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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 June 30, 2002

OR

oTransition 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 Identification No.)
Incorporation or organization) (I.R.S. Employer

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

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

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

          As of July 31, 2002, there were 97,962,307 shares of the registrant’s common stock outstanding.

Table of Contents

FORM 10-Q

INDEX

      Page
       
PART I   FINANCIAL INFORMATION    
ITEM 1: Condensed Consolidated Financial Statements (unaudited)    
  Condensed Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002   3
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2001 and 2002   4
  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2002   5
  Notes to Condensed Consolidated Financial Statements   6
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations   14
  Factors Affecting Operating Results   24
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk   34
PART II   OTHER INFORMATION    
ITEM 1: Legal Proceedings   35
ITEM 6: Exhibits and Reports on Form 8-K   35
ITEM 7: Signature   36


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Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LOOKSMART, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands, except per share amounts)

  December 31,     June 30,  
  2001     2002  
 
   
 
ASSETS              
             
Current assets:              
    Cash and cash equivalents $ 29,766     $ 47,717  
    Restricted cash   3,728       3,105  
    Short-term investments   14,346       999  
    Trade accounts receivable, net   9,294       8,501  
    Accounts receivable from related parties   906       134  
    Prepaid expenses   2,144       1,494  
    Other current assets   617       818  
 
   
 
        Total current assets   60,801       62,768  
Property and equipment, net   10,272       9,814  
Goodwill and intangible assets, net   9,969       15,897  
Security deposits   2,878       2,736  
Other long term assets   2,182       1,188  
 
   
 
        Total assets $ 86,102     $ 92,403  
 
   
 
               
LIABILITIES & STOCKHOLDERS’ EQUITY              
           
               
Current liabilities:              
    Trade accounts payable $ 2,323     $ 1,147  
    Other accrued liabilities   14,647       13,800  
    Deferred revenue   9,152       8,252  
    Current portion of long term debt   –       37,968  
 
   
 
        Total current liabilities   26,122       61,167  
Long term debt   35,777       927  
Other liabilities   559       860  
 
   
 
        Total liabilities   62,458       62,954  
               
               
Stockholders’ equity:              
    Capital stock $.001 par value; Authorized: 200,000 at December 31, 2001              
       and June 30, 2002; issued and outstanding; 93,004 and 97,893 at              
       December 31, 2001 and June 30, 2002   93       98  
    Additional paid-in capital   234,841       245,409  
    Other deficit   (1,198 )     (94 )
    Accumulated deficit   (210,092 )     (215,964 )
 
   
 
        Total stockholders’ equity   23,644       29,449  
 
   
 
        Total liabilities and stockholders’ equity $ 86,102     $ 92,403  
 
   
 

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



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LOOKSMART, LTD. AND SUBSIDIARIES

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

    Three Months Ended     Six Months Ended
    June 30,     June 30,
   
   
 
    2001     2002     2001     2002  
   
   
   
   
 
Revenues:                                
    Listings   $ 8,089     $ 15,230     $ 14,511     $ 28,656  
    Advertising     6,830       1,708       15,345       4,281  
    Licensing     2,924       3,791       8,049       7,500  
    Ecommerce     525       231       8,496       573  
   
   
   
   
 
      Total revenues     18,368       20,960       46,401       41,010  
Cost of revenues:                                
    Listings     1,971       6,567       3,217       10,249  
    Advertising     1,341       1,349       2,684       2,723  
    Ecommerce     329       1       5,338       64  
   
   
   
   
 
      Total cost of revenues     3,641       7,917       11,239       13,036  
   
   
   
   
 
Gross profit     14,727       13,043       35,162       27,974  
   
   
   
   
 
Operating expenses:                                
    Sales and marketing (includes deferred stock and variable option stock                                
      compensation of $444 and $(412) in the three months ended June 30,                                
      2001 and 2002, respectively, and $1,024 and $630 in the six months                                
      ended June 30, 2001 and 2002, respectively)     9,513       4,254       26,781       11,436  
    Product development (includes deferred stock and variable option stock                                
      compensation of $282 and $(541) in the three months ended June 30,                                
      2001 and 2002, respectively, and $586 and $671 in the six months ended                                
      June 30, 2001 and 2002, respectively)     7,097       5,163       16,202       12,180  
    General and administrative (includes deferred stock and variable option                                
      stock compensation of $20 and $(449) in the three months ended June 30,                                
      2001 and 2002, respectively, and $251 and $154 in the six months ended                                
      June 30, 2001 and 2002, respectively)     2,849       2,294       6,006       4,990  
    Amortization of goodwill     1,358       –       3,201       –  
    Asset impairment and restructuring charges     2,357       –       11,791       –  
   
   
   
   
 
        Total operating expenses     23,174       11,711       63,981       28,606  
   
   
   
   
 
        Income (loss) from operations     (8,447 )     1,332       (28,819 )     (632 )
                                 
Non-operating income (expenses):                                
  Interest and other non-operating income (expense), net     (2,353 )     (1,276 )     (3,324 )     (2,613 )
  Share of joint venture loss     (2,648 )     (852 )     (5,568 )     (1,929 )
   
   
   
   
 
        Loss from continuing operations before income taxes     (13,448 )     (796 )     (37,711 )     (5,174 )
Income tax and minority interest     (44 )     (10 )     (76 )     (24 )
   
   
   
   
 
        Loss from continuing operations     (13,492 )     (806 )     (37,787 )     (5,198 )
Loss from discontinued operations     (253 )     –       (515 )     (972 )
   
   
   
   
 
        Net loss   $ (13,745 )   $ (806 )   $ (38,302 )   $ (6,170 )
   
   
   
   
 
                                 
Other comprehensive loss:                                
    Change in foreign currency translation adjustment during the                                
      period     (63 )     (4 )     (218 )     197  
    Change in unrealized gains/(losses) during the period     203       (1 )     333       (1 )
   
   
   
   
 
      Comprehensive loss   $ (13,605 )   $ (811 )   $  (38,187 )   $  (5,974 )
   
   
   
   
 
                                 
Basic and diluted net loss per share:                                
  Loss from continuing operations   $ (0.15 )   $ (0.01 )   $ (0.41 )   $ (0.05 )
  Loss from discontinued operations   $ (0.00 )   $ (0.00 )   $ (0.01 )   $ (0.01 )
    Net loss   $ (0.15 )   $ (0.01 )   $ (0.42 )   $ (0.06 )
   
   
   
   
 
Weighted average shares outstanding used in per share calculation     91,511       96,690       91,362       96,082  
   
   
   
   
 
                               

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



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Table of Contents

LOOKSMART, LTD. AND SUBSIDIARIES

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

  Six Months Ended  
  June 30,  
 
 
  2001     2002  
 
   
 
Cash flows from operating activities:              
    Net loss $  (38,302 )   $ (6,170 )
               
    Adjustments to reconcile net loss to cash used in operating activities:              
        Share of joint venture loss   5,568       1,929  
        Depreciation and amortization   7,965       3,775  
        Impairment of goodwill   8,371       –  
        Loss from discontinued operations   –