**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, 2004**                                                                                                                                                                                                                                                                                                                               |
| ** **                                                                                                                                                                                                                                                                                                                                                                            |
| **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**

(Exact name of Registrant as specified in itscharter)

 
| **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 mark whether the Registrant(1) has filed all reports required to be filed by Sections 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý No o

 

Indicate by check mark whether the Registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yeso No ý

 

The number of outstanding shares of theRegistrant’s Common Stock, par value $0.001 per share, on April 26, 2004were 4,688,943 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, 2004 and December 31,  2003            |       |
|                          | Condensed  Consolidated Statements of Operations for the three months endedMarch 31, 2004 and 2003 |       |
|                          | Condensed Consolidated  Statements of Cash Flows for the three months endedMarch 31, 2004 and 2003 |       |
|                          | 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 |                                                                                                    |

 

2

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

 

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

 

**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                       | ** ** | **March 31,  2004** | ** ** | **December  31,  2003** | ** ** |
|--------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| **Assets**                                       |       |                     |       |                    |       |
| Current assets:                                  |       |                     |       |                    |       |
| Cash and cash equivalents                        |       | $                        | 8,797      |                    | $          | 15,223 |   |
| Short-term investments                           |       | 16,227                   |       | 10,868                  |       |
| Accounts receivable, net                         |       | 1,027                    |       | 1,006                   |       |
| Prepaid expenses and other  current assets       |       | 431                      |       | 785                     |       |
| Total current assets                             |       | 26,482                   |       | 27,882                  |       |
| Property and equipment, net                      |       | 1,231                    |       | 1,386                   |       |
| Other assets                                     |       | 578                      |       | 614                     |       |
| Total assets                                     |       | $                        | 28,291     |                    | $          | 29,882 |   |
|                                             |       |                     |       |                    |       |
| **Liabilities and  stockholders’ equity**   |       |                     |       |                    |       |
| Current liabilities:                             |       |                     |       |                    |       |
| Accounts payable                                 |       | $                        | 1,068      |                    | $          | 524 |   |
| Accrued expenses                                 |       | 4,546                    |       | 4,804                   |       |
| Deferred revenue                                 |       | 219                      |       | 275                     |       |
| Total current liabilities                        |       | 5,833                    |       | 5,603                   |       |
|                                             |       |                     |       |                    |       |
| Commitments and contingencies                    |       |                     |       |                    |       |
|                                             |       |                     |       |                    |       |
| Stockholders’ equity:                       |       |                     |       |                    |       |
| Common stock                                     |       | 7                        |       | 7                       |       |
| Paid-in capital, less treasury  stock            |       | 198,127                  |       | 197,988                 |       |
| Accumulated deficit                              |       | (175,676                 | )          | (173,716                | )          |
| Total stockholders’ equity                  |       | 22,458                   |       | 24,279                  |       |
| Total liabilities and  stockholders’ equity |       | $                        | 28,291     |                    | $          | 29,882 |   |

 

See accompanying notes.

 

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**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

 

*(in thousands, except per share amounts)*

*(unaudited)*

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                     | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Revenues:                                                                      |       |                                   |       |   |   |
| Transaction fees                                                               |       | $                                      | 3,830      |   | $ | 7,228 |   |
| Development and maintenance  fees                                              |       | 225                                    |       | 253 |   |
| Total revenues                                                                 |       | 4,055                                  |       | 7,481 |   |
|                                                                           |       |                                   |       |   |   |
| Operating expenses:                                                            |       |                                   |       |   |   |
| Technology                                                                     |       | 1,470                                  |       | 2,448 |   |
| Sales and marketing                                                            |       | 3,334                                  |       | 4,683 |   |
| General and administrative                                                     |       | 1,282                                  |       | 1,780 |   |
| Total operating expenses                                                       |       | 6,086                                  |       | 8,911 |   |
| Loss from operations                                                           |       | (2,031                                 | )          | (1,430 | ) |
| Interest expense                                                               |       | —                                 |       | (40 | ) |
| Interest income                                                                |       | 71                                     |       | 88 |   |
| Other income                                                                   |       | —                                 |       | 793 |   |
| Net loss                                                                       |       | $                                      | (1,960     | ) | $ | (589 | ) |
|                                                                           |       |                                   |       |   |   |
| Net loss per share-basic and  diluted                                          |       | $                                      | (0.42      | ) | $ | (0.10 | ) |
|                                                                           |       |                                   |       |   |   |
| Weighted average shares used in computing per share amounts-basic and  diluted |       | 4,664                                  |       | 6,095 |   |

 

See accompanying notes.

 

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**INSWEB CORPORATION**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

*(in thousands)*

*(unaudited)*

 
| ** **                                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                 | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Cash flows from operating activities:                                                      |       |                                   |       |   |   |
| Net loss                                                                                   |       | $                                      | (1,960     | ) | $ | (589 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by  operating activities: |       |                                   |       |   |   |
| Amortization of prepaid marketing costs                                                    |       | 29                                     |       | 67 |   |
| Depreciation and amortization                                                              |       | 209                                    |       | 311 |   |
| Other                                                                                      |       | —                                 |       | 8 |   |
| Net changes in operating assets and liabilities:                                           |       |                                   |       |   |   |
| Accounts receivable                                                                        |       | (21                                    | )          | 112 |   |
| Prepaid expenses and other current assets                                                  |       | 354                                    |       | 323 |   |
| Deposits and other assets                                                                  |       | 6                                      |       | (1 | ) |
| Accounts payable                                                                           |       | 544                                    |       | 422 |   |
| Accrued expenses                                                                           |       | (216                                   | )          | 122 |   |
| Deferred revenue                                                                           |       | (55                                    | )          | 38 |   |
| Net cash (used in) provided by operating activities                                        |       | (1,110                                 | )          | 813 |   |
| Cash flows from investing activities:                                                      |       |                                   |       |   |   |
| Redemptions of short-term investments                                                      |       | 5,773                                  |       | 9,304 |   |
| Purchases of short-term investments                                                        |       | (11,130                                | )          | (2,681 | ) |
| Purchases of property and equipment                                                        |       | (53                                    | )          | (17 | ) |
| Net cash (used in) provided by investing activities                                        |       | (5,410                                 | )          | 6,606 |   |
| Cash flows from financing activities:                                                      |       |                                   |       |   |   |
| Payments on marketing commitments                                                          |       | (43                                    | )          | (977 | ) |
| Proceeds from issuance of common stock through stock plans                                 |       | 137                                    |       | 17 |   |
| Repurchase of common stock                                                                 |       | —                                 |       | (3,888 | ) |
| Net cash provided by (used in) financing activities                                        |       | 94                                     |       | (4,848 | ) |
| Net (decrease) increase in cash and cash equivalents                                       |       | (6,426                                 | )          | 2,571 |   |
| Cash and cash equivalents, beginning of period                                             |       | 15,223                                 |       | 12,382 |   |
| Cash and cash equivalents, end of period                                                   |       | $                                      | 8,797      |   | $ | 14,953 |   |
|                                                                                       |       |                                   |       |   |   |
| Supplemental disclosure of cash flow information:                                          |       |                                   |       |   |   |
| Cash paid during the period for interest                                                   |       | $                                      | —     |   | $ | 40 |   |

 

See accompanying notes.

 

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**INSWEB CORPORATION**

 

**NOTES****TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

***(unaudited)***

 

**1.  Business of InsWeb**

 

InsWeb Corporation operates an onlineinsurance marketplace that enables consumers to comparison shop online andobtain insurance company-sponsored quotes for a variety of insurance products,including automobile and term life. InsWeb’s marketplace electronically matchesconsumers and insurance companies. InsWeb has combined extensive knowledge ofthe insurance industry, technological expertise and close relationships with asignificant number of insurance companies to develop an integrated onlinemarketplace. InsWeb’s marketplace enables consumers to research insurance-relatedtopics, search for, analyze and compare insurance products, apply for andreceive insurance company-sponsored quotes for actual coverage and to purchaseautomobile and term life insurance coverage through InsWeb’s insuranceagencies.

 

Quotes obtained through the onlinemarketplace are free to consumers, while participating insurance companies paya transaction fee to InsWeb. These fees are earned either from the delivery ofa lead to a participating insurance company, from a fee paid by an insurancecompany for each closed policy, or from a commission or broker fee earned byInsWeb’s insurance agencies, InsWeb Insurance Services, Inc. and GoldrushInsurance Services, Inc.

 

Certain consumers, depending on theirresponses to several preliminary screening questions, are provided theopportunity to link directly to an insurance company’s website. In thesesituations, the consumer will complete the insurance company’s onlineapplication, and InsWeb will be paid a fee for that consumer link or click-through.

 

InsWeb is subject to all of the risksinherent in an early stage business in the electronic commerce industry andspecial risks related to the online insurance industry. These risks include,but are not limited to, unpredictable business model, limited managementresources, dependence upon consumer acceptance of the Internet, Internetrelated security risks, the changing nature of the electronic commerceindustry, and variations in consumer traffic (consumers shopping for insuranceon the Internet) and insurance company participation. Due to the foregoing andother factors, InsWeb’s future operating results may be materially affected.

 

**2.* *Basis of Presentation**

 

 Thecondensed consolidated 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 31,2004 and the results of operations and cash flows for the three months endedMarch 31, 2004 and March 31, 2003. The financial data and other information disclosed in these notes to thecondensed consolidated financial statements related to these periods areunaudited.  The results for the threemonths ended March 31, 2004 are not necessarily indicative of the resultsto be expected for the year ending December 31, 2004.

 

These condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and notes thereto included in InsWeb’s Annual Report on Form 10-Kand other information as filed with the Securities and Exchange Commission.

 

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**3.  Concentration ofRisk — Significant Customers**

 

For the threemonths ended March 31, 2004, two customers, Progressive Casualty InsuranceCompany (“Progressive”) and John Hancock Life Insurance Company (“JohnHancock”), accounted for 13% and 12% of total revenues, respectively.

 

**4.  Concentration ofRisk — Marketing Partners**

 

InsWeb relies onrelationships with Internet portals and other online companies to attractconsumers to its website. In a typical arrangement, the online company includesa “link” on its website on which a user can click to jump to InsWeb’s websiteor to a site that InsWeb operates under the online company’s name; as part ofthe arrangement, InsWeb typically pays the online company a portion of theresulting transaction fees. These relationships may not continue to generate asubstantial amount of new traffic on InsWeb’s website, or the revenuesgenerated by these relationships may be insufficient to justify InsWeb’spayment obligations. InsWeb has experienced fluctuations in the traffic fromits online partners as a result of redesigns of their websites or being outbidfor promotions by other online insurance providers. Furthermore, the value ofthese relationships is based on the continued positive market presence,reputation and growth of these online companies’ websites and services. Anydecline in the market presence, business or reputation of these onlinecompanies’ websites and services will reduce the value of these relationshipsto InsWeb and could harm its business.

 

**5.  Per Share Information**

 

Basic earnings per share, is computed usingthe weighted average number of shares of common stock outstanding. Dilutedearnings per share, reflects the potential dilution that would occur if stockoptions and warrants had been exercised. For the three month period ended March 31, 2004 and the three monthperiod ended March 31, 2003, common equivalent shares from stock optionsand warrants have been excluded from the computation of net loss pershare-diluted as their effect is antidilutive.

 

InsWeb accounts for it’s stock basedcompensation plans under the recognition and measurement principles of APBOpinion No. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations.  The following tableillustrates the effect on net loss and loss per share if InsWeb had applied thefair value recognition provisions of Financial Accounting Standards BoardStatements No. 123 (“SFAS 123”) “Accounting for Stock-Based Compensation” andNo. 148, (“SFAS 148”) “Accounting for Stock-BasedCompensation-Transition and Disclosure*,*” to stock-based employeecompensation (in thousands, except per share amounts):

 
| ** **                                                                                                 | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                 | ** ** | **2004**                               | ** ** | **2003** | ** ** |
|                                                                                                       |       |                                   |       |   |   |
| Net loss, as reported                                                                                      |       | $                                      | (1,960     | ) | $ | (589 | ) |
| Deduct: Stock-based employee compensation expense determined under fair  value based method for all awards |       | (142                                   | )          | (402 | ) |
| Pro forma net loss                                                                                         |       | $                                      | (2,102     | ) | $ | (991 | ) |
|                                                                                                       |       |                                   |       |   |   |
| Loss per share:                                                                                            |       |                                   |       |   |   |
| Basic and diluted—as reported                                                                         |       | $                                      | (0.42      | ) | $ | (0.10 | ) |
|                                                                                                       |       |                                   |       |   |   |
| Basic and diluted—pro forma                                                                           |       | $                                      | (0.45      | ) | $ | (0.16 | ) |

 

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Option valuation models require the input ofhighly subjective assumptions. Because InsWeb’s employee and director stockoptions have characteristics significantly different from those of tradedoptions, and because changes in the subjective input assumptions can materiallyaffect the fair value estimate, in management’s opinion, the existing models donot necessarily provide a reliable measure of the fair value of its employeestock options. For purposes of pro forma disclosures, the estimated fair valueof the options is amortized over the options’ vesting period. The above proforma disclosures are not necessarily representative of the effects on reportedincome or loss for future periods, as additional grants are made each year andoptions vest over several years.

 

**6.  Comprehensive (Loss) Income**

 

Total comprehensive (loss) income for thethree months ended March 31, 2004 and 2003 was as follows (in thousands):

 
| ** **                                                                         | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                         | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Net loss                                                                           |       | $                                      | (1,960     | ) | $ | (589 | ) |
| Other comprehensive gain (loss) - change in unrealized gain (loss) on  investments |       | 1                                      |       | 4 |   |
| Comprehensive loss                                                                 |       | $                                      | (1,959     | ) | $ | (585 | ) |

 

**7.  Related Party Transactions**

 

During the three months ended March 31,2004, InsWeb recognized $128,000 in marketing expenses under a marketingagreement with an Internet company, compared to $122,000 for the comparableperiod in 2003.  An affiliate of theInternet company became a stockholder of InsWeb in December 1998.

 

**8. Commitments andContingencies**

 

**Leases**

 

InJuly 2002, InsWeb and one of its sublessees agreed to amend the subleasecovering portions of the property InsWeb formerly occupied as its headquartersin Redwood City, California. Under the terms of the amendment, the sublesseeagreed to rent the entire facility for the duration of InsWeb’s lease (throughSeptember 2008). All rent and operating expenses otherwise payable byInsWeb to the landlord are required to be paid directly by the sublessee.Therefore, the amended sublease offsets InsWeb’s aggregate operating leasecommitments by approximately $8,559,000 through the remainder of thelease.  However, the sublessee is astart-up company with a 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 sublessee defaults onits obligations under the amended sublease, InsWeb would be responsible formaking the required lease payments to the landlord throughout the remainingterm of the lease.  As a result, theCompany has an accrual of $1,000,000 as of March 31, 2004 for leasecommitments related to this formerly occupied facility. In connection with theother lease obligations for formerly occupied facilities, InsWeb must makeassumptions regarding the estimated future sublease income relative to thesefacilities.  As a result of the declinein the real estate market in the geographic area where these properties arelocated, the Company has an accrual of $1,440,000 as of March 31, 2004 whichis an estimate of the short-fall of future sublease income compared to theremaining lease obligations related to these formerly occupied facilities. Thiscompares to an accrual of $1,584,000 as of December 31, 2003. Theseestimates and assumptions are affected by area-specific conditions such as newcommercial development, market occupancy rates and future market prices. Ifthese estimates or their related assumptions change in the future, InsWeb maybe required to record a charge to increase its accrual, or to record otherincome to decrease the accrual if conditions so warrant.

 

8

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**SecuritiesClass Action Lawsuit**

 

A securitiesclass action lawsuit was filed on December 5, 2001 in the United StatesDistrict Court for the Southern District of New York, (the “Court”) purportedlyon behalf of all persons who purchased our common stock from July 22, 1999through December 6, 2000.  Thecomplaint named as defendants InsWeb, certain current and former officers anddirectors, and three investment banking firms that served as underwriters forInsWeb’s initial public offering in July 1999.  The complaint, as subsequently amended,alleges violations of Sections 11 and 15 of the Securities Act of 1933 andSections 10 and 20 of the Securities Exchange Act of 1934, on the grounds thatthe prospectuses incorporated in the registration statements for the offeringfailed to disclose, among other things, that (i) the underwriters had solicitedand received excessive and undisclosed commissions from certain investors inexchange for which the underwriters allocated to those investors materialportions of the shares of our stock sold in the offerings and (ii) theunderwriters had entered into agreements with customers whereby theunderwriters agreed to allocated shares of the stock sold in the offering tothose customers in exchange for which the customers agreed to purchaseadditional shares of InsWeb stock in the aftermarket at pre-determined prices.  No specific damages are claimed.  Similar allegations have been made inlawsuits relating to more than 300 other initial public offerings conducted in1999 and 2000, all of which have been consolidated for pretrial purposes.  In October 2002, all claims against theindividual defendants were dismissed without prejudice.  In February 2003, the Court dismissedthe claims in the InsWeb action alleging violations of the Securities ExchangeAct of 1934 but allowed the plaintiffs to proceed with the remainingclaims.  In June 2003, the plaintiffs in all of the casespresented a settlement proposal to all of the issuer defendants.  Under the proposed settlement, the plaintiffswill dismiss and release all claims against participating defendants in exchangefor a contingent payment guaranty by the insurance companies collectivelyresponsible for insuring the issuers in all the related cases, and theassignment or surrender to the plaintiffs of certain claims the issuerdefendants may have against the underwriters. InsWeb and most of the other issuer defendants have accepted thesettlement proposal. The settlement is subject to approval of the Court, whichcannot be assured.  If the settlement isnot approved by the Court, InsWeb would defend the lawsuit vigorously.  However, the litigation is in the preliminarystage, and we cannot predict its outcome. The litigation process is inherently uncertain.  An unfavorable outcome could have a materialadverse effect on InsWeb’s financial condition, results of operations and cashflows.

 

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**ITEM2****.****                                                             ****MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION****ANDRESULTS OF OPERATIONS**

 

*This Quarterly Report on Form 10-Q andin particular Management’s Discussion and Analysis of Financial Condition andResults of Operations contains “forward-looking statements” with respect toInsWeb’s future financial performance. The words or phrases “expects,”“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” andsimilar expressions are generally intended to identify forward-lookingstatements. Such forward-looking statements are subject to various known andunknown risks and uncertainties, and InsWeb cautions you that anyforward-looking information provided by, or on behalf of, InsWeb is not aguarantee of future performance. Actual results could differ materially fromthose anticipated in such forward-looking statements due to a number offactors, some of which are beyond InsWeb’s control, including, but not limitedto, uncertain economic conditions which could result in lower growth rates,decreasing revenue and reduced participation in InsWeb’s marketplace, limitedoperating history, anticipated losses, the unpredictability of future revenues,reliance on key customers—property and casualty insurance carriers- who arethemselves subject to volatility in their operating cycles, competition, risksassociated with system development and operation risks, management of potentialgrowth and risks of new business areas, business combinations, and strategic alliances.These risks and uncertainties, as well as other risks and uncertainties, whichare described in greater detail in the section entitled “Factors That MayAffect Future Performance” and other documents filed with the Securities andExchange Commission, could cause InsWeb’s actual results to differ materiallyfrom historical results or those currently anticipated. 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 online insurancemarketplace that enables consumers to shop online for a variety of insuranceproducts, including automobile and term life, and obtain insurancecompany-sponsored quotes for actual coverage. In order to create thismarketplace, InsWeb has established close relationships with a significantnumber of insurance companies throughout the United States.

 

InsWeb’s principal source of revenues istransaction fees from participating insurance companies. While quotes obtainedthrough InsWeb’s online insurance marketplace are provided to consumers free ofcharge, InsWeb earns revenues from participating insurance companies based onthe delivery of qualified leads. With certain insurance companies, InsWeb ispaid a fee only when the consumer purchases an insurance policy, and withothers, InsWeb is paid a transaction fee based on the delivery of a lead,regardless of whether or not the consumer actually purchases a policy.Qualified leads are produced in two ways: for insurance companies providinginstant online quotes, a qualified lead is produced when a consumer clicks torequest insurance coverage based on a specific quote; for insurance companiesproviding e-mail or other offline quotes, a qualified lead is produced when aconsumer clicks to request the quote itself. Once a lead is generated by theconsumer’s request for an application or offline quote, InsWeb transmits thelead either to InsWeb Insurance Services or to the selected insurance companyor other entity by e-mail, file transfer or direct connection to the insurancecompany’s information system. InsWeb provides each participating insurancecompany with custom-formatted lead information based on the insurance companiesindividual requirements.

 

InsWeb also generates commission revenue andbroker fees from the operations of its insurance agent subsidiaries. As ofMarch 31, 2004, InsWeb’s wholly-owned subsidiaries, InsWeb InsuranceServices, Inc. and Goldrush Insurance Services, Inc. (collectively “InsWeb’sInsurance Agency”), function as authorized automobile insurance agents for 10participating insurance companies in nine states and for one term lifeinsurance company in all states. InsWeb’s Insurance Agency receives acommission based on a percentage of the initial insurance policy premiumrelated to each insurance policy sale where InsWeb has acted as the agent.InsWeb recognizes the revenue from these activities on the effective date ofthe policy, less an estimate for early cancellations of the underlyinginsurance policies. InsWeb also recognizes revenue when an applicable policy isrenewed. Commission revenue and broker fees are included in transaction fees.InsWeb may expand its online insurance agency operations by adding additionalparticipating insurance companies and by expanding into additional states.

 

In October 2003, InsWeb began providing“Sponsored Web Links,” whereby certain consumers, depending on their responsesto several preliminary screening questions, are provided with the opportunityto link directly to an insurance company’s website. In these situations, theconsumer will complete the insurance company’s online application, and InsWebwill be paid a fee for that consumer link or click-through. Fees paid to InsWebfor Sponsored Web Links are included in transaction fees.

 

10

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A less significant and declining source ofrevenues for InsWeb are development and maintenance fees that are paid byinsurance companies that participate on the InsWeb insurance marketplace.Development fees are generated from the design and development of customizedinterfaces between an insurance company’s information system and the InsWebsite. 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.

 

InsWeb has focused its efforts on developinginsurance company coverage for automobile insurance in order to be able tooffer true comparative online shopping for this important segment of theinsurance market. Automobile insurance accounted for approximately 71% oftransaction revenues in the first quarter of 2004 and 79% of transactionrevenues in fiscal 2003. We anticipate that automobile insurance will continueto account for a significant portion of InsWeb’s revenues for the foreseeablefuture.

 

InsWeb has been dependent on a limited numberof insurance companies for a majority of its revenues. Revenues fromProgressive and John Hancock accounted for approximately 13% and 12%,respectively, of InsWeb’s revenues for the quarter ended March 31, 2004.Revenues from GE Financial Assurance, Progressive, and American Familyaccounted for approximately 18%, 13% and 10%, respectively, of InsWeb’srevenues for the quarter ended March 31, 2003. Because of the broad marketpresence of some of InsWeb’s participating insurance companies, InsWeb expectsto continue to generate a substantial portion of its revenues from a limitednumber of insurance companies for the foreseeable future.

 

Since its inception, InsWeb has incurredsignificant losses, and as of March 31, 2004, InsWeb had an accumulateddeficit of $175.7 million. These losses, and this accumulated deficit,have resulted from the significant costs incurred in the development ofInsWeb’s technology platform, the establishment of relationships with insurancecompanies, their integration with the InsWeb site, and InsWeb’s marketing andsales activities. InsWeb intends to continue to invest in product developmentand maintenance, sales and marketing and in its administrative infrastructure.As a result, InsWeb believes that it will continue to incur operating losses atleast through 2004. InsWeb’s operating results for future periods are subjectto numerous uncertainties, and there can be no assurance that InsWeb will beable to achieve and sustain profitability. In view of the rapidly evolvingnature of InsWeb’s business, InsWeb believes that period-to-period comparisonsof its operating results are not necessarily meaningful and should not berelied upon as an indication of future performance.

 

**Results of Operations**

 

The following table sets forth certainstatement of operations items as a percentage of total revenues for the threemonths ended March 31, 2004 and 2003:

 

 

| ** **                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------|------------|----------------------------------------|------------|
| ** **                       | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Revenues:                        |       |                                   |       |   |   |
| Transaction fees                 |       | 94                                     | %          | 97 | % |
| Development and maintenance fees |       | 6                                      | %          | 3 | % |
| Total                            |       | 100                                    | %          | 100 | % |
| Operating expenses:              |       |                                   |       |   |   |
| Technology                       |       | 36                                     | %          | 33 | % |
| Sales and marketing              |       | 82                                     | %          | 63 | % |
| General and administrative       |       | 32                                     | %          | 23 | % |
| Total                            |       | 150                                    | %          | 119 | % |
| Loss from operations             |       | (50                                    | )%         | (19 | )% |

 

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**Revenues**

 

| ** **                 | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------|------------|----------------------------------------|------------|
| **(Amounts in thousands)** | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Transaction revenues:      |       |                                   |       |   |   |
| Auto insurance             |       | $                                      | 2,736      |   | $ | 6,214 |   |
| Term life insurance        |       | 1,033                                  |       | 909 |   |
| Other insurance            |       | 61                                     |       | 105 |   |
| Total transaction revenues |       | $                                      | 3,830      |   | $ | 7,228 |   |

 

**Direct Marketing (Consumer Acquisition)**

 

| ** **                                               | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|------------|
| **(Amounts in thousands, except per consumer  amounts)** | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Direct marketing costs                                   |       | $                                      | 1,854      |   | $ | 2,933 |   |
| Direct marketing as a percent  of revenue                |       | 46                                     | %          | 39 | % |
| Number of consumers                                      |       | 733                                    |       | 2,150 |   |
| Direct marketing cost per  consumer                      |       | $                                      | 2.53       |   | $ | 1.36 |   |
| Total revenue per consumer                               |       | $                                      | 5.53       |   | $ | 3.48 |   |

 

**Auto Marketplace**

 

| ** **                                               | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|------------|
| **(Amounts in thousands, except per consumer  amounts)** | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Auto insurance revenues                                  |       | $                                      | 2,736      |   | $ | 6,214 |   |
| Number of consumers                                      |       | 585                                    |       | 1,900 |   |
| Revenue per consumer                                     |       | $                                      | 4.68       |   | $ | 3.27 |   |

 

**Term Life Marketplace**

 

| ** **                                               | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|------------|
| **(Amounts in thousands, except per consumer  amounts)** | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| Term life insurance revenues                             |       | $                                      | 1,033      |   | $ | 909 |   |
| Number of consumers                                      |       | 100                                    |       | 149 |   |
| Revenue per consumer                                     |       | $                                      | 10.33      |   | $ | 6.10 |   |

 

***Definitions:***

 
| “Direct marketing costs” |   | Represents expenses incurred by the company to drive consumer traffic  to InsWeb’s online insurance marketplace; |
|------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|
|                               |   |                                                                                                                  |
| “Number of consumers”    |   | Represents a consumer who has started an InsWeb application;                                                          |
|                               |   |                                                                                                                  |
| “Revenue per consumer”   |   | Represents transaction revenue earned per consumer who has started an  application.                                   |

 

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**Revenues**

 

**Transaction Fees.** Transaction fees from the sale of automobile insurance through theInsWeb online marketplace decreased to $2.7 million in the first quarterof 2004 from $6.2 million in the same quarter last year, a decrease of56%. Revenue per auto consumer increased to $4.68 in the first quarter of 2004,compared to $3.27 in the first quarter of 2003, on a 69% decrease in consumertraffic (consumers who have started the InsWeb auto application). The decreasein revenues was a result of the decreased consumer traffic, offset by theincrease in the revenue per consumer which was attributable to the fourthquarter 2003 launch of the Sponsored Web Link initiative discussed above.Management expects revenue per auto consumer to increase in 2004 as InsWebcontinues to expand its Sponsored Web Links program and implements otherinitiatives to increase the sale of automobile insurance policies to consumersthat shop the InsWeb auto insurance marketplace.

 

Transaction fees from the sale of term lifeinsurance through the InsWeb online marketplace increased to $1.0 millionin the first quarter of 2004 from $0.9 million in the same quarter lastyear, an increase of 14%. Revenue per life consumer increased to $10.33 in thefirst quarter of 2004, compared to $6.10 in the first quarter of 2003, on a 33%decrease in consumer traffic (consumers who have started the InsWeb term lifeapplication). The increase in revenues was primarily attributable to theconversion (which was commenced in late 2002) of a significant participatinginsurance company from a payment per lead generated arrangement to acommission-based model where payment and revenue is recognized upon the closingof a term life policy, offset by the decrease in consumer traffic. Thisinsurance company conversion resulted in lower revenues in 2003 because it takes60 to 120 days to complete the sale of a term life policy. However, termlife revenues increased in 2004 because revenues on a commission basis aregenerally greater than on a per lead basis. The Company will work to convertadditional participating term life insurance companies throughout 2004 to acommission-based revenue model.  Revenueper term life consumer is expected to be negatively impacted in the near termas these insurance company conversions are implemented.

 

**OperatingExpenses**

 

**Technology.**  Technology expenses consistprimarily of payroll and related expenses, including employee benefits,facility and systems costs, for product and site development personnel involvedwith the planning, design and implementation of carrier integration to the InsWebonline insurance marketplace. Technology expenses decreased to$1.5 million in the first quarter of 2004 from $2.4 million in thesame quarter last year, a decrease of 40%. The decrease was primarilyattributable to a reduction in headcount. Technology expenses in 2004 areexpected to decline in comparison to 2003 expenses.

 

**Sales and Marketing.**  Salesand marketing expenses consist of direct marketing expenditures that includeadvertising, promotions and fees paid to online companies with which InsWeb hascontractual relationships to drive consumer traffic to the InsWeb onlinemarketplace. 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. InsWeb has experienced occasional fluctuations in thetraffic from its online partners as a result of redesigns of their websites orbeing outbid for promotions by other online insurance providers. Also includedin sales and marketing expenses 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. Overallsales and marketing expenses decreased to $3.3 million in the first quarter of2004 from $4.7 million in the same quarter last year, a decrease of 29%,while direct marketing costs decreased 37% to $1.9 million in the firstquarter of 2004 from $2.9 million in the same quarter last year. Directmarketing expense as a percent of transaction revenues was 48% in the firstquarter of 2004, as compared to 41% in 2003. Management expects that directmarketing expense as a percent of revenues will continue at the rate of thefirst quarter, and may possibly go higher. Direct marketing costs willfluctuate based on the amount of consumer traffic driven to the InsWebmarketplace, while all other sales and marketing expenditures are expected toremain at current levels for the remainder of 2004.

 

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**General and Administrative.**  Generaland administrative expenses consist primarily of payroll and related expenses,including employee benefits, facility costs, telecommunications and systemscosts, for InsWeb’s general management, administrative and accountingpersonnel, as well as other general corporate expenses. General andadministrative expenses decreased to $1.3 million in the first quarter of2004 from $1.8 million in the same quarter last year, a decrease of 28%.The decrease was primarily due to a reduction in headcount and a decrease inlegal expenses due to the settlement with eHealthInsurance in March 2003.General and administrative expenses are expected to remain at current levelsfor the remainder of 2004.

 

**Interest Expense**

 

Interest expense amounted to$40,000 during the three months ended March 31, 2003. Interestexpense was primarily attributable to the long-term marketing commitment (fixedpayments), which was paid-off in May 2003.

 

**Interest Income**

 

Interest income amounted to $0.1 million forthe three months ended March 31, 2004 and for the three months endedMarch 31, 2003. Interest income is income earned on InsWeb’s investments.

 

**Other *Income***

 

For the three months ended March 31,2003, 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.

 

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**Critical Accounting Policies**

 

InsWeb’s discussion and analysis of itsfinancial 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 thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. InsWeb believes the following criticalaccounting policies affect its more significant judgments and estimates used inthe preparation of its consolidated financial statements.

 

**Accrual for Lease Obligations.** InsWeb is contractually obligated to make future lease payments oncertain formerly occupied facilities through September 2008. As ofMarch 31, 2004, total future obligations for these facilities amounted to$10.9 million; these obligations are offset by total future subleaseincome of approximately $9.2 million. Substantially all future subleaseincome is due from a sublessee which is a start-up company with a limitedoperating history and, therefore, there are inherent risks and uncertaintiesassociated with its future operations and its ability to discharge itsobligations through the term of the sublease. In the event that the sublesseedefaults on its obligations under the amended sublease, InsWeb would beresponsible for making the required lease payments to the landlord through theremaining term of the lease. In connection with this lease and other leaseobligations for formerly occupied facilities, InsWeb must make assumptionsregarding the estimated future sublease income relative to these facilities. Asa result of the above, the Company has recorded an accrual of $2.4 millionas of March 31, 2004 for lease commitments related to these formerlyoccupied facilities, as compared to an accrual of $2.6 million as ofDecember 31, 2003. These estimates and assumptions are affected byarea-specific conditions such as new commercial development, market occupancyrates and future market prices. If these estimates or their related assumptionschange in the future, InsWeb may be required to record a charge to increase itsaccrual, or to record other income todecrease the accrual if conditions so warrant.

 

**Contingencies.**  Asdiscussed in “Item 1 — Note 8 of Notesto Condensed Consolidated Financial Statements” and“Part II – Item 1,” a class action lawsuit has been filed that alleges InsWeb violatedcertain federal securities laws at the time of its initial public offering.Although some claims against InsWeb in this class action have been dismissedand a settlement of these proceedings has been proposed and conditionallyaccepted, InsWeb cannot accurately predict the ultimate outcome of this matterat this time and therefore, cannot estimate the range of probable loss, if any,due to the inherent uncertainties of litigation. InsWeb believes it hasmeritorious defenses; however InsWeb cannot assure that it will prevail in thisaction. An unfavorable outcome could have a material adverse effect on InsWeb’sfinancial condition, results of operations and cash flows.

 

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**Liquidity and Capital Resources**

 

Summarized cash flow information is asfollows (in thousands):

 
| ** **                                      | ** ** | **Three months ended  March 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                      | ** ** | **2004**                               | ** ** | **2003** | ** ** |
|                                            |       |                                   |       |   |   |
| Cash (used in) provided by operating activities |       | $                                      | (1,110     | ) | $ | 813 |   |
| Cash (used in) provided by investing activities |       | (5,410                                 | )          | 6,606 |   |
| Cash provided by (used in) financing activities |       | 94                                     |       | (4,848 | ) |
|                                                 |            |                                        |            |  |  |  |  |

 

At March 31, 2004, InsWeb’s principalsource of liquidity was $25.0 million in cash, cash equivalents and short-terminvestments, which decreased from $26.1 million as of December 31,2003.  The decrease resulted from the useof $1.1 million from operating activities.

 

For the three months ended March 31,2004, net cash used in operating activities was $1.1 million compared to cashprovided by operating activities of $0.8 million for the comparable period in2003.  For the three months endedMarch 31, 2004, non-cash items included depreciation and amortization of assetsof $0.2 million.  InsWeb’s net loss of$2.0 million was partially offset by a decrease in prepaid expenses and othercurrent assets of $0.4 million and an increase in accounts payable of $0.5million, which contributed to cash used in operations for the three monthsended March 31, 2004.

 

For the three months ended March 312004, net cash used in investing activities was $5.4 million, which primarilyconsisted of the purchases of short-term investments offset by the redemptionsof short-term investments.

 

For the three months ended March 31,2004, net cash provided by financing activities was $0.1 million.  Cash provided by financing activities wasattributable to the proceeds of common stock through stock plans of $0.1million.

 

InsWeb leases its current office facilitiesunder non-cancelable operating leases, which expire at various dates throughApril 2011, including a 10-year lease agreement through 2011 for officespace in the Sacramento area which houses its corporate headquarters and agencyoperations. InsWeb has options to extend the lease at the end of the leaseterm, and has the right of first refusal on other office space in the complex.In addition, InsWeb has entered into various sublease arrangements associatedwith previously exited facilities that have terms extending throughSeptember 2008.

 

Aggregate contractual cash obligations, netof sublease income, as of March 31, 2004 is summarized as follows (inthousands):

 
| **Years ending December 31,** | ** ** | **Gross lease  commitments** | ** ** | **Sublease  income** | ** ** | **Net lease  commitment** | ** ** |
|------------------------------------|------------|------------------------------|------------|----------------------|------------|---------------------------|------------|
| 2004                               |       | $                            | 2,490      |                 | $          | (1,476                    | )          | $ | 1,014 |   |
| 2005                               |       | 3,257                        |       | (1,961               | )          | 1,296                     |       |
| 2006                               |       | 3,391                        |       | (2,030               | )          | 1,361                     |       |
| 2007                               |       | 3,483                        |       | (2,100               | )          | 1,383                     |       |
| 2008                               |       | 2,936                        |       | (1,615               | )          | 1,321                     |       |
| Thereafter                         |       | 2,515                        |       | —               |       | 2,515                     |       |
|                               |       | $                            | 18,072     |                 | $          | (9,182                    | )          | $ | 8,890 |   |

 

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In July 2002, InsWeb and one of itssublessees agreed to amend the sublease covering portions of the propertyInsWeb formerly occupied as its headquarters in Redwood City. Under the termsof the amendment, the sublessee agreed to rent the entire facility for theduration of InsWeb’s lease (through September 2008) and to pay all rentand operating expenses otherwise payable by InsWeb directly to the landlord.Therefore, the amended sublease agreement results in a reduction in InsWeb’soperating lease commitments by $8.6 million, through the remainder of thelease. However, the sublessee is a start-up company with a limited operatinghistory and, therefore, there are inherent risks and uncertainties associated withits future operations and its ability to discharge its obligations through theterm of the sublease. In the event that the sublessee defaults on itsobligations under the amended sublease, InsWeb would be responsible for makingthe required lease payments to the landlord through the remaining term of thelease. In connection with this lease and other lease obligations for formerlyoccupied facilities, InsWeb must make assumptions regarding the estimatedfuture 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. If theseestimates or their related assumptions change in the future, InsWeb may berequired to record a charge to increase its accrual, or to record other incometo decrease the accrual if conditions so warrant.

 

InsWeb currently anticipates that its cash,cash equivalents, short-term investments and operating cash flows will besufficient to meet its anticipated cash needs for working capital and capitalexpenditures for at least the next 12 months. Although InsWeb does notanticipate the need for additional financing, InsWeb nevertheless may requireadditional funds to meet operating needs, or to expand its business internallyor through acquisition. InsWeb cannot be certain that additional financing willbe available 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 OurFuture Performance**

 

*Our futurebusiness, operating results and financial condition are subject to variousrisks and uncertainties, including those described below.*

 

**Our business is difficult toevaluate because our market is evolving rapidly and our business model isunpredictable**

 

Our limitedoperating history makes an evaluation of our future prospects very difficult.An investor in our common stock must consider the uncertainties frequentlyencountered by early stage companies in new and rapidly evolving markets. Theseuncertainties include:

 

•                  anevolving and unpredictable business model, which makes prediction of futureresults uncertain and an investment in our common stock highly speculative;

•                  thedevelopment of comparable services by competitors, which may reduce our marketshare;

•                  theuncertainty of the extent to which the consumer market will adopt the Internetas the preferred medium for comparison shopping for and purchase of insuranceproducts, which may limit our ability to generate revenue from consumers thatvisit our online marketplace or our insurance agency;

•                  ourability to retain key employees; and

•                  ourreliance on key customers and ability to retain customers.

 

Our businessstrategy may not be successful and we may not be able to successfully addressthese uncertainties. Moreover, our ability to take the foregoing steps may behampered by our limited financial resources should we fail to rapidly increaserevenues or should increased revenues be more than offset by increased operatingexpenses.

 

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

 

Given plannedinvestment levels, our ability to achieve profitability will depend upon ourability to generate and sustain substantially increased revenues. As a result,we believe that we will incur operating losses at least through 2004. Weincurred operating losses of $7.0 million for 2003, $15.5 million for2002, and $46.0 million for 2001. As of March 31, 2004, ouraccumulated deficit was $175.7 million. Our operating results for futureperiods are subject to numerous uncertainties, and we may not achievesufficient revenues to become profitable. Even if we achieve profitability, wemay not sustain or increase profitability on a quarterly or annual basis in thefuture. If we are unable to achieve profitability or if our profitability isdelayed we may need to seek additional financing to continue our businessoperations. Such financing could be on terms that are dilutive to our existingstockholders or could involve the issuance of securities that have rights andpreferences that are senior to those associated with our common stock.Moreover, if such financing were not available or were available only uponterms that were unacceptable to us, we could be required to significantlycurtail our operations.

 

**Our future revenues areunpredictable, our operating results are likely to fluctuate from quarter toquarter, and if we fail to meet the expectations of securities analysts orinvestors, our stock price could decline significantly**

 

Due to ourlimited 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 significant shortfall in revenues relative to our plannedexpenditures would harm our results of operations and could cause our stockprice to fall sharply, particularly following quarters in which our operatingresults fail to meet the expectations of investors.

 

Factors that maycause fluctuations in our operating results include the following, many ofwhich are outside our control:

 

•                                          Wemay experience consumer dissatisfaction with our online marketplace as we addor change features, or as the insurance coverage offered by participatinginsurance companies varies;

•                                          Consumertraffic on our online marketplace may decline as a result of the announcementor introduction of a competing online insurance marketplace or other newwebsites, products or services offered by our competitors;

 

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•                                          Consumertraffic may also fluctuate as a result of changes in level of advertising byentities with which we have insurance marketing relationships;

•                                          Ourrevenues may be harmed if we lose one or more significant insurance companyrelationships or if any of our participating insurance companies merge with oneanother;

•                                          Useof the Internet by consumers may fluctuate due to seasonal factors or otheruncontrollable factors affecting consumer behavior and may be affected by slowInternet performance due to technical problems or traffic bottlenecks on thenetwork;

•                                          Ourability to convert site visits into transaction fees may fluctuate due tochanges in our user interface or other features on our site;

•                                          Ourability to generate transaction fees may be adversely affected by changes inthe underwriting criteria used by our participating insurance companies todetermine which consumers will be offered quotes; and

•                                          Ourability to generate transaction fees may also be harmed due to technicaldifficulties on our website that hamper a consumer’s ability to start orcomplete a shopping session.

 

**Seasonality affectinginsurance shopping and Internet usage may cause fluctuations in our operatingresults**

 

We haveexperienced seasonality in our business associated with general slowness in theinsurance industry during the year-end holiday period. We expect to continue toexperience seasonality as our business matures. Because of this seasonality,investors may not be able to predict our annual operating results based on aquarter-to-quarter comparison of our operating results. We believe seasonalitywill have an ongoing impact on our business.

 

**Because a significant portionof our revenue is attributable to automobile insurance shopping on our onlinemarketplace, we are especially vulnerable to risks related to the online marketfor automobile insurance or the automobile insurance industry generally**

 

Automobileinsurance accounted for approximately 79% of our transaction revenues in 2003,approximately 83% in 2002 and approximately 69% in 2001. For the three monthsended March 31, 2004, auto insurance accounted for approximately 71% ofour transaction 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, ourability to generate revenue will be reduced and our business will be harmed. Inaddition, property and casualty insurance, including automobile insurance, issubject to operating cycles. During a cycle in which loss ratios rise,insurance companies may choose to restrict the amount of business they writewhile they await approval of rate increases from the various state insurancedepartments. Our business could be harmed if our participating insurancecompanies reduce their participation in our online marketplace.

 

**If we are unable to promoteour brand and expand our brand recognition, our ability to draw consumers toour website will be limited**

 

A growing numberof websites offer services that are similar to and competitive with theservices offered on our online insurance marketplace. Therefore, a positive recognition of our brand is criticalto attracting additional consumers to our website, strengthening ourrelationships with participating insurance companies and attracting newinsurance companies. In order to attract and retain consumers and insurancecompanies and to promote and maintain our brand, we are continuing ourfinancial commitment to create and maintain brand awareness. Our currentmarketing 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.

 

Our ability to maintain apositive recognition of our brand also depends in part on the quality of theproducts and services consumers receive from our participating insurance companiesor our insurance agency, including timely response to requests for quotes orcoverage. If we are unable to provide consumers with high-quality products andservices, the value of our brand may be harmed and the number of consumersusing our services may decline.

 

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**Competition in the market foronline distribution of insurance is intense, and if we are unable to competeeffectively with current competitors or new competitors that enter the market, thefees paid to us by participating insurance companies may fall, the fees chargedby online companies with which we have strategic relationships may rise, andour market share may suffer**

 

The onlineinsurance distribution market is a new industry and, like the broaderelectronic commerce market, is both rapidly evolving and highly competitive.Increased competition, particularly by companies offering online insurancedistribution, could reduce the fees we are able to charge our participatinginsurance companies or increase the fees we are required to pay to onlinecompanies with which we have strategic relationships, resulting in reducedmargins or loss of market share, any of which could harm our business. Inaddition, our current and future competitors may be able to:

 

•                  undertakemore extensive marketing campaigns for their brands and services;

•                  devotemore resources to website and systems development;

•                  adoptmore aggressive pricing policies; and

•                  makemore attractive offers to potential employees, online companies and third-partyservice providers.

 

Accordingly, wemay not be able to maintain or grow consumer traffic to our website and ourbase of participating insurance companies, our competitors may grow faster thanwe do, or companies with whom we have strategic relationships may discontinuetheir relationships with us, any of which would harm our business.

 

**Because a limited number ofinsurance companies account for a majority of our revenues, the loss of asingle insurance company relationship could result in a substantial drop in ourrevenues**

 

InsWeb has beendependent on a limited number of insurance companies for a majority of itsrevenues. Revenues from Progressive, GE Financial Assurance (“GEFA”) and AmericanFamily accounted for approximately 14%, 14% and 10%, respectively, of InsWeb’srevenues for the year ended December 31, 2003. Revenues from Amica, GEFA and KemperDirect accounted for approximately 14%, 14% and 10%, respectively, of InsWeb’srevenues for the year ended December 31, 2002. Revenues from Amica, GEFA and AIGaccounted for approximately 11%, 11% and 10%, respectively, of InsWeb’srevenues for the year ended December 31, 2001. Revenues from Progressive and John Hancock accounted forapproximately 13% and 12%, respectively, of our revenues for the three monthsended March 31, 2004.

 

In September 2003,Progressive discontinued its participation as a quoting company in the InsWebmarket place; however, in October 2003, Progressive signed an agreement toparticipate in the Sponsored Web Link program. In November 2003, GEFA’s participationas an instant quoting carrier within the InsWeb marketplace was terminated as aresult of its acquisition by AIG, Inc., who is and will continue as a quotingcompany in the InsWeb marketplace.

 

Should one or more of ourother key insurance company partners cease to participate in our onlinemarketplace, change its underwriting criteria or geographic coverage in a waythat reduces the proportion of consumers that are offered quotes from thatinsurance company, or suffer a significant decline in its ratings, ouroperating results could be materially harmed. Because of the broad marketpresence of some of our participating insurance companies, we expect tocontinue to generate a substantial portion of our revenues from a limitednumber of insurance companies for the foreseeable future. Although InsWebcontinually seeks new insurance companies to participate in the onlinemarketplace, we may be unable to add any new insurance companies.

 

**We may have difficultyintegrating new insurance companies into our online marketplace or agencyoperations, which could harm our ability to offer improved comparison-shoppingopportunities and thus limit the attractiveness of our service to consumers**

 

Integration ofan 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 customizedinterface with the insurance company’s own rating system, accessing athird-party rating engine of the insurance company’s choice, or adding theinsurance company’s rating information into InsWeb’s proprietary ratingengines. Though integration into our agency operations may require fewerresources to implement than integration of an insurance company into our onlinemarketplace, potential participating insurance companies may not be willing toinvest the time and resources necessary to achieve this integration, or we maynot be able to overcome the technological difficulties associated with, ordevote the time and resources necessary to, successfully integrate theinsurance company into our online marketplace or our agency operations.

 

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**We do not have exclusiverelationships or long-term contracts with insurance companies, which may limitour ability to retain these insurance companies as participants in ourmarketplace and maintain the attractiveness of our services to consumers**

 

We do not havean exclusive relationship with any of the insurance companies whose insuranceproducts are offered on our online marketplace, and thus, consumers may obtainquotes and coverage from these insurance companies without using our website.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.

 

**The outcome and impact of thesecurities class action lawsuit involving InsWeb is uncertain**

 

A securities class actionlawsuit was filed on December 5, 2001 in the United States District Courtfor the Southern District of New York, (the “Court”) purportedly on behalf ofall persons who purchased our common stock from July 22, 1999 throughDecember 6, 2000.  The complaintnamed as defendants InsWeb, certain current and former officers and directors,and three investment banking firms that served as underwriters for InsWeb’sinitial public offering in July 1999. The complaint, as subsequently amended, alleges violations of Sections11 and 15 of the Securities Act of 1933 and Sections 10 and 20 of theSecurities Exchange Act of 1934, on the grounds that the prospectusesincorporated in the registration statements for the offering failed todisclose, among other things, that (i) the underwriters had solicited andreceived excessive and undisclosed commissions from certain investors inexchange for which the underwriters allocated to those investors materialportions of the shares of our stock sold in the offerings and (ii) theunderwriters had entered into agreements with customers whereby theunderwriters agreed to allocated shares of the stock sold in the offering tothose customers in exchange for which the customers agreed to purchaseadditional shares of InsWeb stock in the aftermarket at pre-determined prices.  No specific damages are claimed.  Similar allegations have been made inlawsuits relating to more than 300 other initial public offerings conducted in1999 and 2000, all of which have been consolidated for pretrial purposes.  In October 2002, all claims against theindividual defendants were dismissed without prejudice.  In February 2003, the Court dismissedthe claims in the InsWeb action alleging violations of the Securities ExchangeAct of 1934 but allowed the plaintiffs to proceed with the remainingclaims.  In June 2003, theplaintiffs in all of the cases presented a settlement proposal to all of theissuer defendants.  Under the proposedsettlement, the plaintiffs will dismiss and release all claims against participatingdefendants in exchange for a contingent payment guaranty by the insurancecompanies collectively responsible for insuring the issuers in all the relatedcases, and the assignment or surrender to the plaintiffs of certain claims theissuer defendants may have against the underwriters.  InsWeb and most of the other issuerdefendants have accepted the settlement proposal. The settlement is subject toapproval of the Court, which cannot be assured. If the settlement is not approved by the Court, InsWeb would defend thelawsuit vigorously.  However, thelitigation is in the preliminary stage, and we cannot predict its outcome.  The litigation process is inherentlyuncertain.  An unfavorable outcome couldhave a material adverse effect on InsWeb’s financial condition, results ofoperations and cash flows.

 

**Traffic on our website isheavily dependent on our online relationships. These relationships may notgenerate sufficient revenues to justify the fees we pay to online companies andour consumer traffic may decline in the event an online relationship isunsuccessful**

 

We rely onrelationships with a variety of Internet portals, financial institutions, andother online companies to attract consumers to our website. In a typicalarrangement, the online company includes a “link” on its website on which a usercan click to jump to our website or to a site that we operate under the onlinecompany’s name; as part of the arrangement, we typically pay the online companya portion of the resulting transaction fees and in some cases a fixed fee.These relationships may not continue to generate a substantial amount of newtraffic on our website, or the revenues generated by these relationships may beinsufficient to justify our payment obligations. We have experienced occasionalfluctuations in the traffic from our online partners as a result of redesignsof their websites or being outbid for promotions by other online insuranceproviders. Furthermore, the value of these relationships is based on thecontinued positive market presence, reputation and growth of these onlinecompanies’ websites and services. Any decline in the market presence, businessor reputation of these online companies’ websites and services will reduce thevalue of these relationships to us and could harm our business.

 

For 2003, 2002 and 2001, wereceived approximately 13%, 11% and 32%, respectively of our website trafficfrom

 

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the major Internet portals Yahoo! Inc., MSN and AOL. Forthe three months ended March 31, 2004, we received approximately 14% ofour website traffic from these online relationships.  During 2002 InsWeb significantly expanded itson-line marketing relationship with LowerMyBills.com, Inc., as a result ofwhich LowerMyBills.com delivered approximately 34% and 21% of InsWeb’s websitetraffic for 2002 and 2003, respectively. For the remainder of 2004, the Company’s expects LowerMyBills.com toprovide little consumer traffic. We expect revenues and operatingresults for 2004 to be negatively impacted by the reduction in consumer trafficfrom LowerMyBills.com, as well as by increasing price competition in themarketplace for the online insurance consumer. We have experienced and expectto continue to experience increases in our direct marketing costs per onlineinsurance consumer acquired.

 

Most of ourrelationships with online companies are terminable by either party on 30 to90 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 we receiveat our site, harming our business.

 

**Laws and regulations thatgovern the insurance industry could expose us, or our participating insurancecompanies, our officers, or agents with whom we contract, to legal penalties ifwe fail to comply, and could require changes to our business**

 

We performfunctions for licensed insurance companies and are, therefore, required tocomply with a complex set of rules and regulations that often vary from stateto 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.

 

**If we are unable to safeguardthe security and privacy of consumers’ and participating insurance companies’confidential data, consumers and insurance companies may not use our servicesand our business may be harmed**

 

A significantbarrier to electronic commerce and communications is the secure transmission ofpersonally identifiable information of Internet users as well as otherconfidential information over public networks. If any compromise or breach ofsecurity were to occur, it could harm our reputation and expose us to possibleliability. A party who is able to circumvent our security measures couldmisappropriate proprietary information or cause interruptions in ouroperations. We may be required to make significant expenditures to protectagainst security breaches or to alleviate problems caused by any breaches. Todate, we have experienced no breaches in our network security. We rely onencryption and authentication technology licensed from third parties to providethe security and authentication necessary to effect secure transmission ofconfidential information, such as names, addresses, Social Security and creditcard numbers, user names and passwords and insurance company rate information.Advances in computer capabilities, new discoveries in the field ofcryptography, or other events or developments could result in a compromise orbreach of the algorithms we use to protect consumers’ and insurance companies’confidential information.

 

**System failures could reduceor limit traffic on our website or interrupt our communications with individualinsurance companies and harm our ability to generate revenue**

 

Since launchingour online marketplace, we have experienced occasional minor system failures oroutages that have resulted in the online marketplace being out of service for aperiod ranging from several minutes to three hours while our techniciansbrought backup systems online. We may experience further system failures oroutages in the future that could disrupt the operation of our website and couldharm our business. Our revenues depend in large part on the volume of trafficon our website and, more particularly, on the number of insurance quotesgenerated by our website in response to consumer inquiries. Accordingly, theperformance, reliability and availability of our website, quote-generating systemsand network infrastructure are critical to our reputation and our ability toattract a high volume of traffic to our website and to attract and retainparticipating insurance companies. Moreover, we believe that consumers who havea negative experience with an electronic commerce website may be reluctant toreturn to that site. Thus, a significant failure or outage affecting oursystems could result in severe long-term damage to our business.

 

Additionally,several of our participating insurance companies have chosen a technicalsolution that requires that our

 

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website servers communicate withthese insurance companies’ computer systems in order to perform theunderwriting and risk analysis and rating functions required to generatequotes. Thus, the availability of quotes from a given insurance company maydepend in large part upon the reliability of that insurance company’s owncomputer systems, over which we have no control

 

**Our facilities and systems arevulnerable to natural disasters and other unexpected losses, and we may nothave adequate insurance to cover such losses**

 

Our computerhardware operations are located in leased facilities in Gold River, California.A third-party service provider located in the Sacramento, California areamaintains a backup of our critical systems. 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, telecommunicationsfailures, break-ins, natural disasters and similar events. If we seek toreplicate our systems at other locations, we will face a number of technicalchallenges, particularly with respect to database replications, which we maynot be able to address successfully. Although we carry property and businessinterruption insurance, our coverage may not be adequate to compensate us forall losses that may occur. Our servers may also be vulnerable to computerviruses, physical or electronic break-ins and similar disruptions.

 

**We rely on the services of ourexecutive officers and other key personnel, whose knowledge of our business andthe insurance industry and technical expertise would be extremely difficult toreplace**

 

Our futuresuccess is substantially dependent on the continued services and continuingcontributions of our senior management and other key personnel, particularlyHussein A. Enan, Chairman of our Board, and Mark P. Guthrie, our President andChief Executive Officer, and the loss of the services of any of our executiveofficers or other key employees could harm our business.

 

We have nolong-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 is highly dependent on anincrease 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 inthe future.

 

**Regulation of the Internet isunsettled, and future regulations could inhibit the growth of the Internet andotherwise harm our business**

 

The lawsgoverning the Internet remain largely unsettled, even in areas where there hasbeen some legislative action. Furthermore, the growth and development of themarket for electronic commerce may prompt the enactment of more stringentconsumer protection laws that may impose additional burdens on companiesconducting business online. For example, the recent enactment of federallegislation restricting the sending of unsolicited commercial email, or “spam”,may impede the implementation of national email-based marketing campaigns. New lawsalso may inhibit the growth of the Internet as a medium for commerce andcomparison insurance shopping, which could, in turn, decrease demand for ourservices, increase our cost of doing business, or otherwise harm our business.In addition, applicability to the Internet of existing laws governing issuesincluding property ownership, copyrights and other intellectual propertyissues, taxation, libel and personal privacy is uncertain. The vast majority ofthese laws was adopted prior to the advent of the Internet and relatedtechnologies and, as a result, do not contemplate or address the unique issuesof the Internet and related technologies.

 

**Any acquisitions that weundertake could be difficult to integrate, disrupt our business, dilutestockholder value and harm our operating results**

 

We may acquireor make investments in complementary businesses, technologies, services orproducts if appropriate opportunities arise. The process of integrating anyacquired business, technology, service or product into our business andoperations may result in unforeseen operating difficulties and expenditures.Integration of an acquired company also may consume much of our management’stime and attention that would otherwise be available for ongoing development ofour business. Moreover, the anticipated benefits of any acquisition may not berealized. We may be unable to identify, negotiate or finance futureacquisitions successfully, or to integrate successfully any acquisitions withour current business. Future acquisitions could result in potentially dilutiveissuances of equity securities or the incurrence of debt, contingentliabilities or amortization expenses related to goodwill and other intangibleassets, any of which could harm our business.

 

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**We may be subject to claimsfor infringement of intellectual property, with or without merit, which couldbe costly to defend or settle**

 

We may from timeto time be subject to claims of infringement of other parties’ proprietaryrights or claims that our own trademarks, patents or other intellectualproperty rights are invalid. We have been subject to infringement claims in theordinary course of business, including claims of alleged infringement of thepatent and trademark rights of third parties by companies and us with which wehave business relationships. Any claims of this type, with or without merit,could be time-consuming to defend, result in costly litigation, divertmanagement attention and resources or require us to enter into royalty orlicense agreements. License agreements may not be available on reasonableterms, if at all, and the assertion or prosecution of any infringement claimscould significantly harm our business.

 

**We incorporate third-partytechnologies and services into our online marketplace, and if the providers ofthese technologies and services fail in a timely manner to develop, license orsupport technology necessary to our services, market acceptance of our onlinemarketplace could be harmed**

 

We haveincorporated technology developed by third parties into our online marketplace,and we will continue to incorporate third-party technology in our futureproducts and services. We have limited control over whether or when thesethird-party technologies will be developed or enhanced. If a third-party failsto timely develop, license or support technology necessary to our services,market acceptance of our online marketplace could be harmed.

 

**Our stock price has fluctuatedwidely, and Internet stocks in general have been extremely volatile**

 

The tradingprice of our common stock has been highly volatile and may be significantlyaffected by factors including actual or anticipated fluctuations in ouroperating results, new products or new contracts by us or our competitors, lossof 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.

 

**Delaware law and our charterdocuments contain provisions that could discourage or prevent a potential takeover,even if such a transaction would be beneficial to our stockholders**

 

Provisions ofDelaware 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.****                                        QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.**

 

There have been no material changes to theCompany’s disclosures related to certain market risks as reported under PartII, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” inthe Annual Report of InsWeb to the U.S. Securities and Exchange Commission onForm 10-K for the year ended December 31, 2003.

 

**ITEM 4.****                                        CONTROLSAND 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 10-Q, 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.

 

 

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

 

**ITEM 1.****                                        LEGALPROCEEDINGS**

 

A securitiesclass action lawsuit was filed on December 5, 2001 in the United StatesDistrict Court for the Southern District of New York, (the “Court”) purportedlyon behalf of all persons who purchased InsWeb’s common stock from July 22,1999 through December 6, 2000. The complaint named as defendants InsWeb,certain current and former officers and directors, and three investment bankingfirms that served as underwriters for InsWeb’s initial public offering inJuly 1999. The complaint, as subsequently amended, alleges violations ofSections 11 and 15 of the Securities Act of 1933 and Sections 10 and 20 of theSecurities Exchange Act of 1934, on the grounds that the prospectusesincorporated in the registration statements for the offering failed todisclose, among other things, that (i) the underwriters had solicited andreceived excessive and undisclosed commissions from certain investors inexchange for which the underwriters allocated to those investors materialportions of the shares of our stock sold in the offerings and (ii) theunderwriters had entered into agreements with customers whereby theunderwriters agreed to allocated shares of the stock sold in the offering tothose customers in exchange for which the customers agreed to purchaseadditional shares of InsWeb stock in the aftermarket at pre-determined prices.No specific damages are claimed. Similar allegations have been made in lawsuitsrelating to more than 300 other initial public offerings conducted in 1999 and2000, all of which have been consolidated for pretrial purposes. InOctober 2002, all claims against the individual defendants were dismissedwithout prejudice. In February 2003, the Court dismissed the claims in theInsWeb action alleging violations of the Securities Exchange Act of 1934 butallowed the plaintiffs to proceed with the remaining claims. In June 2003,the plaintiffs in all of the cases presented a settlement proposal to all ofthe issuer defendants. Under the proposed settlement, the plaintiffs willdismiss and release all claims against participating defendants in exchange fora contingent payment guaranty by the insurance companies collectivelyresponsible for insuring the issuers in all the related cases, and the assignmentor surrender to the plaintiffs of certain claims the issuer defendants may haveagainst the underwriters. InsWeb and most of the other issuer defendants haveaccepted the settlement proposal. The settlement is subject to approval of theCourt, which cannot be assured. If the settlement is not approved by the Court,InsWeb would defend the lawsuit vigorously. However, the litigation is in thepreliminary stage, and we cannot predict its outcome. The litigation process isinherently uncertain. An unfavorable outcome could have a material adverseeffect on InsWeb’s financial condition, results of operations and cash flows.

 

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**ITEM 6****.  EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)                                  Exhibits

 
| **Exhibit  Number** | ** ** | **Description of Document**                                                                                      |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                       |
| 31.1                |       | Certification of Chief  Executive Officer, pursuant to Exchange Act Rule 13a-14(a).                              |
|                |       |                                                                                                             |
| 31.2                |       | Certification of Chief  Financial Officer, pursuant to Exchange Act Rule 13a-14(a).                              |
|                |       |                                                                                                             |
| 32                  |       | Certification  of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C.  Section 1350. |

 

(b)                                 Reportson Form 8-K:

 

OnFebruary 4, 2004, we filed a report on Form 8-K, under Item 12, announcingInsWeb Corporation’s financial results for the quarter and year endedDecember 31, 2003.

 

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**SIGNATURE**

 

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant has caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 
| Dated: May 3, 2004 | **INSWEB CORPORATION**      |
|--------------------|-----------------------------|
| ** **         | **(Registrant)**            |
|               |                        |
|               | **/s/  WILLIAM D. GRIFFIN** |   |
|               | William D. Griffin          |
|               | Chief Financial Officer     |

 

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