** **

**SECURITIESAND 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, 2008** |
| ** **                                             | ** ** | ** **                                                                                              |
| **Or**                                                 |
| ** **                                             | ** ** | ** **                                                                                              |
| **o**                                                  | ** ** | **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 0-26083**                     |

 

----

 

**INSWEBCORPORATION**

(Exact name of Registrant asspecified in its charter)

 

| **Delaware**                                                        | ** ** | **94-3220749**                      |
|---------------------------------------------------------------------|------------|-------------------------------------|
| (State or other jurisdiction ofincorporation or organization)       |       | (IRS EmployerIdentification Number) |
|                                                                |       |                                |
| **11290 Pyrites Way, Suite 200 Gold River,  California 95670** |
| (Address of principal executive offices)                            |
| ** **                                                          | ** ** | ** **                          |
| **(916) 853-3300**                                                  |
| (Registrant’s telephone number, including area code)           |

 

----

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Sections 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company x |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant is a shellcompany (as defined by Rule 12b-2 of the Exchange Act). 

Yes o No x

 

Thenumber of outstanding shares of the Registrant’s Common Stock, par value $0.001per share, on April 30, 2008 were 4,684,158 shares.

 

 

----

 

**FORM 10-Q**

**INSWEB CORPORATION**

**INDEX**

 
| **PART I**  | **FINANCIAL  INFORMATION**                                                                                | ** ** |
|------------------|-----------------------------------------------------------------------------------------------------------|------------|
| ITEM 1:          | Financial Statements (unaudited)                                                                          |       |
|             | Condensed  Consolidated Balance Sheets as of March 31, 2008 and December 31,  2007              |       |
|             | Condensed  Consolidated Statements of Operations for the three months ended  March 31, 2008 and 2007 |       |
|             | Condensed  Consolidated Statements of Cash Flows for the three months ended  March 31, 2008 and 2007 |       |
|             | Notes to Condensed Consolidated  Financial Statements                                                     |       |
| ITEM 2:          | Management’s Discussion and Analysis of  Financial Condition and Results of Operations               |       |
| ITEM 3:          | Quantitative and Qualitative Disclosures  About Market Risk                                               |       |
| ITEM 4:          | Submission of  Matters to a Vote of Security Holders                                                      |       |
| ITEM 4T:         | Controls and  Procedures                                                                                  |       |
|             |                                                                                                      |       |
| **PART II** | **OTHER  INFORMATION**                                                                                    | ** ** |
| ITEM 1:          | Legal Proceedings                                                                                    |       |
| ITEM 1A:         | Risk Factors                                                                                              |       |
| ITEM 6:          | Exhibits                                                                                                  |       |
|             |                                                                                                      |       |
| Signature        |                                                                                                      |       |
| Certifications   |                                                                                                      |       |
|                  |                                                                                                           |            |  |

 

2

----

 

**PART I:****                                                   FINANCIALINFORMATION**

 

**ITEM 1.****                                                     FINANCIALSTATEMENTS**

 

**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                                                                                                                  | ** ** | **March 31,    2008** | ** ** | **December 31,    2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| **Assets**                                                                                                                                  |       |                       |       |                          |       |
| Current assets:                                                                                                                             |       |                       |       |                          |       |
| Cash and cash equivalents                                                                                                                   |       | $                          | 12,161     |                          | $          | 10,777 |   |
| Accounts receivable, net                                                                                                                    |       | 3,548                      |       | 2,428                         |       |
| Prepaid expenses and other current assets  (including related party receivable of $0 at March 31, 2008 and $48 at  December 31, 2007.) |       | 368                        |       | 596                           |       |
| Total current assets                                                                                                                        |       | 16,077                     |       | 13,801                        |       |
| Property and equipment, net                                                                                                                 |       | 291                        |       | 257                           |       |
| Other assets                                                                                                                                |       | 75                         |       | 75                            |       |
| Total assets                                                                                                                                |       | $                          | 16,443     |                          | $          | 14,133 |   |
|                                                                                                                                        |       |                       |       |                          |       |
| **Liabilities and stockholders’ equity**                                                                                               |       |                       |       |                          |       |
| Current liabilities:                                                                                                                        |       |                       |       |                          |       |
| Accounts payable                                                                                                                            |       | $                          | 2,918      |                          | $          | 2,118 |   |
| Accrued expenses                                                                                                                            |       | 1,643                      |       | 1,426                         |       |
| Deferred revenue                                                                                                                            |       | 229                        |       | 246                           |       |
| Total current liabilities                                                                                                                   |       | 4,790                      |       | 3,790                         |       |
|                                                                                                                                        |       |                       |       |                          |       |
| Commitments and  contingencies                                                                                                              |       |                       |       |                          |       |
|                                                                                                                                        |       |                       |       |                          |       |
| Stockholders’ equity:                                                                                                                  |       |                       |       |                          |       |
| Common stock                                                                                                                                |       | 8                          |       | 8                             |       |
| Paid-in capital                                                                                                                             |       | 206,846                    |       | 206,208                       |       |
| Treasury stock                                                                                                                              |       | (6,334                     | )          | (6,334                        | )          |
| Unrealized gain on available-for-sale securities                                                                                            |       | 2                          |       | —                        |       |
| Accumulated deficit                                                                                                                         |       | (188,869                   | )          | (189,539                      | )          |
| Total stockholders’ equity                                                                                                             |       | 11,653                     |       | 10,343                        |       |
| Total liabilities and stockholders’ equity                                                                                             |       | $                          | 16,443     |                          | $          | 14,133 |   |

 

See accompanying notes.

 

3

----

 

**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

 

*(in thousands, except per share amounts)*

*(unaudited)*

 
| ** **                                                   | ** ** | **Three Months   Ended March 31,** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Revenues:                                                    |       |                                                   |       |   |   |
| Transaction fees                                             |       | $                                                      | 12,971     |   | $ | 8,043 |   |
| Other                                                        |       | 61                                                     |       | 67 |   |
| Total revenues                                               |       | 13,032                                                 |       | 8,110 |   |
|                                                         |       |                                                   |       |   |   |
| Operating  expenses:                                         |       |                                                   |       |   |   |
| Direct marketing                                             |       | 9,305                                                  |       | 4,528 |   |
| Sales and  marketing                                         |       | 1,295                                                  |       | 1,478 |   |
| Technology                                                   |       | 816                                                    |       | 876 |   |
| General and  administrative                                  |       | 1,026                                                  |       | 902 |   |
| Total operating  expenses                                    |       | 12,442                                                 |       | 7,784 |   |
| Income from operations                                       |       | 590                                                    |       | 326 |   |
| Interest income                                              |       | 89                                                     |       | 72 |   |
| Other income                                                 |       | —                                                 |       | 4 |   |
|                                                         |       |                                                   |       |   |   |
| Income before  income taxes                                  |       | 679                                                    |       | 402 |   |
|                                                         |       |                                                   |       |   |   |
| Provision for  income taxes                                  |       | 9                                                      |       | — |   |
|                                                         |       |                                                   |       |   |   |
| Net income                                                   |       | $                                                      | 670        |   | $ | 402 |   |
|                                                         |       |                                                   |       |   |   |
| Net income per  share:                                       |       |                                                   |       |   |   |
| Basic                                                        |       | $                                                      | 0.14       |   | $ | 0.10 |   |
| Diluted                                                      |       | $                                                      | 0.12       |   | $ | 0.09 |   |
|                                                         |       |                                                   |       |   |   |
| Weighted-average  shares used in computing per share amounts |       |                                                   |       |   |   |
| Basic                                                        |       | 4,641                                                  |       | 4,119 |   |
| Diluted                                                      |       | 5,783                                                  |       | 4,452 |   |

 

Seeaccompanying notes.

 

4

----

 

**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                                                         | ** ** | **Three Months Ended   March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Cash flows from operating activities:                                              |       |                                                   |       |   |   |
| Net income                                                                         |       | $                                                      | 670        |   | $ | 402 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                                   |       |   |   |
| Share-based compensation                                                           |       | 334                                                    |       | 314 |   |
| Depreciation and amortization                                                      |       | 34                                                     |       | 44 |   |
| Net changes in operating assets and  liabilities:                                  |       |                                                   |       |   |   |
| Accounts receivable                                                                |       | (1,120                                                 | )          | (608 | ) |
| Prepaid expenses and other current assets                                          |       | 228                                                    |       | 126 |   |
| Other assets                                                                       |       | —                                                 |       | 2 |   |
| Accounts payable                                                                   |       | 800                                                    |       | 186 |   |
| Accrued expenses                                                                   |       | 217                                                    |       | (102 | ) |
| Deferred revenue                                                                   |       | (17                                                    | )          | (45 | ) |
| Net cash provided by operating activities                                          |       | 1,146                                                  |       | 319 |   |
|                                                                               |       |                                                   |       |   |   |
| Cash flows from investing activities:                                              |       |                                                   |       |   |   |
|                                                                               |       |                                                   |       |   |   |
| Purchases of property and equipment                                                |       | (68                                                    | )          | (7 | ) |
| Net cash used in investing activities                                              |       | (68                                                    | )          | (7 | ) |
|                                                                               |       |                                                   |       |   |   |
| Cash flows from financing activities:                                              |       |                                                   |       |   |   |
| Proceeds from issuance of common stock  through stock plans                        |       | 306                                                    |       | 29 |   |
| Net cash provided by financing activities                                          |       | 306                                                    |       | 29 |   |
| Net increase in cash and cash equivalents                                          |       | 1,384                                                  |       | 341 |   |
| Cash and cash equivalents, beginning of  period                                    |       | 10,777                                                 |       | 6,750 |   |
| Cash and cash equivalents, end of period                                           |       | $                                                      | 12,161     |   | $ | 7,091 |   |

 

See accompanying notes.

 

5

----

 

**INSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

***(unaudited)***

 

**1. Business of InsWeb**

 

InsWeb Corporation operates an online insurancemarketplace that enables consumers to obtain multiple insurance quotes for avariety of insurance products, including automobile, homeowners and term life.InsWeb’s marketplace electronically matches consumers and insurance providers.InsWeb has combined knowledge of the insurance industry, technological expertiseand close relationships with insurance companies, agents and other providers todevelop an integrated online marketplace. InsWeb’s marketplace enablesconsumers to research insurance-related topics, search for, analyze and compareinsurance products, and apply for and receive quotes for coverage forautomobile, homeowners and term life insurance. Management believes that InsWebprovides insurance providers with pre-qualified consumers at attractiveacquisition costs, with the scalable, cost-efficient distribution capabilitiesof InsWeb’s Internet-based model.

 

InsWebis subject to all of the risks inherent in the electronic commerce industry andspecial risks related to the online insurance industry. These risks include,but are not limited to, uncertain economic conditions which could result inlower growth rates, the changing nature of the electronic commerce industry,variations in the availability and cost of acquiring consumer traffic,unpredictability of future revenues, reliance on key customers —insurancecarriers, agents and other providers – who are themselves subject to volatilityin their operating cycles, and reliance on a third party intermediary whoprovides leads to local insurance agents on InsWeb’s behalf. These risks anduncertainties, among others, could cause InsWeb’s actual results to differmaterially from historical results or those currently anticipated. In light ofInsWeb’s ongoing modifications to its business model to better capitalize onits position as a leading insurance portal, InsWeb believes thatperiod-to-period comparisons of its operating results are not necessarilymeaningful and should not be relied upon as an indication of futureperformance. Moreover, there is no assurance that InsWeb will be able tosustain profitability.

 

**2. Basis of Presentation**

 

Thecondensed consolidated financial statements include the accounts of InsWebCorporation and its wholly-owned subsidiaries, InsWeb Insurance Services, Inc.and Goldrush Insurance Services, Inc. (“InsWeb” or the “Company”). Allsignificant inter-company accounts and transactions have been eliminated in theconsolidated financial statements.

 

Theaccompanying unaudited interim financial statements have been prepared inaccordance with U.S. generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-Q and Rule 10-01of Regulation S-X. Accordingly, they do not contain all of the information andfootnotes required by U.S. generally accepted accounting principles forcomplete financial statements. In the opinion of management, the accompanyingunaudited interim condensed consolidated financial statements reflect alladjustments, which include only normal recurring adjustments, necessary topresent fairly InsWeb’s financial position as of March 31, 2008 and theresults of operations and cash flows for the three months ended March 31,2008 and 2007. The financial data and other information disclosed in thesenotes to the condensed consolidated financial statements related to these periodsare unaudited. The results for the three months ended March 31, 2008 arenot necessarily indicative of the results to be expected for any future period.

 

Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto included in InsWeb’sAnnual Report on Form 10-K and other information as filed with theSecurities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States have been condensed or omitted pursuantto such rules and regulations. The March 31, 2008 condensedconsolidated balance sheet was derived from unaudited financial statements, butdoes not include all disclosures required by accounting principles generallyaccepted in the United States. However, the Company believes the disclosuresare adequate to make the information presented not misleading.

 

6

----

 

I**NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

In September 2006, the Financial Accounting Standards Board (FASB)issued Statement of Financial Accounting Standards No. 157, *Fair Value Measurements*(“Statement 157”).Statement 157 does not require any new fair value measurements but clarifiesthe fair value definition, establishes a fair value hierarchy that prioritizesthe information used to develop assumptions used for measuring fair value, andexpands disclosures about fair value measurements. Statement 157 clarifies thatfair value is the exchange price in an orderly transaction between marketparticipants to sell the asset or transfer the liability in the market. Thefair value hierarchy gives the highest priority to quoted prices in activemarkets and the lowest priority to unobservable data, for example, thereporting entity’s own data. It emphasizes that fair value is a market-basedmeasurement, not an entity-specific measurement, and a fair value measurementshould therefore be based on the assumptions that market participants would usein pricing the asset or liability. Statement 157 expands disclosures about theuse of fair value to measure assets and liabilities in interim and annualperiods subsequent to initial recognition, including the inputs used to measurefair value and the effect of such measurements on earnings for the period.

 

At its February 6, 2008 meeting, the FASB decided to (i) partiallydefer the effective date of Statement 157 for one year for certain nonfinancialassets and nonfinancial liabilities and (ii) remove certain leasingtransactions from the scope of Statement 157. The partial deferral isapplicable to nonfinancial assets and nonfinancial liabilities that arerecognized or disclosed at fair value in the financial statements on anonrecurring basis. Companies will still need to apply Statement 157’srecognition and disclosure requirements for financial assets and financialliabilities or for nonfinancial assets or nonfinancial liabilities that areremeasured at least annually. The FASB also decided to amend Statement 157 toexclude Statement No. 13, *Accountingfor Leases*, and its related interpretive accounting pronouncementsthat address leasing transactions. The exclusion does not apply to fair valuemeasurements of assets and liabilities recorded as a result of a leasetransaction but measured pursuant to other pronouncements within the scope ofStatement 157.

 

Statement 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007 and interim periods within thosefiscal years. InsWeb adopted Statement 157 at the beginning of 2008. There wasno material impact to the Company’s financial statements due to the adoption ofStatement 157.

 

In February 2007, the FASB issued Statement of FinancialAccounting Standards No. 159, *The FairValue Option for Financial Assets and Financial Liabilities, Including anAmendment of FASB Statement No. 115*(“Statement 159”). Statement159 allows entities to voluntarily choose to measure many financial assets andfinancial liabilities as well as certain nonfinancial instruments that aresimilar to financial instruments (collectively, eligible items) at fair value(the fair value option). The election is made on an instrument-by-instrumentbasis and is irrevocable. If the fair value option is elected for aninstrument, Statement 159 specifies that all subsequent changes in fair valuefor that instrument shall be reported in earnings and is effective as of thebeginning of an entity’s first fiscal year that begins after November 15,2007. Upon initial adoption, Statement 159 provides entities with a one-timechance to elect the fair value option for eligible items. The effect of the firstmeasurement to fair value should be reported as a cumulative-effect adjustmentto the opening balance of retained earnings or accumulated deficit in the yearthe statement is adopted. InsWeb adopted Statement 159 at the beginning of 2008and did not make any elections for fair value accounting. Therefore, InsWeb didnot record a cumulative-effect adjustment to its opening accumulated deficitbalance.

 

**3. Share-Based Payments**

 

InsWeb maintains a stock option plan and an employee stock purchaseplan. The following table sets forth the total share-based compensation expenserelating to these plans included in InsWeb’s operating expenses in itscondensed consolidated statements of operations for the three months ended March 31,2008 and 2007 (in thousands):

 
| ** **                  | ** ** | **Three Months Ended   March 31,** | ** ** |
|-----------------------------|------------|--------------------------------------------------------|------------|
| ** **                  | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
|                        |       |                                                   |       |   |   |
| Technology                  |       | $                                                      | 54         |   | $ | 32 |   |
| Sales and  marketing        |       | 94                                                     |       | 55 |   |
| General and  administrative |       | 186                                                    |       | 227 |   |
|                        |       | $                                                      | 334        |   | $ | 314 |   |

 

7

----

 

I**NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**4.Concentration of Risk — Significant Customers**

 

For the three months ended March 31, 2008, four customersaccounted for 17%, 16%, 10% and 10% of total revenues, respectively. Forthe three months ended March 31, 2007, three customers accounted for 15%,12% and 10% of total revenues, respectively. At March 31, 2008,two customers accounted for 18% and 17% of accounts receivable, respectively.At December 31, 2007, two customers each accounted for 17% ofaccounts receivable, respectively.

 

**5.Accrued Expenses**

 

Accruedexpenses consist of the following (in thousands):

 
| ** **                             | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Amounts due to fee sharing partners    |       | $                        | 719        |                        | $          | 373 |   |
| Deferred rent                          |       | 348                      |       | 374                         |       |
| Accrued employee compensation          |       | 317                      |       | 402                         |       |
| Accrued lease obligations (see Note 7) |       | 249                      |       | 248                         |       |
| Other                                  |       | 10                       |       | 29                          |       |
|                                   |       | $                        | 1,643      |                        | $          | 1,426 |   |

 

**6. Comprehensive Income**

 

Totalcomprehensive income was as follows (in thousands):

 
| ** **                                                             | ** ** | **Three months ended   March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                             | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| ** **                                                             | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Net income                                                             | ** ** | $                                                      | 670        | ** ** | $ | 402 | ** ** |
| Other comprehensive income - change in  unrealized gain on investments | ** ** | 2                                                      | ** ** | — | ** ** |
| Comprehensive income                                                   | ** ** | $                                                      | 672        | ** ** | $ | 402 | ** ** |

 

8

----

 

I**NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**7. Net Income Per Share**

 

Basic net income per share is computed using theweighted-average number of shares of common stock outstanding. Diluted earningsper share is a measure of the potential dilution that would occur if stockoptions had been exercised.

 

The following table reconciles the numerator anddenominator used to calculate basic and diluted net income per share of commonstock:

 
| ** **                                                            | ** ** | **Three months ended March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(In thousands, except per share amounts)** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
|                                                                  |       |                                                 |       |   |   |
| Numerator for basic and diluted net income  per share:                |       |                                                 |       |   |   |
| Net income available to common stockholders                           |       | $                                                    | 670        |   | $ | 402 |   |
|                                                                  |       |                                                 |       |   |   |
| Denominator for net income per share:                                 |       |                                                 |       |   |   |
| Basic—weighted average shares of common  stock outstanding       |       | 4,641                                                |       | 4,119 |   |
| Dilutive effect of employee stock options                             |       | 1,142                                                |       | 333 |   |
| Diluted                                                               |       | 5,783                                                |       | 4,452 |   |
|                                                                  |       |                                                 |       |   |   |
| Net income per share:                                                 |       |                                                 |       |   |   |
| Basic—as reported                                                |       | $                                                    | 0.14       |   | $ | 0.10 |   |
| Diluted—as reported                                              |       | $                                                    | 0.12       |   | $ | 0.09 |   |

 

**8.Commitments and Contingencies**

 

**Leases**

 

InsWebis contractually obligated to make future lease payments on certain formerlyoccupied facilities through September 2008. As of March 31, 2008, total future obligations for thesefacilities amounted to $1.3 million; these obligations are offset by totalcontractual future sublease income of approximately $1.1 million. Inconnection with its lease obligations for formerly occupied facilities,InsWeb must make assumptions regarding the potential future sublease incomerelative to these facilities. These estimates and assumptions are affected byarea-specific conditions such as new commercial development, market occupancyrates and future market prices. Based on these assumptions, InsWeb maintains anaccrual for formerly occupied facilities of $0.2million at March 31, 2008. If these estimates or their relatedassumptions change in the future, InsWeb may be required to record a charge toincrease its existing accrual.

 

9

----

 

I**NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**8.Commitments and Contingencies****(continued)**

 

**Securities Class Action**

 

A securities class action lawsuit was filed on December 5,2001 in the United States District Court for the Southern District of New York,(the “Court”) purportedly on behalf of all persons who purchased our commonstock from July 22, 1999 through December 6, 2000. The complaintnamed as defendants InsWeb, certain current and former officers and directors,and three investment banking firms that served as underwriters for InsWeb’sinitial public offering in July 1999. The complaint, as subsequentlyamended, alleges violations of Sections 11 and 15 of the Securities Act of 1933and Sections 10 and 20 of the Securities Exchange Act of 1934, on the groundsthat the prospectuses incorporated in the registration statements for theoffering failed to disclose, among other things, that (i) the underwritershad solicited and received excessive and undisclosed commissions from certaininvestors in exchange for which the underwriters allocated to those investorsmaterial portions of the shares of our stock sold in the offerings and (ii) theunderwriters had entered into agreements with customers whereby the underwritersagreed to allocated shares of the stock sold in the offering to those customersin exchange for which the customers agreed to purchase additional shares ofInsWeb stock in the aftermarket at pre-determined prices. No specific damagesare claimed. Similar allegations have been made in lawsuits relating to morethan 300 other initial public offerings conducted in 1999 and 2000, all ofwhich have been consolidated for pretrial purposes. In October 2002, allclaims against the individual defendants were dismissed without prejudice. In February 2003,the Court dismissed the claims in the InsWeb action alleging violations of theSecurities Exchange Act of 1934 but allowed the plaintiffs to proceed with theremaining claims. In June 2003, the plaintiffs in all of the casespresented a settlement proposal to all of the issuer defendants. Under theproposed settlement, the plaintiffs would dismiss and release all claimsagainst participating defendants in exchange for a contingent payment guarantyby the insurance companies collectively responsible for insuring the issuers inall the related cases, and the assignment or surrender to the plaintiffs ofcertain claims the issuer defendants may have against the underwriters. InsWeband most of the other issuer defendants have accepted the settlement proposal.While the District Court was considering final approval of the settlement, theSecond Circuit Court of Appeals vacated the class certification of plaintiffs’claims against the underwriters in six cases designated as focus or test cases.On December 14, 2006, the District Court ordered a stay of all proceedingsin all of the lawsuits pending the outcome of plaintiffs’ petition to theSecond Circuit for rehearing en banc and resolution of the class certificationissue. On April 6, 2007, the Second Circuit denied plaintiffs’ petitionfor rehearing, but clarified that the plaintiffs may seek to certify a morelimited class in the District Court. Because of the significant technicalbarriers presented by the Court’s decision, the parties withdrew the proposedsettlement and the plaintiffs filed an amended complaint. There is no assurancethat a new settlement will be negotiated, and then approved. If the settlementis not negotiated and subsequently approved, InsWeb intends to defend thelawsuit vigorously. The litigation and settlement process is inherentlyuncertain and management cannot predict the outcome, though, if unfavorable, itcould have a material adverse effect on InsWeb’s financial condition, results ofoperations and cash flows.

 

**Section 16(b) Lawsuit**

 

On October 12, 2007, Vanessa Simmonds, a purportedstockholder of InsWeb, filed a complaint in the United States District Courtfor the Western District of Washington, against InsWeb and two investment bankingfirms that served as underwriters for the initial public offering of our commonstock in July 1999. The complaint alleges that:  (i) thedefendants, other underwriters of the offering, and unspecified officers,directors and principal stockholders of InsWeb constituted a “group” that ownedin excess of 10% of InsWeb’s outstanding common stock between July 23,1999 and July 20, 2000; (ii) the defendants were therefore subject tothe “short swing” prohibitions of Section 16(b) of the SecuritiesExchange Actgroup of 1934; and (iii) the defendants engaged in purchasesand sales, or sales and purchases, of the Company’s common stock within periodsof less than six months in violation of the provisions of Section 16(b).The complaint seeks disgorgement of all profits allegedly received by thedefendants, with interest and attorneys fees, for transactions in violation of Section 16(b).InsWeb, as the statutory beneficiary of any potential Section 16(b) recovery,is named as a nominal defendant in the complaint. A number of similar lawsuitsagainst underwriters of other public offerings have recently been filed by thesame plaintiff and law firm. On February 11, 2008, the court approved astipulated order that InsWeb need not answer or otherwise respond to the complaint.On February 28, 2008, the plaintiff filed an amended complaint, and InsWebhas again been excused from filing an answer. InsWeb intends to defend the lawsuitvigorously. The litigation and settlementprocess is inherently uncertain and management cannot predict the outcome,though, if unfavorable, it could have a material adverse effect on InsWeb’sfinancial condition, results of operations and cash flows.

 

10

----

 

I**NSWEB CORPORATION**

 

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)**

 

***(unaudited)***

 

**8.Commitments and Contingencies****(continued)**

 

**Patent Litigation**

 

On November 30, 2007, Autobytel, Inc.filed acomplaint in the United States District Court for the Eastern District of Texasagainst InsWeb and three other defendants. The complaint alleges that InsWeband the other defendants infringed U.S. Patent No. 6,282,517 (the “‘517patent”), which appears to disclose a method and apparatus to allow a potentialautomobile purchaser to create and submit a purchase request for a new or usedautomobile over a computer network. The complaint contains generic allegationsthat InsWeb infringed the ‘517 patent by making, using, offering to sell andselling systems and/or methods that embody the invention claimed in the ‘517patent and/or actively inducing and/or contributing to others’ infringement ofsuch inventions. The complaint seeks unspecified monetary damages andinjunctive relief. On February 25, 2008, InsWeb filed an answer andcounterclaim denying infringement of the ‘517 patent and asserting invalidityof the patent and other affirmative defenses.

 

On March 11, 2008, InsWeb filed a complaint in theUnited States District Court for the Southern District of California againstAutobytel, Inc., Autobytel I Corporation (formerly known as AVV, Inc.)and Dominion Enterprises. The complaint alleges that the defendants haveinfringed InsWeb’s U.S. Patent No. 6,898,597, which relates to an eventlogging system that monitors for the occurrence of predefined website usageevents. Defendant Autobytel, through its wholly-owned subsidiary AVV, marketedand sold a product known as WebControl that embodies the invention claimed inInsWeb’s patent. In January 2008, Autobytel sold AVV, including theWebControl product, to Dominion Enterprises. InsWeb is seeking monetary damagesin an amount to be determined at trial from each defendant and a permanentinjunction against further acts of infringement.

 

InsWeb intends to vigorously defend the Texas lawsuit andprosecute the California action. The litigation and settlement process isinherently uncertain and management cannot predict the outcome, though, ifunfavorable, it could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows.

 

11

----

 

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

 

*This Quarterly Report on Form 10-Q, and in particular Management’sDiscussion and Analysis of Financial Condition and Results of Operations,contains “forward-looking statements” with respect to InsWeb’s future financialperformance. The words or phrases “expects,” “anticipates,” “intends,” “plans,”“believes,” “seeks,” “estimates,” and similar expressions are generallyintended to identify forward-looking statements. Such forward-lookingstatements are subject to various known and unknown risks and uncertainties,and InsWeb cautions you that any forward-looking information provided by, or onbehalf of, InsWeb is not a guarantee of future performance. Actual resultscould differ materially from those anticipated in such forward-lookingstatements due to a number of factors, some of which are beyond InsWeb’s control,including, but not limited to, uncertain economic conditions which could resultin lower growth rates, fluctuations in revenues, anticipated and unanticipatedlosses, the unpredictability of consumer shopping and/or buying behavior,especially on the internet, potential increases in advertising and marketingcosts on the internet, the rate of participationby insurance companies andagents, reliance on key customers, who are themselves subject to volatility intheir operating cycles, reliance on a third party intermediary who providesleads to local insurance agents on InsWeb’s behalf, competition,risksassociated with system development and operation risks, management of potentialgrowth and risks of new business areas, business combinations, litigation inwhich InsWeb is a party, and strategic alliances. These risks anduncertainties, as well as other risks and uncertainties, which are described ingreater detail in InsWeb’s Annual Report on Form 10-K for the year ended December 31,2007 and other documents filed with the Securities and Exchange Commission,could cause InsWeb’s actual results to differ materially from historicalresults or those currently anticipated. All forward-looking statements arebased on information available to InsWeb on the date hereof, and InsWeb assumesno obligation to update such statements.*

 

**Overview**

 

                InsWeb (the “Company,” “InsWeb,” “we,” “us,” or “our”) operates an onlineinsurance marketplace that enables consumers to comparison shop online and toobtain insurance company-sponsored quotes for a variety of insurance products,including automobile, homeowners and term life. InsWeb’s marketplaceelectronically matches consumers and insurance providers. InsWeb has combinedextensive knowledge of the insurance industry, technological expertise andclose relationships with a significant number of insurance companies, agentsand insurance providers to develop an integrated online marketplace.

 

Forthe automobile and homeowners insurance products, our principal source ofrevenues is transaction fees from participating insurance providers. Whilequotes obtained through our online insurance marketplace are provided toconsumers free of charge, we earn revenues when a qualified lead is deliveredto a participating insurance provider or local agent. In certain instances,consumers are provided the opportunity to link directly to a third partyinsurance provider’s website. In these situations, we will be paid a fee forthat consumer link or click-through whether or not the consumer completes thethird party’s online application.

 

Forterm life insurance, the majority of our revenues prior to April 2007consisted of commissions earned by our insurance agency subsidiary, InsWebInsurance Services, Inc., upon the sale of a term life insurance policy.We discontinued the term life agency operation in April 2007 but continuedto earn commissions throughout 2007 (in decreasing amounts) with the run off ofthe term life agency book of business. Beginning in 2008, substantially all ofour future revenues from the term life insurance product are being generated bythe sale of leads to third parties.

 

Beginning in 2008, InsWeb also generates both subscription and displayadvertising from sales of advertising on its Agent Directory pages. These pagesdisplay listings of several insurance companies and not more than eight localagents for the consumer to contact.

 

Fora variety of other insurance products, including renters and health insurance,we are paid a fee for the click through of a consumer from our website to athird party’s website.

 

We have focused our efforts on automobile insurance,which accounted for approximately 83% of our transaction revenues in 2007, and75% in 2006. For the three month period ending March 31, 2008, automobileinsurance accounted for 86% of our transaction revenues. We anticipate thatautomobile insurance will continue to account for a substantial portion of ourrevenues for the foreseeable future.

 

12

----

 

**Results of Operations**

 

Thefollowing financial highlights and key metrics are provided as a resource forour investors

 
| ** **                                        | ** ** | **Three months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **March 31,**               | ** ** | **March 31,** | ** ** |
| ** **                                        | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| Revenues:                                         |       |                             |       |   |   |
| Auto                                              |       | $                                | 11,197,000 |   | $ | 6,411,000 |   |
| Home/Condo/Renters                                |       | $                                | 931,000    |   | $ | 405,000 |   |
| Term Life                                         |       | $                                | 485,000    |   | $ | 1,215,000 |   |
| Agent Directory                                   |       | $                                | 351,000    |   | $ | — |   |
| All other                                         |       | $                                | 7,000      |   | $ | 12,000 |   |
| Total transaction fees                            |       | $                                | 12,971,000 |   | $ | 8,043,000 |   |
| # of Consumers:                                   |       |                             |       |   |   |
| Auto                                              |       | 2,862,000                        |       | 1,318,000 |   |
| Home/Condo/Renters                                |       | 184,000                          |       | 77,000 |   |
| Term Life                                         |       | 9,000                            |       | 60,000 |   |
| Agent Directory                                   |       | 719,000                          |       | N/M |   |
| Total                                             |       | 3,774,000                        |       | 1,455,000 |   |
| Transaction revenue per consumer:                 |       |                             |       |   |   |
| Auto                                              |       | $                                | 3.91       |   | $ | 4.86 |   |
| Home/Condo/Renters                                |       | $                                | 5.06       |   | $ | 5.26 |   |
|                                              |       |                             |       |   |   |
| Auto Segment B Revenue per Click                  |       | $                                | 6.70       |   | $ | 5.68 |   |
| Avg. Times Lead Sold- (Auto and Home)             |       | 3.7                              |       | N/M |   |
| Agent Network (Auto and Home):                    |       |                             |       |   |   |
| Carrier-Sponsored Agents                          |       | 2,390                            |       | N/M |   |
| AgentInsider Approved Agents                      |       | 5,764                            |       | 4,309 |   |
|                                              |       |                             |       |   |   |
| Direct Marketing Costs:                           |       | $                                | 9,305,000  |   | $ | 4,528,000 |   |
| Marketing Costs Per Consumer:                     |       |                             |       |   |   |
| Total                                             |       | $                                | 2.47       |   | $ | 3.11 |   |
| Excluding Agent Directory                         |       | $                                | 2.90       |   | $ | 3.11 |   |
| Direct Marketing Costs as a percent of  Revenues: |       | 71                               | %          | 56 | % |
|                                              |       |                             |       |   |   |
| Cash and Cash Equivalents:                        |       | $                                | 12,161,000 |   | $ | 7,091,000 |   |
| Account Receivable:                               |       | $                                | 3,548,000  |   | $ | 3,412,000 |   |
| Day Sales Outstanding (DSO):                      |       | 21                               |       | 35 |   |
| Staffing:                                         |       | 72                               |       | 85 |   |

 

13

----

 
| Definitions:                              |   |                                                                                                                                       |
|-------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
|                                      |   |                                                                                                                                       |
| “# of consumers”                |   | Represents consumers  acquired from marketing activities                                                                                   |
|                                      |   |                                                                                                                                       |
| “Per Consumer Information”      |   | Represents Revenues earned  or marketing costs incurred per consumer who has started an InsWeb quote form                                  |
|                                      |   |                                                                                                                                       |
|  “Segment B”               |   | Auto Insurance consumers  classified as non-standard (bad driving record, not enough experience, or not  permanently incurred for 3 years) |
|                                      |   |                                                                                                                                       |
| “Avg. Times Lead Sold                |   | Total # of times a lead is  sold, including leads sold by NetQuote on our behalf                                                           |
|                                      |   |                                                                                                                                       |
| “Carrier-Sponsored Agents”      |   | Carriers buying leads  through InsWeb on behalf of their Agents                                                                            |
|                                      |   |                                                                                                                                       |
| “AgentInsider approved  Agents” |   | # of agents approved to buy  leads through AgentInsider                                                                                    |
|                                      |   |                                                                                                                                       |
| “Direct Marketing Costs”        |   | Represents expenses  incurred by InsWeb to drive the consumers to InsWeb’s online insurance  marketplace                              |
|                                      |   |                                                                                                                                       |
| *N/M                                      |   | Information not meaningful                                                                                                                 |

 

***TransactionFees.***Automobileinsurance transaction fees (consisting of lead fees and click through fees)increased to $11.2 million for the three months ended March 31, 2008, from$6.4 million for the comparableperiod in 2007. The increases intransaction fees were attributable to improvements to our lead generationprogram and a 160% increase in traffic from the comparable period in 2007. Withthe significant increase in traffic, the submission rate decreased, and therevenue per auto consumer decreased to $3.91 for the three months ended March 31,2008, from $4.86 for thecomparable period in 2007.

 

Term life insurance transaction fees (consisting primarily of lead fees) decreased to $0.5 million for thethree months ended March 31, 2008, from $1.2 million for the comparable period in 2007. The decrease in term life revenues isattributable to the absence of commission based revenue following our decisionin April 2007 to wind-down our term life agency in order to focuson lead generation opportunities. Beginning in 2008, term life insuranceproducts are being offered to our consumers only through our online insurancemarketplace using a lead generation model.

 

Homeowners,condominium and renters insurance (consisting primarily of lead fees) was$0.9 million for the three months ended March 31, 2008, as comparedto $0.4 million for thecomparable period in 2007. Weexpect revenue from the property insurance marketplace to increase during theremainder of 2008.

 

Agentdirectory (consisting primarily of subscription revenue) was $0.4 millionfor the three months ended March 31, 2008, as compared to $0 for the comparable period in 2007.

 

**Operating Expenses**

 
| ** **                                                    | ** ** | **Three months ended  March 31,** | ** ** | **Percentage   change from** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------|------------|
| **(in thousands,**** except percentages****)** | ** ** | **2008**                                         | ** ** | **2007**                               | ** ** | **prior period** | ** ** |
|                                                          |       |                                             |       |                                   |       |   |   |
| Operating expenses:                                           |       |                                             |       |                                   |       |   |   |
| Direct marketing                                              |       | $                                                | 9,305      |                                   | $          | 4,528 |   | 105 | % |
| Sales and marketing                                           |       | 1,295                                            |       | 1,478                                  |       | (12 | ) |
| Technology                                                    |       | 816                                              |       | 876                                    |       | (7 | ) |
| General and administrative                                    |       | 1,026                                            |       | 902                                    |       | 14 |   |
|                                                               |            |                                                  |            |                                        |            |  |  |  |  |

 

14

----

 

**OperatingExpenses****(continued)**

*** ***

***DirectMarketing.*** Direct marketing expenses consist of advertising,promotions and fees incurred to drive consumer traffic to the InsWeb onlinemarketplace. Our marketing strategyis designed to increase consumer traffic to our website and to drive awarenessof our insurance products and services. We employ various means of advertising,which consist primarily of online advertising, sponsored search, portaladvertising, e-mail campaigns and strategic partnerships with high-profileonline companies that can drive significant traffic to the InsWeb site as wellas partnerships with other online lead generators that use our network. Feesrelated to our online marketing are expensed in the period in which the consumerclicks through from a partner’s website to InsWeb’s website, or in some cases,when the consumer’s activity on the InsWeb website generates a lead to aninsurance provider. Direct marketing expenses for the three months ending March 31,2008 increased to $9.3 million from $4.5 million in the comparable period in2007. Direct marketing expense as a percent of total revenues was 71% for the three months ended March 31, 2008,compared to 56% for thecomparable period in 2007. Direct marketing expenses per consumer were $2.47 forthe three months ended March 31, 2008, a decrease from $3.11 for thecomparable period in 2007.

 

***Sales andMarketing.*** Sales and marketing expenses consist primarily ofpayroll and related expenses, including employee benefits, facility costs,telecommunications and systems costs, for our sales and marketing personnel.Sales and marketing expenses decreased to $1.3 million for the three monthsended March 31, 2008, from$1.5 million for the comparableperiod in 2007. This decrease was primarily due to the winding-down of our term lifeagency beginning in April 2007. Sales and marketing expenses for theremainder of 2008 are expected to increase, due to an increase in headcountrelated expenses.

 

                ***Technology.***Technology expenses consist primarily of payroll and related expenses,including employee benefits, facility and systems costs, for product and sitedevelopment personnel involved with our technology initiatives. Technologyexpenses decreased to $0.8 million for the three months ended March 31,2008, from $0.9 millionfor the comparable period in2007. Technology expenses for the remainder of 2008are expected to increase, due to an increase in headcount related expenses.

 

***                General and Administrative.*** General andadministrative expenses consist primarily of payroll and related expenses,including employee benefits, facility costs, telecommunications and systemscosts, for our general management, administrative and accounting personnel, aswell as other general corporate expenses. General and administrative expenseswere $1.0 million for the three months ended March 31, 2008, compared to $0.9 million for the comparable period in 2007. General andadministrative expenses are expected to increase for the remainder of 2008, dueto an increase in share based compensation expense.

 

**Interest and Other Income**

 

                ***Interest Income***.Interest income was $89,000 for the three months ended March 31, 2008, anincrease from $72,000 for the comparable period in 2007. Interest incomerepresents interest earned on InsWeb’s investment securities.

 

***Other Income***. Other income was $0 for the three monthsended March 31, 2008, comparedto $4,000 for the comparable period in 2007.

 

15

----

 

**Operating Expenses****(continued)**

 

**Provision for Income Taxes.**Provision for incometaxes was $9,000 for the three months eneded March 31, 2008, compared to$0 for the comparable period in 2007.

 

**Critical Accounting Policies**

 

InsWeb’s discussion and analysis of its financialcondition and results of operations are based on InsWeb’s consolidatedfinancial statements which have been prepared in accordance with accountingprinciples generally accepted in the United States. The preparation of thesefinancial statements requires InsWeb to make estimates and judgments thataffect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.InsWeb bases its estimates and judgments on historical experience and onvarious other factors that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. InsWeb believes the following criticalaccounting policies affect its more significant judgments and estimates used inthe preparation of its consolidated financial statements.

 

**Contingencies.** As discussed in Part I,Item 3 (“Legal Proceedings”) of this report, InsWeb is a defendant in: i) aclass action lawsuit has been filed that alleges InsWeb violated certainfederal securities laws at the time of its initial public offering; ii) asecurities lawsuit alleging certain officers and directors and significantshareholders violated the short swing trading prohibition of Section 16(b) ofthe Securities Exchange Act; and iii) a patent infringement lawsuit in theEastern district of Texas. InsWeb is a plaintiff in a patent infringementlawsuit in the Southern District of California. InsWeb cannot accuratelypredict the ultimate outcome of these matters at this time and therefore,cannot estimate the range of probable loss, if any, due to the inherentuncertainties of litigation. InsWeb believes it has meritorious defenses;however InsWeb cannot assure that it will prevail in any of these actions. Anunfavorable outcome could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows.

 

**Share-Based Compensation.**InsWeb accounts for share-based compensationin accordance with Statement of Financial Accounting Standards No. 123(R),*Share-Based Payment*(“Statement 123(R)”). Under theprovisions of Statement 123(R), share-based compensation cost is generallyestimated at the grant date based on the award’s fair value as calculated bythe Black-Scholes-Merton (BSM) option-pricing model and is recognized asexpense over the requisite service period. The BSM model requires varioushighly judgmental assumptions including expected option life, volatility, andforfeiture rates. If any of the assumptions used in the BSM model change significantly,share-based compensation expense may differ materially in the future from thatrecorded in the current period.

 

**Income Taxes.**InsWeb accounts for income taxes in accordance with Statement ofFinancial Accounting Standards No. 109, *Accountingfor Income Taxes*. The deferred tax assets and/or liabilities aredetermined by multiplying the differences between the financial reporting andtax reporting bases for assets and liabilities by the enacted tax ratesexpected to be in effect when such differences are recovered or settled.

 

The carrying value of our deferred taxassets, which was approximately $73 million at December 31, 2007, isdependent upon our ability to generate sufficient future taxable income. Wehave established a full valuation allowance against our net deferred tax assetsto reflect the uncertainty of realizing the deferred tax benefits, givenhistorical losses. A valuation allowance is required when it is more likelythan not that all or a portion of a deferred tax asset will not be realized.This assessment requires a review and consideration of all available positiveand negative evidence, including our past and future performance, the marketenvironment in which we operate, the utilization of tax attributes in the past,and the length of carry-forward periods and evaluation of potential taxplanning strategies. We expect to continue to maintain a full valuationallowance until an appropriate level of profitability is sustained or we areable to develop tax strategies that would enable us to conclude that it is morelikely than not that a portion of our deferred tax assets would be realizable.

 

16

----

 

**Liquidity and CapitalResources**

 

                Summarized cash flow information is as follows (in thousands):

 
| ** **                            | ** ** | **Three months ended   March 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                            | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Cash provided by operating activities |       | $                                                      | 1,146      |   | $ | 319 |   |
| Cash used in investing activities     |       | (68                                                    | )          | (7 | ) |
| Cash provided by financing activities |       | 306                                                    |       | 29 |   |
|                                       |            |                                                        |            |  |  |  |  |

 

At March 31, 2008, InsWeb’s principal source of liquidity was$12.2 million in cash and cash equivalents. Since inception, we havefinanced our operations primarily through the sale of preferred and commonstock.

 

For the three months ended March 31,2008, net cash provided by operatingactivities primarily consisted of our net income adjusted for non-cashshare-based compensation of $0.3 million and depreciation and amortization ofproperty and equipment of $34,000. An increase in accounts receivable of $1.1million decreased cash provided by operations, but was largely offset by anincrease in accounts payable and accrued expenses of $1.0 million. The increase in accounts receivable wasprimarily the result of higher first quarter revenues than the preceding fourthquarter revenues. For the comparablethree month period ended March 31, 2007, net cash provided by operating activities was $0.3 million, largelyconsisting of net income of $0.4 million adjusted for non-cash share-based compensation of $0.3 million and an increase in accounts receivable of$0.6 million; this was partially offset by an increase of accounts payable of$0.2 million.

 

For the three months ended March 31,2008 and 2007, netcash used in investing activities was $68,000 and $7,000, respectively,representing purchases of property and equipment.

 

For the three months ended March 31,2008 and 2007, netcash provided by financing activities was $0.3 million and $29,000,respectively, and was primarily attributable to the exercise of employee stockoptions.

 

We lease office facilities undernon-cancelable operating leases, which expire at various dates through April 2011,including a 10-year lease agreement through 2011 for office space in theSacramento area which currently houses our corporate headquarters. We haveoptions to extend the lease at the end of the lease term, and have the right offirst refusal on other office space in the complex. In addition,  we have entered into various subleasearrangements associated with previously exited facilities that have termsextending through September 2008.

 

Aggregatecontractual cash obligations, net of contractual sublease income, as of March 31,2008 is summarized as follows (in thousands):

 
| **Periods ending December 31,** | ** ** | **Gross lease   commitments** | ** ** | **Sublease   income** | ** ** | **Net lease   commitment** | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|----------------------------|------------|--------------------------------------|------------|
| Nine months ending December 31, 2008      |       | $                                       | 2,049      |                       | $          | (1,217                               | )          | $ | 832 |   |
| Year ending December 31, 2009             |       | 1,078                                   |       | (191                       | )          | 887                                  |       |
| Year ending December 31, 2010             |       | 1,078                                   |       | (197                       | )          | 881                                  |       |
| Year ending December 31, 2011             |       | 359                                     |       | (33                        | )          | 326                                  |       |
| Year ending December 31, 2012             |       | —                                  |       | —                     |       | —                               |       |
|                                           |       | $                                       | 4,564      |                       | $          | (1,638                               | )          | $ | 2,926 |   |

 

We currently anticipate that our cash andcash equivalents will be sufficient to meet our anticipated cash needs forworking capital and capital expenditures for at least the next 12 months.Although we do not anticipate the need for additional financing, wenevertheless may require additional funds to meet operating needs, or to expandour business internally or through acquisition. We cannot be certain thatadditional financing will be available when required, on favorable terms or atall. If we are not successful in raising additional capital as required, ourbusiness could be materially harmed. If additional funds were raised throughthe issuance of equity securities, the percentage ownership of our then-currentstockholders would be reduced.

 

17

----

 

**ITEM3.****                                                     QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.**

 

Therehave been no material changes to our disclosures related to certain marketrisks as reported under Part II, Item 7A, “Quantitative and QualitativeDisclosures About Market Risk,” in our Annual Report on Form 10-K for theyear ended December 31, 2007, as filed with the U.S. Securities andExchange Commission.

 

**ITEM 4. ****                                               ****SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

Aspecial meeting of stockholders was held on February 29, 2008 to considerand approve the InsWeb Corporation 2008 Stock Option Plan (the “Plan”). Thepurpose of the Plan is to advance the interests of InsWeb and its stockholders byproviding stock option grants to attract, retain and reward employees,directors and consultants and to motivate such persons to contribute to InsWeb’sgrowth and profitability. The Plan was approved at the special meeting with 89%of the shares present or represented by proxy voting in favor of adoption.

 

**ITEM4T.****                                             CONTROLSAND PROCEDURES**

 

(a)                                             Under the supervision and with theparticipation of our management, including our Chief Executive Officer andChief Financial Officer, we evaluated the effectiveness of our disclosurecontrols and procedures, as such term is defined under Rule 13a-15(e) promulgatedunder the Securities Exchange Act of 1934, as amended. Based upon thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective as of the end of theperiod covered by this quarterly report.

 

(b)                                            There has been no change in our internalcontrol over financial reporting during the three months ended March 31,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II:****                                              ****OTHER INFORMATION**

 

**ITEM 1.****    ****LEGAL PROCEEDINGS**

 

                See Part I, Item 1, “FinancialStatements — Note 7 — Commitments and Contingencies.”

 

**ITEM1A.****                                            RISKFACTORS.**

 

Ourfuture business, operating results and financial condition are subject tovarious risks and uncertainties, including those disclosed in Part I, Item1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31,2007, as filed with the U.S. Securities and Exchange Commission. There havebeen no material changes to the risk factors as so disclosed.

 

**ITEM 6.  EXHIBITS**

 
| **Exhibit   Number** | ** ** | **Description  of Document**                                                                                                                              |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.24                |       | Information respecting  compensation to executives of Company (incorporated by reference to the  Company’s Report on Form 8-K dated March 13, 2008). |
|                 |       |                                                                                                                                                      |
| 31.1                 |       | Certification of Chief Executive  Officer, pursuant to Exchange Act Rule 13a-14(a).                                                                  |
|                 |       |                                                                                                                                                      |
| 31.2                 |       | Certification of Chief Financial  Officer, pursuant to Exchange Act Rule 13a-14(a).                                                                  |
|                 |       |                                                                                                                                                      |
| 32                   |       | Certification of Chief Executive  Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.                                           |

 

18

----

 

### **SIGNATURE**

###  

In accordance with the requirementsof the Securities Exchange Act of 1934, the registrant has caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
| Dated: May 12, 2008 | **INSWEB  CORPORATION**  |
|--------------------------|--------------------------|
| ** **               | **(Registrant)**         |
|                     |                     |
| ** **               | **/s/ STEVEN J. YASUDA** |
|                     | Steven J. Yasuda         |
|                     | Chief Accounting Officer |

 

19

----