LOOK Topics 4. GOODWILL AND INTANGIBLE ASSETS

These excerpts taken from the LOOK 10-K filed Mar 16, 2009.

Goodwill and Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), goodwill and other intangibles with indefinite useful lives are not amortized but tested for impairment annually or more frequently when events or circumstances indicates that the carrying value of a reporting unit more likely than not exceeds its fair value. The Company’s annual goodwill impairment testing date is December 31 of each year.

The provisions of SFAS 142 require that a two-step test be performed to assess goodwill for impairment. The first step of the goodwill impairment test requires a determination of whether the fair value of each reporting unit is less than its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed only if the carrying value exceeds the fair value. The second step involves an analysis reflecting the allocation of fair value determined in the first step (as if it was the purchase price in a business combination). This process may result in the determination of a new amount of goodwill. If the calculated fair value of the goodwill resulting from this allocation is lower than the carrying value of the goodwill in the reporting unit, the difference is reflected as a non-cash impairment loss. The purpose of the second step is only to determine the amount of goodwill that should be recorded on the balance sheet. The recorded amounts of other items on the balance sheet are not adjusted. Management has determined that the Company has one reporting unit for purposes of goodwill testing.

The Company estimates the fair value of its single reporting unit utilizing up to three valuation methods: market capitalization, income approach and market approach. Revenue and expense forecasts used in the evaluation of goodwill were based on trends of historical performance and management’s estimate of future performance.

The Company’s annual assessment of goodwill as of December 31, 2008 concluded that the fair value of the remaining goodwill balance of $9.8 million was impaired. This charge reflects the impact of the current economic environment on the Company’s common stock price. The Company was not required to record a goodwill impairment charge as a result of the 2007 review. See Footnote 3, Discontinued Operations and Dispositions, for further details.

SFAS 142 also requires that intangible assets with definite lives be amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). The Company amortizes acquired intangible assets with definite lives over periods from two to seven years and the amortization expense is primarily classified as cost of revenues in the Company’s Consolidated Statements of Operations. The Company recorded impairment charges in loss from discontinued operations in both 2008 and 2007 as a result of the write down of the WiseNut and Furl assets. See Footnote 3, Discontinued Operations and Dispositions, for further details.

LOOKSMART, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill and Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), goodwill and other intangibles with indefinite useful lives are not amortized but tested for impairment annually or more frequently when events or circumstances indicates that the carrying value of a reporting unit more likely than not exceeds its fair value. The Company’s annual goodwill impairment testing date is December 31 of each year.

The provisions of SFAS 142 require that a two-step test be performed to assess goodwill for impairment. The first step of the goodwill impairment test requires a determination of whether the fair value of each reporting unit is less than its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed only if the carrying value exceeds the fair value. The second step involves an analysis reflecting the allocation of fair value determined in the first step (as if it was the purchase price in a business combination). This process may result in the determination of a new amount of goodwill. If the calculated fair value of the goodwill resulting from this allocation is lower than the carrying value of the goodwill in the reporting unit, the difference is reflected as a non-cash impairment loss. The purpose of the second step is only to determine the amount of goodwill that should be recorded on the balance sheet. The recorded amounts of other items on the balance sheet are not adjusted. Management has determined that the Company has one reporting unit for purposes of goodwill testing.

The Company estimates the fair value of its single reporting unit utilizing up to three valuation methods: market capitalization, income approach and market approach. Revenue and expense forecasts used in the evaluation of goodwill were based on trends of historical performance and management’s estimate of future performance.

The Company’s annual assessment of goodwill as of December 31, 2008 concluded that the fair value of the remaining goodwill balance of $9.8 million was impaired. This charge reflects the impact of the current economic environment on the Company’s common stock price. The Company was not required to record a goodwill impairment charge as a result of the 2007 review. See Footnote 3, Discontinued Operations and Dispositions, for further details.

SFAS 142 also requires that intangible assets with definite lives be amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). The Company amortizes acquired intangible assets with definite lives over periods from two to seven years and the amortization expense is primarily classified as cost of revenues in the Company’s Consolidated Statements of Operations. The Company recorded impairment charges in loss from discontinued operations in both 2008 and 2007 as a result of the write down of the WiseNut and Furl assets. See Footnote 3, Discontinued Operations and Dispositions, for further details.

LOOKSMART, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill and Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), goodwill and other intangibles with indefinite useful lives are not amortized but tested for impairment annually or more frequently when events or circumstances indicates that the carrying value of a reporting unit more likely than not exceeds its fair value. The Company’s annual goodwill impairment testing date is December 31 of each year.

The provisions of SFAS 142 require that a two-step test be performed to assess goodwill for impairment. The first step of the goodwill impairment test requires a determination of whether the fair value of each reporting unit is less than its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed only if the carrying value exceeds the fair value. The second step involves an analysis reflecting the allocation of fair value determined in the first step (as if it was the purchase price in a business combination). This process may result in the determination of a new amount of goodwill. If the calculated fair value of the goodwill resulting from this allocation is lower than the carrying value of the goodwill in the reporting unit, the difference is reflected as a non-cash impairment loss. The purpose of the second step is only to determine the amount of goodwill that should be recorded on the balance sheet. The recorded amounts of other items on the balance sheet are not adjusted. Management has determined that the Company has one reporting unit for purposes of goodwill testing.

The Company estimates the fair value of its single reporting unit utilizing up to three valuation methods: market capitalization, income approach and market approach. Revenue and expense forecasts used in the evaluation of goodwill were based on trends of historical performance and management’s estimate of future performance.

The Company’s annual assessment of goodwill as of December 31, 2008 concluded that the fair value of the remaining goodwill balance of $9.8 million was impaired. This charge reflects the impact of the current economic environment on the Company’s common stock price. The Company was not required to record a goodwill impairment charge as a result of the 2007 review. See Footnote 3, Discontinued Operations and Dispositions, for further details.

SFAS 142 also requires that intangible assets with definite lives be amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). The Company amortizes acquired intangible assets with definite lives over periods from two to seven years and the amortization expense is primarily classified as cost of revenues in the Company’s Consolidated Statements of Operations. The Company recorded impairment charges in loss from discontinued operations in both 2008 and 2007 as a result of the write down of the WiseNut and Furl assets. See Footnote 3, Discontinued Operations and Dispositions, for further details.

LOOKSMART, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)