalized software development in the first quarter of 2006 compared to the same period in 2005.

Net cash provided by financing activities in the first quarter of 2006 was consistent with the first quarter of 2005 representing payments against the principal balance of our outstanding note payable and proceeds for the issuance of common stock related to our employee stock plans.

We have outstanding standby letters of credit (“SBLC”) of $1.3 million at March 31, 2006 related to security of a building lease and security for payroll processing services. The SBLC contains four financial covenants. As of March 31, 2006, we were in compliance with all required covenants.

We believe that our working capital will provide adequate liquidity to fund our operations and meet other cash requirements for at least the next 12 months. 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, 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 requiring large cash payments or the acquisition of businesses with negative cash flows, may necessitate additional financing. We cannot be assured 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.

Off-Balance Sheet Arrangements

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

In comparison with our Annual Report on Form 10-K for the year ended December 31, 2005, we believe that there have been no significant changes in contractual obligations or commercial commitments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for interest rate changes relates primarily to our short-term and long-term investments. We had no derivative financial instruments as of March 31, 2006 or December 31, 2005. We invest our excess cash in debt and equity instruments of high-quality corporate issuers with original maturities greater than three months and effective maturities less than two years. The amount of credit exposure to any one issue, issuer and type of instrument is limited. These securities are subject to interest rate risk and vary in value as market interest rates fluctuate. During the three months ended March 31, 2006, the effects of changes in interest rates on the fair market value of our marketable investment securities and our earnings were not material. Further, we believe that the impact on the fair market value of our securities and our earnings from a hypothetical 10% change in interest rates would not be significant.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining “disclosure controls and procedures” (as defined in rules promulgated under the Securities Exchange Act of 1934, as amended) for our company. Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and Form 10-Q. We note, however, that during the preparation of this Quarterly Report on Form 10-Q, we discovered an error in the Company’s May 4, 2006 earnings release related to reported traffic acquisition costs (“TAC”) excluding the advertising impact of owned sites. In the press release, we reported TAC excluding the advertising impact of owned sites as 65%; in this Quarterly Report on Form 10-Q, we publish the corrected figure of 66%.

(b) Changes in internal controls. During the course of our general evaluation of our internal controls and our fiscal 2005 close process, four significant deficiencies in the design and operation of our internal controls were identified. We are continuing the process of remediating such deficiencies.

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(c) Limitations on the Effectiveness of Controls. Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. 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. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered 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 and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the Chief Executive Officer and the Chief Financial Officer have concluded that these controls and procedures are effective at the “reasonable assurance” level, notwithstanding the error in reported TAC in our May 4, 2006 earnings release described in Item 4(a) above.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Cisneros v. Yahoo! Inc

On August 3, 2004, Mario Cisneros and Michael Voight filed a private attorney general lawsuit on behalf of a proposed class in Superior Court in San Francisco County, California. The complaint names thirteen search engines or Web publishers as defendants, including us, and alleges unfair business practices, unlawful business practices, and other causes of action in connection with the display of advertisements from Internet gambling companies. The complaint seeks restitution, unspecified compensatory damages, declaratory and injunctive relief, and attorneys’ fees. Plaintiffs also filed a motion for preliminary injunction on August 3, 2004.

On January 3, 2005, we filed a demurrer to the complaint, which was overruled on January 27, 2005. On January 3, 2005, we also filed a motion to strike certain allegations regarding claims for restitution, which was denied in part and granted in part on May 9, 2005. We filed an answer to the complaint on February 28, 2005, consisting of a general denial of all allegations. On October 11, 2005, the court conducted a trail on two of our affirmative defenses. The court held that California public policy bars the plaintiffs from receiving a portion of their requested damages.

On December 2, 2005, plaintiffs filed a renewed motion for a preliminary injunction. The Company filed its response on February 27, 2006. The Court has not yet scheduled a hearing for plaintiffs’ renewed motion. The court has allowed certain discovery to proceed with respect to plaintiffs’ renewed motion. On or about April 3, 2006, plaintiffs filed a Motion to Amend their Complaint to Add Additional Plaintiffs. The Defendants filed their Opposition to the Motion on May 1, 2006 and a hearing has been scheduled for May 23, 2006.

Lane’s Gifts and Collectibles, L.L.C., v. Yahoo! Inc

On March 14, 2005 we were served with the Second Amended Complaint in a class action lawsuit in the Circuit Court of Miller County, Arkansas. The complaint names eleven search engines and Web publishers as defendants, including us, and alleges breach of contract, restitution/unjust enrichment/money had and received, and civil conspiracy claims in connection with contracts allegedly entered into with plaintiffs for Internet pay-per-click advertising. The named plaintiffs on the Second Amended Complaint are Lane’s Gifts and Collectibles, L.L.C., U.S. Citizens for Fair Credit Card Terms, Inc., Savings 4 Merchants, Inc., and Max Caulfield d/b/a Caulfield Investigations.

On March 30, 2005 the case was removed to United States District Court for the Western District of Arkansas. On April 4, 2005 plaintiffs U.S. Citizens for Fair Credit Card Terms, Inc. and Savings 4 Merchants, Inc. filed a motion of voluntary dismissal without prejudice. The motion was granted on April 7, 2005. Plaintiffs Lane’s Gifts and Collectibles, L.L.C. and Max Caulfield d/b/a Caulfield Investigations filed a motion to remand the case to state court on April 13, 2005, which was granted in June 2005. In July 2005, defendants, including us, petitioned the Eighth Circuit Court of Appeals for an appeal of the remand order, and moved to stay the proceedings while the appeal is pending. The petition was denied on September 8, 2005 and the case was remanded to the Circuit Court of Miller County, Arkansas. We were served with discovery requests on October 7, 2005. We have filed and/or joined motions to dismiss on the basis of failure to state a claim upon which relief can be granted, lack of personal jurisdiction, and improper venue. Pursuant to the court’s initial scheduling order, plaintiffs had until January 27, 2006 to respond to the motions to dismiss for lack of personal jurisdiction and improper venue; and until June 9, 2006 to respond to the motion to dismiss on the basis of failure to state a claim upon which relief can be granted. However, the court entered an order staying all proceedings for a period of 60 days on January 9, 2006. On March 8, 2006, the Court entered an order extending the stay until March 31, 2006. On April 1, 2006, the Court further extended the stay until April 20, 2006. On April 20, 2006 the Court preliminarily approved a Class Settlement among plaintiffs, defendant

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Google, Inc., and certain defendants who display Google advertisements on their Networks. The Class Settlement purports to release Google of all claims and also purports to release certain defendants, including the Company, for any claims associated with the display of Google advertisements on their networks. The Court scheduled a Final Settlement Hearing date for July 24 and 25, 2006. On April 21, 2006, the Court ordered the remaining defendants, including the Company, to mediation and further stayed the proceedings to June 21, 2006 at which time the defendants are to report back to the Court regarding their progress at mediation.

Additionally, we are involved from time to time in various legal proceedings arising from the normal course of business activities. Although the results of litigation and claims cannot be predicted with certainty, we do not expect resolution of these matters to have a material adverse impact on our consolidated results of operations, cash flows or financial position. However, an unfavorable resolution of a matter could, depending on its amount and timing, materially affect our future results of operations, cash flows or financial position in a future period. Regardless of the outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors that are included in our Annual Report on Form 10-K for the year ended December 31, 2005 that could affect our business, results of operations or financial condition.

You should carefully consider the risks described below before making an investment decision regarding our common stock. If any of the following risks actually occur, our business, financial condition and results of operations could be harmed. In that case, the trading price of our common stock could decline and our investors could lose all or part of their investment. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to our Business

Our financial results are highly concentrated in the online advertising business; if we are unable to grow online advertising revenue and find alternative sources of revenue, our financial results will suffer

The display of listings advertisements accounted for substantially all of our revenue for the three months ended March 31, 2006. Our success depends upon advertisers choosing to use, and distribution network partners choosing to distribute, our listings products. Advertisers and distribution network partners may not adopt our listings products at projected rates, or changes in market conditions may adversely affect the use or distribution of listings advertisements. Because of our revenue concentration in the online advertising business, such shortfalls or changes could have a negative impact on our financial results. Also, many of our products are offered to website publishers who use them to display or generate revenue from their online advertisements. If we are unable to generate significant revenue from our online advertising business, or if market conditions adversely affect the use or distribution of online advertisements generally, our results of operations, financial condition and/or liquidity will suffer.

We rely primarily on our network of distribution network partners to generate paid clicks; if we are unable to maintain or expand this network, our ability to generate revenue may be seriously harmed

The success of our online advertisement products depends in large part on the size and quality of our distribution network. We may be unable to maintain or add distribution network partners of satisfactory quality in our distribution network at reasonable revenue-sharing rates, or at all. Our distribution network is concentrated, with our two largest distribution network partners accounting for approximately 33% and 38% of our revenue for the three months ended March 31, 2006 and 2005, respectively. If we lose any significant portion of our distribution network, we would need to find alternative sources of quality click traffic to replace the lost paid clicks. In the past, we have lost portions of our distribution network, such as when our contract with Microsoft’s MSN expired in the first quarter of 2004. Although alternate sources of click traffic are currently available in the market, they may not be available at reasonable prices, they will likely be subject to competition from various paid search providers, and they may be of lower quality. There is fierce competition among search providers to sign agreements with traffic providers. We may be unable to negotiate and sign agreements with quality traffic providers on favorable terms, if at all. If we are unsuccessful in maintaining and expanding our distribution network, then our ability to generate revenue may be seriously harmed.

We have generated significant losses in the past and we may be unable to achieve operating profitability in the foreseeable future, and if we achieve profitability, we may be unable to maintain it, which could result in a decline in our stock price

We had a net loss of approximately $4.5 million for the three months ended March 31, 2006 and as of March 31, 2006 our accumulated deficit was approximately $208.3 million. We may be unable to achieve profitability in the foreseeable future and, if we regain profitability, we may be unable to maintain it. Our ability to achieve and maintain profitability will depend on our ability to generate additional revenue and contain our expenses. In order to generate additional revenue, we will need to expand our network of distribution network partners, expand our proprietary traffic sources such as our owned-and-operated websites, offer our publisher products to publisher customers and expand

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our advertiser base. We may be unable to accomplish some or any of these goals because of the risks identified in this report or for unforeseen reasons. Also, we may be unable to contain our costs due to the need to make revenue sharing payments to our distribution network partners, to invest in product development, marketing and search technologies (exemplified by our renewed focus on our vertical search business), and enhance our search services. Because of the foregoing factors, and others outlined in this report, we may be unable to achieve profitability in the future, which could result in a decline in our stock price.

If we experience downward pressure on our revenue per click or we are unable to improve our revenue per click, our financial results will suffer

We have experienced, and may in the future experience, downward pressure on our average revenue per click due to various factors. In the three months ended March 31, 2006, for example, our average revenue per click decreased compared to the three months ended March 31, 2005. We may experience decreases in revenue per click in the future for many reasons, including the erosion of our advertiser base, the reduction in average advertiser spend, the reduction in the number of listings purchased by advertisers, or for other reasons. If our revenue per click falls for any reason, or if we are unable to grow our revenue per click, then we may be unable to achieve our financial projections and our stock price would likely suffer.

Our growth depends on our ability to retain and grow our advertiser base; if our advertiser base and average advertiser spend falls, our financial results will suffer

Our growth depends on our ability to build an advertiser base that corresponds with the characteristics of our distribution network. Our distribution network, which currently consists of a diversified network of small distribution sources, may change as new distribution sources are added and old distribution sources are removed. Advertisers may view these changes to the distribution network negatively, and existing or potential advertisers may elect to purchase fewer or no listings advertisements for display on our distribution network. If this occurs, it is likely that our average revenue per click and average match rate may decline, we may be unable to meet our financial guidance, and our stock price would likely suffer.

Our growth depends upon our ability to retain and grow our audience for our vertical search sites, and there are risks associated with introducing new products and services

To maintain and grow our revenue, part of our strategy is to increase the amount, frequency and page views by consumers of our vertical search sites. Our development, testing and implementation efforts for these products and services have required, and are expected to continue to require, substantial investments of our time. We recently began owning and operating our own websites, and we may not gain enough of an audience for our vertical search sites to generate any, or sufficient, revenue to justify our efforts, or we may gain a sufficient audience but be unable to gain advertiser acceptance of our vertical search sites. Also, if we do not improve and enhance our vertical search sites in a timely manner, we may lose existing customers to our competitors or fail to attract new customers, which may adversely affect our performance and results of operations.

If we are unable to license or acquire compelling content at reasonable costs, we may be unable to increase traffic to and revenue of our vertical search sites

Our future success depends in part upon our ability to aggregate compelling content and search results and deliver them through our online properties. We license much of the content on our online properties, such as journal articles and news items, from third parties. Our ability to maintain and build relationships with third-party content providers will be important for our success. Also, as competition for compelling content increases both domestically and internationally, our content providers may increase the prices at which they offer their content to us and potential content providers may not offer their content on terms agreeable to us. An increase in the prices charged to us by third-party content providers could harm our operating results and financial condition. If we are unable to license or acquire compelling content at reasonable prices, if other companies broadcast content that is similar to or the same as that provided by us, the number of consumers of our services may not grow at all or may grow at a slower rate than anticipated, which could harm our operating results.

Our growth depends upon our ability to offer and support our technology services to online publishers, and there are risks associated with introducing new products and services

To maintain and grow our revenue, part of our strategy is to offer and host syndicated technology services to online publishers. Our development, testing and implementation efforts for these products and services have required, and are expected to continue to require, substantial investments of our time. Also, we do not have significant experience offering services to online publishers, and we may not gain publisher acceptance of our offerings. We may be unable to successfully implement syndicated publisher solutions, or our implementation of a solution may interfere with our ability to operate our other products and services or other implementations, or a publisher customer may decide not to use or continue to use our solution. These failures could have an adverse effect on our business and results of operations.

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If we do not introduce new and upgraded products and services and successfully adapt to our rapidly changing industry, our financial condition may suffer

The Internet search industry is rapidly evolving and very turbulent, and we will need to continue developing new and upgraded products and services, adapt to new business environments and competition, and generate traffic to our consumer web properties in order to maintain and grow revenue and reach our profitability goals. New search and advertising technologies could emerge that make our services comparatively less useful or new business methods could otherwise emerge that divert web traffic away from our search network and consumer web properties. Competition from other web businesses may prevent us from attracting substantial traffic to our services. Also, we may inaccurately predict the direction of search technologies or the advertising market, which could lead us to make investments in technologies and products that do not generate sufficient returns. We may face platform and resource constraints that prevent us from developing upgraded products and services. We may fail to successfully identify new products or services, or fail to bring new products or services to market in a timely and efficient manner. Rapid industry change makes it difficult for us to forecast our results accurately, particularly over longer periods. We face the risk that we may be unable to adapt to new developments in the search industry, or that our new consumer products and services may not be broadly adopted by customers, in which case we would eventually need to obtain additional financing or cease operations.

We face intense competitive pressures, which could materially and adversely affect our financial results

We compete in the relatively new and rapidly evolving paid search industry, which presents many uncertainties that could require us to further refine our business model. We compete with companies that provide paid placement products, paid inclusion products, and other forms of search marketing. 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. We also compete for distribution network partners and for ad placement on those partners’ sites on the basis of the relevance of our search results and the price per click charged to advertisers. We also experience competition for our owned-and-operated websites and for offering our technology to website publishers. Some of our competitors have larger distribution networks and proprietary traffic bases, longer operating histories, greater brand recognition higher price per clicks, better relevance and conversion rates, or better products and services than we have.

Our acquisition of businesses and technologies may be costly and time-consuming; acquisitions may also dilute our existing stockholders

From time to time we evaluate corporate development opportunities, and when appropriate, 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, record impairment of goodwill in connection with future or past acquisitions, or divest non-performing assets at below-market prices, which would adversely affect our operating results.

We have acquired businesses and technologies in recent years, including the acquisition of Net Nanny from BioNet Systems, LLC in the second quarter of 2004 and from Furl, LLC in the third quarter of 2004. Integration of acquired companies and technologies into LookSmart is likely to 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. We offer to end users certain software we acquired, but we may lack the managerial and technical resources necessary to implement a successful software licensing business model in a timely manner. Unlicensed copying and use of such software in the United Sates and abroad will represent a loss of revenue to us. Furthermore, end users may not license our products at projected rates

Our success depends on our ability to attract and retain key personnel; if we were unable to continue to attract and retain key personnel in the future, our business could be materially and adversely impacted

Our success depends on our ability to identify, attract, retain and motivate highly skilled development, technical, sales, and management personnel. We have a limited number of key development, technical, sales and management personnel performing critical company functions, and the loss of the services of any of our key employees, particularly any of our executive team members or key technical personnel, could adversely affect our business. In recent years, we have experienced significant turnover in our management team. For example, our Chief Financial Officer joined us in November 2005. Other members of management have also joined us in the last year, and the management team as a whole has had only a limited time to work together. 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.

We may face capacity constraints on and technical difficulties with our software and infrastructure systems that could be costly and time-consuming to resolve

We use proprietary and licensed software and databases to crawl the web and index web pages, create, edit and serve advertisements, compile and distribute our search results, track paid clicks, bid on, rank and manage advertisements and detect click fraud. Any of these software systems may contain undetected errors, defects or bugs or may fail to operate with other software applications. Developments, such as the following developments, may strain our capacity and result in technical

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difficulties with our web site or the web sites of our distribution network partners:

• customization of our search results for distribution to particular distribution network partners

• substantial increases in the number of queries to our databases

• substantial increases in the number of listings in our databases, or

• the addition of new products or new features or changes to our products

If we experience difficulties arising from developments or if we fail to address these issues in a timely manner, we may lose the confidence of advertisers and distribution network partners, our revenue 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.

Risks Related to Operating in our Industry

If we fail to prevent, detect and remove invalid clicks, we could lose the confidence of our advertisers, thereby causing our business to suffer

Invalid clicks, most often due to “click fraud”, are an ongoing problem for the Internet advertising industry, and we are exposed to the risk of invalid clicks on our paid listings. Invalid clicks occur when a person or robotic software causes a click on a paid listing to occur for some reason other than to view the underlying content. We invest significant time and resources in preventing, detecting and eliminating invalid traffic from our distribution network. However, the perpetrators of click fraud have developed sophisticated methods to evade detection, and we are unlikely to detect and remove all invalid traffic from our search network. We are subject to advertiser complaints and litigation regarding invalid clicks, and we may be subject to advertiser complaints, claims, litigation or inquiries in the future. We have from time to time credited invoices or refunded revenue to our customers due to suspicious traffic, and we expect to continue to do so in the future. If our systems to detect invalid traffic are insufficient, or if we find new evidence of past invalid clicks, we may have to issue credits or refunds retroactively to our advertisers, and we may still have to pay revenue share to our distribution network partners. This could negatively affect our profitability and hurt our brand. If traffic consisting of invalid clicks is not detected and removed from our search network, the affected advertisers may experience a reduced return on their investment in our online advertising because the invalid clicks will not lead to actual sales for the advertisers. This could lead the advertisers to become dissatisfied with our products, which could lead to loss of advertisers and revenue and could materially and adversely affect our financial results.

Any failure in the performance of our key operating systems could materially and adversely affect our revenue

Any system failure that interrupts our hosted products or services, including our search service, whether caused by computer viruses, software failure, power interruptions, intruders and hackers, or other causes, could harm our financial results. For example, our system for tracking and invoicing clicks is dependent upon a proprietary software platform. If we lose key personnel or experience a failure of software, this system may fail. In such event, we may be unable to track paid clicks and invoice our customers, which would materially and adversely affect our financial results and business reputation.

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, which is located at our San Francisco, California office. An interruption in our ability to serve search results, track paid clicks, and provide customer support would materially and adversely affect our financial results.

Our business and operations depend on Internet service providers and third party technology providers, and any failure or system downtime experienced by these companies could materially and adversely affect our revenue

Our consumers, distribution network partners and customers depend on Internet service providers, online service providers and other third parties for access to our 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 an agreement with Savvis Communications, Inc. to house equipment for web serving and networking and to provide network connectivity services. We also have agreements with third-party click tracking and ad-serving technology providers. We also have an agreement with AboveNet Communications, Inc. to provide network connectivity services. We do not presently maintain fully redundant click tracking, customer account and web serving systems at separate locations. Accordingly, our operations depend on Savvis and AboveNet to protect the systems in their data centers 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

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will be uninterrupted, error-free or secure. We have developed a 30-day disaster recovery plan to respond in the event of a catastrophic loss of our critical, revenue-generating systems. We have an agreement with Raging Wire, Inc. in Sacramento, California to provide co-location and networking services for our critical systems in such an event. 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. Also, if our third-party click tracking or ad-serving technology providers experience service interruptions, errors or security breaches, our ability to track, realize and record revenue would suffer.

We may face liability for claims related to our products and services, and these claims may be costly to resolve

Companies in the Internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. These claims might, for example, be made for trademark, copyright or patent infringement, defamation, negligence, personal injury, breach of contract, unfair advertising, unfair competition, invasion of privacy or other claims. Lawsuits are filed against us from time to time, and we are currently subject to two purported class action lawsuits in connection with our listings services. In addition, we are obligated in some cases to indemnify our customers or distribution network partners in the event that they are subject to claims that our services infringe on the rights of others.

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. Our insurance may not adequately cover claims of this type, 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 revenue and business. For any of the foregoing reasons, litigation involving our listings business and technology could have a material adverse effect on our business, operating results and financial condition.

We could be subject to infringement claims that may be costly to defend, result in the payment of settlements or damages or lead us to change the way we conduct our business

Internet, technology, media companies and patent holding companies often possess a significant number of patents. Further, many of these companies and other parties are actively developing search, indexing, electronic commerce and other Web-related technologies, as well as a variety of online business models and methods. We believe that these parties will continue to take steps to protect these technologies, including, but not limited to, seeking patent protection. As a result, we may face claims of infringement of patents and other intellectual property rights held by others. Also, as we expand our business, license or acquire content and develop new technologies, products and services, we may become increasingly subject to intellectual property infringement claims. In the event that there is a determination that we have infringed third-party proprietary rights such as patents, copyrights, trademark rights, trade secret rights or other third party rights such as publicity and privacy rights, we could incur substantial monetary liability, be required to enter into costly royalty or licensing agreements or be prevented from using the rights, which could require us to change our business practices in the future and limit our ability to compete effectively. We may also incur substantial expenses in defending against third-party infringement claims regardless of the merit of such claims. In addition, many of our agreements with our customers or affiliates require us to indemnify them for certain third-party intellectual property infringement claims, which could increase our costs in defending such claims and our damages. The occurrence of any of these results could harm our brand and negatively impact our operating results.

Litigation, regulation, legislation or enforcement actions directed at or materially affecting us may adversely affect the commercial use of our products and services and our financial results

New lawsuits, laws, regulations and enforcement actions applicable to the online industry may limit the delivery, appearance and content of our advertising or websites or otherwise adversely affect our business. If such laws are enacted, or if existing laws are interpreted to restrict the types and placements of advertisements we can carry, it could have a material and adverse effect on our financial results. For example, in 2002, 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 consumers and issued guidance on what disclosures are necessary to avoid misleading consumers about the possible effects of paid placement or paid inclusion listings on the search results. In 2003, the United States Department of Justice issued statements indicating its belief that displaying advertisements for online gambling might be construed as aiding and abetting an illegal activity under federal law. In 2004, the United States Congress considered new laws regarding sale of pharmaceutical products over the Internet and the use of adware to distribute advertisements on the Internet, any of which could, if enacted, adversely affect our business. If any new law or government agency were to require changes in the labeling, delivery or content of our advertisements, or if we are subject to legal proceedings regarding these issues, it may reduce the desirability of our services or the types of advertisements that we can run, and our business could be materially and adversely harmed.

In addition, legislation or regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), present ongoing compliance risks, and a failure to comply with these new laws and regulations could materially harm our business.

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For example, in the course of our general evaluation of our internal controls we identified certain deficiencies in the design and operation of such controls. We continue the process of remediating such deficiencies. It is possible that as we continue our Section 404 compliance efforts we will identify significant deficiencies, or material weaknesses, in the design and operation of our internal controls. We may be unable to remediate any of these matters in a timely fashion, and/or our independent registered public accounting firm may not agree with our remediation efforts in connection with their Section 404 attestation. Such failures could impact our ability to record, process, summarize and report financial information, and could impact market perception of the quality of our financial reporting, which could adversely affect our business and our stock price.

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

Internet user privacy has become an issue both in the United States and abroad. The United States Congress is considering new legislation to regulate Internet privacy, and 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 consumers 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.

Our search engine 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 consumers with a particular advertisement, to limit the number of times a user is shown a particular advertisement, and to track certain behavioral data. Although some Internet browsers allow consumers 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 reduced or limited, the Internet may become less attractive to advertisers and sponsors, which could result in a decline in our revenue.

We and some of our distribution network partners or advertisers retain information about our consumers. If others were able to penetrate the network security of these user databases and access or misappropriate this information, we and our distribution network 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.

Online commerce security risks, including security breaches, identity theft, service disrupting attacks and viruses, could harm our reputation and the conduct of our business, which could have a material adverse effect on our financial results

A fundamental requirement for online commerce and communications is the secure storage, and transmission over public networks of confidential information. Although we have developed and use systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, our security measures may not prevent security breaches or identity theft that could harm our reputation and business. Currently, a significant number of our consumers provide credit card and other financial information and authorize us to bill their credit card accounts directly for all transaction fees charged by us. We rely on encryption and authentication technology to provide the security and authentication to effect secure transmission of confidential information, including customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology used by us to protect transaction data. In addition, any party who is able to illicitly obtain a user’s password could access the user’s transaction data. An increasing number of websites have reported breaches of their security. Any compromise of our security could damage our reputation and expose us to a risk of loss or litigation and possible liability. The coverage limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

Additionally, our servers are vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, and we have experienced “denial-of-service” type attacks on our system that have made all or portions of our websites unavailable for periods of time. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Disruptions in our services and damage caused by viruses and other attacks could cause a loss of user confidence in our systems and services, which could lead to reduced usage of our products and services and materially adversely affect our business and financial results.

New tax treatment of companies engaged in Internet commerce may adversely affect the commercial use of our search service and our financial results

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

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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.

Risks Related to Accounting Matters

Accounting for employee stock options using the fair value method could significantly reduce our GAAP net income

As described in Note 1 (Summary of Significant Accounting Policies) to the unaudited Condensed Consolidated Financial Statements in this report, we were required to adopt SFAS 123R starting January 1, 2006. Under SFAS 123R, we are required to begin accounting for the fair value of stock options granted to employees as compensation expense, which is likely to have a significant adverse impact on our GAAP results of operations and net loss per share. If we reduce or alter our use of share-based compensation to minimize the recognition of these expenses, our ability to recruit, motivate and retain employees may be impaired, which could put us at a competitive disadvantage in the marketplace. In order to prevent any net decrease in their overall compensation packages, we might decide to make corresponding increases in the cash compensation we pay to current and prospective new employees. An increase in employee wages and salaries would diminish our cash available for marketing, product development and other uses and might adversely impact our GAAP results of operations. Any of these effects might cause the market price of our stock to decline, particularly if investors conclude that any resulting decrease in reported profits in 2006 was caused by operational problems rather than by accounting rule changes.

Risks Related to the Capital Market

Our quarterly revenue and operating results may fluctuate for many reasons, each of which may negatively affect our stock price

Our revenue and operating results will likely fluctuate significantly from quarter to quarter as a result of a variety of factors, including:

• changes in our distribution network, particularly the gain or loss of key distribution network partners, or changes in the implementation of search results on partner web sites,

• changes in the number of advertisers who purchase our listings, or the amount of spending per customer,

• changes in the amount, frequency and page views by consumers of our vertical search sites,

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

• the effect of accounting for our headquarters office lease in San Francisco, which reflects our management’s assumptions about the subleasing market,

• systems downtime on our Ad Center, our web site or the web sites of our distribution network partners, or

• the effect of SFAS 123R, which became effective January 1, 2006, and requires that we account for the fair value of stock awards granted to employees as compensation

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 past financial results as an indicator 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 stock price is extremely volatile, and such volatility may hinder investors’ ability 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. The low trading volume of our common stock may adversely affect its liquidity and reduce the number of market makers and/or large investors willing to trade in our common stock, making wider fluctuations in the quoted price of our common stock more likely to occur. Also, because of our limited operating history and the significant changes we experienced as a result of the expiration of our contractual relationship with Microsoft’s MSN in the first quarter of 2004, 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 fluctuate, 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,

• the relatively thinly traded volume of our publicly traded shares, which means that small changes in the volume of trades may have a disproportionate impact on our stock price,

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• the loss of key personnel, or our inability to recruit experienced personnel to fill key positions

• changes in ratings or financial estimates by analysts or the inclusion/removal of our stock from certain stock market indices used to drive investment choices,

• announcements of new distribution network 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 our stockholders, or the perception that such sales could occur,

• the exchange by Chess Depositary Interest (CDI) holders of CDIs for shares of common stock at a ratio of 1:1, and resale of such shares in the Nasdaq National Market (as of May 1, 2006, the CDIs registered for trading on the Australian Stock Exchange were exchangeable into an aggregate of approximately 1.7 million shares of common stock), 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 operations and, if such additional financing is not available to us, on reasonable terms or at all, our liquidity and results of operations will be materially and adversely impacted

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 that 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 the additional 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 beyond current plans,

• 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.

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.

ITEM 5. OTHER INFORMATION.

In January 2006, the Company entered into an Executive Team Incentive Plan for fiscal year 2006 with each of the Company’s executives. The Company’s Board of Directors, at the Compensation Committee’s suggestion, approved the bonus targets and attainment levels outlined in the Plan. Under the Plan, depending upon Company performance, a bonus pool will be established from which eligible executive team members may receive incentive payments. Seventy percent of the target bonus will be paid out based on Company performance criteria and thirty percent based on individual performance. If the minimum Company performance criteria are not achieved, target incentive payments will not be made.

ITEM 6. EXHIBITS

Please see the exhibit index following the signature page of this report.

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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.

LOOKSMART, LTD.
By:	/s/ JOHN SIMONELLI
	John Simonelli, Chief Financial Officer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit Number	Description of Document
3.1	Restated Certificate of Incorporation (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2005).
3.2	Bylaws (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2000).
4.1	Form of Specimen Stock Certificate (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2005).
4.2	Forms of Stock Option Agreement used by the Registrant in connection with grants of stock options to employees, directors and other service providers in connection with the Amended and Restated 1998 Stock Plan (Filed with the Company’s Current Report on Form 8-K filed with the SEC on October 22, 2004).
4.3*	Form of cover sheet for use with Stock Option Agreement for grants of stock options to executives in connection with the Company’s Executive Team Incentive Plan, Plan Year 2006 filed herewith.
10.1	Form of Indemnification Agreement entered into between the Registrant and each of its directors and officers (Filed with the Company’s Registration Statement on Form S-1 (File No. 333-80581) filed with the SEC on June 14, 1999).
10.2	Amended and Restated 1998 Stock Plan (Filed with the Company’s Registration Statement on Form S-1 (File No. 333-80581) filed with the SEC on June 14, 1999).
10.3	1999 Employee Stock Purchase Plan as amended (Filed with the Company’s Registration Statement on Form S-8 (File No. 333-129987) filed with the SEC on November 29, 2005).
10.4*	LookSmart, Ltd. Executive Team Incentive Plan, Plan Year 2006.
10.7	Zeal Media, Inc. 1999 Stock Plan (Filed with the Company’s Registration Statement on Form S-8 filed with the SEC on December 7, 2000).
10.8	WiseNut, Inc. 1999 Stock Incentive Plan (Filed with the Company’s Registration Statement on Form S-8 filed with the SEC on April 18, 2002).
10.12	Lease Agreement with Rosenberg SOMA Investments III, LLC for property located at 625 Second Street, San Francisco, California, dated May 5, 1999 (Filed with the Company’s Registration Statement on Form S-1 (File No. 333-80581) filed with the SEC on June 14, 1999).
10.34+	Co-Location Services Agreement between the Registrant and Savvis Communications Corporation dated February 19, 2004 (Filed with the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on November 7, 2003).
10.37‡*	AdCenter License, Hosting and Support Agreement between the Registrant and Ask Jeeves, Inc. dated May 16, 2005.
10.38‡*	Addendum to AdCenter License, Hosting and Support Agreement between the Registrant and Ask Jeeves, Inc. dated January 20, 2006.
10.39‡*	Paid Listings License Agreement between the Registrant and SearchFeed.com dated April 15, 2006.
10.40‡	License Agreement between the Registrant and SearchFeed.com dated November 23, 2003, as Amended on March 29, 2004 and March 21, 2005 (Filed with the Company’s Annual Report on Form 10-K filed with the the SEC on March 15, 2006).
10.41	Separation Agreement and General Release between the Registrant and its former General Counsel dated August 20, 2005 (Filed with the Company’s Annual Report on Form 10-K filed with the the SEC on March 15, 2006).
10.42+	Amendment to the Prioritized Listings Syndication Agreement between the Registrant and Interchange Corporation dated as of June 30, 2004 (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2004).
10.43	Second Amendment to the Prioritized Listings Syndication Agreement between the Registrant and Interchange Corporation dated as of July 19, 2005 (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2005).

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10.44	Prioritized Listings Syndication Agreement between the Registrant and ELiberation, Inc., dated as of October 19, 2001. (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2004).
10.45	Employment offer letter between the Registrant and its chief executive officer dated September 24, 2004 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on October 18, 2004).
10.46	Letter agreement between the Registrant and its general counsel, dated July 1, 2004 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on January 26, 2005).
10.47	Employment offer letter between the Registrant and its senior vice president, consumer products, dated December 23, 2004 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on December 30, 2004).
10.48	Employment offer letter between the Registrant and its senior vice president, sales, dated November 19, 2004 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on December 14, 2004).
10.50	Separation agreement between the Registrant and its former interim chief executive officer, dated November 12, 2004 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on December 14, 2004).
10.51	Separation agreement between the Registrant and its former vice president, human resources, dated August 3, 2004 (Filed with the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2005).
10.52	Separation agreement between the Registrant and its former senior vice president, product, dated August 8, 2004 (Filed with the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2005).
10.53+	Prioritized Listings Syndication Agreement between the Registrant and Search123, Inc. dated August 21, 2001 (Filed with the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2005).
10.54+	Amendment No. 2 to the Prioritized Listings Syndication Agreement between the Registrant and Search123, Inc. dated February 8, 2005. (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2005).
10.55	Amendment No. 3 to the Prioritized Listings Syndication Agreement between the Registrant and Search123, Inc. dated June 24, 2005 (Filed with the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2005).
10.56	Employment offer letter between the Registrant and its Senior Vice President, Business Development dated April 18, 2005 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on April 19, 2005).
10.57	Employment offer letter between the Registrant and its Senior Vice President and Chief Technology Officer dated April 18, 2005 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on April 19, 2005).
10.58	Amendment to employment offer letter between the Registrant and its Chief Executive Officer dated June 21, 2005 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2005).
10.59	Employment offer letter between the Registrant and its General Counsel and Senior Vice President dated as of July 11, 2005 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on July 14, 2005).
10.60	Employment offer letter between the Registrant and its Vice President, Publisher Products dated as of August 8, 2005 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on August 10, 2005).
10.61	Employment offer letter between the Registrant and its Chief Financial Officer dated October 20, 2005 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on October 24, 2005).
10.62	Employment offer letter between the Registrant and its Vice President, Marketing dated as of December 4, 2005 (Filed with the Company’s Current Report on Form 8-K filed with the SEC on December 23, 2005).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(*) Filed herewith

(‡) Material in the exhibit marked with a “‡” has been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Securities and Exchange Commission.

(+) Confidential treatment has been granted with respect to portions of the exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

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EX-4.3

Exhibit 4.3

STOCK OPTION AGREEMENT     I. Notice of Stock Option Grant	LookSmart, Ltd. Amended and Restated 1998 Stock Option Plan
Name Address City, State, Zip Code	Option Number: Plan:	1998

Effective March 6, 2006, you have been granted a Non-Qualified Stock Option to buy up to [no. of revenue-vesting shares] shares of common stock of LookSmart, Ltd. (the Company) stock at a price of [$4.61] per share.

The total option price of the shares granted is [$0].

Such stock options shall vest as follows:

No vesting of an executive officers’ performance-vesting option shall occur unless the minimum revenue and operating loss thresholds set forth in Attachment 1 are met. Each executive officer’s Revenue-vesting Option and Operating Loss-vesting Options shall vest automatically on the Company’s filing with the SEC of a Form 10-K containing audited numbers for the relevant financial results. With respect to each of the executive officers’ Revenue-vesting and Operating Loss-vesting Options set forth in Attachment 1, the number of shares subject to such options that vest shall be determined by multiplying the number of shares subject to such option by a fraction, the numerator of which is the payout percent for the actual amount of revenue or operating loss attained (as measured by the chart illustrated in Attachment 1, with the levels prorated on a straight line basis between each level for each incremental $1,000,000 in revenue or each incremental $500,000 in operating loss), and the denominator of which is the highest applicable bonus payout percent.

If they vest, the shares subject to the option will become fully vested at the time indicated below.

Revenue-vesting Shares	OpLoss-vesting Shares	Full Vest	Expiration
		Upon the Company’s filing of a Form 10-K with the SEC containing audited numbers for the relevant financial results.	3/6/2016

By your signature and the Company’s signature below, you and the Company agree that these options are granted under and governed by the terms and conditions of the Company’s Stock Option Plan as amended and the Option Agreement.

LookSmart, Ltd./ Chief Executive Officer	Date:
Executive Officer Name	Date:

EX-10.4

Exhibit 10.4

LookSmart, Ltd. Executive Team Incentive Plan

Plan Year 2006

A. INTRODUCTION

1) Plan Objectives

• Keep our total compensation package market competitive, and enhance LookSmart’s ability to attract, motivate and retain top talent

• Recognize the role that our leaders have in the success of the Company

• Motivate and recognize “At Target” and “Exceeds Target” performance at Company, Function/Group and individual level

• Encourage cross-company collaboration and motivate behaviors that improve the company’s annual financial performance

• Provide consistency (but with some flexibility/ discretion) as we adapt to changing business and operational needs

2) Effective Period

The Executive Team Incentive Plan is effective for the fiscal year 2006 beginning January 1, 2006, through December 31, 2006.

B. PLAN PROVISIONS

1) Eligibility

This Plan is for covered employees of LookSmart, Ltd. (the “Company”) only and does not include any subsidiary or other affiliated Company. SVPs/VPs who report directly to the CEO are eligible to participate. This Plan is for 2006 only and the Plan may or may not be continued in subsequent years.

2) Target Incentives

Your target incentive is stated in your 2006 Compensation Workbook. This target can range higher or lower depending on performance criteria.

Target Incentives does not constitute a promise of attainment, earning or payment. Your actual payment may vary from your target incentive depending on Company financial performance and your group and individual performance.

Target incentives may be reviewed and revised at the discretion of the Chief Executive Officer and the Compensation Committee/Board of Directors, and in the case of the CEO, by the Compensation Committee/Board of Directors.

LookSmart Confidential Page 1 of 4 Executive Team Plan Year 2006

3) Executive Team Incentive Plan –Determination

Assuming minimum thresholds are met, participants will be eligible to receive a payment on all elements of the Plan based on the criteria set forth in Attachment 1.

C. ADMINISTRATION

1) Form and Timing of Payment

Awards made under the Plan are not earned until paid. Payment will not occur until after financial results for 2006 are calculated and filed with the SEC according to generally accepted accounting principles – but no later than the end of Q1 2007. You must be employed on the payout date to earn the award.

The executive team can elect to receive 50% of their bonus target in a performance stock option grant as described in Attachment 2.

Each team member will be provided with a workbook that outlines this option. If this option is not elected the bonus will be payable in cash, subject to appropriate taxes and pursuant to normal payroll procedures. Payouts are considered income at the time they are received. No loans may be made under the Plan.

2) Hires or Promotions into the Plan

If an employee is hired into a job that qualifies for the Executive Team Incentive Plan on or before September 30, 2006, the employee will be included in the Plan and the target incentive amount will be prorated based on the date of hire. (Example: If hire or promotion date is July 1, 2006, employee would be eligible for 50% of target bonus.)

If an employee is hired or promoted into the Plan after September 30, 2006, the employee will not be permitted to participate in the Executive Team Incentive Plan for 2006.

3) Transfers out of Plan

When an employee transfers during 2006 from an Executive Team Incentive Plan-eligible position to one that is not eligible, the employee may receive the Plan award based on a prorated ETIP target incentive. (Example: If transfer out of eligible position occurs on June 30, 2006, employee is eligible for 50% of target bonus.)

4) Leaves of Absence and Part-Timers

Target incentives will be prorated for participants who have been on an approved leave of absence of any length during the Plan year (inactive status), and for participants who are on a reduced work schedule.

5) Termination of Employment

Any termination of your employment will be subject to the terms of your offer letter.

LookSmart Confidential Page 2 of 4 Executive Team Plan Year 2006

6) Disputes and Binding Arbitration

If you believe that you have not received a payment to which you believe you are entitled, or believe that the Plan is not being operated properly, you must file a formal claim within 6 months of the date on which you first knew (or should have known) of the facts on which the claim is based. You must present such a claim to the CEO or his/her designee(s) in writing. The CEO or his/her designee(s) shall consider the claim and issue its determination in writing. If your claim is granted, you will be provided with the benefits or relief you seek. If your claim is wholly or partially denied, the CEO or his/her designee(s) shall provide you with written notice setting forth the reason or reasons for the denial. If the CEO or his/her designee(s) fails to respond to your claim in a timely manner, you may treat the claim as having been denied. Any claims that you do not pursue through this procedure shall be treated as having been irrevocably waived.

LookSmart hopes that any disputes involving the ETIP can be resolved through the process described above. However, in the event that such a resolution is not possible, you and the Company agree that all such disputes regarding this Plan shall be settled by binding arbitration held in San Francisco, California, under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280, et seq., including Section 1283.05, (the “Rules”) and pursuant to California law. A copy of the Rules is available for your review. The Company will pay for any administrative or hearing fees charged by the arbitrator or the arbitrating body except that except that the Participant shall pay the first $125.00 of any filing fees associated with any arbitration initiated by the Participant.

Except as provided by the Rules, arbitration shall be the sole, exclusive and final remedy for any dispute between the Company and the Participant involving the Plan. Accordingly, except as provided for by the Rules, neither the Company nor the Participant will be permitted to pursue court action regarding claims that are subject to arbitration under this Plan. The Participant is not prohibited from pursuing an administrative claim with a local, state or federal administrative body.

7) Employment at Will

Neither this Plan nor any information communicated to you regarding the ETIP alters the “at will” employment relationship between LookSmart and its employees. This means that your employment with the Company is for no specified period, and just as you are free to resign at anytime for any reason or no reason, similarly the Company is free to terminate its employment relationship with you at any time, with or without cause, and with or without notice.

This Plan sets forth all the rules applicable to LookSmart’s Executive Team Incentive Plan. These rules may only be modified in a writing signed by the CEO.

LookSmart Confidential Page 3 of 4 Executive Team Plan Year 2006

I have read and understand the Plan:

Print Name:                                                                                  

Signature:                                                                                       

Check One:

             I would like to receive 50% of my target incentive payment in Performance Stock Options and 50% in cash.

             I would like to receive 100% of my bonus achievement in cash.

LookSmart Confidential Page 4 of 4 Executive Team Plan Year 2006

EX-10.37

Exhibit 10.37

ADCENTER LICENSE, HOSTING AND SUPPORT AGREEMENT

This AdCenter License, Hosting and Support Agreement (“Agreement”) is entered into as of May 16, 2005 (the “Effective Date”), by and between Ask Jeeves, Inc., a Delaware corporation (“Partner”) and LookSmart, Ltd., a Delaware corporation (“LookSmart”).

RECITALS

The parties wish to provide for a hosted private-label solution to enable Partner to access and use the LookSmart Advertising Center and associated systems (including any improved version(s) or features of the LookSmart Advertising Center implemented and made generally commercially available to private label AdCenter customers by LookSmart after the Effective Date) (together, the “AdCenter”) on the Partner Network, on the terms and conditions herein.

NOW, therefore, for good and adequate consideration, the receipt of which is acknowledged, the parties agree as follows:

1) DEFINITIONS.

a) “Billable Clicks” means the number of clicks on Partner advertisements occurring on the Partner Network as recorded by the AdCenter (provided that such clicks do not exceed the maximum CPC or account budgets set by the advertiser). “Billable Clicks” shall in no event include any Test Traffic, Promotional Traffic, or clicks that are determined by the AdCenter to be fraudulently generated clicks.

b) “Gross Revenues” means amounts collected by Partner from advertisers who advertise on the Partner Network using the AdCenter.

c) “Licensed Marks” means the trademarks, trade names and related logos owned by Partner.

d) “Licensed Rights” means the rights licensed to Partner in Section 2 hereof.

e) “Partner Network” means Internet sites owned and operated by Partner, its subsidiaries or other affiliates, and its syndication network.

f) “Promotional Traffic” means clicks provided by Partner to its customers without charge as part of any advertiser incentive or promotional plan or arrangement. For the avoidance of doubt, traffic shall be considered “Promotional Traffic” only if (i) Partner notifies LookSmart in writing in advance of its intention to conduct a promotion, and (ii) such traffic shall comprise no more than 0.1% of the number of Billable Clicks per month.

g) “Test Traffic” means automatically generated ‘clicks’ on AdCenter-supported advertising generated for test purposes by Partner servers using predefined test syndicate codes agreed by the parties. For the avoidance of doubt, traffic shall be considered “Test Traffic” only if (i) Partner notifies LookSmart in advance of its intention to conduct a test, and (ii) such traffic shall comprise no more than 1% of the number of Billable Clicks per month.

2) LICENSE.

a) License. LookSmart grants to Partner, subject to the terms, limitations and conditions herein and during the Term hereof, a non-exclusive, non-transferable, worldwide, royalty-free (except as set forth in Section 3) license to access the AdCenter for the limited purposes of making the AdCenter available on the Partner Network to Partner’s advertising customers who become AdCenter account holders and who advertise on the Partner Network.

b) Limitations on License. The license granted above is limited by the following restrictions: (i) except as expressly permitted herein, Partner will not display, use, reproduce, distribute, make derivative works from, modify, sell, resell, rent, license, sublicense, transfer, assign or redistribute in any way the Licensed Rights; (ii) Partner will not attempt to alter, reverse engineer, decompile, disassemble or otherwise attempt to derive the Licensed Rights or any of LookSmart’s databases, computer code, computer programs, patents, copyrights, other proprietary rights or any other information furnished to Partner by LookSmart; (iii) Partner will not display, sublicense or syndicate the Licensed Rights on or to any third party or web site outside of the Partner Network unless it first obtains LookSmart’s written consent; (iv) Partner will use tracking URLs, as reasonably requested by LookSmart, for all advertisements intended to be tracked through the AdCenter which are displayed on the Partner Network (though Partner may use the display URLs for purposes of displaying the listing); (v) Partner will not use or authorize its advertisers to use the AdCenter in connection with the advertisement of illegal activities or the violation of third party rights; and (vi) Partner will not encourage, aid, abet, authorize or permit any employee, affiliate, contractor, agent, representative or third party to do or attempt to do any of the foregoing.

3) PAYMENTS AND REPORTING.

a) Subscription Payment. Partner shall pay the following subscription payment to LookSmart for Gross Revenues collected by Partner in each calendar month during the Term. For the avoidance of doubt, the revenue share payments described in this section shall be due and payable (at the time specified in Section 3(d) below) beginning as soon as Partner customers use the AdCenter, regardless of whether any of the launch dates described herein have occurred.

Tier	Gross Revenue in Calendar Month	LookSmart Share (for applicable Tier)
1	$[***]	[***]	%
2	$[***]	[***]	%
3	$[***]	[***]	%
4	$[***]	[***]	%
5	$[***] and higher	[***]	%

b) For example, if Partner collects $[***] of Gross Revenues in a given month, then the applicable subscription payment to LookSmart would be [***]. Setup Fee. The setup fee of $[***] (the “Setup Fee”) for the provision of integration services by LookSmart as described in Exhibit B shall be due and payable by Partner as follows: (a) $[***] shall be paid to LookSmart within three business days after the Effective Date, (b) $[***] shall be paid within three business days after the Version 1.0 Launch Date (as defined below), and (c) $[***] shall be paid within three business days after the Version 1.1 Launch Date (as defined below). All Setup Fees paid or payable under this section are non-refundable.

[***] indicates redacted text 2

c) Annual License Fee. Annual license fees of $[***] (the “Annual License Fee”) shall be due and payable by Partner as follows: (i) $[***] shall be paid to LookSmart within three business days after the Version 1.0 Launch Date (as defined below), and (ii) subject to the remainder of this paragraph, an additional $[***] shall be paid on the first anniversary of the Version 1.0 Launch Date. All Annual License Fees paid or payable under this section are non-refundable. If on the first anniversary of the Version 1.0 Launch Date, the Gross Revenues collected by Partner from its customers using the AdCenter during the preceding twelve months exceeds $[***], then the Annual License Fee for the second twelve-month period shall not become due and payable from Partner.

d) Payment and Reporting. LookSmart will make available to Partner daily reports describing Billable Clicks generated. The Billable Clicks numbers in such reports shall be final and may be relied upon by Partner for the purposes of this Agreement starting 10 days after the date on which the clicks occurred. Partner shall pay LookSmart its revenue share portion of Gross Revenues collected, and shall provide reasonable documentation detailing the amounts of such payments, within thirty (30) days after the end of each calendar month. Within 30 days after the third calendar month of each calendar quarter, LookSmart shall provide a report including information regarding any penalties to be paid by LookSmart for such calendar quarter as required by the SLA, and Partner may offset such amount against its subsequent monthly payment to LookSmart.

e) “Version 1.0 Launch Date” means the date on which (i) the private label AdCenter, meeting all aesthetic and functional requirements set forth for Version 1.0 of the private label AdCenter, as set forth in Exhibit B, may be accessed by Partner’s advertising customers, which access and functionality shall in any case be no less than the AdCenter access and functionality that LookSmart makes then available to LookSmart’s advertising customers, and (ii) LookSmart has provided to Partner all Version 1.0 documentation set forth in Exhibit B. For the purposes of clarity, the parties shall write and initial here to acknowledge the Version 1.0 Launch Date once it has occurred:

Version 1.0 Launch Date: 8/1/2005

LookSmart Initials: __________

Partner Initials: _____________

On or immediately after the Version 1.0 Launch Date, LookSmart shall notify Partner via email that the Version 1.0 Launch Date has occurred. Partner shall, within two business days of receipt of such notice, indicate its agreement and the parties shall complete and initial the Version 1.0 Launch Date definition above. If Partner disagrees in good faith that the Version 1.0 Launch Date has occurred, Partner shall notify LookSmart via email, including reasonable detail as to what aspects or features of the AdCenter are not substantially completed. If LookSmart does not resolve the discrepancy to Partner’s satisfaction within ten days of receipt of such email, Partner shall have the right to terminate this Agreement.

f) “Version 1.1 Launch Date” means the date on which (i) the private label AdCenter, meeting all aesthetic and functional requirements set forth for Version 1.1 of the private label AdCenter, as set forth in Exhibit B, may be accessed by Partner’s advertising customers, which access and functionality shall in any case be no less than the AdCenter access and functionality that LookSmart makes then available to LookSmart’s advertising customers, and (ii) LookSmart has provided to Partner all Version 1.1 documentation set forth in Exhibit B. For the purposes of clarity, the parties shall write and initial here to acknowledge the Version 1.1 Launch Date once it has occurred:

[***] indicates redacted text 3

Version 1.1 Launch Date: 9/1/2005

LookSmart Initials: __________

Partner Initials: _____________

On or immediately after the Version 1.1 Launch Date, LookSmart shall notify Partner via email that the Version 1.1 Launch Date has occurred. Partner shall, within two business days of receipt of such notice, indicate its agreement and the parties shall complete and initial the Version 1.1 Launch Date definition above. If Partner disagrees in good faith that the Version 1.1 Launch Date has occurred, Partner shall notify LookSmart via email, including reasonable detail as to what aspects or features of the AdCenter are not substantially completed. If LookSmart does not resolve the discrepancy to Partner’s satisfaction within ten days of receipt of such email, Partner shall have the right to terminate this Agreement.

g) Audit. Each party will maintain accurate records with respect to the calculation of all payments made or due made under this Agreement. The other party (the “Examining Party”) may, upon no less than 15 days prior written notice to the first party (the “Audited Party”) and no more than once in any twelve month period, cause an independent auditor of nationally recognized standing to inspect the appropriate records of the audited party reasonably related to the calculation of such payments during the Audited Party’s normal business hours. Such examination will be undertaken in a manner reasonably calculated not to interfere with the Audited Party’s normal business operations. The fees charged by such auditor in connection with the inspection will be paid by the Examining Party, unless the auditor discovers an underpayment of greater than [***]%, in which case the Audited Party will pay the reasonable fees of the auditor.

4) PARTNER OBLIGATIONS.

a) Customer Support. Partner (not LookSmart) shall enter into contractual relationships with all customers who purchase advertising through the AdCenter on the Partner Network. Such contractual relationship shall be governed by written terms and conditions which shall be consistent in all respects with the AdCenter’s features and functions. For the avoidance of doubt, Partner’s contracts with its customers shall include language ensuring the parties maximum flexibility to manage the AdCenter so that LookSmart may change, add or delete the features, functionality and appearance of the AdCenter at any time without notice. Partner shall be responsible for invoicing customers who choose to receive paper invoices and for all other billing and collection matters (except to the extent Billable Clicks data is produced by the AdCenter). Partner shall be responsible for all customer service issues with respect to customers who purchase advertising on the Partner Network, including all email and telephone service, and shall not refer customers to LookSmart at any time.

b) Tracking Codes. Partner shall ensure that all advertisements added by customers through the AdCenter include tracking codes as required to enable the AdCenter to track clicks. LookSmart shall provide specifications to Partner for such tracking codes, and Partner shall be responsible for ensuring that the tracking codes are properly used.

c) Promotion. LookSmart shall not be responsible for promoting the private label AdCenter or for generating customer interest in using the private label AdCenter. Any customer support, marketing, advertising, and sales conducted by Partner shall be conducted in a manner consistent with the functions and features of the AdCenter, and Partner shall not misrepresent or mislead customers or the public as to any of the functions or features of the AdCenter.

[***] indicates redacted text 4

d) Trademarks. Partner grants to LookSmart, subject to the terms, limitations and conditions herein, a non-exclusive, non-transferable, non-sublicensable license during the term hereof to use and reproduce the Licensed Marks solely in connection with the hosting and serving of the private-label AdCenter as set forth herein. Partner grants no rights in the Licensed Marks other than those expressly granted in this section. LookSmart agrees not to take any action inconsistent with such ownership and to cooperate, at Partner’s request and expense, in any action (including the conduct of legal proceedings) which Partner deems necessary or desirable to establish or preserve its exclusive rights in and to the Licensed Marks.

5) LOOKSMART OBLIGATIONS.

a) Service Levels. Beginning on the Version 1.0 Launch Date (except for the reporting features of the AdCenter, which shall begin on the Version 1.1 Launch Date), LookSmart will use commercially reasonable efforts to provide the service levels and technical support as specified in the SLA attached hereto as Exhibit A. LookSmart shall have no customer service duties with respect to Partner’s customers.

b) Hosting/Integration. LookSmart shall provide the AdCenter on a private-label basis, branded with Partner’s “look and feel” so that Partner’s customers have a consistent branding experience on the Partner Network. LookSmart shall host and serve the AdCenter pages and integration shall proceed as outlined on Exhibit B. The parties shall agree as soon as practicable hereafter on a statement of work, to be executed by the parties, which shall set forth the specifications and details of the work required by Exhibit B (the “Statement of Work”).

c) Changes to AdCenter. Except as otherwise expressly provided herein, the AdCenter licensed to Partner hereunder shall be functionally the same as the AdCenter generally made available to LookSmart’s customers during the Term.

i) Upon Request. Partner may, at any time during the Term, request that LookSmart develop additional features or functions of the AdCenter. If the parties agree that such additional features or functions shall be developed, they will jointly develop a project plan (including appropriate specifications, timelines, and allocation of resources) and negotiate market-based pricing and payment terms. No such additional development work shall be required to be performed by LookSmart, and no payments shall be required from Partner, until the parties have developed a project plan, agreed on financial terms, and signed an addendum to this Agreement.

ii) By LookSmart. Other than as expressly set forth herein, LookSmart shall retain full ownership and discretion over all elements of the AdCenter and may make modifications, additions or deletions at any time in its discretion, provided that LookSmart does not reduce or remove any material features or functionality from the AdCenter which are required by Exhibit B. In the event that LookSmart makes significant modifications, additions or deletions to the AdCenter, LookSmart will provide Partner with advance notice of such changes, and will not implement such changes on the Partner Network without at least 10 days’ advance notice. Notwithstanding the above, LookSmart will not make any modifications to the AdCenter that would reduce or remove any material features or functionality from the AdCenter which are required by Exhibit B.

d) Data on Partner Network Customers. Upon request, LookSmart will provide data generated by the AdCenter regarding the customers who used the AdCenter to purchase advertisements on the Partner Network, in a format to be mutually agreed by the parties. Such data shall be owned

by Ask Jeeves and may be accessed by LookSmart solely for the purpose of carrying out its obligations pursuant to this Agreement. Without limiting the foregoing, LookSmart agrees not to use such Partner Network customer data for any prospecting purposes, or for any other purposes aside from those expressly contemplated by this Agreement; provided that nothing herein shall prevent LookSmart from engaging in sales, marketing and advertising activities based on customer lead information from any other sources. For the avoidance of doubt, nothing herein shall prevent (i) the parties, from time to time, from conducting customer acquisition activities toward advertisers who are customers of the other party, so long as such activities do not violate this section, or (ii) LookSmart from granting a limited license to third party vendors to assist with back-end features of the AdCenter, provided that LookSmart enters into contractual arrangements with such third parties that are at least as protective of Partner’s rights to such customer data as the protections contained herein.

e) Data on Partner Network Users. Upon request, LookSmart will provide data generated by the AdCenter regarding the Partner Network users who have clicked on AdCenter-supported advertisements, in a format to be mutually agreed by the parties. Such data shall be owned by Ask Jeeves and may be accessed by LookSmart solely for the purpose of carrying out its obligations pursuant to this Agreement. Without limiting the foregoing, LookSmart agrees not to disclose such Partner Network user data to third parties or to use such Partner Network user data for any purposes aside from those expressly contemplated by this Agreement, provided that LookSmart may grant a limited license to third party vendors to assist with back-end features of the AdCenter, so long as LookSmart enters into contractual arrangements with such third parties that are at least as protective of Partner’s rights to such customer data as the protections contained herein.

f) MFN. If LookSmart enters into any agreement with a third party that is similar to this agreement, and such agreement provides for a source code escrow, then LookSmart will offer a substantially similar source code escrow provision to Partner.

g) Training. LookSmart will provide Partner personnel designated by Partner with up to 40 hours of training on the operation of the AdCenter. Such training will be provided on-site at Partner’s designated location, on dates reasonably agreed upon by LookSmart and Partner, and at no additional charge. LookSmart will bear all of its expenses for such training. Any additional training shall be on such terms, and at such times and locations, as agreed by the parties based on then-prevailing market rates.

h) Internal Controls. LookSmart shall, throughout the term of this Agreement, (a) document all key internal controls governing all significant systems that are used to provide the services provided by LookSmart under this Agreement, and (b) test such controls in accordance with the requirements for public companies set forth in Auditing Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, adopted by the Public Company Accounting Oversight Board. Such documentation and testing will be performed as part of LookSmart’s annual Sarbanes-Oxley Section 404 compliance process and will be reported in its periodic filings with the SEC. LookSmart will (i) make available to Partner’s internal compliance personnel and/or to Partner’s consulting firm (e.g. Protiviti) (for purposes of interview) compliance personnel and consultants (if any are used by LookSmart) reasonably required by Partner to comply with Partner’s obligations under all applicable laws, including without limitation, and all documentation prepared by LookSmart under (a) and (b) above (which shall be made available for review and note-taking from time to time, as required by Partner to comply with all applicable laws, at reasonable times at LookSmart’s business offices, and which shall not be copied or removed from LookSmart’s premises,

except that Partner or its consultants may remove all notes that they may make with respect to such materials and interviews), (ii) use its best efforts to implement a plan to correct material weaknesses in such controls as soon as practicable, and at no charge to Partner, correct such material weakness as soon as reasonably practicable, (iii) promptly provide Partner with a report of any such material weaknesses determined to exist by LookSmart or its auditors, and (iv) provide Partner with a quarterly report of any significant deficiencies in key internal controls governing significant systems that are used to provide the services provided by LookSmart under this Agreement discovered by LookSmart or its auditors. If at any time LookSmart obtains a SAS-70 Type I or II compliance certification for any systems that are used to provide the services under this Agreement, or engages a third-party auditor to perform any review intended to result in such a certification, LookSmart shall promptly provide Partner with a copy of such certificate and a copy of any such report prepared by such auditor. LookSmart shall be required to comply with this paragraph (1) whether or not it has publicly traded securities or is subject to the requirements of the Sarbanes-Oxley Act of 2002, and (2) only if the Gross Revenues collected by Partner using the AdCenter are or are reasonably likely to be a material portion of revenues reported on Partner’s (or its parent company’s, if Partner is acquired) consolidated financial statements.

6) PUBLICITY.

Other than as expressly set forth herein, neither party will make any public statement, press release or other announcement relating to the terms or existence of this Agreement without the prior written approval of the other party, provided that either party may make such disclosures as may be, in its reasonable opinion of counsel, advisable in order to comply with a subpoena or other legal process or with applicable laws, regulations or securities exchange rules. Within four months of the Version 1.0 Launch Date, as mutually agreed by the parties, the parties will issue a joint press release announcing in general terms the business relationship formed hereby, with the final text to be subject to both parties’ approval, which shall not be unreasonably withheld, delayed or conditioned. The parties agree that the subject matter of such press release shall be limited to the license relationship which is the subject matter of this Agreement, and shall not include any matters relating to any syndication network agreement between the parties. LookSmart may mention the relationship created hereby to prospective third party licensing customers after such third parties have executed confidentiality agreements that apply to such disclosures. After the issuance of the press release referred to above, or such earlier time as may be agreed to by Partner, LookSmart may also use Partner’s name for certain marketing purposes, limited to mentioning Partner as a customer in connection with the promotion and sales of the AdCenter licenses to third parties.

7) INTELLECTUAL PROPERTY OWNERSHIP.

a) Proprietary Rights of LookSmart. LookSmart will exclusively retain all right, title and interest in and to the AdCenter, the Licensed Rights, and all associated intellectual property and proprietary rights worldwide (including, but not limited to, ownership of all copyrights, trademarks, patents, derivative works, modifications, algorithms, taxonomies, trade secrets and other intellectual property rights therein, including any that are created during the Term hereof), and this Agreement shall create no ownership interest or proprietary rights in any of the foregoing (other than the License Rights expressly created herein).

b) Proprietary Rights of Partner. Partner will retain all right, title, and interest in and to the Partner Network (including, but not limited to, ownership of all copyrights, trademarks, patents, derivative works, modifications, customer lists and information, algorithms, taxonomies, trade secrets and other intellectual property rights therein), except for any Licensed Rights that are integrated into the Partner Network during the Term hereof. For the avoidance of doubt, (a)

Partner shall own all individually-identifiable customer information about customers who purchased advertising on the Partner Network through the AdCenter at any time during the Term hereof; provided that LookSmart shall be entitled to use, for its own purposes, aggregated customer information (i.e., information that contains no individually-identifiable customer information) about customers who purchased advertising on the Partner Network through the AdCenter at any time during the Term hereof; and (b) Partner shall own all data relating to users of the Partner Network, including without limitation, all data relating to such users interaction with any AdCenter-supported advertising.

8) TERM AND TERMINATION.

a) Term. The term of this Agreement (the “Term”) will begin on the Effective Date and will end [***] after the Version 1.0 Launch Date, unless earlier terminated in accordance with sections 3(e), 3(f), 8(b) or 8(c). Thereafter the parties may, at their option, extend the Term of the Agreement by mutual written consent.

b) Termination for Breach. Either party may terminate this Agreement (i) if the other party materially breaches its obligations hereunder and such breach remains uncured for thirty (30) days following delivery of written notice to the breaching party of the breach, or (ii) immediately upon written notice if the other party is subject to voluntary or involuntary bankruptcy proceedings, insolvency, liquidation or otherwise substantially discontinues its business operations.

c) Termination for Failure to Meet Monthly Minimum. Either party may terminate this Agreement on not less than ninety (90) days prior written notice if the Monthly Minimum is not achieved for any calendar month that begins more than six months after the Version 1.0 Launch Date. The “Monthly Minimum” for any given calendar month means that the revenue share payment to LookSmart pursuant to Section 3(a) exceeds $[***] (less any penalty paid or payable by LookSmart pursuant to Exhibit A as a result of a failure to meet SLA service levels). Partner shall have the option, at its discretion, to pay the difference between the revenue share payment to LookSmart pursuant to Section 3(a) and $[***] in any given month, and such aggregate payment shall be deemed to meet the Monthly Minimum for such calendar month for purposes of this paragraph, such that no termination right would come into effect as a result of a revenue share shortfall in such month. LookSmart shall have no termination right pursuant to this section if the cause of the shortfall in the applicable Monthly Minimum is due to a failure to meet SLA service levels.

d) Effect of Termination. Termination of this Agreement by either party will not act as a waiver of any breach of this Agreement and will not act as a release of either party hereto from any accrued liability (including payments as set forth in the following section) or liability for breach of such party’s obligations under this Agreement. Within thirty (30) days following the expiration or termination of this Agreement, each party will pay to the other party all sums, if any, due and owing as of the date of expiration or termination, net of any amounts due from the other party as of such date. Upon the expiration or termination of this Agreement for whatever reason, (i) Partner shall immediately remove all links to the AdCenter from the Partner Network, and cease to use the Licensed Rights, and (ii) each party shall immediately cease to use the other party’s trademarks, proprietary information, Licensed Rights, intellectual property (including derivative works or modifications thereof) and Confidential Information in any manner whatsoever, and shall destroy or return (at the option of the other party), any such property, or materials representing the same to the other party (except that, where required under applicable tax or accounting requirements, each party may keep one archival copy of transactional data for a period

[***] indicates redacted text 8

of time not to exceed the applicable tax statute of limitations), and provide the other party with an officer’s certificate attesting to such return/destruction. For the avoidance of doubt, upon termination or expiration of this Agreement, the license granted hereunder shall terminate and Partner and its agents shall immediately cease all use of the Licensed Rights.

e) Termination Assistance. Upon any expiration or earlier termination of this Agreement, LookSmart shall provide any or all of the following reasonable termination assistance services requested by Partner, for a period of three months, on a time and materials basis at market-based time and materials rates: (a) return, reproduction, shipment or transmission of any Partner Network customer data or user data, on media and in data formats reasonably requested by Partner, (b) documentation of all associated metadata, (c) reasonable assistance in transitioning the services formerly provided by the AdCenter to any other software, system or service, and/or any other reasonable termination or transition services requested by Partner. The termination assistance services required to be provided by LookSmart shall be provided at such times and locations as mutually agreed by the parties.

f) Survival. The provisions of sections 1 and 6-12 (inclusive), and any relevant payment provisions of Section 3, will survive any termination or expiration of this Agreement for a period of three years.

9) CONFIDENTIALITY.

a) “Confidential Information” means information about the disclosing party’s (or its suppliers’) business, products, technologies, strategies, customers, syndication or distribution partners, financial information, operations or activities that is proprietary and confidential, including without limitation all business, financial, technical and other information disclosed by the disclosing party. Confidential Information will not include information that the receiving party can establish (i) is in or enters the public domain without breach of this Agreement, (ii) the receiving party lawfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation, (iii) the receiving party knew prior to receiving such information from the disclosing party, or (iv) is independently developed by the receiving party without reference to the Confidential Information of the disclosing party.

b) Use of Confidential Information. Each party agrees (i) that it will not use or disclose to any third party or use any Confidential Information disclosed to it by the other except as expressly permitted in this Agreement or as required by a court of law or otherwise compelled to be disclosed pursuant to the legal process or existing laws or regulations, and (ii) that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the other party in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance.

10) WARRANTY AND INDEMNITY.

a) LookSmart Warranty. LookSmart warrants that it owns, or has obtained the right to distribute and make available as specified in this Agreement, the Licensed Rights provided to Partner in connection with this Agreement. Except as specifically provided in section 5(a), LookSmart does not guarantee or make any representations or warranties whatsoever with respect to the performance of the AdCenter or the completeness or accuracy of any information accessed through the AdCenter. LookSmart does not warrant, represent or guarantee that the use of the AdCenter or links thereto, or any other services provided hereunder will be uninterrupted, undisrupted or error-free.

b) Indemnification. Subject to the terms, conditions and limitations herein,

i) LookSmart will indemnify, defend and hold harmless Partner, its officers, directors and employees from any and all third party claims, liability, damages and/or costs (including, but not limited to, attorneys fees) arising from (1) LookSmart’s breach of any warranty, representation or covenant in this Agreement, or (2) any claim that the Licensed Rights infringe or violate the rights of a third party (to the extent that such claim is not based on a modification of the Licensed Rights without LookSmart’s authorization), and

ii) Partner will indemnify, defend and hold harmless LookSmart, its officers, directors and employees from any and all third party claims, liability, damages and/or costs (including, but not limited to, attorneys fees) arising from Partner’s breach of any warranty, representation or covenant in this Agreement.

Each party’s obligation to indemnify is conditioned upon the other party providing prompt notification of any and all such claims, unless the failure to notify does not materially and adversely affect the defense. The indemnified party will reasonably cooperate with the indemnifying party in the defense and/or settlement thereof; provided that if any settlement requires an affirmative obligation of, results in any ongoing liability to or prejudices or detrimentally impacts the indemnified party in a material manner, then such settlement shall require the indemnified party’s written consent (not to be unreasonably withheld or delayed) and the indemnified party may have its own counsel in attendance at all proceedings and substantive negotiations relating to such claim at the indemnified party’s sole cost and expense.

c) Disclaimer. EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.

d) Mutual Warranties. Each party represents and warrants to the other party that: (i) such party has the full corporate right, power and authority to enter into this Agreement and to perform the acts required of it hereunder; (ii) the execution of this Agreement by such party, and the performance by such party of its obligations and duties hereunder, do not and will not violate any agreement to which such party is a party or by which it is otherwise bound; (iii) when executed and delivered by such party, this Agreement will constitute the legal, valid and binding obligation of such party, enforceable against such party in accordance with its terms; and (iv) such party acknowledges that the other party makes no representations, warranties or agreements related to the subject matter hereof that are not expressly provided for in this Agreement.

11) LIMITATION OF LIABILITY.

a) Exclusion of Damages. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS OR REVENUE), WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.

b) Total Liability. OTHER THAN AS PROVIDED BELOW, IN NO EVENT WILL EITHER PARTY’S TOTAL LIABILITY HEREUNDER EXCEED THE LESSER OF (I) AN AGGREGATE OF THE SUM OF $1,500,000 AND 25% OF ALL GROSS REVENUES RECEIVED BY LOOKSMART HEREUNDER IN EXCESS OF $3,000,000 AND (II) $3,000,000 IN CONNECTION WITH ANY BREACH (OR ALLEGED BREACH) OF ANY REPRESENTATION, WARRANTY, OR COVENANT HEREIN, OR IN CONNECTION WITH THE INDEMNIFICATION PROVISIONS HEREIN. THIS LIMITATION SHALL NOT APPLY TO A FAILURE BY PARTNER TO PAY AMOUNTS DUE AND PAYABLE HEREUNDER, WHICH SHALL NOT BE LIMITED BY THIS SECTION.

12) GENERAL.

a) Assignment/Change of Control. Neither party may assign this Agreement, in whole or in part, without the other party’s written consent (which will not be unreasonably withheld), except to any purchaser of all or substantially all of the stock or assets of the party.

b) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of California, notwithstanding the actual state or country of residence or incorporation of the parties. The parties consent to the exclusive jurisdiction of the state or federal courts in the Northern District of California for all actions arising out of or related to this Agreement.

c) Notices. Any notice or other communication to be given hereunder will be in writing and will be (as elected by the party giving such notice): (i) personally delivered; (ii) transmitted by postage prepaid registered or certified mail, return receipt requested; (iii) deposited prepaid with a nationally recognized overnight courier service; or (iv) sent by facsimile. Unless otherwise provided herein, all notices will be deemed to have been duly given on: (a) the date of receipt (or if delivery is refused, the date of such refusal) if delivered personally or by courier; (b) three (3) Business Days after the date of posting if transmitted by mail; or (c) if transmitted by facsimile, the date a confirmation of transmission is received. Either party may change its address for purposes hereof on not less than three (3) Business Days prior notice to the other party. Notices hereunder will be directed to, unless otherwise instructed by the receiving party:

If to Partner:

Ask Jeeves, Inc.

555 12th Street, Suite 500

Oakland, CA 94607

Attn: VP, Product Management, AJ interactive

Fax: 510-985-7410

If to LookSmart:

625 Second Street

San Francisco, California 94107

Attn: Senior VP, Business Development

Fax: 415-348-7030

with a copy to:

625 Second Street

San Francisco, California 94107

Attn: Legal Department

Fax: 415-348-7034

d) No Agency. The parties are independent contractors and will have no power or authority to assume or create any obligation or responsibility on behalf of each other. This Agreement will not be construed to create or imply any partnership, agency or joint venture.

e) Force Majeure. Any delay in or failure of performance by either party under this Agreement will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such party including, but not limited to, acts of God, power outages and governmental restrictions.

f) Severability. In the event that any of the provisions of this Agreement are held by to be unenforceable by a court or arbitrator, the remaining portions of the Agreement will remain in full force and effect.

g) Entire Agreement. This Agreement is the complete and exclusive agreement between the parties with respect to the subject matter hereof, superseding and terminating any prior agreements and communications (both written and oral) regarding such subject matter. This Agreement may only be modified, or any rights under it waived, by a written document executed by both parties.

h) Independent Contractors. The parties are independent contractors and not co-venturers. Neither party shall be deemed to be an employee, agent, or legal representative of the other party hereto for any purpose and neither party hereto shall have any right, power or authority to create any obligation or responsibility on behalf of the other party hereto nor shall this be deemed an exclusive or fiduciary relationship.

i) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original or faxed copy and all of which together shall constitute one instrument.

j) Export. Both parties will adhere to all applicable laws, regulations and rules relating to the export of technical data and will not export or re-export any technical data, any products received from the other party or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized.

LookSmart, Ltd.		Partner
By:	/s/ David B. Hills	By:	/s/ Loni Knepper
Name:	David B. Hills	Name:	Loni Knepper
Title:	CEO	Title:	VP of Finance

EXHIBIT A

Service Level Agreement

1.0 OVERVIEW

LookSmart’s philosophy for offering a Service Level Agreement (“SLA”) is to enhance Partner’s confidence in the delivery of its service by defining specific performance metrics that can have a significant impact on Partner’s business and offering penalties for failure to deliver in areas that have the greatest impact on the Partner’s business. The penalty payments are not intended to financially compensate Partner for the impact on its business, but rather to penalize LookSmart sufficiently to ensure that it will do everything reasonable to deliver acceptable service levels.

By formally defining these metrics we are able to properly set the Partner’s expectations as well as provide internal targets for our staff. Many times Partner dissatisfaction can be traced to expectations that are not in-sync with the internal targets set by a supplier.

There are a variety of metrics that could be included in an SLA, but many may not be appropriate because they are either unimportant to the Partner, or not within the control of LookSmart.

The following criteria are used to determine the applicability of all metrics.

• Obligation to Deliver - The performance metric must be a documented obligation that LookSmart has as part of its agreement with Partner.

• Impact to Partner’s business - Performance metrics must be related to a contractual obligation that has a direct impact on the performance of Partner’s business.

• Ability to Measure Performance - The performance metrics must be defined unambiguously and must be measurable objectively.

2.0 LIMITATIONS

2.1 Circumstances beyond LookSmart’s control

LookSmart will not be held responsible and will not pay penalties for any lapse in performance due to:

• Natural disasters

• Problems caused by Internet infrastructure other than our own or that of our ISP

• Labor actions

• Problems caused by viruses or hacker attacks

• Problems caused solely by Partner or third-parties acting with Partner’s operation

• Operation with untested hardware, software or data (at Partner’s request)

2.2 Maximum Penalty; Termination

For any given Measurement Period, penalty payments will not exceed the average monthly service fee paid by Partner pursuant to Section 3(a) for the ADCENTER service during the three months immediately preceding the Measurement Period. The penalties set forth in this Exhibit A shall be the sole and exclusive monetary remedy available to Partner in event of a failure to meet the service levels set forth in this SLA (the only other remedy available to Partner in event of a failure to meet the service levels set forth in this SLA shall be termination of this Agreement upon 90 days’ prior written notice).

2.3 Payment History

Partner must have a history of on-time payment of LookSmart invoices for each of the six (6) months (or, if fewer, the number of months that have elapsed since launch of the AdCenter for the Partner) previous to the end of the Measurement Period in order to be eligible to receive penalty credits.

2.4 Service Level Reports

Within 30 days of the end of each calendar quarter during the term of the Agreement, LookSmart shall provide Partner with a report outlining LookSmart’s service performance for such quarter against all required service levels in Sections 4.1 and 4.2 and describing any significant failures to meet the service levels in Sections 4.3 and 4.6. Such report shall be included in the invoice delivered pursuant to Section 3(d) of the Agreement.

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2.5 Redundant Penalties

In the event a problem occurs that results in LookSmart’s failure to meet more than one service-level metric, LookSmart will issue credits for the metric with the highest penalty only.

2.6 Sunset

LookSmart shall not be liable for any penalties under this SLA if such penalties are not assessed within 180 days after the end of the corresponding quarterly Measurement Period.

3.0 DEFINITIONS

ACTUAL AVAILABILITY - the percentage of Maximum_Available_Time that ADCENTER is operating normally during a Measurement Period. It is calculated as follows:

(1 – (Total_Downtime / Maximum_Available_Time)) * 100).

MAXIMUM AVAILABLE TIME - the total amount of time, in hours, in a Measurement Period. This does not consider leap years and assumes that all Measurement Periods are equal. It is calculated as follows:

((((Days_Per_Year) * Hours_Per_Day) / (12 / Months_in_Measurement_Period)) – Scheduled_Downtime)

PRIORITY

	Priority-1	Priority-2	Priority-3
Ad Delivery	Overall delivery has stopped, or is Significantly degraded (average delivery latency > 2 secs, as measured over any 10-minute period)	Moderately degraded (average delivery latency > 1 sec, as measured over any 30-minute period)
Reporting	Daily reports are greater than 24 hours later	Daily Reports are between 3 and 24 hours late	Daily Reports are less than 3 hours late
User Interface	User interface is not available, or median response time to obtain a menu is greater than 10 sec (excluding large uploads/downloads), as measured over any 10-minute period	User interface response median time is between 5 and 10 secs (excluding large uploads/downloads), as measured over any 30-minute period
System Stability	System is unstable, crashing or creating significant disruption with a frequency of 30 days or less	System is unstable, crashing or creating significant disruption with a frequency of greater than 30 days
Other			Generic questions regarding setup or use of system

RESPONSE TIME – The time that elapses between the time Partner initiates a request for support and the time that a qualified engineer is made available to Partner.

SCHEDULED DOWNTIME – any time where the ADCENTER services are not available and Partner was given 48 hours notice of the disruption. Scheduled_Downtime will not exceed zero (0) hours for Advertisement delivery. In the event that emergency maintenance is required we will provide affected customers with 4 hour notification.

MEASUREMENT PERIOD – Performance will be assessed and penalties will be paid on a calendar quarter basis.

DAILY REPORTS – Shall contain the information specified in the Statement of Work.

Areas of Measurement

4.1 Availability of Advertisement Delivery

4.1.1 Impact on Partner’s business

Since the delivery of Advertisements directly impacts the Partner’s ability to generate revenue, any period when Advertisements are not being delivered will have a significant negative impact to Partner’s business.

4.1.2 Targeted performance

LookSmart’s targeted performance for Advertisement Delivery is an Actual Availability of 100%.

4.1.3 Measurement methodology

LookSmart will monitor its systems, software and network infrastructure and keep a log of any disruptions that prevent Advertisements from being delivered. Using these logs, LookSmart will calculate Actual Availability as described above.

4.1.4 Penalties

Should Advertisement Delivery Actual Availability drop below [***]% availability during the quarterly Measurement Period, LookSmart will issue a penalty credit of $[***] for every hour of unavailability below [***]% availability, calculated in 1-hour increments using standard rounding rules.

4.2 Availability of User Interface

4.2.1 Impact on Partner’s business

Any time that the User Interface is unavailable, Partner will not be able to manage the delivery of advertisements and will not be able to access the Daily Reports. This could cause a delay in the delivery of campaigns or reports to Partner’s advertisers. This would cause a significant inconvenience to Partner’s personnel and have a moderate impact on Partner’s business.

4.2.2 Targeted performance

LookSmart’s targeted performance for Actual Availability of the User Interface is [***]%.

4.2.3 Measurement methodology

LookSmart will monitor its systems, software and network infrastructure and keep a log of any disruptions that prevent Partner from accessing the User Interface. Using these logs, LookSmart will calculate Actual Availability.

4.2.4 Penalties

Should User Interface availability performance drop below [***]% availability during the quarterly Measurement Period, LookSmart will issue a penalty credit of $[***] for every hour of unavailability below [***]% availability, calculated in 1-hour increments.

4.3 Availability of Daily Reports

4.3.1 Impact on Partner’s business

The Daily Reports produced by the ADCENTER service are used to determine the success of advertising.

4.3.2 Targeted performance

LookSmart’s target for availability of the Daily Reports is to have the reports made available to Partner in a mutually agreed-upon format by 11:59 PM Pacific Time on the day following the day that is the subject of the reports.

4.3.3 Measurement methodology

LookSmart will actively monitor report generation and record the time that reports are delivered each day.

4.4 Notification of Disruption in Delivery of Advertisements

4.4.1 Impact on Partner’s business

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Since the delivery of Advertisements directly impacts Partner’s ability to generate revenue, any period when Advertisements are not being delivered will have a significant negative impact to Partner’s business. This also makes it imperative that the Partner is made aware of any disruption that interferes with delivery so that they can take any action, which may be appropriate.

4.4.2 Targeted performance

LookSmart shall notify Partner of a service disruption within thirty (30) minutes of becoming aware of a disruption, LookSmart will send an e-mail broadcast notification to up to five (5) e-mail addresses designated by Partner. Since most pagers are addressable via e-mail, this method of notification is the timeliest possible when used in conjunction with a pager.

4.4.3 Measurement methodology

LookSmart will use its delivery monitoring and e-mail logs to determine compliance.

4.5 Support Call Response Time

4.5.1 Impact on Partner’s business

Depending upon the priority, a support call may have a significant impact on Partner’s business, and therefore a timely response is essential. A definition of problem Priorities can be found in Section 3.0 above. LookSmart shall notify Partner of its telephone and email contact information for this section as soon as practicable, but in any event before the Version 1.0 Launch Date.

4.5.2 Targeted performance

LookSmart shall respond to requests for support by having a qualified engineer contact with Partner with a targeted response time:

• Priority-1 – [***]

• Priority-2 – [***]

• Priority-3 – [***]

4.5.3 Measurement methodology

LookSmart will use its trouble ticketing system to record all requests for support and all subsequent activity associated with the support call. Each activity will be date and time stamped by the system to accurately record the timing of events. Partner has the right to audit such trouble tickets with 30 days prior written notice by Partner.

4.6 Advertisement Delivery Latency

4.6.1 Impact on Partner’s business

Any significant delay in the delivery of an advertisement lessens effectiveness of the ad and lessens the probability of capturing a click-through. This can obviously have a significant impact on the Partner’s business.

4.6.2 Targeted performance

LookSmart’s Advertisement Delivery Latency shall be as follows:

• Average Delivery Latency of less than [***]% of the time as measured quarterly

4.6.3 Measurement methodology

LookSmart will monitor Advertisement Delivery Latency using automated instrumentation at various locations within its infrastructure to ensure that all components within its control are performing per specification. This effectively monitors the latency from when a request is received until an advertisement is delivered back to the Internet.

4.7 Queries per Month. AdCenter product architecture will support at least two billion queries per month for 2005 and three billion queries per month in 2006. Volume in excess of these limitations will be supported by LookSmart only if Partner provides 60 days’ prior written notice for each one billion additional queries per month over the foregoing monthly limitations.

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Exhibit B

High-Level Requirements for 1.0 and 1.1

Req ID	Requirement categories addressed by 1.0 and 1.1 (see Statement of Work for detailed requirements within each category)
1. General Requirements
10100	Private Labeled Solution
10200	Yield Ranking
10300	Yield Rank Preservation
10500	Credit Card Processing
10800	Targeting/Matching Options
12000	Flagging suspect listings
17000	Security Roles and User Level Access
2. Reporting Requirements
20100	General Reporting Requirements
20200	Downloadable File Formats
20300	Advertiser Reporting
20400	Syndication Partner Reporting
20599	Business Management Reporting
20511	Credit Card Activity
3. Advertiser Requirements
30601	Keyword Suggestion Tool
30701	Managing Keywords/Listings in Volume
30801	Online Support for ‘Self-Service’ tools.
30900	Creative Management
30100	Budgeting
31000	Targeting
4. Integration Requirements
40100	Systems Requirement

40200	Account Creation
40301	Account Updates
40401	Atlas one point Integration
40501	Flight Dates
5. Operational Requirements
50100	Site Creation
50200	Pricing Floors
50300	Blocking/Filtering
50400	CPC discounting
50700	CTR Thresholding by Syndicate Partner
50800	Query String
50803	Categorization (Logging AJ’s adcat parameter)
50900	Product must enforce strict click fraud detection methods

EX-10.38

Exhibit 10.38

ADDENDUM

TO

ADCENTER LICENSE, HOSTING AND SUPPORT AGREEMENT

This Addendum is entered into by and between Ask Jeeves, Inc., a Delaware corporation (“Partner”) and LookSmart, Ltd., a Delaware corporation (“LookSmart”) and is an addendum to that certain AdCenter License, Hosting and Support Agreement by and between Partner and LookSmart entered into as of May 16, 2005 (the “Agreement”). This Addendum is effective as of the date Ask Jeeves signs this Addendum and gives the signed document to LookSmart in accordance with Section 12(c) of the Agreement.

Whereas, pursuant to Section 5.c.i. of the Agreement, Partner has requested that LookSmart develop additional features or functions of the AdCenter (known as “AdCenter 1.2”), and LookSmart wishes to do so;

Therefore Partner and LookSmart agree as follows:

1. Project Plan. The project plan for AdCenter 1.2 is attached as Exhibit 1 hereto.

2. Pricing and Payment. Partner agrees to pay the sum of $[***] to LookSmart for AdCenter 1.2, as follows: [***]% of such amount upon signing this Addendum, and [***] % of such amount within ten (10) days after the date on which Ad Center 1.2 may be accessed and used by Partner.

3. Delivery. LookSmart agrees that it will deliver the features/functions to Ask Jeeves and notify Ask Jeeves of such delivery within thirty (30) days after the Effective Date.

4. Warranty. LookSmart warrants that upon delivery to Ask Jeeves, the features/functions it develops under this Addendum will meet the requirements of Exhibit 1, provided that Partner will notify LookSmart within thirty (30) days after Launch of any breach by LookSmart of such warranty. Without limiting the scope or availability of any remedy provided in the Agreement for breach of a warranty in the Agreement, as Partner’s sole and exclusive remedy for breach of the foregoing warranty, upon receiving notice of such breach by Partner, LookSmart shall repair the features/functions to conform to the requirements of Exhibit 1.

5. Except as modified herein, the Agreement shall remain in full force and effect.

Partner		LookSmart, Ltd.
By:	/s/ Daniel E. Caul	By:	/s/ Julie Sullenger
Name:	Daniel E. Caul	Name:	Julie Sullenger
Title:	General Counsel	Title:	VP Publisher Products

[***] indicates redacted text

Exhibit 1

Ad Center 1.2

Features/Functionality: AdCenter 1.2 will involve 5 features:

a. Add Searches, Matches, and Raw Partner Payment to the Daily Delivery Files

b. Add Urchin Tracking to the following pages:

Log-In Page

<https://secure.sponsoredlistings.ask.com/campaigns/submit/initial.jhtml?registerState=4&loginState=5>

Sign-up Page

<https://secure.sponsoredlistings.ask.com/campaigns/submit/initial.jhtml?registerState=7&loginState=8>

Create Account

<https://secure.sponsoredlistings.ask.com/accounts/create.jhtml?createCC=true&state=11>

Estimated Traffic Summary

<https://secure.sponsoredlistings.ask.com/reports/click_data.jhtml?aid=365650&cid=322986>

Billable Traffic Summary

<https://secure.sponsoredlistings.ask.com/reports/index.jsp?aid=365650&llop_sn=ts>

Custom Traffic Report

<https://secure.sponsoredlistings.ask.com/reports/index.jsp?aid=365650&rc_ac=365650&rc_cr=true&llop_sn=cr>

Current Month Summary

<https://secure.sponsoredlistings.ask.com/reports/index.jsp?aid=365650&llop_sn=ts&rc_fd=08/01/05>

Campaign History

<https://secure.sponsoredlistings.ask.com/reports/campaign.jhtml?cid=322986>

Account History

<https://secure.sponsoredlistings.ask.com/reports/account.jhtml?aid=365650>

Billing History

<https://secure.sponsoredlistings.ask.com/reports/billing.jhtml?aid=365650>

c. Copy changes will be made to FAQs and editorial guidelines

d. Create a new report, similar to the Keyword Saturation Report, that reports on all keywords

e. Make the normalized CTR column in the “manage_bids.csv” file customer viewable

EX-10.39

Exhibit 10.39

PAID LISTINGS

LICENSE AGREEMENT

This License Agreement (“Agreement”) is entered into as of April 15, 2006 (the “Effective Date”), by and between Searchfeed.com, a Delaware corporation (“Partner”) and LookSmart, Ltd., a Delaware corporation (“LookSmart”).

RECITALS

The parties wish to provide for a license to Partner to display LookSmart’s Paid Listings on the Partner Network sent by LookSmart in response to search queries, ad requests based on site pages, and other ad calls or requests for listings made by Partner to LookSmart.

NOW, therefore, for good and adequate consideration, the receipt of which is acknowledged, the parties agree as follows:

1. DEFINITIONS

1.1 A “Click” occurs when a bona fide Internet user (which excludes a robot, spider, software, scraper or other mechanical, artificial or fraudulent means, or a person who is not seeking to use the Partner Network for a legitimate web search, e.g., has been paid or otherwise motivated to click, as determined by LookSmart’s click filtering and tracking systems) clicks on a Listing and accesses the destination site.

1.2 “Listing” means a link to a website that includes the display URL, a title, text that describes the site to which the listing links or encourages the user to visit the site, and may include a tracking URL.

1.3 “Partner Network” means the web sites which are owned or operated by Partner or are contractually part of Partner’s syndication network.

1.4 “Paid Listings” means a LookSmart product that returns results containing only paid Listings. The amount that an advertiser pays to LookSmart influences (among other factors) the position in which the advertiser’s listing appears in our Paid Listings.

2. LICENSE

2.1 License. Subject to the terms, limitations and conditions herein, LookSmart hereby grants to Partner a non-exclusive license during the Term to publicly display, and allow third parties who operate sites on the Partner Network to publicly display, Paid Listings in electronic form on the Partner Network. Partner and third parties who operate sites on the Partner Network may not display any Paid Listings via any of the following distribution sources: e-mail, pop-ups, pop-unders or adware without LookSmart’s prior written, signed consent.

2.2 Limitations on License. The license granted above is conditioned upon Partner’s, and sites in the Partner Network’s, observance of the following restrictions: (i) except as expressly permitted herein, Partner will not display, use, reproduce, cache, store, distribute, make derivative works of, modify, sell, resell, rent, license, sublicense, transfer, assign or redistribute in any way Paid Listings; (ii) Partner will not modify, add to, edit or delete the URLs, titles or reviews contained within any Paid Listings without LookSmart’s prior written approval; (iii) Partner will not display, sublicense or syndicate Paid

Listings on or to any third party or web site outside of the Partner Network unless it first obtains LookSmart’s written consent; (iv) Partner will use the tracking URLs associated with each individual Listing provided by LookSmart, if any, for all Paid Listings included on its Partner Network (though Partner may use the display URLs for purposes of displaying the Listing); (v) Partner will not display any Paid Listings on any adult-oriented web sites without the prior written approval of LookSmart; (vi) Partner will not display any Paid Listings on any obscene or illegal web sites, or in any manner that violates any applicable laws or regulations or the rights of any third party; (vii) Partner will not display any Paid Listings, or allow any third parties to display any Paid Listings, via any form of adware, spyware, e-mail or method that violates applicable laws; and (viii) Partner will not display any Paid Listings, or allow any third parties to display any Paid Listings, to users whose IP address is outside of the United States or Canada, except as described in Exhibit C.

2.3 Display of Ads via Cookies or Downloadable Applications. The license granted above is conditioned on Partner’s, and sites in the Partner Network’s, observance of the following: a) if Partner displays or allows a third party to display Paid Listings via any “cookie” or application that is downloaded to a user’s computer or browser, Partner represents and warrants that, to the best of its knowledge, such cookie or application shall: (i) not gather any personally identifiable information (such as an individual’s name, telephone number, e-mail address and/or street address) or financial information of the end user; and (ii) not gather any information about the web pages accessed by the computer on which it is installed; b) if Partner displays or allows a third party to display Paid Listings via any application that is downloaded to a user’s computer or browser, Partner represents and warrants that, to the best of its knowledge, such application shall (iii) only be installed after clear and conspicuous notice to the end user; (iv) only be installed after the end user’s express and informed consent to installation; (v) allow for uninstallation that can be performed without undue effort or knowledge by the end user; (vi) allow for successful removal of such client-side application using the “Add/Remove Programs” functionality of Microsoft Windows (or similar on other platforms); (vii) not re-install itself without the end user’s express consent prior to each such re-installation; (viii) not install or allow the installation of any other programs not clearly and conspicuously disclosed to the end user, (ix) clearly display the Partner’s privacy policy (or a link or other access to it); and (x) comply with all applicable laws and regulations. Partner agrees to provide LookSmart with a copy of, and a license to use, any and all downloadable applications and all updates and upgrades thereto that Partner uses, or allows third parties to use, to display Paid Listings.

2.4 Display of Ads on Partner Network. The license granted above is conditioned on Partner’s, and sites in the Partner Network’s, observance of the following: if Partner allows any third party to display Paid Listings, Partner shall: (1) enter into a legally binding contract with such third party, (2) monitor the activities of such third party on a regular basis to ensure compliance with the requirements herein, and (3) immediately terminate such third party’s distribution of Paid Listings upon a determination that such third party is in material violation of any of the terms and conditions of such distribution agreement or upon request by LookSmart to do so.

2.5 Query Source Identification. For every ad call or other request for listings to LookSmart, Partner shall clearly identify to LookSmart the query source by providing the originating IP address of the user (not the server making the request) and the HTTP referrer that indicates where the listings are being displayed, when such information is available.

3. PAYMENT TERMS.

3.1 Cost Per Click. Subject to the terms and conditions hereof, for any given calendar month, LookSmart will pay Partner [***] from LookSmart invoices or charges for all qualified Clicks on listings advertisements, as recorded by LookSmart’s, or its customer’s as applicable,

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Confidential	Page 2	5/9/2006

click tracking systems. For each Click, the [***]. LookSmart will determine the CPC bid and include it in the Paid Listings feed sent in response to such request. LookSmart will have sole discretion to decide the CPC bid for each Listing, and such CPC bid may change frequently. Partner may use the CPC bid included in the Paid Listings feed from LookSmart solely for the purpose of ranking the Paid Listings and gauging payments from LookSmart, but the parties agree that all CPC bid amounts submitted by LookSmart are confidential information for internal use only, and shall not be posted on Partner’s web pages or disclosed to any third parties. LookSmart shall have no obligation to pay for clicks if Partner makes any material misrepresentations in Exhibit C or if Partner violates the license terms set forth in Section 2 above.

3.2 Reporting and Payment. LookSmart will make its “PUBLISHER CENTER” available to Partner for preliminary daily reporting of clicks, and Partner acknowledges and agrees that (i) such reporting may not represent the number of qualified Clicks for which LookSmart will pay Partner and (ii) it will control access to and maintain the confidentiality of its password for accessing the POP Portal. In the event the “PUBLISHER CENTER” is inoperable or unavailable, LookSmart agrees to provide Partner with daily reporting via e-mail, such reporting shall include data from the previous calendar day and shall contain the same statistics accessible via the “PUBLISHER CENTER”. Within 30 days after the end of each calendar month during the Term, LookSmart will deliver (a) a report describing invoices and billings to LookSmart customers for such calendar month pursuant to Section 3.1 and (b) payment pursuant to Section 3.1; provided, that Partner acknowledges and agrees that it may not receive payment for Clicks to the extent Partner has not provided the Query Source Identification, as described in Section 2.5 hereof, for such Clicks. For every request without such information, LookSmart’s ability to determine which clicks and ads are qualified or billable is impaired and thus LookSmart may not pay Partner for such clicks and ads. Partner shall also notify LookSmart of any changes, inaccuracies, or incompleteness of any statement Partner makes on Exhibit C, Part II. LookSmart reserves the right to deduct from payments made pursuant to Section 3.1. LookSmart also reserves the right to recoup any amounts paid to Partner within six months of the original payment for non-qualified Clicks.

3.3 Audit. LookSmart will maintain accurate records with respect to the calculation of all Clicks and/or payments due under this Agreement. Partner may, upon no less than fifteen (15) days prior written notice to LookSmart and no more than once in any twelve (12) month period, cause an independent auditor of nationally recognized standing to inspect the appropriate records of LookSmart reasonably related to the calculation of such Clicks and/or payments during LookSmart’s normal business hours. Such examination will be undertaken in a manner reasonably calculated not to interfere with LookSmart’s normal business operations. The fees charged by such auditor in connection with the inspection will be paid by Partner, unless the auditor discovers an underpayment of greater than five percent (5)%, in which case LookSmart, in addition to immediately reimbursing Partner for any underpaid amounts, will pay the reasonable fees of the auditor.

3.4 Non-qualified Clicks. LookSmart shall have no obligation to pay for clicks which are non-qualified clicks as determined by its click filtering and tracking systems. Non-qualified clicks may come as a result of but are not limited to clicks (i) generated via automated crawlers, robots or click generating scripts, (ii) that an advertiser receives and rejects, (iii) that come as a result of auto-spawning of browsers, automated redirects, and clicks that are required for users to navigate on the Partner Network, (iv) that are from users in countries other than those explicitly agreed to in Exhibit C by Partner and LookSmart, (v) that are on expired, cached or over-budget ads, or (vi) that come as a result of any incentive such as cash, credits or loyalty points. LookSmart reserves the right to require Partner to provide server log files that include, but are not limited to, the daily number of clicks delivered to LookSmart. In the event that LookSmart determines in its sole discretion that Partner or any third party site in the Partner

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Network has delivered non-qualified clicks, low quality traffic, or traffic that violates any material term of this Agreement, LookSmart may, at its option, (1) require Partner to immediately cease allowing any applicable third party sites in the Partner Network to display, Paid Listings via any particular means, method, product, or third party distributor, and/or (2) not pay Partner for the offending clicks.

3.5 Account Manager. LookSmart will provide a designated account manager to Partner.

4. PARTNER OBLIGATIONS.

4.1 Implementation of Paid Listings. Within ten (10) days after the Effective Date Partner will begin querying LookSmart’s servers for Paid Listings and will implement and display Paid Listings provided by LookSmart as set forth on Exhibit A.

4.2 Attribution; Look and Feel. Partner may provide LookSmart attribution on pages displaying Paid Listings. The size and location aspects of such attribution shall be at the parties’ mutual agreement. Other than as set forth herein, Partner shall control the look and feel of its search service.

5. LOOKSMART OBLIGATIONS.

5.1 Service Levels/Technical Support. LookSmart will use commercially reasonable efforts to provide the Service Levels and Technical Support as specified in Exhibit B.

6. PUBLICITY.

Neither party will make any public statement, press release or other announcement relating to the terms or existence of this Agreement without the prior written approval of the other party, such approval not to be unreasonably withheld, conditioned or delayed, provided that either party may make such disclosures as may be, in its reasonable opinion of counsel, advisable in order to comply with a subpoena or other legal process or with applicable laws, regulations or securities exchange rules.

7. INTELLECTUAL PROPERTY OWNERSHIP.

7.1 Proprietary Rights of LookSmart. LookSmart will retain all right, title and interest in and to the Paid Listings, the related databases, all data generated by LookSmart’s click tracking system and other performance measurement applications, and all associated intellectual property and proprietary rights worldwide (including, but not limited to, ownership of all copyrights, trademarks, patents, derivative works, modifications, lists of advertisers and information, algorithms, taxonomies, trade secrets and other intellectual property rights therein).

7.2 Proprietary Rights of Partner. Other than the Paid Listings, Partner will retain all right, title, and interest in and to the Partner Network (including, but not limited to, ownership of all copyrights, trademarks, patents, derivative works, modifications, lists of advertisers, algorithms, taxonomies, trade secrets and other intellectual property rights therein).

8. TERM AND TERMINATION.

8.1 Term. The term of this Agreement (the “Term”) will begin on the Effective Date and will end [***]. The Agreement will then automatically renew for successive twelve (12) month periods thereafter, unless either party gives written notice to the other party of its intention not to renew at least thirty (30) days prior to the end of the then-current term or renewal term.

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8.2 Termination. Either party may terminate this Agreement (a) at any time within the first 90 days after the Effective Date, provided that written notice of termination is delivered to the other party within such 90-day period, or (b) if the other party (i) materially breaches its obligations hereunder and such breach remains uncured for thirty (30) days following delivery of written notice to the breaching party of the breach, or (ii) is subject to voluntary or involuntary bankruptcy proceedings, insolvency, liquidation or otherwise substantially discontinues its business operations.

8.3 Effect of Termination. Termination of this Agreement by either party will not act as a waiver of any breach of this Agreement and will not act as a release of either party hereto from any accrued liability (including payments as set forth in the following section) or liability for breach of such party’s obligations under this Agreement. Within thirty (30) days following the expiration or termination of this Agreement, each party will pay to the other party all sums, if any, due and owing as of the date of expiration or termination, net of any amounts due from the other party as of such date. Upon the expiration or termination of this Agreement for whatever reason, each party shall immediately cease to use the other party’s trademarks, proprietary information, Paid Listings, intellectual property (including derivative works or modifications thereof) and Confidential Information in any manner whatsoever, and shall destroy or return (at the option of the other party), any such property, or materials representing the same to the other party, and provide the other party with an officer’s certificate attesting to such return/destruction. For the avoidance of doubt, upon termination or expiration of this Agreement, the license granted hereunder shall terminate and Partner and its agents shall immediately cease all use of the Paid Listings.

8.4 Survival. The provisions of sections 1 and 6-12 (inclusive) will survive any termination or expiration of this Agreement for a period of three years.

9. CONFIDENTIALITY.

9.1 “Confidential Information” means information about the disclosing party’s (or its suppliers’) business, products, technologies, strategies, advertisers, financial information, operations or activities that is proprietary and confidential, including without limitation all business, financial, technical and other information disclosed by the disclosing party. Confidential Information of LookSmart includes (without limitation) the CPC bids included in its Paid Listings feeds. Confidential Information of Partner includes (without limitation) the URLs within the Partner Network. Confidential Information will not include information that the receiving party can establish (i) is in or enters the public domain without breach of this Agreement, (ii) the receiving party lawfully receives from a third party without restriction on disclosure and without breach of a nondisclosure obligation, (iii) the receiving party knew prior to receiving such information from the disclosing party, or (iv) is independently developed by or on behalf of the receiving party without use of or reference to Confidential Information.

9.2 Use of Confidential Information. Each party agrees (i) that it will not use or disclose to any third party or use any Confidential Information disclosed to it by the other except as expressly permitted in this Agreement or as required by a court of law or otherwise compelled to be disclosed pursuant to the legal process or existing laws or regulations, and (ii) that it will take all reasonable measures to maintain the confidentiality of all Confidential Information of the other party in its possession or control, which will in no event be less than the measures it uses to maintain the confidentiality of its own information of similar importance.

10. WARRANTY AND INDEMNITY.

10.1 Warranties. LookSmart warrants that (i) it owns, or has obtained the right to distribute and make available as specified in this Agreement, the Paid Listings provided to Partner in connection

with this Agreement, and (ii) LookSmart’s service will not violate or infringe the intellectual property rights of any third party. Except as specifically provided herein, LookSmart does not guarantee or make any representations or warranties whatsoever (i) with respect to the completeness of any listings or links or information accessed through such links or (ii) with respect to the content of the web sites accessed through the listings or links provided hereunder. LOOKSMART DOES NOT WARRANT, REPRESENT OR GUARANTEE THAT THE USE OF ITS LISTINGS OR LINKS, OR ANY OTHER SERVICES PROVIDED IN CONNECTION WITH OR IN ADDITION TO THE FOREGOING WILL BE UNINTERRUPTED, UNDISRUPTED OR ERROR-FREE. Partner represents and warrants that (i) its display of Paid Listings hereunder (including its allowing third parties to do so) does not and will not violate any term or condition of this Agreement and (ii) the information provided in Exhibit C is accurate and complete.

10.2 Indemnification. Each party will indemnify, defend and hold harmless the other party, its officers, directors and employees from any and all third party claims, liability, damages, expenses and/or costs (including, but not limited to, attorneys fees) arising from the other party’s breach of any warranty, representation or covenant in this Agreement. All such amounts will be reimbursed to the indemnified party as incurred, within thirty (30) days of submission of reasonable supporting documentation or invoices to the indemnifying party. Each party’s obligation to indemnify is conditioned upon the other party providing prompt notification of any and all such claims, unless the failure to notify does not materially and adversely affect the defense. The indemnified party will reasonably cooperate with the indemnifying party in the defense and/or settlement thereof. The indemnified party may have its own counsel in attendance at all proceedings and substantive negotiations relating to such claim at the indemnified party’s sole cost and expense.

10.3 Disclaimer. EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING SUCH SUBJECT MATTER.

11. LIMITATION OF LIABILITY.

11.1 Exclusion of Damages. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.

11.2 Total Liability. OTHER THAN AS A RESULT OF BREACH OF SECTION 2 OR PURSUANT TO THE INDEMNIFICATION PROVISIONS HEREOF, IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR AN AMOUNT IN EXCESS OF THE TOTAL AMOUNT PAID TO PARTNER IN THE SIX MONTHS PRIOR TO ANY ALLEGED LOSS.

12. GENERAL.

12.1 Assignment/Change of Control. Neither party may assign this Agreement, in whole or in part, without the other party’s written consent (which will not be unreasonably withheld). In the event of a change of control, merger, reorganization or sale of all, or substantially all, of one party’s assets to a third party, the other party may terminate the agreement upon ten (10) days’ prior written notice at any time after the closing of such transaction. For the purposes hereof, a “change of control” shall mean a

transaction in which the shareholders of a party prior to the closing do not retain majority ownership of the party after the closing of such transaction.

12.2 Governing Law/Venue. This Agreement will be governed by and construed in accordance with the laws of the State of California, notwithstanding the actual state or country of residence or incorporation of the parties. The parties consent to the exclusive jurisdiction of the state or federal courts in the Northern District of California for all actions arising out of or related to this Agreement.

12.3 Notices. Any notice or other communication to be given hereunder will be in writing and will be (as elected by the Party giving such notice): (i) personally delivered; (ii) transmitted by postage prepaid registered or certified mail, return receipt requested; (iii) deposited prepaid with a nationally recognized overnight courier service; or (iv) sent by facsimile. Unless otherwise provided herein, all notices will be deemed to have been duly given on: (a) the date of receipt (or if delivery is refused, the date of such refusal) if delivered personally or by courier; (b) three (3) business days after the date of posting if transmitted by mail; or (c) if transmitted by facsimile, the date a confirmation of transmission is received. Either Party may change its address for purposes hereof on not less than three (3) business days prior notice to the other Party. Notices hereunder will be directed to, unless otherwise instructed by the receiving Party:

If to Partner:

750 Route 202 South, Suite 220

Bridgewater, NJ 08807

Attn: Bryan Brickley

Phone: 908-722-9951 ext. 202

Fax: 908-722-9953

If to LookSmart:

625 Second Street

San Francisco, California 94107

Attn: Senior VP, Business Development

Fax: 415-348-7030

with a copy to:

625 Second Street

San Francisco, California 94107

Attn: Legal Department

Fax: 415-348-7034

12.4 Force Majeure. Any delay in or failure of performance by either party under this Agreement will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such party including, but not limited to, acts of God, power outages and governmental restrictions.

12.5 Severability. In the event that any of the provisions of this Agreement are held by to be unenforceable by a court or arbitrator, the remaining portions of the Agreement will remain in full force and effect.

12.6 Entire Agreement. This Agreement is the complete and exclusive agreement between the parties with respect to the subject matter hereof, superseding and terminating any prior agreements

and communications (both written and oral) regarding such subject matter. This Agreement may only be modified, or any rights under it waived, by a written document executed by both parties.

12.7 Independent Contractors. The parties are independent contractors and not co-venturers. Neither party shall be deemed to be an employee, agent, or legal representative of the other party hereto for any purpose and neither party hereto shall have any right, power or authority to create any obligation or responsibility on behalf of the other party hereto nor shall this be deemed an exclusive or fiduciary relationship. This Agreement will not be construed to create or imply any partnership, agency or joint venture.

12.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original or faxed copy and all of which together shall constitute one instrument.

LookSmart, Ltd.		Partner:
		Searchfeed.com
By:	/s/ Bryan Everett	By:	/s/ Bryan Brickley
Name:	Bryan Everett	Name:	Bryan Brickley
Title:	EVP, Sales & Ops	Title:	Director of Business Development

EXHIBIT A

IMPLEMENTATION

The following Sections 1-7 apply to the distribution of Paid Listings on the Partner Network.

1. Display of Paid Listings. Partner will make or refer search queries, ad requests based on site pages, and other ad calls or requests for listings to LookSmart’s servers via a live data feed. If any Paid Listings are returned by LookSmart’s servers in response to such requests, such Paid Listings will be displayed on the Partner Network. Partner will not display or allow any third party in the Partner Network to display any CPC or price-related data that would allow users to determine the price paid by advertisers in connection with Paid Listings. Partner will cooperate with LookSmart to allow LookSmart to track Clicks on Paid Listings displayed on the Partner Networks, including the use of redirects, tracking URLs or other methods as reasonably requested by LookSmart. Other than as set forth herein, Partner shall be solely and exclusively responsible for the design, development, operation and maintenance of the Partner Network and for all advertising, sponsorship or other use of the media contained therein. Partner will implement the Paid Listings within ten (10) days of the Effective Date, such implementation to be verified by LookSmart recording at least one Click attributable to the Partner Network.

2. Partner Display Ordering; De-duplicating. Partner sorts, ranks and delivers Paid Listings for the Partner Network as indicated to LookSmart in Exhibit C, Part II. In the event that Partner decides to change the method by which it determines the ranking of its Paid Listings, Partner will provide to LookSmart thirty (30) days prior written notice of such change. Partner agrees that, to the extent it displays its own or other third party listings on the Partner Network in addition to the Paid Listings, if any such listing is duplicative with any Paid Listing, Partner will decide whether to show such listing or the Paid Listing on the basis of which one carries the higher CPC.

3. Position in Paid Listings. If Partner sorts, ranks and delivers listings on the Partner Network based on CPC amounts, a) Partner must deliver LookSmart’s Paid Listings above or in a more favorable position than the listing with the next lowest CPC; and b) Partner will in no way manipulate the Paid Listings to deliver LookSmart’s Paid Listings in a position below or less favorable than listings with CPCs lower than the Paid Listings.

4. CPC Bid. To optimize CPC bid pricing, LookSmart may designate Partner ad calls/requests to be directed to certain of its servers, and Partner shall follow such designations as they are provided to Partner.

5. Traffic Volume and Increases. Partner will make a reasonable effort to provide LookSmart with three (3) days prior written notice before launching with new affiliates or traffic sources that will, in Partner’s reasonable opinion, increase the number of Partner queries by the lesser of 50% over then-current levels or 500,000 queries per day.

6. Blocking Distribution. LookSmart may request that Partner block distribution of Paid Listings to a specified list of sources (keywords, portions of Partner Network, sites and/or IP addresses) or via any distribution method deemed questionable by LookSmart. LookSmart also reserves the right to make a written request to Partner for it to block specific Paid Listings for display to specific domains. Any such request will be processed by Partner as soon as practicable after, but in any event within two (2) business days from, Partner’s acknowledgement of receipt of such request from LookSmart. LookSmart is not obligated to pay Partner for any clicks from such domain(s) after the earlier of (i)

Confidential Page 9 5/9/2006

Partner’s acknowledgement of receipt of such request, or (ii) within two (2) business of such request. If Partner identifies the domain that the query originates from to LookSmart, then LookSmart may perform this blocking. LookSmart reserves the right to ask Partner to block any international traffic, including international queries and clicks, for international users and listings appearing on international sites. LookSmart also reserves the right to ask Partner to block all adult-related traffic, including adult queries and clicks generated as a result of these adult queries. LookSmart may update the list of prohibited distribution partners or sources from time to time, in its sole discretion. All sources contained within the list must be blocked from distribution by Partner as soon as practicable after, but in any event within two (2) business days from, Partner’s acknowledgement of receipt of notice from LookSmart. LookSmart shall have no obligation to pay Partner for qualified Clicks on Paid Listings after the earlier of (i) Partner’s acknowledgement of receipt of such notice, or (ii) within two (2) business of such notice.

Confidential Page 10 5/9/2006

EXHIBIT B

Service Levels

Below is the level of service to be supplied by LookSmart in connection with LookSmart’s provision of Paid Listings (the “Service”). The Service to be provided to Partner shall consist of a feed of Paid Listings as defined in the Agreement.

Partner Implementation Guide. Following the execution of this Agreement, LookSmart will provide Partner with a partner implementation guide to assist in the process of implementing the technical aspects of the Service. The parties will use commercially reasonable efforts to abide by the procedures and steps set forth in the guide.

Service Integration Technical Assistance. During the Term, LookSmart agrees to provide a designated technical account manager during normal business hours (8am – 5pm Pacific Time) to Partner to assist in the effective integration of the Service onto the Partner’s site. In no event will such support exceed ten (10) hours per month, and all such support will be provided during business hours. The parties agree that the Service is provided in a standard format and is well documented. LookSmart will not provide technical assistance relating to on-site server configuration or programming.

Service Response Time. The load time for a non-page-load query (i.e. where the data returned does not include the formatted page), as measured round-trip from the time Partner servers send a search request to LookSmart to the time of Partner’s servers’ receipt of a completed set of search result(s) will be less than 375 milliseconds at least 98% of the time, as measured daily, weekly, and monthly, from domestic locations. For purposes of clarity, Partner will not display Paid Listings for any search requests where Partner does not receive a complete set of search results from LookSmart within 750 milliseconds of the original search request.

Service Uptime. The Service will be available 24 hours/day, 7 days/week. Scheduled downtime will be communicated to partners with five (5) business days notice. The Service is guaranteed to be up 99.5% of the time as measured weekly and 99.8% of the time as measured monthly, excluding scheduled downtime. Should LookSmart determine that a reconfiguration of the Service is required, such as major software version changes, changes in hosting facilities or other network reconfiguration; LookSmart will provide Partner with thirty (30) days notice of such change, and will work in good faith to minimize any Service outages.

Quality Criteria. LookSmart will use commercially reasonable efforts to ensure that the Paid Listings returned by the Service shall not contain more than 3% Inactive Links out of any random sample of 10,000+ queries. “Inactive Links” shall be defined as any link provide by the Service which, when clicked, does not result in the user receiving a web page within 60 seconds at least 3 out of 5 times in any 1 week period.

TECHNICAL SUPPORT

To ensure that problems with the Service are identified, addressed and resolved in a timely manner, the following framework shall be followed for reporting problems, communicating progress on troubleshooting activities, resolving problems, and, if necessary, escalating the level of attention placed on such problems. This framework proposes a three-category approach to technical support for dealing with problems. The first type deals with general technical support such as consultation regarding

Confidential Page 11 5/9/2006

technical specification interpretation and understanding the process, the second with changes in the Service, and the third addresses problem reporting and resolution associated with the Service.

Type 1: General Technical Support

This category of service provides consultation regarding the proper interpretation of format specifications and data, as well as support on how the Service works, the quality or content of Service results for specific queries or how Partners might integrate the Service into their Web site(s). It does not address any desired changes in the basic service parameters. Within three (3) business days of the Execution Date of this Agreement, Partner will be provided with the names of both a business development account manager and a technical account manager who will provide this type of service during normal business hours, up to ten (10) hours per month, for the first three (3) months of this Agreement. Partner should expect a response to Type 1 issues within two (2) business days, after which they should be escalated as detailed below.

Type 2: Changes

Requests for changes in the Service should be directed to the business development account manager who will be assigned to Partner within three (3) days of the Execution Date of this Agreement. Partner should expect a response to Type 2 issues within two (2) business days, after which they should be escalated as detailed below.

Type 3: Problem Reporting and Resolution

Problems reaching LookSmart servers (e.g., major networking issues, Service outage, etc.) should be addressed with the LookSmart Technical Operations team as detailed below. ALL OTHER requests (e.g. product issues) should be treated as Type 1 or Type 2 issues.

1. Contact the System Technical Support team by:

• Email: techsupport@looksmart.net

• Email Page: techsupport-pager@looksmart.net

• Please remember to include an area code with the callback telephone number

If after 15 minutes, a callback is not received…

2. Contact the Director of Production Operations by use of the following contact information:

• Dean Cookson

• Work/Day: 415-348-7615

• Email: dcookson@looksmart.net

• Email Page: dcookson-pager@looksmart.net

If after 15 minutes, a callback was not received…

3. Contact the Vice President of Technical Operations by use of the following contact information:

• Michael Grubb

• Work/Day: 415-348-7633

• Email: mg@looksmart.net

• Email Page: mg-pager@looksmart.net

Escalation Procedures

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If Partner does not receive timely responses (according to the timetables outlined above) issues should be escalated to any of the following individuals:

Person to Contact	Title	Role	Phone	Email
David Hoare	Director, Sales Operations	Business Development	415-348-7611 (o)	dhoare@looksmart.net
Michael Schoen	VP Product	Product	415-348-7109 (o)	mschoen@looksmart.net
Bryan Everett	Senior VP Sales	Sales	415-348-7505 (o)	beverett@looksmart.net

Partner Points of Contact

Communication of issues from LookSmart to Partner should be directed to the following individuals:

Person to Contact	Title	Role	Phone	Email
Bryan Brickley	Dr. BD		(908) 722-9951 ext 202	Bryan@Searchfeed.com

Confidential Page 13 5/9/2006

EXHIBIT C

Partner Data Sheet

Part I

Distribution Products of Interest (Sponsored Search, Web Search, Find Articles, Furl )

How many queries, ad calls or pageviews will be made to request LookSmart Listings?

Part II

LookSmart Bus. Dev. Contact	CHRISTIAN LONG 415-348-7445 CLONG@LOOKSMART.NET
Partner’s Business Contact (name, phone, email)	Bryan Brickley
Partner’s Technical Contact (name, phone, email)
Partner’s Corporate Website Address(es)	750 Route 202 South, Suite 220
Describe where listings will primarily be displayed.	Partner Network
Will LookSmart ads appear on sites that are intended for an adult audience or have domain names that appear to be adult in nature?	¨        Yes ¨        No
Will LookSmart send you ads in response to adult queries?	¨        Yes ¨        No
You sort, rank, and deliver Paid Listings for the Partner Network based on one of the following methods (check one):	¨        The CPC provided by LookSmart ¨        The order supplied by LookSmart ¨        By a Partner algorithm (and if so, please describe how  the algorithm sorts, ranks and delivers listings) By Net Bid Price. For purposes of this Agreement, “Net Bid Price” shall mean the listing bid price, minus cost or similar expense for other third party providers, multiplied by the percentage of revenue received by Partner.
LookSmart ads will be shown to users in the following countries (check all that apply):	¨        United States ¨        Canada ¨
Will LookSmart Listings be distributed through applications that are installed on an end user’s computer?	¨        Yes ¨        No

Confidential Page 14 5/9/2006

If Yes, will the express permission of the user be obtained prior to the installation of the application?	¨        Yes ¨        No
Is there an easy way to uninstall the application?	¨        Yes ¨        No
Do you or your affiliates publish or distribute LookSmart Listings through cannels such as email , pop-ups, pop-unders, or applications installed onto computers with the owner’s permission? If Yes, please list these channels and provide their names.	¨        Yes ¨        No
Will LookSmart Listings be shown to users based on data collected about them or their behaviors? If Yes, please provide a link to your privacy policy. The privacy policy must clearly explain how user data is collected, used and shared with third parties. The privacy policy must also explain how users can opt-out of data collection.	¨        Yes ¨        No
How many sites and/or affiliates do you publish or distribute LookSmart Listings to?
Please describe the controls you have in place to ensure LookSmart Listings are not used in violation of this Agreement in your sites and by your affiliates (including redistribution of such ads by your affiliates)

Confidential Page 15 5/9/2006

EX-31.1

Exhibit 31.1

CERTIFICATION

I, David B. Hills, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of LookSmart, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2006

/s/ David B. Hills

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John Simonelli, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of LookSmart, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2006

/s/ John Simonelli

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David Hills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of LookSmart, Ltd. on Form 10-Q for the fiscal quarter ended March 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of LookSmart, Ltd.

Date: May 10, 2006
By:	/s/ David B. Hills
Name:	David B. Hills
Title:	Chief Executive Officer

I, John Simonelli, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of LookSmart, Ltd. on Form 10-Q for the fiscal quarter ended March 31, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of LookSmart, Ltd.

Date: May 10, 2006
By:	/s/ John Simonelli
Name:	John Simonelli
Title:	Chief Financial Officer