**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

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**FORM 10-Q**

** **

| **ý**                                                                                                                                                                                                                                                                                                                                                                            | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                  |
| **For the quarterly period ended March 31, 2003**                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                  |
| **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**                                                                                                                                                                                                                                                                                                                                                    |

 

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**INSWEB CORPORATION**

(Exactname of Registrant as specified 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)    |

 

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Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySections 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý No o

 

Indicate by check markwhether the Registrant is an accelerated filer (as defined in Rule

12b-2 of the Exchange Act.)Yeso No ý

 

The number of outstandingshares of the Registrant’s Common Stock, par value $0.001 per share, on April30, 2003 were 4,693,927 shares.

 

 

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**FORM 10-Q**

**INSWEB CORPORATION**

**INDEX**

 
|                         |                                                                                                 |
|------------------------------|------------------------------------------------------------------------------------------------------|
|                         |                                                                                                 |
| **PART I**                   | **FINANCIAL INFORMATION**                                                                            |
| ITEM 1:                      | Financial Statements (unaudited)                                                                     |
|                         | Condensed Consolidated Balance Sheets as  of March 31, 2003 and December 31, 2002                    |
|                         | Condensed Consolidated Statements  of Operations for the three months ended March 31, 2003 and 2002  |
|                         | Condensed Consolidated  Statements of Cash Flows for the three months ended March 31, 2003 and  2002 |
|                         | 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:                      | Controls and Procedures                                                                              |
|                         |                                                                                                 |
| **PART II**                  | **OTHER  INFORMATION**                                                                               |
| ITEM 1:                      | Legal Proceedings                                                                                    |
| ITEM 2:                      | Changes in  Securities and Use of Proceeds                                                           |
| ITEM 3:                      | Defaults Upon  Senior Securities                                                                     |
| ITEM 4:                      | Submission of Matters  to a Vote of Security Holders                                                 |
| ITEM 5:                      | Other Information                                                                                    |
| ITEM 6:                      | Exhibits and Reports on Form 8-K                                                                     |
|                         |                                                                                                 |
| Signature and Certifications |

 

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**PART I****: FINANCIAL INFORMATION**

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

 

**INSWEB CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

*(in thousands)*

*(unaudited)*

* *
|                                            |   | **March 31,  2003** |   | **December 31,  2002** |   |
|-------------------------------------------------|--------|---------------------|--------|------------------------|--------|
| **Assets**                                      |   |                |   |                   |   |
| Current assets:                                 |   |                |   |                   |   |
| Cash and cash  equivalents                      |   | $                   | 14,953 |                   | $      | 12,382 |   |
| Short-term investments                          |   | 9,922               |   | 16,541                 |   |
| Accounts receivable, net                        |   | 2,124               |   | 2,236                  |   |
| Prepaid expenses and other current assets       |   | 908                 |   | 1,232                  |   |
| Total current assets                            |   | 27,907              |   | 32,391                 |   |
| Property and equipment, net                     |   | 1,975               |   | 2,197                  |   |
| Prepaid marketing costs                         |   | 741                 |   | 808                    |   |
| Deposits and other assets                       |   | 2,282               |   | 2,296                  |   |
| Total assets                                    |   | $                   | 32,905 |                   | $      | 37,692 |   |
|                                            |   |                |   |                   |   |
| **Liabilities and  stockholders’ equity**  |   |                |   |                   |   |
| Current liabilities:                            |   |                |   |                   |   |
| Accounts payable                                |   | $                   | 1,310  |                   | $      | 888 |   |
| Accrued expenses                                |   | 5,728               |   | 5,605                  |   |
| Deferred revenue                                |   | 613                 |   | 575                    |   |
| Marketing commitment with stockholder           |   | 1,328               |   | 2,306                  |   |
| Payable to stockholder                          |   | 1,294               |   | 1,230                  |   |
| Total current liabilities                       |   | 10,273              |   | 10,604                 |   |
|                                            |   |                |   |                   |   |
| Commitments  and contingencies                  |   |                |   |                   |   |
|                                            |   |                |   |                   |   |
| Stockholders’ equity:                      |   |                |   |                   |   |
| Common stock                                    |   | 7                   |   | 7                      |   |
| Paid-in capital, less treasury stock            |   | 198,067             |   | 201,938                |   |
| Accumulated other comprehensive loss            |   | (91                 | )      | (95                    | )      |
| Accumulated deficit                             |   | (175,351            | )      | (174,762               | )      |
| Total stockholders’ equity                 |   | 22,632              |   | 27,088                 |   |
| Total liabilities and stockholders’ equity |   | $                   | 32,905 |                   | $      | 37,692 |   |

 

Seeaccompanying notes.

 

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**INSWEB CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

*(in thousands, except per share amounts)*

*(unaudited)*

* *
|                                                                           |   | **Three Months Ended  March 31,** |       |
|--------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                           |   | **2003**                          |       | **2002** |   |
| Revenues:                                                                      |   |                              | ** ** |   | ** ** |
| Transaction fees                                                               |   | $                                 | 7,228      |   | $ | 6,393 |   |
| Development and maintenance fees                                               |   | 253                               |       | 441 |   |
| Total revenues                                                                 |   | 7,481                             |       | 6,834 |   |
|                                                                           |   |                              |       |   |   |
| Operating expenses:                                                            |   |                              |       |   |   |
| Technology                                                                     |   | 2,448                             |       | 3,020 |   |
| Sales and marketing                                                            |   | 4,683                             |       | 4,842 |   |
| General and administrative                                                     |   | 1,780                             |       | 1,781 |   |
| Total operating expenses                                                       |   | 8,911                             |       | 9,643 |   |
| Loss from operations                                                           |   | (1,430                            | )          | (2,809 | ) |
| Interest expense                                                               |   | (40                               | )          | (268 | ) |
| Interest income                                                                |   | 88                                |       | 177 |   |
| Other income                                                                   |   | 793                               |       | 9,360 |   |
| Net (loss)  income                                                             |   | $                                 | (589       | ) | $ | 6,460 |   |
|                                                                           |   |                              |       |   |   |
| Net (loss) income per share-basic and  diluted                                 |   | $                                 | (0.10      | ) | $ | 0.92 |   |
| Weighted average  shares used in computing per share amounts-basic and diluted |   | 6,095                             |       | 7,036 |   |

 

Seeaccompanying notes.

 

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**INSWEB CORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

*(in thousands)*

*(unaudited)*

* *
|                                                                                  |   | **Three Months Ended  March 31,** |       |
|---------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                  |   | **2003**                          |       | **2002** |   |
| Cash flows from operating activities:                                                 |   |                              | ** ** |   | ** ** |
| Net (loss) income                                                                     |   | $                                 | (589       | ) | $ | 6,460 |   |
| Adjustments to reconcile net (loss) income to net cash used in  operating activities: |   |                              |       |   |   |
| Gain on amendment of license and distribution agreement                               |   | —                            |       | (9,345 | ) |
| Amortization of intangible assets and prepaid marketing costs                         |   | 67                                |       | 376 |   |
| Depreciation and amortization                                                         |   | 311                               |       | 713 |   |
| Other                                                                                 |   | 8                                 |       | 6 |   |
| Net changes in operating assets and liabilities:                                      |   |                              |       |   |   |
| Accounts receivable                                                                   |   | 112                               |       | (854 | ) |
| Prepaid expenses and other current assets                                             |   | 323                               |       | 332 |   |
| Deposits and other assets                                                             |   | (1                                | )          | 1,609 |   |
| Accounts payable                                                                      |   | 422                               |       | 184 |   |
| Accrued expenses                                                                      |   | 122                               |       | 873 |   |
| Deferred revenue                                                                      |   | 38                                |       | (172 | ) |
| Net cash provided by operating activities                                             |   | 813                               |       | 182 |   |
| Cash flows from investing activities:                                                 |   |                              |       |   |   |
| Redemptions of short-term investments                                                 |   | 9,304                             |       | 7,829 |   |
| Purchases of short-term investments                                                   |   | (2,681                            | )          | (12,373 | ) |
| Purchases of property and equipment and capitalized website  development costs        |   | (17                               | )          | (245 | ) |
| Net cash provided by (used in) investing activities                                   |   | 6,606                             |       | (4,789 | ) |
| Cash flows from financing activities:                                                 |   |                              |       |   |   |
| Payments on marketing commitments                                                     |   | (977                              | )          | (497 | ) |
| Proceeds from issuance of common stock through stock plans                            |   | 17                                |       | 42 |   |
| Repurchase of common stock                                                            |   | (3,888                            | )          | — |   |
| Net cash used in financing activities                                                 |   | (4,848                            | )          | (455 | ) |
| Net increase (decrease) in cash and cash equivalents                                  |   | 2,571                             |       | (5,062 | ) |
| Cash and cash equivalents, beginning of period                                        |   | 12,382                            |       | 14,627 |   |
| Cash and cash equivalents, end of period                                              |   | $                                 | 14,953     |   | $ | 9,565 |   |
|                                                                                  |   |                              |       |   |   |
| Supplemental disclosure of cash flow information:                                     |   |                              |       |   |   |
| Cash paid during the period for interest                                              |   | $                                 | 40         |   | $ | 268 |   |

 

Seeaccompanying notes.

 

5

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**INSWEB CORPORATION AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

***(UNAUDITED)***

 

**1. Business of InsWeb**

 

InsWeb Corporation operates anonline insurance marketplace that enables consumers to comparison shop onlineand obtain insurance company-sponsored quotes for a variety of insuranceproducts, including automobile, term life and homeowners. InsWeb’s marketplaceelectronically matches consumers and insurance companies. InsWeb has combinedextensive knowledge of the insurance industry, technological expertise andclose relationships with a significant number of insurance companies to developan integrated online marketplace. InsWeb’s marketplace enables consumers toresearch insurance-related topics, search for, analyze and compare insuranceproducts, apply for and receive insurance company-sponsored quotes for actualcoverage and to purchase automobile insurance coverage through InsWeb’sinsurance agency.

 

InsWeb is subject to all of therisks inherent in an early stage business in the electronic commerce industryand special risks related to the online insurance industry. These risksinclude, but are not limited to, a limited operating history, limitedmanagement resources, dependence upon consumer acceptance of the Internet,Internet related security risks, the changing nature of the electronic commerceindustry, and variations in consumer traffic and insurance companyparticipation. Due to the foregoing factors, InsWeb’s future operating resultsmay be materially affected.

 

**2.* *Basisof Presentation**

 

 The condensedconsolidated financial statements include the accounts of InsWeb Corporationand its wholly-owned subsidiaries, InsWeb Insurance Services, Inc. andGoldrush Insurance Services, Inc. (“InsWeb” or the “Company”).  All significant inter-company accounts andtransactions have been eliminated in the consolidated financial statements.

 

The accompanying unaudited interim financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States for interim financial information andwith the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not contain all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  In the opinion of management, theaccompanying unaudited interim condensed consolidated financial statementsreflect all adjustments, which include only normal recurring adjustments,necessary to present fairly InsWeb’s financial position as of March 31, 2003and the results of operations and cash flows for the three months ended March31, 2003 and March 31, 2002.  Thefinancial data and other information disclosed in these notes to the condensedconsolidated financial statements related to these periods are unaudited.  The results for the three months ended March31, 2003 are not necessarily indicative of the results to be expected for theyear ending December 31, 2003.

 

In April 2002, the FinancialAccounting Standards Board (the “FASB”) issued Statement of FinancialAccounting Standards No. 145 (“SFAS 145”), the “Rescission of FASBStatements No. 4, 44, and 62, Amendment of FASB Statement No. 13, andTechnical Corrections.” SFAS 145 requires gains and losses onextinguishments of debt to be classified as income or loss from continuingoperations rather than as extraordinary items. SFAS 145 became effectivefor InsWeb’s fiscal year beginning January 1, 2003.  The extraordinary gain of $9,345,000,representing a reduction of obligations (fixed payments), was recorded inconnection with the amendment of the license and distribution agreement withIntuit and has been reclassified to other income for the quarter ended March31, 2003. Except for this reclassification, the adoption of SFAS 145 didnot affect InsWeb’s financial condition, results of operations or cash flows.

 

These condensed consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included in InsWeb’s Annual Report onForm 10-K and other information as filed with the Securities and ExchangeCommission.

 

**3.  Per Share Information**

 

Basic earnings per share, is computed using theweighted average number of shares of common stock outstanding. Diluted earningsper share, reflects the potential dilution that would occur if stock optionsand warrants had been exercised.  Forthe three month period ended March 31, 2003, common equivalent shares fromstock options and warrants have been excluded from the computation of net lossper share-diluted as their effect is antidilutive.  For the three-month period ended March 31, 2003, shares used inthe computation of diluted earnings per share are not significantly differentthan the number of shares used in the computation of basic earnings per share.

 

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InsWebaccounts for it’s stock based compensation plans under the recognition andmeasurement principles of APB Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations. The following table illustrates the effect on net loss and loss pershare if InsWeb had applied the fair value recognition provisions of FinancialAccounting Standards Board Statement No. 123, (“SFAS 123”)“Accounting for Stock-Based Compensation*,*” tostock-based employee compensation (in thousands, except per share amounts):

 
|                                                                                                       |   | **Three months ended March 31,** |   |
|------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                       |   | **2003**                         |   | **2002** |   |
|                                                                                                       |   |                             |   |   |   |
| Net (loss) income, as reported                                                                             |   | $                                | (589   | ) | $ | 6,460 |   |
| Deduct: Stock-based employee compensation expense  determined under fair value based method for all awards |   | (402                             | )      | (206 | ) |
| Pro forma net (loss) income                                                                                |   | $                                | (991   | ) | $ | 6,254 |   |
|                                                                                                       |   |                             |   |   |   |
| (Loss) income per share:                                                                                   |   |                             |   |   |   |
| Basic and diluted—as reported                                                                         |   | $                                | (0.10  | ) | $ | 0.92 |   |
|                                                                                                       |   |                             |   |   |   |
| Basic and diluted—pro forma                                                                           |   | $                                | (0.16  | ) | $ | 0.89 |   |

 

Option valuation models requirethe input of highly subjective assumptions. Because InsWeb’s employee anddirector stock options have characteristics significantly different from thoseof traded options, and because changes in the subjective input assumptions canmaterially affect the fair value estimate, in management’s opinion, theexisting models do not necessarily provide a reliable measure of the fair valueof its employee stock options. For purposes of pro forma disclosures, theestimated fair value of the options is amortized over the options’ vestingperiod. The above pro forma disclosures are not necessarily representative ofthe effects on reported income or loss for future periods as additional grantsare made each year and options vest over several years.

 

**4.  Comprehensive (Loss) Income**

 

Total comprehensive (loss) income for the three monthsended March 31, 2003 and 2002 were as follows (in thousands):

 
|                                                                               |   | **Three months ended March 31,** |   |
|------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                               |   | **2003**                         |   | **2002** |   |
| Net (loss) income                                                                  |   | $                                | (589   | ) | $ | 6,460 |   |
| Other comprehensive gain (loss) - change  in unrealized gain (loss) on investments |   | 4                                |   | (9 | ) |
| Comprehensive (loss) income                                                        |   | $                                | (585   | ) | $ | 6,451 |   |

 

**5. Related Party Transactions**

 

During the three monthsended March 31, 2003, InsWeb recognized $122,000 in marketing expenses under amarketing agreement with an Internet company, compared to $357,000 for thecomparable period in 2002.  An affiliateof the Internet company became a stockholder of InsWeb in December 1998.

 

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**6. Commitments and Contingencies**

 

***Leases***

 

In July 2002, InsWeb and oneof its sublessees agreed to amend the sublease covering portions of the property InsWeb formerly occupied as itsheadquarters in Redwood City, California. Under the terms of the amendment, thesub-lessee agreed to rent the entire facility for the duration of InsWeb’slease (through September 2008). All rent and operating expenses otherwisepayable by InsWeb to the landlord are required to be paid directly by thesub-lessee. Therefore, the amended sublease resulted in a reduction in InsWeb’soperating lease commitments through the remainder of the lease. However, thesub-lessee is a start-up company with limited operating history and, therefore,there are inherent risks and uncertainties associated with its futureoperations and its ability to discharge its obligations through the term of thesublease . In the event that the sub-lessee defaults on its obligations underthe amended sublease , InsWeb would be responsible for making the requiredlease payments to the landlord through the remaining term of the lease.  In connection with this lease and otherlease obligations for formerly occupied facilities, InsWeb must makeassumptions regarding the estimated future sublease  income relative to these facilities. These estimates andassumptions are affected by area-specific conditions such as new commercialdevelopment, market occupancy rates and future market prices. As a result ofthe decline in the real estate markets where the InsWeb properties are located andthe inherent risks associated with its sub-lessee the Company has an accrual of$3.0 million at March 31, 2003 for formerly occupied facilities.  If these estimates or their relatedassumptions change in the future, InsWeb may be required to record a charge toincrease its existing accrual.

 

***e******HealthInsuranceLitigation***

 

In March 2003, InsWeb andeHealthInsurance agreed to settle ongoing litigation in the U.S. District Courtfor the Northern California. The litigation stemmed from eHealthInsurance’sdecision in February 2001 to terminate an agreement concerning themarketing of health insurance to consumers originating at InsWeb. Althoughspecific terms of the settlement agreement are confidential, eHealthInsurancehas paid InsWeb $800,000 for the services performed by InsWeb prior to thetermination of the marketing agreement. This amount is included in other income for the quarter ended March 31,2003.  In addition, the parties havereleased all claims against each other relating to the marketing agreement.

 

***Securities Class Action Lawsuit***

 

A class action lawsuit was filedon December 5, 2001 in the U.S. District Court for the Southern Districtof New York on behalf of purchasers of InsWeb common stock alleging violationsof federal securities laws. The case is brought purportedly on behalf of allpersons who purchased InsWeb common stock from July 22, 1999 throughDecember 6, 2000. The complaint names as defendants InsWeb, certaincurrent and former officers and directors, and three underwriters for InsWeb’sinitial public offering in July 1999. The complaint alleges violations ofthe Securities Act of 1933 and the Securities Exchange Act of 1934, on thegrounds that the prospectus incorporated in the registration statement 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 investorssubstantial blocks of the stock sold in the initial public offering, and(ii) the underwriters had entered into agreements with customers wherebythe underwriters agreed to allocate shares of the stock sold in the initialpublic offering to those customers in exchange for which the customers agreedto purchase additional shares of InsWeb stock in the aftermarket atpre-determined prices that were above the initial public offering price. Nospecific damages are claimed. InsWeb believes that the allegations againstInsWeb and its current and former officers and directors are without merit andintends to contest them vigorously. The litigation is in the preliminary stage,and InsWeb cannot predict its outcome. The litigation process is inherentlyuncertain. An unfavorable outcome could have a material adverse effect onInsWeb’s financial condition, results of operations or cash flows.

 

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**7.  Stockholders Equity**

 

In February 2003, the Boardof Directors authorized management to repurchase 2,241,440 shares of InsWeb’scommon stock, consisting of 1,169,898 shares held by Intuit InsuranceServices, Inc. and 1,071,542 shares held by SOFTBANK America, Inc.The shares were purchased for $3,810,000, or $1.70 per share. With the closingof this transaction, SOFTBANK Corporation’s holdings of InsWeb common stockhave been reduced to 353,032 shares, while Intuit Insurance Services, Inc.holds no shares.

 

**8.  Recent Accounting Pronouncements**

 

In November 2002, theEmerging Issues Task Force reached a consensus on Issue 00-21 (“EITF 00-21”),which addresses how to account for arrangements that may involve the deliveryor performance of multiple products, services, and/or rights to use assets.EITF-00-21 addresses how to account for these multiple-element revenuearrangements and focuses on when a revenue arrangement should be separated intocomponents or deliverables, or alternatively, when smaller deliverables orelements should be combined for purposes of recognizing revenue. EITF 00-21will be applicable to agreements entered into in fiscal periods beginning afterJune 15, 2003, with early adoption permitted. InsWeb is currentlyevaluating the effect that EITF 00-21 may have, if any, on its results ofoperations, financial condition and cash flows.

 

In January 2003, in an effortto expand upon and strengthen existing accounting guidance that addresses whena company should include in its financial statements the assets, liabilitiesand activities of another entity, the FASB issued Interpretation No. 46(“FIN 46”), “Consolidation of Variable Interest Entities.” The objective of FIN46 is not to restrict the use of variable interest entities but to improvefinancial reporting by companies involved with variable interest entities.Until now, a company generally has included another entity in its consolidatedfinancial statements only if it controlled the entity through voting interests.FIN 46 changes that by requiring a variable interest entity to be consolidatedby a company if that company is subject to a majority of the risk of loss fromthe variable interest entity’s activities or entitled to receive a majority ofthe entity’s residual returns or both. The consolidation requirements of FIN 46apply immediately to variable interest entities created after January 31,2003. The consolidation requirements apply to older entities in the firstfiscal year or interim period beginning after June 15, 2003. Certain ofthe disclosure requirements apply in all financial statements issued afterJanuary 31, 2003, regardless of when the variable interest entity wasestablished. InsWeb is currently evaluating the effect that FIN 46 may have, ifany, on its results of operations, financial condition and cash flows.

 

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**ITEM2.  MANAGEMENT’S DISCUSSION****AND ANALYSIS OF FINANCIALCONDITION**

**AND RESULTSOF OPERATIONS**

 

*InsWeb has included in this filing certain“forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995 concerning InsWeb’s business, operations andfinancial condition.  The words orphrases “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”“estimates,” and similar expressions are generally intended to identifyforward-looking statements.  Suchforward-looking statements are subject to various known and unknown risks anduncertainties, and InsWeb cautions you that any forward-looking informationprovided by, or on behalf of, InsWeb is not a guarantee of futureperformance.  Actual results coulddiffer materially from those anticipated in such forward-looking statements dueto a number of factors, some of which are beyond InsWeb’s control, including,but not limited to, uncertain economic conditions which could result in lowergrowth rates, decreasing revenue and reduced participation in InsWeb’smarketplace, limited operating history, anticipated losses, theunpredictability of future revenues, reliance on key customers – property andcasualty insurance carriers- who are themselves subject to volatility in theiroperating cycles, competition, risks associated with system development andoperation risks, management of potential growth and risks of new businessareas, business combinations, and strategic alliances.  These risks and uncertainties, as well asother risks and uncertainties are described in greater detail in the sectionentitled “Factors That May Affect Future Performance.” All forward-lookingstatements are based on information available to InsWeb on the date hereof, andInsWeb assumes no obligation to update such statements.*

 

**Overview**

 

InsWeb operates an onlineinsurance marketplace that enables consumers to shop online for a variety ofinsurance products, including automobile, term life, homeowners, renters andhealth insurance, and obtain insurance company-sponsored quotes for actualcoverage.  In order to create thismarketplace, InsWeb has established close relationships with a significantnumber of insurance companies throughout the United States.

 

InsWeb’s principal source ofrevenues is transaction fees from participating insurance companies. Whilequotes obtained through InsWeb’s online insurance marketplace are provided toconsumers free of charge, InsWeb earns revenues from participating insurancecompanies based on the delivery of qualified leads. With certain insurancecompanies, InsWeb is paid a fee only when the consumer purchases an insurancepolicy, and with others, InsWeb is paid a transaction fee based on the deliveryof a lead, regardless of whether or not the consumer actually purchases apolicy. Qualified leads are produced in two ways: for insurance companiesproviding instant online quotes, a qualified lead is produced when a consumerclicks to request insurance coverage based on a specific quote; for insurancecompanies providing e-mail or other offline quotes, a qualified lead isproduced when a consumer clicks to request the quote itself. Once a lead isgenerated by the consumer’s request for an application or offline quote, InsWebtransmits the lead either to InsWeb Insurance Services, or to the selectedinsurance company or other entity by e-mail, file transfer or direct connectionto the insurance company’s information system. InsWeb provides eachparticipating insurance company with custom-formatted lead information based onthe insurance companies individual requirements.

 

In October 1999, InsWebbegan generating commission revenue as an insurance agent based on activitiesit performs related to the sale of certain automobile insurance policies inCalifornia. Since that date, InsWeb has expanded its insurance agencyoperations. As of March 31, 2003, InsWeb’s subsidiary, InsWeb InsuranceServices, Inc., has been appointed as an authorized automobile insuranceagent by 11 participating insurance companies and is acting as an agent in tenstates. InsWeb receives a commission based on a percentage of the initialinsurance policy premium related to each insurance policy sale where InsWeb hasacted as the agent. InsWeb recognizes the revenue from these activities on theeffective date of the policy, less an estimate for early cancellations of theunderlying insurance policies. InsWeb also recognizes revenue when anapplicable policy is renewed. Commission revenue is included in transactionfees. InsWeb intends to expand its online insurance agency operations by addingadditional participating insurance companies and by expanding into additionalstates.

 

A less significant, but on-goingsource of revenues for InsWeb are development and maintenance fees that arepaid by insurance companies that participate on the InsWeb insurancemarketplace. Development fees are generated from the design and development ofcustomized interfaces between an insurance company’s information system and theInsWeb site. InsWeb charges maintenance fees for maintaining and servicing theprograms of the individual insurance companies and for maintaining any hardwareat InsWeb’s facility that is dedicated to specific insurance companies.

 

Technology expenses consistprimarily of payroll and related expenses, including employee benefits, facilitycosts, telecommunications and systems costs, for product and site developmentpersonnel involved with the planning and design of carrier implementation andintegration.  InsWeb expects itstechnology expenditures to remain at current levels for the remainder of 2003.

 

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Sales and marketing expenses consist of directmarketing expenditures that include advertising, promotions and fees paid toonline companies with which InsWeb has contractual relationships to driveconsumer traffic to the InsWeb online marketplace.  InsWeb’s current consumer marketing program is focused onmaintaining key online relationships and selective cost-effective marketingcampaigns designed to maintain consumer awareness of InsWeb and its onlineinsurance marketplace.  Also included insales and marketing expense are payroll and related expenses, includingemployee benefits, facility costs, telecommunications and systems costs, forInsWeb’s sales and marketing personnel and the personnel and related costs forInsWeb’s insurance agency operations, which includes selling agents,underwriters, supervisors and customer service and support groups.  Direct marketing costs will fluctuate basedon the amount of consumer traffic driven to the InsWeb marketplace, while allother sales and marketing expenditures are expected to remain at current levelsfor the remainder of 2003.

 

General and administrative expenses consist primarilyof payroll and related expenses, including employee benefits, facility costs,telecommunications and systems costs, for InsWeb’s general management,administrative and accounting personnel, as well as other general corporateexpenses. General and administrative expenditures are expected to declineslightly as a result of the eHealthInsurance litigation settlement.

 

Since its inception, InsWeb hasincurred significant losses, and as of March 31, 2003, InsWeb had anaccumulated deficit of $175.4 million. These losses, and this accumulateddeficit, have resulted from the significant costs incurred in the developmentof InsWeb’s technology platform, the establishment of relationships withinsurance companies, their integration with the InsWeb site, and InsWeb’smarketing and sales activities. InsWeb intends to continue to invest in productdevelopment and maintenance, sales and marketing and in its administrativeinfrastructure. As a result, InsWeb believes that it will continue to incuroperating losses at least through 2003. Although InsWeb has experienced revenuegrowth in recent periods, its operating results for future periods are subjectto numerous uncertainties, and there can be no assurance that InsWeb’s revenuegrowth will continue or that it will be able to achieve and sustainprofitability. In view of the rapidly evolving nature of InsWeb’s business andits limited operating history, InsWeb believes that period-to-periodcomparisons of its operating results are not necessarily meaningful and shouldnot be relied upon as an indication of future performance.

 

**Recent Developments**

 

In April 2003, InsWeb was notified by ProgressiveCasualty Insurance Company of its intent to terminate its participation on theInsWeb insurance marketplace effective September 30, 2003.  This action reflects Progressive’s evolving brand strategy. Forthe year ended December 31, 2002, Progressive represented approximately 7% ofInsWeb’s total revenues, and for the three months ended March 31, 2003,Progressive represented approximately 13% of total revenues.  InsWeb cannot predict the effect of thistermination on its operating results for the fourth quarter of 2003 andbeyond.  Although, it believes that asubstantial portion of the lost revenue from Progressive will be replaced asconsumers request quotes and purchase insurance policies from other carriersparticipating in the marketplace, including new carriers which the companyexpects to add.

 

In February 2003, the Boardof Directors authorized management to repurchase 2,241,440 shares of InsWeb’scommon stock, consisting of 1,169,898 shares held by Intuit InsuranceServices, Inc. and 1,071,542 shares held by SOFTBANK America, Inc.The shares were purchased for $3,810,000, or $1.70 per share. With the closingof this transaction, SOFTBANK Corporation’s holdings of InsWeb common stock havebeen reduced to 353,032 shares, while Intuit Insurance Services, Inc.holds no shares.

 

In March 2003, InsWeb andeHealthInsurance agreed to settle ongoing litigation in the U.S. District Courtfor the Northern California. The litigation stemmed from eHealthInsurance’sdecision in February 2001 to terminate an agreement concerning themarketing of health insurance to consumers originating at InsWeb. Althoughspecific terms of the settlement agreement are confidential, eHealthInsurancehas paid InsWeb $800,000 for the services performed by InsWeb prior to thetermination of the marketing agreement. In addition, the parties have releasedall claims against each other relating to the marketing agreement.

 

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**Resultsof Operations**

 

The following table sets forth certain statement ofoperations items as a percentage of total revenues for the three months endedMarch 31, 2003 and 2002:

 
|                              |   | **Three Months Ended  March 31,** |   |
|-----------------------------------|--------|-----------------------------------|--------|
|                              |   | **2003**                          |   | **2002** |   |
| Revenues:                         |   |                              |   |   |   |
| Transaction fees                  |   | 97                                | %      | 94 | % |
| Development and  maintenance fees |   | 3                                 | %      | 6 | % |
| Total                             |   | 100                               | %      | 100 | % |
| Operating  expenses:              |   |                              |   |   |   |
| Technology                        |   | 33                                | %      | 44 | % |
| Sales and  marketing              |   | 63                                | %      | 71 | % |
| General and  administrative       |   | 23                                | %      | 26 | % |
| Total                             |   | 119                               | %      | 141 | % |
| Loss from  operations             |   | (19                               | )%     | (41 | )% |

 

***Revenues***

 

*TransactionFees:*

 
| ***(Amounts in  thousands)***            |   | **Three months ended  March 31,** |   |
|------------------------------------------|--------|-----------------------------------|--------|
|                                     |   | **2003**                          |   | **2002** |   |
| Transaction revenues:                    |   |                              |   |   |   |
| Auto insurance                           |   | $                                 | 6,214  |   | $ | 5,220 |   |
| Term life insurance                      |   | 909                               |   | 1,089 |   |
| Other insurance                          |   | 105                               |   | 84 |   |
| Total transaction revenues               |   | $                                 | 7,228  |   | $ | 6,393 |   |
|                                     |   |                              |   |   |   |
| Completed  Shopping Sessions - Auto      |   | 962                               |   | 772 |   |
| Consumer Quotes Presented - Auto         |   | 2,999                             |   | 2,136 |   |
|                                     |   |                              |   |   |   |
| Completed  Shopping Sessions - Term life |   | 96                                |   | 101 |   |
| Consumer Quotes Presented - Term life    |   | 1,633                             |   | 1,349 |   |

 

The increase in auto transaction fees for the threemonths ended March 31, 2003 was primarily attributable to the increased numberof leads generated by an increased number of shopping sessions. The increase inshopping sessions resulted from increased consumer traffic from InsWeb’s onlinemarketing activities.

 

Term life transaction fees decreased for the threemonths ended March 31, 2003 compared to the same period in 2002. The decreasewas due to one customer now paying InsWeb only when the consumer purchases aninsurance policy, instead of on the delivery of a qualified lead.  This has resulted in a delay in therecognition of transaction fee revenue associated with these leads.

 

Other insurance transaction revenues accounted for$0.1 million of total revenues for each of the three months ended March 31,2003 and 2002.  Shopping sessionsrelated to home product insurance offerings for the three months ended March31, 2003, remained relatively level for the comparable period in 2002.

 

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*Developmentand Maintenance Fees.* Development and maintenance feesaccounted for $0.3 million of total revenues for the three months ended March31, 2003, compared to $0.4 million, for the comparable period in 2002.  Development and maintenance fees areexpected to continue to decline as set-up programs have become a lesssignificant component in an insurance company’s initial participation.

 

***Operating Expenses***

 

*Technology.*  Technology expenses decreasedto $2.4 million for the three months ended March 31, 2003, from $3.0 millionfor the comparable period in 2002.  Thedecrease was primarily attributable to reduced headcount and decreasedamortization of capitalized website costs.

 

*Sales and Marketing.* Sales and marketing expenses decreased to $4.7 million for the threemonths ended March 31, 2003, from $4.8 for the comparable period in 2002.  Direct marketing expenses amounted to $2.9million for each of the three months ended March 31, 2003 and 2002.  The decrease in sales and marketing expenseswas primarily attributable to a reduction in headcount.  Direct marketing expenses remainedrelatively unchanged as increased traffic levels were offset by a decreasedcost per completed shopping session.

 

*General and Administrative.* General and administrative expenses were $1.8 million for each of thethree month periods ended March 31, 2003 and 2002.  General and administrative expenses remained level for the threemonths due to a reduction in personnel and related costs, offset by an increasein legal expenses incurred during the period in connection with the litigationwith eHealthInsurance.

 

***Interest Expense***

 

Interest expense decreased to$40,000 during the three months ended March 31, 2003, from $0.3 millionfor the comparable periods in 2002. The decrease in interest expense wasprimarily attributable to lower imputed interest associated with the long-termmarketing commitments (fixed payments).

 

***Interest Income***

 

Interest income decreased to $0.1million for the three months ended March 31, 2003, from $0.2 million for thecomparable period in 2002. Interest income is income earned on InsWeb’sinvestments.  The decrease in interestincome was a result of decreased interest income due to lower average cash andshort-term investment balances during 2003.

 

***Other******Income***

 

For the three months ended March31, 2003, other income primarily consisted of the $0.8 million thateHealthinsurance paid to InsWeb for the services performed by InsWeb prior tothe termination of the marketing agreement. (see Note 6 of Notes to CondensedConsolidated Financial Statements.)  Forthe three months ended March 31, 2002, other income consisted primarily of the$9.3 million gain recognized in connection with the renegotiation of an onlinemarketing distribution agreement.

 

**Critical Accounting Policies**

 

InsWeb’s discussion and analysisof its financial condition and results of operations are based on InsWeb’sconsolidated financial statements which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires InsWeb to make estimates and judgmentsthat affect the reported amounts of assets and liabilities and the disclosureof contingent assets and liabilities at the date of the financial statementsand the 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 the circumstances,the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under differentassumptions or conditions. InsWeb believes the following critical accountingpolicies affect its more significant judgments and estimates used in thepreparation of its consolidated financial statements.

 

***Impairment of Long-Lived Assets.***  Inassessing the recoverability of InsWeb’s long-lived assets, principally prepaidmarketing costs, InsWeb must make assumptions regarding estimated future cashflows and other factors to determine the fair value of the respective assets.Specifically, the variability in anticipated traffic levels, number ofcompleted shopping sessions, and revenue per completed shopping session affectthese estimates and assumptions. If the number of completed shopping sessions,and/or 

 

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revenueper completed shopping session is below currently anticipated amounts, InsWebmay be required to record an impairment charge.

 

***Cost-Method Investments.***  InsWebholds a minority ownership interestin Finance All K.K., a privately-held corporation. As of March 31, 2003,the carrying value of this investment was $1.7 million. InsWeb wouldrecord an investment impairment charge if and when it believes an investmenthas experienced a decline in value that is other than temporary. Future adversechanges in market conditions or poor operating results of Finance All K.K.could result in an inability to recover the carrying value of the investment,thereby possibly requiring an impairment charge in the future.

 

***Accrual for Lease Obligations.***  InsWeb iscontractually obligated to make future lease payments on certain formerlyoccupied facilities through September 2008. As of March 31, 2003,total future obligations for these facilities amounted to $13.3 million;these obligations are contractually offset by total future sublease income ofapproximately $10.5 million. Substantially all future sublease income is due from a sub-lessee whichis a start-up company with limited operating history and, therefore, there areinherent risks and uncertainties associated with its future operations and itsability to discharge its obligations through the term of the sublease. In theevent that the sub-lessee defaults on its obligations under the amendedsublease, InsWeb would be responsible for making the required lease payments tothe landlord through the remaining term of the lease. In connection with thislease and other lease obligations for formerly occupied facilities, InsWeb mustmake assumptions regarding the estimated future sublease income relative tothese facilities.  As a result of thedecline in the real estate market where the InsWeb properties are located andthe interest risk associated with its sub-lessee, the Company has an accrual of$3.0 million of March 31, 2003 for formerly occupied facilities.These estimatesand assumptions are affected by area-specific conditions such as new commercialdevelopment, market occupancy rates and future market prices. If theseestimates or their related assumptions change in the future, InsWeb may berequired to record a charge to increase its existing accrual.

 

***Contingencies.***  Asdiscussed in “Item 1—Note 6,” a class action lawsuit has been filed thatalleges InsWeb violated certain federal securities laws at the time of itsinitial public offering. Although some claims against InsWeb in this classaction have been dismissed, InsWeb cannot accurately predict the ultimateoutcome of this matter at this time and therefore, cannot estimate the range ofprobable loss, if any, due to the inherent uncertainties of litigation. InsWebbelieves it has meritorious defenses; however InsWeb cannot assure that it willprevail in this action. An unfavorable outcome could have a material adverseeffect on InsWeb’s financial condition, results of operations and cash flows.

 

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**Liquidityand Capital Resources**

 

At March 31, 2003, InsWeb’s principal source ofliquidity was $24.9 million in cash, cash equivalents and short-terminvestments, which decreased from $28.9 million as of December 31, 2002.  The decrease resulted from the use of $4.8million in financing activities (primarily for the repurchase of its commonstock), partially offset by an increase of $0.8 million from operatingactivities.

 

 For the threemonths ended March 31, 2003, net cash provided by operating activities was $0.8million compared to  $0.2 million forthe comparable period in 2002.  For thethree months ended March 31, 2003, non-cash items included depreciation andamortization of assets of $0.3 million. A decrease in prepaid expenses and other current assets of $0.3 millionand an increase in accounts payable of $0.4 million, also contributed to thecash provided by operations for the three months ended March 31, 2003.

 

For the three months endedMarch 31 2003, net cash provided by investing activities was $6.6 million,which primarily consisted of the redemptions of short-term investments offsetby the purchase of short-term investments.

 

For the three months ended March 31, 2003, net cashused in financing activities was $4.8 million. Cash outflows were attributable to the repurchase of common stock of$3.9 million and a fixed payment made to Intuit for marketing commitmentspursuant to the agreement entered into with Intuit in January 2001, as amendedin March 2002, for $1.0 million.

 

As of March 31, 2003, InsWebhad the following contractual commitments (in thousands):

 
|                                       |   | **Total** |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **Thereafter** |   |
|--------------------------------------------|--------|-----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------|--------|
|                                       |   |      |   |     |   |     |   |     |   |     |   |     |   |           |   |
| Long-term marketing commitment with Intuit |   | $         | 1,000  |     | $      | 1,000    |   | $        | — |     | $      | —   |   | $              | — |   | $ | — |   | $ | — |   |
| Operating leases                           |   | 21,468    |   | 2,529    |   | 3,356    |   | 3,257    |   | 3,391    |   | 3,483    |   | 5,452          |   |
| Other marketing commitments                |   | 996       |   | 996      |   | —   |   | —   |   | —   |   | —   |   | —         |   |
| Promissory note payable to stockholder     |   | 1,294     |   | 1,294    |   | —   |   | —   |   | —   |   | —   |   | —         |   |
|                                       |   | $         | 24,758 |     | $      | 5,819    |   | $        | 3,356  |     | $      | 3,257    |   | $              | 3,391  |   | $ | 3,483 |   | $ | 5,452 |   |

 

In addition to the fixed payments for long-termmarketing commitments due to Intuit through July 2003, effective August 1, 2003and through the remainder of the agreement (January 2006), InsWeb will payIntuit a portion of the transaction fees received by InsWeb from IntuitInternet traffic, payable on a quarterly basis.

 

In July 2002, InsWeb andits sub-lessee agreed to amend the sublease covering portions of the propertyInsWeb formerly occupied as its headquarters in Redwood City, California.  Under the terms of the amendment, thesub-lessee agreed to rent the entire facility for the duration of InsWeb’slease (through September 2008).  Allrent and operating expenses otherwise payable by InsWeb to the landlord arerequired to be paid directly by the sub-lessee.  Therefore, the amended sublease results in a reduction inInsWeb’s operating lease commitments by $10.2 million, through the remainder ofthe lease.  However, the sub-lessee is astart-up company with limited operating history and, therefore, there areinherent risks and uncertainties associated with its future operations and itsability to discharge its obligations through the term of the sublease.  In the event that the sub-lessee defaults onits obligations under the amended sublease, InsWeb would be responsible formaking the required lease payments to the landlord throughout the remainingterms of the lease.  In connection withthis lease and other lease obligations for formerly occupied facilities, InsWebmust make assumptions regarding the estimated future sublease income relativeto these facilities.  These estimatesand assumptions are affected by area-specific conditions such as new commercialdevelopment, market occupancy rates and future market prices.  If these estimates or their relatedassumptions change in the future, InsWeb may be required to record an expenseto increase its existing accrual of $3.0 million at March 31, 2003.

 

InsWeb currently anticipates thatits cash, cash equivalents and short-term investments will be sufficient tomeet its anticipated cash needs for working capital and capital expendituresfor at least the next 12 months. Although InsWeb does not anticipate theneed for additional financing, InsWeb nevertheless may require additional fundsto meet operating needs, or to expand its business internally or throughacquisition. InsWeb cannot be certain that additional financing will beavailable when required, on favorable terms or at all. If InsWeb is notsuccessful in raising additional capital as required, its business could bematerially harmed. If additional funds were raised through the issuance ofequity securities, the percentage ownership of InsWeb’s then-currentstockholders would be reduced.

 

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**Factors That May Affect Our Future Performance**

 

*Our future business, operating results and financialcondition are subject to various risks and uncertainties, including thosedescribed below.*

 

**Our business is difficult to evaluate because we did notbegin to generate significant revenues from our core business until 1998**

 

Wewere incorporated in February 1995, but we did not begin to generatesignificant transaction fees from our online marketplace until 1998. Ourlimited operating history makes an evaluation of our future prospects verydifficult. An investor in our common stock must consider the uncertaintiesfrequently encountered by early stage companies in new and rapidly evolvingmarkets. These uncertainties include:

 

•                                          an evolving and unpredictable business model,which makes prediction of future results uncertain and an investment in ourcommon stock highly speculative;

 

•                                          the development of comparable services bycompetitors, which may reduce our market share;

 

•                                          the uncertainty of the extent to which theconsumer market will adopt the Internet as the preferred medium for comparisonshopping for and purchase of insurance products, which may limit our ability togenerate revenue from consumers that visit our online marketplace or our insuranceagency;

 

•                                          our potential inability to successfully managegrowth, which could lead to management distractions and increased operatingexpenses;

 

•                                          our ability to retain key employees; and

 

•                                          our reliance on key customers and ability toretain customers.

 

Ourbusiness strategy may not be successful and we may not be able to successfullyaddress these uncertainties. Moreover, our ability to take the necessary stepsto address these uncertainties may be hampered by our limited financialresources should we fail to rapidly increase revenues or should increasedrevenues be more than offset by increased operating expenses.

 

**We have a history of losses, we expect future losses, and wemay not achieve or maintain profitability**

 

Givenplanned investment levels, our ability to achieve profitability will dependupon our ability to generate and sustain substantially increased revenues. As aresult, we believe that we will incur operating losses at least through thebalance of 2003. We incurred operating losses of $15.5 million for theyear ended December 31, 2002, $46.0 million for the year endedDecember 31, 2001, and $53.6 million for the year endedDecember 31, 2000. For the three months ended March 31, 2003 we incurredan operating loss of $1.4 million. As of March 31, 2003, our accumulateddeficit was $175.4 million. Our operating results for future periods aresubject to numerous uncertainties, and we may not achieve sufficient revenuesto become profitable. Even if we achieve profitability, we may not sustain orincrease profitability on a quarterly or annual basis in the future. If we areunable to achieve profitability, or if our profitability is delayed we may needto seek additional financing to continue our business operations. Suchfinancing could be on terms that are dilutive to our existing stockholders orcould involve the issuance of securities that have rights and preferences thatare senior to those associated with our common stock. Moreover, if suchfinancing were not available or were available only upon terms that wereunacceptable to us, we could be required to significantly curtail ouroperations.

 

**Our future revenues are unpredictable, our operating resultsare likely to fluctuate from quarter to quarter, and if we fail to meet theexpectations of securities analysts or investors, our stock price could declinesignificantly**

 

Dueto our limited operating history, the emerging nature of the market in which wecompete and the high proportion of our revenues that are derived from consumertraffic on our website, our future revenues are inherently difficult toforecast. We believe that period-to-period comparisons of our operating resultsmay not be meaningful, and you should not rely upon them as an indication ofour future performance. Moreover, our expense levels are based largely on ourinvestment plans and estimates of future revenues. We may be unable to adjustour spending to compensate for an unexpected shortfall in revenues.Accordingly, any

 

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significantshortfall in revenues relative to our planned expenditures would harm ourresults of operations and could cause our stock price to fall sharply,particularly following quarters in which our operating results fail to meet theexpectations of securities analysts or investors.

 

Factorsthat may cause fluctuations in our operating results include the following,many of which are outside our control:

 

•                                          We may experience consumer dissatisfaction withour online marketplace as we add or change features, or as the insurancecoverage offered by participating insurance companies varies;

 

•                                          Consumer traffic on our online marketplace maydecline as a result of the announcement or introduction of a competing onlineinsurance marketplace or other new websites, products or services offered byour competitors;

 

•                                          Such consumer traffic may also fluctuate as aresult of changes in consumer acceptance of Internet commerce, particularly inconnection with shopping for insurance;

 

•                                          Our revenues may be harmed if we lose one or moresignificant insurance company relationships or if any of our participatinginsurance companies merge with one another;

 

•                                          Use of the Internet by consumers may fluctuate dueto seasonal factors or other uncontrollable factors affecting consumer behaviorand may be affected by slow Internet performance due to technical problems ortraffic bottlenecks on the network;

 

•                                          Our ability to convert site visits intotransaction fees and/or revenue from insurance agency activities may fluctuatedue to changes in our user interface or other features on our site;

 

•                                          Our ability to generate transaction fees may beadversely affected by changes in the underwriting criteria used by ourparticipating insurance companies to determine which consumers will be offeredquotes; and

 

•                                          Our ability to generate transaction fees and/orrevenue from insurance agency activities may also be harmed due to technicaldifficulties on our website that hamper a consumer’s ability to start orcomplete a shopping session.

 

**Seasonality affecting insurance shopping and Internet usagemay cause fluctuations in our operating results**

 

Wehave experienced seasonality in our business associated with general slownessin the insurance industry during the year-end holiday period. We expect tocontinue to experience seasonality as our business matures. Because of thisseasonality, investors may not be able to predict our annual operating resultsbased on a quarter-to-quarter comparison of our operating results. We believeseasonality will have an ongoing impact on our business.

 

**Because a significant portion of our revenue is attributableto automobile insurance shopping on our online marketplace, we are especiallyvulnerable to risks related to the online market for automobile insurance orthe automobile insurance industry generally**

 

Automobileinsurance accounted for approximately 83% of our transaction revenues in 2002,approximately 67% in 2001 and approximately 69% in 2000. For the three monthsended March 31, 2003 auto insurance account for approximately 86% of ourtransaction revenues.  We anticipatethat automobile insurance will continue to account for a substantial portion ofour revenues for the foreseeable future. As a result, if we fail to attract abroad base of consumers to shop for automobile insurance on our site, or ifchanges in the automobile insurance industry make electronic commerce a lessattractive means to shop for this type of insurance, our ability to generaterevenue will be reduced and our business will be harmed. In addition, propertyand casualty insurance, including automobile insurance, is subject to operatingcycles. During a cycle in which loss ratios rise, insurance companies maychoose to restrict the amount of business they write while they await approvalof rate increases from the various state insurance departments. Our businesscould be harmed if our participating insurance companies reduce theirparticipation in our online marketplace.

 

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**Competition in the market for online distribution ofinsurance is intense, and if we are unable to compete effectively with currentcompetitors or new competitors that enter the market, the fees paid to us byparticipating insurance companies may fall, the fees charged by onlinecompanies with which we have strategic relationships may rise, and our marketshare may suffer**

 

Agrowing number of websites offer services that are similar to and competitivewith the services offered on our online insurance marketplace. Increasedcompetition, particularly by companies offering online insurance distribution,could reduce the fees we are able to charge our participating insurancecompanies or increase the fees we are required to pay to online companies withwhich we have strategic relationships, resulting in reduced margins or loss ofmarket share, any of which could harm our business. Therefore, a positiverecognition of our brand is critical to attracting additional consumers to ourwebsite, strengthening our relationships with participating insurance companiesand attracting new insurance companies. In order to attract and retainconsumers and insurance companies and to promote and maintain our brand, we arecontinuing our financial commitment to create and maintain brand awareness. Ourcurrent marketing program consists of the maintenance of certain network onlinerelationships and other selective cost effective marketing campaigns, designedto maintain consumer awareness of InsWeb and our online insurance marketplace.If our marketing efforts do not generate a corresponding increase in revenuesor we otherwise fail to successfully promote our brand, or if these effortsrequire excessive expenditures, our business will be harmed. Moreover, ifvisitors to our website do not perceive our existing services or the productsand services of our participating insurance companies to be of high quality, orif we alter or modify our brand image, introduce new services or enter into newbusiness ventures that are not favorably received, the value of our brand couldbe harmed.

 

Ourability to maintain a positive recognition of our brand also depends in part onthe quality of the products and services consumers receive from ourparticipating insurance companies or our insurance agency, including timelyresponse to requests for quotes or coverage. If we are unable to provideconsumers with high-quality products and services, the value of our brand maybe harmed and the number of consumers using our services may decline.

 

**Our plan to expand our online insurance agency operationswill require significant resources and we may not be able to generatesufficient revenues to recover our expenses**

 

SinceOctober 1999, InsWeb has been operating an online insurance agencybusiness. Our online agency receives a commission on the sale and renewal ofthe automobile insurance polices sold though its offices. Our plan to expandour online agency operations requires that we attract and retain highly skilledsales agents and customer care personnel. We face competition from otheragencies and insurance companies for these agents. In addition, we will needadditional insurance companies to appoint us as an agent and pay uscommissions. Although the agency infrastructure is already in place,integration of additional insurance companies into our online agency operationsmay take more time and be more expensive than we project. If we are unable toimplement our expansion in a timely and cost-effective manner, we may not beable to recover our costs and our business will be harmed.

 

**Because a limited number of insurance companies account for amajority of our revenues, the loss of a single insurance company relationshipcould result in a substantial drop in our revenues**

 

Revenuesfrom Amica, GE Financial Assurance and Kemper Direct accounted forapproximately 14%, 14%, and 10%, respectively, of our revenues in 2002.Revenues from Amica, GE Financial Assurance and AIG accounted for approximately11%, 11%, and 10%, respectively, of our revenues in 2001.  Revenues from GE Financial Assurance,Progressive and American Family accounted for approximately 18%, 13% and 11% ,respectively, of our revenues for the three months ended March 31, 2003.  In April 2003, we were notified that ProgressiveCasualty Insurance Company will discontinue its participation effectiveSeptember 30, 2003. The discontinuation of Progessive’s participation mayadversely affect our operating results beginning in the fourth quarter of2003.  Should one or more of our otherkey insurance company partners cease to participate in our online marketplace,change its underwriting criteria or geographic coverage in a way that reducesthe proportion of consumers that are offered quotes from that insurancecompany, or suffer a significant decline in its ratings, our operating resultscould be materially harmed. Because of the broad market presence of some of ourparticipating insurance companies, we expect to continue to generate asubstantial portion of our revenues from a limited number of insurancecompanies for the foreseeable future. Although InsWeb continually seeks newinsurance companies to participate in the online marketplace, we may be unableto add any new insurance companies.

 

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**In most jurisdictions, we rely on the participation of alimited number of insurance companies on our online marketplace, and the lossof any of these insurance companies could make our online marketplace lessattractive to consumers**

 

Consumerdemand for the services offered on our website in any jurisdiction issubstantially dependent upon the participation of competing brand-nameinsurance companies offering competitive quotes for a given insurance productin that jurisdiction. Accordingly, the success of our business depends on ourability to attract and retain well-known insurance companies to participate inour marketplace. Although we currently have relationships with a significantnumber of insurance companies overall, in individual jurisdictions wherecompeting quotes for comparable products are available on our onlinemarketplace, the number of companies offering quotes ranges from one to 15. Ifwe are unable to increase the number of insurance companies that participate inour online marketplace, particularly in the jurisdictions where we currentlyoffer comparable insurance products from only three or fewer insurancecompanies, we may not be able to attract additional consumers or may lose ourexisting consumers to other online competitors offering a wider variety ofinsurance companies. At March 31, 2003, there were 13 jurisdictions in whichthree or fewer insurance companies were offering automobile insurance quotes onour online marketplace. No automobile insurance quotes are available in NewJersey, North Carolina and Massachusetts as of March 31, 2003. If any insurancecompany participating in a number of jurisdictions discontinued orsignificantly reduced its participation in our online marketplace, theattractiveness of the marketplace to consumers in these jurisdictions would begreatly diminished.

 

**We may have difficulty integrating new insurance companiesinto our online marketplace or agency operations, which could harm our abilityto offer  improved comparison-shoppingopportunities and thus limit the attractiveness of our service to consumers**

 

Integrationof an insurance company into our online marketplace requires a significantcommitment of time and resources on our part and on the part of the insurancecompany, and is a technologically difficult process. This integration processtypically takes from three to six months to complete and typically requires usto expend between 160 and 2,000 man-hours. To develop company-sponsored quotesfor consumers, the integration requires either the development of a customized interfacewith the insurance company’s own rating system, accessing a third-party ratingengine of the insurance company’s choice, or adding the insurance company’srating information into InsWeb’s proprietary rating engines. Though integrationinto our agency operations may require fewer resources to implement thanintegration of an insurance company into our online marketplace, potentialparticipating insurance companies may not be willing to invest the time andresources necessary to achieve this integration, or we may not be able toovercome the technological difficulties associated with, or devote the time andresources necessary to, successfully integrate the insurance company into ouronline marketplace or our agency operations.

 

**We do not have exclusive relationships or long-term contractswith insurance companies, which may limit our ability to retain these insurancecompanies as participants in our marketplace and maintain the attractiveness ofour services to consumers**

 

Wedo not have an exclusive relationship with any of the insurance companies whoseinsurance products are offered on our online marketplace, and thus, consumersmay obtain quotes and coverage from these insurance companies without using ourwebsite. Our participating insurance companies offer their products directly toconsumers through insurance agents, mass marketing campaigns or through othertraditional methods of insurance distribution. These insurance companies canalso offer their products and services over the Internet, either directly toconsumers or through one or more of our online competitors, or both. Inaddition, most of our agreements with our participating insurance companies arecancelable at the option of either party upon 90 days’ notice or less. Wehave experienced, and expect to continue to experience, reductions in the levelof participation in our marketplace or complete termination by participatinginsurance companies. These reductions in participation, terminations, or aninability to attract additional insurance companies to our marketplace couldmaterially affect our revenues and harm our business.

 

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**The outcome and impact of a securities class action lawsuitinvolving InsWeb is uncertain**

 

Aclass action lawsuit was filed on December 5, 2001 in the U.S. DistrictCourt for the Southern District of New York on behalf of purchasers of InsWebcommon stock alleging violations of federal securities laws. The case isbrought purportedly on behalf of all persons who purchased InsWeb common stockfrom July 22, 1999 through December 6, 2000. The complaint names asdefendants InsWeb, certain officers and directors, and three underwriters forInsWeb’s initial public offering in July 1999. The complaint allegesviolations of the Securities Act of 1933 and the Securities Exchange Act of1934, on the grounds that the prospectus incorporated in the registrationstatements for the offering failed to disclose, among other things, that(i) the underwriters had solicited and received excessive and undisclosedcommissions from certain investors in exchange for which the underwritersallocated to those investors substantial blocks of the stock sold in theinitial public offering, and (ii) the underwriters had entered intoagreements with customers whereby the underwriters agreed to allocate shares ofthe stock sold in the initial public offering to those customers in exchangefor which the customers agreed to purchase additional shares of InsWeb stock inthe aftermarket at pre-determined prices that were above the initial publicoffering price. No specific damages are claimed. In February 2003, thecourt dismissed the claims alleging violations of the Securities Exchange Actof 1934 but allowed the plaintiffs to proceed with the remaining claims.However, InsWeb believes that the remaining allegations against InsWeb and itscurrent and former officers and directors are without merit and intends tocontest them vigorously. The litigation is in the preliminary stage, and InsWebcannot predict its outcome. The litigation process is inherently uncertain. Anunfavorable outcome could have a material adverse effect on InsWeb’s financialcondition, results of operations and cash flows.

 

**Traffic on our website is heavily dependent on our onlinerelationships. These relationships may not generate sufficient revenues tojustify the fees we pay to online companies. Further, our consumer traffic maydecline in the event an online relationship is unsuccessful**

 

Werely on relationships with a variety of Internet portals, financialinstitutions, and other online companies to attract consumers to our website.In a typical arrangement, the online company includes a “link” on its websiteon which a user can click to jump to our website or to a site that we operateunder the online company’s name; as part of the arrangement, we typically paythe online company a portion of the resulting transaction fees and in somecases a fixed fee. These relationships may not continue to generate asubstantial amount of new traffic on our website, or the revenues generated bythese relationships may be insufficient to justify our payment obligations. Wehave experienced occasional fluctuations in the traffic from our onlinepartners as a result of redesigns of their websites or being outbid forpromotions by other online insurance providers. Furthermore, the value of theserelationships is based on the continued positive market presence, reputationand growth of these online companies’ websites and services. Any decline in themarket presence, business or reputation of these online companies’ websites andservices will reduce the value of these relationships to us and could harm ourbusiness.

 

Forthe years ended December 31, 2002, 2001 and 2000, we receivedapproximately 11%, 32% and 25%, respectively, of our website traffic from themajor Internet portals Yahoo! Inc., MSN and AOL.  For the three months ended March 31, 2003, we receivedapproximately 9% of our website traffic from these online relationships.  We did not renew our agreement with MSN for2002 but did sign a non-exclusive agreement effective February 15, 2003, andour status as exclusive provider to Yahoo! and AOL was converted tonon-exclusive, effective November 1, 2001 and January 1, 2002,respectively. Additionally, during 2002 we significantly expanded our on-linemarketing relationship with LowerMyBills.com, Inc., whereby they deliveredapproximately 34% of our website traffic for the year ended December 31,2002. During the three months ended March 31, 2003, LowerMyBills.com Inc.,accounted for 49% of our website traffic. Our ability to increase our revenues will depend, in part, on ourability to generate increased traffic to our website through these significantonline relationships.

 

Mostof our relationships with online companies are terminable by either party on 30to 90 days’ notice. We may not be able to negotiate or renew marketingagreements with online companies on terms that are acceptable to us. Thetermination, non-renewal or renewal on unfavorable terms of a relationship fromwhich we generate significant traffic to our website would harm our business.If the recent trend of failing online companies continues, the trafficcurrently being received as well as the ability to attract new consumer trafficto our site could be harmed. Additionally, an online company’s failure tomaintain efficient and uninterrupted operation of its computer andcommunications hardware systems would likely reduce the amount of traffic wereceive at our site, harming our business.

 

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**Laws and regulations that govern the insurance industry couldexpose us, or our participating insurance companies, our officers, or agentswith whom we contract, to legal penalties if we fail to comply, and couldrequire changes to our business**

 

Weperform functions for licensed insurance companies and are, therefore, requiredto comply with a complex set of rules and regulations that often vary fromstate to state. If we fail to comply with these rules and regulations, we, aninsurance company doing business with us, our officers, or agents with whom wecontract, could be subject to various sanctions, including censure, fines, acease-and-desist order or other penalties. This risk, as well as changes in theregulatory climate or the enforcement or interpretation of existing law, couldexpose us to additional costs, including indemnification of participatinginsurance companies for their costs, and could require changes to our businessor otherwise harm our business. Furthermore, because the application of onlinecommerce to the consumer insurance market is relatively new, the impact ofcurrent or future regulations on InsWeb’s business is difficult to anticipate.

 

**Our intended expansion of our business, including, inparticular, our agency activities, will subject us to additional regulationswhich may delay or prevent our expansion and harm our business**

 

Overtime, we intend to expand our operations to include new products and servicesand to offer existing and new products in new jurisdictions, which may requireus to comply with additional laws and regulations. If we fail to adequatelycomply with these laws and regulations, our ability to offer some of ourproducts or services in a particular jurisdiction could be delayed or preventedand our business could be harmed. Compliance with these laws and regulationsand those of other jurisdictions into which we expand may require us to obtainappropriate business licenses, make necessary filings and obtain necessarybonds, appoint foreign agents and make periodic business reports.

 

**If we are unable to safeguard the security and privacy ofconsumers’ and participating insurance companies’ confidential data, consumersand insurance companies may not use our services and our business may be harmed**

 

Asignificant barrier to electronic commerce and communications is the securetransmission of personally identifiable information of Internet users as wellas other confidential information over public networks. If any compromise orbreach of security were to occur, it could harm our reputation and expose us topossible liability. A party who is able to circumvent our security measurescould misappropriate proprietary information or cause interruptions in our operations.We may be required to make significant expenditures to protect against securitybreaches or to alleviate problems caused by any breaches. To date, we haveexperienced no breaches in our network security. We rely on encryption andauthentication technology licensed from third parties to provide the securityand authentication necessary to effect secure transmission of confidentialinformation, such as names, addresses, Social Security and credit card numbers,user names and passwords and insurance company rate information. Advances incomputer capabilities, new discoveries in the field of cryptography, or otherevents or developments could result in a compromise or breach of the algorithmswe use to protect consumers’ and insurance companies’ confidential information.

 

**Uncertainty in the marketplace regarding the use of Internetusers’ personal information, or proposed legislation limiting such use, couldreduce demand for our services and result in increased expenses**

 

Concernamong consumers and legislators regarding the use of personal informationgathered from Internet users could create uncertainty in the marketplace. Thiscould reduce demand for our services, increase the cost of doing business as aresult of litigation costs or increased service delivery costs, or otherwiseharms our business. Laws have been enacted at both the federal and state levelsthat limit the uses of personally identifiable information of Internet usersgathered online or require online services to establish privacy policies Manystate insurance codes also limit the collection and use of personal informationby insurance companies, agents, or insurance service organizations. Failure toadhere to the growing body of privacy regulations could result inadministrative actions or private litigation and harm our business.

 

**System failures could reduce or limit traffic on our websiteand harm our ability to generate revenue**

 

Sincelaunching our online marketplace, we have experienced occasional minor systemfailures or outages that have resulted in the online marketplace being out ofservice for a period ranging from several minutes to three hours while ourtechnicians brought backup systems online. We may experience further systemfailures or outages in the future that could disrupt the operation of ourwebsite and could harm our business. Our revenues depend in large part on thevolume of traffic on our website and, more particularly, on the number ofinsurance quotes generated by our website in response to consumer inquiries.Accordingly, the performance, reliability and availability of our website,quote-generating systems and network infrastructure are critical to our 

 

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reputationand our ability to attract a high volume of traffic to our website and toattract and retain participating insurance companies. Moreover, we believe thatconsumers who have a negative experience with an electronic commerce websitemay be reluctant to return to that site. Thus, a significant failure or outageaffecting our systems could result in severe long-term damage to our business.

 

**Our facilities and systems are vulnerable to naturaldisasters and other unexpected losses, and we may not have adequate insuranceto cover such losses**

 

Ourcomputer hardware operations are located in leased facilities in Gold River,California. A third-party service provider located in Rancho Cordova,California maintains a full backup system. If both of these locationsexperienced a system failure, the performance of our website would be harmed.These systems are also vulnerable to damage from fire, power loss,telecommunications failures, break-ins, natural disasters and similar events.If we seek to replicate our systems at other locations, we will face a numberof technical challenges, particularly with respect to database replications,which we may not be able to address successfully. Although we carry propertyand business interruption insurance, our coverage may not be adequate tocompensate us for all losses that may occur. Our servers may also be vulnerableto computer viruses, physical or electronic break-ins and similar disruptions.

 

**We may experience technological problems or serviceinterruptions with individual insurance companies, which could harm the qualityof service on our website**

 

Severalof our participating insurance companies have chosen a technical solution thatrequires that our website servers communicate with these insurance companies’computer systems in order to perform the underwriting and risk analysis andrating functions required to generate quotes. Thus, the availability of quotesfrom a given insurance company may depend in large part upon the reliability ofthat insurance company’s own computer systems, over which we have no control. Amalfunction in an insurance company’s computer system or in the Internetconnection between our website servers and the insurance company’s system, oran excess of data traffic on that system, could result in a delay in thedelivery of e-mail quotes or could cause an insurance company that providesinstant quotes to go offline until the problem can be remedied. Moreover, themalfunction could cause the insurance company to dispute the number of leads itreceived from InsWeb. Further, a computer malfunction could cause an insurancecompany to quote erroneous rates, in which case the insurance company would berequired to take itself offline until the malfunction can be corrected. Anytechnological problems with or interruption of communications with an insurancecompany’s computer systems could materially reduce the number of competinginsurance companies available to provide quotes, and therefore the level ofservice perceived by consumers, on our online marketplace.

 

**We rely on the services of our executive officers and otherkey personnel, whose knowledge of our business and the insurance industry andtechnical expertise would be extremely difficult to replace**

 

Ourfuture success is substantially dependent on the continued services andcontinuing contributions of our senior management and other key personnel,particularly Hussein A. Enan, Chairman of our Board, and Mark P. Guthrie, ourPresident and Chief Executive Officer, and the loss of the services of any ofour executive officers or other key employees could harm our business.

 

Wehave no long-term employment agreements with any of our key personnel, althoughMr. Guthrie is entitled to certain severance benefits should hisemployment be involuntarily terminated. We maintain a $2 million lifeinsurance policy on each of Mr. Enan and Mr. Guthrie that names us asthe beneficiary, but maintain no similar insurance on any of our other keyemployees. Additionally, InsWeb has granted stock options as incentives toexecutive officers and new employees, including Mr. Guthrie, and certainother key personnel. As the value of these incentives are highly dependent onan increase in the market price of our common stock, we may be unable to retainsuch key employees, nor retain or recruit other officers and key employees in thefuture.

 

**We may not be able to recruit or retain necessary personnel,which could slow the process of adding new insurance companies to our websiteor otherwise harm our business**

 

Ourfuture success depends on our continuing ability to attract, retain andmotivate highly skilled employees, particularly with respect to technologydevelopment and implementation. The implementation of new insurance companieson our site is a technologically complex and labor-intensive process.Accordingly, any difficulty we face in attracting and retaining talenteddevelopment and implementation personnel could slow the process of adding newinsurance companies to our online marketplace and therefore limit our abilityto increase the attractiveness of our services to consumers. If we are not ableto attract and retain new personnel, particularly within our technologydevelopment and implementation team, our business will be harmed.

 

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**Regulation of the Internet is unsettled, and futureregulations could inhibit the growth of the Internet and otherwise harm ourbusiness**

 

Thelaws governing the Internet remain largely unsettled, even in areas where therehas been some legislative action. Furthermore, the growth and development ofthe market for electronic commerce may prompt the enactment of more stringentconsumer protection laws that may impose additional burdens on companiesconducting business online. For example, many states have adopted laws orregulations relating to unsolicited commercial email or “spam”. These lawstypically prohibit the sending of a commercial email to a recipient unless therecipient has consented in some manner. However, there are inconsistencies inthese state laws that make it difficult to implement national email-basedmarketing campaigns. These laws may inhibit the growth of the Internet as amedium for commerce and comparison insurance shopping, which could, in turn,decrease demand for our services, increase our cost of doing business, orotherwise harm our business. In addition, applicability to the Internet ofexisting laws governing issues including property ownership, copyrights andother intellectual property issues, taxation, libel and personal privacy isuncertain. The vast majority of these laws was adopted prior to the advent ofthe Internet and related technologies and, as a result, do not contemplate oraddress the unique issues of the Internet and related technologies.

 

**Any acquisitions that we undertake could be difficult tointegrate, disrupt our business, dilute stockholder value and harm ouroperating results**

 

Wemay acquire or make investments in complementary businesses, technologies,services or products if appropriate opportunities arise. The process ofintegrating any acquired business, technology, service or product into ourbusiness and operations may result in unforeseen operating difficulties andexpenditures. Integration of an acquired company also may consume much of ourmanagement’s time and attention that would otherwise be available for ongoingdevelopment of our business. Moreover, the anticipated benefits of anyacquisition may not be realized. We may be unable to identify, negotiate orfinance future acquisitions successfully, or to integrate successfully anyacquisitions with our current business. Future acquisitions could result inpotentially dilutive issuances of equity securities or the incurrence of debt,contingent liabilities or amortization expenses related to goodwill and otherintangible assets, any of which could harm our business.

 

**We may be subject to claims for infringement of intellectualproperty, with or without merit, which could be costly to defend or settle**

 

Wemay from time to time be subject to claims of infringement of other parties’proprietary rights or claims that our own trademarks, patents or otherintellectual property rights are invalid. We have been subject to infringementclaims in the ordinary course of business, including claims of allegedinfringement of the patent and trademark rights of third parties by companiesand us with which we have business relationships. Any claims of this type, withor without merit, could be time-consuming to defend, result in costlylitigation, divert management attention and resources or require us to enter intoroyalty or license agreements. License agreements may not be available onreasonable terms, if at all, and the assertion or prosecution of anyinfringement claims could significantly harm our business.

 

**We incorporate third**-**party technologies and services intoour online marketplace, and if the providers of these technologies and servicesfail in a timely manner to develop, license or support technology necessary toour services, market acceptance of our online marketplace could be harmed**

 

Wehave incorporated technology developed by third parties into our onlinemarketplace, and we will continue to incorporate third-party technology in ourfuture products and services. We have limited control over whether or whenthese third-party technologies will be developed or enhanced. If a third-partyfails to timely develop, license or support technology necessary to ourservices, market acceptance of our online marketplace could be harmed.

 

**Our stock price has fluctuated widely, and Internet stocks ingeneral have been extremely volatile**

 

Thetrading price of our common stock has been highly volatile and may besignificantly affected by factors including actual or anticipated fluctuationsin our operating results, new products or new contracts by us or our competitors,loss of key customers, conditions and trends in the electronic commerce andinsurance industries, changes in financial estimates by securities analysts,general market conditions and other factors. The trading prices of manyInternet stocks have experienced extreme price and volume fluctuations. Thesefluctuations often have been unrelated or disproportionate to the operatingperformance of these companies. These fluctuations may continue and could harmour stock price. Any negative change in the public’s perception of theprospects of Internet or electronic commerce companies could also depress ourstock price regardless of our results.

 

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**Delaware law and our charter documents contain provisionsthat could discourage or prevent a potential takeover, even if such atransaction would be beneficial to our stockholders**

 

Provisionsof Delaware law and our certificate of incorporation and bylaws could make moredifficult the acquisition of us by means of a tender offer, a proxy contest, orotherwise, and the removal of incumbent officers and directors.

 

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**ITEM 3.   QUANTITATIVE****AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.**

 

Therehave been no material changes to the Company’s disclosures related to certainmarket risks as reported under Part II, Item 7A, “Quantitative and QualitativeDisclosures About Market Risk,” in the Annual Report of InsWeb to the U.S.Securities and Exchange Commission on Form 10-K for the year ended December 31,2002.

 

**ITEM 4.    CONTROLS AND PROCEDURES**

 

(a)                                              Evaluation of disclosure controls andprocedures.  The Company’s principalexecutive officer and its principal financial officer, based on theirevaluation of the Company’s disclosure controls and procedures (as defined inExchange Act Rules 13a-14 (c)) as of a date within 90 days prior to the filingof this Quarterly Report on Form 10Q, have concluded that the Company’sdisclosure controls and procedures are adequate and effective for the purposesset forth in the definition in Exchange Act rules.

 

(b)                                             Changes in internal controls.  There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthe Company’s internal controls subsequent to the date of their evaluation.

 

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**PART II:****  OTHERINFORMATION**

 

**ITEM 1.   LEGAL PROCEEDINGS**

 

***eHealth Insurance Litigation***

 

InFebruary 2001, InsWeb temporarily suspended its online health insurancequoting services due to the decision by eHealthInsurance, Inc., formerlyInsWeb’s exclusive provider of online health insurance quotes, to unilaterallyterminate their marketing agreement. In February 2001, eHealthInsurancefiled suit in the U.S. District Court for the Northern District of Californiaalleging InsWeb’s failure to perform its obligations under the agreement. InMarch 2001, InsWeb filed a counterclaim alleging that eHealthInsurancewrongfully terminated the agreement and pursued a course of conduct aimed atdamaging InsWeb’s business. On March 24, 2003, the parties agreed tosettle the lawsuit and dismiss all of the claims asserted against each other.In addition, eHealthInsurance agreed to pay InsWeb $800,000 for the servicesperformed by InsWeb prior to the termination of the agreement.

 

**ITEM 2.   CHANGES****IN SECURITIES AND USE OFPROCEEDS**

 

None.

 

**ITEM 3.   DEFAULTS****UPON SENIOR SECURITIES**

 

None.

 

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

 

None.

 

**ITEM 5****.   OTHER INFORMATION**

 

None.

 

**ITEM 6****.  EXHIBITS ANDREPORTS ON FORM 8-K**

 

(a)                                  Exhibits

 
| **Exhibit****Number** |   | **Description of Document**                                                   |
|-----------------------|--------|-------------------------------------------------------------------------------|
|                  |   |                                                                          |
| 99.1                  |   | Certification  of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 |
|                  |   |                                                                          |
| 99.2                  |   | Certification  of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 |

 

(b)                                 Reportson Form 8-K:

 

On January 29, 2003, we filed aForm 8-K announcing InsWeb Corporation’s financial results for the quarter andyear ended December 31, 2002.

 

On February 7, 2003, we filed aForm 8-K describing InsWeb Corporation’s “Voluntary No-cost Program for Holdersof Fewer than 100 Shares of InsWeb Corporation Common Stock”, as presented in ashareholder letter.

 

On February 26, 2003, we filed aForm 8-K announcing InsWeb Corporation’s purchase of 2,241,440 Shares of InsWebCorporation Common Stock from Intuit Insurance Services, Inc. and SoftbankAmerica, Inc.

 

On March 24, 2003, we filed aForm 8-K announcing InsWeb Corporation’s settlement of its litigation with eHealthInsurance.com.

 

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**SIGNATURE**

 

In accordance with the requirements of theSecurities Exchange Act of 1934, the registrant has caused this report to besigned on its behalf by the undersigned thereunto duly authorized.

 

 
| Dated: May 13, 2003 | **INSWEB CORPORATION  (Registrant)**      |
|---------------------|-------------------------------------------|
|                |                                      |
|                |                                      |
|                | /s/ William D. Griffin                    |   |
|                | William D. GriffinChief Financial Officer |

 

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**INSWEBCORPORATION**

 

**CERTIFICATIONOF CHIEF EXECUTIVE OFFICER**

 

I, Mark P. Guthrie, President and Chief Executive Officer of InsWebCorporation, certify that:

 

(1)                  I have reviewedthis quarterly report on Form 10-Q of InsWeb Corporation;

 

(2)                  Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

(3)                  Based on myknowledge, the financial statements, and other financial information includedin this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

(4)                  The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a.               designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b.              evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c.               presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

(5)                  The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors:

 

a.               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b.              any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

(6)                  The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
|                       | /s/ Mark P. Guthrie                   |   |
|----------------------------|---------------------------------------|--------|
| Dated:  May  13, 2003 | **Mark P. Guthrie**                   |
|                       | President and Chief Executive Officer |

 

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**INSWEBCORPORATION**

 

**CERTIFICATIONOF CHIEF FINANCIAL OFFICER**

 

I, William D. Griffin, Chief Financial Officer of InsWeb Corporation,certify that:

 

(1)          I have reviewed thisquarterly report on Form 10-Q of InsWeb Corporation;

 

(2)                  Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

(3)                  Based on myknowledge, the financial statements, and other financial information includedin this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

(4)                  The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a.               designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b.              evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c.               presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

(5)                  The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors:

 

a.               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b.              any fraud, whetheror not material, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

(6)                  The registrant’sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

 
|                      | /s/ William D.  Griffin |   |
|---------------------------|-------------------------|--------|
| Dated:  May 13, 2003 | **William D. Griffin**  |
|                      | Chief Financial Officer |

 

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**INSWEBCORPORATION**

 

**EXHIBITINDEX TO QUARTERLY REPORT ON FORM 10-Q**

 
| **Exhibit****Number** |   | **Description of Document**                                                    |
|-----------------------|--------|--------------------------------------------------------------------------------|
|                  |   |                                                                           |
| 99.1                  |   | Certification  of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350. |
|                  |   |                                                                           |
| 99.2                  |   | Certification  of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350. |

 

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